A relative navigation system based on both the Inertial Navigation System (INS) and the Global Positioning System (GPS) is developed to support situational awareness during formation flight. The architecture of the system requires an INS/GPS integration across two aircraft via a data link. A fault-tolerant federated filter is used to estimate the relative INS errors based on relative GPS measurements and a range measurement obtained from the data link. The filter is constructed based on a reduced-order model of the relative INS error process. A method for analyzing the filter performance is presented. A case involving two helicopters in formation flight is studied under three different night trajectories to account for the effect of vehicle motion on the INS state transition matrix. The results of the covariance analysis are compared with actual night results over an instrumented test range.