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, 1997

                                OR


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


Commission File Number 0-27034

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


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



                       30 N.W. Rome Circle
                         Mezzanine Level
                Kansas City International Airport
                   Kansas City, Missouri 64153
                          (816) 243-2100
   (Address of principal executive offices, including zip code;
       Registrant's telephone number, including area code)


     Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                    Yes  X              No ______

     At June 30, 1997, there were 15,220,514 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

                                               JUNE 30,      DECEMBER 31,
                                                1997             1996    

Assets

Current assets:
  Cash and cash equivalents                 $  587,072       $   402,083 
  Restricted cash                              329,062         1,822,998 
  Accounts receivable, 
    less allowance of $229,719 
    at June 30, 1997 and
    December 31, 1996                        2,698,784         3,454,418 
  Inventory                                    653,377           673,338 
  Prepaid expenses and other 
    current assets                           4,104,346         3,356,374 
  Current portion of deferred 
   debt issuance costs - warrants            1,912,286            ---- 
Total current assets                        10,284,927         9,709,211 


Property and equipment, at cost:
  Aircraft improvements and 
    leasehold costs                          4,023,896         3,731,046 
  Reservation system and 
    communication equipment                  1,577,293         1,516,440 
  Other property and equipment               2,822,750         2,404,121 
                                             8,423,939         7,651,607 
  Less accumulated depreciation 
    and amortization                        (3,612,065)       (2,601,949)
                                             4,811,874         5,049,658 


Other assets:
  Supplemental maintenance 
    deposits                                 4,369,969         2,233,988 
  Deferred debt issuance 
    costs - warrants                         1,011,357              ---- 
  Leased aircraft deposits                   1,531,000         1,506,000 
  Fuel and security deposits                 1,235,100         1,093,185 
  Other                                        874,645           726,205 
                                             9,022,071         5,559,378 

Total assets                              $ 24,118,872      $ 20,318,247 



<PAGE>



                     VANGUARD AIRLINES, INC.
                    BALANCE SHEETS (CONTINUED)


                                               June 30,      December 31,
                                                 1997            1996    

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
  Line of credit                          $  2,275,000      $  5,000,000 
  Notes payable to related 
    parties                                  5,523,816         2,500,000 
  Accounts payable                          12,640,588         8,404,196 
  Accrued expenses                           3,274,094         3,652,162 
  Accrued maintenance                        5,133,182         4,684,550 
  Air traffic liability                      6,408,278         6,609,609 
  Current portion of capital 
    lease obligations                           65,539           155,575 
Total current liabilities                   35,320,497        31,006,092 

Accrued maintenance, less 
  current portion                            3,070,958         2,547,088 

Capital lease obligations, 
  less current portion                           1,913             3,084 

Commitments

Stockholders' deficit:
  Common Stock, $.001 par value:
   Authorized shares - 50,000,000: 
   Issued and outstanding shares 
   - 15,220,514 in 1997 and 
   9,982,452 in 1996                            15,220             9,982 
  Additional paid-in capital                42,238,403        28,283,996 
  Accumulated deficit                      (56,459,371)      (41,446,057)
                                           (14,205,748)      (13,152,079)
  Deferred stock compensation                  (68,748)          (85,938)
Total stockholders'deficit                 (14,274,496)      (13,238,017)
Total liabilities and stockholders' 
  deficit                                 $ 24,118,872      $ 20,318,247 



See accompanying notes.



<PAGE>





                     VANGUARD AIRLINES, INC.
                     STATEMENTS OF OPERATIONS



                          THREE MONTHS ENDED       SIX MONTHS ENDED
                                  JUNE 30,               JUNE 30,
                              1996        1997       1996          1997  

Operating revenues:
 Passenger 
   revenues              $19,772,696 $20,416,496 $32,972,370  $40,853,957
 Other                       955,837   1,236,541   1,812,678    2,291,519
Total operating 
 revenues                 20,728,533  21,653,037   34,785,048  43,145,476

Operating expenses:
 Flying 
  operations               4,382,614   4,614,371    8,291,557   9,285,360
 Aircraft fuel             4,139,440   4,443,272    7,190,982  10,102,200
 Maintenance               3,372,247   5,281,288    6,544,289   9,950,970
 Passenger 
  service                  1,696,533   1,985,808    3,063,060   3,865,752
 Aircraft and 
  traffic 
  servicing                3,723,933   4,217,794    7,610,388   8,878,442
 Promotion and 
  sales                    3,998,101   5,839,127    7,359,926  11,451,671
 General and 
  administrative             968,247   1,327,020    1,816,743   2,564,761
 Depreciation and 
  amortization               342,213     492,212      709,296   1,012,213
Total operating 
 expenses                 22,623,328  28,200,982   42,586,241  57,111,369

Operating loss           (1,894,795) (6,547,855)   (7,801,193 (13,965,893)

Other income (expense):
 Deferred debt 
  issuance cost              ----     (461,190)       ----       (790,357)
 Interest income               6,797     17,099        33,021      40,199 
 Interest expense           (13,987)   (181,018)      (29,959)   (387,263)
Total other 
 income (expense), 
 net                         (7,190)   (625,109)       3,062   (1,137,421)
Net loss                $(1,901,985)$(7,172,964) $(7,798,131)$(15,103,314)

Net loss 
per share                  $  (0.22)    $(0.53)      $(0.91)      $(1.29)

Weighted average 
 common and 
 common equivalent 
 shares 
 outstanding               8,598,074 13,521,579   8,574,255    11,752,477



See accompanying notes.




<PAGE>


                     VANGUARD AIRLINES, INC.
                     STATEMENTS OF CASH FLOWS


                                                   THREE MONTHS ENDED   
                                                        JUNE 30,       
                                                     1996        1997    

OPERATING ACTIVITIES:
Net loss                                        $(1,901,985) $(7,082,964)
Adjustments to reconcile net loss
 to net cash used in operating 
 activities:                                                
   Depreciation and amortization                    342,213      492,212 
   Loss on sale and disposal of 
   property and equipment                              ----       52,224 
 Compensation related to stock options                8,588        8,595 
   Debt issuance cost amortization                     ----      461,190 
   Provision for uncollectible accounts              20,294       15,225 
   Changes in operating assets and liabilities:             
     Restricted cash                               (800,000)     768,948 
     Accounts receivable                           (537,284)      26,123 
     Inventory                                     (141,373)      14,310 
     Prepaid expenses and other 
       current assets                               184,111       11,208 
     Deposits on leased aircraft, 
      fuel and other                                138,851   (1,267,577)
     Accounts payable                             1,464,921    1,269,116 
     Accrued expenses and 
      accrued maintenance                           537,700       513,020
     Air traffic liability                           144,324  (1,084,920)

Net cash used in operating activities              (539,640)  (5,803,290)

INVESTING ACTIVITIES:
Purchase of property and equipment               (1,167,496)    (283,674)

FINANCING ACTIVITIES:
Proceeds from sale of common stock,
 net of offering costs                                 ----      235,000 
Proceeds from exercise of options                    11,935       10,369 
Proceeds from line of credit                           ----         ---- 
Principal payments on line of credit                   ----         ---- 
Deferred public offering costs                      (20,199)        ---- 
Principal payments on notes payable                 (41,667)        ----
Proceeds from issuance of notes payable
 from related parties                                  ----    5,523,816 
Principal payments on capital 
 lease obligations                                  (42,176)     (46,335)
Net cash provided by (used in) 
 financing activities                               (92,107)   5,722,850 

Net increase (decrease) in cash 
 and cash equivalents                            (1,799,243)    (364,114)
Cash and cash equivalents, 
 beginning of period                              1,031,511      951,186 
Cash and cash equivalents, 
 at end of period                                $ (767,732)  $  587,072 



<PAGE>


                                                    SIX MONTHS ENDED
                                                        JUNE 30,       
                                                     1996        1997    


OPERATING ACTIVITIES:
Net loss                                        $(7,798,131) (15,013,314)
Adjustments to reconcile net loss
 to net cash used in operating 
 activities:
   Depreciation and amortization                    709,296    1,012,213 
   Loss on sale and disposal of 
    property and equipment                             ----      108,524 
   Compensation related to stock 
     options                                         24,693       17,190 
   Debt issuance cost amortization                     ----      790,357 
   Provision for uncollectible accounts              30,139       41,661 
   Changes in operating assets 
     and liabilities:                                       
     Restricted cash                               (800,000)   1,493,936 
     Accounts receivable                         (1,404,040)     713,973 
     Inventory                                     (197,101)      19,961 
     Prepaid expenses and other 
       current assets                              (147,832)    (747,972)
     Deposits on leased aircraft, 
       fuel and other                              (128,754)   (2,451,336)
     Accounts payable                             3,104,119     4,236,392 
     Accrued expenses and accrued 
       maintenance                                  414,219      316,434 
     Air traffic liability                        4,230,102     (201,331)

Net cash used in operating activities            (1,963,290)   (9,663,312)

INVESTING ACTIVITIES:
Purchase of property and equipment               (2,177,634)    (604,953)

FINANCING ACTIVITIES:
Proceeds from sale of common stock,
 net of offering costs                                 ----      235,000 
Proceeds from exercise of options                    20,193       10,645 
Proceeds from line of credit                           ----    2,275,000 
Principal payments on line of credit                   ----   (5,000,000)
Deferred public offering costs                      (20,199)        ---- 
Principal payments on notes payable                 (41,667)        ---- 
Proceeds from issuance of notes payable
 from related parties                                  ----    13,023,816 
Principal payments on capital 
 lease obligations                                  (76,775)     (91,207)
Net cash provided by (used in) 
 financing activities                              (118,448)  10,453,254 

Net increase (decrease) in cash 
 and cash equivalents                            (4,259,372)     184,989 
Cash and cash equivalents, 
 beginning of period                              3,491,640      402,083 
Cash and cash equivalents, 
 at end of period                                 $(767,732)    $587,072 



<PAGE>


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



                                THREE MONTHS             SIX MONTHS     
                                ENDED JUNE 30,          ENDED JUNE 30,  
                                1996      1997         1996         1997 

SUPPLEMENTAL DISCLOSURES 
OF CASH FLOW INFORMATION:
Cash paid during 
 the period for 
 interest                      $13,987 $   36,794      $ 29,958  $  96,267 

SUPPLEMENTAL SCHEDULE OF 
NONCASH INVESTING AND 
FINANCING ACTIVITIES:
Conversion of notes 
 payable from 
 related parties                $----  $10,000,000   $   ---  $10,000,000
 to common stock
Aircraft leasehold 
 costs associated 
 with accrued 
 maintenance                    $----  $   278,000   $    ---   $ 278,000
Deferred debt 
 issuance costs 
 recorded in
 conjunction 
 with warrants 
 issued                         $----  $   714,000  $     ---  $3,714,000
Aircraft improvements 
 financed through 
 the issuance of 
 notes payable                  $----  $  ----     $1,000,000  $     ----
Capital leases 
 entered into for 
 property and 
 equipment                     $18,496 $  ----     $  134,031  $     ----

 
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, 1996, 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, 1996, included in
the Company's Form 10-K as filed with the Securities and Exchange
Commission on March 28, 1997. 

          The balance sheet as of June 30, 1997, the statements
of operations for the three and six months ended June 30, 1997
and 1996, and the statements of cash flows for the three and six
months ended June 30, 1997 and 1996 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, 1997 are not necessarily indicative of the results
to be expected for the entire fiscal year ending December 31,
1997.

          The accompanying financial statements have been
prepared assuming that the Company will continue as a going
concern.  The Company continues to incur losses and generates
negative cash flows from operations.  In addition, the Company
has a significant working capital deficit.  As a result, the
Company has been dependent upon financings from its major
stockholders.  There can be no assurance as to the availability
of future financings.  Theses factors raise substantial doubt
about the Company's ability to continue as a going concern.  The
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

          Management's plans include raising additional capital
and securing additional bank financing to fund ongoing operations
and possible expansion of operations.  Management's plans also
include actions designed to achieve long-term profitablilty,
including the introduction of a revised schedule (and the market
place acceptance of such schedule), participation in certain
airline industry's computerized reservation systems ("CRS"),
increased focus on the price-sensitive business traveler, pricing
strategies to maximize passenger revenue and new cost controls. 
The Company does not anticipate generating sufficient cash flow
from operations during the remainder of the third and fourth
quarters of 1997.  The Company's ability to raise additional cash
through equity or debt financings that may be required for
operations or expansion during the remainder of 1997 and early
1998 will likely be dependent upon the Company's success
implementing the factors described above and its ability to
reduce its losses and operate at profitable levels during
selected months of 1998.  There can be no assurance that these
efforts or its ability to provide for the necessary cash
requirements of the Company will be successful.  There can be no
assurance that management can provide for the Company's capital
requirements that may be necessary or that the Company's major
stockholders will continue to provide cash through the issuance
of unsecured demand notes payable.

2.  RECLASSIFICATIONS 

          Certain amounts disclosed in the three months and six
months ended June 30, 1996 financial statements have been
reclassified to conform to the 1997 presentation.

3.  NEW ACCOUNTING PRONOUNCEMENTS

          In February 1997, the Financial Accounting Standards
Board issued Statement No. 128, Earnings per Share, which is
required to be adopted on December 31, 1997.  At that time, the
Company will be required to change the method currently used to
compute earnings per share and to restate all prior periods. 
Under the new requirements for calculating primary earnings per
share, the dilutive effect of stock options will be excluded. 
The  calculations of net loss per share for the three <PAGE> months and
six months ended June 30, 1997 and 1996 under  Statement No. 128
will not be impacted  as the effect of outstanding stock options
during these periods was antidilutive. 

4.  NET LOSS PER SHARE

          For the three months and six months ended June 30, 1997
and 1996, the computation of net loss per share was based on the
weighted average number of outstanding common shares. 
Outstanding stock options and warrants were not included in the
calculation of net loss per share as their effect was
antidilutive.

5.  LINES OF CREDIT

          In January 1997,  the Company entered into a bank line
of credit agreement that permits borrowings up to $2,275,000,
with interest payable monthly at the prime rate published in The
Wall Street Journal.  At June 30, 1997 the Company had
outstanding borrowings of $2,275,000.  This line of credit
matured on July 31, 1997 and, subsequently,  was extended through
January 31, 1998.  The line of credit and renewal thereof is
guaranteed by major stockholders of the Company (the Guarantors). 
In connection with the execution of the agreement and related
guarantee, the Company agreed to issue the  Guarantors warrants
to purchase an aggregate of up to 2,275,000 shares of common
stock at an exercise price of $1.00.  Upon execution of the
agreement, the Company issued 910,000 warrants that vested
immediately.  Accordingly, effective January 31, 1997, the
estimated fair value of the warrants issued of $1,100,000 was
recorded as deferred debt issuance costs in the accompanying
balance sheet and is being charged to expense over the term of
the guarantee.  The remaining warrants vest quarterly and the
number is dependent on the amount of borrowings against the line,
as defined in the agreement.  In April and July 1997, the Company
issued in each month an additional 227,500 warrants under the
agreement.  Accordingly, effective April 30, and July 31, 1997, 
the estimated fair value of the warrants issued of $197,000 and
$120,000, respectively, was recorded as deferred debt issuance
costs and is being charged to expense over the remaining term of
the guarantee.  Each warrant expires 10 years from the date of
issuance.

6.   FINANCIAL INSTRUMENTS

          In January 1997, the Company completed a $4,000,000
letter of credit facility in favor of the Company's credit card
processor.  The letter of credit facility expires in January 1998
and was established by a major stockholder of the Company.  As
consideration for establishing the letter of credit, the Company
granted up to 4,000,000 warrants to the  stockholder 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 1,600,000 warrants that vested immediately.  Accordingly,
in January 1997, the estimated fair value of the warrants issued
of $1,900,000 was recorded as deferred debt issuance costs in the
accompanying balance sheet and is being charged to expense over
the term of the guarantee.  The remaining 2,400,000 warrants vest
quarterly according to the amount of exposure under such letter
of credit, as defined in the agreement.  In April and July 1997,
the Company issued an additional 400,000 warrants under the
agreement.  Accordingly, in April and July 1997, the estimated
fair value of the warrants issued of $367,000 and $211,000,
respectively, was recorded as deferred debt issuance costs and is
being charged to expense over the remaining term of the
guarantee. Each warrant expires 10 years from the date of
issuance.  In addition, the Company granted  such stockholder a
security interest in all credit card receivables processed by the
Company's credit card processor.

          In May 1997, the Company completed a $2,000,000
guarantee facility in favor of the Company's credit card
processor.  The guarantee facility expires in January 1999 and
was established by a major stockholder of the Company.  As
consideration for establishing the guarantee, the Company agreed
to issue up to 1,030,928 warrants to the majority stockholder to
purchase shares of the Company's common stock at an exercise
price of $1.94.  Upon execution of the guarantee, the Company
issued 412,371 warrants that vested immediately.  Accordingly, in
May 1997, the estimated fair value of the warrants issued of
$150,000 was recorded as deferred debt issuance costs and is
being charged to expense over the term of the facility.  The
remaining 618,557 warrants vest quarterly according to the amount
of exposure under such guarantee, as defined in the agreement. 
Each warrant expires 10 years from the date of issuance.  In
addition, the Company granted the majority stockholder a security
interest in all credit card receivables processed by the
Company's credit card processor.


<PAGE>




7.  NOTES PAYABLE TO RELATED PARTIES

          At June 30, 1997, the Company had  $5,523,816
outstanding under unsecured demand notes payable from the
majority stockholder of the Company with interest payable at a
rate of 8.0%.  During July and August, 1997, the Company entered
into additional unsecured demand notes payable totaling
$3,250,000 with the major stockholders of the Company with
interest payable at a rate of 8.0%. 

8.   STOCKHOLDERS' EQUITY

          In April 1997, the Company completed a private sale of
units of securities, each consisting of one share of common stock
and two redeemable common stock purchase warrants.  In connection
with the sale, the Company issued 5,150,000 shares of common
stock for aggregate proceeds of approximately $10,235,000, net of
offering costs of approximately $65,000.  Each redeemable warrant
entitles the holder to purchase, at any time over a five-year
period commencing after the sale closing, one share of common
stock at an exercise price of $2.50.  The redeemable warrant
exercise price is subject to adjustment under certain
circumstances as defined in the warrant agreement.  The Company
has the right to redeem the warrants at a redemption price of
$0.05 per warrant on 45 days' prior notice if the average closing
bid price of the Company's common stock equals or exceeds $2.50
for any 20 days within a period of 30 consecutive trading days,
as defined by the warrant agreement.  The Company issued
5,000,000 shares of common stock to the majority stockholders in
lieu of repayment of $10,000,000 notes payable to related parties
that were outstanding at the closing of the offering.

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.  THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE CURRENTLY ANTICIPATED.  FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO,
THOSE DISCUSSED IN THE SECTION TITLED "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

Vanguard is a low-fare airline offering convenient, scheduled jet
service primarily from its hub in Kansas City, catering to both
business and leisure travelers.  The Company serves markets with
a high volume of passenger traffic and with limited or no low-
fare air service.  The Company currently operates seven leased
Boeing 737-200 jet aircraft and anticipates delivery of an eighth
Boeing 737-200 jet aircraft on September 1, 1997.  The Company
operates 49 daily weekday flights between Kansas City and
Atlanta, Chicago/Midway, Dallas/Fort Worth, Denver, Des Moines,
Las Vegas, Los Angeles, Minneapolis/St. Paul, San Francisco,
Orlando and Tampa/St. Petersburg.  The Company also operates four
flights per day between Minneapolis/St. Paul and Chicago/Midway. 
The Company will discontinue service to Des Moines, Las Vegas,
Los Angeles, Orlando and Tampa/St. Petersburg on September 2,
1997.  On September 3, 1997, the Company will initiate service to
New York/JFK.  The Company also provides limited charter
services.  The Company to date has not operated profitably during
a quarterly reporting period.

     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



<PAGE>


high fixed costs relative to operating revenues and low profit
margins. The Company's principal business strategy is to provide
airline services to high passenger volume markets from its hub in
Kansas City that are not serviced 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 commencement of operations by the Company in a particular
market (including changes in their fare structure 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-
cost carriers, passengers' perceptions regarding the safety of
low-cost carriers and general economic conditions. 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 and rent for gates
and other facilities.  The Company has a limited history of
operations and since its inception on April 25, 1994 has
experienced significant losses. As of June 30, 1997, the Company
had an accumulated deficit of $56.5 million and stockholders'
deficit of $14.3 million.  As a result of its limited operating
history, together with the uncertainty in the airline industry
generally, management is unable to predict the future operating
results of the Company.

OVERVIEW

Certain amounts and percentages disclosed in management's
discussion and analysis of financial condition and results of
operations for the six and three months ended June 30, 1996 have
been changed to conform to the 1997 presentation.

RESULTS OF OPERATIONS

     SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX MONTHS
     ENDED JUNE 30, 1996

     OPERATING REVENUES

     Total operating revenues increased approximately 24% from
approximately $34.8 million for the first six months of 1996 to
approximately $43.1 million for the first six months of 1997. 
This increase was primarily attributable to an increase in the
number of daily flights and the number of passengers on those
flights offset by the drop in passenger yield per revenue
passenger mile.  During the first six months of 1996, the Company
averaged 42 flights per day which increased to 54 flights per day
during the first six months of 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 and Kansas City.  This route
restructuring refocused the Company's strategy by creating a
Kansas City hub.  Total available seat miles ("ASMs") increased
approximately 38%, from approximately 516 million during the
first six months ended of 1996 to approximately 714 million
during the first six months of 1997.  Revenue passenger miles
("RPMs") increased approximately 27% from approximately 338
million during the first six months of 1996  to approximately 430
million during the first six months of 1997.  The increase in
ASMs was primarily attributable to an increase in the number of
daily flights and the addition of destinations with greater
flight lengths.  The increase in RPMs was primarily attributable
to an increase in the number of daily flights, the number of
passengers on those additional flights and the addition of
destinations with greater flight lengths.  Load factor decreased
from approximately 66% for the first six months of 1996 to
approximately 60% for the first six months of 1997.  This
decrease was primarily the result of a 38% increase in capacity
and the addition of destinations with greater flight lengths
while experiencing only a 7% increase in the number passengers.  

     Passenger yield per RPM decreased approximately 3% from
approximately 9.8 cents for the first six months of 1996 to
approximately 9.5 cents for the first six months of 1997.  The
Company had to discount 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 new route structure, the
Company's average stage length increased to 596 miles from
502 miles during the first six months of 1997 compared to the
first six months of 1996.   The Company offered promotional fares
on its new city pairs throughout the first six months of 1997,
which routes accounted for approximately 32% of the system wide
ASMs during this period.  During 1996 and 1997, the Company


<PAGE>


attempted to increase fares in selected markets in order to
improve passenger yield.  The Company 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.

     The Company also generates operating revenues as a result of
service charges from passengers who change flight reservations. 
For a period of 90 days (180 days as of March 24, 1997) after the
flight date, the customer may use the value of the unused
reservation for transportation, less a $50 ($25 through
October 1996) service charge.  These operating revenues were
approximately $1.1 million (approximately 3.25% of operating
revenue) and approximately $1.7 million (approximately 3.85% of
operating revenues) in the six months ended June 30, 1996 and the
six months ended June 30, 1997, respectively. 

     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, net.  The following table sets forth the
percentage of total operating revenues represented by these
expense categories as well as certain other selected financial
data.

                              SIX MONTHS ENDED JUNE 30,
                                   1996                1997

                                PERCENT     CENTS     PERCENT          CENTS
                                   OF        PER        OF              PER 
                                REVENUES     ASM      REVENUES          ASM 


Total operating 
 revenues                        100.0%  6.75 cents    100.0%      6.05 cents 
Operating expenses: 
 Flying operations                23.8%  1.61 cents     21.5%      1.30 cents 
 Aircraft fuel                    20.7   1.39 cents     23.4       1.42 cents 
 Maintenance                      18.8   1.27 cents     23.1       1.40 cents 
 Passenger service                 8.8    .59 cents      9.0        .54 cents 
 Aircraft and traffic  
  servicing                       21.9   1.48 cents     20.6       1.24 cents 
 Promotion and sales              21.2   1.43 cents     26.5       1.60 cents 
 General and 
   administration                  5.2    .35 cents      5.9        .36 cents 
 Depreciation and  
  amortization                     2.0    .14 cents      2.4        .14 cents 
Total operating 
 expenses                        122.4   8.26 cents    132.4       8.00 cents 
Total other income 
 (expense), net                    0.0    .00 cents    (2.6)     (.16) cents 
Net loss                         (22.4%)(1.51 cents)  (35.0%)    (2.11 cents)

     Flying operations expenses include aircraft lease expense,
compensation of pilots, expenses related to flight dispatch and
flight operations administration, hull insurance and all other
expenses related directly to the operation of the aircraft other
than aircraft fuel and maintenance expenses.  Flying operations
expenses increased approximately 12% from approximately $8.3
million (approximately 24% of operating revenues) for the first
six months of 1996 to approximately $9.3 million (approximately
22% of operating revenues) for the first six months of 1997. 
This increase was primarily attributable to the increase in the
number of departures and the increase in the number of aircraft. 
The number of departures increased approximately 20% from 8,168
for the first six months of 1996 to 9,838 for the first six
months of 1997.  In addition, the Company leased three additional
jet aircraft in late 1995 and early 1996, two of which were
newer, more advanced Boeing 737-300 jet aircraft which have a
larger capacity and substantially higher lease and insurance
costs.  Flying operations expenses decreased as a percentage of
operating revenue as a result of the increase in flying and
revenue generated from the Company's fleet, especially the
737-300 jet aircraft, during the first six months of 1997 versus the
same period in 1996.



<PAGE>


     Aircraft fuel expenses include the direct cost of fuel,
taxes and the costs of delivering fuel into the aircraft. 
Aircraft fuel cost increased approximately 40% from approximately
$7.2 million (approximately 21% of operating revenues) for the
first six months of 1996 to approximately $10.1 million
(approximately 23% of operating revenues) for the first six
months of 1997.  Higher fuel expense is directly related to the
increase in ASMs flown by the Company and increased cost per
gallon in the first six months of 1997 versus 1996.   Fuel cost
per ASM increased  0.3 cents or 2% from 1.39 cents in the first
six months of 1996 to 1.42 cents in the first six months of 1997
primarily due to an increase in average fuel price per gallon. 
Specifically, the average price increased from $0.74 per gallon
(including taxes and into-plane costs) in the first six months of
1996 to $0.77 per gallon in the first six months of 1997, a 4%
increase.  The Company will continue to seek to pass on
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 these increased costs.

     Maintenance expenses include all maintenance-related labor,
parts, supplies and other expenses related to the upkeep of
aircraft.  Maintenance expenses increased approximately 52% from
approximately $6.5 million (approximately 19% of operating
revenues) for the first six months of 1996 to approximately
$10.0 million (23% of operating revenues) for the first six
months of 1997.  This increase was primarily due to the increase
in block hours and cycles flown.  In addition, during the later
part of 1996 and 1997, the Company incurred charges related to
certain Boeing 737-200 jet aircraft that were in excess of what
traditionally had been accrued by the Company for major scheduled
airframe, engine and landing gear maintenance checks.  As a
result, in the fourth quarter of 1996 and again in the second
quarter of 1997, the Company increased the monthly maintenance
provisions for major scheduled maintenance checks.  In the second
quarter of 1997, the Company also provided for the underaccrual
of completed major maintenance checks.  The Company deposits
funds with its aircraft lessors to cover a portion of the cost of
its future major scheduled maintenance.  The costs of routine
aircraft and engine maintenance are charged to maintenance
expense as incurred.  Additionally, the Company significantly
increased the capacity of its in-house maintenance department
subsequent to January 1, 1997.  The Company's maintenance
administration function expanded by eight employees to insure
compliance with all FAA and DOT regulations and requirements. 
The Company also increased line maintenance personnel by twelve
employees including the introduction of maintenance operations at
Chicago/Midway and Minneapolis/St. Paul airports.

     Passenger service expenses include flight attendant wages
and benefits, in-flight service, flight attendant training,
uniforms and overnight expenses and passenger liability
insurance.  Passenger service expenses increased approximately
26% from approximately $3.1 million (approximately 9% of
operating revenues) for the first six months of 1996 to
approximately $3.9 million (approximately 9% of operating
revenues) for the first six months of 1997.  This increase was
primarily due to the 38% increase in ASMs and the 27% increase in
RPMs.  Passenger service expenses per ASM decreased approximately
8% from approximately .59 cents for the first six months of 1996
to .54 cents for the first six months of 1997.  This decrease per
ASM is primarily due to the addition of destinations with greater
flight lengths in the period from June 30, 1996 to June 30, 1997. 
The average stage length increased 19% from 502 miles in the
first six months of 1996 to 596 miles in the first six months of
1997.

     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 approximately 17% from approximately $7.6 million
(approximately 22% of operating revenues) in the first six months
of 1996 to approximately $8.9 million (approximately 21% of
operating revenues) in the first six months of 1997.  This
increase was primarily due to an increase in the number of cities
served and an increase in the number of departures.  Departures
increased approximately 20% from 8,168 during the first six
months of 1996 to 9,838 during the first six months of 1997.  The
decrease in aircraft and traffic servicing as a percentage of
operating revenues was primarily attributable to station
personnel cost, landing fees and other traffic servicing costs
not rising in proportion to the increases in the number of
passengers and RPMs between the first six months of 1997  and the
first six months of 1996.  The decrease of .24 cents per ASM was
primarily due to the 19% increase in average stage length from
502 miles to 596 miles in the first six months of 1996 and 1997,
respectively.

     Promotion and sales expenses include the costs of the
reservations functions, including all wages and benefits for
reservations, rent, electricity, communication charges, credit
card fees, travel agency commissions, advertising expenses and
wages and benefits for the marketing department.  Promotion and
sales expenses increased approximately <PAGE> 56% from approximately
$7.4 million (approximately 21% of operating revenues) in the
first six months of 1996 to approximately $11.5 million
(approximately 27% of operating revenues) in the first six months
of 1997.  This increase was primarily the result of an increase
in cities served, reflecting the Company's practice to increase
advertising when new cities are introduced in order to create
brand awareness in addition to the Company's strategy to increase
spending on advertising programs in existing cities.  The Company
incurred significant increases in late 1996 and early 1997
promoting its major route restructuring, which created the Kansas
City hub.  In addition, the Company's reservation operations
expanded in May 1996 with the opening of a new reservation center
in Lawrence, Kansas.  The average promotion and sales cost per
passenger increased $4.95 or 45% from $10.93 in the first six
months of 1996 to $15.88 in the first six months of 1997.

     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 increased
approximately $748,000 from approximately  $1.8 million
(approximately 5% of operating revenues) in the first six months
of 1996 to approximately  $2.6  million (approximately 6% of
operating revenues) in the first six months of 1997.  The
increase in general and administrative expenses as a percentage
of operating revenues and on a per ASM basis in 1997 was
primarily attributable to the increase in administrative
personnel in the Company's accounting , MIS and legal departments
as well as initiation of directors and officers insurance
coverage.

     Depreciation and amortization expenses include depreciation
and amortization of aircraft modifications, ground equipment and
leasehold improvements, but does not include any amortization of
start-up and route development costs as all of these costs are
expensed as incurred.  Depreciation and amortization expense
increased approximately 43% from approximately $709,000
(approximately 2% of operating revenues) in the first six months
of 1996 to approximately $1.0 million (approximately 2% of
operating revenues) in the first six months of 1997.  This
increase was primarily the result of improvements to new and
existing aircraft and gate space at the Kansas City Airport and
those costs associated with modifications to the Company's
reservation system.  In addition, the Company incurred two full
quarters of depreciation and amortization charged in the first
six months of 1997 on property and equipment added in the first
six months of 1996.

     Other income (expense), net consists primarily of debt
issuance cost amortization, interest income and interest expense. 
In connection with the guarantees of the letter of credit and the
bank line of credit agreements, each executed in January 1997 as
discussed in Notes 5 and 6, the Company issued certain
stockholders warrants to purchase shares of common stock at an
exercise price of $1.00 per share.  Accordingly, the estimated
fair value of the warrants issued related to each agreement
totaling $3,654,000 during the six months ended June 30,1997  was
recorded as deferred debt issuance costs and is being amortized
to expense over the terms of the related guarantees.  Interest
expense increased during the first six months of 1997, as a
result of borrowings against the line of credit and the addition
of notes payable to related parties during the first six months
of 1997.


RESULTS OF OPERATIONS
     
     THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THE THREE
     MONTHS ENDED JUNE 30, 1996

     OPERATING REVENUES

     Total operating revenues increased approximately 4% from
approximately $20.7 million for the three months ended June 30,
1996 to approximately $21.7 million for the three months ended
June 30, 1997.  This increase was primarily attributable to an
increase in the number of daily flights and passenger yield per
revenue passenger mile. During the second quarter 1996, the
Company averaged 48 flights  per day which increased to 51
flights per day during the second quarter 1997.  The Company
began flying its new route structure on December 21, 1996 which
included the initiation of service 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 Kansas City hub. ASMs increased approximately 15%,
from approximately 292 million during the three months ended June
30, 1996 to approximately 335 million during the three months
ended June 30, 1997.  <PAGE> RPMs decreased approximately 2% from
approximately 210 million during the three months ended June 30,
1996 to approximately 205 million during the three months ended
June 30, 1997.  The increase in ASMs was primarily attributable
to an increase in the number of daily flights and the addition of
destinations with greater flight lengths.  The decrease in RPMs
was primarily attributable to a  9% decrease in the number of
passengers on those flights. Load factor decreased from
approximately 72% for the three months ended June 30, 1996 to
approximately 61% for the three months ended June 30, 1997.  This
decrease was primarily the result of the significant increase in
capacity from the Company's December route restructuring coupled
with a reduction in market demand for the Company's product.

     Passenger yield per RPM increased approximately 6% from
approximately 9.4 cents for the three months ended June 30, 1996
to approximately 10.0 cents for the three months ended June 30,
1997.  The Company began to increase fares 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 Company's new route structure, average
stage length increased to 591 miles from 552 miles during the
quarters ended June 30, 1997 and 1996, respectively.  The
Company's favorable increase in passenger yield per RPM of .6
cents came at the expense of a decrease in load factor of 11
points.  During 1996 and 1997, the Company attempted to increase
fares in mature markets in order to improve passenger yield.  The
Company cannot predict future fare levels, which depend to a
substantial extent on actions of competitors.  When the 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. 

     The Company also generates operating revenues as a result of
service charges from passengers who change flight reservations. 
For a period of 90 days (180 days as of March 24, 1997) after the
flight date, the customer may use the value of the unused
reservation for transportation, less a $50 ($25 through October
1996) service charge.  These operating revenues were
approximately $915,000  (approximately 4% of  operating revenues)
and approximately $628,000 (approximately 3% of  operating
revenues) in the three months ended June 30, 1996 and the three
months ended June 30, 1997, respectively. 

     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, net.  The following table sets forth the
percentage of total operating revenues represented by these
expense categories as well as certain other selected financial
data.

                              THREE MONTHS ENDED MARCH 31
                                   1997                1996

                                PERCENT     CENTS    PERCENT           CENTS
                                   OF        PER       OF              PER 
                                REVENUES     ASM     REVENUES           ASM 


Total operating 
 revenues                        100.0%  6.47 cents   100.0%      7.09 cents 
Operating expenses: 
 Flying operations                21.3%  1.38 cents    21.1%      1.50 cents 
 Aircraft fuel                    20.5   1.33 cents    20.0       1.42 cents 
 Maintenance                      24.4   1.58 cents    16.3       1.15 cents 
 Passenger service                 9.2    .59 cents     8.2        .58 cents 
 Aircraft and traffic  
  servicing                       19.5   1.26 cents    18.0       1.27 cents 
 Promotion and sales              27.0   1.74 cents    19.3       1.37 cents 
 General and 
   administration                  6.1    .40 cents     4.7        .33 cents 
 Depreciation and  
  amortization                     2.2    .14 cents     1.6        .12 cents 
Total operating 
 expenses                        130.2   8.42 cents   109.2       7.74 cents 
Total other income 
 (expense), net                  (2.9)  (.19) cents     0.0        .00 cents 
Net loss                         (33.1%)(2.14 cents)   (9.2%)     (.65 cents)

     Flying operations expenses include aircraft lease expense,
compensation of pilots, expenses related to flight dispatch and
flight operations administration, hull insurance and all other
expenses related directly to the operation of the aircraft other
than aircraft fuel and maintenance expenses.  Flying operations
expenses increased approximately 5% from approximately $4.4
million (approximately 21% of operating revenues) for the three
months ended June 30, 1996 to approximately $4.6 million
(approximately 21% of operating revenues) for the three months
ended June 30, 1997.  This increase was primarily attributable to
the increase in the number of departures and the increase in the
number of block hours flown.  The number of departures increased
approximately 6% from 4,391 for the three months ended June 30,
1996 to 4,656 for the three months ended June 30, 1997.  Flying
operations expenses remained consistent as a percentage of
operating revenue as a result of an increase in block hours flown
offset by a decrease in base aircraft rent as a result of the
change in the Company's aircraft fleet.

     Aircraft fuel expenses include the direct cost of fuel,
taxes and the costs of delivering fuel into the aircraft. 
Aircraft fuel cost increased approximately 7% from approximately
$4.1 million (approximately 20% of operating revenues) for the
three months ended June 30, 1996 to approximately $4.4 million
(approximately 21% of operating revenues) for the three months
ended June 30, 1997.  Higher fuel expense is directly related to
the increase in ASMs flown by the Company in the second quarter
of 1997 versus 1996. Fuel cost per ASM decreased 0.09 cents or 6%
from 1.42 cents in the three months ended June 30, 1996 to 1.33
cents in the three months ended June 30, 1997 primarily due to a
decrease in fuel price per gallon in the three months ended June
30, 1997 as compared to the same period in 1996.  Specifically,
the average price decreased from $0.76 per gallon (including
taxes and into-plane costs) in the three months ended June 30,
1996 to $0.71 per gallon in the three months ended June 30, 1997,
a 6% decrease.  

     Maintenance expenses include all maintenance-related labor,
parts, supplies and other expenses related to the upkeep of
aircraft.  Maintenance expenses increased approximately 57% from
approximately $3.4 million (approximately 16% of operating
revenues) for the three months ended June 30, 1996 to
approximately $5.3 million (24% of operating revenues) for the
three months ended June 30, 1997.  During the later part of 1996
and 1997, the Company incurred charges related to certain
Boeing 737-200 jet aircraft that were in excess of what
traditionally had been accrued by the Company for major scheduled
airframe, engine and landing gear maintenance checks.  As a
result, in the fourth quarter of 1996 and again in the second
quarter of 1997, the Company increased the monthly maintenance
provisions for major scheduled maintenance checks.  In the second
quarter of 1997, the Company also provided for the underaccrual
of completed major maintenance checks.  The Company deposits
funds with its aircraft lessors to cover a portion of the cost of
its future major scheduled maintenance.  The costs of routine
aircraft and engine maintenance are charged to maintenance
expense as incurred.  The increase in maintenance expense was
further attributable to the increase in  block hours and cycles
flown in the three months ended June 30, 1997 as compared to
1996.  Additionally, the Company significantly increased the
capacity of its in-house maintenance department subsequent to
January 1, 1997.  The Company's maintenance administration
function expanded by eight employees to insure compliance with
all FAA and DOT regulations and requirements.  The Company also
increased line maintenance personnel by twelve employees
including the introduction of maintenance operations at
Chicago/Midway and Minneapolis/St. Paul airports.

     Passenger service expenses include flight attendant wages
and benefits, in-flight service, flight attendant training,
uniforms and overnight expenses and passenger liability
insurance.  Passenger service expenses increased approximately
17% from approximately $1.7 million (approximately 8% of
operating revenues) for the three months ended June 30, 1996 to
approximately $2.0 million (approximately 9% of operating
revenues) for the three months ended June 30, 1997.  This
increase was primarily due to the 15% increase in ASMs in the
three months ended June 30, 1997 as compared to 1996. 

     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 approximately 13% from approximately $3.7 million
(approximately 18% of operating revenues) in the three months
ended June 30, 1996 to approximately $4.2 million (approximately
19% of operating revenues) in the three months ended June 30,
1997.  This increase was primarily due to an increase in the
number of cities served and an increase in the number of
departures.  Departures increased approximately 6% from 4,391 
during the three months ended June 30, 1996 to 4,656  during the
three months ended June 30, 1997.  


<PAGE>



     Promotion and sales expenses include the costs of the
reservations function, including all wages and benefits for
reservationists, rent, electricity, communication charges, credit
card fees, travel agency commissions, advertising expenses and
wages and benefits for the marketing department.  Promotion and
sales expenses increased approximately 46% from approximately
$4.0 million (approximately 19% of operating revenues) in the
three months ended June 30, 1996 to approximately $5.8 million
(approximately 27% of operating revenues) in the three months
ended June 30, 1997. This increase was primarily the result of an
increase in cities served, reflecting the Company's practice to
increase advertising when new cities are introduced in order to
create brand awareness in addition to the Company's strategy to
increase spending on advertising programs in existing cities. 
The Company incurred significant increases in late 1996 and early
1997 promoting its major route restructuring, which created the
Kansas City hub.  In addition, the Company's reservation
operations expanded in May 1996 with the opening of a new
reservation center in Lawrence, Kansas.  The average promotion
and sales cost per passenger increased $6.35 or 60%  from $10.53
in the three months ended June 30, 1996 to $16.89 in the three
months ended June 30, 1997. 

     General and administrative expenses include the wages and
benefits for the Company's executive and various other
administrative personnel, the costs for office supplies, office
rent, legal, accounting and other miscellaneous expenses. 
General and administrative expenses increased approximately 37%
from approximately $968,000 (approximately 5% of operating
revenues) in the three months ended June 30, 1996 to $1.3 million
(approximately 6% of operating revenues) in the three months
ended June 30, 1997.  The increase in general and administrative
expenses was primarily attributable to the increase in
administrative personnel in the Company's accounting , MIS and
legal departments as well as initiation of directors and officers
insurance coverage.

     Depreciation and amortization expenses include depreciation
and amortization of aircraft modifications, ground equipment and
leasehold improvements, but does not include any amortization of
start-up and route development costs as all of these costs are
expensed as incurred.  Depreciation and amortization expense
increased approximately 44% from $342,000 (approximately 2% of
operating revenues) in the three months ended June 30, 1996 to
$492,000 (approximately 2% of operating revenues) in the three
months ended June 30, 1997.  This increase was primarily the
result of improvements to new and existing aircraft and gate
space at the Kansas City Airport and costs associated with
modifications of the Company's reservation system as well as a
full quarter of depreciation and amortization charged in the
three months ended June 30, 1997 on property and equipment added 
in the three months ended June 30, 1996.

     Other income (expense), net consists primarily of debt
issuance cost amortization, interest income and interest expense. 
In connection with the guarantees of the letter of credit and the
bank line of credit agreements, each  executed in January 1997 as
discussed in Notes 5 and 6, the Company issued certain
stockholders warrants to purchase  shares of common stock at an
exercise price of $1.00 per share.  Accordingly, the estimated
fair value of the warrants issued related to each agreement
totaling  $3,564,000 during the six months ended June 30, 1997
was recorded  as deferred debt issuance costs and is being
amortized to expense over the terms of the related guarantees.  
Interest expense increased during the three months ended June 30,
1997, as a result of  borrowings against the line of credit and
the addition of notes payable to related parties during the three
months ended June 30, 1997.

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, the proceeds from its
initial public offering of its Common Stock and the issuance of
debt.  The Company has received net proceeds from the sale of its
equity securities aggregate approximately $36.4 million, of which
$10.3 million was received in April 1997.  In addition, the
Company has utilized and continues to utilize current liabilities
as an additional source of cash by delaying payments to certain
of its creditors.  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.

      On January 30, 1997, the Company established a six-month
$2.275 million line of credit with Commerce Bank, N.A. (Wichita,
KS),  all of which is outstanding as of the date of the
Prospectus.  The Line of Credit is guaranteed by major
stockholders of the Company.  On August 1, 1997, the Company
renewed the line of credit and the guaranties for an additional
six months.  In consideration for an agreement to guarantee the
Company's line of credit for two years, <PAGE> the Company granted
warrants to purchase up to 2,275,000 shares of the Company's
Common Stock.  See "Certain Transactions."  There can be no
assurance that a replacement $2.275 million line of credit will
be available on acceptable terms, if at all, prior to its
maturity.  In the event that the Company is unable to replace or
extend the line of credit prior to January 31, 1998, the Company
would be required to utilize available cash balances, which would
materially adversely affect the Company's then current cash
position.  There can be no assurance that the Company will have
adequate cash resources to pay down the line of credit.

     On January 17, 1997, one of the Company's major stockholders
agreed to establish a two-year $4.0 million letter of credit on
behalf of the Company in favor of the Company's credit card
processor in order to reduce required restricted cash balances
with such processor.  On May 7, 1997 major stockholders of the
Company agreed to establish a two-year $2.0 million guarantee on
behalf of the Company in favor of the Company's credit card
processor in order to further reduce required restricted cash
balances with such processor to secure its increased exposure due
to increased advance ticket sales.  In consideration for these
agreements, the Company granted warrants to purchase up to
1,030,928 shares of the Company's Common Stock.  See "Certain
Transactions."  The Company anticipates increased requirements
with respect to restricted cash balances and there can be no
assurance that the Company's principal stockholders will increase
the letter of credit or guarantee or that the Company's use of
cash from operations to secure the credit card processor will not
have a material adverse effect on the Company's liquidity.  

     During April through August 1997, the Company borrowed an
aggregate $8.77 million from major stockholders of the Company in
the form of unsecured demand notes payable (collectively, the
"Notes").  The proceeds received in connection with these Notes
are being used for working capital purposes.  The Notes accrue
interest at 8.0%.  The Company anticipates using a portion of the
proceeds from the Rights Offering to repay a portion of the
Notes.  There can be no assurance that the Company's major
stockholders will continue to provide cash through the issuance
of unsecured demand notes payable.

     During the six months ended June 30, 1997, the Company has
not generated sufficient passenger ticket sales to provide for
its operational cash needs.  During the six months ended June 30,
1997, the Company's operating activities resulted in a cash flow
deficit of $9.7 million.  These cash flow deficits have been
funded primarily through the sale of equity securities and debt
borrowings, as discussed above.  At June 30, 1997, the Company
had cash and cash equivalents of approximately $587,000.  The
Company had a working capital deficit at June 30, 1997 of
approximately $25.0 million.  These factors raise substantial
doubt about the Company's ability to continue as a going concern. 
Further, the financial statements incorporated by reference
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 uncertainness.

     The Company estimates that major scheduled maintenance of
its existing aircraft fleet through June 1998 will cost
approximately $6.9 million, of which $4.0 million will be funded
from existing supplemental rent payments recoverable from
aircraft lessors.  The Company expects to expend approximately
$1.9 million on various capital expenditures related to the
upgrade of the Company's reservation systems and improvements to
existing aircraft.  The Company plans to enter into aircraft
operating lease agreements for up to four additional aircraft
through June 1998.  Deposit requirements for these aircraft will
approximate $2.7 million and such deposit amounts will vary based
on age of aircraft, the Company's financial position and the
availability of Boeing 737-200 jet aircraft.

     Management's plans include raising additional capital and
securing additional bank financing to fund ongoing operations and
possible expansion of operations.  Management's plans also
include actions designed to achieve long-term profitablilty,
including the introduction of a revised schedule (and the market
place acceptance of the revised schedule), participation in
certain airline industry's CRSs, increased focus on the price-
sensitive business traveler, pricing strategies to maximize
passenger revenue and cost controls.  The Company does not
anticipate generating sufficient cash flow from operations during
the remainder of the third and fourth quarters of 1997 while the
Company implements its strategy.  The Company's ability to raise
additional cash through equity or debt financings that may be
required for operations or expansion during the remainder of 1997
and early 1998 will likely be dependent upon the Company's
success implementing the factors described above and its ability
to operate at profitable levels during early 1998, as to which
there can be no assurance.  There can be no assurance that these
efforts or its ability to provide for the necessary cash
requirements of the Company will be successful.  There can be no
assurance that management can <PAGE> provide for the Company's capital
requirements that may be necessary or that the Company's major
stockholders will continue to provide cash through the issuance
of unsecured demand notes payable.


FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS

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

     LIMITED OPERATING HISTORY; HISTORY OF SIGNIFICANT LOSSES.
The Company has a limited history of operations, beginning flight
operations on December 4, 1994.  The Company, to date, has yet to
report profitable operations.  Since the Company's inception on
April 25, 1994, the Company has incurred significant losses and
as of June 30, 1997 had an accumulated deficit of approximately
$56.5 million, a stockholders' deficit of approximately $14.3
million and a working capital deficit of approximately $25.0
million.  The Company's limited operating history makes the
prediction of future operating results difficult.   There can be
no assurance that the Company will achieve profitability and the
Company expects losses to continue through 1997.

     AVAILABILITY OF WORKING CAPITAL AND FUTURE FINANCING
RESOURCES.  The airline business is extremely capital intensive,
including, but not limited to, lease payment obligations for
existing and new aircraft and related maintenance requirements. 
The Company has not been profitable since commencement of
operations.  Consequently, the Company has been dependent upon
equity and debt financings primarily from major stockholders in
order to maintain operations during 1996 and 1997.  The Company
will require additional financing, both short term and long term
if it is to maintain operations and is evaluating additional
sources of working capital and other financings, but there is no
assurance that additional sources of working capital will be
available on acceptable terms or at all.  In addition, the
Company has utilized and continues to utilize current liabilities
as an additional source of cash by delaying payments to certain
of its creditors.  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 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 or otherwise would have a
material adverse effect on the Company's business, financial
condition and results of operations.  See "--Liquidity and
Capital Resources."

     INTENSE COMPETITION AND COMPETITIVE REACTION.  The Company
is subject to intense competition.  Under the Airline
Deregulation Act of 1978 (the "Deregulation Act"), domestic
certificated airlines are free to enter and exit domestic markets
and to set fares without regulatory approval, and all city-pair
domestic airline markets are generally open to any domestic
certificated airline.  As a consequence, the airline industry is
intensely competitive.  Airlines compete primarily with respect
to fares, schedules (frequency and flight times), destinations,
type (jet or propeller) and size of aircraft and frequent flyer
programs.  The Company competes with numerous other airlines on
its routes and expects to compete with these and other airlines
on any future routes.  Substantially all of these airlines are
larger and have greater name recognition and financial resources
than the Company.  In response to the Company's commencement of
service to a particular market, competing airlines have, at
times, added flights and capacity in the market and lowered their
fares, making it more difficult for the Company to achieve or
maintain profitable operations 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 or even maintaining operations
in that market. 
     
     CONSUMER CONCERN ABOUT OPERATING SAFETY AT LOW-FARE, START-UP
CARRIERS OR TYPE OF AIRCRAFT.  Aircraft accidents or other
safety related issues involving any carrier, such as the 1996
accidents involving ValuJet and Trans World Airlines, have had an
adverse effect on airline passengers' perceptions regarding
safety and particularly that of low-fare carriers, particularly
with respect to the use of aging aircraft such as the Company's
737-200 jet aircraft.  As a result, any such future event could
have a material adverse effect on the Company's business,
financial condition and <PAGE> 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 aircraft that are of the
same age as the Company's aircraft whether operated by the
Company or not could 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 may experience
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, could 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 17.7% of the
Company's operating expenses during the six months ended June 30,
1997.  Jet fuel costs are subject to wide fluctuations as a
result of sudden disruptions in supply.  The Company cannot
predict the effect of the future availability and cost of jet
fuel.  The Boeing 737-200 jet aircraft are relatively fuel
inefficient compared to newer aircraft.  Accordingly, the
significant increases in the price of jet fuel has resulted 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, the increase in the cost of jet
fuel has been immediately passed through to the Company by
suppliers and 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 has been able to raise selected fares, the Company has
experienced reduced margins on sales prior to such fare
increases.

     LIMITED NUMBER OF AIRCRAFT; AIRCRAFT ACQUISITIONS.  The
Company's fleet currently consists of seven aircraft (with an
eighth aircraft to arrive on September 1, 1997) 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 profitability.  The market for
leased aircraft is very competitive, and there can be no
assurance that the Company will be able to lease additional
aircraft on satisfactory terms or at the time needed.  Due to the
Company's financial condition and losses since commencement of
operations, the Company has found it and may find it more
difficult in the future to lease additional aircraft on
acceptable terms.

     GOVERNMENT REGULATION.  The Company is subject to 49 U.S.C.,
Subtitle VIII (formerly the Federal Aviation Act of 1958, as
amended) (the "Aviation Act"), under which the United States
Department of Transportation (the "DOT") and the FAA exercise
regulatory authority over airlines.  This regulatory authority
includes, but is not limited to: (i) the initial determination
and continuing review of the fitness of air carriers (including
financial, managerial, compliance-disposition and citizenship
fitness); (ii) the certification and regulation of aircraft and
other flight equipment; (iii) the certification and approval of
personnel who engage in flight, maintenance and operations
activities; and (iv) the establishment and enforcement of safety
standards and requirements with respect to the operation and
maintenance of aircraft, all as set forth in the Aviation Act and
the Federal Aviation Regulations.  The FAA has promulgated a
number of maintenance regulations and directives relating to,
among other things, retirement of aging aircraft, increased
inspections and maintenance procedures to be conducted on aging
aircraft, collision avoidance systems, aircraft corrosion,
airborne windshear avoidance systems and noise abatement.  

     As a result of recent incidents involving airlines, the FAA
has increased its review of commercial airlines generally and
particularly with respect to small and start-up airlines, such as
the Company.  During 1996 and 1997, after extensive FAA
investigations, ValuJet, Kiwi International, Great Lakes and Rich
International among others, either temporarily or permanently
suspended operations.  Because of the Company's start-up status,
(i.e., operating less than <PAGE> five years) along with other start-up
carriers, the Company's operations recently have been and are
expected to be subject to increased review by the FAA. 

     Additional rules and regulations have been proposed from
time to time in the last several years and might be enacted that
could significantly increase the cost of airline operations by
imposing substantial additional requirements or restrictions on
airline operations.  For example, the National Transportation
Safety Board has proposed new regulations to require carriers to
upgrade the flight data recorders on their Boeing 737-200 jet
aircraft.  The estimated cost of such equipment would be
approximately $90,000 for each of the Company's seven 737-200 jet
aircraft.  There can be no assurance that any of these rules or
regulations would not have 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 exceeds the current Stage-3 noise compliance requirements
(50% of its fleet Stage-3 compliance), with three of its seven
Boeing 737-200 jet aircraft being equipped with hush kits.  In
order to satisfy stage-3 noise requirements, the Company's next
aircraft must satisfy such requirements.  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 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. Section 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
will be 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.  Due to the Company's low fare
structure, the combination of a percentage tax and flight segment
fee will result in an overall higher tax paid by individuals who
purchase tickets on the Company's flights and, consequently,
could have a negative impact on the Company's business, financial
conditions 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.

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.


<PAGE>


               c.   None.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES
               None.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
               None.

ITEM 5.    OTHER INFORMATION
               None.


ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

               (a) Exhibits

               Exhibit 10.1-- Amendment No. 1 to Lease Agreement,
               by and between Registrant and First Security Bank
               as owner, trustee and successor-in-interest to US
               Airways, Inc. (f/k/a US Air, Inc.)
               
               Exhibit 10.2-- Aircraft Lease Agreement, dated as
               of May 30, 1997, between the Interlease Aviation
               Investors III (TACA), L.L.C. and the Registrant. 
               
               Exhibit 10.3-- Line of Credit Note in the amount
               of $2,275,000.

               Exhibit 11- Statement of Computation of Earnings
               per Share for the six-month Periods Ended June 30,
               1996 and 1997

               Exhibit 27 - Financial Data Schedule

               (b)  Reports on Form 8-K.

     On June 5, 1997, the Company filed a report on Form 8-K
under Item 5 - Other Events regarding a press release issued by
the Company on June 8, 1997 announcing the resignation of Robert
J. McAdoo from the Registrant's Board of Directors.  This item
was reported under Item 5 of Form 8-K rather than Item 6 because
Mr. McAdoo's Registrant or any matter relating to the
Registrant's operations, policies or practices.

     On June 20, 1997, the Company filed a report on Form 8-K
under Item 5 - Other Events regarding a press release issued by
the Company on June 18, 1997 announcing that John P. Tague,
Chairman of the Board, Chief Executive Officer and President
resigned effective June 15, 1997.  The Board of Directors named
Robert J. Spane Chairman of the Board, Chief Executive Officer
and President.  This item was reported under Item 5 of Form 8-K
rather than Item 6 because Mr. Tague's resignation was not the
result of a disagreement with the Registrant or any matter
relating to the Registrant's operations, policies or practices.

     On August 1, 1997, the Company filed a report on Form 8-K
under Item 5 - Other Events regarding a press release issued by
the Company on July 28, 1997 announcing the resignation of
Richard D. Pearson from the Registrant's Board of Directors
effective as of July 22, 1997.  This item was filed under Item 5
rather than Item 6 because Mr. Pearson's resignation was not the
result of a disagreement with the Registrant or any other matter
relating to the Registrant's operations, policies or practices.


<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, 1997
Robert J. Spane, President and
Chief Executive Officer

/s/ William A Garrett                             August 13, 1997
William A. Garrett, Vice President-Finance 
  and Chief Financial Officer
  (Principal Financial and Accounting Officer)