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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

OR

Commission File Number 0-26582

WORLD AIRWAYS, INC.

(Exact name of registrant as specified in its charter)

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

(Address of Principal Executive Offices)

(770) 632-8000

(Registrant’s telephone number, including area code)

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

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

The number of shares of the registrant’s Common Stock outstanding on April 30, 2003 was 11,077,098.

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WORLD AIRWAYS, INC.

MARCH 31, 2003 QUARTERLY REPORT ON FORM 10-Q

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ITEM 1. FINANCIAL STATEMENTS

WORLD AIRWAYS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

(in thousands)

(Continued)

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WORLD AIRWAYS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(continued)

LIABILITIES AND STOCKHOLDERS’ DEFICIENCY

(in thousands except share amounts)

See accompanying Notes to Condensed Consolidated Financial Statements

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WORLD AIRWAYS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended March 31, 2003 and 2002

(in thousands except per share data)

(unaudited)

See accompanying Notes to Condensed Consolidated Financial Statements

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CONDENSED CONSOLIDATED STATEMENTS OF CHANGES

IN STOCKHOLDERS’ DEFICIENCY

Three Months Ended March 31, 2003

(in thousands except share amounts)

(unaudited)

See accompanying Notes to Condensed Consolidated Financial Statements.

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WORLD AIRWAYS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31, 2003 and 2002

(in thousands)

(unaudited)

See accompanying Notes to Condensed Consolidated Financial Statements.

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WORLD AIRWAYS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

These interim period Condensed Consolidated Financial Statements and accompanying footnotes should be read in conjunction with the Consolidated Financial Statements contained in World Airways’ Annual Report on Form 10-K for the year ended December 31, 2002.

The following table sets forth the computations of basic and diluted earnings per share (in thousands except per share data):

At March 31, 2003, the Company has three stock-based compensation plans. The Company accounts for those plans under the recognition and measurement principles of Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based compensation cost is reflected in net earnings, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net earnings and

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earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based compensation (in thousands, except share data):

The per share weighted-average fair value of stock options granted during the first quarter of 2003 and 2002 was $0.77 and $0.47, respectively, on the date of grant using the Black Scholes option-pricing model with the following weighted-average assumptions:

On or before May 19, 2003, the Company must demonstrate a closing bid price of at least $1.00 per share and immediately thereafter a closing bid price of at least $1.00 for a minimum of ten consecutive trading days to comply with NASDAQ listing criteria. Beginning August 27, 2002, the Company’s stock began trading under the symbol WLDAC. In the event that the Company is deemed to have met the terms of the listing criteria, it shall continue to be listed on The NASDAQ SmallCap Market. At that time, the stock will return to its original symbol, WLDA.

On April 23, 2003, the Company was granted conditional approval from the Air Transportation Stabilization Board (“ATSB”) for a federal loan guarantee of $27 million. This offer was extended, subject to satisfaction, as determined by the ATSB at its sole discretion, of all of the conditions in the Act and the regulations (14 CFR Part 1300) and the following:

The ATSB will continue to perform business and legal due diligence as the transaction progresses and the Company will be working expeditiously with the ATSB to meet the required conditions. The Company plans to use these funds for working capital as well as to support longer-term growth plans. There can be no assurance that the conditions will

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be met and that this source of financing will be available to the Company.

The Company is obligated under an operating lease for office space at its former headquarters in Herndon, Virginia through April 2006. The Company received rental income, sufficient to offset its lease expense through March 2002, after which time no rental income was received. The Company is currently seeking a new sub-lessee for this office space. As a result, the Company recognized a $1.7 million liability at December 31, 2002 for costs that will continue to be incurred, without economic benefit to the Company, over the remaining term of its lease of this office space. During the first quarter of 2003, the Company used $0.4 million of the accrual for lease costs incurred during the quarter. The Company reviewed its estimates and assumptions at March 31, 2003, and determined that an additional $0.4 million should be added to the accrual, resulting in a $1.7 million balance at March 31, 2003. The fair value of the liability was determined based on the remaining lease rentals, reduced by estimated sublease rentals that can be reasonably obtained for the property. The liability is included in other accrued liabilities on the accompanying consolidated balance sheets.

If the Company is not successful in finding a suitable sub-lessee in the anticipated time or if the sublease rentals from a new sub-lessee are less than anticipated, the Company will be required to recognize an additional liability for these costs. This liability will be adjusted for changes, if any, resulting from revisions to estimated cash flows, measured using the credit-adjusted risk-free rate that was used to measure the liability initially of 8 percent.

The Company’s total obligation at March 31, 2003 under the lease is $4.8 million.

The Company’s flight attendants, approximately 42% of the Company’s employees, who are represented by the International Brotherhood of Teamsters, are subject to a four-year collective bargaining agreement that became amendable July 1, 2000. 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 returned to mediation on April 15, 2003, at the request of the National Mediation Board. After mediation, a contract proposal was presented to the flight attendant union, and the proposal was subsequently rejected by the flight attendant negotiating team. On April 21, 2003, the Company received notification from the National Mediation Board that its case with the flight attendants was put in recess until further notice. This means that mediation efforts will be discontinued indefinitely and the current contract will remain in effect.

On April 16, 2003, President Bush signed into law the Emergency Wartime Supplemental Appropriations Act, 2003 (the “Act”) which includes distribution of funds to air carriers to offset the increased costs of compliance with new federal safety and security regulations mandated following the events of September 11, 2001. There is also a provision allocating funds to be disbursed specifically for the reimbursement of expenses related to cockpit door reinforcement. As a condition of accepting funds under the Act, the Company was required to enter into a contract limiting executive compensation, as defined in the Act. The Company estimates that it will receive approximately $475,000 related to reimbursement of security expenses, with the first payment in mid-May. The Transportation Security Administration has not yet determined the manner in which funds will be allocated to each air carrier for the expenses related to reinforcing the cockpit doors.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Part I, Item 2 of this report should be read in conjunction with Part II, Item 7 of World Airways, Inc. (“World Airways” or the “Company”) Annual Report on Form 10-K for the year ended December 31, 2002. The information contained herein is not a comprehensive management overview and analysis of the financial condition and results of operations of the Company, but rather updates disclosures made in the aforementioned filing.

The Company desires to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 (the “Act”). Therefore, this report contains forward looking statements that are subject to risks and uncertainties, including, but not limited to, the reliance on key strategic alliances, fluctuations in operating results and other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission. These risks could cause the Company’s actual results for 2003 and beyond to differ materially from those expressed in any forward looking statements made by, or on behalf of, the Company.

OVERVIEW

General

For the first quarter of 2003, the Company’s net earnings were $6.6 million compared to net earnings of $4.9 million for the same period in 2002.

The following table provides statistical data, used by management in evaluating the operating performance of the Company, for the quarters ended March 31, 2003 and 2002.

Significant Customer Relationships

The Company is highly dependent on revenues from the U.S. Air Force (“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 quarter ended March 31, 2003 and 2002 are as follows:

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RESULTS OF OPERATIONS

Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002

Operating Revenues. Revenues from operations increased $35.6 million, or 40.4%, to $123.6 million in 2003 from $88.0 million in 2002. The revenue increase in the first quarter of 2003 was due principally to an increase in both military passenger and cargo flying under the contract with the USAF. The increase in revenue resulted from expansion flying and additional revenues from the Civil Reserve Air Fleet activation. Total block hours increased 38.6% and the yield per block hour increased slightly due to more full-service flying.

Operating Expenses. Total operating expenses increased $34.2 million, or 41.8% in 2003 to $116.0 million from $81.8 million in 2002.

Flight operations expenses include all expenses related directly to the operation of the aircraft other than aircraft costs, fuel and maintenance. Also included are expenses related to flight dispatch and flight operations administration. Flight operations expenses increased $9.2 million, or 36.5%, in 2003. This resulted primarily from an increase of $2.7 million in flight communication costs, $2.3 million in pilot crew costs, $2.0 million in landing/security/handling fees, and $1.8 million of flight attendant expenses. These higher costs are directly attributable to increased full-service and cargo flying for the USAF in the first quarter of 2003 compared to the same period in 2002. In addition, the flight operations expenses were higher due to an accrual for estimated contractual profit sharing payments to flight employees for 2003.

Maintenance expenses increased $12.9 million, or 125.7%, in 2003. In the first quarter of 2003, the Company incurred $6.0 million more for engine overhauls than in the 2002 first quarter. Landing gear overhaul expense increased $1.6 million due to two overhauls in the first quarter of 2003, compared to none in the first quarter of 2002. Maintenance reserves and component repairs increased $1.8 and $0.7 million, respectively, due to the 38.6% increase in block hours flown as well as supporting two additional aircraft which were added to the fleet.

Fuel expenses increased $9.2 million, or 75.4%, in 2003 due to higher per-gallon costs as well as more consumption associated with the increase in full service flying. The Company is generally able to pass fuel cost increases through to its customers.

Sales, general and administrative expenses increased $1.7 million, or 23.7% in 2003. The increase was primarily due to an accrual for estimated profit sharing payments to management and administrative employees for 2003, higher travel costs for administrative employees whose job functions are directly affected by the increased volume in flying, and net rental expense for the former office space in Herndon, Virginia, for the first quarter of 2003, whereas in the first quarter of 2002 the Company’s rental expense was offset by sub-lease income.

LIQUIDITY AND CAPITAL RESOURCES

The Company is highly leveraged. At March 31, 2003, the Company’s current assets were $62.1 million and current liabilities were $84.0 million. The ratio of the Company’s current assets to its current liabilities (“current ratio”) was 0.7:1. Also, as of March 31, 2003, the Company had outstanding long-term debt of $40.5 million, that is due in August 2004. In December 2002, the Company hired an outside investment banker to assist in evaluating the Company’s financing options with respect to these convertible bonds. In addition, the Company has significant long-term obligations relating to operating leases for aircraft and spare engines. At March 31, 2003, the loan outstanding under the Loan and Security Agreement (“the Agreement”) with Foothill Capital Corporation (“Foothill”) was $13.7 million and the aggregate amount of outstanding letters of credit was $2.1 million. At March 31, 2003, the Company had a nominal amount of unused availability.

In fiscal 2002 and 2001, the Company paid amounts less than its original contractual aircraft rent obligations under agreements with its lessors that amended the terms of the original aircraft lease agreements to provide for the repayment of the unpaid contractual rent obligations. The accrual for unpaid contractual rent obligations is $14.5 million and is included as accrued rent in the current liabilities section of the Balance Sheet at March 31, 2003. During the remainder of 2003, the Company will repay approximately $6.2 million of this contractual accrued rent obligation.

On April 23, 2003, the Company was granted conditional approval from the Air Transportation Stabilization Board (“ATSB”) for a federal loan guarantee of $27 million. This offer was extended, subject to satisfaction, as determined by

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the ATSB at its sole discretion, of all of the conditions in the Act and the regulations (14 CFR Part 1300) and the following:

The ATSB will continue to perform business and legal due diligence as the transaction progresses and the Company will be working expeditiously with the ATSB to meet the required conditions. The Company plans to use these funds for working capital as well as to support longer-term growth plans. There can be no assurance that the conditions will be met and that this source of financing will be available to the Company.

Although there can be no assurances, World Airways believes that the combination of its existing contracts and additional business which it expects to obtain, along with its existing cash and financing arrangements, will be sufficient to allow the Company to meet its cash requirements related to operating and capital requirements for 2003.

Cash Flows from Operating Activities

Operating activities provided $2.6 million in cash during the three months ended March 31, 2003 compared to providing $3.5 million in the comparable 2002 period. The cash provided in 2003 principally reflects the $6.6 million net earnings offset by a $10.2 million increase in accounts receivable, plus a $ 5.0 million increase in cash due to changes in other operating assets and liabilities, and net non-cash income statement charges of $1.1 million. The cash provided in 2002 is mainly due to the $4.9 million net earnings, net non-cash income statement charges of $0.7 million and a net decrease of $1.2 million in other operating assets and liabilities offset by a $3.3 million increase in accounts receivable.

Cash Flows from Investing Activities

Investing activities used $1.1 million in the first three months of 2003 compared to using $0.2 million in the comparable period of 2002. In both 2003 and 2002, cash was used for the purchase of rotable parts. In 2002, this outflow was partially offset by proceeds form the disposal of equipment and property.

Cash Flows from Financing Activities

Financing activities used $6.2 million in cash for the three months ended March 31, 2003, which was primarily due to a reduction in the amount owed under the Agreement with Foothill of $3.4 million and deferred aircraft rent payments of $2.9 million. For the three months ended March 31, 2002, financing activities provided $58,000 of cash, which was due to deferred aircraft rent obligations of $3.9 million offset by a reduction in the amount owed under the Accounts Receivable Management and Security Agreement with GMAC Commercial Credit, LLC of $3.4 million and debt repayments of $0.5 million.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Part I, Item 3 of this report should be read in conjunction with Part II, Item 7a of World Airways, Inc. Annual Report on Form 10-K for the year ended December 31, 2002. The information contained herein is not a quantitative and qualitative discussion about market risk the Company faces, but rather updates disclosures made in the aforementioned filing.

World Airways continues to not have any material exposure to market risks.

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ITEM 4. CONTROLS AND PROCEDURES

We maintain a system of controls and procedures designed to provide reasonable assurance as to the reliability of the financial statements and other disclosures included in this report, as well as to safeguard assets from unauthorized use or disposition. We evaluated the effectiveness of the design and operation of our disclosure controls and procedures under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, within 90 days prior to the filing date of this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic Securities and Exchange Commission filings. No significant changes were made to our internal controls or other factors that could significantly affect these controls subsequent to the date of their evaluation.

PART II

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

None

ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) Exhibits

(b) Reports on Form 8-K

None

* * * * * * * * * * * * * * *

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SIGNATURES

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

Date: May 14, 2003

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CERTIFICATION PURSUANT TO 18 U.S.C. §1350,

AS ADOPTED PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Gilberto M. Duarte, Jr., Chief Financial Officer of World Airways, Inc (the “Company”), certify pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, that:

Date: 05/14/03

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CERTIFICATION PURSUANT TO 18 U.S.C. §1350,

AS ADOPTED PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Hollis L. Harris, Chairman and Chief Executive Officer of World Airways, Inc (the “Company”), certify pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, that:

Date: 5/14/03