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<SEC-DOCUMENT>0000950109-97-002648.txt : 19970401
<SEC-HEADER>0000950109-97-002648.hdr.sgml : 19970401
ACCESSION NUMBER: 0000950109-97-002648
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 8
CONFORMED PERIOD OF REPORT: 19961231
FILED AS OF DATE: 19970331
SROS: NASD

FILER:

COMPANY DATA:
COMPANY CONFORMED NAME: VALUJET INC
CENTRAL INDEX KEY: 0000948846
STANDARD INDUSTRIAL CLASSIFICATION: AIR TRANSPORTATION, SCHEDULED [4512]
IRS NUMBER: 582189551
STATE OF INCORPORATION: NV
FISCAL YEAR END: 1231

FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-26914
FILM NUMBER: 97569021

BUSINESS ADDRESS:
STREET 1: 1800 PHOENIX BLVD
STREET 2: STE 126
CITY: ATLANTA
STATE: GA
ZIP: 30349
BUSINESS PHONE: 7709072594
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<DESCRIPTION>FORM 10-K
<TEXT>

<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 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 for the transition period from ________________________ to
_______________________

Commission file number 0-26914

VALUJET, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

NEVADA 58-2189551
- -------------------------------- -----------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

1800 Phoenix Boulevard, Atlanta, Georgia 30349
- ---------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)

(770) 907-2580
- ----------------------------------------------------
Registrant's telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Name of each exchange on
which registered

None None
- ------------------- -------------------------

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.001 par value
- --------------------------------------------------------------------------------
(Title of class)

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 preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- ------

As of March 10, 1997, the aggregate market value of voting stock held
by non-affiliates of the Registrant, based on the closing sales price of such
stock in the NASDAQ Stock Market on March 10, 1997, was approximately
$340,000,000. As of March 10, 1997, the Registrant had 54,878,322 shares of
Common Stock outstanding.

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. [ ]

Documents Incorporated by Reference
-----------------------------------

Portions of the Proxy Statement to be used in connection with the
solicitation of proxies to be voted at the Registrant's annual meeting of
Stockholders to be held on May 21, 1997, to be filed with the Commission, are
incorporated by reference into Part III of this Report on Form 10-K.

Exhibit Index is located on pages 33 - 34.
<PAGE>

PART I

ITEM 1. BUSINESS
--------

HISTORY

ValuJet Airlines, Inc. was organized as a Nevada corporation in July 1992.
In October 1995, ValuJet Airlines, Inc. became a wholly-owned subsidiary of
ValuJet, Inc. (the "Company") as a result of a merger. The consolidated
financial information contained herein or incorporated herein by reference
reflects the financial information regarding the Company and its subsidiaries,
before and after such merger.

THE COMPANY

The Company, through its wholly owned subsidiary, ValuJet Airlines, Inc.,
operates an affordable, no frills, limited frequency, scheduled airline serving
short haul markets primarily in the eastern United States. The Company believes
that its low cost, no frills philosophy allows it to offer among the lowest
fares in its markets and generate its own traffic by stimulating incremental
demand with price-conscious travelers. Prior to June 17, 1996, the Company
offered service to 31 cities from Atlanta and the Company's three "focus
cities," Washington DC (Dulles Airport), Boston and Orlando. The Company's
operations were interrupted by the suspension of the Company's service on June
17, 1996, pursuant to a consent order entered into with the FAA following the
accident involving Flight 592 on May 11, 1996, and the ensuing extensive media
and FAA scrutiny. As of September 30, 1996, the Company resumed operations with
service between Atlanta and four other cities. As of March 21, 1997, the FAA
has approved 24 of the Company's DC-9-32 aircraft for flight and the Company
operates 144 flights per peak day between Atlanta and 20 other cities. In the
short term, the Company does not expect to recommence service to all markets
previously served by the Company. There can be no assurance as to when the
Company will be able to reestablish its profitable operations, if at all, or to
resume its previous levels of service and growth strategy.

STRATEGY

The Company's strategy is to provide a safe, reliable, customer friendly
alternative for affordable air transportation. The Company's operating strategy
is based on its commitment to offer everyday low fares that stimulate demand
from leisure and fare conscious business travelers. The key elements in this
strategy are a simple fare structure and an efficient cost structure which is
achieved through a highly productive and efficient work force, a ticketless
distribution technology and a fleet of DC-9 aircraft.

For the customer, "simple" means the service is easy to understand and use,
including a simplified fare structure, with everyday low prices, simplified
reservations and check-in procedures and a ticketless process. In contrast,
today's airline industry is characterized by complex fares, schedules,
reservations, check-in procedures and ticketing.

The Company's service is intended to satisfy the basic air transportation
needs of the Company's targeted customers who are short haul travelers visiting
friends and relatives, vacationing or involved with fare conscious businesses.
The Company believes that the basic air transportation needs of its targeted
customers can be satisfied by providing a limited number of flights per day
(currently up to seven frequencies), baggage service, in-flight beverages and
the ability to make advance reservations. The Company avoids what it believes to
be unnecessary and nonproductive costs such as meals, a frequent flyer program,
advance seat assignment, airport clubs or other amenities offered by many of its
competitors.

The Company's pricing structure and affordable fares are intended to
stimulate new demand for air travel by leisure customers and fare conscious
business travelers who would have otherwise used ground transportation or

-2-
<PAGE>

not have traveled. The Company's simple fare system incorporates a predictable,
"everyday low pricing" fare structure designed to provide its customers with
substantial savings over its competitors based on walk up fares and further
savings by purchasing seats in advance or by flying during off peak times. In
the first six months of 1996, the Company's average fare in its markets was
$72.75, substantially less than the average fare in those markets prior to the
Company's commencement of operations. The Company generates its own traffic
through low fare market stimulation rather than pursuing the more traditional
airline approach of competing for market share with existing carriers.

IMPACT OF ACCIDENT AND SUSPENSION OF OPERATIONS

On May 11, 1996, ValuJet tragically lost its flight 592 en route from Miami
to Atlanta. There were no survivors. The accident resulted in extensive media
coverage calling into question the safety of low-fare airlines in general and
the Company in particular. In response to the accident, the FAA announced an
extraordinary review of the Company's operations.

On June 17,1996, the Company entered into a consent order with the FAA under
which: (i) the Company agreed to suspend operations until such time as the
Company was able to satisfy the FAA as to various regulatory compliance concerns
identified by the FAA as a result of its intensive inspections of the Company's
operations, (ii) the FAA agreed to work with the Company in order to reestablish
operations with up to 15 aircraft initially, and (iii) the Company paid $2
million to the FAA to compensate it for the costs of the special inspections
conducted. In order to reduce costs, the Company furloughed approximately 90%
of its personnel in June 1996.

On August 29, 1996, the FAA returned the Company's operating certificate and
the Department of Transportation ("DOT") issued a "show cause" order regarding
the Company's fitness as an air carrier. The DOT gave its final approval on
September 26, 1996, and the Company resumed operations with service between
Atlanta and four other cities on September 30, 1996.

As of March 21, 1997, the FAA has approved 24 of the Company's 43 aircraft
for flight operations.

Other effects of the accident, ensuing FAA inspections, media coverage and
suspension of operations include:

1. The suspension of operations has resulted in the failure of the Company to
meet certain financial covenants under certain of the Company's secured
debt. See Management's Discussion and Analysis of Financial Condition and
Results of Operatons - Liquidity and Capital Resources in Item 7 of this
Report on Form 10-K for further discussion.

2. The expansion of the Company's operations will likely be subject to FAA and
DOT approval for an indefinite period of time.

3. The Company is unable to predict how significantly the accident and
suspension of operations will affect load factors and yield or the length
of time load factors and yield will be impacted.

4. The Company has sold certain of its aircraft and has assigned its rights to
purchase certain aircraft previously under contract for delivery in 1996.
In addition, the Company may lease out or sell some of its other aircraft.

5. In 1996, the Company refunded fares paid by customers affected by the
Company's changing schedules and by those who otherwise chose to change
their travel plans.

-3-
<PAGE>

6. The Company's cost per ASM has increased and is likely to remain inflated
to some extent to reflect the cost of additional maintenance procedures and
infrastructure adopted by the Company and lower aircraft utilization
levels.

7. The Company may reduce its workforce permanently if reduced traffic levels
continue and the Company is unable to reestablish its previous service
levels.

8. The aircraft lost was insured for $4.0 million which is in excess of book
value. The Company carries $750 million of liability insurance. Although
the Company believes that such insurance will be sufficient to cover all
claims arising from the accident, there can be no assurance that all claims
will be covered or that the aggregate of all claims will not exceed such
insurance limits.

9. Several stockholder lawsuits have been filed against the Company and
certain of its officers and directors alleging, among other things,
violation of federal securities laws. While the Company denies that it has
violated any of its obligations under the federal securities laws and
believes that the lawsuits do not have any merit, there can be no assurance
that the Company will not sustain material liability under such or related
lawsuits.

10. Various governmental authorities are conducting investigations of the
circumstances surrounding the accident. The Company is cooperating with the
authorities in connection with these investigations.

In light of these factors, persons investing in securities of the Company
should be apprised of the following additional risks:

1. The suspension of operations has resulted in the failure of the Company to
meet certain financial covenants (the fixed charge coverage ratio) under
certain of the Company's secured debt. This could result in the
acceleration of such debt and a reduction in the Company's cash position.
If the Company does not timely repay all indebtedness accelerated or if the
Company's other secured lenders or the holders of the Company's 10 1/4%
senior notes seek to accelerate their debt as a result of such
accelerations, then a substantial portion or all of the Company's debt
could be accelerated. For a further discussion, see Management's Discussion
and Analysis of Financial Condition and Results of Operations in Item 7 of
this Report on Form 10-K.

2. There is no assurance that the Company will recover sufficient customer
acceptance in order to regain profitability.

3. If the Company regains profitability, there may be reduced customer support
which could decrease the Company's profitability indefinitely.

4. The expansion of the Company's operations will likely be subject to FAA and
DOT approval for an indefinite period of time.

5. Although preliminary information indicates no connection, if the National
Transportation Safety Board (NTSB) were to determine that the Company's
maintenance procedures or aging aircraft contributed to the cause of the
accident, such determination could have a substantial adverse effect on the
Company's future operations.

6. The occurrence of one or more subsequent incidents or accidents by the
Company's aircraft could likely have a substantial adverse effect on the
Company's public perception and future operations.

-4-
<PAGE>

GEOGRAPHIC MARKET

The Company's markets are located predominantly in the eastern United States.
These markets are attractive to the Company due to the concentration of major
population centers within relatively short distances from Atlanta, historically
high air fares and the potential for attracting leisure customers who would
otherwise use ground transportation.

During 1996, the Atlanta Airport was the second busiest airport in the United
States, enplaning over 30 million passengers. Additionally, the Company will
offer service to Florida markets as the Company believes that more than 20
million people visit the Florida markets by automobile every year from Atlanta
and other points in the eastern United States.

In the Company's city selection process, the Company considers the amount of
airport charges, incentives offered by communities to be served, the ability to
stimulate air travel and competitive factors.

FARES, ROUTE SYSTEM AND SCHEDULING

The Company serves short haul markets (up to 1,000 miles) from Atlanta, with
a limited number of flights (up to seven round trips per destination per day)
offering basic air transportation at affordable fares.

The Company offers a range of fares based on advance purchases of 14 days, 7
days, 2 days and "walk-up" fares. Within the 14 and 7 day fare types, the
Company offers off-peak and peak fares which are $10 to $30 higher based on day
of week and time of day traveled. Peak travel times are those designated by
flight by the Company; peak times are generally portions of the day or all day
on Thursdays, Fridays, Saturdays and Sundays. All the Company's fares are
nonrefundable, but can be changed prior to departure for a $30 fee. The
Company's fares are always purchased on a one-way basis. The Company's fares do
not require any minimum, maximum or day of week (e.g., Saturday night) stay.
The Company's simplified fare offerings, all for a single class of service, are
in direct contrast to prevalent pricing policies in the industry where there are
typically many different price offerings and restrictions for seats on any one
flight.

The Company's published Atlanta fares for non-stop service range from $39 to
$89 for off-peak one-way travel on a 14 day advance purchase basis and $119 to
$149 for one-way travel on a "walk-up" basis. During the reintroduction of the
Company's service to markets previously served and during the introduction of
service to new markets, the Company generally offers introductory one-way fares
for all flights to or from Atlanta.

A majority of the Company's customers originate or terminate their travel on
the Company's non-stop service. One-stop connecting service is provided through
Atlanta between certain of the other cities served by the Company.

The following table sets forth certain information with respect to the
Company's route system based on the Company's schedule in effect or announced as
of March 6, 1997.

Round Trip
Service Flights
Commencement Scheduled
Airport Served Date (a) On Peak Day (b)
--------------- --------------- ---------------

Atlanta-
Akron/Canton, OH........ March 1997 3
Boston, MA.............. February 1997 1(c)
Chicago, IL (Midway).... October 1996 4
Columbus, OH............ October 1996 3

-5-
<PAGE>

Dallas/Fort Worth, TX... April 1997 4
Fort Lauderdale, FL..... September 1996 5
Fort Myers, FL.......... January 1997 2
Fort Walton Beach, FL... October 1996 2
Jacksonville, FL........ October 1996 3
Louisville, KY.......... October 1996 3
Memphis, TN............. October 1996 3
Mobile, AL.............. October 1996 2
New Orleans, LA......... October 1996 4
Newport News, VA........ October 1996 3
Orlando, FL............. September 1996 6
Philadelphia, PA........ October 1996 4
Raleigh/Durham, NC...... October 1996 4
Savannah, GA............ October 1996 2
Tampa, FL............... September 1996 5
Washington DC (Dulles).. September 1996 7
West Palm Beach, FL..... December 1996 3
Washington, DC (Dulles)-
Atlanta, GA............. September 1996 7
Boston, MA.............. February 1997 4

- --------------------------

(a) For markets served by the Company prior to the suspension of its
operations, the date indicated is the date the Company recommenced
service.

(b) Peak day refers to the days of the week on which the Company provides the
greatest number of flights for the route shown.

Subject to the FAA's approval, the Company will consider the addition of
other markets and the provision of service between cities other than Atlanta.
There can be no assurance as to the timing of approvals of additional aircraft
by the FAA which will depend upon the FAA's review of the Company's operations.
Service is provided on all routes every day although more frequent service may
be provided on peak travel days.

The Company's aircraft scheduling strategy is directly related to the
perceived needs of its target market segments and the low fixed ownership costs
of its aircraft fleet. The Company's target customers are travelers visiting
friends and relatives, vacationers and small business travelers who are more
price sensitive than schedule or frequency sensitive. As a result, the
Company's schedule has provided for one to seven frequencies per peak travel day
in any given market.

The Company's low fixed aircraft ownership costs (depreciation plus
interest expense) provide the Company with flexibility to tailor capacity to
demand. As a result, on low demand travel days such as Tuesday and Wednesday,
the Company reduces total costs by operating a reduced schedule with fewer
frequencies per market. Conversely on peak days, the Company may add more
frequency to accommodate higher demand. The Company generally keeps a number of
its aircraft out of scheduled service in order to provide operating spares and
to rotate aircraft into routine scheduled maintenance.

-6-
<PAGE>

AIRCRAFT

As of March 21, 1997, the Company owned 43 DC-9-30 series aircraft with 113
to 115 seats. All of the Company's aircraft are configured with a single class
of service. In order to simplify its operations and in light of the limited
number of aircraft the Company is authorized to operate, the Company intends to
sell or lease out up to 13 of its DC-9-30 aircraft. Aircraft in excess of the
number the Company is authorized to operate will be stored until the Company
receives authorization to operate from the FAA or until a sale or lease
arrangement is consummated.

As of March 21, 1997, the FAA has approved 24 aircraft for operation by the
Company. The addition of aircraft to the Company's operating specifications is
subject to FAA and DOT approval. There can be no assurance as to the timing or
extent of any such subsequent approvals. The Company's expansion is subject to
FAA approval and could be affected by heightened FAA scrutiny and the Company's
ability to regain customer acceptance.

The Company has entered into a contract with McDonnell Douglas to purchase
50 new MD-95 aircraft, to be delivered from 1999 through 2002, with options to
purchase an additional 50 aircraft. The MD-95 will have 129 seats in a single
class configuration. The Company estimates that the MD-95 aircraft, with a
slightly larger capacity, increased fuel efficiency and lower maintenance costs,
will provide a cost per ASM lower than its existing DC-9 fleet, even after
including its higher acquisition cost. The Company is the "launch" customer of
the MD-95 aircraft. The Company became the launch customer for the MD-95
aircraft because (i) the availability of DC-9's in large numbers was becoming
increasingly uncertain, and (ii) the MD-95 purchase terms presented the Company
with the most attractive DC-9 replacement alternative in comparison with other
manufacturers' products. Further, as the MD-95 aircraft is an extension of the
original DC-9 family of aircraft, the Company believes it will realize
substantial savings in training and parts as well as having the advantage of
being able to carry a greater number of customers.

According to FAA rules, before January 1, 1997, each new entrant airline
must have at least 50% of its fleet in compliance with the FAA's Stage 3 noise
level requirements. The balance of such airlines' fleets must be brought into
compliance with Stage 3 noise level requirements in phases: 75% by December 31,
1998 and full compliance required by December 31, 1999. As of March 21, 1997,
15 of the Company's 24 aircraft on its operating specifications complied with
these requirements. Of the Company's remaining 19 aircraft, three comply with
Stage 3 as of the date of this report. The Company intends to meet the Stage 3
requirements by installing hush kits on certain of its Stage 2 aircraft, by
disposing of other Stage 2 aircraft and by acquiring Stage 3 aircraft.

SAFE HARBOR STATEMENTS

Statements made by the Company in this report regarding the Company's
ability to increase its service levels,to maintain its low cost structure and to
become profitable again are forward-looking statements and are not historical
facts. Instead they are estimates or projections involving numerous risks and
uncertainties including but not limited to governmental approval of increases in
service by the Company, the Company's ability to dispose of certain aircraft,
the utilization level of the Company's aircraft, the level of those costs which
are beyond the Company's control, the effect of the Company's accounting
policies, the Company's ability to hire and retain qualified personnel under its
new compensation program and results of pending lawsuits. These risks and
uncertainties could potentially cause the Company's implementation of additional
service to be delayed or the Company's costs to exceed present estimates. The
Company disclaims any obligation to update or correct any of its forward-looking
statements.

MAINTENANCE AND REPAIRS

Since the Company's fleet of DC-9 aircraft are all more than 20 years old,
it is likely that they will require higher maintenance expenses than newer
aircraft. The Company believes that its aircraft are mechanically

-7-
<PAGE>

reliable and that the estimated cost of maintenance to fly such aircraft is and
will continue to be within industry norms. Included in these maintenance expense
estimates are current requirements to comply with existing FAA Aging Aircraft
Airworthiness Directives ("ADs"). Amendments to FAA regulations have been
proposed and are currently pending administrative approval which would require
certain heavy maintenance checks and other maintenance requirements for aircraft
operating beyond certain operational limits. The Company will be required to
comply with such proposals, if adopted, and with any other aging aircraft
issues, regulations or ADs, that may be promulgated in the future. There can be
no assurance that the Company's costs of maintenance (including costs to comply
with aging aircraft requirements) will fall within industry norms.

Various incidents involving the Company's aircraft prior to May 1996, the
accident involving Flight 592 and the suspension of the Company's operations
have contributed to a negative public perception as to the safety of the
Company's aircraft and operations.

Extraordinary regulatory review of the Company's operations by the FAA
followed the May 1996 accident and various FAA findings ultimately resulted in
the consent order under which the Company's operations were suspended on June
17, 1996. The Company has subsequently satisfied the FAA's requirements
outlined in the consent order and the FAA returned the Company's operating
certificate to it on August 29, 1996. The Company is likely to be subject to
increased and continuing regulatory scrutiny which could affect the Company's
operations, acquisition program and expansion plans indefinitely.

Aircraft maintenance and repair consists of routine daily or "turn-around"
maintenance and major overhaul. Routine daily maintenance is performed at
Atlanta by the Company's employees or contract employees and by contractors at
the other cities served by the Company. Major overhauls or heavy checks are
performed by a contractor at the contractor's own maintenance base. In response
to FAA concerns, the Company has decided to limit to two the number of outside
contractors performing heavy maintenance on the Company's aircraft. At this
time, these contractors are Zantop of Macon, Georgia, and Aero Corp. of Lake
City, Florida. The Company may replace these contractors or add additional
contractors subject to FAA approval. Other routine daily maintenance
contractors are either other airlines which operate DC-9-30 series aircraft or
other maintenance companies approved by the FAA, who in either case have
employees qualified in DC-9-30 series aircraft maintenance.

The addition of MD-95 aircraft will require greater inventories of spare
parts and associated costs.

FUEL

The cost of jet fuel is an important expense for the Company. Jet fuel
costs are subject to wide fluctuations as a result of sudden disruptions in
supply, such as the effect of the invasion of Kuwait by Iraq in August 1990.
Due to the effect of world and economic events on the price and availability of
oil, the future availability and cost of jet fuel cannot be predicted with any
degree of certainty. Increases in fuel prices or a shortage of supply could
have a material adverse effect on the Company's operations and operating
results. The Company has not entered into any agreement which fixes the price of
fuel over any period of time.

The Company's fleet of DC-9 Series 30 aircraft are relatively fuel
inefficient compared to newer aircraft and industry averages. The primary
reasons for this inefficiency are the aircraft size, engine technology and short
trip length operations. In management's opinion, the lower ownership costs of
the DC-9 aircraft more than compensate for this relative fuel inefficiency.

A significant increase in the price of jet fuel would result in a
disproportionately higher increase in the Company's average total costs than its
competitors using more fuel efficient aircraft and whose fuel costs represent a
smaller portion of total costs. The Company would possibly seek to pass such a
cost increase to the Company's customers through a fare increase. There can be
no assurance that any such fare increase would not reduce the competitive
advantage the Company seeks by offering affordable fares.

-8-
<PAGE>

The MD-95 aircraft to be acquired by the Company are expected to be more
fuel efficient and should make the Company relatively less susceptible to
adverse effects attributable to fuel price changes.

DISTRIBUTION AND MARKETING

The Company's marketing efforts are vital to its success as it seeks to
stimulate new customer demand, sell outside of the conventional distribution
systems and forgo traditional amenities such as a frequent flyer program. The
Company has targeted short haul travelers visiting friends and relatives,
vacationing or involved with fare conscious businesses. These are market
segments which the Company believes offer the greatest opportunity for
stimulating new demand, selling direct and not requiring traditional amenities.
Based on a survey conducted by the Company in 1994, a substantial majority of
the Company's customers were traveling for pleasure.

The primary objectives of the Company's marketing activities are to develop
a brand identity or personality which is visibly unique and easily contrasted
with its competitors and to communicate its service directly to potential
customers. When initiating service to a new market or restarting flights to
previously served markets, the Company typically makes extensive use of
billboard, radio and newspaper advertising, as well as active public relations
efforts, and focuses on the affordable fares to be offered on an everyday basis.

Company Personality

The Company has sought to establish consumer recognition of the Company as
a small vibrant company, where customers receive affordable airline
transportation which exceeds their expectations. The Company attempts to portray
a fun and friendly personality in contrast to the image portrayed by many other
airlines.

To achieve this personality, the Company has developed a color scheme for
its aircraft and station facilities designed to be striking and bold, the
"Critter" cartoon airplane logo and tag lines designed to be friendly and fun,
casual attire for employees (including leather jackets for pilots, varsity
jackets for flight attendants and casual sportswear) and a variety of
promotional materials such as ValuJet shirts, sweaters, bumper stickers and
license plates. Additionally, the Company's Atlanta gate areas are furnished
with brightly colored plastic playground equipment reinforcing the Company's
family orientation.

Customer Communication

The Company communicates regularly and frequently with potential customers
through the use of advertisements in newspapers, on radio and on billboards.
These communications feature the Company's destinations, everyday affordable
fares, ease of use (including its simplified fare structure and ticketless
travel process) and the Company's reservations phone number. The Company uses
tag lines such as "Good Times, Great Fares", "Wherever We Fly, You Win" and "Low
Fares Everyday, Everywhere We Fly" to reinforce its identity. The Company offers
a toll-free telephone number (1-800-VALUJET) for reservations from outside
Atlanta and its reservations number in the Atlanta area is 770-994-VALU.

The Company seeks to sell seats directly to the customer whenever possible.
The Company also sells a smaller percentage of seats through travel agents and
pays customary sales commissions, but without volume override increases. Sales
are not as of the date of this report made through the conventional CRSs.
Management believes that although travel agents have become accustomed to making
reservations through the CRSs, the cost savings and direct communication with
customers that the Company achieves by not participating in such systems
justifies the Company's decision not to participate in the CRSs. The Company
reviews this decision from time to time. Information on its customers' needs,
travel patterns and identity is collected, organized and stored by the Company's
automated reservation system and can be used at a future time for direct
marketing efforts.

-9-
<PAGE>

The Company performs public relations and promotional activities in house.
Advertising is handled by an outside advertising agency.

The Company and The Hertz Corporation operate a joint program under which
the Company's customers are able to reserve a Hertz rental car outside of
Florida at discounted rates when making a reservation for the Company's flights.
Alamo Rent A Car offers discounted car rental rates to the Company's customers
in Florida.

Air travel in the Company's markets tends to be seasonal, with the highest
levels occurring during the winter months to Florida and the summer months to
the midwest/northeastern U.S. Advertising and promotional expenses may be
greater in lower traffic periods, as well as when entering a new market, in an
attempt to stimulate further air travel.

AUTOMATION

Automation is a key component of the Company's strategy. The Company's
UNIX based computer system has been specifically designed to implement the
Company's simplified, ticketless service and is an important component of the
Company's attempt to maintain its low cost structure, particularly as the
Company grows.

The Company has designed its computer system to capture information in the
computer at its source, eliminating paper records whenever possible. These
entries are made by the reservation agents, eliminating subsequent data
processing entries. Once the initial data has been entered into the system, the
system updates various affected files and reports. The Company's software
supports all of the Company's operational areas (e.g., flight operations,
maintenance, accounting, marketing and personnel). As airline computer
applications change constantly, the Company from time to time reviews various
software and hardware applications which, coupled with the existing computer
system, are intended to improve the Company's competitive posture.

A key component of this system and the Company's low cost structure is the
"ticketless" environment. At the time of a sale/reservation, the Company
provides its customers with a confirmation number, similar to the systems used
by hotels and car rental agencies. At the airport, this information is
available for customer check-in, which typically requires only two to three key
strokes by the gate agent and helps to alleviate long lines and achieve a
quicker turnaround of aircraft. After the flight has departed, the computer
posts passenger revenue from the passenger manifest information. Unlike most of
the Company's competitors, the Company has no tickets to be accounted for and
processed.

Furthermore, the Company does not participate in the ARC, the airline
industry collection agent for travel agency sales. At the time of the
reservation, the Company identifies the travel agency making the booking and
takes credit card information. Each agency then receives a statement
summarizing these transactions. Although management believes that travel
agencies are accustomed to doing business through ARC, management believes that
the cost savings realized by avoiding the fees and revenue accounting costs
inherent in the ARC system justify not participating in ARC.

Because of its ticketless system and its non-participation in ARC, the
Company's customers are not able to transfer their reservations from the Company
to other airlines, for example in the event of an interruption of a Company
flight or a last minute change in their travel plans.

-10-
<PAGE>

EMPLOYEES

As of March 21, 1997, the Company employed approximately 2,000 people.
Additional employees will be hired as the Company increases the number of
aircraft operated subject to FAA approval.

The Company has modified its compensation program, increasing employee base
pay for most work groups and reducing reliance on the payment of variable
performance bonuses as a major component of the overall compensation package.
Regular, periotic bonuses will be eliminated.

Training, both initial and recurrent, is required for most employees. The
average training period for all new employees is approximately two weeks. Both
pilot training and mechanic training are provided by professional training
organizations, which may include other airlines. New hire pilots pay for their
own initial training which includes an airline transport pilot rating. The
Company generally pays for recurrent training.

FAA regulations require pilots to be licensed as commercial pilots, with
specific ratings for aircraft to be flown, and to be medically certified as
physically fit. Licenses and medical certification are subject to periodic
continuation requirements including recurrent training and recent flying
experience. Mechanics, quality-control inspectors and flight dispatchers must be
licensed and qualified for specific aircraft. Flight attendants must have
initial and periodic competency fitness training and certification. Training
programs are subject to approval and monitoring by the FAA. Management personnel
directly involved in the supervision of flight operations, training, maintenance
and aircraft inspection must meet experience standards prescribed by FAA
regulations. All of these employees are subject to pre-employment and subsequent
drug testing.

The Company believes that current conditions in the airline industry have
created a sufficient pool of qualified, licensed pilots, dispatchers and
mechanics to fill the Company's needs in the flight operations, maintenance and
quality control areas, and that the Company will have little difficulty in
hiring and continuing to employ the required personnel. There can be no
assurance that these conditions will remain favorable.

The Company's flight attendants have elected the Association of Flight
Attendants ("AFA") and the Company's mechanics have elected the Teamsters to
represent them in negotiating a contract with the Company. The Company does not
expect that the unionization of flight attendants or mechanics will have a
material effect on its operating costs or performance. However, until union
contracts are negotiated, there can be no assurance that this will be the case.

The Company is unable to predict whether any of its other employees will
elect to be represented by a labor union or other collective bargaining unit.
The election by the Company's employees for representation in such an
organization could result in employee compensation and working condition demands
that may affect operating performance or expenses.

The AFA has filed a lawsuit against the Company relating to the termination
of certain former flight attendants. See "Legal Proceedings" in Item 3 of this
Report on Form 10-K.

The Company from time to time considers alternative means of providing
compensation to its employees and the Company's method of determining
compensation is subject to possible change in the future.

AIRPORT OPERATIONS

Ground handling services typically can be placed in three categories--
public contact, underwing and complete. Public contact services involve
meeting, greeting and serving the Company's customers at the check-in counter,
gate and baggage claim area. Underwing ground handling services include, but
are not limited to, marshalling the aircraft into and out of the gate, baggage
and mail loading and unloading, as well as lavatory and

-11-
<PAGE>

water servicing, anti-icing and deicing and certain services provided to the
aircraft overnight. Complete ground handling consists of public contact and
underwing services combined.

All of the Company's ground handling services in Atlanta are conducted by
the Company's employees. At other airports, Company operations not conducted by
the Company's employees are contracted to other air carriers, ground handling
companies or fixed base operators.

INSURANCE

The Company carries customary levels of passenger liability insurance,
aircraft insurance for aircraft loss or damage and other business insurance.
The Company is exposed to potential catastrophic losses that may be incurred in
the event of an aircraft accident. Any such accident could involve not only
repair or replacement of a damaged aircraft and its consequent temporary or
permanent loss from service, but also significant potential claims of injured
passengers and others. The Company is required by the DOT to carry liability
insurance on each of its aircraft. The Company currently maintains liability
insurance in the amount of $750 million per occurrence. Although the Company
currently believes its insurance coverage is adequate, there can be no assurance
that the amount of such coverage will not be changed or that the Company will
not be forced to bear substantial losses from accidents. Substantial claims
resulting from an accident in excess of related insurance coverage or not
covered by the Company's insurance could have a material adverse effect on the
Company. Moreover, any aircraft accident, even if fully insured, could cause
and has caused a public perception that some of the Company's aircraft are less
safe or reliable than other aircraft, which could have and has had a material
adverse effect on the Company's business.

SEASONALITY AND CYCLICALITY

The Company's operations are primarily dependent upon passenger travel
demand and, as such, may be subject to seasonal variations. Management believes
that the weakest travel periods will generally be during the months of January,
May and September. Leisure travel generally increases during the summer months
and at holiday periods.

The airline industry is highly volatile. General economic conditions
directly affect the level of passenger travel. Leisure travel is highly
discretionary and varies depending on economic conditions. While business travel
is not as discretionary, business travel generally diminishes during unfavorable
economic times as businesses tend to tighten cost controls.

COMPETITION

The following table identifies airlines which provide non-stop service to
and from Atlanta and the cities indicated and the approximate number of daily
round trip flights scheduled to be flown by those other airlines as of April
1997.

DAILY NON-STOP ROUND TRIPS
--------------------------
American/Northwest/
ATLANTA TO/FROM Delta USAir Others(a)
- --------------------------- -------- ----- ---------

Akron/Canton, OH...........
Boston, MA................. 8.5 -- --
Chicago, IL (Midway)(b).... -- -- 1
Columbus, OH............... 5 -- --
Dallas/Fort Worth, TX...... 15 11.5 --
Fort Lauderdale, FL........ 9.5 -- --
Fort Myers, FL............. 7.5 -- --

-12-
<PAGE>

Fort Walton Beach, FL...... -- -- 9
Jacksonville, FL........... 8 -- 2
Louisville, KY............. 7.5 -- 1
Memphis, TN................ 9.5 6 --
Mobile, AL................. 8 -- --
New Orleans, LA............ 9 -- --
Newport News, VA........... 5(c) -- --
Orlando, FL................ 14 -- --
Philadelphia, PA........... 9.5 7 --
Raleigh/Durham, NC......... 9.5 -- --
Savannah, GA............... 9 -- --
Tampa, FL.................. 10 -- --
Washington DC (Dulles)(d).. 6 -- 1
West Palm Beach, FL........ 9 -- 1
----- ----- --

Total...................... 159.5 24.5 15
===== ===== ==

- ---------------------

(a) Includes Air South and Kiwi. Also includes commuter affiliates of major
airlines which generally provide service with turboprop aircraft.
(b) Several major airlines operate daily flights to Chicago's O'Hare Airport
which are not reflected in the table above.
(c) Service provided by Delta to Norfolk, VA.
(d) Delta operates daily flights to Washington DC's National Airport which are
not reflected in the table above.

The Company currently intends to provide service between Atlanta and other
markets generally within a 1,000 mile radius. In the future, the Company may
add additional service between cities already served by the Company or may add
service to new markets. The Company's selection of markets depends on a number
of factors existing at the time service to such market is being considered.
Consequently, there can be no assurance that the Company will continue to
provide service to all of the markets listed above or that the Company will not
provide service to any other particular market.

With respect to the Company's one-stop service provided between markets
served on a connecting basis through Atlanta, the Company faces competition from
numerous airlines with varying degrees of flight frequency and marketing
approaches. In addition, the Company competes with numerous nonstop flights to
many of its cities from other airports in the same metropolitan areas as served
by the Company (such as Washington's National Airport and Chicago's O'Hare
Airport).

Delta Air Lines implemented a low cost operation, Delta Express, in October
1996. The initial service provided by Delta Express does not include Atlanta,
but does provide nonstop service between Orlando and markets north of Atlanta.

The identity of competing airlines and the number and character of the
flights flown changes from month to month, and while management believes
published schedules for the month of April 1997, upon which the foregoing
information was based, are representative of the competition the Company may
face, competing airlines and their flight schedules are subject to frequent
change.

The Company may also face competition from other airlines which may begin
serving any of the markets it serves or plans to serve, from new low cost
airlines that may be formed to compete in the low fare market (including any
that may be formed by other major airlines) and from ground transportation
alternatives.

-13-
<PAGE>

The most significant competitive factors among airlines are price (fare
levels), convenient departure times, flight frequency and the availability of
incentives such as a frequent flyer program. The Company currently does not
offer a frequent flyer program and typically offers limited flight frequencies.
There can be no assurances that the Company will not choose to develop a
frequent flyer program or join an existing program for competitive reasons.
Additionally, competitive factors include access to computerized reservation and
ticketing systems used by travel agents, dependability of service, name
recognition, airports served and the availability, quality and convenience of
other passenger services.

GOVERNMENT REGULATION

U.S. Department of Transportation

All interstate air carriers are subject to regulation by the DOT and the
FAA under the Federal Aviation Act of 1958, as amended (the "Aviation Act").
The DOT's jurisdiction extends primarily to the economic aspects of air
transportation, while the FAA's regulatory authority relates primarily to air
safety, including aircraft certification and operations, crew licensing and
training and maintenance standards.

In general, the amount of economic regulation over interstate air carriers
in terms of market entry and exit, pricing and inter-carrier acquisitions and
agreements has been greatly reduced subsequent to enactment of the Deregulation
Act. As a result of that change in the regulatory structure, any company's
entry into the domestic air transportation business has been greatly simplified,
and the level of post-entry regulation to which an airline is subject has been
greatly reduced.

The Company has obtained a Certificate of Public Convenience and Necessity
issued by the DOT pursuant to Section 401 of the Aviation Act. Each United
States carrier must qualify as a United States citizen, which requires that it
be organized under the laws of the United States or a state, territory or
possession thereof, that its President and at least two-thirds of its Board of
Directors and other managing officers must be comprised of United States
citizens, that not more than 25% of its voting stock may be owned by foreign
nationals, and that the carrier not be otherwise subject to foreign control.

As a result of the Company's suspension of operations on June 17, 1996, the
Company was required to apply for recertification by the DOT. The DOT issued a
"show cause" order on August 29, 1996, reflecting its preliminary determination
that the Company had satisfied the DOT requirements and issued its final order
on September 26, 1996, approving its return to service.

In January 1996, the Department of Transportation requested comments on the
application of air carrier passenger notice requirements to ticketless air
travel. Comments were sought on whether passengers who do not receive a ticket
should nonetheless receive a document containing various notices, including
oversales and denied boarding compensation, domestic and international baggage
liability, contract of carriage terms, refund penalties and international
death/injury liability limitations, that are currently provided with, and most
commonly printed on the back of, passengers' tickets. If adopted, such a
requirement could increase the cost and adversely affect the operational
efficiency of the Company's ticketless travel approach.

U.S. Federal Aviation Administration

The Company has also obtained an operating certificate issued by the FAA
pursuant to Part 121 of the Federal Aviation Regulations. The Company's
operating certificate was surrendered to the FAA in connection with the consent
order dated June 17, 1996 and returned to the Company on August 29, 1996, after
the Company satisfied the requirements of the FAA in the consent order. Under
the consent order, increases in the number of aircraft are subject to FAA
approval.

The FAA has jurisdiction over the regulation of flight operations
generally, including the licensing of pilots and maintenance personnel, the
establishment of minimum standards for training and maintenance and

-14-
<PAGE>

technical standards for flight, communications and ground equipment. As
required, the Company has effective FAA certificates of airworthiness for all of
its aircraft. The Company's flight personnel, flight and emergency procedures,
aircraft and maintenance facilities are subject to periodic inspections and
tests by the FAA. The Company's director of safety and regulatory compliance
acts as a liaison between the Company and the FAA, implementing any changes
requested by the FAA with respect to operating procedures or training programs
and generally ensuring proper compliance with aviation regulations applicable to
the Company.

The DOT and FAA also have authority under the Aviation Safety and Noise
Abatement Act of 1979, as amended, under the Airport Noise and Capacity Act of
1990 ("ANCA") and, along with the Environmental Protection Agency, under the
Clean Air Act to monitor and regulate aircraft engine noise and exhaust
emissions. To the Company's knowledge, the Company's aircraft comply with all
applicable FAA noise control regulations (except as indicated below) and with
current emissions standards.

ANCA requires the phase-out of Stage 2 airplanes (which meet less stringent
noise emission standards than later Stage 3 airplanes) in the contiguous 48
states by December 31, 1999. In September 1991, the FAA promulgated final rules
establishing interim compliance dates of December 31, 1994, December 31, 1996
and December 31, 1998 for phasing out Stage 2 aircraft. As of March 21, 1997,
the Company's aircraft on its operating specifications consisted of 24 aircraft,
15 of which comply with Stage 3. Therefore, the Company must take action to
continually assure that its fleet will be in compliance with ANCA.

Miscellaneous

All international service is subject to the regulatory requirements of the
appropriate authorities of the other country involved. The Company does not
currently provide any international service.

All air carriers are subject to certain provisions of the Communications
Act of 1934, as amended, because of their extensive use of radio and other
communication facilities, and are required to obtain an aeronautical radio
license from the Federal Communications Commission ("FCC"). To the extent the
Company is subject to FCC requirements, it has taken and will continue to take
all necessary steps to comply with those requirements.

The Company's operations may become subject to additional federal
regulatory requirements in the future under certain circumstances. The
Company's labor relations are covered under Title II of the Railway Labor Act of
1926, as amended, and are subject to the jurisdiction of the National Mediation
Board. During a period of past fuel scarcity, air carrier access to jet fuel
was subject to allocation regulations promulgated by the Department of Energy.
To the extent the Company seeks to provide international air transportation in
the future, it will be required to obtain additional authority from the DOT and
become subject to regulatory requirements imposed by affected foreign
jurisdictions. The Company is also subject to state and local laws and
regulations at locations where it operates and the regulations of various local
authorities that operate the airports it serves.

ITEM 2. PROPERTY
--------

The Company leases approximately 40,500 square feet of office space at its
principal address for general corporate and operational use (including Atlanta
reservations) under a lease which expires September 30, 1999 and the Company
also leases approximately 15,000 square feet of space for use as a training
center under a lease that expires August 31, 1999. The Company has signatory
status on a lease of facilities at the Atlanta Airport, which lease expires in
the year 2010. The Company also maintains a separate reservations center in
leased premises in Savannah, Georgia (approximately 7,000 square feet) which
lease expires in January 2000 and leases additional space in Newport News,
Virginia (approximately 20,000 square feet) which lease expires in the year
2001. The Company is not currently using its leased premises in Newport News,
Virginia, and is seeking to sublease such space.

-15-
<PAGE>

The check-in counters, gates and airport office facilities at each of the
airports the Company serves are leased from the appropriate airport authority or
subleased from other airlines. Such arrangements may include baggage handling,
station operations, cleaning and other services. If such facilities at any
additional cities to be served by the Company are not available to the Company
at acceptable rates, or if such facilities become no longer available to the
Company at acceptable rates, then the Company may choose not to service such
markets.

ITEM 3. LEGAL PROCEEDINGS
-----------------

Several stockholder class action suits have been filed against the Company and
certain of its executive officers ("Defendants"). The consolidated lawsuits
discussed below seek class certification for all purchasers of stock in the
Company during periods beginning on or after June 1995 and ending on or before
June 18, 1996, and are based on allegedly misleading public statements made by
the Company or omission to disclose material facts in violation of federal
securities laws. A total of 14 stockholder lawsuits have been filed against and
served upon the Company between May 30, 1996 and July 26, 1996. Of these suits,
11 have been filed in the United States District Court for the Northern District
of Georgia and these suits have been consolidated into a single action (In re
-----
ValuJet, Inc.). Another lawsuit filed in the United States District Court for
- -------------
the Middle District of Florida has been transferred to the Northern District of
Georgia and has been consolidated into In re ValuJet, Inc. One additional class
-------------------
action stockholder lawsuit possibly has been filed but not served upon the
Defendants. All of the Defendants filed a joint Motion to Dismiss the
Consolidated Amended Complaint on December 23, 1996. The Plaintiffs' response
to this motion to Dismiss is due on May 9, 1997. On November 25, 1996,
Plaintiffs filed their Motion for Class Certification. On January 14, 1997,
Defendants filed a "Notice of Stay of Discovery and Other Proceedings", in which
Defendants state that the filing of their Motion to Dismiss has stayed the issue
of class certification pursuant to the Private Securities Litigation Reform Act.
By consent of the parties, Defendants are not currently obligated to respond to
Plaintiffs' Motion for Class Certification, and if the Court decides that the
issue of class certification is not stayed by the Private Securities Litigation
Reform Act, the Defendants have 30 days from the date of such decision to
respond to Plaintiffs' Motion for Class Certification. Two suits (Cohen et al.
------------
v. ValuJet, Inc., et al. and Hepler et al. v. ValuJet, Inc. et al.) have been
- ------------------------ -------------------------------------
filed in the State Court of Fulton County, Georgia. On December 23, 1996, all
Defendants in both actions, other than SabreTech, Inc., answered the Complaint
and filed a Motion to Dismiss the Complaint. Additionally, Defendant Timothy
Flynn filed a Motion to Dismiss for lack of personal jurisdiction. By consent
of the parties, the Plaintiffs have until May 9, 1997, to respond to these
motions to dismiss. Although the Company denies that it has violated any of its
obligations under the federal securities laws and believes that meritorious
defenses exist in the lawsuits, there can be no assurance that the Company will
not sustain material liability under such or related lawsuits.

Numerous lawsuits have been filed against the Company seeking damages
attributable to the deaths of those on Flight 592, and additional lawsuits are
expected. Thus far,approximately 50 such lawsuits have been filed against
ValuJet Airlines, Inc. prior to March 15, 1997. Most of the cases were
initially removed to the federal court. That court, however, remanded the
majority of the actions to the state courts from which they originated and
retained jurisdiction over only seven cases. As a consequence, most of the
cases will proceed in state courts in Florida and Georgia. In 36 of these
lawsuits, SabreTech, Inc. has been named as a co-defendant as a result of the
role that the maintenance contractor played in the accident. The Company's
insurance carrier has assumed defense of these suits under a reservation of
rights and has settled and paid approximately 15 claims as of March 21, 1997,
and is pursuing settlements in the balance of the claims. The Company maintains
a $750 million policy of liability insurance per occurrence. The Company
believes that the coverage will be sufficient to cover all claims arising from
the accident.

On August 30, 1996, Metropolitan Nashville Airport Authority filed suit
against the Company in State Court in Tennessee for breach of contract and a
declaratory judgment for an anticipatory breach. The Nashville Airport
Authority seeks damages of approximately $2.6 million. The dispute involves
whether the Company was entitled to exercise a termination right contained in
its lease agreement.

-16-
<PAGE>

Kiwi Airlines has brought suit against ValuJet Airlines, Inc. in the
Bankruptcy Court in the District of New Jersey claiming damages attributable to
the breach by ValuJet Airlines, Inc. of certain obligations under an agreement
under which Kiwi was to operate certain flights on behalf of the Company in
December 1996 and January 1997. The parties have agreed to a settlement of the
dispute, subject to Bankruptcy Court approval.

On October 21, 1995, the Association of Flight Attendants ("AFA") filed suit
in federal court alleging that the Company had violated the Railway Labor Act by
terminating between 20 and 40 flight attendants for engaging in protected union
activities associated with the AFA's organizing drive. The Company believes
that it has not wrongfully terminated any of these flight attendants. By order
dated January 30, 1996, the court struck AFA's demands for jury trial, punitive
damages and attorneys' fees. During the course of discovery, the number of
plaintiffs in the case has been reduced to the AFA and five individuals.

In November 1995, the Company filed suit against Delta and TWA in federal
district court alleging violations of the antitrust laws and, regarding TWA,
breaches of contract, arising from the Company's attempt to obtain slots to
conduct flight operations at New York's LaGuardia Airport. Preliminary
injunctive relief was denied, and the parties have since been involved in
discovery. The court granted TWA's motion for summary judgment on contract and
conspiracy claims, but has not entered such judgment, and TWA has remained a
party. Trial is currently set for fall 1997.

From time to time, the Company is engaged in litigation arising in the
ordinary course of its business. The Company does not believe that any such
pending litigation will have a material adverse effect on its results of
operations or financial condition.

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

No matter was submitted during the fourth quarter of the fiscal year covered
by this Report to a vote of security holders of the Company through the
solicitation of proxies or otherwise.

PART II

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

Market Information
- ------------------

The Company's Common Stock, $.001 par value, is traded on the NASDAQ Stock
Market under the symbol "VJET." As of March 19, 1997, there were approximately
4,294 holders of record of the Company's Common Stock. The following table sets
forth the reported high and low sale prices for the Common Stock for each fiscal
quarter since January 1, 1995.

Fiscal year ended
December 31, 1995 High Low
----------------- ------ ------

Quarter Ending March 31, 1995 $12.63 $ 4.75
Quarter Ending June 30, 1995 $17.94 $12.00
Quarter Ending September 30, 1995 $18.06 $13.31
Quarter Ending December 31, 1995 $34.75 $15.94

-17-
<PAGE>

Fiscal year ended
December 31, 1996 High Low
----------------- ------ ------

Quarter Ending March 31, 1996 $27.63 $18.50
Quarter Ending June 30, 1996 $27.50 $ 4.50
Quarter Ending September 30, 1996 $14.00 $ 8.38
Quarter Ending December 31, 1996 $12.25 $ 5.94

As of March 10, 1997, the closing price of the Common Stock was $8.375.

All stock prices have been adjusted to give effect to the two separate 2-for-
1 stock splits paid in April 1995 and November 1995.

Dividends
- ---------

No cash dividends have ever been declared by the Company on its Common Stock.
The Company intends to retain earnings to finance the development and growth of
its business. Accordingly, the Company does not anticipate that any dividends
will be declared on its Common Stock for the foreseeable future. Future
payments of cash dividends, if any, will depend on the Company's financial
condition, results of operations, business conditions, capital requirements,
restrictions contained in agreements, future prospects and other factors deemed
relevant by the Company's Board of Directors.

ITEM 6. SELECTED FINANCIAL DATA
-----------------------

The information required by this Item is as follows:

(in thousands except per share data)
<TABLE>
<CAPTION>
1996 1995 1994 1993
--------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $219,636 $367,757 $133,901 $ 5,811
Net income (loss) (41,469) 67,763 20,732 (894)
Earnings (loss) per
share * (0.76) 1.13 0.44 (0.03)
Total assets 417,187 346,741 173,039 30,264
Long-term debt including current
maturities 244,706 109,038 46,965 10,398

</TABLE>

* See Note 1 of Notes to Consolidated Financial Statements

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

RESULTS OF OPERATIONS

The following chart indicates the service offered by the Company from January
1995 through December 1996:

-18-
<PAGE>

<TABLE>
<CAPTION>
Number/
As of Total Number Number of Peak Cities
Quarter End of Aircraft Day Flights Served
----------- ------------ ------------- --------------------------------------
<S> <C> <C> <C>
March 1995 27 184 23

June 1995 28 208 24

September 1995 34 228 26

December 1995 42 268 26

March 1996 47 286 28

June 1996 51 0 Service suspended to all markets as of
June 17, 1996

September 1996 46* 16 Service resumed on September 30, 1996
to Atlanta, Fort Lauderdale, Orlando,
Tampa, Washington, D.C.

December 1996 43** 124 18

</TABLE>
* Of which 4 had been approved for service by the FAA

** Of which 15 had been approved for service by the FAA

On May 11, 1996, ValuJet tragically lost its flight 592 en route from Miami
to Atlanta. There were no survivors. The accident resulted in extensive media
coverage calling into question the safety of low-fare airlines in general and
the Company in particular. In response to the accident, the FAA conducted an
extraordinary review of the Company's operations.

On June 17, 1996, the Company entered into a consent order with the FAA under
which: (i) the Company agreed to suspend operations until such time as the
Company was able to satisfy the FAA as to various regulatory compliance concerns
identified by the FAA as a result of its intensive inspections of the Company's
operations, (ii) the FAA agreed to work with the Company in order to reestablish
operations with up to 15 aircraft initially, and (iii) the Company paid $2
million to the FAA to compensate it for the costs of the special inspections
conducted. In order to reduce costs while the Company prepared its plan to
restore service, the Company furloughed more than 90% of its personnel
(approximately 3,600 of 4,000) for several weeks.

Other effects of the accident, ensuing FAA inspections, media coverage and
suspension of operations include:

1. The suspension of operations has resulted in the failure of the Company
to meet certain financial covenants under certain of the Company's secured debt.
See Liquidity and Capital Resources below for further discussion.

-19-
<PAGE>

2. The expansion of the Company's operations will likely be subject to FAA
and DOT approval for an indefinite period of time.

3. The Company is unable to predict how significantly the accident and
suspension of operations will affect load factors and yield or the length of
time load factors and yield will be impacted.

4 The Company has sold certain of its aircraft and has assigned its
rights to purchase certain aircraft previously under contract. In addition, the
Company plans to lease out or sell some of its other aircraft.

5. In 1996, the Company refunded fares paid by customers affected by the
Company's changing schedules and by those who otherwise chose to change their
travel plans.

6. The Company's cost per ASM has increased and is likely to remain
inflated to some extent to reflect the cost of additional maintenance procedures
and infrastructure adopted by the Company and lower aircraft utilization levels.

7. The Company may reduce its workforce permanently if reduced traffic
levels continue and the Company is unable to reestablish its previous service
levels.

8. The aircraft lost was insured for $4.0 million which was in excess of
book value. The Company carries $750 million of liability insurance. Although
the Company believes that such insurance will be sufficient to cover all claims
arising from the accident, there can be no assurance that all claims will be
covered or that the aggregate of all claims will not exceed such insurance
limits.

9. Several stockholder lawsuits have been filed against the Company and
certain of its officers and directors alleging, among other things, violation of
federal securities laws. While the Company denies that it has violated any of
its obligations under the federal securities laws and believes that the lawsuits
do not have any merit, there can be no assurance that the Company will not
sustain material liability under such or related lawsuits.

In light of these factors, persons investing in the securities of the Company
should be apprised of the following additional risks:

1. The suspension of operations has resulted in the failure of the Company
to meet certain financial covenants (the fixed charge coverage ratio) under
certain of the Company's secured debt. This could result in the acceleration of
such debt and a reduction in the Company's cash position. If the Company does
not timely repay all indebtedness accelerated or if the Company's other secured
lenders or the holders of the Company's 10 1/4 % senior notes seek to accelerate
their debt as a result of such accelerations, then a substantial portion or all
of the Company's debt could be accelerated. The Company does not have
sufficient cash to satisfy all of its debt at this time.

2. There is no assurance that the Company will recover sufficient customer
acceptance in order to regain profitability.

3. If the Company regains profitability, there may be reduced customer
support which could decrease the Company's profitability indefinitely.

4. The expansion of the Company's operations will likely be subject to FAA
and DOT approval for an indefinite period of time.

-20-
<PAGE>

5. Although preliminary information indicates no connection, if the
National Transportation Safety Board (NTSB) were to determine that the Company's
maintenance procedures or aging aircraft contributed to the cause of the
accident, such determination could also have a substantial adverse effect on the
Company's future operations.

6. The occurrence of one or more subsequent incidents by the Company's
aircraft could likely have a substantial adverse effect on the Company's public
perception and future operations.

As a result of the accident, the ensuing extraordinary review of the
Company's operations by the FAA and the suspension of operations in June 1996
and the current and prospective FAA imposed limitation on the number of aircraft
that may be operated by the Company, the Company's results for periods prior to
May 11, 1996 are not necessarily reflective of the results to be expected in
future periods. The Company's operations for 1996 are also not reflective of
future operations as a result of the suspension of operations for a significant
portion of 1996. The following is a description of the costs incurred by
category for the year ended December 31, 1996 compared to year-ends December 31,
1995 and 1994.
<TABLE>
<CAPTION>

Year Ended December 31, 1994 Year Ended December 31, 1995
---------------------------------- --------------------------------
% of % of
Amount revenues Per ASM Amount revenues Per ASM
-------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES $133,901 100.0% 9.05c $367,757 100.0% 9.62c

EXPENSE CATEGORY

Flight Operations $ 6,967 5.2% 0.47 $ 16,273 4.4% 0.42
Aircraft Fuel 21,775 16.3% 1.47 55,813 15.2% 1.46
Maintenance 14,862 11.1% 1.00 47,330 12.9% 1.24
Station Operations 20,198 15.1% 1.37 49,931 13.6% 1.31
Passenger Services 3,942 2.9% 0.27 10,363 2.8% 0.27
Marketing and Advertising 6,546 4.9% 0.44 8,989 2.4% 0.23
Sales and Reservations
General and Administrative 11,325 8.5% 0.77 31,156 8.5% 0.81
Employee Bonuses 5,146 3.8% 0.35 14,382 3.9% 0.38
Depreciation 3,555 2.7% 0.24 15,147 4.1% 0.40
Other expenses (income),
net 965 0.7% 0.06 (70) 0.0% (0.00)
Shutdown and Other
Nonrecurring 0 0.0% 0.00 0 0.0% 0.00
-------- -------- ----- -------- ----- -----

Total Expenses $100,320 75.0% 6.78c $259,931 70.7% 6.80c
</TABLE>

-21-
<PAGE>

Year Ended December 31, 1996
-----------------------------
% of
Amount revenues Per ASM
------ -------- -------

OPERATING REVENUES $219,636 100.0% 8.12c

EXPENSE CATEGORY

Flight Operations $ 16,479 7.5% 0.61
Aircraft Fuel 46,691 21.3% 1.73
Maintenance 49,500 22.5% 1.83
Station Operations 42,018 19.1% 1.55
Passenger Services 8,879 4.0% 0.33
Marketing and Advertising 8,426 3.8% 0.31
Sales and Reservations 18,378 8.4% 0.68
General and Administrative 13,659 6.2% 0.51
Employee Bonuses 1,245 0.6% 0.05
Depreciation 17,551 8.0% 0.65
Other expenses (income), net (5,252) -2.4% (0.19)
Shutdown and Other Nonrecurring 67,994 31.0% 2.51
-------- ------- -----

Total Expenses $285,568 130.0% 10.57c

Operating revenues

Total operating revenues for the year ended December 31, 1996 were
approximately $219.6 million as compared to $367.8 million and $133.9 million
for the years ending December 31, 1995 and 1994, respectively. The decrease from
1995 to 1996 is a result of the Company's reduced service level and suspension
of operations during the second and third quarters of 1996. The increase over
1994 is due to the Company flying more available seat miles (ASMs) during 1996.
The Company flew 2.7 billion ASMs in 1996 as compared to 3.8 billion and 1.5
billion in 1995 and 1994, respectively. The Company's load factors for 1996,
1995 and 1994 were 57.1%, 68.8% and 64.0%, respectively. The lower load factor
in 1996 is due to the accident and ensuing circumstances. The Company's average
fare was $69.81 for 1996, $68.10 for 1995 and $63.48 for 1994 due to the absence
of the 10% federal excise tax for a substantial part of 1996.

Expenses

Flight operations expenses include all expenses related directly to
the operation of the aircraft other than aircraft fuel, maintenance expenses and
passenger services expenses. Expenses for hull insurance and compensation of
pilots (exclusive of bonuses) are included in flight operations. Flight
operations expenses were higher, on a per ASM basis, for year ended December 31,
1996 than the previous two years due to the extended period of time that the
Company's operations were suspended, the additional training costs incurred at
restart and the change in the Company's compensation structure in September 1996
which reduced the percentage of compensation represented by bonuses and shifted
this cost to base pay charged to each department. The cost of hull insurance
also increased substantially as of October 1, 1996. Certain flight operations
administrative costs were also incurred during the period of the suspension with
no ASMs being generated over which to spread these costs.

Aircraft fuel expenses include both the direct cost of the fuel as
well as the costs of delivering fuel into the aircraft. Fuel expense, on a per
ASM basis was higher for 1996 than either of the previous two years due to an

-22-
<PAGE>

increase in the average cost of fuel. The average cost for fuel increased from
$0.58 per gallon for 1994 to $0.60 per gallon for 1995 to $0.71 per gallon for
1996. This approximate 20% increase in the price per gallon in fuel accounts
for the 18% increase in fuel cost per ASM.

Maintenance expenses include all administrative costs of the
maintenance department as well as normal recurring maintenance performed during
the year. Expenses for engine overhaul and certain scheduled heavy maintenance
procedures are included in this cost. Most non-routine maintenance costs
performed during the suspension of operations are included in the nonrecurring
expense line item. Maintenance expenses for the year ended December 31, 1996
were higher, on a per ASM basis, than both 1995 and 1994 due to the suspension
of operations during the second and third quarters of 1996 and the reduced level
of service once the Company was able to resume operations. The Company also had
a lower utilization rate on the aircraft it operated which results in the
spreading of certain fixed costs over fewer ASMs or block hours. The Company
maintained or paid storage costs on many more aircraft than it was allowed to
operate. Certain maintenance administrative costs were also incurred during the
period of the suspension of operations with no ASMs being generated over which
to spread these costs.

Station operations expense includes all expenses incurred at the
airports, as well as station operations administration and liability insurance.
Certain facility rental expense related to non-operating stations as a result of
the suspension of operations are included in shutdown and other nonrecurring
expenses. Stations operations expenses were higher, on a per ASM basis, for the
year ended December 31, 1996 than in 1995 and 1994 due to the shutdown and the
inefficiencies generated from restarting operations on a limited basis. Many of
the station facilities were not fully utilized during the fourth quarter due to
the limited operation. Another factor which contributed to a higher 1996
station operations expense was an increase in insurance costs as of October 1,
1996. Certain station operations administrative costs were also incurred during
the period of the suspension of operations with no ASMs being generated over
which to spread these costs.

Passenger services expenses include flight attendant wages and
benefits and catering expenses. Also included are the costs for flight
attendant training and flight attendant overnight expenses. The increase in
passenger services expenses for 1996, on a per ASM basis, over 1995 and 1994 is
due to the restructuring of the compensation policy as it relates to flight
attendants. The flight attendants' salary levels were adjusted upward and the
regular quarterly bonus portion of their compensation was eliminated. This
shift caused the department expense to be higher while reducing the amount of
bonus expense.

Marketing and advertising expenses include all advertising expenses
and wages and benefits for the marketing department. Marketing and advertising
expenses for 1996, as a percentage of revenue, were higher than 1995 and lower
than 1994. These expenses were higher in 1996 than 1995 due to the additional
advertising costs incurred at the resumption of operations being spread over a
reduced revenue base caused by lower service levels and load factors. Certain
marketing administrative costs were also incurred during the period of the
suspension of operations with no ASMs being generated over which to spread these
costs.

Sales and reservations expenses include all of the costs related to
recording a sale or reservation. These expenses include wages and benefits for
reservationists, rent, telecommunication charges, credit card fees and travel
agency commissions. Sales and reservations expenses for the year ended December
31, 1996 were 8.4% of revenue as compared to 8.5 % for each of 1995 and 1994.

General and administrative expenses include the wages and benefits for
the Company's executive officers and various other administrative personnel.
Also included are costs for office supplies, legal expenses, bad debts,
accounting and other miscellaneous expenses. General and administrative costs
for 1996 were higher than each of 1995 and 1994 due to the shift in compensation
structure to one based to a larger extent on base salaries and also due to
increased legal fees.

The amount of bonus expense for the year ended December 31, 1996
reflects the change in salary structure as of September 1996 to less of a bonus
based structure and the fact that the Company had a net loss from the second
quarter 1996 through the end of the year. The amount charged to 1996
approximates the amount paid out

-23-
<PAGE>

to those employees in the quarterly pool for the first quarter of 1996. The
actual amount to be paid out and the form of such pay-out are at the sole
discretion of the Company's Board of Directors.

Depreciation expense includes depreciation on aircraft and ground
equipment, but does not include any amortization of start-up and route
development costs as all of these costs are expensed as incurred. Depreciation
expense for the year ended December 31, 1996 was higher than each of the
pervious two years as additional aircraft and other property have been acquired.
During 1996, the Company made the decision to dispose of certain idled aircraft.
Subsequent to the decision to sell or lease out such aircraft, no depreciation
was recorded on aircraft held for sale. Depreciation on aircraft idled as a
result of the suspension of operations and reduced operations and not yet
returned to service has been recorded in shutdown and other nonrecurring
expenses.

Shutdown and other nonrecurring expenses include costs associated with
the loss of Flight 592 and excess operating costs related to the reduced
schedule from May 19, 1996 to June 17, 1996, the suspension of operations from
June 17, 1996 to September 29, 1996 and the reduced schedule from September 30,
1996 to December 31, 1996. Such costs consist of expenses directly related to
the accident and the ensuing extensive FAA review of the Company's operations
including legal fees, payments to the FAA, inspection related costs and unusual
maintenance in excess of normal recurring maintenance. In addition,
depreciation on grounded aircraft, rental of abandoned or idled facilities and
costs of personnel idled as a result of the reduced and suspended operations
from May through December, 1996 are included in shutdown and other nonrecurring
expenses. Personnel costs include full wages, salaries and benefits that were
provided to idled employees during the reduction and suspension of operations.

A summary of such costs is as follows:

Maintenance $27,750,000
Legal and other consulting 8,843,000
Facilities rental 6,114,000
Wages, salaries and benefits, excluding maintenance 4,895,000
Depreciation 11,054,000
FAA remediation 2,000,000
Other 7,338,000
-----------
$67,994,000
===========

The Company also expects to incur additional shutdown and nonrecurring
expenses in the first and second quarters of 1997 as a result of idled aircraft
and facilities due to the reduced level of service attributable to the Company's
agreement with the FAA.

No accrual was provided for costs to be incurred in future periods related to
aircraft depreciation and maintenance and rental costs associated with
temporarily idled facilities as such costs will be recognized as they are
incurred. There was no accrual for salaries and wages in connection with the
furlough of employees at December 31, 1996 as such employees were paid through
June 30, 1996 with no additional severance benefits provided.

Other expenses (income), net includes interest income and interest expense as
well as certain property transactions. During the year ended December 31, 1996,
interest expense exceeded interest income by approximately $14,534,000 due to
increasing debt levels attributable to the acquisition of aircraft and the
completion of the issuance of $150 million 10 1/4 % Senior Notes due 2001.
During 1996, the Company also recognized $13.0 million of income as an
arrangement fee for aircraft transfers, a $2.8 million gain from insurance
recovery and a $3.9 million gain on the sale of aircraft.

-24-
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

For the year ended December 31, 1996, the Company used cash flow from
operations of approximately $80.4 million, used cash of approximately $127.6
million to acquire property and equipment and generated cash flow from the
disposal of property and equipment of $97.6 million. Approximately $224.5
million of cash was generated from the issuance of debt which was partially
offset by debt repayments of approximately $93.0 million.

As of December 31, 1996, the Company had cash and cash equivalents of
approximately $150.0 million and working capital of approximately $168.6
million.

As of December 31, 1996, the Company's fleet consisted of 43 DC-9-30
aircraft. During the third quarter 1996, the Company sold three of its four MD-
80 aircraft and all four of its DC-9-21 aircraft, purchased two DC-9-30 aircraft
under contract and assigned its purchase rights with respect to the remaining
DC-9-30 aircraft and MD-80 aircraft under contract. The Company sold its last
remaining MD-80 aircraft and two DC-9-30 aircraft during the fourth quarter of
1996 and is actively pursuing the sale or lease of up to 13 of its surplus DC-9-
30 aircraft.

The Company has contracted with McDonnell Douglas for the purchase of 50 MD-
95 aircraft, at a cost of approximately $1.0 billion (subject to adjustments for
inflation), for delivery in 1999 to 2002. Approximately $40 million of this
amount will be paid in progress payments during 1997 and 1998. The balance of
the purchase price after all progress payments will need to be paid or financed
upon delivery of each aircraft. If the Company exercises its option to acquire
up to an additional 50 MD-95 aircraft, additional payments could be required
beginning in this period. The Company expects to finance at least 80% of the
cost of each of these aircraft. Although McDonnell Douglas has agreed to
provide assistance with respect to the financing of aircraft to be acquired, the
Company will be required to obtain the financing from other sources. The
Company believes that with the assistance to be provided by McDonnell Douglas,
aircraft related debt financing should be available when needed. There is no
assurance that the Company will be able to obtain sufficient financing on
attractive terms. If it is unable to do so, the Company could be required to
modify its aircraft acquisition plans or to incur higher than anticipated
financing costs, which could have a material adverse effect on the Company's
results of operations and cash flows.

The Company's compliance with Stage 3 noise requirements will require
substantial additional capital expenditures over the next several years. By
December 31, 1999, all of the Company's aircraft must be brought into compliance
with Stage 3 requirements. The Company intends to meet its Stage 3 noise
requirement obligations by installing hush kits on Stage 2 aircraft, disposing
of Stage 2 aircraft and acquiring Stage 3 aircraft. The Company expects that FAA
certified hush kits will cost approximately $2.2 million per aircraft or
approximately $55.0 million for a fleet of 25 non-hushed DC-9-32 aircraft as of
December 31, 1996. Any disposition of Stage 2 aircraft would reduce this
obligation. The Company may be able to finance a portion of the cost of these
hush kits and plans to make the balance of payments on these hush kits out of
its working capital. The Company expects to pay the debt service on such loans
out of cash flow generated from operations during the term of the financing.
The phase in period for full compliance with Stage 3 (until December 31, 1999)
and the expected terms of financing, if available, should allow the Company to
spread the payments for Stage 3 compliance over a number of years.

As of December 31, 1996, the Company's debt related to asset financing
totaled $94.7 million, with respect to which the Company's aircraft and certain
other equipment are pledged as security. The Company has purchased all of its
aircraft and, consequently, has no lease commitments relating to its aircraft
fleet. In addition, the Company has $150 million of 10 1/4 % senior unsecured
notes outstanding. The principal balance of the senior notes is due in 2001 and
interest is payable semi-annually. All of the Company's debt has final
maturities ranging from 1998 to 2006 with scheduled debt amortization
(calculated without giving effect to any prepayment that may be required as a
result of any covenant violations or sale of assets) as follows:

-25-
<PAGE>

1997--$21.5 million, 1998--$23.1 million, 1999--$20.6 million, 2000--$15.5
million, 2001--$162.9 million, 2002 and after --$1.1 million. These notes
provide for acceleration of their maturities upon certain defaults, including a
payment default or defaults resulting in an acceleration of other debt of the
Company and its subsidiaries.

Certain debt bears interest at fixed rates ranging from 7.43% to 10.18% per
annum and is repayable in consecutive monthly or quarterly installments over a
four- to five-year period. Certain other notes with an aggregate unpaid
principal balance of approximately $14.3 million as of December 31, 1996 have a
variable rate of interest based on the London interbank offered rate (LIBOR)
plus 1.85% to 3% (1.85% at December 31, 1996 and December 31, 1995) based on the
Company's compliance with specific financial ratios concerning leverage and
fixed charge coverage. Certain other notes have a variable rate of interest
based on LIBOR plus 1.20% to 2.75%.

A substantial portion of the secured notes require prepayment if specific
financial ratios (concerning debt to equity, net worth, fixed charge coverage
and current ratio) are not maintained. Of the $94.7 million principal amount of
secured debt as of December 31, 1996, there is debt with a principal balance of
approximately $66.1 million subject to loan agreements with financial covenants.
As of December 31, 1996, the Company was in violation of the fixed charge
coverage ratio with seven lenders on approximately $66.1 million of debt. The
Company has subsequently executed agreements with six of the seven affected
lenders for the waiver or reset of this financial test for the fourth quarter of
1996 and each quarter in 1997. The remaining lender represents approximately
$19.0 million in outstanding debt, which has been classified as current
maturities or debt on assets held for disposition, where appropriate, until such
time as an agreement is completed. The Company expects to continue negotiations
with this lender in an effort to reach a waiver agreement and avoid a prepayment
event or acceleration of debt. There can be no assurance that such negotiations
will be successful. The Company continues to meet all of its debt payment
obligations on time.

If the Company is unable to successfully negotiate waivers or forbearance
from its secured lender with financial covenants who has yet to agree to a
waiver and if such lender demands prepayment of debt, then the Company will be
required to prepay such debt within a short period of time. If the Company
fails to do so, then such secured lender would have the right to foreclose upon
the aircraft securing such debt and other debt holders of the Company (including
holders of the unsecured Company's 10 1/4 % senior notes) would have the right
to accelerate the Company's debt. Based on the language of the Indenture
governing the Company's 10 1/4 % senior notes, the Company believes that the
holders of the senior notes would not have the right to accelerate the senior
notes if the Company pays off debt within the time provided after acceleration
upon the occurrence of a prepayment event (such as the failure to satisfy a
financial covenant).

Although the Company has sufficient cash assets to pay its recurring
obligations and debt service for an extended period of time, the Company's
failure to resume profitable operations may result in defaults under the
Company's secured debt and the acceleration of the Company's debt. In such
event, there can be no assurance that the Company would be able to satisfy all
of its obligations on a timely basis.

As a result of the accident and suspension of operations, several class
action suits have been filed by stockholders against the Company and various
officers and directors alleging, among other things, misrepresentations under
applicable securities laws. The plaintiffs seek unspecified damages based upon
the decrease in market value of shares of the Company's stock. Although
management of the Company intends to defend these actions vigorously and
believes that the suits are without merit, any litigation contains elements of
uncertainty and there can be no assurance that the Company will not sustain
material liability under such or related lawsuits.

Numerous lawsuits have also been filed against the Company seeking damages
attributable to the deaths of those on Flight 592, and additional lawsuits are
expected. The Company's insurance carrier has assumed defense of these lawsuits
under a reservation of rights. As all claims are handled independently by the
Company's insurance carrier, the Company cannot reasonably estimate the amount
of liability which might finally exist. As a result, no accruals for losses and
the related claim for recovery from the Company's insurance carrier have been
reflected in the Company's financial statements. The Company maintains $750

-26-
<PAGE>

million of liability insurance per occurrence with a major group of independent
insurers that provide facilities for all forms of aviation insurance for many
major airlines. Although the Company believes, based on the information
currently available to it, that such coverage is sufficient to cover claims
associated with this accident and that the insurers have sufficient financial
strength to pay claims, there can be no assurance that the total amount of
judgments and settlements will not exceed the amount of insurance available
therefore or that all damages awarded will be covered by insurance.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------

The response to this Item is submitted as a separate section of this report.

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

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------

The information required by this Item is incorporated herein by reference to
the data under the heading "ELECTION OF DIRECTORS" in the Proxy Statement to be
used in connection with the solicitation of proxies for the Company's annual
meeting of Stockholders to be held May 21, 1997, which Proxy Statement is to be
filed with the Commission.

ITEM 11. EXECUTIVE COMPENSATION
----------------------

The information required by this Item is incorporated herein by reference to
the data under the heading "EXECUTIVE COMPENSATION" in the Proxy Statement to be
used in connection with the solicitation of proxies for the Company's annual
meeting of Stockholders to be held May 21, 1997, which Proxy Statement is to be
filed with the Commission.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------

The information required by this Item is incorporated herein by reference to
the data under the heading "VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF" in
the Proxy Statement to be used in connection with the solicitation of proxies
for the Company's annual meeting of Stockholders to be held May 21, 1997, which
Proxy Statement is to be filed with the Commission.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------

The information required by this Item is incorporated herein by reference to
the data under the heading "CERTAIN TRANSACTIONS" in the Proxy Statement to be
used in connection with the solicitation of proxies for the Company's annual
meeting of Stockholders to be held May 21, 1997, which Proxy Statement is to be
filed with the Commission.

-27-
<PAGE>

PART IV

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

(a)

l. The response to this portion of Item 14 is submitted as a
separate section of this report.

2. The response to this portion of Item 14 is submitted as a
separate section of this report.

3. Filing of Exhibits:

Exhibit 11 - Statement Re: Computation of Per Share Earnings
Exhibit 23 - Consent of Independent Auditors
Exhibit 27 - Financial Data Schedule

(b) The Registrant did not file any current reports on Form 8-K during the
fourth quarter 1996.

(c) The following exhibits are filed herewith or incorporated by reference as
indicated. Exhibit numbers refer to Item 60l of Regulation S-K.

Exhibit No. and Description
---------------------------

3.1 Articles of Incorporation. (1)
3.2 Bylaws. (As amended on December 12, 1996).
3.3 Agreement and Plan of Merger among the Registrant, ValuJet
Airlines, Inc. and VJET Acquisition, Inc. (1)
4.1 See the Articles of Incorporation filed as Exhibit 3.1 and Bylaws
filed as Exhibit 3.2. (1)
4.2 Form of Unit Purchase Agreement signed by investors in Preferred
Stock private placement. (2)
4.3 Form of Unit Purchase Agreement signed by investors in Common
Stock private placement. (2)
4.4 Investor Rights Agreement dated September 30, 1993 among ValuJet
Airlines, Inc. and investment funds managed by Montgomery Asset
Management, L.P. (1)
10.1 Aircraft Sale and Loan Agreement dated August 25, 1993, between
ValuJet Airlines, Inc. and McDonnell Douglas Corporation. (2)
10.2 Employment Agreement dated September 1, 1993, between ValuJet
Airlines, Inc. and Robert L. Priddy. (2)(3)
10.3 Employment Agreement dated June 1, 1993, between ValuJet Airlines,
Inc. and Lewis H. Jordan. (2)(3)
10.4 Letter Agreement dated July 26, 1993, between ValuJet Airlines,
Inc. and Lewis H. Jordan amending Employment Agreement. (2)(3)
10.5 Incentive Stock Option Agreement dated June 1, 1993, between
ValuJet Airlines, Inc. and Lewis H. Jordan. (2)(3)
10.6 ValuJet Airlines, Inc. 1993 Incentive Stock Option Plan. (2)(3)
10.7 ValuJet Airlines, Inc. 1994 Stock Option Plan. (2)(3)
10.8 Agreement dated May 5, 1994, between ValuJet Airlines, Inc. and
McDonnell Douglas Corporation. (2)
10.9 Director Noncompete Agreement dated as of May 18, 1994, between
ValuJet Airlines, Inc. and Timothy P. Flynn. (2)(3)
10.10 Director Noncompete Agreement dated as of May 18, 1994, between
ValuJet Airlines, Inc. and Don L. Chapman. (2)(3)

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<PAGE>

10.11 Hush Kit Purchase and Aircraft Modification Contract dated as of
June 1, 1994, between ABS Partnership and ValuJet Airlines,
Inc. (4)
10.12 DC-9-32 Hushkit Financing Facility dated December 2, 1994. (5)
10.13 Form of Debt Participation Agreement among ValuJet Airlines,
Inc., McDonnell Douglas Finance Corporation, SouthTrust Bank of
Georgia, N.A. and First Security Bank of Utah, N.A. (5)
10.14 Form of Debt Participation Agreement among ValuJet Airlines,
Inc., McDonnell Douglas Finance Corporation, NationsBank of
Georgia, N.A. and First Security Bank of Utah, N.A. (5)
10.15 Form of Debt Participation Agreement among ValuJet Airlines,
Inc., McDonnell Douglas Finance Corporation, certain lenders
and First Security Bank of Utah, N.A. (5)
10.16 ValuJet Airlines, Inc. 401(k) Plan Adoption Agreement. (5)
10.17 ValuJet Airlines, Inc. 1995 Employee Stock Purchase Plan. (6)
10.18 Purchase Agreement between McDonnell Douglas Corporation and
ValuJet Airlines, Inc. dated December 6, 1995. (7)
10.19 Agreement and Lease of Premises Central Passenger Terminal
Complex Hartsfield Atlanta International Airport. (7)
10.20 Indenture dated as of April 17, 1996, among the Company, its
subsidiaries and Bank of Montreal Trust Company, as Trustee. (8)
10.21 Exchange and Registration Rights Agreement dated as of April 17,
1996, between the Company and Goldman, Sachs & Co. (8)
10.22 Consent Order in the Matter of ValuJet Airlines, Inc. with
United States Department of Transportation, Federal Aviation
Administration. (9)
10.23 ValuJet, Inc. 1996 Stock Option Plan.
10.24 Employment letter dated October 28, 1996, between ValuJet
Airlines, Inc. and D. Joseph Corr. (3)
21 Subsidiaries of the Registrant.

- ---------------------

(1) Incorporated by reference to the Company's Registration Statement on Form
S-4, registration number 33-95232, filed with the Commission on August 1,
1995, and amendments thereto.

(2) Incorporated by reference to the Company's Registration Statement on Form
S-1, registration number 33-78856, filed with the Commission on May 12,
1994, and amendments thereto.

(3) Management contract or compensation plan or arrangement required to be
filed as an exhibit to this Report on Form 10-K pursuant to Item 14(c) of
Form 10-K.

(4) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994, Commission file number 0-24164, filed
with the Commission on August 4, 1994.

(5) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994, Commision file No. 0-24164, filed with
the Commision on March 31, 1995, and amendment thereto.

(6) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995, Commision file No. 0-24164, filed with
the Commision on August 11, 1995.

(7) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995, Commission File No. 0-26914, filed with
the Commission on March 29, 1996.

(8) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1996, Commission file No. 0-26914, filed
with the Commission on May 3, 1996.

-29-
<PAGE>

(9) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1996, Commission file No. 0-26914, filed
with the Commission on August 14, 1996.

(d) Financial Statement Schedules - The response to this portion of Item 14
is submitted as a separate section of this report.

-30-
<PAGE>

SIGNATURES

Pursuant to the requirements of Section l3 or l5(d) of the Securities
Exchange Act of l934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

VALUJET, INC.

By: /s/ Robert L. Priddy
-----------------------------------------
Robert L. Priddy, Chairman of the Board

Date: March 28, 1997

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:

/s/ Robert L. Priddy March 28, 1997
- ----------------------------------------------
Robert L. Priddy, Chairman of the Board (Chief
Executive Officer) and Director

/s/ Lewis H. Jordan March 28, 1997
- -----------------------------------------------
Lewis H. Jordan, President (Chief Operating Officer)
and Director

/s/ Stephen C. Nevin March 28, 1997
- -----------------------------------------------
Stephen C. Nevin, Senior Vice President - Finance
(Principal Financial Officer)

/s/ Michael D. Acks March 28, 1997
- -----------------------------------------------
Michael D. Acks, Controller (Principal
Accounting Officer)

[SIGNATURES CONTINUED ON NEXT PAGE]

-31-
<PAGE>

/s/ Maurice J. Gallagher, Jr. March 28, 1997
- -----------------------------------------------
Maurice J. Gallagher, Jr., Director

/s/ Timothy P. Flynn March 28, 1997
- -----------------------------------------------
Timothy P. Flynn, Director

March __, 1997
- -----------------------------------------------
Don L. Chapman, Director

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<PAGE>

EXHIBIT INDEX
-------------

Exhibit No. and Description
---------------------------

3.1 Articles of Incorporation. (1)
3.2 Bylaws. (As amended on December 12, 1996).
3.3 Agreement and Plan of Merger among the Registrant, ValuJet
Airlines, Inc. and VJET Acquistion, Inc. (1)
4.1 See the Articles of Incorporation filed as Exhibit 3.1 and Bylaws
filed as Exhibit 3.2. (1)
4.2 Form of Unit Purchase Agreement signed by investors in Preferred
Stock private placement. (2)
4.3 Form of Unit Purchase Agreement signed by investors in Common
Stock private placement. (2)
4.4 Investor Rights Agreement dated September 30, 1993 among ValuJet
Airlines, Inc. and investment funds managed by Montgomery Asset
Management, L.P.(1)
10.1 Aircraft Sale and Loan Agreement dated August 25, 1993, between
ValuJet Airlines, Inc. and McDonnell Douglas Corporation. (2)
10.2 Employment Agreement dated September 1, 1993, between ValuJet
Airlines, Inc. and Robert L. Priddy. (2)(3)
10.3 Employment Agreement dated June 1, 1993, between ValuJet Airlines,
Inc. and Lewis H. Jordan. (2)(3)
10.4 Letter Agreement dated July 26, 1993, between ValuJet Airlines,
Inc. and Lewis H. Jordan amending Employment Agreement. (2)(3)
10.5 Incentive Stock Option Agreement dated June 1, 1993, between
ValuJet Airlines, Inc. and Lewis H. Jordan. (2)(3)
10.6 ValuJet Airlines, Inc. 1993 Incentive Stock Option Plan. (2)(3)
10.7 ValuJet Airlines, Inc. 1994 Stock Option Plan. (2)(3)
10.8 Agreement dated May 5, 1994, between ValuJet Airlines, Inc. and
McDonnell Douglas Corporation. (2)
10.9 Director Noncompete Agreement dated as of May 18, 1994, between
ValuJet Airlines, Inc. and Timothy P. Flynn. (2)(3)
10.10 Director Noncompete Agreement dated as of May 18, 1994, between
ValuJet Airlines, Inc. and Don L. Chapman. (2)(3)
10.11 Hush Kit Purchase and Aircraft Modification Contract dated as of
June 1, 1994, between ABS Partnership and ValuJet Airlines,
Inc.(4)
10.12 DC-9-32 Hushkit Financing Facility dated December 2, 1994. (5)

10.13 Form of Debt Participation Agreement among ValuJet Airlines,
Inc., McDonnell Douglas Finance Corporation, SouthTrust Bank of
Georgia, N.A. and First Security Bank of Utah, N.A. (5)

10.14 Form of Debt Participation Agreement among ValuJet Airlines,
Inc., McDonnell Douglas Finance Corporation, NationsBank of
Georgia, N.A. and First Security Bank of Utah, N.A. (5)
10.15 Form of Debt Participation Agreement among ValuJet Airlines,
Inc., McDonnell Douglas Finance Corporation, certain lenders and
First Security Bank of Utah, N.A. (5)
10.16 ValuJet Airlines, Inc. 401(k) Plan Adoption Agreement. (5)
10.17 ValuJet Airlines, Inc. 1995 Employee Stock Purchase Plan. (6)
10.18 Purchase Agreement between McDonnell Douglas Corporation and
ValuJet Airlines, Inc. dated December 6, 1995. (7)
10.19 Agreement and Lease of Premises Central Passenger Terminal
Complex Hartsfield Atlanta International Airport. (7)

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<PAGE>

10.20 Indenture dated as of April 17, 1996, among the Company, its
subsidiaries and Bank of Montreal Trust Company, as Trustee. (8)
10.21 Exchange and Registration Rights Agreement dated as of April 17,
1996, between the Company and Goldman, Sachs & Co. (8)
10.22 Consent Order in the Matter of ValuJet Airlines, Inc. with
United States Department of Transportation, Federal Aviation
Administration. (9)
10.23 ValuJet, Inc. 1996 Stock Option Plan.
10.24 Employment letter dated October 28, 1996, between ValuJet
Airlines, Inc. and D. Joseph Corr. (3)
11 Statement Re: Computation of Per Share Earnings.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
27 Financial Data Schedule
___________________________________
(1) Incorporated by reference to the Company's Registration Statement on Form
S-4, registration number 33-95232, filed with the Commission on August 1,
1995, and amendments thereto.

(2) Incorporated by reference to the Company's Registration Statement on Form
S-1, registration number 33-78856, filed with the Commission on May 12,
1994, and amendments thereto.

(3) Management contract or compensation plan or arrangement required to be
filed as an exhibit to this Report on Form 10-K pursuant to Item 14(c) of
Form 10-K.

(4) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994, Commission file number 0-24164, filed
with the Commission on August 4, 1994.

(6) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995, Commision file No. 0-24164, filed with
the Commision on August 11, 1995.

(7) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995, Commission File No. 0-26914, filed with
the Commission on March 29, 1996.

(8) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1996, Commission file No. 0-26914, filed
with the Commission on May 3, 1996.

(9) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1996, Commission file No. 0-26914, filed
with the Commission on August 14, 1996.

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<PAGE>

ANNUAL REPORT ON FORM 10-K

ITEM 8, ITEM 14(a)(1) and (2), (c) and (d)

LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CERTAIN EXHIBITS

FINANCIAL STATEMENT SCHEDULE

YEAR ENDED DECEMBER 31, 1996

VALUJET, INC.

ATLANTA, GEORGIA

<PAGE>

ValuJet, Inc.

The following consolidated financial statements of ValuJet, Inc. are
included in Item 8:

Consolidated balance sheets - December 31, 1996 and 1995..........F-4

Consolidated statements of operations - Years
ended December 31, 1996, 1995, and 1994.........................F-5

Consolidated statements of stockholders' equity - Years ended
December 31, 1996, 1995, and 1994...............................F-6

Consolidated statements of cash flows - Years ended
December 31, 1996, 1995, and 1994...............................F-8

Notes to consolidated financial statements - December 31, 1996....F-9

The following consolidated financial statement schedule of ValuJet, Inc. is
included in Item 14(d):

Schedule II - Valuation and qualifying accounts

All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.

F-2

<PAGE>

Report of Independent Auditors

The Stockholders and Board of Directors
ValuJet, Inc.

We have audited the accompanying consolidated balance sheets of ValuJet, Inc. 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. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of ValuJet, Inc. at
December 31, 1996 and 1995, and the consolidated 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. Also in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

ERNST & YOUNG LLP

Atlanta, Georgia
February 10, 1997, except for
Note 4 as to which the date
is March 27, 1997

F-3
<PAGE>

ValuJet, Inc.

Consolidated Balance Sheets
<TABLE>
<CAPTION>

DECEMBER 31
1996 1995
-----------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $150,012,695 $127,947,096
Accounts receivable, less allowance of
$838,000 and $405,000 at
December 31, 1996 and 1995,
respectively 7,014,702 12,074,394
Income tax receivable 36,440,653 -
Inventories of parts and supplies 6,607,307 4,016,266
Prepaid expenses 8,066,792 4,758,205
Deferred tax asset - 401,621
Assets held for disposition 42,060,242 -
Other current assets 839,040 589,986
--------------------------
Total current assets 251,041,431 149,787,568

Property and equipment:
Flight equipment 126,829,882 153,513,693
Other property and equipment 65,662,504 40,472,604
Deposits on flight equipment purchase 14,534,895 21,801,525
contracts
--------------------------
207,027,281 215,787,822
Less accumulated depreciation (44,455,397) (18,834,231)
--------------------------
162,571,884 196,953,591
Debt issuance costs 3,573,561 -
--------------------------
Total assets