================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                 --------------

                                    FORM 10-K
                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTIONS 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

(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, 1998

                                       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: 333-59359

                             FINE AIR SERVICES CORP.
             (Exact name of registrant as specified in its charter)

                      DELAWARE                               65-0838357
             (State or other jurisdiction of             (I.R.S. Employer
             incorporation or organization)             identification No.)

               2261 N.W. 67TH AVENUE
                 BUILDING 700
                 MIAMI, FLORIDA                                33122
     (Address of principal executive offices)                (Zip Code)

Registrant's telephone number, including area code:  (305) 871-6606

Securities registered pursuant to Section 12(b) of the Act:  NONE

Securities registered pursuant to Section 12(g) of the Act:  NONE

     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 [ ]

     Indicate 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. [X]

     As of March 15, 1999, the aggregate market value of the Company's common
equity held by non-affiliates was $0

     The number of shares of Common Stock of the registrant outstanding as of
March 15, 1999 was 3,000.


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<PAGE>

                                INDEX TO ITEMS

                                                                          PAGE
PART I.......................................................................3
      Item 1. Business.......................................................3
      Item 2. Properties....................................................19
      Item 3. Legal Proceedings.............................................19
      Item 4. Submission of Matters to a Vote of Security Holders...........20

PART II.....................................................................21
      Item 5. Market for the Registrant's Common Equity and Related
              Stockholder Matters...........................................21
      Item 6. Selected Financial Data.......................................21
      Item 7. Management's Discussion and Analysis of Financial
              Condition and Results of Operations...........................22
      Item 7A.Quantitative and Qualitative Disclosures About Market Risk....34
      Item 8. Financial Statements and Supplementary Data...................35
      Item 9. Changes In And Disagreements With Accountants On
              Accounting And Financial Disclosure...........................51
      Item 10.Directors And Officers Of Registrant..........................51
      Item 11.Executive Compensation........................................53
      Item 12.Security Ownership of Certain Beneficial 
               Owners and Management........................................54
      Item 13.Certain Relationships and Related Transactions................54

PART IV.....................................................................56
      Item 14.Exhibits, Financial Statement Schedules 
               and Reports on Form 8-K......................................56





                                       2

<PAGE>

                                     PART I

ITEM 1. BUSINESS.

      This Annual Report on Form 10-K contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those factors set forth under the caption
"Risk Factors that May Affect Future Results" in "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" of
this Annual Report on Form 10-K and elsewhere in this Report.

OVERVIEW

      Fine Air Services Corp. and its subsidiaries (the "Company") is a leading
provider of air cargo services between the United States and South and Central
America and the Caribbean. Since 1994, the Company has been the largest
international air cargo carrier serving Miami International Airport ("MIA"),
based on tons of cargo transported to and from that airport. MIA is the largest
international cargo airport in the United States and the third largest
international cargo airport in the world. The Company's services include: (i)
integrated air and truck cargo transportation and other logistics services
("scheduled cargo services"); (ii) long- and short-term ACMI (aircraft, crew,
maintenance and insurance) services and ad hoc charters ("ACMI services"); and
(iii) third party aircraft and engine maintenance, repairs and overhauls,
training and other services. The Company's scheduled cargo services provide
seamless transportation through its MIA hub linking North America, Europe, Asia
and the Pacific Rim with 23 South and Central America and Caribbean cities as of
December 31, 1998. The Company's customers include international and domestic
freight forwarders, integrated carriers, passenger and cargo airlines, major
shippers and the United States Postal Service.

      As of December 31, 1998, the Company marketed its scheduled cargo services
through a sales network consisting of seven domestic sales offices serving 57
major U.S. cities, six international sales offices serving over 30 cities in
Europe, Canada, Asia and the Pacific Rim and 23 sales offices in South and
Central America and the Caribbean. The Company receives cargo at its MIA hub and
its foreign operations stations (i) through its domestic and international sales
network, (ii) from other airlines pursuant to interline agreements and (iii)
directly from freight forwarders and other shippers. See "--Customers." The
Company utilizes its own fleet of aircraft and the services of other airlines
through interline and other contractual relationships to provide reliable air
cargo service between MIA and South and Central America and the Caribbean. The
Company has interline relationships with over 57 airlines, including Air France,
China Airlines, Continental Airlines, Iberia, Korean Air and Virgin Atlantic.
The Company's scheduled cargo services transported approximately 94,600 tons of
freight in 1998, compared to 68,900, 75,900, 64,900 and 32,000 tons of freight
in 1997, 1996, 1995 and 1994, respectively.

      The Company's customers utilize the Company's ACMI services to obtain lift
capacity without acquiring their own aircraft. Under a typical ACMI contract,
the Company supplies an aircraft, crew, maintenance and insurance, either on a
regularly scheduled or ad hoc basis, while the customer bears all other aircraft
operating expenses, including fuel, landing and parking fees and ground and
cargo handling expenses. The Company's ACMI customers also bear the risk of
utilizing the cargo capacity of the Company's aircraft. By offering ACMI
services in addition to scheduled cargo services, the Company is able to
schedule its fleet to satisfy demand on its own routes while improving
utilization and generating additional revenue from ACMI services.

      The Company's FAA-approved repair stations perform a full range of
maintenance, repair and overhaul services for DC-8 aircraft and Pratt & Whitney
JT3D-3B aircraft engines. The Company also operates professional pilot and
mechanic training schools. In 1996, the Company moved into a new hangar and
maintenance facility at MIA, which enables the Company to expand its third party
repair and maintenance services while performing all necessary repairs and
maintenance on its own aircraft. The Company began marketing its third party
repair and maintenance capabilities in 1996 and intends to seek certification to
provide similar services for other types of aircraft and engines.

                                       3
<PAGE>


ARROW AIR AND ASSET ACQUISITION

      On February 5, 1999 the Company entered into an asset purchase (the "Asset
Purchase Agreement") with International Air Leases of PR, Inc. ("IALPR") and
Anthony Tirri, the principal stockholder of IALPR. On the same date, the Company
entered into a separate stock purchase agreement (the "Stock Purchase
Agreement") with IALPR and the stockholders of IALPR

      Under the terms of the agreements, the Company agreed to purchase 100% of
the capital stock (the "Arrow Stock") of Arrow Air, Inc. ("Arrow"), an
international cargo airline based in Florida, and certain assets generally
consisting of (i) specified aircraft consisting of three cargo L1011-200
aircraft, one passenger L1011-500 aircraft, 12 cargo DC-8 aircraft and one
passenger DC-8 aircraft; (ii) serviceable and repairable Pratt & Whitney JT3D
and JT8D aircraft engines, Rolls Royce RB211 aircraft engines and General
Electric CF6 aircraft engines; (iii) inventories of aircraft and engine parts;
and (iv) all inventories, parts, and related equipment used in the operations of
the airline business of Arrow (collectively, the "Assets"). The purchase price
for the Arrow Stock and the Assets is $115.0 million.

      Under the terms of the Asset Purchase Agreement, IALPR agreed, at the
option of the Company, to market the sale of certain of the Assets which the
Company may elect to sell prior to June 10, 1999, and further agreed upon
certain values to be attributable to specified categories of such Assets. In the
event that the Company timely elects to sell such specified Assets and does not
receive the agreed upon minimum values (essentially 90% of the agreed upon
estimated fair market value of such Assets) within 90 days after such Assets are
put up for sale, IALPR has agreed to "make whole" the Company for any short-fall
in the actual net proceeds received from the sale of such Assets. To secure such
"make whole" obligation, the Company received first mortgages on two McDonnell
Douglas cargo DC-8 aircraft and one McDonnell Douglas cargo DC-10 aircraft which
were not included in the purchased Assets.

      Arrow and the Assets to be acquired by the Company were formerly owned by
subsidiaries of International Air Leases, Inc. ("IAL") and its affiliated
companies. Consummation of the transactions between the Company and IALPR were
subject to IALPR acquiring the capital stock of IAL and its affiliates under a
purchase agreement with the former owner of such businesses, as well as
obtaining certain government regulatory approvals.

      In order to assist IALPR and its stockholders in completing its
acquisition of IAL and its affiliates, on February 10, 1999 the Company provided
IALPR with a $115.0 million loan secured by first liens on all of the Assets to
be purchased under the Asset Purchase Agreement, certain other aircraft, the
personal guarantees of the IALPR stockholders, and a pledge of 100% of the
capital stock of IALPR and all of its subsidiaries, including IAL and its
corporate affiliates. The loan was evidenced by a 10% note due on the earlier of
April 1, 1999 or five business days following the expiration or termination of
the waiting period under the Hart Scott Rodino Antitrust Improvements Act of
1976.

      IALPR consummated its acquisition of IAL and its affiliates on February
10, 1999. Following receipt of notice of early termination of the waiting period
under the Hart Scott Rodino Antitrust Improvements Act of 1976, on March 10,
1999, the Company completed the acquisition of the Assets by cancellation of
$100.0 million principal amount of the IALPR note. The remaining $15.0 million
of the IALPR note and accrued interest was retired effective as of April 9,
1999, when the Company completed the acquisition of the Arrow Stock.

COMPANY HISTORY

      For approximately 20 years prior to founding the Company's predecessor in
1976, J. Frank Fine owned farming operations in 12 different Latin American and
Caribbean countries and, as a result, had depended on the airlines serving these
countries for timely delivery of his products to processing plants located
primarily in the United States. Many of these airlines did not maintain adequate
capacity to handle the seasonal needs of growers or were ill-equipped to handle
the special requirements of doing business in Latin American and Caribbean
markets. Perceiving a need for reliable transport, in 1976 Mr. Fine acquired two
early model Boeing 707 aircraft which he leased to airlines serving those
markets. In 1982, Barry H. Fine joined the Company, which at the time owned
three aircraft which it leased primarily to international airlines serving South
and Central America and the Caribbean. To maintain control over its operating
costs and improve the turn-around time and reliability of its aircraft, the


                                       4
<PAGE>

Company developed its own maintenance and repair capabilities, and was certified
in 1986 as an FAA repair station for DC-8 aircraft, and in 1987, as an FAA
repair station for Pratt & Whitney JT3D-3B aircraft engines. These
certifications allowed the Company to lease and provide its aircraft on an AMI
(aircraft, maintenance and insurance) basis. By 1989, the Company's fleet
consisted of five DC-8 aircraft, which it leased on an AMI basis to a number of
domestic and foreign airlines for both regular and ad hoc cargo service
throughout South and Central America and the Caribbean. The Company received its
U.S. air carrier operating certificate in November 1992. The Company began
developing its own cargo routes in 1994 and has expanded the coverage of its
scheduled cargo services from nine destinations as of December 31, 1994 to 23
cities in 16 countries in South and Central America and the Caribbean as of
December 31, 1998. The Company opened its first regional sales offices in
Houston and New York in 1994. Since that time, the Company has expanded its
sales network to include additional regional sales offices in Chicago and
Atlanta, 16 cargo sales offices in South and Central America and the Caribbean
and general sales agents that represent the Company in the western United
States, Canada, Europe, Asia and the Pacific Rim and in seven South and Central
American and Caribbean cities as of December 31, 1998.

COMPETITIVE STRENGTHS

      Management believes that the Company's success has largely been the result
of the following strengths:

     *    ESTABLISHED MARKET POSITION. Since 1994, the Company has transported
          more international air cargo to and from MIA, the principal air
          gateway for South and Central America and the Caribbean, than any
          other carrier. Management believes that the Company has achieved its
          market position as a result of the frequency of the Company's flights
          and its excellent reputation for reliability and service to its
          customers, which include freight forwarders, integrated carriers,
          passenger and cargo airlines and other major shippers. The Company
          believes that regulatory and other restrictions imposed by U.S. and
          foreign governmental authorities would make it difficult for a new
          airline entrant to obtain the necessary operating authority and route
          rights to duplicate the Company's business. Management also believes
          that the scarcity of available facilities at MIA will inhibit
          potential competitors seeking to duplicate the Company's operations.

     *    LOW AIRCRAFT AND OPERATING COST STRUCTURE. The Company maintains a low
          cost structure through: (i) the opportunistic acquisition of used
          aircraft, engines and spare parts, (ii) the elimination of duplicative
          costs by maintaining favorable labor rates and other operating costs
          associated with the centralizing of its principal flight and
          maintenance operations in Miami, (iii) the "in-sourcing" of activities
          such as training, aircraft and engine repairs and maintenance, and
          (iv) the use of its own ground and cargo handling personnel and
          equipment. The Company also seeks to increase its profitability and
          enhance aircraft utilization by maintaining an optimum balance of
          scheduled cargo services and ACMI services for third parties. The
          Company's low cost structure enables it to utilize its aircraft
          profitably in lower yielding freight markets.

     *    ASSET OWNERSHIP. The Company has made a substantial investment to
          acquire the assets necessary to support its operations, including its
          fleet of aircraft, an inventory of used spare aircraft engines, spare
          parts and aircraft components, maintenance and engine repair equipment
          and substantially all of the equipment and vehicles for its aircraft
          ground and cargo handling requirements. See "--Aircraft Fleet" and
          "--Arrow Air and Asset Acquisition." Management believes that the
          value of the Company's operating assets is substantially in excess of
          their book value. The Company has also made a substantial commitment
          of capital and resources to obtain required governmental
          authorizations, develop its sales and marketing network and build the
          infrastructure necessary to support its scheduled cargo and ACMI
          services.

     *    EXPERIENCED MANAGEMENT TEAM. The Company is led by an experienced
          management team, headed by Messrs. Frank and Barry Fine, who together
          have over 50 years of experience in the air cargo industry and whose
          knowledge of the South and Central American and Caribbean business
          environment has been a key element of the Company's success. The other
          key members of the Company's management team, including those
          responsible for the Company's flight operations, maintenance and
          repair facilities, as well as marketing and sales activities, each
          have over 20 years of industry experience, including significant
          experience in the Company's markets.

     *    DIVERSITY OF CUSTOMER BASE. The Company offers a wide range of air
          cargo services to a diverse customer base of over 1,200 customers that
          includes international and domestic freight forwarders, integrated


                                       5
<PAGE>

          carriers, passenger and cargo airlines, major shippers and the United
          States Postal Service. Because the Company is able to provide its
          customers a broad range of services tailored to their particular
          needs, management believes that the Company is well positioned to
          benefit from the expected long-term growth in demand for air freight
          transportation between the United States and South and Central America
          and the Caribbean.

GROWTH STRATEGY

      The  Company's  growth  strategy  revolves  around  capitalizing  on its
position as a leading provider of air freight transportation  services between
the United States and South and Central  America and the Caribbean.  Principal
elements of the Company's strategy are as follows:

     *    INCREASE LIFT CAPACITY. The Company believes that there are
          opportunities to expand its air cargo services to South and Central
          America and the Caribbean and intends to strengthen its market
          position by utilizing both the capabilities and capacity of its
          existing aircraft and the increased range and capacity of the widebody
          aircraft it has acquired. Management believes that the Company's
          existing aircraft fleet (including its recently acquired aircraft)
          will accommodate expected growth in air freight service demand in the
          Company's existing markets and can also be employed effectively to
          commence service to new markets within South and Central America and
          the Caribbean. The Company intends to increase the number of markets
          it can serve and its capacity in existing markets by adding both
          widebody and additional DC-8 aircraft to its fleet. In December 1997,
          the Company acquired an L-1011 aircraft, which was placed into service
          in February 1999. In addition, the Company has recently acquired three
          cargo L1011-200 aircraft, one passenger L1011-500 aircraft, 12 cargo
          DC-8 aircraft and one passenger DC-8 aircraft. See "--Arrow Air and
          Asset Acquisition." Widebody aircraft have longer range and
          significantly larger volume capacity than DC-8s and will permit the
          Company to extend its route structure to serve the southernmost
          countries of South America, such as the Mercosur countries, and to
          more economically serve high cargo volume routes on which the Company
          currently operates multiple daily flights. DC-8s that are utilized on
          these routes will be redeployed to increase capacity to existing
          markets and to develop service to new destinations that are more
          efficiently served with narrowbody aircraft. Management believes that
          increasing the number of destinations the Company serves will enhance
          its ability to develop and broaden relationships with freight
          forwarders, airlines and other shippers.

     *    EXPAND SALES NETWORK AND TRANSPORTATION LOGISTICS SERVICES. The
          Company plans to expand its domestic and international sales network
          by opening new domestic sales offices, adding sales personnel,
          increasing the number of general sales agents who market the Company's
          services domestically and internationally and expanding the Company's
          interline relationships with major international airlines. The Company
          has general sales agents that market its air cargo services in the
          western United States, Canada, Europe, Asia and the Pacific Rim. The
          Company supplements the air cargo sales efforts of its own personnel
          and general sales agents by entering into interline relationships with
          international airlines that sell air freight services to destinations
          served by the Company. The Company intends to expand the number of
          such relationships and the amount of air freight it transports for
          these airlines. The Company also plans to increase the scope of its
          transportation logistics services, particularly in South and Central
          America and the Caribbean, where other airlines and freight forwarders
          play a much smaller role in arranging for these services. The Company
          already offers its customers intermodal services, such as local
          freight pick-up and delivery, in El Salvador and the Dominican
          Republic.

     *    EXPAND ACMI SERVICES. Management believes that demand for ACMI
          services will continue to increase, primarily from South and Central
          American, Caribbean and domestic carriers seeking to increase their
          lift capacity without committing to purchase or lease additional
          aircraft. Management further believes that the Company's recent
          acquisitions of additional widebody aircraft will enable it to market
          its ACMI services to a broader range of customers, including those who
          require the longer range and/or larger volume capacity of these
          aircraft. The Company also plans to utilize its existing and newly
          acquired DC-8s to increase its ACMI capabilities. By continuing to
          provide ACMI services with its existing and newly-acquired aircraft,
          the Company believes that it can further increase aircraft utilization
          at the same time it expands its scheduled cargo services.

     *    PURSUE STRATEGIC ACQUISITIONS. The Company intends to continue to
          pursue strategic acquisitions that are complementary to the Company's
          business, such as the acquisition of Arrow Air and the Assets. See
          "--Arrow Air and Asset Acquisition." Management's criteria for
          identifying attractive acquisition opportunities include: (i)
          expanding fleet size at a favorable cost, (ii) diversifying and
          expanding the Company's customer base, (iii)

                                       6

<PAGE>

          increasing economies of scale related to maintenance and cargo
          handling and (iv) adding operating and route authority.

AIR CARGO SERVICES

      The Company's scheduled cargo services provide seamless transportation
through its MIA hub linking North America, Europe, Asia and the Pacific Rim with
South and Central America and the Caribbean to serve the varied needs of
international and domestic freight forwarders, integrated carriers, passenger
and cargo airlines, major shippers and the United States Postal Service. The
Company offers its customers a number of services, including scheduled cargo
services, ACMI services, ad hoc charters and transportation logistics services,
such as warehousing, local pick-up and intermodal transportation of freight.

      SCHEDULED CARGO SERVICES

      As of December 31, 1998, the Company offered regular air cargo service
between its MIA hub and 23 cities in South and Central America and the
Caribbean, of which 17 are served directly by Company routes, three are served
by customers that utilize the Company's aircraft on an ACMI or AMI basis to
service such routes and three are served by other airlines pursuant to interline
relationships. Cargo service is offered on a pre-booked, priority or
space-available basis, and the Company imposes no size or weight restrictions on
shipments, except limitations necessitated by the capacity of the aircraft
serving the particular route. The Company does not dedicate a particular
aircraft to any one route and maintains the flexibility to adjust its flight
services, number of daily flights and the cargo capacity of the aircraft serving
each destination and to add intermediate stops to pick up or deliver additional
cargo based on variations in demand. The Company has operated as many as six
flights per day to a particular destination to meet the demand for air cargo
service to such destination. The Company's scheduled cargo services transported
approximately 32,000 tons of freight in 1994 and approximately 94,600 tons of
freight in 1998, a compound annual increase of 31.1%.

      The Company's freight rates are based upon the type of freight, weight or
volume, delivery service and destination. Rates vary depending on the type of
freight and, in most instances, durable goods and perishables command higher
rates than dry goods. The Company offers priority next day delivery service at
double the Company's normal rates and second day delivery service which is
billed on a space-available basis. Rates on longer routes generally are higher
than short-haul destinations. Freight is priced on a per kilogram basis and is
adjusted for low weight, high volume freight in accordance with industry
standards. The Company also offers pallet rates for larger shipments. From time
to time, the Company's customers require the shipment of hazardous or restricted
materials or oversized pieces which require additional handling, and the
customer is charged higher rates. The Company charges a base rate plus
prevailing second carrier agreement rates for its interline services.


                                       7
<PAGE>



      As of December 31, 1998, the Company offered scheduled cargo services to
and from MIA and the following destinations:


                DESTINATION               DAYS OF SERVICE  ROUND-TRIP FLIGHTS
          COUNTRY              CITY         PER WEEK(1)        PER WEEK(1)
          -------              ----         -----------        -----------
  British Virgin Islands  Tortola(2)             1                  1
  Colombia                Bogota(3)              6                 18
  Costa Rica              San Jose               5                  5
  Dominican Republic      Santo Domingo          6                  6
  Dominican Republic      Puerto Plata           3                  3
  Ecuador                 Guayaquil              6                  9
  Ecuador                 Quito                  6                 11
  Ecuador                 Manta                  2                  2
  El Salvador             San Salvador           5                  5
  Guatemala               Guatemala City         7                 12
  Haiti                   Port-au-Prince         2                  2
  Honduras                San Pedro Sula         4                  4
  Jamaica                 Montego Bay(3)         3                  3
  Jamaica                 Kingston(3)            3                  3
  Nicaragua               Managua                5                  5
  Panama                  Panama City            6                  6
  Puerto Rico             San Juan               7                  9
  Trinidad and Tobago     Port-of-Spain          2                  2
  U.S. Virgin Islands     St. Thomas(2)          5                  5
  U.S. Virgin Islands     St. Croix(2)           5                  5
  Venezuela               Caracas                6                 10
  Venezuela               Maracaibo              3                  3
  Venezuela               Valencia               7                  7

----------

(1)  Represents the typical number of days of service and round-trip flights per
     week that the Company offers air cargo services to and from each
     destination. The actual number of days of service and round-trip flights
     per week to a destination varies depending on demand.

(2)  The Company sells air cargo services for these destinations, which it does
     not directly serve. Customers' cargo is transferred pursuant to an
     interline arrangement at the Company's Puerto Rico hub.

(3)  The Company sells air cargo services on these routes, on which other
     carriers provide service utilizing the Company's aircraft, either on an
     ACMI or AMI basis.


      The Company transports a broad range of goods and commodities. Generally,
a majority of the southbound freight consists of durable goods, such as
industrial equipment and parts, electronic and computer equipment, medical
instruments, pharmaceuticals, vehicles, oilfield equipment, magazines,
newspapers and mail, consumer durables and textiles. Northbound freight is
comprised mainly of finished textiles, pharmaceuticals, handicrafts and
perishables, including seafood, flowers and fruits and vegetables. Many of the
items that the Company transports northbound to the United States are perishable
commodities, and its customers rely on the dependability of the Company's cargo
service and its ability to accommodate seasonal and variable air freight
requirements.

      CARGO SALES NETWORK AND MARKETING

      Cargo Sales Network. As of December 31, 1998, the Company's sales network
was comprised of the Company's Miami headquarters, six regional sales offices in
major U.S. cities (four of which are Company operated and two of which are
operated by general sales agents), 23 sales offices in South and Central America
and the Caribbean (17 of which are Company operated and six of which are
operated by general sales agents) and general sales agents in Europe, Canada,
Asia and the Pacific Rim. The Company's sales efforts are designed to maximize
utilization of the Company's scheduled cargo service by seeking to achieve a
balance between southbound and northbound air cargo shipments.

                                       8
<PAGE>


      Each of the Company's sales offices markets the Company's air cargo
services to customers within its region. The Company's U.S. sales offices, as
well as its offices in El Salvador and the Dominican Republic, have
transportation logistics capabilities, including intermodal relationships with
major trucking companies for local pick-up and delivery of customers' freight.
Company personnel solicit shipment orders and process air waybills and other
documentary requirements for customers' shipments. In areas not covered directly
by the Company's own sales personnel, the Company engages general sales agents
on a commission basis to sell its air cargo services. Most of these general
sales agents represent the Company on an exclusive basis to destinations served
by the Company. Air cargo sales made by general sales agents are based on the
Company's published rate sheets and are documented utilizing the Company's air
waybills.

      The following table sets forth certain information concerning the location
of the Company's and its general sales agents' offices and the major cities
served by such offices as of December 31, 1998:

<TABLE>
<CAPTION>

                   DOMESTIC                                                   INTERNATIONAL
---------------------------------------------          ------------------------------------------------
 LOCATION AND CITIES SERVED      DATE OPENED           LOCATION AND CITIES SERVED         DATE OPENED
 --------------------------      -----------           --------------------------         -----------
       
<S>                              <C>                   <C>                                <C>
MIAMI                            1st Qtr. 1994         Caracas, Venezuela                 1st Qtr. 1994
  Ft. Lauderdale, FL                                   Guatemala City, Guatemala          1st Qtr. 1994
  Jacksonville, FL                                     Managua, Nicaragua                 1st Qtr. 1994
  Orlando, FL                                          Maracaibo, Venezuela               1st Qtr. 1994
  Tallahassee, FL                                      San Pedro Sula, Honduras           1st Qtr. 1994
  Tampa, FL                                            San Salvador, El Salvador          1st Qtr. 1994
                                                       Panama City, Panama                3rd Qtr. 1994
                             
HOUSTON, TX                     1st Qtr. 1994          San Jose, Costa Rica               3rd Qtr. 1994
  Austin, TX                                           Guayaquil, Ecuador                 2nd Qtr. 1995
  Albuquerque, NM                                      Port of Spain, Trinidad            2nd Qtr. 1995
  Dallas, TX                                           Port Au Prince, Haiti(1)           2nd Qtr. 1995
  Laredo, TX                                           Quito, Ecuador                     2nd Qtr. 1995
  Little Rock, AK                                      British Virgin Islands(1)          3rd Qtr. 1995
  New Orleans, LA                                      San Juan, Puerto Rico              3rd Qtr. 1995
  Memphis, TN                                          U.S. Virgin Islands(1)             3rd Qtr. 1995
  Oklahoma City, OK                                
  San Antonio, TX                                      LONDON, ENGLAND(1)                 4th Qtr. 1995
  Tulsa, OK                                              Amsterdam, Holland
                                                         Brussels, Belgium
NEW YORK, NY                    1st Qtr. 1994            Dublin, Ireland
  Albany, NY                                             Frankfurt, Germany
  Baltimore, MD                                          Paris, France
  Boston, MA                                             Prestwick, Scotland
  Buffalo, NY                                            Milan, Italy
  Hartford, CT                                           Madrid, Spain
  Newark, NJ                                             Copenhagen, Denmark
  Norfolk, VA                                            Zurich, Switzerland
  Philadelphia, PA                                       Lisbon, Portugal
  Pittsburgh, PA                                       
  Providence, RI                                         Bogota, Colombia                1st Qtr. 1996
  Richmond, VA                                           Kingston, Jamaica(1)            1st Qtr. 1996
  Rochester, NY                                          Montego Bay, Jamaica(1)         1st Qtr. 1996
  Syracuse, NY                                           Puerto Plata, D.R.              1st Qtr. 1996
  Washington, D.C.                                       Santo Domingo, D.R.             1st Qtr. 1996
                                                                                       
SAN FRANCISCO, CA(1)           1st Qtr. 1995           TORONTO, ONTARIO(1)               1st Qtr. 1997
  Denver, CO                                             Calgary
  Portland, OR                                           Regina
  Salt Lake City, UT                                     Vancouver
  Seattle, WA                                            Winnipeg
                                                       
CHICAGO, IL                    1st Qtr. 1995           MONTREAL, QUEBEC(1)               1st Qtr. 1997
  Cleveland, OH                                          Halifax
  Cincinnati, OH                                         Ottawa
  Columbus, OH                                           Quebec City


                                       9
<PAGE>
                   DOMESTIC                                                   INTERNATIONAL
---------------------------------------------          ------------------------------------------------
 LOCATION AND CITIES SERVED      DATE OPENED           LOCATION AND CITIES SERVED         DATE OPENED
 --------------------------      -----------           --------------------------         -----------

  Detroit, MI                         
  Indianapolis, IN                                     HONG KONG AND BEIJING(1)           2nd Qtr. 1997
  Kansas City, MO                                         Bangkok, Thailand
  Lincoln, NE                                             Djakarta, Indonesia
  Louisville, KY                                          Ho Chi Min City, Vietnam
  Milwaukee, WI                                           Kuala Lumpur, Malaysia
  Minneapolis, MN                                         Osaka, Japan
  Omaha, NE                                               Seoul, Korea
  St. Louis, MO                                           Shanghai, Peoples
                                                            Republic of China
                                   
LOS ANGELES, CA(1)              1st Qtr. 1995             Singapore
  Las Vegas, NV                                           Taipei, Taiwan
  Phoenix, AZ                                             Tokyo, Japan
  San Diego, CA

ATLANTA, GA                     1st Qtr. 1995
  Birmingham, AL                                       SYDNEY/MELBOURNE,                  1st Qtr. 1998
  Charlotte, NC
  Columbia, SC                                         JOHANNESBURG, SOUTH AFRICA(1)      1st Qtr. 1998
  Greensboro, SC
  Jackson, MS                                          Manta, Ecuador                     2nd Qtr. 1998
  Knoxville, TN                                        Valencia, Venezuela                2nd Qtr. 1998
  Nashville, TN
  Savannah, GA
  Winston-Salem, NC


</TABLE>
----------

(1)  Represents the office of a general sales agent or interline sales agent.


      Marketing. The Company's sales personnel and general sales agents market
the Company's air cargo services directly to freight forwarders, integrated
carriers, passenger and cargo airlines and major shippers. The Company
participates in international air cargo trade shows and advertises its services
in industry trade journals. General sales agents directly market the Company's
air cargo services to potential customers within their territories using the
Company's trade name. In addition, some of the Company's general sales agents,
such as Air Cargo Partners (an affiliate of Virgin Atlantic), which represents
the Company in Europe and Asia, include the Company's air cargo services in
their sales literature and published rate sheets.

      TRANSPORTATION LOGISTICS SERVICES

      Freight forwarders, integrated carriers and airlines generally deliver
their cargo to the Company's facility at the point of departure. Accordingly,
most of the freight transported by the Company is either delivered to the
Company's MIA hub for shipment to South or Central America or the Caribbean, or
to a Company operations station in South or Central America or the Caribbean for
shipment to the United States or beyond. Smaller freight forwarders with less
developed logistics capabilities often rely on the Company to arrange for truck
or air transportation of their cargo between the Company's MIA hub and the point
of origin and/or destination. In addition, some major freight forwarders request
the Company to arrange for shipment, generally by truck carrier, of their
customers' freight from the point of origin to expedite shipment and minimize
administrative and handling costs.

      When the Company provides transportation logistics services, Company
personnel determine the best means of, and then arrange for, the transportation
of the freight between the Company's warehouse facilities in Miami and the
customers points of origin and destination. Whenever possible, the Company seeks
to achieve cost savings for its customers by consolidating shipments and using
major truckload carriers to transport the consolidated freight. Southbound
shipments that are more time-sensitive or which have a value that justifies the
cost of expedited delivery usually are transported by air on scheduled passenger
or cargo airlines to Miami. Each Company sales 


                                       10

<PAGE>

office maintains warehouse capabilities for storage and consolidation of
freight, generally through arrangements with local third party warehouse
operators.

      The Company offers its customers a variety of ancillary services tailored
to their particular needs. These services include arranging for local pick-up
and delivery, warehousing of cargo shipments, expedited document delivery for
customs clearance and priority notification to consignees of cargo arrival. The
Company also assists in the preparation of air waybills and shipping documents
(including customs export declarations, pro forma and foreign consular invoices
and other customs documentary requirements), assists its customers in obtaining
export or import licenses and arranges for cargo insurance. The Company
generally charges its customers additional fees for each of these services.

      CUSTOMERS

      Freight Forwarders. Freight forwarders are important participants in the
domestic and international air freight markets. Major international freight
forwarders increasingly have become reluctant to arrange transportation of their
customers' freight through integrated cargo carriers (such as FedEx, UPS or DHL)
because these carriers compete with the freight forwarders for the same cargo
customers. As a result, management believes that air cargo service companies
such as the Company, who can provide reliable air cargo services and handle the
air and truck cargo transportation requirements of both large and small freight
forwarders, have an opportunity to capture an increasing share of the air
freight market. Management estimates that sales to freight forwarders in 1998
accounted for approximately 80% of the Company's revenues from scheduled cargo
services. Freight forwarder customers include major international freight
forwarders (such as Air Express International, Danzas, Eagle USA, Expeditors
International, Fritz Companies and Nippon Express) as well as smaller regional
freight forwarders.

      Interline Customers. Many major international airlines sell air cargo
services to destinations they do not serve directly and utilize other airlines
or cargo carriers to transport their customers' cargo from the cities they serve
to the ultimate destination. For example, most of the Company's European
interline customers fly to Miami or one or more major South and Central American
or Caribbean destinations but sell air cargo services to other destinations to
which they have no direct flights. These airlines will deliver cargo to the
Company at its MIA hub or a regional sales office for transportation at a fixed
rate to the Company's South and Central American or Caribbean scheduled
destinations. The Company also transports cargo at a fixed rate from its South
and Central American and Caribbean scheduled destinations to interline customers
at its MIA hub to be distributed by interline customers to destinations
throughout the world. As of December 31, 1998, the Company handled interline
freight for the following airlines:

<TABLE>
<CAPTION>
<S>                         <C>                          <C>                       <C>
Aerolineas Argentinas       B.W.I.A.                     Lan Chile Airlines        Tampa Airlines S.A.
Aeromar                     Cargolux                     Lauda                     Tolair
Aero Transcolombiana        Challenge                    Laparkan                  Tower Air
Air Canada                  China Airlines               L.T.U. Int'l Airways      TransWorld Airlines
Air France                  Continental Airlines         Lufthansa                 Turks Air                      
Air Haiti                   Copa Airlines                Malev                     United Airlines
Air Jamaica                 Delta Airlines               MAS Air                   U.S. Airways
Air New Zealand             El Al                        Martinair                 Varig Brazilian Airlines
Alitalia                    EVA Air                      Midas Airlines            Virgin Atlantic Airways
ALM Antillean Airlines      Fast Air                     NICA                 
American Airlines           Finnair                      Northwest Orient
Amerijet                    Four Star Cargo              Polar Air Cargo
Austrian Airlines           Iberia                       Qantas Airways Limited
Avensa/Servivensa           Interamericana               South African Airways
Aviateca                    Korean Air                   Surinam Airways
British Airways             LACSA                        Taca International Airlines

</TABLE>

      Other Customers. The Company's customers also include the United States
Postal Service, the U.S. Department of State, industrial manufacturers,
distributors and other large corporations that arrange for the shipment of their
own air freight. Because of the Company's reliability, reputation and position
in its South and Central American and Caribbean markets, several major
multinational corporations have also either directed their independent freight
forwarders to use the Company's air cargo services or designated the Company as
their air carrier of choice for shipments to or from these markets.


                                       11
<PAGE>

      During the years ended December 31, 1998 and 1997, Aero Transcolombiana de
Carga, S.A. accounted for 8.7% and 13.5%, respectively of the Company's total
revenues. The Company had no single customer that accounted for more than 10% of
its total revenues in 1996.

      ACMI SERVICES

      Certain of the Company's customers, most of which are international
airlines, utilize the Company's ACMI services to obtain lift capacity without
acquiring their own aircraft. Under these contracts, the Company provides its
aircraft from as infrequently as one flight per week to as many as twelve
flights per week, or on an ad hoc basis. In addition, one of the Company's
aircraft currently is dedicated exclusively to service under an AMI contract
that expires in 2001. The Company also provides ACMI services for the seasonal
or peak demands of Latin American produce and flower growers and domestic
delivery services such as the United States Postal Service and United Parcel
Service. Additionally, the Company has received certification to fly equipment
and cargo for the U.S. Department of Defense.

      A typical ACMI contract requires the Company to supply the aircraft, crew,
maintenance and insurance for specified cargo operations, while the customer is
responsible for substantially all other aircraft operating expenses, including
fuel, landing and parking fees and ground and cargo handling expenses. Under the
contract, the Company has exclusive operating control and direction of its
aircraft and its customer must obtain any government authorizations and permits
required to service the designated routes. See "--Government Regulation." Most
of the Company's ACMI contracts do not require the Company to operate a specific
aircraft for its customer. Generally, the Company's ACMI contracts are for a
two-year term but are cancelable by either party upon five days' written notice.

      With the exception of one aircraft operated by an AMI customer, all of the
Company's aircraft are operated both on its own cargo flights and for ACMI
customers. This enables the Company to schedule its fleet to satisfy demand on
its own routes while improving fleet utilization and generating additional
revenue from ACMI services.

AIRCRAFT FLEET

      As of March 1, 1999, the Company's operating fleet consisted of 14
narrowbody DC-8s, which are short- to medium-range (2,000 to 3,000 nautical
miles), medium cargo volume (72,000 to 93,000 pounds) aircraft and one L-1011
widebody aircraft, which is a short to medium range (2,000 to 3,000 nautical
miles), high cargo volume (125,000 pounds) aircraft. The Company's fleet
includes two "stretch" DC-8s, which have a longer fuselage and more cargo volume
capacity and are generally utilized by the Company to serve higher volume
routes. In addition, the Company has recently acquired three cargo L1011-200
aircraft, one passenger L1011-500 aircraft, 12 cargo DC-8 aircraft and one
passenger DC-8 aircraft. See "--Arrow Air and Asset Acquisition." The Company
maintains flexibility to adjust on a daily basis the aircraft it uses for its
own cargo routes based on demand. For example, the Company may respond to low
demand on a particular route by utilizing the same aircraft to handle two or
more destinations or to satisfy higher demand on another route by utilizing its
stretch aircraft or adding additional flights. Similarly, although the Company
may commit to provide a cargo flight for an ACMI customer at a particular time
or date, the Company maintains the flexibility to utilize whichever of its
aircraft best serves the capacity and distance required for the flight.

      As of March 1, 1999, the Company's aircraft ranged in age from 21 to 40
years, with an average age of approximately 31 years. Based on the DC-8's useful
life estimated by the FAA and McDonnell Douglas and the Company's current
maintenance program, the Company expects to be able to operate its DC-8 aircraft
for at least 10 more years.

      The following table contains information concerning the Company's
operating fleet at March 1, 1999 (which does not include the aircraft acquired
in connection with the Arrow Air and Asset Acquisition):

                                                              MOST RECENT MAJOR
  AIRCRAFT     YEAR OF       NO. OF PALLETS    APPROX. CARGO    MAINTENANCE
    TYPE     MANUFACTURE      UPPER/LOWER     CAPACITY (LBS)      CHECK(1)
-------------------------------------------------------------------------------
DC-8-61F        1971             18/4              91,300     June 1997
DC-8-61F        1967             18/4              91,800     April 1998
DC-8-55JT       1965             13/2              92,700     September 1998 (2)
DC-8-54JT       1965             13/2              92,300     March 1999 (2)
DC-8-54JT       1968             13/2              91,700     February 1999


                                       12
<PAGE>

                                                              MOST RECENT MAJOR
  AIRCRAFT     YEAR OF       NO. OF PALLETS    APPROX. CARGO    MAINTENANCE
    TYPE     MANUFACTURE      UPPER/LOWER     CAPACITY (LBS)      CHECK(1)
-------------------------------------------------------------------------------

DC-8-54JT       1963             13/2              92,300     July 1998
DC-8-54JT       1963             13/2              92,200     December 1998
DC-8-54JT       1963             13/2              89,200     June 1998
DC-8-54JT       1963             13/2              92,600     December 1998
DC-8-54FM       1962             13/2              91,500     March 1999
DC-8-51F        1968             13/2              77,200     February 1998
DC-8-51F        1966             13/2              75,200     March 1999
DC-8-51F        1964             13/2              75,300     October 1997
DC-8-51F        1959             13/2              72,300     December 1998
L-1011          1978             23/5             125,000     January 1999
                                       
----------

(1)  The most recent major maintenance check for each aircraft was a "C" check,
     unless otherwise indicated. See "--Maintenance."

(2)  The most recent major maintenance check for this aircraft was a "D" check.


      The Company has recently increased its lift capacity by acquiring widebody
aircraft and additional DC-8 aircraft. In December 1997, the Company acquired an
L-1011 aircraft, which was placed into service in February 1999. In addition,
the Company has recently acquired three cargo L1011-200 aircraft, one passenger
L1011-500 aircraft, 12 cargo DC-8 aircraft and one passenger DC-8 aircraft. See
"--Arrow Air and Asset Acquisition." As it has in the past, the Company expects
to acquire additional aircraft from a variety of sources, including airlines,
aircraft leasing companies, banks and other financial institutions and
individual aircraft owners.

      Widebody aircraft, such as the McDonnell Douglas DC-10 or the Lockheed
L-1011, are capable of mid-range and long-range flights carrying a larger volume
cargo, resulting in operating efficiencies and economies of scale. The Company
believes that operating widebody aircraft will allow it to commence service to
more distant destinations which cannot be effectively served by the Company at
present due to the cargo capacity and range of its current fleet, as well as
increase its flexibility to serve current markets where air freight demand is
strong. To the extent the Company utilizes widebody aircraft to service existing
routes, it will re-deploy the DC-8s currently serving those markets to increase
capacity to other markets, develop service to new markets which are more
efficiently serviced by narrowbody aircraft and increase its ACMI services.

      Flight Operations and Control. The Company's flight operations (including
aircraft dispatching, flight following and crew scheduling) are planned and
controlled by the Company's dispatch and flight operations personnel from the
Company's MIA base. The Company's flight control office is manned 24 hours per
day, seven days per week. Logistical support necessary for operations into the
airports served by the Company's flights also are coordinated from the Company's
MIA base.

      To enhance the reliability of its service, the Company seeks, when
possible, to maintain at least one spare aircraft at all times. The spare
aircraft can be dispatched on short notice to most locations served by the
Company when a substitute aircraft is needed. Maintaining one or more spare
aircraft allows the Company to better ensure the availability of aircraft for
its regular cargo flights and to provide its ACMI customers with a high dispatch
reliability.

      Maintenance. The Company performs at its own facilities substantially all
of the inspections, maintenance and repairs required to keep the Company's fleet
of DC-8 aircraft in operation and in compliance with the Company's FAA-approved
maintenance program. In addition, the Company performs line maintenance on its
L-1011 aircraft but outsources the heavy maintenance on these aircraft. Whenever
possible, the Company also utilizes its own employees to perform line
maintenance, such as correcting irregularities noted by flight crews and
maintaining aircraft log books, at the foreign airports served by the Company.
By maintaining its own fleet of DC-8 aircraft, the Company believes that it
reduces the maintenance costs, minimizes out-of service time for its DC-8
aircraft and achieves a high level of reliability.

      For DC-8 aircraft, maintenance required by the FAA includes: routine daily
maintenance; maintenance every 150 hours or six months, whichever comes first
(an "A Check"), at an approximate cost of $500; scheduled maintenance every 425
hours or 12 months, whichever comes first (a "B Check"), at an approximate cost
of $7,000; scheduled major maintenance work every 3,300 hours or 36 months,
whichever comes first (a "C Check"), at an 


                                       13

<PAGE>

approximate cost of $500,000; and a major maintenance overhaul every 25,000
hours or 12 years, whichever comes first (a "D Check"), at an approximate cost
of between $1.3 million and $1.6 million. The Company generally schedules major
maintenance on its aircraft during periods of lower utilization. For L-1011
aircraft, maintenance required by the FAA includes: routine daily maintenance;
maintenance every 300 hours (an "A Check"), at an approximate cost of $25,000;
scheduled maintenance every 3,000 hours or 13 months, whichever comes first (a
"C Check"), at an approximate cost of $1 million; and a major maintenance
overhaul every 24,000 hours or 10 years, whichever comes first (a "D Check"), at
an approximate cost of $2.5 million. The Company estimates that for DC-8
aircraft, at current rates of operation, six scheduled C Checks will be
completed on the Company's aircraft in 1999 and six will be completed in 2000
and that, on average, one of its aircraft will require a D Check each year. It
is anticipated that a C Check will be required in 2000 of the Company's L1011
aircraft which was placed in service in February 1999. In addition, the Company
will have to perform such regularly scheduled maintenance on the aircraft
recently acquired pursuant to the Arrow Air and Asset Acquisition.

      Since 1986, the Company's maintenance facility has been certificated as an
FAA repair station to perform maintenance on DC-8 series aircraft and their
related avionics and accessories, including all required airframe maintenance,
ranging from routine inspections to major airframe overhauls, as well as ADs and
service bulletin compliance. The Company also operates an FAA certified repair
station for Pratt & Whitney JT3D-3B aircraft engines, which performs complete
repair services on the Company's DC-8 aircraft engines. The Company's MIA
facility accommodates up to two large widebody aircraft (such as Boeing 747s),
three medium widebody aircraft (such as McDonnell Douglas DC-10s or Lockheed
L-1011s) or three narrowbody aircraft (such as DC-8s) simultaneously for repairs
and maintenance. See "Item 2. Properties."

      The Company's maintenance and engineering personnel coordinate all routine
and non-routine maintenance operations, including tracking the maintenance
status of each aircraft, communicating with maintenance personnel in connection
with every arrival and departure, consulting with manufacturers and vendors
about procedures to correct irregularities and training the Company's line
maintenance personnel on the requirements of the Company's FAA-approved
maintenance program. The Company conducts virtually all of its own maintenance
training.

      The Company owns 20 used spare Pratt & Whitney JT3D-3B aircraft engines
and an extensive inventory of spare aircraft parts and consumable materials
required to support line maintenance, scheduled airframe maintenance and engine
maintenance and repairs. The Company purchased such spare aircraft engines at
various times between 1987 and 1995 and has maintained its spare aircraft
engines in accordance with FAA standards. In addition, in connection with the
Arrow Air and Asset Acquisition, the Company acquired additional serviceable and
repairable Pratt & Whitney JT3D and JT8D aircraft engines, Rolls Royce RB211
aircraft engines and General Electric CF6 aircraft engines and additional
inventories of aircraft and engine parts. See "--Arrow Air and Aircraft
Acquisition." All spare aircraft engines are continually overhauled and
refurbished to extend their useful life and are used in the Company's normal
operations on an as-needed basis. In addition, the Company owns larger aircraft
components, such as airframe structures, landing gears and flight controls. The
Company also owns three DC-8s that are used solely for parts and has a supply of
parts from four disassembled aircraft. The Company opportunistically purchases
spare parts, spare engines, entire inventories and other aircraft components
when "bulk" purchases of these items have been available or market conditions
are otherwise favorable. Generally, bulk purchase opportunities have arisen when
airlines or manufacturers of parts sell large amounts of inventory in a single
transaction or in conjunction with a bankruptcy. Opportunistic inventory
purchases have allowed the Company to obtain a large inventory of spare parts at
a lower cost than could have been obtained by purchasing on an individual basis.
From time to time, parts may become unavailable or be in short supply. In the
past, the Company has been able to design and manufacture from manufacturers'
drawings structural parts pursuant to a limited license granted by the
manufacturer. The Company believes that such practices will continue to be
available within the industry in the near future.

      Training. The FAA mandates initial and recurrent training for most flight,
maintenance and engineering personnel. Initial pilot training consists of a
two-month program that involves FAA regulations and licensing exams, emergency
and security procedures, handling of hazardous materials, systems, flight
simulator sessions and actual operating experience with the Company's aircraft.
The Company generally hires pilots whom it has "pre-screened" as a result of
such training. The Company pays for all of the recurrent training required for
its pilots and pays for 

                                       14

<PAGE>

most of the training of its ground service and maintenance personnel. The
Company's training programs have received all required FAA approvals.

      The Company operates its own professional training schools at its
FAA-approved MIA facility, where it conducts all of the training programs
required for its personnel. In addition, the Company offers training to
third-party individuals in an effort to control its overhead costs related to
training.

      Ground Handling. The Company utilizes its own ground handling personnel
and equipment for loading, servicing and maintaining the Company's aircraft at
MIA and at most of the other airports served by the Company.

      Fuel. Fuel is a significant operating cost. The Company generally
purchases bonded fuel which is tax-free to the Company because the fuel is
utilized for international flights. The Company's exposure to fuel risk is
reduced to the extent that it provides air cargo services under ACMI contracts,
under which the customer is responsible for providing fuel. The Company does not
believe that fluctuations in the price of fuel have had a significant impact on
its results of operations in recent years because it has been able to pass on
increases to customers in the form of fuel surcharges.

INFORMATION SYSTEMS

      The Company has invested significant management and financial resources in
the development of information systems to facilitate its cargo, flight and
maintenance operations, provide its personnel accurate and timely information
and increase the level of service and information provided to its customers. The
Company continually assesses its management information systems and, as of March
1999, had entered into agreements with certain software vendors to provide
information systems for maintenance and logistics management and cargo handling
management. Additionally, the Company is currently negotiating with another
software vendor to replace existing financial applications systems. Assessment
and selection of systems for flight operations and crew management is currently
underway with system implementation scheduled for third quarter 1999. The cargo
management system is expected to be operable in the second quarter of 1999. The
financial systems are expected to be operable late in the second quarter of 1999
and the maintenance/logistics systems are scheduled to be implemented late in
the third quarter of 1999. These systems constitute the bulk of the company's
automation and should bring all core applications into Year 2000 compliance.

      Information concerning the status of shipments currently is available only
to the Company's personnel, but the Company intends to increase the amount of
information available on-line to its customers. The Company also utilizes the
U.S. Customs Department's Automated Manifest System, which was first made
available at MIA, to expedite customs clearance for its customers' air freight.
This system allows the Company to electronically transfer its cargo manifest to
customs while a flight is in transit and "pre-clear" much of the cargo, thereby
reducing transfer delays, promptly releasing freight and allowing it to be
transported to its destination more quickly.

      The Company's maintenance operations utilize information systems with bar
coding to track and control spare parts inventory and costs associated with each
maintenance task. In addition to maintaining records concerning the maintenance
status and history of each major aircraft part or component, as required by FAA
regulations, the Company utilizes its information systems to track the labor and
parts cost of each maintenance task performed by its personnel.

     The Company's flight operations dispatch department utilizes
Company-developed software to coordinate the Company's flight and crew
schedules, track flight time (both for scheduling of aircraft and parts
maintenance and overhauls and for invoicing the Company's ACMI customers for
their flights) and provide Company personnel and customers with flight status
information.

SECURITY AND SAFETY

      Security. The Company conducts various security procedures to comply with
FAA regulations. The Company's customers are required to inform the Company in
writing of the nature and composition of their air freight. The Company also
conducts daily cargo searches, x-rays its customers' air freight and conducts
searches for hazardous materials, weapons, explosive devices and illegal
freight. The Company uses search dogs in Miami to 


                                       15

<PAGE>

seek out explosives and controlled substances. The Company also conducts
searches for contraband in foreign countries at the point of origin prior to
departure for the United States. Notwithstanding these procedures, the Company
could unknowingly transport contraband or hazardous materials for its customers,
which could result in fines, penalties, flight bans or possible damage to the
Company's aircraft. The Company believes it maintains an excellent cooperative
relationship with U.S. Customs, the U.S. Department of Agriculture and the U.S.
Drug Enforcement Agency.

      Safety and Inspections. Management is committed to the safe operation of
the Company's aircraft. In compliance with FAA regulations, the Company's
aircraft are subject to various levels of scheduled maintenance or "checks" and
periodically go through complete overhauls. See "--Aircraft Fleet--Maintenance."
The Company's maintenance efforts are monitored closely by the FAA, with FAA
representatives often being on-site to observe maintenance being performed. The
Company also conducts extensive safety checks and audits on a regular basis. All
of the Company's flight operations and maintenance manuals are FAA approved.

      In 1996, the Company underwent a Regional Aviation Safety Inspection
Program (RASIP) inspection, during which a team of regional FAA inspectors
conducted a focused inspection over a one-week period. The FAA advised the
Company that there were no material adverse findings as a result of the RASIP
inspection. In connection with the Company's move to its new hangar facility,
the Company underwent an audit by the local FAA Flight Standards District
Office, which resulted in the reissuance of the Company's repair station
certificate for that facility. In accordance with national FAA policy and
procedures, in April 1997, the Company passed a National Aviation Safety
Inspection Program (NASIP) inspection, the most stringent and in-depth FAA
inspection, in which a team of national FAA inspectors thoroughly audited and
inspected the Company's entire maintenance and flight operations for a period of
three weeks.

      Following the August 7, 1997 crash of one of the Company's aircraft, the
Company's operations were placed under heightened scrutiny by the FAA. As a
result of concerns expressed by the FAA, the Company voluntarily ceased
operations on September 4, 1997, and on September 12, 1997 the Company entered
into a Consent Agreement with the FAA (the "Consent Agreement"). As part of the
Consent Agreement, the Company agreed not to resume operations until the FAA
approved new cargo handling and hazardous materials procedures to be implemented
by the Company. Under the Consent Agreement, the Company agreed to make a
remedial payment of $1.5 million to the FAA for the costs of the FAA's
investigation, review and re-inspection of the Company. Pursuant to the Consent
Agreement, $500,000 of this assessment was waived as a result of the Company's
compliance with certain requirements prior to December 31, 1997. The Company
resumed operations on a limited basis on October 28, 1997, approximately seven
weeks after suspending operations. The Company is in full compliance with the
terms of the Consent Agreement.

      In March 1999, the Company underwent a National Aviation Safety Inspection
Program (NASIP) inspection. The Company is currently awaiting the results of
this inspection.

      According to the National Transportation Safety Board Regulations, an
"aircraft accident" is an occurrence associated with the operation of an
aircraft which takes place between the time any person boards the aircraft with
the intention of flight and all said persons have disembarked, and in which any
person suffers death or serious injury, or in which the aircraft receives
substantial damage. Other than the August 1997 accident mentioned above, during
the last 10 years, the Company's aircraft, while being operated by the Company,
have not been involved in any accidents. In May 1994, one of the Company's
aircraft, while being leased and operated by a non-affiliated foreign airline,
was involved in a non-fatal aircraft accident. The aircraft sustained
significant damage during take-off due to the failure of the aircraft's nose
gear component and was declared a total loss by the insurers.

RISK MANAGEMENT

      The Company is exposed to potential losses that may be incurred in the
event of an aircraft accident. An accident could result in substantial cost to
repair or replace a damaged aircraft or claims for damaged or destroyed cargo
and significant potential liability for claims for injury or death to third
parties and Company crew members. The Company purchases hull insurance for its
aircraft on an agreed value basis to provide coverage for total losses and
repair expenses in the event of a partial loss, subject to a $500,000 deductible
in the event of partial losses. The DOT requires airlines to carry at least $20
million of liability insurance. The Company currently maintains public 


                                       16

<PAGE>

liability insurance in the amount of $500 million per occurrence. With the
exception of claims relating to the August 1997 crash of a Company aircraft, the
Company has had a low claim experience and believes that it enjoys a good
reputation with its insurance providers.

      To insure against risks associated with its maintenance and engine repair
operations, the Company maintains aviation and airline products liability,
premises and hangarkeepers insurance in amounts and on terms generally
consistent with industry practice. To date, the Company has not experienced any
significant uninsured or insured claims related to its maintenance or engine
repair services.

      The Company is legally responsible to its customers for the safe delivery
of cargo to its ultimate destination, subject to contractual and legal
limitations on liability of $20.00 per kilogram ($9.07 per pound) for
international flights and $0.50 per pound for domestic flights. The Company
carries insurance for these claims.

COMPETITION

      The air freight industry is highly competitive. The Company's scheduled
cargo services compete for cargo volume principally with other all-cargo
airlines, integrated carriers and scheduled and non-scheduled passenger airlines
which have substantial belly cargo capacity. To a lesser extent, the Company's
scheduled cargo services also compete for freight forwarding business with fully
integrated carriers, some of which are also customers of the Company. The
Company's ACMI services compete primarily with other airlines that operate
all-cargo aircraft and have lift capacity in excess of their own needs. The
Company believes that the most important competitive factors in the air freight
transportation industry are price, flexibility and the quality and reliability
of the cargo transportation service. Competition in the ACMI business is
dependent principally on the payload and cubic capacities of available aircraft,
price and reliability. Many of the Company's competitors have substantially
greater financial and other resources and more extensive facilities and
equipment than the Company.

EMPLOYEES

      As of December 31, 1998, the Company had 1008 employees, including 150
flight operations personnel, 487 maintenance, technical and security personnel,
213 cargo handling personnel and 158 executive, administrative, sales and
financial personnel. The Company considers its relations with its employees to
be satisfactory.

      On October 3, 1997, the Teamsters was certified to represent the Company's
Flight Deck Crew Members for collective bargaining purposes. The Teamsters have
been certified by the National Mediation Board and negotiations regarding a
collective bargaining agreement have been underway since summer 1998. The final
collective bargaining agreement could result in higher employee compensation and
working condition demands that could increase the Company's operating costs or
constrain its operating flexibility. None of the Company's other employees are
subject to a collective bargaining agreement. However, many airline industry
employees are represented by labor unions, and the Company believes that, as it
continues to expand, other of its employees may be subject to union organizing
efforts.

      FAA regulations require the Company's pilots to be licensed as commercial
pilots, with specific ratings for the aircraft type to be flown, and to be
medically certified as physically fit to fly aircraft. Licenses and medical
certification are subject to periodic continuation requirements, including
recurrent training and minimum amounts of recent flying experience. Mechanics
and quality control inspectors must also be licensed and qualified for specific
aircraft. Under the Company's supplemental certification status flight
dispatchers do not need to be licensed. The Company routinely performs employee
background checks for a ten-year period prior to employment and conducts more
pre-employment screening than mandated by FAA regulations. In addition, the
Company's management personnel who are directly involved in the supervision of
flight operations, training, maintenance and aircraft inspection must meet
experience standards prescribed by FAA regulations. All of the Company's
employees are subject to pre-employment drug and alcohol testing, and employees
holding certain positions are subject to subsequent random testing.


                                       17
<PAGE>

GOVERNMENT REGULATION

      General. The Company is subject to regulation under U.S. laws and the laws
of the various countries to which it flies its aircraft. The Company is also
subject to various international bilateral air services agreements between the
United States and the countries to which the Company provides scheduled cargo
services and must obtain permission from the applicable foreign government to
provide service to that country.

      Domestic Regulation. The Company is subject to the jurisdiction of the FAA
with respect to aircraft maintenance and operations, including 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 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 substantial civil penalties for such
failure. The Company's aircraft, flight personnel and flight and emergency
procedures are subject to periodic inspections and tests by the FAA. The FAA
also conducts safety audits and has the power to impose fines and other
sanctions for violations of airline safety regulations. The FAA also has
jurisdiction over the transportation of hazardous materials. Shippers and air
carriers of hazardous materials generally share responsibility for compliance
with these regulations, and shippers are responsible for proper packaging and
labeling. Substantial monetary penalties can be imposed on both shippers and air
carriers for infractions of these regulations as well as possible criminal
penalties.

      The FAA has promulgated under the ANCA regulations certain Stage III noise
requirements, pursuant to which airlines such as the Company must bring their
fleets into compliance with certain FAA Stage III noise emissions standards in
the contiguous 48 states by December 31, 1999. In September 1998, the Company
entered into a Consent Agreement with the FAA regarding its use of interchange
agreements to comply with Stage III noise requirments. Pursuant to this Consent
Agreement, the Company has agreed that it will hushkit 12 of its DC-8 aircraft
by August 31, 1999 or remove any of such 12 aircraft that are not hushkitted by
such date from its operations specifications. As of March 1, 1999, the Company
has installed hushkits on eight of such aircraft and does not foresee any
problem in complying with this Consent Agreement. The Company expects to hushkit
all of its DC-8 aircraft by December 31, 1999 and intends to continue to
purchase hushkits for this purpose from a related party. The Company estimates
that the average cost of such hushkits will be approximately $2.25 million per
aircraft, and that the aggregate cost to the Company to hushkit its 14 DC-8s and
to acquire two spare hushkits will be $36.0 million, of which approximately
$31.0 million had been incurred as of December 31, 1998.

      The DOT maintains authority over domestic and international aviation and
has jurisdiction over international routes. In order to engage in its air
transportation business, the Company is required to maintain a Certificate of
Public Convenience and Necessity ("CPCN"). Prior to issuing a CPCN, DOT examines
a company's managerial competence, financial resources and plans and compliance
disposition in order to determine whether the carrier is fit, willing and able
to engage in the transportation services it has proposed to undertake. Among
other things, a company holding a CPCN must qualify as a United States citizen,
which requires that it be organized under the laws of the United States or a
State, territory or possession thereof; that its chief executive officer and at
least two-thirds of its Board of Directors and other managing officers be United
States citizens; that not more than 25% of its voting stock be owned or
controlled, directly or indirectly, by foreign nationals; and that it not
otherwise be subject to foreign control. A CPCN confers no proprietary rights on
the holder and DOT may impose conditions or restrictions on such a CPCN. The DOT
has issued the Company (i) a CPCN to engage in interstate and overseas charter
air transportation, (ii) a CPCN to engage in foreign charter air transportation
and (iii) a CPCN to engage in scheduled air transportation between Miami,
Florida and Santo Domingo, Dominican Republic. By virtue of the CPCNs to engage
in interstate, overseas and foreign charter air transportation of property and
mail, the Company is vested with authority from the U.S. government to conduct
all-cargo operations worldwide. In addition, the DOT has granted the Company
numerous "exemptions" from the federal transportation statute to permit the
Company to engage in scheduled foreign air transportation to certain foreign
cities. Many carriers operate under such exemption authority, which is granted
for up to a period of two years and is typically renewed by the DOT upon timely
requests to do so. CPCNs and grants of exemption authority are subject to
standard DOT terms, conditions and limitations and may be conditioned, suspended
or withdrawn. The Company is also required to obtain separate DOT authorization
for each long-term (over 60 days) ACMI arrangement.



                                       18

<PAGE>

      Several aspects of airline operations are subject to regulation or
oversight by Federal agencies other than the FAA or the DOT. 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 the FCC
regarding its use of radio facilities pursuant to the Federal Communications Act
of 1934, as amended; the Commerce Department regarding the Company's interstate
transportation of cargo; the Customs Service regarding inspection of cargo
imported from the Company's international destinations; the Immigration and
Naturalization Service regarding the citizenship of the Company's employees; the
Animal and Plant Health Inspection Service of the Department of Agriculture
regarding the inspection of animals, plants and produce imported from the
Company's international destinations regarding the Company's international
operations; the Environmental Protection Agency regarding shipment of hazardous
materials and compliance with standards for aircraft exhaust and noise
emissions; and the Department of Labor regarding the Company's employees. The
Company believes that it is in material compliance with all applicable laws and
regulations of such governmental entities.

      Foreign Regulation. To the extent required to do so, the Company obtains
authority to conduct foreign operations from applicable aeronautical and other
governmental authorities. As with the certificates and license obtained from
U.S. authorities, the Company must comply with all applicable rules and
regulations imposed by foreign governmental authorities or be subject to the
suspension, amendment or modification of its operating authorities.

ITEM 2. PROPERTIES.

      All of the Company's aircraft loading, unloading, maintenance, flight
operations and ground handling are accomplished at its MIA hangar facility,
which consists of approximately 130,000 square feet of hangar space, maintenance
shops, work areas, and parts storage areas; approximately 448,000 square feet of
aircraft ramp space; 20,000 square feet of administrative offices; and
approximately 50,000 square feet of expansion space which the Company can employ
in the future for offices or additional work shops. The hangar facility
accommodates up to two large widebody aircraft (such as Boeing 747s), three
medium widebody aircraft (such as McDonnell Douglas DC-10s or Lockheed L-1011s)
or three narrowbody aircraft (such as DC-8s) simultaneously. Management believes
that the Company's maintenance facilities are adequate to meet the Company's own
maintenance needs for at least the next several years.

      The Company maintains two cargo facilities at MIA. The Company's main
cargo facility consists of 56,600 square feet of warehouse space, which is
utilized primarily to process air freight for export and 14,500 square feet of
office space, at which the Company's executive offices and Miami sales offices
are located. The Company's other cargo facility consists of 27,700 square feet
of warehouse space and 8,100 square feet of office space.

      The Company leases its MIA hangar facility from Metropolitan Dade County
under a lease that expires in 2001, with two five-year renewal options. The
Company's MIA cargo facilities are also leased from Metropolitan Dade County.
The lease for the Company's main cargo facility expires in 1999 and the other
cargo facility expires in 2004.

      The Company leases approximately 33,000 square feet for its engine repair
facilities from an unrelated third party under leases which expire in September
2001.

      The Company maintains regional sales and administrative offices for its
scheduled cargo services operations located at or near airports in four major
U.S. cities and 14 South and Central American and Caribbean cities. See "Item 1.
Business--Cargo Sales Network and Marketing--Cargo Sales Network." All oF such
properties are leased from unrelated third parties.

ITEM 3. LEGAL PROCEEDINGS.

      As a result of the August 1997 accident, the Company is currently subject
to lawsuits brought by the families of the individuals who died and several
businesses that were affected by the accident and is aware of other 


                                       19

<PAGE>

claims pending which have not reached litigation. All such litigation is being
defended by the Company's insurance carrier, without reservation of rights, and
management has no reason to believe that the Company's liability insurance
coverage will not be sufficient to cover all claims arising from the accident.

      While the Company is from time to time involved in litigation in the
ordinary course of its business, there are no material legal proceedings
currently pending against the Company or to which any of its property is
subject.

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

      No matter was submitted to a vote of security holders during the fiscal
quarter ended December 31, 1998.


                                       20
<PAGE>



                             PART II

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

      The Company does not have any established public trading market for any
class of its common equity.


ITEM 6. SELECTED FINANCIAL DATA.

      The balance sheet data set forth below as of December 31, 1994, 1995,
1996, 1997 and 1998 and the statement of operations data for each of the years
in the five-year period ended December 31, 1998 have been derived from the
Company's audited consolidated financial statements. The following data should
be read in conjunction with "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's Consolidated
Financial Statements and Notes thereto included in "Item 8. Financial Statements
and Supplementary Data" of this Annual Report on Form 10-K.


<TABLE>
<CAPTION>

                                                                       YEARS ENDED DECEMBER 31,
                                          -------------------------------------------------------------------------
                                             1994            1995            1996          1997(1)          1998
                                          ---------       ---------       ---------       ---------       ---------
 STATEMENT OF OPERATIONS DATA:                                  (dollars in thousands, except per share data)
 Revenues:
<S>                                       <C>             <C>             <C>             <C>             <C>      
  Scheduled cargo services .........      $  19,941       $  40,124       $  54,775       $  56,412       $  76,079
  ACMI services ....................         44,420          35,340          35,520          31,080          37,645
  Repairs, training and other ......            492             885           3,953           2,502           2,379
                                          ---------       ---------       ---------       ---------       ---------
   Total revenues ..................         64,853          76,349          94,248          89,994         116,103
                                          ---------       ---------       ---------       ---------       ---------
Total operating expenses ...........         52,714          64,646          81,040          91,021         107,039
                                          ---------       ---------       ---------       ---------       ---------
Operating income (loss) ............         12,139          11,703          13,208          (1,027)          9,064
Interest expense ...................         (1,111)           (985)           (966)         (1,091)        (12,830)
Interest and other income, net .....          3,170             320             786           2,233           8,630
                                          ---------       ---------       ---------       ---------       ---------
Net income .........................      $  14,198       $  11,038       $  13,028       $     115       $   4,864
                                          =========       =========       =========       =========       =========

Net income per common share ........      $4,732.67       $3,679.33       $ 4,342.7       $   38.40       $1,621.30

Average shares outstanding .........          3,000           3,000           3,000           3,000           3,000

BALANCE SHEET DATA (AT PERIOD END):
Working capital ....................      $   4,861       $   9,735       $  13,710       $   2,970       $ 128,458
Total assets .......................         45,313          57,026          65,886          82,846         244,058
Total debt .........................         13,946          13,129          11,357          30,084         190,447

SELECTED FINANCIAL DATA:
Depreciation and amortization ......      $   3,887       $   6,924       $   9,390       $  11,470          13,236
Capital expenditures ...............         14,843          15,164          14,108          32,836          39,114

OPERATING DATA:
Destinations served (end of period).              9              21              27              29              23
Tons of freight transported--scheduled
  cargo services ...................         32,072          64,906          75,923          68,844          94,647
ACMI block hours flown .............         15,280          12,068          12,289          10,712          11,355
Aircraft in service (end of period)              13              14              15              14              14


</TABLE>
----------

(1)  The Company's 1997 results were adversely affected by the temporary
     cessation of operations for seven weeks during September and October 1997.
     The Company gradually resumed operations during the remainder of 1997. See
     "Management's Discussion and Analysis of Financial Condition and Results of
     Operations--Recent Results."


                                       21

<PAGE>

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

      THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF
CERTAIN FACTORS, INCLUDING THOSE SET FORTH UNDER "--RISK FACTORS THAT MAY AFFECT
FUTURE RESULTS," BELOW, AND ELSEWHERE IN THIS REPORT. THE FOLLOWING DISCUSSION
ALSO SHOULD BE READ IN CONJUNCTION WITH THE INFORMATION SET FORTH IN "ITEM 6.
SELECTED FINANCIAL DATA" AND THE COMPANY'S FINANCIAL STATEMENTS AND NOTES
THERETO INCLUDED IN "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" OF
THIS ANNUAL REPORT ON FORM 10-K.

OVERVIEW

      The Company derives its revenues from three sources: scheduled cargo
services, ACMI services and repairs, training and other services provided to
third parties. During the past five years, the Company's revenues increased to
$116 million in 1998 from $29.0 million in 1993. The Company's revenue growth
during this period has been substantially the result of the introduction and
expansion of scheduled cargo services. The Company began offering scheduled
cargo services at the beginning of 1994 and has expanded its service to include
23 South and Central American and Caribbean destinations as of December 31,
1998. Revenues from scheduled cargo services increased at a compound annual rate
of 39.8% from 1994 to 1998 and represented 65.5% of total revenues in 1998,
compared to 30.7% of total revenues in 1994.

      The shift in mix of the Company's revenues during the past four years has
impacted its operating margins, as the Company has committed significant
resources to build the infrastructure to support its scheduled cargo services,
including moving to a new cargo warehouse and new MIA hangar facilities in 1996,
opening additional domestic and foreign sales offices, and adding sales, flight,
warehouse, cargo and ground handling personnel. Management believes that the
Company will be able to utilize its existing infrastructure and fleet, as well
as the additional aircraft it intends to acquire, to expand its scheduled cargo
services to new destinations in South and Central America and the Caribbean.
Management plans to continue to emphasize the development of scheduled cargo
services for future revenue growth while at the same time expanding the
Company's ACMI services. ACMI services have been more profitable than scheduled
cargo services primarily because increased demand for ACMI services during the
fourth quarter generally has resulted in higher aircraft utilization and more
profitable ACMI rates.

      Revenues from scheduled cargo services consist principally of charges for
freight transported on the Company's scheduled cargo routes and charges for
transportation logistics services, such as truck and interline transportation of
freight, local pick-up and delivery, warehousing and assistance in document
preparation and processing. The Company sells air cargo services to destinations
its serves directly, destinations served by its ACMI and AMI (aircraft,
maintenance and insurance) customers and destinations served by other airlines
on an interline basis. Freight rates are structured based upon the type of
freight, weight or volume, delivery service and the destination. Beginning in
the third quarter of 1996, the Company's revenues from scheduled cargo services
include fuel surcharges that the Company instituted following significant
increases in fuel prices during the year. During the first quarter of 1997, fuel
prices began to decline, and the Company removed its fuel surcharges in certain
markets in the second quarter of 1997.

      Revenues from ACMI services are derived from both ACMI and AMI contracts
under which the Company supplies its aircraft for specified cargo operations or
on an ad hoc basis and charges its customers for such services on a per block
hour basis subject, in certain instances, to specified minimum charges. The
Company's ACMI customers are responsible for substantially all other aircraft
operating expenses, including fuel, landing and parking fees and ground and
cargo handling expenses. The Company's AMI customers are responsible for the
same operating costs as ACMI customers and also provide their own crews.

      Revenues from repairs, training and other are comprised principally of
charges for third party maintenance services, including airframe, component and
engine maintenance, repairs and overhauls, as well as spare parts sales, leasing
and training.


                                       22
<PAGE>

      Flying operations expenses are comprised principally of fuel costs, crew
costs, overflight, landing and parking fees, aircraft rental expenses, expenses
for transporting freight to and from the Company's MIA hub from its sales
offices and interline transportation expenses. Flying operations expenses
associated with ACMI services, such as fuel, overflight, landing and parking
fees, are either paid directly by the Company's customer or billed to the
customer on a direct pass-through basis. Most of the Company's ACMI customers
purchase their own fuel.

      Aircraft and traffic servicing expenses are comprised principally of
personnel and equipment repair expenses associated with the Company's cargo
warehouse, cargo handling and ground handling operations and communications,
personnel and third party expenses related to flight planning. Aircraft and
traffic servicing expenses have increased over the past three years as the
Company has added personnel to handle the increase in scheduled cargo services.

      Maintenance expenses are comprised principally of labor, parts and
supplies associated with the maintenance, repair and overhaul of the Company's
aircraft and engines and third party maintenance services. Costs associated with
major maintenance ("C" and "D") checks are capitalized when incurred and
amortized over their expected useful lives, ranging from 3 years for "C" checks
and engine repairs to 8 years for "D" checks. Other maintenance expenses,
including expenses associated with routine maintenance checks, are expensed when
incurred. Because the Company pays for maintenance whether its aircraft are used
in scheduled cargo service or ACMI service, maintenance expenses are not
affected by changes in the mix of revenues from these two services.

      General and administrative expenses are comprised principally of salaries
and benefits for executive and administrative personnel, insurance, security
expenses and rent, utilities and other occupancy expenses associated with the
Company's cargo warehouse and MIA hangar facilities and domestic and
international operations stations and sales offices.

      Selling expenses are comprised principally of salaries and benefits for
sales personnel, commissions paid to third party general sales agents,
advertising and marketing expenses and provision for bad debts.

      Depreciation and amortization expenses are comprised principally of
depreciation on aircraft, aircraft components and ground equipment, and the
amortization of capitalized major airframe and engine maintenance, repairs and
overhauls.

RECENT DEVELOPMENTS

      On February 5, 1999 the Company entered into the Asset Purchase Agreement
with International Air Leases of PR, Inc. and Anthony Tirri, the principal
stockholder of IALPR. On the same date, the Company entered into a separate
Stock Purchase Agreement with IALPR and the stockholders of IALPR

      Under the terms of the agreements, the Company agreed to purchase 100% of
the capital stock of Arrow Air, Inc., an international cargo airline based in
Florida, and certain assets generally consisting of (i) specified aircraft
consisting of three cargo L1011-200 aircraft, one passenger L1011-500 aircraft,
12 cargo DC-8 aircraft and one passenger DC-8 aircraft; (ii) serviceable and
repairable Pratt & Whitney JT3D and JT8D aircraft engines, Rolls Royce RB211
aircraft engines and General Electric CF6 aircraft engines; (iii) inventories of
aircraft and engine parts; and (iv) all inventories, parts, and related
equipment used in the operations of the airline business of Arrow. The purchase
price for the Arrow Stock and the Assets is $115.0 million.

      Under the terms of the Asset Purchase Agreement, IALPR agreed, at the
option of the Company, to market the sale of certain of the Assets which the
Company may elect to sell prior to June 10, 1999, and further agreed upon
certain values to be attributable to specified categories of such Assets. In the
event that the Company timely elects to sell such specified Assets and does not
receive the agreed upon minimum values (essentially 90% of the agreed upon
estimated fair market value of such Assets) within 90 days after such Assets are
put up for sale, IALPR has agreed to "make whole" the Company for any short-fall
in the actual net proceeds received from the sale of such Assets. To secure such
"make whole" obligation, the Company received first mortgages on two McDonnell
Douglas cargo DC-8 aircraft and one McDonnell Douglas cargo DC-10 aircraft which
were not included in the purchased Assets.

                                       23
<PAGE>


      Arrow and the Assets to be acquired by the Company were formerly owned by
subsidiaries of International Air Leases, Inc. and its affiliated companies.
Consummation of the transactions between the Company and IALPR were subject to
IALPR acquiring the capital stock of IAL and its affiliates under a purchase
agreement with the former owner of such businesses, as well as obtaining certain
government regulatory approvals.

      In order to assist IALPR and its stockholders in completing its
acquisition of IAL and its affiliates, on February 10, 1999 the Company provided
IALPR with a $115.0 million loan secured by first liens on all of the Assets to
be purchased under the Asset Purchase Agreement, certain other aircraft, the
personal guarantees of the IALPR stockholders, and a pledge of 100% of the
capital stock of IALPR and all of its subsidiaries, including IAL and its
corporate affiliates. The loan was evidenced by a 10% note due on the earlier of
April 1, 1999 or five business days following the expiration or termination of
the waiting period under the Hart Scott Rodino Antitrust Improvements Act of
1976.

      IALPR consummated its acquisition of IAL and its affiliates on February
10, 1999. Following receipt of notice of early termination of the waiting period
under the Hart Scott Rodino Antitrust Improvements Act of 1976, on March 10,
1999, the Company completed the acquisition of the Assets by cancellation of
$100.0 million principal amount of the IALPR note. The remaining $15.0 million
of the IALPR note and accrued interest was retired effective as of April 9,
1999, when the Company completed the acquisition of the Arrow Stock.

RESULTS OF OPERATIONS

      The following table sets forth, for the periods presented, certain
revenue, expense and income items as a percentage of total operating revenues:


                                                       YEARS ENDED DECEMBER 31,
                                                     ---------------------------
                                                      1996      1997      1998
                                                      ----      ----      ----
Revenues:
  Scheduled cargo services......................      58.1%     62.7%     65.5%
  ACMI services.................................      37.7      34.5      32.4
  Repairs, training and other...................       4.2       2.8       2.1
                                                     -----     -----     ----- 
   Total operating revenues.....................     100.0%    100.0%    100.0%
                                                     =====     =====     ===== 

Operating expenses:
  Flying operations.............................      38.8%     38.0%     34.0%
  Aircraft and traffic servicing................       8.4       9.7      10.4
  Maintenance...................................      10.5      16.9      15.5
  General and administrative....................      15.0      17.9      15.6
  Selling.......................................       3.3       5.9       5.3
  Depreciation and amortization.................      10.0      12.7      11.4
                                                     -----     -----     ----- 
   Total operating expenses.....................      86.0     101.1      92.2
                                                     -----     -----     ----- 

Operating income................................      14.0      (1.1)      7.8
Interest and other income, net..................      (0.2)      1.2      (3.6)
                                                     -----     -----     ----- 
Net income......................................      13.8%      0.1%      4.2%
                                                     =====     =====     ===== 

      The Company's results of operations were negatively impacted in 1998 by
economic downturns in Latin America, resulting in a decreased demand for air
freight traffic into and out of the region. Specifically, the economies of
Venezuela and Ecuador were adversely affected by, among other things, a decrease
in oil export sales. 


                                       24

<PAGE>

In addition, revenues from Colombia and Ecuador were adversely impacted by a
reduction in flower production due to severe weather patterns caused by El Nino.
Furthermore, the effects of Hurricane Mitch on the regional economies of
Guatemala, Honduras and Nicaragua may have an adverse long-term impact on the
demand for air freight transportation in such region.

FISCAL 1998 COMPARED TO 1997

      Revenues.

      Revenues increased 29% to $116.1 million in 1998 from $90 million in 1997,
due primarily to an increase in revenues from scheduled cargo services of $19.7
million. Revenues in the second half of 1997 were adversely affected by a
cessation of operations for seven weeks and the subsequent effects of such
temporary interruption of services. Total block hours flown by the Company's
fleet increased 24.7% to 24,160 in 1998 from 19,372 in 1997 due primarily to an
increase of 4,145 hours flown for the Company's scheduled cargo services.

      Revenues from scheduled cargo services increased 34.9% to $76.1 million in
1998 from $56.4 million in 1997 due to increases in tons of freight transported
and the introduction of new markets. Scheduled block hours flown increased 47.9%
from 8,660 hours in 1997 to 12,805 hours in 1998. Revenues from scheduled cargo
operations in 1997 included $2.2 million in fuel surcharges assessed during the
first half of 1997. Tons of freight transported increased 37.6% to 94,647 in
1998 from 68,844 in 1997, primarily as a result of increased sales efforts by
the Company's domestic and international sales network in 1998 tons of freight
transported in 1997 was also lower than normal due to the temporary cessation of
operations in the second half of 1997.

      Revenues from ACMI services increased 20.9% to $37.6 million in 1998 from
$31.1 million in 1997, primarily due to an increase in hourly rate associated
with an increase in demand for aircraft domestically and to a lessor extent by
an increase in ACMI hours flown. ACMI hours flown increased 6.0% to 11,355 in
1998 from 10712 in 1997.

      Revenues from repairs, training and other decreased 4.2% to $2.4 million
in 1998 from $2.5 million in 1997. During 1998, the Company concentrated its
sales efforts on building its scheduled and cargo services.

      Operating Expenses.

      Flying operations expenses increased 15.5% to $39.5 million in 1998 from
$34.2 million in 1997, due primarily to increased intermodal/interline
transportation and other costs associated with the increase in scheduled cargo
service block hours and tons transported, and increased crew costs associated
with the increase in total block hours. The increased costs were partially
offset by a decrease in expenses associated with the renting of aircraft during
the temporary cessation of operation during 1997. As a percentage of total
revenues, flying operations expenses decreased to 34.0% in 1998 from 38.0% in
1997 primarily as a result of decreased fuel prices.

      Aircraft and traffic servicing expenses increased 39.1% to $12.1 million
in 1998 from $8.7 million in 1997, due primarily to the addition of personnel to
handle the increase in scheduled cargo services, and other cargo-related
expenses associated with the increase in tonnage. As a percentage of total
revenues, aircraft and traffic servicing expenses increased to 10.4% in 1998
from 9.7% in 1997, primarily due to the company's emphasis on scheduled cargo
service.

      Maintenance expenses increased 18.4% to $18.0 million in 1998 from $15.2
million in 1997, due primarily to the increase in block hours operated and to an
increase in field line maintenance requirements associated with new domestic
ACMI contracts operated during 1998. As a percentage of total revenues,
maintenance expenses decreased to 15.5% in 1998 from 16.9% in 1997.

      General and administrative expenses increased 12.4% to $18.1 million in
1998 from $16.1 million in 1997, due primarily to increased rent, telephone,
security, and office expenses to support expanding operations and the build-up
of the Company's infrastructure. As a percentage of total revenues, general and
administrative expenses decreased to 15.6% in 1998 from 17.9% in 1997.


                                       25
<PAGE>

      Selling expenses increased 17.0% to $6.2 million in 1998 from $5.3 million
in 1997, due primarily to an increase in commissions and other selling expenses
associated with the increase in scheduled cargo revenues, partially offset by a
$477,000 decrease in provision for bad debts. As a percentage of total revenues,
selling expenses decreased to 5.3% 1998 from 5.9% in 1997.

      Depreciation and amortization expenses increased 14.8% to $13.2 million in
1998 from $11.5 million in 1997, due primarily to increases in equipment and
increased amortization of capitalized maintenance costs. As a percentage of
total revenues, depreciation and amortization expenses decreased to 11.4% in
1998 from 12.7% in 1997.

      Operating  Income.  Operating  income  increased to $9.0 million in 1998
from a $1.0 million loss in 1997.

      Interest and Other Income, Net. Interest and other income, net decreased
$5.5 million in 1998 compared to 1997. This decrease is attributed primarily to
an increase in net interest expense of $7.1 million and a gain of $3.4 million
related to a lawsuit judgment in 1998 compared to 1997 whereby the Company
recorded a gain on an insurance settlement of $3.9 million which was partially
offset by a $1.0 million initial public offering cost and a $1.0 million
remedial payment pursuant to the consent agreement entered into by the Federal
Aviation Administration and the Company.

      Net Income. As a result of the above factors, net income increased to $4.9
million for the year ended December 31,1998 from $115,000 for the year ended
December 31,1997.

FISCAL 1997 COMPARED TO 1996

      Revenues.

      Revenues decreased 4.5% to $90.0 million in 1997 from $94.2 million in
1996, due primarily to the cessation of operations for seven weeks and the
subsequent effects of such temporary interruption of services during the second
half of 1997. In the first half of 1997, revenues increased 33.2% to $52.2
million from $39.2 million in the first half of 1996 due to increases in
revenues from both scheduled cargo services and ACMI services. Total block hours
flown by the Company's fleet decreased 10.5% to 19,372 in 1997 from 21,642 in
1996, due primarily to the temporary cessation of operations during the second
half of 1997.

      Revenues from scheduled cargo services increased 2.9% to $56.4 million in
1997 from $54.8 million in 1996, due to significant increases in cargo rates,
partially offset by a decrease in scheduled block hours of 7.4% as a result of
the temporary cessation of operations. Tons of freight transported decreased
9.3% to 68,844 in 1997 from 75,923 in 1996.

      Revenues from ACMI services decreased 12.4% to $31.1 million in 1997 from
$35.5 million in 1996, due primarily to a decrease in ACMI block hours in the
second half of 1997. Total block hours flown for ACMI services decreased 12.8%
to 10,712 in 1997 from 12,288 in 1996. The significant decrease in ACMI hours
was primarily the result of the temporary cessation of operations, as well as
the Company's strategy to reestablish and focus on normal scheduled cargo
services when operations recommenced. In the first half of 1997, revenues from
ACMI services increased 35.2% to $17.3 million from $12.8 million in the first
half of 1996, due primarily to an increase in block hours flown as a result of
the addition of new ACMI customers and increased aircraft utilization.

      Revenues from repairs, training and other decreased 37.5% to $2.5 million
in 1997 from $4.0 million in 1996, due primarily to $1.2 million of airframe
repairs performed on a single aircraft during the first half of 1996. The
aircraft was subsequently purchased from a company owned by a stockholder of the
Company.

      Operating Expenses.

      Flying operations expenses decreased 6.6% to $34.2 million in 1997 from
$36.6 million in 1996, due primarily to a 7.4% decrease in scheduled cargo
services block hours. As a percentage of total revenues, flying operations
expenses decreased to 38.0% in 1997 from 38.8% in 1996.


                                       26
<PAGE>


      Aircraft and traffic servicing expenses increased 10.1% to $8.7 million in
1997 from $7.9 million in 1996, due primarily to the addition of personnel to
handle the increase in scheduled cargo services in the first half of 1997 and
the Company's reluctance to reduce key personnel during the cessation of
operations. As a percentage of total revenues, aircraft and traffic servicing
expenses increased to 9.7% in 1997 from 8.4% in 1996, due primarily to the
increase in the proportion of total revenues generated from scheduled cargo
services. Scheduled cargo tonnage increased 12.6% in the first half of 1997
compared to the first half of 1996.

      Maintenance expenses increased 53.5% to $15.2 million in 1997 from $9.9
million in 1996, due primarily to the increase in block hours operated during
the first half of 1997. In addition, during the second half of 1997, the Company
continued to perform maintenance during the temporary cessation of operations.
As a percentage of total revenues, maintenance expenses increased to 16.9% in
1997 from 10.5% in 1996.

      General and administrative expenses increased 14.2% to $16.1 million in
1997 from $14.1 million in 1996, due to increased legal and professional fees
associated with issues surrounding the temporary cessation of operations, rent
and payroll related expenses. As a percentage of total revenues, general and
administrative expenses increased to 17.9% in 1997 from 15.0% in 1996.

      Selling expenses increased 71.0% to $5.3 million in 1997 from $3.1 million
in 1996, due primarily to increased commissions and selling expenses to support
anticipated growth in scheduled cargo services. Commissions and other selling
expenses related to scheduled cargo services increased $916,000 in 1997 compared
to 1996. In addition, provision for bad debts increased $866,000 in 1997
compared to 1996. During 1996, reserves for bad debts were reduced by a $391,000
recovery of previously written-off accounts receivable. As a percentage of total
revenues, selling expenses increased to 5.9% in 1997 from 3.3% in 1996.

      Depreciation and amortization expense increased 22.3% to $11.5 million in
1997 from $9.4 million in 1996, due primarily to increases in equipment and
leasehold improvements as well as increased amortization of capitalized airframe
and engine repair and maintenance costs. As a percentage of total revenues,
depreciation and amortization expenses increased to 12.7% in 1997 from 10.0% in
1996.

      Operating Income (Loss). Operating income (loss) decreased to a $1.0
million loss in 1997 from a $13.2 million profit in 1996 due to the temporary
cessation of operations during the last half of 1997.

      Interest and Other Income, Net. Interest and other income, net increased
$1.3 million in 1997 compared to 1996, due primarily to a gain on insurance
settlement of $3.9 million partially offset by $1.0 million of initial public
offering expenses and a $1.0 million remedial expense payable to the FAA
pursuant to the Consent Agreement.

      Net Income.  As a result of the above factors,  net income  decreased to
$115,000 in 1997 from $13.0 million in 1996.

LIQUIDITY AND CAPITAL RESOURCES

      As of December 31, 1998, the Company's primary source of liquidity
consisted of $124.6 million in cash and cash equivalents compared to $2.3
million at December 31, 1997. The Company had working capital of $128.5 million
at December 31, 1998, compared to $3.0 million at December 31, 1997. In June
1998, the Company received net proceeds of approximately $193.5 million from the
sale of $200 million principal amount of 9-7/8% Senior Notes due 2008 (the
"Senior Notes"). Of such amount, the Company used approximately $41.1 million to
repay other indebtedness.

      Net cash provided by operating activities was $13.8 million and $12.5
million during the years ended December 31, 1997 and 1998, respectively. This
decrease in cash flow from operating activities was partially due to insurance
proceeds of $3.9 million received during 1997. Cash used by the increase in
accounts receivable was $6.1 million for the year ended December 31, 1998
compared to cash provided by the decrease in accounts receivable of $2.9 million
for the year ended December 31, 1997. In addition, net income increased by $4.7
million for the year ended December 31, 1998.


                                       27
<PAGE>

      Net cash used in investing activities was $26.4 million and $40.3 million
for the years ended December 31, 1997 and 1998, respectively. This increase
resulted primarily from $18.3 million in advances to QTV during the year ended
December 31, 1998 relating to the manufacture of hushkits required to be
installed on the Company's DC-8 aircraft and an increase of $2.0 million
relating to a collateralized loan receivable for the year ended December 31,
1998 as compared to year ended December 31, 1997. Net cash used in investing
activities was partly offset in the year ended December 31, 1997 by the receipt
of insurance proceeds of $6.5 million.

      Net cash provided by financing activities was $150.2 million for the year
ending December 31, 1998 compared to net cash used in financing activities of
$13.9 million for the same period in the prior year. This increase resulted
primarily from the $193.5 million of net proceeds received by the Company from
the sale of the Senior Notes plus an additional $12.0 million term note relating
to the purchase of an L-1011 aircraft, partially offset by the repayment of all
existing debt other than the Senior Notes in the amount of $41.1 million and the
repurchase of $10 million principal amount of Senior Notes with accrued interest
for a discounted total of approximately $9.7 million. The Company made
distributions to its shareholders of $3.4 million and $4.4 million in the years
ended December 31, 1997 and 1998, respectively, primarily to enable the
shareholders to pay income taxes related to the Company's income. During May
1998, the Company also made a distribution to its shareholders of approximately
$3.5 million in excess of amounts required by the shareholders to pay income
taxes.

      The Company has a $45 million credit facility with NationsCredit
Commercial Corporation (the "Existing Credit Facility"), which expires in
November 2000. Borrowings under the Existing Credit Facility bear interest at
the bank's prime rate plus 0.75%. The unused portion of the line of credit is
subject to a fee at the rate of .30% per annum. Borrowings under the Existing
Credit Facility are collateralized by substantially all of the Company's
existing assets. As of December 31, 1998, no amounts were outstanding under the
Existing Credit Facility.

      The Company has elected to be taxed as an S corporation and each of Fine
Air and Agro Air have elected to be taxed as a qualified sub-chapter S
subsidiary under provisions of the Internal Revenue Code. Accordingly, the
Company is not subject to Federal and State income taxes. Instead, the taxable
income is included in the individual income tax returns of the stockholders.

      The Company's tax returns for the years ended December 31, 1995, 1996, and
1997 are scheduled for examination by the Internal Revenue Service. Management
believes that the examination will relate specifically to the Company's
treatment of certain repairs and maintenance, including safety checks mandated
by the Federal Aviation Administration, as expenses for tax purposes. Should the
Internal Revenue Service take the position that these costs should have been
capitalized and subsequently depreciated, a substantial assessment to the
shareholders could result. During 1998, an IRS examination of fiscal 1993 and
1994 relating to similar matters was resolved, and an additional tax liability
was assessed to the shareholders.

      The Company has no material commitments for future capital expenditures
other than the Arrow Air and Asset Acquisition, apart from normal scheduled
major airframe and engine repairs and maintenance and the hushkitting of its
DC-8 aircraft. See "--Recent Developments." The Company will be required to
install hushkits on its existing fleet of 14 DC-8 aircraft by December 31, 1999
to comply with noise abatement regulations although the Company has agreed with
the FAA pursuant to a Consent Agreement to hushkit 12 of its DC-8 aircraft by
August 31, 1999 or remove any of such 12 aircraft that are not hushkitted by
such date from its operations specifications. The Company estimates that the
average cost of such hushkits will be approximately $2.25 million per aircraft,
and that the aggregate cost to the Company to hushkit its 14 DC-8s and to
acquire two spare hushkits will be $36.0 million, approximately $31.0 million of
which had been incurred as of December 31, 1998. The Company will continue to
purchase hushkits for this purpose from a related party. Management believes
that the cost of the hushkits to be purchased from the related party are lower
than the cost of other hushkits available in the market.

      The Company believes that its current cash and cash equivalents, its
availability under the existing $45.0 million line of credit, and cash flows
expected to be generated by operations will be sufficient to meet its
anticipated cash needs for working capital and capital expenditures for at least
the next 18 months.


                                       28
<PAGE>

NEW ACCOUNTING PRONOUNCEMENTS

      In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures About Segments of an Enterprise and Related Information." SFAS
No. 131 requires that public entities report financial and descriptive
information about its reportable operating segments, generally on the basis that
it is used internally for evaluating segment performance. Required disclosure
includes segment profit or loss, certain specific revenue and expense items and
segment assets. It requires reconciliations of disclosed segment information to
the entity's financial statements. Because the operations of the Company relate
to a single reportable segment, specifically Latin America, the implementation
of SFAS No. 131 did not have a material effect on the financial statements.

SEASONALITY

      The Company's business has been, and is expected to continue to be,
seasonal in nature, with a majority of the Company's revenues and operating
income generated in the second half of the year (principally the fourth
quarter). The Company's fourth quarter revenues and operating income are
typically higher due to an increase in freight transported in anticipation of
and during the holiday season. In addition to increased fourth quarter revenues
from scheduled cargo services, the Company typically has realized a majority of
its ACMI service revenues from flights conducted during this period.

YEAR 2000 COMPLIANCE

      The Company has invested significant management and financial resources in
the development of information systems to facilitate its cargo, flight and
maintenance operations, provide its personnel accurate and timely information
and increase the level of service and information provided to its customers. The
Company continually assesses its management information systems and, as of March
1999, had entered into agreements with certain software vendors to provide
information systems for maintenance and logistics management and cargo handling
management. Additionally, the Company is currently negotiating with another
software vendor to replace existing financial applications systems. Assessment
and selection of systems for flight operations and crew management is currently
underway with system implementation scheduled for third quarter 1999. The cargo
management system is expected to be operable in the second quarter of 1999. The
financial systems are expected to be operable late in the second quarter of 1999
and the maintenance/logistics systems are scheduled to be implemented late in
the third quarter of 1999. These systems constitute the bulk of the company's
automation and should bring all core applications into Year 2000 compliance. The
cost of these systems will be approximately $3.5 million, of which approximately
$280,000 had been incurred as of December 31, 1998.

      The Company has been assessing the impact that the Year 2000 issue will
have on its computer systems, including both hardware and software. The Year
2000 issue is the result of computer programs being written using two digits
rather than four to define the applicable years. Third-party hardware and
software used by the Company are, for the most part, Year 2000 compliant; those
that are not compliant will be upgraded or replaced. Initial review of the
Company's DC-8 and L-1011 aircraft computer systems indicate that most of the
systems are compliant. The Company has also initiated formal communications with
all of its significant suppliers, vendors and/or large customers to determine
the extent to which the Company is vulnerable to those third parties' failure to
remediate their own Year 2000 issue. Assuming that remediation projects can be
implemented as planned, the Company believes future costs relating to the Year
2000 issue, which will be expensed as incurred, will not have a material adverse
effect on the Company's business, operations or financial condition.

      While the Company believes it is taking all the necessary steps to assure
its Year 2000 compliance, it is dependent on key business partner compliance to
some extent. The Company plans to have all company controllable systems tested
and compliant by mid-1999. The Year 2000 problem is pervasive and complex as
virtually all computer systems worldwide will be affected in some way.
Consequently, no assurance can be given that all Company used third-party
systems and vendors/suppliers can achieve Year 2000 compliance.



                                       29
<PAGE>

RISK FACTORS THAT MAY AFFECT FUTURE RESULTS

      The Company's business, results of operation and financial condition could
be adversely affected by a number of factors, including the following:

SUBSTANTIAL LEVERAGE

      The Company is highly leveraged and has significant debt service
requirements. At December 31, 1998, the total consolidated indebtedness of the
Company was approximately $190 million and the ratio of total consolidated
indebtedness to total capitalization was approximately 77%. The degree to which
the Company is leveraged could adversely affect the Company for several reasons,
including: (i) the ability of the Company to obtain additional financing,
whether for working capital, capital expenditures or other purposes, may be
impaired; (ii) substantially all of the Company's current cash flow from
operations will be required for debt service, thereby reducing funds available
to the Company for its operations; (iii) the Company's flexibility in planning
for or reacting to changes in market conditions may be limited; (iv) the Company
may be more vulnerable upon a downturn in its business; and (v) to the extent
that the Company incurs any indebtedness at variable rates, including under the
Existing Credit Facility, the Company will be vulnerable to increases in
interest rates. 

RESTRICTIONS IMPOSED BY CERTAIN COVENANTS

      The Existing Credit Facility and the Indenture governing the Senior Notes
contain a number of significant covenants that, among other things, will
restrict the ability of the Company to dispose of assets, incur additional
indebtedness, incur liens on property or assets, repay other indebtedness, pay
dividends, enter into certain investments or transactions, repurchase or redeem
debt or equity securities, engage in mergers or consolidations or engage in
certain transactions with subsidiaries and affiliates and otherwise restrict
business activities. There can be no assurance that such restrictions will not
adversely affect the Company's ability to finance its future operations or
capital needs or engage in other business activities that may be in the interest
of the Company. A breach of any of these covenants could result in a default
under the Existing Credit Facility. If any such default occurred, the lender
under the Existing Credit Facility could elect to declare the outstanding
borrowings under the Existing Credit Facility, together with accrued interest
and other fees, to be due and payable, and the holders of the Senior Notes could
elect to declare the outstanding principal of the Senior Notes, together with
accrued interest, to be due and payable. If the Company were unable to repay any
such borrowings when due, the lender under the Existing Credit Facility could
proceed against its collateral. If the indebtedness under the Existing Credit
Facility or the Senior Notes were to be accelerated, there can be no assurance
that the assets of the Company would be sufficient to repay such indebtedness in
full. Any such default may have a material adverse effect on the Company's
financial condition and results of operations.

INTERNATIONAL BUSINESS RISKS

      The Company derives a majority of its revenues from providing air cargo
services and ACMI services to South and Central America and the Caribbean. The
risks of doing business in foreign countries include potential adverse changes
in the diplomatic relations of foreign countries with the United States,
hostility from local populations, adverse effects of currency exchange controls,
restrictions on the withdrawal of foreign investment and earnings, government
policies against businesses owned by non-nationals, expropriations of property,
the potential instability of foreign governments and the risk of insurrections
that could result in losses against which the Company is not insured. The
Company's international operations also are subject to economic uncertainties,
including, among others, risks of renegotiation or modification of existing
agreements or arrangements with governmental authorities, exportation and
transportation tariffs, foreign exchange restrictions and changes in taxation
structure. At some foreign airports, the Company is required by local
governmental authorities or market conditions to contract with third parties for
maintenance, ground and cargo handling and other services. The performance by
these third parties of such services is beyond the Company's control, and any
operating difficulties experienced by these third parties could adversely affect
the Company's reputation or business. In addition, traffic rights to many
foreign countries are subject to bilateral air services agreements between the
United States and the foreign countries, are allocated only to a limited number
of U.S. carriers and are subject to approval by the applicable foreign
regulators. Consequently, the Company's ability to provide air cargo service in
some foreign markets depends in part on the willingness of the U.S. Department
of Transportation (the "DOT") to allocate limited 


                                       30

<PAGE>

traffic rights to the Company rather than to competing U.S. airlines and on the
approval of the applicable foreign regulators. See "Item 1. Business--Government
Regulation."

GROWTH STRATEGY IMPLEMENTATION; ABILITY TO MANAGE GROWTH

The Company's growth strategy includes (i) increasing its scheduled cargo
services to South and Central America and the Caribbean as well as the possible
expansion of such services to other international markets such as Europe, (ii)
increasing its ACMI services and (iii) possible acquisitions. The Company's
ability to execute its growth strategy will depend on a number of factors,
including existing and emerging competition, the ability to maintain profit
margins in the face of competitive pressures, the continued recruitment,
training and retention of operating employees, the strength of demand for its
services and the availability of capital to support its growth. Expanded
international operations may involve increased costs and risks including those
related to foreign regulation, intensified competition, currency fluctuations
and exchange controls. In addition, future growth may place strains on the
Company's management resources, management information systems and financial and
accounting systems. There can be no assurance that the Company will be
successful in implementing its growth strategy, and the Company's failure to do
so effectively could have a material adverse effect on the Company's financial
condition and results of operations. See "Item 1. Business--Growth Strategy."

COMPETITION

      The air freight industry is highly competitive. The Company's cargo
services compete for cargo volume principally with other all-cargo airlines,
integrated carriers and scheduled and non-scheduled passenger airlines which
have substantial belly cargo capacity. To a lesser extent, the Company's cargo
services also compete for freight forwarding business with fully integrated
carriers, some of which are also customers of the Company. The Company's ACMI
services compete primarily with other airlines that operate all-cargo aircraft
and have lift capacity in excess of their own needs. Many of the Company's
competitors have substantially greater financial and other resources and more
extensive facilities and equipment than the Company. There can be no assurance
that the Company will be able to continue to compete successfully with existing
or new competitors. See "Item 1. Business--Competition."

CAPITAL INTENSIVE NATURE OF AIRCRAFT OWNERSHIP AND OPERATION

      The airline business is highly capital-intensive. The Company has made
significant capital investments to acquire the aircraft, ground and cargo
handling equipment and an inventory of spare parts necessary for the operation
of its business. The Company historically has purchased, and intends to continue
to purchase, used aircraft, which tend to require more maintenance than newer
generation aircraft. Older aircraft tend to be subject to more Airworthiness
Directives ("ADs") promulgated by the FAA than newer aircraft, and are required
to undergo extensive structural inspections on an ongoing basis. The Company
cannot predict when and whether new ADs covering its aircraft will be
promulgated, and there can be no assurance that compliance with ADs will not
adversely affect the Company's business, financial condition or results of
operations. In addition, to satisfy FAA rules regarding allowable noise levels,
prior to December 31, 1999, the Company must install "hushkits" on its DC-8
aircraft, although the Company has agreed with the FAA pursuant to a Consent
Agreement to hushkit 12 of its DC-8 aircraft by August 31, 1999 or remove any of
such 12 aircraft that are not hushkitted by such date from its operations
specifications. The Company estimates that the average cost of such hushkits
will be approximately $2.25 million per aircraft, and that the aggregate cost to
the Company to hushkit its 14 DC-8s and to acquire two spare hushkits will be
$36.0 million, approximately $31.0 million of which had been incurred as of
December 31, 1998. The Company has purchased hushkits for this purpose from
Quiet Technology Venture, Limited ("QTV, Ltd."), a related party, which received
a Supplemental Type Certificate, a certification from the FAA that authorizes
the use of a particular process to perform a major modification to a United
States registered aircraft ("STC"), meeting the FAA's Stage III noise emission
requirements for its hushkits. There can be no assurance that the costs of
acquiring and installing hushkits on the Company's aircraft will not exceed
management's estimates or that the installation can be completed on a timely
basis. See "Item 1. Business--Government Regulation."


                                       31
<PAGE>


AVAILABILITY OF ADDITIONAL AIRCRAFT AND AIRCRAFT PARTS

     The Company's growth strategy depends in large part upon its ability to
acquire additional aircraft to increase its lift capacity. The Company's
strategy has been to acquire used aircraft that formerly were in passenger
service and to convert such aircraft to cargo use. The market for used aircraft
can be affected by a number of factors, including increased demand from other
cargo carriers, which could limit the number of available aircraft and increase
the acquisition cost thereof. Certain parts and components required for the
operation of the Company's existing aircraft may not be readily available in the
marketplace when the Company requires them, and the inability of the Company to
obtain necessary components or parts in a timely manner could adversely affect
the Company's operations. There can also be no assurance that any aircraft
acquired in passenger configuration can be converted to cargo configuration on a
timely basis. See "Item 1. Business--Growth Strategy."

CYCLICAL NATURE OF AIR FREIGHT INDUSTRY; SEASONALITY AND FLUCTUATIONS IN
QUARTERLY RESULTS

      The air freight industry is highly sensitive to general economic and
political conditions, and the results of operations and financial condition of
air cargo carriers such as the Company can be adversely affected by economic
downturns in global or regional economies that result in decreased demand for
air freight transportation. Any prolonged general reduction in the world air
freight market could have a material adverse effect on the Company's growth or
financial performance. The Company's business has been, and is expected to
continue to be, seasonal in nature, with a majority of the Company's revenues
and operating income falling in the second half of the year (principally the
fourth quarter). The Company's fourth quarter revenues and operating income are
typically higher due to an increase in cargo transported in anticipation of and
during the holiday season. An interruption in the Company's operations during
this period due to unanticipated maintenance, compliance with ADs, severe
weather or other factors beyond the Company's control could have a material
adverse effect on the Company's results of operations.

COST AND AVAILABILITY OF FUEL

      Fuel is a major expense for all airlines, and the cost and availability of
aviation fuel are subject to economic and political factors and events which the
Company can neither control nor accurately predict. Higher fuel prices resulting
from fuel shortages or other factors could adversely affect the Company's
profitability if the Company is unable to pass on the full amount of fuel price
increases to its customers through fuel surcharges or higher rates. In addition,
a shortage of supply could have a material adverse effect on the air freight
industry in general and the financial condition and results of operations of the
Company. See "Item 1. Business--Aircraft Fleet--Fuel."

CONTRABAND RISK

      Customers may not inform the Company, despite the requirement to do so,
when their cargo includes hazardous materials. In addition, the Company's own
checks and searches for hazardous materials, weapons, explosive devices and
illegal freight may not reveal the presence of such materials or substances in
its customers' cargo. The transportation of unmanifested hazardous materials or
of contraband could result in fines, penalties, flight bans or possible damage
to the Company's aircraft. In one such instance, the government of Peru alleged
that the Company supplied a chartered aircraft which transported weapons to
Ecuador in February 1995 during the Ecuador-Peru conflict, and revoked the
Company's right to fly commercially into Peru. The particular flight at issue
was a chartered aircraft, and the Company denied any wrongdoing. The FAA found
after an investigation of the matter that there was not sufficient evidence to
support a conclusion that the Company violated regulations governing the
transportation of hazardous materials by air. The Company received authority
from the government of Peru to resume service in March 1999. There can be no
assurance the Company will not be subject to fines, penalties or flight bans in
the future, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Item 1. Business 
--Security and Safety."

DEPENDENCE UPON MANAGEMENT AND KEY PERSONNEL

      The Company's success depends to a significant degree upon the continued
services of J. Frank Fine and Barry H. Fine, as well as the Company's ability to
retain other members of the Company's senior management team and key personnel.
The Company does not have employment agreements with either Frank or Barry Fine


                                       32
<PAGE>

and does not maintain "key man" life insurance. The loss of services of Messrs.
Frank or Barry Fine or certain other officers or key personnel could have a
material adverse effect on the Company's results of operations and its future
prospects.

EMPLOYEE RELATIONS

      Many airline industry employees are represented by labor unions. The
Company's employees have been subject to union organization efforts from time to
time, and the Company is likely to be subject to future unionization efforts as
its operations expand. On October 3, 1997, the International Brotherhood of
Teamsters (the "Teamsters") was certified to represent the Company's Flight Deck
Crew Members for collective bargaining purposes. The Teamsters have been
certified by the National Mediation Board and negotiations regarding a
collective bargaining agreement have been underway since summer 1998. The final
collective bargaining agreement could result in higher employee compensation and
working condition demands that could increase the Company's operating costs or
constrain its operating flexibility. See "Item 1. Business--Employees."

GOVERNMENT REGULATION

      The Company is subject to extensive government regulation under U.S. laws
and the laws of the various countries which it serves as well as bilateral and
multilateral agreements between the United States and foreign governments. The
Company is subject to the jurisdiction of the FAA with respect to aircraft
maintenance and operations and other matters affecting air safety. 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 FAA regulations and
to assess civil penalties for such failures. The DOT and FAA have authority
under the Aviation Safety Noise Abatement Act of 1979, as amended, and under the
Airport Noise and Capacity Act of 1990 ("ANCA") to monitor and regulate aircraft
engine noise and exhaust emissions. ANCA requires the elimination of Stage II
aircraft, pursuant to which airlines such as the Company must bring their fleets
into compliance with certain FAA Stage III noise emissions standards in the
contiguous 48 states by December 31, 1999. In September 1998, the Company
entered into a Consent Agreement with the FAA regarding its use of interchange
agreements to comply with Stage III noise requirments. Pursuant to this Consent
Agreement, the Company has agreed that it will hushkit 12 of its DC-8 aircraft
by August 31, 1999 or remove any of such 12 aircraft that are not hushkitted by
such date from its operations specifications. As of March 1, 1999, the Company
has installed hushkits on eight of such aircraft and does not foresee any
problem in complying with this Consent Agreement. The Company expects to hushkit
all of its DC-8 aircraft by December 31, 1999 and intends to continue to
purchase hushkits for this purpose from a related party. The Company estimates
that the average cost of such hushkits will be approximately $2.25 million per
aircraft, and that the aggregate cost to the Company to hushkit its 14 DC-8s and
to acquire two spare hushkits will be $36.0 million, of which approximately
$31.0 million had been incurred as of December 31, 1998.

      The Company must also remain "fit" under applicable DOT regulations
governing, among other things, air carriers' financial health, record of
compliance with DOT regulations and U.S. citizenship requirements. The FAA also
exercises regulatory jurisdiction over the transportation of hazardous
materials. To provide scheduled service to foreign countries, the Company must
obtain permission for such operations from both the DOT and the applicable
foreign government authorities and comply with all applicable rules and
regulations imposed by these foreign government authorities.

      The failure of the Company or its employees to comply with applicable
government regulations could subject the Company to substantial fines or
penalties or could result in the suspension or loss of the Company's licenses,
permits or authority to operate its aircraft or routes. In 1991, Agro Air paid
approximately $107,000 in penalties and signed a consent order with the DOT,
agreeing that Agro Air was able to lease aircraft and to provide maintenance and
insurance, but not to lease or provide aircraft crews to third parties. This
consent order has not adversely impacted the Company's operations and the
Company has been able to provide ACMI services to third parties. In March 1997,
the Company agreed to settle with the FAA and pay civil penalties in the amount
of $30,000 for violation of the Federal Aviation Regulations for failing to
properly document certain training of some of its crew members.

      Following the August 7, 1997 crash of one of the Company's aircraft, the
Company's operations were placed under heightened scrutiny by the FAA. As a
result of concerns expressed by the FAA, the Company 


                                       33


<PAGE>

voluntarily ceased operations on September 4, 1997, and on September 12, 1997
the Company entered into the Consent Agreement. As part of the Consent
Agreement, the Company agreed not to resume operations until the FAA approved
new cargo handling and hazardous materials procedures to be implemented by the
Company. Under the Consent Agreement, the Company agreed to make a remedial
payment of $1.5 million to the FAA for the costs of the FAA's investigation,
review and re-inspection of the Company. Pursuant to the Consent Agreement,
$500,000 of this assessment was waived as a result of the Company's compliance
with certain requirements prior to December 31, 1997. The Company resumed
operations on a limited basis on October 28, 1997, approximately seven weeks
after suspending operations. The Company is in full compliance with the terms of
the Consent Agreement.

      Before the Company can operate a new aircraft type, it must demonstrate to
the FAA that it can safely operate and maintain the aircraft. This includes the
preparation by the Company of detailed operational, training and maintenance
manuals which must be accepted by the FAA. Furthermore, the Company must
demonstrate that it can implement and comply with such manuals, properly train
its crews and successfully operate proving flights for the FAA before
introducing the new aircraft type into revenue service. There can be no
assurance that the FAA will certify the Company for operation of any new
aircraft types the Company may seek to operate.

      In addition to the foregoing, the adoption of new laws, policies, or
regulations, amendments to existing laws or regulations, including ANCA, or
changes in the interpretation or application of existing laws, policies or
regulations, whether by the FAA, the DOT, the U.S. government or any foreign,
state or local government to whose authority the Company is subject could have a
material adverse impact on the Company and its operations. See "Item 1.
Business--Government Regulation."

UNINSURED LOSSES; COST OF INSURANCE

      The Company is subject to potential losses as a result of third party
claims arising from accidents involving the Company's aircraft or an aircraft
that the Company has repaired or maintained. Substantial claims resulting from
such an accident could exceed the Company's policy limits and have a material
adverse effect on the business, financial condition and results of operations of
the Company.

      Aviation insurance premiums historically have fluctuated based on factors
that include the loss history of the industry in general and the insured
carrier, and the ability of the Company to maintain adequate insurance coverage
on economical terms could be adversely affected by general industry conditions
or losses incurred by the Company.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

      The Company does not have any material risk exposure to market changes
that affect market risk sensitive instruments, as interest on all of the
Company's material long-term debt accrues at a fixed rate.



                                       34

<PAGE>



ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.


                        INDEX TO FINANCIAL STATEMENTS

                                                                         PAGE
                                                                         ----

Report of Independent Certified Public Accountants.....................    36

Consolidated Balance Sheets as of December 31, 1997 and 1998...........    37

Consolidated  Statements of Operations  for the Years Ended  December 31,  38
  1996, 1997 and 1998..................................................

Consolidated  Statements of Changes in Stockholders' Equity for the Years
  Ended December 31, 1996, 1997 and 1998...............................    39

Consolidated  Statements  of Cash Flows for the Years Ended  December 31,  40
  1996, 1997 and 1998..................................................

Notes to Consolidated Financial Statements.............................    41






                                       35
<PAGE>

              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



To the Stockholders and Directors of Fine Air Services Corp.:

      In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows present fairly, in all material respects, the financial position
of Fine Air Services Corp. and its subsidiaries at December 31, 1997 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audits 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, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.





PRICEWATERHOUSECOOPERS LLP


Miami, Florida
March 25, 1999, except for the second 
paragraph of Note 19, as to which the 
date is April 9, 1999



                                       36
<PAGE>


                   FINE AIR SERVICES CORP. AND SUBSIDIARIES

                         CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                  DECEMBER 31,
                                                                     -------------------------------------
                                                                          1997                   1998
                                                                     -------------          -------------
<S>                                                                  <C>                    <C>          
ASSETS
Current assets:
   Cash and cash equivalents ..................................      $   2,276,912          $ 124,632,274
   Investment securities ......................................             56,602                 49,577
   Accounts receivable, net of allowance for
     losses of $1,247,000 and $1,608,000, respectively ........         14,847,410             12,240,690
   Loans receivable, current portion ..........................            430,669              2,470,757
   Expendable parts ...........................................            545,998                302,325
   Prepaid expenses and other current assets ..................            639,042                487,287
                                                                     -------------          -------------
     Total current assets .....................................         18,796,633            140,182,910
                                                                     -------------          -------------
Property and equipment:
   Flight equipment ...........................................         78,085,073             91,339,013
   Other ......................................................         13,942,209             36,013,106
                                                                     -------------          -------------
                                                                        92,027,282            127,352,119
   Less accumulated depreciation and amortization .............        (35,446,183)           (44,892,542)
                                                                     -------------          -------------
   Net property and equipment .................................         56,581,099             82,459,577
                                                                     -------------          -------------
Other assets:
   Restricted cash ............................................            709,012                303,504
   Accounts receivable from related party (Note 12) ...........          1,753,000              3,849,707
   Loans and accounts receivable, less current portion ........          3,569,331              9,351,084
   Deposits and other assets ..................................            983,213              1,594,731
   Deferred debt issuance costs, net of
     amortization of $13,000 and $550,000 respectively ........            453,427              6,316,209
                                                                     -------------          -------------
     Total assets .............................................      $  82,845,715          $ 244,057,722
                                                                     =============          =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Current portion of long-term debt ..........................      $   4,305,045          $          --
   Accounts payable ...........................................          5,448,188              4,186,345
   Interest payable............................................            801,256              1,653,248
   Accrued expenses ...........................................          5,158,986              5,750,111
   Capital lease obligation, current portion ..................            113,014                135,445
                                                                     -------------          -------------
     Total current liabilities ................................         15,826,489             11,725,149
                                                                     -------------          -------------
Capital lease obligation, less current portion ................            196,400                 81,752
Long-term debt, less current portion ..........................         24,779,630                   --
9 7/8% Senior Notes due 2008 ..................................               --              190,000,000
Other debt ....................................................            230,000                   --
                                                                     -------------          -------------
     Total liabilities ........................................         41,032,519            201,806,901
                                                                     -------------          -------------
Commitments and contingencies (Notes 10, 12, 13, 14 and 19)
Stockholders' equity:
   Common stock, $0.01 par value; 3,000 shares
     authorized, issued and outstanding .......................                 30                     30
   Retained earnings ..........................................         41,799,668             42,244,318
   Net unrealized holding gains on investment securities ......             13,498                  6,473
                                                                     -------------          -------------
     Total stockholders' equity ...............................         41,813,196             42,250,821
                                                                     -------------          -------------
     Total liabilities and stockholders' equity ...............      $  82,845,715          $ 244,057,722
                                                                     =============          =============

</TABLE>


  THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.


                                       37
<PAGE>

                   FINE AIR SERVICES CORP. AND SUBSIDIARIES

                    CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>

                                                           YEARS ENDED DECEMBER 31,
                                          ------------------------------------------------------
                                                 1996               1997                 1998
                                                 ----               ----                 ----
<S>                                       <C>                 <C>                 <C>          
 Revenues:
   Scheduled cargo services ........      $  54,774,892       $  56,412,349       $  76,079,187
   ACMI services ...................         35,519,906          31,079,449          37,645,389
   Repairs, training and other .....          3,953,131           2,502,372           2,378,847
                                          -------------       -------------       -------------
     Total operating revenues ......         94,247,929          89,994,170         116,103,423
                                          -------------       -------------       -------------
Operating expenses:
   Flying operations ...............         36,609,604          34,198,136          39,505,917
   Aircraft and traffic servicing ..          7,938,513           8,709,798          12,085,255
   Maintenance .....................          9,894,441          15,247,112          18,004,391
   General and administrative ......         14,110,869          16,131,561          18,055,817
   Selling .........................          3,095,842           5,264,365           6,152,126
   Depreciation and amortization ...          9,390,396          11,469,954          13,235,861
                                          -------------       -------------       -------------
     Total operating expenses ......         81,039,665          91,020,926         107,039,367
                                          -------------       -------------       -------------
     Operating income (loss) .......         13,208,264          (1,026,756)          9,064,056
                                          -------------       -------------       -------------
Other income (expense):
   Interest income .................             94,651             225,017           4,855,241
   Interest expense, net of interest
     capitalized of $440,000 in 1997           (966,058)         (1,090,838)        (12,830,307)
   Gain on insurance settlement ....               --             3,905,373                --
   Initial public offering costs ...               --              (978,243)               --
   Other, net ......................            691,414            (919,339)          3,609,390
                                          -------------       -------------       -------------
     Total other, net ..............           (179,993)          1,141,970          (4,365,676)
                                          -------------       -------------       -------------
Income before extraordinary gain ...         13,028,271             115,214           4,698,380
Extraordinary gain on repurchase of
  Senior Notes .....................               --                  --               165,520
                                          -------------       -------------       -------------
Net income .........................      $  13,028,271       $     115,214       $   4,863,900
                                          =============       =============       =============

Basic earnings per common share:
Income before extraordinary gain ...      $    4,342.76       $       38.40       $    1,566.13
Extraordinary gain .................               --                  --                 55.17
                                          -------------       -------------       -------------
Net income .........................      $    4,342.76       $       38.40       $    1,621.30
                                          =============       =============       =============
Weighted average number of common
  shares outstanding ...............              3,000               3,000               3,000
                                          =============       =============       =============


</TABLE>

  THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

                                       38



<PAGE>

                   FINE AIR SERVICES CORP. AND SUBSIDIARIES

          CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                     COMMON STOCK
                                    ----------------                         UNREALIZED HOLDING       LOANS AND
                                                          RETAINED             GAIN (LOSS) ON         ADVANCES TO
                                    SHARES   AMOUNT       EARNINGS          INVESTMENT SECURITIES    STOCKHOLDERS       TOTAL
                                    ------   ------       --------          ---------------------    ------------       -----
                                                                      
<S>                                 <C>       <C>        <C>                      <C>                 <C>            <C>        
Balances at December 31, 1995       3,000     $30        $33,136,486              $(31,731)           $(481,097)     $32,623,688
 
Net income.................           --       --         13,028,271                 --                  --           13,028,271

Distributions..............           --       --         (1,110,091)                --                  --           (1,110,091)

Reimbursement of
  advances to stockholders            --       --              --                    --                 481,097          481,097

Change in unrealized
  loss on investment securities       --       --              --                    7,214                                 7,214
                                    -----      --         ----------               -------             -------       -----------
Balances at December 31, 1996       3,000      30         45,054,666               (24,517)               --          45,030,179

Net income                            --       --            115,214                  --                  --             115,214
Distributions                         --       --         (3,370,212)                 --                  --          (3,370,212)
Change in unrealized
  gain (loss) on        
  investment securities               --       --              --                   38,015                                38,015
                                    -----      --         ----------               -------             -------       -----------
Balances at December 31, 1997       3,000      30         41,799,668                13,498                --          41,813,196

Net income                            --       --          4,863,900                  --                  --           4,863,900
Distributions                         --       --         (4,419,250)                 --                  --          (4,419,250)
Change in unrealized
  gain on investment securities       --       --              --                   (7,025)               --              (7,025)
                                    -----      --         ----------               -------             -------       -----------
Balances at December 31, 1998       3,000     $30        $42,244,318               $ 6,473             $  --         $42,250,821
                                    =====     ===        ===========               =======             =======       ===========


</TABLE>


   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

                                       39




<PAGE>

                   FINE AIR SERVICES CORP. AND SUBSIDIARIES

                    CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                         YEARS ENDED DECEMBER 31,
                                                        -------------------------------------------------------
                                                              1996                1997                1998
                                                              ----                ----                ----
<S>                                                     <C>                 <C>                 <C>          
Cash flows from operating activities:
  Net income .....................................      $  13,028,271       $     115,214       $   4,863,900
                                                        -------------       -------------       -------------
  Adjustments to reconcile net income to
    net cash provided by operating
    activities:

  Extraordinary gain on repurchase of 
    Senior Notes..................................               --                  --              (165,520)

  Depreciation and amortization ..................          9,390,396          11,469,954          13,235,861
  Amortization of deferred debt issuance costs ...               --                12,820             537,522
  Bad debt expense ...............................             16,266             882,546             405,539
  Excess of insurance proceeds over net
    book value of assets destroyed ...............               --            (3,905,373)               --
  Gain on disposal of property and equipment .....           (668,116)            (32,000)               --
  Loss on sales of investment securities .........             76,937              86,916                --

  Changes in operating assets and liabilities:
    Accounts receivable ..........................         (4,746,594)          2,920,862          (6,148,037)
    Expendable parts .............................            (29,760)            235,500             243,673
    Prepaid expenses and other assets ............           (472,519)           (108,920)           (459,763)
    Accounts payable .............................         (2,023,765)         (1,186,398)         (1,031,843)
    Interest payable .............................           (268,179)            134,481             851,992
    Accrued expenses .............................            517,707           2,961,347             591,125
    Other liabilities ............................               --               230,000            (460,000)
                                                        -------------       -------------       -------------
      Total adjustments ..........................          1,792,373          13,701,735           7,600,549
                                                        -------------       -------------       -------------
    Net cash provided by operating
      activities .................................         14,820,644          13,816,949          12,464,449
                                                        -------------       -------------       -------------
Cash flows from investing activities:
  Purchases of property and equipment ............        (14,107,612)        (32,500,061)        (39,114,339)
  Proceeds from sales of property and
    equipment ....................................          2,238,758              32,000                --
  (Increase) decrease in restricted cash, net ....            (40,390)           (527,339)            405,508
  Purchases of investment securities .............           (146,128)               --                  --
  Proceeds from sales of investment securities ...            140,734             119,165                --
  Decrease (increase) in loans receivable ........             25,000                --            (2,000,000)
  Proceeds from insurance settlement .............               --             6,500,000                --
  Principal payments on notes receivable .........               --                  --               430,670
                                                        -------------       -------------       -------------
    Net cash used in investing activities ........        (11,889,638)        (26,376,235)        (40,278,161)
                                                        -------------       -------------       -------------
Cash flows from financing activities:
  Proceeds from long-term debt ...................               --            20,000,000         212,000,000
  Deferred debt issuance costs ...................               --              (466,247)         (6,734,784)
  Principal payments on long-term debt ...........         (1,871,546)         (1,572,464)        (50,584,675)
  Proceeds from (payment on) line of credit ......            100,000            (700,000)               --
  Distributions to stockholders ..................         (1,110,091)         (3,370,212)         (4,419,250)
  Reimbursement of advances to stockholders ......            481,097                --                  --
  Payments of capital lease obligations ..........               --               (26,937)            (92,217)
                                                        -------------       -------------       -------------
    Net cash (used in) provided by
      financing activities .......................         (2,400,540)         13,864,140         150,169,074
                                                        -------------       -------------       -------------
Increase in cash and cash equivalents ............            530,466           1,304,854         122,355,362
Cash and cash equivalents, beginning of year .....            441,592             972,058           2,276,912
                                                        -------------       -------------       -------------
Cash and cash equivalents, end of year ...........      $     972,058       $   2,276,912       $ 124,632,274
                                                        =============       =============       =============

Supplemental disclosures of cash flow information:
  Cash paid during the year for interest .........      $   1,234,237       $     956,357       $  11,440,793
                                                        =============       =============       =============
Supplemental disclosures of non-cash
 investing activities (also see Note 12):
  Change in unrealized holding gain on
  available for sale investment securities .......      $      (7,214)      $     (38,015)      $       7,025
                                                        =============       =============       =============

</TABLE>

   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.


                                       40

<PAGE>

                   FINE AIR SERVICES CORP. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.     NATURE OF BUSINESS:

Fine Air Services Corp. and subsidiaries, (the "Company") is primarily engaged
in interstate, overseas and foreign charter and scheduled air transportation of
cargo and mail pursuant to authority granted by the United States Department of
Transportation and operates in the United States, South and Central America, and
the Caribbean. The Company has worldwide charter authority granted by the United
States Department of Transportation and is also engaged in aircraft leasing and
repair and maintenance.

The percentage of revenues derived from each of the Company's primary business
activities was as follows:

                                             YEARS ENDED DECEMBER 31,
                                       -----------------------------------
                                       1996           1997             1998
                                       ----           ----             ----
Scheduled cargo services..........      58%             62%             66%
ACMI services.....................      38              35              32
Repairs, training and other.......       4               3               2
                                       ---             ---             --- 
                                       100%            100%            100%
                                       ===             ===             === 

The fixed assets of the Company consist primarily of aircraft, engines, rotable
parts, ground equipment and furniture and office equipment, substantially all of
which are physically located or based at the Miami International Airport.

The Company operates principally in Latin America (including Puerto Rico and the
U.S. Virgin Islands) and the United States. For the years ended December 31,
1996, 1997 and 1998, Latin America sales accounted for 89%, 91%, and 81% of
total revenues, respectively. Foreign sales were conducted in U.S. dollars.


2.     SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF CONSOLIDATION

The consolidated  financial statements include the accounts of the Company and
its wholly owned subsidiaries,  Fine Air Services,  Inc. ("Fine Air") and Agro
Air Associates, Inc. ("Agro Air"). All significant intercompany accounts and
transactions have been eliminated.

REVENUE RECOGNITION

Aircraft, crew, maintenance and insurance ("ACMI") services revenue is generally
recognized on a flight by flight basis, although revenue derived from certain
long term ACMI contracts is recognized on a pro rata basis according to block
hour usage specified in such contracts. Revenue from scheduled cargo services is
recognized when the related cargo reaches its point of destination. Revenue from
repairs, training and other is recognized as services are performed.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. The
Company uses estimates principally with respect to the allowance for losses on
receivables, the economic useful lives of property and equipment and salvage
value on owned aircraft. Actual results could differ from those estimates.


                                       41
<PAGE>

EARNINGS PER SHARE

Basic earnings per common share is computed by dividing net income by the
weighted average number of common shares outstanding. For the years ended
December 31, 1996, 1997, and 1998, there were no dilutive shares outstanding.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of cash (both interest bearing and
non-interest bearing) and certificates of deposit and other highly liquid
instruments (A-1, P-1 commercial paper) having maturities of three months or
less from the date of purchase. At times cash and cash equivalents in a
depository institution may be in excess of the FDIC insurance limit. As of
December 31, 1998, the Company had $124.4 million in deposits in excess of the
FDIC insurance limit.

RESTRICTED CASH

Restricted cash consists of certificates of deposit required to collateralize
various letters of credit (Note 13).

INVESTMENT SECURITIES

Securities that the Company does not have the intent or ability to hold to
maturity are classified as either "available-for-sale" or as "trading" and are
carried at fair value. Unrealized gains and losses on available for sale
securities are classified as a separate component of stockholders' equity.
Unrealized gains and losses on trading securities would be recognized in current
earnings. As of December 31, 1997 and 1998, all securities have been classified
as available for sale.

EXPENDABLE PARTS

Flight equipment expendable parts are stated at the lower of average cost or
market value.

PROPERTY AND EQUIPMENT

Owned aircraft are stated at cost. Expenditures for additions, improvements,
flight equipment modifications, engine overhauls and major maintenance costs are
capitalized. Other maintenance and repairs are charged to expense when incurred.
The Company performs a substantial portion of flight equipment modifications,
engine repairs, major maintenance as well as normal repairs and maintenance.
Owned DC-8 aircraft are depreciated over their estimated useful lives of 10
years using the straight line method, net of the estimated salvage value of 10%.
Major maintenance and overhaul costs are depreciated over their estimated useful
lives, which range from 3 to 8 years.

At the time assets are retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the related accounts, and the
difference, net of proceeds, if any, is recorded as a gain or loss.

Long-lived assets to be held and used are reviewed for impairment whenever
changes in circumstances indicate that the related carrying amounts may not be
recoverable. When required, impairment losses on assets to be held and used are
recognized based on the fair value of the asset. The Company does not believe
impairment charges are warranted as of December 31, 1997 and 1998.

INCOME TAXES

The Company has elected to be taxed as an S corporation and each of Fine Air and
Agro Air have elected to be taxed as a qualified sub-chapter S subsidiary under
provisions of the Internal Revenue Code. Accordingly, the 

                                       42

<PAGE>

Company is not subject to Federal and State income taxes. Instead, the taxable
income is included in the individual income tax returns of the stockholders.

The Company's tax returns for the years ended December 31, 1995, 1996, and 1997
are scheduled for examination by the Internal Revenue Service. Management
believes that the examination will relate specifically to the Company's
treatment of certain repairs and maintenance, including safety checks mandated
by the Federal Aviation Administration, as expenses for tax purposes. Should the
Internal Revenue Service take the position that these costs should have been
capitalized and subsequently depreciated, a substantial assessment to the
shareholders could result.

During 1998, an IRS examination of fiscal 1993 and 1994 relating to similar
matters was resolved, and an additional tax liability of approximately $2.9
million was assessed to the stockholders. During January 1999, a distribution of
this amount was made to the stockholders.

DEFERRED DEBT ISSUANCE COSTS

Costs relating to the issuance of the Senior Notes (Note 7) and to the
establishment of the line of credit (Note 8) have been deferred, and are being
amortized on a straight line basis (approximating the interest method) over the
respective terms of the Senior Notes and the line of credit.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist of investment securities, loans
receivable, and the Senior Notes. Investment securities have been classified as
available for sale and are recorded at fair value. The fair values of the loans
receivable have been estimated based on interest rates available for similar
instruments and approximate their carrying values. The fair value of the Senior
Notes has been estimated based on market prices from recent trades, which at
December 31, 1998 resulted in an approximate fair value of $171,000,000.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." SFAS No.
131 requires that public entities report financial and descriptive information
about its reportable operating segments, generally on the basis that it is used
internally for evaluating segment performance. Required disclosure includes
segment profit or loss, certain specific revenue and expense items and segment
assets. It requires reconciliations of disclosed segment information to the
entity's financial statements. Because the operations of the Company relate to a
single reportable segment, specifically Latin America, the implementation of
SFAS No. 131 did not have a material effect on the financial statements.

SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK

For the years ended December 31, 1997 and 1998, sales to the Company's largest
ACMI customer comprised 13.5% and 8.7%, respectively, of total operating
revenues. This customer also accounted for 20% and 34% of net accounts
receivables as of December 31, 1997 and 1998, respectively. Another customer
accounted for 23% and 16% of the net accounts receivable balance at December 31,
1997 and 1998, respectively. The Company also has a note receivable from its
largest ACMI customer with outstanding balances of $4,000,000 and $3,569,000 as
of December 31, 1997 and 1998, respectively (See Note 6).

On March 31, 1998, the Company and its largest ACMI customer entered into a
security agreement, whereby the customer granted the Company an unconditional
and continuing security interest in all of the customer's tangible and
intangible assets (the "Collateral"). Subsequently, the stockholders of this
customer pledged 100% of its common stock as additional Collateral. The Company
has historically offered extended ACMI lease payments to this customer. It is
management's intent to continue to provide this customer with sufficient
aircraft so that the customer is able to operate at the same or at an increased
level of operations. Management believes that the Collateral is sufficient to
ensure the recoverability of the customer's accounts and note receivable
balances (See Note 6).

                                       43
<PAGE>


3. INVESTMENT SECURITIES:

The cost and fair values of investments in equity securities at December 31,
1997 and 1998 were as follows:

                                              GROSS        GROSS
                                            UNREALIZED   UNREALIZED    MARKET
                                    COST      GAINS       (LOSSES)     VALUE
                                  -------    -------      --------    -------
Equity securities at
  December 31, 1997               $43,104    $14,347      $  (849)    $56,602
                                  =======    =======      =======     =======
Equity securities at
  December 31, 1998               $43,104    $10,040      $(3,567)    $49,577
                                  =======    =======      =======     =======

Gains and losses  resulting from sales of securities are determined  using the
specific identification method.



4. ACCOUNTS RECEIVABLE:

Activity in the allowance for doubtful accounts was as follows:

                                            YEARS ENDED DECEMBER 31,
                                ---------------------------------------------
                                     1996              1997           1998
                                     ----              ----           ----

Balance, beginning of year      $ 1,044,821      $ 1,308,976     $ 1,246,863
Provision ................           16,266          882,546         405,539
Receivables charged off ..         (143,129)        (944,659)        (44,619)
Recoveries ...............          391,018
                                -----------      -----------     -----------
Balance, end of year .....      $ 1,308,976      $ 1,246,863     $ 1,607,783
                                ===========      ===========     ===========

5. PROPERTY AND EQUIPMENT:

Property and equipment consisted of the following at:

                                                         DECEMBER 31,
                                             -----------------------------------
                                                   1997                 1998
                                                   ----                 ----
Aircraft, engines and betterments .......    $  78,085,073       $  91,339,013
Automobile and trucks ...................          416,719             416,719
Leasehold improvements, furniture and
  fixtures ..............................        1,112,499           1,540,820
Machinery and equipment .................        2,272,562           2,499,978
Rotable parts (see Note 12) .............       10,140,429          31,555,589
                                             -------------       -------------
                                                92,027,282         127,352,119
Accumulated depreciation and amortization      (35,446,183)        (44,892,542)
                                             -------------       -------------
                                             $  56,581,099       $  82,459,577
                                             =============       =============


                                       44
<PAGE>



6. LOANS RECEIVABLE:

On October 13, 1998, the Company entered into a short term revolving credit
agreement with one of its customers, whereby $2,000,000 was made available for
the customer's use. As of December 31, 1998, the entire $2,000,000 was
outstanding. The loan bears interest at prime plus 1%, is collateralized by
accounts receivable of the customer, and matures on August 31, 1999.

During November 1997, the Company converted $4,000,000 of accounts receivable
from its largest ACMI customer into a 9% interest bearing note. Principal and
interest are payable in 11 quarterly installments of $194,101 beginning in
February 1998. A balloon payment in the amount of $2,778,000, representing
remaining principal and any unpaid interest, is due on November 1, 2000. At
December 31, 1997 and 1998, the outstanding balances on this note were
$4,000,000 and $3,569,000 respectively.

7. SENIOR NOTES

On June 5, 1998, the Company consummated the sale of $200,000,000 9-7/8% Senior
Notes due June 1, 2008. Interest on the Senior Notes is payable on a semi-annual
basis on June 1 and December 1 of each year, commencing December 1, 1998. The
Senior Notes are general unsecured obligations of the Company and are fully and
unconditionally guaranteed by Fine Air and Agro Air (the "Subsidiary
Guarantors") on a joint and several basis.

Separate financial statements of the Subsidiary Guarantors are not presented
because: (i) Fine Air Services Corp. is a holding company with no independent
operations; (ii) each of the Subsidiary Guarantors is a wholly-owned subsidiary
of the Company and together comprise all of the Company's direct and indirect
subsidiaries, and (iii) management has determined that such information is not
material to investors.

Contemporaneous with the sale of the Senior Notes, the Company repaid all
outstanding long-term debt (Note 9) including the outstanding balance of the
$12,000,000 L-1011 term note. The term note was then converted into a line of
credit which, when combined with the existing line of credit (Note 8) totaled
$45,000,000.

On August 14, 1998, the Company repurchased $10,000,000 of the Senior Notes at
95% of the face value plus accrued interest of approximately $203,000. This
transaction resulted in an extraordinary gain of $165,000.

8. LINE OF CREDIT:

The Company has $45,000,000 available through a revolving line of credit, which
expires in November 2000. Interest under this line is determined at the time of
borrowing based on the bank's prime rate plus 0.75%. Borrowings under the line
are collateralized by eligible accounts receivable. As of December 31, 1998,
$757,000 was used to guaranty an irrevocable letter of credit with Metropolitan
Dade County (Note 13). The unused portion of the line of credit is subject to a
fee at the rate of .30% per annum. At December 31, 1998, there were no
borrowings outstanding under the line of credit.



                                       45

<PAGE>

9. LONG-TERM DEBT:

Long-term debt was as follows at December 31, 1997:

Note  payable,  interest at 8.75%;
   payable in annual  installments
   of   principal   and   interest
   totaling   $1,935,110   through 
   March 2003;  collateralized  by
   aircraft.............................    $8,745,830
Note  payable,  interest  at 7.5%;
   payable in annual  installments
   of   principal   and   interest
   totaling  $321,314 through July      
   1999;     collateralized     by
   aircraft.............................       576,941

Term note, interest at .75% above prime rate 
   (9.25% at December 31, 1997);
   payable in monthly principal installments 
   of $214,286 plus interest through
   November 1, 2000 with a balloon payment 
   on the unpaid principal balance due November    
   17,  2000; collateralized by
   aircraft,  engines  and rotable
   parts................................    17,785,714

Term note, interest at .75% above prime rate 
   (9.25% at December 31, 1997);
   payable in monthly principal installments 
   of $23,810 plus interest through
   November 1, 2000 with a balloon
   payment on the unpaid
   principal  balance due November     
   17,  2000;   collateralized  by
   aircraft,  engines  and rotable
   parts...............................     1,976,190
Total long-term debt...................    29,084,675
Current portion of long-term debt......    (4,305,045)
                                          -----------
Long-term debt, less current portion...   $24,779,630
                                          ===========

During April 1998, the Company entered into a $12,000,000 term note bearing
interest at 0.75% above the prime rate collateralized by an L-1011 aircraft and
its engines. This note was repaid from the proceeds of the Senior Notes.


10.  LEASE COMMITMENTS:

The Company leases office, hangar and warehouse space at the Miami International
Airport from Metropolitan Dade County. The office and warehouse facilities lease
expires in September 1999. The hangar lease expires in March 2001. The Company
also leases a building for its engine repair operations which expires September
2001. Future minimum non-cancelable operating lease payments are as follows:

1999..................................................       2,259,000
2000..................................................       1,769,000
2001..................................................         514,000
2002..................................................          72,000
2003..................................................          66,000
                                                            ----------
   Total                                                    $4,680,000
                                                            ==========

Rent expense for the years ended December 31, 1996, 1997 and 1998 was
approximately $2,305,000, $2,865,000 and $3,570,000, respectively.


                                       46
<PAGE>

CAPITAL LEASES

Assets under capital leases are capitalized using interest rates appropriate at
the inception of each lease. Future minimum payments for assets under capital
leases at December 31, 1998 are as follows:

1999 ...........................................        149,727
2000 ...........................................         85,252
                                                      ---------
      Total minimum obligations ................        234,979
      Interest .................................        (17,782)
                                                      ---------
      Net minimum lease payments ...............        217,197
      Current portion ..........................       (135,445)
                                                      ---------
      Long-term obligations less current portion      $  81,752
                                                      =========

11. GAIN ON INSURANCE SETTLEMENT:

During 1997, an aircraft was declared a total loss by the Company's insurance
underwriters as a result of an accident. The total insurance proceeds received
for the aircraft were $6,500,000. A gain of $3,905,373 was recognized during
1997, which represented the excess of insurance proceeds over the net book value
of the aircraft.


12. RELATED PARTY TRANSACTIONS:

By December 31, 1999, the Company will be required to install hushkits on all of
its existing fleet of 14 DC-8 aircraft to comply with noise abatement
regulations issued by the Federal Aviation Administration (the "FAA"). During
September 1998, the Company entered into a Consent Agreement with the FAA
whereby the Company is required to physically hushkit its aircraft in accordance
with an accelerated schedule; six planes must be huskitted by December 31, 1998,
an additional three planes mush be hushkitted by March 31, 1999 and another
three by August 31, 1999.

Management intends to acquire at least 16 hushkits (including 14 for its
existing DC-8 aircraft and two spares) at an estimated average cost of
approximately $2.25 million per hushkit, which represents the cost to
manufacture and install each hushkit plus $125,000, or approximately $36.0
million in the aggregate as of December 31, 1998. The Company intends to
continue to purchase the hushkits from Quiet Technology Venture, Ltd. ("QTV"),
an entity in which its stockholders have a controlling interest. Management
believes that the cost of $2.25 million per hushkit is lower than the cost of
comparable hushkits applicable to the Company's models of DC-8 aircraft.

On June 30, 1997, QTV received (subject to certain weight restrictions) a
Supplemental Type Certificate ("STC") from the FAA approving the installation of
the hushkits on the Company's fleet of DC-8's. Subsequent to receiving the STC,
QTV improved the hushkit design so that when installed, the aircraft will be
able to carry the maximum cargo capacity (as originally designed by the
manufacturer), while being in compliance with FAA noise level requirements. On
August 25, 1998, QTV received an amended STC for the upgraded hushkit design.

During the fourth quarter of 1996, the Company began funding QTV's production of
the hushkits on behalf of the Company through the purchase of parts on behalf of
QTV and through direct cash advances. As of December 31, 1997 and 1998, the
Company had cumulative advances to QTV of $8,804,000 and $27,139,000
respectively, for the manufacture of hushkits on its behalf. Such advances
represent the cost basis of the hushkits manufactured (finished goods, work-in-
process and raw materials). The costs of the hushkits noted above have been
recorded by the Company as rotable parts within property and equipment since QTV
has deeded title for all such hushkits and related parts to the Company. The
Company capitalizes such advances when made, which is contemporaneous with the
transfer of deed of the related parts from QTV to the Company. Depreciation will
commence on the hushkits as they are installed on the aircraft.

For the years ended December 31, 1996, 1997, and 1998, the Company recorded
revenues (repairs, training and other) of approximately $1,886,000, $1,121,000
and $2,096,000, respectively, relating to work performed for QTV.


                                       47

<PAGE>

At December 31, 1997 and 1998, $1,753,000 and $3,850,000 relating to those
revenues were included in accounts receivable, non-current, respectively. The
receivable outstanding as of December 31, 1998 is expected to be realized
through the installation of hushkits produced by QTV.

At December 31, 1997 and 1998, the Company had advances of $352,000 and
$233,000, respectively, to several related parties affiliated with the Company's
stockholders.

In December 1996, the Company purchased a cargo aircraft from a company owned by
a stockholder of the Company in exchange for $2,859,000, consisting of
$1,700,000 due the Company from overhaul services performed on the aircraft,
loans and advances to stockholders of $481,000 and loans, interest receivable
and receivables from parties related to the stockholders of $678,000. An
independent appraiser valued the aircraft at approximately $3,800,000. The
maintenance performed in the amount of $1,700,000 was included in
revenues--repairs, training and other.


13. FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK:

At December 31, 1997 and 1998, the Company had outstanding $678,000 and
$1,024,000, respectively, of irrevocable standby letters of credit to guarantee
landing fees in certain countries and to guarantee rent at the Miami Airport
corporate offices and hangar facilities. These letters of credit have been
collateralized by restricted cash on deposit at the bank issuing such letters of
credit and by a line of credit with a financial institution (Note 8).


14. COMMITMENTS AND CONTINGENCIES:

As a result of the accident described in Note 11, the Company is currently
subject to litigation and is aware of other claims pending which have not
reached litigation. All such litigation is being defended by the Company's
insurance carrier, without reservation of rights. Management believes that the
Company is fully insured for all litigation related to this accident.

The Company is involved in legal proceedings, claims and litigation arising in
the ordinary course of business. In the opinion of management, the outcome of
this litigation will not have a material impact on the Company's financial
position, results of operations, or liquidity.


15. CONSENT AGREEMENT:

As a result of an accident involving one of the Company's DC-8 aircraft, the
Company entered into a Consent Agreement with the Federal Aviation
Administration (the "FAA"), whereby the Company committed to improve its loading
procedures on both ACMI and cargo flights, and to reimburse the FAA up to
$1,500,000 for the costs of their investigation and supervision subsequent to
the accident. The Consent Agreement specified that if, by December 1997, the
Company had established improved loading practices, and was current with respect
to payments required by the reimbursement schedule, $500,000 of the total
assessment would be waived. As of December 31, 1997, the FAA had waived the
$500,000 and had concluded that the Company had improved their loading
procedures to their satisfaction. The net $1,000,000 assessment was charged to
other expense during 1997. As of December 31, 1997 and 1998, remaining payments
of $690,000 and $230,000, respectively, pursuant to this agreement were
outstanding.


16. INITIAL PUBLIC OFFERING COSTS:

During 1997, the Company incurred costs of $978,243 in connection with a
proposed initial public offering of its common stock. These costs have been
expensed since the offering was not completed.


                                       48
<PAGE>


17. LITIGATION SETTLEMENT:

In January 1997, the Company obtained a $3,400,000 judgment against a former
insurance carrier. The judgment was appealed, and final adjudication was made in
February 1998. On March 3, 1998, the Company received the full amount of the
judgment, which was recognized as other income during 1998.


18. EMPLOYEE BENEFITS PLAN

In March 1998, the Company adopted a 401(k) plan (the "Plan") which covers
substantially all employees who have completed three months of service and are
at least 18 years of age. Under provisions of the Plan, eligible employees may
contribute a maximum of 15% of pre-tax gross wages, subject to certain
restrictions imposed by the Internal Revenue Code. Company contributions are at
the discretion of its Board of Directors. Vesting occurs over a seven-year
period at the rate of 20% per year, beginning after the third year. For the year
ended December 31, 1998, the Company did not make any contributions to the Plan.


19. SUBSEQUENT EVENTS:

On February 5, 1999, the Company entered into an agreement to acquire 100% of
the capital stock of Arrow Air, Inc. (the "Stock Purchase") as well as other
assets (the "Asset Purchase"). Such assets consist of 12 DC-8 cargo aircraft,
one passenger DC-8 aircraft, three cargo L-1011-200 aircraft, one passenger
L-1011-500 aircraft, approximately 130 serviceable and repairable aircraft
engines, inventories of aircraft and engines parts, as well as all the
inventories and parts supporting Arrow Air's operations and equipment relating
to certain repair shops. The aggregate purchase price of $115 million was loaned
to the sellers pending approval of the transaction under the Hart Scott Rodino
Antitrust Improvements Act of 1976.

On March 10, 1999, the Asset Purchase was completed, and $100 million of the
$115 million loan was cancelled. On April 9, 1999, the Company consummated the
Stock Purchase by canceling the remaining $15 million of the loan plus the
accrued interest.





                                       49
<PAGE>

20. QUARTERLY DATA (UNAUDITED):

Unaudited quarterly data for the years ended December 31, 1997 and 1998 is
presented below (in thousands except share and per share amounts):

<TABLE>
<CAPTION>

                                                                QUARTER ENDED
                                              -----------------------------------------------------
1998                                          MARCH 31      JUNE 30     SEPTEMBER 30    DECEMBER 31
----                                          --------      -------     ------------    -----------

<S>                                          <C>           <C>           <C>            <C>     
Operating revenues ....................      $ 25,144      $ 28,720      $ 27,580       $ 34,659
Operating income (loss) ...............           758         2,154          (123)         6,275
Income (loss) before extraordinary gain         3,689           865        (3,031)         3,175
Extraordinary gain ....................          --            --             166           --
                                             --------      --------      --------       --------
Net income ............................         3,689           865        (2,865)         3,175


Net income (loss) per common share:
Income (loss) before extraordinary gain     $1,229.64      $ 288.33    $(1,010.05)     $1,058.21
Extraordinary gain ....................          --            --           55.17           --
Net income (loss) .....................      1,229.64        288.33       (954.88)      1,058.21
Average shares outstanding ............         3,000         3,000         3,000          3,000


1997
----
Operating revenues ....................      $ 25,926      $ 26,277      $ 19,357       $ 18,434
Operating income (loss) ...............         3,349         3,314        (4,423)        (3,267)
Net income (loss) .....................         3,170         3,182        (2,589)        (3,648)
Net income (loss) per common share ....     $1,056.54     $1,060.67      $(862.89)    $(1,216.00)
Average shares outstanding ............         3,000         3,000         3,000          3,000

</TABLE>


                                       50
<PAGE>

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

      Not Applicable.

                                    PART III

ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT.

     The following table sets forth certain information regarding the directors,
executive officers and certain key employees of the Company:

NAME                                  AGE          POSITION
----                                  ---          --------

DIRECTORS AND EXECUTIVE OFFICERS
J. Frank Fine........................74    Chairman of the Board
Barry H. Fine........................46    President, Chief Executive Officer
                                             and Director
John D. Zappia.......................47    Senior Vice President and Chief
                                             Operating Officer
Orlando M. Machado...................39    Senior Vice President and Chief
                                             Financial Officer

CERTAIN KEY EMPLOYEES
Celeste A. Lipworth..................35    Vice President, General Counsel
Terence T. Sullivan..................37    Vice President, Director of Finance
Nanci Adels..........................41    Vice President, Director of Sales
Hugh P. Nash.........................58    Vice President, Marketing and Sales
Anthony D. Phillips..................55    Vice President, Interline and
                                             International Marketing
Daniel L. Stemen.....................31    Vice President, Director of ACMI
                                             Services

     J. Frank Fine founded the Company's predecessor in 1976 and has served as
the Company's Chairman of the Board since its inception. Mr. Fine also served as
the Company's President and Chief Executive Officer from its inception until
June 1997. Mr. Fine also served as Vice President, North America and General
Sales Agent of Alas de Transporte International, S.A., a Dominican all-cargo
airline ("Alas"), from 1988 to 1992; Vice President, North America and General
Sales Agent of Interamericana de Aviacion, C.A., a Venezuelan all-cargo airline
("Interamericana"), from 1988 to 1992; Vice President, North America and General
Sales Agent of Aerochago, S.A., a Dominican all-cargo airline ("Aerochago"),
from 1985 to 1988; and President, North America and General Manager of Aeromar
C. por A., a Dominican all-cargo carrier ("Aeromar"), from 1978 to 1985. Mr.
Fine is the father of Barry H. Fine.

     Barry H. Fine has served as the Company's President and Chief Executive
Officer since June 1997 and has served as a director of the Company since its
inception. Mr. Fine served as Vice President and General Manager of the Company
from its inception until June 1997. Mr. Fine served as Vice President, North
America, U.S. General Counsel and U.S. General Sales Agent of Alas from 1988 to
1992; Vice President, North America and U.S. General Sales Agent of
Interamericana from 1988 to 1992; Vice President, North America and General
Counsel of Aerochago from 1985 to 1988; and Vice President, North America and
General Counsel of Aeromar from 1982 to 1985.

     John D. Zappia has served as the Company's Senior Vice President and Chief
Operating Officer since June 1997. Mr. Zappia served as Senior Vice President,
Maintenance and Operations of the Company from November 1992 until June 1997.
Since 1991, Mr. Zappia has been a member of the Miami Maintenance Management
Council, an association of maintenance companies and was its President from 1991
to 1995. From March 1984 to November 1992, Mr. Zappia served as Vice President
of Maintenance of Agro Air. Prior to joining the Company, Mr. Zappia's
experience in the airline industry includes: Electrical and Avionic Lead
Mechanic of Air Florida (1980-1984); Technical Consultant to Aviation Components
and Accessories, Inc., an FAR 145 repair station (1981-1984); Lead Avionics and
Electrical Mechanic of Airlift International, Inc. (1979-1980); Supervisor, FAA
Accessory Overhaul Shop of Marco Island Airways (1977-1979); and Accessory
Mechanic of Dixie Air Parts Inc. (1972-1979).


                                       51
<PAGE>

      Orlando M. Machado has served as the Company's Senior Vice President and
Chief Financial Officer since July 1997. From December 1987 to June 1997, Mr.
Machado held various positions at Greenwich Air Services, Inc., a diversified
independent gas turbine engine repair and overhaul company ("Greenwich"), and
most recently served as Vice President of Finance. Prior to joining Greenwich,
Mr. Machado, who is a certified public accountant, was employed by Coopers &
Lybrand, L.L.P., as an audit manager.

      Celeste A. Lipworth has served as a Vice President of the Company since
November 1997 and as the Company's General Counsel since November 1996. From
1993 to 1996, Ms. Lipworth was an associate at the law firm of Popham, Haik,
Schnobrich & Kaufman, Ltd. From 1991 to 1992, Ms. Lipworth was an associate at
the law firm of Crowell & Moring.

      Terence T. Sullivan has served as the Company's Vice President, Director
of Finance since July 1997. From June 1994 to July 1997, Mr. Sullivan served as
Controller of the Company. From May 1993 to May 1994, Mr. Sullivan served as
Controller of Aeromar. From September 1991 to May 1993, Mr. Sullivan served as
Controller of Miami Aircraft Support, Inc., a ground support services company.
From August 1988 to August 1991, Mr. Sullivan served as Controller and was a
partner of International Futures Strategists, an investment brokerage company.
From April 1984 to July 1988, Mr. Sullivan was an accountant with the firm of
Samuels & Company.

      Nanci Adels has served as Fine Air's Vice President, Director of Sales
since July 1996. From 1991 to 1996, Ms. Adels served as Regional Manager for
Fine Air's S.W. Region in Houston, Texas. From 1980 to 1987, Ms. Adels held
various positions at British Caledonian Airways, an international passenger and
cargo airline company, and most recently served as Cargo Sales Manager.

      Hugh P. Nash has served as Fine Air's Vice President, Marketing and Sales
since November 1994, and served as Vice President, Northeast Region of Fine Air
from November 1993 to November 1994. Mr. Nash's experience in the air cargo
industry includes: Regional Manager, Southwest United States of Stair Cargo
Services/Intertrans Corp., a multinational forwarding company (1984-1993);
President of DCA, an airline general sales agency (1992-1994); Sales Manager,
Cargo of British Caledonian Airways (1980-1982); various positions, including
Agency Administrator, North America and Director, National Accounts, with MSAS,
a multinational air and ocean forwarding company (1971-1980); and various
positions, including International Sales Specialist/Eastern Region, with Emery
Air Freight (1965-1971).

      Anthony D. Phillips has served as Fine Air's Vice President, Interline and
International Marketing since October 1994. Mr. Phillips' experience in the air
cargo industry includes: General Manager, North America of Belize Air
International (1988-1994); various positions, including Director, Industry
Affairs and Director, Reservations, with Northeastern International Airways
(1983-1986); various positions, including Director, Caribbean and Director,
European Operations, with Air Florida (1977-1983); Regional Sales Manager of
Olympic Airways and Sabena World Belgian Airlines (1973-1977); and various
positions, including Systems Trainer, with Pan American Airways.

      Daniel L. Stemen has served as Fine Air's Vice President, Director of ACMI
Services since January 1998 and as Assistant Director of Operations since
January 1995. From October 1992 until January 1995, Mr. Stemen served as the
Manager of Flight Operations of the Company. Since 1993, Mr. Stemen has also
been licensed as a DC-8 First Officer. From 1986 to 1992, Mr. Stemen served as a
technical adviser and FAA Liaison for several small airlines operating out of
MIA and from 1988 to 1992 he served as Vice President of Operations for Trans
International Crew Leasing.

      Officers of the Company serve at the pleasure of the Board of Directors.
Except as noted above, there are no family relationships among any of the
Company's executive officers and directors.


                                       52
<PAGE>


ITEM 11. EXECUTIVE COMPENSATION.

     Summary Compensation Table. The following table sets forth all compensation
awarded to, earned by or for services rendered to the Company in all capacities
during the year ended December 31, 1998 by the Chief Executive Officer and the
other executive officers of the Company whose salary and bonus during 1998
exceeded $100,000 (the "Named Officers").

<TABLE>
<CAPTION>

                                                    ANNUAL COMPENSATION(1)
                                      ------------------------------------------------------
                                                                ALL OTHER       OTHER ANNUAL
                                      SALARY        BONUS    COMPENSATION(2)    COMPENSATION
                                      ------        -----    ---------------    ------------
                                                                           
<S>                                  <C>              <C>      <C>                 <C>
NAME AND PRINCIPAL POSITION
---------------------------
J. Frank Fine,
  Chairman of the Board .......      $250,000         $--      $  5,276            $--
Barry H. Fine,                                                                     
  President and Chief Executive                                                    
   Officer .....................     $250,000          --      $ 24,622             --
John D. Zappia,                                                                    
  Chief Operating Officer .....      $165,000          --          --               --
Orlando M. Machado,                                                                
    Chief Financial Officer ...      $150,000          --      $150,000 (3)         --

</TABLE>
                                                                             
---------------

(1)  Does not include cash dividends paid to the Named Officers of which
     approximately $652,000 for J. Frank Fine and approximately $201,000 for
     Barry H. Fine was in excess of amounts of funds required to pay tax
     obligations for the Company's income. See "Certain Transaction." Messrs.
     Frank and Barry Fine currently receive annual salaries of $250,000.

(2)  Represents amounts related to the Named Officers' personal use of Company
     automobiles and a portion of the premiums for health insurance provided to
     Named Officers.

(3)  Represents amount paid to executive in lieu of a stock award pursuant to
     executive's employment agreement. Such employment agreement provided for a
     stock award at the time of an initial public offering of the Company's
     common stock or a cash award of $150,000 in lieu thereof if an initial
     public offering was not consummated prior to December 31, 1997.


EMPLOYMENT AGREEMENT

     Effective July 7, 1997, the Company entered into a three-year employment
agreement with Orlando M. Machado, pursuant to which he will serve as Chief
Financial Officer. Mr. Machado will receive an annual base salary of $150,000
(effective January 1, 1999, Mr. Machado's annual base salary was increased to
$165,000) and such bonuses as may be awarded from time to time in the discretion
of the Board or any compensation committee thereof. If the agreement is
terminated prior to the expiration of the term other than by reason of death,
Disability (as defined) or Cause (as defined), or by him for Good Reason
(generally defined as the diminution of his duties or other breach by the
Company of the agreement), Mr. Machado (or his estate or beneficiaries) will
receive, in addition to accrued salary and other benefits to which he may be
entitled, his base salary for a period of two years following such termination.
The agreement prohibits Mr. Machado from competing with the Company during the
term of the agreement and for a period of one year after termination of his
employment, other than a termination by him for Good Reason or a termination by
the Company without Cause.


                                       53
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The following table sets forth information as of December 31, 1998
concerning the beneficial ownership of the Company's outstanding Common Stock.

                                                    SHARES BENEFICIALLY
                                                           OWNED
                                                   ---------------------
  NAME AND ADDRESS OF BENEFICIAL OWNER(1)          NUMBER       PERCENT
  ---------------------------------------          ------       -------
  J. Frank Fine.................................    1,500           50.0%
  Barry H. Fine.................................    1,500           50.0%

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

(1)  The address of each person or entity listed is c/o Fine Air Services, Inc.,
     2261 N.W. 67th Avenue, Bldg. 700, Miami, Florida 33152.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

      J. Frank Fine, the Company's Chairman, and Barry H. Fine, the Company's
President and Chief Executive Officer (collectively, the "Principal
Shareholders"), each own 50% of the capital stock of the Company. The Principal
Shareholders also each owned 50% of the capital stock of Fine Air and Agro Air.
On June 3, 1998, each of the Principal Shareholders contributed to the Company
his interest in Fine Air and Agro Air, each of which became a wholly owned
subsidiary of the Company. The Principal Shareholders received no additional
consideration for contributing their interests in Fine Air and Agro Air to the
Company.

      The Company has been subject to taxation under Subchapter S of the Code
and comparable provisions of state income tax laws. As a result, the net income
of the Company, for federal and certain state income tax purposes, was reported
by and taxable directly to the Company's shareholders during that time rather
than to the Company. The Company has paid cash dividends to their shareholders
in amounts at least sufficient to provide them funds for tax obligations payable
by them on account of the Company's income. During 1996, 1997 and 1998, the
Company made aggregate cash distributions to its shareholders of $1,110,091,
$3,370,212 and $4,419,250, respectively. Frank and Barry Fine received 58% and
42%, respectively, of the aggregate cash distributions made by the Company
during 1996, 1997 and 1998. During May 1998, the Company made a distribution to
its shareholders of approximately $3.5 million in excess of amounts required by
the shareholders to pay income taxes.

      At December 31, 1997 and 1998, the Company had advanced $352,000 and
$233,000, respectively, to several related parties affiliated with the Company's
stockholders.

      In December 1996, the Company purchased a cargo aircraft from Frank Fine
Company, a corporation owned by J. Frank Fine. The purchase price was $2,859,000
consisting of (i) forgiveness of accounts receivable from Frank Fine Company,
related to an overhaul performed on the aircraft, in the amount of $1,700,000,
(ii) forgiveness of loans and advances to Mr. Fine of $481,000 and (iii)
forgiveness of loans, interest receivable and accounts receivable from parties
related to Mr. Fine of $678,000.

      The Principal Shareholders own 30% of the capital stock of Quiet Nacelle
Corporation ("QNC") and 100% of the capital stock of Quiet Technology, Inc.
("QTI") and Quiet Technology DC-8, Inc. ("QTD"). Quiet Technology Venture,
Limited ("QTV, Ltd."), a partnership engaged in the manufacture of hushkits for
DC-8-50 series and DC-8-61 aircraft (the aircraft used by the Company), in which
(i) QTD is the general partner and has a 1% interest, (ii) QTI is a limited
partner and has a priority return on capital and 94.83% interest and (iii) QNC
is a limited partner and has a 4.16% interest. During 1996, 1997 and 1998, the
Company performed approximately $1,886,000, $1,121,000 and $2,096,000 of
services for QTV, Ltd. The Company's services consisted of supplying parts and
labor to manufacture hushkit components in support of QTV, Ltd.'s efforts. At
December 31, 1997 and 


                                       54


<PAGE>

1998, the balances of Company's accounts receivable due from QTV, Ltd. were
$1,753,000 and $3,850,000, respectively.

      The Company intends to purchase from QTV, Ltd. at least 16 hushkits
(including 14 for its existing DC-8 aircraft and two spares). The purchase price
for these hushkits will be (i) for the first 10 hushkits, QTV, Ltd.'s cost plus
$125,000 and (ii) for any additional hushkits, QTV, Ltd.'s cost. The Company has
paid QTV, Ltd. a non-refundable $750,000 deposit. In addition, as of December
31, 1997 and 1998, the Company had cumulative advances to QTV, Ltd. of
$8,804,000 and $27,139,000, respectively, for the manufacture of hushkits on its
behalf. Such advances represent the cost basis of the hushkits manufactured
(including finished goods, work-in-process and raw materials) The costs of the
hushkits noted above have been recorded by the Company as rotable parts within
property and equipment since QTV has deeded title for all such hushkits and
related parts to the Company. Management estimates that the average cost of such
hushkits will be approximately $2.25 million, which management believes will be
significantly lower than the cost of other hushkits available in the market.

      Management believes that the terms of the Company's transactions with
Frank Fine Company and QTV, Ltd. were at least as favorable to the Company as
those that could have been obtained from unaffiliated third parties.


                                       55
<PAGE>

                                     PART IV

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

(a)   1.  Financial Statements:

      Reference  is made to the  Index to  Financial  Statements  set forth in
Item 8. Financial  Statements and Supplementary  Data of this Annual Report on
Form 10-K.

      2.  Financial Statement Schedules:

      All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission (the "Commission") are not
required under the related instructions, the required information is contained
in the financial statements and notes thereto or are not applicable, and
therefore have been omitted.

      3.  Exhibits:

      The following exhibits are filed as part of this Annual Report on Form
10-K:

EXHIBIT        DESCRIPTION
-------        -----------

3.1            Registrant's Certificate of Incorporation (3.1) (1)

3.2            Registrant's Bylaws (3.2) (1)

10.1           Indenture,  dated  as  of  June  5,  1998,  between  the
               Registrant  and The Bank of New York,  as Trustee  (4.1)
               (1)

10.2           Agreement  of Purchase  and Sale of Assets,  dated as of
               February 5, 1999, as amended March 10, 1999 by and among
               Fine Air Services Corp., International Air Leases of PR,
               Inc. and Anthony Tirri (99.1) (2)

10.3           Stock Purchase Agreement,  dated as of February 5, 1999,
               by and among Fine Air Services Corp.,  International Air
               Leases of PR, Inc.,  Anthony Tirri,  Jean Tirri and John
               Ebert (99.2) (2)

10.4           Loan Agreement, dated as of February 5, 1999, by and
               among Fine Air Services Corp., International Air Leases
               of PR, Inc. and Anthony Tirri (99.3) (2)

21.1           Subsidiaries of the Registrant (3)

27.1           Financial Data Schedule (3)


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

(1)  Incorporated by reference to the exhibit shown in the preceding parentheses
     and filed with the Company's Registration Statement on Form S-4
     (Registration No. 333-59359).

(2)  Incorporated by reference to the exhibit shown in the preceding parentheses
     and filed with the Company's Report on Form 8-K (Event of February 5,
     1999).

(3)  Filed herewith.


(b)  Reports on Form 8-K

      No reports on Form 8-K were filed during the last quarter of the period
covered by this report.

                                       56

<PAGE>

                                   SIGNATURES

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

                                    FINE AIR SERVICES CORP.


                                    By: /s/ BARRY H. FINE
                                    ------------------------------------------
                                       Barry H. Fine
April 15, 1999                         President and Chief Executive Officer


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

SIGNATURE                  TITLE                                DATE
---------                  -----                                ----
                                                               
                                                               
/s/ J. FRANK FINE          Chairman of the Board                April 15, 1999
-----------------------                                        
J. Frank Fine                                                  
                                                               
                                                               
/s/ BARRY H. FINE          President, Chief Executive Officer   April 15, 1999
-----------------------    and Director                        
Barry H. Fine                                                 
                                                               
                                                               
/s/ ORLANDO M. MACHADO     Senior Vice President and Chief      April 15, 1999
-----------------------    Financial Officer (principal        
Orlando M. Machado         financial and accounting officer)   
                                                              





                                       57
<PAGE>



                                EXHIBIT INDEX

        EXHIBIT                    DESCRIPTION
        -------                    -----------

          21.1           Subsidiaries of the Company

          27.1           Financial Data Schedule - For
                         SEC use only