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


                            FORM 10-Q



(Mark One)


(X)  QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
     ENDED MARCH 31 , 1998

OR


( )  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
     FROM _______ TO _______.


Commission File Number 0-27034


                     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)

                       30 N.W. Rome Circle
                         Mezzanine Level
                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)


     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 ______

     At March 31, 1998 there were 45,701,535 shares of Common
Stock , par value $.001 per share issued and outstanding.



<PAGE>




PART I.   FINANCIAL INFORMATION
       ITEM 1. FINANCIAL STATEMENTS

                     VANGUARD AIRLINES, INC.
                          BALANCE SHEETS


                                   MARCH 31,      DECEMBER 31,
                                     1998            1997

ASSETS

Current assets:
     Cash and cash equivalents     $   911,358    $  1,082,712
     Accounts receivable, 
       less allowance                2,024,952       2,312,439
       of $408,000 in 1998 and 
       $354,000 in 1997
     Inventory                         955,216         842,620
     Prepaid expenses and 
       other current assets          1,724,238       1,011,417
     Current portion of 
      supplemental maintenance 
      deposits                       4,997,376       4,546,824
Total current assets                10,613,140       9,796,012


Property and equipment, at cost:
     Aircraft improvements 
          and leasehold costs        4,631,102       4,611,528
     Reservation system and 
          communication equipment    1,868,467       1,844,981
     Other property and equipment    4,135,765       3,695,943
                                    10,635,334      10,152,452
     Less accumulated 
          depreciation and 
          amortization              (5,180,555)     (4,667,768)
                                     5,454,779       5,484,684

Other assets:
     Supplemental maintenance 
          deposits                   3,633,180       3,221,875
     Deferred debt issuance 
          costs   warrants           1,710,495       2,223,233
     Leased aircraft deposits        2,285,959       2,258,500
     Fuel and security deposits      1,386,166       1,240,284
     Other assets                      937,174         539,296
                                     9,952,974       9,483,188

Total assets                       $26,020,893     $24,763,884






<PAGE>





                     Vanguard Airlines, Inc.
                    Balance Sheets (continued)


                                         MARCH 31,    DECEMBER 31,
                                           1998          1997
LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
 Notes payable to related parties   $   9,467,741  $   9,467,741
 Line of credit                         1,900,000         ----
 Accounts payable                       6,501,869      6,095,903
 Accrued expenses                       3,721,124      4,007,363
 Accrued maintenance                    6,623,813      6,588,830
 Air traffic liability                  8,636,942      5,989,085
Total current liabilities              36,851,489     32,148,922

Line of credit                            ----         1,900,000
Accrued maintenance, less
  current portion                       2,707,607      2,659,396

Commitments

Stockholders' deficit:
 Common stock, $.001 par value:  
   Authorized shares   50,000,000
   Issued and outstanding shares   
     45,701,535 in 1998 (45,695,908 
     in 1997)                              45,702         45,696
 Preferred stock, $.001 par value:
   Authorized shares - 1,000,000 
   Issued and outstanding shares - 
   302,362 in 1998 (-0- in 1997)              302          -----
   Liquidation preference - 
     $3,023,620 in 1998
Additional paid-in capital             60,741,834    57,753,488
 Accumulated deficit                  (74,283,078)  (69,692,060)
                                      (11,892,876)  (13,495,240)
Deferred stock compensation               (42,963)      (51,558)
Total stockholders' deficit           (13,538,203)     (11,944,434)

Total liabilities and stockholders' 
   deficit                          $  26,020,893  $ 24,763,884



See accompanying notes.



<PAGE>





                     VANGUARD AIRLINES, INC.
                     STATEMENTS OF OPERATIONS


                                             THREE MONTHS ENDED
                                                 MARCH 31,
                                        1998             1997

Operating revenues:
 Passenger revenues                 $19,577,744      $ 20,437,461
   Other                              1,665,988         1,054,978
Total operating revenues             21,243,762        21,492,439

Operating expenses:
 Flying operations                    4,394,670         4,670,989
 Fuel                                 3,646,645         5,658,928
 Maintenance                          4,374,915         4,669,682
 Passenger service                    1,809,697         1,879,944
 Aircraft and traffic servicing       4,656,637         4,660,648
 Promotion and sales                  4,647,405         5,612,544
 General and administrative             980,689         1,237,741
 Depreciation and amortization          512,787           520,001
Total operating expenses             25,023,445        28,910,477

Operating loss                       (3,779,683)       (7,418,038)

Other income (expense):
 Deferred debt issuance cost
    amortization                      (548,738)          (329,167)
 Interest income                        14,300             23,100
 Interest expense                     (276,897)          (206,245)
Total other income (expense), net     (811,335)          (512,312)
Net loss                            $(4,591,018)    $  (7,930,350)

Net loss per share
  - basic                           $    (0.10)     $      (0.79)

Weighted average shares
 outstanding                         45,697,332        9,983,375




See accompanying notes.




<PAGE>





                     VANGUARD AIRLINES, INC.
                     STATEMENTS OF CASH FLOWS

                                             THREE MONTHS ENDED
                                                  MARCH 31,
                                           1998             1997
OPERATING ACTIVITIES:
Net loss                               $(4,591,018)    $(7,930,350)

Adjustments to reconcile net loss
 to net cash used in operating activities:

   Depreciation                            204,223        184,610
   Amortization                            308,564        335,391
   Loss on disposal of property and
     equipment                               ---           56,300
   Deferred debt issuance cost
     amortization                          548,738        329,167
   Compensation related to stock options     8,595          8,595 
   Provision for uncollectible accounts     54,000         26,436

   Changes in operating assets and liabilities:
     Restricted cash                         ----         724,988
     Accounts receivable                   233,487        687,850
     Inventories                         (112,596)          5,651
     Prepaid expenses and other current 
       assets                            (712,821)       (226,644)
     Supplemental maintenance deposits   (861,857)     (1,321,318)
     Accounts payable                     405,966       2,967,276
     Accrued expenses                    (262,619)       (479,715)
     Accrued maintenance                   83,194         283,129
     Air traffic liability              2,647,857         883,589
     Deposits and other                  (571,219)       (394,977)

Net cash used in operating activities  (2,617,506)     (3,860,022)

INVESTING ACTIVITIES:
Purchases of property and equipment      (482,882)       (321,279)


<PAGE>





FINANCING ACTIVITIES:
Proceeds from exercise of stock options       738             276
Payment of preferred stock offering costs (71,704)           ---
Proceeds from line of credit borrowings 1,900,000       2,275,000
Principal payments on line of credit   (1,900,000)     (5,000,000)
Proceeds from issuance of notes payable to
 related parties                        3,000,000       7,500,000
Principal payments on capital lease 
 obligations                                 ---          (44,872)

Net cash provided by financing
 activities                             2,929,034       4,730,404

Net increase (decrease) in cash and cash
 equivalents                             (171,354)        549,103

Cash and cash equivalents at beginning 
 of period                              1,082,712         402,083

Cash and cash equivalents at
  end of period                        $  911,358      $  951,186





<PAGE>





                     VANGUARD AIRLINES, INC.
               STATEMENTS OF CASH FLOWS (CONTINUED)

                                           THREE MONTHS ENDED
                                                MARCH 31,
                                           1998           1997

SUPPLEMENTAL DISCLOSURES OF CASH 
FLOW INFORMATION:

Cash paid during the period 
for interest                           $   57,871      $   57,786

SUPPLEMENTAL SCHEDULE OF NONCASH 
INVESTING AND FINANCING ACTIVITIES:

Conversion of notes payable to 
related parties and accrued 
interest to preferred stock            $3,023,620      $  ---

Deferred debt issuance costs 
recorded in conjunction with 
warrants issued                        $   36,000      $3,000,000



See accompanying notes.







<PAGE>





                     VANGUARD AIRLINES, INC.
    CONDENSED NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS

1.  BASIS OF PRESENTATION

     The financial statements of Vanguard Airlines, Inc. (the
"Company") presented herein, without audit except for balance
sheet information at December 31, 1997, have been properly
prepared pursuant to the rules of the Securities and Exchange
Commission for quarterly reports on Form 10-Q and do not include
all of the information and note disclosures required by generally
accepted accounting principles.  These statements should be read
in conjunction with the financial statements and notes thereto
for the year ended December 31, 1997, included in the Company's
Form 10-K as filed with the Securities and Exchange Commission on
March 30, 1998. 

     The balance sheet as of March 31, 1998, the statements of
operations for the three months ended March 31, 1998 and 1997,
and the statements of cash flows for the three months ended March
31, 1998 and 1997 are unaudited; but, in the opinion of
management, include all adjustments (consisting of normal,
recurring adjustments) necessary for a fair presentation of
results for this interim period.  The results of operations for
the three months ended March 31, 1998 are not necessarily
indicative of the results to be expected for the entire fiscal
year ending December 31, 1998.

     The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern.  The
Company continued to incur losses and generate negative cash
flows from operations during January and February 1998.  During
March 1998, the Company was profitable and generated positive
cash flows from operations.  The Company anticipates generating
operating profits and positive cash flows from operations from
April 1998 through August 1998.  The Company has a significant
working capital deficit.  The Company was dependent upon
financings from its principal stockholders to fund the losses
incurred by the Company in January and February 1998.  There can
be no assurance as to the availability of future financings from
the Company's principal stockholders, other stockholders or
investors, if needed.  These factors raise substantial doubt
about the Company's ability to continue as a going concern.  The
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

     Management's plans include raising additional capital and
securing additional bank financing to fund ongoing operations in
the fourth quarter and possible expansion of operations. 
Management's plans also include actions designed to achieve
long-term profitability, such as the review of existing
markets, expansion into new markets, and pricing strategies to
maximize passenger revenue and new cost controls.  During 1997,
the Company did not generate sufficient passenger revenue to
provide for its operational cash needs.  As a result, in the
third and fourth quarters of 1997, the Company completed a route
restructuring, which included the introduction of service to two
new cities.  This route restructuring continued to build on the
Company's strategy of providing travel alternatives for price
sensitive business and leisure travelers between major
metropolitan markets.  As discussed in Note 4, the Company
received bridge financing from two principal stockholders in the
form of convertible demand notes in connection with the Company's
$3.0 million private convertible preferred stock offering of
equity securities in March 1998.  The convertible demand notes
were converted to Series A Preferred Stock on March 20 as
described in Notes 4 and 5.  The Company anticipates generating
positive cash flow from operations during the second and third
quarters of 1998.  The Company's ability to raise additional cash
through equity or debt financings that may be required to fund
expansion during 1998 or fund fourth quarter operations will be
greatly dependent on the Company's ability to operate profitably
during the second and third quarters of 1998.  There can be no
assurance that the Company can achieve positive cash flows or
operating profits.

     In addition, there can be no assurance that management's
restructuring efforts or its efforts to provide for the necessary
cash requirements of the Company will be successful.  Even if the
Company is successful in restructuring operations, there can be
no assurance that management can provide for the Company's cash
requirements that may be necessary during the remainder of 1998.


<PAGE>





2.  NEW ACCOUNTING PRONOUNCEMENTS

     Effective January 1, 1998, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income."  SFAS No. 130 requires the disclosure of
comprehensive income (losses) and its components in the Company's
financial statements.  The effect of SFAS No. 130 was immaterial
to the net loss reported by the Company on the Statements of
Operations for the quarters ended March 31, 1998 and 1997
respectively.

     Effective January 1, 1998, the Company adopted SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related
Information."  SFAS No. 131 redefines how operating segments are
determined and requires disclosure of certain financial and
descriptive information about a company's operating segments. 
This statement does not have a material impact on results
reported in the Company's financial statements.

3.  NET LOSS PER SHARE - BASIC

     For the three months ended March 31, 1998 and 1997, the
computation of basic net loss per share was based on the weighted
average number of outstanding common shares.  Outstanding
preferred stock, stock options and warrants were not included in
the calculation of basic loss per share as their effect was
antidilutive.

4.  NOTES PAYABLE TO RELATED PARTIES

     In the quarter ended March 31, 1998, the Company entered
into a bridge financing arrangement whereby additional unsecured
convertible demand notes payable totaling $3,000,000 were issued
to certain principal stockholders of the Company with interest
payable on demand at a  rate of 9.0%.  The Company converted the
unsecured demand notes plus interest totaling approximately
$3,024,000 to Series A Convertible Preferred Stock as described
in Note 5.  In addition, on March 20, 1998, the Company entered
into a Note Exchange Agreement which provides that the principal
stockholders holding notes payable of approximately $9.5 million
will exchange their existing unsecured demand notes payable, and
all accrued unpaid interest, for new unsecured convertible demand
notes payable (Convertible Notes).  The Convertible Notes
automatically convert, at $0.50 per share, to an equivalent
number of shares of Common Stock at such time as the Company has
an adequate number of authorized shares available for issuance. 
The remaining terms of the Convertible Notes remain unchanged.

5.  STOCKHOLDERS' EQUITY

     On March 20, 1998, the Company entered into an agreement for
the private sale of units of securities for proceeds of up to
$4,500,000.  Under the terms of the agreement, each unit consists
of one share of Series A Convertible Preferred Stock (Series A
Preferred Stock) and one common stock purchase warrant costing
$10 per unit.  In conjunction therewith; the Company converted
approximately $3,024,000 of outstanding principal and interest on
the bridge financing notes payable, described in Note 4, to
Series A Preferred Stock under the terms of the agreement.  Each
warrant will entitle the holder to purchase, at any time over a
seven-year period commencing six months after the closing, 40
shares of common stock at an exercise price of $0.55 per share.

     The Series A Preferred Stock will not be redeemable and will
pay dividends at an annual rate of $0.80 per share only when, and
if, declared by the Company's Board of Directors.  Dividends will
not be cumulative.  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 20
shares of common stock (subject to certain antidilution
adjustments) at any time commencing six months after the sale
closing, and holders of the Series A Preferred Stock will be entitled to
voting rights determined on an as-converted basis.  Under the
same agreement, the Company has a 90 day option to sell
additional units of securities (amounting to approximately
$1,476,000 as of March 31, 1998) at a price of not less than $10
per unit.


<PAGE>





ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS

EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THIS
REPORT OF FORM 10-Q 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 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," AS WELL AS THOSE DISCUSSED
ELSEWHERE IN THE COMPANY'S REPORTS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION.

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 attractive
destinations in established markets in the United States.  The
Company's flight operations began on December 4, 1994 with two
Boeing 737200 jet aircraft operating two daily flights each way
between Kansas City and Denver and two daily flights each way
between Denver and Salt Lake City.  The Company currently
operates nine leased Boeing 737200 jet aircraft.  The Company's
schedule provides an average of 54 daily weekday flights serving
Kansas City, Atlanta, Chicago-Midway, Dallas/Fort Worth, Denver,
Minneapolis/St. Paul, Pittsburgh, and New York City - JFK. 
Effective January 11, 1998, the Company terminated its daily
non-stop flights between Kansas City and San Francisco.  On April
20, 1998, the Company decided to terminate its daily non-stop
flights between Kansas City and New York City   JFK effective May
12, 1998.  On April 1, 1998 the Company announced it would
initiate service from Atlanta to Myrtle Beach, South Carolina,
commencing May 21, 1998.  In January 1998, the Company signed a
letter of intent to lease its tenth Boeing 737-200 jet aircraft,
with original delivery anticipated in June of 1998.  The Company
has been unable to secure acceptable financing terms and
conditions.  The Company continues to review its financing
alternatives in order to purchase or lease its tenth aircraft
under acceptable terms.  However, in connection with the
Company's inability to obtain its tenth aircraft, the Company is
temporarily terminating service between Pittsburgh and New York
City   JFK effective June 1, 1998.  There can be no assurance
that the Company will be able to secure adequate financing
arrangements from the lease of its tenth aircraft.  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 and $81.4 million for the year ended December
31, 1997.  However, despite this significant growth in revenue
levels, the Company to date has yet to report a profitable
quarterly reporting period.


<PAGE>





     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 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 lowfare 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.  The Company has a limited history of operations and
since its inception on April_25, 1994 has experienced significant
losses.  As of March 31, 1998, the Company had an accumulated
deficit of $74.3 million and stockholders' deficit of $13.5
million.  As disclosed in the financial statements, the Company
had a net loss of approximately $4.6 million and net cash flows
used in operating activities amounting to approximately $2.6
million for the quarter ended March 31, 1998.  Additionally, at
March 31, 1998, current liabilities exceeded current assets by
$26.2 million.  As a result of its limited operating history,
together with the uncertainty in the airline industry generally,
management is unable to predict the future operating results of
the Company.

     The Company has been dependent upon equity and debt
financings from its principal stockholders.  There can be no
assurance as to the availability of further financings. 
Management's plans include generating positive cash flows from
operations through August 1998, raising additional capital and
securing additional bank financings to fund ongoing operations
and the possible expansion of operations, however, there can be
no assurance the Company will be successful in this regard. 

OVERVIEW

THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE THREE MONTHS
ENDED MARCH 31, 1997

OPERATING REVENUES

     Total operating revenues decreased approximately 1% from
approximately $21.5 million for the quarter ended March 31, 1997
to approximately $21.2 million for the quarter ended March 31,
1998.  This decrease was primarily attributable to a decrease in
the number of daily flights, the number of passengers on those
flights and the reduction of available seats on its aircraft from
128 to 122.  During the quarter ended March 31, 1997, the Company
averaged 58 flights per day which decreased to 50 flights per day
during the quarter ended March 31, 1998.  The number of
passengers decreased from 375,209 in the quarter ended March 31,
1997 to 346,150 in the quarter ended March 31, 1998.  These
decreases were offset, however, by a 29% increase in passenger
yield per RPM.  The Company began flying a new route structure on
December_21, 1996, which included the initiation of services from
Kansas City to Atlanta, Ft._Meyers, 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 and RPMs in the first quarter of 1997
that resulted from the December 1996 schedule change were not
consistent with the first quarter of 1998 as a 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 <PAGE> 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 approximately 32%, from
approximately 379_million during the quarter ended March 31, 1997
to approximately 257 million during the quarter ended March 31,
1998.  RPMs decreased approximately 26%, from approximately 225
million during the quarter ended March 31, 1997 to approximately
168 million during the quarter ended March 31, 1998.  The
decrease in ASMs was primarily attributable to the decrease in
the number of daily flights, the reduction of available seats on
flights from 128 to 122 and the reduction of destinations
with greater flight lengths.  The decrease in RPMs was primarily
attributable to a decrease in the number of daily flights, the
reduction of available seats on flights from 128 to 122 and the
reduction of destinations with greater flight lengths. 
Conversely, load factor increased from approximately 60% for the
quarter ended March 31, 1997 to approximately 65% for the quarter
ended March 31, 1998.  This increase was primarily the result of
a 32% decrease in capacity but only a 26% decrease in the RPMs in
the quarter ended March 31, 1998 as compared to the quarter ended
March 31, 1997.

     Passenger yield per RPM increased approximately 29% from
approximately 9.06 cents for the quarter ended March 31, 1997 to
approximately 11.69 cents for the quarter ended March 31, 1998. 
The Company initially discounted fares to stimulate travel in a
number of the new markets that were introduced in conjunction
with the Company's major route restructuring in December_1996. 
In addition, with the initiation of the December 1996 route
structure, the Company's average stage length increased to
601_miles during the quarter ended March 31, 1997.  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.  As a result, its average stage length decreased
to 484 miles in the quarter ended March 31, 1998.  In order to
increase fares and passenger yield effectively, the Company
focused on improving its product beginning in September 1997. The
Company's strategic plan to improve its product 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 SM 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 first
quarter of 1998 with passenger yield increasing to 11.69 cents. 
The Company anticipates the passenger yield will continue to rise
in the second quarter of 1998 as the Company continues to carry
out its strategic plan.  The Company, however, cannot predict
future fare levels, which depend to a substantial extent on
actions of competitors and the Company's ability to deliver a
reliable product.  When sale prices or other price changes have
been made by competitors in the Company's markets, the Company
believes that it must, in most cases, match these competitive
fares in order to maintain its market share.  The Company
believes that the negative impact of entering new markets and the
use of discounted fares should decrease as the Company increases
its overall revenue base and customer awareness and continues to
improve its service and reliability.

     The Company also generates operating revenues as a result of
service charges from passengers who change flight reservations. 
For a period of 180_days (90_days prior to March_24, 1997) after
the flight date, the customer may use the value of the unused
reservation, subject to certain restrictions, for transportation,
less a $50 service charge.  These service charges were
approximately $770,000 (approximately 4% of total operating
revenues) and approximately $1.4 million (approximately 7% of
operating revenues) in the quarters ended March 31, 1997 and
1998, respectively.  The increase is directly attributable to the
modification in the Company's flight reservation change policy
from $25 per change, during most of the 1997 quarter, to $50 per
change.

     OPERATING EXPENSES

     Expenses are generally categorized as related to flying
operations, aircraft fuel, maintenance, passenger service,
aircraft and traffic servicing, promotion and sales, general and
administrative, depreciation and amortization and other expense,
including interest expense and amortization of deferred debt
issuance costs.  The following table sets forth the percentage of
total operating revenues represented by these expense categories:


<PAGE> 





                                    Quarter ended March 31,
                              1998                1997

                         Percent of Cents    Percent of  Cents 
                         Revenues  Per ASM   Revenues   Per ASM

Total operating revenues 100.0 %    8.26     100.0 %    5.67

Operating expenses:
  Flying operations       20.7 %    1.71      21.7 %    1.23
  Aircraft fuel           17.2      1.42      26.3      1.49
  Maintenance             20.6      1.70      21.7      1.23
  Passenger service        8.5      0.70       8.8      0.50
  Aircraft and traffic 
     servicing            21.9      1.81      21.7      1.23
Promotion and sales       21.9      1.81      26.1      1.48
General and administration 4.6      0.38       5.8      0.33
Depreciation and 
  amortization             2.4      0.20       2.4      0.14

Total operating expenses 117.8      9.73     134.5      7.63

Total other income 
  (expense), net         (3.8)     (0.31)    (2.4)     (0.13)

Net loss                 (21.6%)   (1.78)   (36.9%)    (2.09 )


<PAGE> 





     Flying operations expenses include aircraft lease expenses,
compensation of pilots, expenses related to flight dispatch and
flight operations administration, hull insurance and all other
expenses related directly to the operation of the aircraft other
than aircraft fuel and maintenance expenses.  Flying operations
expenses decreased approximately 6% from approximately $4.7
million (approximately 22% of operating revenues) for the quarter
ended March 31, 1997 to approximately $4.4 million (approximately
21% of operating revenues) for the quarter ended March 31, 1998. 
In the first quarter of 1997, the Company leased two Boeing
737-300 jet aircraft that were newer, more advanced aircraft and
had a larger capacity and substantially higher lease and
insurance costs.  The decrease in flying operation expenses in
the first quarter of 1998 was primarily the result of the return
of these two Boeing 737-300 jet aircraft to the lessor in May and
July 1997.  The decrease was also attributable to the decrease in
block hours in the quarter ended March 31, 1998 as compared to
1997.  As a result of the September 1997 schedule change, block
hours decreased approximately 17% from 8,310 hours in the quarter
ended March 31, 1997 to 6,939 in the quarter ended March 31,
1998.  In addition, the Company was successful in negotiating
more favorable hull insurance rates on its fleet in the first
quarter of 1998 as compared to the first quarter of 1997.  Flight
operations expense increased on a cents per ASM basis from 1.23
cents for the quarter ended March 31, 1997 to 1.71 to the quarter
ended March 31, 1998.  This increase resulted because the base
rent on the Company's fleet was spread over 32% fewer ASMs,
without a material change in the Company's fleet.  These
decreases were offset by a pilot wage increase that resulted in
pilot wages remaining consistent in the first quarter of 1998 as
compared to 1997 despite a 17% decrease in block hours flown in
the two periods.

     Aircraft fuel expenses include the direct cost of fuel,
taxes and the costs of delivering fuel into the aircraft. 
Aircraft fuel expenses decreased approximately 36% from
approximately $5.7_million (approximately 26% of operating
revenues) for the quarter ended March 31, 1997 to approximately
$3.6_million (approximately 17% of operating revenues) for the
quarter ended March 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 quarter ended March
31, 1998 versus 1997.  Fuel cost per block hour decreased $155 or
23% from $681 in the quarter ended March 31, 1997 to $526 in the
quarter ended March 31, 1998 primarily due to a decrease in
average fuel price per gallon offset by an increase of into-plane
costs.  Specifically, the average price decreased from $0.82 per
gallon (including taxes and into-plane costs) in the quarter
ended March 31, 1997 to $0.64 per gallon in the quarter ended
March 31, 1998, a 22% 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 decreased approximately 6% from
approximately $4.7_million (approximately 22% of operating
revenues) for the quarter ended March 31, 1997 to approximately
$4.4_million (approximately 21% of operating revenues) for the
quarter ended March 31, 1998.  This decrease was primarily the
result of the 17% decrease in block hours flown.  Maintenance
expenses did not decrease in direct proportion to the decrease in
block hours flown due to additional costs incurred related to
engine, airframe and landing gear major maintenance that caused
the Company to accrue the next scheduled engine, airframe and
landing gear major maintenance visits at rates higher in the first
quarter of 1998 than those used in the first quarter of 1997.
During 1997, the Company incurred charges related to certain
scheduled major maintenance overhauls that were in excess of what
traditionally had been accrued by the Company for major scheduled
airframe, engine and landing gear maintenance checks.  The
Company attributed the increase in costs associated with major
scheduled airframe, engine and landing gear maintenance checks to
the following: a change in the vendors providing the major
scheduled overhaul services; the lack of available
overhauled/used engine and landing gear replacement parts; and
the provision for non-routine airframe repairs not normally
experienced during major scheduled airframe overhauls.  In the
second quarter of 1997 the Company increased the monthly
maintenance provisions for major scheduled maintenance checks. 
The Company deposits funds 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.  The
costs of routine aircraft and engine maintenance are charged to
maintenance expense as incurred.  Additionally, the Company
significantly increased the capacity of its in-house maintenance
department during the first and second quarters of 1997.  The
Company's maintenance administration <PAGE> function expanded by eight
employees to insure compliance with all FAA and DOT regulations
and requirements.  The Company also increased line maintenance
personnel by twelve employees including the introduction of
maintenance operations at the Chicago-Midway and Minneapolis/St.
Paul airports.  Maintenance expenses increased on a cents per ASM
basis from 1.23 cents for the quarter ended March 31, 1997 to
1.70 cents for the quarter ended March 31, 1998.  This increase
in cents per ASM resulted because the fixed costs of the
Company's maintenance efforts were spread over 32% fewer ASMs
without a material change in the Company's fleet.

     Passenger service expenses include flight attendant wages
and benefits, in-flight service, flight attendant training,
uniforms and overnight expenses, inconvenience passenger charges
and passenger liability insurance.  Passenger service expenses
decreased approximately 4% from approximately $1.9_million
(approximately 9% of operating revenues) for the quarter ended
March 31, 1997 to approximately $1.8_million (approximately 9% of
operating revenues) for the quarter ended March 31, 1998.  This
decrease was attributable to an 8% decrease in the number of
passengers in the first quarter of 1998 as compared to 1997 as
well as cost savings from the reduction in the Company's
passenger liability insurance rates.  The decrease was offset by
a flight attendant wage increase that resulted in flight
attendant wages remaining consistent in the first quarter of 1998
as compared to 1997 despite a 17% decrease in block hours flown
in the two periods. 

     Aircraft and traffic servicing expenses include all expenses
incurred at the airports for handling aircraft, passengers and
mail, landing fees, facilities rent, station labor and ground
handling expenses.  Aircraft and traffic servicing expenses
remained consistent at approximately $4.7_million (approximately
22% of operating revenues) in the quarters ended March 31, 1997
and 1998.  The Company experienced decreases in station ground
handling expenses, station salaries and landing fees that
correspond to the decrease in the number of cities served and the
number of departures in the quarter ended March 31, 1998 as
compared to the quarter ended March 31, 1997. Departures
decreased approximately 13% from 5,182 during the quarter ended
March 31, 1997 to 4,483 during the quarter ended March 31, 1998. 
These decreases were offset, however, by increases in station
rent, salaries and benefits related to the Company's dispatch,
scheduling, station management and system control departments,
and costs incurred related to aircraft deicing in the quarter
ended March 31, 1998 as compared to the quarter ended March 31,
1997.  Aircraft and traffic servicing expenses increased on a
cents per ASM basis from 1.23 cents for the quarter ended March
31, 1997 to 1.81 cents for the quarter ended March 31, 1998. 
This increase in cents per ASM resulted because the fixed costs
of the Company's aircraft and traffic servicing functions were
spread over 32% fewer ASMs.

     Promotion and sales expenses include the costs of the
reservations functions, including all wages and benefits for
reservations, rent, electricity, telecommunication charges,
credit card fees, travel agency commissions, advertising expenses
and wages and benefits for the marketing department.  Promotion
and sales expenses decreased approximately 17% from approximately
$5.6_million (approximately 26% of operating revenues) in the
quarter ended March 31, 1997 to approximately $4.6_million
(approximately 22% of operating revenues) in the quarter ended
March 31, 1998.  This decrease was primarily the result of the
decrease in the number of cities served and the dollars that were
spent on direct advertising in the first quarter of 1998 as
compared to 1997. The Company incurred significant increases in
promotion and sales expenses in early 1997 to promote its major
route restructuring implemented in December 1996, which created a
hub in Kansas City. It is the Company's practice to increase
advertising when new cities are introduced in order to create
brand awareness.  The Company continues to rely on its direct
advertising methods to attract its passengers and therefore
continues to incur significant advertising expenses in each month
and with each of its schedule changes. The average promotion and
sales cost per passenger decreased $1.53 or 10% from $14.96 in
the quarter ended March 31, 1997 to $13.43 in the quarter ended
March 31, 1998.  Promotion and sales expenses increased on a
cents per ASM basis from 1.48 cents for the quarter ended March
31, 1997 to 1.81 cents for the quarter ended March 31, 1998. 
This increase in cents per ASM resulted because the fixed costs
of the Company's promotion and sales functions were spread over
32% fewer ASMs.

     General and administrative expenses include the wages and
benefits for the Company's corporate employees and various other
administrative personnel, the costs for office supplies, office
rent, legal, accounting, insurance, and <PAGE> other miscellaneous
expenses.  General and administrative decreased approximately 21%
from approximately $1.2 million (approximately 6% of operating
revenues) in the quarter ended March 31, 1997 to approximately
$1.0 million (approximately 5% of operating revenues) in the
quarter ended March 31, 1998.  The decrease in general and
administrative expenses in the first quarter of 1998 as compared
to 1997 is the result of decreases in general liability
insurance, property tax, and office rent.  The decrease in rent
expense classified as general and administrative expense is
offset by the increase in rent expense classified as aircraft and
traffic servicing expense in the first quarter of 1998.

     Depreciation and amortization expenses include depreciation
and amortization of aircraft modifications, ground equipment and
leasehold improvements, but does not include any amortization of
start-up and route development costs as all of these costs are
expensed as incurred.  Depreciation and amortization expense
remained consistent at approximately $500,000
(approximately 2% of operating revenues) in the quarters ended
March 31, 1997 and 1998. 

     Other income (expense), net consists primarily of debt
issuance cost amortization, interest income and interest expense. 
In connection with the guarantees of the letter 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 $1.00 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 each quarter related to the agreements is
recorded as deferred debt issuance costs and is being amortized
to expense over the terms of the related guarantees.  Interest
expense increased during the quarter ended March 31, 1998, as a
result of borrowings against the line of credit and the addition
of demand notes payable to related parties during the quarter
ended March 31, 1998.

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 and the issuance of debt mostly to its principal
stockholders.  As of May 8, 1998, the Company has received net
proceeds from the sale of its equity securities in the aggregate
amount of approximately $54.5 million (including the conversion
of notes payable to related parties to equity).

     On January 30, 1998, the Company borrowed $1.9 million under
a credit agreement that expires on January 30, 1999 with INTRUST
Bank, N.A. (Wichita, Kansas).  The Company used the proceeds to repay
the amount outstanding under the Commerce Bank, N.A. line of
credit that matured on January 30, 1998.  The line of credit is
guaranteed by certain stockholders.  In consideration for the
guarantees, the Company granted the guarantors warrants to
purchase shares of the Company's Common Stock. There can be no
assurance that a replacement $1.9_million line of credit will be
available on acceptable terms, if at all, prior to its maturity. 
In the event that the Company is unable to replace or extend the
line of credit prior to January_30, 1999, the Company would be
required to utilize available cash balances, which would
materially and adversely affect the Company's then current cash
position.  There can be no assurance that the Company will have
adequate cash resources to pay down the line of credit.

     In the quarter ended March 31, 1998, the Company entered
into a bridge financing arrangement whereby additional unsecured
demand notes payable totaling $3.0 million were issued to certain
principal stockholders of the Company with interest payable on
demand at a rate of 9.0%.  

     On March 20, 1998, the Company closed on a private sale of
equity securities, each unit costing $10 and consisting of one
share of Series A Preferred Stock, par value $.001,
and one common stock purchase warrant (each a "Preferred Unit"). 
In connection with the sale, the Company converted approximately
$3.0 million of bridge financing notes and interest borrowed
during the first quarter into Preferred Units.  Each share of
Series A Preferred Stock is convertible into 20 shares of Common
Stock.  Each warrant entitles the holder to purchase, at any time

<PAGE> 





over a seven-year period commencing six months after the closing,
40 shares of Common Stock at an exercise price of $0.55
per share of Common Stock.  In addition, under the same
agreement, the Company has the option to sell an additional
150,000 Preferred Units under the same terms and conditions,
provided the sale occurs not later than 90 days from March 20,
1998.  The Company has not determined whether to sell any
additional Preferred Units.

     During the period from January 1, 1997 through May 8, 1998,
the Company borrowed an aggregate $30.6 million from the
principal stockholders of the Company in the form of unsecured
demand notes payable (collectively, the "Notes"). The Notes accrue
interest at rates ranging from 8.00% to 9.00%. During 1997,
approximately $22.2 million of notes payable to stockholders was
converted to Common Stock in conjunction with the sales of
certain equity securities completed in 1997.  On March 20, 1998,
the Company entered into a Note Exchange Agreement whereby the
principal stockholders holding the notes agreed to exchange their
remaining unsecured demand notes payable totaling approximately
$9.5 million, and all accrued unpaid interest, for new unsecured
convertible demand notes payable (the "Convertible Notes").  The
Convertible Notes are automatically convertible at $0.50 per
share at such time as the Company has an adequate number of
authorized shares available for issuance, which the Company
anticipates will occur at the Company's Annual Stockholders'
Meeting on May 15, 1998.

     In January and February 1998, the Company did not generate
sufficient passenger ticket sales to provide for its operational
cash needs. The cash flow deficit was funded primarily through
the issuance of unsecured demand note payable debt borrowings
from its principal stockholders, as discussed above.  At March
31, 1998, the Company had cash and cash equivalents of
approximately $900,000.  The Company had a working capital
deficit at March 31, 1998 of approximately $26.2 million.  The
Company's working capital deficit is expected to be reduced by
approximately $10.4 million in connection with the conversion of
demand notes and associated interest in May 1998. These factors
raise substantial doubt about the Company's ability to continue
as a going concern.  Further, the financial statements presented
elsewhere herein and the financial information presented herein
were prepared assuming the Company will continue as a going
concern and, as such, do not include any adjustments that might
result from the outcome of this uncertainty.

     The Company has experienced a significant increase in its
air traffic liability as of March 31, 1998, as compared to
December 31, 1997, due to increased ticket sales.  In addition,
passenger demand is traditionally stronger during the spring and
summer seasons.  Currently, the Company has a letter of credit
and a stockholder guarantee totaling $6.0 million in order to
secure the Company's credit card processor.  In May 1998, the
Company's exposure as calculated by its credit card processor
exceeded $6.0 million due to increased ticket sales.  Consequently,
the Company began depositing cash into a restricted cash account
to provide for the Company's credit exposure in excess of
$6.0 million as calculated by the credit card processor.  The
Company has begun negotiations to reduce the collateral the
Company must maintain with its credit card processor.  There can
be no assurance that the Company will be successful with these
negotiations.  If the Company is not successful in negotiating a
reduction in its collateral requirements, then its must continue
to deposit cash from ticket sales as collateral to secure the
credit card processor.  Any cash utilized as collateral would be
refunded by the credit card processor when the Company's exposure
falls below the then calculated exposure or $6.0 million, whichever
is greater.  The Company estimates as much as $1.0 million may be
required to be deposited with the credit card processor in the
second or third quarter of 1998 as collateral unless alternative
security arrangements can be negotiated.  The Company anticipates
that all cash deposited with the credit card processor would be
refunded no later than August 1998 when advance ticket sales are
expected to decrease and the Company's credit card exposure is
estimated to be less than $6.0 million.

     The Company estimates that major scheduled maintenance of
its existing aircraft fleet through December 1998 will cost
approximately $8.9 million, of which $5.6 million will be funded
from existing supplemental rent payments recoverable from
aircraft lessors.  The Company must modify one of its existing
aircraft to satisfy the December 31, 1998 Stage-3 noise
requirements.  The Company believes that through modification of
current lease terms, the acquisition of a FAA certified hush kit
would be available to allow the Company's fleet to meet Stage-3
noise requirements by December 31, 1998.  If the Company is
unable to renegotiate one of its leases it would be required to

<PAGE> 





acquire a hush kit at a cost of approximately $1.2 million.  The
Company expects to expend approximately $1.8 million on various
capital expenditures in the next year, which are primarily
related to improvements for existing aircraft and improvements to
its in-house computer systems.  As of March 31, 1998, the Company
has entered into a letter of intent to lease one additional
Boeing 737-200 aircraft.  The Company continues to review its
financing alternatives in order to purchase or lease the tenth
aircraft under terms that are reasonable to the Company given its
financial condition and the fair value of the aircraft.  The
Company is currently in discussion with certain financial
institutions and the aircraft owners to structure a transaction
that would be satisfactory to all parties involved.  The Company
believes that $2.0 - $3.0 million would be necessary to close
this transaction in the second quarter of 1998.  The Company's
cash balance as of May 8, 1998 is not adequate to provide for the
necessary estimated deposit requirement of $2.0 - $3.0 million
for the tenth aircraft.  The Company would have to rely on its
principal stockholders to provide for this cash deposit
requirement, the receipt of which there can be no assurance.  If
the Company can not secure a financing arrangement with a
substantially lower initial cash requirement by the end of May,
it anticipates a tenth aircraft would not be obtainable until the
third or fourth quarter of 1998.

     The Company has been generating positive cash flow from
operations since late February 1998 and expects to continue to
generate sufficient cash to support its operations until the end
of the third quarter 1998.  The Company plans to implement
certain actions designed to achieve long-term profitability. 
Management's plans to achieve long-term profitability include the
reduction of frequency in certain under-performing routes,
increased awareness of the Company's participation in the SABRE
and Worldspan CRS and anticipated ticketing participation in the
Worldspan CRS, increased focus on the price-sensitive business
traveler and pricing strategies designed to maximize passenger
revenue, passenger yield and cost controls.  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 the additional financing. 
Management plans to raise additional capital and secure
additional bank financing to fund continued operations in the
fourth quarter and expansion.  The Company can raise
approximately $1.5 million during the second quarter through the
sale of additional Preferred Units, as described above.  Failure
to raise additional funds in the future could result in the
Company significantly curtailing or ceasing operations.  The
Company's ability to raise additional cash through equity or debt
financings that may be required to continue operations during the
later part of 1998 and will likely be dependent upon the
Company's success in implementing actions designed to achieve
long-term profitability, as described above, and its ability to
operate at profitable levels during the second and third quarters
of 1998, as to which there can be no assurance.  There can be no
assurance that management can provide for the Company's necessary
capital requirements or that the principal stockholders will
continue to provide cash through the issuance of unsecured demand
notes payable, or otherwise.

YEAR 2000 COMPLIANCE

     Management has begun the process to modify the Company's
information technology to recognize the year 2000 and has begun
converting critical data process systems.  The Company's new
reservations software installed in the third quarter of 1997 is
Year 2000 compliant.  In addition, the Company purchased a new
revenue management system in February 1998 which also is Year 2000
compliant.  The Company believes these two systems are critical
data processing systems.

     Vanguard has not yet completed its assessment of the impact
of the Year 2000 on operational systems such as aircraft
avionics, accounting and airport operations as well as
relationships with key business partners, including the FAA,
other governmental agencies and suppliers.  The Company will need
to address issues related to key business partners that are
common to other air carriers.  As a result, the Company cannot
estimate what the total cost will be to implement the required
efforts for all critical data processing systems.

     While the Company believes it is taking all appropriate
steps to assure Year 2000 compliance, it is dependent on key
business and governmental partners' compliance to some extent. 
The Year 2000 problem is pervasive and <PAGE> complex as virtually every
computer operation will be affected in some way.  Consequently,
no assurance can be given that Year 2000 compliance can be
achieved without a material cost.  The Company will continue to
implement systems with strategic value though some projects may
be delayed due to resource constraints.

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 Company's 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.  The Company, to date, has yet to
report profitable operations during a quarterly reporting period. 
Since the Company's inception on April 25, 1994, the Company has
incurred significant losses and as of March 31, 1998 had an
accumulated deficit of approximately $74.3 million, a
stockholders' deficit of approximately $13.5 million and a
working capital deficit of approximately $26.0 million.  The
Company's limited operating history makes the prediction of
future operating results difficult.   There can be no assurance
that the Company will achieve profitability.

     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 new aircraft. 
The Company has not operated profitably during any quarterly
reporting period.  Consequently, the Company's continued
operations have been dependent upon equity and debt financings
primarily from principal stockholders.  The Company will likely
require additional financing, both short term and long term, if
it is to maintain operations and is evaluating additional sources
of working capital and other financings, but there is no
assurance that additional sources of working capital will be
available on acceptable terms, or at all.  Most of the Company's
suppliers currently provide goods, services and operating
equipment on open credit terms.  If such terms were modified to
require immediate cash payments, the Company's cash position and
possibly its ability to continue to operate would be materially
and adversely affected.  Further, there can be no assurance that
the Company's principal stockholders will continue to provide
working capital for the Company's 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.

     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,
1997 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,
negative cash flows and working capital deficit, the Company has
been dependant 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. 

     INTENSE COMPETITION AND COMPETITIVE REACTION.  The Company
is subject to intense competition in 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 <PAGE> 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. 

     CONSUMER CONCERN ABOUT OPERATING SAFETY OF 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.  For example, on
May 10, 1998, the FAA temporarily grounded seven of the Company's
nine jet aircraft until electrical wiring in the fuel pumps were
inspected and replaced.  The Company's aircraft passed the inspections
and quickly resumed scheduled operations, however, there can be no
assurance that future actions taken by the FAA will not have a
material adverse effect on the Company's business, financial
condition and results of operations.

     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
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.

     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% of the
Company's operating expenses for the quarter ended March 31,
1998.  The Company's average cost per gallon decreased from $0.82
per gallon in the quarter ended March 31, 1997, to $0.64 per
gallon in the quarter ended March 31, 1998.  Jet fuel costs are
subject to wide fluctuations as a result of sudden disruptions in
supply.  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 will result 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, suppliers will immediately pass through an
increase in the cost of jet fuel to the Company.  The Company has
experienced reduced margins at times 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. 

     LIMITED NUMBER OF AIRCRAFT; AIRCRAFT ACQUISITIONS.  The
Company's fleet consists of nine 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 has become more competitive than it was at the
time of the Company's inception, and there can be no assurance
that the Company would be able to lease additional aircraft on
satisfactory terms or at the time needed.  Although the Company
has signed a letter of intent to lease its tenth Boeing 737-200
jet aircraft, the Company has been unable to secure acceptable
financing terms and conditions.  <PAGE> Consequently, the Company has
terminated its service to New York City   JFK effective June 1,
1998. Further, if the Company is unable to lease additional
aircraft that are in compliance with the Stage-3 noise compliance
requirements, it may have to make significant capital
expenditures to make its aircraft fleet meet such requirements. 

     GOVERNMENT REGULATION.  The Company is subject to the
Federal Aviation Act (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.  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.  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.  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 DOT and FAA also enforce federal law with respect to
aircraft noise compliance requirements.  The Company's current
fleet meets the current, Stage-3 noise compliance requirements
(50% of its fleet Stage-3 compliance). In the future, the
Company's aircraft fleet is required to meet the following
federal Stage-3 noise compliance deadlines: 75% of its fleet must
be Stage-3 compliant by December 31, 1998 and 100% of its fleet
must be Stage-3 compliant by December 31, 1999.  The Company must
modify one of its Stage-2 aircraft to satisfy the 75% 1998 Stage-3
requirements, and, any future airplanes added to the fleet will
have to meet Stage-3 requirements.

     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. 

     EMPLOYEE RELATIONS.  While the Company currently operates
with relatively low personnel costs, there can be no assurance
that the Company will be able to maintain these low costs.  The
Company's employees are not represented by a labor union as are
many airline industry employees.  If unionization of the
Company's employees were to occur, the Company's personnel costs
could increase substantially. 

     PASSENGER TICKET TAX. The existing ten percent ticket tax
was converted on October 1, 1997 to a combination of a reduced
percentage tax based on the price of the ticket and a fee
assessed for each flight segment.  The new legislation reduced
the domestic ticket tax from 10% to 9% (decreasing to 8% on
October 1, 1998 and to 7.5% on October 1, 1999) and added a new
segment tax of $1.00 which increases to $3.00 by the year 2002. 
Due to the Company's low fare structure, the combination of a
percentage tax and flight segment fee will result in an overall
higher tax paid by individuals who purchase tickets on the
Company's flights and, consequently, could have a <PAGE> negative impact
on the Company's business, financial condition and results of
operations if the Company is unable to pass this increased tax
burden on to its passengers through increased fares.  The Company
is unable, however, to predict how the new tax/segment fee will
affect demand for the Company's product in the future.

PART II.  -  OTHER INFORMATION

ITEM 1.  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 2.   CHANGES IN SECURITIES

     a.    None.

     b.    None.

     c.    None.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

     None.

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

     None.

ITEM 5.        OTHER INFORMATION

     None.


ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibits

          Exhibit 27 - Financial Data Schedule

     (b)  Reports on Form 8-K.

          None



<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.


     Signature and Title                          Date

\s\ Robert J. Spane                          May 15, 1998
Robert J. Spane, President and 
Chief Executive Officer

\s\ William A. Garrett                       May 15, 1998
William A. Garrett, Vice President 
- Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)