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

                           FORM 10-Q
(Mark One)
( X )      QUARTERLY  REPORT PURSUANT TO
           SECTION 13 or 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
           FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
           
                             OR
                              
(   )      TRANSITION REPORT PURSUANT TO SECTION 13
           OR  15(D)  OF THE  SECURITIES  EXCHANGE ACT OF
           1934 FOR  THE  TRANSITION PERIOD FROM _______ TO
           _______.
           
Commission File Number 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)
            
                     533 Mexico City Avenue
               Kansas City International Airport
                     Kansas City, MO  64153
                         (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 March 31, 1999, there were 85,392,746 shares of Common
Stock, par value $.001 per share issued and outstanding.
<PAGE>

PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL
STATEMENTS

                     VANGUARD AIRLINES, INC.
                        BALANCE SHEETS

                                 MARCH 31,                   DECEMBER 31,
                                   1999                          1998
                                -----------                 --------------

ASSETS

Current assets:
 Cash and cash equivalents,
   including restricted cash
   and cash equivalents of
   $2,909,737 at
   March 31, 1999              $  8,216,722                 $  7,417,048
Accounts receivable, less
  allowance of $266,000 at
  March 31, 1999 and $303,000
  at December 31, 1998            2,790,476                    2,030,309
Inventories                       1,322,258                    1,168,054
Current portion of supplemental
    maintenance deposits          4,376,242                    4,490,281
Prepaid expenses and other
 current assets                   1,059,560                    1,022,953
                               ------------                   -----------
Total current assets             17,765,258                   16,128,645

Property and equipment, at cost:
  Aircraft improvements and
    leasehold costs               5,280,208                    4,854,683
  Reservation system and
    communication equipment       1,867,954                    1,867,954
  Aircraft engines and rotable
    inventory                     6,960,943                    6,243,693
  Other property and equipment    2,810,413                    2,624,579
                                 ----------                   ----------
                                 16,919,518                   15,590,909
  Less accumulated depreciation
    and amortization             (8,140,279)                  (7,459,456)
                                 -----------                   ---------
                                  8,779,239                    8,131,453
Other assets:
  Supplemental maintenance deposits,
    less current portion          5,713,986                    5,121,050
  Deferred debt issuance costs      208,250                       83,448
  Leased aircraft deposits        3,170,000                    2,299,000
  Fuel and security deposits        820,763                      883,610
  Other                           1,231,821                      999,377
                                  ---------                     --------
                                 11,144,820                    9,386,485

Total assets                    $37,689,317                  $33,646,583
                                ===========                   ========== 
<PAGE>

              VANGUARD AIRLINES, INC.
             BALANCE SHEETS (CONTINUED)

                                      MARCH 31,                 DECEMBER 31,
                                        1999                       1998
                                     ------------               ------------
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
 Accounts payable                    $5,501,938                  $5,848,635
 Accrued expenses                     3,222,553                   3,062,823
 Accrued maintenance                  6,876,173                   6,902,847
Air traffic liability                11,680,190                   8,230,222
                                     ----------                  ----------
Total current liabilities            27,280,854                  24,044,527

Accrued maintenance, less
      current portion                 4,327,266                   3,818,184

Commitments

Stockholders' equity:
 Common stock, $.001 par value:
   Authorized shares - 200,000,000
   Issued and outstanding
   shares - 85,396,965
   in 1999 (83,372,309 in 1998)          85,397                     85,372
 Preferred stock, $.001 par value:
     Authorized shares -  2,000,000
     Issued and outstanding
     shares - 302,362 in 1999 and 1998      302                        302
     Liquidation preference - $3,023,620
 Additional paid-in capital           77,133,689                 76,886,373
 Accumulated deficit                 (71,129,608)               (71,170,997)
                                     ------------               -----------
                                       6,089,780                  5,801,050
 Deferred stock compensation              (8,583)                   (17,178)
                                     ------------                ----------
Total stockholders' equity             6,081,197                  5,783,872
                                     ------------                 ----------  
Total liabilities and
   stockholders' equity              $ 37,689,317               $ 33,646,583
                                     ============               ============

SEE ACCOMPANYING NOTES.
<PAGE>

                     VANGUARD AIRLINES, INC.
                    STATEMENTS OF OPERATIONS

                                           THREE MONTHS ENDED
                                               MARCH 31,
                                       ------------------------------------
                                       1999                         1998
Operating revenues:
 Passenger revenues                $23,469,110                  $19,577,774
 Other                               1,437,906                    1,665,988
                                   ------------                 -----------
Total operating revenues            24,907,016                   21,243,762
Operating expenses:
 Flying operations                   4,726,470                    4,394,670
 Aircraft fuel                       2,886,569                    3,646,645
 Maintenance                         5,093,549                    4,374,915
 Passenger service                   1,563,434                    1,809,697
 Aircraft and traffic servicing      4,302,249                    4,656,637
 Promotion and sales                 4,332,172                    4,647,405
 General and administrative            956,973                      980,689
 Depreciation and amortization         931,692                      512,787
                                   ------------                 -----------
  Total operating expenses          24,793,108                   25,023,445
Operating income (loss)                113,908                   (3,779,683)
Other income (expense):
 Deferred debt issuance cost
  amortization                        (113,198)                    (548,738)
 Interest expense                          ---                     (276,897)
 Interest income                       121,524                       14,300
Other                                   (9,345)                         ---
                                   ------------                   ----------
Total other expense, net                (1,019)                    (811,335)
                                   ------------                   ----------
Net income (loss) before
 income taxes                           112,889                  (4,591,018)
Provision for income taxes               71,500                         ---
                                  -------------                    ----------
Net income (loss)                   $    41,389                 $(4,591,018)
                                   ============                  ============

Net income (loss) per share:

  Basic                             $      0.00                  $    (0.10)
                                   =============                 ============

  Diluted                           $      0.00                  $    (0.10)
                                    ============                 ============

Weighted average shares used in
 per share computation:
  Basic                             85,386,280                   45,697,332
                                    ==========                   ==========
  Diluted                           95,452,958                   45,697,332
                                    ==========                   ==========
SEE ACCOMPANYING NOTES.
<PAGE>

                               VANGUARD AIRLINES, INC.
                               STATEMENTS OF CASH FLOWS

                                  THREE MONTHS ENDED
                                       MARCH 31,
                           --------------------------------------
                                   1999                  1998
                           ------------------   --------------------
OPERATING ACTIVITIES
Net income (loss)          $           41,389        $   (4,591,018)
Adjustments to reconcile
 net income (loss) to net
 cash used in operating
 activities:
  Depreciation                        577,837               204,223
  Amortization                        353,855               308,564
  Compensation related to
    stock options                       8,595                 8,595
  Debt issuance cost amortization     113,198               548,738
  Provision for uncollectible
   accounts                             ---                  54,000
  Changes in operating assets
   and liabilities:
   Restricted cash                 (2,909,737)                  ---
   Accounts receivable               (760,167)              233,487
   Inventories                       (154,204)             (112,596)
   Prepaid expenses and other
    current assets                    (36,607)             (712,821)
   Supplemental maintenance
    deposits                         (478,897)             (861,857)
   Accounts payable                  (346,697)              405,966
   Accrued expenses                   159,730              (262,619)
   Accrued maintenance                135,408                83,194
   Air traffic liability            3,449,968             2,647,857
   Deposits and other              (1,040,597)             (571,219)
                                   ------------           -----------
Net cash used in operating
     activities                      (886,926)           (2,617,506)

INVESTING ACTIVITIES
Purchases of property and
     equipment                     (1,232,478)             (482,882)

FINANCING ACTIVITIES
Proceeds from line of
    credit borrowings                     ---             1,900,000
Principal payments on line of credit      --             (1,900,000)
Proceeds from issuance of notes
  payable to  related parties             ---             3,000,000
Proceeds from exercise of stock
     options and warrants               9,341                   738
Payment of preferred stock
  offering costs                       ---                  (71,704)
                                    -----------           ----------
Net cash provided by financing
     activities                           9,341            2,929,034
                                    -----------           ----------
Net decrease in cash and cash
     equivalents                     (2,110,063)            (171,354)
Cash and cash equivalents at
     beginning of period              7,417,048            1,082,712
                                    -----------           -----------
Cash and cash equivalents at
     end of period (1)              $ 5,306,985             $ 911,358
                                    ===========             =========
<PAGE>

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

                                         THREE MONTHS ENDED
                                            MARCH 31,
                                    ---------------------------
                                    1999                 1998
                                  -------------      ------------

SUPPLEMENTAL DISCLOSURES OF CASH
 FLOW INFORMATION:
Cash paid during the period for
     interest                        $      ---       $   57,871
                                   ============      ============

SUPPLEMENTAL SCHEDULE OF NONCASH
 INVESTING AND FINANCING  ACTIVITIES:
Aircraft leasehold costs associated
    with accrued maintenance        $   347,000       $      ---
                                   =============     =============
Conversion of notes payable to
related parties and accrued
interest to preferred stock         $       ---       $  3,023,620
                                   =============      =============

Deferred debt issuance costs
recorded in conjunction with
warrants issued                  $       238,000       $    36,000
                                  ==============      ==============

SEE ACCOMPANYING NOTES.
(1)  Excludes restricted cash and cash equivalents
of $2,909,737 at March 31, 1999.
<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,  1998,  have been  properly prepared pursuant
to the rules of the Securities  and Exchange
Commission for quarterly reports on Form
10Q  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, 1998, included in the
Company's Form 10K as filed with
the Securities and Exchange
Commission on March 31, 1999.
  The  balance  sheet  as of March 31,
1999,  the statements  of operations  for
the three months ended March 31, 1999
and  1998, and the statements of cash
flows for the three months ended March
31,  1999  and 1998  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 months  ended  March 31,  1999
are  not  necessarily indicative  of  the
results to be expected for the entire
fiscal year ending December 31, 1999.

2. 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 March 31, 1999:

   Numerator:
   Numerator for basic and diluted
     earnings per shareincome available to
     common stockholders
     after assumed conversions          $  41,389
                                        =========
   Denominator:
     Denominator for basic earnings per
     share-weighted average shares      85,386,280
   Effect of dilutive securities:
     Employee stock options              3,878,013
     Warrants                              141,425
     Convertible preferred stock         6,047,240
                                        -----------
     Dilutive potential common shares   10,066,678
                                         ---------
     Denominator for diluted earnings
      per share-adjusted weighted-
      average shares and assumed
      conversions                        95,452,958
                                        ===========
     For the three months ended March 31,
1999 and 1998, the computation of basic
earnings per share was based on the
weighted average number of outstanding
common shares.  For the three
months ended March 31, 1999, the
computation of diluted net loss per share
was based on the weighted average number
of shares and dilutive potential common
shares.  For the three months ended March
31, 1998, the computation of diluted net
loss per share was based solely 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 for
the three months ended March 31, 1998, as
their effect was antidilutive.

3. FINANCIAL INSTRUMENTS

     In January 1999, major stockholders of the Company agreed
to renew the two-year $4,000,000
letter of credit in favor of the
Company's credit card processor.  As
consideration for renewing the letter of
credit, the Company agreed to issue up to
4,000,000 warrants to purchase shares of
the Company's common stock at an exercise
price of $1.00. Upon execution of the
letter of credit, the Company issued
800,000 warrants that vested
<PAGE>
immediately. Accordingly, in January
1999, the estimated fair value of the
warrants issued of $238,000 was recorded
in other assets and is being charged to
expense over the term of the facility.
The remaining warrants vest quarterly
according to the amount of exposure under
such letter of credit, as defined in the
agreement.

4. USE OF ESTIMATES

 The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and
assumptions that affect the amounts
reported in the financial statements and
accompanying notes. Actual results could
differ from those estimates.

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-K CONTAINS FORWARD
LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES AND INFORMATION THAT IS
BASED ON MANAGEMENT'S BELIEFS AS WELL AS
ASSUMPTIONS MADE BY AND INFORMATION
CURRENTLY AVAILABLE TO MANAGEMENT. WHEN
USED IN THIS DOCUMENT, THE WORDS
"ESTIMATE," "ANTICIPATE," "PROJECT" AND
SIMILAR EXPRESSIONS ARE INTENDED TO
IDENTIFY "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.  THE
COMPANY'S ACTUAL RESULTS MAY DIFFER
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 AND
UNANTICIPATED YEAR 2000 COMPLIANCE COSTS
AND EXPENSES.  FOR ADDITIONAL DISCUSSION
OF SUCH RISKS, SEE "FACTORS THAT MAY
AFFECT FUTURE RESULTS OF OPERATIONS," AS
WELL AS THOSE DISCUSSED ELSEWHERE IN THE
COMPANY'S REPORTS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION.

COMPANY

     The Company was incorporated on
April 25, 1994 and operates as a low-
fare, short- to medium-haul passenger
airline that provides convenient
scheduled jet service to attractive
destinations in established markets in
the United States.  The Company's flight
operations began on December 4, 1994 with
two Boeing 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
eleven leased Boeing 737-200 jet
aircraft. The Company's current schedule
provides an average of 76 daily weekday
flights serving Kansas City, Atlanta,
Chicago-Midway, Cincinnati, Dallas/Fort
Worth, Denver, Minneapolis/St. Paul,
Pittsburgh and Myrtle Beach. 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, $68.6 million,
$81.4 million and $104.3 million for the
years ended December 31, 1995, 1996,
1997, and 1998, respectively.  For the
three months ended March 31, 1999, the
Company reported operating income and net
income of $114,000 and $41,000,
respectively.  The Company has reported
an operating profit in the most recent
four consecutive quarters.
<PAGE>

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

     The primary factors expected to
affect the Company's future operating
revenues are the Company's ability to
offer and maintain competitive fares, the
reaction of existing competitors to the
continuation or commencement of
operations by the Company in a particular
market (including changes in their fare
structure, aircraft type and schedule),
the possible entry of other 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, from its inception in
1994 through the first quarter of 1998,
has experienced significant losses.  As
of March 31, 1999, the Company had an
accumulated deficit of $71.1 million.
The Company had net income of $41,000 and
net cash flows used in operating
activities of $887,000 for the three
months ended March 31, 1999. The
Company's credit card processor restricts
the availability of cash generated from
credit card sales when the Company's
credit card exposure is calculated
to be in excess of $6 million ($4 million
subsequent to May 1999).  The Company was
required to place cash of approximately
$2.9 million in a restricted cash account
as collateral to further secure the
Company's credit card processor, as a
result of increased sales activity during
the first quarter of 1999.  At March 31,
1999, current liabilities exceeded
current assets by $9.5 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.

  The  Company  has generally generated
positive cash flow  from operations over the past year
and anticipates generating positive cash
flows from operations through the fourth
quarter 1999.   The Company received
proceeds of approximately $5.2 million in
August 1998  from  the  exercise of
warrants.  Management believes  that cash
generated from operations together with
the cash received in August  1998 from
the warrant exercise will provide the
necessary working  capital  for
operations through  December  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.
<PAGE>

OVERVIEW

THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 1998

Selected Financial and Operational Data:

                                     THREE MONTHS ENDED MARCH 31,
                                     ----------------------------
                                                            $      %
                                  1999      1998       CHANGE CHANGE
                               -------   -------      ------- -------
Revenue passengers carried     371,748   346,150      25,598   7.4  %
Revenue passenger miles -
  RPMs (000s)                  173,786   167,511       6,275   3.8  %
Available seat miles -
  ASMs (000s)                  252,391   257,329      (4,939) (1.9) %
Load Factor                     68.9 %    65.1 %      3.8 pts. 5.8  %
Average Stage Length             467       484        (17)    (3.5) %
Miles flown (000s)             2,086     2,127        (41)    (1.9) %
Block hours flown              6,993     6,939         54      0.8  %
Passenger Yield              $ 0.135   $ 0.117     $0.018     15.4  %
Total Revenue  per ASM       $ 0.099   $ 0.083     $0.016     19.3  %
Operating Expenses per ASM   $ 0.098   $ 0.097     $0.001      1.0  %
Operating cost per blockhour   3,545     3,606       (61)     (1.7) %
Average fuel cost per gallon $   0.49  $  0.63   $ (0.14)    (22.0) %
Average size of fleet for period 9.2      9.0       0.2        2.2  %

     Net income for the first quarter
1999 was $41,000 compared with a net
loss of $4.6 million for the first
quarter 1998.  The improved operating
performance was mainly the result of a
17% increase in operating revenues
combined with a 1% reduction in operating
expenses.
    Total operating revenues increased
17% from $21.2 million
for the quarter ended March 31, 1998 to
$24.9 million for the quarter ended March
31, 1999.  This increase was primarily
attributable to increases in the number
of passengers and passenger yield.  The
number of passengers increased 7% from
346,150 in the quarter ended March 31,
1998 to 371,748 in the quarter ended
March 31, 1999 and passenger yield per
RPM increased 15% from 11.7 cents in the
quarter ended March 31, 1998 to 13.5 cents in
the quarter ended March 31, 1999.  The
increases were realized despite a 2%
decrease in ASMs in the first quarter of
1999 compared to 1998. Aircraft fleet
levels remained relatively constant,
while average stage length decreased 3%.
The reduction in average stage length was
due to the Company's 1997 and early 1998
restructuring of routes, with terminated
service from Kansas City to San Francisco
in January 1998 and service from Kansas
City to New York City-JFK in May 1998.
RPMs, however, increased 4% from 168
million in the quarter ended March 31,
1998 to 174 million in the quarter ended
March 31, 1999.  This increase was the
result of the 7% increase in the number
of passengers coupled with a 4% decrease
in average stage length in the quarter
ended March 31, 1999 as compared to 1998.
Load factor increased from 65% for the
quarter ended March 31, 1998 to 69% for
the quarter ended March 31, 1999.  This
increase was primarily the result of a 4%
increase in the RPMs in the quarter ended
March 31, 1999 as compared to the quarter
ended March 31, 1998.
     Passenger revenue increased $3.9
million, or 20%, for the quarter ended March 31, 1999
compared with the quarter ended March 31,
1998, while other revenue decreased $0.2
million, or 14%, for the same period.
Nonrefundable tickets are realized as
passenger revenue when forfeited.  Other
revenues include fees generated as a
result of service charges from passengers
who change flight reservations. Subject
to certain restrictions, a customer may
pay a $50 service charge to use the value
of the unused reservation for rebooking
transportation for a period of 180 days
subsequent to the flight date.  These
service charges were $1.1 million
(approximately 4% of total operating
revenues) and $1.4 million (approximately
7% of operating revenues) in the quarters
ended March 31, 1999 and 1998,
respectively. The reduction in service
fee revenue is a direct result of less
passengers changing their travel
itineraries.
<PAGE>

    The Company's strategic plan to continue
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 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 continued to show positive results
in the first quarter of 1999 with
passenger yield increasing to 15% and
load factor increasing 6%.  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
brand awareness, service and reliability.
<PAGE>

   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
                                   ------------------
                                       MARCH 31,
                                       __________
                              1999                              1998
                              -------                         --------
                             PERCENT OF               PERCENT OF
                             ----------               ----------
                             REVENUES    CENTS PER    REVENUES     CENTS PER
                                          ASM                        ASM
                             ----------------------------------------------
Total operating revenues      100.0 %    9.87 cents     100.0 %    8.26 cents
                             ================================================
Operating expenses:
 Flying operations             19.0 %    1.87            20.7 %    1.71 
 Aircraft fuel                 11.6      1.14            17.2      1.42
 Maintenance                   20.4      2.02            20.6      1.70
 Passenger service              6.3      0.62             8.5      0.70
Aircraft and traffic servicing 17.3      1.70            21.9      1.81
 Promotion and sales           17.4      1.72            21.9      1.81
 General and administrative     3.8      0.38             4.6      0.38
 Depreciation and amortization  3.7      0.37             2.4      0.20
                              ---------------------------------------------
Total operating expenses       99.5      9.82           117.8      9.73
Total other expense, net        0.0      0.00            (3.8)    (0.31)
Income tax expense              0.3      0.03             0.0      0.00
                              ---------------------------------------------
Net income (loss)               0.2 %    0.02 CENTS     (21.6)%   (1.78)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
increased 8% from $4.4 million
(approximately 21% of operating revenues)
for the quarter ended March 31, 1998 to
$4.7 million (approximately 19% of
operating revenues) for the quarter ended
March 31, 1999.  The increase in flying
operations expenses was primarily the
result of an increase in pilot salaries
and increased aircraft rent.  Pilot
salaries increased in anticipation of
commencing revenue service with two
additional aircraft in mid-March and mid-
April 1999.  Pilots are typically hired
three months prior to flight commencement
in order to provide adequate time for
training.  Aircraft rent increased as a
result of the addition of the Company's
tenth aircraft in March 1999, wetlease
costs incurred by the Company, and
additional rent paid to a lessor for
Stage III modifications to one aircraft.

     Aircraft fuel expenses include the
direct cost of fuel, taxes and the costs
of delivering fuel into the aircraft.
Aircraft fuel expenses decreased 21% from
$3.6 million (approximately 17% of
operating revenues) for the quarter ended
March 31, 1998 to $2.9 million
(approximately 12% of operating revenues)
for the quarter ended March 31, 1999.
Lower fuel expense is directly related
to a decrease in cost per gallon in the
quarter ended March 31, 1999 versus
1998.  Fuel cost per gallon (including
taxes and into-plane costs) decreased
$0.14 or 22% from $0.63 in the quarter
ended March 31, 1998 to $0.49 in the
quarter ended March 31, 1999.  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 include all
maintenancerelated labor, parts,
supplies and other expenses related to
the upkeep of aircraft.  Maintenance
expenses increased 16% from $4.4 million
(approximately 21% of operating
revenues) for the quarter ended March
31, 1998 to $5.1 million (approximately
20% of operating revenues) for the
quarter ended March 31, 1999.  The
increase in maintenance expense is
partially due to the increase in rotable
part overhaul costs incurred in
conjunction with major scheduled
airframe overhauls during the first
quarter 1999.  In addition, maintenance
expense increased as a result of
accelerating aircraft input date for
scheduled required major maintenance,
and providing for engine maintenance
costs incurred in excess of accrued
amounts. Finally, the Company had three
aircraft in scheduled major maintenance
during the quarter ended March 31, 1999
for which certain airworthiness
directives were performed and expensed as incurred in
accordance with Company policy.  The Company did not
have an aircraft in scheduled major maintenance
during the quarter ended March 31, 1998.  The Company
has also made a concerted effort to improve its line
maintenance capabilities in Pittsburgh, Chicago and
Minneapolis.  As a result, the Company has added
approximately thirty additional employees to support
these efforts.  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 will vary and are
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 1.70+ for the
quarter ended March 31, 1998 to 2.02+ for the quarter
ended March 31, 1999.  This increase in cents per ASM
mainly resulted from the increases in maintenance
expense as described above.

     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 14% from $1.8 million
(approximately 9% of operating revenues) for the
quarter ended March 31, 1998 to $1.6 million
(approximately 6% of operating revenues) for the
quarter ended March 31, 1999.  The Company reduced
its inconvenienced passenger charges during the first
quarter of 1999 because of improved operating
reliability and certain changes to its passenger
reaccommodation policies.  The Company also realized
cost savings from the reduction in the Company's
passenger liability insurance rates.   These
decreases were partially offset by an increase in
flight attendant wages during 1998.

     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
decreased 8% from $4.7 million (approximately 22% of
operating revenues) for the quarter ended March 31,
1998 to $4.3 million (approximately 17% of operating
revenues) for the quarter ended March 31, 1999.  The
Company began employing its own underwing servicing
in Kansas City in July 1998 and Minneapolis/St. Paul
during February 1999, and has realized significant
savings.  Aircraft and traffic servicing expenses
decreased on a cents per ASM basis from 1.81+ for the
quarter ended March 31, 1998 to 1.70+ for the quarter
ended March 31, 1999 as a result of the strategic
moves described above.

     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 7% from $4.6
million (approximately 22% of operating revenues) in
the quarter ended March 31, 1998 to $4.3 million
(approximately 17% of operating revenues) in the
quarter ended March 31, 1999.  The Company brought
its outside reservation system in-house in April of
1998.  The first quarter 1999 showed savings of
approximately $300,000 compared to the same period in
1998 as a result of this strategic move.  These
savings were partially offset by increases in both
credit card processing fees from higher credit card
rates and in revenue recognized in the first quarter
of 1999 as compared to 1998.  Direct advertising
costs decreased approximately $100,000 for the first
quarter 1999 compared with the first quarter 1998.
Stability of the established route structure helped
to reduce direct advertising expenses.  The Company
continues to rely on its direct advertising methods
to attract its passengers, and therefore, continues
to incur significant advertising expenses each month.
The average promotion and sales cost per passenger
decreased $1.78 or 13% from $13.43 in the quarter
ended March 31, 1998 to $11.65 in the quarter ended
March 31, 1999.
<PAGE>

     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 expenses
decreased 2% from $0.98 million (approximately 5% of
operating revenues) in the quarter ended March 31,
1998 to $0.96 million (approximately 4% of operating
revenues) in the quarter ended March 31, 1999.  The
decrease in general and administrative expenses in
the first quarter of 1999 as compared to 1998 is the
result of decreases in general liability insurance,
property taxes, and a reduction in accounting staff.

     Depreciation and amortization expenses include
depreciation and amortization of aircraft
modifications, ground equipment, computer and
reservation equipment, leasehold improvements and
rotable parts inventory.  Depreciation and
amortization expenses increased 82% from $0.51
million (approximately 2% of operating revenues) in
the quarter ended March 31, 1998 to $0.93 million
(approximately 4% of operating revenues) in the
quarter ended March 31, 1999.  The increase in
depreciation expense is mainly the result of the
increase in depreciable rotable part inventories of
approximately $4 million since March 31, 1998.

     Other expense, net, consists primarily of debt
issuance cost amortization, interest income and
interest expense.  The Company's renewal of the
letters of credit issued securing the Company's
credit card processor under new terms and the
termination of its bank line of credit agreement in
January 1999 significantly reduced the amount of
deferred debt issuance amortization in the first
quarter 1999 compared with the first quarter 1998.
Under the previous arrangement, warrants vested
quarterly in amounts dependent upon the Company's
exposure under the letter and line of credit, as
defined in the respective agreements.  The warrant's
estimated fair value is recorded as deferred debt
issuance costs and related amortization expense is
recorded over the terms of the related guarantees.
The Company's improved cash position has also reduced
interest expense for the quarter ended March 31, 1999
mainly as a result of the payoff of the line of
credit in August 1998 and the conversion of demand
notes payable to related parties to common stock
during the quarter ended June 30, 1998.

LIQUIDITY AND CAPITAL RESOURCES

     During 1998, the Company was able to generate
sufficient cash from operating activities to support
its operations.  Prior to 1998 and since inception,
the Company has mainly financed its operations and
met its capital expenditure requirements 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 May 1, 1999, the Company has
received net proceeds from the sale of its equity
securities aggregating approximately $70.2 million.

     During the first quarter of 1999, the Company 's
operating activities and property and equipment
purchases required the use of approximately $2.1
million of cash flows.  These uses of cash were
funded with cash balances on hand.  As of March 31,
1999, the Company had a working capital deficit of
$9.5 million.

    During the quarter ended March 31, 1999, the
Company experienced a significant increase in
advanced ticket sales that has resulted in an
increase to its air traffic liability. In January
1999, the principal stockholders of the Company
agreed to renew the two-year $4.0 million letter of
credit facility in order to secure the Company's
credit card processor. The letters of credit expire
in January 2001.  In May 1999, a $2.0 million
stockholder guarantee securing the Company's credit
card processor expires.  The Company does not plan to
renew a $2.0 million stockholder guarantee.  Instead,
the Company expects to transfer $2.0 million
available cash reserves from its operating cash
accounts to a restricted cash account maintained at
the Company's credit card processor.

     Currently, the Company must deposit cash into a
restricted cash account to provide for the Company's
credit card exposure in excess of $4.0 million.  To
the extent that exposure exceeds $4.0 million, the
Company must deposit cash from ticket sales as
collateral to secure the Company credit card
processor. As of May 3, 1999 due to increased ticket
sales, the Company's credit card exposure was
approximately $11.1 million. The Company funded
<PAGE>
the credit card exposure in excess of $4.0 million
with $7.1 million in available cash on hand. The
Company estimates that its credit card exposure will
range between $8.0 to $13.0 million through the end
of the third quarter when the balance should reduce
due to expected seasonality. The Company's existing
credit card facility limits its ability to utilize
cash generated from operations.  For example, during
the first quarter of 1999, $2.9 million of cash
generated from operating activities was withheld by
the Company's credit card processing bank to provide
additional collateral against the Company's increased
advance ticket sales.  The Company would have
generated positive cashflows from operations of
approximately $2.0 million had this restrictive
credit card collateral facility not been required.
As a result, the Company plans to renegotiate its
collateral requirements during the later part of
1999. There can be no assurance that the Company will
be successful with these negotiations or that the
Company will be able to reduce its collateral
requirements.  Currently, any cash utilized as
collateral is refunded by the credit card processor,
on a daily basis, when the Company's exposure falls
below the previously calculated exposure or $4.0
million, whichever is greater.

     The Company estimates that scheduled heavy
maintenance of its existing aircraft fleet through
December 1999 will cost $7.9 million, of which $3.3
million will be funded from existing supplemental
rent payments recoverable from aircraft lessors. In
addition, the Company expects to expend $4.6 million
on various capital expenditures in the next year,
which are primarily related to improvements for
existing aircraft, increased aircraft parts inventory
levels and improvements to its in-house computer
systems.

     The Company continues to review its financing
alternatives in order to purchase or lease additional
aircraft under suitable terms. In January 1999, the
Company signed leases for two additional Boeing 737
200 jet aircraft and accepted delivery of these
aircraft in February and March, respectively. The
Company began flying revenue service in March and in
April 1999 with these additional aircraft. In
connection with these leases, the Company has
established letters of credit in favor of the lessor
to secure said aircraft. The Company has also signed
letters of intent for three additional aircraft to
replace its three remaining Stage II compliant
aircraft. The Company must deposit with the lessor or
establish a letter of credit in the aggregate amount
of $690,000 for these three aircraft. As of May 3,
1999, the Company had placed deposits totaling
$345,000 with the lessor. In addition, the Company is
currently in discussion with various aircraft lessors
regarding the addition of two more aircraft in the
fourth quarter of 1999. The Company's cash balance as
of May 3, 1999 is sufficient 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
$400,000 per aircraft depending on the specific terms
negotiated in the lease.

    The Company has generally generated positive
cash flows from operations since March 1998 and
expects to continue to generate sufficient cash to
support its operations through the year ending
December 31, 1999. The Company plans to continue to
implement certain actions designed to achieve long
term profitability and improve its capital resources.
Management's plans to achieve long- term
profitability include increased focus on the price
sensitive business traveler, pricing strategies
designed to maximize passenger revenue and continued
focus on cost savings programs. There can be no
assurance that its efforts will be successful.

     Whether or not the Company's strategic plans to
achieve long-term profitability are successful, any
expansion beyond that discussed above would be
dependent upon the Company raising additional
capital. The Company is evaluating options on raising
additional capital or issuing debt during 1999. 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.
<PAGE>

OTHER MATTERS

YEAR 2000 COMPLIANCE

    Older computers were programmed to use a two-
digit code for the date entry rather than a fourdigit
code. For example, the date November 17, 1970 would
be entered as "11/17/70" rather than "11/17/1970."
The decision to use two digits instead of four was
based largely on cost-reduction considerations and
the belief that the code would no longer be used at
the millennium. Nevertheless, coding conventions have
not changed, and on January 1, 2000, computers may
read the digits "00" as denoting the year 1900 rather
than 2000. At the least, this could result in massive
quantities of incorrect data. At worst, it could
result in the total or partial failure of time
sensitive computer systems and software.

     THE COMPANY'S YEAR 2000 ISSUES. The Company
began operations in December 1994, and its operations
depend predominantly on third party computer systems.
Because of the Company's limited resources during its
start-up, the most cost-effective way to establish
its computer systems was to outsource or to use
manual systems. Internal systems developed and any
software acquired are limited and were designed or
purchased with the Year 2000 taken into
consideration.

     Management has neared the completion of the
modification of the Company's information technology
to recognize the Year 2000 and the conversion or
purchase of critical data process systems. The
Company's new reservations software installed in the
third quarter of 1997 is Year 2000 compliant. In
addition, the Company purchased a new revenue
management system in February 1998 that is Year 2000
compliant. The Company's financial reporting software
is currently not Year 2000 compliant. The Company can
upgrade its financial reporting software for less
than $10,000 if it elects not to purchase and install
a new financial reporting system. The Company is
currently reviewing proposals from various financial
software vendors and expects to begin the financial
software conversion process prior to June 30, 1999.
The cost of a new financial software system is
estimated to be between $200,000 and $400,000. The
Company believes these three systems are critical
data processing systems.

     Secondary systems that the Company has completed
its Year 2000 assessment on include, but are not
limited to, the Company's telephone switch software
and equipment at its Reservations Center, intranet
network systems, flight operations and tracking
software and maintenance inventory tracking system.
Management has completed the modification on these
systems and all are Year 2000 compliant except for
the Company's Reservation Center telephone switch
software and equipment. In April 1999, the Company
entered into a lease for a new Year 2000 compliant
telephone switch software and equipment. The lease
for the telephone switch software and equipment is
expected to cost less than $10,000 per month.

     The Company relies on third parties that provide
goods and services that are imperative to the
Company's operations including, but not limited to,
the FAA, the DOT, local airport authorities,
utilities, communication providers, credit card
processor and fuel suppliers. The Company continues
to monitor each of these entities, and has initiated
formal communications with these third party service
providers to determine their Year 2000 readiness.
There can be no assurance that the systems of such
third parties on which the Company's business relies
(including those of the FAA) will be modified on a
timely basis. The Company's business, financial
condition and results of operations could be
materially affected by the failure of its equipment
or systems or those operated by other parties to
operate properly beyond 1999.

     While the Company believes it is taking all
appropriate steps to assure Year 2000 compliance, it
is dependent on key third party 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 by these outside parties. The Company
has utilized existing resources and has not incurred
any significant costs to implement its Year 2000
project to date and the total remaining cost of the
Year 2000 project is expected to be immaterial and
will be funded through cash from operations. The
costs and the dates on which the Company anticipates
it will complete the Year 2000 project are based on
management's best estimates and estimates received in
writing from applicable third parties. There can be
no guarantee that these estimates will be achieved
and actual results could differ materially from those
anticipated.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK

MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS

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

     The Company's earnings are affected by changes
in the price and availability of aircraft fuel.
Market risk is estimated as a hypothetical 10 percent
increase in the average cost per gallon of fuel over
the past twelve months. Based on actual fuel usage
over the past twelve months, such an increase would
have resulted in an increase to aircraft fuel expense
of approximately $0.8 million over the past twelve
months. Comparatively, based on projected fuel usage
over the next twelve months, such an increase would
result in an increase to aircraft fuel expense of
approximately $1.2 million over the next twelve
months. The increase in exposure to fuel price
fluctuations in 1999 is due to the Company's plan to
increase its average aircraft fleet size and related
gallons purchased.

FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS

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

     LIMITED OPERATING HISTORY; HISTORY OF
SIGNIFICANT LOSSES.  The Company has a limited
history of operations, beginning flight operations on
December 4, 1994.  Since the Company's inception on
April 25, 1994 and until 1997, the Company incurred
significant losses from operations.  In 1998, the
Company recorded income from operations of $1.5
million and generated positive cash flow from
operations of $6.0 million.  As of March 31, 1999 the
Company had an accumulated deficit of $71.1 million
and a working capital deficit of $9.5 million.  As of
March 31, 1999, the Company had positive
stockholders' equity of $6.1 million.  The Company's
limited operating history makes the prediction of
future operating results difficult.  There can be no
assurance that the Company will be able to sustain
profitable operations.

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

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

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

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

     FUEL COSTS.  The cost of jet fuel is one of the
largest operating expenses for an airline and
particularly for the Company due to the relative fuel
inefficiency of its aircraft.  Jet fuel costs,
including taxes and the cost of delivering fuel into
the aircraft, accounted for approximately 11.6% of
the Company's operating expenses for the quarter
ended March 31, 1999.  The Company's average cost per
gallon for the past three years have been $0.79 per
gallon in the year ended December 31, 1996, $0.74 per
gallon in the year ended December 31, 1997, $0.58 per
gallon in the year ended December 31, 1998, and $0.49
for the quarter ended March 31, 1999.  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, an increase in the cost of jet fuel will
be immediately passed through to the Company by
suppliers.  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 eleven
aircraft and if one or more of its aircraft were not
in service, the Company would experience a
proportionally greater loss of capacity than would be
the case for an airline utilizing a larger fleet.
Any interruption of aircraft service as a result of
scheduled or unscheduled maintenance could materially
and adversely affect the Company's service,
reputation and financial performance. The market for
leased aircraft fluctuates based on certain worldwide
macroeconomic factors.  There can be no assurance
that the Company will be able to lease additional
aircraft on satisfactory terms or at the times
needed.

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

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

    The DOT and FAA also enforce federal law with
respect to aircraft noise compliance requirements.
The Company's current fleet meets the current, Stage
III noise compliance requirements (75% of its fleet
Stage III compliance).  By the end of 1999, the
Company's aircraft fleet is required be 100% Stage
III compliant.  The Company plans to return its three
remaining Stage II aircraft this year upon the
expiration of their leases.

     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.
PART II - OTHER INFORMATION
ITEM 1.   LEGAL PROCEEDINGS
       The Company is not involved in any material

       litigation or legal proceedings at this time

       and is not aware of any material litigation or

       legal proceedings threatened against it.

ITEM 2.   CHANGES IN SECURITIES

       a. None.

       b. None.

       c. None

       d. None.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

       None.

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

       None.
ITEM 5.   OTHER INFORMATION
       None.
<PAGE>

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K
       (a)  Exhibits.
       10.29     Reimbursement Agreement, dated as of
January 18, 1999, by and among Registrant, J. F. Shea
Co., Inc. and The Hambrecht 1980 Revocable Trust,
William Hambrecht as Trustee.

10.30     Security Agreement, dated as of January 18,
            1999, by Registrant in favor of J. F.
            Shea Co., Inc. and The Hambrecht 1980
            Revocable Trust, William Hambrecht as
            Trustee.
            
       10.34     Warrant for the purchase of Common
            Stock issued to The
            Hambrecht 1980 Revocable
            Trust, William Hambrecht as
            Trustee
            
       10.35     Warrant for the
            purchase of Common Stock
            issued to J. F. Shea Co.,
            Inc.
            
       27  Financial Data Schedule

       (b) Reports on Form 8-K
       On March 30, 1999, the Company
       filed a report on Form 8-K under
       Item 5 - Other Events regarding a
       press release issued by the
       Company on March 30, 1999
       announcing that its Board of
       Directors has approved a one-for-
       five reverse stock split of the
       Company's Common Stock, $0.001 par
       value per share, subject to
       approval by the stockholders at
       the Annual Meeting to be held on
       May 18, 1999.
<PAGE>
               SIGNATURES
      Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this
report to be signed on its behalf by the
undersigned, thereunto duly authorized.


      Signature and Title           Date


\S\ ROBERT J. SPANE                 May 14, 1999
Robert J. Spane, President and Chief
Executive   Officer


\S\ WILLIAM A. GARRETT                May 14, 1999
William A. Garrett, Vice President - Finance
 and Chief Financial Officer
 (Principal Financial and Accounting Officer)

<PAGE>