THIS DOCUMENT IS A COPY OF THE FORM 10-K FILED ON MARCH 30, 2000
PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION.

                         UNITED STATES
               SECURITIES AND EXCHANGE COMMISSION
                     Washington, D.C. 20549

                           FORM 10-K

(Mark One)

( X )     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
     THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR
     ENDED DECEMBER 31, 1999.

                               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 33-96884

                    VANGUARD AIRLINES, INC.
     (Exact name of Registrant as specified in its charter)

           Delaware                          48-1149290
    (State or other jurisdiction            (I.R.S. Employer
  of incorporation or organization)       Identification Number)

                     533 Mexico City Avenue
               Kansas City International Airport
                  Kansas City, Missouri 64153
                         (816) 243-2100
  (Address of principal executive offices, including zip code;
      Registrant's telephone number, including area code)


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

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

            Common Stock, par value $0.001 per share
                        (Title of Class)

     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]

     At March 1, 2000, there were 17,106,746 shares of
Common Stock outstanding, of which 15,287,361 shares were
owned by affiliates.  The aggregate market value of the
outstanding Common Stock of the Registrant held by non-
affiliates, based on the average of bid and asked prices of
such stock on March 1, 2000 of $2.88, was $5,239,829.

     Documents incorporated by reference: Portions of the
Registrant's Proxy Statement for the 1999 Annual Meeting of
Stockholders are incorporated by reference in Part III
hereof.
<PAGE>

PART I

ITEM 1.  BUSINESS

GENERAL

     Vanguard Airlines, Inc. ("Vanguard" or the "Company")
was incorporated in Delaware on April 25, 1994.  The
Company's principal offices are located at 533 Mexico City
Avenue, Kansas City International Airport, Kansas City,
Missouri 64153, and its telephone number is (816) 243-2100.

     Vanguard is a low-fare airline offering convenient, non-
stop and connecting scheduled jet service to destinations in
established markets for both business and leisure travelers.
The Company currently operates twelve leased Boeing 737-200
jet aircraft.  The Company's schedule provides an average of
86 daily weekday flights serving Kansas City, Atlanta,
Buffalo/Niagara Falls, Chicago-Midway, Dallas/Fort Worth,
Denver, Minneapolis/St. Paul, Myrtle Beach and Pittsburgh.
The Company commenced service to Buffalo/Niagara Falls from
Chicago-Midway on May 13, 1999 and service to Cincinnati
from Chicago-Midway on April 15, 1999.  Due to a poor
performance, service to Cincinnati from Chicago-Midway was
discontinued on March 1, 2000.  In November 1999, the
Company signed a letter of intent to lease six additional
Boeing 737-200 aircraft with deliveries anticipated as
follows:  four in the first five months of 2000, one in
December 2000 and one in January 2001.  The Company has
accepted one of the six aircraft as of March 4, 2000.  The
Company expects to return two aircraft in 2000 upon the
expiration of their lease terms.  The Company also provides
limited charter services.  The Company has experienced
significant growth since the commencement of operations in
December 1994, and has achieved operating revenues of
approximately $36.2 million for the year ended December 31,
1995, $68.6 million for the year ended December 31, 1996,
$81.4 million for the year ended December 31, 1997, $104.3
million for the year ended December 31, 1998 and $125.1
million for the year ended December 31, 1999.

COMPANY'S LOW-FARE SERVICE

     The Company's low-fare service is designed to meet the
needs of, and stimulate demand among, price-sensitive
business and leisure travelers.  To compete favorably, low-
fare airlines must offer services that are price competitive
with other airlines in its markets and, particularly with
respect to short-haul markets, which are competitive with
ground transportation alternatives.  The Company typically
offers its airline services at fares that are substantially
lower than fares offered prior to its entry into its
markets, especially with respect to reservations made within
seven days of departure.  The Company's fares, however, are
typically matched by the incumbent carriers, especially with
respect to reservations made more than seven days prior to
departure.  The Company believes its low-fare strategy will
continue in light of the Company's cost structure; however,
the Company has marginally increased fares in most of its
markets.

     The Company operates a revenue management system that
monitors its fares and inventory in each of its markets.
The primary price categories are: (i) promotional; (ii) 14-
day advance; (iii) seven-day advance; (iv) one-day advance
and (v) walk-up.  Within each primary category, there are
smaller fare price increments that are tailored to specific
conditions and historical operating data. The purpose of the
revenue management system is to achieve and maintain
acceptable load factor and yield levels in each market,
thereby maximizing revenue per available seat mile.

     Most of the Company's fares are sold on a nonrefundable
basis and do not require a minimum or a Saturday night stay.
Customers who change their itinerary on a nonrefundable
ticket, or who fail to use a purchased flight reservation
when scheduled and provide advance notice to the Company,
may apply the funds toward the purchase of another Vanguard
flight for use within 180 days of the scheduled flight date,
subject to a $75 service charge.  As a result of its
primarily non-refundable fare structure, the Company's
passengers typically take their designated flights, and the
Company believes its "no-show" rate is
<PAGE>
approximately 5 percent.  The Company's one-day advance and
walk-up fares are sold on a refundable basis.

     The Company's low-fare service is intended to satisfy
most of the basic air transportation needs of the Company's
targeted customers while establishing the Company's
reputation as a small yet reliable airline where customers
receive more than they expect from typical low-fare
airlines. The Company offers advance seat assignments and
more legroom than typical low-fare airlines.  The Company
believes that the basic air transportation needs of its
targeted customers can be satisfied by providing a limited
number of flights per day on most routes, low-fares, a
frequent flyer program, in-flight beverages and advance seat
assignments. The Company, however, does not offer airport
clubs, city ticket offices (except for the city ticket
office in Mission, Kansas) or certain other amenities
offered by many of its competitors.  In addition, the
Company does not interline with other domestic jet airlines,
which affects, but does not prevent, the Company's ability
to reaccommodate its passengers in the event of flight
cancellations or delays.  While many business travelers
select traditional airlines based on the availability of
these amenities, the Company believes that there is
substantial demand for its low-fare service both from the
cost-conscious business travelers and leisure travelers.

ROUTE SYSTEM AND SCHEDULING

     The Company serves primarily short- to medium-haul,
high-volume markets with three to eight round-trip flights
per day.  For the year ended December 31, 1999, the average
stage length of the Company's flights was approximately 453
miles.  Average stage length represents the scheduled
service aircraft miles flown divided by the total number of
departures. The Company has implemented various
modifications to its route structure since beginning
operations in 1994.

     The Company's strategy allows it to pursue measured
growth by expanding in existing markets as well as entering
new markets where its low cost structure, current operating
efficiencies and quality of operations can be preserved.  As
of March 1, 2000, the Company operated non-stop service in
the following markets:  (i) Atlanta and Kansas City; (ii)
Chicago-Midway and Kansas City; (iii) Chicago-Midway and
Minneapolis/St. Paul; (iv) Chicago-Midway and Pittsburgh;
(v) Chicago-Midway and Buffalo/Niagara Falls; (vi)
Dallas/Ft. Worth and Kansas City; (vii) Denver and Kansas
City; (viii) Minneapolis/St. Paul and Kansas City; and (ix)
Atlanta and Myrtle Beach.  The Company also provides limited
non-stop seasonal service between (i) Chicago-Midway and
Myrtle Beach; (ii) Buffalo/Niagara Falls and Myrtle Beach
and (iii) Pittsburgh and Myrtle Beach.  The Company's
flights are also timed to provide connecting opportunities
to and from other combinations of these city pairs primarily
through its Kansas City and Chicago gateways.  In addition,
the Company's schedule provides for convenient direct
service between certain high passenger volume markets such
as (i) Dallas/Ft. Worth and Chicago-Midway and (ii) Denver
and Atlanta.

RESERVATION AND INFORMATION SYSTEMS

     The Company's reservation system continues the
Company's simplified ticketless service and is an important
component of the Company's attempt to maintain its low cost
structure.  The Company's integrated reservation, marketing
and revenue accounting system is designed to capture
information at its source and eliminate paper records when
possible.  The Company's system provides immediate access to
detailed market data, as well as customer and financial
information obtained throughout the reservation and boarding
process.  This system also collects, organizes and stores
data on customers in support of the Company's frequent flyer
program and a number of other direct marketing efforts.
Management believes that the ease of immediate access to
timely, detailed information through its reservation system
enhances management functions.  On November 23, 1999, the
Company began selling tickets over the internet through its
home page www.flyvanguard.com.

     While a number of traditional airlines now offer
ticketless service in certain circumstances, these airlines
continue to maintain their ticketed service and the expenses
associated with the supporting
<PAGE>
accounting functions.  The Company's reservation system and
processes are entirely ticketless.  At the time a
reservation or sale is made, the Company provides its
customers with a confirmation number.  At the airport, this
information is available to the gate agent facilitating
customer check-in, effectively eliminating slow moving
customer check-in lines.  The Company's ticketless service
also eliminates traditional revenue accounting functions and
the direct and indirect costs of handling tickets.

     The Company began participating in the SABRE CRS and
WORLDSPAN CRS in August 1997 and April 1998, respectively.
Travel agents utilizing the SABRE and WORLDSPAN CRSs may
book seats on the Company's flights, without the need to
call the Company's reservation center. The Company's
reservation software and level of CRS participation allows
travel agents to send automated requests to the Company's
reservation system to verify availability of seats and
prices; upon verification from Vanguard's reservation
system, the travel agent utilizes a credit card to complete
the automated sale.  The Company intends to continue to be a
totally ticketless operation.  The Company expects to
display and sell its flights directly through the GALILEO
CRS system by June 2000.

     The Company currently does not intend to participate in
the Airline Reporting Corporation ("ARC"), the airline
industry collection agent for travel agency sales.  At the
time a travel agency reservation or sale is made, the
Company identifies the travel agency making the booking by
taking credit card information.  Although travel agencies
are most accustomed to doing business through ARC, the
Company believes that the cost savings realized by avoiding
the fees, ticket handling and revenue accounting costs
inherent in the ARC system justify the Company's decision
not to participate in ARC.  The Company's participation in
the SABRE and WORLDSPAN CRSs will require the travel agent
to utilize a credit card to guarantee the completion of the
sale.  The Company refers to this guaranteed credit card
process as "guaranteed ticketing."  Under guaranteed
ticketing, the Company collects cash from the travel agency
bookings directly from the credit card processor.  Further,
the importance of collecting outstanding travel agency
bookings is eliminated because the Company does not
participate in ARC or maintain its own internal billing and
collection functions.

     In the future, the Company may encounter problems with
features added to its computer system, with new computer
hardware provided by third parties or with a greater volume
of reservations.  If the Company experiences a system
failure, revenues may be lost or significant expenses
incurred in repairing, modifying or replacing the system.
With its ticketless service, the Company is dependent on its
computerized reservation system for information regarding
confirmed passengers and flight schedules.  The Company
outsourced its computer reservation system hardware to
Hewlett-Packard Open Skies in the second quarter of 1999.

MARKETING AND PROMOTION

     A majority of the Company's customers call its
reservation center or visit its web page directly to make
their reservations.  The Company currently sells 21 percent
of tickets through its www.flyvanguard.com web page, this
percentage was achieved within three months of commencement.
The Company intends to continue to focus on its internet
strategy and hopes to increase the percentage of its
internet sales.  As a result, the Company advertises
directly to potential customers using primarily newspapers,
television and radio. The Company's advertisements feature
the Company's destinations, lowest available fares and the
Company's toll free phone number (1-800-VANGUARD) and web
page (www.flyvanguard.com).  Currently, the marketing
efforts of the Company are concentrated on price and
destination advertisements.  The Company has introduced
numerous initiatives designed to capture a larger share of
the cost-conscious business traveler market.  The Company's
Road Warrior Program offers, among other amenities,
guaranteed timely arrivals, guaranteed seats on every
flight, preferred seating, pre-assigned seating, refundable
tickets, no change fees and a business class hotline, 1-800-
UFLY-EXEC.  In addition to its Road Warrior Program, the
Company now aggressively pursues group and bulk ticket sales
to price sensitive business travelers.
<PAGE>

     Approximately 35 percent of the Company's passenger
revenue comes through travel agent bookings. The Company has
implemented marketing strategies and programs to build on
its relationships with travel agencies throughout its route
system.  On October 25, 1999, following the trend in the
industry, the Company reduced its commission to 5 percent
from 8 percent.  See "Reservation and Information Systems."

     The Company's frequent-flyer program, Vantage Points,
awards free round-trip tickets on Vanguard to customers who
complete 16 Vanguard flights, or eight round trips, within
any 12 month period.  In addition to its standard frequent
flyer program, the Company on occasion accelerates rewards
on its frequent flyer program.  Currently, passengers who
book their flights through the Company's web page receive
double credit.  The Company is currently working on further
enhancements and partnerships to its frequent flyer program
in order to establish more active communication with
frequent flyers and partners.

MOTIVATED AND TRAINED WORKFORCE

     The Company believes that the success of an airline is
dependent in large part on the attitudes of its people.  The
Company attempts to provide a working environment conducive
to personal responsibility, creativity, accountability and
commitment.  The Company has created an informal atmosphere
and employed a horizontal management structure to facilitate
communication throughout the organization.  All departments
in the Company meet weekly to focus on internal and external
customer service issues.  Also, to keep all employees
informed about the Company's status and developments, the
Company hosts a quarterly question and answer session with
the Company's Chairman of the Board, Chief Executive Officer
and President, Robert J. Spane, and other executive officers
of the Company.  In addition, the Company has information
lines and an almost daily Company newsletter to improve the
flow of information and communications throughout the
Company.

     The Company seeks to select, train and maintain a
highly productive workforce of skilled, enthusiastic and
energetic employees and reward them for performance by
allowing them to share in the Company's success.  Management
believes that its base wage and benefit levels are generally
at market rates of other similar airlines.  The Company
expects to maintain a motivated workforce through its
selection process and a casual and friendly working
environment.  In addition, the Company as of January 1, 1999
implemented a matching component to its 401(K) plan and also
offers an employee stock purchase plan and a profit sharing
plan.  The Company expects that the aforementioned programs
will further align the interests of its employees, the
Company and its customers.

     The airline business is highly regulated.  Regulations
promulgated by the Federal Aviation Administration ("FAA")
require pilots to be licensed as commercial pilots, with
specific ratings for aircraft to be flown and to be
medically certified as physically fit.  Licenses and medical
certification requirements are subject to periodic
continuation requirements including recurrent training and
recent flying experience. Both pilot training and mechanic
training for the Boeing 737-200 jet aircraft are generally
provided by independent contractors, including other
airlines.  Currently, the average age and flight time of the
Company's pilots is 33 years and 3,800 hours, respectively.
Mechanics, quality control inspectors and flight dispatchers
must be licensed and qualified for the Company's aircraft.
Flight attendants must have initial and periodic training
and certification.  All of these employees are subject to
pre-employment and subsequent random drug and alcohol
testing.  Training programs are subject to approval and
monitoring by the FAA.  Management personnel directly
involved in the supervision of flight operations, training,
maintenance and aircraft inspection must meet experience
standards prescribed by the FAA regulations.

     Many airlines are unionized.  Management has attempted
to create an environment that is informal and that
facilitates the free flow of communication, which may reduce
employees' desires to be represented by unions.  On March 9,
1999, the National Mediation Board recognized the Vanguard
Airlines Pilots Association ("VAPA") as the bargaining unit
for the Company's pilots.  The Company is in the final
stages of contract negotiations with VAPA.  The Company
believes that its low-cost structure is derived from its
<PAGE>
simplified procedures and not simply from its employee
compensation structure; however, the Company is unable to
predict the affect the unionization of its pilots will have
on the financial performance of the Company.

AIRPORT OPERATIONS

     The Company currently serves nine airports.  The
Company has leases with the airport authorities at certain
airports and sublease or handling arrangements directly with
signatory airlines at other airports. The Company provides
its own ground handling services in Kansas City, Chicago-
Midway and Minneapolis.  The Company subcontracts its ground
handling services at the remaining airports  Most of these
sublease or handling arrangements can be terminated by the
other airlines or the Company upon 30 to 60 days notice.  If
such a termination were to occur, the Company would have to
make alternative arrangements or cease operations at the
affected airport.  There can be no assurance that
alternative arrangements would be available at all or at a
reasonable cost.  See "-Government Regulation."

     Ground handling services typically involve (i) public
contact services, such as meeting, greeting and serving the
Company's customers at the check-in counter, gate and
baggage claim areas and (ii) underwing ground handling
services such as marshaling the aircraft into and out of the
gate, baggage loading and unloading, as well as lavatory and
water servicing, deicing and certain services provided to
the aircraft overnight.  Public contact services at the
Company's various airports are mainly conducted by the
Company's full- and part-time employees.  Except as
indicated above, underwing ground handling services are
primarily provided by other airlines and/or fixed based
operators.

AIRCRAFT

     The Company's aircraft fleet consists of twelve leased
Boeing 737-200 jet aircraft.  The Company's aircraft are 100
percent compliant with Federal Stage III noise level
requirements. In 1999, the Company returned one aircraft in
November and two aircraft in December to their lessors in
connection with the expiration of their leases.  Five of the
Company's jet aircraft were manufactured between 1968 and
1970. Seven were manufactured between 1979 and 1982.  The
five additional aircraft scheduled for delivery in 2000 and
2001 were manufactured between 1980 and 1983.  The twelve
remaining aircraft will be returned upon expiry of the
respective lease as follows:  two aircraft in 2000, one in
2001, two in 2002, six in 2004 and one in 2005.  See
"Factors That May Affect Future Results of Operations -
Limited Number of Aircraft; Aircraft Acquisitions."

     All expenses relating to the maintenance and operation
of the aircraft are the Company's responsibility.  While the
Company anticipates a higher maintenance cost for older
aircraft, including costs to comply with FAA Airworthiness
Directives ("ADs") and regulations for aging aircraft, the
Company believes that the total costs of operating the
Boeing 737-200 jet aircraft is competitive with newer
aircraft types because the Company's aircraft have
significantly lower acquisition or lease costs.  Lower
acquisition or lease costs result in lower fixed costs,
which the Company believes will allow greater flexibility to
adjust capacity to demand.

     Because the Company's aircraft fleet consists of twelve
aircraft, if one or more of its aircraft was not in service,
the Company would experience a proportionally greater loss
of capacity than would be the case with a larger airline.
Any interruption of aircraft service as a result of
scheduled or unscheduled maintenance, however, could
materially and adversely affect the Company's service,
reputation and financial performance.  In the event the
Company seeks to lease additional aircraft in order to
expand its service and/or route system, there can be no
assurance that the Company will be able to lease additional
aircraft on satisfactory terms or at the times needed.

<PAGE>

MAINTENANCE AND REPAIRS

     All maintenance and repairs are accomplished in
accordance with the Company's maintenance program approved
by the FAA.  Older aircraft, in general, incur greater
maintenance expense than newer aircraft. The Company
believes that its aircraft are mechanically reliable and
that the ongoing cost of maintenance on such aircraft is,
and will continue to be, within industry norms.  The Company
must comply with existing ADs and regulations for aging
aircraft issued by the FAA.  In addition, the Company may be
required to comply with future ADs or regulations regarding
maintenance and repairs.  There can be no assurance that the
Company's costs of maintenance in the future (including
costs to comply with ADs and regulations) will fall within
industry norms or that the Company's aircraft will be
reliable over time.

     Aircraft maintenance consists of routine and daily
maintenance and major overhauls.  Routine or daily
maintenance is generally performed by the Company's
mechanics in Kansas City, Chicago-Midway and Minneapolis/St.
Paul or in various other cities, as needed, by independent
contractors.  The Company employs approximately 49
mechanics.  The Company has contracted with various
independent FAA certified maintenance operations to perform
its major scheduled maintenance.

     The Company continues to increase its inventory of
spare parts.  In addition, the Company has contracted with
an independent contractor to make spare parts available.
For this service, the Company pays a monthly lease fee based
on the value of the parts in stock, in addition to the
repair costs on "off" units when, and if, the inventoried
parts are installed on the Company's aircraft.

FUEL

     The cost of jet fuel is one of the Company's largest
operating expenses (approximately 15.7 percent of operating
expenses when including taxes and the cost of delivering
fuel into the aircraft for the year ended December 31,
1999).  Fuel costs have increased significantly over the
past 12 months.  Average fuel costs for 1999 were $0.67 per
gallon, which is an increase over 1998 costs of $0.58 per
gallon, but less than 1997 costs of $0.74 per gallon.  For
the first two months of 2000, the Company purchased fuel for
approximately $1.03 per gallon (including taxes and the cost
of delivering fuel into the aircraft), which is
significantly more than the Company has had to pay in the
past.  Significant changes in jet fuel prices have
materially affected the Company's operating results in the
past.  The Company cannot predict the effect of events on
the future availability and cost of jet fuel.  The Company's
737-200 jet aircraft are relatively fuel inefficient
compared to newer aircraft.  Accordingly, a significant
increase in the price of jet fuel will result in a
disproportionately higher increase in the Company's fuel
expenses as compared with many of its competitors, whose
average aircraft is newer and thus more fuel-efficient.

     The Company has not entered into any agreements that
fix the price of jet fuel over any period of time.
Therefore, an increase in the cost of jet fuel is
immediately passed through to the Company by suppliers.  As
a result, the Company has experienced reduced margins due to
its inability to increase fares sufficiently to compensate
for higher fuel costs and taxes.  Even if it is able to
raise selected fares, the Company will experience reduced
margins on sales prior to such fare increases.  In addition
to increases in fuel prices, a shortage of supply could also
have a material adverse effect on the Company's business,
financial condition and results of operations.  See "Factors
That May Affect Future Results of Operations -- Fuel Costs."

COMPETITION

     Under the Airline Deregulation Act of 1978 (the
"Deregulation Act"), domestic certificated airlines are free
to enter and exit domestic routes and to set fares without
regulatory approval, and all city pair domestic airline
markets are generally open to any domestic certificated
airline.  As a consequence, the airline industry is
intensely competitive and susceptible to price discounting.
Airlines compete primarily with respect to fares, scheduling
(frequency and flight time), destinations, frequent-flyer
programs and type
<PAGE>
(jet or propeller) and size of aircraft.  The Company
competes with numerous other airlines on its routes and
expects to compete with other airlines on any future routes.
Most of the Company's competitors are larger and have
greater name recognition and greater financial resources
than the Company.  In response to the Company's commencement
of service in a particular market, competing airlines have,
at times, added flights and capacity in the market and
lowered their fares, making it more difficult for the
Company to achieve or maintain profitable operations or even
maintain operations in that market.  In the future, other
airlines may set their prices at or below the Company's
fares, introduce new non-stop service between cities served
by the Company or add additional capacity in markets served
by the Company in an attempt to prevent the Company from
achieving or continuing profitable operations.  The Company
may also face competition from existing airlines that may
begin serving markets the Company serves, from new low-cost
airlines that may be formed to compete in the low-fare
market (including any airlines that may be formed by major
airlines) and from ground transportation alternatives.  See
"Factors That May Affect Future Results of
Operations - Intense Competition and Competitive Reaction."

GOVERNMENT REGULATION

     All interstate air carriers are subject to regulation
by the DOT and the FAA under the Federal Aviation Act (the
"Aviation Act"). The DOT's jurisdiction extends primarily to
the economic aspects of air transportation, while the FAA's
regulatory authority relates primarily to air safety,
including aircraft certification and operations, crew
licensing and training and maintenance standards.  In
general, the amount of economic regulation over interstate
air carriers in terms of market entry, exit, pricing, and
inter-carrier acquisitions and agreements has been greatly
reduced subsequent to enactment of the Deregulation Act.

     Presently, four airports, Chicago-O'Hare, New York City-
LaGuardia, New York City-JFK and Washington, D.C.-Reagan
National, are regulated by means of "slot" allocations,
which represent governmental authorizations to take off or
land at a particular airport within a specified time period.
The DOT regulations currently permit the buying, selling,
trading or leasing of slots.  Slot values depend on several
factors, including the airport, time of day covered, the
availability of slots and the class of the aircraft.  FAA
regulations require the use of each slot at least 80 percent
of the time and provide for forfeiture of slots in certain
circumstances without compensation.  The DOT may require
forfeiture of slots without compensation if it determines
slots are needed to meet operational needs of international
or essential air transportation.  The Company currently does
not serve any airports that require slot allocations.  In
the event that Federal law changes, the Company expects to
file an application for slot exemption to allow the Company
to offer non-stop service between Kansas City and
Washington, D.C.-Reagan National.

     Vanguard began flight operations in December 1994.
Since then, Vanguard has had no reportable incidents to the
DOT that have involved serious bodily injury or significant
damage to any of the Company's aircraft.

     The Company's flight personnel, flight and emergency
procedures and aircraft and maintenance facilities are
subject to periodic inspections and tests by the FAA.  The
Company believes that the FAA often applies strict scrutiny
to the operations of small or new entrant airlines to ensure
proper compliance with FAA regulations.  FAA examiners have
flown on numerous Company flights and have subjected its
flight and ground personnel to periodic announced and
unannounced reviews and inspections.  The Company believes
that its operations, maintenance and compliance with FAA
regulations are within industry standards.

     The DOT and FAA also have authority under the Aviation
Safety and Noise Abatement Act of 1979, as amended, under
the Airport Noise and Capacity Act of 1990 ("ANCA") and,
along with the Environmental Protection Agency, under the
Clean Air Act, as amended, to monitor and regulate aircraft
engine noise and exhaust emissions.  The Company believes
its aircraft comply with all applicable FAA noise control
regulations and with current emissions standards.  See
"Aircraft and Maintenance and Repairs."
<PAGE>

INSURANCE

     The Company carries the types and amounts of insurance
required by the DOT, which the Company believes are
customary for airlines similar to the Company, including
coverage for public liability, property damage, aircraft
loss or damage, baggage and cargo liability and workers'
compensation. While the Company believes such insurance will
be adequate as to amounts and risks covered, there can be no
assurance that such coverage will continue to be available
or that it will fully protect the Company against all losses
that it might sustain.

EMPLOYEES

     As of March 1, 2000 the Company employed approximately
884 full-time and 144 part-time employees consisting of 145
pilots, 156 flight attendants, 49 mechanics, 281 station
agents, 231 reservation agents and 165 management and staff
personnel.

FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS

     Vanguard's business operations and financial results
are subject to various uncertainties and future developments
that cannot be predicted.  Certain of the principal risks
and uncertainties that may affect Vanguard's operations and
financial results are identified below.

     LIMITED OPERATING HISTORY; HISTORY OF SIGNIFICANT
LOSSES.  The Company has a limited history of operations,
beginning flight operations on December 4, 1994.  Since the
Company's inception on April 25, 1994 and until 1997, the
Company incurred significant losses from operations.  In
1998, the Company reported income from operations of
approximately $1.5 million.  In 1999, the Company recorded
loss from operations of $5.0 million and generated positive
cash flow from operations of $3.3 million.  As of December
31, 1999, the Company had an accumulated deficit of $76.3
million and a working capital deficit of $14.7 million.  As
of December 31, 1999, the Company had positive stockholders'
equity of $1.7 million.  The Company's limited operating
history makes the prediction of future operating results
difficult.  There can be no assurance that the Company will
be able to sustain profitable operations in the future.

     AVAILABILITY OF WORKING CAPITAL AND FUTURE FINANCING
RESOURCES.  The airline business is extremely capital
intensive, including, but not limited to, lease payment
obligations and related maintenance requirements for
existing or additional aircraft.  Historically, the
Company's continued operations have been dependent upon
equity and debt financings from its principal stockholders.
There can be no assurance that the Company's principal
stockholders will provide working capital for the Company's
operations if the Company is unable to continue to generate
positive cash flow from its operations.  Any inability to
obtain additional financing when needed could require the
Company to cease or significantly curtail operations and
would have a material adverse effect on the Company's
business, financial condition and results of operations.
See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital
Resources."

     ABILITY TO CONTINUE AS A GOING CONCERN; EXPLANATORY
PARAGRAPH IN ACCOUNTANTS' REPORT.  The report issued by the
Company's independent auditors for the year ended December
31, 1999 contains an explanatory paragraph expressing
substantial doubt about the Company's ability to continue as
a going concern.  The report states that because of the
Company's net losses and working capital deficit, the
Company has been dependent upon financing from principal
stockholders.  The report further states that there can be
no assurance as to the availability of further financing and
that there is substantial doubt about the Company's ability
to continue as a going concern.  See also "Management's
Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources."

<PAGE>

     INTENSE COMPETITION AND COMPETITIVE REACTION.  The
Company is subject to intense competition on all of its
routes.  Under the Deregulation Act, domestic certificated
airlines may enter and exit domestic markets and set fares
without regulatory approval.  All city-pair domestic airline
markets, except for those that are slot-controlled, are
generally open to any domestic certificated airline.
Airlines compete primarily with respect to fares, schedules
(frequency and flight times), destinations, frequent flyer
programs and type (jet or propeller) and size of aircraft.
The Company competes with various other airlines on its
routes and expects to compete with other airlines on any
future routes.  Most of the Company's competitors are larger
and have greater name recognition and financial resources
than the Company.  In response to the Company's commencement
of service in a particular market, competing airlines have,
at times, added flights and capacity and lowered their fares
in the market, making it more difficult for the Company to
achieve profitable operations in such markets.  In the
future, other airlines may set their prices at or below the
Company's fares or introduce new non-stop service between
cities served by the Company in attempts to prevent the
Company from achieving or maintaining profitable operations
in that market.

     FUEL COSTS.  The cost of jet fuel is one of the largest
operating expenses for an airline and particularly for the
Company due to the relative fuel inefficiency of its
aircraft.  Jet fuel costs, including taxes and the cost of
delivering fuel into the aircraft, accounted for
approximately 15.7 percent of the Company's operating
expenses for the year ended December 31, 1999.  The cost of
jet fuel has risen dramatically in the past twelve months.
The Company's average cost per gallon for the past three
years have been $0.74 per gallon in the year ended December
31, 1997 and $0.58 per gallon in the year ended December 31,
1998 and $0.67 in the year ended December 31, 1999.  In
January and February 2000, the Company has paid on average
of $1.03 per gallon.  Jet fuel costs are subject to wide
fluctuations as a result of disruptions in supply or other
international events.  The Company cannot predict the effect
on the future availability and cost of jet fuel.  The Boeing
737-200 jet aircraft is relatively fuel inefficient compared
to newer aircraft.  Accordingly, a significant increase in
the price of jet fuel results in a disproportionately higher
increase in the Company's fuel expenses as compared with
many of its competitors who have, on average, newer and thus
more fuel-efficient aircraft.  The Company has not entered
into any agreements that fix the price of jet fuel over any
period of time.  Therefore, an increase in the cost of jet
fuel will be immediately passed through to the Company by
suppliers.  The Company has experienced reduced margins when
the Company has been unable to increase fares to compensate
for such higher fuel costs.  Even at times when the Company
is able to raise selected fares, the Company has experienced
reduced margins on sales prior to such fare increases.  In
addition to increases in fuel prices, a shortage of supply
will also have a material adverse effect on the Company's
business, financial condition and results of operations.

     CONSUMER CONCERN ABOUT OPERATING SAFETY AT NEW-ENTRANT
CARRIERS OR TYPE OF AIRCRAFT.  Aircraft accidents or other
safety-related issues involving any carrier, may have an
adverse effect on airline passengers' perceptions regarding
the safety of new-entrant, low-fare carriers.  As a result,
any such future event could have a material adverse effect
on the Company's business, financial condition and results
of operations, even if such events do not include the
Company's operations or personnel.  Similarly, publicized
accounts of mechanical problems or accidents involving
Boeing 737s or other aging aircraft could have a material
adverse effect on the Company's business, financial
condition and results of operations, even though the Company
itself may not experience any such problems with its jet
aircraft.

     SEASONALITY AND CYCLICALITY.  The Company's operations
are dependent upon passenger travel demand.  Airlines
typically experience reduced demand at various times during
the fall and winter and increased demand for service during
the spring and summer.  Within these periods, the Company
experiences variations in passenger demand based on its
particular routes and passenger
<PAGE>
demographics.  The Company has experienced reduced demand
during the fall and winter with adverse effects on revenues,
operating results and cash flow. In addition, passenger
travel in the airline industry, particularly leisure travel,
is highly sensitive to adverse changes in general economic
conditions.  A worsening of current economic conditions, or
an extended period of recession nationally or in the regions
served by the Company, would have a material adverse effect
of the Company's business, financial condition and results
of operations.

     LIMITED NUMBER OF AIRCRAFT; AIRCRAFT ACQUISITIONS.  The
Company's fleet consists of twelve aircraft and if one or
more of its aircraft were not in service, the Company would
experience a proportionally greater loss of capacity than
would be the case for an airline utilizing a larger fleet.
Any interruption of aircraft service as a result of
scheduled or unscheduled maintenance could materially and
adversely affect the Company's service, reputation and
financial performance. The market for leased aircraft
fluctuates based on certain worldwide macroeconomic factors.
There can be no assurance that the Company will be able to
lease additional aircraft on satisfactory terms or at the
times needed.  See "Business - Aircraft."

     GOVERNMENT REGULATION.  The Company is subject to the
Aviation Act, under which the DOT and the FAA exercise
regulatory authority over airlines.  This regulatory
authority includes, but is not limited to: (i) the initial
determination and continuing review of the fitness of air
carriers (including financial, managerial, compliance-
disposition and citizenship fitness); (ii) the certification
and regulation of aircraft and other flight equipment; (iii)
the certification and approval of personnel who engage in
flight, maintenance and operations activities; and (iv) the
establishment and enforcement of safety standards and
requirements with respect to the operation and maintenance
of aircraft, all as set forth in the Aviation Act and the
Federal Aviation Regulations.  The FAA has promulgated a
number of maintenance regulations and directives relating
to, among other things, retirement of aging aircraft,
increased inspections and maintenance procedures to be
conducted on aging aircraft, collision avoidance systems,
aircraft corrosion, airborne windshear avoidance systems and
noise abatement.  As a result of recent incidents involving
airlines, the FAA has increased its review of commercial
airlines generally and particularly with respect to small
and new-entrant airlines, such as the Company.  The
Company's operations are subject to constant review by the
FAA.

     Additional rules and regulations have been proposed
from time to time in the last several years and that, if
enacted, could significantly increase the cost of airline
operations by imposing substantial additional requirements
or restrictions on airline operations. There can be no
assurances that any of these rules or regulations would not
have a material adverse effect on the Company's business,
financial condition and results of operations.

     The Company has obtained the necessary authority to
perform airline operations, including a Certificate of
Public Convenience and Necessity issued by the DOT pursuant
to 49 U.S.C.  41102 and an air carrier operating
certificate issued by the FAA under Part 121 of the Federal
Aviation Regulations.  The continuation of such authority is
subject to continued compliance with applicable rules,
regulations and laws pertaining to or affecting the airline
industry, including any rules and regulations that may be
adopted by the DOT and FAA in the future.  No assurance can
be given that the Company will be able to continue to comply
with all present or future rules, regulations and laws or
that such rules, regulations and laws would not materially
and adversely affect the Company's business, financial
condition and results of operations.
<PAGE>

ITEM 2.  PROPERTIES

     The Company leases approximately 14,155 square feet of
office space near Kansas City International Airport ("KCI")
for corporate administration, training, operation and
maintenance functions.  The Company is in negotiations with
the City of Kansas City to lease the facility for an
extended term.  The Company also leases approximately 660
square feet for supplies and parts storage on a month-to
month lease at KCI.  The Company leases approximately 9,188
square feet of office space in Mission, Kansas for its
reservation center.  The Company also leases approximately
7,250 square feet in Lawrence, Kansas, which was used as one
of its two reservations facilities.  The Company closed its
Lawrence, Kansas reservation center in September 1997 and
has subleased this facility to a third party since its
closure through the remainder of its term.

     The check-in counters, gates and airport office
facilities at each of the airports the Company serves are
leased from the appropriate airport authority or other
airlines pursuant to subleases or other arrangements.  Such
arrangements may include baggage handling, station
operations, cleaning and other services.  If such facilities
at current or new cities served by the Company are not
available to the Company at acceptable rates, or if such
facilities become no longer available to the Company at
acceptable rates, the Company may choose not to service such
markets.
<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

     The Company is not involved in any material litigation
or legal proceedings at this time and is not aware of any
material litigation or legal proceedings threatened against
it.

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

     No matters were submitted to a vote of the stockholders
of the Company during the fourth quarter of the fiscal year
ended December 31, 1999.

ITEM 4A.  EXECUTIVE OFFICERS OF THE COMPANY

     The following table sets forth the names, ages and
positions of the Company's executive officers and directors
as of March 1, 2000:

     NAME              AGE      POSITION

     Robert J. Spane     59      Chairman of the Board,
                                 Chief Executive Officer and
                                 President
     James E. Eckart     56      Vice President - Ground
                                 Operations
     Brian S. Gillman    30      Vice President, General
                                 Counsel and Secretary
     Alan R. Gorthy, Jr. 54      Vice President -
                                 Maintenance
     James B. Miller     61      Vice President -
                                 Engineering and Quality Assurance
     William F. McKinney 60      Vice President -
                                 Operations
     Lee M. Gammill, Jr. 65      Director
     Denis T. Rice       67      Director
     Leighton W. Smith   60      Director

     Set forth below is a description of the business
experience of each executive officer and director of the
Company.

     MR. ROBERT J. SPANE was elected a director of the
Company in May 1996 and elected Chairman of the Board, Chief
Executive Officer and President of the Company in June 1997.
Mr. Spane served in the U.S. Navy for 35 years where his
last position was Commander, Naval Air Force Pacific, which
he held from October 1993 to February 1996.  Mr. Spane, as
Commander, Naval Air Force Pacific, was responsible for all
finances, training, logistics and the material condition of
all aircraft carriers, aircraft and naval air stations in
the Pacific.  Mr. Spane retired from the U.S. Navy in
February 1996 as a Vice Admiral.  Mr. Spane is a 1962
graduate of the U.S. Naval Academy.

     JAMES E. ECKART joined the Company in July 1997 as a
customer service consultant and was appointed Vice President
of Ground Operations in August 1997.  For over 30 years Mr.
Eckart was involved in aviation-related activities as a
United States Naval Aviator, where he served most recently as
a Captain. While in the Navy, Mr. Eckart commanded aviation
squadrons and major aviation shore stations, was also
involved in aviation training and served as liaison between
the U.S. Navy and the FAA.  Mr. Eckart holds a commercial
pilot license and a degree in Human Resources Management.

     BRIAN S. GILLMAN joined the Company in July 1996 as Vice
President, General Counsel and Secretary.  From September
1994 to July 1996, Mr. Gillman was an associate in the law
firm of Stinson, Mag & Fizzell, P.C., Kansas City, Missouri,
where he served as a corporate counsel for the Company.  Mr.
Gillman received his Juris Doctorate and B. B. A. in
Accounting from the University of Iowa in 1994 and 1991,
respectively.
<PAGE>

     ALAN R. GORTHY, JR. joined the Company in November 1997
as the Station Manager in Kansas City. He was promoted to
Director of Stations in May 1998 and was appointed as Vice
President - Maintenance in August 1998. Prior to joining the
Company, Mr. Gorthy was employed with United Sports of
America, an international sports promotion and entertainment
company from March 1995 to October 1997.  Mr. Gorthy retired
in November 1994 as a Captain in the U. S. Navy.  During his
twenty-five years of service, which began in February 1969,
Mr. Gorthy commanded aviation squadrons and major aviation
shore stations.

     JAMES B. MILLER joined the Company in April 1996 as
Manager of Maintenance Programs and Planning, was appointed
to Director of Quality Assurance in July 1997, Vice President
- Maintenance in March 1998 and Vice President -  Engineering
and Quality Assurance in August 1998.  Prior to joining the
Company, Mr. Miller was employed with Trans World Airlines
for 28 years. Mr. Miller served most recently as a Staff Vice-
President, Engineering and Quality Assurance for Trans World
Airlines.

     WILLIAM F. MCKINNEY joined the Company in March 1996 as
Chief Pilot and was appointed Vice President - Operations in
April 1996.  Prior to joining the Company, Captain McKinney
served as a pilot for Trans World Airlines for 29 years,
where he served most recently as General Manager of Flying
(Chief Pilot) for the Western Region of the United States.

     LEE M. GAMMILL, JR. was elected a director of the
Company in September 1997.  Mr. Gammill is the retired Vice
Chairman of the Board of New York Life Insurance Company.
From 1989 until he retired in May 1997, Mr. Gammill served
as the Executive Vice President - Individual Insurance
Operations at New York Life.  Mr. Gammill joined New York
Life in 1957 as a sales agent and held various management
and executive positions throughout his 40-year career with
New York Life.

     DENIS T. RICE was elected a director of the Company in
April 1997.  Mr. Rice is a director in the law firm of
Howard, Rice, Nemerovski, Canady, Falk & Rabkin, P.C., San
Francisco, California, a firm he has been associated with
since 1961.

     ADMIRAL LEIGHTON W. SMITH, JR. USN (RET.) was elected a
director of the Company in August 1998. Admiral Smith was
appointed the honor of a four star rank in April 1994,
became Commander in Chief of the Allied Forces Southern
Europe and concurrently assumed the command of the NATO-led
Implementation Force (IFOR) in Bosnia in December 1995.
Admiral Smith retired from the U.S. Navy after 34 years of
service in October 1996.  Currently, he serves as a Senior
Fellow at the Center for Naval Analysis, is Chairman of the
Board of Trustees of the U. S. Naval Academy Alumni
Association.  Admiral Smith also serves on the Executive
Boards of the Naval Aviation Museum and the Association of
Naval Aviation and is on the National Advisory Council to
the Navy League.
<PAGE>
PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS

    The Common Stock began trading publicly on the NASDAQ
SmallCap Market under the symbol "VNGD" on November 3, 1995.
The following table sets forth, for the periods indicated,
the high and low sales prices of the Common Stock as reported
on the OTC Bulletin Board or the NASDAQ SmallCap Market, as
the case may be.  The Common Stock was delisted from the
NASDAQ SmallCap Market on December 16, 1996.  The Common
Stock traded on the OTC Bulletin Board from December 16, 1996
to June 15, 1999 at which time the stock resumed trading on
the Nasdaq SmallCap Market.  On May 20, 1999, the Company
completed a one-for-five reverse stock split.  Prices set
forth below reflect the one-for-five reverse split.

                                            High        Low
     1998
          First Quarter                     $3.75       $2.50
          Second Quarter                    $8.13       $2.81
          Third Quarter                     $9.38       $4.69
          Fourth Quarter                    $5.63       $4.38

     1999
          First Quarter                     $5.63       $4.38
          Second Quarter                    $5.00       $3.88
          Third Quarter                     $7.38       $4.63
          Fourth Quarter                    $5.00       $3.19

     2000
          January                           $3.36       $3.16
          February                          $3.25       $2.78

     The Company has not declared or paid dividends on its
Common Stock.  The Company has never paid cash dividends and
has no plans to do so. As of March 1, 2000, there were
approximately 651 holders of record of Common Stock.

SALE OF UNREGISTERED SECURITIES

     On January 17, 1999, two of the Company's principal
stockholders agreed to renew a two-year $4.0 million letter
of credit in favor of the Company's credit card processor on
behalf of the Company.  In consideration for the
establishment of this letter of credit, the Company agreed to
issue up to 800,000 warrants to purchase shares of Common
Stock with an exercise price of $5.00 per share.  Upon
execution of the letter of credit, 160,000 warrants were
issued to each stockholder and were immediately vested.  The
remaining 640,000 will be issued and vest quarterly according
to the amount of exposure under such letter of credit.  Each
warrant expires on January 18, 2004.  This transaction was
made under an exemption from registration under the
Securities Act of 1933 pursuant to Section 4(2) thereof.

ITEM 6.  SELECTED FINANCIAL DATA

     The following table sets forth selected financial data
and other operating data of the Company for the years ended
December 31, 1995, 1996, 1997, 1998 and 1999.  The selected
financial data in the table have been derived from the
audited financial statements of the Company, which, for the
three years ended December 31, 1999, are included elsewhere
herein.  The data should be read in conjunction with the
Financial Statements of the Company and the related Notes
thereto, and "Management's Discussion and
<PAGE>


Analysis of Financial Condition and Results of Operations
included elsewhere herein.

<TABLE>
<CAPTION>
            YEAR ENDED    YEAR ENDED     YEAR ENDED    YEAR ENDED     YEAR ENDED
              DECEMBER      DECEMBER       DECEMBER      DECEMBER       DECEMBER
              31, 1995      31, 1996       31, 1997      31, 1998       31,1999
              ------------------------------------------------------------------
<S>           <C>          <C>          <C>           <C>          <C>
STATEMENT OF
OPERATIONS
DATA:

Total
operating
revenues     $36,159,018  $68,589,101   $81,384,138   $104,268,542 $125,080,735
Total
operating
expenses      48,225,313   92,503,417   106,758,900    102,814,267  130,102,510
               -----------------------------------------------------------------
Operating
income
(loss)       (12,066,295) (23,914,316)  (25,374,762)     1,454,275   (5,021,775)

Total other
expense,
net             (129,235)  (1,893,754)   (2,871,241)    (2,933,212)    (126,688)
           ---------------------------------------------------------------------
Net
loss        $(12,195,530) (25,808,070)  (28,246,003)    (1,478,937) (5,148,463)
            ==================================================================

Net loss per
share (1)   $     (8.24)   $   (14.25)    $    (9.27)    $    (0.11)    $(0.30)
          ======================================================================

Weighted
average
common shares
outstanding
(1)           1,479,184     1,811,378      3,046,580      13,153,528 17,085,352
               =================================================================

OPERATING
DATA:  (2)

Revenue
passenger
miles (RPMs)  290,030,187   667,845,140   767,239,664    702,003,589 854,802,727

Available
seat miles
(ASMs)      562,340,660 1,090,058,358 1,295,760,836  1,042,688,790 1,295,781,362

Load
factor
(percent)        51.58         61.27         59.21          67.33         65.97

Break-even
load factor
(3) (percent)    69.95         83.87         79.62          66.55         68.88

Passenger
yield per
RPM           $ 0.1172       $0.0973       $0.0998        $0.1393       $0.1382

Total revenue
per ASM       $ 0.0643       $0.0629       $0.0628          $0.1000     $0.0965

Operating
cost per
ASM           $ 0.0858       $0.0849       $0.0824          $0.0986      $0.1004

Block hours
flown           14,781        24,721        29,859           28,122      35,340

Average
flight length
(miles)            372           530           585              466         453

Operating
cost per
block hour     $ 3,263        $3,742        $3,575           $3,656      $3,681

Aircraft in
service (end
of period)           7              8             9                9         11

Airports
served (end
of period)           9             15             9                8         10

BALANCE SHEET
DATA:

Cash and cash
equivalents  $ 3,491,640      $402,083    $1,082,712       $7,417,048 $6,440,684

Working
capital
deficiency    (4,172,305)   (16,296,881) (22,352,910)   (7,915,882) (14,711,200)


Property and
equipment
net          4,550,818       5,049,658     5,484,684     8,131,453   10,849,511

Total
assets      16,425,698      20,318,247    24,763,884    33,646,583   37,703,168

Long-term
debt                  -        5,000,000     1,900,000           -          --

Total
stockholders'
equity
(deficit)   3,544,633     (13,238,017)  (11,944,434)     5,783,872    1,677,862

<FN>
(1)  Restated to reflect one-for-five reverse stock split on
     May 20, 1999.
(2)  "REVENUE PASSENGER MILES" or "RPMS" represents the
     aggregate amount of miles flown by revenue passengers.
     "AVAILABLE SEAT MILES" or "ASMS" represents the number
     of seats available for passengers multiplied by the
     number of miles those seats are flown.  "BREAK-EVEN LOAD
     FACTOR" represents the percentage of ASMs that must be
     flown for the airline to break-even after operating and
     interest expenses assuming non-passenger operations,
     primarily mail, operate at break-even.  Break-even load
     factor is calculated by taking total expenses (see
     footnote (3)), minus non-passenger revenue, divided by
     ASMs, divided by passenger yield per RPM.  'PASSENGER
     YIELD PER RPM" represents the total passenger revenue
     divided by RPMs.  "TOTAL REVENUE PER ASM" represents
     total revenues divided by total ASMs.  "OPERATING COST
     PER ASM" represents total operating expenses divided by
     total ASMs.  "BLOCK HOURS FLOWN" represents the time
     between aircraft gate departure and aircraft gate
     arrival.  "AVERAGE FLIGHT LENGTH" represents aircraft
     miles flown divided by the number of departures.
(3)  Excludes $434,410, $2,629,785, $1,858,767, $1,850,000
     and $71,000 of noncash deferred debt issuance cost
     amortization for the years ended December 31, 1999,
     1998, 1997, 1996 and 1995, respectively.
</FN>
</TABLE>
ITEM 7. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THIS
REPORT OF FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES AND INFORMATION THAT IS
BASED ON MANAGEMENT'S BELIEFS AS WELL AS ASSUMPTIONS MADE BY
AND INFORMATION CURRENTLY AVAILABLE TO MANAGEMENT.  WHEN
USED IN THIS DOCUMENT, THE WORDS "ESTIMATE," "ANTICIPATE,"
"PROJECT" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.  THE
COMPANY'S ACTUAL RESULTS MAY DIFFER
<PAGE>
MATERIALLY FROM THOSE CURRENTLY ANTICIPATED.  FACTORS THAT
COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT
ARE NOT LIMITED TO, AVAILABILITY OF WORKING CAPITAL AND
FUTURE FINANCING RESOURCES, GENERAL ECONOMIC CONDITIONS, THE
COST OF JET FUEL, THE OCCURRENCE OF EVENTS INVOLVING OTHER
LOW-FARE CARRIERS, THE CURRENT LIMITED SUPPLY OF BOEING 737
JET AIRCRAFT AND THE HIGHER LEASE COSTS ASSOCIATED WITH SUCH
AIRCRAFT, POTENTIAL CHANGES IN GOVERNMENT REGULATION OF
AIRLINES OR AIRCRAFT AND ACTIONS TAKEN BY OTHER AIRLINES
PARTICULARLY WITH RESPECT TO SCHEDULING AND PRICE IN THE
COMPANY'S CURRENT OR FUTURE ROUTES.  FOR ADDITIONAL
DISCUSSION OF SUCH RISKS, SEE "FACTORS THAT MAY AFFECT
FUTURE RESULTS OF OPERATIONS."

COMPANY

     The Company was incorporated on April 25, 1994 and
operates as a low-fare, short- to medium-haul passenger
airline that provides convenient scheduled jet service to
destinations in established markets in the United States.
The Company's flight operations began on December 4, 1994.
The Company currently operates twelve leased Boeing 737-200
jet aircraft.  In 1999, the Company accepted delivery of
five aircraft and returned three to their lessors, with a
net addition of two aircraft in 1999.  The Company's current
schedule provides an average of 86 daily weekday flights
serving Kansas City, Atlanta, Buffalo/Niagara Falls, Chicago-
Midway, Dallas/Fort Worth, Denver, Minneapolis/St. Paul,
Pittsburgh and Myrtle Beach. The Company continues to review
its financing alternatives and working capital in order to
purchase or lease additional aircraft under suitable terms.
There can be no assurance that the Company will be able to
secure adequate financing arrangements for the lease or
purchase of additional aircraft.  The Company also provides
limited charter services.

     The Company's operating revenues are derived
principally from the sale of airline services to passengers
and are recognized when transportation is provided.  Total
operating revenues are primarily a function of capacity,
fare levels and the number of seats sold per flight.  The
Company's business is characterized, as is true for the
airline industry generally, by high fixed costs relative to
operating revenues and low profit margins.  The Company's
principal business strategy is to provide airline services
in established, high passenger-volume markets that are not
served by other low-fare airlines.

     The primary factors expected to affect the Company's
future operating revenues are the Company's ability to offer
and maintain competitive fares, the reaction of existing
competitors to the continuation or commencement of
operations by the Company in a particular market (including
changes in their fare structure, aircraft type and
schedule), the possible entry of other low-fare airlines
into the Company's current and future markets, the
effectiveness of the Company's marketing efforts, the
occurrence of events involving other low-fare carriers,
passengers' perceptions regarding the safety of low-fare
carriers, general economic conditions and seasonality
factors.  The Company's costs are affected by fluctuations
in the price of jet fuel, scheduled and unscheduled aircraft
maintenance expenses, labor costs, the level of government
regulation, fees charged by independent contractors for
services provided, rent for gates and other facilities, and
marketing and advertising expenses.

YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED
DECEMBER 31, 1998

OVERVIEW

     The Company had a net loss of $5.1 million or $0.30 per
share for the year ended December 31, 1999 as compared to a
net loss of $1.5 million or $0.11 per share for the year
ended December 31, 1998.  ASMs, a measure of the Company's
capacity, increased 24 percent in 1999 because of additional
leased aircraft being placed in service.  Operating revenues
increased 20 percent and operating expenses increased 27
percent.  Operating cost per ASM increased 2 percent from
9.86 cents for the year ended December 31, 1998 to 10.04
cents for the year ended December 31, 1999.  Fuel costs
increased 49 percent, in part due to a 16 percent increase
in the average cost per gallon of fuel.

<PAGE>

     As of December 31, 1999, the Company had an accumulated
deficit of $76.3 million.  At December 31, 1999, current
liabilities exceeded current assets by $14.7 million.  The
Company generated positive cash flow from operations in 1999
of $3.3 million.  The Company is exploring options to raise
additional capital to fund anticipated expansion of
operations.  There can be no assurance the Company will be
successful in expanding operations or raising additional
capital that may be needed for this purpose.

   OPERATING REVENUES

     Total operating revenues increased 20 percent from
$104.3 million for the year ended December 31, 1998 to
$125.1 million for the year ended December 31, 1999.  This
increase was primarily attributable to an increase in the
number of passengers and capacity in the year ended December
31, 1999 as compared to 1998.  The number of passengers
increased 27 percent from 1.5 million in the year ended
December 31, 1998 to 1.9 million in the year ended December
31, 1999.  ASMs increased 24 percent from 1,043 million in
the year ended December 31, 1998 to 1,296 million in the
year ended December 31, 1999.  RPMs increased 22 percent
from 702 million during the year ended December 31, 1998 to
855 million during the year ended December 31, 1999.  The
increase was primarily attributable to the increase in
capacity.  The Company terminated service from Kansas City
to San Francisco in January 1998 and service from Kansas
City to New York City-JFK in May 1998.  In 1999, the Company
commenced service to Buffalo/Niagara Falls in May and
Cincinnati in April.  Service to Cincinnati from Chicago-
Midway was discontinued on March 1, 2000.  From 1998 to
1999, the average stage length decreased 13 miles from 466
miles to 453 miles.  Load factor decreased 2 percent from 67
percent for the year ended December 31, 1998 to 66 percent
for the year ended December 31, 1999.  This decrease was
primarily the result of a 4 percent decrease in the average
fare per segment in the year ended December 31, 1999 as
compared to the year ended December 31, 1998.

     Passenger yield per RPM decreased 1 percent from 13.9
cents in the year ended December 31, 1998 to 13.8 cents in
the year ended December 31, 1999.  In order to increase
fares and passenger yield effectively, the Company initiated
strategic product improvements beginning in September 1997.
The Company's strategic plan includes the delivery of a
reliable product with a number of amenities found on larger,
better-known airlines that specifically cater to price-
sensitive business travelers.  Those amenities include
assigned seating, refundable tickets, greater legroom, fixed
ticket pricing under the Road Warrior Class and greater
frequencies between city pairs.  The Company's
implementation of its strategic plan showed positive results
in the years ended December 31, 1998 and 1999.  In late
August and early September of 1998, the Company benefited
from the pilot strike at one of its competitors through
increased ticket sales.  The Company's load factor,
passenger revenue and related yield, operating costs and
cost per ASM increased in 1998 as a result of the strike.
The Company anticipates the passenger yield and load factor
in 2000 will remain consistent with those in 1999.  The
Company, however, cannot predict future fare and related
yield levels, which depend to a substantial extent on
actions of competitors, general economic conditions and the
Company's ability to deliver a reliable product.  The
Company's strategic niche as a low-fare provider makes its
pricing strategy sensitive to competitor's fare reductions.
In 2000, the Company will enter at least one new market and
will discount fares to stimulate travel.  The Company
believes that the negative impact of entering new markets
will be minimized as the Company increases its overall
revenue base and customer awareness and continues to improve
its service and reliability.

     Certain passengers who do not complete their travel as
scheduled are entitled to a credit for the value of the
unused reservation less a $75 service charge (increased from
$50 on October 25, 1999), as described below, subject to
certain restrictions. This credit may be redeemed for a
period of 180 days for future travel.  The value of unused
reservations that are not entitled to a credit as well as
the value of expired credits are recognized in passenger
revenue.  These revenues totaled $8.6 million (approximately
8 percent of total operating revenues) and $12.4 million
(approximately 10 percent of total operating
<PAGE>
revenues) for the years ended December 31, 1998 and 1999,
respectively.  This increase is attributable to a change in
policy implemented in the first quarter of 1998 whereby
passengers who purchase tickets in discounted fare classes
and fail to complete their travel as scheduled are not
entitled to a credit and the value of the unused reservation
is immediately recognized in passenger revenue.  The
increase is also attributable to an increase in the number
of passengers booking reservations and an increase in the
number of promotions offering discounted fares during the
year ended December 31, 1999 as compared to the year ended
December 31, 1998.  With increased flight frequencies
between city pairs, an increase in the business traveler
market segment, and an increase in the number of promotions,
the Company experienced an increase in passengers who did
not complete their originally scheduled travel as well as an
increase in passengers who forfeited future travel credits.

     The Company also generates operating revenues as a
result of service charges from passengers who change flight
reservations.  The Company charges a $75 service charge
(increased from $50 as of October 25, 1999) for these
passengers. These service charges were $5.0 million
(approximately 5 percent of total operating revenues) and
$5.1 million (approximately 4 percent of operating revenues)
in the years ended December 31, 1998 and 1999, respectively.

   OPERATING EXPENSES

     The following table sets forth the percentage of total
operating revenues represented by these expense categories:
<TABLE>
                                 Year ended December 31,
                        ----------------------------------------
                                 1999                        1998
                                 ------                     ------
                         Percent of                Percent of
                         ----------                ------------
                         Revenues   Cents Per ASM  Revenues      Cents Per ASM
                         -------------------------------------------------------
<S>                      <C>           <C>          <C>            <C>
Total operating revenues 100.0  percent 9.65  cents 100.0 percent  10.00  cents
                         =======================================================
Operating expenses:
 Flying operations        19.0  percent 1.84  cents  17.3 percent   1.73 cents
 Aircraft fuel            16.3          1.57         13.2           1.32
 Maintenance              23.3          2.25         21.0           2.10
 Passenger service         6.0          0.58          6.4           0.64
 Aircraft and traffic
  servicing               16.7          1.61         16.2           1.62
 Promotion and sales      16.1          1.55         17.9           1.79
 General and
  administrative           3.4          0.33          3.9           0.39
 Depreciation and
  amortization             3.2          0.31          2.7           0.27
                         -------------------------------------------------------
Total operating expenses 104.0         10.04         98.6           9.86
Total other expense, net  (0.1)        (0.01)        (2.8)         (0.28)
                         -------------------------------------------------------
Net loss                  (4.1) percent(0.40) cents  (1.4)percent  (0.14)cents
                         =======================================================
</TABLE>

     Flying operations expenses increased 32 percent from
$18.0 million (approximately 17 percent of operating
revenues) for the year ended December 31, 1998 to $23.8
million (approximately 19 percent of operating revenues) for
the year ended December 31, 1999.  The increase in flying
operations expenses was primarily the result of the increase
in the average number of aircraft in the fleet from 9.0 to
11.1 and the associated volume increases in gross aircraft
rent and in pilot pay.  Pilot pay increased as a result of
wage per hour increases in late 1998.  Block hours increased
from 28,122 hours in the year ended December 31, 1998 to
35,340 in the year ended December 31, 1999.  Flying
operations expense increased on a cents per ASM basis from
1.73 cents for the year ended December 31, 1998 to 1.84
cents for the year ended
<PAGE>
December 31, 1999.  The Company's base rent increased due to
additional aircraft resulting in an increased cost per ASM.

     Aircraft fuel expenses increased 49 percent from $13.7
million (approximately 13 percent of operating revenues) for
the year ended December 31, 1998 to $20.4 million
(approximately 16 percent of operating revenues) for the
year ended December 31, 1999.  Higher fuel expense is
directly related to the increase in block hours flown by the
Company as well as a increase in cost per gallon in the year
ended December 31, 1999 versus 1998.  Fuel cost per block
hour increased $89 or 18 percent from $488 in the year ended
December 31, 1998 to $577 in the year ended December 31,
1999 primarily due to an increase in average fuel price per
gallon.  Specifically, the average price increased from
$0.58 per gallon (including taxes and into-plane costs) in
the year ended December 31, 1998 to $0.67 per gallon
(including taxes and into-plane costs) in the year ended
December 31, 1999, a 16 percent increase.  The Company will
seek to pass on any significant fuel cost increases to the
Company's customers through fare increases as permitted by
then current market conditions; however, there can be no
assurance that the Company will be successful in passing on
increased fuel costs.

     Maintenance expenses include all maintenance-related
labor, parts, supplies and other expenses related to the
upkeep of aircraft.  Maintenance expenses increased 33
percent from $21.9 million (approximately 21 percent of
operating revenues) for the year ended December 31, 1998 to
$29.1 million (approximately 23 percent of operating
revenues) for the year ended December 31, 1999.  Maintenance
expense increased $7.2 million in 1999 due primarily to the
following items.  Fleet growth, 11 aircraft versus 9 in
1998, generated additional maintenance expense totaling $2.8
million.  Both actual and estimated unrecoverable
supplemental maintenance reserves and deficiency payments
totaling $2.4 million associated with the expiration of
certain aircraft leases were expensed in 1999.  The Company
increased its accrual rate for future engine repairs during
1999, thus generating additional expense of $0.5 million
during the course of 1999.  Additionally, the Company
expensed $0.3 million at year-end to provide for future
engine repairs.  This adjustment was deemed necessary based
on forecast engine removal dates driven by life-limited
parts, mandated inspections and estimated average on-wing
times.  Lastly, the Company expensed approximately $0.8
million to provide for actual heavy aircraft maintenance
incurred in excess of accrued amounts and for the
performance of certain airworthiness directives, which are
expensed as incurred according to Company policy.  The
Company attributed the under accruals to unanticipated
structural and corrosion repairs associated with its 1968
and 1969 model 737-200 aircraft.  Other expense categories
increased $0.4 million relative to 1998 but were within
expectations given the Company's growth.  In the last
quarter of 1999, the Company entered into an agreement with
Bax Global, Inc. to provide aviation material management
expertise to the operation of the Company's Kansas City
warehouse.  It is expected that the Company will achieve
improvements in inventory accuracy, movement of parts both
to and from Company aircraft and vendors as well as
improvements in the mix of inventory held by the Company so
as to minimize the Company's exposure to AOG (aircraft on
ground) situations.  The Company entered into an agreement
with Israel Aircraft Industries, LTD. to provide repair and
overhaul services for a selected block of rotable
components.  Again, the Company expects to improve both the
turn-around time and the cost of rotable component repair,
thus making more of the Company's inventory available for
use at any given point in time at an acceptable cost.  The
Company deposits supplemental rents with its aircraft
lessors to cover a portion of or all of the cost of its
future major scheduled maintenance for airframes, engines,
landing gears and APUs.  These supplemental rents are
variable based on flight hours flown.  The costs of routine
aircraft and engine maintenance are charged to maintenance
expense as incurred. Maintenance expenses increased on a
cents per ASM basis from 2.10 cents for the year ended
December 31, 1998 to 2.25 cents for the year ended December
31, 1999.  This increase in cents per ASM mainly resulted
because of the increases in maintenance expense as described
above.

     Passenger service expenses increased 13 percent from
$6.7 million (approximately 6 percent of operating revenues)
for the year ended December 31, 1998 to $7.5 million
(approximately 6 percent of operating revenues) for the year
ended December 31, 1999.  Flight attendant salaries
increased in accordance with the 24 percent increase in ASMs
for the year ended December 31, 1999 as compared to
<PAGE>
the year ended 1998.  In addition, the Company realized cost
savings from a reduction in the Company's passenger
liability insurance rates.

     Aircraft and traffic servicing expenses increased 23
percent from $16.9 million (approximately 16 percent of
operating revenues) for the year ended December 31, 1998 to
$20.8 million (approximately 17 percent of operating
revenues) for the year ended December 31, 1999.  The Company
experienced increases in station rent, employee salaries and
benefits related to the Company's station personnel in the
year ended December 31, 1999 as compared to the year ended
December 31, 1998.  These increases were partially offset by
decreases in station ground handling expenses and station
salaries as a result of the Company employing its own
underwing servicing in Kansas City in July 1998 and
Minneapolis/St. Paul in February 1999.  As a result, the
Company decreased its average cost per departure from $897
for the year ended December 31, 1998 to $849 for the year
ended December 31, 1999.  Aircraft and traffic servicing
expenses decreased on a cents per ASM basis from 1.62 cents
for the year ended December 31, 1998 to 1.61 cents for the
year ended December 31, 1999 as a result of the increased
efficiencies being utilized over the 24 percent increase in
ASMs.

     Promotion and sales expenses increased 8 percent from
$18.7 million (approximately 18 percent of operating
revenues) in the year ended December 31, 1998 to $20.1
million (approximately 16 percent of operating revenues) in
the year ended December 31, 1999.  This increase was
primarily the result of the increase in the number of cities
served, the dollars spent on direct advertising, and the
reduction in costs associated with its reservation center in
the year ended December 31, 1999 as compared to the year
ended December 31, 1998.  During the year ended December 31,
1999, the Company incurred direct advertising costs of $7.0
million versus $5.4 million in the year ended December 31,
1998.  In April 1998, the Company took the reservation
center in-house and has realized a significant savings since
that time.  Greater call volume and passenger bookings in
1999 led to increases in CRS fees and credit card processing
fees.  The average promotion and sales cost per passenger
decreased $1.76 or 14 percent from $12.40 in the year ended
December 31, 1998 to $10.64 in the year ended December 31,
1999.  Promotion and sales expenses decreased on a cents per
ASM basis from 1.79 cents for the year ended December 31,
1998 to 1.55 cents for the year ended December 31, 1999.
This decrease in cents per ASM resulted from the fixed costs
of the Company's promotion and sales functions being spread
over 24 percent greater ASMs.

     General and administrative increased 4 percent from
$4.1 million (approximately 4 percent of operating revenues)
in the year ended December 31, 1998 to $4.2 million
(approximately 3 percent of operating revenues) in the year
ended December 31, 1999.  The increase in general and
administrative expenses in the year ended December 31, 1999
as compared to 1998 is the result of increases in salaries
and bonuses which were offset by decreases in outside
services.

     Depreciation and amortization expenses increased 45
percent from $2.8 million (approximately 3 percent of
operating revenues) in the year ended December 31, 1998 to
$4.1 million (approximately 3 percent of operating revenues)
in the year ended December 31, 1999.  This increase was
primarily due to an increase in rotable aircraft parts
inventory of approximately $2 million, $2.8 million
associated with acquisition of aircraft in 1999; and the
purchase of new telephone switchboards for the reservation
center and corporate headquarters in the year ended December
31, 1999.

     Other expense, net consists primarily of debt issuance
cost amortization, interest income and interest expense.  In
connection with the guarantees and the letters of credit
issued on behalf of its credit card processor the Company
issued certain stockholders warrants to purchase shares of
Common Stock at an exercise price of $5.00 per share. Warrants
vest quarterly in amounts dependent on the Company's
exposure under the letter, as defined in the respective
agreements.  Accordingly, the estimated fair value of the
warrants issued related to the agreements totaling $946,000
during the year ended December 31, 1999 was recorded as
deferred debt issuance costs and is being amortized to
expense over the terms of the related guarantees.  Interest
expense decreased during the year ended December 31, 1999 as
a result of the payoff of the line of
<PAGE>
credit in August 1998 as well as the conversion of demand
notes payable to related parties to preferred stock and
common stock in March 1998 and May 1998, respectively.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED
DECEMBER 31, 1997

     OPERATING REVENUES

     Total operating revenues increased 28 percent from
$81.4 million for the year ended December 31, 1997 to $104.3
million for the year ended December 31, 1998.  This increase
was primarily attributable to increases in the number of
passengers, passenger yield and load factor in the year
ended December 31, 1998 as compared to 1997.  The number of
passengers increased 15 percent from 1.3 million in the year
ended December 31, 1997 to 1.5 million in the year ended
December 31, 1998. Passenger yield increased 40 percent from
10.0 cents in the year ended December 31, 1997 to 13.9 cents
in the year ended December 31, 1998.  The increases were
realized despite decreases in both ASMs and RPMs in the year
ended December 31, 1998 compared to December 31, 1997. The
Company began flying a new route structure on December 21,
1996, which included the initiation of services from Kansas
City to Atlanta, Ft. Myers, Las Vegas, Miami, Orlando and
Tampa/St. Petersburg as well as non-stop service between
Chicago-Midway and Kansas City. This route restructuring
refocused the Company's strategy by creating a hub in Kansas
City.  The increases in ASMs for the year ended December 31,
1997 that resulted from the December 1996 schedule change
were not present in the year ended December 31, 1998 as
another schedule change in September 1997 reduced or
eliminated service in a number of these cities.  The Company
discontinued round trip service from Kansas City to Des
Moines, Las Vegas, Los Angeles, Orlando and Tampa/St.
Petersburg, while adding round trip service from Kansas City
to New York-JFK in September 1997 and round trip service
from Chicago-Midway and New York City-JFK to Pittsburgh in
December 1997.  As a result, ASMs decreased 20 percent from
1,296 million during the year ended December 31, 1997 to
1,043 million during the year ended December 31, 1998; RPMs
decreased 9 percent from 767 million during the year ended
December 31, 1997 to 702 million during the year ended
December 31, 1998.  The decrease was primarily attributable
to the elimination of destinations with greater flight
lengths and the reduction of available seats on flights from
128 to 122. In September 1997, the Company terminated
service to a number of long-haul markets in conjunction with
the Company's September 1997 schedule change and terminated
service from Kansas City to San Francisco in January 1998
and service from Kansas City to New York City-JFK in May
1998.  As a result, the average stage length decreased from
585 miles during the year ended December 31, 1997 to 466
miles during the year ended December 31, 1998.  Conversely,
load factor increased from 59 percent for the year ended
December 31, 1997 to 67 percent for the year ended December
31, 1998.  This increase was primarily the result of a 20
percent decrease in capacity but only a 9 percent decrease
in the RPMs in the year ended December 31, 1998 as compared
to the year ended December 31, 1997.

     Passenger yield per RPM increased 40 percent from 10.0
cents in the year ended December 31, 1997 to 13.9 cents in
the year ended December 31, 1998.  In order to increase
fares and passenger yield effectively, the Company initiated
strategic product improvements beginning in September 1997.
The Company's strategic plan includes the delivery of a
reliable product with a number of amenities found on larger,
better-known airlines that specifically cater to price-
sensitive business travelers.  Those amenities include
assigned seating, refundable tickets, greater legroom, fixed
ticket pricing under the Road Warrior Class and greater
frequencies between city pairs.  The Company believes it has
improved its brand awareness in each of its markets through
its direct advertising program that was modified in August
1997.  The Company's implementation of its strategic plan
showed positive results in the year ended December 31,1998
with the increases in passenger yield and load factor.  In
addition, in late August and early September, the Company
benefited from the pilot strike at one of its competitors
through increased ticket sales.  The Company's load factor,
passenger revenue and related yield, operating costs and
cost per ASM increased as a result of the strike.
<PAGE>

     Certain passengers who do not complete their travel as
scheduled are entitled to a credit for the value of the
unused reservation less a $50 service charge, as described
below, subject to certain restrictions. This credit may be
redeemed for a period of 180 days (90 days prior to March
24, 1997) for future travel.  The value of unused
reservations that are not entitled to a credit as well as
the value of expired credits are recognized in passenger
revenue.  These revenues totaled $3.5 million (approximately
4 percent of total operating revenues) and $8.6 million
(approximately 8 percent of total operating revenues) for
the years ended December 31, 1997 and 1998, respectively.
This increase is attributable to a change in policy
implemented in the first quarter of 1998 whereby passengers
who purchase tickets in discounted fare classes and fail to
complete their travel as scheduled are not entitled to a
credit and the value of the unused reservation is
immediately recognized in passenger revenue.  The increase
is also attributable to an increase in the number of
passengers booking reservations, an increase in the number
of promotions offering discounted fares, and an increase in
the average fare per passenger during the year ended
December 31, 1998 as compared to the year ended December 31,
1997.  As described previously, the Company's strategic plan
implemented in September 1997 refocused the Company's effort
to cater to the business traveler by offering greater
frequencies of flights between city pairs and more
amenities.  With increased flight frequencies between city
pairs, an increase in the business traveler market segment,
and an increase in the number of promotions, the Company
experienced a significant increase in passengers who did not
complete their originally scheduled travel as well as an
increase in passengers who forfeited future travel credits.

     The Company also generates operating revenues as a
result of service charges from passengers who change flight
reservations.  The Company charges a $50 service charge for
these passengers. These service charges were $3.6 million
(approximately 4 percent of total operating revenues) and
$5.0 million (approximately 5 percent of operating revenues)
in the years ended December 31, 1997 and 1998, respectively.
The increase is attributable to the increase in passengers
subject to the service charge and the enforcement of the
Company's policy to charge a service fee, when applicable.

   OPERATING EXPENSES

     The following table sets forth the percentage of total
operating revenues represented by these expense categories:
<TABLE>
                                 Year ended December 31,
                        ----------------------------------------
                                 1998                        1997
                                 ------                     ------
                         Percent of                Percent of
                         ----------                ------------
                         Revenues   Cents Per ASM  Revenues      Cents Per ASM
                         -------------------------------------------------------
<S>                      <C>           <C>          <C>            <C>
Total operating revenues 100.0  percent 10.00  cents 100.0 percent  6.28  cents
                         =======================================================
Operating expenses:
 Flying operations        17.3  percent 1.73  cents  21.0 percent   1.32 cents
 Aircraft fuel            13.2          1.32         22.8           1.43
 Maintenance              21.0          2.10         23.8           1.49
 Passenger service         6.4          0.64          9.0           0.57
 Aircraft and traffic
  servicing               16.2          1.62         20.6           1.29
 Promotion and sales      17.9          1.79         25.5           1.60
 General and
  administrative           3.9          0.39          6.0           0.38
 Depreciation and
  amortization             2.7          0.27          2.5           0.16
                         -------------------------------------------------------
Total operating expenses  98.6          9.86        131.2           8.24
Total other expense, net  (2.8)        (0.28)        (3.5)         (0.22)
                         -------------------------------------------------------
Net loss                  (1.4) percent(0.14) cents (34.7)percent  (2.18)cents
                         =======================================================
</TABLE>


<PAGE>

     Flying operations expenses increased 5 percent from
$17.1 million (approximately 21 percent of operating
revenues) for the year ended December 31, 1997 to $18.0
million (approximately 17 percent of operating revenues) for
the year ended December 31, 1998.  The increase in flying
operations expenses was primarily the result of the increase
in the average number of aircraft in the fleet from 7.7 to
9.0 and the associated gross aircraft rent.  Additional
increases were noted in pilot training and overnight hotel
and food costs.  These increases were offset by a decrease
in the Company's hull insurance premium rates.  Finally,
despite a 6 percent decrease in block hours flown, pilot pay
increased as a result of wage per hour increases in 1998.
As a result of the September 1997 schedule change, block
hours decreased from 29,859 hours in the year ended December
31, 1997 to 28,122 in the year ended December 31, 1998.
Flying operations expense increased on a cents per ASM basis
from 1.32 cents for the year ended December 31, 1997 to 1.73
cents for the year ended December 31, 1998.  The Company's
base rent increased due to additional aircraft and this
coupled with 20 percent fewer ASMs resulted in an increased
cost per ASM.

     Aircraft fuel expenses decreased 26 percent from $18.6
million (approximately 23 percent of operating revenues) for
the year ended December 31, 1997 to $13.7 million
(approximately 13 percent of operating revenues) for the
year ended December 31, 1998.  Lower fuel expense is
directly related to the decrease in block hours flown by the
Company as well as a decrease in cost per gallon in the year
ended December 31, 1998 versus 1997.  Fuel cost per block
hour decreased $134 or 22 percent from $622 in the year
ended December 31, 1997 to $488 in the year ended December
31, 1998 primarily due to a decrease in average fuel price
per gallon.  Specifically, the average price decreased from
$0.74 per gallon (including taxes and into-plane costs) in
the year ended December 31, 1997 to $0.58 per gallon
(including taxes and into-plane costs) in the year ended
December 31, 1998, a 22 percent decrease.  The Company will
seek to pass on any significant fuel cost increases to the
Company's customers through fare increases as permitted by
then current market conditions; however, there can be no
assurance that the Company will be successful in passing on
increased fuel costs.

     Maintenance expenses include all maintenance-related
labor, parts, supplies and other expenses related to the
upkeep of aircraft.  Maintenance expenses increased 13
percent from $19.3 million (approximately 24 percent of
operating revenues) for the year ended December 31, 1997 to
$21.9 million (approximately 21 percent of operating
revenues) for the year ended December 31, 1998.  This
increase was primarily the result of an increase in the
average number of aircraft in the Company's fleet from 7.7
to 9.0, accelerating aircraft input dates for certain
scheduled required major maintenance and providing for the
under accrual of actual engine maintenance costs.  During
the third and fourth quarters of 1998, the Company expensed
approximately $800,000 to provide for actual engine
maintenance costs incurred in excess of accrued amounts.
The Company attributed the underaccrual to the continued
increase in engine overhaul costs.  In addition, the Company
expensed approximately $400,000 to provide for the expected
increase in engine overhaul costs in 1999, 2000 and 2001.
The Company also expensed approximately $433,000 in the
fourth quarter of 1998 to provide an obsolescence reserve
for rotable and expendable inventory.  The increase in
maintenance expense is further attributable to the Company
having three aircraft in scheduled major airframe
maintenance during the year ended December 31, 1998 for
which certain airworthiness directives were performed and
expensed as incurred in accordance with Company policy.  The
Company did not have an aircraft in scheduled major airframe
maintenance during the year ended December 31, 1997
involving airworthiness directives.  The increase in the
average aircraft fleet combined with the three aircraft
incurring major scheduled airframe maintenance during 1998
also resulted in significant increases in repair and
overhaul expenses and parts purchases during the year ended
December 31, 1998.  Lastly, the Company has also made a
concerted effort to improve its line maintenance
capabilities in Pittsburgh, Chicago and Minneapolis, in
addition to its warehousing capabilities in Kansas City.  As
a result, the Company has added approximately thirty
additional maintenance employees to
<PAGE>
support these efforts. These increases were offset by
decreases in the major maintenance accruals for landing gear
and auxiliary power units ("APUs") correlating to the 6
percent decrease in block hours flown.  The Company deposits
supplemental rents with its aircraft lessors to cover a
portion of or all of the cost of its future major scheduled
maintenance for airframes, engines, landing gears and APUs.
These supplemental rents are variable based on flight hours
flown.  The costs of routine aircraft and engine maintenance
are charged to maintenance expense as incurred. Maintenance
expenses increased on a cents per ASM basis from 1.49 cents
for the year ended December 31, 1997 to 2.10 cents for the
year ended December 31, 1998.  This increase in cents per
ASM mainly resulted because of the increases in maintenance
expense as described above as well as the fixed costs of the
Company's maintenance efforts being spread over 20 percent
fewer ASMs.

     Passenger service expenses decreased 9 percent from
$7.3 million (approximately 9 percent of operating revenues)
for the year ended December 31, 1997 to $6.7 million
(approximately 6 percent of operating revenues) for the year
ended December 31, 1998.  The Company significantly reduced
its inconvenienced passenger costs as a result of the
Company's strategy to increase frequencies between city
pairs and to deliver a more reliable product to its
customers.  In addition, this decrease was attributable to
cost savings from the reduction in the Company's passenger
liability insurance rates.  This decrease was offset by
increases in flight attendant overnight hotel and food
costs.  It was also offset by increases in in-flight food
and beverage costs resulting from the 15 percent increase in
the number of passengers for the year ended December 31,
1998 compared to 1997.  Finally, despite a 6 percent
decrease in block hours flown, flight attendant pay
increased as a result of wage per hour increases in 1998.

     Aircraft and traffic servicing expenses increased 1
percent from $16.7 million (approximately 21 percent of
operating revenues) for the year ended December 31, 1997 to
$16.9 million (approximately 16 percent of operating
revenues) for the year ended December 31, 1998. The Company
experienced increases in station rent, employee salaries and
benefits related to the Company's dispatch, scheduling,
station management and system control departments in the
year ended December 31, 1998 as compared to the year ended
December 31, 1997.  These increases were offset, however, by
decreases in station ground handling expenses and station
salaries that correspond to the decrease in the number of
cities served.   Furthermore, in July 1998, the Company took
its station ground handling operations in house at its
Kansas City station.  This resulted in an additional cost
saving of approximately $600,000.  The Company decreased its
average cost per departure from $920 for the year ended
December 31, 1997 to $897 for the year ended December 31,
1998 as a result of these decreases.  Aircraft and traffic
servicing expenses increased on a cents per ASM basis from
1.29 cents for the year ended December 31, 1997 to 1.62
cents for the year ended December 31, 1998 as a result of
the fixed costs of the Company's aircraft and traffic
servicing functions being spread over 20 percent fewer ASMs.

     Promotion and sales expenses decreased 10 percent from
$20.7 million (approximately 25 percent of operating
revenues) in the year ended December 31, 1997 to $18.7
million (approximately 18 percent of operating revenues) in
the year ended December 31, 1998.  This decrease was
primarily the result of the decrease in the number of cities
served, the dollars spent on direct advertising, and the
reduction in costs associated with its reservation center in
the year ended December 31, 1998 as compared to the year
ended December 31, 1997.  During the year ended December 31,
1998, the Company incurred direct advertising costs of $5.4
million versus $7.7 million in the year ended December 31,
1997.  Furthermore, the Company took the reservation center
in-house in April 1998 versus contracting out to a third
party, which effectively reduced reservation center costs by
approximately $1.6 million.  Increases in travel agency
commissions, CRS fees, and credit card processing fees in
the year ended December 31, 1998 as compared to 1997 offset
this decrease.  These increases can be attributed to the 28
percent increase in operating revenues in the year ended
December 31, 1998 as compared to the year ended December 31,
1997.  The average promotion and sales cost per passenger
decreased $3.39 or 22 percent from $15.79 in the year ended
December 31, 1997 to $12.40 in the year ended December 31,
1998.  Promotion and sales expenses increased on a cents per
ASM basis from 1.60 cents for the year ended December 31,
1997 to 1.79 cents for the year ended December 31, 1998.
This increase in cents per ASM resulted because the fixed
costs of the Company's promotion and sales functions were
spread over 20 percent fewer ASMs.
<PAGE>

     General and administrative decreased 17 percent from
$4.9 million (approximately 6 percent of operating revenues)
in the year ended December 31, 1997 to $4.1 million
(approximately 4 percent of operating revenues) in the year
ended December 31, 1998.  The decrease in general and
administrative expenses in the year ended December 31, 1998
as compared to 1997 is the result of decreases in general
liability insurance, property tax, accounting staff salaries
and office rent.

     Depreciation and amortization expenses increased 35
percent from $2.1 million (approximately 3 percent of
operating revenues) in the year ended December 31, 1997 to
$2.8 million (approximately 3 percent of operating revenues)
in the year ended December 31, 1998.  This increase was
primarily due to an increase in rotable aircraft parts
inventory of approximately $3.3 million, the acquisition of
two spare aircraft engines and various capitalized aircraft
improvements in the year ended December 31, 1998.

     Other expense, net consists primarily of debt issuance
cost amortization, interest income and interest expense.  In
connection with the guarantees and the letters of credit
issued on behalf of its credit card processor and the bank
line of credit agreements, each executed in 1997, the
Company issued certain stockholders warrants to purchase
shares of Common Stock at exercise prices of $l.00 and $1.94
per share. Warrants vest quarterly in amounts dependent on
the Company's exposure under the letter and line of credit,
as defined in the respective agreements.  Accordingly, the
estimated fair value of the warrants issued related to the
agreements totaling $490,000 during the year ended December
31, 1998 was recorded as deferred debt issuance costs and is
being amortized to expense over the terms of the related
guarantees.  Interest expense decreased during the year
ended December 31, 1998 as a result of the payoff of the
line of credit in August 1998 as well as the conversion of
demand notes payable to related parties to preferred stock
and common stock in March 1998 and May 1998, respectively.
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

     Since inception, the Company has financed its
operations and met its capital expenditure requirements
primarily with proceeds from private sales of equity
securities, proceeds from its initial public offering of
Common Stock, proceeds from its public rights offering,
exercise of warrants and the issuance of debt primarily to
its principal stockholders.  As of March 1, 2000, the
Company has received net proceeds from the sale of its
equity securities aggregating approximately $70.3 million.
The Company's balance sheet reflected cash and cash
equivalents of $6.4 million as of December 31, 1999.

     During 1999, the Company generated sufficient passenger
ticket sales to provide for its operational cash needs.  As
of December 31, 1999, the Company had a working capital
deficit of $14.7 million.  In January 1999, two principal
stockholders of the Company agreed to renew a two-year $4.0
million letter of credit facility to secure the Company's
credit card processor.  At December 31, 1999, the credit
card exposure was less than $6.0 million and, consequently,
the Company had no restricted cash.  In March 2000, the
Company established a one-year surety bond, which replaced
the $2.0 million guaranty that had expired, in the amount of
$8 million as collateral to additionally secure the credit
card processor.  As a result, approximately $6 million was
released by the Company's credit processor from a restricted
cash account to the Company's operating account.  In 2000,
to the extent that exposure exceeds $12.0 million, the
Company must deposit cash from ticket sales as collateral to
secure the Company credit card processor.  As of March 13,
2000 due to increased ticket sales, the Company's credit
card exposure was approximately $12.1 million.  The Company
funded the credit card exposure in excess of $12.0 million
with one hundred thousand dollars in available cash on hand.
The Company estimates that its credit card exposure will
range between $10.0 and $13 million through the end of the
third quarter when the balance should decline due to
expected seasonality. Any cash utilized as collateral will
be refunded by the credit card processor, on a daily basis,
when the Company's exposure falls below the previously
calculated exposure or $12.0 million.

     The Company estimates that scheduled heavy maintenance
of its existing aircraft fleet through December 2000 will
cost $8.2 million, of which $2.0 million will be funded from
existing supplemental rent payments recoverable from
aircraft lessors.  In addition, the Company expects to
expend $4.6 million on various capital expenditures in the
next year, which are primarily related to improvements for
existing aircraft, increased aircraft parts inventory
levels, additional heavy ground equipment and improvements
to its in-house computer systems.

     The Company continues to review its financing
alternatives in order to purchase or lease additional
aircraft under suitable terms.  In November 1999, the
Company entered into a letter of intent for the lease of six
additional Boeing 737-200 jet aircraft and accepted delivery
of one of these aircraft as of March 15, 2000.  The Company
must deposit with the lessor or establish a letter of credit
in the aggregate amount of $825,000 for these remaining
aircraft expected in 2000 and 2001.  As of March 12, 2000,
the Company had placed deposits totaling $495,000 with the
lessor.

     The Company expects to continue to generate sufficient
cash to support its operations through the second quarter of
2000.  The Company is evaluating options on raising
additional capital or issuing debt during 2000 in order to
execute its capital expenditure plans for 2000 and to
account for the signifcant increase is the cost of fuel.  In
addition, the Company plans to continue to implement certain
actions designed to achieve long-term profitability and
improve its capital resources.  Management's plans to
achieve long-term profitability include increased focus on
the price-sensitive business traveler and pricing strategies
designed to maximize passenger revenue and continued focus
on cost savings programs.  There can be no assurance that
its efforts will be successful.

     Whether or not the Company's strategic plans to achieve
long-term profitability are successful, the Company's
continued operations are dependent upon additional
financings.  Two of the Company's principal stockholders
have committed to invest up to $7,500,000, if necessary, to
fund the Company's continued operations.  Failure to raise
additional funds in the future could result in the Company
<PAGE>
significantly curtailing or ceasing operations. The
Company's success in implementing actions designed to
achieve long-term profitability and its ability to operate
at profitable levels will determine if the Company will be
able to raise additional capital.  There can be no assurance
that management can provide for the Company's necessary
capital requirements or that principal shareholders will
continue to provide financing.

IMPACT OF THE YEAR 2000

     The Company has completed all significant aspects of
its Year 2000 project.  The Company's Year 2000 project
encompassed information technology systems as well as
embedded technology assets along with assessments of
material third-party relationships and associated risks.

     All of the Company's internal systems and software,
including virtually all software and services provided by
third parties, appropriately handled the Year 2000 date
changeover and the Company's operations were also
unaffected.  While the Company has experienced no Year 2000
related disruptions to date, there are remaining risks
associated with the Year 2000 issue and the Company
continues to monitor possible future implications of Year
2000 issues.  Based on currently available information,
management believes that Year 2000 related disruptions, if
any, will not have a material adverse effect on the
Company's financial condition or results of operations.

OTHER MATTERS
ITEM 7(A).     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK

MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS

     The risk inherent in the Company's market risk sensitive
position is the potential loss arising from an adverse change
in the price of fuel as described below.  The sensitivity
analysis presented does not consider either the effects that
such an adverse change may have on overall economic activity
or additional actions management may take to mitigate its
exposure to such a change.  At the present time, management
does not utilize fuel price hedging instruments to reduce the
Company's exposure to fluctuations in fuel prices.  Actual
results may differ.

     The Company's earnings are affected by changes in the
price and availability of aircraft fuel.  Market risk is
estimated as a hypothetical 10 percent increase in the
average 1999 cost per gallon of fuel.  Based on 1999 actual
fuel usage, such an increase would have resulted in an
increase to aircraft fuel expense of approximately $2.0
million in 1999.  Comparatively, based on projected 2000 fuel
usage, such an increase would result in an increase to
aircraft fuel expense of approximately $3.1 million in 2000.
The increase in exposure to fuel price fluctuations in 2000
is due to the Company's plan to increase its average aircraft
fleet size and related gallons purchased.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     Reference is made to the financial statements and
schedule and Report of Independent Auditors included later in
this report under Item 14.

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

     None.
<PAGE>

PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The Registrant's Proxy Statement to be used in
connection with the Annual Meeting of Stockholders to be held
on May 24, 2000 contains under the caption "Election of
Directors" certain information required by Item 10 of Form 10-
K and such information is incorporated herein by this
reference.  The information required by Item 10 of Form 10-K
as to executive officers is set forth in Item 4A of Part I
hereof.

     The Registrant's Proxy Statement to be used in
connection with the Annual Meeting of Stockholders to be held
on May 24, 2000 contains under the caption "Compliance with
Section 16(a) of the Securities Exchange Act of 1934" certain
information required by Item 10 of Form 10-K and such
information is incorporated herein by this reference.

ITEM 11.  EXECUTIVE COMPENSATION

     The Registrant's Proxy Statement to be used in
connection with the Annual Meeting of Stockholders to be held
on May 24, 2000 contains under the caption "Executive
Compensation" the information required by Item 11 of Form 10-
K and such information is incorporated herein by this
reference (except that the information set forth under the
following subcaptions is expressly excluded from such
incorporation:  "Executive Compensation and Stock Option
Committee Report" and "Company Performance").

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

     The Registrant's Proxy Statement to be used in
connection with the Annual Meeting of Stockholders to be held
on May 24, 2000 contains under the caption "Voting Securities
and Principal Holders Thereof" the information required by
Item 12 of Form 10-K and such information is incorporated
herein by this reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The Registrant's Proxy Statement to be used in
connection with the Annual Meeting of Stockholders to be held
on May 24, 2000 contains under the caption "Certain
Transactions" the information required by Item 13 of Form 10-
K and such information is incorporated herein by this
reference.

PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULE, AND
REPORTS ON FORM 8-K

     (a)  Financial Statements.

          (1)  Audited Financial Statements:

               Report of Independent Auditors               33

               Balance Sheets -
               December 31, 1999 and December 31, 1998      34

               Statements of Operations for the
               years ended
               December 31, 1999, 1998 and 1997             35

               Statements of Stockholders'
               Equity (Deficit) for the years
               ended December 31, 1999, 1998
               and 1997                                     36

               Statements of Cash Flows for
               the years ended December 31,
               1999, 1998 and 1997                          37

               Notes to Financial Statements                39
<PAGE>

          (2)  The following financial statement schedule is
               included herein:

               Schedule II - Valuation and Qualifying
                             Accounts                      51

          All other schedules are omitted, as the required
          information is inapplicable or the information is
          presented in the financial statements or related
          notes.

          (3)  The exhibits required to be filed by this item
are set forth in paragraph (c) below:

     (b)  Reports on Form 8-K.

          None.

     (c)  Exhibits.

          3.1  Restated Certificate of Incorporation, as
               amended of Registrant (filed as Exhibit 3.2
               to the Registrant's Form 10-K for the year
               ended December 31, 1997 and incorporated
               herein by reference).

          3.2  Certificate of Designation of Series A
               Preferred Stock of Registrant, as filed
               with Delaware Secretary of State on March
               18, 1998 (filed as Exhibit 3.2 to the
               Registrant's Form 10-K for the year ended
               December 31, 1997 and incorporated herein
               by reference).

          3.3  By laws of Registrant, as amended to date
               (filed as Exhibit 3.2
               to Amendment No. 2 to the Registrant's
               Registration Statement
               No. 33-96884 and incorporated herein by
               reference).

          10.1 Registrant's 1994 Stock Option Plan, as
               amended to date (filed as
               Exhibit 10.1 to the Registrant's
               Registration Statement No. 33-96884
               and incorporated herein by reference).

          10.2 Form of Incentive Stock Option Agreement
               (filed as Exhibit 10.2
               to the Registrant's Registration Statement
               No. 33-96884 and incorporated
               herein by reference).

          10.3 Form of Nonstatutory Stock Option
               Agreement (filed as Exhibit 10.3
               to the Registrant's Registration Statement
               No. 33-96884 and incorporated
               herein by reference).

          10.4 Form of Employee Stock Purchase Plan
               (filed as Exhibit 10.4 to the
               Registrant's Registration Statement No.
               33-96884 and incorporated herein
               by reference).

          10.5 Registrant's 401(k) Plan (filed as Exhibit
               10.4 to the Registrant's
               Registration Statement No. 33-96884 and
               incorporated herein by reference).

          10.6 Form of Registrant's Profit Sharing Plan
               (filed as Exhibit 10.6 to the
               Registrant's Registration Statement No.
               33-96884 and incorporated
               herein by reference).

          10.7 Aircraft Lease Agreement, dated as of
               December 8, 1994, between
               US Air, Inc. and Registrant, along with
               Lease Supplements Nos.
               1, 2, 3 and 4 (filed as Exhibit 10.7 to
               the Registrant's Registration
               Statement No. 33-96884 and incorporated
               herein by reference).
<PAGE>

          10.8 Supplementary Lease Agreement, dated as of
               October 28, 1997, between
               US Air,   Inc. and Registrant (filed as
               Exhibit 10.8 to the Registrant's
               Registration Statement No. 33-96884 and
               incorporated herein by reference).

          10.9 Modification to Aircraft Lease Agreement,
               dated September 1, 1995,
               between U.S. Air, Inc. and Registrant
               (filed as Exhibit 10.9 to the
               Registrant's Registration Statement No. 33-
               96884 and incorporated herein by
               reference).

          10.10 Acknowledgment and Consent of the
               Registrant regarding assignment of
               Aircraft Lease Agreement between US Air,
               Inc. and Registrant (filed as Exhibit
               10.10 to the Registrant's Form 10-K for
               the year ended December 31, 1996 and
               incorporated herein by reference).

          10.11 Amendment No. 1 to Lease Agreement,
               by and between Registrant and First
               Security Bank as owner, trustee and
               successor-in-interest to U.S. Airways,
               Inc. (f/k/a U.S. Air, Inc.) (filed as
               Exhibit 10. 1 to Registrant's Form 10-Q for
               the Quarterly Period Ended June 30, 1997
               and incorporated herein by reference).

          10.12 Amendment No. 2 to Lease Agreement,
               by and between Registrant and First
               Security Bank as owner, trustee and
               successor-in-interest to U.S. Airways,
               Inc. (f/k/a U.S. Air, Inc.) (filed as
               Exhibit 10.12 to Registrant's Form 10-K
               for the year ended December 31, 1999 and
               incorporated herein by reference).

          10.13 Aircraft Lease Agreement, dated as of
               December 6, 1994, between EA 727,
               Inc. and Registrant (filed as Exhibit
               10.10 to the Registrant's Registration
               Statement No. 33-96884 and incorporated
               herein by reference).

          10.14 Aircraft Lease Agreement, dated
               December 11, 1995, between the
               Registrant and Mimi Leasing Corporation
               (filed as Exhibit 10.30 to the
               Registrant's Form 10-K for the year ended
               December 31, 1995).

          10.15 Aircraft Lease Agreement, dated as of
               May 30, 1997, between Interlease Aviation
               Investors III (TACA), L.L.C. and the
               Registrant (filed as Exhibit 10.14 to the
               Registrant's Form 10-Q for the Quarterly
               Period Ended June 30, 1997 and
               incorporated herein by reference).

          10.16 Aircraft Lease Agreement, dated
               September 18, 1997, between Interlease
               Aviation Investors II (Aloha), L.L.C. and
               the Registrant (filed as Exhibit 10.1 to
               the Registrant's Form 10-Q for the
               quarterly period ended September 30, 1997
               and incorporated herein by reference).

          10.17 Aircraft Lease Agreement, dated
               November 18, 1997 between Mimi Leasing
               Corporation and the Registrant (filed as
               Exhibit 10.16 to the Registrant's Form 10-
               K for the year ended December 31, 1997 and
               incorporated herein by reference).

          10.18 Aircraft Lease Agreement (MSN 22979),
               dated as of January 5, 1999 between
               AeroUSA, Inc. and the Registrant (filed as
               Exhibit 10.18 to the Registrant's Form 10-
               K for the year ended December 31, 1998 and
               incorporated herein by reference).

          10.19  Aircraft Lease Agreement (MSN 21735),
               dated as of January 5, 1999 between
               AeroUSA, Inc. and the Registrant (filed as
               Exhibit 10.18 to the Registrant's Form 10-
               K for the year ended December 31, 1998 and
               incorporated herein by reference).

          10.20 Aircraft Lease Agreement (MSN 22120), dated as of
               August 27, 1999 between Aircraft 22120, Inc. and the
               Registrant (filed as Exhibit 10.37 to the Registrant's Form
               10-Q for the quarter ended September 30, 1999).

          10.21 Aircraft Lease Agreement (MSN 22121), dated as of
               July 22, 1999 between Aircraft 22121, Inc. and the
               Registrant (filed as Exhibit 10.36 to the Registrant's Form
               10-Q for the quarter ended September 30, 1999).

          10.22 Aircraft Lease Agreement (MSN 22122), dated as of
               October 19, 1999 between Aircraft 22122, Inc. and the
               Registrant.

          10.23 Aircraft Lease Agreement (MSN 22882),
               dated as of February 22, 2000 between US
               Airways, Inc. and the Registrant.

          10.24 Employment Agreement, dated November
               3, 1997 between the Registrant and Robert
               J. Spane (filed as Exhibit 10.20 to the
               Registrant's Form 10-Q for the quarter
               ended September 30, 1999 and incorporated
               herein by reference).

          10.25 Registration Rights Agreement, dated
               as of March 20, 1998 (filed as Exhibit
               10.18 to the Registrant's Form 10-K for
               the year ended December 31, 1997 and
               incorporated herein by reference).

          10.26 Unit Purchase Agreement, dated as of
               March 20, 1998, between the Registrant and
               J. F. Shea Co., Inc. and The Hambrecht
               1980 Revocable Trust (filed as Exhibit
               10.19 to the Registrant's Form 10-K for
               the year ended December 31, 1997 and
               incorporated herein by reference).

          10.27 Note Exchange Agreement, dated as of
               March 20, 1998, between the Registrant and
               the Holders (filed as Exhibit 10.20 to the
               Registrant's Form 10-K for the year ended
               December 31, 1997 and incorporated herein
               by reference).

          10.28 Lease, dated July 15, 1999, between
               the Gerson Company and Registrant.

          10.29 Shopping Center Lease, dated February
               28, 1996, between the Registrant
               and Southern Hills Center, L.L.C.
               (Lawrence, KS Office) (filed as
               Exhibit 10.31 to the Registrant's Form 10-
               K for the year ended December 31, 1995).

          10.30  Second Amendment and Restated Warrant
               Purchase Agreement among
               Registrant and certain of its stockholders
               (filed as Exhibit 10.18 to the
               Registrant's Registration Statement No. 33-
               96884 and incorporated herein by
               reference).

          10.31     Form of Amended and Restated Warrant
               for the Purchase of Shares of Series B
               Preferred Stock (Amended Warrant) (filed
               as Exhibit 10.19 to the Registrant's
               Registration Statement No. 33-96884 and
               incorporated herein by reference).
<PAGE>


          10.32     Reimbursement Agreement, dated as of
               December 31, 1996, by and among Registrant
               and Hambrecht & Quist California, a wholly
               owned subsidiary of Hambrecht & Quist
               Group (filed as Exhibit 10.21 to the
               Registrant's Form 10-K for the year ended
               December 31, 1996 and incorporated herein
               by reference).

          10.33     Merchant Agreement, dated as of
               February 27, 1997, by and between
               Registrant and Michigan National Bank
               (filed as Exhibit 10.25 to the Registrants
               Form 10-K for the year ended December 31,
               1996 and incorporated herein by
               reference).

          10.34     Amendment to Merchant Agreement,
               dated as of February 6, 1997, by and
               between Registrant (filed as Exhibit 10.26
               to the Registrants Form 10-K for the year
               ended December 31, 1996 and incorporated
               herein by reference).

          21.1 List of Subsidiaries of Registrant (filed
               as Exhibit 21.1 to the Registrant's
               Registration Statement No. 33-96884 and
               incorporated herein by reference).

          23.1 Consent of Ernst & Young LLP.

          24.1 Power of Attorney (included on the
               signature page of this Form 10-K).

          27   Financial Data Schedule.

     (d)  Financial Statement Schedule.

     The response to this portion of Item 14 is submitted as
a separate section of this report.
<PAGE>




               Report of Independent Auditors

The Board of Directors and Stockholders
Vanguard Airlines, Inc.

We have audited the accompanying balance sheets of Vanguard
Airlines, Inc. (the Company) as of December 31, 1999 and
1998, and the related statements of operations,
stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1999. Our audits also
included the financial statement schedule listed on the
Index at Item 14(a). These financial statements and schedule
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits.

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

In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of Vanguard Airlines, Inc. as of December 31, 1999
and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles
generally accepted in the United States. Also in our
opinion, the related financial statement schedule, when
considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects,
the information set forth therein.

The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern.
As more fully described in Note 2, the Company has incurred
operating losses and has a working capital deficiency.
These conditions raise substantial doubt about the Company's
ability to continue as a going concern.  Management's plans
in regard to these matters are also described in Note 2.
The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability
and classification of assets or the amounts and
classification of liabilities that may result from the
outcome of this uncertainty.

Ernst & Young LLP

Kansas City, Missouri
February 25, 2000
<PAGE>
<TABLE>
<CAPTION>

            Vanguard Airlines, Inc.

                Balance Sheets


                                      DECEMBER 31

                                       1999          1998
                                   ------------- ------------
<S>                                <C>           <C>
ASSETS
Current assets:
Cash and cash equivalents          $  6,440,684  $  7,417,048
Accounts receivable, less allowance
for doubtful accounts of $96,000
in 1999 ($303,000 in 1998)            1,295,515     2,030,309
Inventories                           1,321,047     1,168,054
Prepaid expenses and other current    1,835,125     1,022,953
assets
Current portion of supplemental
maintenance                           5,351,279     4,490,281
  deposits
                                   ------------- ------------
Total current assets                 16,243,650    16,128,645



Property and equipment, at cost:
Aircraft improvements and             7,626,144     4,854,683
leasehold costs
Aircraft engines and rotable          7,763,835     6,243,693
inventory
Reservation system and                1,804,783     1,867,954
communication equipment
Other property and equipment          4,777,339     2,624,579
                                   ------------- ------------
                                     21,972,101    15,590,909
Less accumulated depreciation and
amortization                        (11,122,590)   (7,459,456)
                                   ------------- ------------
                                     10,849,511     8,131,453

Other assets:
Supplemental maintenance deposits,
less current portion                  4,168,617     5,121,050
Deferred debt issuance costs            595,038        83,448
Leased aircraft deposits              3,428,000     2,299,000
Fuel and security deposits              708,030       883,610
Other                                 1,710,322       999,377
                                   ------------- ------------
                                     10,610,007     9,386,485
                                   ------------- ------------
Total assets                        $37,703,168   $33,646,583
                                   ============= ============
</TABLE>
 <PAGE>

<TABLE>
                                           DECEMBER 31
                                       1999          1998
                                    ------------- -----------
<S>                                 <C>           <C>
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable                    $7,357,821     $5,848,635
Accrued expenses                     4,701,841      3,062,823
Accrued maintenance                 10,057,044      6,902,847
Air traffic liability                8,649,452      8,230,222
Current portion of capital lease
obligations                            188,692             --
                                    ------------- -----------
Total current liabilities           30,954,850     24,044,527

Accrued maintenance, less current
portion                              4,713,701      3,818,184
Capital lease obligations, less
current portion                        356,755             --

Commitments and contingencies

Stockholders' equity:
Preferred stock, $.001 par value:
  Authorized shares -
   2,000,000
  Issued and outstanding
   shares - 302,362                          302           302
  Liquidation preference -
   $3,023,620
Common stock, $.001 par value:
  Authorized shares - 200,000,000
  Issued and outstanding
   shares - 17,107,617 in
   1999 (17,074,462 in 1998)              17,108         17,075
Additional paid-in capital            77,979,912     76,954,670
Accumulated deficit                  (76,319,460)   (71,170,997)
                                      ------------- -----------
                                       1,677,862      5,801,050
Deferred stock compensation                   --        (17,178)
                                    ------------- -  ----------
Total stockholders' equity             1,677,862      5,783,872
                                    -------------   -----------
Total liabilities and stockholders'
equity                               $37,703,168    $33,646,583
                                     ============= ===========
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>

<TABLE>
                     Vanguard Airlines, Inc.
                    Statements of Operations

                               YEAR ENDED DECEMBER 31,
                          1999          1998         1997
                          ----------- ----------- -----------
<S>                       <C>          <C>         <C>
Operating revenues:
Passenger revenue         $118,126,125 $97,810,522  $76,560,373
Other                        6,954,610   6,458,020    4,823,765
                           ----------- ----------- -----------
Total operating revenues   125,080,735 104,268,542   81,384,138

Operating expenses:
Flying operations           23,821,216  17,997,741   17,080,316
Aircraft fuel               20,388,390  13,725,011   18,571,472
Maintenance                 29,124,877  21,928,784   19,334,251
Passenger service            7,519,973   6,677,818    7,342,237
Aircraft and traffic        20,830,769  16,941,063   16,746,727
servicing
Promotion and sales         20,100,628  18,680,369   20,701,511
General and administrative   4,246,920   4,065,266    4,914,469
Depreciation and
amortization                 4,069,737   2,798,215    2,067,917
                           ----------- ----------- -----------
Total operating expenses   130,102,510 102,814,267 106,758,900
                           ----------- ----------- -----------
Operating income (loss)     (5,021,775)  1,454,275 (25,374,762)

Other income (expense):
Deferred debt issuance cost
  amortization                (434,410) (2,629,785) (1,858,767)
Interest expense               (16,865)   (516,626) (1,110,465)
Interest income                508,366     213,199      97,991
Other                         (183,779)          -           -
Total other expense, net      (126,688)  2,933,212) (2,871,241)
                           ----------- ----------- -----------
Net loss                 $  (5,148,463)$(1,478,937)$(28,246,003)
                           =========== =========== ===========

Net loss per share - basic
and diluted                $    (0.30) $    (0.11) $    (9.27)
                           =========== =========== ===========

Weighted-average common
shares outstanding          17,085,352  13,153,528  3,046,580
                            =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.

<TABLE>
<CAPTION>
                             Vanguard Airlines, Inc.
                  Statements of Shareholders' Equity (Deficit)
                                  CONVERTIBLE
                                  PREFERRED STOCK                                                                        TOTAL
                                  SERIES A          COMMON STOCK           ADDITIONAL                    DEFERRED     STOCKHOLDERS'
                                  -----------------------------------------PAID-IN       ACCUMULATED      STOCK           EQUITY
                                  SHARES       AMOUNT  SHARES      AMOUNT  CAPITAL        DEFICIT     COMPENSATION     (DEFICIT)
                                  -----------------------------------------------------------------------------------------------
                                  -----------------------------------------------------------------------------------------------
<S>                               <C>          <C>     <C>         <C>     <C>           <C>            <C>          <C>
Balance at December 31,1996       --           $   --   1,996,490  $1,997  $ 28,291,981  $(41,446,057)  $  (85,938)  $(13,238,017)
  Issuance of warrants            --               --          --      --     4,082,000            --           --       4,082,000
  Amoritization of deferred
  stock compensation              --               --          --      --            --            --       34,380          34,380
  Issuance of common stock in
   a private placement            --               --    1,030,000   1,030   10,233,970            --           --      10,235,000
  Issuance of common stock in
   a rights offering              --               --    6,091,143   6,091   15,168,909            --           --      15,175,000
 Exercise of stock options       --               --       21,549      22       13,184            --           --           13,206
  Net loss                        --               --           --      --           --   (28,246,003)          --    (28,246,003)
                                  ------------------------------------------------------------------------------------------------
Balance at December 31, 1997      --               --    9,139,182   9,140   57,790,044   (69,692,060)     (51,558)   (11,944,434)
  Issuance of warrants            --               --           --      --      490,000            --           --         490,000
  Amoritization of deferred
   stock compensation             --               --           --      --           --            --       34,380          34,380
  Issuance of preferred stock
   and warrants to purchase
   common stock through
   conversion of related-party
   notes payable                  302,362         302           --      --    2,921,445      2,921,747
  Issuance of common stock
   through conversion of
   related-party notes payable    --               --    4,225,954    4,226  10,560,661             --          --      10,564,887
  Issuance of common stock
   through exercise of warrants   --               --    2,060,000    2,060   5,147,940             --          --       5,150,000
  Issuance of common stock
   through cashless exercise
   of warrants                    --               --     1,622,187   1,622      (1,622)            --          --             --
  Exercise of stock options       --               --        27,139      27      46,202             --          -          46,229
  Net loss                        --               --            --      --          --     (1,478,937)         --    (1,478,937)
                                  -----------------------------------------------------------------------------------------------
Balance at December 31, 1998      302,362         302    17,074,462  17,075   76,954,670   (71,170,997)    (17,178)     5,783,872
  Issuance of warrants            --               --            --      --      946,000            --          --        946,000
  Amortization of deferred
   stock compensation             --               --            --      --           --            --      17,178         17,178
  Exercise of stock options       --               --        33,155      33       79,242            --          --         79,275
  Net loss                        --               --            --      --           --    (5,148,463)         --    (5,148,463)
                                  -----------------------------------------------------------------------------------------------
Balance at December 31, 1999      302,362        $302    17,107,617 $17,108  $77,979,912  $(76,319,460)    $    --     $1,677,862
                                  ===============================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
<TABLE>
<CAPTION>
                     Vanguard Airlines, Inc.

                    Statements of Cash Flows


                                   YEAR ENDED DECEMBER 31
                            1999           1998           1997
                            -------------- -------------  --------------
<S>                         <C>            <C>            <C>
OPERATING ACTIVITIES

Net loss                    $  (5,148,463) $ (1,478,937)  $(28,246,003)
Adjustments to reconcile net
loss to net cash provided
by (used in) operating
activities:
Depreciation                    2,504,888     1,519,808        848,948
Amortization                    1,564,849     1,278,407      1,218,969
Loss on disposal of property
and equipment                      37,390             -         11,400
Deferred debt issuance cost
amortization                      434,410     2,629,785      1,858,767
Compensation related to
stock options                      17,178        34,380         34,380
Provision for uncollectible       109,014        10,895        253,276
accounts
Provision for expendable and
rotable inventory                       -       433,000              -
obsolescence
Changes in operating assets
and liabilities:
Restricted cash                        --             -       1,822,998
Accounts receivable              625,780        271,235         888,703
Inventories                     (152,993)      (358,434)       (169,282)
Prepaid expenses and other
current assets                  (812,172)       (11,536)       (144,313)
Supplemental maintenance          91,435     (1,842,632)     (3,045,441)
deposits
Accounts payable               1,509,186       (247,268)     (2,308,293)
Accrued expenses               1,639,018        176,226         355,201
Accrued maintenance            2,090,997      1,472,805       1,563,588
Air traffic liability            419,230      2,241,137        (620,524)
Deposits and other            (1,664,365)      (143,907)       (712,690)
                            -------------- -------------  --------------
Net cash provided by (used
in) operating activities       3,265,382      5,984,964     (26,390,316)

INVESTING ACTIVITIES

Purchases of property and
equipment                     (4,158,855)    (5,844,984)      (2,061,343)


FINANCING ACTIVITIES

Proceeds from issuance of
notes payable to related
parties                              -      3,000,000        29,148,816
Proceeds from line of
credit borrowings                    -      1,900,000         2,275,000
Principal payments on line
of credit                            -     (3,800,000)       (5,375,000)
Proceeds from issuance of
notes payable                        -        275,000                 -
Proceeds from sale of common
stock and the exercise of
stock options and warrants,
net of offering costs           79,275      5,196,229         3,242,131
Offering costs incurred on
issuance of preferred stock
through conversion of                -       (101,873)                -
related-party notes payable
Principal payments on notes
payable and capital lease
obligations                    (162,166)     (275,000)         (158,659)
                            -------------- -------------  --------------
Net cash provided (used in)
by financing activities         (82,891)    6,194,356        29,132,288
                            -------------- -------------  --------------
 </TABLE>
(continued on following page)
<PAGE>
<TABLE>
<CAPTION>

                                         Vanguard Airlines, Inc.

                                   Statements of Cash Flows (continued)


                                           YEAR ENDED DECEMBER 31
                               1999          1998            1997

                               ------------- --------------- --------------
<S>                            <C>           <C>             <C>
Net increase (decrease) in cash
and cash equivalents          $   (976,364) $  6,334,336    $      680,629

Cash and cash equivalents at
beginning of year                7,417,048     1,082,712           402,083
                               ------------- --------------- ----------------
Cash and cash equivalents at
end of year                    $ 6,440,684   $  7,417,048    $   1,082,712
                               ============= =============   ==============

SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid during the year for
interest                       $     16,865  $     190,935   $      377,122
                               ============= =============   ==============
Cash paid during the year for
income taxes                   $     60,000  $          --   $           --
                               ============= =============   ==============

SUPPLEMENTAL SCHEDULE OF
NONCASH INVESTING AND
FINANCING ACTIVITIES
Conversion of related-party
notes payable and accrued
interest to preferred stock    $         --  $  3,023,620    $          -

Conversion of related-party
notes payable and accrued
interest to common stock       $         --    $10,564,887    $ 22,181,075
                               ============= =============   =============

Deferred debt issuance costs
recorded in conjunction with
warrants issued                $   946,000   $     490,000   $   4,082,000
                               ============= =============   ==============
Aircraft leasehold costs
associated with accrued
maintenance at inception of
lease                           $ 2,396,425   $         --   $      453,000
                               ============= =============   ==============

Property and equipment acquired
through issuance of capital
lease obligations              $    707,613  $         --    $           --
                               ============= =============   ==============
Write off of the net book value
of an impaired engine against
related accrued maintenance    $    437,708  $         --    $           --
                               ============= =============   ==============
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>


1. SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

Vanguard Airlines, Inc. (the Company) was incorporated in
Delaware in April 1994 and commenced flight operations on
December 4, 1994. The Company offers low-fare, convenient,
short- to medium-haul passenger air transportation service
primarily in the midwestern, Rocky Mountain, northeastern
and southeastern regions of the United States.

The airline industry is highly competitive primarily due to
the effects of the Airline Deregulation Act of 1978, which
has substantially eliminated government authority to
regulate domestic routes and fares and has increased the
ability of airlines to compete with respect to flight
frequencies and fares.

The airline industry is significantly affected by general
economic conditions. Because a substantial portion of
business and personal airline travel is discretionary, the
industry has experienced adverse financial results during
general economic downturns and positive financial results
during economic upturns. The Company's business is also
seasonal, which can affect the Company's results of
operations from quarter to quarter. A prolonged economic
downturn could have a material adverse effect on the
Company's operations and profitability.

Fuel is a major component of operating expenses for all
airlines. Both the cost and availability of fuel are subject
to many economic and political factors and events occurring
throughout the world. The future cost and availability of
fuel to the Company cannot be predicted, and substantial
sustained price increases or the inability to obtain
adequate fuel supplies could have a material adverse effect
on the Company's operations and profitability.

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 amounts
reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.

RESTRICTED CASH

Restricted cash includes cash equivalents that secure the
risk of loss exposure estimated by the Company's credit card
processors.  During 1999 and 1998, the risk of loss exposure
for the Company's largest credit card processor was
calculated daily. During 1999, if the risk of loss exposure
exceeded $6,000,000 (the amount secured by letters of credit
and a guarantee discussed in NOTE 8), the Company was
required to maintain a restricted cash balance in an amount
equal to the additional exposure. At December 31, 1999 and
1998, no restricted cash balance related to this credit card
processor was required as the risk of loss exposure
calculated on those dates did not exceed $6,000,000. Another
credit card processor requires the Company to maintain a
deposit as security for its risk of loss exposure. The risk
of loss exposure for this credit card processor is reviewed
annually. At December 31, 1999 and 1998, the restricted cash
balance related to this credit card processor totaling
$236,466 and $227,183, respectively, is considered
noncurrent and is included as a component of other assets on
the accompanying balance sheets.

ACCOUNTS RECEIVABLE

Accounts receivable are primarily due from major credit card
processors and travel agents. These receivables are
unsecured. The Company provides an allowance for doubtful
accounts equal to the estimated losses expected to be
incurred in the collection of accounts receivable.
<PAGE>
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

CONCENTRATION OF CREDIT RISK

Although the Company does not expect losses associated with
supplemental payments recoverable from aircraft lessors,
which are described in NOTE 10, recoverability of these
payments is dependent on the continued financial stability
of its three lessors and on the Company's ability to
initially fund aircraft maintenance required for a return of
such supplemental payments.

INVENTORIES

Inventories of flight equipment, expendable parts,
materials, tools, food, beverages and promotional items are
carried at the lower of cost reserve. These items
are charged to expense when issued for use under the first-
in, first-out method.

The Company is a party to an agreement with a supplier for
consigned parts and supplies for its Boeing 737-200
aircraft. The Company is required to pay a monthly
consignment fee, based on the value of the consigned parts,
and to replenish any such parts when used with a like part.
At December 31, 1999 and 1998, the Company held consigned
parts and supplies of approximately $1,846,000 and
$1,628,000, respectively, which are not included in the
accompanying balance sheets.

PROPERTY AND EQUIPMENT

Depreciation and amortization of aircraft improvements and
leasehold costs are recorded using the straight-line method
over their estimated useful lives or remaining lease terms
of the related aircraft, whichever is shorter, ranging from
five to seven years. Reservation system and communication
equipment and other property and equipment are depreciated
on a straight-line basis over the shorter of their estimated
useful lives or remaining lease terms ranging from five to
seven years. Aircraft rotable inventory items are
depreciated over their estimated useful lives or remaining
aircraft lease terms, whichever is shorter, ranging from
five to seven years. At December 31, 1999 and 1998, aircraft
rotable inventory was recorded net of a $300,000 and
$400,000 obsolescence reserve, respectively. Aircraft
engines are depreciated on a straight-line basis over 10
years.

AIRCRAFT AND ENGINE MAINTENANCE

The Company accounts for aircraft overhaul and major engine
maintenance costs using the accrual method. The Company
accrues the estimated cost of the next aircraft overhaul
based on aircraft utilization. The actual cost of an
aircraft overhaul is charged to the accrual, with any
deficiency or excess charged or credited to expense. The
Company accrues major engine maintenance based on the
greater of engine cycles or flight hours multiplied by the
estimated long-term cost per flight hour or cycle. The
actual cost of engine maintenance is charged to the accrual.
The estimated long-term cost per flight hour or cycle is
adjusted to provide for the Company's estimated cost of the
next overhaul. The cost of routine maintenance is charged to
expense as incurred.

ADVERTISING COSTS

Advertising costs are charged to expense in the period the
costs are incurred. Advertising expense was approximately
$6,989,000, $5,458,000 and $7,792,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.
<PAGE>

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

PASSENGER REVENUE RECOGNITION

Passenger ticket sales are initially recorded as a component
of air traffic liability. Revenue derived from ticket sales
is recognized at the time transportation is provided.
However, due to various factors, including a multi-tier
ticket pricing structure, certain amounts are recognized in
revenue using estimates regarding both the timing of the
revenue recognition and the amount of revenue to be
recognized. Actual results could differ from those
estimates.

BARTER TRANSACTION

The Company exchanges passenger tickets for certain
services, including advertising and other business
activities.  The Company recognizes expense and a liability
is initially recorded at the fair market value of the ticket
vouchers issued when the Company receives the service.  The
liability is relieved at the time transportation is
provided.

STOCK-BASED COMPENSATION

The Company has elected to follow Accounting Principals
Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations in accounting for
its employee stock options, because, as discussed in NOTE 4,
the alternative fair value accounting provided for under the
Financial Accounting Standards Board's Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting
for Stock-Based Compensation," requires the use of option
valuation models that were not developed for use in valuing
employee stock options.

Pro forma information regarding net loss and loss per share
is required by SFAS No. 123 and has been determined as if
the Company had accounted for its stock options under the
fair value method of that statement. This pro forma
information is included in NOTE 4.

DEFINED CONTRIBUTION PLAN

The Company sponsors a defined contribution plan (the
"Plan") covering substantially all employees.  Participants
may contribute a portion of their pay to the Plan.  On
January 1, 1999, the Company began matching participant
contributions to the Plan equal to 100 percent of the first
3 percent of each participant's compensation deferral.
Contributions made by the Company amounted to approximately
$380,000 during 1999.

LOSS PER SHARE

In 1997, the Company adopted SFAS No. 128, "Earnings Per
Share." Under SFAS No. 128, the Company is required to
calculate basic earnings per share based on the weighted-
average common shares outstanding by excluding the effect of
dilutive stock options. In all years presented herein, the
computation of net loss per share is based on the weighted-
average number of common shares outstanding, as outstanding
convertible preferred stock, stock options and warrants were
antidilutive.

INCOME TAXES

The Company utilizes the liability method in accounting for
income taxes, whereby deferred tax assets and liabilities
are determined based on differences between financial
reporting and tax bases of assets and liabilities utilizing
enacted rates and laws that will be in effect when the
differences are expected to reverse.
<PAGE>

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of cash, cash equivalents and deposits
reported in the balance sheet approximate fair value.  The
fair values of warrants issued in 1999, 1998 and 1997, as
described in NOTES 6 AND 8, were estimated using the
discounted Black-Scholes pricing model.

2. BASIS OF PRESENTATION

In the fourth quarter of 1999, the Company incurred a net
loss of approximately $7.3 million and cash flow from
operations for the year ended December 31, 1999, decreased
by approximately $2.7 million, from approximately $6.0
million for the year ended December 31, 1998.  The Company's
working capital deficiency at December 31, 1999 was
approximately $14.7 million.  In addition, the cost per
gallon of fuel has increased significantly in the first
quarter of 2000, from an average of approximately $0.87 per
gallon for the fourth quarter of 1999 to approximately $1.03
per gallon for the two months ended February 29, 2000.
Accordingly, the Company anticipates that additional debt or
equity financing will be required to fund on-going
operations in 2000.  Two of the Company's principal
stockholders have committed to inject up to $7,500,000, if
necessary, to fund the Company's continued operations.  The
Company is currently negotiating to raise additional capital
and to secure bank financing; however, there can be no
assurance that the Company will successfully complete these
transactions or, if completed, the amounts will be
sufficient to fund on-going operations in 2000.  The
inability to secure additional funding could have material
adverse effect on the Company, including the possibility
that the Company could have to cease operations.

3. STOCKHOLDERS' EQUITY

On May 18, 1999, the Company's stockholders approved a one-
for-five reverse stock split to stockholders of record on
that date resulting in a reduction of 68,297,847 shares of
outstanding common stock.  The par value per share remained
at $0.001 per share and 200,000,000 common shares remained
authorized.  All historical information presented in the
accompanying financial statements and footnotes has been
adjusted retroactively to reflect the reverse stock split.

On March 20, 1998, the Company completed a private sale of
302,362 units of securities at $10 per unit, each unit
consisting of one share of Series A Convertible Preferred
Stock, par value $0.001 per share (the Series A Preferred
Stock), and a common stock purchase warrant. In conjunction
therewith, the Company converted $3,023,620 of outstanding
principal and interest on the demand notes payable,
described in NOTE 7, to Series A Preferred Stock under the
terms of the agreement. Offering costs of $101,873 were
incurred in connection with the issuance of the Series A
Preferred Stock. Each warrant in the unit entitled the
holder to purchase 8 shares of common stock at an exercise
price of $2.75 per share and expires on March 20, 2005. On
August 6, 1998 and August 12, 1998, the warrant holders
exercised, in accordance with the cashless exercise
provision of the warrant agreement, warrants representing
rights to purchase 1,200,000 and 1,218,896, respectively,
shares of common stock that were sold in the Series A
Preferred Stock unit offering. Because the warrant holders
elected to exercise the warrants on a net basis, as defined
by the related warrant agreement, the Company issued an
aggregate 1,622,187 shares of common stock in connection
with such exercises.

The Series A Preferred Stock is not redeemable and pays
dividends at an annual rate of $0.80 per share only when,
and if, declared by the Company's Board of Directors. The
Board of Directors, as of December 31, 1999, has declared no
dividends. The liquidation preference of each share of
Series A Preferred Stock is $10 plus any accrued and unpaid
dividends. Each share of Series A Preferred Stock is
convertible into 4 shares of common stock (subject to
certain antidilution adjustments) at any time commencing on
September 20, 1998, and holders of the Series A Preferred
Stock are entitled to common stock voting rights determined
on an as-converted basis.
<PAGE>

3. STOCKHOLDERS' EQUITY (CONTINUED)

On May 15, 1998, the Company held its annual meeting of
stockholders whereby the stockholders approved an amendment
to the Company's Restated Certificate of Incorporation to
increase the number of authorized shares of the Company's
common stock from 50,000,000 to 200,000,000 shares and
preferred stock from 1,000,000 to 2,000,000 shares.
Effective with the increase in the authorized capital stock,
the Convertible Notes, described in NOTE 7, were converted,
at $2.50 per share, to an equivalent number of shares of
common stock. The Company issued 4,225,954 shares of common
stock on May 20, 1998 in connection with this transaction.

On July 2, 1998, the Company notified certain principal
stockholders of its intention to redeem 2,060,000
outstanding warrants that were issued in conjunction with
the Company's April 1997 private unit offering. Each warrant
issued in connection with the private unit offering entitled
the holder to purchase one share of the Company's common
stock for $2.50 per share. In lieu of redemption, the
warrant holders exercised the warrants and the Company
received proceeds of $5,150,000 in August 1998 upon issuance
of 2,060,000 shares of common stock.

The Company also issued redeemable stock purchase warrants
in conjunction with certain other debt and equity agreements
entered into during the year. During 1998, the Company
issued 21,452 redeemable stock purchase warrants related to
such agreements. The warrants entitle the holders to
purchase, at any time over a 10-year period from the date of
issuance, one share of common stock at an exercise price of
$2.50.

In December 1997, the Company completed a sale of 6,091,143
shares of common stock through a Rights Offering. Under the
Rights Offering, the Company distributed nontransferable
rights, at no cost, to stockholders of record. Each record
holder received two rights, with each right entitling the
holder to purchase one share of common stock for a price of
$2.50 per share. Certain principal stockholders exercised
all of their rights pursuant to the basic subscription and
the over subscription privileges of the Rights Offering. In
lieu of paying the subscription price in cash, they relieved
and discharged the Company of $12,181,000 in notes payable
to related parties. The cash proceeds to the Company from
the sale of the common stock upon the exercise of the rights
offered totaled approximately $2,994,000, after deducting
approximately $53,000 in offering expenses.

In April 1997, the Company completed a private sale of units
of securities, each unit consisting of one share of common
stock and two redeemable common stock purchase warrants. In
connection with the sale, the Company issued 1,030,000
shares of common stock for aggregate proceeds of
approximately $10,235,000, net of offering costs of
approximately $65,000. Included in this private sale were
1,000,000 shares of common stock issued to certain principal
stockholders in lieu of repayment of $10,000,000 in notes
payable to related parties. Each redeemable warrant
originally entitled the holder to purchase, at any time over
a five-year period commencing with the closing of this
private offering, one share of common stock at an exercise
price of $12.50. The redeemable warrant exercise price was
subject to adjustment in the event the Company issued equity
securities raising net proceeds in an aggregate amount of
$1,000,000 at a price below $10.00 per share. In conjunction
with the Company's Rights Offering discussed above, the
redeemable warrants were repriced to $2.50, the offering
price of the common stock in the Rights Offering. The
Company had the right to redeem the warrants at a redemption
price of $0.25 per warrant on 45 days' prior notice if the
average closing bid price of the Company's common stock
equals or exceeds $5.00 for any 20 days within a period of
30 consecutive trading days, as defined by the warrant
agreement. The Company notified the stockholders of
its intention to redeem the warrants on July 2, 1998
as discussed above.

The Company has reserved 6,046,085 shares of common stock for
issuances related to the conversion of preferred stock, the
exercise of outstanding or available stock options and
outstanding stock purchase warrants and for shares

<PAGE>
3. STOCKHOLDERS' EQUITY (CONTINUED)

available under the employee stock purchase plan as follows:

                                    NUMBER OF
                                    SHARES
                                    RESERVED
                                    ------------
Stock options (NOTE 4)              2,577,893
Stock purchase warrants (NOTES 3,
 6 AND 8)                           2,058,744
Series A Preferred Stock (NOTE 3)   1,209,448
Employee stock purchase plan
 (NOTE 5)                             200,000
                                    -------------
                                    6,046,085
                                    ============

4. STOCK OPTIONS
The Company established the Vanguard Airlines, Inc. 1994 Stock
Option Plan (the 1994 Plan) whereby options for up to 340,000
(increased to 2,000,000 in 1998) shares may be granted to
officers, directors, key employees and consultants to purchase
shares of common stock.  Vesting and term of these options are
determined by the Board of Directors and may vary by optionee;
however, the term may be no longer than 10 years from the date of
issuance.

During 1997, the Company repriced certain options under the 1994
Plan due to a significant decline in the market price of the
stock from the grant date. The first option repricing occurred on
February 6, 1997 whereby options to purchase up to 15,200 shares
of common stock were repriced to $9.05. The repricing resulted in
an adjusted vesting start date for all repriced options equal to
a three-month extension. A second option repricing occurred on
November 3, 1997 whereby options repriced on February 6, 1997 and
options granted in 1997 to purchase up to 207,500 shares of
common stock were repriced to $2.50. This repricing also resulted
in an adjusted vesting start date for all repriced options equal
to another three-month extension.

A summary of stock option activity related to the 1994 Plan
is as follows:
<TABLE>

                  1999                     1998             1997
                ---------------------------------------------------------
                           WEIGHTED-          Weighted-         Weighted-
                           AVERAGE            Average            Average
                           EXERCISE           Exerci            Exercise
                  OPTIONS  PRICE     Options  Price    Options  Price
                 --------------------------------------------------------
<S>              <C>        <C>     <C>       <C>    <C>        <C>
Outstanding at
beginning of year 1,584,110 $ 3.85   253,053  $3.20    94,646   $12.00
Granted             274,278   4.44   887,387   4.85   450,500     5.80
Transferred from
1997 Program              -      -   717,396   2.65         -        -
Repriced                  -      -         -      -  (222,700)   11.40
Exercised           (33,155)  2.51   (27,139)  1.70   (21,549)    0.60
Forfeited          (165,137)  4.60  (246,587)  3.45   (47,844)    8.40
                   -------------------------------------------------------
Outstanding at end
of year            1,660,096  3.90  1,584,110  3.85   253,053     3.20
                   =======================================================
Exercisable at end
of year              745,969  3.87    444,615  3.80    47,007     6.75
Weighted-average
fair value of
options granted
during the year               2.91             2.40               2.80

</TABLE>
<PAGE>
Exercise prices for options outstanding under the 1994 Plan as of
December 31, 1999 for incentive stock options granted to
employees range from $0.55 to $6.63. The exercise prices for
certain nonstatutory options granted range from $3.44 to $10.63
for 175,000 options and equals $46.25 for an additional 5,000
options outstanding under the Plan. The weighted-average
remaining contractual life at December 31, 1999 of all
outstanding options under the 1994 Plan is 7.83 years.  The
weighted average exercise price of all options granted under the
1994 plan is $4.08.

During 1999, the Company granted options to purchase 664,322
shares of common stock to certain officers of the Company.  The
exercise price for 3,487 options equals $0.50 and for 660,835
options granted range from $3.94 to $4.81.  The options vest
ranging from 2 to 4 years and have a contractual term of 10 years
from the date of issuance.  At December 31, 1999, there were
111,627 options exercisable and the weighted average contractual
life is 9.52 years.  The weighted-average fair value of options
granted during 1999 is $2.23.

Under a separate stock option program (the 1997 Program), the
Company granted options to purchase 1,394,792 shares of common
stock to certain directors and officers of the Company. Options
totaling 717,396 issued to certain directors and officers under
the 1997 Program were transferred to the 1994 Plan in 1998 when
the shares reserved for issuance under the 1994 Plan were
increased to 2,000,000. The remaining 677,396 options under the
1997 Program have an exercise price of $2.50, vest over a period
of two years and have a contractual term of five
years from the date of issuance. None of these options were
exercised or forfeited during the years ended December 31, 1999
or 1998. At December 31, 1999, there are 677,396 options
exercisable under the 1997 Program, and the weighted-average
remaining contractual life of all outstanding options is 7.5
years. The weighted-average fair value of all options originally
granted under the 1997 Program is $1.05.

The fair values of options granted in 1999, 1998 and 1997 were
estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions for
1999, 1998 and 1997, respectively: risk free interest rates of
4.97 percent, 5.37 percent and 5.78 percent; volatility factors
of the expected market price of the Company's common stock of
 .88, .57 and .55; and a weighted-average expected life of the
option of 3.53, 3.90 and 2.96 years. The Company assumed a 0
percent dividend yield over the expected life of the options.

The Black-Scholes model was developed for use in estimating the
fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, the option valuation
model requires the input of highly subjective assumptions,
including the expected stock price volatility. Because the
Company's stock options have characteristics significantly
different from those of traded options and because changes in the
subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing model does not
necessarily provide a reliable single measure of the fair value
of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value
of the options is amortized to expense over the options' vesting
period. The effects of applying SFAS No. 123 for pro forma
disclosures are not likely to be representative of the effects on
reported net income or losses for future years. The Company's pro
forma information follows:

                        1999          1998         1997
                        ------------  ------------ --------------
Pro forma net loss      $(6,376,913)  $(2,192,258) $(28,701,314)
Pro forma net loss
per share                     (0.37)        (0.17)        (9.42)

5. EMPLOYEE STOCK PURCHASE PLAN

Effective January 1, 1996, the Company adopted the Vanguard
Airlines, Inc. Employee Stock Purchase Plan (the Purchase Plan).
Under the Purchase Plan, the Company registered 200,000 shares of
common stock for issuance to participating eligible employees.
The Company withholds a specified amount (at least $20.00 per
month and not to exceed 15 percent of compensation for that
particular month) from the paychecks of participating eligible
employees. The custodian of the Purchase Plan purchases common
stock within five business days of the allocation of the
participating employee's contribution. Any employee who has
completed ninety (90) days of employment with the Company is
eligible to participate in the Purchase Plan. Common stock is
purchased by the employees from the Company at 85 percent of the
fair market value of the common stock as determined on the last
market trading day prior to the purchase date. Common stock
purchased on the open market is paid 85 percent by the
participating employee and 15 percent by the Company.
<PAGE>

6. LINES OF CREDIT

On January 30, 1997, the Company entered into a bank line of
credit (the Agreement) that permitted borrowings up to $2,275,000
with interest payable monthly at the prime rate published in THE
WALL STREET JOURNAL. As of December 31, 1997, the Company had
borrowed $1,900,000 under the Agreement. The prime rate was 8.50
percent at December 31, 1997. The Agreement matured on
January 30, 1998 and was subsequently paid off. The Agreement was
guaranteed by certain stockholders of the Company (the
Guarantors) for a period of up to two years.

On January 30, 1998, the Company entered into another bank line
of credit agreement (the New Agreement) that permitted borrowings
up to $1,900,000 with interest payable monthly at the prime rate
published in THE WALL STREET JOURNAL. On January 30, 1998, the
Company borrowed $1,900,000 under the terms of the New Agreement
to repay amounts outstanding under the Agreement. The New
Agreement was paid off in August 1998 with proceeds from the
exercise of warrants discussed in NOTE 3. The New Agreement
matured on January 30, 1999 and was not renewed.  The New
Agreement was also guaranteed by certain stockholders of the
Company.

In connection with the execution of the Agreement and a related
two-year guarantee, the Company agreed to issue the Guarantors
warrants to purchase an aggregate of up to 455,000 shares of
common stock at an exercise price of $5.00. Upon execution of the
Agreement, the Company issued 182,000 warrants that vested
immediately. Accordingly, effective January 30, 1997, the
estimated fair value of the warrants issued of $1,100,000 was
recorded as deferred debt issuance costs and was charged to
expense over the term of the guarantee. The remaining warrants
vested quarterly through July 1998 with the number dependent on
the amount of borrowings against the line, as defined in the
warrant agreement.  In 1997 and 1998, the Company issued an
additional 136,500 and 114,000 warrants, respectively.
Accordingly, the estimated fair value of the additional warrants
issued in 1997 and 1998, totaling $323,000 and $138,000,
respectively; was recorded as deferred debt issuance costs and
was charged to expense over the remaining term of the guarantee.
Accumulated amortization related to the warrants totaled
$1,477,552 at December 31, 1998. The warrants were fully
amortized at December 31, 1999. Each warrant expires 10 years
from the date of issuance. Warrants for purchase of 52,500 shares
were terminated and warrants for purchase of 22,500 shares were
forfeited in December 1997 as a result of the release of one of
the stockholder's guarantee.

At December 31, 1999, in connection with guarantees of lines of
credit that expired in 1995 and 1996, the Company had issued
warrants to purchase an aggregate of up to 238,068 shares of
common stock at a weighted-average exercise price of $22.30 per
share. These warrants are fully vested and expire in varying
amounts in 2005 and 2006.

7. NOTES PAYABLE TO RELATED PARTIES

During January and March 1998, the Company issued a total of
$3,000,000 of unsecured 9.0 percent convertible demand notes
payable to certain principal stockholders of the Company. The
Company converted the unsecured demand notes plus accrued interest
totaling $3,023,620 to Series A Convertible Preferred Stock, as
described in NOTE 3. In addition, on March 20, 1998, the Company
entered into a note exchange agreement whereby the principal
stockholders holding notes payable totaling $9,467,741 exchanged
their existing unsecured demand notes payable, and all accrued
unpaid interest, for new unsecured convertible demand notes
payable (the Convertible Notes). The remaining terms of the
Convertible Notes were unchanged. In May 1998, the Company
converted the Convertible Notes plus accrued interest totaling
$10,564,887 to common stock at a rate of $2.50 per share, as
described in NOTE 3.

The Company recorded related-party interest expense (excluding
deferred debt issuance costs amortization) during 1998 and 1997
of approximately $332,000 and $762,000, respectively.  No related
party interest expense was incurred during 1999.  There were no
interest payments made to related parties in 1999, 1998 and 1997.

8. FINANCIAL INSTRUMENTS

In January 1997, a major stockholder of the Company agreed to
establish a two-year $4,000,000 letter of credit facility in
favor of the Company's credit card processor. As consideration
for establishing the letter of credit, the Company agreed to
issue up to 800,000 warrants to the major stockholders to
purchase shares of the Company's
<PAGE>

8. FINANCIAL INSTRUMENTS (CONTINUED)

common stock at an exercise price of $5.00. Upon execution of the
letter of credit, the Company issued 320,000 warrants that vested
immediately. Accordingly, in January 1997, the estimated fair
value of the warrants issued of $1,900,000 was recorded in other
assets and was charged to expense over the term of the facility.
The remaining warrants vested quarterly through October 1998
according to the amount of exposure under such letter of credit,
as defined in the agreement. In 1997 and 1998, the Company issued
an additional 162,891 and 259,779 warrants, respectively.
Accordingly, the estimated fair value of the additional warrants
issued in 1997 and 1998, totaling
$592,000 and $332,000, respectively, was recorded as deferred
debt issuance costs and was charged to expense over the remaining
term of the guarantee. The warrants were fully amortized at
December 31, 1998. Each warrant expires 10 years from the date of
issuance. In addition, the Company granted the major stockholder
a security interest in all credit card receivables processed by
the Company's credit card processor. Warrants for purchase of
57,329 shares were forfeited in 1998 as a result of the credit
card exposure being less than the amount of the letter of credit
during certain vesting periods.

In May 1997, the Company completed an additional $2,000,000
guarantee facility in favor of the Company's credit card
processor. This guarantee facility expired in May 1999 and was
established by the same major stockholder of the Company. As
consideration for establishing the guarantee, the Company agreed
to issue up to 206,186 warrants to the major stockholder to
purchase shares of the Company's common stock at an exercise
price of $9.70 Upon execution of the guarantee, the Company
issued 82,474 warrants that vested immediately. Accordingly, in
May 1997, the estimated fair value of the warrants issued of
$150,000 was recorded in other assets and was charged to expense
over the term of the facility. The remaining warrants vested
quarterly through November 1998 according to the amount of
exposure under such letter of credit, as defined in the
agreement. In 1997 and 1998, the Company issued an additional
41,237 and 82,474 warrants, respectively.  Accordingly, the
estimated fair value of the additional warrants issued in 1997
and the warrants issued in 1998 totaling $17,000 and $20,000,
respectively, was recorded as deferred debt issuance costs.  The
warrants were fully amortized at December 31, 1998.  Each warrant
expires on January 18, 2004.

In January 1999, major stockholders of the Company agreed to
renew the two-year $4,000,000 letter of credit facility in favor
of the Company's credit card processor. As consideration for
renewing the letter of credit, the Company agreed to issue up to
800,000 warrants to the major stockholders to purchase shares of
the Company's common stock at an exercise price of $5.00. Upon
execution of the letter of credit, the Company issued 160,000
warrants that vested immediately. Accordingly, in January 1999,
the estimated fair value of the warrants issued of $238,000 was
recorded in other assets and is being charged to expense over the
term of the facility. The remaining warrants vest quarterly
through October 2000 according to the amount of exposure under
such letter of credit, as defined in the agreement.  In 1999, the
Company issued an additional 237,333 warrants.  Accordingly, the
estimated fair value of the additional warrants issued in 1999,
totaling $708,000, was recorded as deferred debt issuance costs
and is being changed to expense over the remaining term of the
guarantee.  Accumulated amortization related to the warrants
totaled approximately $351,000 at December 31, 1999.  Each
warrant expires 10 years from the date of issuance.
<PAGE>


9. INCOME TAXES

A reconciliation of the income tax benefit at the federal
statutory rate to the provision (benefit) for income taxes to
income (benefit) at the federal statutory rate of 34 percent is
as follows:

                           YEAR ENDED DECEMBER 31
                           1999        1998         1997
                           ----------- -----------  -----------
Benefit at statutory rate $(1,750,477) $(502,839)   $(9,603,640)
State benefit, net of
federal benefit              (237,859)   (68,327)    (1,304,965)
Amortization of deferred
debt issuance costs           169,420  1,025,616        724,919
Meals and entertainment       142,291    103,329         72,944
Other                          59,629     (5,620)      (112,530)
Change in valuation
allowance                   1,616,996   (552,159)    10,223,272
                           ----------- -----------  -----------
                           $        -  $       -    $        -
                           ====================================

The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities as of December 31 are as follows:

                            1999           1998
                            -------------  ---------------
Deferred tax assets:
Net operating loss
carryforwards               $23,651,021    $23,433,318
Accrued overhaul
maintenance                   5,760,591      4,181,202
Amortization of aircraft
leasehold costs                 794,462        616,186
Accrued vacation                248,078        189,778
Inventory reserve               117,000        168,870
Other                           148,656        243,320
                            -------------  ---------------
Total deferred tax assets    30,719,808      28,832,674

Valuation allowance         (26,601,106)    (24,984,110)
                            -------------  ---------------
                              4,118,702       3,848,564

Deferred tax liabilities:
Supplemental maintenance
deposits                      3,712,759      3,748,419
Prepaid insurance                30,507         25,478
Other                           375,436        74,667
                            -------------  ---------------
Total deferred tax
liabilities                   4,118,702      3,848,564
                            -------------  ---------------
                            $          -   $         -
                            =============  ==============

The Company has provided a valuation reserve of $26,601,106 and
$24,984,110 as of December 31, 1999 and 1998, respectively, to
fully reserve for net deferred tax assets in the same amounts due
to the uncertainty of their future realization.

As of December 31, 1999, net operating loss carryforwards of
approximately $60,643,643 are available to reduce income taxes of
future years and will begin to expire in 2009, if unused. The
Company made income tax payments of $60,000 for the year ended
December 31, 1999.  No income tax payments were made for the
years ended December 31, 1998, and 1997.
<PAGE>


10. LEASES

AIRCRAFT

From the date of inception through December 31, 1999, the Company
has entered into operating lease agreements (collectively, the
Lease Agreements) for fourteen Boeing 737-200 and two Boeing 737-
300 Series aircraft requiring fixed monthly rental payments.
Three Boeing 737-200 and two 737-300 aircraft were returned upon
expiration of their respective lease terms in 1999 and 1997. The
Company recorded rent expense for aircraft of approximately
$14,186,000, $10,236,000 and $9,261,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.

In addition, the Company is required to make supplemental
payments to the aircraft lessors based on the number of
cycles/flight hours, as defined by the Lease Agreements. Certain
supplemental payments are recoverable from the lessor upon the
performance of required engine, airframe, landing gear and
auxiliary power unit overhauls. At December 31, 1999 and 1998,
the Company has recorded approximately $9,520,000 and $9,611,000,
respectively, in supplemental maintenance deposits recoverable
from aircraft lessors.

The Lease Agreements require the Company to pay the entire cost
of the initial overhauls, even though a portion of the cycles or
flight hours were incurred prior to initiation of the Lease
Agreements. Accordingly, at the inception of the lease, the
Company accrued (as accrued maintenance) the portion of the
estimated cost of the initial overhaul pertaining to cycles or
flight hours incurred prior to inception of the lease. The
amounts capitalized as aircraft leasehold costs totaled
approximately $2,396,000 and $453,000 for the years ended
December 31, 1999 and 1997, respectively. There was no overhaul
component capitalized for the year ended December 31, 1998. The
capitalized component is being amortized on the straight-line
method over five to seven years, the estimated lease terms.
Amortization totaled approximately $590,000, $423,000 and
$405,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.

The Lease Agreements have lease terms of five years and generally
contain no option to extend the lease term. In December 1998, a
lease extension agreement was modified to extend the lease term
on one Boeing 737-200 aircraft through December 2000.  In
December 1999, one lease agreement was modified to extend its
lease term through July 2000.  Certain Boeing 737-200 Lease
Agreements each have an option to purchase the aircraft at a
value defined by the respective agreement.

OTHER

The Company leases facilities as well as office space for its
corporate headquarters from local airport authorities. These
operating leases have terms ranging from one month to five years.
In addition, the Company leases certain aircraft engines,
auxiliary power units, certain equipment and other office space.
These operating leases have terms ranging from one to three
years. Total rental expense for operating leases other than
aircraft charged to operations for the years ended December 31,
1999, 1998 and 1997 was approximately $4,141,000, $3,306,000 and
$2,982,000, respectively.

Future minimum lease payments under all noncancelable operating
leases (excluding supplemental payments) at December 31, 1999
were as follows:

2000                           16,926,029
2001                           13,260,385
2002                           11,624,688
2003                            7,769,160
2004                            3,698,250
Thereafter                             --
                               ------------
Total minimum lease payments   $53,278,512
                               ============
<PAGE>


10. LEASES (CONTINUED)

During 1999, the Company leased property and equipment under
agreements accounted for as capital leases.  The lease agreements
expire at varying dates through December 2002 and contain options
allowing the Company to purchase the property for a nominal
amount.

Property and equipment at December 31, 1999 includes the
following amounts for assets held under capital leases:

Other property and equipment    $707,613
Less accumulated amortization   (52,391)
                                -----------
Net assets held under capital
lease                           $655,222
                                ===========

Amortization of the property and equipment held under capital
leases is computed by the straight-line method over the lesser of
the life of the lease or estimated useful life of the asset and
is included in depreciation expense.  Future
minimum payments under the capital leases are as follows at
December 31, 1999:

Year ending December 31           Capital
                                  Leases
                                 ------------
2000                             $230,725
2001                              228,720
2002                              158,085
                                 ------------
Total minimum lease payments      617,530
Amounts representing interest      72,083
                                 ------------
                                  545,447
Less current portion              188,692
                                 ------------
                                 $356,755
                                 ===========


11. CONTINGENCIES

The Company is party to various legal proceedings and claims
which arise during the ordinary course of business. In the
opinion of management, the ultimate outcome of these matters will
not have a material adverse effect on the Company's financial
position or results of operations.
<PAGE>

<TABLE>
<CAPTION>
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
                     VANGUARD AIRLINES, INC.

                                      BALANCE AT              CHARGED TO
                                      BEGINNING    CHARGED TO   OTHER      DEDUCTIONS   BALANCE AT END
                                          OF       COSTS AND   ACCOUNTS-      --               OF
                                      PERIOD       EXPENSES    DESCRIBE     DESCRIBE       PERIOD
                                       ---------------------------------------------------------------
<S>                                   <C>          <C>         <C>          <C>              <C>
DESCRIPTION
-----------
YEAR ENDED DECEMBER 31, 1999:

Accrued Maintenance                    10,721,031   11,898,993   2,396,425(1) (10,245,704)(2) 14,770,745

Reserves and allowances deducted from
asset accounts:

Valuation reserve for deferred tax
assets:                               $24,984,110   $1,616,996   $        -     $      --    $26,601,106

YEAR ENDED DECEMBER 31, 1998:

Accrued Maintenance                     9,248,226   12,889,623            -   (11,416,818)(3) 10,721,031

Reserves and allowances deducted from
asset accounts:

Valuation reserve for deferred tax
assets:                               $25,536,269   $        -    $        -    $552,159(4)   $24,984,110

YEAR ENDED DECEMBER 31, 1997:

Accrued Maintenance                     7,231,638   12,018,705       453,000(1) (10,455,117)(3)  9,248,226

Reserves and allowances deducted from
asset accounts:

Valuation reserve for deferred tax
assets:                               $15,312,997  $10,223,272     $       -     $       -     $25,536,269
</TABLE>
[FN]
(1) Non-cash aircraft leasehold costs capitalized in association
    with accrued maintenance at inception of lease.

(2) Reduction due to the performance of heavy maintenance, reduction
    due to the elimination of maintenance accruals associated with the
    return of aircraft, and reduction in maintenance accruals in
    conjunction with the write-off of the net book value of an impaired
    engine.

(3) Reduction due to the performance of maintenance.

(4) Reduction in valuation allowance due to utilization of net
    operating loss carryforward.
<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.



                                   VANGUARD AIRLINES, INC.



Dated:  March 30, 2000           By:
                                     /s/ Robert J. Spane
                                    ------------------------------
                                   Robert J. Spane
                                   Chairman of the Board, Chief
                                   Executive Officer
                                   and President

          We, the undersigned, directors and officers of Vanguard
Airlines, Inc. (the "Company"), do hereby severally constitute and
appoint Robert J. Spane, our true and lawful attorneys and agents,
with full power of substitution and resubstitution, for him or her
and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1999,
and to file the same with all exhibits thereto, and all other
documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys and agents, and
each or any of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done,
as fully to all intents and purposes as he or she might or could
do in person, hereby ratifying and confirming all that said
attorneys and agents, and each of them, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.

          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 and in the capacities indicated and on
the dates indicated.

     Signature and Title                          Date
     ----------------------                      ------


     /s/ Robert J. Spane
    -----------------------                      March 30, 2000
     Robert J. Spane, Chairman of the Board,
     Chief Executive Officer and President
     (Principal Executive Officer and Principal
     Financial and Accounting Officer)


     /s/ Lee M. Gammill, Jr.
     -----------------------                     March 30, 2000
     Lee M. Gammill, Jr. Director


     /s/ Denis T. Rice
     -----------------------                     March 30, 2000
     Denis T. Rice, Director


     /s/ Leighton W. Smith
     -----------------------                     March 30, 2000
     Leighton W. Smith, Director
<PAGE>