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 JUNE 30, 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)



                         7000 Squibb Road
                           Third Floor
                        Mission, KS  66202
                          (913) 789-1388
   (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 June 30, 1998, there were 66,876,097 shares of Common
Stock , par value $.001 per share.


<PAGE>


PART I. - FINANCIAL INFORMATION
     ITEM 1. FINANCIAL STATEMENTS

                     VANGUARD AIRLINES, INC.
                          BALANCE SHEETS


                                JUNE 30,          DECEMBER 31,
                                  1998                1997

Assets

Current assets:
 Cash and cash equivalents      $ 1,704,155       $ 1,082,712
 Restricted cash                    929,354            ---
 Accounts receivable, less 
     allowance of $351,000 at 
     June 30, 1998 and $354,000 
     at December 31, 1997         2,450,636         2,312,439
 Inventories                      1,042,729           842,620
 Current portion of supplemental 
     maintenance deposits         4,860,195         4,546,824
 Prepaid expenses and other 
     current assets               1,577,728         1,011,417
Total current assets             12,564,797         9,796,012


Property and equipment, at cost:
 Aircraft improvements and 
     leasehold costs              4,645,874         4,611,528
 Reservation system and 
     communication equipment      1,870,818         1,844,981
 Other property and equipment     5,633,498         3,695,943
                                  12,150,190       10,152,452
 Less accumulated depreciation 
     and amortization            (5,866,844)       (4,667,768)
                                  6,283,346         5,484,684


Other assets:
 Supplemental maintenance 
   deposits, less current 
   portion                        3,772,105         3,221,875
 Deferred debt issuance costs     1,234,924         2,223,233
 Leased aircraft deposits         2,285,959         2,258,500
 Fuel and security deposits         973,168         1,240,284
 Other                            1,066,986           539,296
                                  9,333,142         9,483,188

Total assets                    $28,181,285       $24,763,884


<PAGE>


                     VANGUARD AIRLINES, INC.
                    BALANCE SHEETS (CONTINUED)


                                        June 30,     December 31,
                                         1998            1997

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
  Notes payable to related 
          parties                  $    ---       $  9,467,741
  Notes payable                        230,112        ---
  Line of credit                     1,900,000        ---
  Accounts payable                   6,228,890       6,095,903
  Accrued expenses                   2,883,904       4,007,363
  Accrued maintenance                6,962,876       6,588,830
  Air traffic liability             10,001,795       5,989,085
Total current liabilities           28,207,577      32,148,922

Line of credit                           ---         1,900,000
Accrued maintenance, less 
  current portion                    2,517,724       2,659,396

Commitments

Stockholders' deficit:
  Common stock, $.001 par value:
     Authorized shares - 
       200,000,000 (50,000,000
       in 1997)
     Issued and outstanding 
       shares - 66,876,097
       in 1998 (45,695,908 in 
       1997)                           66,876          45,696
  Preferred stock, $.001 
    par value:
     Authorized shares -  
       2,000,000 (1,000,000 in 
       1997)
     Issued and outstanding 
       shares - 302,362
       in 1998 (-0- in 1997)               302          ---
     Liquidation preference - 
       $3,023,620 in 1998
  Additional paid-in capital        71,383,607     57,753,488
  Accumulated deficit              (73,960,433)   (69,692,060)
                                    (2,509,648)   (11,892,876)
  Deferred stock compensation          (34,368)       (51,558)
Total stockholders' deficit         (2,544,016)   (11,944,434)
Total liabilities and 
  stockholders' deficit            $28,181,285    $24,763,884


See accompanying notes.


<PAGE>


                     VANGUARD AIRLINES, INC.
                     STATEMENTS OF OPERATIONS


                            THREE MONTHS ENDED             SIX MONTHS ENDED
                                  JUNE 30,                     JUNE 30,
                         1998               1997        1998             1997

Operating revenues:
 Passenger revenues $23,462,781         $20,416,496    $43,040,555  $40,853,957
 Other                1,961,688           1,236,541      3,627,676    2,291,519 
Total operating 
  revenues           25,424,469          21,653,037     46,668,231   43,145,476

Operating expenses:
 Flying operations    4,461,886           4,614,371      8,856,556    9,285,360
 Aircraft fuel        3,360,314           4,443,272      7,006,959   10,102,200 
 Maintenance          4,770,961           5,281,288      9,145,876    9,950,970 
 Passenger service    1,592,793           1,985,808      3,402,490    3,865,752 
 Aircraft and traffic 
  servicing           4,356,478           4,217,794      9,013,115    8,878,442
 Promotion and sales  4,212,892           5,839,127      8,860,297   11,451,671 
 General and 
   administrative       994,565           1,327,020      1,975,254    2,564,761 
 Depreciation and 
   amortization         620,563             492,212      1,133,350    1,012,213 
Total operating 
   expenses          24,370,452          28,200,892     49,393,897   57,111,369 

Operating income 
 (loss)               1,054,017          (6,547,855)    (2,725,666) (13,965,893)

Other income (expense):
 Deferred debt issuance 
   cost amortization   (581,571)           (461,190)    (1,130,309)    (790,357)
 Interest expense      (168,690)           (181,018)      (445,587)    (387,263)
 Interest income         18,889              17,099         33,189       40,199
Total other expense, 
 net                   (731,372)           (625,109)    (1,542,707)  (1,137,421)
Net income (loss)   $   322,645         $(7,172,964)   $(4,268,373)$(15,103,314)

Net income (loss) 
  per share-basic   $    0.01           $  (0.53)      $    (0.08)   $   (1.29)

Net income (loss) 
 per share-diluted  $    0.00           $  (0.53)      $    (0.08)   $   (1.29)

Weighted average shares used in
per share computation:
 Basic              55,238,672          13,521,579      50,468,002   11,752,477

 Diluted            88,216,820          13,521,579      50,468,002   11,752,477

See accompanying notes.


<PAGE>



                     VANGUARD AIRLINES, INC.
                     STATEMENTS OF CASH FLOWS

                     THREE MONTHS ENDED         SIX MONTHS ENDED
                          JUNE 30,                 JUNE 30,
                    1998       1997         1998              1997

OPERATING ACTIVITIES
Net income 
 (loss)        $  322,645    $(7,172,964)  $ (4,268,373)  $(15,103,314)
Adjustments to 
reconcile net 
income (loss) 
to net cash 
provided by 
(used in) 
operating
activities:
 Depreciation     300,996        217,321        505,219        423,007
 Amortization     319,567        274,891        628,131        589,206
 Loss on sale 
  and disposal 
   of property
   and equipment    ---           52,224         ---           108,524
 Compensation related 
  to stock options  8,595          8,595         17,190         17,190
 Debt issuance cost 
  amortization    581,571        461,190      1,130,309        790,357
 Provision for 
  uncollectible 
  accounts            522         15,225         25,190         41,661

 Changes in 
  operating assets 
  and liabilities:
  Restricted cash(929,354)       768,948       (929,354)     1,493,936
 Accounts 
   receivable    (426,206)        26,123       (163,387)       713,973
 Inventories      (87,513)        14,310       (200,109)        19,961
 Prepaid expenses 
  and other 
  current assets  146,510       (218,577)      (566,311)      (445,499)
 Supplemental 
  maintenance 
  deposits         (1,744)    (1,117,414)      (863,601)    (2,438,454)
 Accounts 
  payable        (272,979)     1,269,116        132,987      4,236,392
 Accrued 
  expenses        259,926        191,647         (2,693)      (288,068)
 Accrued 
  maintenance     149,180        411,373        232,374        694,502
 Air traffic 
  liability     1,364,853     (1,084,920)     4,012,710       (201,331)
 Deposits and 
  other           283,186         79,622       (288,033)      (315,355)

Net cash 
provided by 
(used in) operating
activities      2,019,755     (5,803,290)      (597,751)   (9,663,312)

INVESTING ACTIVITIES
Purchases of 
 property and 
 equipment     (1,449,130)    (283,674)      (1,932,012)     (604,953)

FINANCING ACTIVITIES
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     ---     5,523,816        3,000,000    13,023,816
Proceeds from 
 issuance of notes 
 payable          275,000       ---             275,000          ---
Principal payments 
 on notes payable (44,888)      ---             (44,888)         ---
Proceeds from sale 
 of common stock, 
 net of offering 
 costs               ---       235,000          ---          235,000
Proceeds from 
 exercise of 
 stock options     22,229       10,369           22,967       10,645
Payment of 
 preferred stock 
 offering costs   (30,169)        ---         (101,873)           ---
Principal payments 
 on capital lease 
 obligations          ---      (46,335)          ---         (91,207)
Net cash provided 
 by financing 
 activities       222,172    5,722,850       3,151,206    10,453,254

Net increase 
 (decrease) in 
 cash and cash
 equivalents      792,797     (364,114)        621,443       184,989
Cash and cash 
 equivalents 
 at beginning of
 period           911,358       951,186      1,082,712       402,083
Cash and cash 
 equivalents at
 end of period $1,704,155    $  587,072     $1,704,155    $  587,072


<PAGE>



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

                                                                               
                     THREE MONTHS ENDED           SIX MONTHS ENDED
                           JUNE 30,                   JUNE 30,
                      1998          1997           1998       1997

SUPPLEMENTAL 
DISCLOSURES 
OF CASH FLOW 
INFORMATION:

Cash paid during 
 the period for 
 interest        $    43,564  $    36,794 $   101,435     $    96,267

SUPPLEMENTAL SCHEDULE 
OF NONCASH INVESTING AND 
FINANCING ACTIVITIES:

Aircraft leasehold 
 costs associated 
 with accrued 
 maintenance     $  ---       $    278,000 $     ---      $   278,000
Conversion of 
 notes payable 
 to related parties
 and accrued interest 
 to preferred stock $   ---   $       ---  $ 3,023,620    $      ---
Conversion of notes 
 payable to related 
 parties and accrued 
 interest to common 
 stock           $10,564,887  $10,000,000  $10,564,887     $10,000,000
Deferred debt 
 issuance costs 
 recorded in 
 conjunction with 
 warrants issued $   106,000  $   714,000 $   142,000     $ 3,714,000

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 June 30, 1998, the statements of
operations for the three and six months ended June 30, 1998 and
1997, and the statements of cash flows for the three and six
months ended June 30, 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 these interim periods.  The results of operations
for the three or six months ended June 30, 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. 
During March 1998 and during the three months ended June 30,
1998, the Company was profitable and generated positive cash
flows from operations.  Management anticipates the Company will
operate at profitable levels for the three months ending
September 30, 1998.  The Company has a working capital deficit;
however, management believes that cash generated from operations
as of June 30, 1998 together with cash the Company will receive
in August 1998 from the anticipated exercise of warrants (See
Note 5) will provide the necessary working capital for operations
through July 1, 1999.  If the Company expands its operations or
is faced with an unexpected change in its operating environment,
the Company may require additional working capital.  There can be
no assurance that additional sources of working capital will be
available on acceptable terms, or at all.  The financial
statements do not include any adjustments that might result from
the outcome of the uncertainty that the Company will not continue
as a going concern.
     
     Management's plans include raising additional capital to
fund anticipated expansion in the next year.  Management's plans
continue to include actions designed to achieve long-term
profitability, such as the continued review of competitive
conditions in existing markets, expansion into new markets,
pricing strategies to maximize passenger revenue and
implementation of 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. 
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 Notes 4 and 5, the Company received
$3,000,000 in bridge financing from two principal stockholders in
the form of convertible promissory notes in connection with the
Company's $3,000,000 offering of Series A Convertible Preferred
Stock in March 1998.  The convertible promissory notes were
converted to Series A Convertible Preferred Stock on March 20,
1998, as described in Notes 4 and 5.  The Company anticipates
generating positive cash flow from operations during the third
quarter of 1998.  The Company anticipates closing on a warrant
conversion totaling approximately $5,000,000 million in August
1998 (see Note 5).  The Company's ability to raise additional
cash through equity or debt financings that may be required to
fund expansion during 1998 will be greatly dependent on the
Company's ability to operate profitably during the third quarter
of 1998.  There can be no assurance that the Company can continue
to achieve positive cash flows or operating profits.

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 Company does not have any material
other comprehensive income as defined by SFAS No. 130 at June 30,
1998 or for the three and six month periods then ended.


<PAGE>


     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.   EARNINGS PER SHARE

     The following table sets forth the computation of the
adjusted weighted average shares and assumed conversions used in
the calculation of diluted earnings per share for the three
months ended June 30, 1998:

Numerator:
  Numerator for basic earnings per share-
     income available to common stockholders         $    322,645
    Effect for dilutive securities - 8.0% interest 
     on convertible demand notes payable                  108,916
    Numerator for diluted earnings per share-
     income available to common stockholders
     after assumed conversions                       $    431,561

Denominator:   
  Denominator for basic earnings 
     per share-weighted  
     average shares                     55,238,672
  Effect of dilutive securities:   
     Employee stock options              4,146,701
     Warrants                           11,174,317
     Convertible demand notes payable   11,609,890
     Convertible preferred stock         6,047,240
  Dilutive potential common shares      32,978,148
  Denominator for diluted earnings 
     per share-adjusted weighted-
     average shares and assumed 
     conversions                        88,216,820

     For the three and six months ended June 30, 1998 and 1997,
the computation of basic earnings per share was based on the
weighted average number of outstanding common shares.  For the
three months ended June 30, 1997 and the six months ended June
30, 1998 and 1997, the computation of diluted net loss per share
was also based on the weighted average number of outstanding
common shares.  Outstanding preferred stock, employee stock
options and warrants were not included in the calculation of
diluted loss per share as their effect was antidilutive.

4.   NOTES PAYABLE TO RELATED PARTIES

     In the three months ended March 31, 1998, the Company
entered into a bridge financing arrangement whereby 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 accrued interest totaling $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 whereby the principal stockholders holding
notes payable of $9,468,000 exchanged their existing unsecured
demand notes payable, and all accrued unpaid interest, for new
unsecured convertible demand notes payable (the "Convertible
Notes"). The remaining terms of the Convertible Notes remained
unchanged.  In May 1998, the Company converted the Convertible
Notes plus accrued interest totaling $10,544,000 to common stock
at a rate of $0.50 per share, as described in Note 5.



<PAGE>


5.   STOCKHOLDERS' EQUITY

     On March 20, 1998, the Company completed a private sale of
302,362 units of securities, each unit consisting of one share of
Series A Convertible Preferred Stock, par value $0.001 per share
(the "Series A Preferred Stock"), and a Common Stock purchase
warrant.  The Company sold each unit for $10.00.  In conjunction
therewith, the Company converted $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 in the unit entitles the holder
to purchase 40 shares of Common Stock at an exercise price of
$0.55 per share.  The warrants expire on March 20, 2005.  On
August 6, 1998, the Company received from two principal
stockholders a notice of intention to net exercise warrants
representing rights to purchase 6,000,000 shares of Common Stock
that were sold in the Series A Preferred Stock unit offering. 
The Company will issue 4,035,714 shares of Common Stock in
connection with this net exercise, as defined in the warrant
agreement.

     The Series A Preferred Stock is not redeemable and pays
dividends at an annual rate of $0.80 per share only when, and if,
declared by the Company's Board of Directors.  No dividends have
been declared by the Board of Directors as of June 30, 1998.  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 on September 20, 1998, and holders of the Series A
Preferred Stock are entitled to voting rights determined on an
as-converted basis.
     
     On May 15, 1998, the Company held its annual meeting of
stockholders whereby the stockholders approved, among other
things, an amendment to the Company's Restated Certificate of
Incorporation, as amended, to increase the number of authorized
shares of the Company's Common Stock from 50,000,000 to
200,000,000 shares and Preferred Stock from 1,000,000 to
2,000,000.  Effective with the increase in the authorized capital
stock, the Convertible Notes described in Note 4 automatically
converted, at $0.50 per share, to an equivalent number of shares
of Common Stock.  The Company issued 21,129,770 shares of Common
Stock on May 20, 1998 in connection with this transaction.


     On July 2, 1998, the Company notified certain principal
stockholders of its intention to redeem10,300,000 outstanding
warrants that were issued in conjunction with the Company's April
1997 private unit offering.  Each warrant issued in connection
with the private offering entitles the holder to purchase one
share of the Company's Common Stock for $0.50 per share.  If the
warrant holder elects not to exercise, the Company may redeem the
warrants for $0.05 per warrant. The Company anticipates receiving
proceeds of approximately $5,000,000 in August 1998 from warrant
holders electing to exercise their warrants.

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 <PAGE> 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 737-200 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 737-200 jet aircraft.  The Company's
schedule provides an average of 58 daily weekday flights serving
Kansas City, Atlanta, Chicago-Midway, Dallas/Fort Worth, Denver,
Minneapolis/St. Paul, Pittsburgh and Myrtle Beach.  Effective May
12, 1998, the Company terminated its daily non-stop flights
between Kansas City and New York City-JFK.  On May 21, 1998, the
Company initiated service from Atlanta to Myrtle Beach, South
Carolina.  On June 15, 1998 the Company terminated its daily non-
stop flights between Pittsburgh and New York City-JFK. The
Company continues to review its financing alternatives in order
to purchase or lease additional aircraft under suitable terms. 
There can be no assurance that the Company will be able to secure
adequate financing arrangements for the lease or purchase of
additional aircraft.  The Company also provides limited charter
services.

     The Company has experienced significant growth since the
commencement of operations in December 1994, and has achieved
operating revenues of $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.  For the
three months ended June 30, 1998, the Company achieved its first
profitable quarter reporting operating income of $1.1 million and
net income of $323,000.

     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 low-fare airlines into the Company's current and future
markets, the effectiveness of the Company's marketing efforts,
the occurrence of events involving other low-fare carriers,
passengers' perceptions regarding the safety of low-fare
carriers, general economic conditions and seasonality factors. 
The Company's costs are affected by fluctuations in the price of
jet fuel, scheduled and unscheduled aircraft maintenance
expenses, labor costs, the level of government regulation, fees
charged by independent contractors for services provided, rent
for gates and other facilities, and marketing and advertising
expenses.  The Company has a limited history of operations and,
since its inception on April 25, 1994, has experienced
significant losses.  As of June 30, 1998, the Company had an
accumulated deficit of $74.0 million and stockholders' deficit of
$2.5 million.  As disclosed in the financial statements, the
Company had net income of $323,000 and net cash flows provided by
operating activities amounting to $2.0 million for the three
months ended June 30, 1998.  Prior to the three months ended June
30, 1998, the Company consistently generated quarterly losses
from operations and negative cash flows from operations.  At June
30, 1998, current liabilities exceeded current assets by $15.6
million.  As a result of its limited operating history, together
with the uncertainty in the airline industry generally,
management is unable to accurately predict the future operating
results of the Company.


<PAGE> 



     The Company has generated positive cash flow from operations
from March 1998 through June 1998 and anticipates generating
positive cash flows from operations through the third quarter
1998.  The Company anticipates receiving proceeds of
approximately $5.0 million in August 1998 from the exercise of
warrants.  Management believes that cash generated from
operations together with cash the Company will receive in August
1998 from the warrant exercise will provide the necessary working
capital for operations through July 1999.  The Company is
exploring options to raise additional capital to fund anticipated
expansion of operations.  There can be no assurance the Company
will be successful in expanding operations or raising additional
capital that may be needed for this purpose.

OVERVIEW

THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THE THREE MONTHS
ENDED JUNE 30, 1997

     OPERATING REVENUES

     Total operating revenues increased 17% from $21.7 million
for the quarter ended June 30, 1997 to $25.4 million for the
quarter ended June 30, 1998.  This increase was primarily
attributable to an increase in the number of passengers and
passenger yield offset by a slight decrease in the number of
daily flights. During the quarter ended June 30, 1997, the
Company averaged 51 flights per day that decreased to 50 flights
per day during the quarter ended June 30, 1998.  The number of
passengers increased 6% from 345,810 in the quarter ended June
30, 1997 to 367,332 in the quarter ended June 30, 1998 and
passenger yield per RPM increased 38% from 10.0 cents in the
quarter ended June 30, 1997 to 13.8 cents in the quarter ended
June 30, 1998. The increases were realized despite a decrease in
both ASMs and RPMs in the second quarter of 1998 compared to
1997.  The Company began flying a new route structure on December
21, 1996, which included the initiation of services from Kansas
City to Atlanta, Ft. Myers, Las Vegas, Miami, Orlando and
Tampa/St. Petersburg as well as non-stop service between Chicago-
Midway and Kansas City.  This route restructuring refocused the
Company's strategy by creating a hub in Kansas City.  The
increases in ASMs and RPMs in the second quarter of 1997 that
resulted from the December 1996 schedule change were not
consistent with the second 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 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 25%, from 335 million
during the quarter ended June 30, 1997 to 251 million during the
quarter ended June 30, 1998.  RPMs decreased 17%, from 205
million during the quarter ended June 30, 1997 to 170 million
during the quarter ended June 30, 1998.  The decreases were
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.   Conversely, load factor increased from 61% for the
quarter ended June 30, 1997 to 68% for the quarter ended June 30,
1998.  This increase was primarily the result of a 25% decrease
in capacity but only a 17% decrease in the RPMs in the quarter
ended June 30, 1998 as compared to the quarter ended June 30,
1997.

     Passenger yield per RPM increased 38% from 10.0 cents in the
quarter ended June 30, 1997 to 13.8 cents in the quarter ended
June 30, 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 591 miles during the quarter ended June 30,
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 and service from Kansas
City to New York City-JFK in May 1998.  As a result, its average
stage length decreased to 462 miles in the quarter ended June 30,
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 sm
Class and greater frequencies between city pairs.  The <PAGE> 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 second quarter of 1998 with
passenger yield increasing to 13.8 cents.  The Company
anticipates the passenger yield will continue to rise in the
third 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 $915,000
(approximately 4% of total operating revenues) and $1.6 million
(approximately 6% of operating revenues) in the quarters ended
June 30, 1997 and 1998, respectively.  The increase is
attributable to the increase in passengers subject to the service
charge and the enforcement of the Company's policy to charge a
service fee, when applicable.

     OPERATING EXPENSES

     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:

                             Three months ended June 30,
                                1997             1998


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

Total operating
   revenues           100.0 %   6.47 cents  100.0 % 10.14  cents
Operating expenses:
  Flying operations    21.3 %   1.38 cents  17.6 %  1.78  cents
  Aircraft fuel        20.5     1.33        13.2    1.34
  Maintenance          24.4     1.58        18.8    1.89
  Passenger service     9.2     0.59         6.3    0.64
  Aircraft and traffic 
   servicing           19.5     1.26        17.1    1.74
  Promotion and sales  27.0     1.74        16.6    1.68
  General
    administration      6.1     0.40         3.9    0.40
  Depreciation and 
   amortization         2.2     0.14         2.4    0.25
Total operating
  expenses            130.2     8.42        95.9    9.72
Total other expense,
  net                   2.9     0.19         2.8     0.29
Net income (loss)     (33.1) % (2.14)cents   1.3 %   0.13 cents  

     Flying operations expenses include aircraft lease expenses,
compensation of pilots, expenses related to 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 3% from $4.6 million (approximately 21% of operating
revenues) for the quarter ended June 30, 1997 to $4.5 million
(approximately 18% of operating revenues) for the quarter ended
June 30, 1998.  In the second quarter of 1997, the Company leased
two Boeing 737-300 jet aircraft that were newer, more advanced
aircraft and had a larger <PAGE> capacity and substantially higher lease
and insurance costs.  The decrease in flying operation expenses
in the second 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.  These decreases were offset by an increase in
pilot wages per hour that resulted in pilot wages remaining
consistent in the second quarter of 1998 as compared to 1997
despite an 8% decrease in block hours flown in the two periods. 
Flight operations expense increased on a cents per ASM basis from
1.38 cents for the quarter ended June 30, 1997 to 1.78 cents for
the quarter ended June 30, 1998.  This increase resulted because
the base rent on the Company's fleet was spread over 25% fewer
ASMs, without a material change in the number of aircraft in the
Company's fleet.

     Aircraft fuel expenses include the direct cost of fuel,
taxes and the costs of delivering fuel into the aircraft. 
Aircraft fuel expenses decreased 24% from $4.4 million
(approximately 21% of operating revenues) for the quarter ended
June 30, 1997 to $3.4 million (approximately 13% of operating
revenues) for the quarter ended June 30, 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 June 30, 1998 versus 1997.  Fuel cost per block
hour decreased $106 or 18% from $603 in the quarter ended June
30, 1997 to $497 in the quarter ended June 30, 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 $0.70 per gallon (including taxes and into-plane
costs) in the quarter ended June 30, 1997 to $0.59 per gallon
(including taxes and into-plane costs) in the quarter ended June
30, 1998, a 16% 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 10% from $5.3 million
(approximately 24% of operating revenues) for the quarter ended
June 30, 1997 to $4.8 million (approximately 19% of operating
revenues) for the quarter ended June 30, 1998.  This decrease was
primarily the result of the 8% decrease in block hours flown. 
The Company deposits supplemental rents with its aircraft lessors
to cover a portion of or all of the cost of its future major
scheduled maintenance for airframes, engines, landing gears and
APUs.  These supplemental rents are variable based on flight
hours flown.  The costs of routine aircraft and engine
maintenance are charged to maintenance expense as incurred.
Maintenance expenses increased on a cents per ASM basis from 1.58
cents for the quarter ended June 30, 1997 to 1.89 cents for the
quarter ended June 30, 1998.  This increase in cents per ASM
resulted because the fixed costs of the Company's maintenance
efforts were spread over 25% fewer ASMs without a material change
in the number of aircraft in the Company's fleet.

     Passenger service expenses include flight attendant wages
and benefits, in-flight service, flight attendant training,
uniforms and overnight expenses, inconvenienced passenger charges
and passenger liability insurance.  Passenger service expenses
decreased 20% from $2.0 million (approximately 9% of operating
revenues) for the quarter ended June 30, 1997 to $1.6 million
(approximately 6% of operating revenues) for the quarter ended
June 30, 1998.  The Company significantly reduced its
inconvenienced passenger charges during the second quarter of
1998 as a result of the Company's strategy to deliver a more
reliable product to its customers.  In addition, the decrease was
attributable to a reduction in flight attendant wages that
resulted from a 2% decrease in the number of departures and an 8%
decrease in block hours flown in the second quarter of 1998 as
compared to 1997, offset by an increase in the hourly flight
attendant pay rate.  Finally, the Company realized a cost savings
from the reduction in the Company's passenger liability insurance
rates.

     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
increased 3% from $4.2 million (approximately 20% of operating
revenues) for the quarter ended June 30, 1997 to $4.4 million
(approximately 17% of operating revenues) for the quarter ended
June 30, 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 June 30, 1998 as
compared to the quarter ended June 30, 1997.  Departures
decreased 2% from 4,656 during the quarter ended June 30, 1997 to
4,572 during the quarter ended June 30, 1998.  These decreases
were offset, however, by increases in station rent, employee
salaries and benefits related to the Company's <PAGE> dispatch,
scheduling, station management and system control departments in
the quarter ended June 30, 1998 as compared to the quarter ended
June 30, 1997.  Aircraft and traffic servicing expenses increased
on a cents per ASM basis from 1.26 cents for the quarter ended
June 30, 1997 to 1.74 cents for the quarter ended June 30, 1998
as a result of the fixed costs of the Company's aircraft and
traffic servicing functions were spread over 25% 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, as well as
advertising expenses and wages and benefits for the marketing
department.  Promotion and sales expenses decreased 28% from $5.8
million (approximately 27% of operating revenues) in the quarter
ended June 30, 1997 to $4.2 million (approximately 17% of
operating revenues) in the quarter ended June 30, 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 of $1.3 million and $2.1 million in the second
quarter of 1998 as compared to 1997, respectively.  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 $5.42 or 32% from $16.89 in the quarter ended June 30,
1997 to $11.47 in the quarter ended June 30, 1998 mainly as a
result of the reduction in dollars spent on direct advertising
expenses.  Promotion and sales expenses decreased on a cents per
ASM basis from 1.74 cents for the quarter ended June 30, 1997 to
1.68 cents for the quarter ended June 30, 1998.  

     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 other miscellaneous
expenses.  General and administrative decreased 25% from $1.3
million (approximately 6% of operating revenues) in the quarter
ended June 30, 1997 to $1.0 million (approximately 4% of
operating revenues) in the quarter ended June 30, 1998.  The
decrease in general and administrative expenses in the second
quarter of 1998 as compared to 1997 is the result of decreases in
general liability insurance, property tax, a reduction in
accounting staff salaries and office rent.

     Depreciation and amortization expenses include depreciation
and amortization of aircraft modifications, ground equipment and
leasehold improvements, but does not include any amortization of
startup and route development costs as all of these costs are
expensed as incurred.  Depreciation and amortization expenses
increased 26% from $492,000 (approximately 2% of operating
revenues) in the quarter ended June 30, 1997 to $621,000
(approximately 2% of operating revenues) in the quarter ended
June 30, 1998.  The increase in depreciation expense is the
result of the increase in depreciable assets of approximately
$2.0 million since December 31, 1997.

     Other 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 $l.00 and $1.94 per share. Warrants vest
quarterly in amounts dependent on the Company's exposure under
the letter and line of credit, as defined in the respective
agreements.  Accordingly, the estimated fair value of the
warrants issued 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 decreased during the quarter ended June 30, 1998, as a
result of decreased borrowings against the line of credit and the
conversion of demand notes payable to related parties to common
stock during the quarter ended June 30, 1998.



<PAGE> 



SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THE SIX MONTHS ENDED
JUNE 30, 1997

     OPERATING REVENUES

     Total operating revenues increased 8% from $43.1 million for
the six months ended June 30, 1997 to $46.7 million for the six
months ended June 30, 1998.  This increase was primarily
attributable to increases in passenger yield and load factor
offset by decreases in passengers and  the number of daily
flights. During the six months ended June 30, 1997, the Company
averaged 54 flights per day that decreased to 50 flights per day
during the six months ended June 30, 1998.  The number of
passengers decreased 1% from 721,019 in the six months ended June
30, 1997 to 713,482 in the six months ended June 30, 1998.
Decreases were also experienced in both ASMs and RPMs in the six
months ended June 30, 1998 compared to the same period in 1997. 
As a result of the changes in the flight schedule previously
described under Operating Revenues in the three months ended June
30, 1998 compared to the three months ended June 30, 1997, ASMs
decreased 29%, from 715 million during the six months ended June
30, 1997 to 508 million during the six months ended June 30,
1998.  RPMs decreased 22%, from 430 million during the six months
ended June 30, 1997 to 337 million during the six months ended
June 30, 1998.  The decreases were 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.   Conversely, load
factor increased from 60% for the six months ended June 30, 1997
to 66% for the six months ended June 30, 1998.  This increase was
primarily the result of a 29% decrease in capacity but only a 22%
decrease in the RPMs in the six months ended June 30, 1998 as
compared to the six months ended June 30, 1997.

     Passenger yield per RPM increased 34% from 9.5 cents in the
six months ended June 30, 1997 to 12.8 cents in the six months
ended June 30, 1998.  The Company's implementation of its
strategic plan, as previously described, showed positive results
in the six months ended June 30, 1998 resulting in the increased
passenger yield.  The Company anticipates the passenger yield
will continue to rise in the third 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 $1.7
million (approximately 4% of total operating revenues) and $3.0
million (approximately 6% of operating revenues) in the quarters
ended June 30, 1997 and 1998, respectively.  The increase is
attributable to reasons consistent with those described
previously in the second quarter 1998 versus 1997 comparison.
     

<PAGE> 




     OPERATING EXPENSES

     The following table sets forth the percentage of total
operating revenues represented by these expense categories:

                              Six months ended June 30,
                              1997               1998

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


Total operating
  revenues            100.0 %     6.05 cents     100.0 %     9.19 cents
Operating expenses:
  Flying operations    21.5 %     1.30 cents      19.0 %     1.74  cents
  Aircraft fuel        23.4       1.42            15.0       1.38
  Maintenance          23.1       1.40            19.6       1.80
  Passenger service     9.0       0.54             7.3       0.67
  Aircraft and traffic 
   servicing           20.6       1.24            19.3       1.78
  Promotion and sales  26.5       1.60            19.0       1.74
  General
    administration      5.9       0.36             4.2       0.39
  Depreciation and 
   amortization         2.4       0.14             2.4       0.22
Total operating
  expenses            132.4       8.00           105.8       9.72
Total other expense,
  net                   2.6       0.16             3.3       0.31
Net loss              (35.0) %   (2.11)cents      (9.1) %   (0.84) cents

     Flying operations expenses decreased 5% from $9.3 million
(approximately 22% of operating revenues) for the six months
ended June 30, 1997 to $8.9 million (approximately 19% of
operating revenues) for the six months ended June 30, 1998.  In
the six months ended June 30, 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 six months ended June 30, 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 six months ended June 30, 1998 as
compared to 1997.  As a result of the September 1997 schedule
change, block hours decreased 13% from 15,676 hours in the six
months ended June 30, 1997 to 13,705 in the six months ended June
30, 1998.  In addition, the Company was successful in negotiating
more favorable hull insurance rates on its fleet in the six
months ended June 30, 1998 as compared to the six months ended
June 30, 1997.  These decreases were offset by a pilot wage
increase that resulted in pilot wages remaining consistent in the
six months ended June 30, 1998 as compared to 1997 despite a 13%
decrease in block hours flown in the two periods.  Flight
operations expense increased on a cents per ASM basis from 1.30
cents for the six months ended June 30, 1997 to 1.74 cents for
the six months ended June 30, 1998. This increase resulted
because the base rent on the Company's fleet was spread over 29%
fewer ASMs, without a material change in the Company's fleet.  

     Aircraft fuel expenses decreased 31% from $10.1 million
(approximately 23% of operating revenues) for the six months
ended June 30, 1997 to $7.0 million (approximately 15% of
operating revenues) for the six months ended June 30, 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 six months ended June 30, 1998 versus 1997.  Fuel
cost per block hour decreased $133 or 21% from $644 in the six
months ended June 30, 1997 to $511 in the six months ended June
30, 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 $0.76 per gallon (including
taxes and into plane costs) in the six months ended June 30, 1997
to $0.61 per gallon (including taxes and into-plane costs) in the
six months ended June 30, 1998, a 20% 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.

<PAGE> 



     Maintenance expenses decreased 8% from $10.0 million
(approximately 23% of operating revenues) for the six months
ended June 30, 1997 to $9.1 million (approximately 20 % of
operating revenues) for the six months ended June 30, 1998.  This
decrease was primarily the result of the 13% 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 six months ended June 30, 1998 than those
used in the same period in 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.  The costs of
routine maintenance expensed during the six months ended June 30,
1998 also increased as compared to the same period in 1997. 
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
function expanded to insure compliance with all FAA and DOT
regulations and requirements.  The Company also increased line
maintenance personnel including the introduction of maintenance
operations at the Chicago-Midway, Pittsburgh and Minneapolis/St.
Paul airports.  Maintenance expenses increased on a cents per ASM
basis from 1.40 cents for the six months ended June 30, 1997 to
1.80 cents for the six months ended June 30, 1998.  This increase
in cents per ASM resulted because the fixed costs of the
Company's maintenance efforts were spread over 29% fewer ASMs
without a material change in the Company's fleet.

     Passenger service expenses decreased 12% from $3.9 million
(approximately 9% of operating revenues) for the six months ended
June 30, 1997 to $3.4 million (approximately 7% of operating
revenues) for the six months ended June 30, 1998.  The Company
significantly reduced its inconvenienced passenger costs as a
result of the Company's strategy to deliver a more reliable
product to its customers.  In addition, this decrease was
attributable to an 8% decrease in the number of departures and a
13% decrease in block hours flown in the six months ended June
30, 1998 as compared to 1997 as well as cost savings from the
reduction in the Company's passenger liability insurance rates.  

     Aircraft and traffic servicing expenses increased 2% from
$8.9 million (approximately 21% of operating revenues) for the
six months ended June 30, 1997 to $9.0 million (approximately 19%
of operating revenues) for the six months ended June 30, 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 six months ended June 30, 1998 as compared to
the six months ended June 30, 1997.  Departures decreased 8% from
9,838 during the six months ended June 30, 1997 to 9,055 during
the six months ended June 30, 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 in the six months ended June 30,
1998 as compared to the six months ended June 30, 1997.  Aircraft
and traffic servicing expenses increased on a cents per ASM basis
from 1.24 cents for the six months ended June 30, 1997 to 1.78
cents for the six months ended June 30, 1998.  This increase in
cents per ASM resulted because the fixed costs of the Company's
aircraft and traffic servicing functions were spread over 29%
fewer ASMs.

     Promotion and sales expenses decreased 23% from $11.5
million (approximately 27% of operating revenues) in the six
months ended June 30, 1997 to $8.9 million (approximately 19% of
operating revenues) in the six months ended June 30, 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 six months ended June 30, 1998 as compared to
1997.  During the six months ended June 30, 1998, the Company
incurred direct advertising of $2.9 million versus $4.2 million
in the same period of 1997.  The Company continues to rely on its
direct advertising <PAGE> 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 $3.46 or 22%
from $15.88 in the six months ended June 30, 1997 to $12.42 in
the six months ended June 30, 1998.  Promotion and sales expenses
increased on a cents per ASM basis from 1.60 cents for the six
months ended June 30, 1997 to 1.74 cents for the six months ended
June 30, 1998.  This increase in cents per ASM resulted because
the fixed costs of the Company's promotion and sales functions
were spread over 29% fewer ASMs.

     General and administrative decreased 23% from $2.6 million
(approximately 6% of operating revenues) in the six months ended
June 30, 1997 to $2.0 million (approximately 4% of operating
revenues) in the six months ended June 30, 1998.  The decrease in
general and administrative expenses in the six months ended June
30, 1998 as compared to 1997 is the result of decreases in
general liability insurance, property tax, accounting staff
salaries and office rent.

     Depreciation and amortization expenses increased 12% from
$1.0 million (approximately 2% of operating revenues) in the six
months ended June 30, 1997 to $1.1 million (approximately 2% of
operating revenues) in the six months ended June 30, 1998 due to
the increase in depreciable assets since December 31, 1997.

     Other 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 $l.00 and $1.94 per share. Warrants vest
quarterly in amounts dependent on the Company's exposure under
the letter and line of credit, as defined in the respective
agreements.  Accordingly, the estimated fair value of the
warrants issued 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 six months ended June 30, 1998, as a
result of the addition of demand notes payable to related parties
in the first quarter of 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 primarily to its
principal stockholders.  As of August 10, 1998, the Company has
received net proceeds from the sale of its equity securities in
the aggregate amount of $65.2 million.

     On January 30, 1998, the Company borrowed $1.9 million under
a credit agreement that expires on January 30, 1999 with INTRUST
Bank, NA (Wichita, Kansas).  The Company used the proceeds to
repay the amount outstanding under the Commerce Bank, NA line of
credit that matured on January 30, 1998.  The line of credit is
guaranteed by certain stockholders.  In consideration for the
guarantees, in January 1997, 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.  Currently, the Company is exploring options to
raise additional capital whereby a portion of the proceeds would
be utilized to pay the $1.9 million outstanding under the line of
credit.  There can be no assurance that the Company will raise
additional capital prior to the maturity of the line of credit. 
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 may materially
and adversely affect the Company's then current cash position.

     On March 20, 1998, the Company entered into a Note Exchange
Agreement whereby the principal stockholders holding demand notes
of $9.5 million agreed to exchange demand notes and all accrued
unpaid interest for Convertible Notes.  On May 20, 1998, the
Company converted all outstanding convertible demand notes plus
accrued interest totaling approximately $10.6 million to Common
Stock at a rate of $0.50 per share.
     
<PAGE> 



     In the quarter ended March 31, 1998, the Company entered
into a bridge financing arrangement whereby additional unsecured
promissory 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%.  The Company converted the
unsecured promissory notes, plus unaccrued interest, in aggregate
amount of approximately $3.0 million to units of Series A
Preferred Stock and Common Stock purchase warrants.  Each unit
cost $10 and consisted of one share of Series A Preferred Stock
and a Common Stock purchase warrant.  Each share of Series A
Preferred Stock is convertible into 20 shares of Common Stock. 
Each warrant in the unit entitles the holder to purchase 40
shares of Common Stock at an exercise price of $0.55 per share of
Common Stock.  The warrants expire on March 20, 2005.

     On July 2, 1998, the Company notified certain principal
stockholders of its intention to redeem 10,300,000 outstanding
warrants issued in conjunction with the Company's April 1997
private unit offering.  Each warrant subject to the redemption
entitles the holder to purchase one share of the Company's Common
Stock for $0.50 per share.  If the warrant holder elects not to
exercise, the Company may redeem the warrants for $0.05 per
Warrant.  The Company anticipates receiving proceeds of
approximately $5.0 million in August 1998 from the exercise of
warrants.

     In January and February 1998, the Company did not generate
sufficient passenger ticket sales to provide for its operational
cash needs.  The Company funded its cash flow deficit through the
issuance of bridge financing notes from its principal
stockholders, as discussed above.  During the second quarter, the
Company generated approximately $2.0 million of positive cash
flows from operations.  As of June 30, 1998, the Company had a
working capital deficit at June 30, 1998 of $15.6 million.  Prior
to the second quarter of 1998, the Company incurred significant
losses, which when coupled with the working capital deficit,
created substantial doubt about the Company's ability to continue
as a going concern.  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.

     During the quarter ended June 30, 1998, the Company has
experienced a significant increase in its air traffic liability
due to increased ticket sales.  Passenger demand is traditionally
stronger during the spring and summer seasons.  Currently, the
Company has a letter of credit established by one of its
principal stockholders and a stockholder guarantee totaling $6.0
million in order to secure the Company's credit card processor. 
In May 1998, 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.  At June 30, 1998, the Company had approximately
$900,000 in a restricted cash account with its 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 it must continue to deposit cash from ticket
sales as collateral to the extent that exposure exceeds $6.0
million.  Any cash utilized as collateral would be refunded by
the credit card processor when the Company's exposure falls below
the previously calculated exposure or $6.0 million, whichever is
greater.  The Company anticipates that the $900,000 deposited
with the credit card processor would be refunded in September
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 June 1999 will cost $9.6
million, of which $5.9 million will be funded from existing
supplemental rent payments recoverable from aircraft lessors. 
The Company expects to expend $2.5 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.  The Company continues to review its
financing alternatives in order to purchase or lease additional
aircraft under suitable terms.  The Company is currently in
discussion with various aircraft lessors regarding fleet
expansion.  The Company cash balance as of August 10, 1998 is
adequate to provide for the necessary estimated lease deposit
requirements for up to two additional aircraft.  Historically,
the Company has been required to deposit between $140,000 and
$420,000 per aircraft depending on the specific terms negotiated
in the lease.


<PAGE> 



     The Company must modify one of its existing aircraft to
satisfy the December 31, 1998 Stage-3 noise requirements. 
Alternatively, the Company is considering adding one additional
aircraft under a new operating lease arrangement and removing one
aircraft from its certificate that does not meet the Stage-3
noise requirements.  If the Company elects this alternative, the
aircraft removed from its certificate would not be available for
revenue service beginning January 1, 1999; however, the Company
would be obligated to continue to make lease payments through
1999.  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 or elects not to remove an aircraft
from its operating certificate then it would be required to
acquire a hush kit at a cost of approximately $1.3 million.

     The Company has been generating positive cash flows from
operations beginning March 1998 and expects to continue to
generate sufficient cash to support its operations until the end
of the third quarter 1998.  In addition, the Company anticipates
that it will receive cash of approximately $5.0 million from the
exercise of 10,300,000 outstanding warrants.  The Company plans
to continue to implement certain actions designed to achieve
long-term profitability.  Management's plans to achieve long-term
profitability include increased focus on the price-sensitive
business traveler and pricing strategies designed to maximize
passenger revenue, passenger yield and implementation of
additional 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 projected
expansion remain dependent upon raising additional capital.  In
addition to the approximately $5.0 million expected to be
received from the exercise of warrants, the Company is
contemplating raising additional capital in the third or fourth
quarter of 1998.  The Company's success in implementing actions
designed to achieve long-term profitability and its ability to
operate at profitable levels will determine if the Company will
be able to raise additional capital.  There can be no assurance
that the Company's necessary working capital requirements to
expand operations will be available on acceptable terms, or at
all.

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 processing 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 that also is Year 2000
compliant.  The Company believes these two systems are critical
data processing systems.
     
     The Company 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 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

     The Company'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 operations and financial
results are identified below.

<PAGE> 



     LIMITED OPERATING HISTORY; HISTORY OF SIGNIFICANT LOSSES.
The Company has a limited history of operations, beginning flight
operations on December 4, 1994.  The Company reported its first
quarterly profit for the three months ended June 30, 1998.  Since
the Company's inception on April 25, 1994, the Company has
incurred significant losses and as of June 30, 1998 had an
accumulated deficit of $74.0 million, a stockholders' deficit of
$2.5 million and a working capital deficit of $15.6 million. The
Company's limited operating history makes the prediction of
future operating results difficult.  There can be no assurance
that the Company can maintain profitable operations.

     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's 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 and expand its operations. 
Management 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 dependent upon financing from principal stockholders.  The
report further states that there can be no assurance as to the
availability of further financing and that there is substantial
doubt about the Company's ability to continue as a going concern.

     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 below the Company's fares or
introduce new nonstop 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, in connection with a national mandate the FAA
temporarily grounded all 737-200 with 50,000 or more cycles;
seven of the Company's nine jet aircraft were grounded until
electrical wiring in the fuel pumps could be inspected and

<PAGE> 



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 on 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 13% of the Company's operating
expenses for the quarter ended June 30, 1998.  The Company's
average cost per gallon decreased from $0.70 per gallon in the
quarter ended June 30, 1997, to $0.59 per gallon in the quarter
ended June 30, 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.  Four of the Company's
jet aircraft have leases that expire in December 1999.  Although
the Company has a lease renewal option on these aircraft, the
Company is evaluating other options to replace these aircraft. 
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.


<PAGE> 




     Additional rules and regulations have been proposed from
time to time in the last several years 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
hushkit or ground one of its Stage-2 aircraft to satisfy the 75%
1998 Stage-3 requirements.  Any future airplanes added to the
fleet will have to meet Stage-3 requirements.  If the Company is
unable to secure a hushkit for one or more of its aircraft or
lease an additional aircraft by December 31, 1998, the required
grounding of one of its aircraft may have a material adverse
effect on the Company's business, financial condition and results
of operations.

     The Company has obtained the necessary authority to perform
airline operations, including a Certificate of Public Convenience
and Necessity issued by the DOT pursuant to 49 U.S.C. _41102 and
an air carrier operating certificate issued by the FAA under Part
121 of the Federal Aviation Regulations.  The continuation of
such authority is subject to continued compliance with applicable
rules, regulations and laws pertaining to or affecting the
airline industry, including any rules and regulations that may be
adopted by the DOT and FAA in the future.  No assurance can be
given that the Company will be able to continue to comply with
all present or future rules, regulations and laws or that such
rules, regulations and laws would not materially and adversely
affect the Company's business, financial condition and results of
operations.

     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 resulted in an overall
higher tax paid by individuals who purchase tickets on the
Company's flights and, consequently, could have a 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.


<PAGE> 


ITEM 2.   CHANGES IN SECURITIES

     a. None.
     
     b. None.
     
     c.  On March 20, 1998, the Company completed a private sale
     of 302,362 units of securities, each unit consisting of one
     share of Series A Convertible Preferred Stock and a common
     stock purchase warrant (the "Units").  The Company sold each
     Unit for $10.00.  Each share of Series A Preferred Stock is
     convertible into 20 shares of Common Stock.  Each warrant
     entitles the holder to purchase 40 shares of Common Stock. 
     In conjunction with the sale of units, the Company converted
     approximately $3,024,000 of outstanding principal and
     interest on bridge financing notes to Units.  Units were
     sold to a limited number of "accredited investors" as
     defined in the Securities Act of 1933, pursuant to an
     exemption from registration provided by Regulation D
     promulgated under the Securities Act.
     
     On May 20, 1998, the Company sold 21,129,770 shares of
Common Stock for $0.50 per share.  In conjunction with the sale
of Common Stock, the Company converted approximately $10,564,885
of outstanding principal and interest on demand notes.  The
Common Stock was sold to a limited number of "accredited
investors," as defined in the Securities Act of 1933, pursuant to
an exemption from registration provided by Regulation D
promulgated under the Securities Act.

     On August 6, 1998, the Company received a notice from two
principal stockholders of their intention to net exercise
warrants representing rights to purchase 6,000,000 shares of
Common Stock.  The Company will issue 4,035,714 in connection
with this net exercise, as defined in the warrant agreement.
     
     d. None.
     
ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

     None.

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

          The Company held its Annual Meeting of Shareholders on
          May 15, 1998 at which shareholders re-elected one
          director, elected to increase the number of shares of
          capital stock the Company shall have the authority to
          issue, elected to amend the Company's 1994 Stock Option
          Plan and ratified the appointment of the accounting
          firm of Ernst & Young, LLP as the Company's independent
          auditors for 1998.
          
          Results of the voting in connection with each issue
          were as follows:
          
          Voting on Director Denis T. Rice
          
          For                 45,741,689
          Against                      0
          Abstain                 47,828
          
          Election to increase the number of authorized shares of
          capital stock
          
          In Favor            35,579,903
          Against                193,927
          Abstain                 21,990
          


<PAGE> 




          Election to amend the 1994 Stock Option Plan
          
          In Favor            35,583,688
          Against                182,992
          Abstain                 29,140
          
          Ratification of Ernst & Young, LLP to serve as auditor
          
          In Favor            45,751,015
          Against                      3,300
          Abstain                    35,202
          
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                          August 13, 1998
Robert J. Spane, President and 
  Chief Executive Officer

\s\ William A. Garrett                       August 13, 1998
William A. Garrett, Vice 
  President - Finance
  and Chief Financial Officer
  (Principal Financial and 
  Accounting Officer)