<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

(Mark One)
/x/  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 (FEE REQUIRED)

     For the fiscal year ended December 31, 1998

                                       OR

/ /  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

For the  transition  period from  __________ to __________

Commission File No. 0-23224

                           GREAT LAKES AVIATION, LTD.
             (Exact name of registrant as specified in its charter)

                 Iowa                                   42-1135319
   -------------------------------         ------------------------------------
   (State or other jurisdiction of         (I.R.S. Employer Identification No.)
   Incorporation or organization)

                                                1965 330th Street
                                             Spencer, Iowa 51301-9211
                                             ------------------------
(Address of principal executive offices)              (Zip Code)
Registrant's telephone number, including area code: (712) 262-1000

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.01

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, and (2) has been subject to such filing requirements
for the past 90 days.   Yes /x/   No / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  /x/

The aggregate market value of voting stock held by nonaffiliates of the
registrant as of March 25, 1999 was approximately $8,826,405.

As of March 25,1999, there were 8,637,440 shares of Common Stock of the
registrant issued and outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the documents listed below have been incorporated by
reference into the indicated part of this Form 10-K.

           Document Incorporated                      Part of Form 10-K
           ---------------------                      -----------------
       Proxy Statement for 1999 Annual                     Part III
           Meeting of Shareholders

<PAGE>


                                 FORM 10-K INDEX
<TABLE>
<CAPTION>
                                                                                                                 Page
                                                                                                                 ----
<S>                                                                                                              <C>
PART I     .......................................................................................................1
           Item 1.    BUSINESS....................................................................................8
           Item 2.    PROPERTIES..................................................................................8
           Item 3.    LEGAL PROCEEDINGS...........................................................................8
           Item 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........................................8

PART II    .......................................................................................................9
           Item 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.......................9
           Item 6.    SELECTED FINANCIAL DATA.....................................................................9
           Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS......11
           Item 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................................18
           Item 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................................19
           Item 9.    CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..........19

PART III   ......................................................................................................20
           Item 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.........................................20
           Item 11.   EXECUTIVE COMPENSATION.....................................................................20
           Item 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.............................20
           Item 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................................20

PART IV    ......................................................................................................45
           Item 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K............................45

SIGNATURES.......................................................................................................47

</TABLE>

<PAGE>

                                     PART I

ITEM 1.  BUSINESS

GENERAL

         Great Lakes Aviation, Ltd. ("Great Lakes") is a regional airline, which
during 1998 operated under two marketing identities (the "Regional Identities"):
United Express, and Great Lakes Airlines. The Company is one of several
companies operating as United Express under code sharing agreements with United
Air Lines, Inc. ("United"). While the Company does not compete against other
United Express carriers on routes that it serves, it does compete with them to
receive the right to serve additional markets under a United agreement. On
October 1, 1995 the Company began operating as Midway Connection under a code
sharing agreement with Midway Airlines Corporation ("Midway"). The Midway
Agreement was terminated on May 16, 1997 and the Company ceased operating as
Midway Connection. On August 8, 1995, the Company began operations in the
Southwest United States and Mexico independently under its own code as Great
Lakes Airlines. This service was discontinued on May 16, 1997 although the
Company continued to operate as Great Lakes Airlines on one route in the Midwest
until June 15, 1998. As of December 31, 1998, the Company's fleet consisted of
40 Beechcraft Model 1900D 19-passenger aircraft and 8 Embraer Brasilia
30-passenger aircraft. In addition, one Beechcraft Model 1900C is currently
being utilized for passenger service. The Company also has four (4) Beechcraft
Model 1900C aircraft being used exclusively for freight operations. References
herein to the Company include Great Lakes and its wholly owned subsidiary, RDU,
Inc. RDU, Inc. currently has no activity and is not being utilized by the
Company.

         The table below sets forth certain operating information for each of
the Regional Identities for the year ended December 31, 1998.

<TABLE>
<CAPTION>
                                              United         Great Lakes         Total
                                             Express          Airlines
<S>                                          <C>             <C>                <C>
Operating revenues (000's)                   $112,756           $ 1,259         $114,032
Passengers                                    860,575            12,532          873,186
Available seat miles (000's)                  484,458             4,754          489,212
Revenue passenger miles (000's)               247,914             2,184          250,098
Load Factor                                     51.2%             45.9%            51.1%
</TABLE>

         Under terms of a consent order (the "Order") with the Federal Aviation
Administration (the FAA), the Company temporarily suspended its flight
operations on May 16, 1997 and resumed flight operations on a limited basis on
May 23, 1997. The FAA notified the Company in June 1998 that it had met all the
provisions set forth in the Order. Due to the suspension of operations during
1997, the operating results for 1998 are not directly comparable to the prior
period.

UNITED EXPRESS RELATIONSHIP

         The United Express operation serves 71 destinations in fourteen states
located in the Upper Midwest, with hubs located at Chicago O'Hare, Denver and
Minneapolis/St. Paul, as of December 31, 1998. The Company became a "United
Express" carrier in 1992 under a code sharing agreement with United and is one
of the principal United Express regional carriers.

         The code sharing agreement with United expired in December 1997. The 
Company believes its relationship with United is satisfactory, as evidenced 
by United's selection, during 1998, of the Company as the United Express 
carrier for additional routes serving the Denver airport. Since December 31, 
1997, the Company has been operating as if the principal day-to-day 
operational provisions of the previous code sharing agreement are still 
effective. The Company and United have entered into negotiations to renew the 
code sharing agreement. As part of their negotiations, United has 
restructured its operating relationships with certain of its United Express 
carriers, pursuant to which the Company has provided service to Denver from 
24 additional cities since April 23, 1998. As a result of this restructuring, 
the Company is the only United Express carrier providing service with 
nineteen seat aircraft at the Chicago and Denver hubs. While the Company 
expects a new code sharing agreement to be finalized on a mutually 
advantageous basis, no assurance can be given that this actually will be 
accomplished. Certain material provisions of the prior code sharing agreement 
and related agreements (the "United Express Agreements") are described herein 
because any new code sharing agreement may contain similar terms. Any failure 
to enter into a new code sharing agreement with United, any material adverse 
change in terms from the prior code sharing agreement, or any substantial 
decrease in the number of routes served by the Company under this agreement 
could have a material adverse effect on the 

                                        1
<PAGE>

Company's business. As a result of the code sharing relationship with United, 
the Company's business is sensitive to events and risks affecting United. If 
adverse events affect United's business, the Company's business may also be 
adversely affected.

         The United Express Agreements entitle the Company to use United's "UA"
flight designator code to identify its code sharing flights and fares in
computer reservation systems, United's "Apollo" reservation system (including
United's automated check-in, ticketing and boarding pass, and advance seat
reservation and baggage tracing systems), to use the United Express logo and
aircraft exterior paint schemes and uniforms similar to those of United and to
otherwise advertise and market its association with United. United Express
passengers participate in United's "Mileage Plus" frequent flyer program and are
eligible to receive a minimum of 500 United frequent flyer miles for each trip
on a United Express flight. The United Express Agreements also provide for
coordinated schedules and through fares. A through fare is a cost-saving fare
available to a prospective passenger who, in order to reach a particular
destination, transfers between the major carrier and that carrier's code sharing
partner. United establishes all through fares and the Company receives a portion
of the fares on a formula basis, subject to periodic adjustment.

         United provides a number of additional services to the Company. These
include publication of the fares, rules and related information that are part of
the Company's contracts of carriage for passengers and freight; publication of
the Company's code sharing flight schedules and related information using the
United "UA" flight designator code and flight numbers assigned by United;
provision of ticket handling services at United's ticketing locations; provision
of airport signage at airports where both the Company and United operate;
provision of United ticket stock and related documents; provision of expense
vouchers, checks and cash disbursements to passengers on code sharing flights of
Great Lakes inconvenienced by flight cancellations, diversions and delays; and
cooperation in the development and execution of advertising, promotion and
marketing efforts featuring United Express and the relationship between United
and the Company. The Company pays United a monthly fee based on the total number
of revenue passengers boarded on all of Great Lakes' United Express flights.
This fee varies depending on whether the passenger travels through United hubs
at Denver and Chicago, is carried to or from other airports served by United or
if the passenger is carried between cities only served by Great Lakes. The
Company also receives an incentive amount for each passenger that connects with
a United flight.

         With the exception of certain pre-approved destinations connecting with
Minneapolis/St. Paul or Detroit, the United Express Agreements require the
Company to obtain United's prior consent to operate as a United Express carrier
on all routes. Additionally, the United Express Agreements restrict the
Company's ability to decrease its service to Denver and Chicago O'Hare below
certain minimum levels. Great Lakes has the exclusive right to provide United
Express service to and from Detroit and Minneapolis/St. Paul and on existing
Great Lakes' routes to and from Chicago O'Hare and Denver. The United Express
Agreements, however, had prohibited the Company from entering into a code
sharing agreement with any other airline at Chicago, Denver, Des Moines,
Detroit, Minneapolis/St. Paul or Omaha. The code sharing agreement, however,
does not prohibit United from competing with Great Lakes, by initiating its own
service.

UNITED EXPRESS MARKETS

CHICAGO

         The Company's service to the Chicago O'Hare market is anchored by its
ownership of 54 slots and 10 slot exemptions and its lease of seven slots
allocated by the FAA. A slot is a 30 minute interval during the period from 6:45
a.m. to 9:14 p.m. during which an airline may operate either a take-off or
landing. Flights in this market are used primarily to provide connecting
opportunities with United flights. The Company's ability to increase its
passenger volume at Chicago O'Hare is limited by its allocation of slots, and
future increases in passenger volume are expected to come from increased load
factors, the acquisition of additional slots and the concentrated use at O'Hare
of currently operated larger aircraft. See "Slot Allocation" and "Aircraft."
During 1998, approximately 50 percent of the Company's passenger traffic was
carried to or from Chicago. During 1998, approximately 49 percent of the
Company's traffic at Chicago O'Hare connected with United, one percent connected
with other airlines and 49 percent traveled exclusively on a Great Lakes flight
("on-line"). As of December 31, 1998, Great Lakes had 46 weekday Chicago O'Hare
departures serving 24 destinations located in Iowa, Illinois, Indiana, Michigan,
North Dakota, South Dakota and Wisconsin.

                                        2
<PAGE>

DENVER

         The Company's primary strategy at Denver is to implement service in 
markets where United and other major carriers have reduced service and to 
feed that traffic to this United hub. The Company is in negotiations with 
United as a part of the United code sharing agreement with respect to the 
sharing of the expenses of operating at the new Denver airport. During 1998, 
approximately 45 percent of the Company's passenger traffic was carried to or 
from Denver. During 1998, approximately 51 percent of the Company's traffic 
at Denver connected with United, 0.3 percent connected with other carriers 
and 49 percent were on-line. As of December 31, 1998, the Company had 95 
weekday Denver departures serving 38 destinations located in Colorado, Iowa,
Kansas, Nebraska, North Dakota, South Dakota, Wyoming, and New Mexico.

         In the first quarter of 1998, the Company was selected by United to
replace another United Express carrier at ten Essential Air Service points in
Colorado, Kansas, and Wyoming to be served from Denver, effective April 23,
1998. In addition, the Company began service to four additional cities in
Nebraska, Colorado, Kansas, and Wyoming on that date. On June 1, 1998 the
Company added United Express service to four more cities in Colorado and New
Mexico from Denver.

         As part of an arrangement with United to permit other United Express
carriers to provide service from Sioux Falls, South Dakota and Fargo, North
Dakota, the Company began providing service on October 25, 1998 to Denver from
three additional cities in Wyoming.  The Company also provides scheduled mail 
transport to two cities in Montana.

MINNEAPOLIS/ST. PAUL

         As of December 31, 1998, Great Lakes had 11 weekday departures serving
eight destinations located in Iowa, Minnesota, North and South Dakota, and
Nebraska. During 1998, services in the Minneapolis/St. Paul markets were
substantially reduced and the remaining services are supported by the Essential
Air Service Subsidy program.

ESSENTIAL AIR SERVICE PROGRAM

         The Airline Deregulation Act of 1978 ("The Deregulation Act") allowed
airlines great freedom to introduce, increase and generally reduce or eliminate
service to existing markets. Under the Essential Air Service Program, which is
administered by the Department of Transportation (DOT), certain communities that
received scheduled air service prior to the passage of the Deregulation Act are
guaranteed specified levels of "essential air service." The DOT may authorize
federal subsidies to compensate a carrier providing essential air service in
otherwise unprofitable or minimally profitable markets. If these subsidies are
eliminated the Company may discontinue service to some or all of the subsidized
communities.

         At December 31, 1998, the Company served 29 essential air service
communities on a subsidized basis. The Company received $15.0 million, $6.1
million and $3.5 million in essential air service subsidies for the years ended
December 31, 1998, 1997 and 1996, respectively. An airline serving a community
that qualifies for essential air services is required to give the DOT advance
notice before it may terminate, suspend or reduce service. Depending on the
circumstances, the DOT may require the continuation of existing service until a
replacement carrier is found. The Company negotiated increases in rates which
went into effect in 1998, and added additional cities and flight frequencies for
which it receives subsidy revenue.

AIRCRAFT

GENERAL

         At December 31, 1998, the Company's fleet consisted of 45 Beechcraft 
1900 aircraft and eight Embraer passenger aircraft, of which 41 Beechcraft 
1900 aircraft and eight Embraer Brasilia aircraft were operated in scheduled 
passenger service. The remaining 4 Beechcraft 1900C aircraft are being 
utilized exclusively for scheduled mail and freight operations. The 
Beechcraft 1900 aircraft are pressurized, radar equipped and offer a 300-mile 
per hour cruising speed for 19 passengers, plus cargo, with a range of 850 
miles. The Beechcraft 1900 aircraft is widely regarded by airlines as an 
efficient and reliable aircraft for regional service. As of December 31, 
1998, the Company owned six of its Beechcraft 1900 aircraft and leased the 
remaining 39 under agreements with remaining terms ranging from monthly to 18 
years.

         The 30 passenger Embraer Brasilia aircraft are equipped with advanced
avionics, have stand-up cabins, restrooms, are staffed with a flight attendant
and offer a 330 mile per hour cruising speed with a range of 750 miles. As of
December 31, 1998, the Company owned four of its Embraer Brasilia aircraft and
leased the remaining four under agreements with remaining terms ranging from
four to 13 years.

                                        3
<PAGE>

SUMMARY OF AIRCRAFT ADDITIONS AND DELETIONS

         The table below shows the number and type of aircraft operated by the
Company on January 1, 1998 and December 31, 1998 and the number and type of
aircraft acquired or retired from the Company's fleet during the year ended
December 31, 1998.
<TABLE>
<CAPTION>
                                                                                     December 31, 1998
                         January 1,                                 December 31,    -------------------
                            1998          Additions     Retirements     1998         Owned      Leased
                            ----          ---------     -----------     ----        -------     -------
<S>                      <C>              <C>           <C>         <C>             <C>         <C>
Beechcraft 1900C             19              --              14           5           --            5
           1900D             18              22              --          40            6           34
Embraer 120                  10              --               2           8            4            4
                            ----            ----            ----        ----           --           --
      Total                  47              22              16          53           10           43
                            ----            ----            ----        ----           --           --
                            ----            ----            ----        ----           --           --
</TABLE>

         In February 1998 the Company entered into an agreement with another
carrier to sell its ten remaining Brasilia aircraft and related spare parts and
specialized tooling, and disposed of one Brasilia aircraft pursuant to that
agreement in March 1998 and one in April 1998. Subsequent to the February 1998
agreement, management determined to continue to utilize eight Brasilia aircraft
in its operations and accordingly, the Company renegotiated the agreement with
the other carrier to reduce the number of Brasilia aircraft to be sold. The
Company currently has no plans to make any further reductions to its fleet of
Brasilia aircraft.

         As of December 31, 1998, the average ages of the Company's owned and
leased aircraft were 5.8 and 3.3 years, respectively. As of December 31, 1997,
the average ages of the Company's owned and leased aircraft were 6.8 and 4.1
years, respectively.

AIRCRAFT DEBT AND LEASES

         Raytheon Aircraft Corporation together with its financing affiliate
(collectively, "Raytheon") is the Company's primary aircraft supplier and
largest creditor. The Company has financed all of its Beechcraft 1900 aircraft
and one of its Brasilia aircraft under lease and debt agreements with Raytheon.
Raytheon has also provided a $5 million working capital line of credit which has
been fully utilized, and a $5 million short-term loan, both of which are
collateralized by all Beechcraft spare parts and equipment and accounts
receivable. The working capital line of credit is due upon demand by Raytheon.
The expiration date of the working capital line of credit and the maturity date
of the short-term loan have been extended to June 30, 1999. In addition, as part
of a short-term financing in 1997, Raytheon was granted a ten year warrant,
exercisable commencing July 16, 1998, to purchase one million shares of the
Company's common stock at a price of $.75 per share. Raytheon has not exercised
the warrant as of the date of this filing.

         Effective August 31, 1997, the Company restructured its Raytheon
aircraft agreements, through a combination of sale-leaseback transactions and
modifications to existing leases. The restructuring resulted in a total of 30
Beech 1900 aircraft being financed under operating leases of various terms with
monthly lease payments ranging from $18,000 to $40,000 per aircraft. The
restructuring also cured all of the defaults with Raytheon and resulted in a net
gain of $1.5 million, which is being recognized over the life of the lease
agreements.

         The Company has financed seven of its Brasilia aircraft through lease
and debt agreements with other unrelated entities (collectively, the "Brasilia
Agreements"). During 1997, all of the Brasilia Agreements went into default due
to non-payment of scheduled amounts due. All defaults under the Brasilia
Agreements were cured by March 31, 1998. Two Brasilia aircraft which the Company
had in its fleet at January 1, 1997, were returned to the lessor through the
exercise of the lessor's rights as a result of the default. The estimated lease
termination costs associated with these two returned aircraft were included in
Shutdown, and Other Nonrecurring Expenses in 1997. During 1998, the Company
negotiated a final settlement on these aircraft. The final costs are included in
Shutdown and other Nonrecurring Expenses for 1998.

         In the second quarter of 1998, the Company purchased six Beechcraft 
1990D aircraft that had been operated under operating leases.  Raytheon 
provided the financing for these acquisitions.  As part of this agreement, 
Raytheon agreed to accept the return of up to 14 of the Company's 1900C 
aircraft.  The Company returned seven leased 1900C aircraft and sold its 
seven owned Beechcraft 1900C aircraft to Raytheon.  The Company currently 
leases five 1900C aircraft from Raytheon under month-to-month leases for use 
in contracted mail service and as a spare messenger service aircraft.  In 
addition, the Company is utilizing 22 1900D aircraft under short-term 
operating leases.  The Company is negotiating with Raytheon to purchase these 
22 1900D aircraft through the issuance of notes payable to Raytheon.  If 
this transaction is consummated, it will increase the Company's flight 
equipment and long-term debt by approximately $77 million.  Management does 
not expect the purchase, if consummated, to have a material impact on 
earnings.

                                        4
<PAGE>

         During the first half of 1998, the Company disposed of two Brasilia
aircraft by an agreed upon termination of the underlying leases and transferring
possession to another carrier. In connection with the disposition of one of
these aircraft, the Company guaranteed the continued payment of certain purchase
incentive payments by an agency of the Brazilian government to the lessor, which
incentive payments had previously been received by the Company. The Company
obtained an opinion from Brazilian counsel to the effect that the disposition by
the Company would not effect the obligations of the Brazilian Government agency
to continue to make these incentive payments. No assurance can be provided, 
however, that the Brazilian Government will honor its obligations.

MAINTENANCE

         The FAA mandates periodic inspection and maintenance of commercial
aircraft. The Company performs most maintenance and inspection of its aircraft
and engines (except engine overhaul) using its own personnel. Heavy maintenance
bases are located at: Huron, South Dakota; Grand Island, Nebraska; and Spencer,
Iowa. Light maintenance is also performed in Denver, Colorado; Chicago, O'Hare;
and Cheyenne, Wyoming. The Company attempts to perform its maintenance at
locations where its aircraft are stored overnight to reduce maintenance costs
and promote a higher level of operating efficiency. Parts and supplies
inventories are also maintained at these locations to promote the mechanical
dispatch reliability of the fleet. The Company also maintains an inventory of
spare engines and propellers for its fleet to allow for minimal downtime during
major overhauls. The Company performs certain major maintenance overhauls to its
fleet, which it believes most other regional airlines have performed by outside
contractors.

SLOT ALLOCATION

         At Chicago O'Hare, scheduled flights between 6:45 a.m. and 9:14 p.m.
may be conducted only if an airline has obtained a slot. Of the 54 owned slots
and 10 slot exemptions allocated to the Company by the FAA as of December 31,
1998, 32 may be used for aircraft with up to 65 seats and the remainder may be
used for aircraft with up to 110 seats.

         Outstanding slots at FAA slot-controlled airports are currently freely
exchanged between airlines and other persons, bought or sold (often with gates
or other on-ground assets), or leased. Slot values depend on several factors,
including the airport, the time of day, the number and availability of slots,
and whether they are commuter or air carrier slots. Interests in slots have also
been used by airlines as collateral to secure debt financing and other
obligations. The DOT and FAA must be advised of all slot transfers and must
determine that each such transfer will not be injurious to the Essential Air
Service Program. The transfer of a slot obtained in an FAA-administered lottery
is limited for two years after its acquisition to either transfer for other
lottery slots at the same airport or sales or leases to new entrants or
incumbent slot holders with a small number of slots.

         During January 1997 the Company was awarded its slot exemptions for 
the specific purpose of providing 20 operations per day between Chicago 
O'Hare Airport and Dubuque and Mason City, Iowa; Huron and Sioux Falls, South 
Dakota; and Fargo, North Dakota. These slot exemptions may not be bought, 
sold or traded without DOT approval. In 1998, the Company discontinued its 
service from Fargo, North Dakota and transferred the corresponding slot 
exemptions to a jet service provider.

         The FAA's slot regulations require the use of each slot at least 80
percent of the time, measured on a bi-monthly basis. Failure to do so without a
waiver from the FAA (which is granted only in exceptional cases) subjects the
slot to recall by the FAA. In addition, the slot regulations provide that slots
do not represent a property right, but represent an operating privilege subject
to FAA control and that slots may be withdrawn by the FAA at any time without
compensation to meet the DOT's operational needs (such as providing slots for
international or essential air transportation or providing slots for new entrant
carriers).

         Since the creation of the slot system in 1968, and subsequent to the
adoption of the FAA's slot allocation, use and transfer regulations in 1985,
there have been and are currently pending several proposals introduced in
Congress and discussions within the DOT and the FAA regarding slots. In August
1993, the National Commission To Ensure A Strong Competitive Airline Industry
recommended that the "FAA review the rule that limits operations at `high
density' airports with the aim of either removing these artificial limits or
raising them to the highest level consistent with safety requirements." In
August 1995, Congress passed legislation granting the FAA authority to create
additional slots for essential air service, international and certain domestic
jet operations.

                                        5
<PAGE>

YIELD MANAGEMENT

         The Company closely monitors its inventory and pricing of available
seats with a computerized yield management system. This system enables the
Company's revenue control analysts to examine the Company's past traffic and
pricing trends and to estimate the optimal allocation of seats by fare class
(the number of seats made available for sale at various fares). The analysts
then monitor each flight to adjust seat allocations and overbooking levels, with
the objective of maximizing the total revenue for each flight.

MARKETING

         The Company's services are marketed primarily by means of listings in
computerized reservation systems and the OFFICIAL AIRLINE GUIDE, advertising and
promotions, and through direct contact with travel agencies and corporate travel
departments. The Company's advertising and promotional programs emphasize the
Company's close affiliation with United, including coordinated flight schedules
and the right of the Company's passengers to participate in United's "Mileage
Plus" frequent flyer program.

COMPETITION

         The Company competes primarily with regional and major air carriers and
automobile transportation. The Company's competition from other air carriers
varies from location to location and, in certain areas, comes from regional and
major carriers who serve the same destinations as the Company but through
different hub and spoke systems. The domestic airline industry has undergone
major structural changes since the enactment of the Deregulation Act. Since that
time, there has been substantial consolidation and integration of both major and
regional carriers, including the acquisition or association of most regional
carriers by or with major carriers. Deregulation has made possible the rapid
entry of competitors into the Company's markets, and competitors are able to
adjust fares rapidly to improve their competitive position.

         Almost all markets are subject to a high degree of price competition
both from established carriers and low fare jet carriers. The Company believes,
however, that its ability to compete in its market areas is strengthened by its
code sharing relationships with United and United's substantial presence at
Chicago O'Hare and Denver which enhance the importance to Great Lakes of the
United "UA" flight designator code in the Upper Midwest. In May 1997, the
Company's scheduled operations at Minneapolis/St. Paul were substantially
reduced and the resources re-deployed to Chicago and Denver where United's
dominant position will generate considerably greater connecting traffic to the
Company's flights. The Company competes with other airlines by offering frequent
flights, flexible schedules and low fares. In addition, the Company's
competitive position benefits from the large number of participants in United's
"Mileage Plus" frequent flyer programs who fly regularly to or from the markets
served by the Company. The United Express Agreements do not prohibit United from
competing with the Company. The United Express Agreements require the Company to
obtain United's written consent before commencing service as a United Express
carrier on routes other than certain pre-approved routes.

         There can be no assurance that the Company will not experience
increased competition from existing competitors or from new entrants on one or
more of the Company's routes.

FUEL

         The Company has not experienced difficulty with fuel availability and
expects to continue to be able to obtain fuel in quantities sufficient to meet
its future requirements. The Company contracts directly with refiners for the
purchase of portions of its fuel. Standard industry contracts generally do not
provide protection against fuel price increases and do not ensure availability
of supply. Accordingly, a significant increase in the cost of fuel, if not
accompanied by an equivalent increase in passenger revenues, could have a
material impact on the Company's future operating results.

EMPLOYEES

         On December 31, 1998, the Company had 1,120 full-time and 258 part-time
employees as follows:

<TABLE>
<CAPTION>
            CLASSIFICATION:
<S>                                                                             <C>
            Pilots............................................................    350
            Station personnel.................................................    690
            Maintenance personnel.............................................    223
            Administrative and clerical personnel.............................     63
            Flight attendants.................................................     24
            Management........................................................     28
                                                                                -----
                Total employees................................................ 1,378
                                                                                -----
                                                                                -----
</TABLE>




                                        6
<PAGE>

         The Company's pilots are represented by the International Brotherhood
of Teamsters. Effective November 1, 1997, the Company and union reached an
agreement which becomes amendable October 30, 2000. During 1996 the flight
attendants voted to be represented by the Teamsters Union, however, no
collective bargaining agreement has been completed.

         The Company's mechanics are represented by the International 
Association of Machinists ("IAM"). The current agreement became effective 
November 1, 1997 and becomes amendable on November 1, 2000. During 1998, the 
Company's maintenance clerks voted to be represented by IAM. A collective 
bargaining agreement was negotiated and became effective March 1, 1999. The 
agreement becomes amendable March 1, 2002.

         The Company believes that relations with its employees are
satisfactory.

CHARTER AND FREIGHT SERVICE

         The Company uses available aircraft and from time to time leases four
and six passenger aircraft from an affiliated company to provide charter
services to private individuals, corporations and groups such as collegiate
athletic teams. The Company also carries freight, mail and small packages on
most of its scheduled flights. Revenues from its charter flights and freight
deliveries were 3.3 percent, 1.8 percent and 1.6 percent of the Company's total
revenues for the years ended December 31, 1998, 1997 and 1996, respectively.

REGULATION

         In accordance with the provisions of the Federal Aviation Act of 1958,
as amended (the "1958 Act"), the Company is an air carrier subject to regulation
by the DOT, primarily with respect to economic matters, and is also subject to
regulation by the FAA with respect to certain safety related matters.

         The Deregulation Act eliminated many regulatory constraints so that
airlines became free to set fares and, with limited exceptions, to establish
domestic routes without the necessity of seeking government approval. The DOT is
still authorized to establish consumer protection regulations; to prohibit
certain pricing practices; to mandate conditions of carriage; and to make
ongoing determinations of a carrier's fitness, willingness and ability to
properly and lawfully provide air transportation. The DOT also has the power to
bring proceedings for the enforcement of its regulations under the 1958 Act,
including the assessment of civil penalties and the revocation of operating
authority, and to seek criminal sanctions.

         The Company holds an air carrier-operating certificate issued by the
FAA pursuant to Part 121 of its regulations. The Company, as a commuter air
carrier, is licensed under Part 298 of the Economic Regulations of the DOT. The
Company is subject to the jurisdiction of the FAA with respect to its aircraft
maintenance and operations, including equipment, ground facilities, dispatch,
communications, training, weather observation, flight personnel and other
matters affecting air safety. To ensure compliance with its regulations, the FAA
requires airlines to obtain an operating certificate and operations
specifications for the particular aircraft and types of operations conducted by
the carrier, all of which are subject to suspension or revocation for cause.

         The Company is subject to the jurisdiction of the Federal
Communications Commission regarding the use of its radio facilities. Local
governments and authorities in certain markets have adopted regulations
governing various aspects of aircraft operations, including noise abatement and
curfews and use of airport facilities. The Company believes that it is in
compliance with all such regulations.

         The FAA heavily regulates the use of landing and take-off slots at
Chicago O'Hare. The FAA has the authority to revoke a carrier's slots for
failure to comply with FAA regulations.

INSURANCE

         The Company carries the types and amounts of insurance required by the
DOT and customary in the regional airline industry, including coverage for
public liability, property damage, aircraft loss or damage, baggage and cargo
liability and workers' compensation. The United Express Agreements require the
Company to maintain certain specified levels of insurance coverage. The Company
believes that the insurance is adequate as to amounts and risks covered. There
can be no assurance, however, that the limits of the Company's insurance will be
sufficient to cover any catastrophic loss.

                                        7
<PAGE>

ITEM 2.  PROPERTIES

         The Company leases gate and ramp facilities at 69 airports where
ticketing is handled by Company personnel. Payments to airport authorities for
ground facilities are based on a number of factors, including the amount of
space used and flight volume. The Company also leases aircraft maintenance and
hangar space at four of the locations it serves.

         The Company leases approximately 15,000 square feet of space in
Spencer, Iowa for its administrative, flight operations and maintenance offices,
in addition to approximately 35,000 square feet of aircraft maintenance and
hangar space located adjacent thereto. The Company leases an additional 32,000
square feet of space in Spencer for administration and maintenance shops. The
Company believes that it has adequate facilities for the conduct of its current
and planned operations.

ITEM 3.  LEGAL PROCEEDINGS

         The Company is one of several defendants in a lawsuit brought in the
State of Indiana, Vigo Superior Court on January 8, 1998, by the owners of a
private lake near the Terre Haute, Indiana Airport alleging that run-off from
de-icing operations at the airport have contaminated the lake. This litigation
is in the early stages and it cannot be determined at this time whether the
Company will have any liability or whether any such liability will be material
to the Company. It appears, however, that some activity at the airport had an
adverse impact on plaintiff's lake but it is not clear that such activity is
associated with the Company. The Company's insurance carrier has thus far
refused to provide a defense in this litigation.

         The Company is a defendant in a lawsuit arising from the collision of a
small aircraft with one of the Company's Beechcraft 1900 aircraft in Quincy,
Illinois on November 19, 1996. The collision occurred at the intersection of two
runways as the Company's aircraft was landing, and resulted in the death of all
ten passengers and the two crewmembers. The Company's insurance carrier is
providing for the Company's defense in the lawsuit and the Company believes that
all claims arising from the accident will be adequately covered by insurance.

         The Company is a party to several routine pending legal proceedings,
none of which management believes are material to the Company.

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

         There were no matters submitted to a vote of the Company's shareholders
during the three-month period ended December 31, 1998.

                                        8
<PAGE>
                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

         The Company's Common Stock is traded under the symbol "GLUX" on the 
NASDAQ SmallCap Market. The Company's Common Stock began trading on January 
19, 1994, the date of its initial public offering. The initial public 
offering price of the Company's Common Stock was $11.00 per share. From 
January 19, 1994 until August 27, 1998 the Company's Common Stock was listed 
on the NASDAQ National Market System. Effective August 28, 1998 the Company's 
Common Stock is listed on the NASDAQ SmallCap Market.

         The following table sets forth the range of high and low sale prices 
for the Company's Common Stock for each of the fiscal quarters for the past 
two years as reported by the National Association of Securities Dealer's 
Bulletin Board. These prices represent inter-dealer prices without 
adjustments for mark-up, mark-down or commission and do not necessarily 
reflect actual transactions.

STOCK QUOTATIONS
<TABLE>
<CAPTION>
1998
                                     High               Low
                                     ----              ----
<S>                                 <C>               <C>
         First quarter              $3.94             $1.56
         Second quarter              3.38              2.19
         Third quarter               4.38              2.50
         Fourth quarter              4.00              2.13

<CAPTION>
1997
                                     High               Low
                                     ----              ----
<S>                                 <C>               <C>
         First quarter              $3.63             $1.00
         Second quarter              2.13               .63
         Third quarter               1.63               .75
         Fourth quarter              2.00               .82
</TABLE>

         As of March 31, 1999, the Company had approximately 1,800 holders of
its Common Stock. The closing price of its common stock on March 25, 1999, as
reported by the NASDAQ SmallCap Market was $2.63 per share.

         The transfer agent for the Company's Common Stock is Norwest Bank
Minnesota, N.A., 161 North Concord Exchange, South St. Paul, Minnesota,
55075-0738, telephone: (651) 450-4064.

         The Company has not paid any dividends on its Common Stock since its
initial public offering in January 1994 and expects that for the foreseeable
future it will follow a policy of retaining earnings in order to finance the
continued development of its business. Payment of dividends is within the
discretion of the Company's Board of Directors and will depend upon the
earnings, capital requirements and operating and financial condition of the
Company, and any applicable restrictive debt and lease covenants, among other
factors.

ITEM 6.  SELECTED FINANCIAL DATA

         The following consolidated statement of earnings and consolidated
balance sheet data as of and for each of the years in the five-year period ended
December 31, 1998 are derived from the Company's consolidated financial
statements. The financial statements for the year ended December 31, 1998 and
1997 have been audited by KPMG Peat Marwick LLP, and the financial statements
for the years ended 1996, 1995 and 1994 have been audited by Arthur Andersen
LLP, independent public accountants. The consolidated financial statements as of
December 31, 1998 and 1997 and for each of the years in the three-year period
ended December 31, 1998 and the reports thereon are included elsewhere in this
Form 10-K. The following selected financial data should be read in conjunction
with and are qualified in their entirety by the consolidated financial
statements and the notes thereto included elsewhere in this Form 10-K.

                                        9
<PAGE>

<TABLE>
<CAPTION>

                                                                             Year Ended December 31
                                                       --------------------------------------------------------------------
                                                           (In thousands, except per share and selected operating data)
                                                          1998          1997           1996           1995           1994
                                                          ----          ----           ----           ----           ----
<S>                                                    <C>           <C>            <C>             <C>            <C>
STATEMENTS OF EARNINGS DATA:

     Passenger and public service revenues             $ 108,467     $  81,335      $ 107,528       $ 81,215       $ 67,784
     Other revenues                                        5,565         2,455          2,142          2,981          2,224
                                                       ---------     ---------      ---------      ---------      ---------
              Total operating revenues                   114,032        83,790        109,670         84,196         70,008
                                                       ---------     ---------      ---------      ---------      ---------
     Operating expenses:                            
         Salaries, wages and benefits                     29,106        22,091         27,801         21,407         16,157
         Aircraft fuel                                    13,974        13,206         19,377         14,181         12,123
         Aircraft maintenance materials             
              and repairs                                  9,426         7,041         13,248          9,229          8,612
         Commissions                                       5,560         5,553          7,704          6,211          5,340
         Depreciation and amortization                     3,499         4,192          5,634          6,029          4,852
         Aircraft rental                                  16,511        10,712         11,643          5,213          1,151
         Other rentals and landing fees                    6,375         5,443          6,794          5,370          3,416
         Other operating expense                          22,922        19,968         25,871         17,315         13,157
         Shutdown and other                         
           non-recurring expenses                            146         9,234             --             --             --
                                                       ---------     ---------      ---------      ---------      ---------
              Total operating expenses                   107,519        97,440        118,072         84,955         64,808
     Operating (loss) income                               6,513       (13,650)        (8,402)          (759)         5,200
     Interest expense, net                                 3,485         4,621          5,875          7,282          5,370
     Loss on sale of assets                                  191
     Gain on sale of slots                                    --            --             --          3,850             --
                                                       ---------     ---------      ---------      ---------      ---------
     Income (loss) before income tax expense               2,837       (18,271)       (14,277)        (4,191)          (170)
     Income tax expense (benefit)                            115            --         (1,454)        (1,503)           (65)
                                                       ---------     ---------      ---------      ---------      ---------

     Income (expense) before extraordinary item            2,722       (18,271)       (12,823)        (2,688)          (105)

     Extraordinary item gain on extinguishment 
           of debt, net of income taxes of $312,000           --            --             --             --            509
                                                       ---------     ---------      ---------      ---------      ---------
                                                    
     Net income (loss)                                 $   2,722     $ (18,271)     $ (12,823)     $  (2,688)     $     404
                                                       ---------     ---------      ---------      ---------      ---------
                                                       ---------     ---------      ---------      ---------      ---------
                                                    
     Net income (loss) per share: Basic                $     .34     $   (2.41)     $   (1.69)     $   (0.35)     $    0.05
                                                       ---------     ---------      ---------      ---------      ---------
                                                       ---------     ---------      ---------      ---------      ---------
     Net income (loss) per share: Diluted              $    0.31     $   (2.41)     $   (1.69)     $   (0.35)     $    0.05

     Average number of common shares                
         Outstanding - Basic                               7,925         7,589          7,585          7,579          7,365
                                                       ---------     ---------      ---------      ---------      ---------
                                                       ---------     ---------      ---------      ---------      ---------
     Average number of common shares
         outstanding - Diluted                             8,703         7,589          7,585          7,579          7,365
                                                       ---------     ---------      ---------      ---------      ---------
                                                       ---------     ---------      ---------      ---------      ---------
<CAPTION>
                                                                             Year Ended December 31
                                                       --------------------------------------------------------------------
                                                          1998          1997           1996           1995           1994
                                                          ----          ----           ----           ----           ----
<S>                                                    <C>           <C>            <C>             <C>            <C>
SELECTED OPERATING DATA:
     Available seat miles (000s) (1)                     489,213       438,272         678,304         566,290        477,602
     Revenue passengers carried                          873,186       676,015       1,012,965         805,190        663,627
     Revenue passenger miles (000s) (2)                  250,098       202,689         299,607         248,625        213,034
     Departures flown                                    122,278       102,722         165,972         147,748        133,493
     Passenger load factor (3)                              51.1%         46.2%           44.2%           43.9%          44.6%
     Break-even passenger load factor (4)                   49.3%         59.5%           51.5%           49.5%          44.7%
     Average yield per revenue passenger mile (5)     37.4 CENTS    37.1 CENTS      34.7 CENTS      31.6 CENTS     30.5 CENTS
     Operating  cost per available seat mile (6)      22.0 CENTS    22.2 CENTS      17.4 CENTS      15.0 CENTS     13.6 CENTS
     Average passenger fare (7)                       $   107.26    $   111.25      $   102.69      $    97.58     $    97.99
     Average  passenger  trip length (miles) (8)             286           300             296             309            321
     Aircraft in service (end of period)                      53            47              54              50             41
     Destinations served (end of period)                      71            51              86              73             55

                                         10
<PAGE>

BALANCE SHEET DATA:
     Working capital (deficit)                        $   (3,025)   $   (5,595)     $      603      $   12,138     $   10,615
     Total assets                                         72,281        63,758         118,109         140,715        141,934
     Long-term debt, net of current maturities            28,471        28,471          65,986          87,478         89,393
     Stockholders' equity                                  5,850         1,127          18,740          31,540         34,202
</TABLE>

(1)  "Available seat miles" or "ASMs" represent the number of seats available
     for passengers in scheduled flights multiplied by the number of scheduled
     miles those seats are flown.

(2)  "Revenue passenger miles" or "RPMs" represent the number of miles flown by
     revenue passengers.

(3)  "Passenger load factor" represents the percentage of seats filled by
     revenue passengers and is calculated by dividing revenue passenger miles by
     available seat miles.

(4)  "Break-even passenger load factor" represents the percentage of available
     seat miles which must be flown by revenue passengers at the average yield
     (net of commissions and fees) for airline operations to break even. 

(5)  "Average yield per revenue passenger mile" represents the average passenger
     revenue received for each mile a revenue passenger is carried.

(6)  "Operating cost per available seat mile" represents operating expenses
     divided by available seat miles.

(7)  "Average passenger fare" represents passenger revenue divided by the number
     of revenue passengers carried.

(8)  "Average passenger trip length" represents revenue passenger miles divided
     by the number of revenue passengers carried.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

OVERVIEW

         The discussion and analysis throughout this filing contains certain
forward-looking terminology such as "believes," "anticipates," "will," and
"intends," or comparable terminology. Such statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those projected. Potential purchasers of the Company's securities are
cautioned not to place undue reliance on such forward-looking statements which
are qualified in their entirety by the cautions and risks described herein and
in other reports filed by the Company with the Securities and Exchange
Commission.

         The Company began providing air charter service in 1979, and has
provided scheduled passenger service in the Upper Midwest since 1981. In April
1992, the Company began operating as a United Express carrier under a
cooperative marketing agreement with United. As of December 31, 1998, the
Company provided passenger service to 69 destinations in thirteen states 
with 286 scheduled departures each weekday.

         The Company suspended flight operations on May 16, 1997 and pursuant 
to the Order resumed operations on May 23, 1997. Additionally, the Company 
discontinued service as Midway Connection in the Southeast United States and 
as Great Lakes Airlines in the Southwest United States and Mexico on May 16, 
1997. As a result, operating results in 1998 are not directly comparable to 
1997 and 1997 operating results are not directly comparable to 1996.

         As part of the realignment of United's relationships with its United
Express carriers, the Company has replaced service from Denver previously
provided by another United Express carrier beginning April 23, 1998. This
service represents a significant expansion of the Company's previous service.

         The Company has suffered significant losses and negative cash flows in
three of the last five years, which raise substantial doubt about its ability to
continue as a going concern. The Company's viability as a going concern depends
upon its return to sustained profitability.

RESULTS OF OPERATIONS

COMPARISON OF 1998 TO 1997

The following table sets forth certain financial and operating information
regarding the Company for the last three fiscal years:

                                         11
<PAGE>

<TABLE>
<CAPTION>
                                 ------------------------------------------------------------------------------------------------
                                                   For the years ended December 31 (Dollars in thousands)
                                 ------------------------------------------------------------------------------------------------
                                                  1998                                1997                         1996
                                 ------------------------------------------------------------------------------------------------
                                                 Cents    % Increase/                 Cents    % Increase/                Cents    
                                                  per      Decrease                    per       Decrease                  per     
                                     Amount       ASM      from 1997     Amount        ASM      from 1996   Amount         ASM     
<S>                                <C>         <C>        <C>         <C>          <C>         <C>         <C>           <C>
Total operating revenues           $ 114,032           -     36.1%    $  83,790             -     (23.6)%  $ 109,670             - 
                                   ---------  ----------  -------     ---------    ----------  --------    ---------    ----------
Salaries, wages and benefits          29,107   5.9 CENTS     31.8        22,091     5.0 CENTS     (20.5)      27,801     4.1 CENTS 
Aircraft fuel                         13,974   2.9            5.8        13,206     3.0           (31.8)      19,377     2.9       
Aircraft maintenance                                                                                                               
  materials and repairs                9,426   1.9           33.9         7,041     1.6           (46.9)      13,248     2.0       
Commissions                            5,560   1.1            0.1         5,553     1.3           (27.9)       7,704     1.1       
Depreciation and                                                                                                                   
  amortization                         3,499   0.7          (16.5)        4,192     1.0           (25.6)       5,634     0.8       
Aircraft rental                       16,511   3.4           54.1        10,712     2.4            (8.0)      11,643     1.7       
Other rentals and landing fees         6,375   1.3           17.1         5,443     1.2           (19.9)       6,794     1.0       
Other operating expense               22,922   4.7           14.8        19,968     4.6           (22.8)      25,871     3.8       
Shutdown and other non-recurring                                                                                                   
  expenses                               146    --             --         9,234     2.1              --           --      --       
                                   ---------  ----------  -------     ---------    ----------  --------    ---------    ----------
Total operating expenses             107,519  22.0           10.2     $  97,440    22.2 CENTS     (17.5)%  $  18,072    17.4 CENTS 
                                                                      ---------    ----------  --------    ---------    ----------
Operating income (loss)                6,513    --             --     $ (13,650)     --           (62.5)%  $  (8,402)     -- 
                                   ---------  ----------  -------     ---------    ----------  --------    ---------    ----------
                                   ---------  ----------  -------     ---------    ----------  --------    ---------    ----------
Interest                           $   3,485   0.7          (29.6)    $   4,620     1.1 CENTS     (21.4)%  $   5,875     0.9 CENTS 
                                   ---------  ----------  -------     ---------    ----------  --------    ---------    ----------
                                   ---------  ----------  -------     ---------    ----------  --------    ---------    ----------
Aircraft Expense                                                                                                                   
  Depreciation and amortization        3,499   0.7          (16.5)    $   4,192     1.0 CENTS     (25.6)%  $   5,634     0.8 CENTS 
  Aircraft rental                     16,511   3.4           54.1        10,712     2.4            (8.0)      11,643     1.7       
  Interest expense (net)           $   3,485   0.7          (24.6)    $   4,620     1.1           (21.4)       5,875     0.9       
                                   ---------  ----------  -------     ---------    ----------  --------    ---------    ----------
                                   $  23,049   4.8 CENTS     20.0     $  19,524     3.4 CENTS       4.5%   $  23,152     3.4 CENTS 
                                   ---------  ----------  -------     ---------    ----------  --------    ---------    ----------
                                   ---------  ----------  -------     ---------    ----------  --------    ---------    ----------
</TABLE>

<TABLE>
<CAPTION>
                                                    Change                        Change
                                     1998         from 1998       1997          from 1997         1996  
                                 -----------------------------------------------------------------------
<S>                              <C>             <C>           <C>             <C>            <C>
Available seat miles (000's)        489,213           11.6%       438,272          (35.4)%       678,304 
Revenue passenger miles (000's)     250,098           23.3%       202,689          (32.3)%       229,607 
Passenger load factor                  51.1%        4.9pts           46.2%        2.0pts            44.2%
Average yield per revenue                                                                                
  passenger mile                 37.4 CENTS      0.3 CENTS     37.1 CENTS      2.4 CENTS      34.7 CENTS
</TABLE>

         OPERATING REVENUES: Operating revenues increased 36.1% to $114.0
million in 1998 from $83.8 million during 1997. The increase in operating
revenues resulted from the increase in revenue passenger miles flown by 23.3% to
250.0 million in 1998 from 202.7 million during 1997 and to 489.2 million ASMs
in 1998 from 438.3 million ASMs during 1997. The additional capacity is a result
of the expansion of service in the Denver markets. In addition, public service
revenue increased 145.9% to $15.0 million in 1998 from $6.1 million in 1997.

         OPERATING EXPENSES: Total operating expenses increased 10.3% to $107.5
million, or 22.0 cents per ASM, in 1998 from $97.4 million, or 22.2 cents per
ASM in 1997. The increase is due to the expansion of service during 1998
primarily from the Denver hub.

                                         12
<PAGE>

         Salaries, wages, and benefits expense increased to 5.9 cents per ASM
during 1998, from 5.0 cents per ASM during 1997, primarily as a result of higher
labor rates under the union agreements with the Company's mechanics and flight
crews and the higher number of employees needed to support the increased level
of operations.

         Aircraft fuel expense per ASM decreased to 2.9 cents in 1998 from 3.0
cents in 1997 due to generally lower oil prices during 1998 partially offset by
higher fuel taxes and into-plane costs at the Denver hub.

         Aircraft maintenance and repairs expense increased to 1.9 cents per ASM
during 1998, from 1.6 cents per ASM in 1997 principally due to the costs
associated with the introduction of additional aircraft into the fleet in 1998
and the timing of certain maintenance.

         Aircraft expense increased to 4.8 cents per ASM during 1998, from 3.4
cents per ASM in 1997 due to the transition of the Beechcraft fleet to the newer
model 1900D aircraft.

         Other rentals and landing fee expenses increased to 1.3 cents per ASM
during 1998, from 1.2 cents per ASM in 1997, as a result of higher facility
costs at certain locations that the Company began serving in 1998, as well as
increased costs at Denver due to a higher level of activity.

         Other operating expenses increased to 4.7 cents per ASM in 1998 from 
4.6 cents in 1997, reflecting higher fixed expenses, including general and 
administrative, marketing, and communication costs associated with the 
Company's expansion. In addition, 1998 includes higher United program fee 
expenses since a higher percentage of the Company's flying was under the 
United Code in 1998 versus 1997.

         Shutdown and other nonrecurring expenses of 2.1 cents per ASM in 
1997 represents the estimated costs associated with the voluntary shutdown 
and the one-time charge for the write-down of the Brasilia aircraft. This 
expense includes $7.9 million related to salaries and wages, aircraft 
maintenance materials and repairs, aircraft ownership costs, facilities 
rental, and other expenses directly related to the shutdown. The remaining 
$1.3 million for the Brasilia aircraft elimination represents a reduction of 
the carrying value of the aircraft to their estimated net realizable value, 
accrued estimated future unrecoverable lease payments, accrued estimated 
lease termination costs, and a reduction of the carrying value of the spare 
part inventories to net realizable value, accrued estimated future 
unrecoverable lease payments, accrued estimated lease termination costs, and 
a reduction of the carrying value of the spare part inventories to net 
realizable value offset by the recognition of related deferred purchase 
incentives on these aircraft. The 1998 nonrecurring expense related to the 
reversal of an accrual made in 1997 for the disposal of certain Brasilia 
aircraft, which was netted against the final settlement on two Brasilia that 
were returned to the lessor in 1997.

         INCOME TAX EXPENSE (BENEFIT): No income tax benefit was recorded for 
1998 considering that the Company is in a loss carry forward position and 
that the realization of any benefits of such are substantially in doubt. The 
provision for income taxes in 1998 represents state income taxes estimated to 
be payable.

COMPARISON OF 1997 TO 1996

         OPERATING REVENUES: Operating revenues decreased 23.6% to $83.8 
million in 1997 from $109.7 million during 1996. The decrease in operating 
revenues resulted from the decrease in revenue passenger miles flown by 32.3% 
to 202.7 million in 1997 from 299.6 million during 1996 offset by increase of 
2.4 CENTS in yield per revenue passenger mile to 37.1 CENTS in 1997 from 34.7 
CENTS in 1996. This coincided with a 35.4% decrease in capacity to 438.3 
million ASMs in 1997 from 678.3 million ASMs during 1996. The increase in 
passenger yield is due primarily to price increases in key markets, moving 
service from lower yield markets to higher yield markets, and due to an 
increased emphasis on managing the quantity of seats made available for sale 
at discounted rates. In addition, public service revenue increased 74.3% to 
$6.1 million in 1997 from $3.5 million in 1996.

         OPERATING EXPENSES: Total operating expenses decreased 17.5% to $97.4
million, or 22.2 cents per ASM, in 1997 from 118.1 million, or 17.4 cents per
ASM in 1996. The increase in cost per ASM reflects the costs associated with the
voluntary shutdown and the corresponding decrease in ASMs.

         Salaries, wages, and benefits expense increased to 5.0 cents per ASM
during 1997, from 4.1 cents per ASM during 1996, due to normal pay increases and
a smaller ASM base across which to spread fixed labor costs.

         Aircraft fuel expense per ASM increased to 3.0 cents in 1997 from 2.9
cents in 1996 due to increased fuel prices from suppliers and the reinstatement
of the 4.3 cents per gallon federal excise tax on jet fuel in August 1996,
affecting all of 1997 and only five months in 1996.

                                         13
<PAGE>

         Aircraft maintenance and repairs expense decreased to 1.6 cents per ASM
during 1997, from 2.0 cents per ASM in 1996 due to a decrease in the number of
engine overhauls performed in 1997.

         Aircraft expense increased to 4.5 cents per ASM during 1997, from 3.4
cents per ASM in 1996 due to reduced utilization because of the previously
discussed voluntary suspension of flight operations.

         Other rentals and landing fee expenses increased to 1.2 cents per ASM
during 1997, from 1.0 cents per ASM in 1996, as a result of fixed facility costs
spread over a lower ASM base.

         Other operating expenses increased to 4.6 cents per ASM in 1997 from
3.8 cents in 1996, reflecting fixed expenses, including general and
administrative, marketing, and communications, spread across a lower ASM base in
1997. In addition, 1997 includes higher passenger booking fees on an ASM basis
due to increases in rates and higher United program fees since a higher
percentage of the Company's flying was under the United Code in 1997 versus
1996.

         Shutdown and other nonrecurring expenses of 2.1 cents per ASM in 1997
represents the estimated costs associated with the voluntary shutdown and the
one-time charge for the write-down of the Brasilia aircraft. This expense
includes $7.9 million related to salaries and wages, aircraft maintenance
materials and repairs, aircraft ownership costs, facilities rental, and other
expenses directly related to the shutdown. The remaining $1.3 million for the
Brasilia aircraft elimination represents a reduction of the carrying value of
the aircraft to their estimated net realizable value, accrued estimated future
unrecoverable lease payments, accrued estimated lease termination costs, and a
reduction of the carrying value of the spare part inventories to net realizable
value, accrued estimated future unrecoverable lease payments, accrued estimated
lease termination costs, and a reduction of the carrying value of the spare part
inventories to net realizable value offset by the recognition of related
deferred purchase incentives on these aircraft.

         INCOME TAX EXPENSE (BENEFIT): No income tax benefit was recorded for 
1997 considering that the Company is in a loss carry forward position and 
that the realization of any benefits of such are substantially in doubt.

LIQUIDITY AND CAPITAL RESOURCES

         The Company has suffered significant losses in three of the last 
five years and negative cash flows in two of the last three years, which 
raise substantial doubt about its ability to continue as a going concern. The 
Company has no further availability on its $5 million line of credit with 
Raytheon and has no other credit facilities available to it at this time. The 
Company is heavily dependent on Raytheon and United for its liquidity 
requirements, however neither Raytheon nor United is under any current 
obligation to provide further financing to the Company. The Company's 
viability as a going concern depends upon its return to sustained 
profitability, positive operating cash flow and reaching viable long-term 
agreements with Raytheon and United.

         The Company's working capital deficit decreased to $3.0 million at 
December 31, 1998 from $5.6 million at December 31, 1997. Net cash provided 
by operating activities improved to a use of $1.8 million in 1998, from a use 
of $6.7 million in 1997, principally as a result of the improvement in net 
earnings. This improvement was diminished by increased investments in working 
capital, including accounts receivable and inventory, net of an increase in 
accounts payable, which were largely attributable to the growth and expansion 
of operations.

         Raytheon is the Company's primary aircraft supplier and largest
creditor. The Company has financed all of its Beechcraft 1900 aircraft and one
of its Brasilia aircraft under related lease and debt agreements with Raytheon,
and Raytheon has also provided a $5 million working capital line of credit
(payable on demand and expiring on June 30, 1999) and a $5 million short-term
loan, due on June 30, 1999, and collateralized by Beechcraft spare parts and
equipment and accounts receivable. The Raytheon Agreements went into default in
1997 due to the Company's non-payment of scheduled amounts due.

         Effective August 31, 1997, the Company restructured its Raytheon
aircraft agreements. The restructuring resulted in a total of 30 Beechcraft 1900
aircraft under operating leases of various terms with monthly lease payments
ranging from $18,000 to $40,000 per aircraft. The restructuring also cured all
of the defaults with Raytheon. The restructuring resulted in a net deferred gain
of $1.5 million, which will be recognized over the life of the lease agreements.

         In the second quarter of 1998, the Company purchased six Beechcraft 
1990D aircraft that had been operated under operating leases.  Raytheon 
provided the financing for these acquisitions.  As part of this agreement, 
Raytheon agreed to accept the return of up to 14 of the Company's 1900C 
aircraft.  The Company returned seven leased 1900C aircraft and sold its 
seven owned Beechcraft 1900C aircraft to Raytheon.  The Company currently 
leases five 1900C aircraft from Raytheon under month-to-month leases for use 
in contracted mail service and as a spare messenger service aircraft.  In 
addition, the Company is utilizing 22 1900D aircraft under short-term 
operating leases.  The Company is negotiating with Raytheon to purchase these 
22 1900D aircraft through the issuance of notes payable to Raytheon.  If this 
transaction is consummated, it will increase the Company's flight equipment 
and long-term debt by approximately $77 million.  Management does not expect 
the purchase, if consummated, to have a material impact on earnings.

                                         14
<PAGE>

         In addition, the Company has financed seven of its Brasilia aircraft
through lease and debt agreements with other unrelated entities (collectively,
the "Brasilia Agreements"). During 1997, all of the Brasilia Agreements went
into default due to non-payment of scheduled amounts due. All defaults under the
Brasilia Agreements were cured as of March 31, 1998. Two Brasilia aircraft,
which the Company had in its fleet as of January 1, 1997, were returned to the
lessor through the exercise of the lessor's rights as a result of the default.
The lease costs associated with these two returned aircraft are included in
Excess Aircraft, Shutdown, and Other Non-recurring Expenses.

         Capital expenditures related to aircraft and equipment totaled 
$631,000 in 1998, $1.1 million during 1997, and $2.6 million in 1996. Payment 
of debt exceeded borrowings by $14.2 million in 1996.

         Long-term debt, net of current maturities of $3.0 million, totaled
$28.5 million at December 31, 1998 compared to $28.5 million net of current
maturities of $2.2 million, at December 31, 1997, and $66.0 million, net of
current maturities of $5.1 million at December 31, 1996. Long-term debt
decreased $40.4 million from December 31, 1996 to December 31, 1997 principally
due to the sale lease/sale transaction in 1997. As of December 31, 1998, the
Company's long-term debt instruments bear interest at rates ranging from 7.5 to
9.1 percent and are payable monthly or quarterly through July 2007. All
long-term debt as of December 31, 1998 relates to the acquisition of aircraft
and is collateralized by 10 related aircraft. There are no financial covenants
related to such long-term debt.

YEAR 2000 IMPACT

         The Year 2000 issue, common to most companies, concerns the inability
of information and noninformation systems to recognize and process
date-sensitive information after 1999 due to the use of only the last two digits
to refer to a year. This problem could affect both information systems (software
and hardware) and other equipment that relies on microprocessors. Management has
completed a company-wide evaluation of this impact on its computer systems,
applications and other date-sensitive equipment. Systems and equipment that are
not Year 2000 compliant have been identified and remediation efforts are in
process. Certain equipment will be updated or replaced during the second quarter
of 1999 to complete the remediation process.

         The Company is also in the process of monitoring the progress of
material third parties (vendors and business partners) in their efforts to
become Year 2000 compliant. These third parties include, but are not limited to:
aircraft manufacturers, fuel and parts suppliers, governmental agencies,
financial institutions, and United. As a result of the code sharing relationship
with United, the Company's business is sensitive to events and risks affecting
United. The Company is actively working with United in efforts to reduce the
risk of adverse effects that might result from any failure to be Year 2000
compliant by United.

         The Company relies primarily on outside sources for its software
requirements. Most of these software vendors have provided updated, Year 2000
compliant software. The remaining vendors are in the final process of testing
the upgrades and the Company anticipates delivery by August 31, 1999. Internally
developed applications have been updated to the extent possible, and will be
completed once the remediation process for equipment upgrades is finished. As a
result of the Company's use of third party software, the primary cost for
remediation is in the form of new or updated hardware. Remaining remediation
costs are not expected to exceed $75,000, with the total cost for Year 2000
compliance issues of approximately $100,000.

         The Company believes that the greatest potential for disruption lies 
not in the Company's internal systems but rather in the external systems of 
the Company's service providers. The Company believes, based on research to 
date that disruptions in these external systems will be short-lived, and that 
through contingency planning the Company can minimize the impact on the 
service it provides.  While the Company has not developed contingency plans, 
it expects to by June 30, 1999.  However, there can be no guarantee that 
material third parties, on which the Company relies, will properly address 
all Year 2000 issues on a timely basis or that their failure to successfully 
address all issues would not have an adverse effect on the Company.

ACCOUNTING PRONOUNCEMENTS

         In June 1998, the Financial Accounting Standards Board issued 
Statement No. 133, "Accounting for Derivative Instruments and Hedging 
Activities." This statement establishes accounting and reporting standards 
for derivative instruments and all hedging activities. It requires that an 
entity recognize all derivatives as either assets or liabilities at their 
fair values. Accounting for changes in the fair value of a derivative depends 
on its designation and effectiveness. For derivatives that qualify as 
effective hedges, the change in fair value will have no impact on earnings 
until the hedged item affects earnings. For derivatives that are not 
designated as hedging instruments, or for the ineffective portion of a 
hedging instrument, the change in fair value will affect current period 
earnings. At December 31, 1998, the Company had no derivative instruments.

                                         15
<PAGE>

FREQUENT FLYER PROGRAM

         The Company's United Express passengers may earn miles in United's
"Mileage Plus" and frequent flyer program, and passengers may use mileage
accumulated in this program to obtain discounted or free tickets for trips that
might include a flight segment on one of the Company's flights. No revenues are
earned or collected on free tickets awarded to passengers under the program.
Awards earned under the frequent flyers program have an expiration date three
years from the date earned. The program also contains certain restrictions,
including blackout dates and capacity controlled bookings, which substantially
limit the use of awards on certain flights and during the busiest periods. The
Company continually monitors the number of free travel award reservations on its
flight segments to ensure that they are within the capacity restrictions defined
in the "Mileage Plus" program. The Company's yield management program and
related seat restrictions minimize the number of revenue passengers that may be
displaced on any individual flight segment. To date, the Company has not
experienced any material use of "Mileage Plus" and awards to obtain travel on
flights, and the incremental cost to the Company attributable to the exercise of
frequent flyer awards (consisting primarily of a minimal amount of additional
gate and passenger service expenses) has not been material. Awards used on the
Company's flights during the year ended December 31, 1998 represented
approximately 2.5% percent of the Company's total passengers. The Company
expects that this percentage will remain approximately the same for the
foreseeable future. Based on this low percentage, the availability on many of
the Company's flights of otherwise vacant seats, and on the program's
restrictions, the Company believes that the displacement, if any, of revenue
passengers by users of "Mileage Plus" and awards will not become material. The
Company continually monitors the number of awards redeemed and will accrue the
incremental costs associated with the "Mileage Plus" and program if they become
material.

EFFECTS OF INFLATION

         Inflation has not had a material effect on the Company's operations in
the past five years.

CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1996

CAUTIONARY FACTORS

         The Company wishes to caution shareholders and prospective investors
that the following important factors, among other identified in this Annual
Report on Form 10-K, could affect the Company's actual operating results, and
that such results could differ materially from those expressed in any
forward-looking statements made by the Company. The statements under this
caption are intended to serve as cautionary statements within the meaning of the
Private Securities Litigation Reform Act of 1996. The following information is
not intended to limit in any way the characterization of other statements or
information under other captions as cautionary statements for such purpose. The
order in which such factors appear below should not be construed to indicate
their relative importance or priority.

DEPENDENCE ON RELATIONSHIP WITH UNITED

         The Company generated approximately 97% of its revenues for the year 
ended December 31, 1998 under the United Express Agreements described under 
"Business - United Express Relationship". The United Express Agreements 
terminated on December 31, 1997. A failure to renew the United Express 
Agreements, any termination or materially adverse modification of the 
agreements, or any substantial decrease in the number of routes served by the 
Company under the agreements would have a materially adverse effect on the 
Company's business. As a result of the United Express Agreements, the 
Company's business is sensitive to events and risks affecting United. If 
adverse events affect United's business, the Company's business will also be 
adversely affected. The United Express Agreements require the Company to 
comply with specific operating performance standards and, with certain 
limited exceptions, restrict the ability of the Company to merge with another 
company or dispose of its assets or aircraft without first offering United a 
right of first refusal to acquire the Company or such assets or aircraft. The 
United Express Agreements also prohibit the Company from entering into 
similar arrangements with other carriers in Chicago, Denver, Minneapolis-St. 
Paul, Detroit, Des Moines or Omaha without United's prior approval. The 
United Express Agreements require the Company to obtain United's prior 
consent to operate as a United Express carrier in any market, except for 
certain pre-approved markets connecting with Minneapolis-St. Paul or Detroit.

                                         16
<PAGE>

EFFECT OF GENERAL ECONOMIC CONDITIONS

         The airline industry is significantly affected by general economic
conditions. During recent recessions, most airlines reduced fares in an effort
to increase traffic. Economic and competitive conditions in the airline industry
have contributed to a number of bankruptcies and liquidations among airlines. A
worsening of current economic conditions, or an extended period of recession
nationally or regionally, would have a materially adverse effect on the
Company's operations.

FUEL COSTS

         Fuel is a major component of operating expense for all airlines. The
Company's cost of fuel varies directly with market conditions, and the Company
has no guaranteed long-term sources of supply. The Company intends generally to
follow industry trends by raising fares in response to significant fuel price
increases. However, the Company's ability to pass on increased fuel costs
through fare increases may be limited by economic and competitive conditions.
Accordingly, a reduction in the availability or an increase in the price of fuel
could have a materially adverse effect on the Company's cash flow from
operations and profitability.

SEASONALITY

         Historically, the Company has experienced lower passenger load factors
during the months of January through April and in November and December. This
seasonality can be attributed primarily to relatively difficult winter weather
operating conditions in the Company's principal area of operations, resulting in
fewer vacations and other discretionary trips and reduced business travel during
these months. These seasonal factors have generally resulted in reduced
revenues, increased operating losses and reduced cash flow for the Company
during these months.

CONTROL BY PRINCIPAL STOCKHOLDER

         Mr. Douglas G. Voss beneficially owns or controls approximately 55% of
the outstanding shares of the Company's common stock. On October 22, 1996, Mr.
Voss transferred approximately one-half of the shares of the Company's common
stock owned by him to his ex-spouse, Ms. Gayle R. Voss, pursuant to the Marital
Dissolution Stipulation and Property Settlement. Ms. Voss has granted Mr. Voss
an Irrevocable Proxy to vote such securities until June 28, 2010. In addition,
the terms of the United Express Agreements require that Mr. Voss control at
least 51% of the Company's outstanding voting stock. Accordingly, Mr. Voss will
continue to be in a position to control the management and affairs of the
Company.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISKS ASSOCIATED WITH FINANCIAL STATEMENTS

         The risk inherent in the Company's market risk sensitive instruments
and positions is the potential loss arising from adverse changes in those
factors. The Company is susceptible to certain risks related to changes in the
cost of aircraft fuel and changes in interest rates. At December 31, 1998, the
Company does not have any derivative financial instruments.

AIRCRAFT FUEL

         Airline operators are dependent upon fuel to operate and therefore,
are impacted by changes in aircraft fuel prices. Great Lakes' earnings are
affected by changes in the price and availability of aircraft fuel. Aircraft
fuel represented approximately 13 percent of Great Lakes' operating expenses in
1998. A one-cent change in the average cost of aircraft fuel would impact the
Company's aircraft fuel would impact the Company's aircraft fuel expense by
approximately $180,000, based upon fuel consumption in 1998.

                                         17
<PAGE>

INTEREST RATES

         The Company's operations are very capital intensive, as the vast 
majority of assets are flight equipment, which are long lived. Great Lakes' 
exposure to market risk associated with changes in interest rates relates to 
its debt obligations. The Company does have exposure to changes in cash flows 
resulting from changes in interest rates as a significant portion of its 
long-term debt has variable interest rates. Additionally, the Company is 
exposed to changes in fair values of its debt obligations which carry fixed 
rates of interest. As disclosed in Note 6 to the Consolidated Financial 
Statements the Company has total long-term debt outstanding of $32.0 million 
before unamortized warrant discount of $0.6 million at December 31, 1998.

<TABLE>
<CAPTION>
                               Fixed             Average             Variable           Average
                               Rate               Fixed                Rate            Variable
  Maturity                    Amount              Rate                Amount             Rate
<S>                        <C>                 <C>                 <C>                 <C>
    1999                   $ 1,050,217            8.88%            $ 1,946,892           7.71%
    2000                     1,146,892            8.88               2,247,819           7.71
    2001                     1,252,827            8.88               3,215,649           7.71
    2002                     1,368,550            8.88               1,639,365           7.75
    2003                     1,454,482            8.88               1,771,028           7.75
    Thereafter               2,644,075            9.08              12,282,935           7.75

</TABLE>

         In addition, the Company has a line of credit and other short term 
notes payable in a total amount of $10,650,000 at December 31, 1998. These 
credit facilities rates of interest range between 8.5 percent to 10.5 percent.

                                      18
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The consolidated financial statements of the Company as of 
December 31, 1998 and 1997 together with Report of Independent Public 
Accountants are included in this Form 10-K on the pages indicated below.

<TABLE>
<CAPTION>

                                                                                              PAGE
                                                                                              ----
<S>                                                                                           <C>
Independent Auditors' Report..................................................................20

Report of Independent Public Accountants......................................................21

Consolidated Balance Sheets as of December 31, 1998 and 1997..................................22

Consolidated Statements of Operations for the Years Ended December 31, 1998,
  1997 and 1996...............................................................................23

Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
  1998, 1997 and 1996.........................................................................24

Consolidated Statements of Cash Flows for the Years Ended December 31, 1998,
  1997 and 1996...............................................................................25

Notes to Consolidated Financial Statements ...................................................27

Supplemental Schedule to Consolidated Financial Statements Schedule II - Valuation
  and Qualifying Accounts.....................................................................43

</TABLE>


                                       19

<PAGE>

                         INDEPENDENT AUDITORS' REPORT

The Board of Directors
Great Lakes Aviation, Ltd.:

We have audited the accompanying consolidated balance sheets of Great Lakes 
Aviation, Ltd. (an Iowa Corporation) and subsidiary as of December 31, 1998 
and 1997, and the related consolidated statements of operations, 
stockholders' equity, and cash flows for the years then ended. In connection 
with our audits of the consolidated financial statements we have also audited 
the financial statement schedule for the years ended December 31,1998 and 
1997. These consolidated financial statements and the financial statement 
schedule are the responsibility of the Company's management. Our 
responsibility is to express an opinion on these financial statements and the 
financial statement schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement. An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements. 
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation. We believe that our audits provide a 
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above 
present fairly, in all material respects, the financial position of Great 
Lakes Aviation, Ltd. and subsidiary as of December 31, 1998 and 1997, and the 
results of their operations and their cash flows for the years then ended, in 
conformity with generally accepted accounting principles. Also in our 
opinion, the related financial statement schedule for the years ended 
December 31, 1998 and 1997, when considered in relation to the basic 
financial statements taken as a whole, presents fairly, in all material 
respects, the information set forth therein.

The accompanying consolidated financial statements have been prepared 
assuming that the Company will continue as a going concern. As discussed in 
note 3 to the consolidated financial statements, the Company has incurred 
significant losses in two of the last three years and a result, has suffered 
from insufficient liquidity to pay its obligations as they come due. 
Additionally, several of the Company's major operating and debt agreements 
have either expired or will expire in the near future. These matters raise 
substantial doubt about the Company's ability to continue as a going concern. 
Management's plans in regard to these matters are also described in note 3. 
The consolidated financial statements do not include any adjustments that 
might result from the outcome of this uncertainty.



                                            /s/ KPMG Peat Marwick LLP

                                            KPMG Peat Marwick LLP

Des Moines, Iowa
March 23, 1999

                                       20
<PAGE>

                         REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Great Lakes Aviation, Ltd.

We have audited the accompanying consolidated statements of operations, 
stockholders' equity and cash flows of Great Lakes Aviation, Ltd. (an Iowa 
corporation) and Subsidiary for the year ended December 31, 1996. These 
financial statements are the responsibility of the Company's management. Our 
responsibility is to express an opinion on these financial statements based 
on our audit.

We conducted our audit in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement. An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements. 
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation. We believe that our audit provides a 
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in 
all material respects, results of its operations, changes in stockholders' 
equity, and its cash flows of Great Lakes Aviation, Ltd. and Subsidiary for 
the year ended December 31, 1998, in conformity with generally accepted 
accounting principles.

The accompanying financial statements have been prepared assuming that the 
Company will continue as a going concern. As discussed in note 3 to the 
financial statements, the Company has suffered significant losses in 1996 and 
had negative operating cash flow in 1996, was unable to meet its operating 
agreements. These matters raise substantial doubt about its ability to 
continue as a going concern. Management's plans in regard to these matters 
are also described in Note 3. The financial statements do not include any 
adjustments relating to recoverability and classification of asset carrying 
amounts or the amount and classification of liabilities that might result 
should the Company be unable to continue as a going concern.

Our audit was made for the purpose of forming an opinion on the basic 
financial statements taken as a whole. The supplemental schedule to the 
consolidated financial statements is presented for the purposes of complying 
with the Securities and Exchange Commission's rules and is not part of the 
basic financial statements. This schedule has been subjected to the auditing 
procedures applies in the audits of the basic financial statements and, in 
our opinion, fairly states in all material respects the financial data 
required to be set forth therein in relation to the basic financial 
statements taken as a whole.

                                            /s/ Arthur Andersen LLP
                                            ARTHUR ANDERSEN LLP

Minneapolis, Minnesota
April 4, 1997

                                       21

<PAGE>

                   GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
                          CONSOLIDATED BALANCE SHEETS
                          DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
                                                                      1998               1997
                                                                      ----               ----
<S>                                                            <C>                <C>
                                            ASSETS

Current assets:
      Cash                                                     $        188,987   $         5,784
      Interest bearing deposits                                            -            2,246,725
      Accounts receivable (note 6)                                    8,374,590         5,472,896
      Inventories, net (notes 2, 3 and 6)                            18,458,254        12,288,428
      Prepaid expenses and other current assets                         622,538           817,787
                                                                ----------------  ----------------
          Total current assets                                       27,644,369        20,831,620

Property and equipment:
      Flight equipment (notes 5 and 6)                               45,532,765        46,780,941
      Other property and equipment                                    4,553,503         4,185,636
      Less accumulated depreciation and amortization                 (7,967,934)       (9,656,199)
                                                                ----------------  ----------------
          Total property and equipment                               42,118,334        41,310,378
                                                                ----------------  ----------------

Other assets                                                          3,018,555         1,616,448
                                                                ----------------  ----------------
                                                                $    72,781,258   $    63,758,446
                                                                ----------------  ----------------
                                                                ----------------  ----------------

                                 LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
      Note payable and current maturities of 
        long-term debt (note 6)                                 $    13,647,109   $    10,306,234
      Accounts payable                                               12,250,863         9,461,677
      Accrued Brasilia disposal and lease 
        termination costs (note 2)                                         -            1,858,492
      Accrued liabilities and unearned revenue                        3,750,528         3,433,302
      Deferred lease payments                                         1,020,780         1,366,815
                                                                ----------------  ----------------
          Total current liabilities                                  30,669,280        26,426,520
                                                                ----------------  ----------------

Long-term debt, net of current maturities (note 6)                   28,471,122        28,471,492
Deferred credits                                                      4,936,631         4,487,196
Deferred lease payments                                               2,854,329         3,246,598

Stockholders' equity: (note 6)
      Common stock, $.01 par value; 50,000,000 shares
          authorized, 8,590,843 and 7,589,121 shares issued
          and outstanding at December 31, 1998 and 1997                  85,908            75,891
      Paid-in capital (note 6)                                       31,568,800        29,577,371
      Accumulated deficit                                           (25,804,812)      (28,526,622)
                                                                ----------------  ----------------
          Total stockholders' equity                                  5,849,896         1,126,640
                                                                ----------------  ----------------

Commitments and contingencies (note 3, 5, 6 and 10) 

                                                                $    72,781,258   $    63,758,446
                                                                ----------------  ----------------
                                                                ----------------  ----------------
</TABLE>

See accompanying notes to consolidated financial statements.

                                       22

<PAGE>

                   GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                       DECEMBER 31, 1998, 1997, AND 1996

<TABLE>
<CAPTION>

                                                                       1998                  1997                1996
                                                                       ----                  ----                ----
<S>                                                           <C>                     <C>                  <C>
Operating revenues:
      Passenger                                               $          93,440,953   $      75,204,197    $    104,016,017
      Public service                                                     15,026,050           6,130,964           3,512,156
      Freight, charter, and other                                         5,564,957           2,454,836           2,141,517
                                                              ----------------------  ------------------   -----------------
              Total operating revenues                                  114,031,960          83,789,997         109,669,690
                                                              ----------------------  ------------------   -----------------

Operating expenses:
      Salaries, wages, and benefits                                      29,106,739          22,091,493          27,800,983
      Aircraft fuel                                                      13,973,669          13,206,289          19,377,128
      Aircraft maintenance materials and repairs                          9,425,672           7,040,982          13,247,641
      Commissions                                                         5,559,553           5,552,485           7,704,342
      Depreciation and amortization                                       3,499,409           4,191,856           5,633,535
      Aircraft rental (note 5)                                           16,511,288          10,712,135          11,643,163
      Other rentals and landing fees                                      6,374,889           5,442,825           6,793,660
      Other operating expense                                            22,922,191          19,968,330          25,871,443
      Excess aircraft, shutdown and other non-recurring
        expenses (note 2)                                                   145,805           9,233,839                -
                                                              ----------------------  ------------------   -----------------
              Total operating expenses                                  107,519,215          97,440,234         118,071,895
                                                              ----------------------  ------------------   -----------------
              Operating income (loss)                                     6,512,745         (13,650,237)         (8,402,205)

Other expense:
      Interest expense, net                                               3,485,357           4,620,424           5,874,609
      Loss on sale of assets and other property                             190,578                -                   -
                                                              ----------------------  ------------------   -----------------
              Income (loss) before income taxes                           2,836,810         (18,270,661)        (14,276,814)
Income tax expense (benefit)                                                115,000                -             (1,453,640)
                                                              ----------------------  ------------------   -----------------
              Net income (loss)                               $           2,721,810   $     (18,270,661)   $    (12,823,174)
                                                              ----------------------  ------------------   -----------------
                                                              ----------------------  ------------------   -----------------

Net income (loss) per share
      Basic                                                   $                0.34   $           (2.41)   $          (1.69)
      Diluted                                                 $                0.31   $           (2.41)   $          (1.69)

Average shares outstanding
      Basic                                                               7,924,719           7,588,792           7,585,405
      Diluted                                                             8,702,792           7,588,792           7,585,405

</TABLE>

See accompanying notes to consolidated financial statements.

                                       23

<PAGE>

                   GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                 YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996

<TABLE>
<CAPTION>

                                                                                    Retained
                                        Common stock                                earnings
                                ----------------------------       Paid-in        (accumulated
                                    Shares         Amount          capital          (deficit)            Total
                                    ------         ------          -------          ---------            -----
<S>                             <C>             <C>            <C>              <C>                <C>
Balance at December 31, 1995        7,580,723   $    75,807    $   28,897,202   $     2,567,213    $    31,540,222

Issuance of common stock                5,603            56            22,563              -                22,619
Net loss                                 -             -                 -          (12,823,174)       (12,823,174)
                                --------------  ------------   ---------------  ----------------   ----------------
Balance at December 31, 1996        7,586,326        75,863        28,919,765       (10,255,961)        18,739,667

Issuance of warrants                     -             -              650,000              -               650,000
Issuance of common stock                2,795            28             7,606              -                 7,634
Net loss                                 -             -                 -          (18,270,661)       (18,270,661)
                                --------------  ------------   ---------------  ----------------   ----------------
Balance at December 31, 1997        7,589,121        75,891        29,577,371       (28,526,622)         1,126,640

Issuance of common stock            1,001,722        10,017         1,991,429              -             2,001,446
Net Income                               -             -                 -            2,721,810          2,721,810
                                --------------  ------------   ---------------  ----------------   ----------------
Balance at December 31, 1998        8,590,843   $    85,908    $   31,568,800   $   (25,804,812)   $     5,849,896
                                --------------  ------------   ---------------  ----------------   ----------------
                                --------------  ------------   ---------------  ----------------   ----------------
</TABLE>

See accompanying notes to consolidated financial statements.

                                       24

<PAGE>

                   GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                 YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996

<TABLE>
<CAPTION>

                                                                                     1998               1997              1996
                                                                                     ----               ----              ----
<S>                                                                             <C>              <C>               <C>
Operating activities:
      Net income (loss)                                                         $    2,721,810   $   (18,270,661)  $   (12,823,174)
      Adjustments to reconcile net income (loss) to net
          cash provided by (used in) operating activities:
              Write down of Brasilia assets and accrued disposal costs                 145,805         1,299,431
              Depreciation and amortization                                          3,499,409         4,888,896         5,633,535
              Loss on disposal of assets, net                                          190,578           312,291              -
              Deferred income taxes                                                       -                 -           (1,453,640)
              Change in current operating items:
                   Accounts receivable, net                                         (3,822,074)        1,748,979         1,206,433
                   Inventories, net                                                 (6,846,326)       (1,797,983)       (2,098,072)
                   Prepaid expenses and other current assets                           195,249         1,633,016           195,868
                   Deposits on flight equipment                                        (34,500)         (324,500)          352,772
                   Accounts payable and accrued liabilities                          2,882,576        (1,582,275)        5,427,236
                   Deferred lease payments                                            (738,304)        5,255,598              -
                                                                                ---------------  ----------------  ----------------
                       Net cash provided by (used in)
                           operating activities                                     (1,805,777)       (6,837,208)       (3,559,042)
                                                                                ---------------  ----------------  ----------------
Investing activities:
      Purchases of flight equipment and other property and equipment                  (630,542)       (1,058,732)       (2,607,852)
      Proceeds from the sale of flight equipment                                         3,900         2,246,725        21,254,048
      Purchase of certificate of deposit                                                  -           (2,246,725)
      Increase in other assets                                                        (490,874)          220,045          (973,642)
      Proceeds from certificate of deposit                                           2,246,725              -                 -
                                                                                ---------------  ----------------  ----------------
                       Net cash provided by (used in) investing activities           1,129,209          (838,687)       17,672,554
                                                                                ---------------  ----------------  ----------------
Financing activities:
      Proceeds from issuance of debt                                                      -            4,300,000        11,166,726
      Repayment of long-term debt                                                   (2,200,021)       (3,302,288)      (25,411,040)
      Proceeds from short-term note payable and line of credit                       7,683,520              -                 -
      Payments on short-term note payable and line of credit                        (5,625,174)             -                 -
      Proceeds from sale of common stock                                             1,001,446             7,634            22,619
                                                                                ---------------  ----------------  ----------------
                       Net cash provided by (used in) financing activities             859,771         1,005,346       (14,221,695)
                                                                                ---------------  ----------------  ----------------
                       Net change in cash                                              183,203        (6,670,549)         (108,183)
Cash:
      Beginning of year                                                                  5,784         6,676,333         6,784,516
                                                                                ---------------  ----------------  ----------------
      End of year                                                               $      188,987   $         5,784   $     6,676,333
                                                                                ---------------  ----------------  ----------------
                                                                                ---------------  ----------------  ----------------

                                       25
<PAGE>

                                      (continued)

Supplementary cash flow information:
      Cash paid during the year for:
          Interest                                                              $    3,816,844   $     4,026,281   $     6,024,469
          Income taxes                                                                    -                 -                 -
                                                                                ---------------  ----------------  ----------------
                                                                                ---------------  ----------------  ----------------

      Noncash transactions -
          Deferred manufacturers' incentives received as:
              Property and equipment                                            $         -                 -                 -
              Inventories                                                                 -                 -              690,000
              Other assets                                                                -                 -                 -
              Prepaid expenses                                                            -                 -              700,000
                                                                                ---------------  ----------------  ----------------
                                                                                $         -      $          -      $     1,390,000
                                                                                ---------------  ----------------  ----------------
                                                                                ---------------  ----------------  ----------------
          Reduction of notes payable through sale-leaseback transactions        $         -           40,633,798              -
          Issuance of warrant                                                             -              650,000              -
          Conversion of lease obligation to notes payable                                 -              528,629              -
          Conversion of accounts payable to notes payable                                 -            1,798,829              -
          Flight equipment exchanged for payment of notes payable                         -              950,000              -
                                                                                ---------------  ----------------  ----------------
                                                                                $         -      $    44,561,256   $          -
                                                                                ---------------  ----------------  ----------------
                                                                                ---------------  ----------------  ----------------
          Disposition of Beechcraft 1900C
              aircraft through like kind exchange                               $   23,724,490              -                 -
          Termination of long-term debt associated
              with Beechcrat 1900C aircraft                                         17,337,009              -                 -
          Acquisition of Beechcraft 1900D                                                                                     -
              aircraft through like kind exchange                                   22,333,455              -                 -
          Long-term debt issued in acquisition of                                                                             -
              Beechcraft 1900D aircraft through like kind exchange                  20,379,451              -                 -
          Common stock issued in exchange for                                                                                 -
              reduction of accounts payable                                            750,000              -                 -
          Common stock issued in exchange for                                                                                 -
              termination of notes payable                                             250,000              -                 -
                                                                                ---------------  ----------------  ----------------
                                                                                $   84,774,405   $          -      $          -
                                                                                ---------------  ----------------  ----------------
                                                                                ---------------  ----------------  ----------------
</TABLE>

See accompanying notes to consolidated financial statements.

                                       26

<PAGE>

                   GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 1997 AND 1996

(1)    CORPORATE ORGANIZATION AND BUSINESS

       CORPORATE ORGANIZATION

       The consolidated financial statements include the accounts of Great Lakes
           Aviation, Ltd. (Great Lakes) and its wholly owned subsidiary,
           RDU Inc. (RDU), referred to collectively herein as the Company. All
           significant inter-company accounts and transactions have been
           eliminated in consolidation.

       BUSINESS

       The Company operates as United Express under a cooperative marketing
           agreement (United Express Agreement) with United Airlines, Inc.
           (United) and provides service to 71 destinations in the Upper Midwest
           and West as of December 31, 1998. The United Express Agreement
           expired on December 31, 1997, which had been extended on a monthly 
           basis from April 25, 1997. The Company and United are currently 
           operating under the terms of the previous United Express Agreement 
           (see note 3). Approximately 49 percent, 50 percent, and 45 percent 
           of the United Express passengers connected with United for the years 
           ended December 31, 1998, 1997, and 1996, respectively.

      From October 1, 1995 to May 16, 1997, the Company operated as a "Midway
           Connection" carrier under a cooperative marketing agreement (Midway
           Connection Agreement) with Midway Airlines, Inc. (Midway) and served
           Raleigh/Durham from 14 destinations in eight states located along the
           East Coast. The Midway Connection operation was terminated on May 16,
           1997 after the Company temporarily suspended flight operations (see
           note 2).

      In August 1995, the Company foreclosed under a security agreement and
           acquired certain assets of Arizona Airways, Inc. From August 1995
           to May 16, 1997, the Company served nine destination in Arizona,
           New Mexico, and Mexico (collectively, the Southwest) as Great
           Lakes Airlines. The Company terminated their operations in the
           Southwest after the Company temporarily suspended flight operation
           (see note 2).

       Passenger revenues during 1998, 1997, and 1996 were derived 99 percent, 
           84 percent and 79 percent from United Express operations, 0 percent, 
           8 percent and 13 percent from Midway Connection and 1 percent, 
           8 percent and 8 percent from Great Lakes Airlines operations.

                                       27

<PAGE>

                   GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(2)    SHUTDOWN AND OTHER NONRECURRING EXPENSES

       Under terms of a consent order (the Order) with the Federal Aviation
            Administration (FAA), the Company temporarily suspended its flight
            operations on May 16, 1997 and resumed flight operations on a
            limited basis on May 23, 1997 (the Shutdown). Under terms of the
            Order, the Company was assessed a civil penalty of $1,000,000, of
            which $700,000 of the civil penalty was waived since the Company
            complied with all terms of the Order for a one year period ending
            May 23, 1998. The Order, among other things, required the Company
            inspect each aircraft and demonstrate to the FAA's satisfaction that
            the Company has sufficient equipment, qualified personnel, manuals,
            systems and financial resources to safely conduct operations. The
            Company's results for 1997 reflect a charge of $300,000 for the
            penalty paid.

       Subsequent to the Shutdown, the Company incurred continuing operating
            expenses, significant maintenance expenses and other expenses
            related to the shutdown. When flight operations were resumed, on
            reduced basis on May 23, 1997, the Company terminated its flight
            operations as Midway Connection and as Great Lakes Airlines in the
            Southeastern and Southwestern United States, respectively. The costs
            related to the shutdown and termination of operations in those areas
            are included in shutdown and other nonrecurring expenses.

       In connection with the reduced flight operations discussed above,
            the Company identified seven Embraer Brasilia 30 passenger
            aircraft (Brasilia) (including two aircraft that were returned to
            the lessor in June 1997, as discussed in note 5) as being excess,
            which were not needed by the Company to conduct its core United
            Express operation servicing Chicago O'Hare, and to a lessor extent
            Denver and Minneapolis. Subsequent to May 16, 1997, the Company
            disposed of fourteen Beechcraft 1900C aircraft considered to be
            excess or replaced such with Beechcraft 1900D aircraft.

       The Company's intent was to dispose of seven Brasilia aircraft
            (including two aircraft which were returned to the lessor in June
            1997). Consistent with the intent to dispose of these Brasilia 
            aircraft, the Company reduced the carrying value of owned
            aircraft to their estimated net realizable value, accrued future
            lease payments estimated to be unrecoverable, accrued estimated
            lease termination costs, and reduced the carrying value of the
            related Brasilia spare part inventories to their net realizable
            value at December 31, 1997. In February 1998, the Company entered
            into an agreement to sell all of their remaining Brasilia aircraft
            and their Brasilia spare part inventories and began negotiating 
            with the lessors and creditors for release of the Brasilia aircraft.
            In April 1998, the Company determined that they had a continued 
            need for five of their Brasilia aircraft, and began negotiating 
            with the other party for a modification of the agreement. As 
            discussed above, consistent with the Company's intent, the Company
            accrued disposal and lease termination costs for seven Brasilia 
            aircraft as of December 31, 1997. During 1998, due to the expanded
            service into the Denver market, the agreement to sell all the 
            Brasilia aircraft was modified and the Company disposed of only 
            two aircraft and utilizes the remaining Brasilia aircraft in its 
            operations.

                                       28
<PAGE>

                    GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(2)    SHUTDOWN AND OTHER NONRECURRING EXPENSES, CONTINUED

       As a result of the modification in the agreement to sell Brasilia
           aircraft, the Company reversed an accrual of $543,933 that was made
           in 1997 for the intended disposal of three Brasilia aircraft that did
           not occur. Offsetting, this reversal was an additional accrual of
           $689,738 needed for a final settlement reached regarding two Brasilia
           aircraft that were returned to a lessor in 1997, resulting in a
           non-recurring charge of $145,805 in 1998.

        Shutdown and other nonrecurring expenses in 1997 consisted of the
           following:

<TABLE>

<S>                                                           <C>                        <C>
FAA civil penalty                                                                        $   300,000
Shutdown and termination of the Company's
    operations in the Southeast and Southwest
    United States costs
        Grounded aircraft (rental and depreciation)           $ 3,970,531
        Employee related                                        2,881,594
        Repairs and maintenance                                   575,686
        Facilities rental                                         198,335
        Other                                                       8,262                  7,634,408
                                                              -----------    
Accrued Brasilia disposal and lease termination
    costs, net of the reversal of related deferred credits                                 1,299,431
                                                                                         -----------
                                                                                         $ 9,233,839
                                                                                         -----------
                                                                                         -----------
</TABLE>

(3)    LIQUIDITY AND GOING-CONCERN MATTERS

       The Company has suffered significant losses in two of the last three
           years, and as a result, has suffered from insufficient liquidity to
           pay its obligations as they come due. The Company's ability to
           continue as a going concern depends upon successfully negotiating
           deferrals of its financial obligations, negotiating extended terms
           under its major operating agreements, maintaining adequate liquidity
           and achieving sustained profitability. The accompanying consolidated
           financial statements have been prepared on a going concern basis
           which assumes continuity of operations and realization of assets and
           liabilities in the ordinary course of business. The consolidated
           financial statements do not include any adjustments that might result
           if the Company was forced to discontinue its operations.

       Raytheon Aircraft Corp. and its financing affiliates (collectively,
           "Raytheon") is the Company's primary aircraft supplier and 
           largest creditor. The Company has financed 40 of its 
           Beechcraft 1900 aircraft and one of its Brasilia aircraft and 
           pursuant to lease and debt agreements with Raytheon, and 
           Raytheon has also extended the Company a total $10 million 
           through a line of credit and a short term note payable to 
           finance the Company's operating cash needs (collectively, the 
           "Raytheon Agreements"). The line of credit and a short-term 
           note payable as extended, expire by their terms on June 30, 
           1999. While the Company plans to seek to further extensions of 
           the line of credit and short-term note payable or the 
           refinancing of such borrowings with another party, there can 
           be no assurance that such extensions or refinancing will be 
           consummated. Definitive agreements relating to the long-term 
           lease or purchase of 22 of the Beechcraft 1900 aircraft 
           financed by Raytheon have not been reached (see note 5). While 
           the Company believes that it will reach agreement with 
           Raytheon on such terms, the actual terms of such long-term 
           agreements are not known at this time.

       The United Express Agreement expired on December 31, 1997. In 1998 the
           Company and United have been operating as if the principal day-to-day
           operational provisions of the previous code sharing agreement are
           still effective. The Company and United have entered into
           negotiations to renew the code sharing agreement and during 1998
           the Company expanded the services provided as a United Express
           carrier at United's Denver hub. While the Company intends to obtain
           a new code sharing agreement containing satisfactory terms, no
           assurance can be given that this actually will be accomplished. Any
           failure to enter into a new code sharing agreement, any material
           adverse change in the terms from the prior code sharing agreement, or
           any substantial decrease in the number of routes served by the
           Company under this agreement could have a material adverse effect on
           the Company's business.

                                         29
<PAGE>

(4)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       USE OF ESTIMATES

       The preparation of financial statements in conformity with generally
           accepted accounting principles requires management to make estimates
           and assumptions that affect the reported amounts of assets and
           liabilities and disclosure of contingent assets and liabilities at
           the date of the financial statements and the reported amounts of
           revenues and expenses during the reporting period. Actual results
           could differ from those estimates.

       ACCOUNTS RECEIVABLE

       Substantially all accounts receivable balances are due from various
           airlines, with approximately 41 percent of the December 31, 1998,
           balance and 55 percent of the December 31, 1997, balance due from
           United. All receivables are pledged as collateral securing a
           $5,000,000 line of credit and a $5,000,000 short term note.

       INVENTORIES

       Inventories consist of flight equipment spare parts and fuel and are
           stated at the lower of average cost or market. An allowance for
           depreciation is provided at rates which depreciate the cost of flight
           equipment spare parts, less estimated residual value, over the
           estimated useful lives of the related aircraft. The accumulated
           allowances were $8,057,327 and $3,513,000, respectively, at December
           31, 1998 and 1997. Expendable parts are charged to maintenance
           expense as used. Inventories consisting of Beech aircraft spare parts
           and equipment have been pledged as collateral securing a $5,000,000
           line of credit and a $5,000,000 short term note.

       PROPERTY AND EQUIPMENT

       Property and equipment is stated at cost and depreciated on a
           straight-line basis for financial reporting purposes over estimated
           useful lives of 14-20 years for flight equipment and 3-10 years for
           other property and equipment. Leasehold improvements are amortized
           over the shorter of the life of the lease or the life of the asset.
           Accelerated methods of depreciation are used for tax reporting
           purposes. All owned aircraft are pledged to collateralize outstanding
           obligations.

       Maintenance and repairs, including periodic aircraft overhauls, are
           expensed as incurred.

       OTHER ASSETS

       Approximately $1,475,500 of long-term deposits on aircraft operating
           leases at December 31, 1998 and 1997, were included in other
           assets. Also included is a receivable from Midway Airlines, Inc.
           (See note10).

       DEFERRED LEASE PAYMENTS

       During 1997, the Company failed to make scheduled payments on several
            leases and subsequently renegotiated substantially all of their
            lease agreements. The renegotiated leases contain higher monthly
            payments and or longer payment terms than the original agreements.
            The unpaid rentals have been accrued and expensed in the period to
            which they related and are being amortized over the new lease terms
            of the aircraft as a reduction in future operating costs.

                                        30
<PAGE>

       DEFERRED CREDITS

       The Company has received various incentives in the form of interest rate
           subsidies and spares parts in connection with the acquisition of new
           aircraft. Incentives are being amortized as a reduction of rent
           expense or interest expense over the term of the related agreement.

       REVENUE RECOGNITION

       Passenger revenues are recorded as income when the respective services
           are rendered. Liability for unused tickets issued by the Company is
           recorded as unearned revenue. The Company also receives public
           service subsidy revenues for serving certain communities that do not
           generate sufficient traffic to fully support profitable air service,
           which are recorded as income as the agreed upon air service is
           furnished by the Company.

       FREQUENT FLYER AWARDS

       The Company operates under a code-sharing agreement with United, and
           participates in its frequent flyer program. The Company has not
           deferred any revenue or accrued for incremental costs for mileage
           accumulation relating to these programs, as the impact has not been
           material.

       INCOME TAXES

       Income taxes are accounted for under the asset and liability method.
           Deferred tax assets and liabilities are recognized for the future tax
           consequences attributable to differences between the financial
           statement carrying amounts of existing assets and liabilities and
           their respective tax bases and operating loss and tax credit carry
           forwards. Deferred tax assets and liabilities are measured using
           enacted tax rates expected to apply to taxable income in the years in
           which those temporary differences are expected to be recovered or
           settled. The effect of a change in tax rates on deferred tax assets
           and liabilities is recognized in income in the period that includes
           the enactment date.

       INCOME/LOSS PER SHARE

       Basic income (loss) per share have been computed by dividing net income
           (loss) by the weighted-average common stock during each of the years
           presented. Diluted income (loss) per share have been calculated by
           also including in the computation the impact of the issuance of 
           common stock pursuant to the exercise of outstanding warrants and
           the effect of those employee stock options granted to employees as
           potential common stock that would be dilutive. Since the Company had
           suffered net losses in the years ended December 31, 1997 and 1996,
           the effects of potential common stock issuances were not included 
           in the calculation, as their effects would be anti-dilutive.

                                    31

<PAGE>

                   GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(4)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

       STOCK OPTION PLANS

       The Company has elected the pro forma disclosure option of Statement
           of Financial Accounting Standards (SFAS) No. 123, "Accounting for
           Stock-Based Compensation". The Company will continue applying the
           accounting treatment prescribed by the provisions of APB Opinion
           No. 25, "Accounting for Stock Issued to Employees". Pro forma net
           income (loss) and pro forma net income (loss) per share have been
           provided as if SFAS No. 123 were adopted for all stock-based
           compensation plans.

       FAIR VALUE OF FINANCIAL INSTRUMENTS

       Fair value estimates, methods, and assumptions are set forth below:

       Cash, accounts receivable, accounts payable and accrued liabilities: The
           carrying amount approximates fair value because of the short-term
           nature of these instruments.

       Long-term debt:
           Based upon the Company's current financial condition, the fair value
           of long-term debt was not reasonably determinable.

                                        32

<PAGE>

                   GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(5)    FLIGHT EQUIPMENT

       The Company's airline fleet consisted of Beechcraft Model 1900
           (Beechcraft) 19-passenger and Embraer Brasilia 30-passenger
           aircraft summarized as follows at December 31:

<TABLE>
<CAPTION>
                                                     1998                                          1997
                                  -------------------------------------------    ------------------------------------------
                                   Beechcraft     Beechcraft                       Beechcraft     Beechcraft
                                     1900C          1900D        Brasilia            1900C          1900D       Brasilia
                                  -----------     ----------     --------          ----------     ----------    --------
<S>                               <C>             <C>            <C>               <C>            <C>           <C>
Owned                                                   6             4                 7               -             4
Operating leases                         5             34             4                12              18             6
Leased / subleased aircraft                                           -                (8)              -             -
                                       ---            ---           ---               ----            ---           ---
                                         5             40             8                11              18            10
                                       ---            ---           ---               ----            ---           ---
                                       ---            ---           ---               ----            ---           ---

</TABLE>

       During 1996, the Company took delivery of ten new Beechcraft 1900D
            aircraft. All of these aircraft had been initially financed by the
            manufacturer under 14-1/2 year operating leases. As discussed in the
            following paragraphs, the agreements were amended in 1997. In
            connection with the lease of these new Beechcraft 1900D aircraft,
            the Company acquired the right to sell Raytheon certain Beechcraft
            1900C aircraft at prices equal to the balance owed on the aircraft.

       During 1996, the Company sold eight aircraft to Raytheon and leased them
            back under 12-year operating leases with an option to return upon
            30-day notice during the first two years. Gains and losses on these
            transactions were amortized over the first two years of the lease
            agreement because that was the maximum term for which the Company
            expected to retain the aircraft. Seven of the aircraft were returned
            to Raytheon in 1996 and 1997. The remaining aircraft was destroyed
            in November 1996.

       During 1997, the Company renegotiated 17 operating lease agreements under
            which the Company failed to make timely lease payments to Raytheon.
            The new lease agreements have terms ranging from 7-1/2 years to 15
            years. The new lease agreements generally require higher monthly
            lease payments than the previous lease agreements. The unpaid
            rentals due at the time the leases were re-negotiated have been
            accrued and expensed in the 1997 financial statements and are being
            amortized over the term of the new agreements to offset the effect
            of the higher future lease payments. The transaction did not result
            in a gain or loss.

       During 1997, the Company sold eleven aircraft to Raytheon and leased them
            back under operating leases with various terms ranging from 8-1/2
            years to 18 years. The gains and losses on these transactions are
            being amortized over the term of the lease agreements.

       During 1997, the Company sold two Beechcraft 1900C aircraft to Raytheon
            for an aggregate sale price of $5.8 million representing the balance
            owed on the aircraft. The aircraft were then purchased by a related
            party of the Company, re-leased under monthly operating lease
            agreements by the Company providing for monthly payments of $22,000
            per aircraft and subsequently sub-leased to a third party under a
            short term lease agreement with the same terms as the lease. The
            sub-lease agreements expired in 1998.

       During 1997, the Company sold a Beechcraft 1900C that had previously been
            pledged as additional collateral under a lease agreement with a
            third party which covers two of its Brasilia aircraft. The proceeds
            from the sale were used to purchase a certificate of deposit which
            is pledged as collateral for the Brasilia lease. In the first
            quarter of 1998, the Company entered into an agreement with the
            lessor to terminate the Brasilia aircraft lease. The proceeds from 
            the certificate of deposit were used to pay the lease termination 
            costs in 1998. The lease termination costs have been accrued and 
            reflected in the 1997 financial statements (see note 2).

                                           33
<PAGE>

                    GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(5)    FLIGHT EQUIPMENT, CONTINUED

       The Company returned two Brasilia aircraft to a lessor in June 1997. In
           addition the Company entered into a short-term note agreement in
           August 1997 with the lessor which covered unpaid rentals due at that
           time. In 1998, the Company's lease agreement was terminated, and in
           February 1999, the Company reached an agreement with the lessor for
           lease termination costs and the unpaid balance of the short-term
           note. The settlement agreement calls for a total cash payment of
           $850,000 and is classified in current liabilities as notes payable.

       During 1998, the Company exchanged seven owned Beechcraft 1900C aircraft
           with Raytheon for six Beechcraft 1900D aircraft. The transaction was
           treated as a nonmonetary exchange and as such the loss on the 
           disposal of the seven Beechcraft 1900C aircraft was included in the 
           basis of the six Beechcraft 1900D aircraft. The resulting basis of 
           the six Beechcraft 1900D aircraft did not exceed their fair market 
           value.

       On April 23, 1998, the Company received twenty-two Beechcraft 1900D
           aircraft from Raytheon. The Company is currently paying $30,007 a
           month for each aircraft as rent to Raytheon. No formal agreement has
           yet been entered into for the use of these aircraft by the Company.
           In 1999, the Company anticipates entering into a written agreement
           with Raytheon to purchase these aircraft through the issuance of
           notes payable to Raytheon. If the transaction above is consummated in
           1999 this will increase the Company's flight equipment and long-term
           debt by approximately $77 million.

       As of December 31, 1998 lease commitments for aircraft were as follows:

<TABLE>
<CAPTION>
                    Beechcraft
                       1900*                Brasilia               Total
                    ----------              --------               -----
<S>               <C>                   <C>                  <C>
1999              $   7,080,000         $   2,709,888        $   9,789,888
2000                  7,080,000             2,709,888            9,789,888
2001                  7,080,000             2,709,888            9,789,888
2002                  7,080,000             2,709,888            9,789,888
2003                  7,080,000             2,467,788            9,547,788
Thereafter           51,304,000            15,891,078           67,195,078
                     ----------            ----------          -----------
                  $  86,704,000         $  29,198,418        $ 115,902,418
                     ----------            ----------          -----------
                     ----------            ----------          -----------
</TABLE>

* The lease commitments for Beechcraft 1900 do not include twenty-two 
  Beechcraft 1900D aircraft which are currenlty being leased on a month-to-
  month basis from Raytheon.

                                       34
<PAGE>

                    GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(6)    NOTES PAYABLE AND LONG-TERM DEBT

       Notes payable and current maturities of long-term debt consist of the
           following at December 31, 1998 and 1997:

<TABLE>
<CAPTION>
                                                                           1998                   1997
                                                                       -----------            -----------
           <S>                                                         <C>                    <C>
           Term note to Raytheon (A)                                   $ 5,000,000            $ 4,000,000
           Line of credit with Raytheon (B)                              4,800,000              2,803,415
           Other short-term notes ($300,000 in 1997 is to a
                related party) (C)                                         850,000              1,348,501
           Current maturities of long-term debt                          2,997,109              2,154,318
                                                                       -----------            -----------
                                                                       $13,647,109            $10,306,234
                                                                       -----------            -----------
                                                                       -----------            -----------

</TABLE>

     (A) The Company entered into a short-term note with Raytheon in July 1997
         which has been extended to June 30, 1999. The interest rate is variable
         and based on the prime lending rate, which at December 31, 1998 and
         1997 was 8.50 percent and 8.50 percent, respectively. The note is
         secured by accounts receivable and Beech aircraft spare parts and
         equipment and is cross-collaterialized with the other Raytheon
         agreements.

     (B) The Company entered into a $2.5 million line of credit with Raytheon
         that was later amended and increased to $5.0 million. The line of
         credit expired on March 31, 1997, and has been extended to June 30,
         1998. The line of credit is due upon demand. The interest rate is
         variable and based on the prime lending rate, which at December 31,
         1998 and 1997 was 8.50 percent and 8.50 percent, respectively. The note
         is secured by accounts receivable and Beech aircraft spare parts and
         inventory and is cross-collaterialized with the other Raytheon
         agreements.

     (C) Other short term notes consist of trade notes, various lease payment 
         default notes and  in 1997 related party notes. During 1997, the 
         Company converted approximately $1.8 million in trade payables to 
         short term notes. The notes required monthly payments and were paid 
         in full in 1998. The interest rates vary with a maximum interest 
         rate of 10.5 percent.

                                         35

<PAGE>

                    GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(6)    NOTES PAYABLE AND LONG-TERM DEBT, CONTINUED

       Long-term debt consists of the following at December 31, 1998 and 1997:

<TABLE>
<CAPTION>
                                                                      1998                 1997
                                                                      ----                 ----
           <C>                                                    <C>                 <C>
           Raytheon (D)                                           $  22,551,187       $  20,747,623
           Other long-term notes (E)                                  8,917,044           9,878,187
                                                                  --------------      --------------
                                                                     31,468,231          30,625,810
           Less current maturities of long-term debt                  2,997,109           2,154,318
                                                                  --------------      --------------
                                                                  $  28,471,122       $  28,471,492
                                                                  --------------      --------------
                                                                  --------------      --------------
</TABLE>

     (D) The Raytheon notes consist of seven term notes in 1998 and eight term
         notes in 1997. As discussed in note 5, the Company exchanged seven
         aircraft for six aircraft during 1998. In connection with this
         exchange, seven of the term notes outstanding at December 31, 1997 were
         terminated and six new term notes were entered into in 1998. The
         outstanding notes at December 31, 1998 require monthly payments ranging
         from $40,000 to $83,000, including interest, with total payments on
         these notes approximating $323,000 per month. The interest rates on the
         notes range from 7.5 percent to 9.5 percent as of December 31, 1998, 
         and were 7.5 percent on all notes at December 31, 1997. As of 
         January 1, 1999, six of the term notes interest rate changed from 
         9.5 percent to the quarterly adjusted prime rate of Bank of America, 
         which was 7.75 percent on January 1, 1999. The notes mature from 
         October 2001 to October 2008 and are collateralized by aircraft.

     (E) Other long-term notes consist of three term notes which require monthly
         or quarterly payments including interest. The interest rates on the
         notes are approximately 9.05 percent at December 31, 1998 and 1997. The
         notes are collateralized by aircraft.

     The Company's aircraft note agreements contain restrictive covenants with
         which the Company must comply. The Company was in compliance with these
         covenants at December 31, 1998.

       In  connection with the refinancing of the Company's long-term notes,
           short term note agreements, and the restructuring of the Company's
           lease agreements, the Company issued Raytheon a warrant to purchase
           one million shares of the Company's stock, at the then current market
           price of the stock. The warrant is exercisable for ten years
           beginning July 16, 1998 at a price of $.75 per share. Accordingly,
           the Company has recorded a discount equal to the estimated fair value
           of the warrant on the date of issuance ($650,000), which is being
           amortized as additional interest expense over the weighted average
           life of the debt and lease agreements to which it relates. As of
           December 31, 1998, the remaining unamortized discount is $552,500,
           and is included above as a component of long-term debt.

       During 1998, the Company issued 1,000,000 shares of the Company's common
           stock to two investors through a private placement. One investor was
           an unrelated party and paid $1,000,000 cash for 500,000 shares of the
           Company's common stock. Iowa Great Lakes Flyers (IGLF), an entity 
           controlled by the President and Chief Executive Officer of the
           Company received the remaining 500,000 shares of the Company's common
           stock and $406,721 in cash from the Company in exchange for
           cancellation of accounts payable and a note payable totaling
           $1,406,721 to IGLF.


                                           36
<PAGE>

                    GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(6)    NOTES PAYABLE AND LONG-TERM DEBT, CONTINUED

       As of December 31, 1998, the long-term debt obligations before 
           unamortized warrant discount of $0.6 million due in the five
           subsequent years and thereafter were as follows:

<TABLE>
<CAPTION>
                         Beechcraft
                            1900s                Brasilias                Total
                         ----------              ---------                -----
<S>                      <C>                    <C>                    <C>
1999                     $1,213,976             $1,783,133             $2,977,109
2000                      1,404,677              1,990,034              3,394,711
2001                      1,517,491              2,950,985              4,468,711
2002                      1,639,365              1,368,550              3,007,915
2003                      1,771,028              1,454,482              3,225,510
Thereafter               12,282,933              2,644,077             14,927,010
                         ----------             ----------             ----------
                        $19,829,470            $12,191,261            $32,020,731
                         ----------             ----------             ----------
                         ----------             ----------             ----------

</TABLE>

(7)    INCOME TAXES

       The  components of the benefit for income taxes for the years ended
            December 31 are as follows:

<TABLE>
<CAPTION>
                                 1998                 1997                   1996
                                 ----                 ----                   ----
<S>                         <C>                   <C>                  <C>
Current                     $    115,000          $         -          $             -
Deferred                               -                    -               (1,453,640)
                            -------------         ------------         ----------------
                            $    115,000          $         -          $    (1,453,640)
                            -------------         ------------         ----------------
                            -------------         ------------         ----------------

</TABLE>

       The federal statutory tax rate differs from the Company's effective
           income tax rate for the years ended December 31 as follows:

<TABLE>
<CAPTION>
                                                     1998              1997             1996
                                                     ----              ----             ----
       <C>                                          <C>              <C>              <C>
       Federal statutory rate                        34.0%           (34.0)%          (34.0)%
       State income taxes,            
           net of federal benefit                     4.5             (4.0)             4.0
       Change in valuation allowance                (34.0)            38.0             27.8%
                                                    -----            -----            ------
                                                      4.5%               - %          (10.2)%
                                                    -----            -----            ------
                                                    -----            -----            ------
</TABLE>

       Deferred tax assets (liabilities) as of December 31 were as follows:

<TABLE>
<CAPTION>
                                                                1998                   1997
                                                                ----                   ----
       <S>                                               <C>                   <C>
       Deferred tax assets
           Net operating loss carry forwards             $      9,056,000      $       7,605,000
           Accrued liabilities and other                        3,850,000              4,959,000
                                                            --------------        ---------------
               Total gross deferred tax asset                  12,906,000             12,564,000
               Less valuation allowance                        (9,098,000)             (9,414,000)
                                                            --------------        ---------------
               Total deferred tax asset                         3,808,000              3,150,000
       Deferred tax liabilities

           Property and equipment                              (3,808,000)            (3,150,000)
                                                            --------------        ---------------

               Total deferred tax asset (liability)      $         -           $        -
                                                            --------------        ---------------
                                                            --------------        ---------------
</TABLE>

                                              37
<PAGE>

                    GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

The Company has net operating loss carry forwards for federal income tax
       purposes totaling approximately $25,875,000 at December 31, 1998,
       expiring in years from 2005 through 2019. The net change in total
       valuation allowance for the years ended December 31, 1998 and 1997
       was a decrease (increase) of $306,000 and $(5,795,000), respectively.

(8)    EMPLOYEE BENEFIT PLANS

       401(k)

       The Company maintains a qualified 401(k) employee savings plan for the
           benefit of substantially all employees. The Company matches up to 4
           percent of participating employees' contributions. Company
           contributions totaled $268,000 in 1998, $276,000 in 1997 and $316,000
           in 1996.

       STOCK OPTION PLANS

       The Company has adopted The Great Lakes Ltd. Option Plan and the 1993
           Director Stock Option Plan (the Plans). The Plans permit the grant of
           qualified incentive stock options or non-qualified stock options
           covering in the aggregate 600,000 shares of the Company's common 
           stock to be granted to key employees, officers, and directors of 
           the Company. Options outstanding under the Plans become exercisable 
           one-fifth in years one through five from the date of grant. The 
           options expire after ten years from the date of grant. Options are 
           forfeited upon termination for reasons other than retirement, death
           or disability.

       The Company applies APB Opinion No. 25 and related interpretations in
           accounting for the Plans, both of which are fixed stock option plans.
           Accordingly, no compensation cost has been recognized for the Plans.
           Had compensation cost for the Company's fixed stock option plans been
           determined consistent with SFAS No. 123, the Company's net income
           (loss) and income (loss) per share would have impacted as follows:

<TABLE>
<CAPTION>
                      Years Ended December 31,                      1998                   1997                 1996
                      ------------------------                      ----                   ----                 ----
<S>                                                              <C>                  <C>                  <C>
           Net income (loss) as reported                         $2,721,810           $(18,270,661)        $(12,823,174)
           Pro forma net income (loss)                           $2,643,717           $(18,294,508)        $(12,838,917)
           Basic income (loss) per share as reported                $0.34                $(2.41)              $(1.69)
           Pro forma basic income (loss) per share                  $0.33                $(2.41)              $(1.69)
           Diluted income (loss) per share as reported              $0.31                $(2.41)              $(1.69)
           Pro forma diluted income (loss) per share                $0.30                $(2.41)              $(1.69)
</TABLE>

       The fair value of each option grant is estimated on the date of grant
           using the Black-Scholes option-pricing model. The following
           weighted-average assumptions were applied in determining pro forma
           compensation cost:

<TABLE>
<CAPTION>
                  Years Ended December 31,                1998                     1997                      1996
                  ------------------------                ----                     ----                      ----
<S>                                                      <C>                      <C>                       <C>
             Risk-free interest rate                      5.77%                    6.63%                    6.38%
             Expected dividend yield                       0%                       0%                        0%
             Expected option life                           5                        5                        5
             Expected Stock price volatility             89.68%                   77.81%                    59.26%
</TABLE>

                                        38
<PAGE>



                    GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

       A summary of the status of the Company's fixed option plans as of
           December 31, 1998, 1997, and 1996 and changes during the years ended
           on those dates is presented below:

<TABLE>
<CAPTION>
                                          1998                 1997                      1996
                                          ----                 ----                      ----
                                            Weighted-              Weighted-                Weighted-
                                             average                average                  average
                                            Exercise               Exercise                 Exercise
                                  Shares      Price      Shares      Price       Shares       Price
                                 -------    ---------   ---------  ---------    --------    ---------
<S>                              <C>        <C>         <C>        <C>          <C>         <C>
Outstanding at beginning
    of year                       68,000      $6.43      189,500      $4.48      187,000      $4.72
Granted                          277,000      $2.77       10,000      $1.41       50,000      $4.05
Forfeited                        (15,000)     $2.75     (131,500)     $3.90      (47,500)     $4.98
                                 -------                --------                --------       
Outstanding at end of year       330,000      $3.26       68,000      $5.15      189,000      $4.48
                                 -------                --------                --------       
                                 -------                --------                --------       
Options exercisable at year end   40,800      $6.09       28,600      $6.43       39,000      $5.49
Weighted-average fair value
    of options granted
    during the year                $2.05                   $0.92                   $2.31
</TABLE>

A summary of stock options outstanding and exercisable as of December 31, 1998
are as follows:

<TABLE>
<CAPTION>
                                                  Options Outstanding                                 Options Exercisable
                                ------------------------------------------------------------     -----------------------------
                                                      Weighted                 Weighted                           Weighted
 Range of exercise prices         Number        Average remaining life      Average exercise        Number         Average
                                Outstanding            (years)                    Price          Exercisable    exercise Price
<S>                             <C>             <C>                         <C>                  <C>            <C> 
          $1.41                    10,000             7.5                      $1.41                 2,000       $1.41
      $2.75 - $3.00               262,000             9.5                      $2.77                     -         -
     $3.875 - $5.785               48,000             6.5                      $4.71                28,800       $4.71
          $11.00                   10,000             4.0                     $11.00                10,000       $11.00
                                  -------                                                           ------
                                  330,000                                                           40,800
                                  -------                                                           ------
                                  -------                                                           ------
</TABLE>

                                        39
<PAGE>

                    GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(8)    EMPLOYEE BENEFIT PLANS, CONTINUED

       EMPLOYEE STOCK PURCHASE PLAN

       The Company maintains an employee stock purchase plan. Under the plan,
           certain employees are eligible to purchase an aggregate of not more
           than 125,000 shares of the Company's common stock at 95 percent of
           the lower of the fair market value at the beginning or the end of the
           calendar year in which the shares are purchased. In 1999 and 1998,
           46,597 and 1,722 shares were purchased with 1998 and 1997 payroll
           withholdings, respectively.

(9)    INCOME (LOSS) PER SHARE

       The following tables provide a reconciliation of the numerators and
           denominators of the basic and diluted income per share computations
           for the periods presented:

<TABLE>
<CAPTION>
                                                  1998                                    1997                 
                                  ------------------------------------  -------------------------------------- 
                                     Income      Shares      Per-Share     Income        Shares      Per-Share 
Years Ended December 31,          (Numerator) (Denominator)    Amount    (Numerator)  (Denominator)   Amount   
                                  ----------- -------------  ---------  ------------  -------------  --------- 
<S>                               <C>         <C>            <C>        <C>           <C>            <C>
Basic income (loss) per share   
  Net income attributed to
    common shareholders           $2,721,810    7,924,719      $0.34    $(18,270,661)   7,588,792     $(2.41)  
                                                               -----                                  ------
                                                               -----                                  ------
Effect of dilutive securities                                                                        
  Stock warrants                          --      754,343         --              --           --         
  Stock options                           --       23,730         --              --           --         
                                  ----------    ---------               ------------    ---------
Diluted income (loss) per share                                                                      
  Net income attributed to                                                                             
    common shareholders           $2,721,810    8,702,792      $0.31    $(18,270,661)   7,588,792     $(2.41)  
                                  ----------    ---------      -----    ------------    ---------     ------
                                  ----------    ---------      -----    ------------    ---------     ------

<CAPTION>
                                                   1996               
                                  ------------------------------------- 
                                    Income         Shares     Per-Share 
                                  (Numerator)  (Denominator)    Amount  
                                  -----------  -------------  --------- 
<S>                               <C>          <C>            <C>
Basic income (loss) per share                                           
  Net income attributed to                                                
    common shareholders           (12,823,174)   7,585,405    $(1.69)   
                                                              ------
                                                              ------
Effect of dilutive securities                                           
  Stock warrants                           --           --              
  Stock options                            --           --              
                                  -----------    ---------
Diluted income (loss) per share                                         
  Net income attributed to                                                
    common shareholders            12,823,174    7,585,174    $(1.69)   
                                  -----------    ---------    ------
                                  -----------    ---------    ------
</TABLE>

 (10)  COMMITMENTS AND CONTINGENCIES

       In  connection with the acquisition of the Brasilia aircraft, the
           Brazilian government has provided a financing subsidy to the Company
           in the form of semiannual payments directly to the Company. The
           Company has deferred those payments and amortized the payments over
           the term of the financing on a straight-line basis. For those seven
           Brasilia aircraft which the Company disposed of, the remaining
           deferred amount related to those aircraft was included as a reduction
           of the net book value of the owned Brasilia aircraft and as a
           reduction the estimated lease termination costs on leased Brasilia
           aircraft. The Company transferred the right to receive future subsidy
           payments in connection with the termination of certain leases. The 
           remaining subsidy payments are not collaterialized or otherwise 
           secured against the credit risk of the Brazilian government.

       The Company leases certain small aircraft used in its charter operations.
           In 1998 five Beechcraft Model 1900 19-passenger aircraft used in
           airline operations were financed under operating leases from a
           company owned by Great Lakes' president and majority stockholder.
           Total payments under these leases and other previous leases in prior
           years that the Company had with other entities that are owned by the
           Company's president were $1,186,000 in 1998, $830,000 in 1997, and
           $884,000 in 1996.

       As  discussed in notes 1 and 2, the Company operated as a "Midway
           Connection" carrier with Midway Airlines, Inc. from October 1, 1995
           through May 16, 1997, serving 14 destinations from Raleigh/Durham.
           Based upon review of passenger billings, freight and other services
           the Company performed as a Midway Connection carrier during 

                                        40
<PAGE>

           this period, the Company has recorded a receivable for those 
           services which has not been paid by Midway Airlines, Inc. A 
           net receivable of approximately $1 million has been classified
           in other assets at December 31, 1998.

       NONAIRCRAFT LEASE COMMITMENTS

       The Company leases certain hanger and terminal facilities under operating
           leases, which provide for approximate future minimum lease payments,
           as follows:

<TABLE>
<S>                                       <C>
              1999                        $1,361,000
              2000                           190,000
              2001                            85,000
              2002                            67,000
              2003                            24,000
</TABLE>

       LITIGATION

       The Company is a defendant in a lawsuit arising from the collision of a
           small aircraft with one of the Company's Beechcraft 1900 aircraft in
           Quincy, Illinois on November 19, 1996. The collision occurred at the
           intersection of two runways as the Company's aircraft was landing,
           and resulted in the death of all ten passengers and the two
           crewmembers. The Company's insurance carrier is providing for the
           Company's defense in the lawsuit and the Company believes that all
           claims arising from the accident will be adequately covered by
           insurance.

       The Company is one of several defendants in a lawsuit brought by the 
           owners of a private lake near the Terre Haute Indiana Airport 
           alleging that run-off from de-icing operations at the airport 
           have contaminated the lake. This litigation is in the early 
           stages and it cannot be determined at this time whether the 
           Company will have any liablity or whether any such liability 
           will be material to the Company. It appears, however, that some 
           activity at the airport had an adverse impact on plaintiff's 
           lake but it is not clear that such activity is associated with 
           the Company.

       The Company is a party to other ongoing legal claims and assertions
           arising in the ordinary course of business. In the opinion of
           management, the resolution of these matters will not have a material
           adverse effect on the Company's financial position, results of
           operations, or cash flows.

                                        41
<PAGE>

                    GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(11)   SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

       The following presents selected quarterly unaudited financial data for
           each of the years ended December 31, 1998 and 1997 (in thousands,
           except for per share information):

<TABLE>
<CAPTION>
                                                First         Second         Third          Fourth
                                               quarter        quarter       quarter         quarter           Year
                                             ----------       -------     ------------    -----------     -------------
<S>                                          <C>              <C>         <C>             <C>             <C>
                   1998
                   ----
Operating revenues                           $   18,861      $ 27,457     $   36,184      $   31,530      $   114,032
Operating income (loss)                          (3,021)        2,624          5,782           1,128            6,513
Net income (loss)                                (3,878)        1,793          4,861             (54)           2,722
                                             -------------   ----------   ------------    ------------    -------------
                                             -------------   ----------   ------------    ------------    -------------
Net income (loss) per share                                                                                
     Basic                                   $    (0.51)     $   0.24     $     0.61      $    (0.01)     $      0.34
     Diluted                                 $    (0.51)     $   0.22     $     0.56      $    (0.01)     $      0.31
                                                                                                           
Weighted average shares outstanding                                                                        
     Basic                                        7,589         7,591          7,917           8,591            7,925
     Diluted                                      7,589         8,328          8,690           8,591            8,703
                                                                                                           
                   1997                                                                                    
                   ----                                                                                    
Operating revenues                           $    26,688     $ 19,340     $   20,374      $   17,408      $    83,790
Excess aircraft, shutdown, and                                                                             
     Other nonrecurring expenses                       -        4,127          2,638           2,379            9,234
                                                                                                           
Operating income (loss)                           (3,174)      (5,363)           242          (5,355)         (13,650)
Net loss                                          (4,787)      (6,823)        (1,045)         (5,616)         (18,271)
                                             -------------   ----------   ------------    ------------    -------------
                                             -------------   ----------   ------------    ------------    -------------
Net income (loss) per share                                                                                
     Basic                                   $     (0.63)    $  (0.90)    $    (0.14)     $    (0.74)     $     (2.41)
     Diluted                                 $     (0.63)    $  (0.90)    $    (0.14)     $    (0.74)     $     (2.41)

Weighted average shares outstanding
     Basic                                         7,586        7,589          7,589           7,589            7,589
     Diluted                                       7,586        7,589          7,589           7,589            7,589
</TABLE>

       For 1998 the first and fourth quarters reflect a net loss, the effect of
           stock options and stock warrants are not included in the calculation
           of earnings per share because their effects are anti-dulitive. As a
           result, the total of the four quarters' diluted earnings per share
           will not equal the diluted earnings per share for the year.

       The above financial data includes normal recurring adjustments and
           reflects all adjustments which are, in the opinion of management,
           necessary for a fair presentation of such financial data. The
           Company's business is seasonal and, accordingly, interim results are
           not indicative of results for a full year.

                                        42
<PAGE>

                    GREAT LAKES AVIATION LTD. AND SUBSIDIARY

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                                                  Additions
                                                        ------------------------------
                                                                           Charged to
                                   Balance at           Charged to            Other                              Balance at
Classification                     Beginning            Costs and           Accounts-        Deductions-           End of
Year Ended December 31             of Period             Expenses           Describe         Describe (1)          Period
<S>                                <C>                  <C>               <C>               <C>                  <C>
1998
Inventory Reserves                 $ 3,513,000            1,027,817       3,516,510                      -         8,057,327

1997
Inventory Reserves                 $ 3,082,000            2,172,000               -              1,741,000         3,513,000

1996
Inventory Reserves                 $ 1,380,000            2,332,000               -                630,000         3,082,402
</TABLE>

(1)    Deductions related principally to scrapped parts and the results of
       physical inventories.

       All other schedules for which provision is made in the applicable 
       accounting regulations of the Securities and Exchange Commission 
       have been omitted as not required, not applicable or the information
       required has been incuded elsewhere in the financial statements 
       and related notes.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

         None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Information regarding the directors of the Company is incorporated
herein by reference to the descriptions set forth under the caption "Executive
Officers" and "Election of Directors" in the Proxy Statement for Annual Meeting
of Shareholders to be held June 4, 1999 (the "1999 Proxy Statement").

ITEM 11. EXECUTIVE COMPENSATION

         Information regarding executive compensation is incorporated herein by
reference to the information set forth under the caption "Executive
Compensation" in the 1999 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Information regarding security ownership of certain beneficial owners
and management of the Company is incorporated herein by reference to the
information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the 1999 Proxy Statement.

                                        43
<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Information regarding certain relationships and related transactions
with the Company is incorporated herein by reference to the information set
forth under the caption "Certain Transactions" in the 1999 Proxy Statement.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     (a) DOCUMENTS FILED WITH THIS REPORT.

         (1) See Index to Financial Statements on page 19 of this report.

     (b) REPORTS ON FORM 8-K. During the fourth quarter ended December 31, 
         1998, the Company filed no reports on Form 8-K with the Securities 
         and Exchange Commission.

     (c) EXHIBITS.


<TABLE>
<CAPTION>

<C>        <S>
3.1        Amended and Restated Articles of Incorporation.(1)
3.2        Amended and Restated Bylaws.(1)
4.1        Specimen Common Stock Certificate.(1)
10.1       Promissory Note payable to Raytheon in the amount of $3,445,000,
           dated December 30, 1992, together with related security agreement.(1)
10.2       Schedule identifying other Promissory Notes payable to Raytheon,
           which are substantially identical in all material respects to Exhibit
           10.1.(1)
10.3       Form of Aircraft Lease Agreement dated March 6, 1990, by and between
           Raytheon and the Company.(1)
10.4       United Express Agreement, dated February 28, 1992, by and between
           United Air Lines, Inc. and the Company (certain portions deleted
           pursuant to request for confidential treatment).(1)
10.5       Standard Ground Handling Agreement, dated April 3, 1991, by and
           between United Air Lines, Inc. and the Company.(1)
10.6       United Express Fare Revenue Sharing Agreement, dated February 28,
           1992, by and between United Air Lines, Inc. and the Company (certain
           portions deleted pursuant to request for confidential treatment).(1)
10.7       Letter Agreement, dated April 21, 1995, amending the United Express
           Agreement (certain portions deleted pursuant to request for
           confidential treatment).(2)
10.8       United Express Interline Agreement, dated February 28, 1992, by and
           between United Air Lines, Inc. and the Company.(1)
10.9       O'Hare License Agreement, dated April 1, 1991, by and between United
           Air Lines, Inc. and the Company (certain portions deleted pursuant to
           request for confidential treatment).(1)
10.10      Hector International Airport Terminal License Agreement, dated
           September 8, 1994, by and between United Air Lines, Inc. and the
           Company (certain portions deleted pursuant to request for
           confidential treatment).(1)
10.11      Airport/Airport Facilities Lease Agreement, dated November 1, 1989,
           by and between Minneapolis-St. Paul Airport and the Company.(1)
10.12      Great Lakes Aviation, Ltd. 1993 Stock Option Plan.(1)
10.13      1993 Director Stock Option Plan.(1)
10.14      Great Lakes Aviation, Ltd. Employee Stock Purchase Plan.(1)
10.15      Facilities Lease Agreement, dated February 18,  1992, by and between 
           the City of Spencer, Iowa and the Company.(1)
10.16      Agreement in Principle, dated August 29, 1991, by and between United
           Air Lines, Inc. and the Company (certain portions deleted pursuant to
           request for confidential treatment).(1)
10.17      Fifth Amendment to the Agreement in Principle, dated November 12,
           1993, by and between United Air Lines, Inc. and the Company (certain
           portions deleted pursuant to request for confidential treatment).(1)
10.18      Aircraft Finance Agreement, dated March 1, 1994, by and between
           Raytheon and the Company.(2)
10.19      Aircraft Finance Agreement, dated March 1, 1994, by and between
           Raytheon and the Company.(2)
10.20      Negotiable Promissory Note dated March 30, 1996, from the Company to
           Raytheon Aircraft Credit Corporation. (5)
10.21      Negotiable Promissory Note, dated July 31, 1996, from the Company to
           Raytheon Aircraft Credit Corporation.(5)
10.22      Consent Order entered into by the Company and the Federal Aviation
           Administration on May 23, 1997. (4)
10.23      Warrant Agreement, dated July 23, 1997, by and between Raytheon
           Aircraft Credit Corporation and the 



                                        44
<PAGE>

           Company.(3)
10.24      $4,000,000 Negotiable promissory Note entered into between registrant
           and Raytheon Aircraft Credit Corporation, dated July 11, 1997, and
           amended July 31, 1997 and January 8, 1998. (6)
10.25      Pledge and Assignment Agreement entered into between registrant and
           Raytheon Aircraft Credit Corporation, dated July 11, 1997. (6)
10.26      Agreement Pertaining to Loans and Leases entered into between
           registrant and Raytheon Aircraft Credit Corporation, dated July 11,
           1997. (6)
10.27      Security Agreement and Encumbrance Against All Carrier Aircraft,
           Engines, Propellers, Appliances and Spare Parts entered into between
           registrant and Raytheon Aircraft Credit Corporation, dated July 11,
           1997. (6)
10.28      $1,000,000 Negotiable Promissory Note entered into between registrant
           and Raytheon Aircraft Credit Corporation dated January 1, 1998. (6)
           Consent of Independent Public Accountants
23.1       Consent of Arthur Andersen LLP
23.2       Consent of KPMG Peat Marwick LLP
27         Financial Data Schedule
</TABLE>

(1)  Incorporated by reference to the Company's Registration Statement on Form
     S-1, Registration No. 33-71180 (the "Form S-1").
(2)  Incorporated by reference to the Company's Annual Report on Form 10-K for
     the year ended December 31, 1995.
(3)  Incorporated by reference to the Company's Annual Report on Form 10-K for
     the year ended December 31, 1996.
(4)  Incorporated by reference to the Company's Form 8-K, File Number 97616934,
     filed May 23, 1997.
(5)  Incorporated by reference to the Company's Annual Report on Form 10-K for
     the year ended December 31, 1997.
(6)  Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the quarter ended March 31, 1998.



                                        45
<PAGE>

                                   SIGNATURES


Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                      GREAT LAKES AVIATION, LTD.

Dated:  March 31, 1999                By /s/ Douglas G. Voss
                                         --------------------------------------
                                         Douglas G. Voss,
                                         President and Chief Executive Officer

-------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
         Signature                                        Title                                     Date
         ---------                                        -----                                     ----
<S>                                     <C>                                                    <C>

/s/ Douglas G. Voss
------------------------------------    President, Chief Executive Officer and Director        March 31, 1999
Douglas G. Voss

/s/ Thomas J. Ahmann
------------------------------------    Vice President, Chief Accounting Officer               March 31, 1999
Thomas J. Ahmann

/s/ Richard A. Hanson
------------------------------------    Vice President, Controller                             March 31, 1999
Richard A. Hanson

/s/ Vernon A. Mickelson
------------------------------------    Director                                               March 31, 1999
Vernon A. Mickelson

/s/ Gayle R. Voss
------------------------------------    Director                                               March 31, 1999
Gayle R. Voss

/s/ Ivan L. Simpson
------------------------------------    Director                                               March 31, 1999
Ivan L. Simpson
</TABLE>





                                        47

<PAGE>
                                   EXHIBIT INDEX


<TABLE>
<CAPTION>

Exhibit
Number                    Description
------                    -----------
<C>        <S>
3.1        Amended and Restated Articles of Incorporation.(1)
3.2        Amended and Restated Bylaws.(1)
4.1        Specimen Common Stock Certificate.(1)
10.1       Promissory Note payable to Raytheon in the amount of $3,445,000,
           dated December 30, 1992, together with related security agreement.(1)
10.2       Schedule identifying other Promissory Notes payable to Raytheon,
           which are substantially identical in all material respects to Exhibit
           10.1.(1)
10.3       Form of Aircraft Lease Agreement dated March 6, 1990, by and between
           Raytheon and the Company.(1)
10.4       United Express Agreement, dated February 28, 1992, by and between
           United Air Lines, Inc. and the Company (certain portions deleted
           pursuant to request for confidential treatment).(1)
10.5       Standard Ground Handling Agreement, dated April 3, 1991, by and
           between United Air Lines, Inc. and the Company.(1)
10.6       United Express Fare Revenue Sharing Agreement, dated February 28,
           1992, by and between United Air Lines, Inc. and the Company (certain
           portions deleted pursuant to request for confidential treatment).(1)
10.7       Letter Agreement, dated April 21, 1995, amending the United Express
           Agreement (certain portions deleted pursuant to request for
           confidential treatment).(2)
10.8       United Express Interline Agreement, dated February 28, 1992, by and
           between United Air Lines, Inc. and the Company.(1)
10.9       O'Hare License Agreement, dated April 1, 1991, by and between United
           Air Lines, Inc. and the Company (certain portions deleted pursuant to
           request for confidential treatment).(1)
10.10      Hector International Airport Terminal License Agreement, dated
           September 8, 1994, by and between United Air Lines, Inc. and the
           Company (certain portions deleted pursuant to request for
           confidential treatment).(1)
10.11      Airport/Airport Facilities Lease Agreement, dated November 1, 1989,
           by and between Minneapolis-St. Paul Airport and the Company.(1)
10.12      Great Lakes Aviation, Ltd. 1993 Stock Option Plan.(1)
10.13      1993 Director Stock Option Plan.(1)
10.14      Great Lakes Aviation, Ltd. Employee Stock Purchase Plan.(1)
10.15      Facilities Lease Agreement, dated February 18,  1992, by and between 
           the City of Spencer, Iowa and the Company.(1)
10.16      Agreement in Principle, dated August 29, 1991, by and between United
           Air Lines, Inc. and the Company (certain portions deleted pursuant to
           request for confidential treatment).(1)
10.17      Fifth Amendment to the Agreement in Principle, dated November 12,
           1993, by and between United Air Lines, Inc. and the Company (certain
           portions deleted pursuant to request for confidential treatment).(1)
10.18      Aircraft Finance Agreement, dated March 1, 1994, by and between
           Raytheon and the Company.(2)
10.19      Aircraft Finance Agreement, dated March 1, 1994, by and between
           Raytheon and the Company.(2)
10.20      Negotiable Promissory Note dated March 30, 1996, from the Company to
           Raytheon Aircraft Credit Corporation. (5)
10.21      Negotiable Promissory Note, dated July 31, 1996, from the Company to
           Raytheon Aircraft Credit Corporation.(5)
10.22      Consent Order entered into by the Company and the Federal Aviation
           Administration on May 23, 1997. (4)
10.23      Warrant Agreement, dated July 23, 1997, by and between Raytheon
           Aircraft Credit Corporation and the 

<PAGE>

           Company.(3)
10.24      $4,000,000 Negotiable promissory Note entered into between registrant
           and Raytheon Aircraft Credit Corporation, dated July 11, 1997, and
           amended July 31, 1997 and January 8, 1998. (6)
10.25      Pledge and Assignment Agreement entered into between registrant and
           Raytheon Aircraft Credit Corporation, dated July 11, 1997. (6)
10.26      Agreement Pertaining to Loans and Leases entered into between
           registrant and Raytheon Aircraft Credit Corporation, dated July 11,
           1997. (6)
10.27      Security Agreement and Encumbrance Against All Carrier Aircraft,
           Engines, Propellers, Appliances and Spare Parts entered into between
           registrant and Raytheon Aircraft Credit Corporation, dated July 11,
           1997. (6)
10.28      $1,000,000 Negotiable Promissory Note entered into between registrant
           and Raytheon Aircraft Credit Corporation dated January 1, 1998. (6)
           Consent of Independent Public Accountants
23.1       Consent of Arthur Andersen LLP
23.2       Consent of KPMG Peat Marwick LLP
27         Financial Data Schedule
</TABLE>

(1)  Incorporated by reference to the Company's Registration Statement on Form
     S-1, Registration No. 33-71180 (the "Form S-1").
(2)  Incorporated by reference to the Company's Annual Report on Form 10-K for
     the year ended December 31, 1995.
(3)  Incorporated by reference to the Company's Annual Report on Form 10-K for
     the year ended December 31, 1996.
(4)  Incorporated by reference to the Company's Form 8-K, File Number 97616934,
     filed May 23, 1997.
(5)  Incorporated by reference to the Company's Annual Report on Form 10-K for
     the year ended December 31, 1997.
(6)  Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the quarter ended March 31, 1998.