VANGUARD AIRLINES, INC.

                     NOTE EXCHANGE AGREEMENT

          THIS NOTE EXCHANGE AGREEMENT (the "Agreement") is
entered into as of March 20, 1998, by and between Vanguard
Airlines, Inc., a Delaware corporation (the "Company") and the
Holders (each a "Holder" and collectively, the "Holders") set
forth on the Schedule of Holders attached as Exhibit A hereto.

                             RECITALS

          WHEREAS, each Holder is the holder of multiple demand
notes issued by the Company (the "Existing Notes") which Existing
Notes are listed on Exhibit B hereto; and

          WHEREAS, certain of the Holders are concurrently
entering into a Unit Purchase Agreement (the "Purchase
Agreement") pursuant to which they have agreed to provide
additional financing to the Company; and

          WHEREAS, the Holders have agreed to exchange their
Existing Notes for new notes in the form attached hereto as
Exhibit C (the "New Notes") which provide for automatic
conversion of the New Notes at such time as the Company has an
adequate number of authorized shares available for issuance under
the terms of the New Notes and under the terms of all of its
other securities, agreements, commitments and plans.

          NOW, THEREFORE, in consideration of the mutual promises
and covenants hereinafter set forth, the Company and the Holders
hereby agree as follows:

1.   Subject to the terms and conditions of this Agreement, each
     Holder agrees, severally and not jointly, to exchange at the
     Closing (as defined below) all of its Existing Notes and the
     Company agrees to issue to each Holder at the Closing a New
     Note in the principal amount set forth on Exhibit_A hereto
     which principal amount shall be equal to the sum of the
     principal balance and accrued and unpaid interest as of the
     date of the Closing on the Existing Notes held by the
     Holder.  The New Note shall be exchanged by each Holder by
     surrendering to the Company for cancellation such Holder's
     Existing Notes.

2.   Closing.  The exchange and issuance shall take place at the
     offices of Gunderson Dettmer Stough Villeneuve Franklin &
     Hachigian, LLP, 155_Constitution Drive, Menlo Park,
     California, at 2:00 p.m., on March_20, 1998, or at such
     other time and place as the Company and the Holders mutually
     agree upon orally or in writing (which time and place are
     designated as the "Closing").  At the Closing the Company
     shall deliver to each Holder a New Note in the amount set
     forth opposite such Holder's name on  Exhibit A.  Each such
     Holder shall surrender to the Company for cancellation at
     the Closing such Holder's Existing Notes.




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3.   Representations and Warranties of the Company.  In
     connection with the transactions provided for herein, the
     Company hereby represents and warrants to the Holders that:

4.   Organization, Good Standing, and Qualification.  The Company
     is a corporation duly organized, validly existing, and in
     good standing under the laws of the State of Delaware and
     has all requisite corporate power and authority to carry on
     its business as now conducted and as proposed to be
     conducted.  The Company is duly qualified to transact
     business and is in good standing in each jurisdiction in
     which the failure so to qualify would have a material
     adverse effect on its business or properties.

5.   Authorization.  Subject to receipt of the Stockholder
     Approval (as defined in the Purchase Agreement) and the
     filing of the Amendment (as defined in the Purchase
     Agreement), all corporate action on the part of the Company,
     its officers, directors and stockholders necessary for the
     authorization, execution and delivery of this Agreement, the
     performance of all obligations of the Company hereunder, and
     the delivery of the New Notes being exchanged hereunder and
     the Common Stock issuable upon conversion of the New Notes
     has been taken or will be taken prior to the Closing, and
     this Agreement and the New Notes constitute  valid and
     legally binding obligations of the Company, enforceable in
     accordance with its terms, except (i)_as limited by
     applicable bankruptcy, insolvency, reorganization,
     moratorium, and other laws of general application affecting
     enforcement of creditors' rights generally, and (ii)_as
     limited by laws relating to the availability of specific
     performance, injunctive relief, or other equitable remedies.

6.   Valid Issuance of Common Stock.  Subject to the receipt of
     the Stockholder Approval and the filing of the Amendment,
     the Common Stock issuable upon conversion of the New Notes
     issued under this Agreement has been duly and validly
     reserved for issuance and, upon issuance in accordance with
     the terms of the Restated Certificate of Incorporation of
     the Company, will be duly and validly issued, fully paid,
     and nonassessable and will be free of restrictions on
     transfer other than restrictions on transfer under this
     Agreement and the New Note and under applicable state and
     federal securities laws.

7.   Representations and Warranties of the Holders.  In
     connection with the transactions provided for herein, each
     Holder hereby represents and warrants to the Company that:

8.   Authorization.  This Agreement constitutes such Holder's
     valid and legally binding obligation, enforceable in
     accordance with its terms.

9.   Purchase Entirely for Own Account.  Holder acknowledges that
     this Agreement is made with Holder in reliance upon Holder's
     representation to the Company that the New Notes and the
     Common Stock issuable upon conversion of the New Notes
     (collectively, the "Securities") will be acquired for
     investment for Holder's own account and not with a view to
     the resale or distribution of any part thereof, and that
     Holder has no present intention of selling, granting any
     participation in, or otherwise distributing the same.  By
     executing this Agreement, Holder further represents that
     Holder does not have any contract, undertaking, agreement,
     or arrangement with any person to sell, transfer, or grant
     participations to such person or to any third person, with
     respect to the Securities.  Holder represents that it has
     full power and authority to enter into this Agreement.




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10.  Investment Experience.  Holder is an investor in securities
     of companies in the development stage and acknowledges that
     it is able to fend for itself, can bear the economic risk of
     its investment, and has such knowledge and experience in
     financial or business matters that it is capable of
     evaluating the merits and risks of the investment in the
     Securities.

11.  Restricted Securities.  Holder understands that the
     Securities are characterized as "restricted securities"
     under the federal securities laws inasmuch as they are being
     acquired from the Company in a transaction not involving a
     public offering and that under such laws and applicable
     regulations such securities may be resold without
     registration under the Securities Act of 1933, as amended
     (the "Act"), only in certain limited circumstances.  In this
     connection, Holder represents that it is familiar with SEC
     Rule 144, as presently in effect, and understands the resale
     limitations imposed thereby and by the Act.

12.  Legends.  It is understood that the Securities may bear the
     following legend:

          "The securities represented hereby have not
          been registered under the Securities Act of
          1933, as amended (the "Act"), or the laws of
          any state.  They may not be sold, offered for
          sale, pledged, hypothecated, or otherwise
          transferred except pursuant to an effective
          registration statement under the Act or an
          opinion of counsel satisfactory to the
          Company that registration is not required
          under such Act or unless sold pursuant to
          Rule 144 under such Act."

13.  California Corporate Securities Law.  THE SALE OF THE
     SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT
     BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE
     STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR
     THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR
     SUCH SECURITIES PRIOR TO SUCH QUALIFICATION IS UNLAWFUL,
     UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION
     BY SECTION_25100, 25102 OR 25105 OF THE CALIFORNIA
     CORPORATIONS CODE.  THE RIGHTS OF ALL PARTIES TO THIS
     AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION
     BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.

14.  Conditions of Holders' Obligations at Closing.  The
     obligations of each Holder under Section_1 of this Agreement
     are subject to the fulfillment on or before the Closing of
     each of the following conditions, the waiver of which shall
     not be effective against any Holder who does not consent
     thereto:

15.  Representations and Warranties.  The representations and
     warranties of the Company contained in Section_3 shall be
     true on and as of the Closing with the same effect as though
     such representations and warranties had been made on and as
     of the date of such Closing.

16.  Performance.  The Company shall have performed and complied
     with all agreements, obligations and conditions contained in
     this Agreement that are required to be performed or complied
     with by it on or before the Closing.




<PAGE>




17.  Qualifications.  All authorizations, approvals, or permits,
     if any, of any governmental authority or regulatory body of
     the United States or of any state that are required in
     connection with the lawful issuance of the Securities
     pursuant to this Agreement shall be duly obtained and
     effective as of the Closing.

18.  Conditions of the Company's Obligations at Closing.  The
     obligations of the Company to each Holder under this
     Agreement are subject to the fulfillment on or before the
     Closing of each of the following conditions by that Holder:

19.  Representations and Warranties.  The representations and
     warranties of the Holders contained in Section_4 shall be
     true on and as of the Closing with the same effect as though
     such representations and warranties had been made on and as
     of such Closing.

20.  Qualifications.  All authorizations, approvals, or permits,
     if any, of any governmental authority or regulatory body of
     the United States or of any state that are required in
     connection with the lawful issuance and sale of the
     Securities pursuant to this Agreement shall be duly obtained
     and effective as of the Closing.

                          Miscellaneous.

21.  Successors and Assigns.  Except as otherwise provided
     herein, the terms and conditions of this Agreement shall
     inure to the benefit of and be binding upon the respective
     successors and assigns of the parties.  Nothing in this
     Agreement, express or implied, is intended to confer upon
     any party other than the parties hereto or their respective
     successors and assigns any rights, remedies, obligations, or
     liabilities under or by reason of this Agreement, except as
     expressly provided in this Agreement.

22.  Governing Law.  This Agreement shall be governed by and
     construed under the laws of the State of California as
     applied to agreements among California residents, made and
     to be performed entirely within the State of California.

23.  Counterparts.  This Agreement may be executed in two or more
     counterparts, each of which shall be deemed an original, but
     all of which together shall constitute one and the same
     instrument.

24.  Titles and Subtitles.  The titles and subtitles used in this
     Agreement are used for convenience only and are not to be
     considered in construing or interpreting this Agreement.

25.  Notices.  Unless otherwise provided, any notice required or
     permitted under this Agreement shall be given in writing and
     shall be deemed effectively given upon personal delivery to
     the party to be notified, by confirmed facsimile
     transmission to the party to be notified or upon deposit
     with the United States Post Office, by registered or
     certified mail, postage prepaid and addressed to such party
     at the address set forth on Exhibit A hereto, or at such
     other address as such party may designate by ten (10) days'
     advance written notice to the other parties.




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26.  Finder's Fee.  Each party represents that it neither is or
     will be obligated for any finder's fee or commission in
     connection with this transaction.  Holder agrees to
     indemnify and to hold harmless the Company from any
     liability for any commission or compensation in the nature
     of a finder's fee (and the costs and expenses of defending
     against such liability or asserted liability) for which
     Holder or any of its officers, partners, employees, or
     representatives is responsible.

          The Company agrees to indemnify and hold harmless
Holder from any liability for any commission or compensation in
the nature of a finder's fee (and the costs and expenses of
defending against such liability or asserted liability) for which
the Company or any of its officers, employees, or representatives
is responsible.

27.  Expenses.  The Company shall pay the costs and expenses that
     it incurs, and will pay the reasonable fees and expenses of
     Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
     LLP, counsel to the Investors, with respect to the
     negotiation, execution, delivery and performance of this
     Agreement, not to exceed $5,000.

28.  Entire Agreement; Amendments and Waivers.  This Agreement
     constitutes the full and entire understanding and agreement
     between the parties with regard to the subjects hereof.  Any
     term of this Agreement may be amended and the observance of
     any term of this Agreement may be waived (either generally
     or in a particular instance and either retroactively or
     prospectively), with the written consent of the Company and
     the Holders of twothirds in principal amount of the New
     Notes (or the Common Stock issuable upon conversion of the
     New Notes).  Any waiver or amendment effected in accordance
     with this Section shall be binding upon each holder of any
     securities issued under this Agreement at the time
     outstanding (including securities into which such securities
     have been converted), each future holder of all such
     securities, and the Company.

29.  Severability.  If one or more provisions of this Agreement
     are held to be unenforceable under applicable law, such
     provision shall be excluded from this Agreement and the
     balance of the Agreement shall be interpreted as if such
     provision were so excluded and shall be enforceable in
     accordance with its terms.






<PAGE>




          IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first above written.

                              VANGUARD AIRLINES, INC.
                              By:

                              Title:
                              Address:





                              HOLDERS:
                              J.F. Shea Co., Inc.,
                              as Nominee 1998-19

                              By:

                              Title:




                              The Hambrecht 1980 Revocable Trust

                              By:

                              Title:



                              Hambrecht & Quist California

                              By:

                              Title:



                              H&Q TSP II Investors, L.P.

                              By:

                              Title:



<PAGE>



                            EXHIBIT A

                       SCHEDULE OF HOLDERS



Name and Address              Principal Amount of New Note
J.F. Shea Co., Inc.,
 as Nominee 1998-19                     $2,276,682.99
     Attn: Edmund H. Shea, Jr.
     J.F. Shea Co., Inc.
     675 Brea Canyon Road, Suite 8
     Walnut Canyon, CA 91789

The Hambrecht 1980 Revocable Trust      $3,328,528.00
     Attn: William R. Hambrecht
     W.R. Hambrecht
     550 15th Street
     San Francisco, CA  94103

Hambrecht & Quist California            $4,603,664.31
     Attn: Patrick Allen
     Hambrecht & Quist, LLC
     One Bush Street
     San Francisco, CA 94104

H&Q TSP II Investors, L.P.              $216,999.82
     Attn: Patrick Allen
     Hambrecht & Quist, LLC
     One Bush Street
     San Francisco, CA 94104



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                            EXHIBIT B

                          Existing NOTES

Name of Holder      Date of Existing Notes   Principal Amount


J.F. Shea Co., Inc.      September 11, 1997       $ 90,000

                         September 19, 1997       $150,000

                         October 6, 1997          $600,000

                         October 14, 1997         $240,000

                         October 23, 1997         $172,500

                         November 6, 1997         $300,000

                         November 13, 1997        $300,000

                         November 25, 1997        $150,000

                         December 10, 1997        $ 29,891


The Hambrecht 1980       August 21, 1997          $240,000
  Revocable Trust

                         August 22, 1997          $150,000




<PAGE>




                         September 4, 1997        $720,000

                         September 11, 1997       $ 38,246

                         September 19, 1997       $150,000

                         October 6, 1997          $600,000

                         October 14, 1997         $240,000

                         October 23, 1997         $172,500

                         November 6, 1997         $300,000

                         November 13, 1997        $300,000

                         November 25, 1997        $150,000


Hambrecht & Quist        September 4, 1997        $583,783.50
  California

                         September 11, 1997       $1,120,000

                         September 19, 1997       $200,000

                         October 6, 1997          $800,000

                         October 14, 1997         $320,000

                         October 23, 1997         $230,000

                         November 6, 1997         $400,000




<PAGE>




                         November 13, 1997        $400,000

                         November 25, 1997        $200,000


H&Q TSP II               May 29, 1997             $120,820.50
  Investors, L.P.



<PAGE>
                            EXHIBIT C

                         FORM OF NEW NOTE