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United States Securities and Exchange Commission
Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Period Ended September 30, 2002 or

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




Commission file number 000-21642


ATA HOLDINGS CORP.
- --------------------------------------------------------------------------------

(Exact name of registrant as specified in its charter)

Indiana 35-1617970
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)


7337 West Washington Street
Indianapolis, Indiana 46231
(Address of principal executive offices) (Zip Code)


(317) 247-4000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)

Not applicable
(Former name, former address and former fiscal year, if changed
since last report)

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 periods 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 ______

Applicable Only to Issuers Involved in Bankruptcy
Proceedings During the Preceding Five Years

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court. Yes ______ No ______

Applicable Only to Corporate Issuers

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.

Common Stock, Without Par Value - 11,764,753 shares outstanding as of
October 31, 2002

PART I - Financial Information
Item I - Financial Statements


ATA HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)

September 30, December 31,
2002 2001
------------- ------------
ASSETS (Unaudited)
Current assets:

Cash and cash equivalents ....................................... $ 113,058 $ 184,439
Aircraft pre-delivery deposits .................................. 88,882 166,574
Receivables, net of allowance for doubtful accounts
(2002 - $17,222; 2001 - $1,526) ................................. 69,686 75,046
Inventories, net ................................................ 50,733 47,648
Assets held for sale ............................................ - 18,600
Prepaid expenses and other current assets ....................... 29,242 19,471
------------- -------------
Total current assets ................................................. 351,601 511,778

Property and equipment:
Flight equipment ................................................ 338,241 327,541
Facilities and ground equipment ................................. 131,895 119,975
------------- -------------
470,136 447,516
Accumulated depreciation ........................................ (176,205) (132,573)
------------- -------------
293,931 314,943

Goodwill ............................................................. 21,780 21,780
Assets held for sale ................................................. 8,595 33,159
Prepaid aircraft rent ................................................ 75,798 49,159
Investment in BATA, LLC .............................................. 19,138 30,284
Deposits and other assets ............................................ 43,635 41,859
------------- -------------
Total assets ......................................................... $ 814,478 $ 1,002,962
============= =============

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Current maturities of long-term debt ............................. $ 15,177 $ 5,820
Short-term debt .................................................. 65,591 118,239
Accounts payable ................................................. 29,634 26,948
Air traffic liabilities .......................................... 92,417 100,958
Accrued expenses ................................................. 177,508 177,102
------------- -------------
Total current liabilities ............................................ 380,327 429,067

Long-term debt, less current maturities .............................. 334,727 373,533
Deferred income taxes ................................................ - 13,655
Deferred gains from sale and leaseback of aircraft ................... 52,877 45,815
Other deferred items ................................................. 36,496 16,760
------------- -------------
Total liabilities .................................................... 804,427 878,830

Redeemable preferred stock; authorized and issued 800 shares ......... 80,000 80,000

Shareholders' equity (deficit):
Preferred stock; authorized 9,999,200 shares; none issued ........ - -
Common stock, without par value; authorized 30,000,000 shares;
issued 13,476,193 - 2002; 13,266,642 - 2001 ................... 65,290 61,964
Treasury stock; 1,711,440 shares - 2002; 1,710,658 shares - 2001 (24,778) (24,768)
Additional paid-in capital ....................................... 10,824 11,534
Other comprehensive loss ......................................... - (687)
Retained deficit ................................................. (121,285) (3,911)
------------- -------------
Total shareholders' equity (deficit) ................................. (69,949) 44,132
------------- -------------
Total liabilities and shareholders' equity ........................... $ 814,478 $ 1,002,962
============= =============

See accompanying notes.



2





ATA HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)

Three Months Ended September 30, Nine Months Ended September 30,
2002 2001 2002 2001
------------ ----------- ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Operating revenues:

Scheduled service.................................. $ 231,633 $ 208,490 $ 664,431 $ 656,044
Charter............................................ 68,185 93,629 238,698 292,603
Ground package..................................... 5,605 8,738 30,582 45,214
Other.............................................. 11,866 10,612 32,689 33,988
---------- ---------- ---------- ----------
Total operating revenues........................... 317,289 321,469 966,400 1,027,849
---------- ---------- ---------- ----------
Operating expenses:
Salaries, wages and benefits....................... 95,094 84,956 264,782 249,444
Fuel and oil....................................... 52,956 67,908 151,350 205,918
Aircraft rentals................................... 51,244 26,884 135,731 68,279
Handling, landing and navigation fees.............. 29,343 21,640 85,473 70,299
Depreciation and amortization...................... 18,850 32,156 60,258 101,400
Crew and other employee travel..................... 14,485 15,089 41,933 46,695
Aircraft maintenance, materials and repairs........ 11,308 14,704 37,388 50,064
Other selling expenses............................. 11,103 10,311 33,462 32,258
Passenger service.................................. 10,379 12,614 29,677 35,725
Advertising........................................ 9,553 7,190 30,181 20,695
Insurance.......................................... 8,021 2,520 23,693 6,960
Facilities and other rentals....................... 6,294 5,347 17,492 14,670
Commissions........................................ 3,964 7,707 18,089 28,520
Ground package cost................................ 3,757 6,381 23,832 36,665
Special charges.................................... - 9,367 - 9,367
Aircraft impairments and retirements............... 34,318 37,633 51,559 41,749
U.S. Government grant.............................. - (62,597) 15,210 (62,597)
Other.............................................. 16,264 17,207 55,169 52,961
---------- ---------- ---------- ----------
Total operating expenses........................... 376,933 317,017 1,075,279 1,009,072
---------- ---------- ---------- ----------
Operating income (loss)............................ (59,644) 4,452 (108,879) 18,777

Other income (expense):
Interest income.................................... 626 1,157 2,138 4,247
Interest expense................................... (7,729) (7,036) (25,979) (21,345)
Other.............................................. (620) 1,831 (988) 1,763
---------- ---------- ---------- ----------
Other expense...................................... (7,723) (4,048) (24,829) (15,335)
---------- ---------- ---------- ----------
Income (loss) before income taxes.................. (67,367) 404 (133,708) 3,442
Income taxes (credits)............................. (6,746) 16 (19,569) 907
---------- ---------- ---------- ----------
Net income (loss).................................. (60,621) 388 (114,139) 2,535

Preferred stock dividends.......................... (375) (375) (3,235) (3,083)
---------- ---------- ---------- ----------
Income (loss) available to common shareholders..... $ (60,996) $ 13 $ (117,374) $ (548)
========== ========== ========== ==========
Basic earnings per common share:

Average shares outstanding......................... 11,764,753 11,509,333 11,694,097 11,439,167
Net income (loss) per share........................ $(5.18) $0.00 $ (10.04) $ (0.05)
========== ========== ========== ==========
Diluted earnings per common share:
Average shares outstanding......................... 11,764,753 12,515,904 11,694,097 11,439,167
Net income (loss) per share........................ $(5.18) $0.00 $ (10.04) $ (0.05)
========== ========== ========== ==========
See accompanying notes.



3




ATA HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE PREFERRED STOCK, COMMON STOCK AND OTHER SHAREHOLDERS' EQUITY
(Dollars in thousands)

Redeemable Additional Other
Preferred Common Treasury Paid-in Comprehensive Retained
Stock Stock Stock Capital Income (Loss) Deficit Total
-------- -------- --------- -------- ---- ---------- --------

Balance, December 31, 2001 . $ 80,000 $ 61,964 $ (24,768) $ 11,534 $ (687) $ (3,911) $ 124,132
-------- -------- --------- -------- ---- ---------- --------
Net income ................... - - - - - 1,880 1,880

Net gain on derivative
instruments .................. - - - - 629 - 629
---- ---------- --------
Total comprehensive
income ....................... - - - - 629 1,880 2,509
---- ---------- --------
Preferred stock dividends .... - - - - - (375) (375)

Restricted stock grants ...... - 10 - 3 - - 13

Stock options exercised ...... - 291 - (138) - - 153
-------- -------- --------- -------- ---- ---------- --------
Balance, March 31, 2002 .... $ 80,000 $ 62,265 $ (24,768) $ 11,399 $ (58) $ (2,406) $ 126,432
======== ======== ========= ======== === ========== ========
Net loss ..................... - - - - - (55,398) (55,398)

Net gain on derivative
instruments .................. - - - - 391 - 391
---- ---------- --------
Total comprehensive
income (loss) ................ - - - - 391 (55,398) (55,007)
---- ---------- --------
Preferred stock dividends .... - - - - - (2,485) (2,485)

Payment of liability
with stock ................... - 2,445 - (295) - - 2,150

Restricted stock grants ...... - 3 (10) 1 - - (6)

Stock options exercised ...... - 577 - (281) - - 296
-------- -------- --------- -------- ---- ---------- --------
Balance, June 30, 2002 ..... $ 80,000 $ 65,290 $ (24,778) $ 10,824 $ 333 $ (60,289) $ 71,380
======== ======== ========= ======== === ========== ========
Net loss ..................... - - - - - (60,621) (60,621)

Net loss on derivative
instruments .................. - - - - (333) - (333)
---- ---------- --------
Total comprehensive
loss ......................... - - - - (333) (60,621) (60,954)
---- ---------- --------
Preferred stock dividends .... - - - - - (375) (375)
-------- -------- --------- -------- ---- ---------- --------
Balance, September 30, 2002. $ 80,000 $ 65,290 $ (24,778) $ 10,824 $ - $ (121,285) $ 10,051
======== ======== ========= ======== ==== ========== ========


See accompanying notes.



4



ATA HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)

Nine Months Ended September 30,
2002 2001
------------- -------------
(Unaudited) (Unaudited)

Operating activities:


Net income (loss)............................................ $(114,139) $ 2,535
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization................................ 60,258 101,400
Aircraft impairments and retirements......................... 51,559 41,749
Deferred income taxes (credits).............................. (13,655) 2,842
Other non-cash items......................................... 30,913 (4,650)
Changes in operating assets and liabilities:
U.S. Government grant receivable............................. 15,210 (29,996)
Other receivables............................................ (9,850) 2,805
Inventories.................................................. (5,570) (10,554)
Prepaid expenses............................................. (9,771) 6,850
Accounts payable............................................. 2,686 29,949
Air traffic liabilities...................................... (8,541) (17,331)
Accrued expenses............................................. (3,984) 16,375
--------- ---------
Net cash provided by operating activities (4,884) 141,974
--------- ---------
Investing activities:

Aircraft pre-delivery deposits............................... 77,396 (61,666)
Capital expenditures......................................... (57,618) (251,031)
Noncurrent prepaid aircraft rent............................. (19,273) (18,778)
Investment in BATA, LLC...................................... 18,632 18,043
Reductions (additions) to other assets....................... (3,867) 5,272
Proceeds from sales of property and equipment................ 408 32
--------- ---------
Net cash provided by (used in) investing activities 15,678 (308,128)
--------- ---------
Financing activities:

Preferred stock dividends.................................... (3,235) (3,083)
Proceeds from sale/leaseback transactions.................... 2,794 369
Proceeds from short-term debt................................ 56,859 71,537
Payments on short-term debt.................................. (109,507) (18,726)
Proceeds from long-term debt................................. 194,491 151,238
Payments on long-term debt................................... (224,016) (5,600)
Proceeds from stock options exercises........................ 449 1,434
Purchase of treasury stock................................... (10) (204)
--------- ---------
Net cash provided by (used in) financing activities (82,175) 196,965
--------- ---------
Increase (decrease) in cash and cash equivalents............. (71,381) 30,811
Cash and cash equivalents, beginning of period............... 184,439 129,137
--------- ---------
Cash and cash equivalents, end of period..................... $ 113,058 $ 159,948
========= =========


Supplemental disclosures:

Cash payments for:
Interest..................................................... $ 33,102 $ 33,794
Income taxes (refunds)....................................... $ 3,063 $ (7,931)

Financing and investing activities not affecting cash:
Accrued capitalized interest................................. $ (6,406) $ 11,293

See accompanying notes.



5




ATA HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The accompanying consolidated financial statements of ATA Holdings Corp.,
formerly Amtran, Inc., and subsidiaries (the "Company") have been prepared
in accordance with instructions for reporting interim financial information
on Form 10-Q and, therefore, do not include all information and footnotes
necessary for a fair presentation of financial position, results of
operations and cash flows in conformity with accounting principles
generally accepted in the United States.

The consolidated financial statements for the quarters ended September 30,
2002 and 2001 reflect, in the opinion of management, all adjustments
necessary to present fairly the financial position, results of operations
and cash flows for such periods. Results for the nine months ended
September 30, 2002 are not necessarily indicative of results to be expected
for the full fiscal year ending December 31, 2002. For further information,
refer to the consolidated financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001.

2. Earnings per Share

The following tables set forth the computation of basic and diluted
earnings per share:



Three Months Ended September 30,
2002 2001
------------ ------------

Numerator:
Net income (loss) $ (60,621,000) $ 388,000
Preferred stock dividends (375,000) (375,000)
------------- ----------
Income (loss) available to common
shareholders-numerator for basic and
diluted earnings per share $ (60,996,000) $ 13,000
============= ==========


Denominator:
Denominator for basic earnings per share
- weighted average shares 11,764,753 11,509,333
Effect of potential dilutive securities:
Employee stock options - 1,006,571
------------- ----------
Denominator for diluted earnings per share
- adjusted weighted average shares 11,764,753 12,515,904
============= ==========
Basic income (loss) per share $ (5.18) $ 0.00
============= ==========
Diluted income (loss) per share $ (5.18) $ 0.00
============= ==========




6





Nine Months Ended September 30,
2002 2001
------------ ------------

Numerator:
Net income (loss) $(114,139,000) $ 2,535,000
Preferred stock dividends (3,235,000) (3,083,000)
------------- -----------
Loss available to common
shareholders-numerator for basic and
diluted earnings per share $(117,374,000) $ (548,000)
============= ===========

Denominator:
Denominator for basic and diluted earnings
per share - weighted average shares 11,694,097 11,439,167
============= ===========
Basic loss per share $ (10.04) $ (0.05)
============= ===========
Diluted loss per share $ (10.04) $ (0.05)
============= ===========


In accordance with Financial Accounting Standards Board ("FASB") Statement
No. 128, "Earnings per Share," the impact of 1,914,486 shares of
convertible redeemable preferred stock in the three months and nine months
ended September 30, 2002 and 2001, has been excluded from the computation
of diluted earnings per share because their effect would be antidilutive.
In addition, the impact of 180,886 and 668,841 employee stock options,
respectively, has been excluded from the computation of diluted earnings
per share for the nine months ended September 30, 2002 and 2001,
respectively, because their effect would be antidilutive.

3. Segment Disclosures

The Company identifies its segments on the basis of similar products and
services. The airline segment derives its revenues primarily from the sale
of scheduled service or charter air transportation. ATA Leisure Corp.
("ATALC") derives its revenues from the sale of vacation packages, which,
in addition to air transportation, include hotels and other ground
arrangements. ATALC purchases air transportation for its vacation packages
from ATA and other airlines.

On July 1, 2002, the Company outsourced the management operations of two of
its ATALC brands, ATA Vacations and Travel Charter International ("TCI"),
to Milwaukee-based The Mark Travel Corporation ("MTC"). MTC will create,
advertise, take reservations and deliver these ATALC brands. MTC will
receive revenue from the package sales, and the Company will receive a
royalty fee from MTC. Other ATALC products, including Key Tours' Canadian
Rail programs and Key Tours' Las Vegas ground operations, will not be
outsourced. The Company expects this segment to have a less material effect
on the consolidated financial statements as a result of the outsourcing
arrangements, and does not consider it a reportable segment due to its
immateriality.


4. Commitments and Contingencies

In 2000, the Company entered into a purchase agreement with the Boeing
Company to purchase directly from Boeing 10 new Boeing 757-300s and 20 new
Boeing 737-800s. The Boeing 737-800 aircraft are powered by General
Electric CFM56-7B27 engines, and the Boeing 757-300 aircraft are powered by
Rolls-Royce RB211-535 E4C engines. The Company also received purchase
rights for an additional 50 aircraft. The manufacturer's list price is
$73.6 million for each 757-300 and $52.4 million for each 737-800, subject


7



to escalation. The Company's purchase price for each aircraft is subject to
various discounts. To fulfill its purchase obligations, the Company has
arranged for each of these aircraft, including the engines, to be purchased
by third parties that will, in turn, enter into long-term operating leases
with the Company. As of September 30, 2002, the Company had taken delivery
of eight Boeing 737-800s and 10 Boeing 757-300s obtained directly from
Boeing. All remaining aircraft to be purchased directly from Boeing are
currently scheduled for delivery between October 2002 and August 2004.
Aircraft pre-delivery deposits are required for these purchases, and the
Company has funded these deposits using operating cash and deposit finance
facilities. As of September 30, 2002, the Company had $93.3 million in
pre-delivery deposits outstanding for these aircraft, of which $65.6
million was provided by deposit finance facilities with various lenders.
Upon delivery of the aircraft, pre-delivery deposits funded with operating
cash will be returned to the Company, and those funded with deposit
facilities will be used to repay those facilities.

In December 2001, the Company entered into an agreement to exercise
purchase rights on two Boeing 757-300 aircraft to be delivered in May and
June 2003. The Company currently has purchase rights remaining for eight
Boeing 757-300 aircraft and 40 Boeing 737-800 aircraft.

The Company has operating lease agreements in place to lease 14 new Boeing
737-800s from International Lease Finance Corporation ("ILFC"). As of
September 30, 2002, the Company had taken delivery of 12 Boeing 737-800s
that are being leased from ILFC. The remaining two aircraft under these
operating lease agreements are scheduled for delivery in June 2003 and May
2004.

The Company has an agreement with General Electric to purchase four spare
engines, which are scheduled for delivery between 2003 and 2006.

In March 2001, the Company entered into a limited liability company
agreement with Boeing Capital Corporation ("BCC") to form BATA Leasing LLC
("BATA") a 50/50 joint venture. Because the Company does not control BATA,
the Company's investment is being accounted for under the equity method of
accounting. BATA is expected to remarket the Company's fleet of Boeing
727-200 aircraft in either passenger or cargo configurations. In exchange
for supplying the aircraft and certain operating services to BATA, the
Company has and will continue to receive both cash and equity in the income
or loss of BATA. The Company transferred 12 Boeing 727-200 aircraft to BATA
in 2001, and subsequently leased nine of those aircraft back through
short-term operating leases with BATA. As of June 30, 2002, all nine leases
had terminated, but the Company is subject to lease return conditions
contained in these nine operating leases upon delivery of any of these
aircraft to a third party by BATA. As of September 30, 2002, a third-party
lessee or buyer has not been identified for any of these aircraft.
Management believes it is reasonably possible that a lessee or buyer will
be identified. The Company estimates that it could incur up to $7.0 million
of expense to meet the return conditions, if all nine of the aircraft were
sold or leased by BATA to third parties. No liability has been recorded for
these return conditions.

Various claims, contractual disputes and lawsuits against the Company arise
periodically involving complaints which are normal and reasonably
foreseeable in light of the nature of the Company's business. The majority
of these suits are covered by insurance. In the opinion of management, the
resolution of these claims will not have a material adverse effect on the
business, operating results or financial condition of the Company.


5. New Accounting Pronouncements

In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible
Assets ("FAS 142"), effective for fiscal years beginning after December 15,
2001. As required upon adoption of FAS 142, as of June 30, 2002 the Company
had completed transitional impairment reviews on its goodwill. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Critical Accounting Policies" for a description of the
Company's application of FAS 142.


8



The Company adopted FASB Statement of Financial Accounting Standard No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets ("FAS
144") effective January 1, 2002. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Critical Accounting
Policies" for a description of the Company's application of FAS 144.


9



PART I - Financial Information
Item II - Management's Discussion and Analysis of Financial Condition and
Results of Operations

Quarter and Nine Months Ended September 30, 2002, Versus Quarter and Nine Months
Ended September 30, 2001

Overview

The Company is a leading provider of scheduled airline services and charter
airline services to leisure and other value-oriented travelers, and to the U.S.
military. The Company, through its principal subsidiary, American Trans Air,
Inc. ("ATA"), has been operating for 30 years and is the tenth largest U.S.
airline in terms of 2001 capacity and traffic. ATA provides jet scheduled
service through nonstop and connecting flights from the gateways of
Chicago-Midway and Indianapolis to popular vacation destinations such as Hawaii,
Phoenix, Las Vegas, Florida, California, Mexico and the Caribbean, as well as to
New York's LaGuardia Airport, Philadelphia, Denver, Dallas-Ft. Worth,
Washington, D.C., Boston, Seattle, Minneapolis-St. Paul, Newark and Charlotte.
The Company's commuter subsidiary Chicago Express Airlines, Inc. ("Chicago
Express") provides commuter scheduled service between Chicago-Midway and the
cities of Indianapolis, Cedar Rapids, Des Moines, Dayton, Flint, Grand Rapids,
Lexington, Madison, Milwaukee, Moline, South Bend, Springfield and Toledo. ATA
also provides charter service to independent tour operators, specialty charter
customers and the U.S. military.

In the quarter and nine months ended September 30, 2002, the Company recorded an
operating loss of $59.6 million and $108.9 million, respectively, as compared to
operating income of $4.5 million and $18.8 million in the same periods of 2001.
Consolidated yield declined by 0.6% and 7.1%, respectively, in the quarter and
nine months ended September 30, 2002, as compared to the same periods of 2001,
while consolidated load factors declined 5.6% and 2.5%, respectively, between
the same periods. Weak pricing was evident particularly in scheduled service in
2002, and reflects the continuing impacts of severely reduced demand for both
business and leisure air travel subsequent to the terrorist attacks of September
11, 2001. The Company also believes that consumer confidence continues to be
eroded by an unsettled economic climate in the United States and that some
customers are choosing alternative modes of transportation due to the impact of
enhanced security procedures on air transportation convenience. The Company
expects continued weakness in unit revenue and load factor throughout the
remainder of 2002.

The Company's unit costs remained among the lowest of major airlines in 2002.
Excluding special and unusual items, consolidated cost per available seat mile
("CASM") was 7.62 cents and 7.73 cents, respectively, in the quarter and nine
months ended September 30, 2002, as compared to 7.79 cents and 8.11 cents,
respectively, in the comparable periods of 2001 (see "Results of Operations in
Cents Per ASM.") In 2002 unit cost of salaries, wages and benefits were higher
than in 2001, because the Company recorded a charge of $9.9 million to record a
signing bonus relating to recently-ratified amendments to the cockpit crew
collective bargaining agreement and implemented higher pay rates under the
amended agreement effective July 1, 2002. The Company is continuing its efforts
to further reduce its operating costs in the fourth quarter of 2002, and also
expects to continue to realize net operating cost savings from the ongoing
deliveries of its new fleet of Boeing 737-800 and Boeing 757-300 aircraft, and
ongoing retirements of Lockheed L-1011 aircraft. The Company had retired all of
its Boeing 727-200 aircraft by June 30, 2002.

The Company, however, does not expect that it will be able to fully mitigate the
weak revenue results solely through cost savings initiatives. Consequently, the
Company expects to incur operating and net losses for the full year 2002,
including further losses in the fourth quarter.


10



Critical Accounting Policies

"Management's Discussion and Analysis of Financial Condition and Results of
Operations" discusses the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires
management to make judgments and estimates that affect the reported amounts of
assets, liabilities, revenues and expenses, and the disclosures of contingent
assets and liabilities. Certain significant accounting policies applied in the
preparation of the financial statements require management to make difficult,
subjective or complex judgments, and are considered critical accounting policies
by the Company. The Company has identified the following areas as critical
accounting policies.

Goodwill Accounting. In June 2001, the FASB issued new accounting standards
pertaining to goodwill in FAS 142, effective for fiscal years beginning after
December 15, 2001. Under FAS 142, goodwill and intangible assets deemed to have
indefinite lives will no longer be amortized, but will be subject to annual
impairment reviews. The Company's goodwill is related to its ATALC, ATA Cargo,
Inc. ("ATA Cargo") and Chicago Express subsidiaries acquired in 1999.

FAS 142 requires companies to perform transitional impairment reviews of
goodwill as of the date of adoption of the statement, which was January 1, 2002.
The transitional goodwill impairment test was required to be completed by June
30, 2002, based upon the carrying values and estimated fair values as of January
1, 2002. This test is a two-step process. Step one compares the fair value of a
reporting unit (determined through market quotes or the present value of
estimated future cash flows) with its carrying amount (assets less liabilities,
including goodwill.) If the estimated fair value exceeds the carrying amount,
goodwill of the reporting unit is considered not impaired, and step two of the
impairment test is not necessary. If the carrying amount of a reporting unit
exceeds its estimated fair value, the second step of the goodwill impairment
test is then performed, which compares the implied fair value of the reporting
unit's goodwill (determined in accordance with purchase accounting), with the
carrying amount of the reporting unit's goodwill. If the carrying amount of the
reporting unit's goodwill exceeds the implied fair value of the goodwill, an
impairment loss is recognized in an amount equal to that excess. If an
impairment loss is recognized, the adjusted carrying amount of the goodwill
becomes the new accounting basis for future impairment tests.

The fair market values of all of the Company's reporting units were estimated
using discounted future cash flows, since market quotes were not readily
available. For Chicago Express and ATA Cargo, future cash flows were estimated
based on historical performance. In both cases, the estimated fair market value
was higher than the carrying amount of the reporting unit, and thus no
impairment was indicated.

The fair market value of ATALC was estimated based on projected future cash
flows from the Key Tours and Key Tours Las Vegas brands, estimated cash flows
from royalties under the new management services contract with MTC (see Footnote
3, "Segment Disclosures"), and incremental cash flows from the increased sale of
scheduled service seats to ATA Vacations customers under the management services
agreement. Based on this analysis, the estimated fair market value of ATALC was
higher than its carrying amount, and thus no impairment was indicated.

All of the estimates of fair market value for the Company's three reporting
units involved highly subjective judgments on the part of management, including
the amounts of cash flows to be received, their estimated duration, and
perceived risk as reflected in selected discount rates. In some cases, cash
flows were estimated without the benefit of historical data, although historical
data was used where available. Although the Company believes its estimates and
judgments to be reasonable, different assumptions and judgments might have
resulted in the impairment of some or all of the Company's recorded goodwill of
$21.8 million under the transitional testing rules of FAS 142.


11



U. S. Government Grant Reimbursement Accounting. The Air Transportation Safety
and System Stabilization Act passed in response to the September 11, 2001
terrorist attacks provided for, among other things, up to $5.0 billion in
compensation for the direct and incremental losses resulting from the terrorist
attacks incurred by U. S. domestic passenger and cargo airlines from September
11, 2001 through December 31, 2001.

Due to the limited guidance provided by the legislation and the evolving
guidance provided by the interpretive rules of the Department of Transportation
("DOT"), the Company has made subjective and judgmental estimates in calculating
and recording the amount of grant revenue to recognize. In the third and fourth
quarters of 2001, the Company recognized $66.3 million in total grant revenues.
As of December 31, 2001, $44.5 million had been received, and $21.8 million was
recorded as a receivable.

In the second quarter of 2002, the DOT issued new guidelines for measuring
reimbursable losses and the Company submitted a final application, accompanied
by the required accountant's report on agreed upon procedures. Based on review
of its application with the DOT, the Company determined that it is probable that
a portion of the receivable recorded in 2001 may not be collected, and therefore
recorded a valuation allowance of $15.2 million against the $21.8 million
receivable as of June 30, 2002. As of September 30, 2002, the remaining
receivable had not yet been collected, but the Company does not currently
believe that a further change to the valuation allowance is necessary. The
Company is continuing to discuss its compensation claim with the DOT, and
currently expects that claim to be settled during the fourth quarter of 2002.

Fleet Impairment Accounting. Effective January 1, 2002, the Company adopted FAS
144, which superseded FASB Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed of ("FAS 121") but the Company continues to account for the fleet
and related assets that were impaired prior to January 1, 2002 under FAS 121, as
required by FAS 144. The Company has been performing impairment reviews in
accordance with FAS 121 on the Lockheed L-1011-50/100 and the Boeing 727-200
fleets since the end of 2000, and both fleets became impaired under FAS 121
subsequent to the events of September 11, 2001.

In the third quarter of 2002, the Company decided to retire one of its five
Lockheed L-1011-500 aircraft earlier than originally planned. This event caused
the Company to consider whether the net book value of the remaining four
aircraft and related assets in this fleet could be recovered through future cash
flows. In the third quarter of 2002, the Company performed an impairment
analysis on the Lockheed L-1011-500 fleet and related assets, in accordance with
FAS 144, and determined that the Lockheed L-1011-500 fleet and related assets
were not impaired.

Both FAS 144 and FAS 121 require that whenever events or circumstances indicate
that the Company may not be able to recover the net book value of its productive
assets through future cash flows, an assessment must be performed of expected
future cash flows, and undiscounted estimated future cash flows must be compared
to the net book value of these productive assets to determine if impairment is
indicated. They specify that impaired assets be written down to their estimated
fair market value by recording an impairment charge to earnings. FAS 144 and FAS
121 state that fair market values may be estimated using discounted cash flow
analysis or quoted market prices, together with other available information, to
estimate fair market values. The Company primarily used discounted cash flow
analysis to estimate fair market value of the Lockheed L-1011-50/100 fleet, and
quoted market prices to estimate the value of the Boeing 727-200 fleet.

The application of FAS 144 and FAS 121 required the exercise of significant
judgment and the preparation of numerous significant estimates. The Company
estimated future cash flows from the productive use of these fleets by
estimating the expected net cash contribution from revenues less operating
expenses, and adjusting for estimated cash outflows for heavy maintenance and
estimated cash inflows from final disposal of the assets, for up to ten years
into the future. Although the Company believes that its estimates of cash flows
in the application of FAS 144 and FAS 121 were reasonable, and were based upon
all available information, including extensive historical cash flow data about
the prior use of these fleets, such estimates nevertheless required substantial



12



judgments and were based upon material assumptions about future events. Such
estimates were significant in determining the amount of the impairment charge to
be recorded, which could have been materially different under different sets of
assumptions and estimates.

As FAS 144 and FAS 121 require the Company to continuously evaluate fair market
values of previously impaired assets, it is possible that future estimates of
fair market value may result in additional material charges to earnings, if
those estimates indicate a material reduction in fair market value as compared
to the estimates made at the end of the third quarter of 2002.

Results of Operations

For the quarter ended September 30, 2002, the Company had an operating loss of
$59.6 million, as compared to operating income of $4.5 million in the comparable
quarter of 2001; and the Company had a $61.0 million net loss available to
common shareholders in the third quarter of 2002, as compared to net income
available to common shareholders of $13,000 in the third quarter of 2001.

Operating revenues decreased 1.3% to $317.3 million in the third quarter of
2002, as compared to $321.5 million in the same period of 2001. Consolidated
revenue per available seat mile ("RASM") decreased 6.1% to 7.06 cents in the
third quarter of 2002, as compared to 7.52 cents in the third quarter of 2001.
Scheduled service revenues increased $23.1 million between periods, or 11.1%,
while, charter revenues decreased $25.4 million between periods, or 27.1%. These
revenue changes reflected the Company's continuing strategy to build capacity in
scheduled service at Chicago-Midway. Capacity in commercial charter operations
declined as a result of the continued retirement of Boeing 727-200 aircraft and
Lockheed L-1011-50/100 aircraft. Scheduled service unit revenues continued to
reflect weakness in both load factors and yields in the third quarter of 2002.

Operating expenses increased 18.9% to $376.9 million in the third quarter of
2002, as compared to $317.0 million in the comparable period of 2001.
Consolidated CASM increased 13.1% to 8.39 cents in the third quarter of 2002, as
compared to 7.42 cents in the third quarter of 2001. Operating expenses in both
quarters included special charges, aircraft impairment and retirement charges,
and U.S. Government grant amounts. After excluding these special items,
consolidated CASM decreased 2.2% to 7.62 cents in the third quarter of 2002, as
compared to 7.79 cents in the third quarter of 2001.

For the nine months ended September 30, 2002, the Company had an operating loss
of $108.9 million, as compared to operating income of $18.8 million in the
comparable period of 2001; and the Company had a $117.4 million net loss
available to common shareholders in the nine months ended September 30, 2002, as
compared to a net loss available to common shareholders of $0.5 million in the
same period of 2001.

Operating revenues decreased 6.0% to $966.4 million in the nine months ended
September 30, 2002, as compared to $1.028 billion in the same period of 2001.
Consolidated RASM decreased 9.3% to 7.41 cents in the nine months ended
September 30, 2002, as compared to 8.17 cents in the same period of 2001.
Scheduled service revenues increased $8.4 million between periods, while charter
revenues decreased $53.9 million, and ground package revenues decreased $14.6
million.

Operating expenses increased 6.5% to $1.075 billion in the nine months ended
September 30, 2002, as compared to $1.009 billion in the comparable period of
2001. Consolidated CASM increased 2.7% to 8.24 cents in the nine months ended
September 30, 2002, as compared to 8.02 cents in the same period of 2001. After
excluding special items, consolidated CASM decreased 4.7% to 7.73 cents in the
nine months ended September 30, 2002, as compared to 8.11 cents in the
comparable period of 2001.


13



Results of Operations in Cents Per ASM

The following table sets forth, for the periods indicated, operating revenues
and expenses expressed as cents per available seat mile ("ASM").



Cents per ASM Cents per ASM
Three Months Ended September 30, Nine Months Ended September 30,
2002 2001 2002 2001
-------------------------------------- -----------------------------------

Consolidated operating revenues: 7.06 7.52 7.41 8.17

Consolidated operating expenses:
Salaries, wages and benefits 2.12 1.99 2.03 1.98
Fuel and oil 1.18 1.59 1.16 1.64
Aircraft rentals 1.14 0.63 1.04 0.54
Handling, landing and navigation fees 0.65 0.51 0.65 0.56
Depreciation and amortization 0.42 0.75 0.46 0.81
Crew and other employee travel 0.32 0.35 0.32 0.37
Aircraft maintenance, materials and repairs 0.25 0.34 0.29 0.40
Other selling expenses 0.25 0.24 0.26 0.26
Passenger service 0.23 0.30 0.23 0.28
Advertising 0.22 0.17 0.23 0.16
Insurance 0.18 0.06 0.18 0.06
Facilities and other rentals 0.14 0.13 0.13 0.12
Commissions 0.09 0.18 0.14 0.23
Ground package cost 0.08 0.15 0.18 0.29
Special charges - 0.22 - 0.07
Aircraft impairment and retirements 0.76 0.88 0.40 0.33
U.S. Government grant - (1.47) 0.12 (0.50)
Other 0.36 0.40 0.42 0.42
---- ---- ---- ----
Total consolidated operating expenses 8.39 7.42 8.24 8.02
---- ---- ---- ----

Consolidated operating income (loss) (1.33) 0.10 (0.83) 0.15
===== ==== ===== ====

ASMs (in thousands) 4,494,336 4,272,432 13,050,595 12,583,425

Consolidated operating expenses, excluding
special charges, aircraft impairment and
retirements, and U.S. Government grant 7.62 7.79 7.73 8.11
==== ==== ==== ====


14



Consolidated Flight Operating and Financial Data

The following table sets forth, for the periods indicated, certain key operating
and financial data for the consolidated flight operations of the Company. Data
shown for "Jet" operations include the consolidated operations of Lockheed
L-1011, Boeing 727-200, Boeing 737-800, Boeing 757-200, and Boeing 757-300
aircraft in all of the Company's business units. Data shown for "Saab"
operations include the operations of Saab 340B propeller aircraft by Chicago
Express as the ATA Connection.


Three Months Ended September 30,
2002 2001 Inc (Dec) % Inc (Dec)
------------------------------------------------------------------------------

Departures Jet 17,147 14,471 2,676 18.49
Departures Saab 11,669 6,732 4,937 73.34
------------------------------------------------------------------------------
Total Departures (a) 28,816 21,203 7,613 35.91
------------------------------------------------------------------------------
Block Hours Jet 50,833 44,453 6,380 14.35
Block Hours Saab 10,982 6,224 4,758 76.45
------------------------------------------------------------------------------
Total Block Hours (b) 61,815 50,677 11,138 21.98
------------------------------------------------------------------------------
RPMs Jet (000s) 3,195,420 3,238,209 (42,789) (1.32)
RPMs Saab (000s) 43,664 22,244 21,420 96.30
------------------------------------------------------------------------------
Total RPMs (000s) (c) 3,239,084 3,260,453 (21,369) (0.66)
------------------------------------------------------------------------------
ASMs Jet (000s) 4,428,021 4,235,610 192,411 4.54
ASMs Saab (000s) 66,315 36,822 29,493 80.10
------------------------------------------------------------------------------
Total ASMs (000s) (d) 4,494,336 4,272,432 221,904 5.19
------------------------------------------------------------------------------
Load Factor Jet (%) 72.16 76.45 (4.29) (5.61)
Load Factor Saab (%) 65.84 60.41 5.43 8.99
------------------------------------------------------------------------------
Total Load Factor (%) (e) 72.07 76.31 (4.24) (5.56)
------------------------------------------------------------------------------
Passengers Enplaned Jet 2,375,954 2,070,172 305,782 14.77
Passengers Enplaned Saab 254,403 135,174 119,229 88.20
------------------------------------------------------------------------------
Total Passengers Enplaned (f) 2,630,357 2,205,346 425,011 19.27
------------------------------------------------------------------------------
Revenue $ (000s) 317,289 321,469 (4,180) (1.30)
RASM in cents (g) 7.06 7.52 (0.46) (6.12)
CASM in cents (h) 8.39 7.42 0.97 13.07
Yield in cents (i) 9.80 9.86 (0.06) (0.61)

See footnotes (a) through (i) on pages 16-17.


15




Nine Months Ended September 30,
2002 2001 Inc (Dec) % Inc (Dec)
---------------------------------------------------------------------------------

Departures Jet 49,305 44,167 5,138 11.63
Departures Saab 28,982 18,665 10,317 55.27
---------------------------------------------------------------------------------
Total Departures (a) 78,287 62,832 15,455 24.60
---------------------------------------------------------------------------------
Block Hours Jet 146,085 134,549 11,536 8.57
Block Hours Saab 27,182 17,194 9,988 58.09
---------------------------------------------------------------------------------
Total Block Hours (b) 173,267 151,743 21,524 14.18
---------------------------------------------------------------------------------
RPMs Jet (000s) 9,290,163 9,221,576 68,587 0.74
RPMs Saab (000s) 106,071 68,210 37,861 55.51
---------------------------------------------------------------------------------
Total RPMs (000s) (c) 9,396,234 9,289,786 106,448 1.15
---------------------------------------------------------------------------------
ASMs Jet (000s) 12,891,505 12,481,432 410,073 3.29
ASMs Saab (000s) 159,090 101,993 57,097 55.98
---------------------------------------------------------------------------------
Total ASMs (000s) (d) 13,050,595 12,583,425 467,170 3.71
---------------------------------------------------------------------------------
Load Factor Jet (%) 72.06 73.88 (1.82) (2.46)
Load Factor Saab (%) 66.67 66.88 (0.21) (0.31)
---------------------------------------------------------------------------------
Total Load Factor (%) (e) 72.00 73.83 (1.83) (2.48)
---------------------------------------------------------------------------------
Passengers Enplaned Jet 6,939,844 6,395,596 544,248 8.51
Passengers Enplaned Saab 646,904 413,323 233,581 56.51
---------------------------------------------------------------------------------
Total Passengers Enplaned (f) 7,586,748 6,808,919 777,829 11.42
---------------------------------------------------------------------------------
Revenue $ (000s) 966,400 1,027,849 (61,449) (5.98)
RASM in cents (g) 7.41 8.17 (0.76) (9.30)
CASM in cents (h) 8.24 8.02 0.22 2.74
Yield in cents (i) 10.28 11.06 (0.78) (7.05)

See footnotes (e) through (i) on page 17.

(a) A departure is a single takeoff and landing operated by a single aircraft
between an origin city and a destination city.

(b) Block hours for any aircraft represent the elapsed time computed from the
moment the aircraft first moves under its own power from the origin city
boarding ramp to the moment it comes to rest at the destination city boarding
ramp.

(c) Revenue passenger miles (RPMs) represent the number of seats occupied by
revenue passengers multiplied by the number of miles those seats are flown. RPMs
are an industry measure of the total seat capacity actually sold by the Company.

(d) Available seat miles (ASMs) represent the number of seats available for sale
to revenue passengers multiplied by the number of miles those seats are flown.
ASMs are an industry measure of the total seat capacity offered for sale by the
Company, whether sold or not.


16



(e) Passenger load factor is the percentage derived by dividing RPMs by ASMs.
Passenger load factor is relevant to the evaluation of scheduled service because
incremental passengers normally provide incremental revenue and profitability
when seats are sold individually. In the case of commercial charter and
military/government charter, load factor is less relevant because an entire
aircraft is sold by the Company instead of individual seats. Since both costs
and revenues are largely fixed for these types of charter flights, changes in
load factor have less impact on business unit profitability. Consolidated load
factors and scheduled service load factors for the Company are shown in the
appropriate tables for industry comparability, but load factors for individual
charter businesses are omitted from applicable tables.

(f) Passengers enplaned are the number of revenue passengers who occupied seats
on the Company's flights. This measure is also referred to as "passengers
boarded."

(g) Revenue per ASM (expressed in cents) is total operating revenue divided by
total ASMs. This measure is also referred to as "RASM." RASM measures the
Company's unit revenue using total available seat capacity. In the case of
scheduled service, RASM is a measure of the combined impact of load factor and
yield (see (i) below for the definition of yield).

(h) Cost per ASM (expressed in cents) is total operating expense divided by
total ASMs. This measure is also referred to as "CASM." CASM measures the
Company's unit cost using total available seat capacity.

(i) Revenue per RPM (expressed in cents) is total operating revenue divided by
total RPMs. This measure is also referred to as "yield." Yield is relevant to
the evaluation of scheduled service because yield is a measure of the average
price paid by customers purchasing individual seats. Yield is less relevant to
the commercial charter and military/government charter businesses because the
entire aircraft is sold at one time for one price. Consolidated yields and
scheduled service yields are shown in the appropriate tables for industry
comparability, but yields for individual charter businesses are omitted from
applicable tables.


17



Operating Revenues

Scheduled Service Revenues. The following table sets forth, for the periods
indicated, certain key operating and financial data for the scheduled service
operations of the Company. Data shown for "Jet" operations include the combined
operations of Lockheed L-1011, Boeing 727-200, Boeing 737-800, Boeing 757-200,
and Boeing 757-300 aircraft in scheduled service. Data shown for "Saab"
operations include the operations of Saab 340B propeller aircraft by Chicago
Express as the ATA Connection.


Three Months Ended September 30,
2002 2001 Inc (Dec) % Inc (Dec)
---------------------------------------------------------------------------------

Departures Jet 15,020 11,645 3,375 28.98
Departures Saab 11,669 6,732 4,937 73.34
---------------------------------------------------------------------------------
Total Departures (a) 26,689 18,377 8,312 45.23
---------------------------------------------------------------------------------
Block Hours Jet 42,722 33,830 8,892 26.28
Block Hours Saab 10,982 6,224 4,758 76.45
---------------------------------------------------------------------------------
Total Block Hours (b) 53,704 40,054 13,650 34.08
---------------------------------------------------------------------------------
RPMs Jet (000s) 2,693,804 2,307,374 386,430 16.75
RPMs Saab (000s) 43,664 22,244 21,420 96.30
---------------------------------------------------------------------------------
Total RPMs (000s) (c) 2,737,468 2,329,618 407,850 17.51
---------------------------------------------------------------------------------
ASMs Jet (000s) 3,562,676 2,945,974 616,702 20.93
ASMs Saab (000s) 66,315 36,822 29,493 80.10
---------------------------------------------------------------------------------
Total ASMs (000s) (d) 3,628,991 2,982,796 646,195 21.66
---------------------------------------------------------------------------------
Load Factor Jet (%) 75.61 78.32 (2.71) (3.46)
Load Factor Saab (%) 65.84 60.41 5.43 8.99
---------------------------------------------------------------------------------
Total Load Factor (%) (e) 75.43 78.10 (2.67) (3.42)
---------------------------------------------------------------------------------
Passengers Enplaned Jet 2,148,094 1,700,855 447,239 26.29
Passengers Enplaned Saab 254,403 135,174 119,229 88.20
---------------------------------------------------------------------------------
Total Passengers Enplaned (f) 2,402,497 1,836,029 566,468 30.85
---------------------------------------------------------------------------------
Revenue $ (000s) 231,633 208,490 23,143 11.10
RASM in cents (g) 6.38 6.99 (0.61) (8.73)
Yield in cents (i) 8.46 8.95 (0.49) (5.47)
Revenue per segment $ (j) 96.41 113.55 (17.14) (15.09)

See footnotes (a) through (i) on pages 16-17.

(j) Revenue per segment flown is determined by dividing total scheduled service
revenues by the number of passengers boarded. Revenue per segment is a broad
measure of the average price obtained for all flight segments flown by
passengers in the Company's scheduled service route network.


18




Nine Months Ended September 30,
2002 2001 Inc (Dec) % Inc (Dec)
---------------------------------------------------------------------------------

Departures Jet 41,347 35,056 6,291 17.95
Departures Saab 28,982 18,665 10,317 55.27
---------------------------------------------------------------------------------
Total Departures (a) 70,329 53,721 16,608 30.92
---------------------------------------------------------------------------------
Block Hours Jet 116,317 101,349 14,968 14.77
Block Hours Saab 27,182 17,194 9,988 58.09
---------------------------------------------------------------------------------
Total Block Hours (b) 143,499 118,543 24,956 21.05
---------------------------------------------------------------------------------
RPMs Jet (000s) 7,336,282 6,722,193 614,089 9.14
RPMs Saab (000s) 106,071 68,210 37,861 55.51
---------------------------------------------------------------------------------
Total RPMs (000s) (c) 7,442,353 6,790,403 651,950 9.60
---------------------------------------------------------------------------------
ASMs Jet (000s) 9,785,177 8,653,441 1,131,736 13.08
ASMs Saab (000s) 159,090 101,993 57,097 55.98
---------------------------------------------------------------------------------
Total ASMs (000s) (d) 9,944,267 8,755,434 1,188,833 13.58
---------------------------------------------------------------------------------
Load Factor Jet (%) 74.97 77.68 (2.71) (3.49)
Load Factor Saab (%) 66.67 66.88 (0.21) (0.31)
---------------------------------------------------------------------------------
Total Load Factor (%) (e) 74.84 77.56 (2.72) (3.51)
---------------------------------------------------------------------------------
Passengers Enplaned Jet 5,970,143 5,199,950 770,193 14.81
Passengers Enplaned Saab 646,904 413,323 233,581 56.51
---------------------------------------------------------------------------------
Total Passengers Enplaned (f) 6,617,047 5,613,273 1,003,774 17.88
---------------------------------------------------------------------------------
Revenue $ (000s) 664,431 656,044 8,387 1.28
RASM in cents (g) 6.68 7.49 (0.81) (10.81)
Yield in cents (i) 8.93 9.66 (0.73) (7.56)
Revenue per segment $ (j) 100.41 116.87 (16.46) (14.08)



See footnotes (a) through (i) on pages 16-17.
See footnote (j) on page 18.

Scheduled service revenues in the third quarter of 2002 increased 11.1% to
$231.6 million from $208.5 million in the third quarter of 2001; and scheduled
service revenues in the nine months ended September 30, 2002 increased 1.3% to
$664.4 million from $656.0 million in the same period of 2001. Scheduled service
revenues comprised 73.0% and 68.8%, respectively, of consolidated revenues in
the quarter and nine months ended September 30, 2002, as compared to 64.9% and
63.8%, respectively, of consolidated revenues in the same periods of 2001. While
the Company's capacity in 2002 has increased from 2001, both load factor and
yield have declined from the prior year.

In the third quarter of 2002, the Company's scheduled service at Chicago-Midway
accounted for approximately 67.8% of scheduled service ASMs and 87.4% of
scheduled service departures, as compared to 63.6% and 85.8%, respectively, in
the third quarter of 2001. In the third quarter of 2002, the Company began
nonstop service from Chicago-Midway to Charlotte. In the first quarter of 2002,
the Company began nonstop international service to Aruba, Cancun, Grand Cayman



19



and Guadalajara. In the third and fourth quarters of 2001, the Company began
operating nonstop between Chicago-Midway and the cities of Newark and Miami. The
Company began nonstop service from Chicago-Midway to San Jose, California on
October 1, 2002 and has announced nonstop service to Montego Bay, Jamaica and
Puerto Vallarta, Mexico beginning in the fourth quarter of 2002.

Chicago Express operates, as of September 30, 2002, 17 34-seat Saab 340B
aircraft between Chicago-Midway and the cities of Indianapolis, Cedar Rapids,
Des Moines, Dayton, Flint, Grand Rapids, Lexington, Madison, Milwaukee, Moline,
Springfield, South Bend and Toledo.

The Company anticipates that its Chicago-Midway operation will continue to
represent a substantial proportion of its scheduled service business throughout
2002 and beyond. Chicago Express has been performing well as a feeder of
passengers to the jet system. The Company operated 140 peak daily jet and
commuter departures from Chicago-Midway and served 34 destinations on a nonstop
basis in the third quarter of 2002, as compared to 111 peak daily jet and
commuter departures and 27 nonstop destinations in the third quarter of 2001.

The Company's anticipated growth at Chicago-Midway will be accomplished in
conjunction with the completion of new terminal and gate facilities at the
Chicago-Midway Airport. In March 2001, the Company occupied 24 newly constructed
ticketing and passenger check-in spaces in the new terminal, an increase from 16
ticketing and passenger check-in spaces previously occupied. Once all
construction is complete in 2004, the Company expects to occupy at least 12 jet
gates and one commuter aircraft gate at the new airport concourses. One new gate
was occupied in October 2001, and the Company moved to seven additional new
gates in the first quarter of 2002. The five remaining gates are expected to be
available for use by the Company in 2004. The construction of a Federal
Inspection Service ("FIS") facility at Chicago-Midway was completed in the first
quarter of 2002, and the opening of this facility allowed the Company to begin
nonstop international services from Chicago-Midway in the first quarter of 2002,
as noted above. The Company plans to continue to add new nonstop jet service to
international destinations using this customs facility at Chicago-Midway
Airport.

The Company's Hawaii service accounted for 16.9% of scheduled service ASMs and
3.8% of scheduled service departures in the third quarter of 2002, as compared
to 23.1% and 5.1%, respectively, in the third quarter of 2001. The Company
provided nonstop services in both periods from Los Angeles, Phoenix and San
Francisco to both Honolulu and Maui, with connecting service between Honolulu
and Maui. From June to September 2002, the Company operated seasonal service to
Lihue from Los Angeles and San Francisco. The Company provides these services
through a marketing alliance with the largest independent tour operator serving
leisure travelers to Hawaii from the United States. The Company distributes the
remaining seats on these flights through normal scheduled service distribution
channels.

The Company's Indianapolis service accounted for 10.0% of scheduled service ASMs
and 6.0% of scheduled service departures in the third quarter of 2002, as
compared to 7.7% and 5.9%, respectively, in the third quarter of 2001. In both
quarters, the Company operated nonstop to Cancun, Ft. Lauderdale, Ft. Myers, Las
Vegas, Los Angeles, Orlando, St. Petersburg, San Francisco and Sarasota. The
Company also began limited jet service, in the second quarter of 2002, between
Indianapolis and Chicago-Midway, with continuing service to Seattle, and began
nonstop service to New York LaGuardia and Phoenix from Indianapolis beginning in
the third quarter of 2002. The Company has served Indianapolis for 30 years
through the Ambassadair Travel Club, and in scheduled service since 1986.

Commercial Charter Revenues. The Company's commercial charter revenues are
derived principally from independent tour operators and specialty charter
customers. The Company's commercial charter product provides full-service air
transportation to hundreds of customer-designated destinations throughout the
world. Commercial charter revenues accounted for 6.5% and 11.2%, respectively of
consolidated revenues in the quarter and nine months ended September 30, 2002,
as compared to 16.6% in each of the comparable periods of 2001.


20



The following table sets forth, for the periods indicated, certain key operating
and financial data for the commercial charter operations of the Company.



Three Months Ended September 30,
-------------------------------------------------------------------------------
2002 2001 Inc (Dec) % Inc (Dec)
------------------------------------------------------------------------------

Departures (a) 1,157 1,972 (815) (41.33)
Block Hours (b) 3,888 6,792 (2,904) (42.76)
RPMs (000s) (c) 246,956 675,275 (428,319) (63.43)
ASMs (000s) (d) 304,538 798,277 (493,739) (61.85)
Passengers Enplaned (f) 166,148 315,603 (149,455) (47.36)
Revenue $ (000s) 20,626 53,329 (32,703) (61.32)
RASM in cents (g) 6.77 6.68 0.09 1.35
RASM excluding fuel escalation in cents (k) 6.56 6.52 0.04 0.61



Nine Months Ended September 30,
------------------------------------------------------------------------------
2002 2001 Inc (Dec) % Inc (Dec)
------------------------------------------------------------------------------

Departures (a) 5,257 6,386 (1,129) (17.68)
Block Hours (b) 17,949 21,387 (3,438) (16.08)
RPMs (000s) (c) 1,228,998 1,755,865 (526,867) (30.01)
ASMs (000s) (d) 1,535,375 2,239,239 (703,864) (31.43)
Passengers Enplaned (f) 792,176 1,017,639 (225,463) (22.16)
Revenue $ (000s) 108,120 170,124 (62,004) (36.45)
RASM in cents (g) 7.04 7.60 (0.56) (7.37)
RASM excluding fuel escalation in cents (k) 6.96 7.26 (0.30) (4.13)

See footnotes (a) through (g) on pages 16-17.

(k) Commercial charter contracts generally provide that the tour operator will
reimburse the Company for certain fuel cost increases, which, when earned, are
accounted for as additional revenue. A separate RASM calculation, excluding the
impact of fuel reimbursements, is provided as a separate measure of unit revenue
changes.

The majority of the decline in commercial charter revenues in the third quarter
and nine months ended September 30, 2002, as compared to the same periods of
2001, was due to the retirement of certain Lockheed L-1011 and Boeing 727-200
aircraft that the Company has traditionally used in commercial charter flying.
Since aircraft utilization (number of productive hours of flying per aircraft
each month) is typically much lower for commercial charter, as compared to
scheduled service flying, the Company's replacement fleets of new Boeing 737-800
and Boeing 757-300 aircraft are economically disadvantaged when used in the
charter business, because of their higher fixed-ownership cost. Consequently,
the Company expects its commercial charter revenues to continue to decline
throughout the remainder of 2002 as the fleet supporting this business continues
to shrink through aircraft retirements.

The Company operates in two principal components of the commercial charter
business, known as "track charter" and "specialty charter." The larger track
charter business component is generally comprised of low frequency but
repetitive domestic and international flights between city pairs, which support
high passenger load factors and are marketed through tour operators, providing
value-priced and convenient nonstop service to vacation destinations for the
leisure traveler. Since track charter resembles scheduled service in terms of
its repetitive flying patterns between fixed city pairs, it allows the Company
to achieve reasonable levels of crew and aircraft utilization (although less
than for scheduled service), and provides the Company with meaningful protection



21



from some fuel price increases through the use of fuel escalation reimbursement
clauses in tour operator contracts. Track charter accounted for approximately
$16.1 million and $84.2 million, respectively, in revenues in the quarter and
nine months ended September 30, 2002, as compared to $44.9 million and $135.6
million, respectively, in the comparable periods of 2001.

Specialty charter (including incentive travel programs) is a product which is
designed to meet the unique requirements of the customer and is a business
characterized by lower frequency of operation and by greater variation in city
pairs served than the track charter business. Specialty charter includes such
diverse contracts as flying university alumni to football games, transporting
political candidates on campaign trips and moving NASA space shuttle ground
crews to alternate landing sites. Specialty charter accounted for approximately
$2.5 million and $9.8 million, respectively, in revenues in the quarter and nine
months ended September 30, 2002, as compared to $4.5 million and $14.0 million,
respectively, in the comparable periods of 2001.

Military/Government Charter Revenues. The following table sets forth, for the
periods indicated, certain key operating and financial data for the
military/government flight operations of the Company.



Three Months Ended September 30,
-------------------------------------------------------------------------------
2002 2001 Inc (Dec) % Inc (Dec)
-------------------------------------------------------------------------------

Departures (a) 955 854 101 11.83
Block Hours (b) 4,175 3,831 344 8.98
RPMs (000s) (c) 252,215 255,560 (3,345) (1.31)
ASMs (000s) (d) 554,979 491,359 63,620 12.95
Passengers Enplaned (f) 60,140 53,714 6,426 11.96
Revenue $ (000s) 47,559 40,300 7,259 18.01
RASM in cents (g) 8.57 8.20 0.37 4.51
RASM excluding fuel escalation in cents (l) 8.52 7.89 0.63 7.98



Nine Months Ended September 30,
-------------------------------------------------------------------------------
2002 2001 Inc (Dec) % Inc (Dec)
-------------------------------------------------------------------------------

Departures (a) 2,679 2,709 (30) (1.11)
Block Hours (b) 11,732 11,756 (24) (0.20)
RPMs (000s) (c) 719,779 738,316 (18,537) (2.51)
ASMs (000s) (d) 1,559,070 1,580,397 (21,327) (1.35)
Passengers Enplaned (f) 175,380 176,572 (1,192) (0.68)
Revenue $ (000s) 130,578 122,479 8,099 6.61
RASM in cents (g) 8.38 7.75 0.63 8.13
RASM excluding fuel escalation in cents (l) 8.40 7.43 0.97 13.06


See footnotes (a) through (g) on pages 16-17.

(l) Military/government reimbursements to the Company are calculated based upon
a "cost plus" formula, including an assumed average fuel price for each contract
year. If actual fuel prices differ from the contract rate, revenues are adjusted
up or down to neutralize the impact of the change on the Company. A separate
RASM calculation is provided, excluding the impact of the fuel price
adjustments.

The Company participates in two related military/government charter programs
known as "fixed-award" and "short-term expansion." Pursuant to the U.S.


22



military's fixed-award system, each participating airline is awarded certain
"mobilization value points" based upon the number and type of aircraft made
available by that airline for military flying. In order to increase the number
of points awarded, the Company has traditionally participated in contractor
teaming arrangements with other airlines. Under these arrangements, the team has
a greater likelihood of receiving fixed-award business and, to the extent that
the award includes passenger transport, the opportunity for the Company to
operate this flying is enhanced since the Company represents a majority of the
passenger transport capacity of the team. As part of its participation in this
teaming arrangement, the Company pays a commission to the team, which passes
that revenue on to all team members based upon their mobilization points. All
airlines participating in the fixed-award business contract annually with the
U.S. military from October 1 to the following September 30. For each contract
year, reimbursement rates are determined for all aircraft types and mission
categories based upon operating cost data submitted by the participating
airlines. These contracts generally are not subject to renegotiation once they
become effective.

Short-term expansion business is awarded by the U.S. military first on a pro
rata basis to those carriers who have been provided fixed-award business and
then to any other carrier with aircraft availability. Expansion flying is
generally offered to airlines on very short notice.

The overall amount of military flying that the Company performs in any one year
is dependent upon several factors, including (i) the percentage of mobilization
value points represented by the Company's team as compared to total mobilization
value points of all providers of military service; (ii) the percentage of
passenger capacity of the Company with respect to its own team; (iii) the amount
of fixed-award and expansion flying required by the U.S. military in each
contract year; and (iv) the availability of the Company's aircraft to accept and
fly expansion awards. The Company earned $175.6 million in military/government
charter revenues in the contract year ended September 30, 2002.

The increase in RASM for military/government charter revenues in the quarter and
nine months ended September 30, 2002, as compared to the same periods of 2001,
was due primarily to rate increases awarded for the current contract year ending
September 30, 2002, based upon cost data submitted to the U.S. military by the
Company and other air carriers providing these services, and partially due to
the mix of aircraft hours flown. The Company has renewed its U.S. military
contract for the fiscal year beginning October 1, 2002, and has obtained an
average rate nearly unchanged as compared to the prior contract year. The
Company expects the volume of military flying to be higher than in the contract
year ended September 30, 2002, but due to the small rate changes expects
military/government charter RASM in the contract year beginning October 1, 2002
to be only slightly higher than the current contract year.

Ground Package Revenues. The Company earns ground package revenues through the
sale of hotel, car rental and cruise accommodations in conjunction with the
Company's air transportation product. The Company markets these ground packages
through its ATALC and Ambassadair subsidiaries. Ambassadair Travel Club offers
tour-guide-accompanied vacation packages to its approximately 32,000 individual
and family members. ATALC offers numerous ground accommodations to the general
public, which are marketed through travel agents, as well as directly by the
Company.

In the third quarter of 2002, ground package revenues decreased 35.6% to $5.6
million, as compared to $8.7 million in the third quarter of 2001, and in the
nine months ended September 30, 2002, ground package revenues decreased 32.3% to
$30.6 million, as compared to $45.2 million in the same period of 2001.

The decline in ground package sales (and related ground package costs) in the
first nine months of 2002, as compared to the first nine months of 2001, is
partially due to the reduced demand for leisure travel subsequent to the
terrorist attacks of September 11, 2001. Also, effective July 1, 2002, the
Company outsourced the management and marketing of its ATA Vacations and Travel
Charter International brands to MTC. Under that outsourcing agreement, MTC will
directly sell ground arrangements to customers who also purchase charter or
scheduled service air transportation from the Company. Therefore, the Company
anticipates that ground package sales (and related ground package costs) will



23



continue to experience significant year-over-year declines in the remainder of
2002, as these sales will no longer be recorded by the Company for ATA Vacations
and Travel Charter International.

Other Revenues. Other revenues are comprised of the consolidated revenues of
certain affiliated companies, together with miscellaneous categories of revenue
associated with the scheduled, charter and ground package operations of the
Company, such as cancellation and miscellaneous service fees, Ambassadair Travel
Club membership dues and cargo revenue. Other revenues increased 12.3% to $11.9
million in the third quarter of 2002, as compared to $10.6 million in the third
quarter of 2001, and decreased 3.8% to $32.7 million in the nine months ended
September 30, 2002, as compared to $34.0 million in the same period of 2001.
Although certain administrative fee revenues increased between periods, most
other revenues declined in association with the ongoing diminished travel demand
subsequent to the terrorist attacks of September 11, 2001.

Operating Expenses

Salaries, Wages and Benefits. Salaries, wages and benefits include the cost of
salaries and wages paid to the Company's employees, together with the Company's
cost of employee benefits and payroll-related local, state and federal taxes.
Salaries, wages and benefits expense in the third quarter of 2002 increased
11.9% to $95.1 million, as compared to $85.0 million in the third quarter of
2001, and in the nine months ended September 30, 2002, increased 6.2% to $264.8
million, as compared to $249.4 million in the same period of 2001.

On July 16, 2002, the Company's cockpit crewmembers, who are represented by the
Air Line Pilots Association ("ALPA"), ratified an amended collective bargaining
agreement, which became effective July 1, 2002. The Company expects future
salaries, wages and benefits costs to be significantly increased by the amended
cockpit crewmember contract. The amended contract is expected to increase
cockpit crewmembers' average salaries by approximately 80% over the four year
contract period. Additionally, the amended contract provides for expanded
retirement benefits for cockpit crewmembers. Although their existing 401(k)
employer match will be capped in future years, a defined contribution plan has
been established for cockpit crewmembers effective January 1, 2003. Certain
insurance benefits for cockpit crewmembers have also been enhanced as a result
of the amended contract. The increase in salaries, wages and benefits in the
quarter and nine months ended September 30, 2002, as compared to the same
periods of 2001, is primarily due to the Company recording $9.9 million for a
signing bonus as provided by the amended cockpit crewmember contract. Also,
impacting the quarter and nine months ended September 30, 2002, were cockpit
crewmember contract rate increases effective July 1, 2002, and generally
increasing costs for all employees' medical and workers' compensation benefits.

Fuel and Oil. Fuel and oil expense decreased 21.9% to $53.0 million in the third
quarter of 2002, as compared to $67.9 million in the same period of 2001, and
decreased 26.5% to $151.4 million in the nine months ended September 30, 2002,
as compared to $205.9 million in the same period of 2001.

Total jet block hours increased 14.4% and 8.6%, respectively, in the quarter and
nine months ended September 30, 2002, as compared to the same periods of 2001.
Despite this increase, the Company consumed 14.9% and 14.7% fewer gallons of jet
fuel for flying operations, respectively, between the quarter and nine-month
periods ended September 30, 2002 and 2001, which resulted in a decrease in fuel
expense of approximately $10.4 million and $30.9 million, respectively. This
decrease was primarily due to the addition of Boeing 737-800 and Boeing 757-300
aircraft to the Company's fleet beginning in May 2001. These aircraft replaced
certain less-fuel-efficient Boeing 727-200 and Lockheed L-1011 aircraft, which
were retired from revenue service.

During the quarter and nine months ended September 30, 2002, the Company's
average cost per gallon of jet fuel consumed decreased by 2.6% and 13.2%,
respectively, as compared to the same periods of 2001, resulting in a decrease
in fuel and oil expense of approximately $3.4 million and $23.9 million,
respectively, between those periods.


24




Periodically, the Company has entered into fuel price hedge contracts to reduce
the risk of fuel price fluctuations. No material gains or losses were recorded
in any period presented. As of September 30, 2002, the Company had no
outstanding fuel hedge agreements.

Aircraft Rentals. The Company's operating leases require periodic cash payments
that vary in amount and frequency. The Company accounts for aircraft rentals
expense in equal monthly amounts over the life of each operating lease. As of
September 30, 2002 and December 31, 2001, the Company had recorded $75.8 million
and $49.2 million, respectively, of prepaid aircraft rent under its operating
leases. Aircraft rentals expense for the third quarter of 2002 increased 90.3%
to $51.2 million from $26.9 million in the third quarter of 2001, and increased
98.7% to $135.7 million in the nine months ended September 30, 2002, as compared
to $68.3 million in the same period of 2001. The increase was mainly
attributable to the delivery of 25 leased Boeing 737-800 and 10 leased Boeing
757-300 aircraft between May 2001 and September 2002, which resulted in an
increase in rental expense of $26.9 million and $71.5 million, respectively, in
the quarter and nine months ended September 30, 2002, as compared to the same
periods of 2001. This increase was partially offset by a decline in rental
expense recognized in the third quarter and nine months ended September 30,
2001, of $5.0 million and $6.2 million, respectively, associated with the
accrual of rents under operating leases for certain Boeing 727-200s which were
removed from revenue service shortly after the events of September 11, 2001. No
such expense was incurred in 2002.

Handling, Landing and Navigation Fees. Handling and landing fees include the
costs incurred by the Company at airports to land and service its aircraft and
to handle passenger check-in, security, cargo and baggage where the Company
elects to use third-party contract services in lieu of its own employees. Where
the Company uses its own employees to perform ground handling functions, the
resulting cost appears within salaries, wages and benefits. Air navigation fees
are incurred when the Company's aircraft fly over certain foreign airspace.

Handling, landing and navigation fees increased by 35.6% to $29.3 million in the
third quarter of 2002, as compared to $21.6 million in the third quarter of
2001, and increased by 21.6% to $85.5 million in the nine months ended September
30, 2002, as compared to $70.3 million in the same period of 2001. The increase
in handling, landing and navigation fees between the third quarters of 2002 and
2001 and the nine months ended September 30, 2002 and 2001, was partly due to an
increase in system-wide jet departures, which increased by 18.5% between the
third quarters of 2002 and 2001 and which increased 11.6% between the nine
months ended September 30, 2002 and 2001. The Company's average cost to handle
its aircraft also increased in 2002, as compared to 2001, primarily due to
higher costs incurred for airport security as a result of the terrorist attacks
on September 11, 2001.

Depreciation and Amortization. Depreciation reflects the periodic expensing of
the recorded cost of owned airframes and engines, leasehold improvements and
rotable parts for all fleet types, together with other property and equipment
owned by the Company. Amortization is primarily the periodic expensing of
capitalized airframe and engine overhauls on a units-of-production basis using
aircraft flight hours and cycles (landings) as the units of measure.
Depreciation and amortization expense decreased 41.3% to $18.9 million in the
third quarter of 2002, as compared to $32.2 million in the third quarter of
2001, and decreased 40.5% to $60.3 million in the nine months ended September
30, 2002, as compared to $101.4 million in the same period of 2001.

In 2001, the Company retired three Lockheed L-1011-50 aircraft from revenue
service, immediately preceding their next heavy maintenance check. In the first
nine months of 2002, the Company retired another five L-1011-50/100 aircraft
earlier than planned. During the fourth quarter of 2001, the Company also
determined that the remaining ten Lockheed L-1011-50/100 aircraft, rotable parts
and inventory were impaired. These assets were subsequently classified as held
for use in accordance with FAS 121, requiring them to be recorded on the balance
sheet at their estimated fair market value at the time of impairment, which is
the new asset basis to be depreciated over their estimated remaining useful
lives. Due primarily to the reduced cost basis of the remaining ten aircraft,



25



and the early retirement of eight aircraft, the Company recorded $5.0 million
and $14.6 million, respectively, less depreciation and amortization expense for
this fleet in the quarter and nine months ended September 30, 2002, as compared
to the same periods of 2001.

Following the events of September 11, 2001, the Company decided to retire its
Boeing 727-200 fleet earlier than originally planned. Most of the aircraft were
retired from revenue service in the fourth quarter of 2001, although some were
used for charter service through the first five months of 2002. As a result,
these aircraft were determined to be impaired under FAS 121. Boeing 727-200
aircraft not already transferred to BATA have been classified in the
accompanying balance sheets as assets held for sale. In accordance with FAS 121,
depreciation expense was not recorded after the fleet was deemed impaired and
held for disposal, and will not be recorded in future accounting periods. As a
result, the Company did not record any depreciation expense on the Boeing
727-200 fleet in the quarter and nine months ended September 30, 2002, which
resulted in a decrease of $7.8 million and $28.7 million, respectively, in
depreciation and amortization expense in the quarter and nine months ended
September 30, 2002, as compared to the same periods of 2001.

Partially offsetting these decreases were increased amortization of capitalized
engine and airframe overhauls on the Lockheed L-1011-500 fleet and increases in
depreciation and amortization expense associated with other fleet rotable parts,
owned engines and the provision for inventory obsolescence, along with
fluctuations in expenses related to furniture and fixtures, computer hardware
and software, and debt issue costs between periods, none of which was
individually significant.

Crew and Other Employee Travel. Crew and other employee travel is primarily the
cost of air transportation, hotels and per diem reimbursements to cockpit and
cabin crewmembers incurred to position crews away from their bases to operate
Company flights throughout the world. The cost of crew and other employee travel
decreased 4.0% to $14.5 million in the third quarter of 2002, as compared to
$15.1 million in the third quarter of 2001, and decreased 10.3% to $41.9 million
in the nine months ended September 30, 2002, as compared to $46.7 million in the
same period of 2001. These decreases were mainly due to the Company's benefiting
from lower hotel rates which became available after the September 11, 2001
terrorist attacks. The average hotel cost per full-time-equivalent crewmember
decreased 6.4% in the third quarter of 2002 and 15.8% in the first nine months
of 2002, as compared to the same periods of 2001. The decreases also reflect a
decline in non-crew employee travel in the first nine months of 2002, as
compared to the first nine months of 2001, due to the Company's cost-cutting
initiatives. These decreases in the third quarter of 2002 were offset by an
increase in crew per diem of nearly $1.0 million as compared to the third
quarter of 2001. The amended cockpit crewmember contract substantially increased
per diem rates paid to cockpit crewmembers. As stipulated in the flight
attendants' collective bargaining agreement, the Company must also pay these
amended per diem rates to the flight attendant group.

Aircraft Maintenance, Materials and Repairs. This expense includes the cost of
expendable aircraft spare parts, repairs to repairable and rotable aircraft
components, contract labor for maintenance activities, and other non-capitalized
direct costs related to fleet maintenance, including spare engine leases, parts
loan and exchange fees, and related shipping costs. It also includes the costs
incurred under hourly engine maintenance agreements the Company has entered into
on its Boeing 737-800 and Saab 340B power plants. These agreements provide for
the Company to pay monthly fees based on a specified rate per engine flight
hour, in exchange for major engine overhauls and maintenance. Aircraft
maintenance, materials and repairs expense decreased 23.1% to $11.3 million in
the third quarter of 2002, as compared to $14.7 million in the third quarter of
2001, and decreased 25.3% to $37.4 million in the nine months ended September
30, 2002, as compared to $50.1 million in the same period of 2001.

The decline in maintenance, material and repairs expense in the third quarter
and nine months ended September 30, 2002, as compared to the same periods of
2001, was primarily attributable to a decrease in materials consumed and
components repaired related to maintenance on the Company's aging fleets of
Lockheed L-1011-50/100 and Boeing 727-200 aircraft. During 2001 and the first
nine months of 2002, the Company placed 20 Boeing 727-200 aircraft into BATA,
and retired eight Lockheed L-1011-50/100 aircraft prior to the due dates of
heavy maintenance visits. Maintenance, materials and repairs expense associated



26



with these two fleets decreased $4.4 million and $16.6 million, respectively, in
the third quarter and nine months ended September 30, 2002, as compared to the
same periods of 2001.

This decline in maintenance, materials and repairs was partially offset by an
increase in the cost of the hourly engine maintenance agreement for the
Company's growing fleet of Saab 340B propeller aircraft operated by Chicago
Express.

Other Selling Expenses. Other selling expenses are comprised primarily of
booking fees paid to computer reservation systems ("CRS"), credit card discount
expenses incurred when selling to customers using credit cards for payment, and
toll-free telephone services provided to single-seat and vacation package
customers who contact the Company directly to book reservations. Other selling
expenses increased 7.8% to $11.1 million in the third quarter of 2002, as
compared to $10.3 million in the third quarter of 2001, and increased 3.7% to
$33.5 million in the nine months ended September 30, 2002, as compared to $32.3
million in the same period of 2001. These increases are primarily the result of
a greater portion of the Company's sales being made on credit cards, and
slightly higher CRS fees.

Passenger Service. Passenger service expense includes the onboard costs of meal
and non-alcoholic beverage catering, the cost of alcoholic beverages and
in-flight movie headsets sold, and the cost of onboard entertainment programs,
together with certain costs incurred for mishandled baggage and passengers
inconvenienced due to flight delays or cancellations. For the third quarter of
2002 and 2001, catering represented 79.9% and 72.5%, respectively, of total
passenger service expense, while catering represented 79.6% and 72.6%,
respectively, of total passenger service expense for the nine-month periods
ended September 30, 2002 and 2001.

The total cost of passenger service decreased 17.5% to $10.4 million in the
third quarter of 2002, as compared to $12.6 million in the third quarter of 2001
and decreased 16.8% to $29.7 million in the nine months ended September 30,
2002, as compared to $35.7 million in the same period of 2001. The Company
experienced a decrease of approximately 32.0% and 21.9%, respectively, in the
average unit cost of catering each passenger between the quarter and nine months
ended September 30, 2002, and comparable periods of 2001, primarily because in
the first three quarters of 2002 the Company boarded a higher ratio of scheduled
service passengers to charter passengers than in the same periods of 2001.
Scheduled service passengers are provided a significantly less expensive
catering service than is provided to commercial charter and military passengers.
In addition, the Company introduced round-trip catering for flights originating
in Chicago-Midway to reduce catering service charges in the quarter and nine
months ended September 30, 2002. These differences resulted in a
price-and-business-mix decrease of $3.3 million and $5.7 million, respectively,
in catering expense between the quarter and nine months ended September 30,
2002, and the comparable periods of 2001. Total jet passengers boarded increased
14.8% and 8.5%, respectively, between the same time periods, resulting in
approximately $2.5 million and $3.6 million, respectively, in higher
volume-related catering expenses between the same sets of comparative periods.
In the quarter and nine months ended September 30, 2002, as compared to the same
periods of 2001, the Company also incurred approximately $1.9 million and $4.2
million, respectively, less expense for mishandled baggage and passenger
inconvenience, due to significantly fewer flight delays and cancellations in
2002.

Advertising. Advertising expense increased 33.3% to $9.6 million in the third
quarter of 2002, as compared to $7.2 million in the third quarter of 2001, and
increased 45.9% to $30.2 million in the nine months ended September 30, 2002, as
compared to $20.7 million in the same period of 2001. The Company incurs
advertising costs primarily to support single-seat scheduled service sales. The
increase in advertising was primarily attributable to the promotion of the new
scheduled service destinations added in the first nine months of 2002 and the
promotion of low fares in a market that had less demand for air service. The
Company also increased advertising in an effort to increase consumer preference
for the Company's enhanced product, especially in its important Chicago-Midway
hub.


27



Insurance. Insurance expense represents the Company's cost of hull and liability
insurance and the costs of general insurance policies held by the Company,
including workers' compensation insurance premiums and claims handling fees. The
total cost of insurance increased 220.0% to $8.0 million in the third quarter of
2002, as compared to $2.5 million in the third quarter of 2001, and increased
238.6% to $23.7 million in the nine months ended September 30, 2002, as compared
to $7.0 million in the same period of 2001.

Liability insurance increased $4.1 million and $12.5 million in the quarter and
nine months ended September 30, 2002, as compared to the same periods of 2001.
Immediately following the September 11, 2001 terrorist attacks, the Company's
insurer reduced the maximum amount of insurance coverage they would underwrite
for liability to persons other than employees or passengers resulting from acts
of terrorism, war, hijacking, or other similar perils (war-risk coverage) and
significantly increased their premiums for this reduced coverage. Pursuant to
the Air Transportation Safety and System Stabilization Act and other enabling
legislation, the U.S. Government has issued supplemental war-risk coverage to
U.S. air carriers, including the Company, which is expected to continue through
late 2003. It is anticipated that after this date a commercial product for
war-risk coverage will become available, but the Company may continue to incur
significant additional costs for this coverage.

Hull insurance increased $1.0 million and $3.0 million in the quarter and nine
months ended September 30, 2002, as compared to the same periods of 2001. The
increase is mainly attributable to the increase in the Company's hull value
between periods due to the addition of the new Boeing 737-800 and Boeing 757-300
aircraft. The increase is also attributable to an increase in premium rates
following the September 11, 2001 terrorist attacks. Expenses related to the
Company's general insurance policies increased $0.4 million and $1.2 million in
the quarter and nine months ended September 30, 2002, as compared to the same
periods of 2001, due primarily to an increase in workers' compensation premiums
and claims handling fees between periods.

Facilities and Other Rentals. Facilities and other rentals include the cost of
all ground facilities that are leased by the Company such as airport space,
regional sales offices and general offices. The cost of facilities and other
rentals increased 18.9% to $6.3 million in the third quarter of 2002, as
compared to $5.3 million in the third quarter of 2001, and increased 19.0% to
$17.5 million in the nine months ended September 30, 2002, as compared to $14.7
million in the same period of 2001. Growth in facilities costs between periods
was primarily attributable to facilities at airport locations required to
support new scheduled service destinations added in the last three months of
2001 and the first nine months of 2002, and expanded services at existing
destinations.

Commissions. The Company incurs commissions expense in association with the sale
by travel agents of single seats on scheduled service. In addition, the Company
incurs commissions to secure some commercial and military/government charter
business. Commissions expense decreased 48.1% to $4.0 million in the third
quarter of 2002, as compared to $7.7 million in the third quarter of 2001, and
decreased 36.5% to $18.1 million in the nine months ended September 30, 2002, as
compared to $28.5 million in the same period of 2001.

The Company experienced a decrease in commissions of $0.6 million and $3.2
million, respectively, in the quarter and nine months ended September 30, 2002,
attributable to commissions paid to travel agents by ATALC, which is consistent
with the decrease in related revenue. In addition, scheduled service commissions
decreased $3.1 million and $6.9 million, respectively, in the quarter and nine
months ended September 30, 2002, primarily due to the elimination of standard
travel agency commissions for sales made after March 21, 2002. The Company
continues to pay special travel agency commissions targeted to specific markets
and periods of the year.

Ground Package Cost. Ground package cost is incurred by the Company with hotels,
car rental companies, cruise lines and similar vendors who provide ground and
cruise accommodations to Ambassadair and ATALC customers. Ground package cost
decreased 40.6% to $3.8 million in the third quarter of 2002, as compared to
$6.4 million in the third quarter of 2001, and decreased 35.1% to $23.8 million
in the nine months ended September 30, 2002, as compared to $36.7 million in the
same period of 2001. Ground package costs between years decreased in approximate
proportion to the decrease in ground package revenues. See the "Ground Package
Revenues" section above for an explanation of the decline in ground package
sales and related costs.


28



Special Charges. Special charges represent direct expenses which, due to the
events of September 11, 2001, were considered unusual in nature under the
provisions of APB Opinion 30, "Reporting the Results of Operations - Reporting
the Effects of Disposal of a Segment of a Business, and the Extraordinary,
Unusual and Infrequently Occurring Events and Transactions" ("APB 30"). Special
charges for both the three and nine months ended September 30, 2001 were $9.4
million, while no expenses were classified as special charges in 2002. The 2001
special charges were comprised primarily of costs associated with the early
retirement of the Company's Boeing 727 fleet, a decision made immediately after
September 11, 2001, costs associated with the Company's proposed transaction in
which ATA Holdings Corp. would have been taken private, which was substantially
complete by September 11, 2001, when the Company lost financing as a result of
the September 11, 2001 attacks, and expenses directly associated with the FAA's
temporary mandated suspension of commercial flights on September 11, 2001 and
for several days thereafter.

Aircraft Impairments and Retirements. Aircraft impairment and retirement costs
decreased 8.8% to $34.3 million in the third quarter of 2002, as compared to
$37.6 million in the third quarter of 2001, and increased 23.7% to $51.6 million
in the nine months ended September 30, 2002, as compared to $41.7 million in the
same period of 2001.

Following the events of September 11, 2001, the Company decided to retire its
Boeing 727-200 fleet earlier than originally planned. Most of the aircraft were
retired from revenue service in the fourth quarter of 2001, although some were
used for charter service through the first five months of 2002. In accordance
with FAS 121, the Company determined in 2001 that the estimated future
undiscounted cash flows expected to be generated by the Boeing 727-200s were
less than the net book value of these aircraft and the related rotable parts and
inventory. Therefore, an impairment charge was recorded in 2001. In accordance
with FAS 121, the Company continues to re-evaluate current fair market values of
previously impaired assets. In the three and nine months ended September 30,
2002, the Company recorded asset impairment charges of $18.8 million and $33.6
million, respectively, and $35.2 million for the same periods of 2001, related
to its remaining net book value of Boeing 727-200 aircraft, including those
recorded as an investment in BATA.

Significant assumptions were required concerning the estimated fair market value
of the fleet, since FAS 121 specifies that impaired assets be written down to
their estimated fair market value by recording an impairment charge to earnings.
As FAS 121 requires the Company to continuously evaluate fair market values of
previously impaired assets, it is possible that future estimates of fair market
value may result in additional material charges to earnings, if those estimates
indicate a material reduction in fair market value as compared to the estimates
made on September 30, 2002.

In the third quarter of 2002, the Company retired two Lockheed L-1011-50/100
aircraft, resulting in a charge of $6.6 million. In the third quarter of 2002,
the Company also decided to retire one Lockheed L-1011-500 aircraft in the
fourth quarter of 2002. The Company will write off the remaining value of that
aircraft ratably over its remaining estimated life. In the third quarter of
2002, the Company recorded a charge of $8.9 million related to the retirement of
this aircraft, which is reported as part of Aircraft impairments and
retirements.

U.S Government Grant. As a result of the terrorist attacks of September 11, 2001
President Bush signed into law the Air Transportation Safety and System
Stabilization Act ("Act"). The Act, among other things, provided $5.0 billion in
compensation for the direct losses incurred by all U.S. airlines and air cargo
carriers as a result of the closure by the FAA of U.S. airspace following the
September 11, 2001 terrorist attacks and for incremental losses incurred by air
carriers through December 31, 2001. Each qualified air carrier is entitled to
receive the lesser of: (1) its actual direct and incremental losses incurred
between September 11, 2001 and December 31, 2001 or (2) its proportion of the
$5.0 billion of total compensation available to all qualified air carriers under
the Act allocated based on August 2001 available seat miles or ton miles.


29



The Company believed it was eligible to receive up to approximately $74.0
million in connection with the Act, based on the Company's allocation calculated
from August 2001 available seat miles. In 2001, the Company calculated its
direct and incremental losses to be $66.3 million, and recorded that amount as
U.S. Government grant compensation. The $66.3 million was comprised of lost
profit contribution and certain special charges deemed directly attributable to
the terrorist attacks, partially offset by expense reductions as a direct result
of lower costs incurred by the Company after the attacks. The Company received
$44.5 million in cash compensation under the Act in 2001, and recorded a
receivable for the remaining amount of $21.8 million.

The DOT issued revised guidelines for compensation in April 2002, and the
Company completed and submitted its third and final application, in the second
quarter of 2002. The Company continues to review its application with the DOT.
Based on these discussions with the DOT, the Company has determined that a
portion of the receivable recorded in 2001 may not be collected when the DOT
provides its final ruling of what qualifies as reimbursable. The Company
recorded a valuation allowance of $15.2 million against the receivable in the
second quarter of 2002 and made no adjustment to that allowance in the third
quarter of 2002. The Company currently expects to receive a final decision on
its pending application with the DOT during the fourth quarter of 2002.

Other Operating Expenses. Other operating expenses decreased 5.2% to $16.3
million in the third quarter of 2002, as compared to $17.2 million in the third
quarter of 2001, and increased 4.2% to $55.2 million in the nine months ended
September 30, 2002, as compared to $53.0 million in the same period of 2001. No
line item changes were individually significant between these periods.

Interest Income and Expense. Interest expense in the quarter and nine months
ended September 30, 2002 increased to $7.7 million and $26.0 million,
respectively, as compared to $7.0 million and $21.3 million, respectively, in
the same periods of 2001. The Company incurred $2.3 million in the nine months
ended September 30, 2002, in interest expense relating to certain Boeing 757-300
and Boeing 737-800 aircraft which were temporarily financed with bridge debt. No
such financing was in place in the first nine months of 2001. These aircraft
were refinanced with operating leases by the end of the third quarter of 2002.
The Company also capitalized interest of $2.2 million less, between the nine
months ended September 30, 2002 and 2001, associated with its funding of the
aircraft pre-delivery deposit requirements.

The Company invested excess cash balances in short-term government securities
and commercial paper and thereby earned $0.6 million and $2.1 million,
respectively, in interest income in the quarter and nine months ended September
30, 2002, as compared to $1.2 million and $4.2 million, respectively, in the
same periods of 2001. The decrease in interest income between periods is
primarily due to a decline in the average interest rate earned.

Income Tax Expense. In the quarter and nine months ended September 30, 2002 the
Company recorded an income tax credit of $6.7 million and $19.6 million,
respectively, applicable to $67.4 million and $133.7 million, respectively, in
pre-tax loss for those periods, while in the quarter and nine months ended
September 30, 2001 the Company recorded income tax expense of $16,000 and $0.9
million, respectively, applicable to $0.4 million and $3.4 million,
respectively, in pre-tax income for those periods. The effective tax rates
applicable to the quarter and nine months ended September 30, 2002 were 14.6%
and 10.0%, respectively, as compared to 4.0% and 26.4%, respectively, in the
same periods of 2001.

The Company expects to incur a loss for the full year of 2002. When combined
with annual losses reported in 2000 and 2001, this three-year cumulative loss
creates a presumption under accounting principles generally accepted in the
United States that net deferred tax assets should be fully reserved, if their
recovery cannot be reasonably assured through carry-backs or other tax
strategies. As of September 30, 2002 the Company projects that it will have a
net deferred tax asset of $57.7 million as of the end of 2002, and that it can
be reasonably assured of recovering $18.4 million of that deferred tax asset in
cash refunds in 2003, using a five-year carry-back of expected 2002 alternative
minimum tax net operating losses to the years 1997 through 2001. Therefore, the
Company has determined that a full valuation allowance against the remaining net
deferred tax asset of $39.3 million is required, by adjusting the Company's



30



effective tax rate for 2002 prospectively from the third quarter. This allowance
adjustment, included in income tax expense, resulted in an effective tax rate of
14.6% for tax credits applicable to losses incurred through the third quarter of
2002.

Liquidity and Capital Resources

Cash Flows. In the nine months ended September 30, 2002 and 2001, net cash used
in operating activities was $4.9 million, as compared to net cash provided by
operating activities of $142.0 million for the same period of 2001. The change
in cash provided by or used in operating activities between periods was
primarily due to a decrease in earnings, and lower depreciation and amortization
expense due to the retirement and impairment of certain Boeing 727-200 and
Lockheed L-1011-50/100 aircraft in the second half of 2001 and the first nine
months of 2002. These decreases were partially offset by changes in operating
assets and liabilities, most significantly in accounts receivable, which
resulted primarily from a decrease in the U. S. Government grant receivable.

Net cash provided by investing activities was $15.7 million in the first nine
months of 2002, while net cash used in operating activities was $308.1 million
in the nine-month period ended September 30, 2001. Such amounts included capital
expenditures totaling $57.6 million in the first nine months of 2002, as
compared to $251.0 million in the same period of 2001. In the first nine months
of 2001, the Company's capital expenditures consisted of approximately $137.0
million for the purchase of certain Boeing 737-800 and Boeing 757-300 aircraft
and engines and the purchase of certain Boeing 727-200 aircraft off of operating
leases, which did not occur in the same periods of 2002. Also, in the first nine
months of 2002, the Company incurred $39.7 million for engine and airframe
overhauls, airframe improvements and the purchase of rotable parts, as compared
to $92.8 million in the same period of 2001. This decline is primarily due to
fewer engine overhauls in the first nine months of 2002 as compared to the same
period of 2001 on the Lockheed L1011-500 and the Boeing 727-200 fleets, and to
declining capitalized interest as more aircraft deliveries were completed. Also
contributing to the difference in net cash provided by (used in) investing
activities is the progress in new aircraft deliveries. In the first nine months
of 2002 as new aircraft were delivered, the Company was refunded through
operating leases $77.4 million of aircraft pre-delivery deposits, net of new
deposits made for future deliveries. In contrast, the Company paid $61.7 million
of pre-delivery deposit payments in the first nine months of 2001.

Net cash used in financing activities was $82.2 million in the nine months ended
September 30, 2002, while net cash provided by financing activities was $197.0
million in the nine months ended September 30, 2001. In the first nine months of
2002, the Company borrowed and repaid $192.5 million in temporary financing
related to the purchase of certain Boeing 737-800 and Boeing 757-300 aircraft,
which were subsequently financed through operating leases, while in the first
nine months of 2001, the Company borrowed $102.2 million to temporarily finance
certain new aircraft. In the first nine months of 2002, the Company repaid $52.6
million in short term debt which had financed pre-delivery deposits on certain
aircraft delivered during that period, while in the same period of 2001, the
Company financed $43.9 million in pre-delivery deposits. In addition, in the
nine months ended September 30, 2002, the Company made net payments of $25.0
million on its revolving credit facility, while in the same period of 2001, the
Company borrowed $49.0 million under its bank credit facility.

The Company presently expects that cash generated by operations, together with
available borrowings under collateralized credit facilities, the return of
pre-delivery deposits held by the manufacturers on future aircraft and engine
deliveries, the receipt of additional U.S. Government grant compensation and the
receipt of funds from the pending U.S. Government-guaranteed secured term loan,
will be sufficient to fund operations during the next 12 months. If the Company
does not obtain the U.S. Government-guaranteed loan, or the existing credit
facility is not extended past its current expiration date of January 2, 2003,
the Company will pursue other sources to fund operations during the next 12
months.

Debt and Operating Lease Cash Payment Obligations. The Company is required to
make cash payments in the future on debt obligations and operating leases. The
Company's operating leases require periodic cash payments that vary in amount



31



and frequency. The Company accounts for aircraft rentals expense in equal
monthly amounts over the life of each operating lease. Although the Company is
obligated on a number of long-term operating leases which are not recorded on
the balance sheet under accounting principles generally accepted in the United
States, the Company has no off-balance sheet debt and, with the exception of
insignificant amounts not requiring disclosure, does not guarantee the debt of
any other party. The following table summarizes the Company's contractual debt
and operating lease obligations as of September 30, 2002, and the effect such
obligations are expected to have on its liquidity and cash flows in future
periods.



Cash Payments Currently Scheduled

Total 4Qtr 2003 2005 After
As of 9/30/02 2002 -2004 -2006 2006
(in thousands)


Current and long-term debt $ 415,495 $ 58,476 $ 203,113 $ 135,640 $ 18,266

Lease obligations 3,381,484 45,391 523,487 481,677 2,330,929
--------- ------ ------- ------- ---------

Total contractual cash obligations $ 3,796,979 $103,867 $ 726,600 $ 617,317 $ 2,349,195
=========== ========= ========= ========= ===========



In addition, the Company is committed to taking future delivery of 16 new Boeing
757-300 and Boeing 737-800 aircraft, as well as four spare engines. The
estimated amounts of future cash payments relating to financing of these
aircraft and engines are not included in the table. The Company intends to
finance these aircraft and engines with operating leases.

Aircraft and Fleet Transactions. In 2000, the Company entered into a purchase
agreement with the Boeing Company to purchase directly from Boeing 10 new Boeing
757-300s and 20 new Boeing 737-800s. The Boeing 737-800 aircraft are powered by
General Electric CFM56-7B27 engines, and the Boeing 757-300 aircraft are powered
by Rolls-Royce RB211-535 E4C engines. The Company also received purchase rights
for an additional 50 aircraft. The manufacturer's list price is $73.6 million
for each 757-300 and $52.4 million for each 737-800, subject to escalation. The
Company's purchase price for each aircraft is subject to various discounts. To
fulfill its purchase obligations, the Company has arranged for each of these
aircraft, including the engines, to be purchased by third parties that will, in
turn, enter into long-term operating leases with the Company. As of September
30, 2002, the Company had taken delivery of eight Boeing 737-800s and 10 Boeing
757-300s obtained directly from Boeing. All remaining aircraft to be purchased
directly from Boeing are scheduled for delivery between October 2002 and August
2004. Aircraft pre-delivery deposits are required for these purchases, and the
Company has funded these deposits using operating cash and primarily short-term
deposit finance facilities. As of September 30, 2002, the Company had $93.3
million in pre-delivery deposits outstanding for these aircraft, of which $65.6
million was provided by deposit finance facilities with various lenders. Upon
delivery of the aircraft, pre-delivery deposits funded with operating cash will
be returned to the Company, and those funded with deposit facilities will be
used to repay those facilities.

In December 2001, the Company entered into an agreement to exercise purchase
rights on two Boeing 757-300 aircraft to be delivered in May and June 2003. The
Company has purchase rights remaining for eight Boeing 757-300 aircraft and 40
Boeing 737-800 aircraft.

The Company has operating lease agreements in place to lease 14 new Boeing
737-800s from ILFC. As of September 30, 2002, the Company had taken delivery of
12 Boeing 737-800s that are being leased from ILFC. The remaining aircraft under
these operating lease agreements are currently scheduled for delivery in June
2003 and May 2004.

The Company has an agreement to acquire five additional new Boeing 737-800s to
be financed by operating leases with GE Capital Aviation Services ("GECAS"). The
Company took delivery of the fifth Boeing 737-800 aircraft being leased from
GECAS in the third quarter of 2002.


32



Although the Company typically finances aircraft with long-term operating
leases, it has a bridge financing facility which provides for maximum borrowings
of $400.0 million to finance new Boeing 737-800 aircraft and new Boeing 757-300
aircraft. Borrowings under the facility bear interest, at the option of ATA, at
LIBOR plus a margin, which depends on the percentage of the purchase price
borrowed and whether the borrowing matures 18 or 24 months after the aircraft
delivery date. During the first four months of 2002, the Company borrowed $192.5
million, under this bridge facility, for the purchase of certain Boeing 737-800
and Boeing 757-300 aircraft. As of June 30, 2002, these borrowings were repaid
in full, while the related aircraft were financed under long-term operating
leases.

The Company has an agreement with General Electric to purchase four spare
engines, which are scheduled for delivery between 2003 and 2006. The Company has
acquired two spare Rolls Royce engines, one of which was delivered in 2001, and
the other in June 2002.

In May 2002, the Company entered into an agreement with AMR Leasing Corporation
to lease six Saab 340B aircraft, with options to lease up to 10 additional
aircraft. As of September 30, 2002, the Company had taken delivery of all six
Saab 340B aircraft under this agreement.

In March 2001, the Company entered into a limited liability company agreement
with BCC to form BATA, a 50/50 joint venture. Because the Company does not
control BATA, the Company's investment is being accounted for under the equity
method of accounting. BATA is expected to remarket the Company's fleet of Boeing
727-200 aircraft in either passenger or cargo configurations. In exchange for
supplying the aircraft and certain operating services to BATA, the Company has
and will continue to receive both cash and equity in the income or loss of BATA.
The Company transferred 12 Boeing 727-200 aircraft to BATA in 2001, and
transferred eight of the remaining 12 Boeing 727-200 aircraft to BATA in June
2002.

Significant Financings. As of December 31, 2001, the Company's revolving bank
credit facility provided for maximum borrowings of $100.0 million, including up
to $50.0 million for stand-by letters of credit. In March 2002, the Company
amended the credit facility to reduce the maximum borrowings to $75.0 million,
declining to $60.0 million as of September 30, 2002, and to modify certain
financial covenants. The amended facility matures January 2, 2003, and
borrowings under the facility bear interest, at the option of ATA, at either
LIBOR plus a margin or the agent bank's prime rate. This facility is currently
collateralized by six Lockheed L-1011-50 and L-1011-100 aircraft and engines,
three Lockheed L-1011-500 aircraft and engines, two Saab 340B aircraft, Boeing
727-200 spare engines, certain rotable parts and eligible receivables. The
facility agreement provides that in the event of a material adverse occurrence,
the lenders can elect not to fund any additional borrowings, and can require
repayment of any outstanding balance immediately. No such determination was made
relative to the terrorist attacks on September 11, 2001. As of September 30,
2002, the Company had borrowings of $10.0 million against the facility, and had
outstanding letters of credit of $48.4 million secured by the facility. As of
September 30, 2002, the bank has assigned a collateral borrowing base of $65.4
million to the various aircraft and parts securing the bank credit facility,
which is less than their book value.

The Company is seeking a $168.0 million secured term loan that would replace the
existing credit facility. The Company filed an application with the Air
Transportation Stabilization Board, ("ATSB") for a $148.5 million Federal
guarantee of that loan, and on September 26, 2002, received conditional approval
of the loan guarantee. The approval is subject to several conditions, including
increased fees and warrants, resolution of certain issues regarding dividend
restrictions, change of control terms of existing indebtedness, the results of
on-going due diligence by the ATSB and the absence of any material adverse
change in the condition, business, property, operations, prospects, assets or
liabilities of the Company. The Company believes the conditions can be met, and
expects the guaranteed loan to close in the fourth quarter of 2002.

The proceeds of the loan will be used to repay any borrowings on the existing
bank credit facility and to support approximately $50.0 million in letters of
credit required by certain of the Company's creditors. The remaining proceeds


33



will be used for general corporate purposes. The loan will be secured with
collateral similar to that securing the current credit facility, plus some
additional equipment and receivables. The loan interest rate is expected to be
variable, based on LIBOR, and the loan is expected to have a term of six years.
In addition to interest on the loan, the Company expects to be required to pay
to the Federal Government certain guarantee fees, based on the outstanding loan
balance. Interest and guarantee fees will be payable quarterly in advance,
beginning at closing, and principal repayments will begin 18 months after
funding of the loan. As part of the guaranteed loan transaction, the Company
also expects to issue stock warrants to the Federal Government. The Company
expects the loan to be subject to certain restrictive covenants.

In September 2000, the Company issued and sold 300 shares of Series B
convertible redeemable preferred stock, without par value. In December 2000, the
Company issued and sold 500 shares of Series A redeemable preferred stock,
without par value. The proceeds from the issuance and sale of the Series B and
the Series A preferred stock were used for aircraft pre-delivery deposits and
general corporate purposes.

In December 2000, the Company entered into three finance facilities with Banca
Commerciale Italiana, GE Capital Aviation Services, Inc., and Rolls-Royce plc.,
to fund pre-delivery deposits on new Boeing 757-300 and Boeing 737-800 aircraft.
These facilities provide for up to $173.2 million in pre-delivery deposit
funding, and as of September 30, 2002, the Company had borrowed $65.6 million
against these three facilities. All of this debt has been classified as
short-term in the accompanying balance sheets because it will be repaid through
the return of related pre-delivery deposits through lease financing of aircraft
scheduled for delivery within the next 12 months. Interest on these facilities
is payable monthly.

Card Agreement. The Company accepts charges to most major credit and debit cards
("cards") as payment from its customers. Approximately 90% of scheduled service
and vacation package sales are purchased using these cards.

More than half of these card sales are made using MasterCard or Visa cards. The
Company maintains an agreement with a bank for the processing and collection of
charges to these cards. Under this agreement, a sale is normally charged to the
purchaser's card account and is paid to the Company in cash within a few days of
the date of purchase, although the Company may provide the purchased services
days, weeks or months later. In 2001, the Company processed approximately $535.0
million in MasterCard and Visa charges under its merchant processing agreement.

On September 21, 2001, the bank notified the Company that it had determined that
the terrorist attacks of September 11, 2001, the ensuing grounding of commercial
flights by the FAA, and the significant uncertainty about the level of future
air travel entitled the bank to retain cash collected by it on processed card
charges as a deposit, up to 100% of the full dollar amount of purchased services
to be provided at a future date. If the Company fails to perform pre-paid
services which are purchased by a charge to a card, the purchaser may be
entitled to obtain a refund which, if not paid by the Company, is the obligation
of the bank. The deposit secures this potential obligation of the bank to make
such refunds.

The bank exercised its right to withhold distributions beginning shortly after
its notice to the Company. It subsequently agreed to accept a letter of credit
as partial security for this potential liability. As of December 31, 2001, the
bank had withheld $3.1 million in cash with an additional $20.0 million secured
by a letter of credit provided on behalf of the Company by the Company's senior
lenders under its revolving bank facility. As of September 30, 2002, the bank
had withheld $11.8 million in cash, and $20.0 million was secured by the letter
of credit. The deposits and letter of credit as of September 30, 2002 and
December 31, 2001 constituted approximately 60% of the Company's total future
obligations to provide services purchased by charges to card accounts as of
those dates. The bank has agreed to a 60% deposit, with that percentage being
subject to increase up to 100% at any time at the sole discretion of the bank. A
deposit of 100% of this obligation would have resulted in the additional
retention of $15.4 million by the bank at December 31, 2001, and $21.2 million
at September 30, 2002. The bank's right to maintain a deposit does not terminate
unless, in its reasonable judgment and at its sole discretion, it determines
that a deposit is no longer required.


34



The Company has the right to terminate its agreement with the bank upon
providing appropriate notice. In the event of such termination, the bank may
retain a deposit equal to the amount of purchased services not yet performed,
for up to 16 months from the date of termination.

Surety Bonds. The Company has historically provided surety bonds to airport
authorities and selected other parties, to secure the Company's obligation to
these parties. The DOT also requires the Company to provide a surety bond or an
escrow to secure potential refund claims of charter customers who have made
prepayments to the Company for future transportation. One issuer currently
provides all surety bonds issued on behalf of the Company.

Prior to the terrorist attacks of September 11, 2001 the Company had provided a
letter of credit of $1.5 million as security to the issuer for its total
estimated surety bond obligations, which were $20.9 million at August 31, 2001.
Effective October 5, 2001, the issuer required the Company to increase its
letter of credit to 50% of its estimated surety bond liability. Effective
January 16, 2002, the issuer implemented a requirement for the Company's letter
of credit to secure 100% of estimated surety bond obligations, which totaled
$19.8 million. The Company's letter of credit was adjusted accordingly, and the
Company is subject to future adjustments of its letter of credit based upon
further revisions to the estimated liability for total surety bonds outstanding.
As of September 30, 2002, the letter of credit requirement decreased to $15.2
million. The Company has the right to replace the issuer with one or more
alternative issuers of surety bonds, although the Company can provide no
assurance that it will be able to secure more favorable terms from other
issuers.

Forward-Looking Information

Information contained within "Management's Discussion and Analysis of Financial
Condition and Results of Operations" includes forward-looking information which
can be identified by forward-looking terminology such as "believes," "expects,"
"may," "will," "should," "anticipates," or the negative thereof, or other
variations in comparable terminology. Such forward-looking information is based
upon management's current knowledge of factors affecting the Company's business.
The differences between expected outcomes and actual results can be material,
depending upon the circumstances. Where the Company expresses an expectation or
belief as to future results in any forward-looking information, such expectation
or belief is expressed in good faith and is believed to have a reasonable basis.
The Company can provide no assurance that the statement of expectation or belief
will result or will be achieved or accomplished.

Such forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause actual results to be materially different. Such
factors include, but are not limited to, the following:

o economic conditions;
o labor costs;
o aviation fuel costs;
o competitive pressures on pricing;
o weather conditions;
o governmental legislation and regulation;
o consumer perceptions of the Company's products;
o demand for air transportation overall, considering the impact of
September 11, 2001, and specifically in markets in which the Company
operates;
o higher costs associated with new security directives;
o higher costs for insurance and the continued availability of such
insurance;
o the Company's ability to raise additional financing, and to refinance
existing borrowings upon maturity;
o declines in the value of the Company's aircraft, as these may result
in lower collateral value and additional impairment charges; and
o other risks and uncertainties listed from time to time in reports the
Company periodically files with the SEC.


35



The Company does not undertake to update the forward-looking statements to
reflect future events or circumstances.


36



PART I - Financial Information
Item III - Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in market risk from the information provided
in Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of ATA
Holdings Corp's Annual Report on Form 10-K for the year 2001, except as
discussed below.

During the first nine months of 2002, the Company entered into additional
heating oil swap agreements to further minimize the risk of jet fuel price
fluctuations, all of which have expired. As of September 30, 2002, the Company
had no outstanding fuel hedge agreements.


37



PART I - Financial Information
Item IV - Controls and Procedures

Within the 90 days prior to the filing of this report, management, under the
supervision of the Company's Chief Executive Officer and Chief Financial
Officer, evaluated the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based upon this evaluation, the
Chief Executive Officer and Chief Financial Officer have concluded that these
disclosure controls and procedures (as defined in Exchange Act Rules 13a - 14
and 15d - 14) are effective, in all material respects, in ensuring that the
information required to be disclosed in the reports filed under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in Securities and Exchange Commission rules and forms.

There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls, subsequent to the
date of the evaluation.


38



PART II - Other Information

Item I - Legal Proceedings

None

Item II - Changes in Securities

None

Item III - Defaults Upon Senior Securities

None

Item IV - Submission of Matters to a Vote of Security Holders

None

Item V - Other information

None

Item VI - Exhibits and Reports on Form 8-K

(a) Exhibits are filed as a separate section of this report as set forth in
the Index to Exhibits attached to this report.

(b) Report filed on August 7, 2002, furnishing items under Item 5. Other
Events and Item 7. Financial Statements and Exhibits.

Report filed on August 12, 2002, furnishing items under Item 9.
Regulation FD Disclosure.

Report filed on August 12, 2002, furnishing items under Item 7.
Financial Statements and Exhibits and Item 9. Regulation FD
Disclosure.

Report filed on August 14, 2002, furnishing items under Item 7.
Financial Statements and Exhibits and Item 9. Regulation FD
Disclosure.

Report filed on August 21, 2002, furnishing items under Item 5. Other
Events, Item 7. Financial Statements and Exhibits and Item 9.
Regulation FD Disclosure.

Report filed on September 16, 2002, furnishing items under Item 5.
Other Events, Item 7. Financial Statements and Exhibits and Item 9.
Regulation FD Disclosure.

Report filed on September 30, 2002, furnishing items under Item 5.
Other Events, Item 7. Financial Statements and Exhibits and Item 9.
Regulation FD Disclosure.


39



Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has dul4y caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


ATA Holdings Corp.
(Registrant)




Date November 12, 2002 by /s/ Kenneth K. Wolff
--------------------- ------------------------------
Kenneth K. Wolff
Executive Vice President and Chief Financial
Officer
On behalf of the Registrant





Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, J. George Mikelsons, certify that:

1. I have reviewed this quarterly report on Form 10-Q of ATA Holdings
Corp.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons fulfilling the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.


Dated: November 12, 2002 /s/ J. George Mikelsons
-----------------------
J. George Mikelsons
Chairman and Chief Executive Officer




Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Kenneth K. Wolff, certify that:

1. I have reviewed this quarterly report on Form 10-Q of ATA Holdings
Corp.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;

b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and

c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons fulfilling the
equivalent function):

a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.


Dated: November 12, 2002 /s/ Kenneth K. Wolff
---------------------
Kenneth K. Wolff
Executive Vice President and
Chief Financial Officer




Index to Exhibits

Exhibit No.

99.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002