<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

(Mark One)

[_]  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, 2001

                                       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
      incorporation or organization)                    Identification No.)

(Address of principal executive offices)
                                        1022 Airport Parkway, Cheyenne, WY 82001
                                        ----------------------------------------
Registrant's telephone number, including area code: (307)432-7000

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.  [_]

The aggregate market value of voting stock held by nonaffiliates of the
registrant as of April 1, 2002 was approximately $3,857,195.

As of April 1, 2002, there were 8,657,651 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 2002 Annual Meeting of Shareholders          Part III
<PAGE>

                                 FORM 10-K INDEX

                                                                            Page

PART I........................................................................1

     Item 1.  BUSINESS........................................................1
     Item 2.  PROPERTIES......................................................8
     Item 3.  LEGAL PROCEEDINGS...............................................9
     Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............9

PART II......................................................................10

     Item 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
              STOCKHOLDER MATTERS............................................10
     Item 6.  SELECTED FINANCIAL AND OPERATING DATA..........................10
     Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS............................12
     Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.....24
     Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ...................25
     Item 9.  CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
              AND FINANCIAL DISCLOSURES .....................................46

PART III.....................................................................47

     Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............47
     Item 11. EXECUTIVE COMPENSATION.........................................47
     Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
              MANAGEMENT.....................................................47
     Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................47

PART IV......................................................................48

     Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
              REPORTS ON FORM 8-K............................................48

SIGNATURES...................................................................51

EXHIBIT INDEX................................................................52

                                       i
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                                     PART I


Item 1.  BUSINESS

Forward-Looking Information

In accordance with the "safe harbor" provisions of the Private Securities Reform
Act of 1995, Great Lakes Aviation, Ltd. ("Great Lakes" or the "Company") notes
that certain statements in this Form 10-K and elsewhere which are
forward-looking and which provide other than historical information, involve
risks and uncertainties that may impact the Company's results of operations.
These forward-looking statements include, among others, statements concerning
the Company's general business strategies, financing decisions, and expectations
for funding expenditures and operations in the future. When used herein, the
words, "believe," "plan," "continue," "hope," "estimate," "project," "intend,"
"expect," and similar expressions reflected in such forward-looking statements
are based on reasonable assumptions, and no statements contained in this Form
10-K should be relied upon as predictions of future events. Such statements are
necessarily dependent on assumptions, data or methods that may be incorrect or
imprecise and may be incapable of being realized. The risks and uncertainties
inherent in these forward-looking statements could cause actual results to
differ materially from those expressed in or implied by these statements. For a
discussion on current financial condition of the Company, see Item 7.

As more fully described below, important factors that could cause results to
differ materially from the expectations reflected in any forward-looking
statement herein include among other things: (1) the results of negotiations
with certain lessors to return unneeded aircraft and restructure Great Lakes'
financial obligations for those and other aircraft; (2) the Company's dependence
on its code-sharing relationship with United Airlines, Inc. and Frontier
Airlines, Inc.; (3) the Company's inability to pay current maturities of
existing indebtedness, and operating lease payments; (4) the effect of general
economic conditions on business and leisure travel which impacts the Company's
revenues; (5) fuel costs; (6) seasonality; (7) continued receipt of Essential
Air Service subsidies at currently contemplated rates; (8) ability to control
increased security costs; and (9) as to valuation of the Company's common stock,
the Company's noncompliance with the Nasdaq continued listing requirements.

Readers are cautioned not to place undue reliance on the forward-looking
statements contained herein, which speak only of the day hereof. The information
contained in this Form 10-K is believed by the Company to be accurate as of the
date hereof. Changes may occur after that date and the Company will not update
that information except as required by law in the normal course of its public
disclosure practices.

General

Great Lakes is a regional airline that began providing scheduled passenger
service under its own marketing identity on October 12, 1981. On April 26, 1992
the Company began operating a large portion of its route network as a United
Express carrier. The United Express marketing program included painting of
aircraft with a United Express paint scheme, branding of station facilities and
uniforming Great Lakes customer service employees with United designated
uniforms. On February 1, 2001, the Company reached a new three year code share
agreement with United (the "United Code Share Agreement") that authorized the
return of aircraft, station signage and customer service personnel to the Great
Lakes market identity. The United Code Share Agreement was implemented in phases
beginning on May 1, 2001. Over the course of 2001, significant monies were
invested by the Company in returning to Great Lakes market identity. The United
Code Share Agreement authorizes the Company to enter into similar code share
agreements with other airlines. The Company negotiated a code share agreement
with Frontier Airlines, Inc. which was signed on May 3, 2001 and implemented in
phases beginning on July 7, 2001. Under the terms of the Company's new code
share agreements, schedules are published to enable its customers easy booking
and purchasing of time efficient schedules. Customers that travel to and from
only the hubs (Denver, Chicago O'Hare, Minneapolis and Phoenix) purchase tickets
that are 100% Great Lakes product.

At March 1, 2002, the Company served 35 destinations in 10 states to and from
Denver as code sharing partners with both United and Frontier. It also served 5
destinations in 3 states to and from Chicago, 6 destinations in 3 states to and
from Minneapolis and 3 destinations in 3 states to and from Phoenix.


                                       1
<PAGE>

As of December 31, 2001, the Company's fleet consisted of 40 Beechcraft Model
1900D 19-passenger aircraft and eight Embraer Model 120 30-passenger aircraft.
The Company also has four Beechcraft Model 1900C aircraft that are used
exclusively for freight operations. As more fully explained below, certain of
these aircraft are currently in excess of Company requirements, and negotiations
are underway to return them to their lessors. The Company cannot predict the
terms under which these returns will occur or their financial statement impact.

The terrorist attacks of September 11 had a significant impact on the business
of the Company. Following the attacks, the Company took immediate action to
reduce its level of operations to best serve the reduced level of passenger
traffic that was available to it. However, as was the case with most of the
airline industry, these actions were not sufficient to avoid catastrophic losses
from the initial grounding of all flights, increased expenses and substantially
reduced passenger revenues.

In response, on September 22, 2001 Congress passed the Air Transportation Safety
and Systems Stabilization Act ("Stabilization Act"). The act includes for all
U.S. airlines and air cargo carriers the following key provisions: (i) $5
billion in cash compensation, of which $4.5 billion is available to commercial
passenger airlines and is allocated based on the lessor of available seat miles
during August 2001 or the direct and incremental losses (including lost
revenues) incurred by the airline from September 11, 2001 through December 31,
2001; (ii) subject to certain conditions, the availability of up to $10 billion
in federal government guarantees of certain loans made to air carriers for which
credit is not reasonably available as determined by a newly established Air
Transportation Stabilization Board; (iii) the authority of the Secretary of
Transportation to reimburse air carriers for increases in the cost of war risk
insurance over the premium; (iv) and a $100 million limit on the liability with
respect to acts of terrorism committed within 180 days following enactment of
the Act. During 2001, Great Lakes was allocated a total of $1.9 million under
the act of which $1.6 million had been received by the end of the year.

The requirements of the commercial loans guaranteed by the federal government to
provide working capital for future operation of the airlines and for other
purposes have proven to be too restrictive to permit their use by Great Lakes.

In addition to benefits for the entire airline industry, the act also took
notice of the unique requirements of providing service to small communities by
increasing additional funding for Essential Air Service ("EAS"). Congress set
the EAS funding level at $113 million for the fiscal year ending September 30,
2002, which compares to a level of $50 million for the prior fiscal year. As a
result of these increases and the reduction of non EAS service, the Company's
EAS revenues in 2002 are expected to be approximately $30 million (33% of total
revenue) as contrasted to 19.3 million (19%) in 2001 and $14.9 million (11%) in
2000.

Due to significant losses in 2000 and 2001, the Company has exhausted its
available sources of working capital and has no financing agreements in place
under which it can secure additional funds. As more fully described below, the
Company is in arrears in its payments to substantially all the institutions
providing financing for the Company's aircraft, which has resulted in
substantially all of its long-term debt obligation being reclassed into current
liabilities as of December 31, 2001. One institution which provided lease
financing for two of the Company's aircraft has filed a complaint seeking
recovery of all scheduled payments under the leases. The Company plans to
continue to seek additional sources of working capital, negotiate settlements
with certain creditors and lessors (including the foregoing lessor of two
aircraft) to whom it expects to return its surplus aircraft and utilize funds
from the more compensatory level of EAS payments to make payments to creditors
as cash flows allow. If it is unable to generate adequate funding through a
combination of additional financing, settlements with creditors and improving
financial performance, the Company may be required to make further reductions in
operating levels and develop other mechanisms to provide sufficient operating
funds. No assurances can be made that the Company will be successful in finding
alternatives to allow it to continue as a going concern or that its creditors
won't impose conditions that result in a corporate restructuring or ceasing
operations.


                                       2
<PAGE>

The Company's auditors have included in their report dated April 10, 2002 on the
financial statements an explanatory paragraph to the effect that substantial
doubt exists regarding the Company's ability to continue as a going concern due
to the Company's recurring losses from operations and limited sources of
additional liquidity. See the financial statements.

United and Frontier Code Sharing Relationships

Prior to May 1, 2001, the Company had been operating scheduled passenger and
airfreight service exclusively as United Express under a cooperative marketing
agreement with United Airlines, Inc. ("United"). On February 1, 2001, the
Company and United entered into a new three-year code sharing agreement, which
became effective May 1, 2001. Under this new agreement, the Company no longer
operates under the name "United Express"; rather, it operates under its own name
but continues to use the UA code for connecting service to United points beyond
the Company's hubs. The United agreement provides for use of United's flight
designator for Great Lakes flights connecting with United flights in Denver,
Chicago, Minneapolis and Phoenix, and permits the Company to enter into code
sharing agreements with certain other carriers. The United agreement also
requires United to provide approximately $2.5 million in financial support to
Great Lakes to cover a portion of the Company's cost of returning to marketing
itself under its own identity. The Company has been utilizing the reimbursements
to offset amounts due United for prior services. As of December 31, 2001, United
was still obligated for approximately $1.5 million under this agreement. The
Company and United are currently negotiating to reduce the number of cities to
which Great Lakes will provide code sharing service as a part of United's
program to overcome the United Pilot contractual limitations to increasing the
use of Regional Jet aircraft by United's Express partners.

On May 3, 2001, The Company entered into a code sharing agreement with Frontier
Airlines, Inc. ("Frontier") which was implemented July 9, 2001. The Frontier
agreement, provides for the use of Frontier's flight designator for Great Lakes'
flights connecting with Frontier's flights in Denver. Accordingly, certain
flights to and from Denver carry both the United and Frontier designator as well
as the Great Lakes designator.

Markets

At December 31, 2001, the Company operated 87 departures daily from Denver, 12
departures daily from Chicago O'Hare, 7 departures daily from Minneapolis/St.
Paul and two departures daily from Phoenix.

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. 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. EAS
rates are normally set for two-year periods. Significant fluctuations of fuel
and other costs can affect the profitability of EAS services during the two-year
term.

The DOT may request competitive proposals from other airlines at the end of the
contract period for EAS service to a particular city. Proposals, when requested,
are evaluated on, among other things, level of service provided, subsidy
requested, fitness of the applicant, and comments from the communities served.


                                       3
<PAGE>

In recognition of the results of the terrorist acts of September 11, and the
contractual obligation to provide a fixed level of service to EAS communities by
carriers receiving subsidies, the DOT authorized increases in subsidy rates to
recognize the reduced passenger revenues and higher level of expenses beginning
October 1, 2001. For Great Lakes, this resulted in EAS revenues of approximately
$7.5 million in the fourth quarter of 2001, up from approximately $4.3 million
under the old subsidy formulas. For 2002, EAS subsidies are expected to
approximate $30 million, up from $16.5 million that would have occurred under
the old subsidy formulas.

At December 31, 2001, the Company served 29 essential air service communities on
a subsidized basis. The Company earned $19.3 million, $14.9 million and $16.2
million in essential air service subsidies for the years ended December 31,
2001, 2000, and 1999, respectively.

Aircraft

At December 31, 2001, the Company's fleet consisted of 44 Beechcraft 1900
aircraft and eight Embraer passenger aircraft.

Forty of the Beechcraft aircraft are available for use in passenger service, and
four Beechcraft 1900 aircraft are being utilized exclusively for scheduled mail
and freight operations. The Beechcraft 1900D 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.
At December 31, 2001, the Company owned 28 and leased 12 of the passenger
-configured 1900 aircraft.

Because of the reduction of air service following the events of September 11 and
subject to further review based on recovering traffic levels, the Company
recently decided to reduce its 1900 fleet by ten of the passenger aircraft and
two of the aircraft in mail and cargo operations. As of December 31, 2001, the
Company owned 28 of its Beechcraft 1900 aircraft and leased the remaining 16
under agreements with remaining terms ranging from nine to thirteen years.

At December 31, 2001, the Brasilia aircraft were not in scheduled service but
were being used to a limited extent in charter service. Four of the Brasilia
aircraft are owned and four of these aircraft are leased under terms ranging
from 21 months to 11 years. The 30 passenger Embraer Brasilia aircraft are
equipped with advanced avionics, have restrooms, are staffed with a flight
attendant and offer a 330-mile per hour cruising speed with a range of 750
miles. It is the Company's intent to eliminate the four leased aircraft from its
fleet and place the four owned aircraft in scheduled service in May of 2002.
Elimination of the four leased Brasilia aircraft will require negotiation of
settlement agreement with the lessors covering resolution of rental payments
which are in arrears, future contractual rental payments and condition of the
aircraft when they are returned.

Great Lakes has not made scheduled debt or lease payments during 2001. Under the
debt agreements, the lender may, among other things, take possession of and sell
the aircraft which are collateral for the loans and recover any deficiency
between the total amount due the lender including interest, penalties and
expenses, and the proceeds from the sale of the assets. Similarly, the lease
agreements permit the lessors to, among other things, take back their aircraft
and sell or release the aircraft and recover the difference between the total
unpaid past and future payments due under the lease, interest and penalties and
the sale or anticipated rental stream from releasing the aircraft.


                                       4
<PAGE>

Summary of Aircraft

The table below shows the number and type of aircraft operated by the Company on
January 1, 2001 and December 31, 2001.

                                                  December 31, 2001
                      January 1,   December 31,   -----------------
                         2001          2001       Owned      Leased
                      ----------   ------------   -----      ------
Beechcraft 1900C            4             4         --          4
Beechcraft 1900D           40            40         28         12
Embraer 120                 8             8          4          4
                      -----------  ------------   -----      ------
              Total        52            52         32         20
                      ===========  ============   =====      ======

As of December 31, 2001, the average ages of the Company's owned and leased
aircraft were 7.3 and 6.2 years, respectively. As of December 31, 2000, the
average ages of the Company's owned and leased aircraft were 6.3 and 5.2 years,
respectively.

Aircraft Debt and Leases

With the exception of debt related to three of its Brasilia aircraft, Great
Lakes has made only minor payments towards its debt and lease obligations during
the year 2001. As a result, the Company is not in compliance under its debt and
lease agreements with Raytheon Aircraft Corporation (together with its financing
affiliate, "Raytheon") and two lessors who provide two Brasilia aircraft each to
the Company. One of the lessors has filed an action in a United States District
Court to obtain payment of total amounts currently due of $0.9 million and all
rental payments which will become due in the future.

Raytheon is the Company's primary aircraft supplier and largest creditor.
Raytheon has provided financing for all of the Beech 1900 aircraft and one
Brasilia. Raytheon had also provided the Company with a $5 million working
capital line of credit and a $5 million short-term loan, both of which were
collateralized by all Beechcraft spare parts and equipment and accounts
receivable. The short-term loan was paid on January 7, 2000 from the proceeds of
a line of credit entered into with Coast Business Credit and on December 1,
2000, the Company converted the remaining balance on the working capital line to
a three-year term loan. On June 29, 2001, Great Lakes issued an 8% demand note
in the amount of $8,768,778 in payment of substantially all of the unpaid
interest, principal and lease installments that were applicable to the first six
months of 2001.

Based on its current level of operations, the Company is seeking to eliminate
from its fleet the four leased Brasilia, ten leased Beechcraft 1900D and two
leased Beechcraft 1900C aircraft, primarily by returning the aircraft and
negotiating settlements with their lessors. The Company is unable to estimate
the cost of returning the 16 aircraft to the lessors. The Company also plans to
restructure its debt obligations with Raytheon. No provision has been made in
the 2001 financial statements for any additional costs or losses (including
impairments) which may be incurred in connection with the return and settlement
of these agreements.

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 Cheyenne, Wyoming; Huron, South Dakota; and Grand Island, Nebraska.
Line maintenance is also performed in Denver, Colorado and at Chicago, Illinois.
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


                                       5
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engines and propellers for its fleet to allow for minimal downtime during major
overhauls. The Company internally performs overhaul of selected aircraft
components for its fleet.

In October 2001, Great Lakes became the first operator of Beechcraft 1900D
aircraft with Pratt & Whitney PT-67-A engines to be authorized by the FAA to
maintain its engines on an "on-condition" basis. The effect of this
authorization is to allow the Company to maintain its engines based upon
increased inspection procedures and computerized monitoring of engine conditions
rather than performing major maintenance at predetermined hard-time intervals.
The avoidance of unnecessary maintenance activity will substantially reduce the
annual cost of engine maintenance.

Slot Allocation

Under slot rules currently in effect at Chicago O'Hare, scheduled flights
operate between 2:15 P.M. and 9:14 P.M. only if an airline has obtained a slot
or slot exemption. As of December 31, 2001, the Company was utilizing eight
slots and slot exemptions allocated to it by DOT/FAA. In March 2000, Congress
passed legislation that will phase out slot rules at Chicago O'Hare by July 1,
2002. At that time, the Company will be able to schedule its arrivals and
departures without regulatory slot restrictions.

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 booking 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, and through
direct contact with travel agencies and corporate travel departments. The
Company's promotional programs emphasize the Company's close affiliation with
its code sharing partners 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.
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 Frontier at Denver and United at Chicago
O'Hare. In 2001 Great Lakes, United and Frontier combined carried 75.5% of the
total passengers carried at Denver. The Company competes with other airlines by
offering frequent flights, flexible schedules and competitive fares. In
addition, the Company's competitive position benefits from the large number of
participants in United's "Mileage Plus" frequent flyer program who receive
mileage credits on flights operated by Great Lakes under its own identity and on
connecting flights with United. These participants may also use their awards to
travel on Great Lakes' flights for which Great Lakes is then compensated.


                                       6
<PAGE>

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, an increase in the cost of fuel, if not accompanied by an
equivalent increase in passenger revenues, would have a material impact on the
Company's future operating results. During 2001 the Company's average price of
fuel including taxes and into plane service fees was $1.25 per gallon as
compared to $1.26 in 2000 and $0.93 in 1999. At current rates of consumption, a
one cent increase or decrease in the per gallon price of fuel will increase or
decrease expense by $115,000 annually.

Employees

At the end of the year 2001, the Company had 762 full-time and 174 part-time
employees, down from 965 full-time and 323 part-time employees at the end of the
year 2000, as follows:

                                                   2001        2000
                                                   ----        -----
Classification:
    Pilot                                           219          303
    Station personnel                               484          582
    Maintenance personnel                           161          290
    Administrative and clerical personnel            43           59
    Flight attendants                                 2           18
    Management                                       27           36
                                                   ----        -----
              Total employees                       936        1,288
                                                   ====        =====

The reduction of personnel occurred primarily in the fourth quarter of 2001
following reductions in operations, including the removal of the Brasilia fleet
from scheduled service and use only in charter service. The Company intends to
add ten additional flight attendants to support the reintroduction of four
Brasilia aircraft into scheduled service in May 2002.

The Company's pilots are represented by the International Brotherhood of
Teamsters. The agreement with the pilots became amendable October 30, 2000. The
Company's flight attendants are also represented by the International
Brotherhood of Teamsters, and the agreement with the flight attendants became
amendable April 1, 2002.

The Company's mechanic's and maintenance clerks are represented by the
International Association of Machinists ("IAM"). The mechanics agreement becomes
amendable November 1, 2005, and the maintenance clerk's agreement became
amendable March 1, 2002.

The Company believes that relations with its employees are satisfactory.

Charter and Freight Service

The Company uses its Beech and Brasilia aircraft to provide charter services to
private individuals, corporations and athletic teams. The Company also carries
freight, mail and small packages on most of its scheduled flights and has two
Beechcraft 1900C aircraft devoted to providing service under a subcontract for
carriage of mail for the US Postal Service. Revenues from its charter flights
and freight and mail deliveries were 4.1 percent, 3.8


                                       7
<PAGE>

percent and 4.4 percent of the Company's total revenues for the years ended
December 31, 2001, 2000 and 1999, 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.

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.

As a result of the September 11 attack, aviation insurers have significantly
increased premiums for all aviation coverage while dramatically reducing the
amount of coverage available for war-risk occurrences. In response to the
reduction in coverage, the Stabilization Act provided U.S. air carriers with the
option to purchase certain war risk liability insurance from the United States
government on an interim basis at rates that are more favorable than those
available in the private market. The Company has purchased this coverage and
anticipates renewing it for as long as the coverage is available from the U.S.
government. The airlines and insurance industry, together with the United States
and other governments, are continuing to evaluate both the cost and options for
providing coverage of aviation insurance. The Company anticipates that it will
follow industry practices with respect to sources of insurance. The Company
believes that its 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.


Item 2.  PROPERTIES

The Company leases gate and ramp facilities at 48 airports where ticketing,
passenger loading, and unloading are handled by Company personnel. Payments to
airport authorities for ground facilities are based on a number of


                                       8
<PAGE>

factors, including the amount of space used and flight volume. The Company also
leases aircraft hangar space for maintenance operations at four of the locations
it serves.

Effective January 1, 2000, the Company entered into a lease in Cheyenne,
Wyoming, for approximately 42,000 square feet of space for administration and
maintenance needs. In 2000 the Company constructed an additional leased facility
in Cheyenne. The facility is approximately 54,000 square feet and is used for
administrative, flight operations, and maintenance offices, maintenance and
hangar space.

The Company believes that it has adequate facilities for the conduct of its
current and planned operations.


Item 3.  LEGAL PROCEEDINGS

On February 27, 2002, Finova Capital Corporation ("Finova") filed suit agains
the Company in the United States District Court for the District of Arizona. No.
Civ. 02-0362 PHX SMM. Finova alleges that the Company breached two airplane
lease agreements. Finova seeks damages, costs and attorney's fees. The Company
filed an answer to this complaint. The parties are presently engaged in
negotiations to resolve the dispute.

The Company is a also 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, 2001.


                                       9
<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.

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 Nasdaq. These prices represent inter-dealer prices without
adjustments for mark-up, mark-down or commission and do not necessarily reflect
actual transactions.

          Stock Quotations               High           Low
        --------------------            -----         ------

        2001:
            First quarter               $2.50         $0.875
            Second quarter               1.75          1.01
            Third quarter                1.25          0.40
            Fourth quarter               0.75          0.25

        2000:
            First quarter                3.00          1.75
            Second quarter               2.25          1.47
            Third quarter                2.00          1.06
            Fourth quarter               2.25          0.63

As of April 1, 2002, the Company had approximately 1,800 holders of its Common
Stock. The closing price of its common stock on April 11, 2002, as reported by
the NASDAQ SmallCap Market was $0.778 per share. See discussion of Noncompliance
with the Nasdaq Continued Listing Requirements in Cautionary Factors.

The transfer agent for the Company's Common Stock is Wells Fargo 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 AND OPERATING DATA

The following statement of operations and balance sheet data as of and for each
of the years in the five-year period ended December 31, 2001 are derived from
the Company's financial statements. The financial statements for the year ended
December 31, 2001, 2000, 1999, 1998 and 1997 have been audited by KPMG LLP. The
financial statements as of December 31, 2001 and 2000 and for each of the years
in the three-year period ended December 31, 2001 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
financial statements and the notes thereto included elsewhere in this Form 10-K.
The financial statements and selected data do not include any adjustments that
might result from the outcome of the uncertainty over the Company's ability to
continue as a going concern.


                                       10
<PAGE>

<TABLE>
<CAPTION>
                                                                           Year ended December 31,
                                                   --------------------------------------------------------------------------
                                                      2001            2000            1999             1998            1997
                                                   ----------      ----------      ----------       ---------       ---------
                                                          (In thousands, except per share and selected operating data)
<S>                                                <C>            <C>              <C>             <C>             <C>
Statement of Operations Data:
     Passenger and public service revenues         $  97,030         126,914         122,890         108,467          81,335
     Other revenues                                    4,410           6,676           8,480           5,565           2,455
                                                   ----------      ----------      ----------       ---------       ---------
                 Total operating revenues            101,440         133,590         131,370         114,032          83,790
                                                   ----------      ----------      ----------       ---------       ---------
     Operating expenses:
        Salaries, wages and benefits                  31,124          35,162          33,037          29,106          22,091
        Aircraft fuel                                 17,514          21,503          16,557          13,974          13,206
        Aircraft repairs                              15,122          17,491          17,478           9,426           7,041
        Commissions                                    2,512           4,248           5,796           5,560           5,553
        Depreciation and amortization                  7,063           7,103           4,779           3,499           4,192
        Aircraft rental                                8,682           9,226          13,194          16,511          10,712
        Other rentals and landing fees                 6,363           7,808           6,504           6,375           5,443
        Other operating expense                       23,689          30,113          25,316          22,922          19,968
        Non-recurring expenses                            --              --              --             146           9,234
                                                   ----------      ----------      ----------       ---------       ---------
                 Total operating expenses            112,069         132,654         122,661         107,519          97,440
                                                   ----------      ----------      ----------       ---------       ---------
                 Operating (loss) income             (10,629)            936           8,709           6,513         (13,650)
     Interest expense, net                             9,931           9,169           5,974           3,485           4,621
     Federal grant                                    (1,927)
     Loss on sale of assets                               --              --               7             191              --
                                                   ----------      ----------      ----------       ---------       ---------
                 Income (loss) before
                    income tax expense               (18,634)         (8,233)          2,728           2,837         (18,271)
     Income tax expense (benefit)                         --               6              --             115              --
                                                   ----------      ----------      ----------       ---------       ---------
                 Net income (loss)                 $ (18,634)         (8,239)          2,728           2,722         (18,271)
                                                   ==========      ==========      ==========       =========       =========
Net income (loss) per share: Basic                 $   (2.15)          (0.95)           0.32            0.34           (2.41)
                                                   ==========      ==========      ==========       =========       =========
Net income (loss) per share: Diluted               $   (2.15)          (0.95)           0.29            0.34           (2.41)
                                                   ==========      ==========      ==========       =========       =========
Average number of common shares outstanding:
     Basic                                             8,658           8,646           8,634           7,925           7,589
                                                   ==========      ==========      ==========       =========       =========
Average number of common shares outstanding:
     Diluted                                           8,658           8,646           9,336           8,703           7,589
                                                   ==========      ==========      ==========       =========       =========

Balance Sheet Data:
Working capital (deficit)                          $(121,820)        (10,366)         (3,112)         (3,025)         (5,595)
Total assets                                         132,111         143,179         148,876          72,281          63,758
Long-term debt, net of current maturities              4,727          96,054          98,701          28,471          28,471
Stockholders' equity (deficit)                       (18,496)            130           8,619           5,850           1,127
Selected Operating Data:
Available seat miles (000s) (1)                      428,707         525,872         526,095         489,213         438,272
Revenue passenger miles (000s) (2)                   200,536         265,589         265,733         250,098         202,689
Revenue passengers carried                           811,217       1,117,576       1,057,798         873,186         676,015
Departures flown                                     102,379         126,770         133,423         122,278         102,722
Passenger load factor (3)                               46.8%           50.5%           50.5%           51.1%           46.2%
Break-even passenger load factor (4)                    58.0%           52.9%           49.1%           49.3%           59.5%
Average yield per revenue passenger mile (5)            38.8(cent)      42.2(cent)      40.1(cent)      37.4(cent)      37.1(cent)
Operating cost per available seat mile (6)              26.1(cent)      25.2(cent)      23.3(cent)      22.0(cent)      22.2(cent)
Average passenger fare (7)                         $   95.87          100.25          100.83          107.26          111.25
Average passenger trip length (miles) (8)                247             238             251             286             300
Aircraft in service (end of period)                       52              52              52              53              47
Destinations served (end of period)                       48              57              67              71              51
</TABLE>


                                       11
<PAGE>

(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. See Liquidity and Capital Resources for discussion of the Company's
financial condition.

The Company began providing air charter service in 1979, and has provided
scheduled passenger service in the Upper Midwest since 1981. Beginning in April
1992, the Company operated as a United Express carrier under a cooperative
marketing agreement with United, which terminated on April 30, 2001. The Company
now operates under its own name and as a code sharing partners with United and
Frontier. As of March 1, 2002 the Company provided passenger service to 48
airports in fifteen states with 7,578 scheduled departures each week.


                                       12
<PAGE>
<TABLE>
<CAPTION>
                                                   Results of Operations

                                                                For the years ended December 31
                                  -----------------------------------------------------------------------------------
                                                                     (Dollars in thousands)
                                                2001                            2000                       1999
                                  ---------------------------------- -------------------------------  ---------------
                                               Cents      % Increase            Cents     % Increase            Cents
                                                Per       (decrease)             Per      (decrease)             Per
                                    Amount      ASM        from 2000  Amount     ASM      from 1999    Amount    ASM
                                   --------    -----      ---------- --------   -----    -----------  -------   -----
<S>                                <C>         <C>        <C>        <C>         <C>       <C>        <C>        <C>
Operating revenues
Passenger                          $ 77,753                (30.6)%   112,037                 5.0%     106,661
Public service                       19,276                 29.6      14,877                (8.3)      16,229
Other                                 4,410                (33.9)      6,676               (21.3)       8,480
                                   ---------               ------    --------              ------     --------
        Total operating revenues    101,439                (24.1)    133,590                 1.7      131,370
                                   ---------               ------    --------              ------     --------
Salaries, wages and benefits         31,124     7.3(cent)  (11.5)     35,162     6.7(cent)   6.4       33,037     6.3(cent)
Aircraft fuel                        17,514     4.1        (18.6)     21,503     4.1        29.9       16,557     3.1
Aircraft maintenance materials
     and component repairs           15,122     3.6        (13.5)     17,491     3.3         0.1       17,478     3.3
Commissions                           2,512     0.6        (40.9)      4,248     0.8       (26.7)       5,796     1.1
Depreciation and amortization         7,063     1.6         (0.6)      7,103     1.4        48.6        4,779     0.9
Aircraft rental                       8,682     2.0         (5.9)      9,226     1.8       (30.1)      13,194     2.5
Other rentals and landing fees        6,363     1.5        (18.5)      7,808     1.5        20.0        6,504     1.2
Other operating expense              23,689     5.5        (21.3)     30,113     5.7        18.9       25,316     4.8
                                   ---------   -----       ------    --------   ------     ------     --------   -----
        Total operating expenses    112,069    26.1(cent)  (15.5)%   132,654    25.2(cent)  (8.1)%    122,661    23.3(cent)
                                   ---------   -----       ------    --------   ------     ------     --------   -----
        Operating income (loss)    $(10,630)     --           --         936      --          --        8,709      --
                                   =========   =====       ======    ========   ======     ======     ========   ======
Interest                              9,931     2.4(cent)    8.3%      9,169     1.7(cent)  53.5%       5,974     1.1(cent)
                                   =========   =====       ======    ========   =====      ======     ========   ======
</TABLE>
<TABLE>
<CAPTION>
                                               Increase (decrease)              Increase (decrease)
                                  2001              from 2000         2000            from 1999         1999
                                  -------      ------------------  -------      -------------------   -------
<S>                               <C>               <C>            <C>                <C>             <C>
Available Seat Miles (000s)       428,707           (18.5)%        525,872              --            526,095
Revenue Passenger Miles (000s)    200,536           (24.5)%        265,589            (0.1)%          265,733
Passenger Load Factor                46.8%           (7.3)%           50.5%             --               50.5%
Average Yield per Revenue
  Passenger Mile                     38.8(cent)       8.1%            42.2(cent)       5.2%              40.1(cent)
Cost  per ASM                        26.1(cent)       3.6%            25.2(cent)       8.2%              23.3(cent)
</TABLE>

                                       13
<PAGE>

Comparison of 2001 to 2000

Passenger Revenues: Passenger revenues and revenue passenger miles decreased
30.6% and 24.5% respectively, from 2000. As the Company continued to shift its
operational focus to the Denver hub, service was discontinued at a total of ten
cities serving Chicago O'Hare Airport by the end of the second quarter of 2001.
Service was also discontinued at Meigs Lakefront Airport in Chicago during the
month of August 2001. These closings resulted in a 47% reduction in total
departures for the Chicago market. The closing of service to and from these
cities contributed to a reduction in yield as the traffic mix was primarily
business oriented. The suspension of air service following the terrorist acts of
September 11th, and a subsequent 39% decrease in passengers flown during the
fourth quarter of 2001 as compared to the first and second quarters further
contributed to the decline in revenue for 2001.

Public Service Revenues: Public service revenues collected through the Essential
Air Service program increased 29.6% in 2001 compared to 2000. While EAS service
was discontinued at Mattoon, Illinois; Ottumwa, Iowa; and Yankton, South Dakota;
service was added at Page, Arizona and Moab and Vernal, Utah. The Company
further negotiated and became eligible to collect subsidy for service to Pierre,
South Dakota.

As a result of the September 11th terrorist acts, the Department of
Transportation, in Order number 2002-2-13, entitled "Order Authorizing Emergency
Essential Air Service Payments," made provisions for an immediate increase in
all subsidized rates effective retroactively to October 1, 2001. This order also
began the process of renegotiating all of the Company's subsidy contracts as of
October 1, 2001, to recognize the effects of the September 11th attacks on
airline operations - specifically higher insurance costs and lower passenger
revenues. These renegotiated rates will then supersede the interim rates through
the normal end of the contract period. Negotiations had also been completed for
10 of the 29 EAS cities the Company currently serves.

Other Revenues: Other revenues declined 33.9% in 2001. Freight revenue decreased
as a result of reduced capacity and increased security requirements governing
the acceptance of air freight following the September 11th terrorist acts.
Charter revenues were down as a result of the cancellation of various university
charters following the highly publicized fatal accident in January, 2001,
involving another charter operator and the Oklahoma State University basketball
team These revenue losses were partially offset by an increase in December,
2001, of the per pound rate paid by the U.S. Postal Service for mail carried on
the Company's air mail routes.

Operating Expenses: Total operating expenses decreased 15.5%, or $20.6 million
in 2001 compared to 2000. Cost per ASM increased 3.5% over 2000 to 26.1 cents
per ASM. The suspension of service following the September 11th terrorist acts
and the ensuing reduced schedule had a significant impact upon direct operating
costs.

Salaries, wages, and benefits decreased $4.0 million from 2000 as a result of
employee furloughs, pay reductions, and pay freezes following the September 11th
terrorist acts.

Aircraft fuel expense was down 18.6% in 2001 on flat average fuel costs of $1.25
per gallon. Overall consumption was down 18.2% in 2001 as a result of reduced
flying.

Aircraft maintenance, materials, and repairs showed a 13.5% decrease in 2001
from an overall reduction in flights year over year and the reduction of
utilization of the Company's aircraft.

Commissions were down 40.9% in 2001 because of a corresponding decrease in
passenger revenue, further reductions in the number of tickets purchased through
travel agencies, and continuing decreases in commission rates.


                                       14
<PAGE>

Depreciation and amortization and aircraft rental expenses were largely flat due
to the Company's aircraft fleet composition remaining unchanged from 2000.

Other rentals and landing fees decreased 18.5% in 2001 with no net change in
cost per ASM. Other rentals including terminal facilities expense at various
airports decreased as a result of the discontinuation of service in 15 markets.
Landing fees were reduced in conjunction with a corresponding decrease in total
landings.

Other operating expenses decreased 21.3% from 2000 representing a 0.2 cent per
ASM reduction in cost. The reduction was largely the result of the termination
of the United Airlines / United Express marketing agreement and its associated
franchise and marketing fees. Ongoing cost cutting efforts further contributed
to the reduction in expenses.

The Company recognized a grant of $1.9 million from the Air Transportation
Safety and System Stabilization Act, passed by Congress and signed into law by
the President on September 22, 2001.

Income Tax Expense (benefit): The realization of any benefits remains
substantially in doubt as the Company continues in its loss carry forward
position.

Comparison of 2000 to 1999

Passenger Revenues: Passenger revenues increased 5.0% from 1999 as a result of a
similar increase in yield per revenue passenger mile. This increase was produced
by fare increases instituted to recover the higher cost of fuel. However,
passenger traffic and revenue passenger miles remained flat between the two
years as a result of a shift in flying from longer stage length markets such as
Denver to Bismark, North Dakota and Sioux Falls, South Dakota to shorter stage
length markets such as Denver to Santa Fe, New Mexico and Gillette, Wyoming and
during the third quarter, disruptions and cancellations of United connecting
flights. Further, yield increases in 2000 were reduced from what they otherwise
would have been as a result of discount fares in the third and fourth quarters
instituted by United to regain market share lost during their schedule
disruptions.

Public Service Revenues: Reduced public service revenues resulted from
discontinuance of subsidized service to Fairmont, Minnesota, Goodland and
Greatbend, Kansas, and Lamar, Colorado.

Other Revenues: The decline in other revenues resulted from the discontinuation
of ground handling of certain other airlines.

Operating Expenses: Total operating expenses increased $10.0 million, or 8.1% to
$132.7 million, or 25.2 cents per ASM, in 2000 from $122.7 million, or 23.3
cents per ASM in 1999. The largest factor in the increase is increasing fuel
costs of $4.9 million in 2000, as described below.

Salaries, wages, and benefits expense increased $35.1 million to 6.7 cents per
ASM during 2000, from 6.3 cents per ASM during 1999, primarily as a result of
higher labor rates under the union agreements with the Company's mechanics and
flight crews.

Aircraft fuel expense increased $4.9 million in 2000, due to an increase in the
averageprice per gallon to $1.26 per gallon in 2000 from $.93 per gallon in
1999, or an increase of 35.5% per gallon.

Other rentals and landing fee expenses increased $1.3 million, or 20.0% to 1.5
cents per ASM during 2000, from 1.2 cents per ASM in 1999 primarily as a result
of increased activity at the Denver Hub.

Other operating expenses increased $4.8 million, or 19.0% to 5.7 cents per ASM
in 2000 from 4.8 cents in 1999, reflecting higher general and administrative,
marketing and communications costs.


                                       15
<PAGE>

Interest expense increased $3.2 million in 2000, primarily as a result of the
purchase in July 1999 of 22 additional aircraft that had previously been
financed as operating leases.

Income Tax Expense (benefit): No income tax benefit was recorded for 2000 due to
the fact that the Company is in a loss carry forward position and that the
realization of any benefits of such are substantially in doubt. The Company
incurred $6 thousand of state income tax expense in 2000.

Liquidity and Capital Resources

The Company suffered substantial losses during the fourth quarter of 2001 and
the year 2002. These losses produced a significant reduction in liquidity, and
the Company made only minor payments on the majority of its debt and lease
obligations during 2002. As a result, the Company is not in compliance on debt
obligations totaling $104,906,000 and in arrears on lease payment obligations of
$5,622,000. Although no formal action has been taken, the debt agreements allow
the lender to take action to collect the total amount of the debt. Therefore,
the amount of the debt which by its terms would otherwise be due after one year
is shown as long-term obligations classified as current. No provision has been
made in the 2001 financial statements for any additional costs or losses
(including impairments) which may be incurred in connection with the return and
settlement of these agreements.

The Company's ability to continue as a going concern depends upon its ability to
rapidly increase profitability and cash flow and/or obtain new sources of
financing to pay its obligations as they come due, upon maintaining adequate
liquidity, and achieving sustained profitability. The accompanying 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 financial statements do not include any adjustments that might
result if the Company was forced to discontinue its operations.

The Company's auditors have included in their report dated April 10, 2002 on the
financial statements an explanatory paragraph to the effect that substantial
doubt exists regarding the Company's ability to continue as a going concern due
to the Company's recurring losses from operations and limited sources of
additional liquidity. See the financial statements.

The terrorist attacks of September 11 brought about an immediate reduction of
passenger traffic as well as additional costs. The Company adjusted its level of
operations to better match the available traffic along with retiming its
schedules to align them with United's reduced capacity at Denver and Chicago.

Due to the recent losses arising before and after September 11, the Company has
exhausted its available sources of working capital and has no financing
agreements in place under which it can secure additional funds. As more fully
described below, the Company is in arrears in its payments to substantially all
the institutions providing financing for the Company's aircraft. One institution
which provided lease financing for two of the Company's aircraft has filed a
complaint seeking recovery of all scheduled payments under the leases. The
Company plans to continue to seek additional sources of working capital,
negotiate settlements with certain creditors and lessors and utilize funds from
the more compensatory level of EAS payments to make payments to creditors as
cash flows allow. If it is unable to generate adequate funding through a
combination of additional financing, settlements with creditors and improving
financial performance, the Company may be required to make further reduction in
operating levels and develop other mechanisms to provide sufficient operating
funds.

The Company has no agreements currently under which it could secure additional
funds. However, the Company has accelerated its cash flow by selling increasing
numbers of tickets on its own ticket stock and accelerating its collections from
other sources which in turn has reduced collateral available to support further
loans. Offsetting this acceleration is a requirement by credit card processors
to retain substantial amounts of the cash due Great Lakes in order to offset any
losses which might occur if Great Lakes were to fail to continue to provide
passenger air service. All of the aircraft and spare parts are pledged to secure
obligations. Accordingly, the Company does not have sufficient unencumbered
assets to obtain either a standard or government guaranteed loan. The Company
plans to seek additional outside debt and equity financing to the extent that
operations improve and it can demonstrate its creditworthiness on a cash flow
rather than collateral basis.

In order to improve its financial performance, the Company has reduced the
number of flights to attempt to match the lower level of traffic demand,
instituted an aggressive cost control program and focused the Company's
schedules on EAS routes where subsidies may offset reduced passenger service.


                                       16
<PAGE>

Essential Air Service: The DOT also recognized the change in economics as a
result of September 11 for carriers providing service to Essential Air Service
cities and ordered the renegotiation of all subsidy contracts retroactive to
October 1, 2001. DOT Order 2002-2-13 provides for the adjustment of subsidy
payments to recognize lower levels of passenger revenues and compensate carriers
for higher levels of costs such as insurance and security.

Contracts with the DOT for providing Essential Air Service, while nominally
permitting a 5% margin on costs, have usually been negotiated against an overall
program funding limitation by Congress which resulted in carriers accepting a
subsidy rate that historically was not fully compensatory. With the enactment of
the Air Transportation Safety and System Stabilization Act and associated
increased funding, Congress appropriated a total of $113 million in order to
compensate EAS carriers for their total increased costs, including those
resulting from September 11. This compares to an EAS subsidy level of $50
million for the federal fiscal year which ended September 30, 2001. Subsidy
amounts at higher levels as well as retroactive increases began to be paid
during March 2002. On an overall basis, the Company was receiving EAS subsidies
at an annual rate of approximately $16.5 million before September 11 and will
receive over $7 million for the fourth quarter of 2001. The Company currently
anticipates receiving approximately $30 million of EAS subsidies in 2002 to
compensate it for service it provides to small cities. This is an annual
increase of approximately $14 million or 88% increase for the currently flown
EAS route structure.

Debt and Leases: On January 7, 2000, the Company entered into an agreement with
Coast Business Credit to provide the Company with a $20 million revolving credit
facility, collateralized by accounts receivable. The maximum borrowings
available to the Company is based upon the amount of receivables available to
collateralize the amount being borrowed. At closing, $5 million of proceeds were
used to reduce short-term notes due to Raytheon.

The agreement with Coast Business Credit ("Coast") contains a covenant which
requires the Company to maintain a specific balance of tangible net worth. At
December 31, 2001 and 2000, the Company was not in compliance with that
covenant. Under the Coast agreement, such noncompliance permits Coast, at its
option, to require immediate prepayment of all amounts owed by Great Lakes to
Coast ($4.6 million at December 31, 2001). As a result of the non-compliance, on
May 15, 2001, Coast reduced the maximum amount which could be outstanding under
the agreement to $18 million through August 31, 2001, $14 million through
October 31, 2001 and $10 million to the revised maturity date of December 31,
2001. Concurrently, the interest rate on the loan was increased to 3.5% over the
prime rate at the Bank of America. In December 2001, the maturity date was
further extended to March 31, 2002 and the maximum amount of the loan was
reduced to $6.5 million. On March 28, 2002 Coast again further extended the
maturity date to April 30, 2002 and the maximum amount which could be
outstanding under the loan was reduced to $3.8 million. The Company expects to
liquidate the Coast loan from the receipt of the higher subsidy levels described
above.

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. Raytheon had
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 Company paid Raytheon $5 million on January 7, 2000 to
extinguish the $5 million Raytheon note upon closing of the agreement with Coast
Business Credit (Coast). Additionally, the Company converted the remainder of
the Raytheon working capital line of credit to a three-year term note on
December 1, 2000.

In 2001, the Company made only minor cash payments to Raytheon covering debt,
interest and lease payments. In June 2001, the Company issued a demand note in
the amount of $8,786,778 in payment of substantially all of the principal,
interest and lease rentals due on all Raytheon financed aircraft for the first
six months of 2001. At December 31, 2001, the Company was not in compliance with
the payment terms of any of the Raytheon debt, including the aircraft notes, the
June note referred to above and two other notes totaling $ 6.5 million as well
as


                                       17
<PAGE>

the lease rental agreements. As a result, in accordance with generally accepted
accounting principles, all of the long-term debt has been classified as a
current liability because of Raytheon's ability under the agreements to require
payment in full of the outstanding obligations in a short period of time. In the
case of the aircraft notes, if Raytheon were to demand repayment, the liability
is to be offset by amounts realized for subsequent disposition of the aircraft.

The Company currently has seven Beechcraft 1900D aircraft and eight Embraer
Brasilia EMB-120 aircraft which it is currently not using in its operations. The
Company hopes to again utilize its four owned Brasilias in scheduled operations
by replacing three Beech 1900D aircraft in May 2002, return the four leased
Brasilias and negotiate settlements with their owners. Because of the
uncertainties associated with future traffic demand, the Company plans to retain
the surplus Beech 1900D aircraft until future traffic levels become more
determinable and make a decision at that time as to the number, if any, of Beech
1900D which should be removed from the fleet.

The Company has proposed to Raytheon that a substantial portion of its debt be
converted into equity. The ability of Great Lakes to satisfy the Raytheon
obligations is contingent upon achieving a combination of an agreement to
restructure currently outstanding obligations including converting a portion of
the debt to equity, acquiring outside financing, and attaining profitable
operations and positive cash flow.

The Company is also not in compliance with four leases it has with two lessors
under which it operates four Embraer Brasisia aircraft. Subsequent to December
31, 2001, one vendor which leases two older aircraft has entered into a
memorandum of understanding with the Company whereby one of the aircraft has
been returned and will be leased to another carrier. For this aircraft the
Company has agreed to pay over a three or four year period $638,000 representing
rental arrearages and the difference between the Company' rental rate and the
new leasee's rental rate. There is a possibility that the Company may be able to
dispose of the second aircraft on similar terms.

The other Embraer leases cover two newer aircraft. The Company is in on-going
negotiations with the lessor to return these aircraft. The Company's obligation
under these leases is to pay past due rentals plus the stipulated loss value of
each aircraft offset by the fair market value of the aircraft. Unpaid rentals on
these aircraft totals $1.7 million and the stipulated loss value on each
aircraft is approximately $6.9 million. There has not been an appraisal to
determine the market value of these aircraft. No provision has been made in the
2001 financial statements for any additional costs or losses (including
impairments) which may be incurred in connection with the return and settlement
of these agreements.

Relationship with United: Great Lakes may be impacted in the future by scope
clauses contained in United's contract agreement with its pilots. As is the case
with many of the major carriers, United has agreed with its pilots to specific
limits on the number of turboprop and regional jet aircraft which may be
operated by its affiliates, either as a United Express or a code-sharing
partner, in relation to the number of jet aircraft which are flown by United
Pilots. There has been a substantial increase in the demand for use of regional
jets because of the improved matching of aircraft size to market demand, cost
savings from the lower cost structure of regional airlines and improved customer
acceptance over turboprop equipment. However, since there has not been
sufficient growth in the number of jet aircraft in United's fleet, United is
required to deny use of these aircraft by their affiliates on United designated
flights even though some of these aircraft may already be on order.

The contract restrictions are resulting in the major carriers renegotiating
their agreements with their express and code-sharing partners to reduce the
number of turboprop aircraft in their fleet and, in turn, increase the number of
regional jets which may be used. One of the results of this may be loss of air
service to a number of smaller cities which cannot support the greater number of
passengers per flight required to achieve profitability in the regional jets.

Negotiations are underway between Great Lakes and United to reduce the number of
turboprop aircraft and markets operated by Great Lakes as a code-sharing partner
to enable United's other partners to operate increased numbers of regional jets.
At the present time, the Company believes that the removal of the United code in


                                       18
<PAGE>

markets as currently contemplated will not have a significant impact on small
city service provided by Great Lakes.

Contractual Obligations

The following table summarizes our major contractual obligations as of December
31, 2001:

<TABLE>
<CAPTION>
                                                                After
                      2002        2003, 2004    2005, 2006      2006         Total
                   -----------   -----------   -----------   -----------   -----------
<S>                <C>            <C>          <C>           <C>           <C>
Long-term debt     $15,111,114    16,689,821    15,143,083    55,241,516   102,185,534
Other debt          13,396,586            --            --            --    13,396,586
Operating leases     8,469,888    15,729,276    15,002,976    37,527,110    76,729,250
                   -----------   -----------   -----------   -----------   -----------
                   $36,977,588    32,419,097    30,146,059    92,768,626   192,311,370
                   ===========   ===========   ===========   ===========   ===========
</TABLE>

See notes 3 and 4 to the financial statements.

Liquidity

The Company's cash and cash equivalents balance at December 31, 2001 was $1.5
million, a $0.5 million decrease from the December 31, 2000 balance. The Company
had negative working capital of $120 million as of December 31, 2001.

While the net loss increased substantially in 2001 as compared to 2000, cash of
$9.6 million was provided primarily by operating activities as a result of
increases in accounts payable which includes the non payment of interest and
lease rentals of $16.9 million.

Cash used by financing activities was $3 million in 2001 compared to cash
provided of $9.3 million in the same period of 2000. In 2001, $8.6 million of
the line of credit was repaid primarily through funds made available as a result
of the issuance of a demand note in the amount of $8,786,778 in payment of
substantially all of the principal, interest and lease rentals due on all
Raytheon financed aircraft for the first six months of 2001.

Critical Accounting Policies and Estimates

The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires the use of estimates,
judgments and assumptions that affect the reported amounts of assets and
liabilities as of the date of the financial statements, revenues and expenses
during the reporting period and related disclosures of contingent assets and
liabilities in the financial statements and the accompanying notes. The U.S.
Securities and Exchange Commission ("SEC") has defined a company's most critical
accounting policies as the ones that are most important to the portrayal of the
Company's financial condition and results, and which require the company to make
its most difficult and subjective judgments, often as a result of the need to
make estimates of matters that are inherently uncertain. Based on this
definition, the Company has identified its critical accounting policies as
including those addressed below. The Company also has other key accounting
policies, which involve the use of estimates, judgments and assumptions. See
Note 2 "Summary of Significant Accounting Policies and Procedures" in the Notes
to the Financial Statements for additional discussion of these items. Management
believes that its estimates and assumptions are reasonable, based on information
presently available; however, changes in these estimates, judgments and
assumptions will occur as a result of future events, and accordingly actual
results could differ from amounts estimated.

Essential Air Service Subsidy Rates. EAS revenues are recorded based on
completed contracts for providing service to individual cities and estimated
revenues based upon contract negotiations which could change once the agreements
are finalized.


                                       19
<PAGE>

Estimated lives used to record depreciation on aircraft and obsolescence
reserves for aircraft parts inventories. The economic lives used to record
depreciation may be affected by passenger traffic and fare levels, technology,
policies regarding EAS subsidies promulgated by the Department of Transportation
and changes in strategy by the Company. The foregoing may impact depreciation
rates, impairment, or both.

Costs to permanently remove leased aircraft from service. The return of excess
leased aircraft to their lessors will require recognition and settlement of past
due rent, future rental and penalties. The Company is unable to estimate the
amount of such costs which it will incur until agreements with the lessor are
finalized.

Impact of Recently Issued Accounting Pronouncements

During 2001, the Financial Accounting Standards Board issued four new
pronouncements: New Accounting Pronouncements In June 2001, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards No. 141, "Business Combinations" which requires the use of the
purchase method and eliminates the option of using the pooling-of-interests
method of accounting for all business combinations. The provisions in this
statement apply to all business combinations initiated after June 30, 2001, and
all business combinations accounted for using the purchase method for which the
date of acquisition is July 1, 2001, or later.

In June 2001, the FASB issued Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets" (SFAS 142) which requires that all
intangible assets acquired, other than those acquired in a business combination,
be initially recognized and measured based on the asset's fair value. The
Company is required to adopt the provisions of SFAS 142 effective January 1,
2002. Goodwill and certain identifiable intangible assets will not be amortized
under SFAS 142, but instead will be reviewed for impairment at least annually in
accordance with the provisions of this statement. This accounting pronouncement
presently has no impact on the Company as it does not have any intangible assets
on its balance sheet.

In June 2001, the FASB issued Statement of Financial Accounting Standards No.
143 (SFAS 143), Accounting for Asset Retirement Obligations, which addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. The standard applies to legal obligations associated with the retirement
of long-lived assets that result from the acquisition, construction, development
and/or normal use of the asset. SFAS 143 requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
fair value of the liability is added to the carrying amount of the associated
asset and this additional carrying amount is depreciated over the life of the
asset. The liability is accreted at the end of each period through charges to
operating expense. If the obligation is settled for other than the carrying
amount of the liability, the Company will recognize a gain or loss on
settlement. We do not expect the impact of adopting SFAS 143 to be significant.

In October 2001, the FASB issued Statement of Financial Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, which addressed
financial accounting and reporting for the impairment or disposal of long-lived
assets. While Statement No. 144 supersedes Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, it
retains many of the fundamental provisions of that Statement. Statement No. 144
also supersedes the accounting and reporting provisions of APB Opinion No. 30,
Reporting the Results of Operations-Reporting the Effects of Disposal of A
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions, for the disposal of a segment of a business. The
Company does not expect the impact of adopting SFAS No. 144 to be significant.


                                       20
<PAGE>

Frequent Flyer Program

The Company's passengers carried as a part of a code-sharing flight with United
or by Great Lakes, may earn miles in United's "Mileage Plus" frequent flyer
program. The Company and United are currently negotiating rates for paying
United for Frequent flyer miles awarded to Great Lakes' passengers and a rate to
be charged to United for Mileage Plus passengers flying on Great Lakes flights.
The Company believes that the agreement, when finalized, will produce a positive
cash flow to Great Lakes.

Effects of Inflation

Except for the price of fuel, inflation has not had a material effect on the
Company's operations in the past five years. The Company is subject to
inflationary pressures from labor agreements, fuel price escalations and costs
at airports served which it attempts to recover through fare and schedule
adjustments.

Seasonality

Historically, the Company has experienced lower passenger volumes 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.

             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 others 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


                                       21
<PAGE>

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

Approximately 72% of Great Lakes passenger traffic connected with United flights
during December of 2001 and January of 2002. As a result of the 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 is
also adversely affected. Such event could include employee strikes or job
actions, significant curtailment of services, and terrorists events. However, to
the extent that the Company is successful in developing its own identity on its
operating system and is successful in developing its code sharing relationship
with Frontier, it will reduce its dependence on United and mitigate the effects
of such adverse events if they relate to United only.

Great Lakes may also be impacted in its code sharing relationship with United by
provisions in United's agreement with its pilots which links growth in the
number of aircraft flown by United's Express and code sharing regional carrier
partners to growth in the number of aircraft flown by United pilots. Many of
United's regional carrier partners are flying Regional Jet aircraft which,
including the lower rates of pay of the regional carriers, are substantially
more efficient in less dense markets than are the aircraft flown by United'
pilots. To protect against major shifts of flying to the regional carriers,
United's pilots, like pilots at many other airlines, have negotiated growth
limitations on the amount of flying which may be done by the regional carriers.
In order to be able to increase the use of Regional Jet aircraft by its regional
carrier partners, United is reducing the number of turboprop aircraft, such as
those operated by Great Lakes, being flown under a United designation. As a part
of this effort, United is negotiating with the Company to reduce the number of
Great Lakes routes, and in turn, aircraft in United's code sharing program. This
will have the effect of reducing the traffic feed provided by Great Lakes to
United, but United will gain the benefit of lower cost operation on other
routes. The outcome of these negotiations as well as the impact upon the
revenues of Great Lakes are not known. While the Company could continue to
operate these route as Great Lakes Airlines, revenues may be adversely affected
which would result in losses from providing service to these cities and the need
for larger Essential Air Service subsidy payments or complete termination of
service in these small city markets.

Finova Suit

On February 27, 2002, FINOVA Capital Corporation ("FINOVA") filed suit against
the Company in the United States District Court for the District of Arizona. No.
Civ. 02-0362 PHX SMM. FINOVA alleges that the Company breached two airplane
lease agreements. FINOVA seeks damages, costs and attorneys' fees. The Company
has returned one of the aircraft for releasing by Finova to another carrier and
expects to return the other aircraft for releasing to the same customer. If
Finova's customer does not accept one or both of these aircraft Finova and Great
Lakes will continue to contest the suit.

Dependence on Essential Air Service Revenues

In 2001, 18.6% of the Company's revenues were received as EAS Subsidies, and is
expected to increase to 32.9% in 2002. Changes in Department of Transportation
policies with regard to payment of subsidies and reduction or loss of subsidies
as a result of competitive bidding may have a substantial impact on the Company.

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


                                       22
<PAGE>

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 material adverse effect on the Company's cash flow from operations
and profitability.

Settlement With Major Creditors

The Company is not in compliance with agreements with its major creditor and
lessor, Raytheon Aircraft Corporation as well as two other lessors, Boeing
Capital Corporation and Finova Credit Corporation. The Company is negotiating
with Raytheon to restructure the debt, including the conversion of a portion of
the debt into equity and to accept the return of certain leased Beechcraft 1900D
aircraft prior to the expiration of the lease terms. It is also negotiating with
Boeing and Finova to accept return of a total of four leased Embraer Brasilia
EMB-120 aircraft prior to the expiration of those lease agreements. The Company
cannot determine whether or not it will be successful in these negotiations, and
if successful, what the extra cost to the Company will be to terminate or
restructure the agreements.

Control by Principal Stockholder

Mr. Douglas G. Voss beneficially owns or controls approximately 65% 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. Brandt, pursuant to the Marital
Dissolution Stipulation and Property Settlement. Ms. Brandt has granted Mr. Voss
an Irrevocable Proxy to vote such securities until June 28, 2010. Accordingly,
Mr. Voss will continue to be in a position to control the management and affairs
of the Company.

Noncompliance with the Nasdaq Continued Listing Requirements.

The Company's Common Stock is currently listed on The Nasdaq SmallCap Market.
The Company received a notice from Nasdaq regarding our non-compliance with the
$1.00 minimum bid price requirement stated in Marketplace Rule 4310(c)(4). The
Company has until August 13, 2002 to regain compliance with the minimum bid
price requirement, which would require its Common Stock to achieve a bid price
of $1.00 or more for a minimum of ten consecutive trading days. If The Company
fails to meet this requirement, or fails to maintain compliance with any other
listing requirement, its Common Stock will become subject to delisting from The
Nasdaq SmallCap Market.

If the Company's Common Stock does not continue to be listed on The Nasdaq
SmallCap Market, such Common Stock would become subject to certain rules of the
SEC relating to "penny stocks." Such rules require broker-dealers to make a
suitability determination for purchasers and to receive the purchaser's prior
written consent for a purchase transaction, thus restricting the ability to
purchase or sell the securities in the open market. In addition, trading, if
any, would be conducted in the over-the-counter market in the so-called "pink
sheets" or on the OTC Bulletin Board, which was established for securities that
do not meet Nasdaq listing requirements. Consequently, selling our Common Stock
would be more difficult because smaller quantities of Common Stock could be
bought and sold, transactions could be delayed, and security analyst and news
media coverage of the Company may be reduced. These factors could result in
lower prices and larger spreads in the bid and ask prices


                                       23
<PAGE>

for the Company's Common Stock. The Company cannot assure you that its
securities will continue to be listed on The Nasdaq SmallCap Market.


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, 2001, 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 15.6% of Great Lakes' operating expenses in 2001. A
one-cent change in the average cost of aircraft fuel would impact the Company's
aircraft fuel expense by approximately $115,000 annually, based upon fuel
consumption in 2001.

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 4 to the Consolidated Financial Statements, the Company has
total long-term debt outstanding of $102 million at December 31, 2001.

At December 31, 2001 The Interest Expense on long term obligations due in the
five subsequent years and thereafter are as follows:

                Fixed Rate     Average Fixed    Variable Rate   Average Variable
 Maturity         Amount           Rate             Amount             Rate
----------      ----------     -------------    -------------   ----------------
2001            $1,266,985         8.96%         $ 8,147,583         7.87%
2002             1,379,695         8.96            6,909,433         7.94
2003             1,461,161         8.96            7,352,631         7.94
2004               627,670         8.96            5,422,600         8.36
2005               678,825         9.08            5,853,250         8.36
Thereafter       1,345,041         9.08           65,465,173         8.36


                                       24
<PAGE>

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements of the Company as of December 31, 2001 and 2000
together with Independent Auditor's Report are included in this Form 10-K on the
pages indicated below.


                                                                            Page

Independent Auditors' Report.................................................26

Balance Sheets as of December 31, 2001 and 2000..............................27

Statements of Operations for the Years Ended December 31, 2001,
   2000 and 1999.............................................................28

Statements of Stockholders' Equity (Deficit) for the Years Ended
   December 31, 2001, 2000, and 1999.........................................29

Statements of Cash Flows for the Years Ended December 31,
   2001, 2000, and 1999......................................................30

Notes to Financial Statements................................................31

Supplemental Schedule to Financial Statements

Schedule II - Valuation and Qualifying Accounts..............................45

                                       25
<PAGE>

                          Independent Auditors' Report


The Board of Directors
Great Lakes Aviation, Ltd.:


     We have audited the accompanying balance sheets of Great Lakes Aviation,
Ltd. (an Iowa Corporation) as of December 31, 2001 and 2000, and the related
statements of operations, stockholders' equity (deficit), and cash flows for
each of the years in the three-year period ended December 31, 2001. In
connection with our audits of the financial statements we have also audited the
financial statement schedule. These 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 auditing standards generally accepted
in the United States of America. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Great Lakes Aviation, Ltd. as
of December 31, 2001 and 2000, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States of
America. Also in our opinion, the related financial statement schedule, 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 financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 1 to the
financial statements, the Company has suffered significant losses in the year
ended December 31, 2001, and has liabilities in excess of current assets at
December 31, 2001. 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 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.


                                    KPMG LLP

                                    /s/ KPMG LLP

Denver, Colorado
April 10, 2002


                                       26
<PAGE>

                           GREAT LAKES AVIATION, LTD.

                                 Balance sheets

                           December 31, 2001 and 2000

<TABLE>
<CAPTION>
                                Assets                                    2001             2000
                                                                      -------------    -------------
<S>                                                                   <C>              <C>
Current assets:
     Cash                                                             $   1,514,565        1,995,706
     Accounts receivable (note 5)                                         9,836,925       12,541,345
     Inventories, net (notes 2 and 5)                                     8,100,037        6,528,026
     Prepaid expenses and other current assets                            1,363,904          923,985
                                                                      -------------    -------------
                 Total current assets                                    20,815,431       21,989,062
                                                                      -------------    -------------
Property and equipment:
     Flight equipment (notes 3 and 4)                                   132,343,381      136,345,842
     Other property and equipment                                         7,064,091        6,342,481
     Less accumulated depreciation and amortization                     (30,198,893)     (23,551,375)
                                                                      -------------    -------------
                 Total property and equipment                           109,208,579      119,136,948
Other assets                                                              2,086,577        2,053,288
                                                                      -------------    -------------
                                                                      $ 132,110,588      143,179,298
                                                                      =============    =============

                Liabilities and Stockholders' Equity (Deficit)

Current liabilities:
     Note payable and current maturities of long-term debt (note 4)   $  28,507,699       22,575,915
     Long-term debt classified as current (note 4)                       82,347,252               --
     Accounts payable                                                    16,646,584       14,175,927
     Accrued liabilities and unearned revenue                             7,108,643        3,561,177
     Deferred lease payments                                              6,234,612          897,247
                                                                      -------------    -------------
                 Total current liabilities                              140,844,790       41,210,266
                                                                      -------------    -------------
Long-term debt, net of current maturities (note 4)                        4,727,169       96,053,979
Deferred credits                                                          3,130,263        3,564,566
Deferred lease payments                                                   1,903,929        2,220,729
Stockholders' equity (deficit) (note 4):
     Common stock, $0.01 par value; 50,000,000 shares authorized,
        8,657,651 and 8,657,651 shares issued and outstanding at
        December 31, 2001 and 2000                                           86,802           86,577
     Paid-in capital                                                     31,367,185       31,358,847
     Accumulated deficit                                                (49,949,550)     (31,315,666)
                                                                      -------------    -------------
                 Total stockholders equity (deficit)                    (18,495,563)         129,758
                                                                      -------------    -------------
Commitments and contingencies (notes 3, 4, and 9)
                                                                      $ 132,110,588      143,179,298
                                                                      =============    =============
</TABLE>

See accompanying notes to financial statements

                                       27
<PAGE>

                           GREAT LAKES AVIATION, LTD.

                            Statements of Operations

                  Years ended December 31, 2001, 2000, and 1999

<TABLE>
<CAPTION>
                                                         2001              2000            1999
                                                     -------------    -------------    -------------
<S>                                                  <C>              <C>              <C>
Operating revenues:
     Passenger                                       $  77,753,247      112,036,604      106,661,151
     Public service                                     19,276,397       14,876,983       16,228,491
     Freight, charter, and other                         4,410,133        6,676,160        8,480,361
                                                     -------------    -------------    -------------
                 Total operating revenues              101,439,777      133,589,747      131,370,003
                                                     -------------    -------------    -------------
Operating expenses:
     Salaries, wages, and benefits                      31,123,960       35,162,270       33,037,214
     Aircraft fuel                                      17,513,730       21,503,364       16,557,193
     Aircraft maintenance materials and repairs         15,122,171       17,491,132       17,477,722
     Commissions                                         2,512,020        4,247,974        5,796,046
     Depreciation and amortization                       7,063,272        7,103,304        4,778,770
     Aircraft rental (note 4)                            8,682,381        9,225,622       13,194,042
     Other rentals and landing fees                      6,362,654        7,808,230        6,503,750
     Other operating expense                            23,689,139       30,112,321       25,316,303
     Non-recurring expenses (note 3)                          --               --               --
                                                     -------------    -------------    -------------
                 Total operating expenses              112,069,327      132,654,217      122,661,040
                                                     -------------    -------------    -------------
                 Operating income                      (10,629,550)         935,530        8,708,963
Other expense:
     Interest expense, net                               9,931,213        9,168,247        5,974,213
     Federal grant                                      (1,926,879)            --               --
     Loss on sale of assts and other property                 --               --              6,771
                                                     -------------    -------------    -------------
                 (Loss) income before income taxes     (18,633,884)      (8,232,717)       2,727,979
Income tax expense                                            --              6,116             --
                                                     -------------    -------------    -------------
                 Net (loss) income                   $ (18,633,884)      (8,238,833)       2,727,979
                                                     =============    =============    =============
Net (loss) income per share:
     Basic                                           $       (2.15)           (0.95)            0.32
     Diluted                                                 (2.15)           (0.95)            0.29

Average shares outstanding:
     Basic                                               8,658,330        8,645,774        8,634,204
     Diluted                                             8,658,330        8,645,774        9,335,991
</TABLE>

See accompanying note to financial statements.


                                       28
<PAGE>

                           GREAT LAKES AVIATION, LTD.

                  Statements of Stockholders' Equity (Deficit)

                  Years ended December 31, 2001, 2000, and 1999

<TABLE>
<CAPTION>
                                        Common stock
                               -------------------------     Paid-in      Accumulated
                                  Shares        Amount       capital        deficit         Total
                               -----------   -----------   -----------    -----------    -----------
<S>                            <C>           <C>            <C>           <C>            <C>
Balance at December 31, 1998     8,590,843   $    85,908    31,568,800    (25,804,812)     5,849,896
Issuance of common stock            46,597           466        41,041           --           41,507
Net income                            --            --            --        2,727,979      2,727,979
                               -----------   -----------   -----------    -----------    -----------
Balance at December 31, 1999     8,637,440        86,374    31,609,841    (23,076,833)     8,619,382
Issuance of common stock            20,211           203        30,756           --           30,959
Redemption of warrants                --            --        (281,750)          --         (281,750)
Net loss                              --            --            --       (8,238,833)    (8,238,833)
                               -----------   -----------   -----------    -----------    -----------
Balance at December 31, 2000     8,657,651        86,577    31,358,847    (31,315,666)       129,758
Issuance of common stock            22,535           225         8,338           --            8,563
Redemption of warrants                --            --            --             --             --
Net loss                              --            --            --      (18,633,884)   (18,633,884)
                               -----------   -----------   -----------    -----------    -----------
Balance at December 31, 2001     8,680,186   $    86,802    31,367,185    (49,949,550)   (18,495,563)
                               ===========   ===========   ===========    ===========    ===========
</TABLE>


See accompanying notes to financial statements.


                                       29
<PAGE>

                          GREAT LAKES AVIATION, LTD.

                           Statements of Cash Flows

                 Years ended December 31, 2001, 2000, and 1999

<TABLE>
<CAPTION>
                                                                                     2001           2000            1999
                                                                                 -------------   -----------    -----------
<S>                                                                              <C>             <C>            <C>
Operating activities:
     Net (loss) income                                                           $(18,633,884)   (8,238,833)     2,727,979
     Adjustments to reconcile net (loss) income to net cash provided by
        (used in) operating activities:
           Depreciation and amortization                                            7,063,272     6,932,179      4,778,770
           Loss on disposal of assets, net                                              3,726            --          6,771
           Change in current operating items:
              Accounts receivable, net                                              2,704,419        34,318     (4,201,073)
              Inventories and major aircraft parts, net                             2,017,869     1,943,207       (965,654)
              Prepaid expenses and other current assets                              (439,919)     (280,542)       (20,905)
              Accounts payable and accrued liabilities                                892,624      (836,376)     1,200,024
              Deferred lease payments                                               7,948,049       104,905      2,439,351
              Other                                                                        --       176,733        593,083
                                                                                 -------------   -----------    -----------
                 Net cash (used in) provided by operating activities                9,589,196      (164,409)     6,558,346
                                                                                 -------------   -----------    -----------
Investing activities:
     Purchases of flight equipment and other property and equipment                  (728,509)   (1,154,641)    (1,704,862)
     Proceeds from the sale of flight equipment                                            --            --         15,131
     Decrease (increase) in other assets                                              (33,289)        3,213         85,321
                                                                                 -------------   -----------    -----------
                 Net cash (used in) provided by investing activities                 (761,798)   (1,151,428)    (1,604,410)
                                                                                 -------------   -----------    -----------
Financing activities:
     Proceeds from issuance of debt                                                        --            --         20,456
     Repayment of notes payable and long-term debt                                   (765,563)   (5,882,457)    (3,988,130)
     Net proceeds from line of credit                                                      --     9,360,834             --
     Net payments on line of credit                                                (8,551,539)           --     (1,132,799)
     Redemption of warrant                                                                 --      (281,750)            --
     Proceeds from sale of common stock                                                 8,563        30,959         41,507
                                                                                 -------------   -----------    -----------
                 Net cash provided by (used in) financing activities               (9,308,539)    3,227,586     (5,058,966)
                                                                                 -------------   -----------    -----------
                 Net change in cash                                                  (481,141)    1,911,749       (105,030)
Cash:
     Beginning of year                                                              1,995,706        83,957        188,987
                                                                                 -------------   -----------    -----------
     End of year                                                                 $  1,514,565     1,995,706         83,957
                                                                                 =============   ===========    ===========
Supplementary cash flow information:
     Cash paid during the year for:
        Interest                                                                 $    919,061     9,905,457      5,445,242
                                                                                 =============   ===========    ===========
Noncash transactions:
     Long-term debt issued in acquisition of Beechcraft 1900D airliners          $         --            --     75,665,924
     Conversion of deferred lease payments to long-term debt                               --     1,981,902      1,320,307
     Conversion of line of credit to long-term debt                                        --     4,713,429             --
     Inventory returned in exchange for reduction of line of credit                        --            --        944,544
                                                                                 -------------   -----------    -----------
                                                                                 $         --     6,695,331     77,930,775
                                                                                 =============   ===========    ===========
</TABLE>

See accompanying notes to financial statements.


                                       30
<PAGE>

                           GREAT LAKES AVIATION, LTD.

                          Notes to Financial Statements

                           December 31, 2001 and 2000


(1)  Business, liquidity and Going-Concern Matters

     (a)  Business

          Great Lakes is a regional airline that until May 1, 2001 operated
          under the United Airlines, Inc. ("United") identity as a United
          Express carrier. Effective May 1, 2001, the Company entered into a new
          agreement with United which terminated the United Express relationship
          and established a code sharing relationship. Under the new agreement
          the Company regained its own identity but continued sale and operation
          of connecting flight using the United flight codes. The Company
          negotiated a similar code sharing agreement with Frontier Airlines,
          Inc. ("Frontier") which became effective July 9, 2001. The Company
          also operates flights under the name Great Lakes Airlines.

          At March 1, 2002, the Company served 35 destinations in 10 states to
          and from Denver as code sharing partners with both United Airline and
          Frontier Airlines. It also served 5 destinations in 3 states to and
          from Chicago, 6 destinations in 3 states to and from Minneapolis and 3
          destinations in 3 states to and from Phoenix as a code sharing partner
          with United Airlines.

          Under the new code sharing relationship, approximately 72 % of Great
          Lakes' traffic connected with United in December of 2001 and January
          of 2002. For the years 2000 and 1999 when Great Lakes' operations were
          totally conducted as a United Express carrier, 75 percent, and 68
          percent of the Great Lakes' passengers, respectively, connected with
          United.

     (b)  Liquidity and Going-Concern Matters

          The Company suffered substantial losses during the fourth quarter of
          2000 and the year 2001. These losses produced a significant reduction
          in liquidity, and the Company made only minor payments on the majority
          of its debt and lease obligations during 2001. As a result, the
          Company is not in compliance on debt obligations totaling $104,906,000
          and in arrears on lease payment obligations of $5,622,000. Although no
          formal action has been taken, the debt agreements allow the lender to
          take action to collect the total amount of the debt. Therefore, the
          amount of the debt which by its terms would otherwise be due after one
          year is shown as long-term obligations classified as current.

          The Company's ability to continue as a going concern, of which there
          is substantial doubt, depends upon its ability to rapidly increase
          profitability and cash flow and/or obtain new sources of financing to
          pay its obligations as they come due, upon maintaining adequate
          liquidity, and achieving sustained profitability. The accompanying
          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 financial
          statements do not include any adjustments that might result if the
          Company was forced to discontinue its operations.

          The Company currently has no financing agreements in place under which
          it can secure additional funds. The Company is negotiating with its
          major creditor to restructure its debt, including converting a portion
          of the debt into equity. It is also attempting to negotiate with the
          respective lessors a return and settlement for ten of its Beechcraft
          1900D and all four of its leased Embraer Brasilia EMB 120 aircraft and
          is exploring alternatives to meet its future liquidity requirements.
          No provision has been made in the 2001 financial statements for any
          additional costs or losses (including impairments) which may be
          incurred in connection with the return and settlement of the
          agreements pertaining to the leased or financed aircraft.


                                       31
<PAGE>

                           GREAT LAKES AVIATION, LTD.

                          Notes to Financial Statements

                           December 31, 2001 and 2000


(2)  Summary of Significant Accounting Policies and Procedures

     (a)  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. Significant estimates
          include government subsidies, depreciable lives, impairment and
          obsolescence and lease termination costs. Actual results could differ
          from those estimates.

     (b)  Union Agreements

          The Company's pilots are represented by the International Brotherhood
          of Teamsters. The Agreement with the pilots became amendable October
          30, 2000, and negotiations are continuing. The Company's flight
          attendants are also represented by the International Brotherhood of
          Teamsters, and the agreement with the flight attendants became
          amendable April, 2002.

     (c)  Accounts Receivable

          Substantially all accounts receivable balances are due from various
          airlines and the U.S. government, with approximately 42 and 45 percent
          of the December 31, 2001 and 64 and 10 percent of the December 31,
          2000, balances, respectively due from United and the U.S. government.
          All receivables are pledged as collateral securing the line of credit.

     (d)  Inventories

          Inventories consist of spare parts, fuel, materials and supplies
          relating to flight equipment and are stated at the lower of average
          cost or market. Allowances for obsolescence are provided over the
          estimated useful life of the related aircraft and engines for spare
          parts expected to be on hand at the date aircraft are retired from
          service. Expendable parts are charged to maintenance expense as used.
          Inventories consisting of Beech aircraft spare parts and equipment are
          pledged as collateral securing the line of credit and the Raytheon
          notes.

     (e)  Property and Equipment

          Property and equipment includes aircraft and major parts relating to
          such aircraft and 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.


                                       32
<PAGE>

                           GREAT LAKES AVIATION, LTD.

                          Notes to Financial Statements

                           December 31, 2001 and 2000


          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 or when the component is placed in service.

     (f)  Measurement of Impairment

          In accordance with Statement of Financial Accounting Standards No.
          121, Accounting for the Impairment of Long-Lived Assets to be disposed
          Of ("SFAS 121"), the Company records impairment losses on long-lived
          assets when events and circumstances indicate that the assets might be
          impaired and the undiscounted cash flows estimated to be generated by
          those assets are less than the carrying amount of those assets. The
          net carrying value of assets not recoverable is reduced to fair value.

     (g)  Other Assets

          Other assets are deposits with financial institutions, bonding
          companies, facilities lessors and others to secure the payment of
          fixed obligations. $ 1,475,000 at December 31, 2001 and 2000 related
          to long term operating leases.

     (h)  Long-term Obligations Classified As Current

          The Company is not in compliance with its debt agreements as a result
          of non payment of scheduled installments of substantially all of its
          long- term debt. In accordance with generally accepted accounting
          principles, long-term debt which may become due and payable at the
          option of the lender as a result of non-compliance under the debt
          agreement is classified as a current liability.

     (i)  Deferred 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 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.

     (j)  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.

     (k)  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 and is adjusted based on estimates of
          future usage. 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 based on rates applicable to such periods as the
          agreed upon air service is furnished by the Company.


                                       33
<PAGE>

                           GREAT LAKES AVIATION, LTD.

                          Notes to Financial Statements

                           December 31, 2001 and 2000


     (l)  Frequent Flyer Awards

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

     (m)  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.

     (n)  Income (Loss) Per Share

          Basic income (loss) per share have been computed by dividing net
          income (loss) by the weighted-average number of shares of common stock
          during outstanding 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 a net loss in the years ended December
          31, 2001 and December 31, 2000, the effects of potential common stock
          issuance's were not included in the calculation for those years, as
          their effects would be anti-dilutive.

     (o)  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 and related
          interpretations. 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.

     (p)  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 concentration of long-term debt with the
               manufacturer of aircraft, the fair value of long-term debt was
               not reasonably determinable.


                                       34
<PAGE>

                           GREAT LAKES AVIATION, LTD.

                          Notes to Financial Statements

                           December 31, 2001 and 2000


(3)  Flight Equipment

     At December 31, 2001 and 2000, the Company's passenger airline fleet
     consisted of 40 Beechcraft Model 1900D 19-passenger and eight Embraer
     Brasilia Model 120 30-passenger aircraft. In addition, the Company operated
     four Beechcraft Model 1900C aircraft in a cargo configuration for carriage
     of U.S. mail. The B1900C aircraft are operated under month to month leases.
     The operating leases for the B1900D and EMB-120 aircraft are long-term. A
     summary of the operating aircraft is as follows:

                                               2001 and 2000
                                     ----------------------------------
                                     Beechcraft   Beechcraft
                                       1900C        1900D      Brasilia
                                     ----------   ----------   --------

          Owned                              --           28          4
          Operating leases                    4           12          4
                                     ----------   ----------   --------
                                              4           40          8
                                     ==========   ==========   ========


     At December 31, 2001, the Company was not in compliance with its lease
     agreements as a result of nonpayment of lease rentals to lessors as
     follows: Raytheon, $2,970,000 for 16 B1900 aircraft, Boeing Capital
     Corporation, $1,741,000 for two Emb-120 aircraft and Finova Capital
     Corporation, $910,000 for two EMB-120 aircraft. Under the terms of the
     lease agreements, the Company is responsible for lease payments over the
     remaining term of the leases of approximately $55,100,000 to Raytheon
     Aircraft Corp., $19,900,000 to Boeing Capital Corporation and $1,700,000 to
     Finova Capital Corporation, although such amounts would be mitigated by the
     proceeds of subsequent lease or sale of the aircraft. The Company is
     negotiating the return to the lessors of 12 of the B1900 leased aircraft
     and the four leased EMB-120 aircraft which are in excess of Company's
     current requirements. Such negotiations include the return condition of the
     aircraft, remaining liabilities for unpaid rentals and future obligations
     under the lease agreements. No provision has been made in the 2001
     financial statements for any additional costs or losses (including
     impairments) which may be incurred in connection with the return and
     settlement of these agreements.

     Under the current agreements exclusive of the foregoing negotiations, lease
     commitments for aircraft were as follows, as of December 31, 2001:

                                Beechcraft
                                   1900        Brasilia        Total
                               -----------    ----------    ----------
          2002                 $ 5,760,000     2,709,888     8,469,888
          2003                   5,760,000     2,467,788     8,227,788
          2004                   5,760,000     1,741,488     7,501,488
          2005                   5,760,000     1,741,488     7,501,488
          2006                   5,760,000     1,741,488     7,501,488
          Thereafter            26,280,000    11,247,110    37,527,110
                               -----------    ----------    ----------
                               $55,080,000    21,649,250    76,729,250
                               ===========    ==========    ==========


     Non-aircraft lease commitments are set forth in Note 9.


                                       35
<PAGE>

                           GREAT LAKES AVIATION, LTD.

                          Notes to Financial Statements

                           December 31, 2001 and 2000

     Raytheon Aircraft Corp. including its financing affiliates is the Company's
     primary aircraft supplier and largest creditor. The Company has financed
     all but one of its Beechcraft 1900 aircraft and one of its Brasilia
     aircraft pursuant to lease and debt agreements with Raytheon. Raytheon had
     also extended the Company a total of $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"). On January 7, 2000, the Company
     Company paid Raytheon $5 million from the proceeds of a revolving credit
     facility to retire the short-term note, and on December 1, 2000, converted
     the remaining Raytheon line of credit into a three-year installment note.

(4)  Notes Payable and Long-Term Debt

     Notes payable and current maturities of long-term debt consist of the
     following at December 31, 2001 and 2000:

<TABLE>
<CAPTION>
                                                             2001        2000
                                                          -----------   ----------
      <S>                                                 <C>           <C>
      Line of credit with Coast Business Credit (A)       $ 4,609,808   13,161,347
      Amounts due Raytheon:
          Unpaid principal due in 2001 (B)                  5,743,762           --
          Demand note (C)                                   8,786,778           --
          Current maturities of Raytheon long-term debt     8,051,990    8,161,741
                                                          -----------   ----------
      Current Maturities of long-term debt                 27,192,338   21,323,088
          Other current maturities of long-term debt        1,315,361    1,252,827
                                                          -----------   ----------
                                                          $28,507,699   22,575,915
                                                          ===========   ==========
</TABLE>

     Long-term debt and long-term debt classified as current consist of the
     following at December 31, 2001 and 2000:

<TABLE>
<CAPTION>
                                                                   2001           2000
                                                               ------------    -----------
      <S>                                                      <C>             <C>
      Raytheon (C)                                             $ 96,143,005     98,709,027
      Other long-term notes (D)                                   6,042,529      6,759,520
                                                               ------------    -----------
                                                                102,185,534    105,468,547
                                                               ------------    -----------
      Less:
          Unpaid principal due in 2001 (B)                        5,743,762             --
          Raytheon current maturities of long-term debt           8,051,990      8,161,741
          Other current maturities of long term debt              1,315,361      1,252,827
          Long-term debt classified as current (E)               82,347,252             --
                                                               ------------    -----------
                                                               $  4,727,169     96,053,979
                                                               ============    ===========
</TABLE>


                                       36
<PAGE>

                           GREAT LAKES AVIATION, LTD.

                          Notes to Financial Statements

                           December 31, 2001 and 2000


     (A)  On January 7, 2000, the Company entered into a $20 million line of
          credit agreement with Coast Business Credit. Under the terms of the
          agreement the Company could borrow up to 85 percent of the Company's
          Eligible Billed and Unbilled Receivables as defined in the agreement.
          The line of credit bears interest at a rate of prime plus .5 percent
          and in no event shall the rate be less than 8 percent per annum. The
          line of credit also contains various restrictive covenants. The
          Company is not in compliance with the terms under this agreement and
          is incurring a 3.0 percent-interest rate penalty as a result of not
          meeting two financial requirements. Further, Coast reduced the maximum
          which could be outstanding under the agreement to $18 million through
          August 31, 2001, $14 million through October 31, 2001 and $10 million
          to the revised maturity date of December 31, 2001. In December 2001,
          the maturity date was extended to March 31, 2002 and the maximum
          amount of the loan was reduced to $6.5 million. On March 28, 2002,
          Coast extended the maturity date to April 30, 2002 and the maximum
          amount which could be outstanding under the loan was reduced to $3.8
          million. At December 31, 2001 the interest rate was 8.5 percent.

     (B)  Unpaid principal payments due on Raytheon debt during 2001.

          On June 29, 2001, the Company a issued demand note to Raytheon in
          payment of substantially all of the principal , interest and lease
          installments on aircraft due Raytheon during the first six months of
          2001. The note bears interest at the rate of 8 percent (11% if the
          note is in default) which is to be paid monthly in arrears beginning
          August 1, 2001. Interest accrued on this note has not been paid.

     (C)  The Raytheon notes consist of 31 term notes in 2001 and 2000. The
          outstanding notes at December 31, 2001 require monthly payments
          ranging from $30,000 to $145,000, including interest, with total
          payments on these notes approximating $1,150,000 per month. The
          interest rates on the notes range from 4.1 percent to 8.0 percent as
          of December 31, 2001. The notes mature through August 2012 and are
          collateralized by aircraft.

     (D)  Other long-term notes consist primarily of three term notes which
          require monthly or quarterly payments, including interest, and are
          collateralized by Embraer aircraft. The interest rates on the notes
          are approximately 9.05 percent at December 31, 2001.

     (E)  At December 31, 2001, the Company was not in compliance with payment
          terms of the Raytheon debt. As a result, in accordance with generally
          accepted accounting principles, all of the long-term debt has been
          classified as a current liability because of Raytheon's ability under
          the debt agreements to require payment of the total outstanding
          obligations. The Company is negotiating with Raytheon in order to
          achieve a restructuring of theses obligations which may include
          conversion of some of the debt into equity. No provision has been made
          in the 2001 financial statements for any additional costs or losses
          (including impairments) which may be incurred in connection with the
          return and settlement of these agreements.


                                       37
<PAGE>

                           GREAT LAKES AVIATION, LTD.

                          Notes to Financial Statements

                           December 31, 2001 and 2000


     As of December 31, 2001, the long-term debt obligations due in the five
     subsequent years and thereafter were as follows:

<TABLE>
<CAPTION>
                                   Beechcraft
                                      1900s      Brasilias      Other        Total
                                  -----------    ---------    ---------   -----------
      <S>                         <C>            <C>          <C>         <C>
      2002                        $ 9,252,477    1,315,361    4,543,276    15,111,114
      2003                          5,985,779    1,792,823    1,986,752     9,765,354
      2004                          6,331,211      593,256           --     6,924,467
      2005                          6,697,646      649,012           --     7,346,658
      2006                          7,086,418      710,007           --     7,796,425
      Thereafter                   54,259,446      982,070           --    55,241,516
                                  -----------    ---------    ---------   -----------
                                  $89,612,977    6,042,529    6,530,028   102,185,534
                                  ===========    =========    =========   ===========
</TABLE>

(5)  Income Taxes

     Income tax expense for the years ended December 31, 2001, 2000, and 1999
     consists of current state income taxes of $-0-, $6,116, and $-0-,
     respectively.

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

                                                  2001     2000      1999
                                                 ------   ------   -------
      Federal statutory rate                      35.0%    35.0%     35.0%
      State income taxes, of federal benefit        --       --        --
      Change in valuation allowance              (35.0)   (35.0)    (35.0)
                                                 ------   ------   -------
                                                    --%      --%       --%
                                                 ======   ======   =======


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

<TABLE>
<CAPTION>
                                                                 2001           2000
                                                             ------------   -----------
      <S>                                                    <C>             <C>
      Deferred tax assets:
          Net operating loss carry forwards                  $ 28,108,000    20,129,000
          Accrued liabilities and other                         6,853,000     5,159,000
                                                             ------------   -----------
                    Total gross deferred tax asset             34,961,000    25,288,000

      Less valuation allowance                                (23,247,000)  (16,268,000)
                                                             ------------   -----------
                    Total deferred tax asset                   11,714,000     9,020,000

      Deferred tax liabilities:
          Property and equipment                              (11,714,000)   (9,020,000)
                                                             ------------   -----------
                    Total deferred tax asset (liability)     $         --            --
                                                             ============   ===========
</TABLE>


                                       38
<PAGE>

                           GREAT LAKES AVIATION, LTD.

                          Notes to Financial Statements

                           December 31, 2001 and 2000


     The Company has net operating loss carry forwards for federal income tax
     purposes totaling approximately $80 million at December 31, 2001, expiring
     in years from 2006 through 2021. The net change in total valuation
     allowance for the years ended December 31, 2001and 2000 was an increase of
     $6,979,000 and $4,251,000, respectively.

(6)  Employee Benefit Plans

     (a)  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 $225,000 in 2001, $318,000 in 2000 and $337,000
          in 1999.

     (b)  Stock Option Plans

          The Company has adopted The Great Lakes Aviation, 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 as
          exercise prices are at least equal to the fair market value of the
          Company's common stock on the date of Great Lakes. Had compensation
          cost for the Company's fixed stock option plans been determined
          consistent with SFAS No. 123, the Company's net (loss) income and
          (loss) income per share would have been impacted as follows:

<TABLE>
<CAPTION>
                     Years Ended December 31:                       2001            2000       1999
             -------------------------------------------       -------------   -----------   ---------
             <S>                                               <C>             <C>           <C>
             Net (loss) income as reported                     $(18,633,884)   (8,238,833)   2,727,978
             Pro forma net (loss) income                        (18,768,701)   (8,838,525)   2,571,000
             Basic (loss) income per share as reported                (2.15)        (0.95)        0.32
             Pro forma basic (loss) income per share                  (2.17)        (0.96)        0.30
             Diluted (loss) income per share as reported              (2.15)        (0.95)        0.29
             Pro forma diluted (loss) income per share                (2.17)        (0.96)        0.28
</TABLE>


                                       39
<PAGE>

                           GREAT LAKES AVIATION, LTD.

                          Notes to Financial Statements

                           December 31, 2001 and 2000


          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:

                  Years Ended December 31:      2001    2000     1999
             -------------------------------    ----   ------   ------
             Risk-free interest rate             --     5.87%    5.10%
             Expected dividend yield             --        0%       0%
             Expected option life                --        5        5
             Expected Stock price volatility     --    70.42%   93.20%


          A summary of the status of the Company's fixed option plans as of
          December 31, 2001, 2000, and 1999 and changes during the years ended
          on those dates is presented below:

<TABLE>
<CAPTION>
                                                 2001                    2000                1999
                                        -----------------------   -------------------  --------------------
                                                      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           370,000       $3.27    310,000     $3.27    330,000     $3.26
             Granted                         --           --      150,000      1.56     50,000      2.75
             Forfeited                       --           --      (90,000)     2.93    (70,000)     2.82

             Outstanding at end of
               year                        370,000        3.27    370,000      2.82    310,000      3.27

             Options exercisable at
               year end                    189,600        3.31    140,400      4.02     90,800      4.43

             Weighted-average fair
               value of options
               granted during the
               year                       $  --                     1.38                 2.03
</TABLE>


                                       40
<PAGE>

                           GREAT LAKES AVIATION, LTD.

                          Notes to Financial Statements

                           December 31, 2001 and 2000


          A summary of stock options outstanding and exercisable as of December
          31, 2000 are as follows:

<TABLE>
<CAPTION>
                                                Options outstanding            Options exercisable
                                   ----------------------------------------   ----------------------
                                                   Weighted        Weighted                Weighted
                                                   average         average                  average
                    Range of         Number       remaining        exercise     Number      exercise
                 exercise price    outstanding   life (years)       price     exercisable    price
                 ---------------   -----------   --------------   ---------   -----------  ---------
                 <S>               <C>           <C>              <C>         <C>           <C>
                 $1.063-1.75         140,000         8.5           $ 1.38         6,000     $ 1.41
                      2.75           166,000         6.5             2.75        70,400       2.75
                  3.875-5.785         34,000         3.6             5.05        34,000       5.05
                     11.00            10,000         2.0            11.00        10,000      11.00
                                   -----------                                -----------
                                     370,000                                    120,400
                                   ===========                                ===========
</TABLE>


     (c)  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 2001 and 2000,
          22,535 and 9,760 shares were purchased, respectively, through payroll
          withholdings.

(7)  Stabilization Act Grant

     On September 21, 2001, Congress passed and the President signed into law,
     the Air Transportation Safety and System Stabilization Act ( the
     "Stabilization Act"), which provides, among other things, for $5 billion in
     grants to compensate U.S. air carriers for losses incurred by the air
     carriers as a result of the September 11, 2001 terrorist attacks.

     The Company recognized a $1,929,877 grant under the Stabilization Act for
     the year ended December 31, 2001, of which $1,637,846 was received during
     the fourth quarter of 2001. The Company expects to receive the balance
     during the second quarter of 2002. The grant is for the direct losses
     incurred beginning on September 11, 2001, resulting from the Federal
     Aviation Administration grounding of all aircraft, and for incremental
     losses incurred through December 31, 2001 as the direct result of the
     attacks. The grant is included in Non-Operating income in the accompanying
     statements of operations.


                                       41
<PAGE>

                           GREAT LAKES AVIATION, LTD.

                          Notes to Financial Statements

                           December 31, 2001 and 2000


(8)  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>
                                                               Year ended December 31
                         --------------------------------------------------------------------------------------------------
                                      2001                               2000                              1999
                         -----------------------------------   ----------------------------------- --------------------------------
                            Income       Shares    Per-share    Income        Shares    Per-share   Income        Shares  Per-share
                          (Number.)     (Denom.)    amount     (Number.)     (Denom.)     amount   (Number.)     (Denom.)   amount
                         ------------   --------   ---------   ----------    ---------  ---------- ---------    --------- ---------
       <S>               <C>            <C>        <C>         <C>           <C>        <C>        <C>          <C>        <C>
       Basic income
         (loss) per
         share
         attributable
         to common
         shareholders    (18,633,884)   8,658,330    $(2.15)    (8,238,833)   8,645,770   $(095)    2,727,970    8,634,204    $0.32
       Effect of
         dilutive
         securities
       Stock warrants             --           --        --             --           --      --            --      358,188       --
       Stock options              --           --        --             --           --      --            --        2,334       --
                         ------------    --------    -------    -----------   ---------   ------    ---------    ---------    -----
       Diluted
         income
         (loss) per
         share
         attributable
         to common
         shareholders    (18,633,884)   8,658,330    $(2.15)    (8,238,833)   8,645,774   $(095)    2,727,978    8,994,726    $0.32
                         ============   =========    =======    ===========   =========   ======    =========    =========    =====
</TABLE>


(9)  Commitments and Contingencies

     (a)  Transactions with Affiliates

          In 2000 and 1999, the Company leased one Beechcraft 1900D used in
          airline operations from a company owned by Great Lakes' president and
          majority stockholder. Total payments under these leases that the
          Company had with entities that are owned by the Company's president
          were $237,000 in 2001, $587,000 in 2000, and $598,000 in 1999.

     (b)  Non-aircraft Lease Commitments

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

                        2002                          $353,497
                        2003                           254,405
                        2004                           232,416
                        2005                           232,416
                        2006                           232,416


                                       42
<PAGE>

                           GREAT LAKES AVIATION, LTD.

                          Notes to Financial Statements

                           December 31, 2001 and 2000


     (c)  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.

          On February 27, 2002, Finova Capital Corporation ("Finova") filed suit
          agains the Company in the United States District Court for the
          District of Arizona. No. Civ. 02-0362 PHX SMM. Finova alleges that the
          Company breached two airplane lease agreements. Finova seeks damages,
          costs and attorney's fees. The Company filed an answer to this
          complaint. The parties are presently engaged in negotiations to
          resolve the dispute.

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

(10) Selected Quarterly Financial Data (Unaudited)

     The following presents selected quarterly unaudited financial data for each
     of the years ended December 31, 2001 and 2000 (in thousands, except for per
     share information):

<TABLE>
<CAPTION>
                                            First     Second    Third    Fourth
                    2001                   Quarter    Quarter  Quarter   Quarter    Year
      -----------------------------        --------   -------  -------  --------  --------
      <S>                                  <C>        <C>      <C>       <C>      <C>
      Operating revenues                   $27,930    26,883   25,224    21,403   101,440
      Operating income (loss)               (5,971)   (2,761)    (561)   (1,337)  (10,630)
      Net income (loss)                     (8,628)   (5,097)  (1,873)   (3,036)  (18,634)
                                           ========   =======  =======  ========  ========
       Net income (loss) per share:
          Basic                            $ (1.00)    (0.59)   (0.22)    (0.34)    (2.15)
          Diluted                            (1.00)    (0.59)   (0.22)    (0.34)    (2.15)
      Weighted average shares
          outstanding:
            Basic                            8,658     8,658    8,658     8,660     8,658
            Diluted                          8,658     8,658    8,658     8,660     8,658
</TABLE>


                                       43
<PAGE>

                           GREAT LAKES AVIATION, LTD.

                          Notes to Financial Statements

                           December 31, 2001 and 2000


<TABLE>
<CAPTION>
                                            First     Second    Third    Fourth
                    2000                   Quarter    Quarter  Quarter   Quarter    Year
      -----------------------------        --------   -------  -------  --------  --------
      <S>                                  <C>        <C>      <C>       <C>      <C>
      Operating revenues                   $31,950    33,962   36,434    31,244   133,590
      Operating income (loss)                  902     4,036    3,797    (7,799)      936
      Net income (loss)                     (1,177)    1,767    1,508   (10,337)   (8,239)
                                           ========   =======  =======  ========  ========
       Net income (loss) per share:
          Basic                            $ (0.14)     0.20     0.17     (1.20)    (0.95)
          Diluted                            (0.14)     0.19     0.16     (1.20)    (0.95)
      Weighted average shares
          outstanding:
            Basic                            8,638     8,648    8,648     8,650     8,646
            Diluted                          8,638     9,255    9,187     8,650     8,646
</TABLE>

     For 2000, 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 be
     equal to the diluted earnings per share for the year.

     The fourth quarter of 2000 contains certain year-end adjustments related to
     accrued expenses of $1.5 million and certain receivables of approximately
     $2.5 million. Additionally, overhaul activity was concentrated in the
     fourth quarter increasing maintenance expense $2.6 million over the same
     period of the previous 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.


                                       44
<PAGE>

                           GREAT LAKES AVIATION, LTD.

                             Schedule II - Valuation

                           December 31, 2001 and 2000


<TABLE>
<CAPTION>
                                                                   Additions
                                                                   ----------
                                                     Balance at    Charged to
                                                     beginning     costs and    Balance at end
                 Classification                      of year (1)    expenses       of year
      -------------------------------------          -----------   ----------   --------------
      <S>                                            <C>           <C>          <C>
      2001 Inventory and equipment reserves          $6,319,979      245,830       6,565,809
      2000 Inventory and equipment reserves           6,220,854       99,125       6,319,979
      1999 Inventory and equipment reserves           6,048,309      172,545       6,220,854
</TABLE>


     (1)  Balance includes adjustment in 1998 of $3,516,510 related to Brasilia
          aircraft inventory.

     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 included elsewhere in the financial statements and related notes.


                                       45
<PAGE>

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

None.


                                       46
<PAGE>

                                    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 May 11, 2002 (the "2001 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
2002 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 2002 Proxy Statement.

Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information regarding certain relationships and transactions between the Company
and related parties is incorporated herein by reference to the information set
forth under the caption "Certain Relationships and Related Transactions" in the
2002 Proxy Statement.


                                       47
<PAGE>

                                     PART IV


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

(a)  Reports on Form 8-K. During the fourth quarter ended December 31, 2001, the
     Company filed no reports on Form 8-K with the Securities and Exchange
     Commission.

(b)  Exhibits

     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).

    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 Airport/Airport Facilities Lease Agreement, dated November 1, 1989,
          by and between Minneapolis-St. Paul Airport and the Company.(1)

    10.11 Great Lakes Aviation, Ltd. 1993 Stock Option Plan.(1)

    10.12 1993 Director Stock Option Plan.(1)

    10.13 Great Lakes Aviation, Ltd. Employee Stock Purchase Plan.(1)


                                       48
<PAGE>

   10.14  Facilities Lease Agreement, dated February 18, 1992, by and between
          the City of Spencer, Iowa and the Company.(1)

   10.15  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)

   10.16  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)

   10.17  Aircraft Finance Agreement, dated March 1, 1994, by and between
          Raytheon and the Company.(2)

   10.18  Negotiable Promissory Note dated March 30, 1996, from the Company to
          Raytheon Aircraft Credit Corporation. (2)

   10.19  Negotiable Promissory Note, dated July 31, 1996, from the Company to
          Raytheon Aircraft Credit Corporation.(5)

   10.20  Pledge and Assignment Agreement entered into between registrant and
          Raythion Aircraft Credit Corporation, dated July 11, 1997. (6)

   10.21  Agreement Pertaining to Loans and Leases entered into between
          registrant and Raytheon Aircraft Credit Corporation, dated July 11,
          1997. (6)

   10.22  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)

   10.23  Loan and Security Agreement, dated as of December 31, 1999, between
          Coast Business Credit, a division of Southern Pacific Bank and the
          Company. (7)

   10.24  Amendment Number One to Loan and Security Agreement, dated as of
          January 7, 2000, between Coast Business Credit, a division of Southern
          Pacific Bank and the Company. (7)

   10.25  Side Letter, dated as of January 5, 2000, regarding Representations
          and warranties respecting Sections 5.17 and 5.18 of the Loan and
          Security Agreement, dated as of December 31, 1999, by and among Coast
          Business Credit, a division of Southern Pacific Bank and the Company.
          (7)

   10.26  Security Agreement and Encumbrance Against Air Carrier Aircraft Spare
          Parts, dated as of December 31, 1999 between Coast Business Credit, a
          division of Southern Pacific Bank and the Company. (7)

   10.27  Intercreditor Agreements, dated December 31, 1999 by and among Coast
          Business Credit, a division of Southern Pacific Bank, Raytheon
          Aircraft Credit Corporation and the Company. (8)

   10.28  Negotiable Promissory Note dated December 1, 2000 from the Company to
          Raytheon Aircraft Credit Corporation. (8)

  10.29*  Demand Promissory Note dated June 29, 2001 from the Company to
          Raytheon Aircraft Credit Corporation.


                                       49
<PAGE>

   10.30* Amendment to Security Agreement entered into as of June 29, 2001 by
          and between the Company and Raytheon Aircraft Credit Corporation.

   10.31* Second Amendment and Supplement to Security Agreement entered into
          as of June 29, 2001 by and between the Company and Raytheon Aircraft
          Credit Corporation.

   10.32* Third Amendment to Security Agreement entered into as of June 29,
          2001 by and between the Company and Raytheon Aircraft Credit
          Corporation.

    23.1* Consent of KPMG LLP

*    Filed herewith.

(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 Annual Report on Form 10-K for
     the year ended December 31, 1997.

(5)  Incorporated by reference to the Company's Form 8-K, File Number 97616934,
     filed May 23, 1997. (6)

(6)  Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the quarter ended March 31, 1998.

(7)  Incorporated by reference to the Company's Annual Report on Form 10-K for
     the year ended December 31, 1999.

(8)  Incorporated by reference to the Company's Annual Report on Form 10-K for
     the year ended December 31, 2000.


                                       50
<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: April 15, 2002                  By /s/ Douglas G. Voss
                                          --------------------------------------
                                          Douglas G. Voss,
                                          President and Chief Executive Officer

                                       By /s/ Michael L. Tuinstra
                                          --------------------------------------
                                          Michael L. Tuinstra,
                                          Treasurer
                                          (Principal Accounting and Financial
                                          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.


         Signature                       Title                        Date
         ---------                       -----                        ----

/s/ Douglas G. Voss          President, Chief Executive           April 15, 2002
-------------------------     Officer and Director
Douglas G. Voss


/s/ Michael L. Tuinstra      Treasurer                            April 15, 2002
-------------------------
Michael L. Tuinstra


/s/ Christopher W. Wilken    Controller                           April 15, 2002
-------------------------
Christopher W. Wilken


/s/ Vernon A. Mickelson      Director                             April 15, 2002
-------------------------
Vernon A. Mickelson


/s/ Gayle R. Brandt          Director                             April 15, 2002
-------------------------
Gayle R. Brandt


/s/ Ivan L. Simpson          Director                             April 15, 2002
-------------------------
Ivan L. Simpson


                                       51
<PAGE>

                                  EXHIBIT INDEX



     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).

    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  Airport/Airport Facilities Lease Agreement, dated November 1, 1989,
          by and between Minneapolis-St. Paul Airport and the Company.(1)

   10.11  Great Lakes Aviation, Ltd. 1993 Stock Option Plan.(1)

   10.12  1993 Director Stock Option Plan.(1)

   10.13  Great Lakes Aviation, Ltd. Employee Stock Purchase Plan.(1)

   10.14  Facilities Lease Agreement, dated February 18, 1992, by and between
          the City of Spencer, Iowa and the Company.(1)

   10.15  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)


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<PAGE>

   10.16  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)

   10.17  Aircraft Finance Agreement, dated March 1, 1994, by and between
          Raytheon and the Company.(2)

   10.18  Negotiable Promissory Note dated March 30, 1996, from the Company to
          Raytheon Aircraft Credit Corporation. (2)

   10.19  Negotiable Promissory Note, dated July 31, 1996, from the Company to
          Raytheon Aircraft Credit Corporation.(5)

   10.20  Pledge and Assignment Agreement entered into between registrant and
          Raytheon Aircraft Credit Corporation, dated July 11, 1997. (6)

   10.21  Agreement Pertaining to Loans and Leases entered into between
          registrant and Raytheon Aircraft Credit Corporation, dated July 11,
          1997. (6)

   10.22  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)

   10.23  Loan and Security Agreement, dated December 31, 1999 between Coast
          Business Credit, a division of Southern Bank and the Company. (7)

   10.24  Amendment Number One to Loan and Security Agreement, dated as of
          January 7, 2000, between Coast Business Credit, a division of Southern
          Pacific Bank and the Company. (7)

   10.25  Side Letter, dated as of January 5, 2000, regarding Representations
          and warranties respecting Sections 5.17 and 5.18 of the Loan and
          Security Agreement, dated as of December 31, 1999, by and among Coast
          Business Credit, a division of Southern Pacific Bank and the Company.
          (7)

   10.26  Security Agreement and Encumbrance Against Air Carrier Aircraft Spare
          Parts, dated as of December 31, 1999 between Coast Business Credit, a
          division of Southern Pacific Bank and the Company. (7)

   10.27  Intercreditor Agreements, dated December 31, 1999 by and among Coast
          Business Credit, a division of Southern Pacific Bank, Raytheon
          Aircraft Credit Corporation and the Company. (8)

   10.28  Negotiable Promissory Note dated December 1, 2000 from the Company to
          Raytheon Aircraft Credit Corporation. (8)

   10.29* Demand Promissory Note dated June 29, 2001 from the Company to
          Raytheon Aircraft Credit Corporation.

   10.30* Amendment to Security Agreement entered into as of June 29, 2001 by
          and between the Company and Raytheon Aircraft Credit Corporation.


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<PAGE>

   10.31* Second Amendment and Supplement to Security Agreement entered into
          as of June 29, 2001 by and between the Company and Raytheon Aircraft
          Credit Corporation.

   10.32* Third Amendment to Security Agreement entered into as of June 29,
          2001 by and between the Company and Raytheon Aircraft Credit
          Corporation.

   23.1*  Consent of KPMG LLP

*    Filed herewith.

(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 Annual Report on Form 10-K for
     the year ended December 31, 1997.

(5)  Incorporated by reference to the Company's Form 8-K, File Number 97616934,
     filed May 23, 1997

(6)  Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the quarter ended March 31, 1998.

(7)  Incorporated by reference to the Company's Annual Report on Form 10-K for
     the year ended December 31, 1999.

(8)  Incorporated by reference to the Company's Annual Report on Form 10-K for
     the year ended December 31, 2000.


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