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 SEPTEMBER 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 September  30, 1997, there were 15,223,638 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


                                              SEPTEMBER 30,  DECEMBER 31,
                                                   1997           1996   

ASSETS

Current assets:
 Cash and cash equivalents                     $    234,924    $   402,083 
 Restricted cash                                    216,585      1,822,998 
 Accounts receivable, less 
   allowance of $154,145 at 
   September 30, 1997 and 
   $229,719 at December 31, 1996                  2,889,320      3,454,418 
 Inventory                                          751,627        673,338 
 Prepaid expenses and other 
   current assets                                 5,342,179      3,356,374 
 Current portion of deferred 
   debt issuance costs - warrants                 2,144,953           ---- 
Total current assets                             11,579,588      9,709,211 


Property and equipment, at cost:
 Aircraft improvements and 
   leasehold costs                                4,204,231      3,731,046 
 Reservation system and 
   communication equipment                        1,691,308      1,516,440 
 Other property and equipment                     3,193,381      2,404,121 
                                                  9,088,920      7,651,607 
 Less accumulated depreciation 
   and amortization                              (4,113,638)    (2,601,949)
                                                  4,975,282      5,049,658 


Other assets:
 Supplemental maintenance deposits                4,177,391      2,233,988 
 Deferred debt issuance costs 
   - warrants                                       598,118         ---- 
 Leased aircraft deposits                         1,856,000      1,506,000 
 Fuel and security deposits                       1,325,231      1,093,185 
 Other                                              985,013        726,205 
                                                  8,941,753      5,559,378 

Total assets                                    $25,496,623    $20,318,247 



<PAGE>


                     VANGUARD AIRLINES, INC.
                    BALANCE SHEETS (CONTINUED)


                                               SEPTEMBER 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                                       15,773,816     2,500,000 
 Accounts payable                                 8,946,658     8,404,196 
 Accrued expenses                                 4,033,101     3,652,162 
 Accrued maintenance                              6,149,459     4,684,550 
 Air traffic liability                            5,517,603     6,609,609 
 Current portion of capital 
   lease obligations                                 18,312       155,575 
Total current liabilities                        42,713,949    31,006,092 

Accrued maintenance, less 
 current portion                                  3,374,675     2,547,088 

Capital lease obligations, 
 less current portion                                 1,297         3,084 

Commitments

Stockholders' deficit:
  Common Stock, $.001 par value:
   Authorized shares - 50,000,000: 
   Issued and outstanding shares 
   - 15,227,857 in 1997 and 
   9,982,452 in 1996                                 15,227        9,982 
 Additional paid-in capital                      42,587,411   28,283,996 
 Accumulated deficit                            (63,135,783) (41,446,057)
                                                (20,533,145) (13,152,079)
 Deferred stock compensation                        (60,153)     (85,938)
Total stockholders'deficit                      (20,593,298) (13,238,017)
Total liabilities and stockholders'
   deficit                                     $ 25,496,623 $ 20,318,247 


See accompanying notes.


<PAGE>


                     Vanguard Airlines, Inc.
                     Statements of Operations



                             THREE MONTHS ENDED      NINE MONTHS ENDED
                                 SEPTEMBER 30,           SEPTEMBER 30, 
                              1996         1997        1996         1997  

Operating revenues:
 Passenger 
   revenues              $19,167,985  $18,201,522 $52,140,355  $59,055,479
 Other                       722,308    1,132,305    2,534,986   3,423,824
Total operating 
 revenues                 19,890,293   19,333,827   54,675,341  62,479,303

Operating expenses:
 Flying 
   operations              4,419,541    3,991,176   12,711,098  13,276,536
 Aircraft fuel             4,539,805    4,161,317   11,730,787  14,263,517
 Maintenance               3,804,766    4,655,507   10,349,055  14,606,477
 Passenger 
   service                 1,603,014    1,922,188    4,666,074   5,787,940
 Aircraft and 
   traffic 
   servicing               3,870,780    3,875,221   11,481,168  12,753,663
 Promotion and 
   sales                   3,759,843    4,785,390   11,119,769   16,237,061
 General and 
   administrative          1,105,378    1,221,155    2,922,121    3,785,916
 Depreciation and 
   amortization              402,627      501,574    1,111,923    1,513,787
Total operating 
 expenses                 23,505,754   25,113,528   66,091,995   82,224,897

Operating loss           (3,615,461)   (5,779,701) (11,416,654) (19,745,594)

Other income (expense):
 Deferred debt 
   issuance cost                  --     (528,572)      ----    (1,318,929)
 Interest income              46,270       26,023       79,291      66,222
 Interest expense           (62,446)     (304,162)     (92,405)   (691,425)
Total other 
 income (expense), 
 net                        (16,176)     (806,711)     (13,114)  (1,944,132)
Net loss                $(3,631,637)  $(6,586,412)$(11,429,768)$(21,689,726)

Net loss 
 per share                   $(0.40)     $(0.43)      $(1.32)      $(1.68)

Weighted average 
 common shares 
 outstanding               9,103,506  15,224,857   8,626,709     12,916,055



See accompanying notes.





[S]



                     Vanguard Airlines, Inc.
                     Statements of Cash Flows



                                                   Three Months ended  
                                                      September 30, 
                                                   1996            1997 

Operating activities:
Net loss                                      $(3,631,637)    $(6,586,412)
Adjustments to reconcile net 
 loss to net cash used in 
 operating activities:
   Depreciation and amortization                  402,627         501,574 
   Loss on sale and disposal of 
     property and equipment                          ----          70,888 
   Compensation related to stock 
     options                                        8,588           8,595 
   Debt issuance cost amortization                 33,333         528,572 
   Provision for uncollectible 
     accounts                                      15,703          29,639 
   Changes in operating assets 
   and liabilities:
     Restricted cash                           (1,740,068)        112,477 
     Accounts receivable                          930,221        (220,175)
     Inventory                                  (186,114)         (98,250)
     Prepaid expenses and other 
      current assets                           (1,298,194)        337,685 
     Deposits on leased aircraft, 
      fuel and other                             (508,817)     (1,908,439)
     Accounts payable                             339,770      (3,693,930)
     Accrued expenses and accrued 
      maintenance                                 862,741       1,989,001 
     Air traffic liability                     (2,808,864)       (890,675)

Net cash used in operating 
 activities                                    (7,580,711)     (9,819,450)

INVESTING ACTIVITIES:
Purchases of property and equipment              (899,129)       (735,870)

FINANCING ACTIVITIES:
Proceeds from sale of common stock 
 and exercise of options, net of 
 offering costs                                 7,150,318           1,015 
Proceeds from borrowings on
 line of credit                                8,650,000             ---- 
Principal payments on line of 
 credit                                       (4,650,000)            ---- 
Principal payments on notes payable                 ----             ---- 
Proceeds from issuance of notes 
 payable to related parties                       900,000      10,250,000 
Principal payments on notes 
 payable to related parties                      (900,000)           ---- 
Principal payments on capital 
   lease obligations                              (43,259)        (47,843)
Net cash provided by financing 
 activities                                    11,107,059      10,203,172 
Net increase (decrease) in 
 cash and cash equivalents                      2,627,219        (352,148)
Cash and cash equivalents, 
 beginning of period                            (767,732)         587,072 
Cash and cash equivalents, 
 at end of period                              $1,859,487       $ 234,924 



<PAGE>




                     Vanguard Airlines, Inc.
                     Statements of Cash Flows


                                                        Nine Months ended   
                                                           September 30,  
                                                      1996            1997

Operating activities:
Net loss                                     $(11,429,768)   $(21,689,726)
 Adjustments to reconcile net 
 loss to net cash used in 
 operating activities:
   Depreciation and amortization                1,111,923       1,513,787 
   Loss on sale and disposal of 
     property and equipment                          ----         179,412 
   Compensation related to stock 
     options                                       33,281          25,785 
   Debt issuance cost amortization                 33,333       1,318,929 
   Provision for uncollectible 
     accounts                                      45,842          71,300 
   Changes in operating assets 
     and liabilities:
     Restricted cash                           (2,540,068)      1,606,413 
     Accounts receivable                         (473,819)        493,798 
     Inventory                                   (383,215)        (78,289)
     Prepaid expenses and other 
      current assets                           (1,446,026)       (107,814)
     Deposits on leased aircraft, 
      fuel and other                             (637,571)     (4,662,248)
     Accounts payable                           3,443,889         542,462 
     Accrued expenses and accrued 
      maintenance                               1,276,960       2,395,435 
     Air traffic liability                      1,421,238      (1,092,006)

Net cash used in operating 
 activities                                    (9,544,001)    (19,482,762)

INVESTING ACTIVITIES:
Purchases of property and equipment            (3,076,763)     (1,340,823)

FINANCING ACTIVITIES:
Proceeds from sale of common stock 
 and exercise of options, net of 
 offering costs                                 7,150,312         246,660 
Proceeds from borrowings on 
 line of credit                                 8,650,000       2,275,000 
Principal payments on line of 
 credit                                        (4,650,000)     (5,000,000)
Principal payments on notes 
 payable                                         (41,667)            ---- 
Proceeds from issuance of notes 
 payable to related parties                       900,000      23,273,816 
Principal payments on notes 
 payable to related parties                      (900,000)          ---- 
Principal payments on capital 
 lease obligations                               (120,034)       (139,050)
Net cash provided by financing 
 activities                                    10,988,611      20,656,426 

Net increase (decrease) 
 in cash and cash equivalents                  (1,632,153)       (167,159)
Cash and cash equivalents, 
 beginning of period                            3,491,640         402,083 
Cash and cash equivalents, 
 at end of period                              $1,859,487       $ 234,924 



<PAGE>






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


                                 Three Months ended        Nine Months ended
                                   September 30,            September 30    
                               1996         1997          1996        1997

SUPPLEMENTAL DISCLOSURES 
 OF CASH FLOW INFORMATION:

Cash paid during 
 the period for 
 interest                        $42,770    $48,892      $72,729     $145,159

SUPPLEMENTAL SCHEDULE OF 
NONCASH INVESTING AND 
FINANCING ACTIVITIES:

Conversion of notes 
 payable to related 
 parties to common 
 stock                           $  ----    $  ----     $ ---        $10,000,000
Aircraft leasehold 
 costs associated 
 with accrued 
 maintenance                     $  ----     $ ----      $ ---          $278,000
Deferred debt 
 issuance costs 
 recorded in 
 conjunction with 
 warrants issued                $100,000     $348,000     $100,000    $4,062,000
Aircraft improvements 
 financed through 
 the issuance of 
 notes payable                    $ ----     $ ----     $1,000,000      $ ----
Capital leases entered 
 into for property 
 and equipment                    $ ----     $ ----       $134,031      $ ---- 
Retirement of notes 
 payable and reduction
 of accounts payable 
 through sale of
 property and 
 equipment                    $1,954,591     $ ----    $1,954,591      $ ----



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 September 30, 1997, the statements
of operations for the three and nine months ended September 30,
1997 and 1996, and the statements of cash flows for the three and
nine months ended September 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 nine months ended
September 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 principal
stockholders.  There can be no assurance as to the availability
of future financings from the Company's principal stockholders,
other stockholders or investors.  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 along with
service to new cities, 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. 
On October 23, 1997, the Securities and Exchange Commission
("SEC") declared the Company's Registration Statement on Form S-3
effective with respect to a  rights offering (the "Rights
Offering") to raise additional capital.  See Note 7. 

     The Company does not anticipate generating sufficient cash
flow from operations during the remainder of the fourth quarter
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, continued support from principal stockholders
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 any proceeds will be raised by the Company
under the Rights Offering.  In addition, there can be no
assurance that management can provide for the Company's capital
requirements that may be necessary or that the Company's
principal stockholders will continue to provide cash through the
issuance of unsecured demand notes payable.

2.  NEW ACCOUNTING PRONOUNCEMENTS

     In February 1997, the Financial Accounting Standards Board
issued Statement No. 128, Earnings per Share, which is required
to be adopted during the fourth quarter of 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 basic earnings per
share, the dilutive effect of stock options will be excluded. 
The calculations of net loss per share <PAGE> for the three months and
nine months ended September 30, 1997 and 1996 under Statement No.
128 will not be impacted as the effect of outstanding stock
options during these periods was antidilutive. 

3.  NET LOSS PER SHARE

     For the three months and nine months ended September 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.

4.  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 September 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 certain principal 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, July and
October 1997, the Company issued in each month an additional
227,500 warrants under the agreement.  Accordingly, effective
April 30, July 31, and October 31, 1997,  the estimated fair
value of the warrants issued of $197,000, $120,000 and $6,000,
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.

5.   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 certain principal stockholders of the
Company.  As consideration for establishing the letter of credit,
the Company agreed to issue 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, July and October 1997, the Company issued
an additional 400,000 warrants under the agreement.  Accordingly,
in April, July and October 1997, the estimated fair value of the
warrants issued of $367,000, $211,000 and $14,000, 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 principal stockholders 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
certain principal stockholders 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.  In August 1997, the
Company issued additional  warrants under the agreement. 
Accordingly, in August  1997, the estimated fair value of the
warrants issued of $17,000, was recorded as deferred debt
issuance costs and is being charged to expense over the remaining
term of the guarantee. Each <PAGE> warrant expires 10 years from the
date of issuance.  In addition, the Company granted the principal
stockholders a security interest in all credit card receivables
processed by the Company's credit card processor.

6.  NOTES PAYABLE TO RELATED PARTIES

     At September 30, 1997, the Company had  $15,773,816
outstanding under unsecured demand notes payable to the principal
stockholders of the Company with interest payable at a rate of
8.0%.  During October and November, 1997, the Company entered
into additional unsecured demand notes payable totaling
$4,375,000 with the principal stockholders of the Company with
interest payable at a rate of 8.0%.  

7.  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 in the event the Company
issues equity securities raising net proceeds in an aggregate
amount of $1,000,000 at a price below $2.00 per share.  In such
event, the exercise price is reduced to the offering price, which
is $0.50 per share.  In conjunction with the Company's Rights
Offering, (See Note 7) the warrants issued in connection with the
execution of the agreement and related guaranteed will be
repriced at $0.50 upon closing of the Rights Offering.  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 $___ 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 certain principal
stockholders in lieu of repayment of $10,000,000 notes payable to
related parties in conjunction with this offering.

     On October 23, 1997, the SEC declared the Company's
Registration Statement on Form S-3 effective with respect to the
Rights Offering.  Under the Rights Offering, the Company is
distributing nontransferable rights, at no cost, to stockholders
of record whereby each holder will receive two rights for each
share of common stock for a price of $0.50 per share.  It is
anticipated that certain principal stockholders will exercise all
of their rights pursuant to the basic subscription privilege of
the Rights Offering that in lieu of paying the subscription price
in cash, they will relieve and discharge the Company of
approximately $10.0 million of unsecured demand notes.  If all of
the rights held by stockholders other than certain principal
stockholders are exercised, the net proceeds to the Company from
the sale of the common stock upon the exercise of the rights
offered are estimated at approximately $5.2 million, after
deducting approximately $100,000 in offering expenses. 

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.


<PAGE> 



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 carrier service.  The Company
currently operates eight leased Boeing 737-200 jet aircraft.  The
Company currently operates 48 daily weekday flights between
Kansas City and Atlanta, Chicago-Midway, Dallas/Fort Worth,
Denver, Minneapolis/St. Paul, New York City-JFK and San
Francisco.  The Company also operates four flights per day
between Minneapolis/St. Paul and Chicago-Midway.  In September
1997, the Company signed letters of intent to lease two
additional Boeing 737-200 jet aircraft.  The Company anticipates
delivery of its ninth and tenth aircraft in December 1997.  On
December 17, 1997, in connection with the delivery of its ninth
and tenth aircraft, the Company intends to initiate service from
Kansas City to Washington D.C.-Dulles, service from Chicago-
Midway to Pittsburgh with continuing service to New York City-JFK
and service between New York City-JFK and Atlanta.  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
high fixed costs relative to operating revenues, and low profit
margins. The Company's principal business strategy is to provide
airline services in established markets out of Kansas City and in
other selected markets 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 September 30, 1997, the
Company had an accumulated deficit of $63.1 million and
stockholders' deficit of $20.6 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 three and nine months ended September 30, 1996
have been changed to conform to the 1997 presentation.

NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1996

     OPERATING REVENUES

     Total operating revenues increased approximately 14% from
approximately $54.7 million for the first nine months of 1996 to
approximately $62.5 million for the first nine 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 nine months of 1996, the
Company averaged 47 flights per day which increased to 51 flights
per day during the first nine 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. Meyers, Las Vegas, Miami, Orlando and Tampa/St. Petersburg as
well as non-stop service between Chicago-Midway and Kansas City. 
This route restructuring refocused the Company's strategy by
creating a Kansas City hub.  Available seat miles (ASMs)
increased approximately 23%, from approximately 825 million
during the first nine months ended <PAGE> of 1996 to approximately 1,014
million during the first nine months of 1997.  RPMs increased
approximately 16% from approximately 524 million during the first
nine months of 1996  to approximately 608 million during the
first nine 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.  These increases in ASMs and RPMs that resulted
from the December schedule change were offset in September 1997
by a schedule change that reduced or eliminated service in a
number of cities.   The Company discontinued service to Des
Moines, Las Vegas, Los Angeles, Orlando and Tampa/St. Petersburg
while adding service to New York-JFK in September 1997.  Load
factor decreased from approximately 64% for the first nine months
of 1996 to approximately 60% for the first nine months of 1997. 
This decrease was primarily the result of a 23% increase in
capacity and the addition of destinations with greater flight
lengths while experiencing only a 1% increase in the number of
passengers.  

     Passenger yield per revenue passenger mile (RPM) decreased
approximately 2% from approximately 9.9 cents for the first nine
months of 1996 to approximately 9.7 cents for the first nine
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
594 miles from 516 miles during the first nine months of 1997
compared to the first nine months of 1996.   The Company offered
promotional fares on its new city pairs throughout the first nine
months of 1997, which routes accounted for approximately 29% of
the system wide RPMs during this period.  During 1996 and 1997,
the Company 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 and continues to
improve its service and reliability.

     The Company also generates operating revenues as a result of
service charges from passengers who change flight reservations. 
For a period of 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 $1.5 million (approximately 2.7% of operating
revenue) and approximately $2.4 million (approximately 4.1% of
operating revenues) in the nine months ended September 30, 1996
and the nine months ended September 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.  The following table sets forth the percentage of
total operating revenues represented by these expense categories
as well as certain other selected financial data.

                             Nine months ended September 30,
                               1996                  1997

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

Total operating 
 revenues                       100.0%   6.63 cents    100.0%      6.16 cents
Operating expenses:
 Flying operations               23.3%   1.54 cents     21.2%      1.31 cents 
 Aircraft fuel                   21.5    1.43           22.8       1.41       
 Maintenance                     18.9    1.25           23.4       1.44       


<PAGE> 




 Passenger service                8.5     .57            9.3        .57
 Aircraft and traffic 
   servicing                     21.0    1.39           20.4        1.26       
 Promotion and sales             20.4    1.36           26.0        1.60       
 General and  
   administration                 5.3     .35            6.1         .37       
 Depreciation and 
   amortization                   2.0     .13            2.4         .15       
Total operating 
 expenses                       120.9    8.02          131.6        8.11       
Total other income 
 (expense), net                   0.0     .00          (3.1)        (.19)      
Net loss                       (20.9%) (1.39 cents)   (34.7%)     (2.14 cents)

     Flying operations expenses include aircraft lease expenses,
compensation of pilots, expenses related to flight dispatch and
flight operations administration, hull insurance and all other
expenses related directly to the operation of the aircraft other
than aircraft fuel and maintenance expenses.  Flying operations
expenses increased approximately 4% from approximately $12.7
million (approximately 23% of operating revenues) for the first
nine months of 1996 to approximately $13.3 million (approximately
21% of operating revenues) for the first nine months of 1997. 
This increase was primarily attributable to the increase in the
number of block hours flown.  Block hours increased approximately
21% from 18,839 for the first nine months of 1996 to 22,717 for
the first nine months of 1997. Block hours directly correlate to
pilot pay.   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.  The
two Boeing 737-300 jet aircraft were returned to the lessor in
May and July 1997.  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 during the
first nine months of 1997 versus the same period in 1996 as well
as the reduction in costs associated with the return of the 737-
300 jet aircraft.

     Aircraft fuel expenses include the direct cost of fuel,
taxes and the costs of delivering fuel into the aircraft. 
Aircraft fuel cost increased approximately 22% from approximately
$11.7 million (approximately 22% of operating revenues) for the
first nine months of 1996 to approximately $14.3 million
(approximately 23% of operating revenues) for the first nine
months of 1997.  Higher fuel expense is directly related to the
increase in ASMs flown by the Company offset by a decrease in
cost per gallon in the first nine months of 1997 versus 1996.  
Fuel cost per ASM decreased 0.01 cents or 1% from 1.43 cents in
the first nine months of 1996 to 1.41 cents in the first nine
months of 1997 primarily due to a decrease in average fuel price
per gallon.  Specifically, the average price decreased from $0.76
per gallon (including taxes and into-plane costs) in the first
nine months of 1996 to $0.74 per gallon in the first nine months
of 1997, a 3% decrease.  The Company will seek to pass on any
significant fuel cost increases to the Company's customers
through fare increases as permitted by then current market
conditions; however, there can be no assurance that the Company
will be successful in passing on increased fuel costs.

     Maintenance expenses include all maintenance-related labor,
parts, supplies and other expenses related to the upkeep of
aircraft.  Maintenance expenses increased approximately 41% from
approximately $10.3 million (approximately 19% of operating
revenues) for the first nine months of 1996 to approximately
$14.6 million (approximately 23% of operating revenues) for the
first nine 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.  The Company attributes the increase in costs associated
with major scheduled airframe, engine and landing gear
maintenance checks to the following: a change in the vendors
providing the major scheduled overhaul services; the lack of
available overhauled/used engine and landing gear replacement
parts; and the funding of nonroutine airframe repairs not
normally experienced during major scheduled airframe overhauls. 
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 or
all 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 <PAGE> Company also increased line maintenance
personnel by twelve employees including the introduction of
maintenance operations at the 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, inconvenience passenger charges
and passenger liability insurance.  Passenger service expenses
increased approximately 24% from approximately $4.7 million
(approximately 9% of operating revenues) for the first nine
months of 1996 to approximately $5.8 million (approximately 9% of
operating revenues) for the first nine months of 1997.  This
increase was primarily due to the 23% increase in ASMs and the
16% increase in RPMs which directly resulted in an increase in
flight attendant wages and inconvenienced passenger charges. 
Passenger service expenses per ASM remained consistent at
approximately .57 cents for the first nine months of 1996 and
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 11% from approximately $11.5 million
(approximately 21% of operating revenues) in the first nine
months of 1996 to approximately $12.8 million (approximately 20%
of operating revenues) in the first nine 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 10% from 12,782 during the first nine
months of 1996 to 13,998 during the first nine 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 nine months of 1997  and
the first nine months of 1996.  The decrease of .13 cents per ASM
was primarily due to the 15% increase in average stage length
from 516 miles to 594 miles in the first nine 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, telecommunication 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
$11.1 million (approximately 20% of operating revenues) in the
first nine months of 1996 to approximately $16.2 million
(approximately 26% of operating revenues) in the first nine
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 a hub
in Kansas City.  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 $4.89 or 45% from $10.96
in the first nine months of 1996 to $15.85 in the first nine
months of 1997.   In September 1997, the Company discontinued
service to Des Moines, Las Vegas, Los Angeles, Orlando and
Tampa/St. Petersburg while adding service to New York-JFK.  With
the discontinuation of service to these cities and the Company's
planned participation in CRS, the reservation center opened in
Lawrence in May 1996 was closed in September 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 $864,000 from approximately $2.9 million
(approximately 5% of operating revenues) in the first nine months
of 1996 to approximately $3.8 million (approximately 6% of
operating revenues) in the first nine 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 36% from approximately $1.1 million
(approximately 2% of operating revenues) in the first nine <PAGE> months
of 1996 to approximately $1.5 million (approximately 2% of
operating revenues) in the first nine 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 three full
quarters of depreciation and amortization charged in the first
nine months of 1997 on property and equipment added in the first
nine 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 4 and 5 of the Company's September 30, 1997
10-Q quarterly filing, 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 $3,895,000
during the nine months ended September 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 nine months of 1997, as a result of
borrowings against the line of credit and the addition of demand
notes payable to related parties during the first nine months of
1997.


THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE THREE
MONTHS ENDED SEPTEMBER 30, 1996

     OPERATING REVENUES

     Total operating revenues decreased approximately 3% from
approximately $19.9 million for the three months ended September
30, 1996 to approximately $19.3 million for the three months
ended September 30, 1997.  This decrease was primarily
attributable to a decrease in the number of passengers and ASMs. 
The number of passengers decreased 11% in the third quarter of
1997 compared to the third quarter of 1996.  The number of ASMs
decreased 3% from approximately 309 million in the three months
ended September 30, 1996 to approximately 300 million in the
three months ended September 30, 1997.  The decrease in ASMs was
the result of the Company reducing and subsequently discontinuing
service to Des Moines, Las Vegas, Los Angeles, Orlando and
Tampa/St. Petersburg in August and September 1997 while adding
service to New York-JFK.

     Passenger yield per RPM decreased approximately 1% from
approximately 10.3 cents for the three months ended September 30,
1996 to approximately 10.2 cents for the three months ended
September 30, 1997.  Load factor also decreased 1% from 60.2% in
the three months ended September 30, 1996 to 59.4% in the three
months ended September 30, 1997.  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 $398,000  (approximately 2% of  operating revenues)
and approximately $749,000 (approximately 4% of  operating
revenues) in the three months ended September 30, 1996 and the
three months ended September 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.



<PAGE> 


                              Three months ended September 30,
                                   1996           1997

                               Percent     Cents     Percent     Cents  
                                 of          Per        of        Per   
                              Revenues       ASM     Revenues     ASM   
                                                                 
Total operating 
 revenues                       100.0%   6.44 cents   100.0%   6.44 cents
Operating expenses:
 Flying operations               22.2%   1.43 cents    20.6%   1.33 cents
 Aircraft fuel                   22.8    1.47          21.5    1.39      
 Maintenance                     19.1    1.23          24.1    1.55      
 Passenger service                8.1     .52           9.9     .64      
 Aircraft and traffic 
   servicing                     19.5    1.25          20.1    1.29      
 Promotion and sales             18.9    1.22          24.8    1.59      
 General and 
   administration                 5.6     .36           6.3     .41      
 Depreciation and 
   amortization                   2.0     .13           2.6     .17      
Total operating 
 expenses                       118.2    7.61         129.9    8.37      
Total other income 
 (expense), net                  (0.1) (0.01)          (4.2) ( .27)     
Net loss                       (18.3%) (1.18 cents)   (34.1)%(2.20 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 decreased approximately 10% from approximately $4.4
million (approximately 22% of operating revenues) for the three
months ended September 30, 1996 to approximately $4.0 million
(approximately 21% of operating revenues) for the three months
ended September 30, 1997.  This decrease was primarily
attributable to the changes in the Company's aircraft fleet.  In
May and July 1997, the Company returned to its lessor its two
737-300 jet aircraft, respectively.  In addition, the Company
commenced operating an additional leased 737-200 jet aircraft in
June 1997.  This change in aircraft mix and the net reduction of
one aircraft during the quarter resulted in a net reduction in
aircraft base rent of approximately $550,000.

     Aircraft fuel expenses include the direct cost of fuel,
taxes and the costs of delivering fuel into the aircraft. 
Aircraft fuel cost decreased approximately 8% from approximately
$4.5 million (approximately 23% of operating revenues) for the
three months ended September 30, 1996 to approximately $4.2
million (approximately 22% of operating revenues) for the three
months ended September 30, 1997.  Lower fuel expense is directly
related to the decrease in ASMs flown by the Company and a
decrease in fuel price per gallon in the third quarter of 1997
versus 1996. Fuel cost per ASM decreased 0.08 cents or 5% from
1.47 cents in the three months ended September 30, 1996 to 1.39
cents in the three months ended September 30, 1997 primarily due
to a decrease in fuel price per gallon in the three months ended
September 30, 1997 as compared to the same period in 1996. 
Specifically, the average price decreased from $0.80 per gallon
(including taxes and into-plane costs) in the three months ended
September 30, 1996 to $0.70 per gallon in the three months ended
September 30, 1997, a 12% decrease.  

     Maintenance expenses include all maintenance-related labor,
parts, supplies and other expenses related to the upkeep of
aircraft.  Maintenance expenses increased approximately 22% from
approximately $3.8 million (approximately 19% of operating
revenues) for the three months ended September 30, 1996 to
approximately $4.7 million (24% of operating revenues) for the
three months ended September 30, 1997.  During the latter part of
1996 and mid-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.    The
Company attributes the increase in costs associated with major
scheduled airframe, engine and landing gear maintenance checks to
the following: a change in the vendors providing the major
scheduled overhaul services; the lack of available
overhauled/used engine and landing gear replacement parts; and
the funding of nonroutine airframe repairs not normally
experienced during major scheduled airframe overhauls.  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.  The Company
deposits funds with its aircraft lessors to cover a portion of




<PAGE> 



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
20% from approximately $1.6 million (approximately 8% of
operating revenues) for the three months ended September 30, 1996
to approximately $1.9 million (approximately 10% of operating
revenues) for the three months ended September 30, 1997.  This
increase was primarily due to additional costs incurred related
to reaccommodating inconvenienced passengers that resulted from
the Company's change in its overall strategy from a point-to-
point carrier to a hub carrier and for flight schedule changes
and delays in the three months ended September 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 for
the three months ended September 30, 1996 and 1997 remained
consistent at approximately $3.9 million (approximately  20% of
operating revenues in the three months ended September 30, 1996
and 1997, respectively).  The expenses remained consistent in the
two periods  primarily due to the increase in the number of
cities served offset by a decrease in the number of departures in
the third quarter of 1997 as compared to the third quarter in
1996.  Departures decreased approximately 10% from 4,614  during
the three months ended September 30, 1996 to 4,160  during the
three months ended September 30, 1997.  

     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 27% from approximately
$3.8 million (approximately 19% of operating revenues) in the
three months ended September 30, 1996 to approximately $4.8
million (approximately 25% of operating revenues) in the three
months ended September 30, 1997. This increase was primarily the
result of the Company's strategy to increase advertising when new
cities are introduced in order to create brand awareness in
addition to the Company's changed strategy to increase spending
on advertising programs in all existing cities versus focusing
advertising dollars in certain strategic cities.  The average
promotion and sales cost per passenger increased $4.75 or 43% 
from $11.02 in the three months ended September 30, 1996 to
$15.77 in the three months ended September 30, 1997.  In
September 1997, the Company discontinued service to Des Moines,
Las Vegas, Los Angeles, Orlando and Tampa/St. Petersburg in
September 1997 while adding service to New York-JFK. 

     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 10%
from approximately $1.1 million (approximately 6% of operating
revenues) in the three months ended September 30, 1996 to $1.2
million (approximately 6% of operating revenues) in the three
months ended September 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 25% from $403,000 (approximately 2% of
operating revenues) in the three months ended September 30, 1996
to $502,000 (approximately 3% of operating revenues) in the three
months ended September 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 <PAGE> depreciation and amortization charged in the
three months ended September 30, 1997 on property and equipment
added  in the three months ended September 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 4 and 5, 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  $3,895,000 during the nine months ended September 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
September 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 September 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 to date has received net proceeds from the
sale of its equity securities in the aggregate amount of
approximately $36.4 million.  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, the Company granted
warrants to purchase up to 2,275,000 shares of the Company's
Common Stock.  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, certain principal stockholders of the
Company 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 certain principal
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 agreed to issue
warrants to purchase up to 5,030,928 shares of the Company's
Common Stock.  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 November 10, 1997, the Company borrowed
an aggregate $20.1 million from the principal 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 mainly for working capital
purposes.  The Company has also used proceeds of approximately
$800,000 from the notes to meet a portion of the deposit
requirements of its eighth, ninth and tenth aircrafts.  In
addition, the Company used proceeds from the notes of
approximately $200,000 to purchase software for its new
reservation system.  Finally, the Company used proceeds from the
notes of approximately $400,000 to upgrade the appearance of its
fleet, move certain administrative offices <PAGE> and change its
employees uniforms.  The notes accrue interest at 8.0%   There
can be no assurance that the Company's principal stockholders
will continue to provide cash through the issuance of unsecured
demand notes payable, or otherwise.

     On October 23, 1997, the Securities and Exchange Commission
declared the Company's Registration Statement on Form S-3
effective with respect its Rights Offering.  In connection with
the Rights Offering, the Company is distributing nontransferable
rights, at no cost, to stockholders of record.  Each record
holder will receive two rights for each share of common stock
held, entitling the holders to subscribe for and purchase one
share of Common Stock for a price of $0.50 per share.  It is
anticipated that the certain principal stockholders will exercise
all of their rights granted pursuant to the basic subscription
privilege of the Rights Offering.  In lieu of paying the
subscription price in cash, the principal stockholders will
relieve and discharge the Company of approximately $10.0 million
of unsecured demand notes.  If all of the rights held by
stockholders other than certain principal stockholders are
exercised, the net proceeds to the Company from the sale of the
Common Stock upon the exercise of the rights offered are
estimated at approximately $5.2 million, after deducting
approximately $100,000 in offering expenses.   Other than the
anticipated conversion of the Notes, which does not result in new
proceeds to the Company, there can be no assurance of any
proceeds to the Company under the Rights Offering.

     During the nine months ended September 30, 1997, the Company
has not generated sufficient passenger ticket sales to provide
for its operational cash needs.  During the nine months ended
September 30, 1997, the Company's operating activities resulted
in a cash flow deficit of $19.5 million.  These cash flow
deficits have been funded primarily through the sale of equity
securities and debt borrowings, as discussed above.  At September
30, 1997, the Company had cash and cash equivalents of
approximately $235,000.  The Company had a working capital
deficit at September 30, 1997 of approximately $31.1 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
uncertainty.

     The Company estimates that major scheduled maintenance of
its existing aircraft fleet through September 1998 will cost
approximately $8.0 million, of which $3.8 million will be funded
from existing supplemental rent payments recoverable from
aircraft lessors.  The Company expects to expend approximately
$1.1 million on various capital expenditures related to the
upgrade of the Company's reservation systems and improvements to
existing aircraft.  As of September 30, 1997, the Company has
entered into signed letters of intent or aircraft operating lease
agreements for three additional aircraft.  Deposit requirements
for these aircraft total $1.1 million.  The Company is also
pursuing aircraft through operating lease agreements for one
additional aircraft.

     The Company does not anticipate generating sufficient cash
flow from operations during the remainder of 1997.  Accordingly,
the Company plans to implement certain actions designed to
achieve long-term profitability.  Management's plans to achieve
long-term profitability include: the elimination of certain
unprofitable routes, introduction of the Company's revised
schedule, the introduction of new markets in December 1997,
participation in certain of the airline industry's computerized
CRSs, increased focus on the price-sensitive business traveler
and pricing strategies to maximize passenger revenue and cost
controls.  There can be no assurance that their efforts will be
successful.

     Whether or not the Company receives any proceeds from the
Rights Offering or the Company's strategic plans to achieve long-
term profitability are successful, the Company's continued
operations are dependent upon the additional financing. 
Management plans to raise additional capital and secure
additional bank financing to fund continued operations.  Failure
to raise such funds could result in the Company significantly
curtailing or ceasing operations.  The Company's ability to raise
additional cash through equity or debt financings that may be
required to continue operations during the remainder of 1997 and
early 1998 will likely be dependent upon the Company's success in
implementing actions designed to achieve long-term profitability,
as described above, and its ability to operate at profitable
levels during early 1998, as to which there can be no assurance. 
There can be no assurance that management can provide for the
Company's necessary capital requirements or that the principal
stockholders will continue to provide cash through the issuance
of unsecured demand notes payable, or otherwise.



<PAGE> 




FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS

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

     LIMITED OPERATING HISTORY; HISTORY OF SIGNIFICANT LOSSES.
The Company has a limited history of operations, beginning flight
operations on December 4, 1994.  The Company, to date, has yet to
report profitable operations during a quarterly reporting period. 
Since the Company's inception on April 25, 1994, the Company has
incurred significant losses and as of September 30, 1997 had an
accumulated deficit of approximately $63.1 million, a
stockholders' deficit of approximately $20.6 million and a
working capital deficit of approximately $31.1 million.  The
Company's limited operating history makes the prediction of
future operating results difficult.   There can be no assurance
that the Company will 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 operated profitably during any quarterly
reporting period.  Consequently, the Company has been dependent
upon equity and debt financings primarily from principal
stockholders in order to maintain operations.  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 no assurance that the Company's principal
stockholders will continue to provide working capital for the
Company's operations.  Any inability to obtain additional
financing when needed could require the Company to cease or
significantly curtail operations and would have a material
adverse effect on the Company's business, financial condition and
results of operations.  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.  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
airline safety and particularly the safety of  low-fare carriers. 
The Company utilizes older Boeing 737-200 jet aircraft, one was
manufactured in 1982, and seven were manufactured between 1968
and 1970, which may also have an effect on passengers perceptions
regarding safety.  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



<PAGE> 



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 17.3% of the
Company's operating expenses during the nine months ended
September 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 eight aircraft (with
anticipated delivery of a ninth and tenth jet aircraft in
December 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, 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 <PAGE> than five years), the Company's operations
along with other start-up carriers 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 eight 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 meets the current Stage-3 noise compliance requirements
(50% of its fleet is Stage-3 compliant), with four of its eight
Boeing 737-200 jet aircraft being equipped with hush kits.  In
addition, the Company anticipated delivery of its ninth and tenth
aircraft which it has signed letters of intent, will be equipped
with hush kits to meet Stage-3 noise compliance 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.  See "Business--Motivated and
Trained Workforce." 

     PASSENGER TICKET TAX. The existing ten percent ticket tax
was converted on October 1, 1997 to a combination of a reduced
percentage tax based on the price of the ticket and a fee
assessed for each flight segment.  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
condition and results of operations if the Company is unable to
pass this increased tax burden on to its passengers through
increased fares.  The Company is unable, however, to predict how
the new tax/segment fee will affect demand for the Company's
product.

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.



<PAGE> 



               b.    None.

               c.   None.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES
               None.

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

ITEM 5.    OTHER INFORMATION
               None.


ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

               (a) Exhibits

          Exhibit 10.1-- Aircraft Lease Agreement, dated as of
September 18, 1997, between the              Interlease Aviation
Investors II (Aloha), L.L.C. and the Registrant. 

          Exhibit 11- Statement of Computation of Earnings per
Share for the Nine-Month Periods Ended September 30, 1996 and
1997

          Exhibit 27 - Financial Data Schedule

          (b)  Reports on Form 8-K.

     On August 22, 1997, the Company filed a report on Form 8-K
under Item 5 regarding a press release announcing that it filed
with the Securities and Exchange Commission a Registration
Statement on Form S-3 to register rights to purchase shares of
the Company's Common Stock.

     On October 29, 1997, the Company filed a report on Form 8-K
under Item 5 - Other Events regarding a press release issued by
the Company on October 29, 1997 announcing the commencement of
its Rights Offering.  The Company is distributing at no cost to
holders of record as of October 10, 1997 two rights for each
share of common stock held on said date.  Each right entitles the
holder to purchase one share of Common Stock, for a price of
$0.50 per share.



<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                     November 13, 1997
Robert J. Spane, President and 
Chief Executive Officer

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