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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2003

OR

For the transition period from                      to                     

Commission File No. 0-23224

GREAT LAKES AVIATION, LTD.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (307) 432-7000

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01

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

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

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

The aggregate market value of voting stock held by non-affiliates of the registrant as of June 30, 2003 was approximately $936,224.

As of February 29, 2004 there were 14,071,970 shares of Common Stock of the registrant issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

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GREAT LAKES AVIATION, LTD.

FORM 10-K

For the Fiscal Year Ended December 31, 2003

INDEX

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Forward-Looking Statements

In accordance with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, Great Lakes Aviation, Ltd. (“Great Lakes” or the “Company”) notes that certain statements in this Form 10-K and elsewhere are forward-looking and provide other than historical information. The Company’s management may also make oral, forward-looking statements from time to time. These forward-looking statements include, among others, statements concerning the Company’s general business strategies, financing decisions, and expectations for funding expenditures and operations in the future. The words, “believe,” “plan,” “continue,” “hope,” “estimate,” “project,” “intend,” “expect,” and similar expressions reflected in such forward-looking statements are based on reasonable assumptions, and none of the statements contained in this Form 10-K or elsewhere should be relied upon as predictions of future events. Such statements are necessarily dependent on assumptions, data, or methods that may be incorrect or imprecise, and may be incapable of being realized. The risks and uncertainties that are inherent in these forward-looking statements could cause actual results to differ materially from those expressed in or implied by these statements.

As more fully described in this report, important factors that could cause results to differ materially from the expectations reflected in any forward-looking statements include:

Readers are cautioned not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof. Changes may occur after that date, and the Company does not undertake to update any forward-looking statements except as required by law in the normal course of its public disclosure practices.

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PART I

General

Great Lakes Aviation, Ltd. (“Great Lakes” or “Company”) is a regional airline operating as an independent carrier and as a code share partner with United Air Lines, Inc. (“United Air Lines” or “United”) and Frontier Airlines, Inc. (“Frontier Airlines” or “Frontier”). As of February 29, 2004, the Company served 36 destinations in ten states to and from Denver, Colorado; three destinations in three states to and from Phoenix, Arizona; and two destinations in one state to and from Minneapolis, Minnesota.

General information about the Company can be found at www.greatlakesav.com. The Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, as well as any amendments and exhibits to those reports, are available free of charge through the Company’s web-site as soon as reasonably practicable after the Company has filed such reports with, or furnished them to, the United States Securities and Exchange Commission. Information on the Company’s web-site is not incorporated into, nor a part of, this Form 10-K or the Company’s other securities filings.

Essential Air Service Program

The Company derives approximately 33% of its total revenue from the Essential Air Service program (“EAS”), which is administered by the United States Department of Transportation (“DOT”). The EAS program was instituted under the Airline Deregulation Act of 1978 (the “Deregulation Act”) which allowed airlines greater freedom to introduce, increase, and generally reduce or eliminate service to existing markets. Under the EAS program, certain communities are guaranteed specified levels of “essential air service.” In order to promote the provision of essential air services, the DOT may authorize the payment of federal subsidies in order to compensate an air carrier that is providing essential air services in otherwise unprofitable or minimally profitable markets. An airline serving a community that qualifies for essential air services is required to give the DOT advance notice before the airline may terminate, suspend, or reduce service. Depending on the circumstances, the DOT may require the continuation of existing service until a replacement carrier is found. EAS rates are normally set for two-year contract periods for each city. Significant fluctuations in passenger revenues, as well as fluctuations in fuel pricing and other costs, may cause EAS routes to become unprofitable during these two-year terms.

At the end of the contract period for EAS service to a particular city, the DOT may request competitive proposals from other airlines. Proposals, when requested, are evaluated on, among other things, the level of service provided, the amount of subsidy requested, the fitness of the applicant, and comments from the communities served.

For the federal fiscal year ended September 30, 2001, the EAS budgeted subsidy funding level for the entire program was $50 million. In recognition of the impact of the terrorist attacks of September 11, and the contractual obligation to provide a fixed level of service to EAS communities by carriers receiving subsidies, Congress authorized the DOT to increase subsidy rates to compensate for reduced passenger revenues and higher level of expenses. Congress set the EAS funding level at $113 million for the fiscal year ended September 30, 2002 and at $113 million for the fiscal year ending September 30, 2003. As a result, the Company’s EAS revenues were approximately 36% ($30.6 million) of total revenue in 2002, up from 19% ($19.3 million) in 2001.

During 2003, the Company discontinued the provision of EAS service to six communities. As a result, the Company’s EAS revenues decreased to $25.1 million in 2003, down from $30.6 million in 2002. Due to decreases in other revenue categories, public service revenues still comprised approximately 33% of the Company’s total revenue in 2003, only slightly down from approximately 36% of total revenues in 2002. At March 15, 2004, the

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Company served 24 essential air service communities on a subsidized basis. Of these, 19 communities were being served under closed DOT rate orders and the remaining five were in the process of negotiation.

United Air Lines and Frontier Airlines Code Share Relationships

United Air Lines. Prior to May 2001, the Company operated under the United Air Lines identity as a United Express carrier. Effective May 1, 2001, the Company and United transitioned the United Express relationship and entered into a code share agreement by which the Company is allowed to place the United Air Lines flight designator code on certain Great Lakes flights that connect with United flights in Denver and Phoenix.

On December 9, 2002, UAL, Inc. and its subsidiaries, including United, filed for protection under Chapter 11 of the United States Bankruptcy Code. At the same time, United obtained an order from the bankruptcy court that allowed, but did not require, United to perform under its executory contracts relating to interline agreements, including United’s code share agreement with the Company.

In April 2003, the Company began negotiations with United to modify and extend the code share agreement beyond its original expiration date of April 30, 2004. During the negotiation process, United filed a pre-emptive motion in the bankruptcy court to reject the code share agreement. On July 11, 2003, the Company and United signed a Memorandum of Understanding outlining the terms of a proposed amendment to the code share agreement. On July 18, 2003, United withdrew its bankruptcy court motion to reject the code share agreement. Also effective on that date, the Company and United executed an amendment to the code share agreement that formalizes the current on-going relationship between the two companies.

Pursuant to the terms of the amendment to the code share agreement, the Company released its exclusive right to utilize the United Air Lines flight designator for five markets served by the Company with connecting service at United’s Denver hub. In exchange, certain code share restrictions, which had previously limited the Company’s ability to enter into code share and frequent flier programs with other airlines at the Denver hub, were removed. The Company and United also agreed on a payment structure for certain amounts owed by the Company to United. In addition, the amendment extended the term of the code share agreement through December 31, 2005 and, subject to the Company’s continued compliance with the code share agreement, United has conditionally agreed to further extend the term of the code share agreement through April 30, 2007. However, United retains the right to assume or reject the amended code share agreement at any time in connection with United’s ongoing bankruptcy proceedings. As of December 31, 2003, the Company was in compliance with United code share agreement, as amended.

Frontier Airlines. On May 3, 2001, the Company entered into a code share agreement with Frontier, which was implemented July 9, 2001. The Frontier agreement provides for the use of Frontier’s flight designator on Great Lakes’ flights connecting with Frontier’s flights in Denver. Accordingly, certain flights to and from Denver carry both the United Air Lines and Frontier Airlines flight designator as well as the Great Lakes flight designator. The Company’s code share agreement with Frontier remains in effect until terminated by either party upon at least 180 days prior written notice to the other party.

During 2003, the Company continued expansion of its code share relationship with Frontier. As a result, the Company commenced the operation of two new routes from the Company’s Denver hub to Rapid City, South Dakota and Grand Junction, Colorado, effective July 31, 2003 and August 1, 2003, respectively.

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Other Relationships

On October 14, 2003, Greyhound Lines, Inc. (“Greyhound”) and the Company executed a Bus Services Agreement. Under the Bus Services Agreement, Greyhound will provide bus transportation services for the Company in order to transport Great Lakes passengers between specified airport origins and airport destinations. Implementation of the Bus Services Agreement is currently pending final approval from the Transportation Security Administration.

Markets

As of December 31, 2003, the Company operated 91 departures daily from Denver, two departures daily from Minneapolis, and three departures daily from Phoenix.

During the first quarter of 2003, the Company discontinued service to and from the communities of Manistee, Ironwood, and Iron Mountain in the state of Michigan due to the DOT’s selection of another carrier to provide essential air services to those communities. On February 28, 2003, the Company also discontinued service to and from Oshkosh, Wisconsin after the community’s eligibility for EAS subsidy was terminated by the DOT. As a result of the discontinuance of service to and from the above-named communities, on March 1, 2003, the Company completed cessation of all operations at the Company’s former Chicago hub.

Effective September 2, 2003, the Company discontinued the operation of two routes from Minneapolis to Devil’s Lake, North Dakota and Jamestown, North Dakota due to the DOT’s selection of a different carrier to provide essential air services to these communities.

Marketing

The Company’s services are marketed primarily by means of the Company’s internet web-site, from listings in other computerized reservation systems, and through direct contact with travel agencies and corporate travel departments. The Company’s promotional programs emphasize the Company’s close affiliation with its code share partners and, in particular, the opportunity for the Company’s passengers to participate in the United Air Lines “Mileage Plus” frequent flyer program.

Yield Management

The Company closely monitors its inventory and pricing of available seats with yield management systems. These systems enable the Company’s revenue control analysts to examine the Company’s past traffic and pricing trends, and to estimate the optimal number of seats made available for sale at various fares. The analysts then monitor each flight to adjust seat allocations and booking levels, with the objective of maximizing the total revenue for each flight.

Charter and Freight Service

The Company uses its Beechcraft and Embraer Brasilia aircraft to provide charter services to private individuals, corporations, and athletic teams. The Company also carries freight, mail, and small packages on most of its scheduled flights. Revenues from the Company’s charter flights and freight air service were 2.6%, 4.0%, and 4.1% of the Company’s total revenues for the years ended December 31, 2003, 2002, and 2001, respectively.

During 2003, 2002, and 2001, all of the Company’s leased Beechcraft 1900C aircraft were dedicated to providing service under a United States Postal Service subcontract for carriage of mail to certain markets. Due to highly competitive bidding by other air carriers at rates that were not economically feasible for the Company, the Company elected to allow the United States Postal Service subcontract to expire as of July 27, 2003. Revenues from the

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Company’s subcontract with the United States Postal Service were 1.4%, 3.2%, and 2.9% of the Company’s total revenues for the years ended December 31, 2003, 2002, and 2001, respectively.

Competition

The Company competes for passenger traffic primarily with regional and major air carriers and ground transportation. The Company may also compete with other regional/small air carriers to provide Essential Air Service and receive subsidies for providing air service to small communities. The Company’s competition from other air carriers varies from location to location and, in certain areas, comes from regional and major carriers who serve the same destinations as the Company, but through different hub and spoke systems. The domestic airline industry has undergone major structural changes since the enactment of the Deregulation Act. Deregulation has made possible the rapid entry of competitors into the Company’s markets, and competitors are able to adjust fares rapidly to improve their competitive position. The Company could experience increased competition from existing competitors or from new entrants on one or more of the Company’s routes.

Almost all markets served by the Company are subject to a high degree of price competition, both from established carriers and low fare jet carriers. However, the Company believes that its ability to compete in its market areas is strengthened by its code share relationships with United and Frontier. The Company competes with other airlines by offering frequent flights, flexible schedules, and competitive fares. In addition, the Company’s competitive position benefits from the large number of participants in the United Air Lines “Mileage Plus” frequent flyer program. These participants receive mileage credits on flights operated by Great Lakes under its own identity and on connecting flights with United. Passengers may also redeem mileage credits for travel on Great Lakes flights and on United flights.

Aircraft

As of December 31, 2003, the Company’s fleet consisted of 33 Beechcraft Model 1900D 19-passenger aircraft and seven Embraer Brasilia Model 120 30-passenger aircraft. The Company also has two Beechcraft Model 1900C aircraft that were used exclusively for freight operations.

Beechcraft Aircraft. The Beechcraft 1900D aircraft are pressurized, radar equipped, and offer a 300-mile per hour cruising speed for 19 passengers, plus cargo, with a range of 850 miles. The Beechcraft 1900D aircraft is widely regarded by airlines as an efficient and reliable aircraft for regional service. At December 31, 2003, the Company owned 32 and leased one of the passenger-configured Beechcraft 1900D aircraft. The Company leased both of the Beechcraft 1900C aircraft.

Because of the reduction in demand for air service following the events of September 11, 2001, the Company decided to retire seven of its Beechcraft 1900D aircraft. The Company returned four of the owned Beechcraft 1900D aircraft to Raytheon Aircraft Credit Corporation during 2003. The Company will return the remaining two owned and one leased Beechcraft 1900D aircraft during 2004, after which the Company will have 30 Beechcraft 1900D aircraft remaining in its fleet.

Due to the expiration of the Company’s contract with the United States Postal Service to carry mail for certain markets, the Company has elected to terminate the leases for the two Beechcraft 1900C aircraft and will return the aircraft not later than the second quarter of 2004.

Embraer Brasilia Aircraft. The 30-passenger Embraer Brasilia aircraft are equipped with advanced avionics, have restrooms, are staffed with a flight attendant, and offer a 330-mile per hour cruising speed with a range of 750 miles. At December 31, 2003, four of the Embraer Brasilia aircraft were owned by the Company and three were leased. In November 2003, the lease for one Embraer Brasilia aircraft expired. As of December 31, 2003, the

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Embraer Brasilia aircraft under the expired lease was awaiting return to the lessor, and in January 2004, the Company returned the aircraft to the lessor.

At December 31, 2003, four of the Company’s seven Embraer Brasilia aircraft were in scheduled service. The Company intends to increase the number of Embraer Brasilia aircraft in scheduled service beginning in July 2004, as warranted by passenger demand. The Company believes that there will be greater opportunities to deploy these aircraft as the larger airlines reduce service to small cities that are unprofitable for their regional jet aircraft.

A summary of the Company’s operating aircraft as of December 31, 2003 and 2002 is as follows:

As of December 31, 2003, the average age of the Company’s aircraft was approximately nine years and as of December 31, 2002, the average age of the Company’s aircraft was approximately eight years.

Maintenance

The Federal Aviation Administration (“FAA”) mandates periodic inspection and maintenance of commercial aircraft. The Company performs most of the maintenance and inspection of its aircraft and engines (except engine overhaul) using its own personnel. Heavy maintenance bases are located at Cheyenne, Wyoming; Huron, South Dakota; and Grand Island, Nebraska. Line maintenance is also performed in Denver, Colorado. Parts and supplies inventories are also maintained at these locations to promote the mechanical dispatch reliability of the fleet. The Company also maintains an inventory of spare engines and propellers for its fleet to allow for minimal downtime during major overhauls. The Company internally performs overhaul of selected aircraft components for its fleet.

In October 2001, Great Lakes became the first operator of Beechcraft 1900D aircraft with Pratt & Whitney PT6A-67D engines to be authorized by the FAA to maintain its engines on an “on-condition” basis. As part of the Company’s Restructuring Agreement with Raytheon Aircraft Credit Corporation (see “Liquidity” below), the Company has agreed that it will enter into an engine reserve funding plan with a third party vendor in order to cover the next complete overhaul performed on each Beechcraft 1900D engine after the engine completes the current refurbishment cycle.

Fuel

The Company has not experienced difficulty with fuel availability and expects to continue to be able to obtain fuel in quantities sufficient to meet its future requirements. The Company contracts directly with refiners for the purchase of a portion of its aircraft fuel requirements. However, standard industry contracts generally do not provide protection against fuel price increases and do not ensure availability of supply. Accordingly, an increase in the cost of fuel, if not accompanied by an equivalent increase in passenger revenues, could have a material adverse impact on the Company’s future operating results. During 2003, the Company’s average price of fuel, including taxes and plane service fees, was $1.23 per gallon, as compared to $1.11 in 2002 and $1.25 in 2001. At current

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rates of consumption, a one cent increase or decrease in the per gallon price of fuel will increase or decrease the Company’s fuel expense by approximately $97,000 annually.

Liquidity and Financing

Beginning in 2001, the airline industry suffered substantial declines in revenue as demand for air service fell due to a variety of factors, including terrorism and general economic trends. As a result, the Company, like most air carriers, incurred substantial losses during 2001 and 2002. As of December 31, 2002, the Company had exhausted its available sources of working capital and was in arrears in payments to almost all the institutions providing lease or debt financing for the Company’s aircraft.

The Company is focused on achieving a level of debt service that is sustainable by the Company’s cash flows. On December 31, 2002, the Company entered into a Restructuring Agreement with Raytheon Aircraft Credit Corporation (“Raytheon”) which enabled the Company to substantially reduce its outstanding debt and lease debt obligations to Raytheon, reduce the Company’s monthly debt and lease payments, and return surplus aircraft. The Company plans to continue to seek additional sources of permanent capital, when feasible. However, it is unlikely that such additional capital will be available until the Company and the airline industry appear capable of returning to a continuing level of profitability. If the Company is unable to generate adequate funding through either improved financial performance or a combination of additional financing and further settlements with creditors, the Company may be required to make further reductions in operating levels and develop other alternatives to provide sufficient operating funds. No assurances can be made that the Company will be successful in finding financing alternatives or that the Company’s creditors will not impose conditions that result in a further corporate restructuring or a cessation of operations.

During 2003, the Company was unable to generate sufficient cash flow to service the Company’s outstanding debt and lease obligations, including the restructured financing agreements.

At December 31, 2003, the Company was in arrears with respect to almost all of the Company’s aircraft debt and lease obligations. Furthermore, the Company cannot determine with a high degree of confidence that it will be able during 2004 to generate sufficient cash flows in order to make the required payments or remain in compliance with its aircraft debt and leases agreements. Therefore, the amount of long-term debt that would otherwise be due after one year is shown on the Company’s balance sheet as long-term obligations classified as current.

The Company’s financial statements have been prepared under the assumption that the Company will continue as a going concern. The financial statements do not include any adjustments that might result if the Company were forced to discontinue operations. As discussed in Note 1 to the financial statements, the Company has suffered significant losses in the years ended December 31, 2002 and 2001, and had liabilities in excess of assets at December 31, 2003.

The independent auditor’s report dated March 10, 2004 on the Company’s financial statements states that these matters raise substantial doubt about the Company’s ability to continue as a going concern.

Restructuring Agreement with Raytheon

On December 31, 2002, the Company entered into a Restructuring Agreement with Raytheon regarding lease and debt financing provided by Raytheon for the Company’s Beechcraft 1900C and Beechcraft 1900D aircraft fleet. In addition, the Restructuring Agreement also provided for the return of certain aircraft to Raytheon in exchange for the extinguishment of outstanding debt and lease liabilities associated with such aircraft.

Return of Beechcraft 1900D Aircraft. The Company agreed to return seven Beechcraft 1900D aircraft to Raytheon during 2003 in exchange for the cancellation and extinguishment of one operating lease and six promissory notes.

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During 2003, the Company returned four Beechcraft 1900D aircraft, with a net book value of $9.9 million, in exchange for the cancellation and extinguishment of four promissory notes. As a result, the Company has reduced its outstanding aircraft debt and accrued interest by $13.6 million and recorded net gains from extinguishment of debt in the amount of $3.7 million.

The Company is scheduled to return the remaining two owned and one leased Beechcraft 1900D aircraft during 2004. The Company will be responsible for costs of repair and refurbishment in order to satisfy the aircraft return conditions that are set forth in the Restructuring Agreement. Accordingly, as of December 31, 2003, the Company has recognized a liability of $2.3 million for such expenditures. Upon return of the three Beechcraft 1900D aircraft to Raytheon in 2004, the Company expects to reduce the net book value of its owned aircraft by approximately $4.9 million, further reduce its outstanding aircraft debt and lease liabilities by $8.3 million, and record gains from extinguishment of debt and lease obligation of approximately $3.4 million.

Refinancing of Aircraft Debt. The Company obtained restructured financing for 30 of the Company’s Beechcraft 1900D aircraft by executing new and amended promissory notes that are secured by the aircraft (the “Aircraft Debt”). In accordance with Statement of Financial Accounting Standards No. 15, Accounting by Debtors and Creditors for Troubled Debt Restructurings (“SFAS 15”), the Company has accounted for the restructuring of this Aircraft Debt as a troubled debt restructuring. SFAS 15 states that, in a troubled debt restructuring, the debtor shall not reduce the carrying amount of the existing debt on the debtor’s books unless the carrying amount of the existing debt exceeds the total future cash payments of the new debt under the restructured terms. The effects of any changes in the face amount or interest rate must be amortized in future periods by reducing interest expense to an effective interest rate that equates the net present value of the future cash payments under the terms of the restructured debt to the carrying value on the debtor’s books.

At December 31, 2002, the outstanding principal of the Aircraft Debt was $75 million, while the total future cash flows for the 30 Aircraft Debt promissory notes was estimated to be $95.7 million. In accordance with the provisions of SFAS 15, the Company recorded the Aircraft Debt on its books in the amount of $95.7 million. The $20.7 million difference (the “Aircraft Debt SFAS 15 Amount”) between the $95.7 million carrying value of the Aircraft Debt and the $75 million principal amount of the Aircraft Debt is being amortized as a reduction to the Company’s interest expense over the ten-year term of the Aircraft Debt.

During 2003, the Company made principal payments of $2.8 million on the Aircraft Debt. In addition, the Company made payments of interest in the amount of $1.9 million. In accordance with procedures set forth in SFAS No. 15, the Company accounted for the payments of interest as a reduction of the Aircraft Debt SFAS 15 Amount. As of December 31, 2003, the outstanding principal amount of the Aircraft Debt was $72.2 million, while the carrying value of the Aircraft Debt on the Company’s books (which includes the current balance of the Aircraft Debt SFAS 15 Amount) was $91.0 million.

As of December 31, 2003, the Company was in arrears on payments of interest on the Aircraft Debt in the amount of $1.7 million. When the interest is actually paid, and in accordance with the procedures set forth in SFAS No. 15, the Company will account for the payment of the accrued interest as a reduction of the Aircraft Debt SFAS 15 Amount.

Modification of Beechcraft 1900C Aircraft Operating Leases. The Restructuring Agreement reduced the monthly lease payments for the two Beechcraft 1900C aircraft operating leases. In addition, $384,000 of unpaid lease payments on the two leases was contractually extinguished. However, in accordance with Statement of Financial Accounting Standards No. 13, Accounting for Leases, the Company has retained the $384,000 liability on the Company’s books and has been amortizing the liability amount over the remaining terms of the leases.

The two Beechcraft 1900C aircraft were dedicated to providing service under a United States Postal Service subcontract for carriage of mail to certain markets. Due to highly competitive bidding by other air carriers at rates

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that were not economically feasible for the Company, the Company elected to allow the United States Postal Service subcontract to expire as of July 27, 2003. As a result, the Company elected to terminate the leases for the two Beechcraft 1900C aircraft and to return the aircraft to Raytheon. The Company is scheduled to return the two aircraft during the second quarter of 2004, at which time the leases will terminate and the Company will write-off any remaining lease liability, including any unamortized balance of the above-mentioned amount.

Other Debt Restructuring. Under the Restructuring Agreement, the outstanding principal and accrued interest amounts on various non-aircraft debt was restructured into three new promissory notes (the “Non-Aircraft Debt”) with a combined total principal amount of $11.5 million and a carrying value on the Company’s books, in accordance with SFAS 15, of $12.8 million. During 2003, the Company made principal payments of $0.4 million on the Non-Aircraft Debt and increased the outstanding principal balance by deferred interest in the amount of $0.2 million. As of December 31, 2003, the carrying value of the Non-Aircraft Debt on the Company’s books was $12.6 million, while the outstanding principal amount of the Non-Aircraft Debt was $11.5 million.

Equity Interest and Board of Director Observer Rights. As further consideration for the concessions granted by Raytheon in the Restructuring Agreement, the Company issued 5,371,980 shares of the Company’s common stock to Raytheon, representing an approximate 38.2% interest in the Company’s outstanding shares of common stock. In addition, the Company granted Raytheon observer rights for the Company’s Board of Directors, but without any right to vote or enter into any discussions at any Board of Directors meetings.

Registration Rights. The Restructuring Agreement required the Company to file a shelf registration statement with the Securities and Exchange Commission in order to permit Raytheon to resell the shares of Company Common Stock issued to Raytheon under the Restructuring Agreement. As of the date of this report, the shelf registration statement has not yet been filed.

Independent Directors. The Company was required to appoint two new directors unaffiliated with either the Company or Raytheon by March 31, 2003. One such independent director was appointed in the fall of 2002. As of the date of this report, the second independent director has not yet been appointed.

Mandatory Prepayments. The Company is required to prepay amounts outstanding under the Company’s notes held by Raytheon in an amount equal to 50% of the “excess cash flow” for that fiscal year. “Excess cash flow” means cash flow from the Company’s operations, less (a) capital expenditures, (b) payments of funded indebtedness for or made during such fiscal year, and (c) $250,000. During the fiscal year 2003, the Company did not have any excess cash flows and was not required to make mandatory prepayments.

Ongoing Compliance. The debt payments to be made under the Restructuring Agreement were closely aligned with the Company’s forecasted cash flows at the time the Restructuring Agreement was negotiated. During 2003, shortfalls from forecasted cash flows resulted in the Company’s inability to make the scheduled payments. In addition, there are significant uncertainties regarding the Company’s ability to achieve sufficient cash flows in the future due to a variety of factors beyond the Company’s control. Such factors include, but are not limited to, the outcome of United Air Lines’ reorganization in bankruptcy, the volatility of fuel prices, reduced passenger demand, continued political and economic instability in Iraq and the Middle East, continued participation in the EAS program, and general economic conditions.

As of December 31, 2003, the Company was in arrears on payments of principal and interest for the Aircraft Debt in the amount of $4.7 million and was not in compliance with certain other covenants contained in the Restructuring Agreement. Raytheon has granted a letter waiving the foregoing defaults until March 31, 2004.

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Other Financing

Boeing Capital Corporation. The Company leases two of the Company’s Embraer Brasilia aircraft under aircraft lease agreements with Boeing Capital Corporation (“Boeing”). At December 31, 2003, the Company was in arrears on its aircraft rental obligations under these leases in the amount of $5.2 million. The Company has also recorded a liability to Boeing in the amount of $0.5 million for accrued penalty interest on the missed lease payments. The Company is engaged in ongoing negotiations with Boeing with respect to the Company’s default under the terms of the aircraft lease agreements.

CIT. At December 31, 2002, Great Lakes had three notes payable to CIT Aerospace, formerly The CIT Group/Equipment Financing, Inc. (“CIT”), for the financing of three of the Company’s Embraer Brasilia aircraft. The three notes, with a combined outstanding principal of $5.0 million, were payable at interest rates ranging from 8.7% to 9.08%. In April 2003, the Company executed an Amended Note that combined the three notes and modified the terms to provide for reduced monthly payments at an interest rate of LIBOR plus 275 basis points. The Amended Note will mature in December 2007. As of December 31, 2003, the Company was in arrears on payments of principal on the Amended Note in the amount of $0.3 million.

FINOVA. In August 2002, the Company entered into a Settlement Agreement with FINOVA Capital Corporation (“FINOVA”), whereby the Company agreed to pay to FINOVA a total of $0.7 million, with interest at 10%, over a period of 48 months in settlement of amounts owed by the Company on the return of one leased Embraer Brasilia aircraft. During 2003, the Company was current on all payments of principal and interest under that agreement, resulting in an outstanding principal balance of $0.5 million as of December 31, 2003.

In November 2002, the Company entered into a Deferral Agreement with FINOVA with respect to a second leased Embraer Brasilia aircraft, whereby the Company agreed to pay reduced lease payments through the end of the aircraft lease. The lease terminated on November 1, 2003, and the Company returned the second Embraer Brasilia aircraft to FINOVA in January 2004. The Company will be responsible for costs of repair and refurbishment in order to satisfy the aircraft return conditions that are set forth in the FINOVA lease agreement. Accordingly, as of December 31, 2003, the Company has recognized a liability of $0.2 million for such expenditures. In addition, as of December 31, 2003, the Company had accrued lease payments, together with accrued penalty interest, in the amount of $1.4 million with respect to the second aircraft lease. FINOVA and the Company have agreed to negotiate a settlement of amounts due under the aircraft lease agreement and for any deficiencies in the operating condition of the second returned aircraft.

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Employees

At February 29, 2004, the Company had 626 full-time and 241 part-time active employees as compared to 674 full-time and 222 part-time active employees at March 31, 2003, as follows:

Approximately 41% of the Company’s employees are represented by unions.

The Company’s pilots are represented by the International Brotherhood of Teamsters. The Company’s agreement with the pilots became amendable October 30, 2000, and the Company and the union are negotiating to achieve an agreement. The members of the union have authorized a strike at some future date if an agreement is not reached. However, before any work stoppage can occur, the Federal Mediation Board must release the participants to self-help, followed by a 30-day cooling off period.

The Company’s flight attendants are also represented by the International Brotherhood of Teamsters, and the Company’s agreement with the flight attendants became amendable April 1, 2002. Negotiations with the flight attendants are inactive at the present time.

The Company’s mechanics and maintenance clerks are represented by the International Association of Machinists. The Company’s agreement with the mechanics becomes amendable November 1, 2005, and the Company’s agreement with the maintenance clerks became amendable March 1, 2002. Negotiations with the maintenance clerks are inactive at the present time.

In 2003, the Company’s dispatchers voted to be represented by the International Brotherhood of Teamsters. As of February 29, 2004, the Company and the dispatchers were in active negotiations for an initial labor agreement.

Regulation

In accordance with the provisions of the Federal Aviation Act of 1958, as amended (the “1958 Act”), the Company is an air carrier subject to regulation by the DOT, primarily with respect to economic matters. As a commuter air carrier, the Company is licensed under Part 298 of the Economic Regulations of the DOT.

The Company holds an air carrier operating certificate issued by the Federal Aviation Administration (“FAA”) pursuant to Part 121 of the FAA’s regulations. To ensure compliance with its regulations, the FAA requires that an airline obtain an operating certificate and operations specifications for each particular aircraft and type of operations conducted by the carrier, all of which are subject to suspension or revocation for cause. As a result, the Company is subject to the jurisdiction of the FAA with respect to the Company’s operations, aircraft maintenance, and safety

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related matters, including, but not limited to, equipment, ground facilities, dispatch, communications, training, weather observation, flight personnel, and other matters affecting air safety.

The Deregulation Act eliminated many regulatory constraints so that airlines became free to set fares and, with limited exceptions, to establish domestic routes without the necessity of seeking government approval. The DOT is still authorized to establish consumer protection regulations in order to: prohibit certain pricing practices; mandate conditions of carriage; and make ongoing determinations of a carrier’s fitness, willingness, and ability to properly and lawfully provide air transportation. The DOT also has the power to bring proceedings to enforce its regulations under the 1958 Act and seek penalties, including the assessment of civil penalties, the revocation of operating authority, and criminal sanctions.

The Aviation and Transportation Security Act requires the adoption of certain security measures by airlines and airports, including the screening of passengers and baggage. The new security measures are being partially funded by a $2.50 per flight segment tax on tickets. The Company is responsible for certain security costs above this level.

The Company is subject to the jurisdiction and regulations of the Federal Communications Commission regarding the use of the Company’s radio facilities. In addition, local governments and authorities in certain markets have adopted regulations governing various aspects of aircraft operations, including noise abatement, curfews, and use of airport facilities. The Company believes that it is in compliance with all such regulations.

Insurance

The Company carries the types and amounts of insurance that are required by the DOT and are customary in the regional airline industry, including coverage for public liability, property damage, aircraft loss or damage, baggage and cargo liability, and workers’ compensation.

As a result of the September 11 terrorist attacks, aviation insurers have significantly increased premiums for all aviation coverage while dramatically reducing the amount of coverage available for war-risk occurrences. In response to the reduction in coverage, the Air Transportation Safety and System Stabilization Act (“Stabilization Act”) provided U.S. air carriers with the option to purchase certain war-risk liability insurance from the United States government on an interim basis at rates that are more favorable than those available in the private market. The Company has purchased this coverage and anticipates renewing it for as long as the coverage is available from the United States government. The airlines and insurance industries, together with the United States and other governments, are continuing to evaluate both the cost and options for providing coverage of aviation insurance. The Company anticipates that it will follow industry practices with respect to sources of insurance. The Company believes that its insurance is adequate as to amounts and risks covered. There can be no assurance, however, that the limits of the Company’s insurance will be sufficient to cover any catastrophic loss.

RISK FACTORS RELATING TO THE COMPANY AND THE AIRLINE INDUSTRY

Financial Condition of the Company

As discussed in Note 1 to the financial statements, the Company suffered significant losses in the years ended December 31, 2002 and 2001, and had liabilities in excess of assets at December 31, 2003. As a result, continued operating losses in future years could negatively impact the Company’s ability to continue as a going concern.

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Dependence on Relationship with United Air Lines

Currently, the Company estimates that approximately 55% of Great Lakes’ passenger traffic connects with United Air Lines flights. As a result of the Company’s relationship with United Air Lines, the Company’s business is sensitive to events and risks affecting United. If adverse events affect United’s business, the Company’s business is also adversely affected. Such events include the outcome of United’s bankruptcy reorganization, changes in United’s business plan or model, employee strikes or job actions, significant curtailment of services, and terrorist events. However, to the extent that the Company is successful in developing both its own identity on its operating system and its code share relationship with Frontier Airlines, the Company will reduce its dependence on United Air Lines and mitigate the effects of any adverse events that are related solely to United Air Lines.

Terrorist Events

The Company is sensitive to changes in the economy and airline industry which are the result of, or related to, past and future terrorist attacks. Such changes include, but are not limited to, the impact of additional airline and security charges on Company costs, reduced customer demand for travel, the cost and availability of war-risk and other aviation insurance (including the federal government’s provision of third party war-risk coverage), and the possibility of additional terrorist events that could cause further customer aversion to air travel.

War

War or other military action by the United States of America or other countries could have a significant effect on passenger traffic.

Dependence on Essential Air Service Revenues

In 2003, 33% of the Company’s revenues were received as EAS subsidies. EAS subsidies are expected to remain a significant portion of the Company’s revenues in 2004 and future years. Changes in DOT policies with regard to payment of subsidies and any reduction or loss of subsidies could have a substantial negative impact on the Company. The DOT awards EAS contracts through competitive bidding and the Company could lose any of its EAS contracts to the Company’s competitors. In addition, the DOT has the right to cancel EAS contracts if it determines that the communities served by such contracts are no longer eligible. At March 15, 2004, the Company served 24 EAS communities on a subsidized basis. Of these, 19 communities were being served under closed DOT rate orders and the remaining five were in the process of negotiation.

Effect of General Economic Conditions

The airline industry is significantly affected by general economic conditions. During recent recessions, most airlines reduced fares in an effort to increase traffic. Economic and competitive conditions in the airline industry have contributed to a number of bankruptcies and liquidations among airlines. A worsening of current economic conditions, or an extended period of recession, whether nationally or regionally, would have a material adverse effect on the Company’s operations. See “Forward-Looking Statements” at the front of this report.

Fuel Costs

Fuel is a major component of the Company’s operating expenses. The Company does not hedge its fuel purchasing costs. The Company’s cost of fuel varies directly with market conditions, and the Company has no guaranteed long-term sources of supply. Generally, the Company intends to follow industry trends by raising fares in response to significant fuel price increases. However, the Company’s ability to pass on increased fuel costs through fare increases may be limited by economic and competitive conditions. Accordingly, a reduction in the availability of,

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or an increase in, the price of fuel could have a material adverse effect on both the Company’s cash flow from operations and the Company’s profitability. As of February 29, 2004, the Company’s average cost for fuel has already increased to $1.33 per gallon, an 8% increase from $1.23 per gallon as of December 31, 2003.

Weather

The Company’s volume of passenger traffic and amount of operating costs can be negatively impacted by adverse weather conditions and air traffic control related constraints.

Default Under Financing Agreements

At December 31, 2003, the Company was in arrears with respect to almost all of the Company’s aircraft debt and lease obligations. As a result, a creditor could declare the Company in default and demand immediate payment of all amounts owed by the Company to the creditor.

Control by Principal Stockholders

Raytheon, the Company’s principal creditor, owns 5,371,980 shares of the Company’s common stock, representing an approximate 38.2% interest in the Company’s outstanding shares of common stock. Raytheon acquired the shares in consideration for concessions granted by Raytheon pursuant to the Restructuring Agreement.

Mr. Douglas G. Voss, Chairman of the Board of the Company, beneficially owns or controls approximately 40.5% of the outstanding shares of the Company’s common stock, including shares owned by Ms. Gayle R. Brandt. Pursuant to a Marital Dissolution Stipulation and Property Settlement, Ms. Brandt granted to Mr. Voss an Irrevocable Proxy to vote her shares of the Company’s common stock. Mr. Voss retains the right to vote Ms. Brandt’s shares until June 28, 2010.

Accordingly, Mr. Voss and Raytheon are in a position to control the management and affairs of the Company.

Noncompliance with the NASDAQ Continued Listing Requirements

The Company’s Common Stock was de-listed from the Nasdaq SmallCap Market on August 14, 2002. As a result of the de-listing, the Company’s Common Stock has become subject to certain rules of the SEC relating to “penny stocks”. These rules require broker-dealers to make a suitability determination for purchasers and to receive the purchaser’s prior written consent for a purchase transaction, thus restricting the ability to purchase or sell the securities in the open market. Trading of the Company’s Common Stock is conducted on the OTC Bulletin Board, which was established for securities that do not meet NASDAQ listing requirements. Consequently, trading the Company’s Common Stock may be more difficult because of lower trading volumes, transaction delays, and reduced security analyst and news media coverage of the Company. These factors could also contribute to lower prices and larger spreads in the bid and ask prices for the Company’s Common Stock.

At December 31, 2003, the Company leased gate and ramp facilities at 40 airports where ticketing and passenger loading and unloading are handled by Company personnel. Payments to airport authorities for ground facilities are based on a number of factors, including the amount of space used and flight volume. The Company also leases aircraft hangar space for maintenance operations at three of the locations it serves.

Effective January 1, 2000, the Company entered into a lease in Cheyenne, Wyoming, for approximately 42,000 square feet of space for administration and maintenance needs. In 2000, the Company constructed an additional

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leased facility in Cheyenne. This facility is approximately 54,000 square feet and is used for administrative, flight operations, maintenance offices, maintenance, and hangar space.

The Company believes that it has adequate facilities for the conduct of its current and planned operations.

The Company is a defendant in a lawsuit arising from a gear-up landing of one of the Company’s Beechcraft 1900D aircraft at O’Hare International Airport in Chicago, Illinois on February 10, 2001. Seven plaintiffs filed suit against the Company, United Air Lines, Inc., and the flight crew of the aircraft. The complaint alleges that the plaintiffs suffered personal injuries as passengers aboard the aircraft when the pilots allegedly landed the aircraft without extending the landing gear. The Company’s insurance carrier is providing for the Company’s defense in the lawsuit, and the Company believes that any claims that arise from the accident which are not covered by insurance will not have a material adverse effect on the Company.

The Company is a party to several routine pending legal proceedings, none of which management believes are material to the Company.

There were no matters submitted to a vote of the Company’s shareholders during the three-month period ended December 31, 2003.

PART II

The Company’s Common Stock is traded under the symbol “GLUX.OB” on the Over-the-Counter Bulletin Board (the “OTCBB”). The Company’s Common Stock began trading on January 19, 1994, the date of its initial public offering. The initial public offering price of the Company’s Common Stock was $11.00 per share. On August 14, 2002, the Company’s common stock was de-listed from the NASDAQ SmallCap Market as a result of the failure to maintain an average stock price of at least $1 per share.

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The following table sets forth the range of high and low sale prices for the Company’s Common Stock for each of the fiscal quarters for the past two years as reported by Nasdaq and the OTCBB. These prices represent inter-dealer prices without adjustments for mark-up, mark-down, or commission and do not necessarily reflect actual transactions.

As of December 31, 2003, the Company had approximately 354 record holders of its Common Stock.

The transfer agent for the Company’s Common Stock is Wells Fargo Bank Minnesota, N.A., 161 North Concord Exchange, South St. Paul, Minnesota, 55075-0738, telephone: (651) 450-4064.

The Company has not paid any dividends on its Common Stock since its initial public offering in January 1994. The Company expects that, for the foreseeable future, it will follow a policy of retaining earnings in order to finance the continued development of its business. Payment of dividends is within the discretion of the Company’s Board of Directors and will depend, among other factors, upon the earnings, capital requirements, operating and financial condition of the Company, and any applicable restrictive debt and lease covenants. Under the Restructuring Agreement, the Company is prohibited from paying dividends until after December 31, 2005.

Recent Sales of Unregistered Securities

There were no sales of unregistered securities of the Company during the period covered by this Form 10-K.

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The following statement of operations and balance sheet data as of, and for each of, the years in the five-year period ended December 31, 2003 are derived from the Company’s financial statements. The financial statements for the years ended December 31, 2003, 2002, 2001, 2000, and 1999 have been audited by KPMG LLP. The financial statements as of December 31, 2003 and 2002, and for each of the years in the three-year period ended December 31, 2003, and the report thereon, are included elsewhere in this Form 10-K. The following selected financial data should be read in conjunction with, and are qualified in their entirety by, the financial statements and the notes thereto included elsewhere in this Form 10-K. The financial statements and selected data do not include any adjustments that might result from the outcome of the uncertainty over the Company’s ability to continue as a going concern.

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Overview

The discussion and analysis throughout this report contains certain forward-looking terminology such as “believes,” “anticipates,” “will,” and “intends” or comparable terminology. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Potential purchasers of the Company’s securities are cautioned not to place undue reliance on such forward-looking statements which are

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qualified in their entirety by the cautions and risks described herein and in other reports filed by the Company with the Securities and Exchange Commission. See “Forward-Looking Statements” at the front of this report for a discussion of the Company’s financial condition.

The Company began providing air charter service in 1979, and has provided scheduled passenger service in the Upper Midwest since 1981. Beginning in April 1992, the Company operated as a United Express carrier under a cooperative marketing agreement with United Air Lines, which was transitioned to a code share relationship on May 1, 2001. The Company now operates under its own name and as a code sharing partner with United Air Lines and Frontier Airlines. As of February 29, 2004, the Company provided passenger service to 40 airports in 11 states with 1,293 scheduled departures each week.

Results of Operations

(dollars in thousands)

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Comparison of 2003 to 2002

Passenger Revenues. Passenger revenues and revenue passenger miles decreased 4.0% and 6.1%, respectively, from 2002. Although the Company discontinued service to six cities during the year, the decrease was largely due to the continued industry-wide decline in passenger traffic following the September 11 terrorist attacks. Decreases in passenger revenues were partially offset by $0.6 million refund received by the Company for interline billings owed by United to the Company for the period June 1, 2001 through June 30, 2002.

Public Service Revenues. Public service revenues collected through the Essential Air Service program decreased 18.1% to $25.1 million in 2003, as compared to $30.6 million in 2002. The reduction was due primarily to the discontinuance of essential air services to six communities during the year, as partially offset by the addition of three new EAS communities. The decrease in public service revenues attributable to a net decrease in the number of EAS communities served by the Company was partially offset by a $0.9 million increase in revenues attributable primarily to (i) adjustments due to changes in estimates relating to prior periods and (ii) rate increases on existing routes.

In response to the September 11 terrorist attacks, the Department of Transportation issued Order Number 2002-2-13, Order Authorizing Emergency Essential Air Service Payments, which provided for an immediate increase in all subsidized rates, effective retroactively to October 1, 2001. This order also began the process of renegotiating all of the Company’s subsidy contracts as of October 1, 2001 in order to recognize the effects of the September 11 attacks on the Company’s airline operations, with specific emphasis on higher insurance costs and lower passenger revenues.

Other Revenues. Other revenues declined 41.4% to $2.0 million in 2003. The decrease in freight revenue was due primarily to the expiration of the United States Postal Service subcontract in July 2003, reduced capacity, and increased security requirements governing the acceptance of air freight following the September 11 terrorist acts. Charter revenues were down as a result of the non-renewal of various university charter contracts.

Operating Expenses. Total operating expenses decreased 21.4%, or $20.5 million, from the previous year. Operating expenses decreased from 26.7 cents per ASM in 2002, to 22.9 cents per ASM in 2003. The suspension of air service following the September 11 terrorist attacks and the subsequent reduction in scheduled flights had a significant impact upon the Company’s direct operating costs.

Salaries, wages, and benefits decreased 12.3% to $22.7 million as a result of reductions in staffing levels, pay rates, hours worked, and the closing of service to and from some cities.

Aircraft fuel expense was down 4.9% in 2003, and fuel consumption was down 14.5% in 2003. The decrease in fuel expense and fuel consumption is attributable to the continued reduction in scheduled flights following the September 11 terrorist attacks. However, as a result of rising fuel costs in 2003, the Company’s average fuel cost per gallon increased 10.8% to $1.23 in 2003.

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Aircraft maintenance, materials, and component repair expense decreased 19.0% to $10.3 million. As a result, the cost per ASM for aircraft maintenance decreased to 3.1 cents per ASM in 2003 as compared 3.6 cents per ASM in 2002.

Commissions decreased 68.5% to $0.3 million in 2003, from $0.9 million in 2002, primarily as a result of the industry-wide decision to terminate payment of commissions to travel agents, effective as of June 12, 2002.

Depreciation expense increased 14.0% to $8.0 million in 2003, from $7.0 million in 2002, due to the conversion on December 31, 2002 of nine Beechcraft 1900D aircraft from leased aircraft to owned aircraft.

Aircraft lease expense decreased 59.6% to $3.0 million in 2003, from $7.5 million in 2002, due to (i) the conversion on December 31, 2002 of nine Beechcraft 1900D aircraft leases to financed asset purchases and (ii) the termination of leases for one Embraer Brasilia aircraft and two Beechcraft 1900D aircraft in 2002. See “Comparison of 2002 to 2001” below.

Other rentals and landing fees decreased 24.8% in 2003. The reduction in landing fees is primarily attributable to a decrease in the total number of landings. As of March 1, 2003, the Company had discontinued operations at the Company’s former Chicago hub and the cities served from that hub, resulting in a reduction of associated costs for airport rentals and landing fees for those cities. In addition, $0.4 million of the decrease is attributable to a credit received by the Company for annual rent adjustments at Denver International Airport.

Other operating expenses decreased 18.3% in 2003 to $14.8 million, from $18.1 million in 2002, representing a reduction in cost of 0.6 cent per ASM. The decrease is primarily due to the elimination of certain fees associated with the former United Express agreement, lower levels of operations, and other actions that were taken to reduce costs. In addition, $0.6 million of the decrease in attributable to a credit received by the Company for previously paid war-risk insurance, as covered by the FAA insurance program.

Interest Expense. Interest expense decreased 64.0% to $2.4 million in 2003, from $6.6 million in 2002. The decrease was primarily due to a $4.3 million reduction of interest expense attributable to the amortization of the SFAS 15 amounts and a $1.0 million reduction attributable to net decreases in the principal balances of outstanding debt and decreases in variable interest rates. The interest expense reductions were partially offset by a $1.1 million increase in interest expense attributable to the conversion of nine aircraft leases to aircraft debt at the end of 2002.

Income Tax Expense (benefit). The realization of any income tax benefits remains substantially in doubt as the Company continues in its loss carry forward position.

Gain on Disposal of Assets and Gain on Extinguishment of Debt. In 2003, the Company recognized gains on disposal of assets in the amount of $0.2 million, and gains on extinguishment of debt in the amount of $3.7 million, as a result of the return of four debt-financed Beechcraft 1900D aircraft to Raytheon during 2003. See “Restructuring Agreement with Raytheon Aircraft Credit Corporation” below.

Comparison of 2002 to 2001

Passenger Revenues. Passenger revenues and revenue passenger miles decreased 34.8% and 33.1%, respectively, from 2001. Although the Company discontinued service to four cities during the year, the decrease was largely due to the continued industry-wide decline in passenger traffic following the September 11 terrorist attacks.

Public Service Revenues. Public service revenues collected through the Essential Air Service program increased 58.8% in 2002 as compared to 2001. In response to the September 11 terrorist attacks, the Department of

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Transportation issued Order Number 2002-2-13, Order Authorizing Emergency Essential Air Service Payments, which provided for an immediate increase in all subsidized rates effective retroactively to October 1, 2001. This order also began the process of renegotiating all of the Company’s subsidy contracts as of October 1, 2001 in order to recognize the effects of the September 11 attacks on the Company’s airline operations, with specific emphasis on higher insurance costs and lower passenger revenues.

Other Revenues. Other revenues declined 23.0% to $3.4 million in 2002. The decrease in freight revenue was primarily due to reduced capacity and increased security requirements governing the acceptance of air freight following the terrorist acts on September 11, 2001. Charter revenues were down as a result of the non-renewal of various university charter contracts.

Operating Expenses. Total operating expenses decreased 14.4%, or $16.2 million, from the previous year. However, due to a 16.4% reduction in available seat miles, operating expenses increased from 26.1 cents per ASM in 2001, to 26.7 cents per ASM in 2002. The suspension of air service following the September 11 terrorist attacks and the subsequent reduction in flight schedules had a significant impact upon direct operating costs.

Salaries, wages, and benefits decreased 16.9% to $25.9 million from 2001 as a result of reductions in staffing levels, pay rates, hours worked, and the closing of service to and from some cities.

Aircraft fuel expense was down 28.0% in 2002. The decrease in aircraft fuel expense is primarily attributable to flight schedule reductions in 2002 following the September 11 terrorist attacks. During 2002, the Company’s average cost for aircraft fuel decreased 11.2% to $1.11 per gallon. The decrease in the Company’s average price per gallon of fuel was primarily due to flat average fuel costs through the first three quarters of 2002, with only slight increases in fuel costs during the fourth quarter of 2002.

Aircraft maintenance, materials, and component repair expense was down 15.8% to $12.7 million for 2002. As the result of a 16.4% decrease in available seat miles from 2001 to 2002, the average cost per ASM for aircraft maintenance, materials, and component repair expense was 3.6 cents for both 2001 and 2002, even though total expenses for the category were $2.4 million less in 2002 than in 2001.

Commissions decreased 65.3% to $0.9 million in 2002 from $2.5 million in 2001 as a result of lower travel agency commission rates, decreased gross revenues, and increasing direct sales. Following a majority of the airline industry, the Company discontinued the practice of paying commissions to travel agents on airline tickets sold after June 12, 2002.

Depreciation expenses were generally flat due to the Company’s owned aircraft fleet remaining substantially unchanged during the year from 2001.

Aircraft lease expense decreased 14.1% in 2002 to $7.5 million from $8.7 million in 2001 as a result of the termination of leases for one Embraer Brasilia aircraft and two Beechcraft 1900D aircraft. As of March 31, 2002, one of two Embraer Brasilia aircraft leased from FINOVA Capital Corporation was returned to the lessor and the lease was terminated. At January 1, 2002, the Company was leasing a Beechcraft 1900D aircraft from an affiliated company. Effective March 31, 2002, that aircraft was returned to the lessor. On May 14, 2002, a leased Beechcraft 1900D was one of two aircraft that were destroyed in a hangar fire, and the lease rentals on the aircraft terminated as of May 31, 2002. The second aircraft destroyed in the fire was a Company-owned Beechcraft 1900D aircraft.

Other rentals and landing fees decreased 9.2% in 2002. The reduction in landing fees was primarily attributable to a corresponding decrease in total landings.

Other operating expenses in 2002 decreased 23.6% to $18.1 million, from $23.7 million in 2001. Accordingly, the average cost per ASM decreased 9% from 5.5 cents in 2001 to 5.0 cents in 2001. The decrease was due primarily to

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the elimination of certain fees associated with the former United Express agreement, lower levels of operations, and other actions taken by the Company to reduce operating costs.

Impairment of Assets and Other Property. As of December 31, 2002, the Company determined that the estimated fair market value of the six owned Beechcraft 1900D aircraft to be returned to Raytheon pursuant to the Restructuring Agreement was less than the carrying value of those aircraft on the Company’s books. Accordingly, in 2002, the Company recognized an impairment charge of $5,469,539 to reduce the carrying value of the six Beechcraft 1900D aircraft to their estimated fair market value.

Interest Expense. Interest expense decreased from $9.9 million in 2001, to $6.6 million in 2002. The decrease was due primarily to reductions in interest rates as the majority of the Company’s fleet was financed at variable interest rates. Also, one Company-owned Beechcraft 1900D aircraft with debt of $3.2 million was destroyed in a hangar fire. In addition, on April 30, 2002 the Company paid in full and terminated its line of credit with Coast Business Credit.

Income Tax Expense (benefit). The realization of any income tax benefits remained substantially in doubt as the Company continued in its loss carry forward position.

Gain on Insurance Recovery. In 2002, the Company recorded a gain of $1.4 million in connection with the receipt of insurance proceeds for two aircraft that were destroyed in a hangar fire.

Gain on Extinguishment of Debt. In 2002, the Company recognized a $5.6 million gain on extinguishment of debt, in connection with the recording of the Restructuring Agreement with Raytheon.

Liquidity and Capital Resources

The Company’s cash and cash equivalents balance at December 31, 2003 was $3.7 million, up from $358,000 at December 31, 2002. The Company had negative working capital of $128.6 million at December 31, 2003. The amount of negative working capital primarily attributable to long-term debt that would otherwise be due after one year was reclassified on the Company’s balance sheet as “long-term obligations classified as current.”

The Company recognized net income of $1.8 million for the year 2003. In addition, cash of $9.3 million was generated from operating activities as a result of non-cash depreciation and amortization charges of $8.0 million and decreases in accounts receivables and inventories in a total amount of $5.1 million. The $9.3 million of cash provided from operating activities was the primary source of funds used to reduce notes payable and long-term debt by $5.5 million.

At December 31, 2002, the Company had exhausted its outside sources of working capital and funds, and was in arrears on payments with respect to almost all of the Company’s aircraft debt and lease obligations. In the last quarter of 2002 and the first quarter of 2003, the Company restructured its financing agreements with Raytheon and CIT. The effect of these restructurings was to reduce the Company’s total debt and lease obligations to these creditors, and to reduce the amount of the Company’s scheduled monthly debt and lease payments.

During 2003, the continued sluggishness in the economy, together with the ongoing effects of the Iraq conflict, caused continued reduced levels of air traffic volume and correspondingly reduced levels of revenues. As a result, the Company was unable to generate sufficient cash to fully service all of the Company’s debt and lease payment obligations to its creditors.

As of December 31, 2003, the Company was approximately $12.8 million in arrears with respect to almost all of the Company’s aircraft debt and lease obligations. The arrearage of $12.8 million is comprised of $3.3 million of debt principal payments, $1.8 million of accrued interest, and $7.7 million of deferred lease payments.

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Restructuring Agreement with Raytheon Aircraft Credit Corporation. On December 31, 2002, the Company entered into a Restructuring Agreement with Raytheon regarding lease and debt financing provided by Raytheon for the Company’s Beechcraft 1900C and Beechcraft 1900D aircraft fleet. The complex nature of the Restructuring Agreement included separate provisions for i) the termination or modification of aircraft operating leases, ii) the return of aircraft in satisfaction of indebtedness obligations, iii) the modification of principal and interest rates for various aircraft financing promissory notes, and iv) a restructuring of other indebtedness by means of an issuance of new debt instruments and equity. For purposes of accounting for the Restructuring Agreement, the Company identified the major types of transactions contained within the Restructuring Agreement in order to more accurately apply the appropriate accounting treatment to each type of transaction. Transactions involving the termination or modification of aircraft operating leases have been accounted for pursuant to the provisions of Statement of Financial Accounting Standards No. 13, Accounting for Leases, while the restructuring of indebtedness owed by the Company to Raytheon has been accounted for in accordance with the provisions of Statement of Financial Accounting Standards No. 15, Accounting for Debtors and Creditors for Troubled Debt Restructurings. The Company’s continued accounting treatment of those transactions during 2003 are as follows:

(a) Return of Beechcraft 1900D Aircraft. During 2003, the Company returned four Beechcraft 1900D aircraft to Raytheon, with a net book value of $9.9 million, in exchange for the cancellation and extinguishment of four promissory notes. As a result, during 2003, the Company reduced its outstanding aircraft debt and accrued interest by $13.6 million and recorded net gains from extinguishment of debt in the amount of $3.7 million.

The Company expects to return two additional owned and one leased Beechcraft 1900D aircraft during 2004. The Company will be responsible for costs of repair and refurbishment in order to satisfy the aircraft return conditions that are set forth in the Restructuring Agreement. Accordingly, as of December 31, 2003, the Company has recognized a liability of $2.3 million for such expenditures. Upon return of the three Beechcraft 1900D aircraft to Raytheon, the Company expects to reduce the net book value of its owned aircraft by approximately $4.9 million, further reduce its outstanding aircraft debt and lease liabilities by $8.3 million, and record gains from extinguishment of debt and lease obligation of approximately $3.4 million.

(b) Refinancing of Aircraft Debt. The Company obtained restructured financing for 30 of the Company’s Beechcraft 1900D aircraft by executing new and amended promissory notes that are secured by the aircraft (the “Aircraft Debt”). The terms for each of the 30 Aircraft Debt promissory notes provide for an initial principal balance of $2.5 million, with interest to accrue on the unpaid principal balance at the rate of LIBOR plus 375 basis points per annum. Payments of principal and accrued interest are to be made in 120 monthly installments, with the amount of monthly payment to be adjusted quarterly to reflect any change in the LIBOR rate.

In accordance with Statement of Financial Accounting Standards No. 15, Accounting by Debtors and Creditors for Troubled Debt Restructurings (“SFAS 15”), the Company has accounted for the restructuring of this Aircraft Debt as a troubled debt restructuring. SFAS 15 states that, in a troubled debt restructuring, the debtor shall not reduce the carrying amount of the existing debt on the debtor’s books unless the carrying amount of the existing debt exceeds the total future cash payments of the new debt under the restructured terms. The effects of any changes in the face amount or interest rate must be amortized in future periods by reducing interest expense to an effective interest rate that equates the net present value of the future cash payments under the terms of the restructured debt to the carrying value on the debtor’s books.

At December 31, 2002, the outstanding principal of the Aircraft Debt was $75 million, while the total future cash flows for the 30 Aircraft Debt promissory notes was estimated to be $95.7 million. In accordance with the provisions of SFAS 15, the Company recorded the Aircraft Debt on its books in the amount of $95.7 million. The $20.7 million difference (the “Aircraft Debt SFAS 15 Amount”) between the $95.7 million

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carrying value of the Aircraft Debt and the $75 million principal amount of the Aircraft Debt is being amortized as a reduction to the Company’s interest expense over the ten-year term of the Aircraft Debt.

During 2003, the Company made principal payments of $2.8 million on the Aircraft Debt. In addition, the Company made payments of interest in the amount of $1.9 million. In accordance with procedures set forth in SFAS No. 15, the Company accounted for the payments of interest as a reduction of the Aircraft Debt SFAS 15 Amount. As of December 31, 2003, the outstanding principal amount of the Aircraft Debt was $72.2 million, while the carrying value of the Aircraft Debt on the Company’s books (which includes the current balance of the Aircraft Debt SFAS 15 Amount) was $91.0 million.

As of December 31, 2003, the Company was in arrears on payments of interest on the Aircraft Debt in the amount of $1.7 million. When the interest is actually paid, and in accordance with the procedures set forth in SFAS No. 15, the Company will account for the payment of interest as a reduction of the Aircraft Debt SFAS 15 Amount.

(c) Modification of Beechcraft 1900C Aircraft Operating Leases. The Restructuring Agreement reduced the monthly lease payments for the two Beechcraft 1900C aircraft operating leases. In addition, $384,000 of unpaid lease payments on the two leases was contractually extinguished. However, in accordance with Statement of Financial Accounting Standards No. 13, Accounting for Leases, the Company has retained the $384,000 liability on the Company’s books and has been amortizing the liability amount over the remaining terms of the leases.

The two Beechcraft 1900C aircraft were dedicated to providing service under a United States Postal Services subcontract for carriage of mail to certain markets. Due to highly competitive bidding by other air carriers at rates that were not economically feasible for the Company, the Company elected to allow the United States Postal Service subcontract to expire as of July 27, 2003. As a result, the Company elected to terminate the leases for the two Beechcraft 1900C aircraft and to return the aircraft to Raytheon. The Company expects to return the two aircraft not later than the second quarter of 2004, at which time the leases will terminate and the Company will write-off any remaining lease liability, including any unamortized balance of the above-mentioned amount.

(d) Other Debt Restructuring. Under the Restructuring Agreement, the outstanding principal and accrued interest amounts on various non-aircraft debt was restructured into three new promissory notes (the “Non-Aircraft Debt”) with a combined total principal amount of $11.5 million and a carrying value on the Company’s books, in accordance with SFAS 15, of $12.8 million. Interest rates on the Non-Aircraft Debt range from LIBOR plus 375 basis points to 8.25%. During 2003, the Company made principal payments of $0.4 million on the Non-Aircraft Debt and increased the outstanding principal balance by deferred interest in the amount of $0.2 million. As of December 31, 2003, the carrying value of the Non-Aircraft Debt on the Company’s books was $12.6 million, while the outstanding principal amount of the Non-Aircraft Debt was $11.5 million.

As of December 31, 2003, the Company was in arrears on payments of principal and interest for the Aircraft Debt in the amount of $4.7 million and was not in compliance with certain other financial covenants contained in the Restructuring Agreement. Raytheon has granted a letter waiving the foregoing defaults until March 31, 2004.

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A summary of the Company’s outstanding obligations to Raytheon as of December 31, 2003 and 2002 is set forth below.

NOTES PAYABLE TO RAYTHEON AIRCRAFT CREDIT CORPORATION

LEASED AIRCRAFT TO BE RETURNED TO RAYTHEON

Because a substantial amount of the Company’s debt obligations to Raytheon are financed under variable interest rates, a one percent increase in interest rates with respect to such debt obligations would increase the Company’s annual interest cost by approximately $730,000, based on December 31, 2003 balances.

Other Financing

Boeing Capital Corporation. The Company leases two of the Company’s Embraer Brasilia aircraft under aircraft lease agreements with Boeing Capital Corporation (“Boeing”). At December 31, 2003, the Company was in arrears on its aircraft rental obligations under these leases in the amount of $5.2 million. The Company has also recorded a liability to Boeing in the amount of $0.5 million for accrued penalty interest on the missed lease payments. The

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Company is engaged in ongoing negotiations with Boeing with respect to the Company’s default under the terms of the aircraft lease agreements.

CIT. At December 31, 2002, Great Lakes had three notes payable to CIT Aerospace, formerly The CIT Group/Equipment Financing, Inc. (“CIT”), for the financing of three of the Company’s Embraer Brasilia aircraft. The three notes, with a combined outstanding principal of $5.0 million, were payable at interest rates ranging from 8.7% to 9.08%. In April 2003, the Company executed an Amended Note that combined the three notes and modified the terms to provide for reduced monthly payments at an interest rate of LIBOR plus 275 basis points. The Amended Note will mature in December 2007. As of December 31, 2003, the Company was in arrears on payments of principal on the Amended Note in the amount of $0.3 million.

FINOVA. In August 2002, the Company entered into a Settlement Agreement with FINOVA Capital Corporation (“FINOVA”), whereby the Company agreed to pay to FINOVA a total of $0.7 million, with interest at 10%, over a period of 48 months in settlement of amounts owed by the Company on the return of one leased Embraer Brasilia aircraft. During 2003, the Company was current on all payments of principal and interest under that agreement, resulting in an outstanding principal balance of $0.5 million as of December 31, 2003.

In November 2002, the Company entered into a Deferral Agreement with FINOVA with respect to a second leased Embraer Brasilia aircraft, whereby the Company agreed to pay reduced lease payments through the end of the aircraft lease. The lease terminated on November 1, 2003, and the Company returned the second Embraer Brasilia aircraft to FINOVA in January 2004. The Company will be responsible for costs of repair and refurbishment in order to satisfy the aircraft return conditions that are set forth in the FINOVA lease agreement. Accordingly, as of December 31, 2003, the Company has recognized a liability of $0.2 million for such expenditures. In addition, as of December 31, 2003, the Company has accrued lease payments, together with accrued penalty interest, in the amount of $1.4 million with respect to the second aircraft lease. FINOVA and the Company have agreed to negotiate a settlement of amounts due under the aircraft lease agreement and for any deficiencies in the operating condition of the second returned aircraft.

Long-Term Debt Classified as Current

At December 31, 2003, the Company was in arrears with respect to almost all of the Company’s aircraft debt and lease obligations. Furthermore, the Company cannot determine with a high degree of confidence that it will be able during 2004 to generate sufficient cash flows in order to make the required payments or remain in compliance with its aircraft debt and lease agreements. Therefore, the amounts of long-term debt that would otherwise be due after one year are shown on the Company’s balance sheet as long-term obligations classified as current.

The Company’s financial statements have been prepared under the assumption that the Company will continue as a going concern. The financial statements do not include any adjustments that might result if the Company were forced to discontinue operations. As discussed in Note 1 to the financial statements, the Company suffered significant losses in the years ended December 31, 2002 and 2001, and had liabilities in excess of assets at December 31, 2003.

The independent auditor’s report dated March 10, 2004 on the Company’s financial statements states that these matters raise substantial doubt about the Company’s ability to continue as a going concern.

Risks and Uncertainties

Debt Service. The restructured financing agreements with the Company’s creditors were based on forecasts of the Company’s expected revenues, expenses and cash flows. During 2003, shortfalls from forecasted cash flows resulted in the Company’s inability to make the scheduled payments. Due to a variety of factors beyond the Company’s control, there are significant uncertainties regarding the Company’s ability to generate future cash flows

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in order to service the Company’s financing agreements. Such factors include: the outcome of United Air Lines’ attempt to reorganize under bankruptcy; the evolution of United’s continuing code share relationship with the Company; reduced passenger demand as a result of general economic conditions; public health concerns; security concerns over foreign conflicts; the volatility of fuel prices; and the amount of Essential Air Service funding and financial support available from the United States government.

The Company must generate sufficient revenue and cash flow to meet the Company’s obligations as currently structured, obtain additional outside financing, or renegotiate the Company’s restructured agreements with its existing creditors. The Company is engaged in ongoing negotiations with Raytheon and its other creditors with respect to the Company’s various aircraft debt and lease obligations. However, there can be no assurance that the Company’s creditors will be willing or able to renegotiate the terms of the Company’s existing debt and lease obligations.

Dependence on Relationship with United Air Lines. The Company believes that approximately 55% of Great Lakes’ passenger traffic currently connects with United Air Lines flights. As a result of the Company’s relationship with United Air Lines, the Company’s business is sensitive to adverse events and risks affecting United. In particular, Great Lakes may be impacted in the future by the outcome of United Air Lines’ reorganization or liquidation in bankruptcy. Successful reorganization by United may include changes in, or rejection of, the amended code share agreement between United and the Company.

As part of United’s plan of reorganization, United may be required to grant further concessions to its pilots, and any such concessions may have a negative impact on the scope of the Company’s code share relationship with United. Currently, United Air Lines has agreed with its pilots to specific limits on the number of aircraft that may be operated by United affiliates, including United’s code-sharing partners, in relation to the number of jet aircraft that are flown by United Air Lines pilots. The Company cannot predict what limitations, if any, may be included in any agreement that United may negotiate with its pilots as part of United’s reorganization.

A liquidation of United would have a significant impact on the Company’s connecting traffic at Denver until either Frontier increases its level of service or a replacement carrier increases its operations in the Denver market and the Company is able to enter into a marketing agreement with that carrier. To the extent that the Company is successful in (i) developing its own identity on its operating system and (ii) expanding its code share relationship with Frontier and other air carriers, the Company will be able to reduce its dependence on United Air Lines and mitigate the effects of any adverse events which are related solely to United Air Lines.

Terrorist Events. The Company’s operations are sensitive to changes in the economy and airline industry that are the caused by, or related to, past and future terrorist attacks. Such changes include, but are not limited to, the impact of additional airline and security charges on Company costs, reduced customer demand for travel, the cost and availability of war-risk and other aviation insurance (including the federal government’s provision of third party war-risk coverage), and the possibility of additional terrorist events which could cause further customer aversion to air travel. The terrorist attacks of September 11 brought about an immediate reduction of passenger traffic as well as additional operating costs. During 2002 and 2003, the Company proactively responded by taking measures to increase the efficiency of its scheduled flight operations and to reduce its operating costs.

Since September 11, 2001, the Company has aggressively reduced its level of operations in order to more closely align its scheduled flights with both available traffic and United Air Lines’ reduced level of capacity in Denver. In addition, the Company has concentrated on maintaining and expanding its service in markets that are eligible for government subsidy. In conjunction with the implementation of the Company’s strategies to maximize the amount of revenue per flight, the Company has also instituted an aggressive cost control program.

War. War or other military action by the United States of America or other countries could have a significant effect on passenger traffic.

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Dependence on Essential Air Services Revenue. After the September 11 terrorist attacks, the DOT recognized the change in economics for carriers providing service to Essential Air Service cities and ordered the renegotiation of all subsidy contracts retroactive to October 1, 2001. Order Number 2002-2-13 issued by the DOT provided for the adjustment of subsidy payments to recognize lower levels of passenger revenues and to compensate carriers for higher levels of costs such as insurance and security.

While nominally permitting a 5% margin on costs, contracts with the DOT for providing Essential Air Service have usually been negotiated against an overall program funding limitation by Congress, which has resulted in carriers accepting a subsidy rate that historically was not fully compensatory. With the enactment of the Air Transportation Safety and System Stabilization Act and associated increased funding, Congress appropriated a total of $113 million to compensate EAS carriers for their total increased costs, including costs resulting from the September 11 terrorist attacks. In comparison, the EAS subsidy level for the federal fiscal year ended September 30, 2001 was only $50 million. The total amount of EAS subsidy ultimately received by the Company over an extended period is determined by, among other things, overall funding levels to the DOT by Congress, competitive bids by other carriers, schedule modifications at the request of the DOT, and the Company’s optimization of its schedules.

In 2003, the Company received approximately $25.1 million of EAS subsidies as compensation for essential air services provided by the Company to small cities, as compared to $30.6 million in 2002. EAS subsidies are expected to remain a significant portion of the Company’s revenues in 2004 and future years. Changes in DOT policies with regard to payment of subsidies and any reduction or loss of subsidies as a result of competitive bidding may have a substantial impact on the Company.

Fuel Costs. Aircraft fuel represented approximately 15.9% of the Company’s operating expenses in 2003. The Company does not hedge its fuel purchasing costs. The Company’s cost of fuel varies directly with market conditions, and the Company has no guaranteed long-term sources of supply. The Company intends generally to follow industry trends by raising fares in response to significant fuel price increases. However, the Company’s ability to pass on increased fuel costs through fare increases may be limited by economic and competitive conditions. Accordingly, a reduction in the availability of, or an increase in, the price of fuel could have material adverse effects on both the Company’s cash flow from operations and the Company’s profitability. A one-cent change in the average cost per gallon of aircraft fuel would impact the Company’s operating expense by approximately $97,000 annually, based upon fuel consumption during 2003. As of February 29, 2004, the Company’s average cost for fuel has already increased to $1.33 per gallon, an 8% increase from $1.23 per gallon as of December 31, 2003.

Contractual Obligations

The following table summarizes the Company’s major contractual obligations as of December 31, 2003: