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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended: December 31, 2002 or

For the transition period from                      to                     

Commission File Number 0-26582

World Airways, Inc.

(Exact name of registrant as specified in its charter)

HLH Building, 101 World Drive, Peachtree City, GA 30269

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (770) 632-8000

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

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

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

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

Indicate by check mark whether the registrant is an accelerated filer (as described in Exchange Act Rule 12b-2). Yes    ¨    No    x

Aggregate market value of Common Stock held by non-affiliates as of June 28, 2002 was approximately $9,039,000.

Number of shares of Common Stock outstanding as of the close of business on March 11, 2003 was 11,077,098.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of World Airways, Inc.’s Notice of Annual Stockholder’s Meeting and Proxy Statement, to be filed within 120 days after the end of the registrant’s fiscal year, are incorporated by reference into Part III of this Report.

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WORLD AIRWAYS, INC.

2002 ANNUAL REPORT ON FORM 10-K

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PART I

Item 1.    Business

World Airways, Inc. (“World Airways” or the “Company”) was organized in March 1948 and is a U.S. certificated air carrier. Airline operations account for 100% of the Company’s operating revenue. World Airways provides long-range passenger and cargo charter and wet lease air transportation, serving the U.S. Government, international passenger and cargo air carriers, tour operators, international freight forwarders and cruise ship companies. As of December 31, 2002, the Company operated nine MD-11 and seven DC-10-30 aircraft. During 2002, the Company took delivery of one MD-11 and one DC-10-30 passenger aircraft. In December 2002, the Company purchased a DC-10-30 aircraft, the lease term of which was to end in January 2003. The Company took this aircraft out of service in 2002 and will be using it for spare DC-10 parts. The principal executive offices of World Airways are located in The HLH Building, 101 World Drive, Peachtree City, Georgia 30269 and the Company’s telephone number is (770) 632-8000.

The Company desires to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 (the “Act”). This report contains forward looking statements that are subject to risks and uncertainties including, but not limited to, the impact of competition in the market for air transportation services, the cyclical nature of the air carrier business, reliance on key marketing relationships, fluctuations in operating results and other risks detailed from time to time in the Company’s periodic reports filed with the Securities and Exchange Commission (which reports are available from the Company upon request). These various risks and uncertainties may cause the Company’s actual results to differ materially from those expressed in any of the forward looking statements made by, or on behalf of, the Company in this report.

Recent Developments

The terrorist attacks of September 11, 2001 and the ongoing war with Iraq have had a significant effect on the U.S. airline industry. The Secretary of Defense has given authority to the commander, U.S. Transportation Command (USTRANSCOM) to activate Stage I of the Civil Reserve Air Fleet (“CRAF”) to provide the Department of Defense additional airlift capability to move U.S. troops and military cargo. This measure is necessary due to increased operations associated with the build-up of U.S. forces in the Persian Gulf region. CRAF aircraft are U.S. commercial passenger and cargo aircraft that are contractually pledged to move passengers and cargo when the Department of Defense’s airlift requirements exceed the capability of U.S. military aircraft.

The authority to activate CRAF Stage I involves 22 U.S. airline companies and their 78 commercial aircraft —47 passenger aircraft and 31 wide-body cargo aircraft. While this authority is for all 78 commercial aircraft in the CRAF Stage I program, the USTRANSCOM commander, Air Force Gen. John W. Handy is only activating 47 passenger aircraft. Currently, U.S. military airlift aircraft and CRAF volunteered commercial cargo aircraft are meeting the cargo airlift requirements. However, if required, the USTRANSCOM commander can activate those 31 cargo aircraft in the CRAF Stage I program.

Three stages of incremental activation allow the USTRANSCOM commander to tailor an airlift force suitable for the contingency at hand. Stage I is the lowest activation level; Stage II would be used for major regional contingencies; and Stage III would be used for periods of national mobilization. During a crisis, if Air Mobility Command, the air component of USTRANSCOM, has a need for additional aircraft, it would request the USTRANSCOM commander take steps to activate the appropriate CRAF stage. Stage II was activated during Operation Desert Shield/Storm. Stage III has never been activated. Each stage of the fleet activation is used only to the extent necessary to provide the amount of commercial augmentation airlift need by the Department of Defense.

The Company currently has three MD-11 passenger aircraft activated under CRAF Stage I. The Company also has one MD-11 cargo aircraft under Stage I, but it has not yet been activated. Revenue from the U.S. Air

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Force (“USAF”) will continue to be a significant portion of total revenues for the Company in 2003, but the impact of the current military conflict cannot be determined at this time.

The Company entered a Loan and Security Agreement with Foothill Capital Corporation (“Foothill”), a Wells Fargo company, on December 12, 2002, which for its five-year term provides for the issuance of loans and letters of credit up to $30 million subject to certain terms, conditions and limitations. A 100% owned subsidiary, World Airways Parts Company LLC, was formed in connection with this new credit facility. This subsidiary was formed to hold the aircraft inventory of World Airways and facilitate the inventory borrowing base. The Company has assigned its stock ownership to Foothill as security for the loan. See Note 7 in the “Notes to Consolidated Financial Statements” in Item 8 for additional information.

Ownership

At December 31, 2002, Naluri Berhad (“Naluri”), a Malaysian aviation company, owned 11.0% of the outstanding Common Stock of World Airways and the balance was widely held.

Overview & Operating Environment

Historically most of the Company’s contracts have required the Company to supply aircraft, crew, maintenance, and insurance (“ACMI” or “wet lease”) and the Company’s customers were responsible for other operating costs, including fuel. In recent years the Company has increased its operations under “full service” contracts whereby, in addition to ACMI costs, the Company is responsible for most other costs associated with flight operations including landing, handling and fuel. Under both types of contracts, the customer bears the risk of utilizing the aircraft’s passenger and/or cargo capacity.

Although the Company’s customers bear the financial risk of utilizing the aircraft, the Company can be affected adversely if its customers are unable to operate the aircraft profitably, or if one or more of the Company’s customers experience a material adverse change in their market demand, financial condition or results of operations. Under these circumstances, the Company could be adversely affected by customer demands for rate and utilization reductions, flight cancellations, or early termination of their agreements.

World Airways focuses its marketing efforts on the USAF Air Mobility Command (“AMC”), freight operators, freight forwarders, cruise ship companies, tour operators and international airlines. The Company increases its potential customer base by being able to serve both passenger and cargo customers with its passenger and cargo aircraft.

Passenger revenue from USAF contracts is based on “available seat miles”, which are defined as the number of miles an aircraft flies multiplied by the number of seats available on the aircraft. Cargo revenue from USAF contracts is based on “ton miles”, which is defined as the number of miles an aircraft flies multiplied by the number of tons available on the aircraft. The Company generally charges customers other than the USAF on a block hour basis rather than on a per seat, per pound or seat mile basis. “Block hours” are defined as the elapsed time from the moment wheel blocks are removed from the aircraft at the point of origin to the time when the wheel blocks are again put in place at the aircraft’s destination. The Company generally charges a lower rate per block hour for ACMI contracts than for full service contracts, although it does not necessarily earn a lower profit.

Due to the high fixed costs of leasing and maintaining aircraft and costs for cockpit crewmembers and flight attendants, the Company’s aircraft must have high utilization in order for the Company to operate profitably. Although World Airways’ preferred strategy is to enter into long-term contracts with customers, the terms of existing customer contracts are shorter than the terms of the Company’s lease obligations with respect to its aircraft. There is no assurance that the Company will be able to enter into additional contracts with new or existing customers or that it will be able to obtain enough additional business to fully utilize each aircraft. World Airways’ financial position and results of operations could be materially adversely affected by periods of low aircraft utilization and yields.

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Factors that affect the Company’s ability to achieve high utilization of its aircraft include the compatibility of the Company’s aircraft with customer needs and the Company’s ability to react on short notice to customer requirements (which can be unpredictable due to changes in traffic rights, aircraft delivery schedules and aircraft maintenance requirements). Other factors that affect the Company include domestic and foreign regulatory requirements, as well as a trend toward aviation deregulation that is increasing alliances and code share arrangements.

The market for ACMI and full service charter business is highly competitive. Certain air carriers that the Company competes with have substantially greater financial resources and more extensive facilities and equipment than the Company. The Company believes that the most important bases for competition in the charter business include the range as well as passenger and payload capacities of the aircraft, in addition to the price, flexibility, quality and reliability of the air transportation service provided. Competitors in the passenger charter market include North American Airlines, Omni Air International, Miami Air and American Trans Air and in the cargo charter market include cargo carriers Atlas Air (including Polar Air Cargo), Gemini Air Cargo, Evergreen, Omni Air International and Centurion Air Cargo, as well as scheduled and non-scheduled passenger carriers that have substantial belly capacity. The ability of the Company to compete depends, in part, upon its success in convincing customers that outsourcing a portion of their business is cost-effective.

The Company operates in a challenging business environment. The air transportation industry is highly sensitive to general economic conditions. Since a substantial portion of passenger airline travel (both business and personal) is discretionary, the industry tends to experience adverse financial results during general economic downturns and can be adversely affected by unexpected global political developments. The financial results of air cargo carriers are also adversely affected by general economic downturns that result in reduced demand for air cargo transportation.

Similar to other airlines, the Company’s business is seasonal. During the early part of the first quarter, the Company typically experiences lower levels of utilization and revenue per block hour (“yield”) due to lower demand relative to other times of the year. The Company experiences higher levels of utilization and yield mid-year associated with leisure travel demand during the peak summer vacation season. During the fall, the cargo market typically increases as the Christmas season approaches.

World Airways’ operating philosophy is to build on its existing relationships to achieve a strong platform for future growth while at the same time grow its commercial passenger and cargo business. The Company’s strategy is based, first and foremost, upon providing the highest level of service to its customers, thereby maintaining and expanding the amount of business being done with existing customers. The Company attempts to maximize profitability by combining ACMI contracts with full service agreements that meet the peak seasonal requirements of its customers. The Company can respond to rapidly changing market conditions and requirements because its fleet of aircraft can be deployed in a variety of configurations.

The Company has unsold capacity in the second quarter of 2003 and beyond; however, historically it has been successful in obtaining additional business to utilize some or all of its available capacity. Although there can be no assurance that it will be able to secure additional business to utilize unsold capacity, the Company is actively seeking additional business for 2003 and beyond.

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Customers

The Company is highly dependent on revenues from the USAF. The loss of the USAF as a customer would have a material adverse effect on the Company. The Company’s principal customers, and the percent of revenues from those customers, for the last three years are as follows:

U.S. Air Force.    The Company has provided air transportation services, principally on an international basis, to the USAF since 1956. In exchange for requiring pledges of aircraft to CRAF for use in times of national emergency, the USAF grants awards to CRAF participants for peacetime transportation of personnel and cargo.

The USAF awards points to air carriers acting alone or through teaming arrangements in proportion to the number and type of aircraft made available to CRAF. The Company utilizes teaming arrangements to maximize the value of potential awards. The USAF grants fixed awards for transportation to CRAF participants. These fixed awards (also referred to as “basic” awards) provide for known and determinable amounts of revenue to be received during the contract period, which runs from October 1^st to September 30^th, in exchange for air transportation services. In addition, CRAF participants may be awarded additional revenue during the contract period for air transportation services required beyond those specified in the fixed awards. The Company refers to this additional revenue as “expansion” revenue. The following table shows original contract awards, which runs from October 1^st to September 30^th, and actual revenue from the USAF for each of the last three fiscal years (in millions):

The original contract award for the year beginning October 1, 2002 and ending September 30, 2003 is $120.0 million, which includes basic flying of $75.0 million, expansion flying of $37.0 million and cargo flying of $8.0 million. For only the second year, the USAF has incorporated long-term expansion flying into the contract, and this allows the Company to preplan and utilize its aircraft fleet and crews more efficiently. The Company also will receive additional expansion business during the fiscal year 2003 contract period for less predictable flying and other short notice requirements. In February 2003, the USAF activated Stage I of the CRAF program to support the U.S. military. At the present time, the USAF is utilizing passenger aircraft only under Stage I of the CRAF program, in order to meet increased airlift needs for U.S. troop movement. The Company, however, cannot determine how future military spending budgets, airlift requirements, national security considerations and balanced CRAF and teaming arrangements will combine to affect future business with the USAF.

Emery.    The Company has provided an MD-11F freighter aircraft to Emery Air Freight Corporation since October 1998. The program for the aircraft, which has been extended through December 2003, primarily operates five days per week flying round trip between Dayton, Ohio and Brussels, Belgium. The Company provided additional ad hoc cargo service with its DC-10-30 aircraft for Emery during fiscal 2002. In addition, the Company has contracted with Emery to operate a DC-10-30 aircraft five days per week through December 2003, flying round trip between Dayton, Ohio and Los Angeles, California.

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Sonair.    In November 2000, the Company began operating regular private charter air service for Sonair between Houston, Texas and Luanda, Angola. Sonair is a subsidiary of Angola’s National Oil Company, SONANGOL. This charter air service supports Angola’s developing petroleum industry. The contract provides for two additional one-year renewal options, which could extend the contract through December 31, 2004, at $22.7 million per year, resulting in total potential revenue of approximately $45 million. Sonair and the Company are currently in the process of negotiating on terms related to the first one-year contract extension. In January 2003, the Company began flying a third flight for Sonair between Houston, Texas and Malabo, Equatorial Guinea.

Garuda.    The Company has flown for Garuda periodically since 1973. The Company operated zero, three and four aircraft for Garuda during the 2002, 2001 and 2000 Hadj pilgrimages. The Company did not provide Hadj airlift services in 2002 because of weakened demand and various security considerations due to the September 11^th events. The Company also did not provide Hadj airlift services in 2003.

Renaissance.    The Company flew one aircraft for Renaissance from August 1999 until the agreement was mutually terminated in late 2000.

Information concerning the classification of the Company’s revenues comprising 10% or more of total operating revenues is presented in the following table (in millions):

Backlog

The Company had contract backlog of $154.5 million and $167.2 million at December 31, 2002 and 2001, respectively. Approximately 50% of the backlog at December 31, 2002 relates to its contract with the USAF, and the entire $154.5 million of backlog relates to air transportation services for 2003. See Note 13 of the Company’s “Notes to Financial Statements” in Item 8 for additional information regarding major customers and foreign source revenue.

Maintenance

Airframe and engine maintenance costs that account for most of the Company’s maintenance expenses typically increase as the aircraft fleet ages. The Company outsources major airframe maintenance and engine work to several suppliers. The Company has agreements expiring in 2005 with Delta Air Lines for off-wing maintenance on the Pratt & Whitney 4462 engines that power its MD-11 aircraft, and repair of MD-11 aircraft and its components. The Company also has maintenance agreements with Triumph for the repair of auxiliary power units on the MD-11 and DC-10-30 aircraft. These agreements with Triumph will expire in 2004 and 2005, respectively. The Company has a maintenance agreement with Honeywell for wheel and brake repairs on both aircraft types and it will expire in 2006. In addition, the Company has a landing gear overhaul/exchange program with McDonnell Douglas/Boeing that expires after all landing gear listed in the contract have been overhauled, which should be in 2004.

Aviation Fuel

The Company incurs fuel expenses for full-service flights provided to customers. Certain full service contracts contain terms that limit the Company’s exposure to increases in fuel prices. However, the terms of such contracts are renewed annually and take estimated market prices for fuel for the period under contract into consideration. Both the cost and availability of aviation fuel are subject to many economic and political factors and events occurring throughout the world and remain subject to various unpredictable economic and market factors that affect the supply of all petroleum products. Fluctuations in the price of fuel have not had a significant impact on

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the Company’s operations because, in general, the Company’s contracts with its customers that cover 96.5% of fuel purchased limit the Company’s exposure to increases in fuel prices. Substantial increases in the price or the unavailability of aviation fuel could have a material adverse effect on the Company.

The Company’s primary sources of aviation fuel are major oil companies at commercial airports and from United States military organizations at military bases. The Company’s current fuel purchasing policy consists of the purchase of fuel within seven days in advance of all flights based on current prices set by individual suppliers. More than one supplier is under contract at several locations. The Company does not purchase fuel under long-term contracts nor does the Company enter into futures or fuel swap contracts.

Regulatory Matters

Since it was founded in 1948, the Company has been authorized to engage in commercial air transportation by the U.S. Department of Transportation (“DOT”) or its predecessor agencies. The Company is currently authorized to engage in scheduled and charter air transportation to provide combination (persons, property and mail) and all-cargo services between all points in the U.S., its territories and possessions. It also holds worldwide charter authority for both combination and all-cargo operations. In addition, the Company is authorized to conduct scheduled combination services to the foreign points listed in its DOT certificate. The Company also holds certificates of authority to engage in scheduled all-cargo services to a limited number of foreign destinations. The Company does not operate any scheduled services on its own behalf.

The Company is subject to the jurisdiction of the FAA with respect to aircraft maintenance, flight operations, equipment, aircraft noise, ground facilities, dispatch, communications, training, weather observation, flight time, crew qualifications, aircraft registration and other matters affecting air safety. The FAA requires air carriers to obtain an operating certificate and operations specifications authorizing the carriers to operate to particular airports on approved international routes using specified equipment. These certificates and specifications are subject to amendment, suspension, revocation, or termination by the FAA. In addition, all of the Company’s aircraft must have and maintain certificates of airworthiness issued or approved by the FAA. The Company currently holds an FAA air carrier operating certificate and operations specifications under Part 121 of the Federal Aviation Regulations. The FAA has the authority to suspend temporarily or revoke permanently the authority of the Company or its licensed personnel for failure to comply with regulations promulgated by the FAA and to assess civil penalties for such failures.

In 2000, the FAA issued an Airworthiness Directive (“AD”) that will require the replacement of insulation blankets on the Company’s MD-11 aircraft by June 2005. The Company has begun replacement of the affected insulation blankets on MD-11 aircraft. This is being accomplished in phases, during scheduled maintenance work, to minimize the impact on operational availability. The Company presently estimates that the cost of the replacement, including labor and material will total approximately $0.8 million per aircraft and approximately 25% of this work was complete at December 31, 2002.

In March 2001, the FAA issued a rule that requires the Company to install enhanced ground proximity warning systems in its aircraft by March 2005. The Company currently estimates that the cost of such installation will be approximately $65,000 per aircraft. In October 2001, the FAA also issued a proposed rule that will require the Company to modify the engine thrust reversers on its DC-10-30 aircraft. It is expected that the modifications will have to be completed by February 2005 and will cost approximately $0.5 million per aircraft. In response to the events of September 11^th, the FAA issued Special Federal Aviation Regulation (“SFAR”) 92 in October 2001 regarding general aircraft and cockpit security. The Company has complied with SFAR 92, and is currently at Level I with restraint bars installed on each cargo and passenger aircraft. The Company has contracted with an outside company to install new cockpit doors on its passenger aircraft as required, which will have to be accomplished by April 2003. The Company estimates that the cost of this phase of SFAR 92 will approximate $38,000 per aircraft. There may be other aircraft modifications that may be required in the future under the SFAR.

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In the fall of 2003, the FAA will be issuing an AD that will require the replacement of the ring case located in the compressor area of the Company’s MD-11 engines. The Company presently estimates that it will incur approximately $0.3 million per engine, subject to further negotiations with the engine manufacturer related to cost-sharing for this AD. This work must be accomplished by the first quarter of 2007.

Due to increased airport security needs as a result of the September 11^th events and the potential for future attacks, Congress enacted in November 2001 the Aviation and Transportation Security Act (the “Security Act”) which established the Transportation Security Administration (the “TSA”) within the DOT. Consistent with the Security Act, the TSA imposed a security service fee, effective February 1, 2002, in the amount of $2.50 per enplanement on passengers of domestic and foreign air carriers in air transportation, foreign air transportation, and intrastate air transportation originating at airports in the United States. The passengers are not charged for more than two enplanements per one-way trip or four enplanements per round trip. Beginning in 2002, the Company also has to remit an additional $330,000 annually through 2004 to cover TSA’s aviation security infrastructure fees. This additional fee was imposed on air carriers because current passenger fees were insufficient to cover TSA’s costs of providing civil aviation security services. The air carriers must remit these imposed fees monthly to the TSA by the last calendar day of the following month.

Additional laws and regulations have been considered from time to time which could significantly increase the cost of airline operations by imposing additional requirements or restrictions on operations. Laws and regulations have been considered from time to time that would prohibit or restrict the ownership and transfer of airline routes. There is no assurance that laws and regulations currently enacted or enacted in the future will not adversely affect the Company’s ability to maintain its current level of operations.

Several aspects of airline operations are subject to regulation or oversight by Federal agencies other than the DOT or FAA. For instance, labor relations in the air transportation industry are generally regulated under the Railway Labor Act, which vests in the National Mediation Board certain regulatory powers with respect to disputes between airlines and labor unions arising under collective bargaining agreements. In addition, the Company is subject to the jurisdiction of other governmental entities, including (i) the Federal Communications Commission (“FCC”) regarding its use of radio facilities pursuant to the Federal Communications Act of 1934, as amended, (ii) the Commerce Department, the Customs Service, the Immigration and Naturalization Service, and the Animal and Plant Health Inspection Service of the Department of Agriculture regarding the Company’s international operations, (iii) the Environmental Protection Agency (the “EPA”) regarding compliance with standards for aircraft exhaust emissions and (iv) the Department of Justice regarding certain merger and acquisition transactions. The EPA regulates operations, including air carrier operations, which affect the quality of air in the U.S. The Company believes it is in full compliance with all applicable regulatory requirements.

The Company’s international operations are generally governed by a network of bilateral civil air transport agreements providing for the exchange of traffic rights between governments which then select and designate air carriers authorized to exercise such rights. In the absence of a bilateral agreement, such international air services are governed by principles of comity and reciprocity. Bilateral provisions pertaining to the wet lease services in which the Company is engaged vary considerably depending on the particular country. Most bilateral agreements into which the U.S. has entered permit either country to terminate the agreement with one year’s notification to the other. In the event a bilateral agreement is terminated, international air service between the affected countries is governed by the principles of comity and reciprocity.

Pursuant to federal law, no more than 25% of the voting interest in the Company may be owned or controlled by foreign citizens. In addition, under existing precedent and policy, actual control must reside in U.S. citizens. As a matter of regulatory policy, the DOT has stated that it would not permit aggregate equity ownership of a domestic air carrier by foreign citizens in an amount in excess of 49%. The Company believes it fully complies as of the date hereof with U.S. citizen ownership requirements.

Due to its participation in the CRAF program of the USAF, the Company is subject to inspections approximately every two years by the military as a condition of retaining its eligibility to perform military charter

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flights. The last such inspection was undertaken in 2001 and the Company met the requirements for continued participation in the CRAF program. The next inspection is anticipated to occur in 2003. The USAF may terminate its contract with the Company if the Company fails to pass such inspection or otherwise fails to maintain satisfactory performance levels, if the Company loses its airworthiness certificate or if the aircraft pledged to the contracts lose their U.S. registry or are leased to unapproved carriers.

The Company believes it is in compliance in all material respects with all requirements necessary to maintain in good standing its operating authority granted by the DOT and its air carrier operating certificate issued by the FAA. A modification, suspension, or revocation of any of the Company’s DOT or FAA authorizations or certificates could have a material adverse effect upon the Company. The Company also is subject to state and local laws and regulations at locations where it operates and the regulations of various local authorities, which operate the airports it serves. Certain airport operations have adopted local regulations that, among other things, impose curfews and noise abatement regulations. While the Company believes it is currently in compliance in all material respects with all appropriate standards and has all required licenses and authorities, any material non-compliance by the Company therewith or the revocation or suspension of licenses or authorities could have a material adverse effect on the Company.

Employees

As of December 31, 2002, the Company had 1,123 full time equivalent employees classified as follows:

The Company’s cockpit crewmembers are represented by the International Brotherhood of Teamsters (the “Teamsters”) and are subject to a collective bargaining agreement that will be amendable June 30, 2003.

The Company’s flight attendants also are represented by the Teamsters and are subject to a four-year collective bargaining agreement that became amendable July 1, 2000. In January 2002, the Company announced that it was requesting formal mediation assistance from the National Mediation Board to advance negotiations with its flight attendants. The Company concluded that mediation was needed, although the Teamsters union declined to join the application. In December 2002, the flight attendant union rejected the contract proposal that was put out for a vote in November 2002. In January 2003, the Company and the union signed a Letter of Agreement that restarted the negotiation process and also provided flight attendants some additional medical coverage for a six-month period while negotiations were in process. The Company expects no impact on daily operations and will continue to work with the Teamsters to find a resolution through the National Mediation Board. In 1994, the Company’s flight attendants argued that the “scope clause” of the collective bargaining agreement was violated by the Company’s use of foreign flight attendant crews on the Company’s flights for Garuda Indonesia which had historically been the Company’s operating procedure. In contracts with certain customers, the Company is obligated to permit its customers to deploy their own flight attendants. While the arbitrator in this matter denied in 1997 the Union’s request for back pay to affected flight attendants for flying relating to the 1994 Hadj, the arbitrator concluded that the Company’s contract with its flight attendants requires the Company to first actively seek profitable business opportunities that require using the Company’s flight attendants, before the Company may accept wet lease business opportunities that use the flight attendants of the Company’s customers. Since 1997, the flight attendants have filed a number of similar “scope clause” grievances with respect to other wet-lease contracts and in 2001 they filed another “scope clause” grievance with respect to the 2001 Garuda Hadj agreement. An adverse decision on one or more of the grievances could have a material adverse impact on the financial condition or results of operations of World Airways.

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The Company’s aircraft dispatchers, who are represented by the Transport Workers Union (“TWU”) are subject to a collective bargaining agreement that will be amendable December 31, 2003. Fewer than 15 Company employees are covered by this collective bargaining agreement.

The Company is unable to predict whether any of its employees not currently represented by a labor union will elect to be represented by a labor union or collective bargaining unit. The Company is not aware of any parties or group of employees who have indicated any intent of petitioning for such an election. The election by such employees of representation in such an organization could result in employee compensation and working condition demands that could have a material adverse effect on the financial results of the Company.

Item 2.    Properties

Flight Equipment

As of December 31, 2002, the Company’s operating fleet consisted of nine MD-11 and seven DC-10-30 aircraft, all of which are operated under operating leases. The MD-11 aircraft include six passenger aircraft (two of which are long-range versions) and three freighter aircraft. During 2002, the Company’s two convertible MD-11 aircraft were reconfigured to full freighters. The DC-10-30 aircraft include four freighter aircraft and three passenger aircraft. The Company also had one DC-10-30 convertible aircraft that it purchased in the fourth quarter of 2002, prior to its lease termination in January 2003. The Company took this aircraft out of service in 2002 and will be using it for spare DC-10 airframe and engine parts. The Company has one scheduled delivery of an MD-11 passenger aircraft in early 2003 with a one year term, on a power-by-the-hour operating lease.

At December 31, 2002, the Company’s operating fleet, which does not include an aircraft acquired for parts in December 2002, consisted of the following:

Notes

The lease terms for the MD-11 aircraft are as follows: one will expire in 2003, six will expire in 2005 and 2006, and the two MD-11ER will expire in 2022 (assuming the exercise of 10-year lease extensions). In 1999, in conjunction with amending the leases for the two MD-11ER aircraft, the lessor obtained the right, if the Company fails to meet certain financial performance requirements, to cancel the lease of the aircraft with 12 months notice. While certain financial requirements were not achieved in 2002, the Company has not been notified of any intent of the lessor to cancel the leases and does not expect to be notified due to excess capacity in the airline industry. If the Company fails to achieve a certain annual net income level in 2003 and subsequent years up to May 2004, the lessor has similar termination rights. The lease terms for two of the DC-10-30 aircraft expire in 2003, two expire in 2004, and another two expire in 2008. The lease term for one DC-10 expires at the time of its next routine heavy maintenance check which should occur in the fourth quarter of 2003 or the first quarter of 2004, depending on its utilization.

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Ground Facilities

The Company leases office space in Peachtree City, Georgia for its corporate headquarters and substantially all of the administrative employees of the Company. The Company is also obligated under a lease for office space in Herndon, Virginia, the location of its former headquarters. See Note 9 in the “Notes to Consolidated Financial Statements” in Item 8 for additional information.

Also, the Company leases office and warehouse space in Dothan, Alabama; Bentonville, Arkansas; Los Angeles, California; Miami, Florida; Morrow, Peachtree City and Atlanta, Georgia; Baltimore, Maryland; Jamaica, New York; Houston, Texas; Seattle, Washington; and Frankfurt, Germany. Additional small office and maintenance material storage space is leased at often frequented airports to provide administrative and maintenance support for commercial and military contracts.

Item 3.    Legal Proceedings

A claim has been filed in the 19^th Civil Court District Court, Frankfurt, Germany, against the Company by a tour operator seeking approximately $3.5 million in compensation related to the cancellation of a summer program in 1996. The Company believes it has substantial defenses to this action, although no assurance can be given of the eventual outcome of this litigation.

Miami-Dade County is currently investigating and remediating various environmental conditions at the Miami International Airport (MIA). During the second quarter of 2001, the County filed a lawsuit against seventeen (17) defendants, which does not currently include World Airways, in an attempt to recover its past and future clean-up costs. This claim has been filed in the Florida Circuit Court for the 11th Judicial District in Dade County Florida. In addition to the seventeen (17) defendants named in the lawsuit, 243 other agencies and companies that were prior tenants at MIA (potentially responsible parties “PRP”), including World Airways, were issued letters advising of the lawsuit and indicating that any PRP’s could be named as additional defendants in the future depending upon a determination as to the levels of contamination and the extent to which any PRP may have contributed to any alleged contamination. At this point certain PRP’s, including World Airways, have joined a joint defense group to respond to the County’s inquiries and investigation of the PRP’s. This group is conducting preliminary investigations of the site in question to determine each PRP’s potential exposure. This process is ongoing and the potential exposure of World Airways has yet to be determined.

In addition, World Airways is party to routine litigation and administrative proceedings incidental to its business, none of which is believed by the Company to be likely to have a material adverse effect on the financial condition and results of operations of the Company.

Item 4.    Submission Of Matters To A Vote Of Security Holders

No matters were submitted to a vote of securities holders during the fourth quarter of 2002.

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Table of Contents

PART II

Item 5.    Market For Registrant’s Common Equity And Related Stockholder Matters

The Company’s Common Stock currently trades on the Nasdaq SmallCap Market of The Nasdaq-Amex Market Group^SM under the symbol: WLDAC. The high and low bid prices of the Company’s Common Stock, as reported by Nasdaq, for each quarter in the last two fiscal years are as follows: