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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(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, 2003



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: 0-25202



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KITTY HAWK, INC.

(Exact name of registrant as specified in its charter)



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|Delaware                                                                             |  | 75-2564006                          
|------------------------------------------------------------------------------------ |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization)                       |  | (I.R.S. Employer Identification No.)
|                                                                                     | 
|1515 West 20th Street P.O. Box 612787 Dallas/Fort Worth International Airport, Texas |  | 75261                               
|(Address of principal executive offices)                                             |  | (Zip Code)                          



(972) 456-2200

(Registrants telephone number, including area code)



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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 ̈



Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).     Yes ̈No  x



Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court.     Yes    x  No ̈



The number of shares of common stock, par value $0.000001 per share,
outstanding at November 12, 2003 was 40,672,584.



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##### Table of Contents

KITTY HAWK, INC.



INDEX



|                                                                                                                                                     |  |                                                                                       |  | PAGE NUMBER
|---------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------- |  | -----------
|PART I. FINANCIAL INFORMATION                                                                                                                        |  |                                                                                      
|                                                                                                                                                     |  |                                                                                      
|Item 1.                                                                                                                                              |  | Financial Statements                                                                  |  |            
|                                                                                                                                                     | 
|Condensed Consolidated Balance Sheets September 30, 2003 and December 31, 2002                                                                       |  | 3                                                                                    
|                                                                                                                                                     | 
|Condensed Consolidated Statements of Operations Three months ended September 30, 2003 and 2002 and the Nine months ended September 30, 2003 and 2002 |  | 4                                                                                    
|                                                                                                                                                     | 
|Condensed Consolidated Statement of Stockholders Equity Nine months ended September 30, 2003                                                        |  | 5                                                                                    
|                                                                                                                                                     | 
|Condensed Consolidated Statements of Cash Flows Nine months ended September 30, 2003 and 2002                                                        |  | 6                                                                                    
|                                                                                                                                                     | 
|Notes to Condensed Consolidated Financial Statements                                                                                                 |  | 7                                                                                    
|                                                                                                                                                     |  |                                                                                      
|Item 2.                                                                                                                                              |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 15         
|                                                                                                                                                     |  |                                                                                      
|Item 3.                                                                                                                                              |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 26         
|                                                                                                                                                     |  |                                                                                      
|Item 4.                                                                                                                                              |  | Controls and Procedures                                                               |  | 26         
|                                                                                                                                                     | 
|PART II. OTHER INFORMATION                                                                                                                           |  |                                                                                      
|                                                                                                                                                     |  |                                                                                      
|Item 1.                                                                                                                                              |  | Legal Proceedings                                                                     |  | 26         
|                                                                                                                                                     |  |                                                                                      
|Item 2.                                                                                                                                              |  | Changes in Securities and Use of Proceeds                                             |  | 27         
|                                                                                                                                                     |  |                                                                                      
|Item 3.                                                                                                                                              |  | Defaults upon Senior Securities                                                       |  | 27         
|                                                                                                                                                     |  |                                                                                      
|Item 4.                                                                                                                                              |  | Submission of Matters to a Vote of Security Holders                                   |  | 27         
|                                                                                                                                                     |  |                                                                                      
|Item 5.                                                                                                                                              |  | Other Information                                                                     |  | 27         
|                                                                                                                                                     |  |                                                                                      
|Item 6.                                                                                                                                              |  | Exhibits and Reports on Form 8-K                                                      |  | 28         



2



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##### Table of Contents

PART I. FINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS



KITTY HAWK, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED BALANCE SHEETS



(in thousands,
except share and per share data)



|                                                                                                                                                                                                                                                                                                                                       |  | September 30, 2003 |        | December 31, 2002
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------ | -----------------
|                                                                                                                                                                                                                                                                                                                                       |  | (unaudited)        |        |                  
|ASSETS                                                                                                                                                                                                                                                                                                                                 |  |                    |        |                  
|Current assets:                                                                                                                                                                                                                                                                                                                        |  |                    |        |                  
|Cash and cash equivalents                                                                                                                                                                                                                                                                                                              |  | $                  | 7,262  |                  
|Restricted cash and short-term investments                                                                                                                                                                                                                                                                                             |  |                    | 526    |                  
|Trade accounts receivable, net of allowance for doubtful accounts of $963 and $500, respectively                                                                                                                                                                                                                                       |  |                    | 12,235 |                  
|Assets held for sale                                                                                                                                                                                                                                                                                                                   |  |                    | 264    |                  
|Inventory and aircraft supplies                                                                                                                                                                                                                                                                                                        |  |                    | 5,525  |                  
|Deposits and prepaid expenses                                                                                                                                                                                                                                                                                                          |  |                    | 1,363  |                  
|Prepaid fuel                                                                                                                                                                                                                                                                                                                           |  |                    | 1,255  |                  
|Settlement receivable                                                                                                                                                                                                                                                                                                                  |  |                    | 3,500  |                  
|Other current assets, net                                                                                                                                                                                                                                                                                                              |  |                    | 83     |                  
|                                                                                                                                                                                                                                                                                                                                       |  |                    |        |                  
|Total current assets                                                                                                                                                                                                                                                                                                                   |  |                    | 32,013 |                  
|Property and equipment, net                                                                                                                                                                                                                                                                                                            |  |                    | 8,986  |                  
|Other assets, net                                                                                                                                                                                                                                                                                                                      |  |                    | 958    |                  
|                                                                                                                                                                                                                                                                                                                                       |  |                    |        |                  
|Total assets                                                                                                                                                                                                                                                                                                                           |  | $                  | 41,957 |                  
|                                                                                                                                                                                                                                                                                                                                       |  |                    |        |                  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                                                                                                                                   |  |                    |        |                  
|Current liabilities:                                                                                                                                                                                                                                                                                                                   |  |                    |        |                  
|Accounts payable  trade                                                                                                                                                                                                                                                                                                               |  | $                  | 1,316  |                  
|Accrued wages                                                                                                                                                                                                                                                                                                                          |  |                    | 791    |                  
|Other accrued expenses                                                                                                                                                                                                                                                                                                                 |  |                    | 4,439  |                  
|Other taxes payable                                                                                                                                                                                                                                                                                                                    |  |                    | 1,851  |                  
|Current portion of accrued maintenance reserves                                                                                                                                                                                                                                                                                        |  |                    | 4,674  |                  
|Current portion of lease return provisions                                                                                                                                                                                                                                                                                             |  |                    | 1,551  |                  
|Current maturities of long-term debt                                                                                                                                                                                                                                                                                                   |  |                    | 2,895  |                  
|                                                                                                                                                                                                                                                                                                                                       |  |                    |        |                  
|Total current liabilities                                                                                                                                                                                                                                                                                                              |  |                    | 17,517 |                  
|Long-term debt                                                                                                                                                                                                                                                                                                                         |  |                    | 629    |                  
|Lease return provisions                                                                                                                                                                                                                                                                                                                |  |                    |       |                  
|Accrued maintenance reserves                                                                                                                                                                                                                                                                                                           |  |                    | 2,577  |                  
|Other long-term liabilities                                                                                                                                                                                                                                                                                                            |  |                    | 1,427  |                  
|                                                                                                                                                                                                                                                                                                                                       |  |                   
|Stockholders equity:                                                                                                                                                                                                                                                                                                                  |  |                    |        |                  
|Preferred stock, $0.01 par value per share: Authorized shares  3,000,000, none issued                                                                                                                                                                                                                                                 |  |                    |       |                  
|Common stock, $0.000001 and $0.01 par value per share at September 30, 2003 and December 31, 2002, respectively; Authorized shares
 62,000,000 at September 30, 2003 and December 31, 2002; issued and outstanding  37,994,655 unrestricted shares and 162,500 restricted shares at September 30, 2003 and none at December 31, 2002 |  |                    |       |                  
|Additional capital                                                                                                                                                                                                                                                                                                                     |  |                    | 16,735 |                  
|Retained earnings                                                                                                                                                                                                                                                                                                                      |  |                    | 3,072  |                  
|                                                                                                                                                                                                                                                                                                                                       |  |                    |        |                  
|Total stockholders equity                                                                                                                                                                                                                                                                                                             |  |                    | 19,807 |                  
|                                                                                                                                                                                                                                                                                                                                       |  |                    |        |                  
|Total liabilities and stockholders equity                                                                                                                                                                                                                                                                                             |  | $                  | 41,957 |                  
|                                                                                                                                                                                                                                                                                                                                       |  |                    |        |                  



The accompanying notes
are an integral part of these financial statements.



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##### Table of Contents

KITTY HAWK, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS



(in
thousands, except share and per share data)

(unaudited)



|                                                   |  | Successor                       |            |   | Predecessor                     |   |            | Successor |  |   | Predecessor |  
|-------------------------------------------------- |  | ------------------------------- | ---------- | - | ------------------------------- | - | ---------- | --------- |  | - | ----------- | -
|                                                   |  | Three months endedSeptember 30, |            |   | Nine months ended September 30, |  
|                                                   |  | 2003                            |            |   | 2002                            |   |            | 2003      |  |   | 2002        |  
|Revenue:                                           |  |                                 |            |   |                                 |   |            |           |  |   |             |  
|Scheduled freight                                  |  | $                               | 33,484     |   |                                 | $ | 30,492     |           |  | $ | 91,422      |  
|ACMI                                               |  |                                 | 62         |   |                                 |   | 995        |           |  |   | 4,058       |  
|Miscellaneous                                      |  |                                 | 79         |   |                                 |   | 158        |           |  |   | 399         |  
|                                                   |  |                                 |            |   |                                 |   |            |           |  |   |             |  
|Total revenue                                      |  |                                 | 33,625     |   |                                 |   | 31,645     |           |  |   | 95,879      |  
|Cost of revenue:                                   |  |                                 |            |   |                                 |   |            |           |  |   |             |  
|Flight expense                                     |  |                                 | 6,783      |   |                                 |   | 7,342      |           |  |   | 19,451      |  
|Transportation expense                             |  |                                 | 2,304      |   |                                 |   | 2,163      |           |  |   | 13,038      |  
|Fuel expense                                       |  |                                 | 7,539      |   |                                 |   | 7,205      |           |  |   | 22,713      |  
|Maintenance expense                                |  |                                 | 2,793      |   |                                 |   | 3,678      |           |  |   | 8,878       |  
|Freight handling expense                           |  |                                 | 6,232      |   |                                 |   | 5,771      |           |  |   | 18,030      |  
|Depreciation and amortization                      |  |                                 | 1,011      |   |                                 |   | 1,388      |           |  |   | 2,804       |  
|Operating overhead expense                         |  |                                 | 2,166      |   |                                 |   | 2,473      |           |  |   | 6,810       |  
|                                                   |  |                                 |            |   |                                 |   |            |           |  |   |             |  
|Total cost of revenue                              |  |                                 | 28,828     |   |                                 |   | 30,020     |           |  |   | 91,724      |  
|                                                   |  |                                 |            |   |                                 |   |            |           |  |   |             |  
|Gross profit (loss)                                |  |                                 | 4,797      |   |                                 |   | 1,625      |           |  |   | 4,155       |  
|General and administrative expense                 |  |                                 | 2,119      |   |                                 |   | 1,782      |           |  |   | 7,159       |  
|                                                   |  |                                 |            |   |                                 |   |            |           |  |   |             |  
|Operating income (loss) from continuing operations |  |                                 | 2,678      |   |                                 |   | (157       | )         |  |   | (3,004      | )
|Other (income) expense:                            |  |                                 |            |   |                                 |   |            |           |  |   |             |  
|Interest expense                                   |  |                                 | 106        |   |                                 |   | 899        |           |  |   | 325         |  
|Reorganization expenses                            |  |                                 |           |   |                                 |   | 36,412     |           |  |   |            |  
|Income from contract settlement                    |  |                                 |           |   |                                 |   | (29,443    | )         |  |   |            |  
|Other, net                                         |  |                                 | (3,218     | ) |                                 |   | (1,166     | )         |  |   | (3,738      | )
|                                                   |  |                                 |            |   |                                 |   |            |           |  |   |             |  
|Income (loss) from continuing operations           |  |                                 | 5,790      |   |                                 |   | (6,859     | )         |  |   | 409         |  
|Discontinued operations:                           |  |                                 |            |   |                                 |   |            |           |  |   |             |  
|Loss from discontinued operations                  |  |                                 |           |   |                                 |   | (33,085    | )         |  |   |            |  
|                                                   |  |                                 |            |   |                                 |   |            |           |  |   |             |  
|Income (loss) before extraordinary item            |  |                                 | 5,790      |   |                                 |   | (39,944    | )         |  |   | 409         |  
|Extraordinary item, net                            |  |                                 |           |   |                                 |   | 378,068    |           |  |   |            |  
|                                                   |  |                                 |            |   |                                 |   |            |           |  |   |             |  
|Net income                                         |  | $                               | 5,790      |   |                                 | $ | 338,124    |           |  | $ | 409         |  
|                                                   |  |                                 |            |   |                                 |   |            |           |  |   |             |  
|Basic net income (loss) per share:                 |  |                                 |            |   |                                 |   |            |           |  |   |             |  
|Continuing operations                              |  | $                               | 0.12       |   |                                 | $ | (0.40      | )         |  | $ | 0.01        |  
|                                                   |  |                                 |            |   |                                 |   |            |           |  |   |             |  
|Discontinued operations                            |  | $                               |           |   |                                 | $ | (1.93      | )         |  | $ |            |  
|                                                   |  |                                 |            |   |                                 |   |            |           |  |   |             |  
|Extraordinary item                                 |  | $                               |           |   |                                 | $ | 22.07      |           |  | $ |            |  
|                                                   |  |                                 |            |   |                                 |   |            |           |  |   |             |  
|Total basic net income per share                   |  | $                               | 0.12       |   |                                 | $ | 19.74      |           |  | $ | 0.01        |  
|                                                   |  |                                 |            |   |                                 |   |            |           |  |   |             |  
|Weighted average common shares outstanding         |  |                                 | 50,025,109 |   |                                 |   | 17,132,566 |           |  |   | 50,008,350  |  
|                                                   |  |                                 |            |   |                                 |   |            |           |  |   |             |  
|Diluted net income (loss) per share:               |  |                                 |            |   |                                 |   |            |           |  |   |             |  
|Continuing operations                              |  | $                               | 0.11       |   |                                 | $ | (0.40      | )         |  | $ | 0.01        |  
|                                                   |  |                                 |            |   |                                 |   |            |           |  |   |             |  
|Discontinued operations                            |  | $                               |           |   |                                 | $ | (1.93      | )         |  | $ |            |  
|                                                   |  |                                 |            |   |                                 |   |            |           |  |   |             |  
|Extraordinary item                                 |  | $                               |           |   |                                 | $ | 22.07      |           |  | $ |            |  
|                                                   |  |                                 |            |   |                                 |   |            |           |  |   |             |  
|Total diluted net income per share                 |  | $                               | 0.11       |   |                                 | $ | 19.74      |           |  | $ | 0.01        |  
|                                                   |  |                                 |            |   |                                 |   |            |           |  |   |             |  
|Weighted average diluted common shares outstanding |  |                                 | 50,760,162 |   |                                 |   | 17,132,566 |           |  |   | 50,199,959  |  
|                                                   |  |                                 |            |   |                                 |   |            |           |  |   |             |  



The accompanying notes
are an integral part of these financial statements.



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KITTY HAWK, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY



(in thousands, except share data)

(unaudited)



|                                                                      |  | Common Stock                  |  | Additional Capital          |  | Retained Earnings |   | Total
|--------------------------------------------------------------------- |  | ----------------------------- |  | --------------------------- |  | ----------------- | - | -----
|                                                                      |  | Number of Unrestricted Shares |  | Number of Restricted Shares |  | Amount            |   |      
|Balance at December 31, 2002                                          |  |                              |  |                            |  | $                 |  |      
|Net income                                                            |  |                              |  |                            |  |                   |  |      
|Issue common stock (see Notes 3 and 6)                                |  | 37,744,655                    |  |                            |  |                   |  |      
|Compensation expense associated with stock option grants (see Note 6) |  |                              |  |                            |  |                   |  |      
|Issue common stock related to exercise of stock options               |  | 250,000                       |  | 162,500                     |  |                   |  |      
|                                                                      |  |                               |  |                             |  |                   |   |      
|Balance at September 30, 2003                                         |  | 37,994,655                    |  | 162,500                     |  | $                 |  |      
|                                                                      |  |                               |  |                             |  |                   |   |      



The accompanying notes
are an integral part of these financial statements.



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##### Table of Contents

KITTY HAWK, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



(in
thousands)

(unaudited)



|                                                                                                         |  | Successor                      |        |   | Predecessor |  
|-------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ------ | - | ----------- | -
|                                                                                                         |  | Nine months endedSeptember 30, |       
|                                                                                                         |  | 2003                           |        |   | 2002        |  
|Operating activities:                                                                                    |  |                                |        |   |             |  
|Net income                                                                                               |  | $                              | 409    |   |             | $
|Subtract: Loss from discontinued operations                                                              |  |                                |       |   |             |  
|                                                                                                         |  |                                |        |   |             |  
|Income from continuing operations                                                                        |  |                                | 409    |   |             |  
|Adjustments to reconcile income from continuing operations to net cash provided by operating activities: |  |                                |        |   |             |  
|Depreciation and amortization expense                                                                    |  |                                | 3,063  |   |             |  
|(Gain) loss on disposal of property and equipment                                                        |  |                                | (25    | ) |             |  
|Gain on extinguishment of debt                                                                           |  |                                |       |   |             |  
|Reorganization expense                                                                                   |  |                                |       |   |             |  
|Compensation expense related to stock options                                                            |  |                                | 11     |   |             |  
|Claim settlement                                                                                         |  |                                | (2,996 | ) |             |  
|Provision for doubtful accounts                                                                          |  |                                | 348    |   |             |  
|Changes in operating assets and liabilities:                                                             |  |                                |        |   |             |  
|Trade accounts receivable                                                                                |  |                                | (1,123 | ) |             |  
|Inventory and aircraft supplies                                                                          |  |                                | 394    |   |             |  
|Prepaid expenses and other                                                                               |  |                                | 526    |   |             |  
|Accounts payable and accrued expenses                                                                    |  |                                | (2,108 | ) |             |  
|Accrued maintenance reserves                                                                             |  |                                | (171   | ) |             |  
|                                                                                                         |  |                                |        |   |             |  
|Net cash (used in) provided by operating activities                                                      |  |                                | (1,672 | ) |             |  
|                                                                                                         |  |                               
|Investing activities:                                                                                    |  |                                |        |   |             |  
|Proceeds from sale of assets                                                                             |  |                                | 1,827  |   |             |  
|Redemption of restricted cash                                                                            |  |                                | 66     |   |             |  
|Buyout of aircraft lease                                                                                 |  |                                | (1,300 | ) |             |  
|Capital expenditures                                                                                     |  |                                | (207   | ) |             |  
|                                                                                                         |  |                                |        |   |             |  
|Net cash provided by (used in) investing activities                                                      |  |                                | 386    |   |             |  
|                                                                                                         |  |                               
|Financing activities:                                                                                    |  |                                |        |   |             |  
|Payments on liabilities subject to compromise                                                            |  |                                |       |   |             |  
|Proceeds from exercise of stock options                                                                  |  |                                | 124    |   |             |  
|Proceeds from issuance of debt                                                                           |  |                                | 440    |   |             |  
|Repayments of long-term debt                                                                             |  |                                | (2,369 | ) |             |  
|                                                                                                         |  |                                |        |   |             |  
|Net cash used in financing activities                                                                    |  |                                | (1,805 | ) |             |  
|                                                                                                         |  |                                |        |   |             |  
|Cash used in continuing operations                                                                       |  |                                | (3,091 | ) |             |  
|Cash provided by discontinued operations                                                                 |  |                                |       |   |             |  
|                                                                                                         |  |                                |        |   |             |  
|Net decrease in cash and cash equivalents                                                                |  |                                | (3,091 | ) |             |  
|Cash and cash equivalents at beginning of period                                                         |  |                                | 10,353 |   |             |  
|                                                                                                         |  |                                |        |   |             |  
|Cash and cash equivalents at end of period                                                               |  | $                              | 7,262  |   |             | $
|                                                                                                         |  |                                |        |   |             |  



The accompanying notes
are an integral part of these financial statements.



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##### Table of Contents

KITTY HAWK, INC. AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



1. BASIS OF PRESENTATION



The
accompanying condensed consolidated financial statements, which should be read in conjunction with the consolidated financial statements and footnotes included in the Annual Report on Form 10-K for Kitty Hawk, Inc. (the Company or
Kitty Hawk) filed with the Securities and Exchange Commission for the year ended December 31, 2002, are unaudited (except for the December 31, 2002 condensed consolidated balance sheet, which was derived from the Companys audited
consolidated balance sheet included in the aforementioned Form 10-K), but have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring adjustments) considered necessary for a fair presentation have been included.



The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and accompanying notes. On an ongoing basis, management evaluates its estimates and judgments and incorporates any changes in such estimates and judgments into the accounting
records underlying the Companys consolidated financial statements. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.



The Company emerged from bankruptcy on September 30, 2002. Therefore,
operating results for the three and nine month periods ended September 30, 2003 are for the successor company, and the operating results shown for the three and nine month periods ended September 30, 2002 are for the predecessor company. Operating
results for the nine months ended September 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003.



Certain amounts from prior year have been reclassified to conform to the current year presentation.



2. LEGAL PROCEEDINGS



In July 2002, the Company filed a demand for binding arbitration against
EGL, Inc. d/b/a Eagle Global Logistics with the American Arbitration Association to resolve its claim to collect for freight transportation services rendered to EGL in the amount of approximately $3.7 million plus attorneys fees. EGL
subsequently admitted it owed this amount to Kitty Hawk, but asserted that its counterclaims offset its debt to Kitty Hawk.



The arbitration hearing started on June 9, 2003 and concluded on June 13, 2003. The parties submitted their final post-hearing briefs on July 25, 2003. On
August 18, 2003, the arbitrators ruled in favor of Kitty Hawk, awarding Kitty Hawk $3.7 million and denying all of EGLs counterclaims. On September 8, 2003, EGL timely filed a motion to modify and correct the award, which was denied by the
arbitrators on September 23, 2003. The award is to be paid pursuant to a mutually agreeable payment schedule. In October 2003, EGL paid Kitty Hawk $1.5 million. The remaining $2.2 million is scheduled to be paid in four quarterly installments of
$0.5 million beginning in December 2003, with the balance due in December 2004. The remaining payments owed to Kitty Hawk are secured by a letter of credit.



In the normal course of business, the Company is a party to various legal proceedings and other claims. While the outcome of these proceedings and other
claims cannot be predicted with certainty, management does not believe these matters will have a material adverse affect on the Companys financial condition or results of operations.



3. BANKRUPTCY PROCEEDINGS



On or about May 1, 2000 (the Petition Date), Kitty Hawk and all
nine of its subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Texas, Fort Worth Division (the Bankruptcy Court).
These proceedings were jointly administered under case No. 400-42141-BJH-11.



7



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##### Table of Contents

On August 5, 2002, the Bankruptcy Court entered an order dated August 5, 2002 (the Confirmation
Order) confirming the Debtors Final Joint Plan of Reorganization dated August 2, 2002, with certain modifications (as so modified, the Plan of Reorganization). On September 30, 2002, the Plan of Reorganization became
effective (the Effective Date).



Kitty Hawk and its
two wholly-owned subsidiaries, Kitty Hawk Cargo, Inc. (hereafter Cargo) and Kitty Hawk Aircargo, Inc. (hereafter Aircargo), emerged from bankruptcy on the Effective Date. Prior to the Effective Date, the seven other
subsidiaries of Kitty Hawk that filed for bankruptcy were merged with and consolidated into Kitty Hawk pursuant to the Plan of Reorganization. As a result, Kitty Hawk, Cargo and Aircargo are the surviving corporate entities pursuant to the Plan of
Reorganization.



Kitty Hawk is a holding company and does not
currently have any independent operations. Cargo operates an expedited scheduled freight network through its hub in Fort Wayne, Indiana. Aircargo is a FAR Part 121 certificated air carrier and operates a fleet of Boeing 727-200 cargo aircraft for
Cargo and other customers through short-term contracts and ad-hoc charters. The Company continually evaluates businesses and other opportunities, whether or not related to the current businesses, for investment, acquisition and strategic alliances
to enhance shareholder value.



Pursuant to the Plan of
Reorganization, all of Kitty Hawks previously issued common stock and 9.95% Senior Secured Notes due 2004 (the Senior Notes) were cancelled as of the Effective Date. Holders of Kitty Hawks previously issued and outstanding
common stock received no consideration in connection with the cancellation of their shares of common stock.



On or about the Effective Date, in addition to payment of certain administrative claims arising from the Companys bankruptcy proceedings, the
Company delivered $29.1 million to HSBC Bank USA, as successor Trustee and Collateral Trustee (the Trustee), for the benefit of the holders of its Senior Notes (the Noteholders). The Plan of Reorganization provides for the
Companys former general unsecured trade creditors to receive only shares of common stock in exchange for their claims. The Plan of Reorganization also provided for Aircargo to purchase from affiliates of Pegasus Aviation, Inc.
(Pegasus) two aircraft and related engines and to continue to lease four aircraft and related engines from affiliates of Pegasus under modified operating leases as a settlement of Pegasus claims. The purchase of the two aircraft
and related engines from Pegasus occurred in 2002.



On December
23, 2002, the Company filed a motion with the Bankruptcy Court requesting an order modifying the Plan of Reorganization to allow the Company to:



| |  | amend its Second Amended and Restated Certificate of Incorporation to reduce the par value of its common stock (the New Stock) from $0.01 per share to $0.000001 per
share;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | modify its Plan of Reorganization to provide that the non-U.S. citizen holders of the former 9.95% Senior Secured Notes would share ratably in a distribution of 21.5% of the common
stock to be issued under the Plan of Reorganization and, to the extent the non-U.S. citizen holders are entitled to more than 21.5% of the common stock to be issued under the Plan of Reorganization, the non-U.S. citizen holders would receive
warrants to purchase the remaining shares of common stock that they would have otherwise been entitled to receive if they were U.S. citizens; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | issue warrants under the Bankruptcy Code that would be exempt from federal, state or local laws requiring registration of the warrants or New Stock to be issued upon exercise of the
warrants.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On January 29, 2003, the Bankruptcy
Court granted the Companys motion and entered an order on January 31, 2003 modifying the Plan of Reorganization in the manner described above.



As of June 30, 2003, the Company had completed all of the cash payments required by the Plan of Reorganization to be made at or near the Effective Date.
However, one administrative claim in the amount of $1.3 million remained. On August 15, 2003, an unsuccessful mediation was held to resolve the claim. In September 2003 during trial proceedings, Kitty Hawk and the claimant reached a settlement of
the dispute and, on September 16, 2003, the bankruptcy court entered an order providing for the claim to be satisfied upon Kitty Hawks payment of $53,000 to the claimant. Kitty Hawk made the payment on September 16, 2003. Therefore, as of
September 30, 2003, there were no pending claims that could result in material cash payments by Kitty Hawk.



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##### Table of Contents

Because none of the New Stock was issued as of December 31, 2002, the consolidated financial statements
at December 31, 2002 reflect no common stock as being issued or outstanding. In return for debt forgiveness, settlements and other compromises, which were settled in September 2002, the Company issued New Stock and warrants to purchase New Stock to
the Companys former creditors in March 2003 in the following amounts:



|Creditor                                                                         |  | Shares of New Stock Issued |  | Shares of New Stock Represented by Warrants
|-------------------------------------------------------------------------------- |  | -------------------------- |  | -------------------------------------------
|Holders of the Companys former Senior Notes                                     |  | 28,244,655                 |  | 12,255,315                                 
|Trusts for the benefit of the Companys former general unsecured trade creditors |  | 7,000,000                  |  |                                           
|An affiliate of Pegasus Aviation, Inc.                                           |  | 2,500,000                  |  |                                           
|                                                                                 |  |                            |  |                                            
|Total                                                                            |  | 37,744,655                 |  | 12,255,315                                 
|                                                                                 |  |                            |  |                                            



The warrants have an
exercise price of $0.000001 per share, a term of 10 years and are exercisable only by a citizen of the U.S. as defined in 49 U.S.C. § 40102(a)(15). The 7,000,000 shares of New Stock to be issued to the Companys former general unsecured
trade creditors were issued initially to two trusts. These trusts will hold the shares for the benefit of the Companys former general unsecured trade creditors and will distribute the shares once all claims are allowed or dismissed.



4. DISCONTINUED OPERATIONS



Since May 1, 2000, the Company has undergone a significant number of changes
in its operations as it initially entered and later prepared to emerge from bankruptcy. In accordance with SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the operations that ceased, or were disposed of,
in the last three years have been presented as discontinued operations and include the operations of the Companys wide-body cargo airline, the non-continental U.S. operations of its expedited scheduled freight network and its air logistics
service provider (including a small aircraft maintenance operation). The results of these operations and the related assets and liabilities of these operations have been segregated in the accompanying consolidated financial statements for the three
and nine month periods ended September 30, 2002. There were no discontinued operations during the three and nine month periods ended September 30, 2003.



On May 1, 2000, the Company ceased the operations of its wide-body cargo airline and the non-continental U.S. operations of its expedited scheduled
freight network. The property and equipment and other assets (inventory and aircraft supplies, airline operating certificates, etc.) related to these operations were taken out of service and either sold in a series of auctions, sold in individual
transactions, or title was relinquished to parties with a secured interest in the assets.



Any assets of the discontinued operations which were not sold or otherwise disposed of as of August 31, 2002 became property of the Company when its subsidiaries were merged into it prior to the Effective Date and are
included in the accompanying balance sheets as continuing operations. These assets were comprised mainly of accounts receivable, various deposits and an office building complex in Michigan (which was subsequently sold in July 2003) and are not
revenue producing. Any residual liabilities associated with these operations were treated in accordance with the Companys Plan of Reorganization.



The following table summarizes the components of the Companys discontinued operations:



|                                  |  | Three months ended September 30, 2002 |         |   | Nine months ended September 30, 2002 |  
|--------------------------------- |  | ------------------------------------- | ------- | - | ------------------------------------ | -
|                                  |  | (in thousands)                        |        
|Revenue                           |  | $                                     | 433     |   |                                      | $
|Operating expenses                |  |                                       | 221     |   |                                      |  
|Other expense                     |  |                                       | 33,297  |   |                                      |  
|                                  |  |                                       |         |   |                                      |  
|Loss from discontinued operations |  | $                                     | (33,085 | ) |                                      | $
|                                  |  |                                       |         |   |                                      |  



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##### Table of Contents

5. SEGMENT REPORTING



The Companys current continuing operations are comprised of two segments  an expedited scheduled freight network
and a cargo airline. The cargo airline supports the expedited scheduled freight network by transporting cargo in its fleet of Boeing 727-200 cargo aircraft. Each segments respective financial performance is detailed below. Each segment is
currently evaluated on financial performance at the operating income line.



The Company currently operates a major independent city-to-city expedited scheduled freight network in the continental U.S. and selected cities in Canada providing next-morning and two-day delivery service. In
addition, the Company has business alliances that allow it to provide service to Alaska and Hawaii. As an independent freight network, the Company does not typically provide ground transportation from shippers to the cargo facilities or from the
cargo facilities to recipients. As a result, the Company primarily provides freight services to freight forwarders who arrange pick up from shippers and final delivery to recipients. On occasion, as an additional fee service, the Company arranges
for the initial pick up of freight from shippers as well as the final delivery to recipients.



In addition to supporting the expedited scheduled freight network, the cargo airline also provides dedicated air freight services for a variety of third parties. These services are provided under contractual
arrangements where the Company provides the aircraft, crew, maintenance and insurance (ACMI). Additionally, the cargo airline performs ad hoc charters for third parties. In support of the expedited scheduled freight network, the cargo airline
allocates its cost on a block hour basis, which is reflected as revenue from intersegment operations in the following table.



The column labeled other consists of corporate activities. Business assets are owned by or allocated to each of the business segments. Assets
included in the column labeled other include cash, allowance for doubtful accounts and the corporate headquarters building.



10



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##### Table of Contents

|                                       |  | Scheduled Freight Network |        |   | Cargo Airline |   | Other  |  |   | Eliminations |   |  | Consolidated Balance |        
|-------------------------------------- |  | ------------------------- | ------ | - | ------------- | - | ------ |  | - | ------------ | - |  | -------------------- | -------
|                                       |  | (in thousands)            |       
|Successor:                             |  |                           |        |   |               |   |        |  |   |              |   |  |                      |        
|Three months ended September 30, 2003: |  |                           |        |   |               |   |        |  |   |              |   |  |                      |        
|Revenue from external customers        |  | $                         | 33,484 |   |               | $ | 141    |  | $ |             |   |  | $                    |       
|Revenue from intersegment operations   |  |                           |       |   |               |   | 10,895 |  |   |             |   |  |                      | (10,895
|Depreciation and amortization          |  |                           | 86     |   |               |   | 925    |  |   |             |   |  |                      |       
|Operating income                       |  |                           | 2,693  |   |               |   | 68     |  |   | (83          | ) |  |                      |       
|Interest expense                       |  |                           |        |   |               |   |        |  |   |              |   |  |                      |        
|Other income                           |  |                           |        |   |               |   |        |  |   |              |   |  |                      |        
|Net income                             |  |                           |        |   |               |   |        |  |   |              |   |  |                      |        
|                                       |  |                           |        |   |              
|Total assets                           |  | $                         | 8,052  |   |               | $ | 15,919 |  | $ | 17,986       |   |  | $                    |       
|                                       |  |                           |        |   |              
|Nine months ended September 30, 2003:  |  |                           |        |   |               |   |        |  |   |              |   |  |                      |        
|Revenue from external customers        |  | $                         | 91,422 |   |               | $ | 4,457  |  | $ |             |   |  | $                    |       
|Revenue from intersegment operations   |  |                           |       |   |               |   | 28,960 |  |   |             |   |  |                      | (28,960
|Depreciation and amortization          |  |                           | 262    |   |               |   | 2,542  |  |   |             |   |  |                      |       
|Operating income (loss)                |  |                           | (3,431 | ) |               |   | 751    |  |   | (324         | ) |  |                      |       
|Interest expense                       |  |                           |        |   |               |   |        |  |   |              |   |  |                      |        
|Other income                           |  |                           |        |   |               |   |        |  |   |              |   |  |                      |        
|Net income                             |  |                           |        |   |               |   |        |  |   |              |   |  |                      |        
|                                       |  |                           |        |   |              
|Total assets                           |  | $                         | 8,052  |   |               | $ | 15,919 |  | $ | 17,986       |   |  | $                    |       
|                                      
|                                       |  |                           |        |   |              
|Predecessor:                           |  |                           |        |   |               |   |        |  |   |              |   |  |                      |        
|Three months ended September 30, 2002: |  |                           |        |   |               |   |        |  |   |              |   |  |                      |        
|Revenue from external customers        |  | $                         | 30,492 |   |               | $ | 1,153  |  | $ |             |   |  | $                    |       
|Revenue from intersegment operations   |  |                           |       |   |               |   | 11,790 |  |   |             |   |  |                      | (11,790
|Depreciation and amortization          |  |                           | 192    |   |               |   | 1,196  |  |   |             |   |  |                      |       
|Operating income (loss)                |  |                           | (317   | ) |               |   | 139    |  |   | 21           |   |  |                      |       
|Interest expense                       |  |                           |        |   |               |   |        |  |   |              |   |  |                      |        
|Other expense                          |  |                           |        |   |               |   |        |  |   |              |   |  |                      |        
|Loss from continuing operations        |  |                           |        |   |               |   |        |  |   |              |   |  |                      |        
|                                       |  |                           |        |   |              
|Total assets                           |  | $                         | 3,687  |   |               | $ | 19,802 |  | $ | 23,865       |   |  | $                    |       
|                                       |  |                           |        |   |              
|Nine months ended September 30, 2002:  |  |                           |        |   |               |   |        |  |   |              |   |  |                      |        
|Revenue from external customers        |  | $                         | 84,797 |   |               | $ | 2,530  |  | $ |             |   |  | $                    |       
|Revenue from intersegment operations   |  |                           |       |   |               |   | 36,096 |  |   |             |   |  |                      | (36,096
|Depreciation and amortization          |  |                           | 489    |   |               |   | 4,011  |  |   |             |   |  |                      |       
|Operating loss                         |  |                           | (6,120 | ) |               |   | 373    |  |   | (593         | ) |  |                      |        
|Interest expense                       |  |                           |        |   |               |   |        |  |   |              |   |  |                      |        
|Other expense                          |  |                           |        |   |               |   |        |  |   |              |   |  |                      |        
|Loss from continuing operations        |  |                           |        |   |               |   |        |  |   |              |   |  |                      |        
|                                       |  |                           |        |   |              
|Total assets                           |  | $                         | 3,687  |   |               | $ | 19,802 |  | $ | 23,865       |   |  | $                    |       



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##### Table of Contents

6. STOCK OPTIONS



In September 2003, the Companys stockholders approved the Kitty Hawk 2003 Long Term Equity Incentive Plan (the
Plan), which provides for the issuance of up to 6,500,000 shares of common stock. Under the Plan, members of the Companys Board of Directors and management have been granted options to acquire 5,125,000 shares of common stock. The
options have an exercise price of $0.30 per share and vest over a period of 36 months for the grants to the Board of Directors and 48 months for the grants to the Companys management. The options expire ten years from the date of grant,
subject to earlier forfeiture provisions.



The Company accounts
for the Plan under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. The Company has recorded stock-based employee compensation cost related to the
grant of options to acquire 5,125,000 shares of common stock, as the fair market value of the underlying common stock on the measurement date exceeded the exercise price of these options by $0.01 per share.



The Company is required to disclose the pro forma effect of accounting for
stock options using the fair value recognition provisions of SFAS Statement No. 123, Accounting for Stock-Based Compensation and SFAS Statement No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure. The Company uses the Black-Scholes option pricing model to calculate the fair value of options for the pro forma disclosures. The key assumptions for this valuation method include the expected life of the option (7 years), stock
price volatility (50%), risk-free interest rate (4.684%) and an exercise price ($0.30 per share). Some of these assumptions are judgmental and highly sensitive in the determination of pro forma compensation expense. The following table illustrates
the effect on net income and earnings per share if the Company had applied fair value accounting.



|                                                                                                                                            |  | Successor                             |       |  | Predecessor                    |   |         | Successor |  |   | Predecessor | 
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ----- |  | ------------------------------ | - | ------- | --------- |  | - | ----------- | 
|                                                                                                                                            |  | Three months endedSeptember 30,       |       |  | Nine months endedSeptember 30, |  
|                                                                                                                                            |  | 2003                                  |       |  | 2002                           |   |         | 2003      |  |   | 2002        | 
|                                                                                                                                            |  | (in thousands, except per share data) |      
|Net income, as reported                                                                                                                     |  | $                                     | 5,790 |  |                                | $ | 338,124 |           |  | $ | 409         | 
|Add: Total stock-based employee compensation expense determined under the intrinsic method for all awards, net of related tax
effects       |  |                                       | 11    |  |                                |   |        |           |  |   | 11          | 
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related
tax effects |  |                                       | 207   |  |                                |   |        |           |  |   | 207         | 
|                                                                                                                                            |  |                                       |       |  |                                |   |         |           |  |   |             | 
|Pro forma net income                                                                                                                        |  | $                                     | 5,594 |  |                                | $ | 338,124 |           |  | $ | 213         | 
|                                                                                                                                            |  |                                       |       |  |                                |   |         |           |  |   |             | 
|Basic earnings (loss) per share:                                                                                                            |  |                                       |       |  |                                |   |         |           |  |   |             | 
|Continuing operations  as reported                                                                                                         |  | $                                     | 0.12  |  |                                | $ | (0.40   | )         |  | $ | 0.01        | 
|                                                                                                                                            |  |                                       |       |  |                                |   |         |           |  |   |             | 
|Continuing operations  pro forma                                                                                                           |  | $                                     | 0.11  |  |                                | $ | (0.40   | )         |  | $ | 0.00        | 
|                                                                                                                                            |  |                                       |       |  |                                |   |         |           |  |   |             | 
|Discontinued operations  as reported                                                                                                       |  | $                                     |      |  |                                | $ | (1.93   | )         |  | $ |            | 
|                                                                                                                                            |  |                                       |       |  |                                |   |         |           |  |   |             | 
|Discontinued operations  pro forma                                                                                                         |  | $                                     |      |  |                                | $ | (1.93   | )         |  | $ |            | 
|                                                                                                                                            |  |                                       |       |  |                                |   |         |           |  |   |             | 
|Extraordinary item, net  as reported                                                                                                       |  | $                                     |      |  |                                | $ | 22.07   |           |  | $ |            | 
|                                                                                                                                            |  |                                       |       |  |                                |   |         |           |  |   |             | 
|Extraordinary item, net  pro forma                                                                                                         |  | $                                     |      |  |                                | $ | 22.07   |           |  | $ |            | 
|                                                                                                                                            |  |                                       |       |  |                                |   |         |           |  |   |             | 
|Total basic earnings per share  as reported                                                                                                |  | $                                     | 0.12  |  |                                | $ | 19.74   |           |  | $ | 0.01        | 
|                                                                                                                                            |  |                                       |       |  |                                |   |         |           |  |   |             | 
|Total basic earnings per share - pro forma                                                                                                  |  | $                                     | 0.11  |  |                                | $ | 19.74   |           |  | $ | 0.00        | 
|                                                                                                                                            |  |                                       |       |  |                                |   |         |           |  |   |             | 
|Diluted earnings (loss) per share:                                                                                                          |  |                                       |       |  |                                |   |         |           |  |   |             | 
|Continuing operations  as reported                                                                                                         |  | $                                     | 0.11  |  |                                | $ | (0.40   | )         |  | $ | 0.01        | 
|                                                                                                                                            |  |                                       |       |  |                                |   |         |           |  |   |             | 
|Continuing operations  pro forma                                                                                                           |  | $                                     | 0.11  |  |                                | $ | (0.40   | )         |  | $ | 0.00        | 
|                                                                                                                                            |  |                                       |       |  |                                |   |         |           |  |   |             | 
|Discontinued operations  as reported                                                                                                       |  | $                                     |      |  |                                | $ | (1.93   | )         |  | $ |            | 
|                                                                                                                                            |  |                                       |       |  |                                |   |         |           |  |   |             | 
|Discontinued operations  pro forma                                                                                                         |  | $                                     |      |  |                                | $ | (1.93   | )         |  | $ |            | 
|                                                                                                                                            |  |                                       |       |  |                                |   |         |           |  |   |             | 
|Extraordinary item, net  as reported                                                                                                       |  | $                                     |      |  |                                | $ | 22.07   |           |  | $ |            | 
|                                                                                                                                            |  |                                       |       |  |                                |   |         |           |  |   |             | 
|Extraordinary item, net  pro forma                                                                                                         |  | $                                     |      |  |                                | $ | 22.07   |           |  | $ |            | 
|                                                                                                                                            |  |                                       |       |  |                                |   |         |           |  |   |             | 
|Total diluted earnings per share  as reported                                                                                              |  | $                                     | 0.11  |  |                                | $ | 19.74   |           |  | $ | 0.01        | 
|                                                                                                                                            |  |                                       |       |  |                                |   |         |           |  |   |             | 
|Total diluted earnings (loss) per share - pro forma                                                                                         |  | $                                     | 0.11  |  |                                | $ | 19.74   |           |  | $ | 0.00        | 
|                                                                                                                                            |  |                                       |       |  |                                |   |         |           |  |   |             | 



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##### Table of Contents

7. EARNINGS PER SHARE



Predecessor:Basic earnings per share, for the three and nine month periods ended September 30, 2002, is based upon
the weighted average number of common shares outstanding during the period. There were no dilutive shares outstanding during the period presented. All predecessor shares were cancelled pursuant to the Plan of Reorganization (see Note 3).



Successor:Pursuant to the Plan of Reorganization (see Note 3), in
March 2003, the Company issued common shares and warrants to purchase common shares to its former creditors. Because the exercise price of the warrants is nominal, such warrants are treated as outstanding common shares for purposes of calculating
loss per share. These shares are deemed to be outstanding for the entire period presented. Other than the warrants and stock options (see Note 6), at September 30, 2003, the Company had no other dilutive securities outstanding.



8. RELATED PARTY TRANSACTIONS



The Company has agreements with Pegasus and the Kitty Hawk Collateral
Liquidating Trust (the Trust) to lease or use aircraft and engines. Each of Pegasus and certain beneficiaries of the Trust own more than 5.0% of New Stock. Additionally, a member of the Companys Board of Directors is a managing
director of one of the beneficiaries of the Trust. See Item 13. Certain Relationships and Related Transactions of the Companys Annual Report on Form 10-K for the year ended December 31, 2002 for more information related to these
agreements.



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##### Table of Contents

9. COLLECTIVE BARGAINING AGREEMENT



The pilots of Aircargo, the Companys air cargo subsidiary, are
represented by the Kitty Hawk Pilots Association (KPA), which is not currently affiliated with a national labor organization. On October 16, 2003, the KPA ratified a Merger Agreement to merge with the Airline Pilots Association
(ALPA), a national union representing airline pilots. The Merger Agreement was also ratified by the Executive Committee of ALPA on October 21, 2003. The KPA has notified Aircargo that the merger is scheduled to become effective on
January 1, 2004.



On October 17, 2003, the KPA ratified its
first Collective Bargaining Agreement with Aircargo. The agreement covers all flight crew members of Aircargo with respect to compensation, benefits, scheduling, grievances, seniority, and furlough and has a ten year term. The agreement provides
that no pilot who is actively employed and on the payroll of Aircargo on the date of implementation of the agreement shall be furloughed during the term of the agreement, except in certain limited circumstances. The agreement also provides that at
the third and sixth anniversaries of the agreement, Aircargo and the KPA each have a right to designate any two sections of the agreement for renegotiation, which may include compensation and benefits. If after sixty days Aircargo and the KPA are
unsuccessful in their negotiations of these sections, the agreement provides that each party will submit their best and final offer to final offer or baseball-style binding arbitration. Aircargo anticipates that the agreement will be
executed and fully implemented by December 1, 2003. Aircargo does not anticipate that the agreement will have a material adverse affect on its costs or operations.



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##### Table of Contents

ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



OVERVIEW



Kitty Hawk is a holding company and currently operates through its two wholly-owned subsidiaries, Kitty Hawk Cargo and Kitty Hawk Aircargo. For the nine
months ended September 30, 2003, we generated approximately 95% of our revenue from our expedited scheduled freight network, which is operated by Kitty Hawk Cargo. Kitty Hawk Aircargo, our cargo airline, provides dedicated air freight transportation
services for Kitty Hawk Cargos expedited scheduled freight network as well as a variety of customers through short-term contracts and ad-hoc charters. Kitty Hawk Aircargo provides these services using its fleet of owned and leased Boeing
727-200 cargo aircraft. In addition, we continually evaluate businesses and other opportunities, whether or not related to our current businesses, for investment, acquisition and strategic alliances to enhance shareholder value.



We currently operate a major independent city-to-city expedited scheduled
freight network in the continental U.S. and selected cities in Canada providing next-morning and two-day delivery service. In addition, we have business alliances that allow us to provide service to Alaska and Hawaii. As an independent freight
network, we typically do not transport freight from shippers to our cargo facilities or from our cargo facilities to recipients. As a result, we primarily provide freight services to freight forwarders who either transport the freight to and from
our cargo facilities in the origin and destination cities we serve or arrange for others to provide these services. On occasion, as an additional fee service, we arrange for the initial pick up of freight from shippers as well as the final delivery
to recipients.



We emerged from bankruptcy on September 30,
2002 and adopted Statement of Position 90-7, Financial Reporting by Entities in Reorganization under the Bankruptcy Code, or Fresh Start Accounting. In accordance with Fresh Start Accounting, all of our assets and liabilities were
restated to reflect their respective estimated fair market values as of September 30, 2002. Our consolidated financial statements after September 30, 2002 are not comparable to the periods prior to September 30, 2002. Differences between periods due
to Fresh Start Accounting are explained as necessary. The discussion that follows represents the operating results of the successor company as compared to the predecessor company and should be read in conjunction with the information set forth under
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2002.



Revenue. Scheduled freight revenue is generated from freight transportation services provided by our expedited
scheduled freight network. Other revenue includes:



| | ACMI revenue, which is generated from contracts with third-parties by our cargo airline under which we generally provide the aircraft, crew, maintenance and insurance, known
as ACMI; and
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Miscellaneous revenue, which is generated from ad hoc charters provided by our cargo airline and freight handling services provided for third-parties during 2002.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



Cost of Revenue.Included in our cost of
revenue are the following major categories:



| | Flight Expense, which consists of costs related to the flight operations of our cargo airline, including:
|- | ---------------------------------------------------------------------------------------------------------



| |  | crew member wages, benefits, training and travel;
| | - | -------------------------------------------------



| |  | operating lease expense for leased aircraft operated by us;
| | - | -----------------------------------------------------------



| |  | insurance costs related to aircraft operated by us; and
| | - | -------------------------------------------------------



| |  | flight operations and airline management costs, wages and benefits.
| | - | -------------------------------------------------------------------



| | Transportation Expense, which consists of costs related to the physical movement of freight between our cargo facilities and which is not otherwise classified as flight
expense, including:
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | third-party aircraft charter expense;
| | - | -------------------------------------



| |  | aircraft ground operating costs, such as landing and parking fees charged by airports and cost of deicing aircraft;
| | - | -------------------------------------------------------------------------------------------------------------------



| |  | trucking expenses for cities in our expedited scheduled freight network that are not served by our aircraft; and
| | - | ----------------------------------------------------------------------------------------------------------------



| |  | pickup and/or final delivery expenses as directed by customers.
| | - | ---------------------------------------------------------------



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##### Table of Contents

| | Fuel, which consists of the all-inclusive cost of all jet fuel consumed in our expedited scheduled freight network and on ad hoc charters that include jet fuel in the charter
service, and the cost of all taxes, fees and surcharges necessary to deliver the jet fuel into the aircraft.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Maintenance Expense, which consists of costs to maintain aircraft and aircraft engines operated by our cargo airline, including:
|- | --------------------------------------------------------------------------------------------------------------------------------



| |  | wages and benefits for maintenance and records personnel;
| | - | ---------------------------------------------------------



| |  | costs for contract mechanics at cargo facility outstations;
| | - | -----------------------------------------------------------



| |  | costs of aircraft parts and supplies; and
| | - | -----------------------------------------



| |  | accruals for light C-checks and heavy shop visits for engines.
| | - | --------------------------------------------------------------



| | Freight Handling Expense, which consists of costs to handle the loading and unloading of freight on aircraft and trucks operating within our expedited scheduled freight
network, including:
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | wages and benefits for our Fort Wayne, Indiana hub sort and ramp operations personnel;
| | - | --------------------------------------------------------------------------------------



| |  | contract services to warehouse, load and unload aircraft principally at cargo facility outstations; and
| | - | -------------------------------------------------------------------------------------------------------



| |  | wages and benefits for our outstation cargo facility personnel.
| | - | ---------------------------------------------------------------



| | Depreciation and Amortization, which consists of depreciation and amortization expenses for our owned airframes and aircraft engines and freight-handling equipment.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Operating Overhead, which consists of direct overhead costs related to operating our expedited scheduled freight network and cargo airline, including:
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | wages and benefits for operational managers of Kitty Hawk Cargo;
| | - | ----------------------------------------------------------------



| |  | expedited scheduled freight network sales and marketing expenses;
| | - | -----------------------------------------------------------------



| |  | wages and benefits for customer service personnel;
| | - | --------------------------------------------------



| |  | rent and utilities;
| | - | -------------------



| |  | bad debt expense; and
| | - | ---------------------



| |  | general operational office expenses.
| | - | ------------------------------------



General and Administrative Expenses. General and administrative expenses consist of salaries, benefits and expenses for executive management (other
than management of Kitty Hawk Aircargo and Kitty Hawk Cargo), information technology, human resources, accounting, finance, legal and corporate communications personnel. In addition, costs for strategic planning, financial planning and asset
acquisitions are included in general and administrative expenses. Also included are legal and professional fees and consulting fees.



Discontinued Operations.Discontinued operations consist of the activities in the three and nine months ended September 30, 2002 related to
disposing of the assets of Kitty Hawk International, our wide-body cargo airline. This business ceased operating immediately prior to the bankruptcy proceedings. See Item 1. Business  Changes in Our Business Operations Since 2000
in our Annual Report on Form 10-K for the year ended December 31, 2002.



Critical Accounting Policies.For a discussion of our critical accounting policies refer to Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations  Critical Accounting
Policies included in our Annual Report on Form 10-K for the year ended December 31, 2002. There have been no material changes to the critical accounting policies discussed in our Annual Report on Form 10-K for the year ended December 31, 2002.



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##### Table of Contents

RESULTS OF OPERATIONS



The following table presents, for the periods indicated, condensed consolidated statement of operations data expressed as a
percentage of total revenue:



|                                                   |  | Three monthsendedSeptember 30, |   |  | Nine monthsendedSeptember 30, |  
|-------------------------------------------------- |  | ------------------------------ | - |  | ----------------------------- | -
|                                                   |  | 2003                           |   |  | 2002                          |  
|Revenue:                                           |  |                                |   |  |                               |  
|Scheduled freight                                  |  | 99.6                           | % |  | 96.4                          | %
|Other                                              |  | 0.4                            |   |  | 3.6                           |  
|                                                   |  |                                |   |  |                               |  
|Total revenue                                      |  | 100.0                          |   |  | 100.0                         |  
|Cost of revenue                                    |  | 85.7                           |   |  | 94.9                          |  
|                                                   |  |                                |   |  |                               |  
|Gross profit (loss)                                |  | 14.3                           |   |  | 5.1                           |  
|General and administrative expenses                |  | 6.3                            |   |  | 5.6                           |  
|                                                   |  |                                |   |  |                               |  
|Operating income (loss) from continuing operations |  | 8.0                            |   |  | (0.5                          | )
|Other (income) expense:                            |  |                                |   |  |                               |  
|Interest expense                                   |  | 0.3                            |   |  | 2.8                           |  
|Reorganization expense                             |  |                               |   |  | 115.1                         |  
|Other expense                                      |  | (9.6                           | ) |  | (96.7                         | )
|                                                   |  |                                |   |  |                               |  
|Total other (income) expense                       |  | (9.3                           | ) |  | 21.2                          |  
|                                                   |  |                                |   |  |                               |  
|Income (loss) from continuing operations           |  | 17.3                           |   |  | (21.7                         | )
|Loss from discontinued operations                  |  |                               |   |  | (104.6                        | )
|Extraordinary item, net                            |  |                               |   |  | 1,194.7                       |  
|                                                   |  |                                |   |  |                               |  
|Net income                                         |  | 17.3                           | % |  | 1,068.4                       | %
|                                                   |  |                                |   |  |                               |  



QUARTER ENDED SEPTEMBER 30, 2003
COMPARED TO QUARTER ENDED SEPTEMBER 30, 2002



REVENUE



General. The following table presents, for the periods
indicated, the components of our revenue in dollars and as a percentage of our total revenue and the percentage change from period-to-period:



|                  |  | Three months ended September 30, |        |                             |       |  
|----------------- |  | -------------------------------- | ------ | --------------------------- | ----- | -
|                  |  | 2003                             |        |                             | 2002  |  
|                  |  | Revenue                          |        | Percentage of Total Revenue |       |  
|                  |  | (dollars in thousands)           |        |                             |       |  
|Scheduled freight |  | $                                | 33,484 |                             | 99.6  | %
|Other:            |  |                                  |        |                             |       |  
|ACMI              |  |                                  | 62     |                             | 0.2   |  
|Miscellaneous     |  |                                  | 79     |                             | 0.2   |  
|                  |  |                                  |        |                             |       |  
|Total revenue     |  | $                                | 33,625 |                             | 100.0 | %
|                  |  |                                  |        |                             |       |  



Scheduled
Freight. For the quarter ended September 30, 2003, the increase in our scheduled freight revenue was primarily due to an increase of 10.1% in our average yield due to a higher mix of our higher yielding next-morning freight product and price
increases, including a fuel surcharge to mitigate increases in our fuel expense. Our chargeable weight decreased 0.6% from the quarter ended September 30, 2002.



ACMI. For the quarter ended September 30, 2003, our ACMI revenue was primarily from ACMI flights provided by our cargo airline on an ad-hoc
basis. We flew less of these flights during the quarter ended September 30, 2003 as compared to the quarter ended September 30, 2002.



Miscellaneous. For the quarter ended September 30, 2003, our miscellaneous revenue resulted from performing maintenance on an aircraft operated by
us, but owned by the Kitty Hawk Collateral Liquidating Trust, on which we were not obligated to perform maintenance under our aircraft use agreement. During the quarter ended September 30, 2002, our miscellaneous revenue resulted from providing
aircraft ground handling for customers at one of our company operated outstations, which ceased in July 2002 when we contracted with a third-party to provide our aircraft ground handling services at this same outstation.



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##### Table of Contents

COST OF REVENUE



General.The following table presents, for the periods indicated, the components of our cost of revenue in dollars and as a percentage of total
revenue and the percentage change from period-to-period:



|                              |  | Three months ended September 30, |        |                             |      |  
|----------------------------- |  | -------------------------------- | ------ | --------------------------- | ---- | -
|                              |  | 2003                             |        |                             | 2002 |  
|                              |  | Cost of Revenue                  |        | Percentage of Total Revenue |      |  
|                              |  | (dollars in thousands)           |        |                             |      |  
|Flight expense                |  | $                                | 6,783  |                             | 20.2 | %
|Transportation expense        |  |                                  | 2,304  |                             | 6.9  |  
|Fuel                          |  |                                  | 7,539  |                             | 22.4 |  
|Maintenance expense           |  |                                  | 2,793  |                             | 8.3  |  
|Freight handling expense      |  |                                  | 6,232  |                             | 18.5 |  
|Depreciation and amortization |  |                                  | 1,011  |                             | 3.0  |  
|Operating overhead            |  |                                  | 2,166  |                             | 6.4  |  
|                              |  |                                  |        |                             |      |  
|Total cost of revenue         |  | $                                | 28,828 |                             | 85.7 | %
|                              |  |                                  |        |                             |      |  



Flight Expense.
For the quarter ended September 30, 2003, flight expense decreased $0.6 million as a result of reduced aircraft lease expense from renegotiations of our aircraft lease agreements through our bankruptcy proceedings and the purchase of a previously
leased aircraft in August 2003. We also generated savings from the renewal of our aircraft liability insurance in June 2003 at more competitive rates than we experienced in the prior policy year. Additionally, we flew 4.5% fewer block hours in the
quarter ended September 30, 2003 as compared to the quarter ended September 30, 2002 due to less demand from third party ACMI customers.



As a percentage of our total revenue, flight expense decreased to 20.2% for the quarter ended September 30, 2003 from 23.2% for the quarter ended
September 30, 2002. This decrease is due to an increase in our revenue without adding any additional aircraft to our fleet.



Transportation Expense. For the quarter ended September 30, 2003, transportation expense increased $0.1 million, or 6.5%, from the quarter ended
September 30, 2002. This increase is primarily due to increased landing and parking rates at the airports serviced by the cargo airline.



Fuel. For the quarter ended September 30, 2003, fuel expense increased $0.3 million, or 4.6%, as compared to the quarter ended September 30, 2002.
Fuel expense is comprised of two elements: our average cost per gallon and the number of gallons used by the aircraft. Our average cost per gallon of fuel increased $0.05, or 4.9%, for the quarter ended September 30, 2003 as compared to the quarter
ended September 30, 2002. Even though we implemented a jet fuel conservation program in the first quarter of 2003 to help lower our overall fuel usage, the number of gallons used during the quarter ended September 30, 2003 remained unchanged at 7.5
million gallons as compared to the quarter ended September 30, 2002 due to increased payloads and additional markets served, among other things. To mitigate the increase in our average cost per gallon of jet fuel, we continue to assess a fuel
surcharge, which is included in scheduled freight revenue.



Maintenance Expense. For the quarter ended September 30, 2003, maintenance expense decreased in absolute dollars and as a percentage of total revenue primarily due to flying 4.5% fewer hours and accruing fewer reserves for heavy
aircraft maintenance. During 2002, we determined that in light of declining fair market values for our Boeing 727-200 cargo aircraft and the general availability of replacement cargo aircraft, we would plan to permanently retire some of our
airframes and aircraft engines at their next scheduled heavy maintenance event, rather than performing the scheduled heavy maintenance. As a result, we were no longer required to record maintenance reserves for these airframes and aircraft engines,
which further reduced our maintenance expense in the second quarter of 2003. We achieved additional savings in our third-party aircraft maintenance costs as a result of rate negotiations and performing work with our own employees, as well as using
spare parts from our owned aircraft that have been permanently parked.



Freight Handling Expense. For the quarter ended September 30, 2003, freight handling expense increased 8.0% compared to the quarter ended September 30, 2002 despite the fact that we carried 0.6% less chargeable weight pounds in our
expedited scheduled freight network. During the first quarter of 2003, we renegotiated many of our outstation freight handling contracts and obtained more favorable rates. In addition, we have closed our four company operated outstations and
substituted third-party freight handling services at lower all-in costs during 2003. As a result of closing these company operated outstations, costs previously included in operating overhead such as rent and utilities, are now included in freight
handling expense. See also Operating Overhead.



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##### Table of Contents

Depreciation and Amortization. For the quarter ended September 30, 2003, depreciation and
amortization expenses declined in absolute dollars and as a percentage of total revenue primarily due to the adoption of Fresh Start Accounting, which reduced our overall property and equipment net book value.



Operating Overhead. For the quarter ended September 30, 2003,
operating overhead decreased in absolute dollars and as a percentage of revenue due to the reduction in the scope of our operations during the third quarter of 2003 as compared to the third quarter of 2002 and due to savings achieved through our new
outstation freight handling contracts. The costs related to these contracts are included in freight handling expense.



GROSS PROFIT



For the quarter ended September 30, 2003, we recognized gross profit of $4.8 million, which was an increase of $3.2 million as compared to the quarter
ended September 30, 2002. The increase was primarily due to the increase in our overall revenue combined with several cost cutting measures that have been achieved since September 30, 2002.



GENERAL AND ADMINISTRATIVE EXPENSE



General and administrative expense increased by $0.3 million, or 18.9%,
during the quarter ended September 30, 2003 as compared to the quarter ended September 30, 2002. The increase is primarily due to professional fees related to our crew member collective bargaining negotiations, various other legal matters, trailing
bankruptcy expenses related to claims resolution, and expenses related to filing periodic and other reports under the Securities Exchange Act of 1934. In the quarter ended September 30, 2002, all bankruptcy related expenses are recognized in
reorganization expense and we had lower expenses related to being a publicly held company until we emerged from bankruptcy on September 30, 2002.



INTEREST EXPENSE AND OTHER (INCOME) EXPENSE



Interest expense decreased by $0.8 million, or 88.2%, during the quarter ended September 30, 2003 as compared to the quarter ended September 30, 2002.
This decrease is due to a $37.5 million reduction in outstanding debt since September 2002. Reorganization expense decreased from $36.4 million to zero during the quarter ended September 30, 2003 as compared to the quarter ended September 30, 2002
due to our exit from bankruptcy in September 2002. Other income decreased by $27.4 million for the quarter ended September 30, 2003 as compared to the quarter ended September 30, 2002. Other income for the quarter ended September 30, 2002 resulted
from $29.4 million of contract settlement income recognized in August 2002 related to our W-Net US Postal Service contract termination for convenience claim, interest income on cash invested and the recovery of a claim by the predecessor company.
Other income for the quarter ended September 30, 2003 relates primarily to the recovery of $2.9 million of bad debt expense and other operating expenses taken in 2001 for the predecessor company related to a dispute with EGL, Inc. (see Part II.
Other Information, Item 1. Legal Proceedings  Eagle Global Logistics) and the recovery of retroactive adjustments on a workers compensation policy for the predecessor company.



INCOME FROM CONTINUING OPERATIONS



We generated income from continuing operations for the quarter ended September 30, 2003 of $5.8 million as compared to the $6.9 million loss from
continuing operations in the quarter ended September 30, 2002. Income from continuing operations for the quarter ended September 30, 2003 includes the net recovery of $2.9 million related to a dispute with EGL, Inc. which is non-recurring and
included in other income.



LOSS FROM DISCONTINUED OPERATIONS



For the quarter ended September 30, 2003, we had no income or
loss from our discontinued operations as we disposed of substantially all discontinued operations assets and liabilities in September 2002 in connection with our emergence from bankruptcy. Any remaining assets became the property of Kitty Hawk. For
the quarter ended September 30, 2002, the losses from discontinued operations were primarily attributable to the disposal of assets at less than estimated fair market values.



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##### Table of Contents

EXTRAORDINARY ITEM



At September 30, 2002, pursuant to Fresh Start Accounting, upon emergence from bankruptcy, liabilities subject to compromise
in the amount of $394.7 million were exchanged for the right to receive new common stock or warrants to acquire new common stock as part of the discharge of debt under our plan of reorganization. After subtracting the reorganization value of $16.6
million which we distributed as common stock or warrants to acquire common stock, we recognized an extraordinary gain from extinguishment of debt of $378.1 million.



NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2002



REVENUE



General. The following table presents, for the periods indicated, the components of our revenue in dollars and as a
percentage of our total revenue and the percentage change from period-to-period:



|                  |  | Nine months ended September 30, |        |                             |       |  
|----------------- |  | ------------------------------- | ------ | --------------------------- | ----- | -
|                  |  | 2003                            |        |                             | 2002  |  
|                  |  | Revenue                         |        | Percentage of Total Revenue |       |  
|                  |  | (dollars in thousands)          |        |                             |       |  
|Scheduled freight |  | $                               | 91,422 |                             | 95.4  | %
|Other:            |  |                                 |        |                             |       |  
|ACMI              |  |                                 | 4,058  |                             | 4.2   |  
|Miscellaneous     |  |                                 | 399    |                             | 0.4   |  
|                  |  |                                 |        |                             |       |  
|Total revenue     |  | $                               | 95,879 |                             | 100.0 | %
|                  |  |                                 |        |                             |       |  



Scheduled
Freight. For the nine months ended September 30, 2003, the increase in our scheduled freight revenue was primarily due to an increase of 9.2% in our average yield, as our chargeable weight decreased less than 1.0%. The yield increase was due to
price increases implemented January 2003, product mix improvements and increases in our fuel surcharges to mitigate increases in our fuel expense.



ACMI. For the nine months ended September 30, 2003, our ACMI revenue was derived primarily from a one-year ACMI contract we entered into in
December 2002 to provide BAX Global with three Boeing 727-200 cargo aircraft. This contract was cancelled effective May 31, 2003 pursuant to the contracts cancellation clause that required 30 days notice by either party. The cancellation was
principally due to lower than expected freight volumes during March and April of 2003. See also Transportation Expense.



Miscellaneous. For the nine months ended September 30, 2003, our miscellaneous revenue resulted from flying ad-hoc charter services for several
customers and from maintenance work on an aircraft operated by us, but owned by the Kitty Hawk Collateral Liquidating Trust, on which we were not obligated to perform maintenance under our aircraft use agreement. For the nine months ended September
30, 2002, our miscellaneous revenue resulted from providing aircraft ground handling for customers at one of our company operated outstations, which ceased in July 2002 when we contracted with a third-party to provide our aircraft ground handling
services at this same outstation.



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##### Table of Contents

COST OF REVENUE



General.The following table presents, for the periods indicated, the components of our cost of revenue in dollars and as a percentage of total
revenue and the percentage change from period-to-period:



|                              |  | Nine months ended September 30, |        |                             |      |  
|----------------------------- |  | ------------------------------- | ------ | --------------------------- | ---- | -
|                              |  | 2003                            |        |                             | 2002 |  
|                              |  | Cost of Revenue                 |        | Percentage of Total Revenue |      |  
|                              |  | (dollars in thousands)          |        |                             |      |  
|Flight expense                |  | $                               | 19,451 |                             | 20.3 | %
|Transportation expense        |  |                                 | 13,038 |                             | 13.6 |  
|Fuel                          |  |                                 | 22,713 |                             | 23.7 |  
|Maintenance expense           |  |                                 | 8,878  |                             | 9.3  |  
|Freight handling expense      |  |                                 | 18,030 |                             | 18.8 |  
|Depreciation and amortization |  |                                 | 2,804  |                             | 2.9  |  
|Operating overhead            |  |                                 | 6,810  |                             | 7.1  |  
|                              |  |                                 |        |                             |      |  
|Total cost of revenue         |  | $                               | 91,724 |                             | 95.7 | %
|                              |  |                                 |        |                             |      |  



Flight Expense.
For the nine months ended September 30, 2003, flight expense decreased $1.9 million as a result of reduced aircraft lease expense from renegotiations of our aircraft lease agreements through our bankruptcy proceedings and the purchase of a
previously leased aircraft in August 2003. We also generated savings from the renewal of our aircraft liability insurance. Additionally, we reduced capacity, increased utilization and flew 4.8% fewer block hours in the first nine months of 2003 as
compared to the first nine months of 2002 due to less demand from our third party ACMI customers.



As a percentage of our total revenue, flight expense decreased to 20.3% for the nine months ended September 30, 2003 from 24.5% for the nine months ended
September 30, 2002. In addition to the above, this decrease is due to a shift from flying four of our own aircraft in our expedited scheduled freight network, which is classified as flight expense, to chartering two third-party aircraft, which is
classified as transportation expense for the first five months of 2003.



Transportation Expense. For the nine months ended September 30, 2003, transportation expense increased $6.6 million, or 101.2%, from the first nine months of 2002. This increase is primarily due to a one-year agreement signed in
December 2002 to charter two Douglas DC-8 aircraft for use in our expedited scheduled freight network. This agreement was with an affiliate of BAX Global and was cancelled effective May 31, 2003 pursuant to the contracts cancellation clause
that required 30 days notice by either party. These chartered aircraft allowed us to carry higher freight volumes at a more economical rate per hour as compared to four Boeing 727-200s. However, due to lower than expected demand during March and
April of 2003, the freight volumes did not justify the continued charter of these two Douglas DC-8 aircraft. The use of these chartered aircraft caused transportation expense to increase as a percent of total revenue as costs were shifted from
flight expense.



Fuel. For the nine months ended
September 30, 2003, fuel expense increased $3.3 million, or 17.3%, as compared to the nine months ended September 30, 2002. Fuel expense is comprised of two elements: our average cost per gallon and the number of gallons used by the aircraft. Our
average cost per gallon of fuel increased $0.16, or 19.1%, for the nine months ended September 30, 2003 as compared to the nine months ended September 30, 2002. The number of gallons used for the nine months ended September 30, 2003 decreased
365,000 gallons, or 1.7%, as compared to the nine months ended September 30, 2002. The decrease in fuel consumption was due to utilizing two chartered Douglas DC-8 aircraft during the first five months of 2003, which are more fuel efficient than
utilizing four Boeing 727-200 cargo aircraft in our expedited scheduled freight network. In addition, a jet fuel conservation program was implemented in March 2003. Furthermore, to mitigate the increase in our average cost per gallon of jet fuel, we
continue to assess a fuel surcharge which is included in scheduled freight revenue.



Maintenance Expense. For the nine months ended September 30, 2003, maintenance expense decreased in absolute dollars and as a percentage of total revenue primarily due to flying 4.8% fewer hours and accruing
fewer reserves for heavy aircraft maintenance. During 2002, we determined that in light of declining fair market values for our Boeing 727-200 cargo aircraft and the general availability of replacement cargo aircraft, we would plan to permanently
retire some of our airframes and aircraft engines at their next scheduled heavy maintenance event, rather than performing the scheduled heavy maintenance. As a result, we were no longer required to record maintenance reserves for these airframes and
aircraft engines, which further reduced our maintenance expense for



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the nine months ended September 30, 2003. We achieved additional savings in our third-party aircraft maintenance costs as a result of rate negotiations and
performing work with our own employees, as well as using spare parts from our owned aircraft that have been permanently parked.



Freight Handling Expense. For the nine months ended September 30, 2003, freight handling expense increased 3.3% as compared to the nine months
ended September 30, 2002 despite the fact that we carried 0.5% less chargeable weight pounds in our expedited scheduled freight network. During the first quarter of 2003, we renegotiated many of our outstation freight handling contracts and obtained
more favorable rates. In addition, we have closed four of our company operated outstations in exchange for third-party freight handling services at lower all-in costs. As a result of closing these company operated outstations, costs previously
included in operating overhead such as rent and utilities, are now included in freight handling expense. See also Operating Overhead.



Depreciation and Amortization. For the nine months ended September 30, 2003, depreciation and amortization expenses declined in absolute dollars
and as a percentage of total revenue primarily due to the adoption of Fresh Start Accounting, which reduced our overall property and equipment net book value.



Operating Overhead. For the nine months ended September 30, 2003, operating overhead decreased in absolute dollars and as a percentage of
revenue due to the reduction in the scope of our operations as compared to the nine months ended September 30, 2002 and due to savings achieved through renegotiated outstation freight handling contracts. The costs related to these contracts are
included in freight handling expense.



GROSS PROFIT



For the nine months ended September 30, 2003, we recognized gross profit
of $4.2 million, which was an improvement of $4.6 million as compared to the $0.4 million loss generated in the nine months ended September 30, 2002. The improvement was due to reduced expenses as a percent of total revenue in our operations, the
December 2002 ACMI contract with BAX Global to provide three Boeing 727-200 cargo aircraft and improved revenue in our expedited scheduled freight business.



GENERAL AND ADMINISTRATIVE EXPENSE



General and administrative expense increased by $1.2 million, or 20.8%, during the first nine months of 2003 as compared to the first nine months of 2002.
The increase is primarily due to professional fees related to our crew member collective bargaining negotiations, various other legal matters, trailing bankruptcy expenses related to the unsecured trade creditors claims resolution, and expenses for
filing periodic and other reports under the Securities Exchange Act of 1934. In the first nine months of 2002, all bankruptcy related expenses were recognized in reorganization expense and we had lower expenses related to being a public company
until we emerged from bankruptcy on September 30, 2002.



INTEREST EXPENSE AND OTHER (INCOME) EXPENSE



Interest
expense decreased by $1.8 million, or 84.8%, during the nine months ended September 30, 2003 as compared to the nine months ended September 30, 2002. This decrease is due to a $37.5 million reduction in outstanding debt since September 2002.
Reorganization expense decreased from $39.6 million to zero in the first nine months of 2003 as compared to the nine months ended September 30, 2002 due to our exit from bankruptcy in September 2002. Other income decreased by $26.8 million in first
nine months of 2003 as compared to the first nine months of 2002, due to $29.4 million of contract settlement income recognized in August 2002 related to our W-Net US Postal Service contract termination for convenience claim compared to the recovery
of $2.9 million of bad debt expense and other operating expenses taken in 2001 for the predecessor company related to a dispute with EGL, Inc. (see Part II. Other Information, Item 1. Legal Proceedings  Eagle Global Logistics) which was
recognized in the nine months ended September 30, 2003.



INCOME
FROM CONTINUING OPERATIONS



Our income from continuing
operations for the nine months ended September 30, 2003 was $0.4 million, an improvement of $17.9 million as compared to the $17.5 million loss from continuing operations for the nine months ended September 30, 2002. The income from continuing
operations for the nine months ended September 30, 2003 includes the net recovery of $2.9 million related to a dispute with EGL, Inc. which is non-recurring and included in other income.



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LOSS FROM DISCONTINUED OPERATIONS



For the first nine months of 2003, we had no income or loss from our discontinued operations as we disposed of substantially
all discontinued operations assets and liabilities in September 2002 in connection with our emergence from bankruptcy. Any remaining assets became the property of Kitty Hawk. For the nine months ended September 30, 2002, the losses from discontinued
operations were primarily attributable to the disposal of assets at less than fair market values.



EXTRAORDINARY ITEM



At September 30, 2002, pursuant to Fresh Start Accounting, upon emergence from bankruptcy, liabilities subject to compromise in the amount of $394.7
million were exchanged for the right to receive new common stock or warrants to acquire new common stock as part of the discharge of debt under our plan of reorganization. After subtracting the reorganization value of $16.6 million which we
distributed as common stock or warrants to acquire common stock, we recognized an extraordinary gain from extinguishment of debt of $378.1 million.



LIQUIDITY AND CAPITAL RESOURCES



General. Currently, our primary source of liquidity is our cash flow from operations. In addition, we may supplement our liquidity by accessing our
receivables purchase facility with KBK Financial, Inc.



At
September 30, 2003, cash and cash equivalents were $7.3 million as compared to $10.4 million at December 31, 2002. The decrease in cash of $3.1 million is a result of (i) $2.1 million in payments related to bankruptcy commitments under our Plan of
Reorganization, (ii) $1.9 million in net reductions to our outstanding debt obligations and (iii) $1.3 million paid to acquire a Boeing 727-200 cargo aircraft as part of a lease settlement. These expenditures are offset by (i) $1.8 million generated
from asset sales and (ii) $0.4 million generated from the cash flows of our operations and other sources. Additionally, at September 30, 2003 and December 31, 2002, we had no funds advanced from our receivables purchase facility and, as a result, up
to $5.0 million was available under that facility.



At
September 30, 2003, we had net working capital of $14.5 million as compared to $18.4 million at December 31, 2002. The decrease in our net working capital was primarily due to the reduction in cash described above.



We anticipate our capital expenditures for the remainder of 2003 will be less
than $1.0 million, excluding heavy airframe maintenance and heavy shop visits for aircraft engines. During the last three months of 2003, we anticipate heavy maintenance events will cost approximately $1.5 million, including the acquisition of and
related maintenance for, two Boeing 727-200 advanced cargo aircraft. Based on our current projections, we believe our current assets and cash flows from operations are sufficient to meet our anticipated normal working capital and operating needs for
the next 12 months.



Availability of Leased Aircraft.In
May 2004, our four aircraft leases with affiliates of Pegasus Aviation, Inc. are scheduled to expire. In September 2004, our agreement with the Kitty Hawk Collateral Liquidating Trust under which we currently operate 10 aircraft is scheduled to
expire. These 14 aircraft represent a majority of our current operating fleet and will represent an increasing percentage of our operating fleet over time as we take non-economically viable owned aircraft out of service at their next scheduled heavy
maintenance event. There can be no assurance that these aircraft will be available to us on terms and conditions we find acceptable. We currently believe there are sufficient available aircraft in the market to meet our needs if we are unable to, or
decide not to, extend these agreements. However, there may be cash requirements or transitional maintenance expenditures to obtain other adequate aircraft or retain some or all of the aircraft covered by these agreements. Without adequate aircraft
at an economically viable cost, we may not be able to continue to operate our businesses or generate operating income or profits. For more information on these agreements, see Item 13. Certain Relationships and Related Transactions in
our Annual Report on Form 10-K for the year ended December 31, 2002.



Receivables Purchase Facility.We entered into an account transfer and purchase agreement with KBK Financial for a $5.0 million receivables purchase facility as part of our plan of reorganization. At December 31, 2002 and
September 30, 2003, we had no funds advanced under this facility.



The receivables purchase facility advances funds to us at a rate of 85% of the invoice amount purchased by KBK Financial. All of our invoices are available for sale under the receivables purchase facility. Our invoices may be offered to KBK
Financial on a daily basis, and we may offer an unlimited number of invoices, subject to the $5.0



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million funding limit. KBK Financial can accept or reject offered invoices and is not obligated to purchase any invoices. KBK Financial exercises control
over our incoming receipts via a lockbox in order to ensure that the cash received on purchased invoices is collected. To secure any of our unpaid obligations to KBK Financial, KBK Financial also has liens on our inventory, equipment (excluding
airframes and aircraft engines), accounts, accounts and contract rights, contracts, drafts, acceptances, documents, instruments, chattel paper, deposit accounts and general intangibles. The receivables purchase facility does not have any financial
covenants tied to our operating performance.



The receivables
purchase facility contains fixed and variable discount rate pricing components. The fixed discount is 0.6% of the invoice amount and is payable at the time of funding. The variable rate is KBK Financials base rate as established by KBK from
time to time, plus 2.00% per annum and is payable based on the number of days from the sale of the invoice to KBK Financial through and including the third business day after the invoice is collected. The variable discount rate will not be less than
6.75%.



Because funds advanced under this facility are
considered a sale of the particular invoices sold, we report any funds advanced as a reduction of trade accounts receivables in our consolidated financial statements.



The receivables purchase facility does not have a stated expiration date, but may be terminated by either party without
penalty upon thirty days written notice.



1stSource Bank Note. In November 2000, we executed a promissory
note and entered into a security agreement with 1stSource Bank to settle lease obligations existing prior to our
bankruptcy filing. Under these agreements, 1stSource Bank advanced us approximately $8.5 million. The promissory
note bears interest at a fixed rate of 8.9% per annum, provides for monthly principal and interest payments of $202,000, is fully amortizing over the term of the loan and matures in February 2005.



The promissory note is guaranteed by us and is secured by two Boeing 727-200
airframes and five aircraft engines. At September 30, 2003, we owed 1stSource Bank approximately $2.9 million under
this note and the collateral had a carrying value of substantially less than the amount owed. Under these agreements, we are required to perform light and heavy maintenance on the airframes and aircraft engines and to keep them airworthy. These
agreements do not have any minimum collateral value or financial covenants.



In July 2003, we completed the sale of our office and warehouse building complex in Ypsilanti, Michigan for net proceeds of $1.0 million. This building was classified as an asset held for sale.



In August 2003, we completed a settlement with one of our cargo aircraft
lessors. This aircraft lease was scheduled to expire in December 2003 and we estimated that the remaining payments under the lease combined with the airframe and aircraft engine return conditions would have required net cash expenditures of
approximately $1.5 million. The settlement of this lease provided for complete satisfaction of all of our financial obligations under the lease and we acquired the Boeing 727-200 cargo aircraft and the three related JT8D-7B aircraft engines for $1.3
million. We expect to operate this aircraft beyond December 2005.



SEASONALITY OF RESULTS AND OPERATING LEVERAGE



Our current business is seasonal in nature. In a typical calendar year, we experience increasing revenue with each passing quarter, beginning with the first quarter. The U.S. economy entered a downturn in late 2000.
During 2001, the demand for our expedited scheduled freight services generally trended downward the entire year. When it became apparent that there would not be an improvement in the third and fourth quarters of 2001, we reduced the size of our
expedited scheduled freight network and our expenses as rapidly as possible.



In 2002 and for the first quarter of 2003, we experienced normal seasonal trends in our expedited scheduled freight business. However, during the second quarter of 2003, we did not experience normal seasonal trends in
the scheduled freight business. We believe the lower than normal seasonal trend in the second quarter of 2003 was due to, among other things, the war in Iraq that had a dampening effect on the demand for U.S. domestic expedited freight shipments,
increased competition in the expedited heavy freight market and a shift to use less expensive alternatives such as long-haul truck services. As a result, Kitty Hawk Cargo reduced capacity and increased utilization on Kitty Hawk Aircargos
aircraft.



In the third quarter of 2003, we experienced
slightly better than normal seasonal trends, somewhat reversing the weak second quarter of 2003. We believe this is in part due to inventories for retail consumer goods,



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especially electronics, having been managed down to exceptionally low levels in the second quarter of 2003, thus requiring additional expedited freight
services to meet current demand. Additionally, we believe we have benefited from what appears to be a general strengthening in the U.S. domestic economy coupled with normal seasonal demand from the automotive and other core industries.



We currently derive substantially all of our revenue from our expedited
scheduled freight business. This business has significant operating costs that are fixed and cannot be materially reduced in the short-term if the expedited scheduled freight business does not generate expected levels of revenue. Once revenue
reaches the break-even point in a given period, each additional dollar of revenue contributes a relatively high percentage to operating income. However, if revenue does not reach the break-even point in a given period, the operations will sustain
losses, which could be significant depending on the amount of the deficit. We have, and will continue to have, capital requirements for the requisite periodic and major overhaul maintenance checks for our fleet and for debt service. We also have
seasonal working capital needs, because we generate higher revenue in the third and fourth calendar quarters and lower revenue in the first calendar quarter. Funding requirements have historically been met through internally generated funds, bank
borrowings, aircraft and other asset sales and from public and private offerings of equity and debt securities. From time to time, we have entered into sale/leaseback transactions to acquire aircraft and may do so in the future.



FORWARD LOOKING STATEMENTS



This Quarterly Report on Form 10-Q contains forward-looking
statements concerning our industry, business, operations and financial performance and condition. When we use the words estimates, expects, forecasts, anticipates, projects,
plans, intends, believes and variations of such words or similar expressions, we intend to identify forward-looking statements.



We have based our forward-looking statements on our current assumptions and expectations about future events. We have
expressed our assumptions and expectations in good faith, and we believe there is a reasonable basis for them. However, we cannot assure you that our assumptions or expectations will prove to be accurate.



A number of risks and uncertainties could cause our actual results to differ
materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q. Important factors that could cause our actual results to differ materially from the forward-looking statements include, among others:



| |  | loss of key suppliers or significant customers;
| | - | -----------------------------------------------



| |  | increased competition;
| | - | ----------------------



| |  | limited operating flexibility due to our limited capital resources and liquidity;
| | - | ---------------------------------------------------------------------------------



| |  | financial costs and operating limitations imposed by the unionization of our workforce;
| | - | ---------------------------------------------------------------------------------------



| |  | changes in economic conditions;
| | - | -------------------------------



| |  | changes in the cost and availability of jet fuel;
| | - | -------------------------------------------------



| |  | changes in the cost and availability of ground handling and storage services;
| | - | -----------------------------------------------------------------------------



| |  | changes in the cost and availability of aircraft or replacement parts;
| | - | ----------------------------------------------------------------------



| |  | changes in our business strategy or development plans;
| | - | ------------------------------------------------------



| |  | changes in government regulation and policies; and
| | - | --------------------------------------------------



| |  | increased foreign political instability and acts of war or terrorism.
| | - | ---------------------------------------------------------------------



The impact of any terrorist activities or international conflicts on the U.S. and global economies in general, or the transportation industry in
particular, could have a material adverse effect on our business and liquidity. Other factors may cause our actual results to differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q. These
forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and, except as required by law, we do not undertake any obligation to publicly update or revise our forward-looking statements. We caution you not to place
undue reliance on these forward-looking statements.



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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



We have not experienced any significant changes in our market risk since the disclosures made in Part 1. Financial Information, Item 3. Quantitative and Qualitative Disclosures About Market Risk in our Form 10-Q for
the quarterly period ended March 31, 2003.



ITEM 4. CONTROLS AND PROCEDURES



(a)
Evaluation of Disclosure Controls and Procedures. The term disclosure controls and procedures is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, or the Exchange Act. This term refers to the controls and
procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified by the Securities and Exchange Commission. Our management, including our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered
by this quarterly report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.



(b) Changes in Internal Controls. There were no changes to our
internal control over financial reporting during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



PART II. OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS



Bankruptcy Proceedings



Other than settling a $1.3 million administrative claim,
there have been no significant changes in our bankruptcy proceedings. For a complete discussion of our bankruptcy proceedings, refer to Part II. Other Information, Item 1. Legal Proceedings in our Form 10-Q for the quarterly period ended March 31,
2003. The following issue regarding our bankruptcy proceedings remains open:



| |  | Unsecured Claims.We are in the process of resolving a number of general unsecured claims which were filed during the bankruptcy proceedings. Once all claims are allowed or
dismissed, the 7,000,000 shares of common stock which are currently being held in two trust accounts for the benefit of the general unsecured creditors will be distributed.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In September 2003, we settled and paid an administrative claim in the amount of $1.3 million for $53,000. This was the last
open administrative claim in our bankruptcy proceedings.



Eagle
Global Logistics



In July 2002, we filed a demand
for binding arbitration against EGL, Inc. d/b/a Eagle Global Logistics with the American Arbitration Association to resolve our claim to collect for freight transportation services rendered to EGL in the amount of approximately $3.7 million plus
attorneys fees. EGL subsequently admitted it owed this amount to us, but asserted that its counterclaims offset its debt to us.



The arbitration hearing started on June 9, 2003 and concluded on June 13, 2003. The parties submitted their final post-hearing briefs on July 25, 2003. On
August 18, 2003, the arbitrators ruled in favor of Kitty Hawk, awarding Kitty Hawk $3.7 million and denying all of EGLs counterclaims. On September 8, 2003, EGL timely filed a motion to modify and correct the award, which was denied by the
arbitrators on September 23, 2003. The award is to be paid pursuant to a mutually agreeable payment schedule. In October 2003, EGL paid Kitty Hawk $1.5 million. The remaining $2.2 million is scheduled to be paid in four quarterly installments of
$0.5 million beginning in December 2003, with the balance due in December 2004. The remaining payments owed to Kitty Hawk are secured by a letter of credit.



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Other Proceedings



In the normal course of business, the Company is a party to various legal proceedings and other claims. While the outcome of these proceedings and other
claims cannot be predicted with certainty, management does not believe these matters will have a material adverse affect on the Companys financial condition or results of operations.



ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS



Not applicable.



ITEM 3. DEFAULTS UPON SENIOR SECURITIES



Not
applicable.



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



Beginning on August 20, 2003, the Company sought stockholder approval of the Kitty Hawk 2003 Long Term Equity Incentive Plan by the solicitation of written consents in lieu of a stockholder meeting. Receipt of
consents approving the plan from holders of a majority of the Companys issued and outstanding common stock as of the record date of August 1, 2003, was required to approve the plan.



As of September 12, 2003, the Company had received consents approving the plan from holders of 26,664,621 shares, or 70.6%,
of the issued and outstanding common stock of the Company as of the record date. The Company received no consents from stockholders either withholding their consent to, or abstaining with respect to, the approval of the plan. No additional consents
were received after September 12, 2003, and the Company closed the voting on the plan on September 16, 2003.



ITEM 5. OTHER INFORMATION



Equity
Incentive Plan. In late July 2003, our Board of Directors approved the Kitty Hawk 2003 Long Term Equity Incentive Plan and granted stock options to acquire 5,125,000 shares of common stock to our employees and outside directors. In September
2003, our stockholders approved the plan, the previous grants of stock options under the plan and the automatic grants of stock options to our outside directors in the future. The options have an exercise price of $0.30 per share and vest over a
period of 36 months for the grants to the Board of Directors and 48 months for the grants to the Companys management. The options expire ten years from the date of grant. See Part II. Other Information; Item 4. Submission of Matters to a Vote
of Security Holders above for more information.



Collective
Bargaining Agreement. The pilots of Kitty Hawk Aircargo, our air cargo subsidiary, are represented by the Kitty Hawk Pilots Association, or the KPA, which is not currently affiliated with a national labor organization. On October 16, 2003, the
KPA ratified a merger agreement to merge with the Airline Pilots Association, or ALPA, a national union representing airline pilots. This agreement was also ratified by the Executive Committee of ALPA on October 21, 2003. The KPA has notified Kitty
Hawk Aircargo that the merger is scheduled to become effective on January 1, 2004.



On October 17, 2003, the KPA ratified its first Collective Bargaining Agreement with Kitty Hawk Aircargo. The agreement covers all flight crew members of Kitty Hawk Aircargo with respect to compensation, benefits,
scheduling, grievances, seniority, and furlough and has a ten year term. The agreement provides that no pilot who is actively employed and on the payroll of Kitty Hawk Aircargo on the date of implementation of the agreement shall be furloughed
during the term of the agreement, except in certain limited circumstances. The agreement also provides that at the third and sixth anniversaries of the agreement, Kitty Hawk Aircargo and the KPA each have a right to designate any two sections of the
agreement for renegotiation, which may include compensation and benefits. If after sixty days Kitty Hawk Aircargo and the KPA are unsuccessful in their negotiations of these sections, the agreement provides that each party will submit their best and
final offer to final offer or baseball-style binding arbitration. Kitty Hawk Aircargo anticipates that the agreement will be executed and fully implemented by December 1, 2003. Kitty Hawk Aircargo does not anticipate that the agreement
will have a material adverse affect on its costs or operations.



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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



|(a) | Exhibits:
|--- | ---------



The following exhibits are filed herewith or are incorporated by reference to exhibits previously filed with the Securities and Exchange Commission.



|Exhibit No. |  |                                                                                                                                                                                                                        |  | Exhibit
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------
|            | 
|10.1*       |  |      Agreement between Kitty Hawk Aircargo, Inc. and the Flight Deck Crewmembers in the
service of Kitty Hawk Aircargo, Inc. as represented by The Kitty Hawk Aircargo Pilots Association effective December 1, 2003.
|            | 
|10.2*       |  |      Kitty Hawk, Inc. Term Sheet  Steven E. Markhoff, Esq. Offer of Employment
June 1, 2003.                                                                                                                        
|            | 
|31.1*       |  |      Certification of Chief Executive Officer.                                                                                                                                                                       
|            | 
|31.2*       |  |      Certification of Chief Financial Officer.                                                                                                                                                                       
|            | 
|32.1*       |  |      Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                         

---

|* | Each document marked with an asterisk is filed herewith.
|- | --------------------------------------------------------



|(b) | Reports on Form 8-K:
|--- | --------------------



None



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SIGNATURES



Pursuant to the requirements 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, on November 12, 2003.



KITTY HAWK, INC.By:

/s/ DREW KEITHDrew KeithVice President  Finance and Chief Financial Officer (Authorized officer and principal financial officer)




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