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<SEC-DOCUMENT>0000931763-01-000754.txt : 20010409
<SEC-HEADER>0000931763-01-000754.hdr.sgml : 20010409
ACCESSION NUMBER: 0000931763-01-000754
CONFORMED SUBMISSION TYPE: 10-K405/A
PUBLIC DOCUMENT COUNT: 5
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010402

FILER:

COMPANY DATA:
COMPANY CONFORMED NAME: AIRTRAN HOLDINGS 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-K405/A
SEC ACT:
SEC FILE NUMBER: 001-15991
FILM NUMBER: 1592116

BUSINESS ADDRESS:
STREET 1: 9955 AIRTRAN BLVD
CITY: ORLANDO
STATE: FL
ZIP: 32827
BUSINESS PHONE: 4072515600

MAIL ADDRESS:
STREET 1: 9955 AIRTRAN BLVD
CITY: ORLANDO
STATE: FL
ZIP: 32827
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405/A
<SEQUENCE>1
<FILENAME>0001.txt
<DESCRIPTION>FORM 10-K405\A
<TEXT>

<PAGE>

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
(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, 2000

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

For the transition period from to
---------------- -----------------

Commission File No.: 0-26914

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

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

9955 AirTran Boulevard, Orlando, Florida 32827
-----------------------------------------------
(Address of principal executive offices) (Zip code)

(407) 251-5600
--------------
(Registrant's telephone number, including area code)

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

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

The aggregate market value of voting stock held by non-affiliates of the
registrant, based on the closing sales price of such stock in the American Stock
Exchange on March 1, 2001, was approximately $551.3 million. As of March 1,
2001, the registrant had approximately 66,583,000 shares of common stock
outstanding.

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 16, 2001 and 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 38-40
<PAGE>

PART I

ITEM 1. BUSINESS

THE COMPANY

All of the operations of AirTran Holdings, Inc. (AirTran) are conducted by our
wholly owned subsidiary, AirTran Airways, Inc., which is the second-largest
affordable-fare scheduled airline in the United States in terms of departures.
We offer scheduled airline service serving short-haul markets, primarily from
our hub in Atlanta, Georgia. To date, we operate 55 aircraft making
approximately 314 flights per day serving 34 cities throughout the eastern
United States.

We have created a successful niche for AirTran in selected markets by targeting
two primary segments: price-sensitive business and leisure travelers. In
addition to offering an affordable-fare alternative to higher-priced airlines,
we contribute towards the overall growth of the markets we serve by stimulating
demand among travelers who may otherwise utilize ground transportation or not
travel at all. Our service is intended not only to satisfy the transportation
needs of our target customers, but to provide customers with a travel experience
worth repeating. The success of this strategy is evidenced by the 7.6 million
revenue passengers we carried in the year ended December 31, 2000. With this
traffic and revenue base, our operating margins rank among the highest in the
domestic airline industry. We achieved this result through a cost structure that
ranks among the lowest in the industry (in terms of cost per available seat
mile).

We have undertaken a number of key initiatives in recent years to strengthen our
competitive position, the most noteworthy of which is our fleet renewal plan. We
are in the process of replacing and upgrading our fleet of aircraft through the
acquisition of 50 new Boeing 717 (B717) aircraft by October 2003, 16 of which we
operated as of December 31, 2000. We were Boeing's launch customer for the B717,
which was designed specifically for efficient short-haul service and is
considered among the most modern, innovative, comfortable and environmentally
friendly commercial aircraft available today. As a result, we believe the
addition of the B717s will enhance our overall image and operating performance.
In addition to our fleet renewal plan, other key initiatives implemented in the
last two years include:

. the hiring of a management team with substantial industry experience;
. innovative pricing and customer retention programs, such as our unique
$25 business class upgrade and special advance and walk-up fares;
. entry into selected new markets that offer attractive growth
opportunities;
. development of alternate sales distribution channels, including our
low-cost internet website; and
. continuous safety and quality improvements, including maintenance
training improvements that have resulted in the receipt of maintenance
awards from the Federal Aviation Administration (FAA).

These efforts have resulted in a number of improvements in our operating and
financial performance. For the year ended December 31, 2000, our traffic,
measured in revenue passenger

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<PAGE>

miles, grew 18.5% relative to the year ended December 31, 1999, resulting in a
6.7 percentage point increase in load factor. Over the same time period, we were
able to improve our yield by 4.9%, resulting in a 16.0% increase in revenue per
available seat mile. Revenues and EBITDAR for the year ended December 31, 2000,
grew to $624.1 million and $116.9 million, respectively. We have also generated
significant cash flow as evidenced by the increase in our cash balances from
$76.2 million at December 31, 1999, to $103.8 million at December 31, 2000.

We expect our improved operating and financial performance to continue,
supported by a strong market in our Atlanta hub, solid overall industry revenue
fundamentals and an improving competitive environment. To build on these
underlying fundamentals and the renewal of our fleet, we have developed a
conservative growth plan which leverages our business model by adding flights to
existing destinations, adding routes to other cities from Atlanta and
selectively entering new markets.

COMPETITIVE STRENGTHS

Strong Customer Acceptance. We believe that the consistent increases in customer
demand for our service demonstrates the success of our affordable-fare, low-cost
business model. For the year ended December 31, 2000, as compared to the year
ended December 31, 1999, our passenger load factor grew 6.7 percentage points to
70.2% from 63.5%, while our average yield climbed 4.9% to 14.7 cents per revenue
passenger mile.

Low Cost Structure. Our cost structure ranks among the lowest in the domestic
airline industry, in terms of cost per available seat mile, allowing us to be
profitable with our affordable-fare pricing strategy, and offering us a measure
of protection against potential price competition or declines in demand. Our
relatively low operating costs are made possible through our company-wide
emphasis on cost controls including what we believe to be our lower labor costs,
lower distribution costs and the higher productivity of our workgroups. We
expect further cost reductions to result from our ability to leverage our
existing infrastructure for future growth and the acquisition of our new B717
aircraft, which have significantly lower maintenance and fuel requirements than
our current fleet of McDonnell Douglas DC-9 (DC-9) and Boeing 737 (B737)
aircraft.

Attractive Atlanta Hub and Route Network. We control 22 gates from a single
concourse under long-term leases at Hartsfield Atlanta International Airport,
where local traffic growth is projected to grow 8% per year versus a 4% growth
rate for other airports nationwide. Atlanta's location favorably positions the
airport to provide connecting traffic to major population centers. We are the
second-largest airline in Atlanta in terms of the number of departures offered.

Diversified Traffic Base. In serving both the leisure and business traveler, we
believe we had a revenue mix of 44% leisure and 56% business in 2000. In
addition, we now have a hub traffic mix that consists of 54% local passengers
and 46% connecting passengers. In addition to providing a number of marketing
and cost synergies, this diversification adds stability to our revenues by
protecting against factors that may impact individual segments of our business.

Management Team. We have in place an experienced management "Leadership Team,"
all but two of whom joined us in 1999 and 2000. The members of our Leadership
Team average 22 years of experience in the airline industry. This Leadership
Team is lead by Joe Leonard, our Chairman and

3
<PAGE>

Chief Executive Officer and Bob Fornaro, our President. Messrs. Leonard and
Fornaro have held senior management positions with AlliedSignal, Northwest
Airlines, Eastern Air Lines, US Airways, and American Airlines.

BUSINESS STRATEGY

Continue Affordable Pricing and Other Programs to Generate Additional Customer
Traffic. We have consistently maintained our competitive position by providing
affordable fares to appeal to price sensitive travelers. We intend to continue
this successful strategy, which is made possible by our comparatively low cost
structure, to stimulate new demand for air travel. We also believe our fare
strategy will continue to attract customers from other higher-priced airlines.
We will continue to enhance our affordable approach with innovative marketing,
pricing and customer loyalty programs such as including a business class
product, advanced seat assignment and a frequent flyer program.

Leverage Growing Atlanta Hub to Selectively Expand Route Structure. We have a
strong presence in Atlanta, a market that has grown rapidly in recent years.
Atlanta's large traffic base and geographic position provides a strong hub from
which we plan to selectively expand our routes. We believe that there are
numerous markets in the United States that are underserved by major airlines or
present opportunities for an affordable-fare airline. As a result, we intend to
selectively add to our route structure from Atlanta by increasing the number of
flights to markets we currently serve from Atlanta and by adding new cities and
markets. Expansion of our Atlanta hub allows us to leverage our existing
infrastructure, which will reduce unit costs and contribute to improvement of
our operating margins. In addition, we may selectively add new "point-to-point"
routes between cities other than Atlanta that we currently serve and create
additional focus cities.

Increase Bookings Through the Internet and Other Distribution Channels. We
believe we are the leader in the U.S. airline industry with respect to bookings
via the internet, offering lower costs and improved product availability as
compared to more traditional direct and agency channels. We employ the internet
as an integral portion of our marketing strategy utilizing our website,
AIRTRAN.COM, which was launched in May 1998. In addition to being user-friendly
and simple, our website is designed to sell tickets efficiently. As a result, we
have experienced rapid growth in our internet bookings, which generated over
one-third of our total bookings for the quarter ended December 31, 2000.

Fleet Renewal Program. In September 1999, we took delivery of our first B717 as
part of a comprehensive plan to replace and upgrade our fleet of aircraft. We
have contracted with Boeing for the acquisition of 50 B717 aircraft for delivery
through October 2003, 16 of which were delivered through December 31, 2000, and
two of which were delivered in January and February 2001. We also have options
and purchase rights to acquire up to 50 additional B717 aircraft. The B717 is
ideally suited for the short-haul, high-frequency service that we operate. The
B717 offers additional operating efficiencies to our already low cost structure.
Despite having greater thrust, the new aircraft burns approximately 24% less
fuel per hour than our DC-9 and B737 aircraft. With up to 60% fewer parts in its
environmental, avionics and electrical systems than the DC-9s, we expect the
B717 to significantly reduce our fleet maintenance costs.

Improve Revenue Management Through New Software System. Although we have been
able to

4
<PAGE>

generate significant increases in our yield and load factors over the past
several years, we believe that further improvement can be achieved with the
implementation an automated revenue management system. We have contracted with
PROS Management Systems, an internationally recognized revenue management
specialist, to develop, install and implement their revenue management product
in order to further achieve improvements in yield and load factor. We anticipate
the system will be fully operational during the second quarter of 2001.

FARES, ROUTE SYSTEM AND SCHEDULING

Our markets served from Atlanta are located predominantly in the eastern United
States. These markets are attractive to us due to the concentration of major
population centers within relatively short distances from Atlanta, historically
high air fares and the potential for attracting a significant number of leisure
and business customers.

We presently serve 33 cities from Atlanta with up to fourteen daily frequencies
in certain markets. Our schedules are designed to provide convenient service and
connections for our business and leisure travelers and to facilitate connections
for our passengers traveling through Atlanta.

We offer a range of fares based on advance purchases of 14 days, 7 days, 3 days
and "walk-up" fares. We manage the availability of seats, at each fare level, by
day of week and by flight to maximize revenue on peak-travel days. All of our
fares are one-way and most are nonrefundable, but can be changed prior to
departure with a service charge. Our fares generally do not require a round trip
purchase or a minimum stay (e.g., Saturday night stay). Our fare offerings 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. We have established interline ticketing and baggage agreements with
Delta, United, US Airways, TWA and American Trans Air, which we believe can
increase revenue opportunities for us and assist with accommodating passengers
during irregular operations.

In the future, we may add additional service between cities already served by us
or may add service to new markets. Alternatively, we may terminate unprofitable
routes. Our selection of markets depends on a number of factors existing at the
time service to such market is being considered. In our city selection process,
we consider the market demographics, the support offered by the airport
communities to be served, the ability to stimulate air travel and competitive
factors. Consequently, there can be no assurance that we will continue to
provide service to all of the markets we currently serve or that we will not
provide service to any other particular market.

COMPETITION

The airline industry is highly competitive and is served by numerous companies.
Airlines compete on the basis of markets served, price, schedule (frequency and
flight times), quality of service, amenities, frequent flyer programs and other
services. We compete with other airlines primarily on the basis of price, which
is made possible by our low cost structure relative to other airlines, and by
focusing on selected short-haul markets in the eastern United States. We may
face greater competition from existing or new carriers in the future which could
result in a negative impact to our business and operating results.

5
<PAGE>

Competitors with greater financial resources than ours may price their fares at
or below our fares or increase their service. This competition could prevent us
from attaining a share of the passenger traffic necessary to sustain profitable
operations. Our ability to meet price competition depends on our ability to
operate at costs equal to or lower than our competitors or potential
competitors.

Despite the intense competition in the airline industry, we believe that one of
our competitive strengths is our control of 22 gates on a single concourse at
Hartsfield Atlanta International Airport. Atlanta's central location in the
southeastern United States favorably positions the airport to provide connecting
traffic to major population centers. We are the second largest airline in
Atlanta in terms of the number of departures offered and we consider our
position in this major hub to be a significant competitive advantage.

MAINTENANCE, REPAIRS AND TRAINING

Since all of our DC-9 and B737 aircraft are more than 20 years old, they will
generally require higher maintenance expense than newer aircraft. We believe
that our aircraft are mechanically reliable and that in the long-term the
estimated cost of maintenance to fly such aircraft will be within industry norms
for these fleet types. Amendments to FAA regulations are under consideration,
which would require certain heavy maintenance checks and other maintenance
requirements for aircraft operating beyond certain operational limits. We would
be required to comply with these proposals, if adopted, and with any other aging
aircraft issues, regulations or Airworthiness Directives that may be promulgated
in the future. There can be no assurance that our maintenance expenses
(including costs to comply with aging aircraft requirements) will fall within
industry norms.

Aircraft maintenance and repair consists of routine daily or "turn-around"
maintenance and major overhaul. Routine daily maintenance is performed at
Atlanta by our employees and by contractors at the other cities served by us.
Heavy maintenance and other work which require hangar facilities are currently
performed at outside maintenance contractors. Other routine daily maintenance
contractors are provided by other airlines, which operate DC-9 aircraft or other
maintenance companies approved by the FAA, both of which have employees
qualified in DC-9 aircraft maintenance. We expect that our maintenance expenses
will decline with the addition of the B717 aircraft as a result of the reduced
maintenance requirements associated with operating new equipment. However, the
B717 aircraft will initially require greater capital expenditures for
inventories of spare parts and other costs.

Our maintenance technicians undergo extensive initial and ongoing training to
ensure the safety of our aircraft. In March 2000, the FAA awarded AirTran the
Diamond Award certificate, the FAA's highest maintenance award. This marks the
fifth year in a row we have been bestowed with the FAA's Special Recognition
Award for exceeding the required levels of safety training for our maintenance
technicians.

6
<PAGE>

FUEL

The cost of aircraft fuel is a significant expenditure for us. Aircraft fuel
expense accounted for approximately 26% of our 2000 operating expenses.
Increases in fuel prices or a shortage of supply could have a material adverse
effect on our operations and operating results. The impact on our operations is
disproportionately higher on average than on our competitors, primarily due to
the fact that many of our competitors are currently using a larger percentage of
more fuel-efficient aircraft, have favorable hedging positions and, accordingly,
have fuel costs that represent a smaller portion of their total costs. Subject
to market conditions, we may implement fare increases to offset increases in the
price of fuel. There can be no assurance that any such fare increase will
completely offset higher fuel costs or not adversely impact our competitive
position.

Our fuel prices are currently at historically high levels, having increased from
approximately $0.53 per gallon in the fourth quarter of 1999, to approximately
$1.23 per gallon in the fourth quarter of 2000, net of hedges. Despite this
increase, we have been able to achieve improvements in our operating margins
through the addition of new, fuel-efficient B717 aircraft which consume 24% less
fuel than our existing fleet.

Aircraft fuel costs are highly correlated to oil prices and thus fluctuate with
changes in supply and demand for oil. Due to the effect of world and economic
events on the price and availability of oil, the future availability and cost of
aircraft fuel cannot be predicted with any degree of certainty. Based on our
2001 projected fuel consumption, we estimate that a 10% increase in the average
price per gallon of aircraft fuel for the year ended December 31, 2000, would
increase our fuel expenses by approximately $9.7 million, net of fuel hedge
instruments currently outstanding for the year ending December 31, 2001. As of
December 31, 2000, we had hedged nearly 50% of our projected fuel needs for the
first quarter of 2001 at an average price no higher than $29 per barrel of crude
oil, and 30% of our projected fuel needs for the remainder of 2001 at a price no
higher than $24 per barrel of crude oil. We continually monitor market
conditions to determine the appropriateness of adding additional fuel hedges.

DISTRIBUTION, MARKETING AND E-COMMERCE

Our marketing efforts are vital to our success as we seek to position our
product to stimulate new customer demand. We focus on two primary market
segments: the price sensitive business and leisure travelers. These are the
market segments in which the consumers seek value and in which we believe we
offer the greatest opportunity for stimulating new demand.

The primary objectives of our marketing activities are to develop an innovative
brand identity that is visibly unique and easily contrasted with our
competitors. We communicate directly with our existing customer base and attempt
to reach potential customers through advertising as well as active public
relations efforts. We communicate regularly and frequently with existing and
potential customers through the use of advertisements in newspapers, radio,
television, billboards, direct mail, e-mail, movie theatres and the internet.
These communications feature our destinations, everyday affordable fares and
special sales promotions.

We distribute our product through various channels including direct to the
consumer via the internet and through travel agents and global distribution
systems (GDS). During the fourth quarter 2000,

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<PAGE>

24.3% of passenger bookings were made through our reservation centers, 37.6%
were booked from the consumer and travel agents via the internet and 38.1% were
booked through travel agents' GDS. Information on our customers' needs, travel
patterns and demographics is collected, organized and stored by our automated
reservation system and may be used at a future time for direct marketing
efforts. Travel agents presently receive industry standard commissions for all
travel agency bookings.

Our website is a leader in the field of airline electronic commerce. Travel
Agent magazine ranked our website an "A" for the user friendliness of our online
booking engine. In 2001, our website is being enhanced with additional
functionality. We will introduce a new hosting environment with larger, more
stable servers designed to handle the rapid growth of internet bookings. In
addition, we expect to add new features such as automated seat selection for
select classes of service, corporate account log-ins and automated A-Plus
Rewards.

To attract more business fliers, we launched a business class product in late
1997. Our premium cabin is configured with 2 by 2 oversized seats with more leg
and seat room than the typical coach cabin. Targeted to the price-sensitive
business flier, our business class is currently available for $25 over the full
coach fare on a confirmed basis or $25 over certain of our other fares on a
walk-up standby basis.

In contrast to most other low-cost airlines, we offer advanced seat selection.
Full fare passengers, our most profitable business customers who tend to book at
the last minute, are allowed to reserve seats at the time of booking. All other
customers may reserve seats one hour prior to departure.

We also offer a self-administered frequent flier program known as "A-Plus
Rewards". Our customers may earn either free roundtrip travel or business class
upgrades on AirTran, or under certain circumstances free travel on other
airlines.

We perform marketing, promotional and media relations in-house. An outside firm
assists us in handling advertising and public relations.

We have a marketing agreement with The Hertz Corporation to operate a
reservation call and internet booking solicitation agreement under which our
customers are able to reserve a Hertz rental car at discounted rates when making
a reservation for our flights. In addition, we have marketing programs with
American Express to send direct mail to American Express cardholders who
regularly fly over our route system. American Express customers who charge their
airfare on their American Express card earn free tickets in our A-Plus Rewards
program at an accelerated rate.

Air travel in our markets tends to be seasonal, with the highest levels
occurring during the winter months to Florida and the summer months to the
northeastern United States. Advertising and promotional expenses may be greater
in lower traffic periods, as well as when entering a new market, in an attempt
to stimulate air travel.

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<PAGE>

COMPUTER RESERVATIONS

We are a participant in the major travel agency GDSs, including Amadeus,
Galileo, SABRE, SystemOne, and WorldSpan. These systems provide flight
schedules, pricing information and allow travel agents to electronically process
a flight reservation without contacting our reservations facility.

At the time of a booking, we provide our 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 helps to alleviate
long lines and achieve a quicker turnaround of aircraft. After the flight has
departed our internal information system calculates and records passenger
revenue.

EMPLOYEES

As of February 2001, AirTran employed approximately 4,100 employees comprising
approximately 3,600 full-time equivalents.

Training, both initial and recurrent, is provided for most employees. The
average training period for all new employees is approximately one to three
weeks, depending on classification. Both pilot training and mechanic training
are provided by in-house training instructors and at times, may be performed by
professional training organizations.

FAA regulations require pilots to be licensed commercial pilots, with specific
ratings for aircraft to be flown, and to be medically certified as physically
fit. FAA and medical certifications are subject to periodic renewal requirements
including recurrent training and recent flying experience. Mechanics,
quality-control inspectors and flight dispatchers must be certificated and
qualified for specific aircraft. Flight attendants must have initial and
periodic competency fitness training and qualification. 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, random and
post-accident drug testing.

We have a collective bargaining agreement with our pilots represented by the
National Pilots Association. The current contract becomes amendable on April 1,
2001.

Our stores clerks, ground service employees, technical training instructors, and
maintenance technicians and inspectors are represented by the International
Brotherhood of Teamsters under separate collective bargaining agreements. The
stores clerks, ground service employees and technical training instructors'
contracts become amendable June 1, 2003, August 19, 2003, and March 6, 2006,
respectively. The maintenance technicians and inspectors' contract was recently
renewed with an amendable date of October 1, 2005, and includes simplified work
rules, industry competitive pay rates and improved retirement for retention.

We have a collective bargaining agreement with our flight attendants represented
by the Association of Flight Attendants. The contract becomes amendable on
October 21, 2002.

Our dispatchers are represented by the Transport Workers Union and we signed a
contract with them in March 2000 which becomes amendable on October 1, 2004.

In February 2000, our customer service, ramp and reservation agents rejected a
unionization proposal by the International Association of Machinists and
Aerospace Workers in a vote that

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<PAGE>

received less than 30% support. We are unable to predict whether any of our
other employees will elect to be represented by a labor union or other
collective bargaining unit. The election by our employees for representation in
such an organization could result in employee compensation and working condition
demands that may affect operating performance and expenses.

AIRPORT OPERATIONS

Ground handling services typically can be placed in three categories - public
contact, under-wing and complete ground handling. Public contact services
involve meeting, greeting and serving our customers at the check-in counter,
gate and baggage claim area. Under-wing ground handling services include, but
are not limited to, marshaling the aircraft into and out of the gate, baggage
and mail loading and unloading, as well as lavatory and water servicing,
de-icing and certain other services. Complete ground handling consists of public
contact and under-wing services combined.

We conduct complete handling services in 24 airports, including Atlanta. At
other airports, the operations not conducted by our employees are contracted to
other air carriers, ground handling companies or fixed base operators. We have
employees at each of these cities to oversee our operations.

INSURANCE

We carry customary levels of passenger liability insurance, aircraft insurance
for aircraft loss or damage and other business insurance. We are 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. We
currently maintain liability insurance in amounts and of the type consistent
with industry practice. Although we currently believe our insurance coverage is
adequate, there can be no assurance that the amount of such coverage will not be
changed or that we 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 our insurance could have a material adverse effect on
us. Moreover, any aircraft accident, even if fully insured, could cause and has
caused a public perception that some of our aircraft are less safe or reliable
than other aircraft, which could have and has had a material adverse effect on
our business.

SEASONALITY AND CYCLICALITY

Our operations are primarily dependent upon passenger travel demand and, as
such, may be subject to seasonal variations. The airline industry is highly
volatile. General economic conditions directly affect the level of passenger
travel. Discretionary travel varies significantly depending on economic
conditions. While business travel is not as discretionary, business travel
generally decreases during unfavorable economic times, as businesses tend to
tighten cost controls.

GOVERNMENT REGULATIONS

The airline industry is highly competitive, primarily due to the effects of the
Airline Deregulation Act of 1978, which has substantially eliminated government
authority to regulate domestic routes and fares. Deregulation has increased the
ability of airlines to compete with respect to destination,

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<PAGE>

flight frequencies and fares. Nevertheless, the airline industry remains highly
regulated in other aspects, as more fully described below.

DOT Oversight

Although regulation of domestic routes and fares was abolished by the Airline
Deregulation Act of 1978, the United States Department of Transportation (DOT)
retains the authority to alter or amend any airline's certificate or to revoke
such certificate for intentional failure to comply with the terms and conditions
of the certificate. In addition, the DOT has jurisdiction over international
tariffs and pricing, international routes, computer reservation systems, and
economic and consumer protection matters such as advertising, denied boarding
compensation, smoking and codeshare arrangements and has the authority to impose
civil penalties for violation of the United States Transportation Code or DOT
regulations.

Aircraft Maintenance and Operations

We are subject to the jurisdiction of the FAA with respect to aircraft
maintenance and operations, including equipment, dispatch, communications,
training, flight personnel and other matters affecting air safety. The FAA has
the authority to issue new or additional regulations. To ensure compliance with
its regulations, the FAA conducts regular safety audits and requires all
airlines to obtain operating, airworthiness and other certificates, which are
subject to suspension or revocation for cause.

The FAA has issued several Airworthiness Directives (ADs) mandating
modifications to the older aircraft maintenance programs. These ADs were issued
to ensure that the oldest portion of the nation's aircraft fleet remains
airworthy and require structural modifications to or inspections of those
aircraft. We believe that all of our aircraft are in compliance with the aging
aircraft mandates.

We cannot predict the cost of compliance with all present and future rules and
regulations and the effect of such compliance on our business, particularly our
expansion plans and aircraft acquisition program.

FAA Funding

In 1997, a law was enacted imposing new aviation ticket taxes as part of larger
tax legislation designed to balance the nation's budget, provide targeted tax
relief and fund air traffic control, other FAA programs and airport development.
As enacted, these new taxes will be imposed through September 30, 2007. Included
in the new law is a phase-in of a modified federal air transportation excise tax
structure with a system that includes: a domestic excise tax starting at 9%
which decreased to 7.5% in 1999; a domestic segment tax starting at $1.00 and
increasing to $3.00 by 2002; and an increase in taxes imposed on international
travel. Both the domestic segment tax and the international tax are indexed for
inflation. The legislation also includes a 7.5% excise tax on certain amounts
paid to an air carrier for the right to provide mileage and similar awards
(e.g., purchase of frequent flyer miles by a credit card company). As a result
of competitive pressures, we and other airlines have been limited in the ability
to pass on the cost of these taxes to passengers through fare increases.

11
<PAGE>

Fuel Tax

In August 1993, the federal government increased taxes on fuel, including
aircraft fuel, by 4.3 cents per gallon. We paid approximately $14.0 million in
fuel taxes in 2000.

Passenger Facility Charges

During 1990, Congress enacted legislation to permit airport authorities, with
prior approval from the DOT, to impose passenger facility charges (PFCs) as a
means of funding local airport projects. These charges, which are intended to be
collected by the airlines from their passengers, are limited to $3.00 per
enplanement and to no more than $12.00 per round trip. To date, we have passed
on the cost of the PFCs to our passengers.

Slot Restrictions

At New York City's John F. Kennedy Airport and LaGuardia Airport, Chicago's
O'Hare International Airport and Washington's Ronald Reagan National Airport,
which have been designated "High Density Airports" by the FAA, there are
restrictions on the number of aircraft that may land and take off during peak
hours. In the future, these take off and landing time slot restrictions and
other restrictions on the use of various airports and their facilities may
result in curtailment of services by, and increased operating costs for,
individual airlines, including us, particularly in light of the increase in the
number of airlines operating at such airports. In general, the FAA rules
relating to allocated slots at the High Density Airports contain provisions
requiring the relinquishment of slots for nonuse and permit carriers, under
certain circumstances, to sell, lease or trade their slots to other carriers. We
currently utilize 22 slots at LaGuardia Airport.

Additional Security and Safety Measures

In 1996 and 1997 the President's Commission on Aviation Safety and Security
issued recommendations and the U.S. Congress and the FAA adopted increased
safety and security measures designed to increase airline passenger safety and
security and protect against terrorist acts. Such measures have resulted in
additional operating costs to the airline industry. Examples of increased safety
and security measures include the introduction of a domestic passenger manifest
requirement, increased passenger profiling, enhanced pre-board screening of
passengers and carry on baggage, positive bag match for profile selections,
continuous physical bag search at checkpoints, additional airport security
personnel, expanded criminal background checks for selected airport employees,
significantly expanded use of bomb sniffing dogs, certification of screening
companies, aggressive testing of existing security systems, expansion of aging
aircraft inspections to include non structural components, development of a new
systems approach for air carriers and the FAA to monitor and improve safety
oversight and installation of new ground proximity warning systems on all
commercial aircraft. We cannot forecast what additional security and safety
requirements may be imposed in the future or the costs or revenue impact that
would be associated with complying with such requirements.

Miscellaneous

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

12
<PAGE>

an aeronautical radio license from the Federal Communications Commission (FCC).
To the extent We are subject to FCC requirements, we have taken and will
continue to take all necessary steps to comply with those requirements.

Our operations may become subject to additional federal regulatory requirements
in the future. Our 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. We are also subject to state and local laws and
regulations at locations where we operate and the regulations of various local
authorities that operate the airports we serve.

All international service is subject to the regulatory requirements of the
appropriate authorities of the other country involved. Grand Bahama Island is
our only international destination. To the extent we seek to provide additional
international air transportation in the future, we will be required to obtain
necessary authority from the DOT.

ENVIRONMENTAL REGULATIONS

The Airport Noise and Capacity Act of 1990 (ANCA) generally recognizes the
rights of airport operators with noise problems to implement local noise
abatement programs so long as they do not interfere unreasonably with interstate
or foreign commerce or the national air transportation system. The ANCA
generally requires FAA approval of local noise restrictions on Stage 3 aircraft
first effective after October 1990. While we have had sufficient scheduling
flexibility to accommodate local noise restrictions imposed to date, our
operations could be adversely affected if locally-imposed regulations become
more restrictive or widespread.

The Environmental Protection Agency (EPA) regulates operations, including air
carrier operations, which affect the quality of air in the United States. We
believe we have made all necessary modifications to our fleet to meet emission
standards issued by the EPA.

HISTORY

We commenced operations in 1993 as ValuJet Airlines, Inc. (ValuJet) with two
DC-9 aircraft serving three cities from Atlanta with eight flights per day. In
1995, ValuJet became a wholly owned subsidiary of ValuJet, Inc. ValuJet's
operations were interrupted by the suspension of service on June 17, 1996,
resuming on September 30, 1996 with limited operations.

ValuJet changed its name to "AirTran Airlines, Inc." (Airlines), and ValuJet,
Inc. changed its name to "AirTran Holdings, Inc." in connection with our
acquisition of Airways Corporation and its subsidiary, AirTran Airways, Inc.
(Airways), in November 1997. As part of that transaction, Airways became a
wholly owned subsidiary of AirTran Holdings. From November 1997 until April
1998, we operated under the FAA operating certificates of both Airlines and
Airways. Since April 1998, all of our airline operations have been conducted
under the Airways operating certificate. The Airlines operating certificate was
extinguished in August 1998. In August 1999, Airlines merged with and into
Airways.

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<PAGE>

Our principal executive offices are located at 9955 AirTran Boulevard, Orlando,
Florida 32827, and our telephone number is (407) 251-5600. We maintain an
internet site at AIRTRAN.COM. The reference to our internet site does not
constitute incorporation by reference of the information contained at the site.

RISK FACTORS

Investors should carefully consider the following risk factors before making
investment decisions regarding our stock.

If we are unable to sustain profitability we may not be able to repay our
financing obligations.

We recorded significant net losses in each year from 1996 to 1999. Our earnings
before fixed charges for each of these years were inadequate to cover fixed
charges. Although we recorded net income of $47.4 million in 2000, our
incurrence of losses or failure to cover fixed charges in the future may have a
material adverse effect on our financial condition and our ability to repay our
financing obligations.

We have a significant amount of debt which could impair our ability to make
principal and interest payments on our debt obligations and lease payments on
our lease obligations.

The entire $150.0 million of our 10.25% senior notes and $80.0 million of our
10.5% senior secured notes will become due in April 2001. Without the completion
of the refinancing transactions with Boeing Capital Services Corporation (see
Item 7 - "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources") and the use of
internally generated funds, we will not have sufficient cash to repay the $230.0
million of this debt by its due date.

We are highly leveraged and will continue to have significant debt obligations.
In 2000, we acquired three B717 aircraft by issuing $63.1 million in promissory
notes. In 1999 we issued $178.9 million of enhanced equipment trust certificates
(EETCs), the proceeds of which were used to acquire ten B717 aircraft; eight of
those ten EETC financed B717s were delivered in 1999 and the remaining two were
delivered in 2000 (those two aircraft were subsequently sold to a third party
lessor and leased back from such lessor). Additionally, we may incur substantial
additional debt related to aircraft deliveries. See "Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."

Our ability to make scheduled payments of principal or interest for our
financing obligations depends on our future performance and financial results.
These results are subject to general economic, financial, competitive,
legislative, regulatory, and other factors that are, to some extent, beyond our
control.

14
<PAGE>

The amount of our debt could have important consequences to investors, including
the following:

o a substantial portion of our cash flow from operations must be
dedicated to debt service and will not be available for operations;

o our ability to obtain additional financing for aircraft purchases,
capital expenditures, working capital, or general corporate purposes
could be limited;

o our vulnerability to adverse economic and industry conditions may be
greater than our larger and more financially secure competitors;

o 23 of our DC-9 aircraft are pledged as collateral to secure our $80.0
million of 10.5% senior secured notes due 2001;

o eleven B717 aircraft are pledged as collateral to secure aircraft
acquisition debt with a principal balance of $195.0 million as of
December 31, 2000;

o upon consummation of the Boeing refinancing transactions (See "Item 7
- Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources")
substantially all of our existing assets (including flight and other
equipment, inventory, receivables and our maintenance hangar) and
certain assets to be acquired by us in the future will be pledged as
collateral to secure the obligations under the Boeing refinancing
transactions; and

o future B717 aircraft to be acquired by us will be pledged as
collateral to secure aircraft acquisition debt we incur.

Covenants in our debt instruments could limit how we conduct our business, which
could affect our long-term growth potential.

Our debt instruments contain covenants that, among other things, restrict
our ability to:

o incur additional indebtedness;

o pay dividends and make other distributions;

o prepay subordinated indebtedness;

o make investments and other restricted payments;

o create liens;

o sell assets;

o enter into certain mergers; and

15
<PAGE>

o engage in certain transactions with affiliates.

Our current and future financing arrangements contain and are expected to
continue to contain similar or more restrictive covenants. As a result of these
restrictions, we may be limited in how we conduct business, and we may be unable
to raise additional debt or equity financing to operate during general economic
or business downturns, to compete effectively, or to take advantage of new
business opportunities. This may affect our ability to generate revenues and
make profits. Without sufficient revenues and cash, we may not be able to pay
interest and principal on our indebtedness.

Our failure to comply with the covenants and restrictions contained in our
indentures and other financing agreements could lead to a default under the
terms of those agreements. If such a default occurs, the other parties to these
agreements could declare all amounts borrowed and all amounts due under other
instruments that contain provisions for cross-acceleration or cross-default due
and payable. If that occurs, we may not be able to make payments on our debt,
meet our working capital and capital expenditure requirements, or be able to
find additional alternative financing. Even if we obtain additional alternative
financing, we cannot guarantee investors that this financing would be on
favorable or acceptable terms.

Further increases in fuel costs will negatively affect our operating expenses
and financial results.

The cost of aircraft fuel is a significant expenditure for us. Aircraft fuel
expense accounted for approximately 26% of our 2000 operating expenses.
Increases in fuel prices or a shortage of supply could have a material adverse
effect on our operations and operating results. The impact to our operations is
disproportionately higher on average than to our competitors, primarily due to
the fact that many of our competitors are currently using a larger percentage of
more fuel-efficient aircraft, have favorable hedging positions and, accordingly,
have fuel costs that represent a smaller portion of their total costs. Subject
to market conditions, we may implement fare increases to offset increases in the
price of fuel. There can be no assurance that any such fare increase will
completely offset higher fuel costs or not adversely impact our competitive
position.

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<PAGE>

Our operating results may suffer because of competition in the low-fare airline
markets we serve.

The airline industry, in general, and the low-fare sector in particular, is
highly competitive and is served by numerous companies. We may face greater
competition in the future. Any increased competition could have a negative
impact on our business and operating results.

The profitability of our operations is influenced by economic conditions as
demand for discretionary travel diminishes during economic downturns.

The profitability of our operations is influenced by the condition of the U.S.
economy, that may impact the demand for discretionary travel and our competitive
pricing position. A substantial portion of our business is discretionary travel,
which declines during economic downturns.

We depend heavily on the Atlanta market to be successful.

Our business strategy has focused and is expected to continue to focus on adding
flights to and from our Atlanta base of operations. A reduction in our share of
the Atlanta market or reduced passenger traffic to or from Atlanta could have a
material adverse effect on our financial condition and results of operations. In
addition, our dependence on a primary hub and on a route network operating
largely on the East Coast makes us more susceptible to adverse weather
conditions and other traffic delays along the East Coast than some of our
competitors that may be better able to spread these traffic risks over larger
route systems.

Airline strategic combinations could have an impact on our operations in ways
yet to be determined.

The strategic environment in the airline industry changes from time to time as
carriers implement varying strategies in pursuit of profitability, including
consolidation to expand operations and increase market strength, and entering
into global alliance arrangements. The recent announcement of the proposed
mergers of United Airlines and US Airways and of American Airlines and Trans
World Airlines, and the acquisition by American Airlines of certain assets of US
Airways would materially affect the airline industry. However, because the
mergers have not yet been approved or completed, we are unable to predict what
effect, if any, the foregoing transactions or other changes in the strategic
landscape might have on our business, financial condition and results of
operations.

Much of our fleet consists of older airplanes which could increase our costs of
maintenance and negatively impact our business and financial results.

As of December 31, 2000, the average age of our operating aircraft fleet was
approximately 22 years. As a result, we have incurred increased overall
operating costs due to the higher maintenance and other operating costs
associated with older aircraft.

We are required to comply with all applicable regulations and airworthiness
directives issued by the FAA with respect to aging aircraft. As a result, our
costs of maintenance, including costs to comply with aging aircraft requirements
for our DC-9 and B737 aircraft, may increase in the future.

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<PAGE>

We believe that our aircraft are mechanically reliable based on the percentage
of scheduled flights completed. However, we cannot guarantee that our aircraft
will continue to be sufficiently reliable over longer periods of time.
Furthermore, given the age of our fleet, any public perception that our aircraft
are less than completely reliable could have a material adverse effect on our
business.

If we are not able to fulfill our purchase commitments for new aircraft, our
growth could be slowed.

We have an agreement to purchase 50 B717 aircraft from an affiliate of Boeing.
See "Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources." As of December 31,
2000, we had taken delivery of 16 of these aircraft (two additional aircraft
were delivered in January and February 2001). We have financing commitments from
the airframe manufacturer and/or its affiliates with respect to the 34 firm B717
aircraft scheduled for delivery between January 2001 and October 2003, including
lease financing facilities in excess of 100% of the purchase price for the
delivery of 14 B717 aircraft delivered or scheduled to be delivered between
January 2001 and February 2002. We cannot guarantee that we will be able to
obtain satisfactory financing for the portion of the purchase price not included
in the airframe manufacturer and/or its affiliates' financing support. Should we
default on our obligations, Boeing would have the right to exercise remedies
including the right to terminate the purchase agreement and its financing
commitments. If we are unable to purchase these aircraft, our ability to
increase our number of flights could be negatively impacted. On the other hand,
if our growth slows or air travel in general decreases, we may not be able to
utilize all the aircraft we have committed to purchase. If we cannot use such
aircraft, we may be required to sell or lease such aircraft on terms which will
depend upon market conditions at the time. We could suffer a financial loss from
any such sales or leases. The retirement of other aircraft in our fleet may also
be accelerated in the event our growth slows, air travel decreases generally in
our markets, or if significant regulatory requirements are imposed on older
aircraft.

Our reputation and financial results could be negatively affected in the event
of a major aircraft accident.

A major accident involving our aircraft 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. Moreover, any aircraft accident, even if fully insured, could cause a
public perception that our aircraft are less safe or reliable than other
airlines, and that could have a negative effect on our business. The occurrence
of one or more incidents or accidents involving our aircraft could have a
material adverse effect on the public's perception of us and our future
operations.

We are required by the DOT to carry liability insurance on each of our aircraft.
We currently maintain liability insurance in amounts and of the type consistent
with industry practice. Although we currently believe our insurance coverage is
adequate, the amount of such coverage may be changed in the future or we may be
forced to bear substantial losses from accidents. Substantial claims resulting
from an accident in excess of related insurance coverage could have a material
adverse impact on our business and financial results.

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<PAGE>

We are subject to extensive regulation by the FAA, the DOT, and other
governmental agencies, compliance with which could cause us to incur increased
costs and negatively affect our business and financial results.

We are subject to a wide range of governmental regulation, including regulation
by the FAA. For example, in the last several years, the FAA has issued a number
of maintenance directives and other regulations relating to, among other things,
retirement of older aircraft, security measures, collision avoidance systems,
airborne windshear avoidance systems, noise abatement, and increased inspections
and maintenance procedures to be conducted on older aircraft. A modification,
suspension or revocation of any of our FAA authorizations or certificates could
adversely impact our business. We expect to continue to incur expenses for the
purpose of complying with the FAA's aging aircraft regulations. In addition,
several airports have recently sought to increase substantially the rates
charged to airlines, and the ability of airlines to contest such increases has
been restricted by federal legislation, DOT regulations, and judicial decisions.

Additional laws and regulations have been proposed that could significantly
increase the cost of airline operations by imposing additional requirements or
restrictions on operations. Laws and regulations have also been considered that
would prohibit or restrict the ownership and/or transfer of airline routes or
takeoff and landing slots. Also, the availability of international routes to
United States carriers is regulated by treaties and related agreements between
the United States and foreign governments that are amendable. We cannot predict
what laws and regulations may be adopted or their impact and we cannot guarantee
that laws or regulations currently proposed or enacted in the future will not
adversely affect us.

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<PAGE>

ITEM 2. PROPERTY

OPERATING AIRCRAFT FLEET

We operated the following owned and leased aircraft as of December 31, 2000:

Average
No. of Average
Aircraft Type Seats Owned Leased Total Age (Years)
- ------------------------ ---------- ------- -------- ------- ------------
B717 117 11 5 16 0.9
DC-9 106 27 6 33 31.1
B737 119 3 1 4 23.5
------- -------- -------
Total 41 12 53 21.7

For information concerning the estimated useful lives, residual values, lease
terms, operating rent expense and firm orders on additional aircraft, see Note 1
to the consolidated financial statements.

As of December 31, 2000, 36 of our owned operating aircraft were encumbered
under debt agreements.

We took delivery of eight B717s in 2000. We purchased and took delivery of two
additional B717s in January and February 2001. These aircraft will be used to
replace the B737s and DC-9s currently in operation and for growth. We plan to
take delivery of ten additional B717 aircraft during the remainder of 2001.

The delivery schedule for our remaining B717s under firm contract as of December
31, 2000, is as follows:

AIRCRAFT TYPE 2001 2002 2003
- --------------------------- ---- ---- ----

B717 12 12 10

A preliminary retirement schedule of our aircraft as of December 31, 2000, is as
follows:

AIRCRAFT TYPE 2001 2002 2003 2004
- --------------------------- ---- ---- ---- ----

DC-9 -- 6 6 6
B737 4 -- -- --

The retirement schedule was revised in 2000 due to changes to our B717 purchase
contract, as discussed in Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources.

The delivery and retirement schedules shown above represent our best estimates
as of March 1, 2001. These estimates are regularly reviewed and subject to
change based upon certain conditions

20
<PAGE>

including, but not limited to, our future operating and financial results.

GROUND FACILITIES

Our principal executive offices are located at the Orlando International Airport
in a leased facility consisting of approximately 34,000 square feet of office
space. The facility houses our executive offices as well as our operations staff
(including in-flight operations and station operations), general administrative
staff, computer systems and personnel training facility. The lease agreement for
this facility expires in 2007 and may be extended an additional ten years
through the exercise of options in five-year increments.

We own an aircraft hangar of approximately 70,000 square feet at the Orlando
International Airport, subject to a ground lease with the Greater Orlando
Aviation Authority. The ground lease agreement for this facility expires in 2011
and may be extended an additional ten years through the exercise of options in
five-year increments. The hangar houses a portion of our maintenance staff,
maintenance records and parts inventory.

We also lease the following facilities:

o approximately 20,000 square feet of office space in Atlanta for use as
a reservations center under a lease which expires September 30, 2004
o approximately 25,000 square feet of space in Atlanta for use as a
training center under a lease which expires October 31, 2005
o approximately 13,000 square feet of space in Savannah, Georgia for a
reservations center under a lease which expires in February 2003
o approximately 91,000 square feet of space in Atlanta for a warehouse
and engine repair facility under a lease which expires in May 2002

We have signatory status on the lease of facilities at Hartsfield Atlanta
International Airport, which expires in 2010. The check-in-counters, gates and
airport office facilities at each of the other airports we serve are leased from
the appropriate airport authority or subleased from other airlines. These
arrangements may include baggage handling, station operations, cleaning and
other services. If these facilities at any additional cities to be served by us
are not available at acceptable rates, or if such facilities become no longer
available to us at acceptable rates, then we may choose not to service those
markets.

ITEM 3. LEGAL PROCEEDINGS

All of the lawsuits filed against us seeking damages attributable to those on
Flight 592 have been settled, including a settlement in the fourth quarter of
2000 for an amount immaterial to our results of operations or financial
condition.

On October 1, 1999, we filed suit in the Superior Court of Gwinnett County,
Georgia, against United States Aviation Underwriters, Inc. and United States
Aviation Insurance Group for declaratory relief and damages based on claims of
breach of contract and tortuous breach of

21
<PAGE>

covenant of good faith and fair dealing for matters involving litigation related
to Flight 592.

From time to time, we are engaged in other litigation arising in the ordinary
course of our business. We do not believe that any such pending litigation will
have a material adverse effect on our results of operations or financial
condition.

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

None.

22
<PAGE>

PART II

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

MARKET INFORMATION

Our common stock, $.001 par value, is traded on the American Stock Exchange
under the symbol "AAI." Prior to July 14, 2000, our common stock was traded on
the NASDAQ National Market under the symbol "AAIR." As of March 1, 2001, there
were approximately 4,989 holders of our common stock. The following table sets
forth the reported high and low sale prices for our common stock for each fiscal
quarter since January 1, 1999.

FISCAL YEAR ENDED DECEMBER 31, 1999 HIGH LOW
- ----------------------------------- ------ -------

Quarter Ending March 31, 1999 $5.13 $2.75
Quarter Ending June 30, 1999 $6.00 $4.13
Quarter Ending September 30, 1999 $7.25 $4.94
Quarter Ending December 31, 1999 $6.06 $3.50

FISCAL YEAR ENDED DECEMBER 31, 2000 HIGH LOW
- ----------------------------------- ------ ------

Quarter Ending March 31, 2000 $5.09 $3.72
Quarter Ending June 30, 2000 $5.00 $3.88
Quarter Ending September 30, 2000 $4.94 $3.94
Quarter Ending December 31, 2000 $7.38 $3.88

As of March 1, 2001, the closing price of our common stock was $8.70.

DIVIDENDS

We have never declared cash dividends on our common stock. In addition, our debt
indentures restrict our ability to pay cash dividends. We intend to retain
earnings to finance the development and growth of our business. Accordingly, we
do not anticipate that any dividends will be declared on our common stock for
the foreseeable future. Future payments of cash dividends, if any, will depend
on our financial condition, results of operations, business conditions, capital
requirements, restrictions contained in agreements, future prospects and other
factors deemed relevant by our Board of Directors.

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<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

The following financial information for the five years ended December 31, 2000,
has been derived from our consolidated financial statements:
<TABLE>
<CAPTION>

(In thousands, except per share data)
2000 1999 1998 (a) 1997 1996
----------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C>
Operating revenues $ 624,094 $ 523,468 $ 439,307 $ 211,456 $ 219,636
Net income (loss) 47,436 (99,394) (b) (40,738) (c) (96,663) (d) (41,469) (e)
Basic earnings (loss)
per common share 0.72 (1.53) (0.63) (1.72) (0.76)
Diluted earnings (loss)
per common share 0.69 (1.53) (0.63) (1.72) (0.76)
Total assets at year-end 546,255 467,014 376,406 433,864 417,187
Long-term debt including current
maturities at year-end 427,903 415,688 245,994 250,712 244,706
</TABLE>

Note: All special items listed below are pre-tax.
(a) See Note 1 to the consolidated financial statements.
(b) Includes a $147.7 million impairment loss related to the accelerated
retirement of the DC-9 fleet as a result of the introduction of the
B717 fleet and a gain of $19.6 million for a litigation settlement.
(c) Includes a $27.5 million impairment loss related to the acceleration
of the retirement of four owned B737 aircraft as a result of the
elimination of their original route system and continued operating
losses upon their redeployment to other routes.
(d) Includes a $24.8 million charge related to the shutdown of the airline
in 1996 and a $5.2 million charge for the renaming of the airline in
connection with the merger with Airways Corporation in November 1997.
(e) Includes a $68.0 million charge related to the shutdown of the airline
in 1996, a $3.9 million gain on the sale of property, a $13.0 million
arrangement fee for aircraft transfer and a $2.8 million gain on
insurance recovery.

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<PAGE>

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

RESULTS OF OPERATIONS

We achieved record annual revenues, record passenger revenue per available seat
mile (RASM), and served a record number of passengers during 2000. This strong
financial performance produced an operating profit of $81.2 million and an
operating margin of 13% for the year, even though fuel expense increased by more
than 105% over 1999. Air travelers, particularly business travelers, continue to
respond to our unique brand of low fares and quality service as we expand into
areas of the eastern United States that have traditionally been characterized by
high fares.

The tables below set forth selected financial and operating data for the years
ended December 31, 2000, 1999 and 1998.
<TABLE>
<CAPTION>

Twelve Months Ended
December 31,
-----------------------------------------
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Revenue passengers 7,566,986 6,460,533 5,462,827
Revenue passenger miles (RPMs) (000s) (1) 4,115,745 3,473,490 3,244,539
Available seat miles (ASMs) (000s) (2) 5,859,395 5,467,556 5,442,234
Passenger load factor (3) 70.2% 63.5% 59.6%
Break-even load factor (4) 64.7% 59.4% 61.5%
Average yield per RPM (cents) (5) 14.70 14.01 12.97
Passenger revenue per ASM (cents) (6) 10.32 8.90 7.73
Operating cost per ASM (cents) (7) 9.27 8.19 7.91
Operating cost per ASM,
excluding aircraft fuel (cents) (8) 6.87 6.94 6.59
Average stage length (miles) 537 528 546
Average cost of aircraft fuel per gallon (cents) 100.89 49.95 54.87
Average daily utilization (hours:minutes) (9) 10:18 9:54 9:42
Number of operating aircraft in fleet
at end of period 53 47 50
</TABLE>

(1) The number of scheduled revenue miles flown by passengers
(2) The number of seats available for passengers multiplied by the number
of scheduled miles each seat is flown
(3) The percentage of aircraft seating capacity that is actually utilized
(RPMs divided by ASMs)
(4) The percentage of seats that must be occupied by revenue passengers in
order for us to break even on a pre-tax income basis, excluding
nonrecurring items and impairment charges
(5) The average amount one passenger pays to fly one mile
(6) Passenger revenue divided by ASMs
(7) Operating expenses, excluding impairment charges, divided by ASMs
(8) Operating expenses, excluding aircraft fuel expense and impairment
charges, divided by ASMs
(9) The average number of hours per day that an aircraft flown is operated
in revenue service

25
<PAGE>

Operating Expenses per Available Seat Mile:

Twelve Months Ended
December 31,
-------------------------------------
2000 1999(1) 1998(1)
--------- --------- ---------

Operating expenses
Salaries, wages and benefits 2.34(cents) 2.21(cents) 1.99(cents)
Aircraft fuel 2.40 1.25 1.32
Maintenance, materials and repairs 1.25 1.58 1.37
Distribution 0.68 0.68 0.64
Landing fees and other rents 0.49 0.49 0.43
Marketing and advertising 0.28 0.29 0.28
Aircraft rent 0.22 0.09 0.13
Depreciation 0.39 0.52 0.53
Other operating 1.22 1.08 1.22
---- ---- ----

Total operating expenses 9.27(cents) 8.19(cents) 7.91(cents)
==== ==== ====

(1) Excludes impairment charges of $147.7 million and $27.5 million in 1999 and
1998, respectively.

2000 COMPARED TO 1999

SUMMARY

For 2000, we recorded operating income of $81.2 million, pre-tax income and net
income of $47.4 million and earnings per common share of $0.69 on a diluted
basis. For 1999, including a pre-tax impairment charge of $147.7 million and a
litigation settlement gain of $19.6 million, we recorded an operating loss of
$72.0 million, a pre-tax loss of $96.7 million, a net loss of $99.4 million and
a loss per common share of $1.53 on a basic and diluted basis. The impairment
loss and litigation settlement gain increased our loss per common share by
$1.98.

OPERATING REVENUES

Operating revenues increased by $100.6 million or 19.2%, primarily due to an
increase in passenger revenues. The increase in passenger revenues was
principally driven by a 6.7 percentage point increase in load factor and a 4.9%
increase in average yield per revenue passenger mile. As a result, our unit
revenue or RASM increased 16.0% to 10.3 cents.

During 2000, we increased our capacity, or ASMs, by 7.2% with the addition of
eight new Boeing 717 (B717) aircraft. In addition, RPMs increased by 18.5%,
resulting in a record load factor of 70.2%. The increase in yield resulted
primarily from additional business travelers purchasing higher fares during the
year. Notwithstanding the improved yield and passenger load factor, we continue
to experience aggressive competition that could negatively impact future yields
and loads.

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<PAGE>

Other revenues decreased $18.0 million or 54.4%. Excluding a litigation
settlement gain of $19.6 million in 1999, other revenues increased $1.6 million
or 12.1% on a year-over-year basis.

OPERATING EXPENSES

Operating expenses decreased by $52.5 million or 8.8%. Excluding the 1999
pre-tax impairment charge of $147.7 million to reduce the book value of our DC-9
aircraft, operating expenses increased by $95.2 million or 21.3%. Operating cost
per ASM (CASM) increased by 13.2%, primarily due to a 105.5% increase in
aircraft fuel expense. Cost per available seat mile excluding fuel decreased
approximately 1.0% to 6.9 cents per ASM.

Salaries, wages and benefits increased 13.8%, or $16.7 million year-over-year,
and 6.2% on a CASM basis, primarily due to contractual wage rate increases and
additional personnel required for the higher level of operations in 2000.

Aircraft fuel expense increased 105.5%, or $72.1 million year-over-year, and
92.0% on a CASM basis, primarily due to increases in the cost of fuel. During
2000, the average cost of aircraft fuel per gallon was approximately $1.01,
compared to an average cost per gallon in 1999 of approximately $0.50. The cost
of aircraft fuel was net of approximately $5.3 million and $14.2 million in
gains from hedging activities in 2000 and 1999, respectively.

Maintenance, materials and repairs decreased 15.2%, or $13.1 million
year-over-year, and 20.9% on a CASM basis, primarily due to a lesser number of
Boeing 737 and DC-9 airframe and engine repairs performed during 2000 in
accordance with our maintenance schedule. The timing of maintenance to be
performed is determined by the number of hours the aircraft and engines are
operated.

Distribution expenses increased 7.2%, or $2.7 million year-over-year, primarily
due to an increase in commissionable sales generated by travel agents, offset by
a rate reduction from 8.0% to 5.0% during the fourth quarter of 1999.

Landing fees and other rents increased $1.7 million compared to the year ended
1999 primarily due to increased departures. On a CASM basis, these expenses
remained flat on a year-over-year basis. We operated 101,644 departures in 2000
and 96,858 departures in 1999, an increase of 4.9%.

Aircraft rent increased 159.1%, or $7.7 million year-over-year, and 141.8% on a
CASM basis, primarily due to the lease financing associated with five of the
eight new B717s delivered during 2000, as well as the sale and leaseback of
seven DC-9 aircraft in the fourth quarter 1999.

Depreciation expense decreased 19.1%, or $5.4 million year-over-year, and 24.5%
on a CASM basis, primarily due to the reduction in book value of our DC-9 fleet
as a result of the 1999 impairment charge and the sale and leaseback of seven
DC-9 aircraft in 1999.

Other operating expenses increased 20.6%, or $12.1 million year-over-year, and
12.5% on a CASM basis, primarily due to increased passenger related expenses
associated with the greater number of

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<PAGE>

passengers served, and to costs related to supporting and maintaining our
existing automation systems.

NON-OPERATING EXPENSES

Interest expense, net, increased 36.7%, primarily due to the debt financing of
eight B717 aircraft delivered in the third and fourth quarters of 1999, as well
as three B717s delivered in the fourth quarter 2000. The 1999 deliveries were
financed utilizing the proceeds from the issuance of enhanced equipment trust
certificates (EETCs). Three of the 2000 deliveries were financed utilizing debt
issued by an affiliate of the airframe manufacturer. Offsetting a portion of the
increased interest expense, interest income increased 76.0% as a result of
higher invested cash balances.

We have not recognized any benefit from the future use of operating loss
carryforwards, because our evaluation of all the available evidence in assessing
the realizability of tax benefits of such loss carryforwards indicates that the
underlying assumptions of future profitable operations contain risks that do not
provide sufficient assurance to recognize such tax benefits currently. Although
we produced operating profits in each quarter in 2000 and 1999, excluding the
impairment charge, we do not believe this and other positive evidence, including
our projection of future profitable operations, offsets the effect of our recent
cumulative losses. As a result, income tax expense was $0 and $2.7 million in
2000 and 1999, respectively. The 1999 tax expense resulted from the utilization
of a portion of our $141.0 million of net operating loss (NOL) carryforwards,
existing at December 31, 1998, offset in part by alternative minimum tax and the
application to goodwill of the tax benefit related to the realization of a
portion of the Airways Corporation NOL carryforwards.

1999 COMPARED TO 1998

SUMMARY

For 1999, including a pre-tax impairment charge of $147.7 million and a
litigation settlement gain of $19.6 million, we recorded an operating loss of
$72.0 million, a pre-tax loss of $96.7 million, a net loss after taxes of $99.4
million and a loss per common share of $1.53 on a basic and diluted basis. The
impairment loss and litigation settlement gain increased our loss per common
share by $1.98. For 1998, including a pre-tax impairment charge of $27.5
million, we recorded an operating loss of $18.6 million, a pre-tax loss and a
net loss after taxes of $40.7 million and a loss per common share of $0.63 on a
basic and diluted basis. The impairment loss increased our loss per common share
by $0.43.

OPERATING REVENUES

Passenger revenues increased by 15.6%, or $65.6 million in 1999 compared to
1998. The growth in our passenger revenue stems from increasing traffic demand
in both the business and leisure market segments. Business class loads were up
significantly in 1999 compared to 1998. Adjustments in pricing and inventory
strategies also led to gains in leisure traffic. Yield increased by 8.0%, from
13.0 cents to 14.0 cents. Unit revenue increased 15.1%, from 7.7 cents to 8.9
cents - better improvements than any major airline in the industry.

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<PAGE>

Traffic, or RPMs, increased 7.1% or 229.0 million RPMs on a 0.5% increase in
capacity, or ASMs. For the year ended December 31, 1999, load factor increased
3.9 points to 63.5% versus 59.6% for the year ended December 31, 1998.

Other revenue increased 121.8%, or $18.2 million, in 1999 compared to 1998, due
to the $19.6 million gain from a litigation settlement.

OPERATING EXPENSES

Excluding the impairment charges in 1999 and 1998, operating expenses increased
$17.4 million or 4.0% year-over-year. Our operating cost per ASM, excluding
impairment charges, increased 3.5% to 8.19 cents in 1999 from 7.91 cents in
1998.

Salaries, wages and benefits increased 11.3%, or $12.3 million, due to a 6.1%
increase in overall headcount and contractual wage increases for our
union-represented labor groups.

Aircraft fuel expense decreased year-over-year by $3.6 million, or 5.0%, due to
a 9.0% decrease in the average fuel cost per gallon offset by a 4.4% increase in
fuel consumption.

Maintenance increased 15.8% or $11.8 million, due to a volume increase of five
check lines as a result of completing our structural life improvement program
and six additional engine overhauls. The timing of maintenance to be performed
is determined by the number of hours an aircraft and engine are flown.

Commissions paid to travel agents increased $2.4 million or 6.9%, due to an
increase in commissionable sales, offset by a rate reduction from 10.0% to 8.0%
during the second quarter of 1998 and a further reduction to 5.0% during the
fourth quarter of 1999.

Landing fees and other rents increased $3.6 million compared to the year ended
1998, due to increased departures. We operated 5.1% more departures in 1999 than
1998, at 96,858 and 92,141, respectively.

Aircraft rent decreased $2.4 million in 1999 from 1998 due to the return to the
lessor of five leased B737 aircraft throughout the year.

Other operating expenses decreased by $7.3 million, or 11.0%, primarily due to
the decline of credit card chargebacks and communications costs.

In the fourth quarter of 1999, we decided to accelerate the retirement of our
owned DC-9 fleet to accommodate the introduction of the B717 fleet. It was
originally our intent to use the B717s to increase overall capacity while
continuing to use the DC-9s into 2005. However, during 1999, the new management
team (including our Chief Executive Officer and President, who joined us in
1999) reevaluated our near- and long-term fleet strategy and the components
underlying such strategy. By October 1999, we determined that it would be
cost-beneficial to begin to retire the DC-9s. As a result, we developed a fleet
plan which provided for the retirement of the DC-9s between December 31, 1999
and October 2003, generally coinciding with the delivery of the B717s. Our Board
of Directors approved the plan in October 1999. In connection with our decision
to accelerate the retirement of

29
<PAGE>

these aircraft, we performed an evaluation to determine, in accordance with
Statement of Financial Accounting Standards (SFAS) No. 121, whether future cash
flows (undiscounted and without interest charges) expected to result from the
use and eventual disposition of these aircraft would be less than the aggregate
carrying amount of these aircraft and related assets. As a result of the
evaluation, we determined that the estimated future cash flows expected to be
generated by these aircraft would be less than their carrying amount, and
therefore these aircraft are impaired as defined by SFAS No. 121. Consequently,
the original cost bases of these assets were reduced to reflect the fair market
value at the date the decision was made, resulting in a $147.7 million
impairment charge. We considered recent transactions and market trends involving
similar aircraft in determining the fair market value. See Note 10 to the
consolidated financial statements.

NON-OPERATING EXPENSES

Interest expense, net of interest income, increased 11.2% due to the November 3,
1999, issuance of $178.9 million of EETCs for financing ten B717 aircraft. See
Note 5 to the consolidated financial statements.

Income tax expense was $2.7 million and $0 in 1999 and 1998, respectively. The
1999 tax expense resulted from the utilization of a portion of our $141 million
of net NOL carryforwards, existing at December 31, 1998, offset in part by
alternative minimum tax and the application to goodwill of the tax benefit
related to the realization of a portion of the Airways Corporation NOL
carryforwards. As of December 31, 1999, we had not recognized any benefit from
the use beyond 1999 of NOL carryforwards, because our evaluation of all the
available evidence in assessing the realizability of tax benefits of such loss
carryforwards indicates that the underlying assumptions of future profitable
operations contain risks that do not provide sufficient assurance to recognize
such tax benefits currently. Although we produced operating profits in each
quarter in 1999, excluding the impairment charge, we do not believe this and
other positive evidence, including our projection of future profitable
operations, offsets the effect of our recent cumulative losses.

LIQUIDITY AND CAPITAL RESOURCES

We rely primarily on operating cash flows to provide working capital. We
presently have no lines of credit or short-term borrowing facilities. As of
December 31, 2000, our cash and cash equivalents including restricted cash were
$103.8 million compared to $76.2 million at December 31, 1999, and our working
capital deficit was $35.1 million compared to $7.3 million at December 31, 1999.
We generally must satisfy all of our working capital expenditure requirements
from cash provided by operating activities, from external capital sources or
from the sale of assets. Substantial portions of our assets have been pledged to
secure various issues of our outstanding indebtedness. To the extent that the
pledged assets are sold, the applicable financing agreements generally require
the sales proceeds to be applied to repay the corresponding indebtedness. To the
extent that our access to capital is constrained, we may not be able to make
certain capital expenditures or to continue to implement certain other aspects
of our strategic plan, and would potentially be unable to achieve the full
benefits expected therefrom. We expect to continue generating positive working
capital through our operations; however, we cannot predict whether current
trends and conditions will continue, or the effects of

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<PAGE>

competition or other factors, such as increased fuel prices, that are beyond our
control.

As of December 31, 2000, our cash and cash equivalents including restricted cash
increased by $27.7 million from December 31, 1999. Net cash provided by
operating activities was $69.4 million in 2000 compared to $75.7 million in
1999, which included a 1999 litigation settlement gain of $19.6 million.
Excluding the gain, our net cash from operating activities increased by $13.3
million. The increase in operating cash flows was primarily the result of an
increase in operating income. Cash provided by operating activities in 2000 was
primarily used for debt service. Net cash provided by investing activities was
$3.7 million, which primarily related to the sale of two B717s and the use of
unexpended debt proceeds from 1999 offset by the acquisition of two B717s and
the scheduled progress payments for future B717 aircraft deliveries. Cash used
for financing activities was $53.1 million, which primarily related to the
payment of long-term debt.

Initially, we contracted with an affiliate of Boeing to purchase 50 B717
aircraft for delivery between 1999 and 2002, with options to purchase an
additional 50 B717s. During the second quarter of 2000, we revised our contracts
with Boeing relating to the purchase and financing of our future B717 aircraft
deliveries. The revised contract provides for a delivery schedule as follows:
1999 (eight aircraft - all delivered), 2000 (eight aircraft - all delivered),
2001 (12 aircraft), 2002 (12 aircraft), and 2003 (10 aircraft). In connection
with our agreement with Boeing, we also recharacterized the 50 option aircraft
to provide for 25 options, 20 purchase rights, and five rolling options. The
options and purchase rights, to the extent exercised, would provide for delivery
to us of all of our B717s on or before September 30, 2005. Prior to this
revision, we had committed to purchase 50 B717 aircraft during the following
years: 1999 (eight aircraft), 2000 (eight aircraft), 2001 (16 aircraft), and
2002 (18 aircraft). Also prior to the revision, the 50 option aircraft, if
exercised, would have been available for delivery between January 2003 and
January 2005.

During the third quarter of 1998, we reached an agreement with Boeing to defer
the progress payments due and payable prior to the first delivery until the
first delivery, which occurred in September 1999. Accordingly, progress payments
resumed in September 1999, and we paid $6.8 million and $6.6 million in progress
payments in 2000 and 1999, respectively. In 2000, we again deferred certain
progress payments. There can be no assurance that cash provided by operations
will be sufficient to meet the progress payments for future B717 deliveries. If
we exercise our options and purchase rights to acquire up to an additional 50
B717 aircraft, additional payments could be required for these aircraft
beginning in 2001.

As of December 31, 2000, our debt related to asset financing totaled $277.9
million, with respect to which aircraft and certain other equipment are pledged
as security. Included in such amount is $131.8 million of 10.63% EETCs, of which
a portion of interest and principal is payable semiannually through April 2017
and $80.0 million of 10.50% senior secured notes due April 2001. In addition, we
have $150.0 million of 10.25% senior notes due April 2001.

The EETC proceeds were used to replace loans for the purchase of the first ten
B717 aircraft delivered, and all ten aircraft were pledged as collateral for the
EETCs. Eight EETC-financed B717s were delivered in 1999, and the remaining two
deliveries occurred in 2000. During 2000, we sold and leased back two of the
EETC-financed B717s in a leveraged lease transaction reducing the outstanding

31
<PAGE>

principal amount of the EETCs by $35.9 million. Unexpended proceeds from the
EETCs issue were $0 and $39.2 million at December 31, 2000, and December 31,
1999, respectively.

During 2000, we took delivery of eight new B717 aircraft that were financed as
follows: two were delivered and subsequently sold and leased back from the
lessors (as discussed in the immediately preceding paragraph); three were leased
from an affiliate of the airframe manufacturer; and three were purchased with
promissory notes provided by an affiliate of the airframe manufacturer (the
promissory notes were fully repaid in February 2001).

We entered into an amended and restated financing commitment with Boeing Capital
Services Corporation (Boeing Capital) on March 22, 2001, in order to refinance
the senior notes and senior secured notes due April 2001 and to provide
additional liquidity. The cash flow generated from the Boeing Capital
transactions, together with internally generated funds, will be sufficient to
retire the $150.0 million senior notes and the $80.0 million senior secured
notes at maturity. Funding of the refinancing is subject to various matters
including: our being current on all payment obligations to Boeing; maintaining
our corporate existence; continuing to be a certificated air carrier; not
voluntarily or involuntarily terminating or suspending our operations; and,
there being no total loss of an aircraft, the result of which would have a
material and adverse effect on us or our business. The components of the
refinancing are as follows (in thousands):

Senior secured notes due 2008 $ 169,500
Subordinated notes due 2009 17,500
Convertible notes due 2009 17,500
-----------
$ 204,500
===========

The new senior secured notes to be issued by our subsidiary, AirTran Airways,
will bear a fixed rate of interest to be determined at closing equal to the sum
or difference of 12.25% and changes in Boeing Capital's cost of borrowing from
and after November 9, 2000, to closing. Principal payments of approximately $3.3
million plus interest will be payable semiannually. In addition, there are
certain mandatory prepayment events, including a $3.1 million prepayment upon
the consummation of each of 12 sale-leaseback transactions for B717 aircraft
expected to occur between April 2001 and February 2002. The new senior secured
notes will be secured by substantially all of the assets of AirTran Airways not
otherwise encumbered, and are noncallable for four years. In the fifth year,
they can be prepaid at a premium of 4% and in the sixth year at a premium of 2%.
In connection with the issuance of the new senior secured notes, we will issue
detachable warrants to Boeing Capital for the purchase of 4% of our common stock
(approximately 3.0 million shares) for $4.51 per share. The warrants have an
estimated value of $12.6 million and expire in five years. This amount will be
amortized to interest expense over the life of the new senior secured notes.

The subordinated notes will bear interest at the higher of: (a) 13%, or (b) the
rate on the new senior secured notes plus 1%. Interest is payable quarterly in
arrears, and no principal payments are due prior to maturity in 2009 except for
mandatory quarterly prepayments equal to 25% of AirTran Airways' net income.

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<PAGE>

The stated interest rate on the convertible notes will be 7.75%, except that
they will bear a higher rate of interest if our average common stock price
during a calendar month is below $6.42, or if we have not registered under the
Securities Act of 1933 the common stock to be issued upon conversion of the
notes. Interest will be payable semiannually in arrears. The notes are
convertible at any time into approximately 3.2 million shares of our common
stock. This conversion rate represents a beneficial conversion feature valued at
approximately $5.6 million. This amount will be amortized to interest expense
over the life of the convertible notes. We will be able to require Boeing
Capital's conversion of the notes under certain circumstances.

The subordinated notes and convertible notes will be secured by: (1) a pledge of
all of our rights under the B717 aircraft purchase agreement with the McDonnell
Douglas Corporation (an affiliate of Boeing Capital), and (2) a subordinated
lien on the collateral securing the new senior secured notes.

During 2000, we obtained a lease financing commitment from Boeing Capital which
provided for the purchase and sale-leaseback of up to 20 B717 aircraft (three of
the 20 leases were completed in 2000). In connection with the Boeing Capital
transactions, the lease financing commitment was amended to: (a) increase the
term of the leases for the remaining 17 aircraft from 18 years to 18.5 years,
and (b) increase Boeing Capital's purchase price by $3.1 million per aircraft or
$52.7 million in the aggregate. To date, five of the sale-leaseback transactions
have closed in 2001. Upon closing of each sale-leaseback transaction occurring
on or after funding of the new senior secured notes, we must make a principal
payment of $3.1 million on the new senior secured notes.

To the extent we do not utilize the lease financing commitment (or such
commitment is unavailable because of expiry or otherwise), we will be required
to obtain a portion of the B717 financing from sources other than Boeing
Capital. We believe that, with the support to be provided by Boeing and its
affiliates (from the lease financing commitment and other provisions of the B717
purchase agreement), aircraft-related debt and/or lease financing should be
available when needed. However, we cannot assure investors that we will be able
to secure financing on terms attractive to us, if at all. To the extent we
cannot secure acceptable financing, we may be required to modify our aircraft
acquisition plans or to incur financing costs higher than anticipated.

In addition, in partial consideration of the refinancing transactions, we have
granted Boeing an option to cause us to purchase or lease up to four additional
B717 aircraft per year during 2001, 2002, and 2003. If we elect to lease, Boeing
Capital will provide financing substantially equivalent to the lease financing
commitment. These aircraft, and Boeing Capital's commitment to provide financing
thereof, are supplemental to the 50 firm aircraft which are the subject of our
existing purchase agreement with Boeing.

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<PAGE>

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended in June 2000 by SFAS No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging Activities,
which requires companies to recognize all derivatives as either assets or
liabilities in the balance sheet and measure such instruments at fair value. As
amended by SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133, we will
adopt SFAS 133 effective January 1, 2001. Adoption of these new accounting
standards will result in a cumulative after-tax reduction to net income of
approximately $0.7 million, and an increase to other comprehensive income of
approximately $1.3 million, in the first quarter of 2001. The adoption will also
impact assets and liabilities recorded on the balance sheet. The ongoing effects
will depend upon future market conditions and our hedging activities.

FORWARD-LOOKING STATEMENTS

The statements that are contained in this Report that are not historical facts
are "forward-looking statements" which can be identified by the use of
forward-looking terminology such as "expects," "intends," "believes," "will," or
the negative thereof, or other variations thereon or comparable terminology.

We wish to caution the reader that the forward-looking statements contained in
this Report are only estimates or predictions, and are not historical facts.
Such statements include, but are not limited to:

o our performance in future periods;

o our ability to maintain profitability and to generate working capital
from operations;

o our ability to take delivery of and to finance aircraft;

o our ability to restructure and/or refinance our indebtedness;

o the adequacy of our insurance coverage; and

o the results of litigation or investigations.

No assurance can be given that future results will be achieved and actual events
or results may differ materially as a result of risks facing us or actual events
differing from the assumptions underlying such statements. Such risks and
assumptions include, but are not limited to:

o consumer demand and acceptance of services offered by us;

o our ability to achieve and maintain acceptable cost levels;

o fare levels and actions by competitors;

34
<PAGE>

o regulatory matters, general economic conditions, commodity prices; and

o changing business strategy and results of litigation.

Additional information concerning factors that could cause actual results to
vary materially from the future results indicated, expressed or implied in such
forward-looking statements is contained elsewhere in this Form 10-K for the year
ended December 31, 2000.

All forward-looking statements made in connection with this Report are expressly
qualified in their entirety by these cautionary statements. We disclaim any
obligation to update or correct any of our forward-looking statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK-SENSITIVE INSTRUMENTS AND POSITIONS

We are subject to certain market risks, including interest rates and commodity
prices (i.e., aircraft fuel). The adverse effects of changes in these markets
pose a potential loss as discussed below. The sensitivity analyses do not
consider the effects that such adverse changes may have on overall economic
activity, nor do they consider additional actions we may take to mitigate our
exposure to such changes. Actual results may differ. See the Notes to the
consolidated financial statements for a description of our financial policies
and additional information.

Interest Rates

As of December 31, 2000 and 1999, the fair value of our long-term debt was
estimated to be $439.0 million and $392.3 million, respectively, based upon
discounted future cash flows using current incremental borrowing rates for
similar types of instruments or market prices. Market risk, estimated as the
potential increase in fair value resulting from a hypothetical one percent
decrease in interest rates, was approximately $11.1 million as of December 31,
2000, and approximately $11.0 million as of December 31, 1999.

Aircraft Fuel

Our results of operations are impacted by changes in the price of aircraft fuel.
Excluding the impairment charges, aircraft fuel accounted for 25.9% and 15.3% of
our operating expenses in 2000 and 1999, respectively. Based on our 2001
projected fuel consumption, a 10% increase in the average price per gallon of
aircraft fuel for the year ending December 31, 2000, would increase fuel expense
for the next twelve months by approximately $9.7 million, net of hedging
instruments outstanding at December 31, 2000. Comparatively, based on 2000 fuel
usage, a 10% increase in fuel prices would have resulted in an increase in fuel
expense of approximately $10.0 million, net of hedging instruments utilized
during 2000. In 2000, we entered into fuel-hedging contracts consisting of
fixed-price swap agreements and collar structures to protect against increases
in aircraft fuel prices. At December 31, 2000, we had hedged approximately 50%
of our projected fuel requirements for the first quarter of 2001 and
approximately 30% of our projected requirements for the remainder of 2001.

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<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The response to this Item is submitted as a separate section of this report. See
pp. 46-66.

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

None.

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<PAGE>

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 our annual meeting of
stockholders to be held May 16, 2001, 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 our annual meeting of
stockholders to be held May 16, 2001, 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 "STOCK OWNERSHIP" in the Proxy Statement to be used in
connection with the solicitation of proxies for our annual meeting of
stockholders to be held May 16, 2001, 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 our annual meeting of
stockholders to be held May 16, 2001, which Proxy Statement is to be filed with
the Commission.

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<PAGE>

PART IV

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

(a) 1. 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 3.2 - Bylaws (As amended on March 27, 2000).
Exhibit 10.19 - Letter Agreement dated March 22, 2001, among the
Company, AirTran Airways, Inc. and Boeing
Capital Services Corporation. *.
Exhibit 13 - Portions of the Company's Annual Report to
Stockholders for the year ended December 31, 2000
(to be deemed filed only to the extent required
by the Instructions to Exhibits for Reports on
Form 10-K).
Exhibit 23 - Consent of Independent Auditors.

(b) AirTran Holdings, Inc. (the Company) has filed the following Current
Reports on Form 8-K:

Date of Report Subject of Report

October 16, 2000 Press release announcing financial results for
the quarter and nine months ended September 30,
2000, and selected operating and financial
statistics for the same periods.

(c) The following exhibits are filed herewith or incorporated by reference
as indicated. Exhibit numbers refer to Item 601 of Regulation S-K.

EXHIBIT NO. AND DESCRIPTION

3.1 Articles of Incorporation (1)
3.2 Bylaws (As amended on March 27, 2000)
4.1 See the Articles of Incorporation filed as Exhibit 3.1 and Bylaws filed
as Exhibit 3.2
4.1 Indenture dated as of April 17, 1996, among the
Company, its subsidiaries and Bank of Montreal Trust Company, as
Trustee (3)
4.2 First Supplemental Indenture dated August 26, 1996, among the Company,
its subsidiaries, Bank of Montreal Trust Company and Fleet National
Bank (11)
4.3 Second Supplemental Indenture dated August 5, 1997, among the Company,
its subsidiaries and State Street Bank and Trust (10)
4.4 Third Supplemental Indenture dated November 17, 1997, among the
Company, its subsidiaries and State Street Bank and Trust (11)
4.5 Indenture dated August 13, 1997, among the Company, its subsidiaries
and The Bank of New York, as Trustee (4)
4.6 First Supplemental Indenture dated November 17, 1997, among the
Company, its subsidiaries and The Bank of New York (11)

38
<PAGE>

4.7 Second Supplemental Indenture dated April 23, 1999, among the Company,
its subsidiaries and The Bank of New York (16)
4.8 Third Supplemental Indenture dated December 30, 1999, among the
Company, its subsidiaries and The Bank of New York (16)
10.1 Incentive Stock Option Agreement dated June 1, 1993, between ValuJet
Airlines, Inc. and Lewis H. Jordan (5)(6)
10.2 1993 Incentive Stock Option Plan (5)(6)
10.3 1994 Stock Option Plan (5)(6)
10.4 1995 Employee Stock Purchase Plan (7)
10.5 Purchase Agreement between McDonnell Douglas Corporation and ValuJet
Airlines, Inc. dated December 6, 1995. The Commission has granted
confidential treatment with respect to certain portions of this
Agreement (8)
10.6 Agreement and Lease of Premises Central Passenger Terminal Complex
Hartsfield Atlanta International Airport (8)
10.7 1996 Stock Option Plan (6)(9)
10.8 Consulting Agreement dated November 17, 1997, between the Company and
Robert L. Priddy (6) (10)
10.9 Consulting Agreement dated November 17, 1997, between the Company and
Lewis H. Jordan (6) (10)
10.10 Airways Corporation 1995 Stock Option Plan (6)(12)
10.11 Airways Corporation 1995 Directors Stock Option Plan (6)(12)
10.12 Lease of headquarters in Orlando, Florida, dated November 14, 1995 (13)
10.13 Orlando International Lease and Use Agreement (14)
10.14 Orlando Tradeport Maintenance Hangar Lease Agreement by and between
Greater Orlando Aviation Authority and Page AvJet Corporation dated
December 11, 1989 (15)
10.15 Amendment No. 1 to Orlando Tradeport Maintenance Hangar Lease Agreement
by and between Greater Orlando Aviation Authority and Page AvJet
Corporation dated June 22, 1990 (15)
10.16 Agreement and Second Amendment to Orlando Tradeport Maintenance Hangar
Lease Agreement by and between Greater Orlando Aviation Authority and
the Company dated January 25, 1996 (15)
10.17 Employment Agreement dated as of January 4, 1999, between the Company
and Joseph B. Leonard (11)
10.18 Note Purchase Agreement dated as of November 3, 1999, among the
Company, AirTran Airways, Inc., State Street Bank and Trust Company of
Connecticut National Association and First Security Bank, National
Association (16)
10.19 Letter Agreement dated March 22, 2001, among the Company, AirTran
Airways, Inc. and Boeing Capital Services Corporation *
13 Portions of the Company's Annual Report to Stockholders for the year
ended December 31, 2000 (to be deemed filed only to the extent required
by the Instructions to Exhibits for Reports on Form 10-K)
21 Subsidiaries of the Registrant (16)
23 Consent of Independent Auditors
----------------------------

39
<PAGE>

(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 Form
S-4, registration number 333-33837, filed with the Commission on August
18, 1997 and amendments thereto.
(3) 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.
(4) Incorporated by reference to the Company's Registration Statement on
Form S-4, registration number 333-37487, filed with the Commission on
October 9, 1997 and amendments thereto.
(5) 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.
(6) 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.
(7) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1995, Commission File No. 0-24164,
filed with the Commission on August 11, 1995.
(8) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995, Commission File No. 0-24164,
filed with the Commission on March 29, 1996 and amendment thereto.
(9) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996, Commission File No. 0-24164,
filed with the Commission on March 31, 1997.
(10) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997, Commission File No. 0-26914,
filed with the Commission on March 27, 1998.
(11) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998, Commission File No. 0-26914,
filed with the Commission on March 31, 1999.
(12) Incorporated by reference to Airways Corporation's Registration
Statement on Form S-4, registration number 33-93104, filed with the
Commission.
(13) Incorporated by reference to the Quarterly Report on Form 10-Q of
Airways Corporation (Commission File No. 0-26432) for the quarter ended
December 31, 1995.
(14) Incorporated by reference to the Quarterly Report on Form 10-Q of
Airways Corporation (Commission File No. 0-26432) for the quarter ended
December 31, 1996.
(15) Incorporated by reference to the Annual Report on Form 10-K of Airways
Corporation (Commission File No. 0-26432) for the year ended March 31,
1997.
(16) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1999, Commission File No. 0-26914,
filed with the Commission on March 30, 2000.

* Confidential treatment has been requested for certain confidential portions of
this exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934,
as amended. In accordance with this rule, these confidential portions have been
omitted from this exhibit and filed separately with the Securities and Exchange
Commission.

40
<PAGE>

SIGNATURES

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

AIRTRAN HOLDINGS, INC.

By: /s/ JOSEPH B. LEONARD
-----------------------------------
Joseph B. Leonard
Chairman and Chief Executive Officer
Date: April 2, 2001

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/ JOSEPH B. LEONARD April 2, 2001
- --------------------------------------------------
Joseph B. Leonard
Chairman of the Board and
Chief Executive Officer

/s/ STANLEY J. GADEK April 2, 2001
- --------------------------------------------------
Stanley J. Gadek
Senior Vice President, Finance
and Chief Financial Officer (Principal Accounting
and Financial Officer)

/s/ DON L. CHAPMAN April 2, 2001
- --------------------------------------------------
Don L. Chapman
Director

/s/ JOHN K. ELLINGBOE April 2, 2001
- --------------------------------------------------
John K. Ellingboe
Director

April 2, 2001
- --------------------------------------------------
Lewis H. Jordan
Director

/s/ ROBERT L. PRIDDY April 2, 2001
- --------------------------------------------------
Robert L. Priddy
Director

41
<PAGE>

April 2, 2001
- --------------------------------------------------
Robert D. Swenson
Director

April 2, 2001
- ---------------------------------------------------
William J. Usery
Director

42
<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, 2000

AirTran Holdings, Inc.

Orlando, Florida

43
<PAGE>

The following consolidated financial statements of AirTran Holdings, Inc. are
incorporated by reference in Item 8:

CONTENTS

Consolidated statements of operations - Years ended
December 31, 2000, 1999, and 1998.......................................... 46

Consolidated balance sheets - December 31, 2000, and 1999.................. 47

Consolidated statements of stockholders' equity (deficit) - Years ended
December 31, 2000, 1999, and 1998.......................................... 49

Consolidated statements of cash flows - Years ended
December 31, 2000, 1999, and 1998.......................................... 50

Notes to consolidated financial statements - December 31, 2000............. 51

The following consolidated financial statements schedule of AirTran Holdings,
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
regulations of the Securities and Exchange Commission, are not required under
the related instructions or are inapplicable and therefore have been omitted.

44
<PAGE>

Report of Independent Auditors

The Stockholders and Board of Directors
AirTran Holdings, Inc.

We have audited the accompanying consolidated balance sheets of AirTran
Holdings, Inc., as of December 31, 2000 and 1999, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for
each of the three years in the period ended December 31, 2000. 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 auditing standards generally
accepted in the United States. 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 AirTran
Holdings, Inc., at December 31, 2000 and 1999, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States. 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.

/s/ ERNST & YOUNG LLP
- ---------------------------

Atlanta, Georgia
January 21, 2001
except for Note 5 as to which the date is March 22, 2001

45
<PAGE>

AIRTRAN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

YEAR ENDED DECEMBER 31,
-----------------------------------
2000 1999 1998
--------- --------- ---------

OPERATING REVENUES:
Passenger $ 604,826 $ 486,487 $ 420,901
Cargo 4,183 3,888 3,488
Other 15,085 33,093 14,918
--------- --------- ---------
Total operating revenues 624,094 523,468 439,307

OPERATING EXPENSES:
Salaries, wages and benefits 137,391 120,737 108,461
Aircraft fuel 140,404 68,331 71,922
Maintenance, materials and repairs 73,238 86,374 74,577
Distribution 39,972 37,278 34,886
Landing fees and other rents 28,752 27,004 23,366
Marketing and advertising 16,412 15,643 15,112
Aircraft rent 12,616 4,869 7,241
Depreciation 23,087 28,533 28,591
Other operating 71,071 58,952 66,216
Impairment loss -- 147,735 27,492
--------- --------