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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission file number 0-26582

World Airways, Inc.

Registrant’s telephone number, including area code:

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 þ          No o

      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. þ

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

      Aggregate market value of Common Stock held by non-affiliates as of June 30, 2003 was approximately $20,204,000.

      As of the close of business on March 3, 2004, 11,446,598 shares of Common Stock were outstanding.

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.

WORLD AIRWAYS, INC.

TABLE OF CONTENTS

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PART I

      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, 2003, the Company operated eleven MD-11 and seven DC-10-30 aircraft. 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, those set forth under “Risk Factors” below or 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.

Available Information

      The Company makes its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, available free of charge under the Investor Relations page on its website, www.worldairways.com, as soon as reasonably practicable after such reports are electronically filed with the Securities and Exchange Commission. In addition, the Company’s Code of Ethics for Chief Executive and Senior Financial Officers, which applies to the Company’s principal executive officer, principal financial officer and principal accounting officer or controller, or persons performing similar functions, is posted on the Company’s website. The Company intends to disclose any amendments to, or waivers of, this Code of Ethics on its website.

Recent Developments

      The Company’s cockpit crewmembers are represented by the International Brotherhood of Teamsters (the “Teamsters”) and are subject to a collective bargaining agreement that became amendable June 30, 2003. In December 2003, the Company announced that it would begin negotiations with the cockpit crewmembers in January 2004. It was also announced that the Teamsters had requested mediation services from the National Mediation Board (the “NMB”). Following three days of negotiations in January 2004, the Company and representatives of the Teamsters reached a tentative agreement for a contract extension. However, on February 27, 2004, the Company received notification that the tentative agreement was not ratified by a majority of the Teamsters membership. The Company will reconvene negotiations with the Teamsters at a later date.

      In February 2004, the Company announced that its Chairman and Chief Executive Officer (“CEO”), Hollis L. Harris gave notice to the board of directors of his plan to retire from the Company. Effective April 1, 2004, Mr. Harris will give up the title of CEO and he will retire from the board of directors at the Company’s May 6, 2004 annual meeting of stockholders. General Ronald R. Fogleman will be named non-executive Chairman of the board effective at the May 6, 2004 annual meeting of stockholders. The Company intends to retain Mr. Harris as a consultant for a period of up to two years. Randy J. Martinez, President and Chief Operating Officer, will become President and Chief Executive Officer and Jeffrey L. MacKinney, Senior Vice President of Planning and Corporate Development, will become Chief Operating Officer, both effective April 1, 2004. Mr. Martinez will also become a member of the board of directors to fill the unexpired term of Dato’ Wan Malek Ibrahim on April 1, 2004.

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      In the first quarter of 2004, the Company returned to its lessor one of its DC-10-30 freighter aircraft. The term of the lease agreement for another DC-10 freighter aircraft has expired. The Company is currently negotiating with the lessor regarding various issues relating to the return of this aircraft and expects to resolve them during the second quarter of 2004. Under the terms of the lease, the Company has continued to pay rent on a month-to-month basis on this aircraft until its return is accepted by the lessor.

      In a February 6, 2004 press release, the Company announced its intention to introduce two Boeing 767-300ER passenger aircraft to its fleet in the fourth quarter of 2004. These new aircraft are intended to replace two DC-10-30 passenger aircraft that will be returned to their lessor at scheduled lease termination dates in the second half of 2004. Following an extensive review of the Boeing 767 market, the Company has identified several B767-300ER aircraft that meet its technical and financial requirements. However, because these particular aircraft are not available until the first half of 2005, the Company has elected to defer this introduction until the first part of 2005. The Company anticipates executing commitment letters for these aircraft during the second quarter of 2004.

      On December 30, 2003, the Company completed a major financial restructuring under which it (a) closed a $30.0 million term loan facility (the “ATSB Loan”) backed by a $27.0 million guarantee issued by the Air Transportation Stabilization Board (“ATSB”); (b) issued $25.5 million principal amount of 8.0% Convertible Senior Subordinated Debentures due 2009 (the “New Debentures”) in exchange for $22.5 million principal amount of the Company’s then existing 8.0% Convertible Senior Subordinated Debentures due 2004 (the “Old Debentures”) and $3.0 million cash; (c) called for redemption the remaining balance of $18.0 million of the Old Debentures; and (d) terminated the Wells Fargo Foothill, Inc. Loan and Security Agreement (the “Foothill Facility”). As additional compensation for the federal loan guarantee, the Company issued to the ATSB warrants to purchase an aggregate of 2,378,233 shares of Common Stock. As a condition of the ATSB Loan, the Company was required to exit the Foothill Facility prior to the contractual term. As a result, the Company was required to pay an early termination fee to Wells Fargo Foothill, Inc., including expenses, of $1.3 million. The ATSB Loan agreement contains a number of financial and negative covenants that the Company must observe throughout the term of the ATSB Loan. The $18.0 million principal amount of the remaining Old Debentures was redeemed on January 28, 2004. See Note 7 in the “Notes to Consolidated Financial Statements” in Item 8 for additional information.

Ownership

      At December 31, 2003, Naluri Berhad, a Malaysian aviation company, owned 10.7% of the outstanding Common Stock of World Airways and the balance was widely held.

Overview & Operating Environment

      World Airways focuses its marketing efforts on the United States Air Force (“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. The Company can respond to rapidly changing market conditions and requirements because its fleet of passenger aircraft can be deployed in a variety of configurations.

      The Company’s operating philosophy is to build on its existing relationships to achieve a strong platform for future growth while at the same time expanding 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.

      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 fees, ground handling and fuel. The Company attempts to maximize profitability by entering into both ACMI contracts and full service agreements that meet the

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      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.

      Similar to other air transportation companies, 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.

      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, 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.

      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.

      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

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      The Company has unsold capacity in the second quarter of 2004 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 2004 and beyond.

Customers

      The Company is highly dependent on revenues from the USAF and 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 were as follows:

      USAF. 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 the Civil Reserve Air Fleet (“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 provide for known and determinable amounts of revenue to be received during the contract period, which runs from October 1st to September 30th, 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 the original contract awards (in millions) which include fixed and an expansion estimate for 2003 and 2002, and run from October 1st to September 30th. The actual revenue from the USAF for each of the Company’s last three fiscal years is shown below the contract award amounts.

      Differences in the composition of the teaming arrangements, aircraft used to support the contract and a smaller long-term expansion budget led to the difference in the contract value for the Company between 2003 and 2002.

      The original contract award for the year beginning October 1, 2003 and ending September 30, 2004 is $125.8 million for fixed flying. The USAF did not incorporate long-term expansion flying into the contract for fiscal year 2004. The Company also will receive additional expansion business during the fiscal year 2004 contract period for less predictable flying and other short notice requirements.

      In February 2003, the Secretary of Defense gave authority to the commander, U.S. Transportation Command (USTRANSCOM), to activate Stage I of the CRAF to provide the Department of Defense

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      The authority to activate CRAF Stage I involved 22 U.S. airline companies and their 78 commercial aircraft — 47 passenger aircraft and 31 wide-body cargo aircraft. While the authority was for all 78 commercial aircraft in the CRAF Stage I program, the USTRANSCOM commander only activated 47 passenger aircraft. U.S. military airlift aircraft and CRAF volunteered commercial cargo aircraft were sufficient to meet the cargo airlift requirements.

      The Company had three MD-11 passenger aircraft activated under CRAF Stage I. The Company also had one MD-11 cargo aircraft under Stage I, but it was not activated. The activation became effective February 9, 2003 and lasted through and including June 17, 2003 for a total of 129 days.

      Revenue generated from the USAF under the CRAF activation during 2003 was $41.0 million. Revenue from the USAF will continue to be a significant portion of total revenues for the Company in 2004, however, the Company 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.

      Menlo. The Company has provided an MD-11F freighter aircraft to Menlo Worldwide (formerly Emery Air Freight Corporation) since October 1998. The program for the aircraft, which has been extended through December 2004, 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 freighter aircraft for Menlo during fiscal 2003.

      Sonair. In November 2000, the Company began operating regular private charter air service for Sonair, a subsidiary of Angola’s National Oil Company, SONANGOL, in support of Angola’s developing petroleum industry. Initial service was provided between Houston, Texas, and Luanda, Angola, twice a week. In January 2003, the Company began flying a third weekly flight for Sonair between Houston, Texas, and Malabo, Equatorial Guinea. In July 2003, the Company announced an extension of the Sonair agreement to June 2004 that resulted in total 2003 revenues in excess of $27.0 million. The new contract extension also includes two one-year renewal options that could further extend the relationship to June 2006 and provide a total of $85 million in revenue over the three-year term.

      Garuda. The Company has flown for Garuda periodically since 1973. The Company operated three aircraft for Garuda during the 2001 Hadj pilgrimage. The Company did not provide Hadj airlift services in 2003 or 2002 because of weakened demand and various security considerations due to the September 11, 2001 events. The Company does not have plans to provide this service in the foreseeable future.

      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 $158.4 million and $154.5 million at December 31, 2003 and 2002, respectively. Approximately 75% of the backlog at December 31, 2003 relates to the Company’s contract with the USAF, and the entire $158.4 million of backlog relates to air transportation services for 2004. See Note 12 of the Company’s “Notes to Consolidated Financial Statements” in Item 8 for additional information regarding major customers and foreign source revenue.

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Maintenance

      Airframe and engine maintenance costs, which 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 Air Repair (“Triumph”) for the repair of auxiliary power units on the MD-11 and DC-10-30 aircraft. The 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 that 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 will have been overhauled, which should be in the first quarter of 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 the Company’s operations because, in general, the Company’s contracts with its customers that cover 96% 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. The Company annually solicits quotes for prices of aviation fuel from a group of suppliers at each location. 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 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 currently operate any scheduled services on its own behalf.

      The Company is subject to the jurisdiction of the Federal Aviation Administration (“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

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      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.

      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 the cost of replacement, including labor and material, will total approximately $0.5 million per aircraft and approximately 31% of this work was complete as of December 31, 2003.

      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 $77,000 per MD-11 aircraft and $129,000 per DC-10-30 aircraft. In October 2001, the FAA also issued an AD that requires the Company to modify the engine thrust reversers on its DC-10-30 aircraft by October 1, 2006 and will cost approximately $0.5 million per aircraft. In response to the events of September 11th, 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 by installing new cockpit doors on all its passenger aircraft. Three cargo aircraft are operating under SFAR 92 guidelines with the required restraint bars and new cockpit doors are to be installed in the first quarter of 2004. There may be other aircraft modifications that may be required in the future under the SFAR.

      In the fall of 2003, the FAA issued an AD that requires 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 June 30, 2009.

      Due to increased airport security needs as a result of the September 11th events and the potential for future terrorist 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. From June 2003 through September 2003, the TSA suspended all airlines’ requirement to remit both the per passenger fee and the monthly infrastructure fee.

      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.

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      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 Company believes it is in substantial 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 by the military approximately every two years as a condition of retaining its eligibility to perform military charter flights. The last such inspection was undertaken in 2003 and the Company met the requirements for continued participation in the CRAF program. 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.

Employees

      As of December 31, 2003, the Company had 1,241 full time equivalent employees classified as follows:

      The Company’s cockpit crewmembers are represented by the Teamsters and are subject to a collective bargaining agreement that became amendable June 30, 2003. In December 2003, the Company announced that it would begin negotiations with the cockpit crewmembers in January 2004. It was also announced that the Teamsters had requested mediation services from the NMB. Following three days of negotiations in January 2004, the Company and representatives of the Teamsters reached a tentative agreement for a contract extension. However, on February 27, 2004, the Company received notification that the tentative agreement

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      On September 2, 2003, the Company’s flight attendants, who are also represented by the Teamsters, ratified a new three-year collective bargaining agreement that has a new amendable date of August 31, 2006. The agreement includes pay increases and other benefit changes requested by the flight attendants, while providing the Company work-rule changes in support of its financial goals.

      The Company’s aircraft dispatchers, who are represented by the Transport Workers Union (“TWU”), are subject to a collective bargaining agreement that became amendable December 31, 2003. Fewer than 15 Company employees are covered by this collective bargaining agreement. The Company and the TWU commenced formal negotiations in January 2004.

      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.

Risk Factors

      The Company cautions the reader that the risk factors discussed below may not be exhaustive. The Company operates in a continually changing business environment and new risk factors emerge from time to time. The Company cannot predict such new risk factors, nor can it assess the impact, if any, of such new risk factors on the Company’s business or the extent to which any factor or combination of factors may cause actual results to differ materially from those expressed in any forward-looking statement.

      At December 31, 2003, the Company had $57.2 million of long-term debt outstanding, including $30.0 million outstanding under the ATSB Loan and $25.5 million aggregate principal amount of the New Debentures. In addition, the Company has significant long-term obligations relating to operating leases in connection with its aircraft and spare engines and its leased real property. At December 31, 2003, these obligations totaled $286.3 million through 2008 and $248.7 million thereafter.

      As a result of the Company’s high financial leverage:

	•	The Company does not have the ability to obtain additional financing. The Company’s indebtedness outstanding under the ATSB Loan is secured by substantially all of its assets. In addition, the ATSB Loan contains restrictive provisions which require prepayments in the event that the Company sells any significant assets, receives proceeds from future borrowings from other sources and issuances of certain securities, or receives net proceeds from insurance and condemnation.
	•	The Company’s ability to fund general corporate requirements, including capital expenditures, may be impaired. The Company has substantial obligations to pay principal and interest on its debt and other recurring fixed costs. Further, the Company may be required to prepay portions of the ATSB Loan under various circumstances. Accordingly, the Company may have to use its working capital to fund such payments and other recurring fixed costs instead of funding general corporate requirements.
	•	The Company’s ability to respond to competitive developments and adverse economic conditions may be limited. Without the ability to obtain additional financing and with substantial fixed costs, the Company may not be able to fund the capital expenditures required to keep it competitive or to withstand prolonged adverse economic conditions.

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      The ATSB Loan and the operating leases relating to some of the Company’s aircraft contain restrictive covenants that impose significant operating and financial restrictions on the Company. Under the loan agreement governing the ATSB Loan, the Company is subject to certain covenants pursuant to which the Company must satisfy various financial covenants requiring it to maintain a certain amount of unrestricted cash or cash equivalents and to comply with certain financial ratios.

      In addition, the ATSB Loan agreement also contains a number of negative covenants, including, but not limited to, restrictions on:

	•	granting additional liens on the Company’s property or making significant investments;
	•	paying dividends, redeeming capital stock, repricing outstanding stock options or repaying indebtedness other than the ATSB Loan;
	•	liquidating, winding up, dissolving or engaging in certain acquisitions or certain sale-leaseback transactions;
	•	engaging in certain transactions with affiliates or certain asset sales;
	•	engaging in any business unrelated to the Company’s existing business;
	•	consolidating, merging with or into another entity or selling substantially all of the Company’s assets unless certain conditions are satisfied; and
	•	amending the terms of agreements relating to the Company’s other indebtedness for borrowed money or granting any additional negative pledges.

      These restrictions and requirements may limit the Company’s financial and operating flexibility. In addition, if the Company fails to comply with these restrictions or to satisfy these requirements, its obligations under the ATSB Loan and its operating leases may be accelerated. The Company cannot assure its stockholders that it would be able to satisfy all of these obligations upon acceleration. The failure to satisfy these obligations would materially adversely affect the Company’s business, operations and financial results as well as the value of the Company’s Common Stock.

      Under the ATSB Loan, $27.0 million of the Company’s indebtedness bears interest at fluctuating interest rates based on the lender’s weighted average cost of issuing commercial paper, and if the loan is assigned to a third party, will bear interest based on the London interbank offered rate (“LIBOR”). The balance of the Company’s indebtedness under the ATSB Loan bears interest at fluctuating rates based on LIBOR. LIBOR rates tend to fluctuate based on general economic conditions, general interest rates, including the prime rate, and the supply of and demand for commercial paper or for credit in the London interbank market. The Company has not hedged its interest rate exposure and, accordingly, the Company’s interest expense for any particular period may fluctuate based on LIBOR rates. To the extent these rates increase, the Company’s interest expense will increase, in which event the Company may have difficulties making interest payments and funding its other fixed costs and its available cash flow for general corporate requirements may be adversely affected.

      The Company is highly dependent on revenues from the U.S. Air Force. Revenues from USAF represented 74.7% and 72.2% of the Company’s total revenues for the years ended December 31, 2003 and 2002, respectively. The Company provides transportation services to the USAF under annual contracts. If the Company loses these contracts with the USAF, or if the USAF reduces substantially the amount of business it

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      Non-military customers who have contracted with the Company may cancel or default on their contracts, and the Company may not be able to obtain other business to cover the resulting loss in revenues. For the year ended December 31, 2003, the Company’s five largest non-military customers accounted for approximately 20.2% of its total operating revenues. If these customers cancel or default on their obligations and the Company is not able to obtain other business, its financial position could be materially adversely affected.

      Due to the high fixed costs of leasing and maintaining the Company’s aircraft and costs for cockpit crew members and flight attendants, each of the Company’s aircraft must have high utilization in order for the Company to operate profitably. Although the Company’s preferred strategy is to enter into long-term contracts with its customers, the terms of the Company’s existing customer contracts are in most cases substantially shorter than the terms of the Company’s lease obligations with respect to its aircraft. The Company cannot provide assurance that it will be able to enter into additional contracts with new or existing customers or that the Company will be able to obtain enough additional business to fully utilize each aircraft. The Company’s financial position and results of operations could be materially adversely affected by periods of low aircraft utilization and yields.

      The Company may incur substantial losses in the event of an aircraft accident. These losses may include the repair or replacement of a damaged aircraft, and the consequent temporary or permanent loss of the aircraft from service, loss of business due to negative publicity, as well as claims of injured passengers and other persons for destroyed cargo.

      The Company is required by contractual obligations with lessors, the DOT, and company policy to carry liability insurance on each of its aircraft. The Company currently maintains liability insurance for passengers and third party damages, excluding those caused by war or terrorist attacks, in the amount of $1.5 billion. In addition, the Company currently maintains liability insurance for passenger liability and third party damages caused by war or terrorist attacks in the amount of $1.5 billion per occurrence with an annual aggregate limit of $3.0 billion provided by the U.S. Government.

      Although the Company believes its insurance coverage is adequate, it cannot provide assurance that the amount of its insurance coverage will not change or that the Company will not be forced to bear substantial losses from accidents. Substantial claims resulting from an accident could have a material adverse effect on the Company’s business, operations and financial results and could seriously inhibit customer acceptance of its services.

      The Company is subject to the jurisdiction of the FAA, with respect to aircraft maintenance and other matters affecting air safety. Manufacturer Service Bulletins and FAA Airworthiness Directives could cause aircraft operators to be subject to extensive aircraft examinations and could require aircraft to undergo structural inspections and modifications. It is possible that Manufacturer Service Bulletins or Airworthiness Directives applicable to the types of aircraft or engines included in the Company’s fleet could be issued in the future. The Company cannot currently estimate the cost of compliance with new Manufacturer Service

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      The Company has agreements with contractors, including other airlines, to provide certain facilities and services required for its operations, including all of the Company’s off-wing engine maintenance and most airframe maintenance. The Company also has agreements with contractors to provide security, ground handling and personnel training. The failure of these contractors to provide essential services that are not otherwise entirely within the Company’s control could have a material adverse effect on its financial condition and results of operations.

      The Company’s flight attendants are represented by the Teamsters. On September 3, 2003, the Company’s flight attendants ratified a collective bargaining agreement proposed in July 2003 to extend the flight attendants collective bargaining agreement until August 31, 2006 and to allow for pay increases and other benefit changes requested by the flight attendants. On January 16, 2004, the Company reached a three-year tentative agreement with the Teamsters covering the Company’s cockpit crewmembers. The updated agreement called for work rule changes and wage increases. On February 27, 2004, the Company received a notification that the tentative agreement was not ratified by a majority of the Teamsters’ members. The Company will reconvene negotiations with the Teamsters at a later date. The Company is unable to predict whether any of its employees not currently represented by a labor union, such as its maintenance personnel, will elect to be represented by a labor union or collective bargaining unit. The election of such employees for union representation could result in employee compensation and working condition demands that could have a material adverse effect on the Company’s financial condition and results of operations. The Company is also unable to predict whether its flight attendants will choose to renew their collective bargaining agreement in 2006.

      The Company is subject to government regulation and control under the laws of the United States and the various other countries in which it operates. The Company is also governed by bilateral air transport services agreements between the U.S. and the countries to which the Company provides airline services. The Company is subject to Title 49 of the United States Code under which the DOT and the FAA exercise regulatory authority. Additionally, foreign governments assert jurisdiction over air routes and fares to and from the U.S., airport operation rights and facilities access. Due to the Company’s participation in the Civil Reserve Air Fleet, it is subject to inspections approximately every two years by the USAF as a condition to retaining the Company’s eligibility to provide military charter flights. 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.

      The Company periodically receives correspondence from the FAA with respect to minor noncompliance matters. While the Company believes that it is currently in compliance in all material respects with all appropriate FAA standards and has obtained all required licenses and authorities, any material non-compliance with such standards or the revocation or suspension of licenses or authorities could have a material adverse effect on the Company’s financial condition and results of operations.

      The air transportation industry is heavily regulated. Both federal and state governments from time to time propose laws and regulations that impose additional requirements and restrictions on air transportation

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      The market for outsourcing air passenger and cargo ACMI (aircraft, crew, maintenance and insurance) services and full service charter business is highly competitive. Certain of the passenger and cargo air carriers against which the Company competes possess substantially greater financial resources and more extensive facilities and equipment than those which are now, or will in the foreseeable future become, available to the Company. The Company believes that the most important bases for competition in the ACMI outsourcing business are the age of the aircraft fleet, the passenger, payload and cubic capacities of the aircraft, and the price, flexibility, quality and reliability of the air transportation services provided. The Company’s 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 and Centurion Air Cargo, as well as scheduled and non-scheduled passenger carriers that have substantial belly capacity. The Company’s ability to continue to grow depends upon its success in convincing major international airlines that outsourcing some portion of their air passenger and cargo business remains more cost-effective than undertaking passenger or cargo operations with their own incremental capacity and resources. The allocation of military air transportation contracts by the USAF is based upon the number and type of aircraft a carrier, alone or through a teaming arrangement, makes available for use in times of national emergencies. The formation of competing teaming arrangements comprised of larger partners than those sponsored by the Company, an increase by other air carriers in their commitment of aircraft to the emergency program, or the withdrawal of the Company’s current partners, could adversely affect the size of the USAF contracts which may be awarded to the Company in future years.

      Many of the Company’s executive officers are key to the management of the Company’s business and operations. The Company’s future success depends on its ability to retain these officers and other capable managers. Although the Company believes that it could replace key personnel given adequate prior notice, the unexpected departure of key executive officers could cause substantial disruption to the Company’s business and operations. In addition, the Company may not be able to retain and recruit talented personnel without incurring substantial costs.

      The air travel business historically fluctuates on a seasonal basis and in response to general economic conditions. Due to the greater demand for air and leisure travel during the summer months, revenues in the airline industry in the second and third quarters of the year tend to be greater than revenues in the first and fourth quarters of the year. In addition, the airline industry is highly susceptible to unforeseen events that

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      The terrorist attacks of September 11, 2001 have had, and continue to have, a wide-ranging negative impact on the air transportation industry because they resulted in, among other things:

	•	a reduction in the demand for travel;
	•	an increase in costs due to enhanced security measures and government directives in response to the terrorist attacks;
	•	an increase in the cost of aviation insurance in general, and the cost and availability of coverage for acts of war, terrorism, hijacking, sabotage and similar acts of peril in particular; and
	•	the other risks discussed in this Annual Report.

      The terrorist attacks of September 11, 2001 resulted in staggering losses to the insurance industry. These losses resulted in a significant increase in the Company’s insurance premiums, which has negatively impacted its financial results, and could lead to future increases in its insurance premiums. In addition, these losses caused general instability in the insurance industry that could adversely affect some of the Company’s existing insurance carriers or its ability to obtain future insurance coverage. To the extent that the Company’s existing insurance carriers are unable to provide the insurance coverage contracted for, its insurance costs may further increase.

      Moreover, since September 11, 2001, the Company and others in the airline industry have been unable to obtain third party war risk, terrorism, hull and liability insurance at reasonable rates from the commercial insurance market and have been obtaining this insurance through a special program administered by the FAA. The Emergency Wartime Supplemental Appropriations Act extended this insurance protection until August 2004. Should the federal insurance program terminate, the Company would likely face a material increase in the cost of such insurance. Because of competitive pressures in the Company’s industry, the Company’s ability to pass these additional costs to customers would be limited and the increased costs could be material to its financial condition.

      At December 31, 2003, there were outstanding warrants to purchase an aggregate of 4,378,223 shares of the Company’s common stock. In addition, the Company has outstanding $25.5 million aggregate principal amount of the New Debentures. All of the shares subject to the Company’s outstanding warrants and the New Debentures have been or will be registered for resale under the Securities Act, and, therefore, may be sold in the public market. Any sales in the public market of common stock issued upon the exercise of warrants or upon the conversion of the New Debentures could adversely affect prevailing market prices of the Company’s common stock. In addition, the existence of the warrants and the New Debentures may encourage short selling by market participants because exercise of the warrants or conversion of the New Debentures could depress the price of the Company’s Common Stock.

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      The Company’s Common Stock is listed for trading on the Nasdaq SmallCap Market (“Nasdaq”), under the symbol “WLDA.” In order to continue to be listed on Nasdaq, however, the Company must meet certain criteria, including one of the following:

	•	maintaining $2,500,000 in stockholders’ equity;
	•	having a market capitalization of at least $35,000,000; or
	•	generating annual net income of $500,000.

In addition, the minimum bid price of the Company’s Common Stock must be at least $1.00 per share. The potential dilution resulting from the exercise of warrants issued to the ATSB in connection with the ATSB Loan, as well as other events beyond the Company’s control, could cause the per share market price of the Company’s Common Stock to drop below the minimum bid price of $1.00 per share. As of December 31, 2003, the Company did not satisfy the requirement for stockholders equity. The failure to meet Nasdaq’s maintenance criteria may result in the delisting of the Company’s Common Stock from Nasdaq. As a result of such delisting, the Company’s stockholders could find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, the Company’s Common Stock.

      The market price of the Company’s Common Stock has been subject to significant fluctuations in response to the Company’s operating results and other factors. The market price of the shares of the Company’s Common Stock has varied significantly and may be volatile depending on news announcements and changes in general market conditions. In particular, news announcements regarding quarterly results of operations, competitive developments, litigation or governmental regulatory actions impacting the Company may adversely affect the price of the Company’s Common Stock. In addition, the sale of a substantial number of shares of Common Stock in a short period of time could adversely affect the market price of the Common Stock. Also, the stock market has from time to time experienced extreme price and volume volatility. These fluctuations may be unrelated to the operating performance of particular companies whose shares are traded. Market fluctuations may adversely affect the market price of the Company’s Common Stock. The Company cannot assure its stockholders that the market price of its Common Stock will not decline in the future.

      Certain provisions of Delaware law and the Company’s Certificate of Incorporation and Bylaws could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of the Company. Certain of these provisions allow the Company to issue preferred stock with rights senior to those of the Common Stock without any further vote or action by the holders of Common Stock. The issuance of preferred stock could decrease the amount of earnings and assets available for distribution to the holders of Common Stock or could adversely affect the rights and powers, including v