<PAGE>

                        SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, D.C. 20549

                                     FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 1996

                                       OR

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

For the transition period from __________ to __________

Commission File No. 0-23224

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

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

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports 
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 
1934 during the preceding 12 months, and (2) has been subject to such filing 
requirements for the past 90 days.  Yes _____  No __X__

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 March 27, 1997 was approximately $9,486,401.

As of March 31, 1997 there were 7,589,121 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 1997 Annual Meeting of Shareholders    Part III


<PAGE>

                                FORM 10-K INDEX

                                                                          Page
                                                                          ----
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     1
       Item 1.  BUSINESS . . . . . . . . . . . . . . . . . . . . . . . .     1
       Item 2.  PROPERTIES . . . . . . . . . . . . . . . . . . . . . . .    12
       Item 3.  LEGAL PROCEEDINGS  . . . . . . . . . . . . . . . . . . .    12
       Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
                DURING FOURTH QUARTER OF FISCAL YEAR . . . . . . . . . .    12

PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    13
       Item 5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
                STOCKHOLDER MATTERS  . . . . . . . . . . . . . . . . . .    13
       Item 6.  SELECTED FINANCIAL AND OPERATING DATA  . . . . . . . . .    14
       Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 
                CONDITION. . . . . . . . . . . . . . . . . . . . . . . .    16
       Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. . . . . . .    24
       Item 9.  DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE . .    41

PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    41
       Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . .    41
       Item 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . .    41
       Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . .    41
       Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . .    41

PART IV  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    42
       Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
                FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . .    42

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    44


                                       i
<PAGE>

                                    PART I

ITEM 1.   BUSINESS

GENERAL

     Great Lakes Aviation, Ltd. ("Great Lakes") is a regional airline which 
operates under three marketing identities (the "Regional Identities"):  
United Express, Midway Connection and Great Lakes Airlines.  The Company is 
one of several companies operating as United Express under code sharing 
agreements with United Air Lines, Inc. ("United").  While the Company does 
not compete against other United Express carriers on routes that it serves, 
it does compete with them to receive the right to serve additional markets 
under a United agreement.  On October 1, 1995 the Company began operating 
Midway Connection under a code sharing agreement with Midway Airlines 
Corporation ("Midway").  On August 8, 1995 the Company began operations in 
the Southwest United States and Mexico independently under its own code.  As 
of December 31, 1996, the Company operated a fleet of 42 Beechcraft Model 
1900 19-passenger aircraft and 12 Embraer Brasilia 30-passenger aircraft.  
References herein to the Company include Great Lakes and its wholly-owned 
subsidiary.

    The table below sets forth certain operating information for each of the 
Regional Identities for the applicable period ended December 31, 1996.

<TABLE>
<CAPTION>
                                             United         Midway     Great Lakes
                                             Express      Connection     Airlines         Total
                                             --------     ----------   -----------     ----------
<S>                                          <C>          <C>          <C>             <C>
Operating revenues (000's)                   $ 86,419      $ 14,785       $ 8,466      $  109,670
Passengers                                    749,527       165,975        97,463       1,012,965
Available seat miles (000's)                  510,932       101,509        65,863         678,304
Revenue passenger miles (000's)               235,963        39,396        24,248         299,607
% of passengers connecting with partner           45%           50%           N/A             N/A
Load factor                                     46.2%         38.8%         36.8%           44.2%
</TABLE>

     The Company's recent performance has caused certain liquidity problems. 
See "Management's Discussion and Analysis of Financial Condition".

THE COMPANY'S REGIONAL IDENTITIES

UNITED EXPRESS

     The United Express operation serves Chicago, Denver and Minneapolis-St. 
Paul from 60 destinations in ten states located in the Upper Midwest as of 
December 31, 1996.  The Company became a "United Express" carrier in 1992 
under a code sharing agreement with United and is one of the principal United 
Express regional carriers.

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

     Under the United Express Agreements, United provides a number of 
additional services to the Company. These include publication of the fares, 
rules and related information that are part of the Company's contracts of 
carriage 

                                       1
<PAGE>

for passengers and freight; publication of the Company's code sharing flight 
schedules and related information using the United "UA" flight designator 
code and flight numbers assigned by United; provision of ground support 
services at six airports served by both United and the Company; provision of 
ticket handling services at United's ticketing locations; provision of 
airport signage at airports where both the Company and United operate; 
provision of United ticket stock and related documents; provision of expense 
vouchers, checks and cash disbursements to passengers on code sharing flights 
of Great Lakes inconvenienced by flight cancellations, diversions and delays; 
and cooperation in the development and execution of advertising, promotion 
and marketing efforts featuring United Express and the relationship between 
United and the Company under the Agreements.  The Company pays United monthly 
a fee based on the total number of revenue passengers boarded on all of Great 
Lakes' United Express flights.  This fee varies depending on whether the 
passenger travels through United hubs at Denver and Chicago, is carried to or 
from other airports served by United or if the passenger is carried between 
cities only served by Great Lakes.  The Company also receives an incentive 
amount for each passenger that connects with a United flight.  In order to 
reduce expenses on those routes where passengers have few opportunities to 
connect with United, the Company removes the United Code and provides the 
service as Great Lakes Airlines.

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

     The United Express Agreements restrict the ability of the Company to 
merge with another company or dispose of its assets or aircraft without first 
offering United a right of first refusal to acquire the Company, or such 
assets or aircraft. United also has a right of first refusal with respect to 
issuances by the Company of shares of its Common Stock or the sale by Douglas 
G. Voss, the Chief Executive Officer of the Company, of his Common Stock. 
United has the option to terminate the United Express Agreements in the event 
that Great Lakes merges with, or is acquired by, another air carrier or any 
affiliate thereof, subject to certain pre-approved exceptions.

     The code sharing agreement with United terminates in April 1997 but is 
subject to earlier termination upon failure of the Company to provide 
specified levels of service or performance, not paying without just cause its 
bills when due, or upon other specified events. Currently, the Company is in 
default of a covenant of the United Express Agreement as a result of its 
nonpayment of bills when due and is attempting to obtain a waiver of the
default from United.  The Company has commenced negotiations with United to 
renew the code sharing agreement, which the Company expects will be completed 
on a mutually advantageous basis, although no assurance can be given that 
this actually will be accomplished.  Any termination or failure to renew this 
agreement, any material adverse modification of this agreement, or any 
substantial decrease in the number of routes served by the Company under this 
agreement would have a material adverse effect on the Company's business.  As 
a result of the code sharing agreement, the Company's business is sensitive 
to events and risks affecting United.  If adverse events affect United's 
business, the Company's business may also be adversely affected.

MIDWAY CONNECTION

     Since October 1, 1995 the Company has operated as a "Midway Connection" 
carrier under a marketing agreement ("Midway Connection Agreement") with 
Midway.  As of December 31, 1996, the Company's Midway Connection operation 
served Raleigh/Durham from 14 destinations in Virginia, Georgia, North 
Carolina, South Carolina, Ohio, Florida, Maryland and the District of 
Columbia.

     The Company's marketing agreement with Midway entitles the Company to 
use Midway's "JI" flight designator code to identify its code sharing flights 
and fares in computer reservation systems, (including Midway's automated 
check-in, ticketing and boarding pass, and advance seat reservation and 
baggage tracing systems), to use the "Midway Connection" logo and aircraft 
exterior paint schemes and uniforms similar to those of Midway and to 
otherwise advertise and market its association with Midway.  The Company's 
passengers on code sharing flights may 

                                       2
<PAGE>

participate in American Airlines' frequent flyer program as long as Midway 
participates in the American Airlines program. The Midway Connection 
Agreement also provides for coordinated schedules and through fares.  The 
Company and Midway mutually establish through fares and the Company receives 
a portion of the fares on a formula basis.

     Under the Midway Connection Agreement, Midway provides a number of 
additional services to the Company. These include publication of the fares, 
rules and related information that are part of the Company's contracts of 
carriage for passengers and freight; publication of the Company's code 
sharing flight schedules and related information using the Midway "JI" flight 
designator code and flight numbers assigned by Midway; provision of ticket 
handling services at Midway's ticketing locations; provision of airport 
signage at airports where both the Company and Midway operate; provision of 
Midway ticket stock and related documents; provision of expense vouchers, 
checks and cash disbursements to passengers on code sharing flights of the 
Company inconvenienced by flight cancellations, diversions and delays; and 
cooperation in the development and execution of advertising, promotion and 
marketing efforts featuring Midway Connection and the relationship between 
Midway and the Company.

     With the exception of certain pre-approved destinations, the Midway 
Connection Agreement requires the Company to obtain Midway's prior consent to 
operate as a Midway Connection carrier on all routes. Under the terms of the 
Midway Connection Agreement, the Company has the exclusive right to provide 
Midway Connection service to and from Raleigh/Durham. The Midway Connection 
Agreement, however, prohibits the Company from entering into a code sharing 
agreement with any other airline at Raleigh/Durham.

     Midway Connection services have been unprofitable.  This is partially 
attributable to the fact that Midway reduced the number of aircraft in their 
operation early in 1996 rather than expanding operations as originally 
planned. This reduced the number of connecting opportunities for the 
Company's flights and, in turn, potential traffic which could use the 
Company's services.  As a result the Company is negotiating with Midway to 
receive additional revenues to compensate it for providing current levels of 
connecting traffic to Midway. There can be no assurance that these 
negotiations will be successful.  Early in 1997, the Company eliminated 
unprofitable service to two communities and seasonably reduced flying to the 
beach communities in the Midway Connection system.

     The Midway Connection Agreement terminates October 1, 2004, but is 
subject to immediate termination upon notice if either party becomes 
insolvent, is not paying without just cause its bills when due, ceases to be 
a going concern, makes an assignment for the benefit of creditors, or ceases 
operations, unless the defaulting party posts a letter of credit to cover all 
amounts potentially due to the other party. Either party may terminate the 
Midway Connection agreement effective any time on or after October 1, 1997, 
upon six months' prior written notice. In addition, if either party does not 
perform any of its material covenants, agreements, terms or conditions under 
the Midway Connection Agreement for a period of 30 days after written notice 
to cure such default, then the other party may terminate the agreement upon 
an additional 15 days' notice to the defaulting party.  If it is determined 
that the Company has failed to meet certain flight completion and on-time 
performance standards for any three consecutive month period, then Midway may 
terminate the Midway Connection Agreement upon 15 days' written notice to the 
Company.  At any time Midway could seek to terminate the Midway Connection 
Agreement as a result of the Company's non-payment of bills when due and for 
failure to perform under certain covenants in the agreement.  As of March 31, 
1997, the Company has not received any notice of breach or termination from 
Midway and on April 4, 1997, received a letter from Midway stating that 
Midway had no present intention of terminating the Midway Connection 
Agreement.  Any termination or failure to renew this agreement, any material 
adverse modification of this agreement, or any substantial decrease in the 
number of routes served by the Company under this agreement could have a 
material adverse effect on the Company's business.  As a result of the code 
sharing agreement, the Company's business is sensitive to events and risks 
affecting Midway.  If adverse events affect Midway's business, the Company's 
business may also be adversely affected. 

GREAT LAKES AIRLINES

     On August 8, 1995, the Company acquired from Arizona Airways, Inc. 
("Arizona") certain aircraft parts, tools, furniture and fixtures, computer 
equipment, accounts receivable and intellectual property (the "Assets") 
pursuant to a foreclosure (the "Foreclosure") of a lien on the Assets.  The 
Foreclosure was for amounts owed the Company under a management assistance 
and consulting services agreement, an aircraft parts purchase agreement, a 
code sharing agreement, an aircraft lease agreement and other agreements, 
between the Company and Arizona.

     On August 8, 1995, the Company began service to the domestic 
destinations (Tucson and Phoenix, AZ and Albuquerque, NM) previously served 
by Arizona and on August 17, 1995 began service to the Mexican destinations 
(Hermosillo, Guaymas, and Ciudad Obregon) previously served by Arizona.  
Initially, the Company served these destinations under the trade name 
"Arizona Airways Express," but beginning April 7, 1996, the Company began 
providing this service under the name Great Lakes Airlines.  Service between 
Phoenix and Page/Lake Powell was 

                                       3
<PAGE>

added in April 1996 with Federal Subsidy.  In October 1996, the Company
began service between Show Low, Arizona and Phoenix with subsidy provided
by the local community.

UNITED EXPRESS MARKETS

CHICAGO

     The Company's service to the Chicago O'Hare market is anchored by its 
ownership of 54 slots and its lease of 12 slots allocated by the Federal 
Aviation Administration ("FAA"). These slots are used primarily to provide 
connecting opportunities with United flights. The Company's ability to 
increase its passenger volume at Chicago O'Hare is limited by its allocation 
of slots, and future increases in passenger volume are expected to come from 
increased load factors, the acquisition of additional slots and the 
concentrated use at O'Hare of currently operated larger aircraft.  See "Slot 
Allocation" and " Aircraft."  During 1996, approximately 65 percent of Great 
Lakes' passenger traffic was carried to or from Chicago. During 1996, 
approximately 47 percent of the Great Lakes' traffic at Chicago O'Hare 
connected with United, two percent connected with other airlines and 51 
percent traveled exclusively on a Great Lakes flight ("on-line").  As of 
December 31, 1996, Great Lakes had 48 weekday Chicago O'Hare departures 
serving 31 destinations located in Iowa, Illinois, Indiana, Michigan, 
Minnesota, South Dakota and Wisconsin.

     In January 1997 the Company was awarded slot exemptions for the 
specific purpose of providing 20 operations per day between Chicago O'Hare 
Airport and Dubuque and Mason City, Iowa; Huron and Sioux Falls, South 
Dakota; and Fargo, North Dakota.  These slot exemptions may not be bought, 
sold or traded without Department of Transportation ("DOT") approval.  In 
addition, these slot exemptions require the Company to provide minimum 
amounts of Essential Air Service to certain small cities.

DENVER

     The Company's primary strategy at Denver is to implement service in 
markets where United and other major carriers have reduced service and to 
feed that traffic to this United hub.  The Company is currently in 
negotiations with United with respect to the sharing of the expenses of 
operating at the new Denver airport.  Operating costs at the Denver airport 
were $755,000 in 1994 and the Company recorded operating costs of $2.2 
million in 1995 and $2.1 million in 1996.  During 1996, approximately 25.7
percent of Great Lakes' passenger traffic was carried to or from Denver.
During 1996, approximately 55 percent of the Company's traffic at Denver
connected with United, one percent connected with other carriers and 44
percent was on-line. As of December 31, 1996, Great Lakes had 25 weekday
Denver departures serving 18 destinations located in Iowa, Minnesota,
Nebraska, North Dakota and South Dakota.

MINNEAPOLIS-ST. PAUL

     As of December 31, 1996, Great Lakes had 21 weekday departures serving 
19 destinations located in Colorado, Iowa, Michigan, Minnesota, North and 
South Dakota, Nebraska and Wisconsin.   During 1997, services in the 
Minneapolis/St. Paul markets have been substantially reduced and the 
remaining services are supported by the Essential Air Service Subsidy program.

MIDWAY CONNECTION MARKETS

     During 1995, under an agreement with American Airlines, Midway began 
serving certain routes at a hub formerly operated by American at Raleigh 
Durham airport.  This service was primarily to cities in the Northeast as 
well as Florida and the Caribbean.  At the end of 1996 Midway operated twelve 
F100 and one A320 aircraft.

     The Company's Midway Connection operation focuses primarily on providing 
feed to and from Midway's service at Raleigh Durham to business markets in 
the Northeast.  In 1996 and 1995, 50% and 70%, respectively, of Midway 
Connection's passengers connected with Midway.

     In select markets the Company's passengers may also receive American 
Airlines' AAdvantage frequent flyer program awards.

                                       4
<PAGE>

GREAT LAKES AIRLINES

     In Arizona, New Mexico, certain cities in the Midwest and Mexico the 
Company operates under the name Great Lakes Airlines.  At December 31,1996, 
it served 13 destinations, two of which are also served as United Express.

ESSENTIAL AIR SERVICE PROGRAM

     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 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.  Beginning in October 1997, the program is funded on an ongoing 
basis from foreign air carrier overfly fees.  If these subsidies are 
eliminated the Company may discontinue service to some or all of the 
subsidized communities.

     At December 31, 1996, the Company served 18 essential air service 
communities on a subsidized basis.  The Company received $3.5 million, $2.6 
million and $2.7 million in essential air service subsidies for the years 
ended December 31, 1996, 1995 and 1994, respectively. An airline serving a 
community that qualifies for essential air services is required to give the 
DOT advance notice before it may terminate, suspend or reduce service. 
Depending on the circumstances, the DOT may require the continuation of 
existing service until a replacement carrier is found.  

     Consistent with current DOT service limits, aircraft departures in 
subsidized service in 1997 are expected to be slightly below those in 1996.  
However, through renegotiation of rates and modifications in service, the 
Company expects to receive an increase of approximately $2.3 million from 
providing such service.  Further increases in subidy may result if DOT 
authorizes increses of flight frequencies recognized for subsidy support at 
EAS cities. 

AIRCRAFT

GENERAL

     At December 31, 1996, the Company operated a fleet of 42 Beechcraft 1900 
aircraft and twelve Embraer Brasilia aircraft. The Beech aircraft are 
pressurized, radar equipped and offer a 300-mile per hour cruising speed for 
19 passengers, plus cargo, with a range of 850 miles. The Beechcraft 1900 
aircraft is widely regarded by airlines as an efficient and reliable aircraft 
for regional service.  As of December 31, 1996, the Company owned 21 of its 
Beechcraft 1900 aircraft and leased the remaining 21 under agreements with 
remaining terms ranging from one month to 14 years.

     The Embraer Brasilia aircraft are equipped with advanced avionics, have 
stand-up cabins, restrooms, are staffed with a flight attendant for 30 
passengers and offer a 360 mile per hour cruising speed with a range of 750 
miles.  As of December 31, 1996, the Company owned four of its Embraer 
Brasilia aircraft and leased the remaining eight under agreements with 
remaining terms ranging from 3 to 17 years.

                                       5
<PAGE>

SUMMARY OF AIRCRAFT ADDITIONS AND DELETIONS

     The table below shows the number and type of aircraft operated by the 
Company on January 1, 1996 and December 31, 1996 and the number and type of 
aircraft acquired or retired from the Company's fleet during the year ended 
December 31, 1996.

<TABLE>
<CAPTION>
                                                                                                   December 31, 1996
                                                                                                   -----------------
                           January 1, 1996     Acquisitions    Retirements    December 31, 1996     Owned    Leased
                           ---------------     ------------    -----------    -----------------     -----    ------
<S>                        <C>                 <C>             <C>            <C>                   <C>      <C>
Beechcraft 1900C                 30                 --              6                 24              15        9
           1900D                  8                 10             --                 18               6       12

Embraer 120
        New                       5                 --             --                  5               1        4
        Used                      7                 --             --                  7               3        4
                                ---                ---            ---                ---             ---      ---
           Total                 50                 10              6                 54              25       29
                                ---                ---            ---                ---             ---      ---
                                ---                ---            ---                ---             ---      ---
</TABLE>

     The Company entered into an agreement in 1994 to acquire five new 
Brasilia 30-passenger aircraft and options to acquire up to an additional 15 
aircraft (the Embraer Agreement).  Two of these aircraft were delivered in
December 1994, and three in 1995.  In July 1996, the Embraer Agreement
was terminated.

     During 1996 the Company sold eight Beechcraft 1900C aircraft to
Raytheon and leased them back under 12 year operating leases with an option
to return upon 30 day notice during the first two years.  At the termination
of the lease, the Company will be required to comply with certain aircraft
refurbishment provisions. Gains and losses on these transactions are amortized
over the first two years of the lease agreement because this is the maximum
term for which the Company expects to retain the aircraft.  If a lease is
terminated early the full amount of the remaining unamortized gain or loss is
recognized at that time. Five of the sale/leaseback aircraft were returned
to Raytheon.  One of the sale/leaseback aircraft was destroyed in November 1996.
The Company intends to provide notice to terminate the lease on the remaining
two aircraft.

     Since January 1, 1996, the Company took delivery of ten new Beechcraft 
1900D aircraft.  All of these aircraft have been financed by the manufacturer 
under 14-1/2 year operating leases.  In connection with the lease of these 
new Beechcraft 1900D aircraft, the Company acquired the right to sell to 
Raytheon certain Beechcraft 1900C aircraft at prices equal to the unamortized 
balance of the amounts owed on the aircraft.  In addition, the Company also 
obtained the right to sell one Beechcraft 1900C pledged as collateral to 
secure performance under a lease agreement wherein the Company operates two 
of its Brasilia aircraft. Management intends to sell that Beechcraft 1900C 
aircraft under this agreement and use substantially all of the proceeds of 
this sale to purchase a certificate of deposit to continue to collateralize 
this Brasilia lease.  No significant amount of cash will be generated from 
these transactions.

     As of December 31, 1996, the average ages of the Company's owned and 
leased aircraft were 5.3 and 3.9 years, respectively.

AIRCRAFT DEBT AND LEASES

     As of March 31, 1997, the Company's aircraft lease agreements are 
scheduled to expire in 1998 and thereafter.

     The aircraft lease agreements contain provisions which the Company 
believes are typical of leases for the type of aircraft involved. These terms 
include the requirement that the Company pay all taxes, maintenance, 
insurance and other operating expenses; general and tax indemnities from the 
Company; condition-on-return provisions; and default provisions, including 
cross-default provisions with other leases or agreements.

                                       6
<PAGE>

     In 1996 the Company has suffered significant losses in 1996 and 1995 and 
negative operating cash flow in 1996, has been unable to meet significant 
current and long-term financial obligations, and has defaulted on certain 
financial and operating agreements.

     Raytheon Aircraft Company and its financing affiliates (collectively, 
"Raytheon") is the Company's primary aircraft supplier and largest creditor. 
The Company has financed all 42 of its Beechcraft 1900 aircraft and one of 
its Brasilia aircraft under related lease and debt agreements with Raytheon, 
and Raytheon has also extended the Company a $5 million loan secured by 
accounts receivable (collectively, the "Raytheon Agreements").  The Raytheon 
Agreements went into default in 1997 due to the Company's nonpayment of 
scheduled amounts due.  The Raytheon Agreements also contain cross-default 
provisions which may be triggered if the Company's obligations to other 
creditors are accelerated as a result of non-payment of those obligations.  
The default provisions of the Raytheon Agreements give Raytheon the right to 
accelerate certain amounts due under the Raytheon Agreements or repossess the 
aircraft or other assets securing the Raytheon Agreements.  The Company is 
negotiating with Raytheon to defer, refinance, or restructure all balances
owed.  While management believes that initial discussions have been
favorable, there can be no assurance that such negotiations will be 
successful or that Raytheon will not exercise its rights under the default 
provisions.

     In addition, the Company has financed 11 of its Brasilia aircraft 
through five lease and debt agreements with other unrelated entities 
(collectively, the "Brasilia Agreements"). At December 31, 1996, one of the 
Brasilia Agreements under which it operates 2 of these aircraft was in 
default due to violation of a financial covenant.  During 1997, all of the 
other four Brasilia Agreements went into default due to non-payment of 
scheduled amounts due.  One of these Brasilia Agreements has been 
subsequently modified to allow deferral of payment of the defaulted amounts.  
Remedies available under the default provisions of the Brasilia Agreements 
have not been exercised, but include possible repossession and resale of the 
related aircraft, with the Company being responsible to pay any shortfall 
between such sale proceeds and the balance of the underlying obligations.  
The Company has received formal notice of default concerning non-payment of 
obligations owed under two of the Brasilia Agreements under which the Company 
leases a total of 4 Brasilia aircraft.

     The Company has been in negotiations with its lessors and lenders for 
deferral or other credit accommodations under the aforementioned lease and 
debt agreements, and in conjunction with such negotiations is seeking 
amendments of the agreements or waivers of the related defaults.  There can 
be no assurance that the lessors or lenders will agree to amend the 
agreements or waive the defaults.

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. Great 
Lakes supports its fleet by utilizing eighteen decentralized maintenance 
bases capable of performing these functions. These bases are located at 
Williston, North Dakota; Fargo, North Dakota; Devils Lake, North Dakota; 
Huron, South Dakota; Duluth, Minnesota; St. Paul, Minnesota; Grand Island, 
Nebraska; Sioux City, Iowa; Spencer, Iowa; Chicago, Illinois; Springfield, 
Illinois; Sault Ste. Marie, Michigan; Muskegon, Michigan; Marquette, 
Michigan; Raleigh/Durham, North Carolina; Tucson, Arizona; Terre Haute, 
Indiana and Denver, Colorado. The Company believes that performing its 
maintenance at locations where its aircraft are stored overnight reduces 
maintenance costs and promotes a higher level of operating efficiency.

     Maintenance is performed at the locations where flights terminate at the 
end of the day to minimize costly ferry flying and maximize the amount of 
time aircraft may be accessed for maintenance procedures. Parts and supplies 
inventories are also maintained at these locations to promote the mechanical 
dispatch reliability of the fleet. The Company also maintains an inventory of 
spare engines and propellers for its fleet to allow for minimal downtime 
during major overhauls. The Company performs certain major maintenance 
overhauls to its fleet which it believes most other regional airlines have 
performed by outside contractors.

SLOT ALLOCATION

     At Chicago O'Hare, scheduled flights during most times of day may be 
conducted only if an airline has obtained a slot. Of the 54 slots allocated 
to the Company by the FAA as of December 31, 1996, 27 may be used for 
aircraft with up to 75 seats and the remainder may be used for aircraft with 
up to 110 seats.

                                       7
<PAGE>

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

     In addition to the foregoing, on during January 1997 the Company was 
awarded slot exemptions for the specific purpose of providing 20 operations 
per day between Chicago O'Hare Airport and Dubuque and Mason City, Iowa; 
Huron and Sioux Falls, South Dakota; and Fargo, North Dakota.  These slot 
exemptions may not be bought, sold or traded without DOT approval.

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

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

     Effective October 29, 1995, pursuant to an option agreement, United 
purchased ten of the Company's landing and takeoff slots at Chicago O'Hare 
airport for $3.85 million.  Concurrently, the Company has an agreement to 
lease these  slots from United until May 1997 at which time the Company 
intends to extend the lease.  These ten slots were the only slots owned by 
the Company which were not encumbered by requirements to provide essential 
air service to small communities.  United has an option to purchase or lease 
all or any portion of the remaining 54 slots, until expiration of the United 
Express Agreement in April 1997.  United may acquire the Company's remaining 
54 slots for the lesser of their fair market value or $26.2 million.  
United's acquisition of the Company's remaining 54 slots is subject to the 
approval of the DOT and the assumption by United of essential air service 
responsibility to certain communities.  In the event United acquires any of 
the Company's remaining 54 slots, the Company has the right to lease the 
slots from United for a period of one year thereafter.

YIELD MANAGEMENT

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

                                       8
<PAGE>

MARKETING

     For United Express, Midway Connection and Great Lakes Airlines 
operations, the Company's services are marketed primarily by means of 
listings in computerized reservation systems and the OFFICIAL AIRLINE GUIDE, 
advertising and promotions, and through direct contact with travel agencies 
and corporate travel departments.  The Company's advertising and promotional 
programs emphasize the Company's close affiliation with United, Midway and 
other major carriers, including coordinated flight schedules and the right of 
the Company's passengers to participate in United's "Mileage Plus" and 
American Airlines' "AAdvantage" frequent flyer programs.

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 Airline Deregulation Act 
of 1978 (the "Deregulation Act").  Since that time, there has been 
substantial consolidation and integration of both major and regional 
carriers, including the acquisition or association of most regional carriers 
by or with major carriers.  Deregulation has made possible the rapid entry of 
competitors into the Company's markets, and competitors are able to adjust 
fares rapidly to improve their competitive position.

     Almost all markets are subject to a high degree of price competition 
both from established carriers and low fare jet carriers.  The Company 
believes, however, that its ability to compete in its market areas is 
strengthened by its code sharing relationships with United and Midway. 
United's substantial presence at Chicago O'Hare and Denver, enhances the 
importance to Great Lakes of the United "UA" flight designator code in the 
Upper Midwest. Beginning in mid-1996 and continuing into 1997, the Company's 
scheduled operations at Minneapolis/St. Paul have been substantially reduced 
and the resources redeployed to Chicago and Denver where United's dominant 
position is expected to generate greater connecting traffic to the 
Company's flights.  The Company competes with other airlines by offering 
frequent flights, flexible schedules and low fares. In addition, the 
Company's competitive position benefits from the large number of participants 
in United's "Mileage Plus" and American Airlines' "AAdvantage" frequent flyer 
programs who fly regularly to or from the markets served by the Company.  The 
Company's code sharing agreement with United does not prohibit United from 
competing with the Company.  The code sharing agreements requires the Company 
to obtain United's and Midway's written consent before commencing service on 
routes other than certain pre-approved routes.

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

FUEL

     The Company has not experienced difficulty with fuel availability and 
expects to be able to obtain fuel at prevailing prices in quantities 
sufficient to meet its future requirements. The Company contracts directly 
with refiners for the purchase of its fuel. Standard industry contracts 
generally do not provide protection against fuel price increases and do not 
ensure availability of supply. The Company has generally been able to pass on 
increases in fuel costs in the form of fare increases.

                                       9
<PAGE>

EMPLOYEES

     On December 31, 1996, the Company had 1198  full-time and 216 part-time
employees as follows:

          CLASSIFICATION:
          Pilots . . . . . . . . . . . . . . . . . . . . . . . . . .   354
          Station personnel  . . . . . . . . . . . . . . . . . . . .   673
          Maintenance personnel. . . . . . . . . . . . . . . . . . .   182
          Administrative and clerical personnel. . . . . . . . . . .   127
          Flight attendants. . . . . . . . . . . . . . . . . . . . .    58
          Management . . . . . . . . . . . . . . . . . . . . . . . .    20
                                                                     -----
          Total employees                                            1,414
                                                                     -----
                                                                     -----

     On March 4, 1996 the International Brotherhood of Teamsters  was 
certified to represent the pilots and have informed the Company of their 
intent to renegotiate the contract which became amendable on April 30, 1996.  
The Company and union jointly made application to the National Mediation 
Board for mediation services.  Negotiations are on-going.  During 1996 the 
flight attendants voted to be represented by the Teamsters Union.

     The Company's mechanics are represented by the International Association 
of Machinists ("IAM"), a national labor organization.  On February 1, 1994, 
the Company entered into its initial agreement with the IAM which provided 
for wage increases and benefit improvements.  This agreement becomes 
amendable on November 1, 1997.

     The Company believes that relations with its employees are satisfactory.

CHARTER AND FREIGHT SERVICE

     Great Lakes uses available aircraft and from time to time leases four 
and six passenger aircraft from an affiliated company to provide charter 
services to private individuals, corporations and groups such as collegiate 
athletic teams.  Great Lakes also carries freight, mail and small packages on 
most of its scheduled flights. Revenues from its charter flights and freight 
deliveries were 1.6 percent, 1.5 percent and 1.2 percent of the Company's 
total revenues for the years ended December 31, 1996, 1995 and 1994, 
respectively.

REGULATION

     In accordance with the provisions of the Federal Aviation Act of 1958, 
as amended (the "1958 Act"), Great Lakes 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 a commuter air carrier operating certificate issued by 
the FAA pursuant to Part 135 of its regulations. The Company, as a commuter 
air carrier, is licensed under Part 298 of the Economic Regulations of the 
DOT.

                                       10
<PAGE>

     The Company is subject to the jurisdiction of the FAA with respect to 
its aircraft maintenance and operations, including equipment, ground 
facilities, dispatch, communications, training, weather observation, flight 
personnel and other matters affecting air safety. To ensure compliance with 
its regulations, the FAA requires airlines to obtain an operating certificate 
and operations specifications for the particular aircraft and types of 
operations conducted by the carrier, all of which are subject to suspension 
or revocation for cause.

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

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

EXECUTIVE OFFICERS OF THE COMPANY

     Set forth below are the names, ages and positions of the executive 
officers of the Company.

Great Lakes
-----------

     Name                           Age                 Title
     ----                           ---                 -----
     Douglas G. Voss . . . . . . .   42   Chief Executive Officer, President 
                                          and Chairman of the Board of Directors
     A. L. Maxson  . . . . . . . .   61   Executive Vice President Finance,
                                          Chief Financial Officer and Director
     Richard H. Fontaine . . . . .   56   Senior Vice President Marketing
     Roberta L. Dircks . . . . . .   52   Vice President, Controller and
                                          Chief Accounting Officer


                        Background of Executive Officers
                        --------------------------------

     DOUGLAS G. VOSS.  Mr. Voss co-founded Great Lakes in 1979 and has served 
in the positions of Chief Executive Officer and director since the Company's 
inception. Mr. Voss became a pilot in 1974 and holds both an Airline 
Transport Pilot Certificate and an Airframe and Powerplant Mechanic 
Certificate. Mr. Voss is a graduate of Colorado Aero Tech. In 1977 and 1978, 
Mr. Voss was employed as a mechanic for a subsidiary of Beechcraft. He has 
served Great Lakes in a number of operational positions, including Director 
of Maintenance and Director of Operations.

     A. L. MAXSON.  Mr. Maxson became the Company's Chief Financial Officer 
and a director in December 1993 after serving the Company in a consulting 
capacity for several months. Mr. Maxson began his career in the aviation 
industry in 1966 when he joined Southern Airways, Inc. as its Controller and 
was made Chief Financial Officer shortly thereafter. Southern Airways, Inc. 
was ultimately merged with North Central Airlines Inc. to create Republic 
Airlines Inc., where Mr. Maxson also served as Chief Financial Officer. Mr. 
Maxson became Vice President Financial Planning for Northwest Airlines, Inc. 
upon that company's acquisition of Republic Airlines, Inc. in 1986. Mr. 
Maxson remained with Northwest Airlines, Inc. until 1991, and was 
self-employed as a financial consultant during the period from 1991 to 
December of 1993.  Mr. Maxson is a Director of Aero Systems Engineering, Inc.

     RICHARD H. FONTAINE.  Mr. Fontaine rejoined Great Lakes in his present 
position on September 25, 1995.  He previously had held the positions at 
Great Lakes of President and Chief Operating Officer from 1991 to 1993 and 
Executive Vice President and Chief Operating Officer from 1988 to 1991.  In 
the interim he was employed by GP Express Airlines ("GP Express") as 
Executive Vice President and President.  Previously he had been at Alliance
Airlines as Executive Vice President from 1986 to 1988, Simmons Airlines as
Senior Vice President of Planning in 1985 and 1986, Mississippi Valley
Airlines as Vice President from 1982 to 1985 and United Airlines in various
positions from 1967 to 1982.

                                       11
<PAGE>

     ROBERTA L. DIRCKS.  Ms. Dircks joined Great Lakes in her present 
position in August 1994.  She was Vice President and Controller at Gage 
Marketing Group from August 1992 to August 1994 at which time she joined 
Great Lakes.  Ms. Dircks was Vice President, Chief Financial Officer and 
Secretary for Vital Heart Systems from December 1991 to August 1992.  She 
served as Deputy State Auditor for the State of Minnesota from April 1991 to 
December 1991.  Ms. Dircks held several positions with Northwest Airlines and 
Republic Airlines from 1985 to 1991; most recently, she served as Staff Vice 
President with responsibility for the cost analysis and control department of 
Northwest Airlines.  She is a Certified Public Accountant.

     The officers of the Company are elected annually and serve at the 
discretion of the Board of Directors.

INSURANCE

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

ITEM 2.   PROPERTIES

     The Company leases gate and ramp facilities at 66 airports and leases 
ticket counter space at the 64 locations where ticketing is handled by 
Company personnel.  Payments to airport authorities for ground facilities are 
based on a number of factors, including the amount of space used and flight 
volume.  The Company also leases aircraft maintenance and hangar space at 18 
of the locations it serves.

     The Company leases approximately 15,000 square feet of space in Spencer, 
Iowa for its administrative, flight operations and maintenance offices, in 
addition to approximately 35,000 square feet of aircraft maintenance and 
hangar space located adjacent thereto. As of April 1, 1997 the Company leased 
an additional 32,000 square feet of space in Spencer for administration and 
maintenance shops.  For the Midway Connection operation, the Company leases 
approximately 23,000 square feet of space in Raleigh, North Carolina for its 
administrative, flight operations, maintenance offices, and aircraft 
maintenance and hanger space.  In addition, the Company leases approximately 
8,400 square feet of office space in Bloomington, Minnesota for accounting 
and administrative functions.  The Company believes that it has adequate 
facilities for the conduct of its current and planned operations.

ITEM 3.  LEGAL PROCEEDINGS

     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 crew members.  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 not currently a party to any other material pending legal 
proceedings.  From time to time the Company may become involved in routine 
litigation incidental to its business.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS DURING FOURTH 
QUARTER OF FISCAL YEAR

     There were no matters submitted to a vote of the Company's shareholders 
during the three-month period ended December 31, 1996.

                                       12
<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 National Market System.  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 and the dividends per share for each of the fiscal 
quarters since the Company's Common Stock began trading.  Quotations for such 
periods are as reported by NASDAQ for National Market System issues.

Stock Quotations
----------------

1996
                               High      Low
                              -----     -----
     First quarter            $4.20     $3.50
     Second quarter            6.75      3.50
     Third quarter             5.38      2.75
     Fourth quarter            4.13      1.63

1995
                               High      Low
                              -----     -----
     First quarter            $5.38     $3.00
     Second quarter            6.50      3.75
     Third quarter             7.38      5.38
     Fourth quarter            6.00      3.00


     As of March 31, 1997, the Company had approximately 1,800 holders of 
record of its Common Stock.

     The transfer agent for the Company's Common Stock is Norwest Bank 
Minnesota, N.A., 161 North Concord Exchange, South St. Paul, Minnesota, 
55075-0738, telephone: (612) 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, among other factors.

                                       13
<PAGE>

ITEM 6.  SELECTED FINANCIAL AND OPERATING DATA
         (In thousands, except per share and selected operating data)

     The following consolidated statement of earnings and consolidated 
balance sheet data as of and for each of the years in the five-year period 
ended December 31, 1996 are derived from the Company's consolidated financial 
statements.  The financial statements for the years ended December 31, 1996, 
1995, 1994, 1993 and 1992 have been audited by Arthur Andersen LLP, 
independent public accountants.  The consolidated financial statements as of 
December 31, 1996 and 1995 and for each of the years in the three-year 
period ended December 31, 1996 and the report thereon are included elsewhere 
in this Form 10-K.  The following selected financial data should be read in 
conjunction with and are qualified in their entirety by the consolidated 
Financial Statements and the notes thereto included elsewhere in this Form 
10-K.

<TABLE>
<CAPTION>
                                                                  Year Ended December 31
                                                 ----------------------------------------------------
                                                   1996        1995       1994       1993      1992
                                                 --------    --------    -------    -------   -------
<S>                                              <C>         <C>         <C>        <C>       <C>
STATEMENTS OF EARNINGS DATA:
  Passenger and public service revenues          $107,528    $ 81,215    $67,784    $58,000   $39,501
  Other revenues                                    2,142       2,981      2,224      2,370     2,722
                                                 --------    --------    -------    -------   -------
    Total operating revenues                      109,670      84,196     70,008     60,370    42,223
                                                 --------    --------    -------    -------   -------
  Operating expenses:
    Salaries, wages and benefits                   27,801      21,407     16,157     11,958     8,863
    Aircraft fuel                                  19,377      14,181     12,123      9,879     7,094
    Aircraft maintenance materials and repairs     13,248       9,229      8,612      6,631     3,600
    Commissions                                     7,704       6,211      5,340      4,412     3,147
    Depreciation and amortization                   5,634       6,029      4,852      3,562     3,022
    Aircraft rental                                11,643       5,213      1,151        458       122
    Other rentals and landing fees                  6,794       5,370      3,416      2,861     2,015
    Other operating expense                        25,871      17,315     13,157     10,921     7,008
                                                 --------    --------    -------    -------   -------
      Total operating expenses                    118,072      84,955     64,808     50,682    34,871
                                                 --------    --------    -------    -------   -------
  Operating income (loss)                          (8,402)       (759)     5,200      9,688     7,352
  Interest expense, net                            (5,875)     (7,282)    (5,370)    (6,266)   (6,549)
  Gain on sale of slots                                --       3,850         --         --        --
                                                 --------    --------    -------    -------   -------
  Income (loss) before income tax expense         (14,277)     (4,191)      (170)     3,422       803
  Provision (benefit) for income taxes             (1,454)     (1,503)      ( 65)     1,300       305
                                                 --------    --------    -------    -------   -------
  Net income (loss) before extraordinary item     (12,823)     (2,688)      (105)     2,122       498
  Extraordinary item:
    Gain on extinguishment of debt,
    net of income taxes of $312,000                    --          --        509        --         --
                                                 --------    --------    -------    -------   -------
  Net income (loss)                              $(12,823)   $ (2,688)   $   404    $ 2,122   $   498
                                                 --------    --------    -------    -------   -------
                                                 --------    --------    -------    -------   -------
  Net income (loss) per share                    $  (1.69)   $  (0.35)   $  0.05    $  0.45   $  0.11
                                                 --------    --------    -------    -------   -------
                                                 --------    --------    -------    -------   -------
  Average number of common shares outstanding       7,585       7,579      7,365      4,700     4,700
</TABLE>

                                       14
<PAGE>

<TABLE>
<CAPTION>
                                                                  Year Ended December 31
                                                 ----------------------------------------------------
                                                   1996        1995       1994       1993      1992
                                                 --------    --------    -------    -------   -------
<S>                                              <C>         <C>         <C>        <C>       <C>
SELECTED OPERATING DATA:
  Available seat miles (000s)(1)                  678,304     566,290    477,602    369,545   260,557
  Revenue passengers carried                    1,012,965     805,190    663,627    611,528   395,341
  Revenue passenger miles (000s)(2)               299,607     248,625    213,034    181,580   118,876
  Departures flown                                165,972     147,748    133,493    106,423    80,858
  Passenger load factor (3)                         44.2%       43.9%      44.6%      49.1%     45.6%
  Break-even passenger load factor (4)              51.5%       49.5%      44.7%      41.5%     38.4%
  Average yield per revenue passenger mile (5)  34.7CENTS   31.6CENTS  30.5CENTS  30.9CENTS 33.2CENTS
  Operating cost per available seat mile (6)    17.4CENTS   15.0CENTS  13.6CENTS  13.7CENTS 13.3CENTS
  Average passenger fare (7)                   $   102.69    $  97.58   $  97.99   $  91.87   $ 95.83
  Average passenger trip length (miles) (8)           296         309        321        297       301
  Aircraft in service (end of period)                  54          50         41         34        27
  Destinations served (end of period)                  86          73         55         47        42

BALANCE SHEET DATA:
  Working capital (deficit)                    $      603    $ 12,138   $ 10,615   $   (629)  $  (392)
  Total assets                                    119,109     140,715    141,934    103,316    80,367
  Long-term debt, net of current maturities        65,986      87,478     89,393     83,896    68,000
  Stockholders' equity                             18,740      31,540     34,202      4,962     2,841
</TABLE>

(1)  "Available seat miles" or "ASMs" represent the number of seats available
     for passengers in scheduled flights multiplied by the number of scheduled
     miles those seats are flown.
(2)  "Revenue passenger miles" or "RPMs" represent the number of miles flown by
     revenue passengers.
(3)  "Passenger load factor" represents the percentage of seats filled by
     revenue passengers and is calculated by dividing revenue passenger miles by
     available seat miles.
(4)  "Break-even passenger load factor" represents the percentage of available
     seat miles which must be flown by revenue passengers at the average yield
     (net of commissions and fees) for airline operations to break even.
(5)  "Average yield per revenue passenger mile" represents the average
     passenger revenue received for each mile a revenue passenger is carried.
(6)  "Operating cost per available seat mile" represents operating expenses
     divided by available seat miles.
(7)  "Average passenger fare" represents passenger revenue divided by the 
     number of revenue passengers carried.
(8)  "Average passenger trip length" represents revenue passenger miles divided
     by the number of revenue passengers carried.


                                       15
<PAGE>

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

OVERVIEW

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

     The Company began providing air charter service in 1979, and has 
provided scheduled passenger service in the Upper Midwest since 1981, along 
the East Coast since October 1995, and in the Southwest and Mexico since 
August 1995. In April 1992, the Company began operating as a United Express 
carrier under a cooperative marketing agreement with United.  In October 
1995, the Company began operating as a Midway Connection carrier under a 
cooperative marketing agreement with Midway.  As of December 31, 1996, the 
Company served 86 destinations in twenty states with 527 scheduled departures 
each weekday.

     The Company has suffered significant losses in 1996 and 1995 and negative
operating cash flow in 1996, has been unable to meet significant current and
long-term financial obligations, and has defaulted on certain financial and
operating agreements.  These matters raise substantial doubt about its ability
to continue as a going concern.  The Company's ability to continue as a going
concern depends upon successfully negotiating deferrals or a restructuring of
its financial obligations, negotiating extended or improved terms under its
major operating agreements, and ultimately, returning to sustained 
profitability. See "Liquidity and Capital Resources".

     In prior reports the Company has noted that it incurred an economic loss 
of approximately $1.9 million during the period of August 1995 to February 
1996 as a result of extraordinary FAA mandated inspections of Brasilia 
propeller blades.  The Company has resolved its claims related to these 
losses at a substantially lesser amount.

RESULTS OF OPERATIONS

COMPARISON OF 1996 TO 1995

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

                                       16
<PAGE>
<TABLE>
<CAPTION>
                              ------------------------------------------------------------------------------------
                                                       For the years ended December 31 (000's)
                              ------------------------------------------------------------------------------------
                                             1996                          1995                      1994
                              ------------------------------------------------------------------------------------
                                            Cents       %                                %                Cents
                                             per    Increase               Cents     Increase               per
                               Amount        ASM   from 1995  Amount      per ASM   from 1994  Amount       ASM
                              --------    ---------   ----    -------    ---------    ----     -------  ----------
<S>                           <C>         <C>      <C>        <C>        <C>        <C>        <C>      <C>   
Total operating revenues      $109,670      -         30.3%   $84,196      -          20.3%    $70,008     -
                              --------    ---------   ----    -------    ---------    ----     -------  ----------
Salaries, wages and benefits    27,801    4.1 CENTS   29.9     21,407    3.8 CENTS    32.5      16,157   3.4 CENTS
Aircraft fuel                   19,377    2.9         36.7     14,181    2.5          17.0      12,123   2.5
Aircraft maintenance
  materials and repairs         13,248    2.0         43.6      9,229    1.6           7.2       8,612   1.8
Commissions                      7,704    1.1         24.0      6,211    1.1          16.3       5,340   1.1
Depreciation and
  amortization                   5,634    0.8         (6.6)     6,029    1.1          24.3       4,852   1.0
Aircraft rental                 11,643    1.7        123.3      5,213    0.9         352.8       1,151   0.3
Other rentals and landing fees   6,794    1.0         26.5      5,370    0.9          57.2       3,416   0.7
Other operating expense         25,871    3.8         49.4     17,315    3.1          31.6      13,157   2.8
                              --------   ---------    ----    -------    ---------    ----     -------  ----------
Total operating expenses      $118,072   17.4         39.%    $84,954   15.0 CENTS    31.1%    $64,808  13.6 CENTS
                              --------    ---------   ----    -------    ---------    ----     -------  ----------
Operating income (loss)       $ (8,402)     -      (1008.4)%  $  (758)     -        (114.6)%   $ 5,200     -
                              --------    ---------   ----    -------    ---------    ----     -------  ----------
                              --------    ---------   ----    -------    ---------    ----     -------  ----------
Interest                      $  5,875    0.9 CENTS  (19.3)%  $ 7,282    1.3 CENTS    35.6%    $ 5,370   1.1 CENTS
                              --------    ---------   ----    -------    ---------    ----     -------  ----------
                              --------    ---------   ----    -------    ---------    ----     -------  ----------
Aircraft Expense
  Depreciation and 
    Amortization              $  5,634    0.8CENTS    (6.6)%  $ 6,029    1.1 CENTS    24.3%    $ 4,852   1.0 CENTS
  Aircraft Rental               11,643    1.7        123.3      5,213    0.9         352.8       1,151   0.3
  Interest expense, net          5,875    0.9        (19.3)     7,282    1.3          35.6       5,370   1.1
                              --------    ---------   ----    -------    ---------    ----     -------  ----------
                              $ 23,152    3.4CENTS    25.0%   $18,524    3.3 CENTS    62.9%    $11,373   2.4 CENTS
                              --------    ---------   ----    -------    ---------    ----     -------  ----------
                              --------    ---------   ----    -------    ---------    ----     -------  ----------
</TABLE>
<TABLE>
<CAPTION>
                                               Change                  Change
                                     1996     from 1995     1995     from 1994    1994
                                   -----------------------------------------------------
<S>                                <C>        <C>          <C>       <C>         <C>
Available seat miles (000's)        678,304    19.8%       566,290     18.6%     477,602
Revenue passenger miles (000's)     299,607    20.5%       248,625     16.7%     213,034
Passenger load factor                 44.2%     0.3 pts      43.9%     (0.7) pts   44.6%
Average yield per revenue
  passenger mile                   34.7 CENTS   3.1 CENTS   31.6 CENTS  1.1 CENTS   30.5 CENTS
</TABLE>

     OPERATING REVENUES:   Operating revenues increased 30.3% to $109.6 
million in 1996 from $84.2 million during 1995.  The increase in operating 
revenues resulted from the increase in revenue passenger miles flown by 20.5% 
to 299.6 million in 1996 from 248.6 million during 1995 and an increase of 
9.8% in yield per revenue passenger mile which increased from 31.6 cents in 
1995 to 34.7 cents in 1996.  This coincided with a 19.8% increase in capacity 
to 678.3 million ASMs in 1996 from 566.3 million ASMs during 1995.  The 
addition of Midway Connection and Arizona service for the entire year 
accounted for 54.6% and 26.8%, respectively, of the increase in operating 
revenues.  The increase in passenger yield is due primarily to the expiration 
of the 10% transportation tax without a corresponding reduction in ticket 
prices and increases in certain fares.  Midway Connection's full year 
operation increased the overall average as a result of its higher yield 
produced from its passengers with shorter trips.

     OPERATING EXPENSES:  Total operating expenses increased to $118.1 
million, or 17.4 cents per ASM, in 1996 from 85.0 million, or 15.0 cents per 
ASM in 1995.  In part, the increase in cost per ASM is due to decreased 
utilization of the Embraer 120 aircraft because of two airworthiness 
directives requiring frequent propeller inspections and lack of 

                                       17
<PAGE>

replacement propeller blades during the first quarter of 1996.  The increase 
of total operating expenses reflect the costs associated with expansion of 
the Company's aircraft fleet and increased level of operations, except as 
detailed below.

    Salaries, wages, and benefits expense increased to 4.1 cents per ASM 
during 1996, from 3.8 cents per ASM during 1995, due to additional flight 
attendant wages and additional pilot guarantees and training costs incurred 
related to expansion of operations utilizing Brasilia aircraft, and FAA 
Regulations Part 121 training.  Customer service salaries increased to 
facilitate the Company's expansion into new markets.  In addition, mechanic 
wages increased because of the previously discussed Brasilia propeller 
inspections and replacement and increases in the number of mechanics to
build staff to required levels.

    Aircraft fuel expense per ASM increased to 2.9 cents in 1996 from 2.5 
cents in 1995 due to increased fuel prices from suppliers and the 
reinstatement of the 4.3 cents per gallon federal excise tax on jet fuel in 
August 1996.

    Aircraft maintenance and repairs expense increased to 2.0 cents per ASM 
during  1996, from 1.6 cents per ASM in 1995, due to higher engine overhaul 
expense and increased repairs and contract labor for the initial on-going 
periodic maintenance checks on the Brasilia.

    Aircraft expense increased to 3.4 cents per ASM during 1996, from 3.3 
cents per ASM in 1995 due to reduced utilization because of the previously 
discussed Brasilia propeller inspections and replacement, and due to one 
Brasilia not being flown in the first quarter because of other mechanical 
problems.  The change in mix of aircraft expense towards increased aircraft 
rental expense from depreciation and interest expense is due to a policy 
decision to lease the majority of aircraft acquisitions in order to gain 
advantage of lower capital costs.  Further, concurrent with acquisitions of 
new Beech aircraft, older aircraft were being returned to Raytheon and 
reacquired under reduced leases offering more flexible terms for early 
termination. Interest expense also decreased in 1996 from 1995, as a result 
of the decrease in the prime interest rate to which a substantial portion of 
debt is tied.

    Other rentals and landing fee expenses increased to 1.0 cents per ASM 
during 1996, from 0.9 cents per ASM in 1995, as a result of higher facility 
and landing fee costs at the new Denver International Airport, along with 
increased administrative facility costs necessary for the Company's expansion 
into new markets.

    Other operating expenses increased to 3.8 cents per ASM in 1996 from 3.1 
cents in 1995, reflecting higher passenger booking fees due to increases in 
rates and increased bookings for the Midway Connection and higher credit card 
expenses for the Midway Connection and Great Lakes Airlines operations.  
These expenses were also increased due to flight cancellations resulting from 
severe weather conditions in upper Midwest and to unanticipated turnover in 
flight personnel due to major carrier hiring.  During the fourth quarter of 
1996, the Company accelerated its program to replace its Beechcraft 1900C 
aircraft with 1900D aircraft.  As a consequence, the Company believes it has 
excess Beechcraft 1900C inventory and has made an adjustment for $1.5 million 
dollars to reduce the inventory to estimated net realizable value.  These 
increases were partially offset by lower United program fees due to increased 
flying under the Company's own code and insurance proceeds from the November 
accident.

    PROVISION (BENEFIT) FOR INCOME TAXES:  The Company's effective rate was
10.2 percent in 1996 and 35.9 percent in 1995.  In recognition of the 
Company's financial results of recent periods the Company has elected to 
cease recognizing future tax benefits until it is reasonably assured that 
such benefits would be realized.

COMPARISON OF 1995 TO 1994

    OPERATING REVENUES:   Operating revenues increased 20.3% to $84.2 million 
in 1995 from $70.0 million during 1994.  The increase in operating revenues 
resulted from the increase in revenue passenger miles flown by 16.7% to 248.6 
million in 1995 from 213.0 million during 1994 in conjunction with a 18.6% 
increase in capacity to 566.3 million ASMs in 1995 from 477.6 million ASMs 
during 1994.  The increase in passenger yield is due to moving service from 
lower yield markets to higher yield markets and due to a slight increase in 
prices in the general market and in some specific company markets.  The 
decline in load factor is due primarily to increased competition in existing 
markets at a time when the Company was adding capacity to expand service to 
new and existing routes for the United Express systems, mainly in the first 
two quarters of 1995.  See "Business-Competition."  In addition, the 
reduction in load factor is due to the introduction of Midway Connection 
flying where the Company experienced a 23.7% load

                                       18

<PAGE>

factor from October through December 1995. The average load factor in the 
first quarter of 1996 for Midway Connection was 37.2%.

    OPERATING EXPENSES:  Total operating expenses increased to $85.0 million, 
or 15.0 cents per ASM, in 1995 from 64.8 million, or 13.6 cents per ASM in 
1994.  In part, the increase in cost per ASM is due to decreased utilization 
of the Embraer 120 aircraft because of two airworthiness directives requiring 
frequent propeller inspections and lack of replacement propeller blades.  The 
increase of total operating expenses reflect the costs associated with 
expansion of the Company's aircraft fleet and increased level of operations, 
except as detailed below.

    Salaries, wages, and benefits expense increased to 3.8 cents per ASM 
during 1995, from 3.4 cents per ASM during 1994, due to additional flight 
attendant wages and additional pilot guarantees and training costs incurred 
related to expansion of operations utilizing Brasilia aircraft, and customer 
service salaries to facilitate the Company's expansion into new markets.

    Aircraft maintenance, materials and repairs expense decreased to 1.6 
cents per ASM during 1995, from 1.8 cents per ASM, in 1994, due to a lower 
rate of engine overhauls in 1995.  At December 31, 1995, the average age of 
the aircraft in the Company's fleet was four years.

    Depreciation and amortization increased to 1.1 cents per ASM in 1995 from 
1.0 cents per ASM in 1994, while aircraft rental expense increased to 0.9 
cents per ASM during 1995, from 0.3 cents per ASM in 1994, due to the 
increasing number of aircraft leased, along with the conversion of five 
capital leases to operating leases in June 1995.

    Other rentals and landing fee expenses increased to 0.9 cents per ASM 
during 1995, from 0.7 cents per ASM in 1994, as a result of higher facility 
and landing fee costs at the new Denver International Airport, along with 
increased administrative facility costs necessary for the Company's expansion 
into new markets.

    Other operating expenses increased to 3.1 cents per ASM in 1995 from 2.8 
cents in 1994, reflecting higher passenger booking and United program fee 
rates and increased hull insurance costs, as a result of fleet additions, 
along with additional hotels and transportation for repositioning of pilots 
and training costs associated with the increase in the number of aircraft.  
There were also increased passenger food and supply costs associated with 
increased Embraer 120 flights.

    INTEREST EXPENSE:  Interest expense increased to 1.3 cents per ASM, in 
1995 from 1.1 cents per ASM, during 1994, due to increased debt associated 
with additional aircraft purchased which was partially offset by a reduction 
in capitalized leases, as well as the increase in the prime interest rate to 
which a substantial portion of debt is tied.  All long-term debt outstanding 
at December 31, 1995 was with Raytheon Acceptance Corporation, Inc. and CIT 
Group/Equipment Financing, Inc., at interest rates ranging from 6.6 percent 
to 9.75 percent.

    PROVISION (BENEFIT) FOR INCOME TAXES:  The Company's effective rate 
was 35.9 percent in 1995 and 38.0 percent in 1994.

LIQUIDITY AND CAPITAL RESOURCES

    The major uses of working capital in 1996 were the net loss of $12.8 
million and increase of inventory of $2.1 million offset by non cash charges 
for depreciation of $5.6 million and the increase of accounts payable and 
accrued liabilities of $5.4 million, the latter primarily from extending the 
period of time before invoices were paid.  Inventory increased by $2.1 
million due to increased levels of Embraer 120 and Beechcraft 1900D parts.  
The increase in inventory was offset by an increase of $1.5 million in a 
valuation allowance to reduce the inventory to net realizable value.

    Further mitigating the above uses of cash flows in operating activities 
was the reduction in accounts receivable resulting from the advance 
collection of $2.2 million owed by United.  The Company's working capital 
decreased to $.6 million at December 31, 1996 from $12.1 million at December 31,
1995. Cash decreased $.1 million to $6.7 million at December 31, 1996 
from $6.8 million at December 31, 1995.

    The Company has suffered significant losses in 1996 and 1995 and
negative operating cash flow in 1996, has been unable to meet significant
current and long-term financial obligations, and has defaulted on certain
financial and operating
                                       19
<PAGE>

agreements. These matters raise substantial doubt about its ability to 
continue as a going concern.  The Company's ability to continue as a going
concern depends upon successfully negotiating deferrals or a restructuring
of its financial obligations, negotiating extended or improved terms under
its major operating agreements, and ultimately, returning to sustained
profitability.

    Raytheon Aircraft Company and its financing affiliates (collectively, 
"Raytheon") is the Company's primary aircraft supplier and largest creditor. 
The Company has financed all 42 of its Beechcraft 1900 aircraft and one of 
its Brasilia aircraft under related lease and debt agreements with Raytheon, 
and Raytheon has also extended the Company a $5 million loan secured by 
accounts receivable (collectively, the "Raytheon Agreements").  The $5 million
loan bears interest at 8.25%.  Interest on this loan is payable monthly and 
all advanced principle is to be repaid by March 31, 1997.  The Raytheon 
Agreements went into default in 1997 due to the Company's non-payment of 
scheduled amounts due.  The Raytheon Agreements also contain cross-default 
provisions which may be triggered if the Company's obligations to other 
creditors are accelerated as a result of non-payment of those obligations.  
The default provisions of the Raytheon Agreements give Raytheon the right to 
accelerate certain amounts due under the Raytheon Agreements or repossess the 
aircraft or other assets securing the Raytheon Agreements.  The Company is 
negotiating with Raytheon to defer, refinance, or restructure all balances
owed.  While management believes that initial discussions have been favorable,
there can be no assurance that such negotiations will be successful or that
Raytheon will not exercise its rights under the default provisions.

    In addition, the Company has financed 11 of its Brasilia aircraft through 
five lease and debt agreements with other unrelated entities (collectively, the
"Brasilia Agreements").  At December 31, 1996, one of the Brasilia Agreements 
under which it operates 2 of these aircraft was in default due to violation 
of a financial covenant.  During 1997, all of the other four Brasilia 
Agreements went into default due to non-payment of scheduled amounts due.  
One of these Brasilia Agreements has been subsequently modified to allow 
deferral of payment of the defaulted amounts.  Remedies available under the 
default provisions of the Brasilia Agreements have not been exercised, but 
include possible repossession and resale of the related aircraft, with the 
Company being responsible to pay any shortfall between such sale proceeds and 
the balance of the underlying obligations.  The Company has received formal 
notice of default concerning non-payment of obligations owed under two of the 
Brasilia Agreements under which the Company leases a total of 4 Brasilia 
aircraft.

    The Company has been in negotiations with its lessors and lenders for 
deferral or other credit accommodations under the aforementioned lease and 
debt agreements, and in conjunction with such negotiations is seeking 
amendments of the agreements or waivers of the related defaults.  There can 
be no assurance that the lessors or lenders will agree to amend the 
agreements or waive the defaults.

    The Company has been continuing to extend and increase the past due 
amounts owed to its trade vendors.  There can be no assurance that the 
Company's trade vendors will  continue to supply the Company with goods and 
services on terms acceptable to the Company or that they will agree to any 
credit accommodations on past due amounts owed.

    On October 26, 1996 the Company entered into an agreement with a vendor 
in which $1,767,231 of outstanding invoices were converted into a short-term 
promissory note bearing interest at prime plus 1%.

    The Company had a line of credit arrangement with a bank totaling $5 
million at December 31, 1995.  During 1995 the average outstanding borrowing 
was $780,000 with an average rate of borrowings of 9.4%.  The maximum 
borrowing for 1995 was $4.15 million.  There were no borrowings outstanding 
under this arrangement at December 31, 1995.

    Capital expenditures related to aircraft and equipment totaled $2.6 
million in 1996, $18.2 million during 1995, and $33.4 million in 1994.  
Payment of debt exceeded borrowings by $14.2 million in 1996.  Long-term 
borrowings exceeded principal repayments by $10.2 million in 1995, and
$7.0 million in 1994.

    Long-term debt, net of current maturities of $5.1 million, totaled $66.0 
million at December 31, 1996 compared to $87.5 million net of current 
maturities of $4.8 million, at December 31, 1995, and $89.4 million, net of 
current maturities of $5.4 million, at December 31, 1994.  As of December 31, 
1996, the term notes bear interest at rates ranging from 6.6 to 9.0 percent
and are payable monthly or quarterly through June, 2009.  All long-term debt
as of

                                       20
<PAGE>

December 31, 1996, relates to the acquisition of aircraft and funding of 
operating losses and all financing was provided either by Raytheon or CIT 
Group/Equipment Financing, Inc. and is collateralized by 24 related aircraft. 
There are no financial covenants related to such long-term debt.

    During 1996, the Company has taken delivery of ten new Beechcraft 1900D 
aircraft.  All of these aircraft have been financed by the manufacturer under 
14-1/2 year operating leases.

    The Company entered into an agreement in 1994 to acquire five new 
Brasilia 30-passenger aircraft and options to acquire up to an additional 15 
aircraft (the Embraer Agreement ).  Two of these aircraft were delivered in 
December 1994, and three in 1995.  As a part of the Embraer Agreement, the 
Company was granted incentives, the benefit of which is amortized over the 
lease term.  In July 1996, the Embraer Agreement was terminated.

SEASONALITY

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

FREQUENT FLYER PROGRAM

    On the Company's United Express and Midway Connection flights passengers 
may earn miles in United's "Mileage Plus" and American Airlines "AAdvantage" 
frequent flyer programs, and passengers may use mileage accumulated in these 
programs to obtain discounted or free tickets for trips that might include a 
flight segment on one of the Company's flights.  No revenues are earned or 
collected on free tickets awarded to passengers under the programs.  Awards 
earned under the frequent flyers programs have an expiration date three years 
from the date earned.  The programs also contain certain restrictions, 
including blackout dates and capacity controlled bookings which substantially 
limit the use of awards on certain flights and during the busiest periods.  
The Company continually monitors the number of free travel award reservations 
on its flight segments to ensure that they are within the capacity 
restrictions defined in the "Mileage Plus" and "AAdvantage" programs.  The 
Company's yield management program and related seat restrictions minimize the 
number of revenue passengers that may be displaced on any individual flight 
segment.  To date, the Company has not experienced any material use of 
"Mileage Plus" and "AAdvantage" awards to obtain travel on flights, and the 
incremental cost to the Company attributable to the exercise of frequent 
flyer awards (consisting primarily of a minimal amount of additional gate and 
passenger service expenses) has not been material.  Awards used on the 
Company's flights during the year ended December 31, 1996 represented 
approximately 2.6% percent of the Company's total passengers.  The Company 
expects that this percentage will remain approximately the same for the 
foreseeable future.  Based on this low percentage, on the availability on 
many of the Company's flights of otherwise vacant seats, and on the programs' 
restrictions, the Company believes that the displacement, if any, of revenue 
passengers by users of "Mileage Plus" and "AAdvantage" awards will not become 
material.  The Company continually monitors the number of awards redeemed and 
will accrue the incremental costs associated with the "Mileage Plus" and 
"AAdvantage" programs if they become material.

EFFECTS OF INFLATION

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

                                       21

<PAGE>

CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE 
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

CAUTIONARY FACTORS

    The Company wishes to caution stockholders and prospective investors that 
the following important factors, among other identified in this Annual Report 
on Form 10-K, could affect the Company's actual operating results, and that 
such results could differ materially from those expressed in any 
forward-looking statements made by the Company.  The statements under this 
caption are intended to serve as cautionary statements within the meaning of 
the Private Securities Litigation Reform Act of 1995.  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.

ADDITIONAL FINANCING REQUIREMENTS

    The Company's ability to maintain operations at current levels is 
materially dependent on its ability to obtain substantial additional 
financing. In the most recent two years, the Company has experienced 
significant operating losses as a result of increased competition in the 
marketplace, operational and equipment reliability challenges, and expenses 
relating to expansion of fleet types.  The difficult environment in which the 
Company competes will continue into the foreseeable future.  While the 
Company is making efforts to achieve profitability, primarily through revised 
scheduling, including reallocation of Brasilia assets from the Midway system 
to the United Express system, continuing losses have resulted in significant 
liquidity pressures.  The Company has significant financial obligations, 
including interest bearing debt and capital lease obligations.  The Company's 
long-term debt and lease obligations require significant periodic cash 
payments and the Company has not made these payments on a timely basis.  The 
Company has not obtained commitments for additional capital and will be 
required to rely on increases in financial performance to supply funds 
necessary for debt service and working capital requirements. There can be no 
assurance that the Company's financial performance will improve sufficiently 
to provide cash needed for operations.

DEPENDENCE ON RELATIONSHIP WITH UNITED

    The Company generated approximately 79% of its revenues for the year 
ended December 31, 1996 under the United Express Agreements described under 
"Business - The Company's Regional Identities".  The United Express 
Agreements require the Company to comply with specific operating performance 
standards and, with certain limited exceptions, restrict the ability of the 
Company to merge with another company or dispose of its assets or aircraft 
without first offering United a right of first refusal to acquire the Company 
or such assets or aircraft.  The United Express Agreements also prohibit the 
Company from entering into similar arrangements with other carriers in 
Chicago, Denver, Minneapolis-St. Paul, Detroit, Des Moines or Omaha without 
United's prior approval.  The United Express Agreements require the Company 
to obtain United's prior consent to operate as a United Express carrier in 
any market, except for certain pre-approved markets connecting with 
Minneapolis-St. Paul or Detroit. The United Express Agreements terminate in 
April 1997 and are subject to termination upon the failure of the Company to 
provide specified levels of service or performance or upon other specified 
events.  A failure to renew the United Express Agreements, any termination or 
materially adverse modification of the agreements, or any substantial 
decrease in the number of routes served by the Company under the agreements 
would have a materially adverse effect on the Company's business.  As a 
result of the United Express Agreements, the Company's business is sensitive 
to events and risks affecting United.  If adverse events affect United's 
business, the Company's business will also be adversely affected.

                                       22

<PAGE>

UNITED OPTION TO PURCHASE O'HARE SLOTS

    United holds an option to purchase or lease all or a portion of the 54 
landing and takeoff slots which the Company holds at the Chicago O'Hare 
airport.  United may acquire these slots for the lesser of their fair market 
value or $26.2 million.  United's acquisition of the slots is subject to the 
approval of DOT and the assumption by United of Essential Air Service 
responsibility to certain communities.  In the event United acquires these 
slots, the Company has the right to lease the slots from United for a period 
of only one year thereafter.  In the event United exercises this option and 
declines to extend the term of the lease-back to the Company, the Company's 
operations at the Chicago O'Hare airport would be adversely affected.

EFFECT OF GENERAL ECONOMIC CONDITIONS

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

FUEL COSTS

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

SEASONALITY

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

CONTROL BY PRINCIPAL STOCKHOLDER

    Mr. Voss beneficially owns approximately 62% 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 now ex-spouse, Ms. Gayle R. Voss, pursuant to the Marital 
Dissolution Stipulation and Property Settlement.  Ms. Voss has granted Mr. 
Voss an Irrevocable Proxy to vote such securities until June 28, 2010.  In 
addition, the terms of the United Express Agreements require that Mr. Voss 
control at least 51% of the Company's outstanding voting stock.  Accordingly, 
Mr. Voss will continue to be in a position to control the management and 
affairs of the Company.

NO ASSURANCE AS TO LIQUIDITY ON THE NATIONAL MARKET SYSTEM

    The Company's common stock is currently listed on The Nasdaq National 
Market System.  There can be no assurance that the Company's common stock 
will be actively traded on such market or that it will continue to be listed 
on such market.

                                       23

<PAGE>

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements of the Company as of December 31, 1996 
and 1995 together with Report of Independent Public Accountants are included 
in this Form 10-K on the pages indicated below.

                                                                           PAGE

Report of Independent Public Accountants...................................  25

Consolidated Balance Sheets as of December 31, 1996 and 1995...............  26

Consolidated Statements of Operations for the Years Ended 
   December 31, 1996, 1995 and 1994........................................  27

Consolidated Statements of Stockholders' Equity for the Years Ended
   December 31, 1996, 1995 and 1994........................................  28

Consolidated Statements of Cash Flows for the Years Ended 
   December 31, 1996, 1995 and 1994........................................  29

Notes to Consolidated Financial Statements.................................  30

Supplemental Schedule to Consolidated Financial Statements
   Schedule II - Valuation and Qualifying Accounts.........................  41


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.




                                       24
<PAGE>

                 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To Great Lakes Aviation, Ltd.:

We have audited the accompanying consolidated balance sheets of Great Lakes 
Aviation, Ltd. (an Iowa corporation) and Subsidiary as of December 31, 1996 
and 1995, and the related consolidated statements of operations, 
stockholders' equity and cash flows for each of the three years in the period 
ended December 31, 1996.  These financial statements are the responsibility
of the Company's management.  Our responsibility is to express an opinion on
these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Great Lakes Aviation, Ltd.
and subsidiary as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the 
Company will continue as a going concern.  As discussed in Note 2 to the 
financial statements, the Company has suffered significant losses in 1996 and
1995 and negative operating cash flow in 1996, has been unable to meet its 
significant current and long-term financial obligations, and has defaulted on 
certain financial and operating agreements.  These matters raise substantial 
doubt about its ability to continue as a going concern.  Management's plans 
in regard to these matters are also described in Note 2.  The financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern.

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

                                            ARTHUR ANDERSEN LLP

Minneapolis, Minnesota,
April 4, 1997

                                       25

<PAGE>

                 GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
                        Consolidated Balance Sheets
                             As of December 31


                     ASSETS                            1996            1995
                                                   ------------    ------------
CURRENT ASSETS:
  Cash                                             $  6,676,333    $  6,784,516
  Accounts receivable                                 7,273,766       8,480,199
  Inventories, net (Note 3)                          12,668,615      10,219,543
  Prepaid expenses and other current assets           2,253,700       1,202,481
  Deposits on flight equipment                                -         352,772
                                                   ------------    ------------
        Total current assets                         28,872,414      27,039,511
                                                   ------------    ------------
PROPERTY AND EQUIPMENT:
  Flight equipment                                   98,281,251     124,665,915
  Other property and equipment                        3,863,011       3,369,788
  Less - Accumulated depreciation and amortization  (14,901,196)    (16,005,052)
                                                   ------------    ------------
        Total property and equipment                 87,243,066     112,030,651

OTHER ASSETS                                          2,493,869       1,644,530
                                                   ------------    ------------
                                                   $118,609,349    $140,714,692
                                                   ------------    ------------
                                                   ------------    ------------

                         LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Note payable and current maturities of 
    long-term debt                                 $ 11,667,911    $  4,820,000
  Accounts payable                                   13,089,639       7,154,558
  Accrued liabilities and unearned revenue            3,512,073       2,926,746
                                                   ------------    ------------
        Total current liabilities                    28,269,623      14,901,304
                                                   ------------    ------------

LONG-TERM DEBT, net of current maturities            65,985,943      87,477,663
DEFERRED CREDITS                                      5,614,116       5,341,863
DEFERRED INCOME TAXES                                         -       1,453,640
                                                   ------------    ------------
COMMITMENTS AND CONTINGENCIES (Notes 2, 4, 7 and 8)
STOCKHOLDERS' EQUITY:
  Common stock, $.01 par value; 50,000,000 shares 
    authorized, 7,586,326 and 7,580,723 shares 
    issued and outstanding at December 31, 1996 
    and 1995                                             75,863          75,807
  Paid-in capital                                    28,919,765      28,897,202
Retained earnings (accumulated deficit)             (10,255,961)      2,567,213
                                                   ------------    ------------
        Total stockholders' equity                   18,739,667      31,540,222
                                                   ------------    ------------
                                                   $118,609,349    $140,714,692
                                                   ------------    ------------
                                                   ------------    ------------
The accompanying notes to consolidated financial statements are an integral 
part of these consolidated balance sheets.

                                       26
<PAGE>

                  GREAT LAKES AVIATION, LTD. AND SUBSIDIARY

                   Consolidated Statements of Operations

                     For the Years Ended December 31

                                         1996           1995          1994
                                     ------------   -----------    -----------
OPERATING REVENUES:
   Passenger                          $104,016,017   $78,574,780    $65,034,718
   Public service                        3,512,156     2,639,857      2,749,025
   Freight, charter and other            2,141,517     2,981,448      2,224,477
                                      ------------   -----------    -----------
      Total operating revenues         109,669,690    84,196,085     70,008,220
                                      ------------   -----------    -----------
OPERATING EXPENSES:
   Salaries, wages and benefits         27,800,983    21,406,644     16,156,867
   Aircraft fuel                        19,377,128    14,180,745     12,123,355
   Aircraft maintenance materials 
      and repairs                       13,247,641     9,229,072      8,612,097
   Commissions                           7,704,342     6,211,491      5,340,364
   Depreciation and amortization         5,633,535     6,029,464      4,851,934
   Aircraft rental                      11,643,163     5,212,603      1,150,980
   Other rentals and landing fees        6,793,660     5,369,654      3,415,732
   Other operating expense              25,871,443    17,314,726     13,156,911
                                      ------------   -----------    -----------
      Total operating expenses         118,071,895    84,954,399     64,808,240
                                      ------------   -----------    -----------
      Operating income (loss)           (8,402,205)     (758,314)      5,199,980
                                      ------------   -----------    -----------
INTEREST EXPENSE                        (5,874,609)   (7,282,294)    (5,370,115)
GAIN ON SALE OF SLOTS                            -     3,850,000              -
                                      ------------   -----------    -----------
      Loss before income taxes         (14,276,814)   (4,190,608)      (170,135)
BENEFIT FOR INCOME TAXES                (1,453,640)   (1,503,000)       (65,000)
                                     ------------    -----------    -----------
      Net Loss before
         extraordinary item           $(12,823,174)  $(2,687,608)   $  (105,135)

EXTRAORDINARY ITEM:
   Gain on extinguishment of debt,
      net of income taxes of 
      $311,953 (Note 5)                        --             --        508,976
                                     ------------    -----------    -----------
      Net income (loss)              $(12,823,174)   $(2,687,608)   $   403,841
                                     ------------    -----------    -----------
                                     ------------    -----------    -----------
NET INCOME (LOSS) PER SHARE:
   Before extraordinary item         $      (1.69)   $      (.35)   $      (.02)
   Extraordinary item                           -              -            .07
                                     ------------    -----------    -----------
      Net income (loss) per share        $  (1.69)       $  (.35)        $  .05
                                     ------------    -----------    -----------
                                     ------------    -----------    -----------
WEIGHTED AVERAGE SHARES 
   OUTSTANDING                          7,585,405      7,578,779      7,365,447
                                     ------------    -----------    -----------
                                     ------------    -----------    -----------

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


                                       27

<PAGE>

                  GREAT LAKES AVIATION, LTD. AND SUBSIDIARY

               Consolidated Statements of Stockholders' Equity

<TABLE>
<CAPTION>
                                    Comon Stock
                              ----------------------                    Retained
                                                                         Earnings
                                                          Paid-In      (accumulated
                                 Shares      Amount       Capital         deficit)          Total
                              ----------    --------    -----------    ------------     ------------
<S>                           <C>           <C>         <C>            <C>              <C>         
BALANCE, December 31, 1993     4,700,000    $ 47,000    $    64,342    $  4,850,980     $  4,962,322
  Issuance of common stock     2,875,000      28,750     28,806,604               -       28,835,354
  Net income                           -           -              -         403,841          403,841
                              ----------    --------    -----------    ------------     ------------
BALANCE, December 31, 1994     7,575,000      75,750     28,870,946       5,254,821       34,201,517
   Issuance of common stock        5,723          57         26,256               -           26,313
   Net loss                            -           -              -      (2,687,608)      (2,687,608)
                              ----------    --------    -----------    ------------     ------------
BALANCE, December 31, 1995     7,580,723      75,807     28,897,202       2,567,213       31,540,222
   Issuance of common stock        5,603          56         22,563               -           22,619
   Net loss                            -           -              -     (12,823,174)     (12,823,174)
                              ----------    --------    -----------    ------------     ------------
BALANCE, December 31, 1996     7,586,326    $ 75,863    $28,919,765    $(10,255,961)    $(18,739,667) 
                              ----------    --------    -----------    ------------     ------------
                              ----------    --------    -----------    ------------     ------------
</TABLE>

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

























                                       28


<PAGE>



                                  GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
                                    Consolidated Statements of Cash Flows
                                       For the Years Ended December 31

<TABLE>
<CAPTION>
                                                             1996             1995           1994
                                                        -------------    -----------     ---------- 
<S>                                                     <C>             <C>                <C>
OPERATING ACTIVITIES:
 Net income (loss)                                       $(12,823,174)   $(2,687,608)      $403,841
 Adjustments to reconcile net income (loss) to net
  cash provided by (used in)
   operating activities-
 Depreciation and amortization                              5,633,535      6,029,464      4,851,934
 Deferred income taxes                                     (1,453,640)    (1,503,000)       247,000
 Extraordinary item, net of income taxes                            -              -       (508,976)
 Change in current operating items:
    Accounts receivable, net                                1,206,433     (2,147,639)    (1,908,578)
    Inventories, net                                       (2,098,072)    (1,926,992)    (3,120,818)
    Prepaid expenses and other current assets                 195,868       (365,328)       390,702
    Deposits on flight equipment                              352,772      2,869,228     (3,222,000)
    Accounts payable and accrued liabilities                5,427,236      3,841,659      1,219,856
                                                        -------------    -----------     ----------
     Net cash provided by (used in)
       operating activities                                (3,559,042)     4,109,784     (1,647,039)
                                                        -------------    -----------     ---------- 
INVESTING ACTIVITIES:
 Purchases of flight equipment, property and equipment     (2,607,852)   (18,222,790)   (33,407,435)
 Proceeds from the sale of flight equipment                21,254,048      5,930,305      4,756,442
 Increase in other assets                                    (973,642)      (672,974)      (521,794)
                                                        -------------    -----------     ---------- 
    Net cash provided by (used in)
      investing activities                                 17,672,554    (12,965,459)   (29,172,787)
                                                        -------------    -----------     ---------- 
FINANCING ACTIVITIES:
 Proceeds from issuance of debt                            11,166,726     21,543,745     39,468,072
 Repayment of long term debt                              (25,411,040)   (11,325,759)   (32,514,547)
 Proceeds from sale of common stock                            22,619         26,313     28,835,354
                                                        -------------    -----------     ---------- 
    Net cash provided by (used in)
       financing activities                               (14,221,695)    10,244,299     35,788,879
                                                        -------------    -----------     ---------- 
NET CHANGE IN CASH                                           (108,183)     1,388,624      4,969,053
CASH:
 Beginning of year                                          6,784,516      5,395,892        426,839
                                                        -------------    -----------     ---------- 
 End of year                                             $  6,676,333   $  6,784,516   $  5,395,892
                                                        -------------    -----------     ---------- 
                                                        -------------    -----------     ---------- 
SUPPLEMENTARY CASH FLOW INFORMATION:
 Cash paid during the year for-
   Interest                                              $  6,024,469   $  7,483,323   $  5,526,457
   Income taxes                                                     -              -              -
                                                        -------------    -----------     ---------- 
                                                        -------------    -----------     ---------- 
 Noncash transactions-
   Deferred manufacturers' incentives received as:
     Property and equipment                                $        -   $  1,845,660     $  729,289
     Inventories                                              690,000        935,827        384,907
     Other assets                                                   -        325,697        270,279
     Prepaid expenses                                         700,000              -        140,000
                                                        -------------    -----------     ---------- 
                                                           $1,390,000     $3,107,184     $1,524,475
                                                        -------------    -----------     ----------   
                                                        -------------    -----------     ---------- 
   Conversion of capital leases into operating leases               -    $14,202,584              -
                                                        -------------    -----------     ---------- 
                                                        -------------    -----------     ---------- 
</TABLE>

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

                                       29

<PAGE>


                  GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
                  Notes to Consolidated Financial Statements

                          December 31, 1996 and 1995



1.  CORPORATE ORGANIZATION AND BUSINESS:

CORPORATE ORGANIZATION

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

BUSINESS

The Company provides scheduled passenger and air freight service via three 
marketing identities (United Express, Midway Connection and Great Lakes 
Airlines), the first two of which operate under code-sharing agreements
with major airlines.

The Company operates as United Express under a cooperative marketing 
agreement (United Express Agreement) with United Airlines, Inc. (United) and 
provides service to 60 destinations in the Upper Midwest as of December 31, 
1996. The term of the agreement continues through April 25, 1997 (see note 2).
Approximately 45%, 40%, and 37% of the United Express passengers connected 
with United for the years ended December 31, 1996, 1995 and 1994, 
respectively.  Outside the scope of the United Express Agreement, the Company 
serves additional destinations in the Upper Midwest as Great Lakes Airlines.

Since October 1, 1995 the Company has operated as a "Midway Connection" 
carrier under a cooperative marketing agreement (Midway Connection Agreement) 
with Midway Airlines, Inc. (Midway) and serves Raleigh/Durham from 14 
destinations in eight states located along the East Coast as of December 31, 
1996. Approximately 50% of Midway Connection passengers connected with Midway 
for the year ended December 31, 1996.  The Midway Connection Agreement 
continues through 2004 but is subject to earlier termination upon failure of 
the Company to provide specified levels of service or performance or upon 
other specified events (see note 2).

In August 1995 the Company foreclosed under a security agreement and acquired 
certain assets of Arizona Airways, Inc.  As of December 31, 1996, the Company 
serves 9 destinations in Arizona, New Mexico and Mexico as Great Lakes 
Airlines.

Revenues during 1996 and 1995 were derived 79% and 97% from United Express 
operations, 13% and 1% from Midway Connection and 8% and 2% from Great Lakes 
Airlines operations.  Substantially all 1994 revenues were derived from 
United Express operations.

During October 1995, the Company sold certain landing and takeoff slots at 
Chicago O'Hare airport to United, generating a gain of $3,850,000 (see note 8).

During January 1994 the Company completed its initial public offering of 
2,875,000 shares of common stock for $11.00 per share, generating net 
proceeds of  $28,835,354.

2.  LIQUIDITY AND GOING-CONCERN MATTERS:

The Company has suffered significant losses in 1996 and 1995 and negative
operating cash flow in 1996, has been unable to meet significant current
and long-term financial obligations, and has defaulted on certain
financial and operating agreements. These matters raise substantial doubt
about its ability to continue as a going

                                      30

<PAGE>

concern.  The Company's ability to continue as a going concern depends
upon successfully negotiating deferrals or a restructuring of its
financial obligations, negotiating extended or improved terms under its
major operating agreements, and ultimately, returning to sustained
profitability. 

Raytheon Aircraft Company and its financing affiliates (collectively, 
"Raytheon") is the Company's primary aircraft supplier and largest creditor. 
The Company has financed all 42 of its Beechcraft 1900 aircraft and one of 
its Brasilia aircraft under related lease and debt agreements with Raytheon, 
and Raytheon has also extended the Company a $5 million loan secured by 
accounts receivable (collectively, the "Raytheon Agreements").  The Raytheon 
Agreements went into default in 1997 due to the Company's non-payment of 
scheduled amounts due.  The Raytheon Agreements also contain cross-default 
provisions which may be triggered if the Company's obligations to other 
creditors are accelerated as a result of non-payment of those obligations.  
The default provisions of the Raytheon Agreements give Raytheon the right to 
accelerate certain amounts due under the Raytheon Agreements or repossess the 
aircraft or other assets securing the Raytheon Agreements.  The Company is 
currently in negotiations with Raytheon to defer, refinance, or restructure 
all balances owed.  While management believes that initial discussions have 
been favorable, there can be no assurance that such negotiations will be 
successful or that Raytheon will not exercise its rights under the default 
provisions.

In addition, the Company has financed 11 of its Brasilia aircraft through five
lease and debt agreements with other unrelated entities (collectively, the 
"Brasilia Agreements").  At December 31, 1996, one of the Brasilia Agreements 
under which it operates 2 of these aircraft was in default due to violation 
of a financial covenant.  During 1997, all of the other four Brasilia 
Agreements went into default due to non-payment of scheduled amounts due.  
One of these Brasilia Agreements has been subsequently modified to allow 
deferral of payment of the defaulted amounts.  Remedies available under the 
default provisions of the Brasilia Agreements have not been exercised, but 
include possible repossession and resale of the related aircraft, with the 
Company being responsible to pay any shortfall between such sale proceeds and 
the balance of the underlying obligations.  The Company has received formal 
notice of default concerning non-payment of obligations owed under two of the 
Brasilia Agreements under which the Company leases a total of 4 Brasilia 
aircraft.

The Company has been in negotiations with its lessors and lenders for 
deferral or other credit accommodations under the aforementioned lease and 
debt agreements, and in conjunction with such negotiations is seeking 
amendments of the agreements or waivers of the related defaults.  There can 
be no assurance that the lessors or lenders will agree to amend the 
agreements or waive the defaults.

The Company has been continuing to extend and increase the past due amounts 
owed to its trade vendors.  There can be no assurance that the Company's 
trade vendors will  continue to supply the Company with goods and services on 
terms acceptable to the Company or that they will agree to any credit 
accommodations on past due amounts owed.

On April 25, 1997, the United Express Agreement will expire.  Currently, the 
Company is in default of a covenant of the United Express Agreement as a 
result of its nonpayment of bills when due.  The Company earns the majority 
of its revenues under the United Express Agreement and, in exchange for 
certain per passenger fees, receives certain benefits from its relationship 
with United including the listing of its flights under United's computer 
reservation system code. Management is negotiating with United to renew the
United Express Agreement.  While management believes that initial discussions
have been favorable, there can be no assurance that such negotiations will
be successful or that the United Express Agreement can be renewed or
extended at terms acceptable to the Company.

Since its inception in October 1995, significant operating losses have been 
incurred from the Company's operations under the Midway Connection Agreement. 
This is partially attributable to the fact that Midway reduced the number of 
aircraft in its operation early in 1996 rather than expanding operations as 
it had originally planned.  This reduced the number of connecting 
opportunities for the Company's flights and, in

                                      31

<PAGE>

turn, potential traffic which could use the Company's services. The Company 
is negotiating with Midway to receive additional revenues to compensate it 
for providing current levels of connecting traffic to Midway.  While 
management believes that initial discussions have been favorable, there can 
be no assurance that these negotiations will be successful.  Depending on the 
outcome of its negotiations with Midway, the Company may make certain 
adjustments to its Raleigh / Durham scheduled service levels.  During the 
first quarter of 1997 the Company eliminated certain unprofitable routes and 
the number of aircraft committed to Midway services have been reduced from 
twelve to ten.  The Company is not in compliance with certain of the 
requirements of the Midway Connection Agreement and as a result, the Midway 
Connection Agreement may be subject to early termination at Midway's option. 
On April 4, 1997, the Company received a letter from Midway stating that 
Midway has no intention to exercise its right to terminate the Midway 
Connection Agreement; however either party may terminate the Midway Agreement 
effective any time on or after October 1, 1997, upon six months' prior 
written notice.

The Company has made substantial revisions to its flight schedules and may 
make further revisions in an effort to improve operating results.  Service to 
several unprofitable cities has been eliminated and new service to certain 
other cities has been or is anticipated to be introduced.  The Company is 
analyzing opportunities in 1997 to improve its revenue optimization processes 
to increase revenue passenger yields and to reduce certain operating 
expenses.  The Company is also analyzing opportunities to rationalize its 
capacity levels, optimize its aircraft fleet and mix, and improve the 
deployment of its capacity.  Further, the Company has negotiated improved 
terms and subsidy rates on certain of its routes subsidized by the U.S. 
Department of Transportation under the Essential Air Service program.  While 
management believes these initiatives will address some of the causes of its 
recent operating losses, there can be no assurance that the results from 
these actions will result in improved operating performance or sustained 
profitability.

There can be no assurance that the Company's negotiations will be successful 
in deferring or restructuring its current and long-term financial 
obligations, extending or improving terms under its major operating 
agreements, or that its operational improvement initiatives will result in 
improved operating performance or sustained profitability.  Such negotiations 
and initiatives will require the Company to reach agreements with creditors, 
trade vendors and code-sharing airlines on terms acceptable to the Company,
none of which are assured.  If the Company is unsuccessful in its efforts,
it may continue to be unable to meet its current and future obligations,
making it necessary to undertake such other actions as may be appropriate to
preserve asset values, potentially including seeking protection from its
creditors under applicable bankruptcy laws.  The financial statements do not
include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going concern.

3.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

ACCOUNTS RECEIVABLE

Substantially all accounts receivable balances are due from various airlines, 
with approximately 42% of the December 31, 1996 balance and 62% of the 
December 31, 1995 balance due from United.  All receivables are pledged as 
collateral securing a $5.0 million loan.

INVENTORIES

Inventories consist of flight equipment spare parts and fuel and are stated 
at the lower of average cost or market.  An allowance for depreciation is 
provided at rates which depreciate the cost of flight equipment spare parts, 
less estimated residual value, over the estimated useful lives of the related 
aircraft. The accumulated allowances were $3,082,000 and $1,381,000, 
respectively, at December 31, 1996 and 1997. Expendable parts are charged to 
maintenance expense as used. 

PROPERTY AND EQUIPMENT

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

                                      32

<PAGE>

OTHER ASSETS

Approximately $1.8 million of long-term deposits on aircraft operating leases 
at December 31, 1996, are included in other assets.

The remainder consists primarily of costs incurred in connection with the 
implementation of Embraer Model EMB-120 Brasilia (Brasilia) aircraft in 1994, 
primarily consisting of initial flight crew and maintenance training costs. 
Such costs have been deferred and are being amortized over five years from 
the date the Brasilia aircraft were ready for initial service.  The costs of 
developing new or extended routes and preoperating costs are charged to 
expense as incurred.

DEFERRED CREDITS

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

REVENUE RECOGNITION

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

FREQUENT FLYER AWARDS

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

INCOME TAXES

The Company records income taxes under the liability method.  Under this 
method, current and deferred tax assets and liabilities are determined based 
on tax rates and laws enacted as of the balance sheet date rather than on 
historical tax rates.

NET INCOME (LOSS) PER SHARE

Net income (loss) per share amounts are computed based upon the weighted 
average number of shares outstanding during the period.  No material dilution 
results from outstanding stock options, the only common stock equivalent.


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. 
Ultimate results could differ from those estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Unless otherwise indicated, the carrying amounts of the Company's financial 
instruments approximate fair value.

                                      33

<PAGE>

RECLASSIFICATIONS

Certain balances in the 1995 and 1994 financial statements have been 
reclassified to conform with the 1996 presentation.  These reclassifications 
had no effect on net income (loss) or stockholders' equity as previously
reported.

NEW ACCOUNTING PRONOUNCEMENTS

Statement of Financial Accounting Standards (SFAS) No. 121 - "Accounting for 
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed 
of", requires impairment losses on long-lived assets to be recognized when an 
asset's book value exceeds its expected future cash flows (undiscounted).  
The Company adopted this standard on January 1, 1996 and such adoption did 
not have a material impact on the financial position or results of operations 
of the Company.

SFAS No. 123 - "Accounting for Stock-Based Compensation", encourages but does 
not require, a fair value based method of accounting for employee stock 
options or similar equity instruments.  As permitted under the new standard, 
the Company will continue to account for employee stock options under 
Accounting Principles Board Opinion No. 25-"Accounting for Stock Issued to 
Employees." ("APB No. 25"). The pro-forma disclosures required by the new 
standard were adopted as of January 1, 1996.

4.  FLIGHT EQUIPMENT:

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

                             1996                              1995
                ------------------------------  --------------------------------
                Beechcraft Beechcraft            Beechcraft Beechcraft
                  1900C      1900D    Brasilia      1900C      1900D    Brasilia
                  -----      -----    --------      -----      -----    --------
Owned               15          6         4           23          6         4
Operating leases     9         12         8            7          2         8
                 -------    -------  ----------    -------    -------  ---------

                    24         18        12           30          8        12
                ----------------------------------------------------------------
                ----------------------------------------------------------------

Maintenance and repairs, including major engine overhaul costs, are charged 
to expense as incurred (the direct expense method).  As a result of a 
continuous maintenance program, the Company believes that the direct expense 
method appropriately matches operating expenses and revenues.

The Company entered into an agreement in 1994 to acquire five new Brasilia 
30-passenger aircraft and options to acquire up to an additional 15 aircraft 
(the Embraer Agreement ).  Two of these aircraft were delivered in December 
1994, and three in 1995. As part of the Embraer Agreement, the Company was 
granted incentives, the benefit of which is amortized over the lease term.  In
July 1996, the Embraer Agreement was terminated.

During 1995, the Company and Raytheon amended the terms of certain aircraft 
lease agreements which were recorded by the Company as capitalized leases. 
Under the new terms of the amended agreements, these leases meet the criteria 
for treatment as operating leases.  Accordingly, the related capital lease 
obligation and underlying asset balances have been removed from the Company's 
balance sheet.  The gain resulting from these transactions 
was not material.

Since January 1, 1996 the Company has taken delivery of ten new Beechcraft 
1900D aircraft.  All of these aircraft have been financed by the manufacturer 
under 14-1/2 year operating leases.  In connection with the lease of these 
new Beechcraft 1900D aircraft, the Company acquired the right to sell to 
Raytheon certain Beechcraft 1900C aircraft at prices equal to the balance
of the amounts owed on the aricraft.

                                      34

<PAGE>

In addition, the Company also obtained the right to sell one Beechcraft 1900C 
pledged as collateral under a lease agreement with a third party which covers 
two of its Brasilia aircraft.   Management intends to sell that Beechcraft 
1900C aircraft under this agreement and use substantially all of the proceeds 
to purchase a certificate of deposit to continue to collateralize this 
Brasilia lease.  No significant amount of cash will be generated from these 
transactions.

During 1996 the Company sold eight aircraft to Raytheon and leased them back 
under 12 year operating leases with an option to return upon 30 day notice 
during the first two years.  At the termination of the leases, the Company 
will be required to comply with certain aircraft refurbishment provisions. 
Gains and losses on these transactions are amortized over the first two years 
of the lease agreement because this is the maximum term for which the Company 
expects to retain the aircraft.  If a lease is terminated early, the full 
amount of the remaining unamortized gain or loss is recognized at that time.  
Five of the sale/leaseback aircraft were returned to Raytheon.  One of the 
sale/leaseback aircraft was destroyed in November 1996.  The Company intends 
to provide notice to terminate the lease on the remaining two aircraft.

5. LONG-TERM DEBT:

Long-term debt is summarized as follows at December 31 (in thousands):

                                               1996         1995
                                             --------     --------
Term notes owed to Raytheon; interest
 at various rates ranging from 6.6% to
 9.0%; payable monthly through June
 2009, collateralized by aircraft
 and accounts receivable                      $65,496      $80,734

Other term notes; interest at various
 rates ranging from 8.7% to 9.1%;
 payable monthly or quarterly through
 July 2007, collateralized by aircraft         10,758       11,564

Other                                           1,400            -
                                             --------     --------
                                               77,654       92,298

Less - Current maturities                     (11,668)      (4,820)
                                             --------     --------
Total long-term debt                          $65,986      $87,478
                                             --------     --------
                                             --------     --------


The fair value of the Company's debt instruments at December 31, 1996 and 
1995 are not reasonably determinable considering the financial condition of 
the Company.

On October 26, 1996 the Company entered into an agreement with a vendor in 
which $1,767,231 of outstanding invoices were converted into a short-term 
promissory note bearing interest at prime plus 1%.

The Company had a line of credit arrangement with a bank totaling $5 million 
at December 31, 1995.  During 1995 the average outstanding borrowing was 
$780,000 with an average rate of borrowings of 9.4%.  The maximum borrowing 
for 1995 was $4.15 million. There were no borrowings outstanding under this 
arrangement at December 31, 1995.  In August 1996, a $5 million loan under
a term note was obtained from Raytheon.  This loan bears interest at 8.25%.
Interest on this loan is payable monthly and all advanced principal is to
be repaid by March 31, 1997.  This loan is collateralized by accounts
receivable.

                                      35
<PAGE>

As of December 31, 1996 the long-term debt obligations due in the five 
subsequent years and thereafter are as follows:

     1997                                     $11,668,000
     1998                                       5,728,000
     1999                                       6,315,000
     2000                                       6,871,000
     2001                                       6,745,000
     Thereafter                                40,327,000
                                          ---------------
                                              $77,654,000
                                          ---------------
                                          ---------------


In connection with the Company's initial public offering in 1994 (see Note 
1), approximately $20,000,000 of offering proceeds were used to prepay a 
portion of eight notes owed to an aircraft manufacturer.  The prepayment of 
debt resulted in an extraordinary gain of $508,976 net of related income tax 
effect.

6. INCOME TAXES:

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

                                          1996           1995           1994
                                     --------------  -------------  -----------
     Current                           $         -    $         -     $      -
     Deferred                           (1,453,640)    (1,503,000)     (65,000)
                                     --------------  -------------  -----------
                                       $(1,453,640)   $(1,503,000)    $(65,000)
                                     --------------  -------------  -----------
                                     --------------  -------------  -----------


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

                                                1996        1995        1994
                                              --------    --------    --------
  Federal statutory rate                       (34.0)%     (34.0)%     (34.0)%
  State income taxes, net of federal benefit    (4.0)       (4.0)      ( 4.0)
  Valuation allowance                           27.8         2.1          -
                                              --------    --------    --------
                                               (10.2)%     (35.9)%     (38.0)%
                                              --------    --------    --------
                                              --------    --------    --------


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

                                                1996            1995
                                          --------------- ---------------
Net operating loss carryforwards             $10,708,000    $ 10,998,000
Property and equipment                        (9,916,000)    (14,585,000)
Accrued liabilities and other                  2,827,000       2,133,360
                                          --------------- ---------------
                                               3,619,000      (1,453,640)
Valuation allowance                           (3,619,000)              -
                                          --------------- ---------------
Total deferred tax asset (liability)        $          -     $(1,453,640)
                                          --------------- ---------------
                                          --------------- ---------------



                                       36
<PAGE>

The Company has net operating loss carryforwards for federal tax reporting 
purposes totaling $29,000,000 available through December 31, 1996, expiring 
in years from 2005 through 2010.

7. EMPLOYEE BENEFIT PLANS:

401(k)

The Company maintains a qualified 401(k) employee savings plan for the 
benefit of substantially all employees.  The Company matches up to 4% of 
participating employees' contributions.  Company contributions totaled 
$316,000 in 1996, $260,000 in 1995, and $209,000 in 1994.

STOCK OPTION PLANS

In November 1993, the Company adopted The Great Lakes Aviation, Ltd. 1993 
Stock Option Plan and the 1993 Director Stock Option Plan (the Plans).  Under 
the Plans, options to purchase an aggregate of not more than 600,000 shares 
of common stock may be granted from time to time to key employees, officers 
and directors of the Company.  Transactions involving the Plans for the years
ended December 31, 1996, 1995, and 1994 were as follows:

                                              Shares         Price Per Share
                                            ------------  -------------------
  Outstanding at December 31, 1993             260,000      $11.00
  Granted                                       45,000      $ 6.50 - $ 8.62
  Terminated                                   (30,000)
                                             ------------
  Outstanding at December 31, 1994             275,000      $ 6.50 - $11.00

  Terminated                                   (45,000)     $ 7.36 - $11.00
  Repricing reduction                          (63,000)     $ 3.88 - $11.00
                                             ------------
  Outstanding at December 31, 1995             167,000      $ 3.88 - $11.00
  Granted                                       50,000      $ 3.75 - $ 4.13
  Terminated                                   (47,500)     $ 3.88 - $ 8.62
                                             ------------
  Outstanding at December 31, 1996             169,500      $ 3.88 - $11.00
                                             ------------
                                             ------------
  Exercisable at December 31, 1996              97,700      $ 3.88 - $11.00
                                             ------------
                                             ------------
  Available for grant at December 31, 1996     430,500
                                             ------------
                                             ------------


On May 19, 1995 the Board of Directors passed a resolution offering all 
employee option holders the option to reprice their current options at the 
then market price ($3.88) in exchange for 30% of their options.  This offer 
was accepted by all employee stock option holders.  The exercise dates were 
adjusted to reflect this change.

The Company accounts for the Plans under APB No. 25, under which no 
compensation cost has been recognized.  Had compensation cost for the Plans 
been determined consistent with SFAS No. 123, the Company's pro forma net 
loss and loss per share would not have been materially different from its 
historical amounts.

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 

                                       37
<PAGE>

95% 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 1997 and 1996, 2,795 and 
5,603 shares were purchased with 1996 and 1995 payroll withholdings, 
respectively.

8.  COMMITMENTS AND CONTINGENCIES:

LEASE COMMITMENTS

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

                1997                    $ 15,053,000
                1998                      14,338,000
                1999                      13,421,000
                2000                      13,205,000
                2001                      13,194,000
                Thereafter                90,878,000
                                        ------------
                                        $160,089,000
                                        ------------
                                        ------------

Rent expense under all operating leases totaled $15,569,000 in 1996, 
$7,960,000 in 1995, and $2,876,000 in 1994.  An aircraft operating lease 
agreement requires the Company to maintain financial covenants.  The Company 
was not in compliance with these requirements at December 31, 1996.  (See 
Note 2) 

In connection with the new Brasilia aircraft discussed in Note 3, the 
Brazilian government has provided a financing subsidy to the Company in the 
form of semiannual payments directly to the Company over ten years beginning 
with the delivery of the aircraft.  For leased aircraft the Company amortizes 
payments on a straight-line basis over the term of the lease as a reduction 
of lease expense.  For owned aircraft the payments are recognized as received 
as a reduction in interest expense.  The subsidy payments are not 
collateralized or otherwise secured against the credit risk of the Brazilian 
government.  The expected approximate future financing subsidy on the 
aircraft is as follows:

                1997                    $    928,000
                1998                         736,000
                1999                         631,000
                2000                         527,000
                2001                         423,000
                Thereafter                   658,000
                                        ------------
                Gross future cash flows $  3,903,000
                                        ------------
                                        ------------

The Company leases certain small aircraft used in its charter operations. 
Beginning in December 1994 two Beechcraft Model 1900 19-passenger aircraft 
used in airline operations were financed under operating leases from a 
company owned by Great Lakes' president and majority stockholder.  Total 
payments for these leases were $884,000 in 1996, $844,000 in 1995, and 
$142,000 in 1994.

                                      38


<PAGE>

SLOT ALLOCATIONS

At December 31, 1996 the Company held 54 landing and takeoff slots at Chicago 
O'Hare airport. On August 29, 1995, United exercised its contractual option 
and effective October 29, 1995, purchased ten of the Company's landing and 
takeoff slots at Chicago O'Hare airport for $3.85 million. Concurrently, the 
Company has an agreement to lease these slots from United until May 1997 at 
which time the Company intends to extend the lease.  The sale of the slots 
resulted in a gain of $3.85 million which was recorded in the fourth quarter 
of 1995. These ten slots were the only slots owned by the Company which were 
not encumbered by requirements to provide essential air service to small 
communities.

United has an option which expires concurrently with the United Express 
Agreement in April 1997 to acquire all or any portion of the Company's slots 
for the lesser of their fair market value or certain specified maximum prices 
set forth in the option agreement.  The maximum aggregate purchase price for 
the 54 slots is $26.2 million.  United's acquisition of the slots would be 
subject to the approval of the U.S. Department of Transportation (DOT) and 
the assumption by United of essential air service responsibility to certain 
communities.  In the event United acquires the slots, the Company has the 
right to lease the slots from United for a period of one year thereafter.

In February 1997 the Company was awarded slot exemptions for the specific 
purpose of providing 20 operations per day between Chicago O'Hare Airport and 
Dubuque and Mason City, Iowa; Huron and Sioux Falls, South Dakota; and Fargo, 
North Dakota.  These slot exemptions may not be bought, sold or traded 
without DOT approval.  In addition, these slot exemptions require the Company 
to provide minimum amounts of Essential Air Service to certain small cities.

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

9.SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):

The following presents selected quarterly unaudited financial data for each 
of the years ended December 31, 1996 and 1995 (in thousands, except for per 
share information):

           1996              First     Second     Third    Fourth    |
           ----             Quarter    Quarter   Quarter   Quarter   |   Year
                           ---------  ---------  -------- ---------  | --------
   Operating revenues       $23,140   $  28,714  $ 31,174  $ 26,642  | $109,670
   Operating income (loss)   (2,937)        259       513    (6,237) |   (8,402)
   Net loss                 $(2,773)  $  (1,155) $ (1,008) $ (7,887) | $(12,823)
                           ---------  ---------  -------- ---------  | --------
                           ---------  ---------  -------- ---------  | --------
   Net loss                 $  (.37)  $    (.15) $   (.13) $  (1.04) | $  (1.69)
      per share                                                      |
                           ---------  ---------  -------- ---------  | --------
                           ---------  ---------  -------- ---------  | --------
   Weighted average shares                                           |
      outstanding             7,583       7,586     7,586     7,586  |    7,585
                                                                     |


                                      39



<PAGE>

           1995              First     Second     Third    Fourth    |
           ----             Quarter    Quarter   Quarter   Quarter   |   Year
                           ---------  ---------  -------- ---------  | --------
   Operating revenue        $16,159   $20,620    $24,812   $22,605   |  $84,196
   Operating income (loss)   (1,073)      932      2,063    (2,680)  |     (758)
   Net income (loss)         (1,725)  $  (542)   $    49   $  (470)  |  $(2,688)
                           ---------  ---------  -------- ---------  | --------
                           ---------  ---------  -------- ---------  | --------
   Net income (loss)                                                 |
      per share             $  (.23)  $  (.07)   $   .01   $  (.06)  |  $  (.35)
                           ---------  ---------  -------- ---------  | --------
                           ---------  ---------  -------- ---------  | --------
   Weighted average shares                                           |
      outstanding             7,575     7,579      7,581     7,581   |    7,579
                           ---------  ---------  -------- ---------  | --------
                           ---------  ---------  -------- ---------  | --------


   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.



                                      40
<PAGE>


                    GREAT LAKES AVIATION, LTD. AND SUBSIDIARIES
                                          
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS



<TABLE>
<CAPTION>


                                                  Additions
                                       -----------------------------
                                                        Charged to
                          Balance at    Charged to      Other                             Balance at
                          Beginning     Costs and       Accounts-       Deductions-         End of
 Classification           of Period     Expenses        Describe(2)     Describe (1)        Period
 Year Ended December 31,

<S>                      <C>             <C>          <C>                <C>             <C>
1996:
Inventory Reserves        $1,380,854      $2,331,926   $           -      $  630,378      $3,082,402


1995
Inventory Reserves           937,146         678,319         132,131         366,742       1,380,854


1994
Inventory Reserves                 -         937,146               -               -         937,146


</TABLE>



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

(2)  Balance sheet adjustment for capital lease conversion.




ITEM 9.   DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

                                    PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    Information regarding the directors of the Company is incorporated herein 
by reference to the descriptions set forth under the caption "Election of 
Directors" in the Proxy Statement for Annual Meeting of Stockholders to be 
held May 31, 1996 (the "1996 Proxy Statement").  Information regarding 
executive officers of the Company is incorporated herein by reference to Item 
1 of this Form 10-K under the caption "Executive Officers of the Company."

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 1996 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 1996 Proxy Statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    Information regarding certain relationships and related transactions with 
the Company is incorporated herein by reference to the information set forth 
under the caption "Certain Transactions" in the 1996 Proxy Statement.

                                       41

<PAGE>

                                    PART IV


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


(a) DOCUMENTS FILED WITH THIS REPORT.

    (1)  See index to financial statements on page 23 of this report.

(b)  REPORTS ON FORM 8-K.  During the quarter ended December 31, 1996, the
     Company filed no reports on Form 8-K with the Securities and Exchange
     Commission.

(c) 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     Airline Services Agreement, dated August 8, 1995, between Midway 
              Airlines Corporation and RDU Co. (certain portions deleted 
              pursuant to request for confidential treatment).
    10.10     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)
    10.11     Hector International Airport Terminal License Agreement, dated
              September 8, 1994, by and between United Air Lines, Inc. and the 
              Company (certain portions deleted pursuant to request for 
              confidential treatment).(1)
    10.12     Airport/Airport Facilities Lease Agreement, dated November 1, 
              1989, by and between Minneapolis-St. Paul Airport and the 
              Company.(1)
    10.13     Great Lakes Aviation, Ltd. 1993 Stock Option Plan.(1)
    10.14     1993 Director Stock Option Plan.(1)
    10.15     Great Lakes Aviation, Ltd. Employee Stock Purchase Plan.(1)
    10.16     Facilities Lease Agreement, dated February 18, 1992, by and 
              between the City of Spencer, Iowa and the Company.(1)
    10.17     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)
    10.18     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)
    10.19     Aircraft Finance Agreement, dated March 1, 1994, by and between 
              Raytheon and the Company.(2)
    10.20     Aircraft Lease Agreement (N152GL), dated as of December 20, 1994,
              by and between Iowa Great Lakes

                                       42

<PAGE>

              Flyers, Inc. and the Company.(3)
    10.21     Aircraft Lease Agreement (N159GL), dated as of December 20, 1994,
              by and between Iowa Great Lakes Flyers, Inc. and the Company.(3)
    10.22     Negotiable Promissory Note, dated March 30, 1996, from the Company
              to Raytheon Aircraft Credit Corporation.
    10.23     Negotiable Promissory Note, dated July 31, 1996, from the Company
              to Raytheon Aircraft Credit Corporation.
      11.     Statement regarding computation of per share earnings.(3)
    23(i)     Consent of Independent Public Accountants
________________
(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, 1994.
(3)  Income per common share amounts are computed by dividing net income
     applicable to common stockholders by the weighted average number of common
     shares outstanding.  Common stock equivalents related to stock options 
     which would have a dilutive effect based upon current market prices had no
     effect on net income per common share in each of the years presented in the
     Company's Statements of Income and, accordingly, this exhibit is not
     applicable to this filing.


                                       43
<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:                                  By
                                          -------------------------------------
                                          Douglas G. Voss,
                                          President and Chief Executive Officer

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


----------------------------    President, Chief Executive Officer and Director
Douglas G. Voss         

----------------------------    Director, Executive Vice President Finance
A. L. Maxson                    and Chief Financial Officer


----------------------------    Vice President, Controller and
Roberta L. Dircks               Chief Accounting Officer


----------------------------    Director
Vernon A. Mickelson


----------------------------    Director
Luigi Talarico, Jr.


----------------------------    Director
Gayle R. Voss



                                      44