| **UNITED STATES**                      |
|----------------------------------------|
| **SECURITIES AND EXCHANGE COMMISSION** |
| **WASHINGTON, D.C. 20549**             |

Form 10-K

| **[X]**            |   | Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934     |
|--------------------|--------|------------------------------------------------------------------------------------------|
|                    |        | For the fiscal year ended December 31, 2005                                              |
| or                 |
| **[  ]** |        | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
|                    |        | For the transition period from ___________ to ___________                                |

**Commission File Number 1-31300EXPRESSJET HOLDINGS, INC.***(Exact name of registrant as specified in its charter)*

| **Delaware** (*State or other jurisdiction of incorporation or organization)*               | **         ** | **76-0517977***(I.R.S. Employer Identification No.)* |
|---------------------------------------------------------------------------------------------|------------------------------------------------------------|------------------------------------------------------|
|                                                                                             |                                                            |                                                      |
| **1600 Smith Street, Dept. HQSCE Houston, Texas***(Address of principal executive offices)* |                                                            | **77002***(Zip Code)*                                |
|                                                                                             |                                                            | **  **                                     |
| 713-324-2639*(Registrant's telephone number, including area code)*                          |

| Securities registered pursuant to Section 12(b) of the Act:                                                                                                                                                                                                                                                                                                                                                   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Title of eachclass:                                                                | Name of each exchange on which registered: |
| Common Stock, $.01 par value                                                                                                                                                                                                                                                                                                                                                                                  | New York Stock Exchange |
| Preferred Stock Purchase Rights                                                                                                                                                                                                                                                                                                                                                                               | New York Stock Exchange |
| Securities registered pursuant to section 12(g) of the Act:  None                                                                                                                                                                                                                                                                                                                         |

            Indicate by check mark if theregistrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. **[  ]** Yes **[X]** No

            Indicate by check mark if theregistrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. **[  ]** Yes **[X]** No

            Indicate by check mark whetherregistrant (1) has filed all reports required to be filed by Section13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or by such shorter period that the registrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.**[X]** Yes  **[  ]** No

            Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 or Regulations S-K (§ 229,405 of this chapter) is not contained herein,and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K. **[  ]**

            Indicate by check mark whetherthe registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. **[  ]** Largeaccelerated filer  **[X]** Accelerated filer   **[  ]** Non-accelerated filer

            Indicate by check mark whetherthe registrant is a shell company (as defined in Rule 12b-2 of the Act).**[  ]** Yes  **[X]** No

            The aggregate market value of thevoting and non-voting common equity held by non-affiliates of the registrant was $464.8 million as of June 30, 2005.

            As of February 24, 2006,54,102,180 shares of common stock were outstanding.

| **DOCUMENTS INCORPORATED BY REFERENCE** |
|-----------------------------------------|

            Information called for by PartIII of Form 10-K is incorporated by reference to the Proxy Statement for our 2006 Annual Meeting of Stockholders to be filed withthe Commissions within 120 days after December 31, 2005.

----

**TABLE OF CONTENTS**

|          |   | Part I                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |        | Page |
|----------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------|
| Item 1.  |        | Business                                                                                                                                 |   | 2    |
|          |        | Forward-Looking Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |        | 2    |
|          |        | Our Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |        | 3    |
|          |        | Business Strategy                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |        | 4    |
|          |        | Capacity Purchase and Other Agreements with Continental Airlines                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |        | 4    |
|          |        | Aircraft Fleet                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |        | 13   |
|          |        | Industry                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |        | 15   |
|          |        | Competitors                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |        | 16   |
|          |        | Industry Regulation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |        | 16   |
|          |        | Employees                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |        | 17   |
| Item 1A. |        | Risk Factors                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |        | 18   |
| Item 1B. |        | Unresolved Staff Comments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |        | 23   |
| Item 2.  |        | Properties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |        | 23   |
|          |        | Flight Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |        | 23   |
|          |        | Facilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |        | 24   |
| Item 3.  |        | Legal Proceedings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |        | 25   |
|          |        | Legal Proceedings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |        | 25   |
|          |        | Environmental Proceedings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |        | 25   |
| Item 4.  |        | Submission of Matters to a Vote of Security Holders                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |        | 25   |
|          |        | PART II                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |        |      |
| Item 5.  |        | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |        | 26   |
| Item 6.  |        | Selected Financial Data                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |        | 27   |
| Item 7.  |        | Management's Discussion and Analysis of Financial Condition and Results of Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |        | 29   |
|          |        | Executive Summary                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |        | 29   |
|          |        | Results of Operations and Analysis                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |        | 36   |
|          |        | Liquidity and Capital Commitments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |        | 41   |
| Item 7A. |        | Quantitative and Qualitative Disclosure About Market Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |        | 47   |
|          |        | Aircraft Fuel                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |        | 47   |
|          |        | Interest Rates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |        | 48   |
| Item 8.  |        | Financial Statements and Supplementary Data                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |        | 49   |
|          |        | Report of Management                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |        | 50   |
|          |        | Report of Independent Registered Public Accounting Firm                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |        | 51   |
|          |        | Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |        | 52   |
|          |        | Consolidated Statements of Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |        | 53   |
|          |        | Consolidated Balance Sheets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |        | 54   |
|          |        |   Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |        | 54   |
|          |        |   Liabilities and Stockholders' Equity (Deficit)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |        | 55   |
|          |        | Consolidated Statements of Cash Flows                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |        | 56   |
|          |        | Consolidated Statements of Stockholders' Equity (Deficit)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |        | 57   |
|          |        | Notes to Consolidated Financial Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |        | 58   |
| Item 9.  |        | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |        | 86   |
| Item 9A. |        | Controls and Procedures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |        | 86   |
| Item 9B. |        | Other Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |        | 87   |
|          |        | PART III                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |        |      |
| Item 10. |        | Directors and Executive Officers of the Registrant                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |        | 88   |
| Item 11. |        | Executive Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |        | 88   |
| Item 12. |        | Security Ownership of Certain Beneficial Owners and Management                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |        | 88   |
| Item 13. |        | Certain Relationships and Related Transactions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |        | 88   |
| Item 14. |        | Principal Accounting Fees and Services                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |        | 88   |
|          |        | PART IV                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |        |      |
| Item 15. |        | Exhibits, Financial Statements Schedules                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |        | 89   |
|          |        | Signatures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |        | 98   |

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**PART I**

**Item 1. Business**

****

            ExpressJet Holdings, Inc.(“Holdings”) has strategic investments in the air transportation sector.  Our principal asset is all of the issuedand outstanding shares of stock of XJT Holdings, Inc., the sole owner of the issued and outstanding shares of common stock ofExpressJet Airlines, Inc. (“Airlines”), which operates as Continental Express.  Holdings alsoinvests in other entities that permit it to leverage the management experience, efficiencies and economies of scale present in itssubsidiaries.  Holdings and its wholly owned subsidiaries are collectively referred to in this report as“ExpressJet,” “we” and “us” except as otherwise noted.

            Our website address is*www.expressjet.com*.  In addition to other information, you may view the following materials on our website, free ofcharge:

|           | •  | our reports and other filings with the Securities and Exchange Commission ("SEC"), which areavailable as soon as reasonably practicable after we file them with, or furnish them to, the SEC; |
|--------------------------------------------------------|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                        | •  | the Corporate Governance Guidelines adopted by our board of directors establishing the generalpolicies by which the board operates;                                                           |
|                                                        | •  | the charters of the principal standing committees of the board: the Audit Committee, the HumanResources Committee and the Nominating and Corporate Governance Committee; and                  |
|                                                        | •  | the Principles of Conduct, which is our code of business conduct and ethics applicable to all of ourdirectors and employees.                                                                  |

            Stockholders may print a copy ofany of the foregoing materials from our website or may request a copy from the Secretary of the company by writing to the addresson the cover of this report.

            As described in the Principles ofConduct, we have established means for our employees to report concerns of questionable accounting, auditing and other businesspractices to our Director of Internal Audit and to the Corporate Compliance Officer.  One way for them to do this is throughthe following email address: *xjtinternalaudit@expressjet.com. * Persons desiring to communicate with the independentmembers of our board of directors may also do so through this address.

            On May 11, 2005, our ChiefExecutive Officer provided his annual certification to the New York Stock Exchange ("NYSE") that he was not aware of any violationby the company of the NYSE's corporate governance listing standards.  In addition, our Chief Executive Officer and our ChiefFinancial Officer have made the certifications required under Section 302 of the Sarbanes-Oxley Act, which are included as exhibitsto this report.

**Forward-Looking Statements**

            This report containsforward-looking statements.  Statements in the "Business," "Properties" and "Management's Discussion and Analysis of FinancialCondition and Results of Operation" sections of this report, together with other statements including words such as "believes,""intends," "plans," "anticipates, “estimates," "projects," "expects" or similar expressions represent forward-lookingstatements that are based on management's expectations in light of facts known by management on the date this report was filed withthe SEC.  Specifically, statements regarding our future results of operations, operating costs, business prospects, growth andcapital expenditures, including plans with respect to our fleet, are forward-looking statements.  These statements reflect ourplans and assumptions about future events and are subject to uncertainties, many of which are outside our control.  Importantfactors that could cause actual results to differ materially from the expectations expressed or implied in the forward-lookingstatements include known and unknown risks.  Some of the known risks that could significantly impact our revenues, operatingresults and capacity include, but are not limited to: our ability to identify and execute income-generating arrangements for the 69aircraft that Continental Airlines, Inc. (“Continental”) intends to withdraw from its capacity purchase agreement withus; our dependence on our capacity purchase agreement with Continental; our dependence on Continental’s airport, passengerand infrastructure services; our dependence on Continental's financial and operational stability; our aircraft and facility leasesor subleases with

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Continental; our ability to implement our diversification strategy; certain tax matters; flightdisruptions as a result of operational matters; regulatory developments and costs, including the costs and other effects ofenhanced security measures and other possible regulatory requirements; and competition and industry conditions.  For furtherdiscussions of these risks, please see "Item 1A - Risk Factors" beginning on page 18.  The statements in this report are madeas of February 27, 2006, and the events described in the forward-looking statements might not occur or might occur to a materiallydifferent extent than described in this report.  We undertake no duty to update or revise any of forward-looking statements,whether as a result of new information, future events or otherwise.

****

**Our Company**

            Holdings was incorporated inDelaware in August 1996.  We have strategic investments in the air transportation sector.  Our principal asset is all ofthe issued and outstanding shares of stock of XJT Holdings, Inc., the sole stockholder of Airlines.  Airlines is one of thelargest regional airlines in the world, based on available seat miles and number of regional jets, transporting passengers, cargoand mail. 

            Airlines currently fliesexclusively on behalf of Continental pursuant to a capacity purchase agreement, and we receive substantially all of our revenueunder that agreement.  We provide all of Continental's regional jet service out of New York/Newark, Houston and Cleveland, aswell as additional non-hub service.  We believe our operations complement Continental's network.  The capacity purchaseagreement covers all of our existing fleet and all of our remaining regional jets currently subject to firm aircraft order. Although we began diversifying our operations in 2005, we remain economically dependent on Continental.

            On December 28, 2005, Continentalnotified us of its intent to withdraw 69 aircraft from the capacity purchase agreement beginning in December 2006 and ending inJune 2007.  Airlines currently leases or subleases all of its existing aircraft from Continental.  The capacity purchaseagreement gives us up to nine months from the notice date to decide if we want to retain these aircraft.  We are currentlyevaluating whether or not we will do so.

            As of January 31, 2006, weaveraged 1,233 daily departures, offering scheduled passenger service to 152 cities in 40 states and the District of Columbia,Guatemala, Mexico, Canada and the Caribbean.  Our available seat miles have grown at a compounded annual rate of 20.4% from4.7 billion in 2000 to 12.0 billion in 2005.  We generated $1.6 billion of revenue and $98.0 million of net income for theyear ended December 31, 2005.  Please refer to our consolidated financial statements included in this report for informationregarding our revenue and net income for each of the last three fiscal years and total assets as of the end of the last twoyears.

            During 2005, we announced thatour wholly owned subsidiary, ExpressJet Services, LLC (“ExpressJet Services”), and Airlines’ Training Servicesdivision received third-party repair and training certificates, respectively, from the Federal Aviation Administration(“FAA”). We anticipate that these certifications will allow us to generate additional revenues as we providethird-party services to other airlines or aviation-related entities. 

            In addition, we purchasednon-controlling interests in several entities in the air transportation sector during 2005.  Please see Item 7.“Management’s Discussion and Analysis of Financial Condition and Results of Operations – Executive Summary”and Item 8. “Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 1– Summary of Accounting Policies” for a description of our investments and the current accounting treatment related tothese entities.

            After Continental’sownership of our common stock fell below 10% in April 2005, we redeemed the sole share of our Special Voting Preferred Stock, whichwas held by Continental. The redemption terminated Continental’s right to elect a director to our board of directors. Our capacity purchase agreement provided Continental the right to nominate a director to our board, but Continental relinquishedthis right in October 2005.  Continental currently owns less than 10% of our common stock and has indicated that it intends todispose of some or all of its remaining shares, subject to market conditions.  We do not expect Continental's disposition ofour shares to have an adverse impact on our results of operations or financial position.

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**Business Strategy**

****

            We seek to enhance stockholdervalue by providing the most efficient and reliable regional jet service.  This service, coupled with opportunities arisingfrom the competencies we have developed, positions us as a leading provider of regional jet services.  We believe that ourfocus on cost and reliability has strengthened Continental and created opportunities for it beyond its network. 

            Our commitment to reliability andcustomer service has served Continental well.  Continental’s revenue experience demonstrates, in part, the utility of awell run 50-seat aircraft operation within hub-and-spoke networks, particularly when the smaller aircraft are deployed to take fulladvantage of their economic capabilities.  Our newer Empresa Brasileira de Aeronautica S.A. (“Embraer”) ERJ-145XRaircraft enable Continental to serve more distant markets with demand for non-stop service to major metropolitan areas such asHouston, New York/Newark, Los Angeles and Cleveland.

            Our cost structure, measured on aper-seat mile basis, remains highly competitive and compares favorably to aircraft of much larger configurations.  Comparisonsfrom publicly available data indicate that our direct operating costs on a per available seat mile basis for maintenance, flightoperations, fuel (at our capped rates under the capacity purchase agreement) and aircraft ownership reflect economics better thanmany 100+ seat aircraft operated by major airlines.  We believe that the capability and operating economics of our aircraftwill provide us strategic opportunities in the foreseeable future.

            In addition to our capacitypurchase agreement with Continental, we have begun exploring alternatives in order to enhance our stockholders' long-term valuethrough:

|           | •  | seeking strategic opportunities for the 69 aircraft that Continental intends to withdraw from thecapacity purchase agreement;                                                              |
|--------------------------------------------------------|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                        | •  | continuing to strengthen our balance sheet by lowering our debt obligations and increasing cash tohelp position us for new opportunities;                                                  |
|                                                        | •  | further diversifying our core business by making strategic investments in the air transportationsector that will complement our current operations and leverage our operational expertise; |
|                                                        | •  | considering opportunities in the air transportation sector abroad; and                                                                                                                     |
|                                                        | •  | continuing our securities repurchase program.                                                                                                                                              |

****

**Capacity Purchase and Other Agreements with ContinentalAirlines**

**           *General.***  We currently derive substantially all of our revenue from our capacity purchase agreement withContinental.  Under this agreement, Airlines operates flights on behalf of Continental as Continental Express. Continental controls and is responsible for scheduling, pricing and managing seat inventories and is entitled to all revenueassociated with the operation of the aircraft.  We also have various other agreements with Continental that govern ourrelationship.

            Under the capacity purchaseagreement, some marketing-related costs normally associated with operating an airline are borne by Continental.  These costsinclude:

|           | •  | reservations andsales;                                                                                                            |
|--------------------------------------------------------|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                        | •  | commissions;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                        | •  | advertising;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                        | •  | revenue accounting;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                        | •  | fare and tariff filings; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                        | •  | food and beverage service.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |

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            On December 28, 2005, Continentalnotified us that it would withdraw 69 aircraft from the capacity purchase agreement beginning in December 2006 and ending in June2007.  The capacity purchase agreement gives us up to nine months from the notice date to decide if we want to retain theaircraft.  If we choose to retain the aircraft, the capacity purchase agreement contains a provision for the interest rateimplicit in calculating the scheduled lease payments we make to Continental to increase by 200 basis points.

**           *Payment.***  Under the capacity purchase agreement, Airlines is entitled to payment for each block hour thatContinental schedules it to fly.  Payment is based on a formula designed to provide Airlines with a target operating margin of10% before taking into account variations in certain costs and expenses that are generally within our control.  In accordancewith the capacity purchase agreement, the original cost components used in this formula remained in place until December 31, 2004,after which, new rates began to be established annually using the same methodology.  We have exposure for most labor costs andsome maintenance and general administrative expenses if the actual costs are higher than those reflected in Airlines’estimated block hour rates.

            Under the terms of the capacitypurchase agreement, we began negotiations with Continental in the fall of 2005 to set the rates for 2006.  Although theagreement calls for rates to be set by November 1, we are still negotiating rates for 2006.  As of this time, neither partyhas requested arbitration to establish the rates.  In the meantime, Continental is paying us at the rates applicable inDecember 2005.  Any agreement we reach on the 2006 rates will be applied retroactively to January 1, 2006.

           ***2001-2004****.*  A reconciliation payment was made by Continental to Airlines, or by Airlines to Continental,if the operating margin calculated, as described below (the "prevailing margin") was not between 8.5% and 11.5% in any fiscalquarter.  When the prevailing margin exceeded 11.5%, Airlines paid Continental an amount sufficient to reduce the margin to11.5%.  If the prevailing margin was less than 8.5%, Continental would have paid Airlines an amount sufficient to raise themargin to 8.5%.  During 2001 to 2004, the quarterly prevailing margins, before any reconciliation payments, were never below8.5%.  Certain items were excluded from the calculation of the prevailing margin, including:

|           | •  | actual labor costs that differed from those reflected in Airlines’ block hourrates;                                                                             |
|--------------------------------------------------------|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                        | •  | performance incentive payments, including payments from controllable cancellation performance(cancellations other than weather or air traffic control cancellations); |
|                                                        | •  | litigation costs outside the normal course of business; and                                                                                                           |
|                                                        | •  | other costs that were not included in Airlines’ block hour rates (or covered by anyadjustments to them) and were not reasonable and customary in the industry.  |

            If these excluded costs werehigher than those anticipated in Airlines’ block hour rates, our operating margin could have been lower than 8.5% when takingthese costs into account, even after any reconciliation payment was made.  Conversely, if these costs were lower than thoseanticipated in Airlines’ block hour rates, our operating margin could have been higher than 11.5% when taking these costsinto account, even after any reconciliation payment was made.

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            The table below describes howvariations between Airlines’ actual costs and estimated costs, as determined in the block hour rates, were treated under thecapacity purchase agreement through 2004.

| **Fully reconciled costs:** reconciliation payment, including 10% margin, to the fullextent actual costs differed from estimated costs.                                                                                                                                                                                                                                                                                                                                                                                     |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  • Fuel and into-plane expenses(1)  • Aircraft rent  • Terminal facility rent  • On-time bonuses and 401(k) company match     under current plans  • Taxes (other than income taxes)  • Passenger liability insurance  • Hull insurance  • War risk insurance  • Landing fees                                                                                    |  • Ground handling services  • Administrative services provided by     Continental  • Third-party security and screening expenses  • Substantially all regional jet engine expenses    under current long-term third-party contracts  • Depreciation and amortization(2)  • Pilot training volumes  • Glycol, de-icing, snow removal  • International navigational fees  • Pilot soft time(3) |
| **Costs within the margin band:** if actual expenses in this category were sufficiently different from estimates used inthe block hour rates so that the prevailing margin (calculated to exclude the impact of unreconciled costs, to the extent theydiffered from Airlines’ estimated costs, and other items(4)) was less than 8.5% or greater than 11.5%, then areconciliation payment was to be made by Continental or Airlines to the other so that this prevailing margin would be 8.5% or11.5%, as applicable. |
|  • Maintenance, materials and repairs not     included above  • Passenger services                                                                                                                                                                                                                                                                                                                                                                                        |  • Other rental expenses  • Other operating expenses |
| **Unreconciled costs:** no reconciliation payment was made for actual results that differed from estimated costs.                                                                                                                                                                                                                                                                                                                                                                                                           |
|  • Wages and salaries  • Benefits not included above                                                                                                                                                                                                                                                                                                                                                                                                                                          |  • Corporate headquarter rent costs |

|        | (1)  | Under our fuel purchase agreement with Continental, fuel and fuel tax expense were reconciled to thelower of the actual costs or the agreed-upon caps.  Since 2003, our caps on fuel and fuel taxes have been 66.0 cents and 5.2cents per gallon, respectively.  For 2002, the caps on fuel and fuel taxes were 61.1 cents and 5.2 cents per gallon,respectively, and for 2001, the caps were 80.9 cents and 5.6 cents per gallon, respectively.  If the fuel agreement withContinental were not in place, Airlines’ fuel cost, including related taxes, would have been $1.23 and $0.93 per gallon forthe year ending December 31, 2004 and 2003, respectively. |
|--------------------------------------|-----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                      | (2)  | Depreciation was reconciled for assets and capital projects accounted for in the capacity purchaseagreement or those approved by Continental outside of the capacity purchase agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                      | (3)  | Pilot soft time reconciliation ended March 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                                      | (4)  | In addition to the unreconciled costs listed above, the prevailing margins used to calculateAirlines’ quarterly reconciliation payments did not take into account any performance incentive payments, including paymentsfrom controllable cancellation performance (cancellations other than weather or air traffic control cancellations), litigationcosts outside the normal course of business and other costs that were not included in Airlines’ block hour rates (or coveredby adjustments to them) and were not reasonable or customary in the industry.                                                                                                           |

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            In addition, to the extent thatAirlines’ rate of controllable cancellations (such as those due to maintenance or crew shortages) was lower than itshistorical benchmarks, Airlines was entitled to incentive payments; conversely, Airlines would have had to pay Continental if itscontrollable cancellations were above historical benchmarks.  Because these incentive benchmarks were based on historicalfive-year rolling averages of monthly controllable cancellations, lower controllable cancellations that resulted in higherincentive payments in the near term reduced Airlines’ opportunity to earn incentive payments in the future.  Also,because Airlines used monthly rolling averages, its opportunity to earn these payments in any particular fiscal quarter wasaffected by monthly variations in historical controllable cancellation rates.  Airlines was also entitled to receive a smallper-passenger fee and incentive payments for certain on-time departure and baggage handling performance.

            ***2005 Rate Negotiation andAmendment.***  As part of the 2005 rate negotiation, we agreed to cap Airlines’ prevailing margin at 10.0%. Airlines also now includes previously unreconciled costs, as discussed previously, within the margin band, although it is notreimbursed if these costs are higher and cause its prevailing margin to fall below the 8.5% margin floor.  In addition,Airlines is still entitled to receive incentive payments from Continental if its rate of controllable cancellations is lower thanits historical benchmark, but is not required to pay Continental a penalty for controllable cancellations unless the rate risesabove 0.5%.  Airlines continues to receive a small per-passenger fee and incentive payments for certain on-time departure andbaggage handling performance.

            The table below describes howvariations between Airlines’ actual costs and estimated costs, as determined in the block hour rates, have been treated underthe capacity purchase agreement since January 1, 2005.

| **Fully reconciled costs:** reconciliation payment, including 10% margin, to the fullextent actual costs differ from estimated costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  • Fuel and into-plane expenses(1)  • Aircraft rent  • Terminal facility rent  • On-time bonuses and 401(k) company     match under current plans  • Taxes (other than income taxes)  • Passenger liability insurance  • Hull insurance  • War risk insurance  • Landing fees  • Ground handling services                                                                                                                                                 |  • Administrative services provided by     Continental  • Third-party security and screening    expenses  • Substantially all regional jet engine    expenses under current long-term    third-party contracts  • Depreciation and amortization(2)  • Glycol, de-icing, snow removal  • International navigational fees |
| **Costs within the margin band:** if actual expenses in this category are sufficiently different from estimates used in theblock hour rates so that the prevailing margin is less than 8.5% or greater than 10.0%, then a reconciliation payment will be madeby either Continental or Airlines to the other so that this prevailing margin will be 8.5% or 10.0%, as applicable.  If theprevailing margin is less than 8.5% due to impact of certain costs, as described below, or if the prevailing margin is above 10.0%due to other items(3), no reconciliation payments would be made from either Continental or Airlines. |
|  • Maintenance, materials and repairs not     included above  • Passenger services                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | • Other rental expenses • Other operating expenses |

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|        | (1)  | Under our fuel purchase agreement with Continental, fuel and fuel tax expense are reconciled to thelower of the actual costs or the agreed-upon caps of 66.0 cents per gallon and 5.2 cents per gallon, respectively, based onAirlines’ fuel purchase agreement with Continental.  If the fuel purchase agreement with Continental were not in place,the fuel cost, including related taxes, would have been $1.80 per gallon for the year ended December 31, 2005. |
|--------------------------------------|-----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                      | (2)  | Depreciation is reconciled for assets and capital projects accounted for in the capacity purchaseagreement or those approved by Continental outside of the capacity purchase agreement.                                                                                                                                                                                                                                                                                        |
|                                      | (3)  | The prevailing margin used to calculate the reconciliation payment does not take into accountperformance incentive payments, including payments from controllable cancellation performance, litigation costs above a historicalbenchmark and other costs that are not included in the block hour rates (or covered by adjustments to them) or are not reasonableand customary in the industry.                                                                                 |

            In 2005, the fully reconciledcosts and costs within the margin band under the capacity purchase agreement represented approximately 64% and 36% of totaloperating costs, respectively. 

            Certain costs that wereunreconciled under the capacity purchase agreement prior to 2005 now require Airlines to make a reconciliation payment toContinental if the differences cause the prevailing margin to be greater than 10.0%.  However, if the differences cause theprevailing margin to be less than 8.5%, they remain unreconciled.  These costs are:

|           | •  | wages and salaries;and                                                                                                       |
|--------------------------------------------------------|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                        | •  | benefits not included in the table above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

            ***2006 RateSetting.***  We negotiate with Continental to adjust the scheduled block hour rates annually as required under thecapacity purchase agreement.  Because we have not agreed on the 2006 rates, Continental has agreed to continue paying Airlinesat the December 2005 rates until an agreement is reached.  Any agreement to revise the current rate structure will beretroactive to January 1, 2006.  We cannot currently estimate what the 2006 rates will ultimately be.  If we cannot agreeon the annual rates, the capacity purchase agreement allows either party to submit the matter to arbitration.

****

**            *Scope of Agreement andExclusive Arrangement.***  Subject to the aircraft withdrawal beginning in December 2006, the capacity purchaseagreement covers Airlines’ existing fleet of 266 aircraft, as well as the eight aircraft subject to firm orders atDecember 31, 2005 (three of which were delivered as of February 27, 2006).  The agreement allows us to beContinental’s exclusive regional jet service provider at Newark’s Liberty International, Houston’s BushIntercontinental and Cleveland’s Hopkins International airports through December 31, 2006.  However, the capacitypurchase agreement permits up to 10 regional jet flights per day at each of these hubs by regional airlines that have arrangementswith Continental’s airline code-share partners.  This exclusivity would automatically and permanently terminate upon theoccurrence of a union-authorized strike.  Otherwise, the agreement does not prohibit Continental from competing, or fromentering into agreements with other airlines that would compete, with routes we serve.

            The capacity purchase agreementpermits us to fly under our own code or on behalf of other airlines.  However, there are provisions in the capacity purchaseagreement stating that:

|           | •  | at Continental’s hubs, we may only fly for Continental;                                                                                                                                                                                             |
|--------------------------------------------------------|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                        | •  | at any other airport where Continental, its subsidiaries and other regional jets operating underContinental’s code operate an average of more than 50 flights daily (although currently there are no such airports), we mayonly fly for Continental; and |
|                                                        | •  | we cannot operate any of our aircraft subject to the capacity purchase agreement or use ourpassenger-related airport facilities employed under the agreement for other carriers or for flights under our own code.                                             |

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            Because our license fromContinental to use the Continental Express name and other trademarks is non-exclusive, Continental is not prohibited from flyingits own planes or permitting other airlines to operate under the Continental Express name.

            The capacity purchase agreementalso provides that Continental has the right to withdraw a limited number of our regional jets covered by the agreement at anytime, provided that we receive at least 12 months’ notice.  On December 28, 2005, Continental gave us such a noticewith respect to 69 aircraft, the maximum number that it could currently withdraw from the capacity purchase agreement.  Underthe terms of the agreement, Continental cannot withdraw additional aircraft from the agreement until December 28, 2009 unless theagreement is terminated early, which Continental can currently do with twelve months’ notice.  With respect to the 69aircraft released from the capacity purchase agreement, all of which were leased or subleased from Continental, we have the optionto:

|           | •  | fly the released aircraft for other parties or under our own code, subject to our ability to obtainfacilities, such as gates and slots, and subject to any enforceable restrictions in the capacity purchaseagreement;  |
|--------------------------------------------------------|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                        | •  | sublease the aircraft to other parties; or                                                                                                                                                                                   |
|                                                        | •  | decline to fly these aircraft and cancel the related leases or subleases withContinental.                                                                                                                                    |

            If we elect to retain theaircraft released from the capacity purchase agreement, the capacity purchase agreement contains a provision calling for theinterest rate implicit in calculating the scheduled lease payments to Continental to increase by 200 basis points.  See"— Aircraft Financing."  If we elect not to retain these aircraft, the related leases or subleases between us andContinental will be canceled, and Continental will take possession of the aircraft.  In that event, Continental will beresponsible for all direct reasonable costs we incur in removing those aircraft from our fleet, including purchasing any excessspare part inventory we may have related to these aircraft at net book value.

            So long as scheduled flightsunder our capacity purchase agreement with Continental represent at least 50% of all our scheduled flights, or at least 200 of ouraircraft are covered by the agreement, we are required to allocate our crews, maintenance personnel, facilities and other resourceson a priority basis to scheduled flights under the agreement above all of our other flights and aircraft.

**            *Code-Sharing andMarketing.***  The capacity purchase agreement authorizes us to use Continental’s two-letter flightdesignator code (CO*) to identify Airlines’ flights in the central reservation system, to paint our aircraft with itsbranding and to market and advertise our status as being a part of the Continental route system.  The agreement also gives usa non-exclusive license to fly under the Continental Express name.  Passengers on Airlines’ scheduled flights under thecapacity purchase agreement can earn rewards under Continental’s OnePass frequent flyer program.  We do not pay feeswith respect to these services.

**            *AircraftFinancing.***  Airlines currently leases or subleases all of its existing aircraft from Continental.  As ofFebruary 27, 2006, Airlines has 269 aircraft in its fleet and expects to take delivery of the remaining five aircraft under firmorders by June 30, 2006 under the same financing terms involving Continental.  Under the capacity purchase agreement,Continental is required to purchase or lease from Embraer or its designee aircraft to be flown under the capacity purchaseagreement, participate in the financing and to lease or sublease these aircraft to us.  Aircraft withdrawn from the capacitypurchase agreement become “Uncovered Aircraft” as defined in the agreement, and the capacity purchase agreementcontains a provision for the interest rate implicit in calculating the scheduled lease payments we make to Continental under therelevant leases or subleases to automatically increase by 200 basis points.

            The 100 ERJ-145XR aircraft thatwe have options to purchase would also be Uncovered Aircraft since Continental has declined to include them under the capacitypurchase agreement.  These option aircraft may be exercised for other types of aircraft within the ERJ-145 line of aircraft,which include the ERJ-135, ERJ-145 and ERJ-145XR (“ERJ-145 Family”).  While we retain the right to exercise theseoptions, we would have to finance our acquisition of these aircraft independently.  We expect to notify Embraer of ourintentions regarding the first 25 option aircraft in March 2006.

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            Continental has the right toterminate, at any time, any Uncovered Aircraft sublease and take possession of the aircraft so long as it provides us a replacementaircraft and we can obtain financing reasonably satisfactory to us.  If we do not obtain such financing, Continental cannotrequire us to take the replacement aircraft.

            Continental does not have anyobligation to finance, arrange to finance or participate in the financing of any aircraft acquired outside the capacity purchaseagreement.

**            *Airport Facilities, Slotsand Route Authorities*.**  Most of the airport facilities that Airlines uses are leased from airport authoritiesby Continental.  Under Airlines’ master facility and ground handling agreement with Continental, Airlines is entitled touse these facilities to fulfill its obligations under the capacity purchase agreement.  However, we are generally not entitledto use airport terminal facilities leased by Continental to service other carriers or operate flights under our own code withoutContinental’s approval.  Further, we must use those facilities that are non-terminal facilities on a priority basis tosupport the scheduled flights that Airlines flies on behalf of Continental so long as those flights constitute at least 50% of ourtotal scheduled flights or at least 200 of our aircraft are covered by the capacity purchase agreement.

            In November 2003, Airlines’master facility and ground handling agreement with Continental was amended to clarify how airport terminal rent expenses would beallocated to Airlines by Continental at the airport locations where Airlines operates.  Under this amendment, all terminalfacility rents at Continental’s hub airports are now borne by Continental, and Airlines pays for incremental rent at otherContinental-managed locations, unless Continental does not operate any scheduled aircraft there during a quarter.  Airlines isresponsible for the rent expense at locations where Continental does not operate any aircraft.  At locations Airlines manages,rent is allocated between Continental and Airlines based on the number of each carrier’s respective passengers.  Thischange reduced Airlines’ annual terminal facility rent costs by approximately $30 million in 2004 as compared to the rentallocation method under its previous agreement with Continental.  Since terminal facility rent is a fully reconciled cost, asdescribed above under "—2005 Rate Negotiation and Amendment," this change reduced our 2004 operating income by approximately$3.3 million. 

            Continental is generallyresponsible for all capital and start-up costs for airport terminal facilities at its hub airports and at any other facilitieswhere it elects to provide ground handling services to Airlines.  If Continental elects to provide ground handling services atany facility where Airlines previously did so, Continental will reimburse Airlines for most of the capital and start-up costsAirlines incurred at that facility.  We are generally responsible for capital and start-up costs associated with airportterminal facilities where Airlines flies and any non-terminal facilities not regularly used by Continental.  If Airlines exitsa market at the direction of Continental (and we do not re-enter that market within six months flying under our own code or that ofan airline other than Continental), Continental will reimburse us for certain losses incurred in connection with the closure of therelated facility. If the capacity purchase agreement is terminated, we may be required to vacate the terminal facilities (or allfacilities if the termination results from our material breach of the agreement) that are subleased to Airlines by Continental, andto use commercially reasonable efforts to assign to Continental or its designee any of the facility leases in our name.

            In addition, there are provisionsin the capacity purchase agreement that require us to use commercially reasonable efforts to transfer, subject to applicable laws,to Continental or its designee any of our airport take-off or landing slots, route authorities or other regulatory authorizationsused for Airlines’ scheduled flights under the agreement.

**            *GroundHandling.*****  Airlines provides ground handling and other support services, including baggage handling,station operations, ticketing, gate access and other passenger, aircraft and traffic servicing functions for Continental at severalof our airport locations.  In exchange, Continental pays us an amount equal to Airlines’ incremental cost for providingthese services.  Continental provides the same services for Airlines at its stations, including its hub airports.  Thecost for these services is based on the number of scheduled aircraft and the rates stipulated in the capacity purchaseagreement.

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**            *Most FavoredNations.***  So long as Continental is our largest customer, if we enter into a capacity purchase or economicallysimilar agreement with another major airline (defined as any airline with annual revenues greater than $500 million, prior toadjustment for inflation since 2000) to provide regional airline service for more than 10 aircraft on terms and conditions thatare, in the aggregate, less favorable to us than those in the capacity purchase agreement, the capacity purchase agreement has aprovision that may allow Continental to amend its agreement with us to conform to the terms and conditions of our newagreement.

            ***Change ofControl.***  So long as Continental is our largest customer, if we experience a change of control without its consent,there are provisions in the capacity purchase agreement that may cause Airlines’ block hour rates to be reduced by an amountapproximately equal to the operating margin built into those rates.  Under the capacity purchase agreement, a change ofcontrol of our company is defined as:

|           | •  | our merger or consolidation with a major airline, i.e., an airline other than Continental or itssubsidiaries that had more than $500 million of revenue, adjusted for inflation since 2000, (or, if we are the surviving entity, $1billion of revenue) during the most recently completed fiscal year;                 |
|--------------------------------------------------------|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                        | •  | the acquisition by a major airline, or group of major airlines acting in concert, of more than 10%of our capital stock or voting rights;                                                                                                                                                                               |
|                                                        | •  | the acquisition by any other entity, or group of entities acting in concert, other than Continentaland its subsidiaries or passive investors, of more than 25% of our capital stock or voting rights, unless such entity or groupreduces its ownership to below this threshold within 30 days of the acquisition; |
|                                                        | •  | our acquisition of more than 10% of the capital stock of an airline (other than Continental or itssubsidiaries) that had more than $1 billion of revenue during the most recently completed fiscal year;                                                                                                               |
|                                                        | •  | our acquisition of airline assets that generated more than $500 million, prior to adjustment forinflation since 2000, of revenue during the most recently completed fiscal year;                                                                                                                                       |
|                                                        | •  | our merger or consolidation with another entity following which our stockholders own less than amajority of the voting securities of the surviving entity;                                                                                                                                                             |
|                                                        | •  | the sale or other disposition of all or substantially all of our airline assets to a majorairline;                                                                                                                                                                                                                     |
|                                                        | •  | our liquidation or dissolution, in connection with which we cease operations as an aircarrier;                                                                                                                                                                                                                         |
|                                                        | •  | a majority of our directors are neither our current directors or individuals nominated by a majorityof our board of directors; or                                                                                                                                                                                      |
|                                                        | •  | our entering into definitive agreements relating to the foregoing matters.                                                                                                                                                                                                                                             |

            ***LaborDisruption.***  Upon the occurrence of a union-authorized labor strike, the capacity purchase agreement providesthat:

|           | •  | Airlines will no longer have the right to be Continental’s exclusive provider of regional jetservice at its hub airports in New York/Newark, Houston and Cleveland, regardless of the length of the strike;                                                                                                                                                                                                        |
|--------------------------------------------------------|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                        | •  | Airlines will be compensated only for the flights it completes, and will not be compensated for anycontrollable or uncontrollable cancellations regardless of its historical cancellation rates;                                                                                                                                                                                                                         |
|                                                        | •  | on each of the 2nd, 15th, 30th, 45th, 60th and 75th days of the strike, Continental will be entitledto terminate Airlines’ leases or subleases for, and take immediate possession of, up to 20 of Airlines’ aircraftcovered by the capacity purchase agreement, up to a maximum of 120 aircraft if the strike extends to the 75th day;                                                                       |
|                               | •  | we will be required to provide to Continental or its designee, for the duration of the strike and180 days thereafter and at market rates, first-priority access to all of our flight simulators, hangars, training and otherfacilities and inventory to the extent necessary to enable Continental or its designee to operate any aircraft of which Continentaltakes possession as a result of the strike; and |
|                                                        | •  | if the strike continues for 90 days or more, Continental is entitled to terminate the capacitypurchase agreement for cause, cancel Airlines’ leases or subleases and take immediate possession of all of the aircraftcovered by the capacity purchase agreement.                                                                                                                                              |

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            In addition, a labor disruptionother than a union-authorized strike may cause us to be in material breach of the capacity purchase agreement.  Under thecapacity purchase agreement, whenever Airlines fails to complete at least 90% of its aggregate scheduled flights (based onavailable seat miles) in three consecutive calendar months or at least 75% of its aggregate scheduled flights (based on availableseat miles) in any 45-day period (in each case, excluding flights cancelled due to union-authorized labor strikes, weather, airtraffic control or non-carrier specific airworthiness directives or regulatory orders), we will be deemed to be in material breachof the capacity purchase agreement.  A labor disruption other than a union-authorized strike could cause Airlines to fail tomeet these completion requirements and, as a result, cause us to be in material breach of the capacity purchase agreement. See further discussions below regarding remedies for breach of the capacity purchase agreement by either Continental orus.

            ***Term and Termination ofAgreement and Remedies for Breach*.**  The capacity purchase agreement is scheduled to expire on December 31,2010.  Continental has the option to extend the term of the agreement with 24 months’ notice for up to fouradditional five-year terms through December 31, 2030.

            Continental may terminate theagreement early with 12 months’ notice, or for cause at any time without notice for cause.  “Cause” isdefined as:

|          | •  | our bankruptcy;                                                                                                                                                                 |
|--------------------------------------------------|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                  | •  | suspension or revocation of Airlines’ authority to operate as a scheduled airline;                                                                                        |
|                                                  | •  | cessation of Airlines’ operations as a scheduled airline, other than as a result of aunion-authorized labor strike or any temporary cessation not to exceed 14 days; |
|                                                  | •  | a union-authorized labor strike that continues for 90 days; or                                                                                                                  |
|                                                  | •  | our intentional or willful material breach that substantially deprives Continental of the benefitsof the agreement, which is not cured within 90 days of notice of the breach.  |

            Continental may also terminatethe agreement at any time upon our material breach that does not constitute cause, but continues uncured for 90 days after wereceive notice of the breach.  If we materially breach the agreement (including for cause) and, for breaches other than cause,fail to cure the breach within 60 days after we receive notice of the breach, we will have to pay Continental an amount equalto the expected margin contained in the block hour rates for scheduled flights from the 60th day (or immediately, without receiptof any notice, if the breach is for cause) until the breach is cured.  In addition, Continental may terminate the agreementimmediately without notice or giving us an opportunity to cure if it makes a reasonable and good faith determination, usingrecognized standards of safety, that there is a material safety concern with our operation of any flight under the capacitypurchase agreement.

            If Continental materiallybreaches the agreement and fails to cure the breach within 60 days after we notify it of the breach, we will be entitled toobtain our payments directly from Airline Clearing House, Inc. from the 60th day for the duration of the default.  Inaddition, Continental and we are each entitled to seek damages in arbitration and to reach equitable remedies.

**            *Disposition of Aircraftupon Early Termination.***  If Continental terminates the capacity purchase agreement for cause, it will also havethe right at that time to terminate Airlines’ leases or subleases for aircraft covered by the agreement and take possessionof these aircraft.  If Continental terminates the capacity purchase agreement for any reason other than for cause, we have theoption to cancel all or any number of our leases or subleases with Continental for aircraft covered by the agreement at the time oftermination.  However, if Airlines terminates any of these subleases, it will lose access to the subject aircraft, which wouldreduce the size of our fleet and affect our future ability to generate revenue.  If Airlines elects not to terminate theseleases or subleases, the capacity purchase agreement contains a provision for the interest rate implicit in calculating thescheduled lease payments we make to Continental under the relevant leases or subleases to automatically increase by 200 basispoints.

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**            *Amendment of Embraer andRolls Royce Contracts.***  We are prohibited, without Continental’s consent, from amending Airlines’aircraft purchase agreements with Embraer to change the pricing, financing or leasing arrangements, number or delivery schedule offirm order or option aircraft subject to the agreements, or to make any other changes that may be expected to adversely affectContinental’s rights under the capacity purchase agreement or our ability to perform our obligations under the capacitypurchase agreement.  We have also agreed to consent to any amendment of Airlines’ Embraer aircraft purchase agreementsthat reduces the financing or other obligations of Continental, provided that the amendment does not increase Airlines’obligations under these agreements.  We are also prohibited, without Continental’s consent, from amending ourpower-by-the-hour agreement with Rolls Royce Corporation (“Rolls Royce”) in any manner that adversely affectsContinental’s or our engine maintenance costs for the aircraft subject to the capacity purchase agreement.  WithContinental’s consent, we agreed to a five-year extension of our agreement with Rolls Royce and expanded the scope of itscoverage in 2003 and 2004, respectively.

**           *Indemnification***.  In general, we have agreed to indemnify Continental and it has agreed to indemnify us forany damages caused by any breaches of our respective obligations under the capacity purchase agreement or caused by our respectiveactions or inactions under the agreement.

            ***BoardDesignee***.  In October 2005, Continental relinquished its right under our capacity purchaseagreement to nominate a director to our board.

**            *Other Agreements withContinental.***  In connection with the capacity purchase agreement, we also entered into an administrativeservices agreement, under which Continental provides us with services such as information technology support, transactionprocessing, insurance and risk management and treasury administrative services, corporate real estate and environmentalaffairs.  Airlines also has a fuel purchasing agreement with Continental, under which Continental manages all ofAirlines’ fuel purchasing requirements.  Continental charges us for these services and the cost is included in the blockhour rate pricing arrangement in the capacity purchase agreement. 

            In addition, we have a taxagreement with Continental that provides, among other things, for our payment to it of all or a significant portion of the taxbenefits we realize as a result of an internal reorganization performed before our initial public offering in 2002.  Since ourinitial public offering, we have made net payments of approximately $98.8 million to Continental under the tax agreement and couldpay Continental as much as an additional $257.4 million through 2017.  See Item 8.  "Financial Statements andSupplementary Data – Notes to Consolidated Financial Statements – Note 9" for a detailed discussion of our income taxesand our tax agreement with Continental.

**Aircraft Fleet**

            ***Our Fleet.***  Weoperate a fleet of 266 Embraer ERJ-135, ERJ-145 and ERJ-145XR aircraft as of December 31, 2005.  We expect to take eightadditional aircraft in 2006 (three of which have been delivered as of February 27, 2006) for a total fleet count of 274aircraft.  We have no obligation to take any of the aircraft under firm commitments unless they are financed by a third partyand leased to Continental or us.  

            The capacity purchase agreementprovides that through December 31, 2006 all of the 274 Embraer regional jets will be leased or subleased from Continental tous.  On December 28, 2005, Continental notified us that it intends to withdraw 69 aircraft, or 25% of the capacity currentlyunder the capacity purchase agreement, beginning December 28, 2006.  The withdrawal schedule that Continental included in itsnotice is as follows:

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| **WithdrawalMonth                 ** |              | **Aircraft Withdrawn** |              | **ERJ-145XR** |              | **ERJ-145LR** |
|---------------------------------------------------------------------------------------------------------------------------|--------------|------------------------|--------------|---------------|--------------|---------------|
|                                                                                                                           |    |                        |    |               |    |               |
| December 2006                                                                                                             |              | 2                      |              | 1             |              | 1             |
| January 2007                                                                                                              |              | 10                     |              | 5             |              | 5             |
| February 2007                                                                                                             |              | 12                     |              | 8             |              | 4             |
| March 2007                                                                                                                |              | 12                     |              | 8             |              | 4             |
| April 2007                                                                                                                |              | 12                     |              | 8             |              | 4             |
| May 2007                                                                                                                  |              | 15                     |              | 10            |              | 5             |
| June  2007                                                                                                           |              | 6                      |              | 4             |              | 2             |
|                                                                                                                           |              |                        |              |               |              |               |
| **Total**                                                                                                                 |              | **69**                 |              | **44**        |              | **25**        |
|                                                                                                                           |              |                        |              |               |              |               |

            Under the terms of the capacitypurchase agreement, we have nine months (from the date of Continental’s withdrawal notice) to decide if we will continue tolease or sublease any or all of these aircraft or return them to Continental.  Continental could withdraw additional aircraftbeginning December 28, 2009, with 12 months’ prior notice.  In addition, Continental can terminate the agreement atanytime with 12 months’ notice, under which withdrawal would be limited to 15 aircraft per month. If we return the aircraftto Continental, it would incur costs associated with terminating the leases or subleases under the terms of the capacity purchaseagreement. 

            The operational capability of theERJ-135 and ERJ-145 is 1,100 nautical miles.  The ERJ-145XR, with a 1,500 nautical mile range, continues to createopportunities for us to expand Continental’s network more economically to cities beyond its prior reach.  Each of ouraircraft is equipped with advanced technology and certifications that aid our operation in challenging weather conditions, as wellas allowing for more cost-effective operations at higher flight levels. 

            Our fleet offers a seamlessservice experience to Continental’s passengers.  Our planes feature overhead baggage compartments, under-seat baggagestorage, leather seating, lavatories, in-flight meal and beverage service capabilities and jet-bridge loading in mostlocations.  Two differentiating features of our aircraft from mainline aircraft are the seating configuration (no middleseats) and the opportunity for passengers to gate-check larger carry-on luggage and continue on to their connecting flight withouta trip to baggage claim. 

            We have options for 100 ERJ-145XRaircraft that may be exercised for other types of aircraft within the ERJ-145 Family.  During 2005, Continental declined theright to exercise any of these options.  Continental is not required to participate in the financing for any option aircraftthat we acquire.  We have no firm orders for additional aircraft other than the five remaining Embraer ERJ-145XR at February27, 2006. We expect to notify Embraer of our intention regarding the first 25 option aircraft in March 2006.

            ***Maintenance ofAircraft.***  We maintain our aircraft on both a scheduled and as needed basis using primarily our own trained andFAA-certified personnel and facilities.  We emphasize preventive maintenance in addition to inspection of our aircraft enginesand airframes at intervals required by the FAA.  We perform line and heavy maintenance at our facilities in Burlington,Vermont; Cleveland, Ohio; Houston, Texas; Knoxville, Tennessee; Richmond, Virginia; Louisville Kentucky; Shreveport, Louisiana andNewark, New Jersey.  We also perform line maintenance at our satellite maintenance stations.  We maintain an inventory ofaircraft spare parts to ensure the reliability of our operations and utilize a computerized tracking system to increase maintenanceefficiency and avoid excess inventory of spare parts.

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            We have a power-by-the-houragreement with Rolls Royce to maintain the engines on our aircraft through April 2015.  Under the agreement, we are charged afixed rate based on flight hours incurred during a month.  The rates are subject to annual revisions based on specific laborand materials indices.  We also have power-by-the-hour agreements with other vendors to cover various components and systemson the aircraft, such as auxiliary power units, avionics, environmental controls, tires, wheels and brakes.  For 2005,approximately 70% of our maintenance, materials and repairs cost consisted of power-by-the-hour expenses.  We believe thatthese agreements, coupled with our ongoing maintenance program, reduce the likelihood of unexpected maintenance expense during theaircraft lease terms.

**

            In 2005, ExpressJet Services, ourrepair and overhaul subsidiary, received a repair station certificate from the FAA enabling it to provide services to thirdparties.  ExpressJet Services currently offers a variety of composite and sheet metal repair and overhaul services, includingthrust reverser repairs, engine cowlings and engine nose section repairs, on many diverse aircraft types.  We believeExpressJet Services allows us to pursue a strategy that leverages our expertise in aircraft reliability.

**Industry**

            The airline industry in theUnited States has traditionally been led by major airlines, including American Airlines, United Air Lines, Delta Air Lines,Northwest Airlines, Continental and US Airways.  These airlines operate primarily under the hub-and-spoke model, consisting oflarge operations in a small number of metropolitan areas (hubs) providing extensive local non-stop service, as well as a connectingpoint for traffic to or from other markets (spokes).

            The current strategies of themajor carriers include:  lowering operating costs to match the revenue generating capability of their aircraft; broadeningtheir international networks to avoid domestic low-cost competition and to capture the higher fares paid on international routes;continuing to focus on business travelers, who historically have paid higher fares; fighting to maintain capacity and market shareagainst low-cost carriers domestically; and bringing additional connecting traffic into their networks through new alliances. Airlines have faced unprecedented challenges over the last five years, including the terrorist attacks in September 2001, severeacute respiratory syndrome, the war in Iraq, underfunded defined benefit pension plans and record high fuel prices.  Twoadditional items added pressure to the major airlines:  the Internet as a distribution system and low-cost carriers.  TheInternet allows passengers to instantaneously compare all of the major network and low-cost airlines’ pricing, largelyeliminating lucrative travel agent and corporate contracts.  In addition, the low-cost carriers continue to gain market shareat the expense of the majors by offering passengers no-frills travel at low fares.  All of these factors have led four of thesix major airlines listed above to file for Chapter 11 bankruptcy protection, and caused all of the six airlines to seek wage andwork rule concessions from their employees and concentrate on drastically reducing costs in their overall networks, includingbidding out regional flying to save money for the overall network.  For the two major carriers, Continental and AmericanAirlines, that have not filed for Chapter 11 protection, there are further challenges as the bankrupt carriers run their operationsto generate cash under bankruptcy protection versus operating under a long-term viable business plan, which requires paying billsregularly.

            Regional airlines typicallyoperate under capacity purchase arrangements or prorate agreements with major airlines.  The capacity purchase arrangementallows a regional airline to sell all of its capacity to the major airline at a contracted price and concentrate on the operationand efficiency of the aircraft versus marketing and scheduling the airline.  The capacity purchase agreement provides someprotection from industry conditions as well as a more predictable income stream.  In this model, major carriers use theregionals to serve smaller communities more economically than with larger jet aircraft to add departures at certain times of theday in large markets to protect market share and to expand their network into new communities.  Prorate agreements are lesscommon today and provide regional carriers a portion of the passenger revenue from the purchased ticket.   Under a prorateagreement, regional airlines are typically less insulated from industry conditions, such as low fares and high fuel prices. However, prorate agreements allow regional airlines scheduling control of their aircraft, so the focus is to maximize profitsrather than bring connecting traffic into the major’s hub.

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            Currently, we, as well as AirWisconsin, Mesa Airlines, Mesaba Airlines, Pinnacle Airlines, Republic Airways, SkyWest Airlines, including Atlantic SoutheastAirlines, and Trans States Airlines, operate under some form of capacity arrangement.  Mesa Airlines also performs someprorate flying.  Other regional airlines, such as American Eagle, Comair and Horizon Airlines, are wholly owned subsidiariesof major airline holding companies. 

**

            The principal challenge facingthe regional airline industry currently is the state of the overall airline industry and its effect on the major airlines. Since all of the regional airlines depend upon agreements with the major airlines, the financial health of the major airlines isfundamental to the regional airlines’ business model.  With a majority of the major carriers in bankruptcy, regionalcarriers have seen unprecedented challenges.  For instance,

|          | •  | Mesaba Airlines’ holding company filed for Chapter 11 bankruptcy protection during 2005 afterNorthwest awarded its flying to other partners;                                                                    |
|--------------------------------------------------|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                  | •  | SkyWest Airlines purchased Atlantic Southeast Airlines from Delta Air Lines and paid aircraftdeposits to lengthen the term of their contract with Delta Air Lines after Delta Air Lines’ Chapter 11 filing; and |
|                                                  | •  | Northwest Airlines bid out all of Pinnacle Airlines’ flying during 2005 (a replacement carrierhas not been named to date) and formed a subsidiary designed to fly 70 and 100-seat regional jets.                |

            Other items affecting regionalcarriers include:  increasing domestic air traffic making operating in high density environments more difficult, and size andpassenger perceptions of regional aircraft.

**Competitors**

            Our main competitors include MesaAirlines, Mesaba Airlines, Pinnacle Airlines, Republic Airways and SkyWest Airlines, including Atlantic Southeast Airlines. We also compete with other regional airlines, such as American Eagle, Comair and Horizon Airlines, which are wholly ownedsubsidiaries of major airline holding companies.  The three main areas of competition are:  costs, customer service andoperational reliability.

            Due to the variations among thecontracts under which regional airlines operate, cost comparisons between regional airlines are extremely difficult.  Webelieve that Airlines is one of the most cost-efficient providers of regional jet service due to the efficiencies it realizes byoperating a single fleet type and the economies of scale it achieves as one the world’s largest regional airlines and thelaunch customer for the Embraer ERJ-145 product line.

            We also believe that Airlinesprovides one of the highest levels of customer service in the regional industry as evidenced by its top-tier performance in theDepartment of Transportation (‘DOT”) monthly surveys on customer complaints, mishandled bags and on-timeoperations.  In terms of reliability, Airlines accomplished a controllable completion factor, which excludes weather and airtraffic control cancellations, of 99.7% for the year ended December 31, 2005 versus our benchmark used for incentive paymentcalculations of 99.3%.  Our strong operational performance resulted in receipt of $4.2 million in incentive payments fromContinental in 2005.

**Industry Regulation**

            We operate under certificates ofpublic convenience and necessity issued by the DOT.  These certificates may be altered, amended, modified or suspended by theDOT if public convenience and necessity so require, or may be revoked for intentional failure to comply with the terms andconditions of a certificate.  We are regulated by the DOT, primarily in the areas of consumer protection, fitness and relatedeconomic issues.

            We also operate under an aircarrier operating certificate issued by the FAA which may be amended, modified, suspended or revoked if safety in air commerce orair transportation and the public interest so require.  The FAA regulates airlines, primarily in the areas of flightoperations, maintenance, ground facilities and other technical matters.  Under these regulations, we have established, and theFAA has approved, a maintenance program for the aircraft that Airlines operates, which provides for the ongoing maintenance ofthese aircraft, ranging from frequent routine inspections to major overhauls.

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            The Aviation and TransportationSecurity Act of 2001 (“ATSA”) federalized substantially all aspects of civil aviation security and created theTransportation Security Administration (“TSA”) under the Department of Homeland Security.  Under the ATSA, allsecurity screeners at airports are either federal employees or contractors hired directly by the TSA, and other significantelements of airline and airport security are overseen by federal employees, including federal security managers, federal lawenforcement officers, federal air marshals and federal security screeners.  The law mandated improved flight deck security,deployment of federal air marshals onboard flights, improved airport perimeter access security, airline crew security training,enhanced security screening of passengers, baggage, cargo, mail, employees and vendors, enhanced training and qualifications ofsecurity screening personnel, additional provision of passenger and cargo data to the U.S. Bureau of Customs and Border Protectionand enhanced airline employee background checks.

            Funding for airline and airportsecurity under the law is provided by a $2.50 per enplanement ticket tax (up to $5.00 per one-way trip) and an additional AviationSecurity Infrastructure Fee (“ASIF”) on air carriers in an amount not to exceed the amounts paid in calendar year 2000by air carriers for screening passengers and property.  In February 2002, air carriers began collecting the new ticket taxfrom passengers, and became subject to the new fee on air carriers.  The Emergency Wartime Supplemental Appropriation Act of2003 temporarily suspended the collection of the new ticket tax for ticket sales from June 1 to September 30, 2003 and theadditional ASIF on air carriers.  Since September 2003, both the enplanement tax and air carrier portions have resumed. On January 3, 2006, Airlines and 42 other carriers received demand notices from the TSA related to the alleged underreported,uncollected ASIF.  Airlines was invoiced by the TSA for an additional $2.1 million for 2005, due on or before February 2,2006.  We recorded this additional liability as of December 31, 2005, of which $0.8 million was recorded as additionalsecurity expense pursuant to a previously agreed allocation methodology with Continental.  On January 16, 2006, Continentaland we jointly submitted a letter to the TSA seeking a joint administrative review of the ASIF assessments and a stay of anyrelated payments.  At this time, we cannot predict the outcome of such review.

            The law also required theUndersecretary of Transportation of Security to assume all the civil aviation security functions and responsibilities related topassenger screening.  Checked baggage must be screened by explosives detection systems, which has required significantequipment acquisition by the government and the implementation of facility and baggage process changes.  Furtherimplementation of the requirements of the ATSA and other security laws and regulations have resulted in increased costs forairlines and passengers, delays and disruptions to air travel and reduced demand.  The TSA has issued regulations implementingthe ATSA, including requirement for air carrier security programs and substantial civil penalties for violations. Under The ArmingPilots Against Terrorism Act, the TSA has established a program to arm volunteer pilots of air carriers to protect aircraft. The TSA is currently testing a new “Secure Flight” passenger screening program with the assistance of U.S.airlines.

            Our operations are also subjectto increasingly stringent federal, state and local laws protecting the environment.  In 2005, the TSA, FAA, EnvironmentalProtection Agency (“EPA”), Food and Drugs Administration all have proposed rulemaking that is pending and this trend isexpected to continue in 2006.  These future regulatory developments could adversely affect operations and increase operatingcosts in the airline industry.

**Employees**

            As of January 31, 2006, we hadapproximately 6,700 employees, comprised of approximately 2,500 pilots and instructor pilots, 1,100 flight attendants, 1,100customer service personnel, 1,100 mechanics and 100 other maintenance personnel, 80 dispatchers and 700 supervisors, management andsupport personnel.

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            Labor costs are a significantcomponent of airline expenses and can substantially impact our results.  While there can be no assurance that what we regardas our generally good labor relations and high labor productivity will continue, a crucial component of our business strategy isthe preservation of good relations with our employees, approximately 70% of whom are represented by unions.

            The following table, as ofJanuary 31, 2006, reflects our principal collective bargaining agreements and their respective amendable dates:

| **Employee Group**     |              | **Approximate Number of Employees** |              | **Representing Union**                                        |              | **Contract Amendable Date** |
|------------------------|--------------|-------------------------------------|--------------|---------------------------------------------------------------|--------------|-----------------------------|
|                        |    |                                     |    |                                                               |    |                             |
| Pilots and Instructors |              | 2,500                               |              | Air Line Pilots Association, International                    |              | December 2008               |
| Mechanics              |              | 1,100                               |              | International Brotherhood of Teamsters                        |              | August 2009                 |
| Flight Attendants      |              | 1,100                               |              | International Association of Machinists and Aerospace Workers |              | December 2004               |
| Dispatchers            |              | 80                                  |              | Transport Workers Union of America                            |              | July 2009                   |

            After amending our collectivebargaining agreements with our pilots, mechanics and dispatchers, we began negotiations with our flight attendants in November2004.  In September 2005, the International Association of Machinists and Aerospace Workers (“IAM”), whorepresents our flight attendants, and Airlines applied for federal mediation. Our negotiations were temporarily placed in recess bythe mediator, with no specified deadlines or dates for continued negotiations.  We believe that a mutually acceptableagreement can be reached with our flight attendants, although the ultimate outcome of these negotiations is unknown at thistime.

**Item 1A.  Risk Factors**

**Factors that May Affect our Future Operating Results and Financial Condition**

            Our actual results of operationsand financial condition may vary materially from those anticipated, estimated or projected by us.  Among the key factors thatcould have an adverse effect on our future operating results and financial condition are those set forth below.

***We may not be able to design and execute satisfactory, income-generating arrangements for the69 aircraft that Continental intends to withdraw from the capacity purchase agreement***

            We received notice on December28, 2005 from Continental of its intention to reduce by 69 the number of aircraft that we operate under the capacity purchaseagreement (a 25% reduction of capacity) beginning in December 2006.  We have nine months from the date of notice to respond toContinental and exercise our option to either retain or return the aircraft.  We are currently evaluating whether to retainthe aircraft or return them to Continental.  If we retain the aircraft, we cannot guarantee that we will be able to identifyor profitably execute any income-generating arrangements such as flying these aircraft under our own designator code or for otherparties or by subleasing them to third parties.  Additionally, so long as Continental is our largest customer, if we enterinto a capacity purchase or similar arrangement with another carrier, that has annual revenues greater than $500 million (prior toadjustment for inflation since 2000), for more than 10 aircraft at a less favorable net benefit to us than our capacity purchaseagreement with Continental, then the capacity purchase agreement has a provision that may allow Continental to amend its agreementwith us to be equally favorable.  This most-favored-nations clause, as well as scope clauses in the collective bargainingagreements of other major carriers, additional costs to put in place an infrastructure to support these aircraft independent ofContinental and other external factors (e.g., the U.S. economy, regulatory requirements, etc.) may limit our ability toeconomically secure other arrangements for these aircraft.

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***We depend on the financial and operational stability of Continental***

            We are directly affected by thefinancial and operation stability of Continental.  Continental provides substantially all of our revenue through our capacitypurchase and other agreements.  Despite improvements during the past year, the U.S. domestic airline environment continues tobe extremely challenging.

            Since September 11, 2001,Continental has reported significant losses, excluding special items.  For the year ended December 31, 2005, Continentalreported a net loss of $68 million and has indicated that its business and financial results are affected by and are subject to anumber of factors, many of which are uncontrollable, such as low-cost competitors, the low-fare environment, higher fuel prices,pension liability, terrorist attacks and adverse regulatory rulings.

            We cannot predict the futureimpact of these factors on Continental.  Furthermore, high fuel prices, the long-term impact of the changes in fare structures(most importantly in relation to business fares), booking patterns, low-cost competitor growth, customers’ direct booking onthe internet, competitor bankruptcies, and other changes in industry structure and conduct cannot be predicted at this time, butcould have a material adverse effect on both Continental’s and our financial condition, liquidity and results ofoperations.

***Our annual rate resetting process under the capacity purchase agreement with Continental mayresult in arbitration***

            Under the capacity purchaseagreement, we receive payment for each scheduled block hour in accordance with a formula designed to provide us with a targetoperating margin of 10.0%.  Since we have not agreed with Continental on rates for 2006, Continental has agreed to continuepaying Airlines at the December 2005 rates until an agreement is reached.  Any agreement to revise the current rate structurewill be retroactive to January 1, 2006.  We may not be successful in negotiating the rates for 2006 or may not be able toretain our current target operating margin of 10.0%, considering the current challenges facing regional carriers, as described inItem 1. “Industry” section above, and, ultimately, may have to submit our disagreement to arbitration.

***Our capacity purchase agreement with Continental can still be terminated, even after therecent fleet reduction notice***

            Beyond the 25% reduction notice,Continental can terminate our capacity purchase agreement at any time with 12 months’ notice.  If the agreement wereterminated, our revenue would be substantially eliminated after the pertinent wind-down period, as we receive substantially all ofour current revenues from our agreement with Continental and we would incur significant losses unless we were able to make otherarrangements.  We cannot be certain that we would be able to enter into substitute arrangements, or if we could, that theywould be as favorable to us as our capacity purchase agreement with Continental.

            Our capacity purchase agreementis scheduled to terminate on December 31, 2010, subject to renewal by Continental through December 31, 2030.  However,Continental can terminate the agreement:

|          | •  | at any time for any reason with a minimum 12 months’ notice;                                                                                                                                                                                                           |
|--------------------------------------------------|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                  | •  | for cause, as described in “—Capacity Purchase and Other Agreements withContinental,” at any time without giving us notice or an opportunity to cure;                                                                                                      |
|                                                  | •  | at any time upon our material breach that does not constitute cause, including our failure tocomplete a specified percentage of our scheduled flights, if the breach continues for 90 days after we receive notice of thebreach; and                                         |
|                                                  | •  | at any time, without giving us notice or an opportunity to cure, if Continental reasonably and ingood faith determines, using recognized standards of safety, that there is a material safety concern with our operation of anyflight under the capacity purchase agreement. |

            As of the date of this report, wehave not received any notice from Continental other than the aircraft withdrawal notice described above.

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***We may lose access to our aircraft, facilities and regulatory authorizations, as well as anyairport related services that Continental currently provides to us***

            We sublease or lease all of ouraircraft from Continental.  In addition, the regional jets subject to our remaining firm orders will be leased by Continentaland then subleased to us.  If Continental terminates the capacity purchase agreement for cause, it will have the right toterminate our leases and subleases for aircraft covered by the capacity purchase agreement at the time of termination. Additionally, if Continental’s financial condition deteriorated and it filed for bankruptcy protection, it would have theability to reject the leases or subleases on our aircraft.  There can be no assurance that Continental will have sufficientliquidity to fund its future operations and other financial obligations, especially in the event additional adverse factors beyondits control occur, such as terrorist attacks, adverse regulatory rulings or higher fuel prices.****

            Additionally, with the aircraftreduction notice and the potential to terminate for any reason, we may lose access to some or substantially all of our airportfacilities and other services that Continental currently provides to us, as well as our take-off and landing slots and routeauthorities.  Continental leases most of the airport facilities that we use.  We may be required to vacate the terminalfacilities (or all facilities if the termination results from our material breach of the capacity purchase agreement) that aresubleased to us by Continental, and to use commercially reasonable efforts to assign to Continental or its designee any lease inour name.  Consequently, to offer airline services, we would have to arrange to use the same or other airport facilities,take-off or landing slots, route authorities and other regulatory authorizations used for scheduled flights at potentially higherrates.  We cannot provide any assurance that we would be able to gain appropriate access to airport facilities, slots or otherauthorizations, or would not incur a significant increase in our costs to do so.

***We may not be able to successfully replicate the current passenger, traffic handling services,administrative and other infrastructure services provided by Continental***

            In connection with the capacitypurchase agreement and the administrative service agreement, Continental provides a number of important passenger, traffichandling, corporate infrastructure, aviation insurance coverage, environmental compliance matters and administrative services tous.  Should we elect to insource or outsource these services to other third parties, we might not be able to replace theseservices on a cost-effective basis, which could have a material adverse effect on our operating results and financialcondition.  Additionally, under the current regulatory environment for public companies, the corporate infrastructure andadministrative system and process changes might result in control deficiencies in our internal control over financial reporting,which could result in qualified audit opinions or disclaimers for internal control over financial reporting and for the financialstatements.

***We may not be successful in retaining qualified personnel to maintain the current level ofcustomer service and reliability and to design and execute our strategies in response to Continental’s aircraft reductionnotice***

            Wage rates, in general, areincreasing.  Therefore, our employees may elect to seek other employment opportunities, thereby increasing our recruiting andtraining costs.  We cannot guarantee that we will be able to find qualified personnel to fill our vacancies. Additionally, our negotiations with our flight attendants, represented by the IAM, were temporarily placed in recess by themediator mutually requested by IAM and us, with no specified deadlines or dates for continued negotiations.  We can provide noassurance that a mutually acceptable agreement can be reached with our flight attendants.  The ultimate outcome of thesenegotiations is unknown at this time.

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***We may not be successful in implementing any diversification strategy away from passengerrelated airline services***

            In addition to our focus onContinental’s recent aircraft reduction notice, we continue to evaluate various diversification strategies away frompassenger-related airline services (such as aircraft maintenance, ground handling, crew training, etc.).  Substantial risksaccompany these strategies, including:

|           | •  | our inexperience in other industries;                                                           |
|--------------------------------------------------------|--------------|-------------------------------------------------------------------------------------------------|
|                                                        | •  | our ability to integrate these business models into our passenger airlines businessmodel;  |
|                                                        | •  | our ability to create the infrastructure necessary to support new operations;                   |
|                                                        | •  | our ability to obtain and finance any expansion at acceptable rates of return;                  |
|                                                        | •  | the condition of the U.S. economy; and                                                          |
|                                                        | •  | unanticipated competitive responses of new entrants.                                            |

***We may be responsible for additional taxes as a result of our tax agreement withContinental***

            We have a tax agreement withContinental that provides, among other things, for our payment to Continental of all or a significant portion of the tax benefitswe realize as a result of an internal reorganization effective prior to our initial public offering in 2002.  Since that time,we have made net payments of approximately $98.8 million to Continental under the tax agreement and could pay Continental as muchas an additional $257.4 million through 2017.  See Item 8. “Financial Statements and Supplementary Data – Notes toConsolidated Financial Statements – Note 9” for a detailed discussion of our income taxes and such agreement withContinental.  If it were determined, as a result of an income tax audit or examination, that a significant amount of these taxbenefits should not have been available, thus requiring us to pay additional taxes, interest and penalties to one or more taxauthorities, and if at that time Continental were unable to indemnify us for these amounts, then we could be responsible for suchtax payments, interest and penalties.

***We may be unable to obtain all of the aircraft, parts or related support services we expectfrom Embraer to operate the aircraft***

******

            As we operate a single fleet typeproduced by a single manufacturer, our operations could be materially adversely affected by:

|           | •  | Embraer’s inability to fill our aircraft orders or provide sufficient parts or related supportservices on a timely basis especially in light of its announcement to cease the production of our current fleet type; |
|--------------------------------------------------------|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                        | •  | the issuance of FAA directives restricting or prohibiting the use of Embraer regional jets orparts;                                                                                                                       |
|                                                        | •  | unscheduled or unanticipated maintenance requirements; or                                                                                                                                                                 |
|                                                        | •  | force majeure events that prevent Embraer from performing under the lease agreement.                                                                                                                                      |

***Our wage rates will likely increase as the number of aircraft under our capacity purchaseagreement decreases***

            We may experience an increase inwage rates if we are required to furlough employees due to the reduction in flying for Continental.  Any furloughs wouldnecessarily affect more junior employees under our collective bargaining agreements first, resulting in the retention of moresenior employees at higher wage rates. 

            Our board of directors hasimplemented a long-term incentive plan to incentivize management employees as we seek to replace revenues from the capacitywithdrawn by Continental.  If Continental terminated the capacity purchase agreement, it might be necessary to take additionalsteps to ensure an orderly wind-down of that agreement.  This likely increase in wages could cause our cost structure to beless competitive when compared to other regional carriers.

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***Maintenance costs will likely increase as the average age of our fleetincreases***

            Similar to other air carriers inour industry, as the average age of our fleet increases, the maintenance costs of our fleet will likely increase.  Weemphasize preventive maintenance, in addition to the inspection of our aircraft engines and airframes at intervals required by theFAA.  We perform line and heavy maintenance at our eight primary maintenance facilities and satellite stations locatedthroughout the Midwest and Eastern parts of the United States.

            Additionally, we have apower-by-the-hour agreement with Rolls Royce to maintain the engines on our aircraft through April 2015.  Under the agreement,we are charged a fixed rate based on flight hours incurred during a month.  The rates are subject to annual revisions based onspecified labor and material indices.  We also have power-by-the-hour agreements with other vendors to cover variouscomponents and systems on aircraft, and will continue to evaluate and implement other such agreements, as long as the terms arefavorable. 

            We believe that these agreements,coupled with our ongoing maintenance programs, reduce the likelihood of unexpected levels of maintenance expense during the termsof our aircraft leases or subleases.  Additionally, we continue to maintain an inventory of aircraft spare parts to ensure thereliability of the operation and utilize a computerized tracking system to increase maintenance efficiency and to avoid excessinventories of spare parts.  However, our average maintenance costs could increase and adversely impact our results ofoperations in the event that we have to address new FAA and/or Embraer maintenance directives or if Continental takes back thenewer aircraft in our fleet.  We are not aware of any directives, changes, or out-of-the ordinary requirements fromContinental related to the return of the aircraft at this time that could adversely affect our maintenance costs.

****

***We compete with both low-cost carriers and other regional carriers, and our cost structure maynot be competitive***

            Because we do not control our ownflight schedule under the capacity purchase agreement, only 43% of our costs related to Airlines are controlled by us.  Allother costs are driven by the flight schedule determined by Continental, Continental’s own cost structure or factors that areoutside our control, or in some instances even Continental’s control (such as aircraft rent, fuel, insurance, property taxes,etc.).  As a significant portion of our costs are allocated and/or inherited from Continental, we may not be able torestructure our costs effectively to compete with other low-cost and regional carriers.

***Our business is subject to extensive government regulation and we may incur additional coststo comply with such regulations***

            Our business is subject toextensive government regulation.  As evidenced by the enactment of the ATSA, airlines are subject to extensive regulatory andlegal compliance requirements that result in significant costs.  The FAA and other governmental agencies such as the EPA fromtime to time issue directives and other regulations relating to the maintenance and operation of aircraft that require significantexpenditures.  Some requirements cover, among other things, retirement of older aircraft, security measures, collisionavoidance systems, potable water standards, noise abatement and other environmental concerns, commuter aircraft safety andincreased inspections and maintenance procedures conducted on older aircraft.

            We expect to continue incurringexpenses to comply with these regulations.  In addition, if any of these regulations caused us to cancel flights, theresulting reduction in our revenue would not be taken into account in any reconciliation payment made under the capacity purchaseagreement to maintain our operating margin within a specified range.

            Additional laws, regulations,taxes and airport rates and charges are proposed from time to time that could significantly increase the cost of airline operationsor reduce revenue.  Such laws, taxes and regulations have affected all facets of our operations from security at airports,restrictions on landing, take-off, routes, restrictions on international routes, which can change spontaneously depending on thecurrent arrangements between the United States and the foreign governments, and increases in landing fees and other airportfacility charges.  We cannot be certain that current laws or regulations, or laws or regulations enacted in the future, willnot adversely affect us.

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***We may be adversely affected by factors beyond our control, including weather conditions andthe availability and cost of fuel***

            Generally, revenue for airlinesdepends on the number of passengers carried, the fare paid by each passenger and service factors, such as timeliness of departureand arrival.  During periods of fog, icy conditions, storms, hurricanes or other adverse weather conditions, flights may becancelled or significantly delayed.  Under our capacity purchase agreement with Continental, we are substantially protectedagainst cancellations due to weather or air traffic control.  However, if we decide in the future to operate our aircraft foranother airline or under our own flight designator code, we may not be protected against weather or air traffic controlcancellations, which could adversely affect our operating results and our financial condition.

            In addition, if we operate ouraircraft for another airline or under our own flight code, we could be exposed to the volatility of fuel prices.  Both thecost and availability of fuel are subject to various economic and political factors and events occurring throughout theworld.  Significant changes or extended periods of high fuel cost or fuel supply disruptions would materially affect ouroperating results.  Our ability to pass on increased fuel costs through fare increases would be limited by several factors,including economic and competitive conditions.  Additionally, under the capacity purchase agreement, if the unavailability offuel causes us to cancel flights, our incentive revenue would be reduced.  The cost and availability of adequate supplies offuel could have a material adverse effect on our operating results and our financial condition in the future.

***Our operations and financial condition could be adversely affected as a result of an aviationaccident***

            An accident or incident involvingone of our aircraft could involve repair or replacement of a damaged aircraft and its consequential temporary or permanent lossfrom service, as well as significant potential claims of injured passengers and others.  We are required by the DOT to carryliability insurance.  In the event of an accident, our liability insurance may not be adequate and we may be forced to bearsubstantial losses from the accident.  Substantial claims resulting from an accident in excess of our related insurancecoverage would harm operational and financial results.  Moreover, any aircraft accident or incident, even if fully insured,could create a public perception that we are less safe or reliable than other airlines.

**Item 1B.  Unresolved Staff Comments**

            We do not have any unresolvedstaff comments as of the date of this filing.

**Item 2.  Properties**

**Flight Equipment**

            As shown in the following table,our operating fleet consisted of 266 regional jets at December 31, 2005.  Our purchase commitments (firm orders) and aircraftoptions as of December 31, 2005 are also shown below.

| **Type**                                                                                                                                                                                |              | **Total Leased Aircraft** |              | **Firm Orders** |              | **Options** |              | **Seats in Standard Configuration** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|---------------------------|--------------|-----------------|--------------|-------------|--------------|-------------------------------------|
|                                                                                                                                                                                         |    |                           |    |                 |    |             |    |                                     |
| ERJ-145XR                              |              | 96                        |              | 8               |              | 100         |              | 50                                  |
| ERJ-145                                                                                                                                                                                 |              | 140                       |              | —         |              | —     |              | 50                                  |
| ERJ-135                                                                                                                                                                                 |              | 30                        |              | —         |              | —     |              | 37                                  |
|                                                                                                                                                                                         |              |                           |              |                 |              |             |              |                                     |
| Total                                                                                                                                                                                   |              | 266                       |              | 8               |              | 100         |              |                                     |
|                                                                                                                                                                                         |              |                           |              |                 |              |             |              |                                     |

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            Our options for the 100 ERJ-145XRaircraft may be exercised for some other types of aircraft within the ERJ-145 Family.  During 2005, Continental declined theright to exercise any of these options.  Continental is not required to participate in the financing for any option aircraftthat we acquire.  We expect to notify Embraer of our intention regarding the first 25 option aircraft in March2006.

            During 2005, we put 21 newERJ-145XR aircraft into service.  We expect to take delivery of eight ERJ-145XR aircraft in 2006 (three of which have beendelivered as of February 27, 2006).

            See Item 7.  "Management'sDiscussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Commitments" for a discussion ofour order for new firm commitment aircraft and related financing arrangements.

**Facilities**

|       | We use the following principal facilities: |
|--------------------------------|--------------------------------------------|
|                                | •                                | Houston's George Bush Intercontinental – Terminal B has approximately 155,000 square feet with31 regional jet gates.  Subject to obtaining applicable approvals, we have the ability to add one additional regional jet gateto the existing terminal. Additionally, we have remote parking positions for an additional 12 regional jets served by a busfacility as well as access to an additional nine remote parking positions near the airport's international facility. |
|                                | •                                | Houston Maintenance Hangar – We have four maintenance bays occupying approximately 50,000square feet and approximately 62,000 square feet of administrative space of which approximately 90% is currentlyoccupied. |
|                                | •                                | Houston Training Center – We have approximately 57,000 square feet containing threefull-motion regional jet simulators, a full-motion cabin trainer, two fixed training devices and corresponding training andadministrative space. |
|                                | •                                | Cleveland's Hopkins International – Terminal D has approximately 106,000 square feet with 12regional jet passenger loading bridge gates.  We also utilize numerous jetways and gates at Continental's Terminal C. Subject to obtaining applicable approvals, we have the ability to add 12 to 16 regional jet gates if the existing 24 turbopropgates are eliminated.  We currently have the ability to park up to 20 regional jets on the turboprop remote parking piersadjacent to Terminal D. |
|       | •                                | Cleveland Maintenance Hangar – We utilize approximately 99,000 square feet of the facility foreight lines of maintenance. |
|                                | •                                | Newark Liberty International – We operate out of Continental's Terminal C2 with up to 24regional jet passenger loading bridges. |
|                                | •                                | Burlington Maintenance Hangar – We have a two-bay maintenance facility totaling approximately39,000 square feet located in Burlington, Vermont. |
|                                | •                                | Knoxville Maintenance Hangar – We have a four-bay heavy maintenance facility totalingapproximately 83,000 square feet located in Knoxville, Tennessee. |
|                                | •                                | Louisville Maintenance Hangar – We have a two-bay maintenance facility totaling approximately20,000 square feet located in Louisville, Kentucky. |
|       | •                                | Richmond Maintenance Hangar – We have a two-bay maintenance facility totaling approximately26,000 square feet located in Richmond, Virginia |
|                                | •                                | Shreveport Maintenance Hangar – We have a five-bay maintenance facility totaling approximately120,000 square feet located in Shreveport, Louisiana. |
|                                | •                                | Shreveport Maintenance Shop – We operate a maintenance shop with approximately 29,000 squarefeet composed of a composite, sheet metal and thrust reverser shop. |
|                                | •                                | Newark Maintenance Facility – We have a maintenance facility located in Newark, New Jerseywith approximately 6,200 square feet.  |
|                                | •                                | Satellite Maintenance Stations – We have line maintenance facilities in Charlotte, NorthCarolina; St. Louis, Missouri; Nashville, Tennessee; Washington-Dulles, Virginia; Kansas City, Missouri; Lake Charles, Louisiana;and Corpus Christi, Texas. |

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|         | •  | Miami Maintenance Shop Facility – We own property consisting of approximately 2.5 acres ofland, including a maintenance shop with approximately 74,000 square feet located in Miami, Florida.  We lease this property toour partner American Composites, LLC for use in its aircraft repair and maintenance business.                                                                                                                                                                                      |
|--------------------------------------------|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                            | •  | Saltillo Aircraft Painting Facility – We own an aircraft painting facility that is currentlyunder construction, which, upon completion, will consist of approximately 96,000 square feet of hangar space and approximately3,000 square feet of administrative space.  The facility began construction in September 2005, and we expect it to becompleted in April 2006.  We will lease this facility to our partner Saltillo Jet Center, S. de R.L. de C.V. for use in itsaircraft painting business. |

            All of these facilities areleased on a net-rental basis, except for the Miami Maintenance Shop Facility and the Saltillo Aircraft Painting Facility, which areowned by us.  We are responsible for maintenance, taxes, insurance and other facility-related expenses and services at thesefacilities.  Continental is the primary sublessor for these facilities, except for the Houston maintenance hangar, theKnoxville hangar and shop facilities, the Shreveport hangar and facility, the Corpus Christi and Lake Charles satellite maintenancestations, which we lease directly.  In addition, at each of Continental's three domestic hubs and many other locations, ourpassenger and baggage handling space is provided by Continental on varying terms dependent on the prevailing practice at eachairport.  If the capacity purchase agreement is terminated, we may be required to vacate the terminal facilities (or allfacilities if the termination results from our material breach of the agreement) that are subleased to us by Continental, and touse commercially reasonable efforts to transfer to Continental or its designee any lease in our name.  See Item 1. "Business -Capacity Purchase and Other Agreements with Continental Airlines - Airport Facilities, Slots and Route Authorities."  For aperiod of five years following the termination of the capacity purchase agreement, if we wish to transfer our interests in any ofour facilities used to fulfill our obligations under the capacity purchase agreement, Continental must consent to the transfer(where Continental is the sublessor) and has a right of first refusal to acquire our interests in those facilities that we leasefrom parties other than Continental.

**Item 3.  Legal Proceedings**

**Legal Proceedings**

            We are a defendant in variouslawsuits arising in the ordinary course of our business.  While the outcome of these lawsuits and proceedings cannot bepredicted with certainty and could have a material adverse effect on our financial position, results of operations or cash flows,we believe that the ultimate disposition of these suits will not have a material adverse effect on our financial position, resultsof operations or cash flows.

**Environmental Proceedings**

            We are and may from time to timebecome involved in environmental matters, including the investigation and/or remediation of environmental conditions at propertieswe use or were previously used by us.  We are not, however, currently subject to any environmental cleanup orders imposed byregulatory authorities, nor do we have any active investigations or remediation at this time.

**Item 4.  Submission of Matters to a Vote of SecurityHolders**

            Not applicable.

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**PART II**

**Item 5.  Market for Registrant's Common Equity, Related StockholderMatters and Issuer Purchases of Equity Securities**

            Our common stock trades on theNYSE.  The table below shows the high and low sales prices for our common stock as reported on the NYSE composite tape for theperiods indicated.

|                                                   |        |   | **Common Stock** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---|------------------|
|                                                                                                                                                                                                                                                                                                        |        |   | ****             |
|                                                                                                                                                                                                                                                                                                        |        |   | **High**         |  |  | **Low** |
|                                                                                                                                                                                                                                                                                                        |        |   | ****             |  |  | **** |
| **2005**                                                                                                                                                                                                                                                                                               |   |   |                  |   |  |  |
|   First Quarter                                                                                                                                                                                                                                                                              |        | $ | 13.01            |  | $ | 10.58 |
|   Second Quarter                                                                                                                                                                                                                                                                             |        | $ | 11.69            |  | $ | 8.45 |
|   Third Quarter                                                                                                                                                                                                                                                                              |        | $ | 10.46            |  | $ | 8.40 |
|   Fourth Quarter                                                                                                                                                                                                                                                                             |        | $ | 10.97            |  | $ | 7.61 |
| ** **                                                                                                                                                                                                                                                                                             |        |   |                  |  |  |  |
| **2004**                                                                                                                                                                                                                                                                                               |        |   |                  |  |  |  |
|   First Quarter                                                                                                                                                                                                                                                                              |        | $ | 15.66            |  | $ | 11.40 |
|   Second Quarter                                                                                                                                                                                                                                                                             |        | $ | 13.65            |  | $ | 11.38 |
|   Third Quarter                                                                                                                                                                                                                                                                              |        | $ | 12.38            |  | $ | 9.68 |
|   Fourth Quarter                                                                                                                                                                                                                                                                             |        | $ | 13.28            |  | $ | 9.49 |

            As of February 24, 2006, therewere approximately 26 holders of record of our common stock.

            We have not paid any cashdividends on our common stock and have no current plans to do so.

            Our certificate of incorporationprovides that no shares of capital stock may be voted by or at the direction of persons who are not United States citizens unlessthey are registered on a separate stock record.  Our bylaws further provide that no shares will be registered on this foreignstock record if the amount to be registered would exceed United States foreign ownership restrictions.  United States lawcurrently limits the voting power in us (or any other U.S. airline) by persons who are not citizens of the United States to25%.

**Issuer Purchases of Equity Securities**

| **Period**                      |        | **a) Total number of shares purchased** |        |   | **(b) Average price paid per share** |        | **(c) Total number of shares purchased as part of publicly announced program** |        |   | **(d) Maximum value of shares that may yet be purchased under the program   (in millions)(1)** |
|---------------------------------|--------|-----------------------------------------|--------|---|--------------------------------------|--------|--------------------------------------------------------------------------------|--------|---|-----------------------------------------------------------------------------------------------------|
|                                 |        |                                         |        |   |                                      |        |                                                                                |        |   |                                                                                                     |
| October 1 to October 31, 2005   |   | 402                                     |   | $ | 9.11                                 |   | —                                                                        |   | $ | 24.4                                                                                                |
| November 1 to November 30, 2005 |        | —                                 |        | $ | —                              |        | —                                                                        |        |   | 24.4                                                                                                |
| December 1 to December 31, 2005 |        | 639                                     |        | $ | 10.76                                |        | —                                                                        |        |   | 24.4                                                                                                |
|                                 |        |                                         |        |   |                                      |        |                                                                                |        |   |                                                                                                     |
| Total                           |        | 1,041                                   |        | $ | 10.12                                |        | —                                                                        |        | $ | 24.4                                                                                                |
|                                 |        |                                         |        |   |                                      |        |                                                                                |        |   |                                                                                                     |

|  | (1)  | Amount shown relates to securities repurchased program.  Shares shown were withheld to satisfytax obligations arising upon the vesting of restricted stock and do not count against the program. |
|--|-----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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****

**Item 6.  Selected Financial Data**

            This selected financial datashould be read together with the consolidated financial statements and related notes and Item 7.  “Management’sDiscussions and Analysis of Financial Condition and Results of Operations” included elsewhere in this report.

            Since January 1, 2001, Airlineshas operated under a capacity purchase agreement, pursuant to which Continental pays it an amount calculated using a formula foreach scheduled block hour that Airlines operates under the agreement.  Under the formula, the rates vary depending on theaverage length of the scheduled flights, the aggregate number of completed flights and the type of aircraft utilized and areotherwise subject to specified adjustments.  Substantially all of our revenue is received under the capacity purchaseagreement.

            The following selected financialdata, excluding operating statistics, have been derived from our audited financial statements.  The financial informationincluded in this report is not necessarily indicative of our future results of operations, financial position and cash flows, orreflective of what our results of operations, financial position and cash flows would have been had we been a stand-alone entityduring 2001.  For a discussion of some of the key factors that could have an adverse effect on our results of operations,financial position and cash flows, please refer to Item 1A. “Risk Factors" beginning on page 18 of this report.

| **                                                                    ** |   | **Year Ended December 31,**               |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---|-------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                              |   | ****                                      |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                              |   | **2005**                                  |  |  |  | **2004** |  |  |  | **2003** |  |  |  | **2002** |  |  |  | **2001** |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                              |   | ****                                      |  |  |  | **** |  |  |  | **** |  |  |  | **** |  |  |  | **** |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                              |   | **(In thousands, except per share data)** |  |
| Statement of Operations Data:                                                                                                                                                                                                                                                                                                                                                                                                |   |                                           |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Operating revenue                                                                                                                                                                                                                                                                                                                                                                                                            | $ | 1,562,818                                 |  |   | $ | 1,507,524 |  |   | $ | 1,311,443 |  |   | $ | 1,089,099 |  |   | $ | 980,473 |  |
| Operating expenses (1)                                                                                                                                                                                                                                                                                                                                                                                                       |   | 1,406,275                                 |  |  |  | 1,302,097 |  |  |  | 1,129,466 |  |  |  | 941,319 |  |  |  | 879,493 |  |
| Operating income                                                                                                                                                                                                                                                                                                                                                                                                             |   | 156,543                                   |  |  |  | 205,427 |  |  |  | 181,977 |  |  |  | 147,780 |  |  |  | 100,980 |  |
| Non-operating expense, net                                                                                                                                                                                                                                                                                                                                                                                                   |   | (2,309                                    | ) |  |  | (7,423 | ) |  |  | (6,774 | ) |  |  | (9,174 | ) |  |  | (21,275 | ) |
| Net income                                                                                                                                                                                                                                                                                                                                                                                                                   |   | 97,993                                    |  |  |  | 122,771 |  |  |  | 108,181 |  |  |  | 84,280 |  |  |  | 48,074 |  |
| Basic earnings per share (2)                                                                                                                                                                                                                                                                                                                                                                                                 |   | 1.81                                      |  |  |  | 2.26 |  |  |  | 1.80 |  |  |  | 1.38 |  |  |  | 0.89 |  |
| Diluted earnings per share (2)                                                                                                                                                                                                                                                                                                                                                                                               |   | 1.65                                      |  |  |  | 2.04 |  |  |  | 1.74 |  |  |  | 1.38 |  |  |  | 0.89 |  |
| Weighted average number of shares used   in computations:                                                                                                                                                                                                                                                                                                                                                          |   |                                           |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|      Basic                                                                                                                                                                                                                                                                                                                                                                                          |   | 54,117                                    |  |  |  | 54,220 |  |  |  | 60,026 |  |  |  | 61,068 |  |  |  | 54,000 |  |
|      Diluted                                                                                                                                                                                                                                                                                                                                                                                        |   | 61,722                                    |  |  |  | 61,779 |  |  |  | 63,062 |  |  |  | 61,069 |  |  |  | 54,000 |  |

 

| **                                                                    ** |   | **As of December 31,** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---|------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                              |   | ****                   |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                              |   | **2005**               |  |  |  | **2004** |  |  |  | **2003** |  |  |  | **2002** |  |  |  | **2001** |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                              |   | ****                   |  |  |  | **** |  |  |  | **** |  |  |  | **** |  |  |  | **** |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                              |   | **(In thousands)**     |  |
| Balance Sheet Data:                                                                                                                                                                                                                                                                                                                                                                                                          |   |                        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Cash, cash equivalents and short-term   investments (including restricted cash)                                                                                                                                                                                                                                                                                                                                    | $ | 236,503                |  |  | $ | 215,151 |  |  | $ | 193,092 |  |  | $ | 120,930 |  |  | $ | 71,877 |  |
| Amounts due from Continental, net                                                                                                                                                                                                                                                                                                                                                                                            |   | 6,534                  |  |  |  | — |  |  |  | — |  |  |  | 17,419 |  |  |  | 14,235 |  |
| Total assets                                                                                                                                                                                                                                                                                                                                                                                                                 |   | 560,270                |  |  |  | 543,244 |  |  |  | 510,171 |  |  |  | 434,148 |  |  |  | 429,751 |  |
| Amounts due to Continental, net                                                                                                                                                                                                                                                                                                                                                                                              |   | —                |  |  |  | 11,239 |  |  |  | 5,588 |  |  |  | — |  |  |  | — |  |
| Note payable to Continental (3)                                                                                                                                                                                                                                                                                                                                                                                              |   | 17,545                 |  |  |  | 98,804 |  |  |  | 193,172 |  |  |  | 325,512 |  |  |  | 552,312 |  |
| Other long-term debt and capital lease   obligations, including current maturities (4)                                                                                                                                                                                                                                                                                                                             |   | 154,305                |  |  |  | 161,012 |  |  |  | 163,623 |  |  |  | 11,568 |  |  |  | 8,594 |  |
| Stockholders' equity (deficit)                                                                                                                                                                                                                                                                                                                                                                                               |   | 208,510                |  |  |  | 114,044 |  |  |  | (10,287 | ) |  |  | 15,302 |  |  |  | (214,361 | ) |

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| **                                                                             ** |        | **Year Ended December 31,** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|---|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |        | ****                        |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |        | **2005**                    |   |  | **2004** |  |  | **2003** |  |  | **2002** |  |  | **2001** |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |        | ****                        |   |  | **** |  |  | **** |  |  | **** |  |  | **** |  |
| Operating Statistics:                                                                                                                                                                                                                                                                                                                                                                                                                                                              |        |                             |   |   |  |  |   |  |  |   |  |  |   |  |  |
| Revenue passenger miles (millions) (5)                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | 8,938                       |   |  | 7,417 |  |  | 5,769 |  |  | 3,952 |  |  | 3,388 |  |
| Available seat miles (millions) (6)                                                                                                                                                                                                                                                                                                                                                                                                                                                |        | 11,973                      |   |  | 10,410 |  |  | 8,425 |  |  | 6,219 |  |  | 5,437 |  |
| Passenger load factor (7)                                                                                                                                                                                                                                                                                                                                                                                                                                                          |        | 74.7                        | % |  | 71.3 | % |  | 68.5 | % |  | 63.5 | % |  | 62.3 | % |
| Operating cost per available seat mile (cents) (1)(8)(9)                                                                                                                                                                                                                                                                                                                                                                                                                           |        | 11.72                       |   |  | 12.51 |  |  | 13.41 |  |  | 15.14 |  |  | 16.18 |  |
| Block hours (10)                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |        | 827,369                     |   |  | 729,698 |  |  | 593,387 |  |  | 494,830 |  |  | 509,734 |  |
| Operating cost per block hour (dollars) (8)(11)                                                                                                                                                                                                                                                                                                                                                                                                                                    |        | 1,696                       |   |  | 1,784 |  |  | 1,903 |  |  | 1,902 |  |  | 1,725 |  |
| Departures                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |        | 449,928                     |   |  | 405,055 |  |  | 353,547 |  |  | 314,934 |  |  | 315,812 |  |
| Average price per gallon of fuel, including fuel   taxes (cents) (12)                                                                                                                                                                                                                                                                                                                                                                                                    |        | 71.20                       |   |  | 71.20 |  |  | 71.04 |  |  | 65.84 |  |  | 81.29 |  |
| Fuel gallons consumed (millions)                                                                                                                                                                                                                                                                                                                                                                                                                                                   |        | 295.5                       |   |  | 262.8 |  |  | 215.8 |  |  | 164.9 |  |  | 144.5 |  |
| Average length of aircraft flight (miles)                                                                                                                                                                                                                                                                                                                                                                                                                                          |        | 545                         |   |  | 528 |  |  | 491 |  |  | 414 |  |  | 379 |  |
| Average daily utilization of each aircraft (hours) (13)                                                                                                                                                                                                                                                                                                                                                                                                                            |        | 8.87                        |   |  | 8.51 |  |  | 7.79 |  |  | 7.63 |  |  | 8.00 |  |
| Controllable completion factor (14)                                                                                                                                                                                                                                                                                                                                                                                                                                                |        | 99.7                        | % |  | 99.9 | % |  | 99.8 | % |  | 99.9 | % |  | 99.1 | % |
| Completion factor                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |        | 97.7                        | % |  | 98.4 | % |  | 98.2 | % |  | 99.0 | % |  | 95.2 | % |
| Revenue passengers (thousands)                                                                                                                                                                                                                                                                                                                                                                                                                                                     |        | 16,076                      |   |  | 13,659 |  |  | 11,373 |  |  | 9,214 |  |  | 8,305 |  |
| Actual aircraft in fleet at end of period                                                                                                                                                                                                                                                                                                                                                                                                                                          |        | 266                         |   |  | 245 |  |  | 224 |  |  | 188 |  |  | 170 |  |

 

|       | (1)    | Includes government grant of $0.5 million and $24.9 million in 2002 and 2001,respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--------------------------------|------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       | (2)    | See Item 8.  “Financial Statements and Supplementary Data – Notes to ConsolidatedFinancial Statements – Note 1 – Summary of Significant Accounting Policies – (o) Earnings per Share” forthe reconciliation of the numerator and denominator of basic earnings per share to the numerator and denominator of dilutedearnings per share for the years ended December 31, 2005, 2004 and 2003.  In addition, we adopted the Emerging Issues TaskForce Issue No. 04-08 – “The Effect of Contingently Convertible Debt on Diluted Earnings per Share” (“EITF04-08”) on December 15, 2004.  As a result, we restated our diluted earnings per share for all periods in which theconvertible notes were outstanding (since August 2003). |
|       | (3)    | See a detailed description of our note payable to Continental in Item 8.  “FinancialStatements and Supplementary Data – Notes to Consolidated Financial Statements – Note 7.”                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|       | (4)    | Beginning July 1, 2003, our Series A Cumulative Mandatorily Redeemable Preferred Stock(“Series A Preferred Stock”) was classified as long-term debt in accordance with Statement of Financial AccountingStandard No. 150 – “Accounting for Certain Financial Instruments with Characteristics of both Liabilities andEquity”.  Reclassification of the prior year financial statements was made to conform to this accounting standard. In April 2005, we redeemed this stock.                                                                                                                                                                                                                                                                                              |
|                                | (5)    | Revenue passenger miles are the number of scheduled miles flown by revenue passengers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                | (6)    | Available seat miles are the number of passenger seats available multiplied by the number ofscheduled miles those seats are flown.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                                | (7)    | Passenger load factor equals revenue passenger miles divided by available seat miles.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                | (8)    | Operating costs related to our flight operations are costs incurred by Airlines.  For 2005,operating costs related to our flight operations were $1.4 billion, which excluded $2.8 million of operating costs not related topassenger airline services.  Exclusion of expenses not related to passenger airline services in the calculation of variousoperating statistics provides more accurate information related to the performance of our flight operations.  All operatingcosts prior to 2005 were related to flight operations.                                                                                                                                                                                                                                                              |
|                                | (9)    | Operating cost per available seat mile is operating costs related to our flight operations dividedby available seat miles.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                | (10)   | Block hours are the hours from gate departure to gate arrival.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

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|  | (11)   | Operating cost per block hour is operating costs related to our flight operations divided by blockhours.                                                                                                                                                                                                                                                                                                                                                                          |
|--|------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | (12)   | Under our fuel purchase agreement with Continental, fuel and fuel tax expense were reconciled to thelower of the actual costs or the agreed-upon caps.  Since 2003, our caps on fuel and fuel taxes have been 66.0 cents and 5.2cents per gallon, respectively.  For 2002, the agreed upon caps on fuel and fuel taxes were 61.1 cents and 5.2 cents pergallon, respectively, and for 2001 the agreed upon caps were 80.9 cents and 5.6 cents per gallon, respectively. |
|  | (13)   | Average daily utilization of each aircraft is the average number of block hours per day that anaircraft in revenue service is operated (from gate departure to gate arrival).                                                                                                                                                                                                                                                                                                     |
|  | (14)   | Controllable completion factor is the actual number of completed flights, plus flights cancelled dueto weather and air traffic control, divided by the number of scheduled flights.                                                                                                                                                                                                                                                                                               |

**Item 7.  Management's Discussion and Analysis of Financial Condition andResults of Operations**

            The information contained in thissection has been derived from our historical financial statements and should be read together with our historical financialstatements and related notes included elsewhere in this report.  The discussion below contains forward-looking statements thatinvolve risks and uncertainties.  Our actual results may differ materially from those expressed or implied in theseforward-looking statements as a result of various factors, including those described in Item 1A.  “Risk Factors”and elsewhere in this report.

**Executive Summary**

            ***Review of2005***

**

            We have strategic investments inthe air transportation sector.  Our principal asset is all of the issued and outstanding shares of stock of XJT Holdings,Inc., the sole stockholder of Airlines, which operates as Continental Express.  Airlines is one of the largest regionalairlines in the world, based on available seat miles and number of regional jets, transporting passengers, cargo andmail. 

            Airlines currently fliesexclusively on behalf of Continental pursuant to our capacity purchase agreement and substantially all of our revenue is receivedunder that agreement.  Airlines provides all of Continental's regional jet service out of New York/Newark, Houston andCleveland, as well as non-hub service.  We believe Airlines’ operations complement Continental's network.  Thecapacity purchase agreement currently covers all of our existing fleet and the remaining regional jets subject to our firm aircraftorders; however, Continental announced on December 28, 2005 its plan to remove 69 aircraft from the agreement beginning in December2006 and ending in June 2007.  Although we began diversifying our operations in 2005, we remain economically dependent onContinental.  The capacity purchase agreement gives us up to nine months from Continental’s notice date to decide if wewant to retain the aircraft.  If we choose to retain the aircraft, the capacity purchase agreement contains a provision forthe interest rate implicit in calculating the scheduled lease payments that we make to Continental to increase by 200 basispoints.  We are currently exploring opportunities for the 69 aircraft.

            As of January 31, 2006, weoffered scheduled passenger service averaging 1,233 daily departures to 152 cities in 40 states and the District of Columbia,Guatemala, Mexico, Canada and the Caribbean.  Our available seat miles have grown at a compounded annual rate of 20.4% from4.7 billion in 2000 to 12.0 billion in 2005.  We generated $1.6 billion of revenue and $98.0 million of net income for theyear ended December 31, 2005.  Please refer to our consolidated financial statements included in this report for informationregarding our revenue and net income for each of the last three fiscal years and our total assets at the end of the last two fiscalyears.

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            ***Fleet****. *During 2005, we accepted 21 new ERJ-145XR aircraft.  This aircraft is a 50-seat regional jet capable of flights of 1,500miles.  With these deliveries, we ended 2005 with 96 ERJ-145XR, 140 ERJ-145 and 30 ERJ-135 aircraft.  Our regional jets'operational capabilities allowed us to add service to new markets, expand service in existing markets and ultimately allowedContinental to broaden service from its hub cities as well as select communities, thus contributing to Continental's growthoptions.  We currently expect to receive eight new ERJ-145XR aircraft during 2006 (three of which have been delivered as ofFebruary 27, 2006).

*            **Labor.** *As of January 31, 2006, approximately 70% of our employees were covered by collective bargaining agreements.  We amended ourcontracts with our pilots, dispatchers and mechanics in 2004.  The new contracts will be amendable in December 2008, July 2009and August 2009, respectively. 

            Our contract with our flightattendants, approximately 16% of our employees, became amendable in December 2004.  In September 2005, the IAM, whichrepresents our flight attendants, applied for federal mediation.  Our negotiations were temporarily placed in recess by themediator, with no specified deadlines or dates for continued negotiations.  We believe that a mutually acceptable agreementcan be reached with our flight attendants, although the ultimate outcome of these negotiations is unknown at this time.  Ascontracts become amendable, we accrue for any expected increase in costs related to the new contracts.  The actual outcome maydiffer from our estimates.

**

*            **Relationship withContinental.***  Continental currently owns less than 10% of our common stock.  In October 2005, Continentalrelinquished its right to nominate a director to our board.  Continental has indicated that it intends to dispose of some orall of its remaining interest in our common stock, subject to market conditions.  Based on current information and ourcapacity purchase agreement with Continental, we do not believe that Continental’s disposition of its remaining ownershipinterest in us will have an adverse impact on our results of operations or financial position.

            ***2006 Rate Setting Processunder the Capacity Purchase Agreement.***  We negotiate with Continental to adjust the scheduled block hour ratesannually as required under the capacity purchase agreement.  Because we have not agreed on the 2006 rates, Continental hasagreed to continue paying us at the December 2005 rates until an agreement is reached.  Any agreement to revise the currentrate structure will be retroactive to January 1, 2006.  We cannot currently estimate what our 2006 rates will ultimatelybe.  If we cannot agree on the 2006 rates, the capacity purchase agreement allows either party to submit the matter toarbitration.

            We seek to provide the mostreliable regional jet services available at a competitive price and continuously try to identify ways to lower our costs.  Asthis occurs, our results from operations could be adversely affected in the short-run when compared to historical results sincesubstantially all of our operating revenue is based on our underlying costs.

            ***BusinessVentures.**** * Our consistent earnings and improving balance sheet have helped position us for newopportunities.  We continue to seek strategic opportunities that leverage our internal strengths, such as our technical,training and fleet and asset management capabilities, to develop and implement additional business strategies.  We made thefollowing non-controlling cash investments in 2005 (see Item 8. “Financial Statements and Supplementary Data – Notes toConsolidated Financial Statements – Note 1 – Summary of Significant Accounting Policies – (i)” for theaccounting treatment of each of the investments):

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|                                                        | •  | In March 2005, we purchased 50% minus one share of JetX Aviation Limited, dba ExpressJet Europe(“JetX Aviation”) for $0.9 million.  JetX Aviation is a European start-up company that seeks to provide regionaljet service to European air carriers.  The start-up company is currently attempting to market this concept, but is not yet acertificated airline and does not yet have a commitment from an air carrier.                                                                                                                                                                                                                                                                                                                                                    |
|--------------------------------------------------------|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|           | •  | In June 2005, we purchased 49% of Wing Holdings, LLC (“Wing Holdings”) for $16.0million.  Wing Holdings is a full-service aviation company specializing in high-quality aircraft charter and management,airframe maintenance, avionics installations and aircraft painting.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                          | •  | In July 2005, we purchased 49% of American Composites, LLC (“American Composites”) andpurchased certain building, land and related improvements (from a party related to American Composites) for an aggregate price ofapproximately $5.8 million.  $4.9 million of the purchase price was recorded as building, land and related improvements andthe balance was recorded as our non-controlling investment in the company.  American Composites provides maintenance, repairand overhaul services of aircraft composite and sheet metal parts and structures to Airlines and other parties.  At the sametime, we lease the building, land and related improvements to American Composites for use in its operation.  We account forthe lease as an operating lease. |

            In addition, we purchased InTechAerospace Services, LP (“InTech”), an aircraft interior refurbishment company for $3.0 million in November 2005. We believe this entity will complement our current aircraft maintenance infrastructure and allow us to diversify our passengerrelated airline services.

            During 2005, we also beganconstruction of an aircraft painting facility in Mexico.  As of December 31, 2005, the cost of this facility was $5.0million.  The total cost of the facility is expected to be $8.7 million, and we expect to complete it during the secondquarter of 2006.  We believe the services to be provided by this facility will enhance the product offerings of our currentsubsidiaries and investments.

            In January 2006, we purchased anon-controlling interest in Flight Services & Systems, Inc. (“FSS”) for $4.0 million.  FSSis based in Cleveland, Ohio and provides airport services to support airlines, airports and the FAA.

            During 2005, we also announcedthat our wholly-owned subsidiary, ExpressJet Services, and ExpressJet Airlines’ Training Services division receivedthird-party repair and training certificates, respectively, from the FAA.  We anticipate that these certifications will allowus to generate additional income as we provide outsourced services to other airlines or aviation-related entities.  In thefourth quarter of 2005, ExpressJet Services entered into an agreement with Aircelle Safran Group to become its premier NorthAmerican repair facility for thrust reversers and nacelles on aircraft within the ERJ-145 Family, the Embraer 170 and the Legacyaircraft. 

            ***Securities RepurchaseProgram.***  In July 2005, our board of directors authorized the expenditure of up to $30 million to repurchase shares ofour common stock.  Subsequently in February 2006, the board authorized the inclusion of our 4.25% senior convertible notes due2023 in this program.  Stock purchases have been made from time to time in the open market.  The timing of any notes orstock repurchases under the program depends on a variety of factors, including market conditions, and may be suspended ordiscontinued at any time.  Common stock acquired through the program will be available for general corporate purposes andconvertible notes acquired under the program will be cancelled.  Since the inception of the plan, we have purchased 590,800shares of our common stock at an average cost per share of $9.55. 

            ***Liquidity and FinancingActivities.***   As of December 31, 2005, we had $236.5 million in cash and short term investments, including $9.2million in restricted cash.  During 2005, we reduced our note payable to Continental by $81.3 million and our loan agreementwith Export Development Canada (“EDC”) by $0.9 million.  In addition, we made $0.8 million in principal paymentsrelated to our capital leases.  Additionally, we negotiated the sale of eight engines to Rolls Royce and, in exchange, enteredinto seven new engine leases with a Rolls Royce subsidiary in December 2005.  Net proceeds received for this transaction were$15.3 million, which we reported as cash flow from financing activities.  Our cash flows from operations were sufficient tocover our capital resources and liquidity requirements during the three years ending December 31, 2005.  See discussion belowin “– Liquidity and Capital Commitments.”

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            ***Outlook for2006***

            We will continue seeking toenhance our stockholders’ value by providing the most cost-efficient and reliable regional jet service for our customer,including achieving the highest level of customer satisfaction in the regional industry.  In the long-run, we believe thisstrategy serves us well, although we continue to be affected by the pressures affecting the airline industry generally.  Asdiscussed above, on December 28, 2005, Continental announced that it would seek an alternate regional service provider for 69 ofthe aircraft currently covered by our capacity purchase agreement.  Moreover, we have not yet been able to reach an agreementwith Continental relating to the rates applicable for 2006 under the capacity purchase agreement. See “2006 Rate SettingProcess under the Capacity Purchase Agreement” above.

            During 2006, we will continueexploring ways to enhance stockholders' long-term value through:

|           | •  | seeking strategic opportunities for the 69 aircraft that Continental intends to withdraw from thecapacity purchase agreement;                                                              |
|--------------------------------------------------------|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                        | •  | continuing to strengthen our balance sheet by lowering our debt obligations and increasing cash tohelp position us for new opportunities;                                                  |
|                                                        | •  | further diversifying our core business by making strategic investments in the air transportationsector that will complement our current operations and leverage our operational expertise; |
|                                                        | •  | exploring opportunities in the air transportation sector abroad; and                                                                                                                       |
|                                                        | •  | continuing our securities repurchase program.                                                                                                                                              |

 

            ***Operational Guidance for2006.*****  The following table summarizes our guidance for block hours, available seat miles anddepartures:

| **                                                        ** |                  | **First Quarter 2006** |                  | **Fiscal Year 2006** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------|------------------------|------------------|----------------------|
|                                                                                                                                                                                                                                                                                                                                                      | **  ** | ****                   | **  ** | ****                 |
| Block Hours (1) (3)                                                                                                                                                                                                                                                                                                                                  |                  | 10% – 12%        |                  | 8% – 10%       |
| Available Seat Miles (2) (3)                                                                                                                                                                                                                                                                                                                         |                  | 11% – 13%        |                  | 10% – 12%      |

 

|       | (1)   | Block hours are the hours from gate departure to gate arrival.                                                           |
|--------------------------------|-----------------|--------------------------------------------------------------------------------------------------------------------------|
|                                | (2)   | Available seat miles are the number of passenger seats multiplied by the number of scheduled milesthose seats are flown. |
|                                | (3)   | Growth based on expected year-over-year increases and similar utilization to 2005.                                       |

            We expect our departures for thefirst quarter of 2006 to be approximately 115,000.  However, since Continental controls and is responsible for our scheduling,our actual performance could be materially different from our estimates detailed above.

*            **Our Dependence onContinental***

            Despite our efforts to containcosts and improve reliability, we are directly affected by the financial and operational stability of Continental because we dependon Continental’s ability to make payments to us under our capacity purchase and other agreements, which continue to be thepredominant source of our revenue.  Continental has had substantial losses since September 11, 2001 and has indicated thatlosses of this magnitude are not sustainable.  In addition, Continental has announced that its current cost structure is notcompetitive within the weak domestic yield environment, caused in large part by the fierce competition from low-cost carriers andrecord high fuel prices.  Furthermore, Continental may face stronger competition from major carriers that have filed forbankruptcy protection, allowing them to achieve substantial cost reductions, including reducing or discharging debt, lease andpension obligations.  The current U.S. domestic network carrier financial environment continues to be poor and coulddeteriorate further as a result of these factors. 

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            Continental and the unionrepresenting its flight attendants recently ratified their labor agreement to allow Continental to meet its $0.5 billioncost-savings goal previously announced; absent additional adverse factors due to external influences, such as additional terroristattacks or unreasonable increase in fuel prices, we are not aware of any other factors that would lead us to believe thatContinental will not be able to maintain adequate liquidity through December 31, 2006, as previously disclosed in its quarterlyfilings.  However, it has significant financial obligations due in 2007 and thereafter, and it is possible that Continentalwill have inadequate liquidity to meet those obligations if the current adverse economic environment for network carriers does notimprove materially.

            Additionally, Continental leasesfrom third parties a substantial portion of the aircraft and airport facilities that it subleases to us.  If Continentalbreaches or otherwise fails to perform under these leases, we could lose our rights under the subleases, and our continued accessto our aircraft and airport facilities would then depend on our ability to negotiate direct agreements with the third-partylessors. 

**            *Critical AccountingPolicies and Estimates***

            Our consolidated financialstatements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).  Thepreparation of these financial statements requires us to make estimates and judgments that affect reported amounts and relateddisclosures.  We have identified the accounting policies and estimates below as critical to our business operations andunderstanding of our results of operations.  The SEC has defined critical accounting policies and estimates as the ones thatare most important to the portrayal of a company’s financial condition and results and require the company to make its mostdifficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. For all of these estimates, we caution that future events rarely develop exactly as forecasted, and the best estimates routinelyrequire judgment.  The discussion below is not intended to be a comprehensive list of our accounting estimates andpolicies.  For a detailed discussion on the application of our accounting policies, see Item 8.  “FinancialStatements and Supplementary Data – Notes to Consolidated Financial Statements – Note 1.”

| **Revenue Recognition**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| *Nature of Estimates Required –* Certain amounts billed by us to Continental underthe capacity purchase agreement are subject to our interpretation of the capacity purchase agreement.  Continental may disputethe amount billed and pay less than the amount invoiced if it interprets the capacity purchase agreement differently than wedo.  Additionally, under the capacity purchase agreement, beginning in 2005, new rates are to be determinedannually.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| *Assumptions and Approach Used –* Our operating revenue is calculated based on our interpretation of the capacitypurchase agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| *Effect if Different Assumptions Used* – If our interpretation differs materially from Continental’s, ourrevenue could be materially understated or overstated.  Under the capacity purchase agreement, a substantial portion ofAirlines’ costs are reconciled for differences between Airlines’ actual costs and estimated costs included in its blockhour rates at a 10.0% operating margin.  Under Airlines’ 2005 rates, certain costs generally controllable by Airlinesare reconciled to allow it to operate within its operating margin, as defined in the capacity purchase agreement (“prevailingmargin”) of 8.5% to 10.0%.  For the fourth quarter of 2005, we rebated $4.2 million to Continental becauseAirlines’ prevailing margin before reconciliation payments exceeded 10.0%.  If Continental had successfully challengedany of our billings in the fourth quarter 2005, for example, resulting in a one percentage point increase in the prevailing marginbefore any reconciliation payment, our pretax income would have decreased by $4.5 million, or $0.05 per diluted earnings per commonshare (“Diluted EPS”). |

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| **Wages, Salaries and Related Expenses**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| *Nature of Estimates Required –* We are currently self-insured for a portion ofour healthcare costs and have a large deductible for our workers compensation liability.  Consequently, reserves for the costof claims that have not been paid or benefit costs that have been incurred but not yet reported (“IBNR”) as of a givendate are estimated.  In addition, as our collective bargaining agreements become amendable, we accrue for anticipatedretroactive pay that we estimate will be due under the new contract.  However, actual costs may differ materially from ourestimates.                                                                                                                                                                                                                                                                                                                                                                                                                   |
| *Assumptions and Approach Used –* Our estimates for these reserves are based on recommendations from actuarialprojections provided by third-party actuaries.  These estimates rely on historical claim experience, demographic data andprojection of the effects of inflation on medical costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| *Effect if Different Assumptions Used* – If the ultimate development of these claims is significantly differentthan our estimates, the accrual for future healthcare claims could be materially overstated or understated.  As of December31, 2005, our reserve related to our healthcare cost was $3.0 million.  Our third-party actuary provided an estimated IBNRrange of $2.3 million to $3.4 million.  Had we changed our reserve to either the low end or the high end of the reserve, theimpact to our net income would have been immaterial as a result of the mechanics of the capacity purchase agreement withContinental. Our workers’ compensation actuary provided a range of IBNR from $6.6 million to $7.7 million in 2005.  Asof December 31, 2005, we reserved $7.7 million related to these benefits.  Had our reserve equaled the low end of theestimate, the impact to our net income would have been immaterial due to the 2005 rate amendment under the capacity purchaseagreement. |
| **Spare Parts and Supplies**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| *Nature of Estimates Required–* Inventories, expendable parts and suppliesrelating to flight equipment are carried at average acquisition cost and are expensed when used.  Inventories are carried atthe lower of amortized cost or net realizable value.  The adequacy of our allowance for obsolescence requires a high degree ofjudgment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| *Assumptions and Approach Used–* Our allowance for obsolescence related to inventory is provided over the remaininguseful life of the related aircraft, plus allowance for spare parts currently identified as excess.  Part of the calculationfor this reserve is based on historical experience.  In addition, we may reserve for additional obsolescence when currentavailable market data indicate a decline in the fair value of parts or if we deem parts as excess inventory.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| *Effect if Different Assumptions Used*– As of December 31, 2005, our allowance for obsolescence related to ourspare parts and supplies was approximately $9.1 million.  If we increase the reserve by 10%, due to the mechanics of thecapacity purchase agreement, the impact on pre-tax income is immaterial.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| **Aircraft and Facility Leases**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| *Nature of Estimates Required–* All of our aircraft are either leased orsub-leased from Continental.  We also have airport and maintenance facility leases that are leased from airport authorities orother municipal authorities.  In order to determine the proper classification of a lease as either an operating lease or acapital lease, we must make certain estimates at the inception of the lease relating to the economic useful life and the fair valueof an asset, as well as select an appropriate discount rate to be used in discounting future lease payments.                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| *Assumptions and Approach Used–* The assumptions used in our lease classification analyses are based on ourinterpretation of available market data and specific contract terms.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

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| *Effect if Different Assumptions Used*– As all our aircraft and facility leases have been classified as operatingleases, rental payments are charged to expense over the terms of the related leases.  Moreover, since operating leases are notreflected on our balance sheet, if different assumptions were used, which might cause an operating lease to be classified as acapital lease, the impact to our financial statements would be a gross-up of our property and equipment and capital leaseobligations and a charge to depreciation and amortization expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Goodwill and Intangible Assets**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| *Nature of Estimates Required–* Under Statement of Financial Accounting StandardNo. 142–“Goodwill and Other Intangible Assets” (“SFAS 142”), intangible assets can have either finiteor indefinite useful lives.  As of December 31, 2005, we had intangible assets with both definite and indefinite lives. Our critical accounting estimate is related to our “Reorganization Value in Excess of Amounts Allocable to IdentifiableAssets,” which has indefinite useful life.  Under SFAS 142, goodwill and intangible assets with indefinite useful livesshould be tested at least annually for impairment.  Factors considered important when determining the impairment of reportingsegments under SFAS 142 include items affecting the cash flows of the reporting segments; the reporting segments’ operationalperformance versus market expectations; the reporting segments’ performance compared to peers within the industry; themarketplace for and identification of the intangible asset of the reporting segments; significant changes in the underlyingbusiness strategy or operational environment; material ongoing industry or economic trends; or other factors specific to the assetor reporting segments being evaluated.  Any changes in the key assumptions about the business and its prospects, or changes inmarket conditions or other externalities could result in an impairment charge. |
| *Assumptions and Approach Used –* For our SFAS 142 analysis, we employed a discounted cash flow approach, a marketmultiple approach and an acquisition approach.  The discounted cash flow approach considers our expected cash generationcapabilities, and the market–multiple approach and the acquisition approach analyzes similar companies or transactions withinthe industry to derive multiples for the company. * *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| *Effect if Different Assumptions Used*– As of December 31, 2005, our “Reorganization Value in Excess ofAmounts Allocable to Identifiable Assets” was $12.8 million.  In addition to our annual SFAS 142 analysis at June 30,due to Continental’s announcement on December 28, 2005 of its intention to withdraw 69 aircraft from the capacity purchaseagreement beginning in December 2006, we determined a trigger event occurred.  In accordance with our policy, we performed aSFAS 142 impairment analysis as soon as reasonably possible after the trigger event, using the latest data available.  Noimpairment was identified.  If assumptions used in our analysis were changed materially, our intangible assets could bematerially overstated.  However, based on our most current impairment test, there would have to be a significant change inassumptions used in the calculation for an impairment to occur as of December 31, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

            In addition to our criticalaccounting estimates and policies described above, we made other estimates that, while not involving the same degree of judgment,are important to understanding our financial statements.  In general, we base our estimates on historical experience,information from third-party professionals and various other assumptions that we believe are reasonable under thecircumstances.  We continually evaluate our accounting policies and the estimates used to prepare our consolidated financialstatements.  Our estimates as of the date of the financial statements reflect our best judgment after giving consideration toall currently available facts and circumstances.  As such, actual results may differ significantly from these estimates andmay require adjustment in the future as additional facts become known or as circumstances change.

            We have discussed the developmentand selection of these critical accounting policies and estimates with the Audit Committee of our board of directors, and theCommittee has reviewed the disclosures presented above.

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***            Recently Issued AccountingStandards***

            The Financial AccountingStandards Board (“FASB”) issued Statement of Financial Accounting Standard No. 123 (Revised 2004) —“Share-Based Payments” (“SFAS 123R”) which impacted our method of accounting for our stockcompensation.  See detailed description of this accounting standard and its impact on our financial condition, results ofoperations and liquidity in Item 8. “Financial Statements and Supplementary Data – Notes to Consolidated FinancialStatements – Note 1 – Summary of Significant Accounting Policies.”

**Results of Operations and Analysis**

*            **StatisticalInformation***

| **                                                                              ** |        | **Year Ended December 31,** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|---|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |        | ****                        |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |        | **2005**                    |   |  | **Increase/ (Decrease) 2005-2004** |  |  | **2004** |  |  | **Increase/ (Decrease) 2004-2003** |  |  | **2003** |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |        | ****                        |   |  | **** |  |  | **** |  |  | **** |  |  | **** |  |
| Operating Statistics:                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                             |   |   |  |  |  |  |  |  |  |  |  |  |  |
| Revenue passenger miles (millions) (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                   |        | 8,938                       |   |  | 20.5 | % |   | 7,417 |  |   | 28.6 | % |   | 5,769 |  |
| Available seat miles (millions) (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                      |        | 11,973                      |   |  | 15.0 | % |  | 10,410 |  |  | 23.6 | % |  | 8,425 |  |
| Passenger load factor (3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                |        | 74.7                        | % |  | 3.4 | pts |  | 71.3 | % |  | 2.8 | pts |  | 68.5 | % |
| Operating cost per available seat mile (cents) (4)(5)                                                                                                                                                                                                                                                                                                                                                                                                                                    |        | 11.72                       |   |  | (6.3 | %) |  | 12.51 |  |  | (6.7 | %) |  | 13.41 |  |
| Block hours (6)                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |        | 827,369                     |   |  | 13.4 | % |  | 729,698 |  |  | 23.0 | % |  | 593,387 |  |
| Operating cost per block hour (dollars) (4)(7)                                                                                                                                                                                                                                                                                                                                                                                                                                           |        | 1,696                       |   |  | (4.9 | %) |  | 1,784 |  |  | (6.3 | %) |  | 1,903 |  |
| Departures                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |        | 449,928                     |   |  | 11.1 | % |  | 405,055 |  |  | 14.6 | % |  | 353,547 |  |
| Average price per gallon of fuel, including fuel   taxes (cents) (8)                                                                                                                                                                                                                                                                                                                                                                                                           |        | 71.20                       |   |  | — | % |  | 71.20 |  |  | 0.2 | % |  | 71.04 |  |
| Fuel gallons consumed (millions)                                                                                                                                                                                                                                                                                                                                                                                                                                                         |        | 295.5                       |   |  | 12.4 | % |  | 262.8 |  |  | 21.8 | % |  | 215.8 |  |
| Average length of aircraft flight (miles)                                                                                                                                                                                                                                                                                                                                                                                                                                                |        | 545                         |   |  | 3.2 | % |  | 528 |  |  | 7.5 | % |  | 491 |  |
| Average daily utilization of each aircraft (hours) (9)                                                                                                                                                                                                                                                                                                                                                                                                                                   |        | 8.87                        |   |  | 4.2 | % |  | 8.51 |  |  | 9.2 | % |  | 7.79 |  |
| Controllable completion factor (10)                                                                                                                                                                                                                                                                                                                                                                                                                                                      |        | 99.7                        | % |  | (0.2 | pts) |  | 99.9 | % |  | 0.1 | pts |  | 99.8 | % |
| Completion factor                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |        | 97.7                        | % |  | (0.7 | pts) |  | 98.4 | % |  | 0.2 | pts |  | 98.2 | % |
| Actual aircraft in fleet at end of period                                                                                                                                                                                                                                                                                                                                                                                                                                                |        | 266                         |   |  | 8.6 | % |  | 245 |  |  | 9.4 | % |  | 224 |  |
| Revenue passengers (thousands)                                                                                                                                                                                                                                                                                                                                                                                                                                                           |        | 16,076                      |   |  | 17.7 | % |  | 13,659 |  |  | 20.1 | % |  | 11,373 |  |

 

|       | (1)   | Revenue passenger miles are the number of scheduled miles flown by revenue passengers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--------------------------------|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                | (2)   | Available seat miles are the number of passenger seats available multiplied by the number ofscheduled miles those seats are flown.                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                | (3)   | Passenger load factor equals revenue passenger miles divided by available seat miles.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                                | (4)   | Operating costs related to our flight operations are costs incurred by Airlines.  For 2005,operating costs related to our flight operations were $1.4 billion, which excluded $2.8 million of operating costs not related topassenger airline services.  Exclusion of expenses not related to passenger airline services in the calculation of variousoperating statistics provides more accurate information related to the performance of our flight operations.  All operatingcosts prior to 2005 were related to flight operations. |
|                                | (5)   | Operating cost per available seat mile is operating costs related to our flight operations dividedby available seat miles.                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                | (6)   | Block hours are the hours from gate departure to gate arrival.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                                | (7)   | Operating cost per block hour is operating costs related to our flight operations divided by blockhours.                                                                                                                                                                                                                                                                                                                                                                                                                                          |

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|  | (8)    | Fuel cost used in calculations includes cost of fuel and related fuel tax.  Airlines incur fuelexpense and fuel tax equal to the lower of the actual cost or the agreed-upon caps of 66.0 cents and 5.2 cents per gallon,respectively, based on our fuel purchase agreement with Continental. |
|--|------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | (9)    | Average daily utilization of each aircraft is the average number of block hours per day that anaircraft in revenue service is operated.                                                                                                                                                            |
|  | (10)   | Controllable completion factor is the actual number of completed flights, plus flights cancelled dueto weather and air traffic control, divided by the number of scheduled flights.                                                                                                                |

            We monitor the forgoingstatistical information closely to ensure that we are continually focused on our operational efficiencies and costcontrol.

            The following discussion providesan analysis of our results of operations and reasons for any material changes for the periods indicated.

            ***Comparison of 2005 to2004***

            *OperatingRevenue*

            Our operating income in 2005reflected a 10.0% operating margin, compared with an operating margin of 13.6% in 2004.  As part of the 2005 rate negotiation,Airlines agreed to cap its prevailing margin at 10.0% in lieu of the margin cap of 11.5% in 2004.   Beginning in 2005,Airlines also includes previously unreconciled costs within the margin band, such as wages, salaries and related costs, although itis not reimbursed if these costs are higher than agreed in the block hour rates and cause its prevailing margin to fall below the8.5% margin floor.  The 2004 operating margin included the benefits of cost savings in Airlines’ previously unreconciledcosts and $11.5 million in performance incentive payments under Airlines’ capacity purchase agreement.  The 2005operating margin included $4.2 million of performance incentive payments.  Cost savings related to previously unreconciledcosts were included in the prevailing margin calculation, hence they did not impact the 2005 operating margin.

            The incentive payments areprimarily based on the current controllable completion factor compared to a historical controllable completion factorbenchmark.  Because the historical rates are measured on a rolling monthly average, higher controllable completion factorsresult in higher incentive payments in the near term but reduce Airlines’ opportunity to earn incentive payments in thefuture.  Airlines’ controllable completion factor in 2005 was 99.7% and its historical benchmark completion factor was99.3% for the same period.  As part of the 2005 rate resetting, Airlines is only required to pay Continental a penalty forcontrollable completion factors below 99.5% instead of using its rapidly rising historical benchmark.

            As a substantial portion ofAirlines’ costs under the capacity purchase agreement are reconciled for differences between its actual costs and theestimated costs included in its block hour rates at a 10.0% operating margin, if Airlines’ prevailing margin (before anyreconciliation payments) fell outside its margin band of 8.5% to 10.0% for 2005 and 8.5% to 11.5% for 2004, Airlines’ revenuewould have been adjusted to bring it back to its floor or cap.  In 2005 and 2004, Airlines’ actual cost efficienciesbrought its prevailing margin above 10.0% and 11.5%, respectively.  Reconciliation payments to Continental totaled $23.4million and $61.0 million for 2005 and 2004, respectively.  The 2005 reconciliation payment was primarily driven by loweractual wages, salaries and related costs and maintenance, materials and repair expenses as compared to the estimated costs in theblock hour rates.  The 2004 reconciliation payment was primarily driven by lower actual maintenance, materials and repair andpassenger servicing expenses as compared to the estimated costs in the block hour rates. 

            We negotiate with Continental toadjust the scheduled block hour rates annually as required under the capacity purchase agreement.  As of February 28, 2006, weare still negotiating the rates for 2006.  Continental has agreed to continue paying us at the December 2005 rates duringthese negotiations.  Any agreement to revise the current rate structure will be retroactive to January 1, 2006.  Wecannot currently estimate what our 2006 rates will ultimately be.  If we cannot agree on the 2006 rates, the capacity purchaseagreement allows either party to submit the matter to arbitration.

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            We do not expectContinental’s withdrawal of the 69 aircraft from the capacity purchase agreement beginning in December 2006 to have amaterial adverse impact on our results of operations in 2006.  Beyond 2006, we cannot estimate the impact the withdrawal ofthese aircraft from the capacity purchase agreement will have on our results of operations or financial condition as the impactwill be determined based on many factors unknown to us at this time such as our decision to retain these aircraft or return them toContinental and our ability to implement and execute income-generating arrangements for these aircraft. 

            *OperatingExpenses*

            Although our operations, measuredby block hours, grew over 13.4% for the year ended December 31, 2005, wages, salaries and related costs only increased by9.5%.  This resulted from our continuous focus on managing our non-union labor costs and improving productivity related to ourunionized labor force to remain competitive with our peers.  For the year ended December 31, 2005, wages increased by $21.7million.  In addition, we incurred approximately $6.7 million higher employee benefit costs, such as medical coverage,workers’ compensation costs, profit sharing and 401(k) expenses in 2005.

            In the future, we anticipate thatour wages, salaries and related costs may be affected by the following factors:

|           | •  | potential wage increases to incentivize key personnel to remain with us as we design and execute ourdiversification strategies in response to Continental’s recent notice of aircraft withdrawal, including our long-termincentive plan implemented in January 2006; |
|--------------------------------------------------------|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                        | •  | wage rate increases in accordance with our collective bargaining agreements as a result of higherseniority of our work force;                                                                                                                                              |
|                                                        | •  | projected increases in health and medical benefit costs; and                                                                                                                                                                                                               |
|                                                        | •  | expected expenses related to the fair value of stock compensation beginning in January 2006, asrequired by SFAS 123R.                                                                                                                                                      |

            The increase in our aircraft fuelexpense in 2005 was mainly due to a 12.4% increase in fuel consumption.  Consumption rose primarily due to a 13.4% increase inblock hours, which was partially offset by our jets’ more efficient fuel burn.  Our actual price of fuel, includingtaxes, in 2005 and 2004 was 71.2 cents per gallon.  Under the capacity purchase agreement and related fuel purchase agreementwith Continental, we incur a fuel price and fuel tax equal to the lower of the actual cost of fuel and fuel tax or the agreed-uponcaps.  Beginning in 2003, until the termination of these agreements, caps on fuel and fuel tax are 66.0 cents and 5.2 centsper gallon, respectively.

            Approximately $21.2 million ofthe increase in maintenance, materials and repairs during 2005 was due to a 13.7% increase in flight hours related to ourpower-by-the-hour contracts.  Our overall maintenance, materials and repair costs per flight hour increased by approximately4.0% to support the continuing growth and aging of our fleet.  Since approximately 70% of our maintenance, materials andrepairs cost in 2005 consisted of power-by-the-hour expenses, we believe that these agreements, coupled with our ongoingmaintenance program, reduce the likelihood of unexpected maintenance expense during the aircraft lease term.  We expect ourfuture maintenance, materials and repair expenses, adjusted for volume and further fleet aging, to mirror our current coststructure.

            The increase in other rentals andlanding fees during 2005 was primarily due to a $10.5 million increase in landing fees caused by an 11.2% increase in landingweights and 3.0% increase in rates per landing weight mostly due to higher rates at Continental’s hubs.  In addition,our facility rent increased by approximately $5.5 million primarily as a result of rate increases at various stations andmaintenance facilities. 

            Ground handling and outsideservices decreased in 2005 because as part of the 2005 annual rate resetting process and as a result of Continental’scost-saving initiatives, the costs for Continental to provide us with certain services currently classified as outside services(such as technology infrastructure and other services) and ground handling were reduced by approximately $53.0 million for the yearended December 31, 2005.  As these are fully reconciled costs, our operating income for 2005 was reduced by approximately $5.3million as a result of these cost reductions.

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            Approximately $2.0million of the increase in depreciation was due to additional obsolescence expense recorded in 2005 to reduce the value of variousaircraft spare parts to net realizable value.  As depreciation is a fully reconciled cost under the capacity purchaseagreement, the impact on pre-tax income was immaterial.

            The decrease in other operatingexpenses for the year ended December 31, 2005 resulted primarily from:

|                          | •  | a $14.5 million decrease in security and miscellaneous facility fees as a result of the 2005rate-resetting under the capacity purchase agreement, partially offset by additional TSA assessed security screening fees ofapproximately $0.8 million in January 2006 that were related to 2005; |
|--------------------------------------------------------|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|           | •  | a $4.0 million charge in 2004 for settlement of a claim by Continental for indemnification under thecapacity purchase agreement;                                                                                                                                                              |
|                                                        | •  | a $3.4 million charge in 2004 for the final settlement of a $6.7 million deferred tax assetreceivable related to our spin-off from Continental in 2002;                                                                                                                                       |
|                                                        | •  | a $1.9 million payment to Continental to purchase an engine Airlines damaged beyond repair in 2004;partially offset by                                                                                                                                                                        |
|                                                        | •  | a $4.7 million increase in international navigational charges; and                                                                                                                                                                                                                            |
|                                                        | •  | a $3.7 million increase in crew related charges, such as per diem and hotel cost, as a result ofincreased flight operations.                                                                                                                                                                  |

            *NonoperatingExpenses*

**

*           * Our interestexpense is primarily related to our senior convertible notes, note payable to Continental and loan agreement with EDC. Interest expense related to these long-term debts decreased in 2005 by approximately $1.1 million as a result of an $81.3 millionreduction in our note payable to Continental and a $0.9 million reduction in our loan agreement with EDC.  In addition, weretired Airlines’ Series A Preferred Stock in April 2005.  Our interest income increased by approximately $4.6 millionas a result of a two-point increase in our average returns from our investments despite a lower average cash and short-terminvestment balance of approximately $208.9 million in 2005.

**            *Comparison of 2004 to2003***

            *OperatingRevenue*

            Our operating income in 2004reflected a 13.6% operating margin, compared with an operating margin of 13.9% in 2003.  The 2004 and 2003 operating marginsincluded the benefits of cost savings and $11.5 million and $12.9 million in performance incentive payments under our capacitypurchase agreement, respectively.  We earn incentive payments primarily by achieving a controllable completion factor whichwas 99.9% and 99.8% in 2004 and 2003, respectively, versus a historical benchmark factor of 98.9% and 98.5% for the sameperiods.

            As a result of cost savings frommaintenance, materials and repairs and passenger servicing expenses in 2004 and 2003, our prevailing margin (before reconciliationpayments) exceeded 11.5%; consequently, we made reconciliation payments to Continental totaling $61.0 million and $30.1 million in2004 and 2003, respectively. 

            *OperatingExpenses*

            As our operations have grown, ourdirect labor groups such as pilots, flight attendants, mechanics, dispatchers and customer service agents have increasedproportionally.  This larger work force and increases in wage rates under some of our collective bargaining agreementsincreased our wages, salaries and related costs by $20.3 million in 2004.  Increases related to our non-direct labor groupssuch as clerical and management positions were approximately $4.2 million in 2004.  We also incurred approximately $8.1million in additional employee benefit costs in 2004 due to increases in medical benefit costs, workers’ compensation,payroll taxes and 401 (k) expenses.

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            The increase in our aircraft fuelexpense in 2004 was mainly due to a 21.8% increase in fuel consumption and a 0.2% increase in fuel price and related taxes over2003.  Consumption rose primarily due to a 23.0% increase in block hours, which was partially offset by our jets’ moreefficient fuel burn.

            Approximately $29.3 million ofthe increase in maintenance, materials and repairs during 2004 was due to a 21.5% increase in flight hours and a 14.0% increase inrate-per-flight-hour related to our power-by-the-hour contracts.  The rate-per-flight-hour increase was mainly attributed to ahigher number of power-by-the-hour contracts in place during 2004.  For the year ended December 31, 2004, approximately 10points more of our maintenance, materials and repairs cost consisted of power–by-the-hour expense versus the same period in2003.  As a result of the increased coverage under our power-by-the-hour contracts, our airframe, avionics and enginecomponent repair and replacement costs decreased by approximately $7.0 million. 

            The decrease in other rentals andlanding fees in 2004 was primarily due to a $21.3 million decrease in our terminal facility rents at Continentals’ hubstations as a result of an amendment to our master facility and ground handling agreement in November 2003.  This decrease waspartially offset by higher facility rent in non-hub stations of approximately $2.2 million, as the number of stations in which weoperate increased.  In addition, our landing fees in 2004 increased by $10.7 million as a result of a 15.0% increase inlanding weights and an 8.4% increase in landing fee rates.

            The increase in other operatingexpenses was mainly due to the following:

|                          | •  | a $7.1 million increase in property taxes, primarily due to fleet growth;                                                                                                                          |
|--------------------------------------------------------|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|           | •  | a $5.7 million increase in crew related charges, such as per diem and hotel cost, as a result ofincreased flight operations and flight training activities;                                        |
|                                                        | •  | a $4.0 million charge for the settlement of a claim in 2004 by Continental for indemnification underthe capacity purchase agreement;                                                               |
|           | •  | a $3.4 million charge in 2004 for the final settlement of a $6.7 million deferred tax assetreceivable related to our spin off from Continental in 2002;                                            |
|                                                        | •  | a $2.8 million increase in passenger screening fees primarily because we no longer receive relieffor security fees under the Emergency Wartime Supplemental Appropriation Act of 2003 in 2004; and |
|                                                        | •  | a $1.9 million payment to Continental to purchase an engine Airlines damaged beyond repair in2004.                                                                                                 |

*            NonoperatingExpenses*

**

*           * Since we issued oursenior convertible notes in August 2003 and drew on  a loan facility from EDC in May and September 2003, our interest expenseincreased by $4.2 million in 2004 compared to 2003.  This was partially offset by a $2.3 million decrease in interest expenserelated to our note payable to Continental.  Furthermore, our interest income increased by $1.6 million as a result of a 0.3point increase in our return from our investments and higher average cash and short-term investment balance of approximately $71.4million in 2004 as compared to 2003.

***            FutureCosts***

            We remain committed to providingcompetitively priced service by controlling our costs; however, we believe that our costs may still increase in the future dueto:

|           | •  | changes in wages, salaries and related fringe benefit costs, as described above;                                                                                    |
|--------------------------------------------------------|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                        | •  | changes in the costs of materials and outside services;                                                                                                             |
|                                                        | •  | changes in governmental regulations, insurance and taxes affecting air transportation and the costscharged for airport access, including new security requirements; |
|                                                        | •  | the aging of our fleet;                                                                                                                                             |

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|  | •  | higher aircraft ownership costs as new aircraft are delivered, to the extent these aircraft are notcovered by the capacity purchase agreement or if Continental were to declare bankruptcy or otherwise default under the currentfinancing arrangements; |
|--|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | change in the cost of services provided by Continental at fixed rates under our capacity purchaseand other agreement, which may be renegotiated; or                                                                                                      |
|  | •       | any decision to establish our own administrative infrastructure instead of relying onContinental.                                                                                                                                                        |

            In the short-term, higher costsrelated to the capacity purchase agreement would generate higher revenues; however, in the long-run, failure to control our costswould prevent us from remaining competitive and limit our opportunities to attract additional partners or to take advantage ofopportunities as they present themselves.

            In addition, we believe futurecosts will increase as we explore opportunities to leverage our operational expertise and analyze strategic investments in the airtransportation sectors both in the U.S. and abroad.

**Liquidity and Capital Commitments**

            ***Sources and Uses ofCash***

            Our primary source of liquidityis cash flow provided from our operations.  For the years ended December 31, 2005 and 2004, our operations provided $130.6million and $153.6 million, respectively, in cash flow.  As of December 31, 2005 and 2004, we also had $9.2 million and $6.3million of restricted cash, respectively, which is used as collateral for our workers’ compensationcoverage. 

            In 2005 and 2004, we spent $21.1million and $38.9 million, respectively, on flight and ground equipment to support our fleet deliveries and the increase in ourflight schedules under our capacity purchase agreement with Continental.

            In 2005, we made the followingcash investments:

|                                                        | •  | In March 2005, we purchased 50% minus one share of JetX Aviation for $0.9 million.                                                                                                                                                                                                |
|--------------------------------------------------------|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|           | •  | In June 2005, we purchased 49% of Wing Holdings for $16.0 million.                                                                                                                                                                                                                     |
|                          | •  | In July 2005, we purchased 49% of American Composites and certain specified assets for approximately$5.8 million.  $4.9 million of the purchase price was recorded as building, land and related improvements and the balance wastreated as our non-controlling investment.  |
|                                                        | •  | In November 2005, we purchased InTech for $3.0 million.  This entity is consolidated in ourresults of operations (from the date of purchase through December 31, 2005) and financial condition as of December 31,2005.                                                            |

            In 2005, we also beganconstruction of an aircraft painting facility in Mexico.  As of December 31, 2005, the cost of this facility was approximately$5.0 million.  The total cost of the facility is expected to be $8.7 million, and we expect to complete it during the secondquarter of 2006. 

            Additionally, we negotiated thesale of eight engines to Rolls Royce and, in exchange, entered into seven new engine leases with a Rolls Royce subsidiary inDecember 2005.  Net proceeds received for this transaction were $15.3 million, which we reported as cash flow from financingactivities.  See detailed discussion below in “—Purchase Commitments”.

            ***Long-termDebt*.**  We did not enter into any new financing transactions in 2005.  We made the quarterly principal andinterest payments on our note payable to Continental to the extent required on March 31, June 30, September 30 and December 31,2005, net of prepayments made in prior periods.  These payments, totaled $84.7 million, of which $81.3 million related toprincipal.  In September 2004, we made a voluntary prepayment totaling $27.0 million, which reduced our required quarterlyprincipal and interest payment on March 31, 2005.  As of December 31, 2005, the balance on our note payable to Continental was$17.5 million.  We plan to pay off this obligation in March 2006.

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            In 2005, we made principal andinterest payments in the amount of $1.6 million on our loan agreement with EDC, of which $0.9 million related to principal. As of December 31, 2005, the balance on this loan agreement was $15.3 million.  In addition, we made required dividend andinterest payments in 2005 on Airlines’ Series A Preferred Stock and our 4.25% senior convertible notes due 2023 totaling $6.0million.  We redeemed the Series A Preferred Stock in April 2005, the earliest date on which it was callable by us.

            ***CapitalLeases.***  As of December 31, 2005, we had approximately $1.8 million (including current maturities) of capital leaseobligations.  In 2005, we made $1.0 million total payments related to our capital leases, of which $0.8 million related toprincipal.

            Other than the financingactivities described above, we do not have any other sources of long-term borrowings or available lines of credit. Additionally, there is no covenant under any of our long-term debt agreements that restrict our ability to undertake additionaldebt or equity financing.  If we default on our payment obligations under the note payable to or under our aircraft subleaseswith Continental, in addition to any other remedies it may have, Continental can elect to reduce its payments to us under thecapacity purchase agreement by the amount of the defaulted payment.  If Continental defaults on the payment obligations it hasto us under our capacity purchase and other agreements, then in addition to any other remedies we may have, we can offset theamount of the defaulted payment against amounts we owe to Continental under the note.  In addition, Continental or we canreduce any payments to the other party under the capacity purchase agreement in an amount corresponding to any defaulted paymentsby the other party under the foregoing obligations.

            See Item 8. “Financial Statements and Supplementary Data –Notes to Consolidated Financial Statements –Note 5,”“– Note 6,” “–Note 7” and “–Note 8” for detailed descriptions of theselong-term debts and obligations.

            ***Securities RepurchaseProgram.***  In July 2005, our board of directors authorized the expenditure of up to $30 million to repurchase shares ofour common stock.  Since the inception of the program, we have purchased 590,800 shares of our common stock at an average costper share of $9.55.  In February 2006, the board authorized the inclusion of our 4.25% convertible notes due 2023 within thepreviously announced $30 million program.

            ***Collective BargainingAgreements***

            The following table providesinformation related to our principal collective bargaining agreements and their respective amendable dates as of January 31,2006:

| **Employee Group**     |              | **Approximate Number of Employees** |              | **Representing Union**                                        |              | **Contract Amendable Date** |
|------------------------|--------------|-------------------------------------|--------------|---------------------------------------------------------------|--------------|-----------------------------|
|                        |    |                                     |    |                                                               |    |                             |
| Pilots and Instructors |              | 2,500                               |              | Air Line Pilots Association, International                    |              | December 2008               |
| Mechanics              |              | 1,100                               |              | International Brotherhood of Teamsters                        |              | August 2009                 |
| Flight Attendants      |              | 1,100                               |              | International Association of Machinists and Aerospace Workers |              | December 2004               |
| Dispatchers            |              | 80                                  |              | Transport Workers Union of America                            |              | July 2009                   |

            We are currently engaged in labornegotiations with our flight attendants.  At this time we cannot predict the outcome of these negotiations.  Our otheremployees are not covered by collective bargaining agreements

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            ***Deferred IncomeTaxes***

**

            At December 31, 2004, we hadfederal net operating loss carryforwards of approximately $17.4 million, which expire in 2019.  In September 2005, Continentalentered into a final settlement agreement with the IRS that included periods when we were included in the consolidated federalincome tax return of Continental.  Our taxable income was not adjusted, but the amount of net operating losses allocated to uswas reduced by approximately $16.4 million.  In accordance with our tax agreement with Continental, we recorded a receivablefrom Continental for approximately $5.7 million for the reduction of our federal net operating loss carryforwards.  Inaddition, we adjusted our tax accounts to reflect a federal net operating loss carryforward at December 31, 2004 of approximately$1.0 million, which was utilized in 2005.

            In conjunction with our initialpublic offering in April 2002, the tax basis of our tangible and intangible assets was adjusted to fair value.  Thisadjustment to tax basis should result in additional tax deductions being available to us through 2017.  In accordance with ourtax agreement with Continental, to the extent we generate taxable income sufficient to realize the additional tax deductions, weare required to pay Continental a percentage of the amount of tax savings actually realized, excluding the effect of any losscarrybacks.  We are required to pay Continental 100% of the first third of the anticipated tax benefit, 90% of the secondthird and 80% of the last third.  However, if the tax benefits are not realized by the end of 2018, we will be obligated topay Continental 100% of any benefit realized after that date.  Since these payments are solely dependent on our ability togenerate sufficient taxable income to realize these deferred tax assets, they are recorded as an obligation to Continental withinthe deferred tax asset accounts, and the portion we may retain in the future is offset by a valuation allowance.  At the timeof the initial public offering, the valuation allowance and the obligation to Continental offset the step-up in basis of assets inour long-term deferred tax asset account.  We made approximately $25.3 million and $57.0 million of net payments toContinental under the tax agreement during 2005 and 2004, respectively.

            The tax agreement requiresContinental to reimburse us for any net increase in our cash tax payments resulting from any decreased availability of netoperating loss carryovers related to the basis increase at the time our payment occurs.  The resulting receivable and/orpayable is recorded within the deferred tax asset account since its performance is dependent on our ability to generate taxableincome.

            No valuation allowance wasestablished on our net operating loss carryforwards or on our receivable from Continental for reimbursing carryforward lossesutilized resulting from the basis increase because we believe our stand-alone taxable income will be sufficient to utilizesubstantially all of these assets within the next several years.

            We believe that our initialpublic offering created a change in ownership limitation on the utilization of our federal tax attribute carryforwards, primarilynet operating losses.  Section 382 of the Internal Revenue Code limits our utilization of these attributes to offset up toapproximately $43.3 million of post-change taxable income per year.  This limitation did not have any impact on our financialcondition during 2005 and 2004.

            Our tax agreement increases ourdependence on Continental’s financial condition.  If it is determined that any of the tax benefits related to the basisincrease should not have been available at the time of utilization and, as a result, we are required to pay additional taxes,interest and penalties, then we could be adversely affected if Continental were unable to indemnify us under theagreement.

            ***PurchaseCommitments***

            As of December 31, 2005, we hadfirm commitments to acquire eight regional jets from Embraer.  The estimated aggregate cost of these firm commitments isapproximately $0.2 billion.  We will not have any obligation to take any of the aircraft under firm commitments if they arenot financed by a third party and leased to either Continental or us.  We also have options for 100 ERJ-145XR aircraft thatmay be exercised for other types of aircraft within the ERJ-145 Family.  During 2005, Continental declined the right toexercise any of these options.  We retain the right to exercise them and fly these aircraft for other airlines or under ourown code, subject to some restrictions; however, we will have to finance our acquisition of these aircraft independently.  Weexpect to notify Embraer of our intention regarding the first 25 option aircraft in March 2006.

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            Prior to December 2005, under ourpower-by-the-hour agreement with Rolls Royce, we were obligated to acquire up to three spare engines to support our existingaircraft and the remaining eight aircraft on firm order.  In December 2005, we negotiated the sale of eight engines to RollsRoyce and, in exchange, entered into seven new engine leases with a Rolls Royce subsidiary.  The engines leased have greaterinterchangeability than the engines sold. As a result, we have satisfied our engine obligations and are no longer obligated topurchase the three engines.  These leases are classified as operating leases; hence they are not reflected as assets andliabilities on our balance sheet. 

            We also have other contractualobligations of approximately $1.3 billion under our power-by-the-hour contracts with various service providers.  Thepower-by-the-hour contracts dictate the method by which we pay a vendor based on our actual level of operations in exchange forvendor coverage on specific parts and equipment on our aircraft when those parts and equipment are in need of repair orreplacement.  Each contract varies in term and payment procedure.  The estimated amount of our future commitment is basedon assumptions related to future level of operations and forecasted payment rates.  Our level of operations is determined byContinental, which has exclusive scheduling authority over our fleet under the capacity purchase agreement.  The level ofoperations inherent in the estimate is based on Continental’s most recent operating plan for us, which can be altered atContinental’s sole discretion and assumes Airlines will continue to fly the 69 aircraft Continental expects to remove fromthe capacity purchase agreement -- either for another operator or on our own.  Forecasted payment rates are based on actualrates as of December 31, 2005 and increased annually according to the particular inflation indices detailed in each contract. Contractual rate increases at actual time of occurrence may be different than the forecasted rates.

            For the year ended December 31,2005, we spent $21.1 million on capital expenditures.  Approximately $1.1 million of our 2005 planned capital expenditureswill be carried over as part of our planned 2006 capital expenditures.  We anticipate cash outlays for 2006 fleet-relatedcapital expenditures to be approximately $0.5 million.  Other 2006 cash outlays, exclusive of fleet plan requirements,relating to automation projects, facility improvements or construction, tooling and ground equipment are expected to aggregateapproximately $14.6 million.  We expect to fund our future capital commitments through internally generated funds and aircraftfinancing transactions.  However, there can be no assurance that sufficient financing will be available for all aircraft andother capital expenditures not covered by firm financing commitments

            ***Off-Balance SheetArrangements***

**

*           * In the ordinarycourse of business, we enter into operating leases related to our aircraft, spare engines and facilities.  In accordance withU.S. generally accepted accounting principles, these arrangements are not reflected on our balance sheet and are reasonably likelyto have a material effect on our future financial statements and financial outlook.

            We enter into these arrangementsto gain access to aircraft, equipment and facilities without requiring significant capital up front.  Since these assets areused in connection with our capacity purchase agreement, these assets are required to generate substantially all of ourrevenue.

            If Continental terminated thecapacity purchase agreement for cause, it would have the right to terminate our leases or subleases for aircraft covered by theagreement and take possession of them.  In addition, Continental would have the ability to reject the leases and subleases onour aircraft if it filed for bankruptcy protection.  Moreover, with the reduction notice and Continental’s ability toterminate the capacity purchase agreement, we could lose access to some or substantially all of our airport facilities. See Item1A. “Risk Factors” for additional information.

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            ***AircraftLeases.***  Our aircraft leases and subleases expire between 2013 and 2022.  As of December 31, 2005, our expectedtotal minimum annual rental payments for 2006 under current and future non-cancelable aircraft operating leases are approximately$333.3 million.  For any aircraft removed from the capacity purchase agreement, we would not be obligated to make the leasepayments related to those aircraft if we decide to return them to Continental.  Over 90% of our aircraft are leased directlyby Continental from third parties and subleased by Continental to us.  If Continental were to default under these leases, ourability to retain access to the aircraft could be adversely affected.  See more detailed description of our risks related toour aircraft leases under Item 1A. "Risk Factors."

            ***Other Leases.*** Other leases and subleases are related to ground facilities (airport and maintenance) and spare engines, flight simulators and aflight training device.  These leases have greatly varying terms, which we expect, in most cases, to be renewed orreplaced.  As of December 31, 2005, our expected total minimum annual, non-aircraft rental payments for 2006 under current andfuture non-cancelable operating leases are approximately $14.6 million. The expected total minimum rental payments for 2006, bycategory, are as follows (in millions):

| Airportfacilities                                       | $ | 7.8  |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---|------|
| Maintenance facilities                                                                                                                                                                                                                                |   | 2.9  |
| Flight equipment                                                                                                                                                                                                                                      |   | 3.9  |
|                                                                                                                                                                                                                                                       |   |      |
|                                                                                                                                                                                                                                                       | $ | 14.6 |
|                                                                                                                                                                                                                                                       |   |      |

            Under the capacity purchaseagreement, airport facility rent is a fully reconciled cost.  Maintenance facilities and flight equipment rentals are costswithin the margin band which could impact our quarterly reconciliation payment if these costs drive the prevailing margin to beless than 8.5% or higher than 10.0%.

            ***Contractual Obligations andCommercial Commitments***

            The following table summarizesthe expected effect our material debt, capital leases, operating leases and other contractual obligations have on our future cashflows as of December 31, 2005 (in millions):

| **                                                                    ** |        |   | **Total** |        |   | **2006** |        |   | **2007** |        |   | **2008** |        |   | **2009** |        |   | **2010** |        |   | **Over 5 Years** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---|-----------|--------|---|----------|--------|---|----------|--------|---|----------|--------|---|----------|--------|---|----------|--------|---|------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                              |        |   | ****      |        |   | ****     |        |   | ****     |        |   | ****     |        |   | ****     |        |   | ****     |        |   | ****             |
| Note payable to Continental (1)                                                                                                                                                                                                                                                                                                                                                                                              |   | $ | 17.8      |   | $ | 17.8     |   | $ | —  |   | $ | —  |   | $ | —  |   | $ | —  |   | $ | —          |
| 4.25% senior convertible notes due 2023 (2)                                                                                                                                                                                                                                                                                                                                                                                  |        |   | 154.7     |        |   | 5.8      |        |   | 5.8      |        |   | 143.1    |        |   | —  |        |   | —  |        |   | —          |
| Other long-term debt (3)                                                                                                                                                                                                                                                                                                                                                                                                     |        |   | 18.9      |        |   | 1.8      |        |   | 2.6      |        |   | 4.2      |        |   | 4.0      |        |   | 3.8      |        |   | 2.5              |
| Capital lease (4)                                                                                                                                                                                                                                                                                                                                                                                                            |        |   | 1.9       |        |   | 0.9      |        |   | 0.8      |        |   | 0.2      |        |   | —  |        |   | —  |        |   | —          |
| Aircraft operating leases (5)                                                                                                                                                                                                                                                                                                                                                                                                |        |   | 4,059.4   |        |   | 324.4    |        |   | 325.8    |        |   | 326.2    |        |   | 326.2    |        |   | 326.2    |        |   | 2,430.6          |
| Other operating leases (6)                                                                                                                                                                                                                                                                                                                                                                                                   |        |   | 315.4     |        |   | 42.6     |        |   | 43.8     |        |   | 45.0     |        |   | 46.1     |        |   | 47.4     |        |   | 90.5             |
| Unconditional purchase obligations (7)                                                                                                                                                                                                                                                                                                                                                                                       |        |   | 194.0     |        |   | 8.8      |        |   | 11.4     |        |   | 11.4     |        |   | 11.4     |        |   | 11.4     |        |   | 139.6            |
| Obligations under capacity purchase and   other agreements with Continental (8)                                                                                                                                                                                                                                                                                                                                    |        |   | 89.9      |        |   | 20.1     |        |   | 17.9     |        |   | 17.3     |        |   | 17.3     |        |   | 17.3     |        |   | —          |
| Other contractual obligations (9)                                                                                                                                                                                                                                                                                                                                                                                            |        |   | 1,259.8   |        |   | 146.3    |        |   | 113.6    |        |   | 117.5    |        |   | 121.3    |        |   | 124.6    |        |   | 636.56           |
|                                                                                                                                                                                                                                                                                                                                                                                                                              |        |   |           |        |   |          |        |   |          |        |   |          |        |   |          |        |   |          |        |   |                  |
| Total expected cash obligations                                                                                                                                                                                                                                                                                                                                                                                              |        | $ | 6,111.8   |        | $ | 568.5    |        | $ | 521.7    |        | $ | 664.9    |        | $ | 526.3    |        | $ | 530.7    |        | $ | 3,299.7          |
|                                                                                                                                                                                                                                                                                                                                                                                                                              |        |   |           |        |   |          |        |   |          |        |   |          |        |   |          |        |   |          |        |   |                  |

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|       | (1)   | Our quarterly payments to Continental for principal and interest on our note payable were $27.9million.  The expected effect of our note payable on our cash flows is calculated based on the three-month London interbankoffered rate (“LIBOR”) on December 31, 2005 plus 1.25% per annum and based on our current principal balance.  Thisobligation includes a principal payment of $17.5 million and estimated interest payment of $0.3 million, which we expect to pay inMarch 2006.                                                                                                                                                                                                                                                                                                                                                                                            |
|--------------------------------|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                | (2)   | The expected impact of our 4.25% senior convertible notes due 2023 on our future cash flows assumesthe notes will be redeemed on August 1, 2008, the earliest date the holders of the notes may require us to repurchase thenotes.  If the notes are held until August 1, 2023, the maturity date, our obligations outlined above would increase by $87.5million as a result of additional interest expense related to these notes.  See Item 8.  “Financial Statements andSupplementary Data – Note to Consolidated Financial Statements – Note 8” for a detailed description of thesenotes.                                                                                                                                                                                                                                                                       |
|                                | (3)   | Other long-term debt represents our obligation for the advances received under our loan agreementwith EDC.  See detailed discussion of our financing arrangement with EDC in Item 8. ”Financial Statement andSupplementary Data – Notes to Consolidated Financial Statements – Note 6.”  The expected effect of ourfinancing arrangement with EDC on our future cash flows is calculated based on the six-month LIBOR on December 31, 2005 plus 1.75%per annum and includes principal payments of $15.3 million and estimated interest payments of $3.6 million.                                                                                                                                                                                                                                                                                                    |
|                                | (4)   | Capital lease obligation represents the minimum lease payments, including interest expense, for someof our ground service equipment that are under a capital lease agreement.  See Item 8 “Financial Statements andSupplementary Data – Notes to the Consolidated Financial Statements – Note 5”.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                | (5)   | Aircraft operating lease obligations are the estimated lease payments for all of our aircraft underlong-term operating leases and subleases from Continental at December 31, 2005.  These agreements with Continental havesubstantially the same terms as the lease agreements between Continental and the third-party lessors, and expire between 2013 and2022.  See Item 8. “Financial Statements and Supplementary Date – Notes to the Consolidated Financial Statements– Note 5.”  The aircraft lease payments in the table above assume we will retain the 69 aircraft Continentalintends to withdraw from the capacity purchase agreement beginning in December 2006.  The capacity purchase agreement containsa provision for the interest rate implicit in calculating the scheduled lease payments for these aircraft to increase by 200 basispoints. |
|       | (6)   | Other operating lease obligations represent the estimated lease payments for our ground serviceequipment, spare engines and substantially all of our ground facilities, including facilities at public airports, from Continentalor the municipalities or agencies owning and controlling such airports that are under operating leases.  Other operating leaseobligations also include the lease payments related to one of our flight simulators and a flight training device.                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                | (7)   | Unconditional purchase obligations are related to our firm commitments to acquire eight Embraerregional jets.  Estimated leasing costs are calculated based on the terms of the agreements currently in place.  Theactual effects these unconditional purchase obligations may have on our future cash flows may differ materially from our estimatesabove due to the actual leasing or financing terms for these purchases.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                | (8)   | Obligations under the capacity purchase and other agreements with Continental represent fixedcharges for ground handling costs at Continental stations and charges for administrative services provided by Continental, such astechnology, transaction processing and treasury.  The amounts disclosed above are based on our best estimates as of December31, 2005 under the terms of our contracts currently in place.                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                | (9)   | Other contractual obligations include our power-by-the-hour agreement with Rolls Royce.  Weexpect to fund these commitments with cash generated from operations.  The estimated amount of future commitments is based onassumptions related to anticipated future levels of operations and forecasted payment rates.  The level of operations inherentin the estimated amounts detailed above is based on Continental’s most recent operating plan for Airlines, which can bealtered at Continental’s sole discretion and assumes Airlines will continue to fly the 69 aircraft Continental expects toremove from the capacity purchase agreement either for another operator or on our own.  Contractual rate increases at actualtime of occurrence may be different than the forecasted rate inherent in the amounts detailed above.                                |

The actual effect the listed obligations above may have on our future cash flow may differmaterially from our estimates.

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***            Other ContingentLiabilities or Commitments***

            Pursuant to the capacity purchaseagreement, we indemnify Continental for certain of our actions and it indemnifies us for some of its actions.  During 2004, weincurred $4.0 million in other operating expenses relating to a claim by Continental for costs incurred during the post-retirementstorage of certain turboprop aircraft engines. 

            We are a party to many contractsin which it is common for us to agree to indemnify third parties for tort liabilities that arise out of or relate to the subjectmater of the contract.  In some cases, this indemnity extends to related liabilities arising from the negligence of theindemnified parties, but usually excludes any liabilities caused by gross negligence or willful misconduct.  We cannotestimate the potential amount of future payments under these indemnities until events arise that would trigger a liability underthe indemnities.  However, we expect that we would be covered by insurance for any such liabilities, subject todeductibles.

            We are a defendant in variouslawsuits and proceedings arising in the ordinary course of our business.  While the outcome of these lawsuits and proceedingscannot be predicted with certainty, we do not believe that the ultimate disposition of these proceedings will have a materialadverse effect on our financial position, results of operations or cash flows.

**Item 7A.  Quantitative and Qualitative Disclosure About MarketRisk**

            We have been and are subject tomarket risks, including commodity price risk (such as, to a limited extent, aircraft fuel prices) and interest raterisk.

**Aircraft Fuel**

            Effective January 1, 2001, weentered into our capacity purchase agreement with Continental, which is scheduled to expire on December 31, 2010 (subject toextensions by Continental through 2030 and its right to terminate the agreement without cause upon 12 months’ notice or atany time for cause), and a related fuel purchase agreement with Continental, which terminates when the capacity purchase agreementterminates.  Under these agreements, Continental provides all of Airlines’ aircraft fuel needs for the aircraft coveredby the capacity purchase agreement, and Airlines incur an expense equal to the lower of the actual cost of the fuel or anagreed-upon cap.  Airlines’ average actual fuel costs, including tax, and the respective agreed-upon fuel cost and fueltax caps are shown below:

| **Year** |                          | **Average Actual Fuel Price (Cents/Gallon)** |                          | **Combined Agreed-Upon Cap (Cents/Gallon)** |
|----------|--------------------------|----------------------------------------------|--------------------------|---------------------------------------------|
| ****     |                          | ****                                         |                          | ****                                        |
| 2005     |      | 71.20                                        |      | 71.20                                       |
| 2004     |                          | 71.20                                        |                          | 71.20                                       |
| 2003     |                          | 71.04                                        |                          | 71.20                                       |

            If the fuel agreement withContinental were not in place, Airlines’ fuel cost, including related taxes, would have been $1.80, $1.23 and $0.93 pergallon for the years ending December 31, 2005, 2004 and 2003, respectively.  As Airlines’ current fuel price is at itscombined agreed-upon cap under the fuel purchase agreement, we are not subject to any fuel price risk for flying under the capacitypurchase agreement.

            Under the capacity purchaseagreement, Airlines recovers its fuel expense from Continental with a 10% margin.

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**Interest Rates**

            As of December 31, 2005, we hadfirm commitments to acquire eight Embraer regional jets, which we expect to sublease from Continental (three of which have beendelivered as of February 27, 2006).  Changes in interest rates may impact the actual cost to us for the related leasingtransactions in the future.  However, under our capacity purchase agreement, Airlines’ block hour rates will be adjustedhigher or lower to reflect any changes in its aircraft rental rates.  We also have potential interest rate exposure withrespect to our loan agreement with EDC, which bears interest at the six-month LIBOR plus 1.75% per annum.  We no longer haveany interest rate exposure related to our note payable to Continental as we expect to pay off this obligation on March 31, 2006 andthe interest rate applicable was set in December 2005.  The impact of market risk is estimated using a hypothetical increasein interest rates by 100 basis points for our variable rate long-term debts.  Based on this hypothetical assumption, we wouldhave incurred an additional $1.0 million and $2.0 million in interest expense for the years ended December 31, 2005 and 2004,respectively.  However, we believe that interest rate increase on our variable rate long-term debt would be offset byincreases in interest income.  We do not hold long-term interest-sensitive assets and therefore the value of our assets is notsubject to interest rate fluctuations.  We do not purchase or hold any derivative financial instruments to protect against theeffects of changes in interest rates.

            As of December 31, 2005 and 2004,we estimated the fair value of our $137.2 million (carrying value) convertible fixed-rate debt to be $112.8 million and $139.1million based upon quoted market prices.  Changes in the fair market value of our fixed-rate debt could be affected by avariety of factors including, but not limited to, general investor behavior, industry specific risks and interest raterisks.

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**Item 8.  Financial Statements and Supplementary Data**

**INDEX TO CONSOLIDATED FINANCIAL STATEMENTS**

|                                                                                                                                             |     | **Page** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------|----------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                    |          |
| Report of Management                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                    | 50       |
| Report of Independent Registered Public Accounting Firm                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                    | 51       |
| Report of Independent Registered Public Accounting Firm on Internal Control over     Financial Reporting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                    | 52       |
| Consolidated Statements of Operations for each of the Three Years Ended     December 31, 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                    | 53       |
| Consolidated Balance Sheets as of December 31, 2005 and 2004                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                    | 54-55    |
| Consolidated Statements of Cash Flows for each of the Three Years Ended     December 31, 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                    | 56       |
| Consolidated Statements of Stockholders' Equity (Deficit) for each of the Three      Years Ended December 31, 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                    | 57       |
| Notes to Consolidated Financial Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                    | 58       |

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**REPORT OF MANAGEMENT**

The Board of Directors and Stockholders ofExpressJet Holdings, Inc.

****

            Management is responsible for thepreparation and fair presentation of the financial statements included in this report.  The financial statements have beenprepared in conformity with U.S. generally accepted accounting principles and reflect management’s judgments and estimatesconcerning effects of events and transactions that are accounted for and disclosed.

            Management is also responsiblefor establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a -15(f) and 15d - 15(f)under the Securities Exchange Act of 1934.  The internal control over financial reporting of ExpressJet Holdings, Inc. (the“Company”) is designed to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that:

|    | (i)     | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of assets of the Company;                                                                                                                                                                                |
|--------------|-------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|              | (ii)    | provide reasonable assurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of theCompany are being made only in accordance with authorizations of management and directors of the Company; and |
|              | (iii)   | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,use or disposition of the Company’s assets that could have a material effect on the financial statements.                                                                                                                              |

            Management recognizes that thereare inherent limitations in the effectiveness of any internal control over financial reporting, including the possibility of humanerror and the circumvention or overriding of internal control.  Accordingly, even effective internal control over financialreporting can provide only reasonable assurance with respect to financial statement preparations and may not prevent or detectmisstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controlsmay become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures maydeteriorate.

            Under the supervision and withthe participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluationof the effectiveness of our internal control over financial reporting as of December 31, 2005 based on the framework in InternalControl—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based onthat evaluation, our management concluded that our internal control over financial reporting was effective as of December 31,2005.

            Management’s assessment ofthe effectiveness of our internal control over financial reporting as of December 31, 2005 has been audited by Ernst & Young,LLP, an independent registered public accounting firm, as stated in their report which is included elsewhere herein.

| /s/JAMES B.REAM                               James B. Ream President and Chief Executive Officer |               | /s/FREDERICK S.CROMER                  Frederick S. Cromer Vice President and Chief Financial Officer                                                                                                                                                                                                                                                             |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| /s/PHUNGNGO-BURNS                        Phung Ngo-Burns Staff Vice President and Controller                                         |                                                                                |                                                                           |

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM**

The Board of Directors and Stockholders ofExpressJet Holdings, Inc.

            We have audited the accompanyingconsolidated balance sheets of ExpressJet Holdings, Inc. (the “Company”) as of December 31, 2005 and 2004, and therelated consolidated statements of operations, stockholders’ equity (deficit) and cash flows for each of the three years inthe period ended December 31, 2005. These financial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based on our audits.

            We conducted our audits inaccordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.An audit includes assessing the accounting principles used and significant estimates made by management, as well as evaluating theoverall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

            In our opinion, the consolidatedfinancial statements referred to above, present fairly, in all material respects, the consolidated financial position of theCompany as of December 31, 2005 and 2004, and the consolidated results of its operations and its cash flows for each of the threeyears in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.

            We have also audited, inaccordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of theCompany’s internal control over financial reporting as of December 31, 2005, based on criteria established in InternalControl—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our reportdated February 24, 2006 expressed an unqualified opinion thereon.

|                                  |          | ERNST & YOUNG LLP |
|----------------------------------|--------------------------------------------------|-----------------------|
| Houston, Texas February 24, 2006 |                                                  |                       |

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMON INTERNALCONTROL OVER FINANCIAL REPORTING**

The Board of Directors and Stockholders ofExpressJet Holdings, Inc.

            We have auditedmanagement’s assessment, included in the accompanying Report of Management, that ExpressJet Holdings, Inc. maintainedeffective internal control over financial reporting as of December 31, 2005, based on criteria established in InternalControl—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSOcriteria). ExpressJet Holdings, Inc.’s management is responsible for maintaining effective internal control over financialreporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is toexpress an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal controlover financial reporting based on our audit.

            We conducted our audit inaccordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting wasmaintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting,evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, andperforming such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonablebasis for our opinion.

            A company’s internalcontrol over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accountingprinciples. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain tothe maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of theassets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the companyare being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonableassurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assetsthat could have a material effect on the financial statements.

            Because of its inherentlimitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes inconditions, or that the degree of compliance with the policies or procedures may deteriorate.

            In our opinion,management’s assessment that ExpressJet Holdings, Inc. maintained effective internal control over financial reporting as ofDecember 31, 2005, is fairly stated, in all material respects, based on the COSO criteria.  Also, in our opinion, ExpressJetHoldings, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005,based on the COSO criteria.

            We also have audited, inaccordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets ofExpressJet Holdings, Inc. as of December 31, 2005 and 2004, and the related consolidated statements of operations,stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2005 of ExpressJetHoldings, Inc. and our report dated February 24, 2006 expressed an unqualified opinion thereon.

|                                  |          | ERNST & YOUNG LLP |
|----------------------------------|--------------------------------------------------|-----------------------|
| Houston, Texas February 24, 2006 |                                                  |                       |

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**EXPRESSJET HOLDINGS, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share data)**

| **                                                                                            ** |  |   | **Year Ended December 31,** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|---|-----------------------------|---|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |   | ****                        |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |   | **2005**                    |   |  |  | **2004** |  |  | **2003** |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |   | ****                        |   |  |  | **** |  |  | **** |  |
| Operating Revenue                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | $ | 1,562,818                   |   |  | $ | 1,507,524 |  | $ | 1,311,443 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |   |                             |   |  |  |  |  |  |  |  |
| Operating Expenses:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |   |                             |   |  |  |  |  |  |  |  |
|      Wages, salaries and related costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |   | 349,390                     |   |  |  | 319,159 |  |  | 283,290 |  |
|      Aircraft rentals                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |   | 309,018                     |   |  |  | 281,455 |  |  | 249,094 |  |
|      Aircraft fuel and related taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |   | 210,412                     |   |  |  | 187,088 |  |  | 153,271 |  |
|      Maintenance, materials and repairs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |   | 181,347                     |   |  |  | 154,027 |  |  | 130,079 |  |
|      Ground handling                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |   | 95,423                      |   |  |  | 105,742 |  |  | 89,566 |  |
|      Other rentals and landing fees                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |   | 104,043                     |   |  |  | 87,602 |  |  | 95,032 |  |
|      Outside services                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |   | 28,663                      |   |  |  | 29,299 |  |  | 28,885 |  |
|      Depreciation and amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |   | 26,992                      |   |  |  | 23,537 |  |  | 20,421 |  |
|      Security fee reimbursement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |   | —                     |   |  |  | — |  |  | (3,034 | ) |
|      Other operating expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |   | 100,987                     |   |  |  | 114,188 |  |  | 82,862 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |   |                             |   |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |   | 1,406,275                   |   |  |  | 1,302,097 |  |  | 1,129,466 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |   |                             |   |  |  |  |  |  |  |  |
| Operating Income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |   | 156,543                     |   |  |  | 205,427 |  |  | 181,977 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |   |                             |   |  |  |  |  |  |  |  |
| Nonoperating Income (Expense):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |   |                             |   |  |  |  |  |  |  |  |
|      Interest expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |   | (10,745                     | ) |  |  | (11,841 | ) |  | (9,962 | ) |
|      Interest income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |   | 8,295                       |   |  |  | 3,673 |  |  | 2,118 |  |
|      Capitalized interest                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |   | 506                         |   |  |  | 581 |  |  | 1,032 |  |
|      Other, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |   | (365                        | ) |  |  | 164 |  |  | 38 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |   |                             |   |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |   | (2,309                      | ) |  |  | (7,423 | ) |  | (6,774 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |   |                             |   |  |  |  |  |  |  |  |
| Income before Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |   | 154,234                     |   |  |  | 198,004 |  |  | 175,203 |  |
| Income Tax Expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |   | 56,241                      |   |  |  | 75,233 |  |  | 66,670 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |   |                             |   |  |  |  |  |  |  |  |
| Income before Dividends                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |   | 97,993                      |   |  |  | 122,771 |  |  | 108,533 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |   |                             |   |  |  |  |  |  |  |  |
| Dividends on Mandatorily Redeemable Preferred Stock of   Subsidiary                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |   | —                     |   |  |  | — |  |  | (352 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |   |                             |   |  |  |  |  |  |  |  |
| Net Income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | $ | 97,993                      |   |  | $ | 122,771 |  | $ | 108,181 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |   |                             |   |  |  |  |  |  |  |  |
| Basic Earnings per Common Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  | $ | 1.81                        |   |  | $ | 2.26 |  | $ | 1.80 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |   |                             |   |  |  |  |  |  |  |  |
| Diluted Earnings per Common Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | $ | 1.65                        |   |  | $ | 2.04 |  | $ | 1.74 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |   |                             |   |  |  |  |  |  |  |  |
| Shares Used in Computing Basic Earnings per Common   Share:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |   |                             |   |  |  |  |  |  |  |  |
|     Basic                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |   | 54,117                      |   |  |  | 54,220 |  |  | 60,026 |  |
|     Diluted                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |   | 61,722                      |   |  |  | 61,779 |  |  | 63,062 |  |

The accompanying Notes to Consolidated Financial Statements are an integral part ofthese statements.

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Table of Contents

****

**EXPRESSJET HOLDINGS, INC.CONSOLIDATED BALANCE SHEETS(In thousands)**

| **ASSETS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |   | **December 31,** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|---|------------------|---|
| **                                                                                                       ** |  |   | **2005**         |   |  | **2004** |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |   | ****             |   |  | **** |  |
| Current Assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |   |                  |   |  |  |  |
|      Cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | $ | 227,285          |   | $ | 190,189 |  |
|      Restricted cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |   | 9,218            |   |  | 6,312 |  |
|      Short-term investments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |   | —          |   |  | 18,650 |  |
|      Accounts receivable, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |   | 3,916            |   |  | 5,360 |  |
|      Amounts due from Continental Airlines, Inc., net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |   | 6,534            |   |  | — |  |
|      Spare parts and supplies, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |   | 26,555           |   |  | 27,061 |  |
|      Prepayments and other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |   | 6,163            |   |  | 6,080 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |   |                  |   |  |  |  |
|         Total Current Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |   | 279,671          |   |  | 253,652 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |   |                  |   |  |  |  |
| Property and Equipment:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |   |                  |   |  |  |  |
|      Owned property and equipment:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |   |                  |   |  |  |  |
|         Flight equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |   | 207,010          |   |  | 218,916 |  |
|         Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |   | 124,156          |   |  | 116,523 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |   |                  |   |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |   | 331,166          |   |  | 335,439 |  |
|         Less:  Accumulated depreciation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |   | (92,095          | ) |  | (78,792 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |   |                  |   |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |   | 239,071          |   |  | 256,647 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |   |                  |   |  |  |  |
|      Capital Leases:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |   |             |   |  |  |  |
|         Flight equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |   | —          |   |  | 4,258 |  |
|         Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |   | 4,310            |   |  | 4,315 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |   |                  |   |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |   | 4,310            |   |  | 8,573 |  |
|         Less:  Accumulated amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |   | (2,930           | ) |  | (3,395 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |   |                  |   |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |   | 1,380            |   |  | 5,178 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |   |                  |   |  |  |  |
|         Total Property and Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |   | 240,451          |   |  | 261,825 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |   |                  |   |  |  |  |
| Investments in Other Entities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |   | 17,255           |   |  | — |  |
| Reorganization Value in Excess of Amounts Allocable to   Identifiable Assets, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |   | 12,789           |   |  | 12,789 |  |
| Airport Operating Rights, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |   | 3,942            |   |  | 4,192 |  |
| Note Receivable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |   | —          |   |  | 5,000 |  |
| Debt Issuance Cost, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |   | 3,696            |   |  | 3,894 |  |
| Other Assets, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |   | 2,466            |   |  | 1,892 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |   |                  |   |  |  |  |
|         Total Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | $ | 560,270          |   | $ | 543,244 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |   |                  |   |  |  |  |

The accompanying Notes to Consolidated Financial Statements are an integral part ofthese statements.

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Table of Contents

**EXPRESSJET HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In thousands, except for share data)**

| **LIABILITIES AND**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |   | **December 31,** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|---|------------------|---|
| **STOCKHOLDERS' EQUITY**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |   | **2005**         |   |  |  | **2004** |  |
| **                                                                                                                        ** |  |   | ****             |   |  |  | **** |  |
| Current Liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |   |                  |   |   |  |  |  |
|      Current maturities of long-term debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | $ | 865              |   |  | $ | 865 |  |
|      Current maturities of note payable to Continental Airlines,Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |   | 17,545           |   |  |  | 81,415 |  |
|      Current maturities of capital lease obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |   | 770              |   |  |  | 843 |  |
|      Accounts payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |   | 956              |   |  |  | 635 |  |
|      Accrued payroll and related costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |   | 50,157           |   |  |  | 46,524 |  |
|      Amounts due to Continental Airlines, Inc., net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |   | —          |   |  |  | 11,239 |  |
|      Deferred income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |   | 11,178           |   |  |  | 13,473 |  |
|      Accrued other liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |   | 68,679           |   |  |  | 51,844 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |   |                  |   |  |  |  |  |
|         Total Current Liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |   | 150,150          |   |  |  | 206,838 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |   |                  |   |  |  |  |  |
| Long-term Debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |   | 14,435           |   |  |  | 20,299 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |   |                  |   |  |  |  |  |
| Note Payable to Continental Airlines, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |   | —          |   |  |  | 17,389 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |   |                  |   |  |  |  |  |
| 4.25% Senior Convertible Notes due 2023                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |   | 137,200          |   |  |  | 137,200 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |   |                  |   |  |  |  |  |
| Capital Lease Obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |   | 1,035            |   |  |  | 1,805 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |   |                  |   |  |  |  |  |
| Deferred Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |   | 37,461           |   |  |  | 33,148 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |   |                  |   |  |  |  |  |
| Other Long-term Liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |   | 11,479           |   |  |  | 12,521 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |   |                  |   |  |  |  |  |
| Stockholders’ Equity:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |   |                  |   |  |  |  |  |
|      Preferred stock - $.01 par, 10,000,000 shares authorized, no         shares and one share issued and outstanding, respectively                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |   | —          |   |  |  | — |  |
|      Common stock - $.01 par, 200,000,000 shares authorized, and         54,653,942 and 54,375,345 shares issued, respectively                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |   | 547              |   |  |  | 544 |  |
|      Additional paid-in capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |   | 165,074          |   |  |  | 162,418 |  |
|      Accumulated earnings (deficit)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |   | 50,082           |   |  |  | (47,900 | ) |
|      Unearned compensation on restricted stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |   | (1,518           | ) |  |  | (996 | ) |
|      Common stock held in treasury, at cost — 594,747 and 1,750          shares, respectively                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |   | (5,675           | ) |  |  | (22 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |   |                  |   |  |  |  |  |
|         Total Stockholders’ Equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |   | 208,510          |   |  |  | 114,044 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |   |                  |   |  |  |  |  |
|         Total Liabilities and Stockholders’Equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  | $ | 560,270          |   |  | $ | 543,244 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |   |                  |   |  |  |  |  |

The accompanying Notes to Consolidated Financial Statements are an integral part ofthese statements.

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Table of Contents

**EXPRESSJET HOLDINGS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)**

| **                                                                                                                    ** |              |   | **Year Ended December 31,** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|---|-----------------------------|---|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |              |   | ****                        |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |              |   | **2005**                    |   |  |  | **2004** |  |  |  | **2003** |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |              |   | ****                        |   |  |  | **** |  |  |  | **** |  |
| Cash Flows from Operating Activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |              |   |                             |   |  |  |  |  |  |  |  |  |
|   Income before dividends                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |    | $ | 97,993                      |   |    | $ | 122,771 |  |    | $ | 108,533 |  |
|   Adjustments to reconcile net income to net cash provided by     operating activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |              |   |                             |   |  |  |  |  |  |  |  |  |
|       Deferred income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |              |   | 2,018                       |   |  |  | 14,411 |  |  |  | 43,344 |  |
|       Depreciation and amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |              |   | 26,992                      |   |  |  | 23,537 |  |  |  | 20,421 |  |
|       Equity loss from investments in other entities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |              |   | 606                         |   |  |  | — |  |  |  | — |  |
|       Other, Net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |              |   | 3,240                       |   |  |  | 8,067 |  |  |  | 12,068 |  |
|   Changes in operating assets and liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |              |   |                             |   |  |  |  |  |  |  |  |  |
|       Increase in restricted cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |              |   | (2,906                      | ) |  |  | (3,112 | ) |  |  | (3,200 | ) |
|       (Increase) decrease in account receivable, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |              |   | 1,732                       |   |  |  | (1,001 | ) |  |  | (2,984 | ) |
|       (Increase) decrease in amounts due Continental Airlines, Inc.,net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |              |   | (16,071                     | ) |  |  | 2,322 |  |  |  | 23,007 |  |
|       Increase in spare parts and supplies, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |              |   | (944                        | ) |  |  | (4,672 | ) |  |  | (4,092 | ) |
|       (Increase) decrease in prepayments and other assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |              |   | (696                        | ) |  |  | 6,482 |  |  |  | (7,799 | ) |
|       Increase (decrease) in accounts payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |              |   | 321                         |   |  |  | (4,044 | ) |  |  | (3,475 | ) |
|       Increase (decrease) in other liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |              |   | 18,305                      |   |  |  | (11,156 | ) |  |  | 44,886 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |              |   |                             |   |  |  |  |  |  |  |  |  |
|       Net cash provided by operating activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |              |   | 130,590                     |   |  |  | 153,605 |  |  |  | 230,709 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |              |   |                             |   |  |  |  |  |  |  |  |  |
| Cash Flows from Investing Activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |              |   |                             |   |  |  |  |  |  |  |  |  |
|   Capital expenditures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |              |   | (21,147                     | ) |  |  | (37,536 | ) |  |  | (49,122 | ) |
|   Purchase of flight equipment from Continental Airlines, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |              |   | —                     |   |  |  | (1,368 | ) |  |  | — |  |
|   Proceeds from the sale of property and equipment to     Continental Airlines, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |              |   | 901                         |   |  |  | — |  |  |  | 1,653 |  |
|   Proceeds from disposition of equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |              |   | 1,826                       |   |  |  | 383 |  |  |  | 131 |  |
|   Sale (purchase) of short-term investments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |              |   | 18,650                      |   |  |  | (5,000 | ) |  |  | (13,650 | ) |
|   Investments in other entities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |              |   | (20,984                     | ) |  |  | — |  |  |  | — |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |              |   |                             |   |  |  |  |  |  |  |  |  |
|   Net cash used in investing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |              |   | (20,754                     | ) |  |  | (43,521 | ) |  |  | (60,988 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |              |   |                             |   |  |  |  |  |  |  |  |  |
| Cash Flows from Financing Activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |              |   |                             |   |  |  |  |  |  |  |  |  |
|   Proceeds from debt financing                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |              |   | —                     |   |  |  | — |  |  |  | 17,297 |  |
|   Gross proceeds from issuance of convertible debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |              |   | —                     |   |  |  | — |  |  |  | 137,200 |  |
|   Repurchase of common stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |              |   | (5,643                      | ) |  |  | — |  |  |  | (133,770 | ) |
|   Payments on note payable to Continental Airlines, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |              |   | (81,259                     | ) |  |  | (94,368 | ) |  |  | (132,340 | ) |
|   Payments on long-term debt and capital lease obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |              |   | (6,708                      | ) |  |  | (2,611 | ) |  |  | (2,442 | ) |
|   Redemption of note related to Series A Preferred Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |              |   | 5,000                       |   |  |  | — |  |  |  | — |  |
|   Proceeds from issuance of common stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |              |   | 602                         |   |  |  | 842 |  |  |  | (2 | ) |
|   Dividends paid on Series A Preferred Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |              |   | —                     |   |  |  | — |  |  |  | (352 | ) |
|   Proceeds from sale-leaseback transactions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |              |   | 15,268                      |   |  |  | — |  |  |  | — |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |              |   |                             |   |  |  |  |  |  |  |  |  |
|     Net cash used in financing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |              |   | (72,740                     | ) |  |  | (96,137 | ) |  |  | (114,409 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |              |   |                             |   |  |  |  |  |  |  |  |  |
|   Net Increase in Cash and Cash Equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |              |   | 37,096                      |   |  |  | 13,947 |  |  |  | 55,312 |  |
| Cash and Cash Equivalents - Beginning of Period                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |              |   | 190,189                     |   |  |  | 176,242 |  |  |  | 120,930 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |              |   |                             |   |  |  |  |  |  |  |  |  |
| Cash and Cash Equivalents - End of Period                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |              | $ | 227,285                     |   |  | $ | 190,189 |  |  | $ | 176,242 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |              |   |                             |   |  |  |  |  |  |  |  |  |
| Supplemental Cash Flow Information:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |              |   |                             |   |  |  |  |  |  |  |  |  |
|   Interest paid, net of capitalized interest                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |              | $ | 9,900                       |   |  | $ | 11,165 |  |  | $ | 6,509 |  |
|   Income taxes paid, net (including amounts from our tax      agreement with Continental Airlines, Inc.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |              | $ | 51,751                      |   |  | $ | 65,353 |  |  | $ | 15,170 |  |

The accompanying Notes to Consolidated Financial Statements are an integral part ofthese statements.

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**Table ofContents**

**EXPRESSJET HOLDINGS, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)(In thousands)**

****

|                                                                                        |        | **Preferred Stock** |   | **Common Stock** |            |         | **Treasury Stock** |   |         |            |  |         |           |   |         |            |   |         |                                |   |
|----------------------------------------------------------------------------------------|--------|---------------------|---|------------------|------------|---------|--------------------|---|---------|------------|--|---------|-----------|---|---------|------------|---|---------|--------------------------------|---|
|                                                                                        |        | **Share**           |   |                  | **Amount** |         | **Share**          |   |         | **Amount** |  |         | **Share** |   |         | **Amount** |   |         | **Additional Paid-in Capital** |   |  | **Unearned Compensation on Restricted Stock** |  |  | **Accumulated Earnings(Deficit)** |  |  | **Total** |  |
|                                                                                        |        | ****                |   | ****             |            | ****    |                    |   | ****    |            |  | ****    |           |   | ****    |            |   | ****    |                                |   | **** |  |  | **** |  |  | **** |  |
|                                                                                        |   |                     |   |                  |       |         |                    |   |         |            |  |         |           |   |         |            |   |         |                                |   |  |  |  |  |  |  |  |  |
| Balance at December 31, 2002                                                           |        | —             | $ | —          |            | 64,000  |                    | $ | 640     |            |  | — |           | $ | — |            | $ | 159,743 |                                | $ | — |  | $ | (145,081 | ) | $ | 15,302 |  |
| Common Stock Retirement                                                                |        | —             |   | —          |            | (9,835  | )                  |   | (98     | )          |  | — |           |   | — |            |   | 98      |                                |   | — |  |  | (133,770 | ) |  | (133,770 | ) |
| Dividends                                                                              |        | —             |   | —          |            | — |                    |   | — |            |  | — |           |   | — |            |   | — |                                |   | — |  |  | (352 | ) |  | (352 | ) |
| Net Income                                                                             |        | —             |   | —          |            | — |                    |   | — |            |  | — |           |   | — |            |   | — |                                |   | — |  |  | 108,533 |  |  | 108,533 |  |
|                                                                                        |        |                     |   |                  |            |         |                    |   |         |            |  |         |           |   |         |            |   |         |                                |   |  |  |  |  |  |  |  |  |
| Balance at December 31, 2003                                                           |        | —             |   | —          |            | 54,165  |                    |   | 542     |            |  | 0       |           |   | — |            |   | 159,841 |                                |   | — |  |  | (170,670 | ) |  | (10,287 | ) |
| Net Income                                                                             |        | —             |   | —          |            | — |                    |   | — |            |  | — |           |   | — |            |   | — |                                |   | — |  |  | 122,771 |  |  | 122,771 |  |
| Issuance of restricted stock   under deferred compensation   plans |        | —             |   | —          |            | 137     |                    |   | 1       |            |  | (3      | )         |   | 35      |            |   | 1,730   |                                |   | (1,763 | ) |  | (1 | ) |  | 2 |  |
| Cancellation of previously   issued equity awards                            |        | —             |   | —          |            | — |                    |   | — |            |  | 5       |           |   | (57     | )          |   | — |                                |   | 57 |  |  | — |  |  | — |  |
| Issuance of common stock   under employee stock   purchase plan    |        | —             |   | —          |            | 73      |                    |   | 1       |            |  | — |           |   | — |            |   | 841     |                                |   | — |  |  | — |  |  | 842 |  |
| Amortization of deferred   compensation                                      |        | —             |   | —          |            | — |                    |   | — |            |  | — |           |   | — |            |   | — |                                |   | 710 |  |  | — |  |  | 710 |  |
| Deferred compensation income   tax effect                                    |        | —             |   | —          |            | — |                    |   | — |            |  | — |           |   | — |            |   | 6       |                                |   | — |  |  | — |  |  | 6 |  |
|                                                                                        |        |                     |   |                  |            |         |                    |   |         |            |  |         |           |   |         |            |   |         |                                |   |  |  |  |  |  |  |  |  |
| Balance at December 31, 2004                                                           |        | —             |   | —          |            | 54,375  |                    |   | 544     |            |  | 2       |           |   | (22     | )          |   | 162,418 |                                |   | (996 | ) |  | (47,900 | ) |  | 114,044 |  |
| Net Income                                                                             |        |                     |   |                  |            |         |                    |   |         |            |  |         |           |   |         |            |   |         |                                |   |  |  |  | 97,993 |  |  | 97,993 |  |
| Issuance of restricted stock   under deferred compensation   plans |        | —             |   | —          |            | 209     |                    |   | 2       |            |  | (8      | )         |   | 99      |            |   | 2,036   |                                |   | (2,126 | ) |  | (11 | ) |  | (0 | ) |
| Cancellation of previously   issued equity awards                            |        | —             |   | —          |            | — |                    |   | — |            |  | 10      |           |   | (109    | )          |   | — |                                |   | 36 |  |  | — |  |  | (73 | ) |
| Issuance of common stock   under employee stock   purchase plan    |        | —             |   | —          |            | 69      |                    |   | 1       |            |  | — |           |   | — |            |   | 601     |                                |   | — |  |  | — |  |  | 602 |  |
| Amortization of deferred compensation                                                  |        | —             |   | —          |            | — |                    |   | — |            |  | — |           |   | — |            |   | — |                                |   | 1,568 |  |  | — |  |  | 1,568 |  |
| Deferred compensation income   tax effect                                    |        | —             |   | —          |            | — |                    |   | — |            |  | — |           |   | — |            |   | 19      |                                |   | — |  |  | — |  |  | 19 |  |
| Stock repurchase                                                                       |        | —             |   | —          |            | — |                    |   | — |            |  | 591     |           |   | (5,643  | )          |   | — |                                |   | — |  |  | — |  |  | (5,643 | ) |
|                                                                                        |        |                     |   |                  |            |         |                    |   |         |            |  |         |           |   |         |            |   |         |                                |   |  |  |  |  |  |  |  |  |
| Balance at December 31, 2005                                                           |        | —             | $ | —          |            | 54,654  |                    | $ | 547     |            |  | 595     |           | $ | (5,675  | )          | $ | 165,074 |                                | $ | (1,518 | ) | $ | 50,082 |  | $ | 208,510 |  |
|                                                                                        |        |                     |   |                  |            |         |                    |   |         |            |  |         |           |   |         |            |   |         |                                |   |  |  |  |  |  |  |  |  |

The accompanying Notes to Consolidated Financial Statements are an integral part ofthese statements.

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****

**EXPRESSJET HOLDINGS, INC**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

            ExpressJet Holdings, Inc.(“Holdings”) has strategic investments in the air transportation sector.  Our principal asset is all of the issuedand outstanding shares of stock of XJT Holdings, Inc., the sole owner of the issued and outstanding shares of common stock ofExpressJet Airlines, Inc. (“Airlines”), which operates as Continental Express (together, “ExpressJet,”“we,” “us” and “our”).  Airlines is one of the largest regional airlines in the world,based on available seat miles and number of regional jets, transporting passengers, cargo and mail.  We also invest in other entities that permit us to leverage the management experience, efficiencies and economies of scalepresent in our subsidiaries. 

            Airlines currently fliesexclusively on behalf of Continental pursuant to a capacity purchase agreement, and we receive substantially all of our revenueunder that agreement.  We provide all of Continental's regional jet service out of New York/Newark, Houston and Cleveland aswell as non-hub service.  We believe Airlines’ operations complement Continental's aircraft.  The capacity purchaseagreement currently covers all our existing fleet and all of the regional jets subject to our firm aircraft orders.  We areeconomically dependent on Continental for our operations and cash flows.  On December 28, 2005, Continental gave us notice ofits intent to withdraw 69 aircraft from the capacity purchase agreement beginning December 2006 and ending in June 2007.  Thecapacity purchase agreement permits us up to nine months from the notice date to decide if we want to retain the aircraft.  Ifwe choose to retain the aircraft, the capacity purchase agreement contains a provision for the interest rate implicit incalculating the scheduled lease payments we make to Continental to increase by 200 basis points.  See detailed discussion ofthe capacity purchase agreement in “—Note 2.”

**Note 1 – Summary of Significant Accounting Policies**

**            *  (a) Principles ofConsolidation* –**

            The accompanying consolidatedfinancial statements have been prepared in accordance with U.S. generally accepted accounting principles and include the accountsof Holdings and its subsidiaries.  All material intercompany transactions have been eliminated in consolidation.

**            *(b) Use of Estimates*–**

            The preparation of financialstatements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions thataffect the amounts reported in the financial statements and accompanying notes.  Actual results could differ from thoseestimates. 

**            *(c) Cash and CashEquivalents* –**

            Cash and cash equivalents consistof cash and short-term, highly liquid investments that are readily convertible into cash and have maturities of three months orless when purchased.  Restricted cash is our collateral for estimated future workers’ compensation claims.

**            *(d) Short-term Investments–***

            Short-term investments havematurities of less than one year and are stated at cost, which approximates market value.

***            (e) Accounts Receivables,net –***

**

            Accounts receivable are stated atthe historical carrying amount net of write-offs and allowance for uncollectible accounts.  Our allowance for uncollectibleaccounts at the end of 2005 and 2004 was $0.1 million.

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**            *(f) Spare Parts andSupplies, net –***

**

*           * Inventories,expendable parts and supplies relating to flight equipment are carried at average acquisition cost and are expensed whenused.  An allowance for obsolescence is provided over the remaining estimated useful life of the related aircraft, plusallowances for spare parts currently identified as excess to reduce the carrying costs to the lower of amortized cost or netrealizable value.  These allowances are based on our estimates, which are subject to change.  Our allowance forobsolescence at December 31, 2005 and 2004 was $9.1 million and $8.5 million, respectively.

**            *(g) Property and Equipment–***

**

*           * Property andequipment are recorded at cost and are depreciated to estimated residual values over their estimated useful lives using thestraight-line method.  Property and equipment acquired under capital leases are recorded at the lower of the present value ofthe future minimum lease payments or the fair value of the asset at the inception of the lease.  The estimated useful livesand residual values for our property and equipment are as follows:

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                          | **Estimated Useful Life** |                          | **Estimated Residual Value** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------|---------------------------|--------------------------|------------------------------|
| **                                                                           ** |      |                           |      |                              |
| Flight Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                          | 5 to 25 years             |                          | 0% to 15%                    |
| Ground property and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                          |                          | 2 to 30 years             |                          | 0%                           |
| Capital lease - flight and ground                                                                                                                                                                                                                                                                                                                                                                                                                                      |                          | 3 to 8 years              |                          | 0%                           |

            Amortization related to assetsunder capital leases and operating leasehold improvements is included in our depreciation and amortization expense on the incomestatement.  We amortize assets under capital leases and operating leasehold improvements over the shorter of the asset life orlease term.

            In accordance with Statement ofFinancial Accounting Standards No. 144 – “Accounting for the Impairment or Disposal of Long-Lived Assets,” werecord impairment losses on long–lived assets used in operations when events and circumstances indicate that the assets mightbe impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of thoseassets.  The net carrying value of assets not recoverable is reduced to fair value.

            As shown in the following table,our aircraft fleet consisted of 266 regional jets at December 31, 2005.  We currently lease or sublease all of our existingregional jet aircraft from Continental.  See “—Note 5.”  Our aircraft purchase orders and options as ofDecember 31, 2005 are also shown below.  See Item 7.  “Management’s Discussion and Analysis of FinancialCondition and Results of Operation – Liquidity and Capital Commitments – Purchase Commitments.”

| **Type**                                                                                                                                                                                |        | **Total Leased Aircraft** |              | **Firm Orders** |              | **Options** |              | **Seats in Standard Configuration** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------|--------------|-----------------|--------------|-------------|--------------|-------------------------------------|
|                                                                                                                                                                                         |   |                           |    |                 |    |             |    |                                     |
| ERJ-145XR                              |        | 96                        |              | 8               |              | 100         |              | 50                                  |
| ERJ-145                                                                                                                                                                                 |        | 140                       |              | —         |              | —     |              | 50                                  |
| ERJ-135                                                                                                                                                                                 |        | 30                        |              | —         |              | —     |              | 37                                  |
|                                                                                                                                                                                         |        |                           |              |                 |              |             |              |                                     |
| Total                                                                                                                                                                                   |        | 266                       |              | 8               |              | 100         |              |                                     |
|                                                                                                                                                                                         |        |                           |              |                 |              |             |              |                                     |

Pursuant to our agreement with Embraer, the 100 ERJ-145XR option aircraft can be converted to someother types of aircraft within the ERJ-145 Family at our discretion.

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**            *(h) Intangible Assets–***

**

*           * ReorganizationValue in Excess of Amounts Allocable to Identifiable Assets represents an amount that arose from Continental’s emergence frombankruptcy reorganization in 1993.  Effective January 1, 2002, we adopted and began to account for this asset in accordancewith Statement of Financial Accounting Standard No. 142–“Goodwill and Other Intangible Assets” (“SFAS142”).  SFAS 142 requires testing of goodwill and intangible assets with indefinite lives for impairment rather thanamortizing them.

            We evaluate the carrying value ofthis asset each reporting period to determine whether events and circumstances continue to support an indefinite useful life. We perform an impairment review on an annual basis, or more frequently if events or changes in circumstances indicate that theasset may be impaired.  Our review includes the acquisition, market-multiple and income approaches to valuation.  If thisreview indicates that our Reorganization Value in Excess of Amounts Allocable to Identifiable Assets will not be recoverable, thecarrying value is reduced to the fair value.  We performed this review during 2005, 2004 and 2003 and determined that we didnot have any impairment of our Reorganization Value in Excess of Amounts Allocable to Identifiable Assets.  Our annualimpairment test is performed as of June 30 of each year.

            Due to Continental’sannouncement on December 28, 2005 that it intended to withdraw 69 aircraft from the capacity purchase agreement beginning inDecember 2006, we determined a trigger event occurred.  In accordance with our policy, we performed an SFAS 142 impairmentanalysis as soon as reasonably possible after the trigger event, using the latest data available.  No impairment wasidentified.

            Airport operating rights, therights to use certain take-off and landing slots and gates, are amortized on a straight-line basis over the life of the relatedairport facility lease, which approximates 20 years, with no residual value.  Debt issuance cost, capitalized costs related toour senior convertible notes, is amortized on a straight-line basis over 20 years, the term of the notes, and with no residualvalue.

**            *(i) Investments in OtherEntities –***

**

            Certain investments inunconsolidated companies that are not variable interest entities are accounted for by the equity method of accounting when we havesignificant influence over the operation of the companies as prescribed by Accounting Principles Board Opinion No.18–“The Equity Method of Accounting for Investments in Common Stock” (“APB 18”).  The followingtable describes our current non-controlling interests that are accounted for under the equity method of accounting:

| **Company**                 |                    | **Percentage of Ownership** |                    |   | **Carrying Amount of Investment at December 31, 2005 (in millions)(4)** |
|-----------------------------|--------------------|-----------------------------|--------------------|---|-------------------------------------------------------------------------|
|                             |     |                             |     |   |                                                                         |
| Wing Holdings, LLC(1)       |                    | 49%                         |                    | $ | 5.8                                                                     |
| American Composites, LLC(2) |                    | 49%                         |                    |   | 0.8                                                                     |
| JetX Aviation Limited(3)    |                    | One share less than 50%     |                    |   | 0.6                                                                     |

           

| (1) |    | We purchased our interest in Wing Holdings in June 2005 for $16.0 million in cash.  Thecarrying amount of our investment exceeded the amount of underlying equity of Wing Holdings by approximately $8.5 million at thetime of our investment.  We evaluated the net book value of Wing Holdings’ fixed assets as of June 30, 2005 andidentified approximately $1.9 million difference between net book value and fair value.  The majority of this difference willbe amortized over ten years, the average life of the assets identified.  As of December 31, 2005, the balance of the fairvalue difference, net of amortization, is approximately $1.4 million.  The remaining $6.6 million of our difference in theunderlying investment is considered goodwill and thus, is not amortized.  |
|-----|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| (2) |    | In July 2005, we purchased our interest in American Composites and certain land and relatedimprovements from a party related to American Composites for approximately $5.8 million in cash.  We recorded $4.9 million ofthe purchase price as building, land and related improvements and the balance was recorded as our non-controllinginvestment.  No difference between the carrying amount of our investment and the underlyingequity of American Composites was identified.                                                                                                               |
|-----|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (3) |    | In March 2005, we purchased our investment in JetX Aviation for approximately $0.9 million. The carrying amount of our investment exceeded the amount of underlying equity of JetX Aviation by approximately $0.5 million atthe date of the investment.  This difference is considered goodwill and thus, is not amortized.                                                                                                                                                                                                                                                                          |
| (4) |    | Although no impairment losses on these investments have been recognized, an impairment loss would berecorded whenever a decline in value of an equity investment below its carrying amount was determined to be other thantemporary.  In judging “other than temporary,” we would consider the length of time and extent to which the fairvalue of the investment has been less than the carrying amount of the equity investment, the near-term and longer-term operatingand financial prospects of the equity company and our longer-term intent of retaining the investment in the entity. |

**            *(j) Deferred Credits–***

            Our spare part and flighttraining credits are primarily derived from our purchase agreement with Embraer.  All spare part credits are used to offsetthe purchase price of initial spare parts provisioning for our newly delivered aircraft.  Similarly, the flight trainingcredits are used to pay for the initial simulator rent costs for our pilots.  These credits are recorded in long-termliabilities, with an offsetting entry to prepayments and other current assets or current accrued liabilities if we used morecredits than the amount we are entitled to at year-end.  The deferred credits are amortized as a reduction to our aircraftrent expense over the life of the associated aircraft lease.  Amortization totaled $0.9 million for each 2005 and 2004. The prepayments and other current assets or current accrued liabilities are reduced as the credits are used or as the remainingfirm order aircraft are delivered.

**            *(k) Operating Revenue–***

**

*           * We recognized ouroperating revenue under the capacity purchase agreement based on negotiated rates for each scheduled block hour Airlines flies forContinental.  The rates were designed to provide Airlines with a target operating margin of 10% before taking into accountvariations in some costs and expenses that are generally controllable by Airlines.  We also record other revenues earned underthe capacity purchase agreement, such as percentage of completed flights, certain on-time departures and baggage handling. See “– Note 2” for details of the block hour rates and the performance incentive payments.  Our operatingrevenue is reconciled and settled with Continental on a monthly basis, except for the quarterly reconciliation of Airlines’costs within the margin band as defined in the capacity purchase agreement.

            Certain amounts billed by us toContinental under the capacity purchase agreement are subject to our interpretation of the capacity purchase agreement. Beginning in 2005, we were required to negotiate the block hour rates with Continental annually.  If the rates were notfinalized, we would be required to estimate these rates and record revenue based on such estimates until final rates are agreed towith Continental.  In addition, even if Continental concurs with the block hour rates, it may dispute amounts billed and payless than the amount invoiced if it interprets the capacity purchase agreement differently than we do.  The rates we use tocalculate our operating revenue are based on our interpretation of the capacity purchase agreement.  If our interpretationmaterially differs from Continental’s, our revenue could be materially understated or overstated. 

            All fully-reconciled costsincurred in connection with the capacity purchase agreement are recorded as expense and revenue on a gross basis except for certaincosts such as fuel costs above our fuel and related tax cap and facility rent at Continental’s hubs.  These costs areabsorbed by Continental under the terms of the capacity purchase agreement and as such we are not the primary obligor for thesecosts and accordingly, these costs are not recorded as either revenue or expense by us.

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            ***(l) Wages, Salaries andRelated Expenses –***

**

*           * As our collectivebargaining agreements become amendable, we accrue for anticipated retroactive pay that we estimate will be due under the newcontract.

**            *(m) Maintenance and RepairCosts–***

*           * Maintenance andrepair costs for owned and leased flight equipment, including the overhaul of aircraft components, are charged to operating expenseas incurred, except for those maintenance costs covered by power-by-the-hour agreements, which are expensed based on contractualterms.  In 2005 and 2004, power-by-the-hour arrangements represented approximately 70% of our maintenance, materials andrepairs costs.

**            *(n) Income Taxes–***

**

*           * Deferred incometaxes, which are provided under the liability method, are determined based on differences between the financial reporting andincome tax basis of assets and liabilities and are measured using enacted tax rates and laws.  A valuation allowance isprovided on deferred tax assets if, based on available evidence, it is more likely than not that future tax benefits will not berealized.

**            *(o) Earnings per Share–***

            We account for earnings per sharein accordance with Statement of Financial Accounting Standard No. 128 — “Earnings perShare.” Basic earnings per common share (“Basic EPS”) excludes dilution and is computed by dividing net incomeavailable to common stockholders by the weighted average number of common shares outstanding during the periods presented. Diluted EPS reflects the potential dilution that could occur if securities or other obligations to issue common stock wereexercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of thecompany.  The following table sets forth the reconciliation of the numerator and denominator of Basic EPS to the numerator anddenominator of Diluted EPS for the years ended December 31, 2005, 2004, and 2003 (in thousands, except per shareamounts):

| **                                                                                                 ** |   | **Year ended December 31,** |              |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---|-----------------------------|--------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                             |              |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | **2005**                    |              |  | **2004** |  |  | **2003** |  |
| **Numerator:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                             |              |  |  |  |  |  |  |
| Net income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | $ | 97,993                      |    | $ | 122,771 |    | $ | 108,181 |  |
| Income impact of assumed conversion of convertible debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | 3,656                       |              |  | 3,506 |  |  | 1,409 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                             |              |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | $ | 101,649                     |              | $ | 126,277 |   |  | 109,590 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                             |         |  |  |  |  |  |  |
| **Denominator:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                             |              |  |  |  |  |  |  |
| Weighted average common shares outstanding                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | 54,117                      |              |  | 54,220 |  |  | 60,026 |  |
| Effect of stock options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | 11                          |              |  | 9 |  |  | 11 |  |
| Effect of restricted stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | 56                          |              |  | 12 |  |  | — |  |
| Assumed conversion of convertible debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | 7,538                       |              |  | 7,538 |  |  | 3,025 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                             |              |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | 61,722                      |              |  | 61,779 |  |  | 63,062 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                             |              |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                             |              |  |  |  |  |  |  |
| Basic earnings per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | $ | 1.81                        |              | $ | 2.26 |  | $ | 1.80 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                             |              |  |  |  |  |  |  |
| Diluted earnings per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | $ | 1.65                        |              | $ | 2.04 |  | $ | 1.74 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                             |              |  |  |  |  |  |  |

            We excluded 287,563 and 123,750shares of restricted stock from the weighted average shares used in computing Basic EPS for the year ended December 31, 2005 and2004, respectively, as these shares were not vested as of these dates.

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            We adopted the Emerging IssuesTask Force Issue No 04.08 – “The Effect of Contingently Convertible Debt on Diluted Earnings per Share”(“EITF 04-08”) on December 15, 2004.  As a result, we included the potential common stock equivalents related toour senior convertible notes in our computation of Diluted EPS and restated all prior periods in which the convertible notes wereoutstanding, as shown in the table above.

            The weighted average commonshares outstanding for the Diluted EPS calculation also includes the incremental effect of shares that would be issued upon theassumed exercise of stock options and vesting of restricted stock.  We excluded the following common stock equivalents fromour Diluted EPS calculations, because their inclusion would have been anti-dilutive:

|           | •  | options to purchase 1.6 million, 1.1 million and 1.0 million shares of our common stock for theyears ended December 31, 2005, 2004 and 2003, respectively.  These options' exercise prices were greater than the averagemarket price of the common shares for the respective periods; and |
|--------------------------------------------------------|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                        | •  | 0.2 million and 0.1 million shares of restricted stock for the year ended December 31, 2005 and2004.                                                                                                                                                                                           |

**            *(p) Stock Plans and Awards–***

            We have two stock-basedcompensation plans: the ExpressJet Holdings, Inc. 2002 Stock Incentive Plan (the “Incentive Plan”) and the ExpressJetHoldings, Inc. 2003 Employee Stock Purchase Plan (the “ESPP”).  We accounted for our stock-based compensationarrangements using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25 — “Accounting for Stock Issued to Employees” (“APB 25”) and related interpretationsthrough December 31, 2005.  In December 2004, the FASB issued Statement of Financial Accounting Standard No. 123 (Revised2004) — “Share-Based Payments” (“SFAS 123R”) which we adopted on January1, 2006 as our method of accounting for our stock-based compensation.  See a detailed description of SFAS 123R and its impacton our financial statement below in “—(s) Recently Issued AccountingStandards.”

            The Incentive Plan permits us togrant stock options and restricted stock to our outside directors and our employees.  Under APB 25, if the exercise price ofour stock options equals the fair market value of the underlying stock on the date of grant, no compensation expense isrecognized.  Since our stock options have all been granted with exercise prices at fair market value, no compensation expensehas been recognized under APB 25.  We recognize compensation expense related to our restricted stock in accordance with theprovisions of APB 25.  The total compensation expense to be incurred for each restricted stock grant equals the product of thenumber of shares issued and the closing price of our common stock on the grant date and is recognized over the vesting period ofeach grant in accordance with the method specified in FASB Interpretation No. 28—“Accountingfor Stock Appreciation Rights and Other Variable Stock Option or Award Plans” (“FIN 28”).  Under APB 25, wedo not recognize compensation expense related to the ESPP.

            On November 4, 2005, our board ofdirectors approved accelerating the vesting of 669,750 unvested options with exercise prices of greater than $11.00 per share andextended the life of 868,500 options that had a five-year term to seven years.  This modification did not impact our resultsof operations for the year ended December 31, 2005 as these options had no intrinsic value at the modification date.  Also,see detailed discussion of this event below in “—Note 11.”

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            The following table illustratesthe effect on net income and earnings per share assuming the compensation cost for our stock option, restricted stock and employeestock purchase plans were determined using the fair value method, prorated over the vesting periods in accordance with FIN 28, atthe grant dates as required under SFAS 123R for the years ended December 31, 2005, 2004 and 2003:

| **(in thousands, except for per share data)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | **2005** |   |        |   | **2004** |   |                  |   | **2003** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---|----------|---|--------|---|----------|---|------------------|---|----------|---|
| **                                                                                                   ** |   | ****     |   |        |   | ****     |   | **  ** |   | ****     |   |
| Net Income as Reported                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | $ | 97,993   |   |        | $ | 122,771  |   |                  | $ | 108,181  |   |
| Add:  Total stock-based compensation expense included     in reported net income, net of taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | 973      |   |        |   | 445      |   |                  |   | —  |   |
| Deduct:  Total stock based employee compensation     expense determined under fair value                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | (4,635   | ) |   |   | (2,555   | ) |                  |   | (2,496   | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |          |   |        |   |          |   |                  |   |          |   |
| Pro forma                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | $ | 94,331   |   |        | $ | 120,661  |   |                  | $ | 105,685  |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |          |   |        |   |          |   |                  |   |          |   |
| Basic Earnings per Share:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |          |   |        |   |          |   |                  |   |          |   |
|   As reported                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | $ | 1.81     |   |        | $ | 2.26     |   |                  | $ | 1.80     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |          |   |        |   |          |   |                  |   |          |   |
|   Pro forma                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | $ | 1.74     |   |        | $ | 2.23     |   |                  | $ | 1.76     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |          |   |        |   |          |   |                  |   |          |   |
| Diluted Earnings per Share:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |          |   |        |   |          |   |                  |   |          |   |
|   As reported                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | $ | 1.65     |   |        | $ | 2.04     |   |                  | $ | 1.74     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |          |   |        |   |          |   |                  |   |          |   |
|   Pro forma                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | $ | 1.59     |   |        | $ | 2.01     |   |                  | $ | 1.70     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |          |   |        |   |          |   |                  |   |          |   |

            The increase in stock basedemployee compensation expense in 2005 was due to accelerating the vesting and modification of the term of options as describedabove.  See “—Note 11” for the assumptions we used to compute the pro formaamounts above.  The pro forma effect on earnings per share is not representative of the pro forma effects in futureyears.

**            *(q) Comprehensive Income–***

            We do not have any adjustments tonet income to arrive at comprehensive income.

**            *(r) Financial Instrumentsand Risk Management –***

            *Financial Instruments––* Our financial instruments consist of cash and cash equivalents, short-term investments, accounts receivable,accounts payable, our long-term secured debt to EDC, note payable to Continental and 4.25% senior convertible notes due 2023. The carrying amount of cash and cash equivalents, short-term investments, accounts receivable and accounts payable approximate fairvalue due to the highly liquid nature of these short-term instruments.  As of December 31, 2005 and 2004, the fair value ofour long-term secured debt to EDC was approximately $15.0 million and $15.8 million, respectively.  As of December 31, 2005,the carrying value of the note payable to Continental approximates fair value as we expect to pay off this debt in March2006.  The fair value of our note payable to Continental as of December 31, 2004 was approximately $97.5 million.  Thefair values of these instruments were estimated based on the discounted future cash flows using our current incremental rate ofborrowing for a similar liability or market prices.  The fair value of our 4.25% senior convertible notes due 2023 wasapproximately $112.8 million and $139.1 million based on the quoted market price as of December 31, 2005 and 2004,respectively.  As of December 31, 2004, we also had one share of non-voting Series A Preferred Stock, par value $.01 per shareoutstanding.  The carrying value of our Series A Preferred Stock at December 31, 2004 approximated fair value.  Weredeemed this instrument in April 2005.  See “—Note 6” below.

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            *Credit Risk Due to CertainConcentrations ––* We provide Continental substantially all of its regional jet capacity at its hub airports as wellas additional non–hub service.  We are economically dependent upon Continental as substantially all of our revenue isreceived from Continental.  See Item 1A. “Risk Factors” for detailed discussions.  If Continental defaults onthe payment obligations it has to us under our capacity purchase or other agreements, then in addition to any other remedies we mayhave, we can offset the amount of the defaulted payments against the amounts we owe to Continental under the note payable toContinental.  In addition, we can reduce any payments we owe to Continental under any agreements in an amount corresponding toits defaulted payments. 

            In addition, approximately 70% ofour employees were covered by collective bargaining agreements at December 31, 2005.  We amended our contracts with ourpilots, dispatchers and mechanics in 2004.  The new contracts will be amendable in December 2008, July 2009 and August 2009,respectively.  Our contract with our flight attendants, which represent approximately 16% of our employees, became amendablein December 2004.  See Item 7.  “Management's Discussion and Analysis of Financial Condition and Results ofOperations” for a discussion on the status of our negotiations with the IAM.

            ***(s) Recently IssuedAccounting Standards* –**

            In December 2004, the FASB issuedSFAS 123R, requiring companies to measure the cost of employee services received in exchange for an award of equity instruments(typically stock options) based on the grant-date fair value of the award.  The fair value is to be estimated using anoption-pricing model.  The resulting cost will be recognized over the period during which an employee is required to provideservice in exchange for the award, usually the vesting period.  Under the original SFAS 123, this accounting treatment wasoptional with pro forma disclosures required.

            We adopted SFAS 123R on January1, 2006, as required by SFAS 123R.  It is effective for all awards granted after that date and for the unvested portion ofawards granted prior to the adoption date.  The expense recognized with respect to unvested awards is based on the grant-datefair value and vesting schedule of those awards used in calculating the pro forma disclosures required under SFAS 123 and presentedin “—(p) Stock Plans and Awards.”  The impact of adopting SFAS 123R on our statement of operations wassimilar to the pro forma impact of SFAS 123 presented in “—(p) Stock Plans and Awards.”  The adoption ofSFAS 123R did not affect our overall financial position or liquidity.

            SFAS 123R also requires thebenefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as anoperating cash flow as required under current literature.  This requirement will reduce net operating cash flows and increasenet financing cash flows in periods after adoption.  We cannot estimate the impact of this change in the future (because theydepend on, among other things, when employee exercise stock options).  We recognized immaterial excess tax deductions in ouroperating cash flows in 2005 and 2004 related to the vesting of our restricted stock. No excess tax deductions in our operatingcash flows were recognized in 2005, 2004 and 2003 related to our options as no options were exercised in these periods.

**            *(t) Reclassifications–***

            Certain reclassifications havebeen made in prior years’ financial statements to conform to the current year presentation.  Additionally, we classifiedour auction rate securities as cash equivalents in 2003.  In 2004, these securities were reclassified to short-terminvestments.  The 2003 balance sheet and cash flow statement were reclassified to conform to current presentation.

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**Note 2 – Capacity Purchase Agreement with Continental**

            ***General.***  Wecurrently derive substantially all of our revenue from our capacity purchase agreement with Continental.  Under thisagreement, Airlines operates flights on behalf of Continental as Continental Express.  Continental controls and is responsiblefor scheduling, pricing and managing seat inventories and is entitled to all revenue associated with the operation of theaircraft.  We also have various other agreements with Continental that govern our relationship.

            Under the capacity purchaseagreement, some marketing-related costs normally associated with operating an airline are borne by Continental.  These costsinclude:

|          | •  | reservations andsales;                                                                                                                         |
|--------------------------------------------------|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                  | •  | commissions;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                                                  | •  | advertising;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                                                  | •  | revenue accounting;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                  | •  | fare and tariff filings; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                                                  | •  | food and beverage service.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

            On December 28, 2005, Continentalgave us notice of its intention to withdraw 69 aircraft from the capacity purchase agreement beginning in December 2006 and endingin June 2007.  The capacity purchase agreement gives us up to nine months from the notice date to decide if we want to retainthe aircraft.  If we choose to retain the aircraft, the capacity purchase agreement contains a provision for the interest rateimplicit in calculating the scheduled lease payments we make to Continental to increase by 200 basis points.

            ***Compensation andOperational Responsibilities.*****  Under the capacity purchase agreement, Airlines is entitled to payment for eachblock hour that Continental schedules it to fly.  Payment is based on a formula designed to provide Airlines with a targetoperating margin of 10% before taking into account variations in certain costs and expenses that are generally within ourcontrol.  In accordance with the capacity purchase agreement, the original cost components used in this formula remained inplace until December 31, 2004, after which new rates are to be established annually with the same methodology.  We haveexposure for most labor costs and some maintenance and general administrative expenses, if the actual costs are higher than thosereflected in our block hour rates.

            Beginning in the fall of 2004, wenegotiate with Continental to adjust the scheduled block hour rates annually as required under the capacity purchaseagreement.  The agreement calls for rates to be set by November 1 of each year.  See detailed discussion of 2006 ratesetting below.

            ***2003-2004.***  Areconciliation payment was made by Continental to Airlines, or by Airlines to Continental, if the operating margin calculated, asdescribed below (the "prevailing margin") was not between 8.5% and 11.5% in any fiscal quarter.  When the prevailing marginexceeded 11.5%, Airlines paid Continental an amount sufficient to reduce the margin to 11.5%.  If the prevailing margin wasless than 8.5%, Continental would have paid Airlines an amount sufficient to raise the margin to 8.5%; however, from 2003 to 2004,the quarterly prevailing margins were never below 8.5%.  Certain items were excluded from the calculation of the prevailingmargin, including:

|           | •  | actual labor costs that differed from those reflected in Airlines’ block hourrates;                                                                             |
|--------------------------------------------------------|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                        | •  | performance incentive payments, including payments from controllable cancellation performance(cancellations other than weather or air traffic control cancellations); |
|                                                        | •  | litigation costs outside the normal course of business; and                                                                                                           |
|                                                        | •  | other costs that were not included in Airlines’ block hour rates (or covered by anyadjustments to them) and were not reasonable and customary in the industry.  |

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            If these excluded costs werehigher than those anticipated in Airlines’ block hour rates, its operating margin could have been lower than 8.5% when takingthese costs into account, even after any reconciliation payment was made.  Conversely, if these costs were lower than thoseanticipated in Airlines’ block hour rates, its operating margin could have been higher than 11.5% when taking these costsinto account, even after any reconciliation payment was made.

            During 2004, Airlines’quarterly reconciliation payments to Continental totaled $61.0 million.  The table below describes how variations between ouractual costs and our estimated costs, as determined in the block hour rates, were treated under the capacity purchase agreementthrough 2004:

| Fully reconciled costs: reconciliation payment, including 10% margin, to the full extent actualcosts differed from estimated costs.                                                                                                                                                                                                                                                                                                                                                                                     |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  • Fuel and into-plane expenses(1)  • Aircraft rent  • Terminal facility rent  • On-time bonuses and 401(k) company match     under current plans  • Taxes (other than income taxes)  • Passenger liability insurance  • Hull insurance  • War risk insurance  • Landing fees  • Ground handling services                                     |  • Administrative services provided by Continental  • Third-party security and screening expenses  • Substantially all regional jet engine expenses     under current long-term third-party contracts  • Depreciation and amortization(2)  • Pilot training volumes  • Glycol, de-icing, snow removal  • International navigational fees  • Pilot soft time(3) |
| Costs within the margin band: if actual expenses in this category were sufficiently different fromestimates used in the block hour rates so that the prevailing margin (calculated to exclude the impact of unreconciled costs, tothe extent they differed from Airlines’ estimated costs, and other items(4)) was less than 8.5% or greater than11.5%, then a reconciliation payment was to be made by Continental or Airlines to the other so that this prevailing margin would be8.5% or 11.5%, as applicable. |
|  • Maintenance, materials and repairs not included     above  • Passenger services                                                                                                                                                                                                                                                                                                                                                                                    |  • Other rental expenses  • Other operating expenses |
| Unreconciled costs: no reconciliation payment was made for actual results that differed fromestimated costs.                                                                                                                                                                                                                                                                                                                                                                                                            |
|  • Wages and salaries  • Benefits not included above                                                                                                                                                                                                                                                                                                                                                                                                                                      |  • Corporate headquarter rent costs |

 

| (1) |    | Under the fuel purchase agreement with Continental, in 2004 and 2003, fuel and fuel tax expense werereconciled to the lower of the actual costs or the agreed-upon caps of 66.0 cents per gallon and 5.2 cents per gallon,respectively, based on our fuel purchase agreement with Continental.  If the fuel agreement with Continental were not inplace, Airlines’ fuel cost, including related taxes, would have been $1.23 and $0.93 per gallon for the years ending December31, 2004 and 2003, respectively.                                                  |
|-----|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |              | Depreciation was reconciled for assets and capital projects accounted for in the capacity purchaseagreement or those approved by Continental outside of the capacity purchase agreement.                                                                                                                                                                                                                                                                                                                                                                                    |
| (3) |              | Pilot soft time reconciliation ended March 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| (4) |              | In addition to the unreconciled costs listed above, the prevailing margins used to calculateAirlines’ quarterly reconciliation payments did not take into account any performance incentive payments, including paymentsfrom controllable cancellation performance (cancellations other than weather or air traffic control cancellations), litigationcosts outside the normal course of business and other costs that were not included in Airlines’ block hour rates (or coveredby adjustments to them) and were not reasonable or customary in the industry. |

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            In 2004, the fully reconciledcosts, costs within the margin band and unreconciled costs under our capacity purchase agreement represented approximately 63.9%,12.0% and 24.1% of total operating costs, respectively.

            In addition, to the extent thatour rate of controllable cancellations (such as those due to maintenance or crew shortages) was lower than our historicalbenchmarks, we were entitled to incentive payments; conversely, we would have had to pay Continental if our controllablecancellations were above historical benchmarks.  Because these incentive benchmarks were based on historical five-year rollingaverages of monthly controllable cancellations, lower controllable cancellations that resulted in higher incentive payments in thenear term reduced our opportunity to earn incentive payments in the future.  Also, because we used monthly rolling averages,our opportunity to earn these payments in any particular fiscal quarter was affected by monthly variations in historicalcontrollable cancellation rates.  We were also entitled to receive a small per-passenger fee and incentive payments forcertain on-time departure and baggage handling performance.

            ***2005 Rate Negotiation andAmendment*.**  As part of the 2005 rate negotiation, we agreed to cap Airlines’ prevailing margin at 10.0%. Airlines also included previously unreconciled costs within the margin band, although it is not reimbursed if these costs arehigher and cause its prevailing margin to fall below the 8.5% margin floor.  In addition, Airlines is still entitled toreceive incentive payments from Continental if its rate of controllable cancellations is lower than its historical benchmark, butis not required to pay Continental a penalty for controllable cancellations unless the rate rises above 0.5%.  Airlinescontinued to receive a small per-passenger fee and incentive payments for certain on-time departure and baggage handlingperformance.

            During 2005, Airlines’quarterly reconciliation payments to Continental totaled $23.4 million.  The table below describes how variations betweenAirlines’ actual costs and estimated costs, as determined in the block hour rates, have been treated under the capacitypurchase agreement since January 1, 2005:

| Fully reconciled costs: reconciliation payment, including 10% margin, to the full extent actualcosts differ from estimated costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  • Fuel and into-plane expenses(1)  • Aircraft rent  • Terminal facility rent  • On-time bonuses and 401(k) company match under     current plans  • Taxes (other than income taxes)  • Passenger liability insurance  • Hull insurance  • War risk insurance  • Landing fees                                                                                                                                                                                               |  • Ground handling services  • Administrative services provided by Continental  • Third-party security and screening expenses  • Substantially all regional jet engine expenses under     current long-term third-party contracts  • Depreciation and amortization(2)  • Glycol, de-icing, snow removal  • International navigational fees |
| Costs within the margin band: if actual expenses in this category are sufficiently different fromestimates used in the block hour rates so that the prevailing margin is less than 8.5% or greater than 10.0%, then a reconciliationpayment will be made by either Continental or Airlines to the other so that this prevailing margin will be 8.5% or 10.0%, asapplicable.  If the prevailing margin were less than 8.5% due to the impact of certain costs, as described below, or if theprevailing margin were above 10.0% due to other items(3), no reconciliation payments would be made from eitherContinental or Airlines. |
|  • Maintenance, materials and repairs not included     above  • Passenger services                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | • Other rental expenses • Other operating expenses |

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|        | (1)   | Under the fuel purchase agreement with Continental, fuel and fuel tax expense are reconciled to thelower of the actual costs or the agreed-upon caps of 66.0 cents per gallon and 5.2 cents per gallon, respectively, based onAirlines’ fuel purchase agreement with Continental.  If the fuel purchase agreement with Continental were not in place,the fuel cost, including related taxes, would have been $1.80 per gallon for the year ended December 31, 2005. |
|--------------------------------------|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                      | (2)   | Depreciation is reconciled for assets and capital projects accounted for in the capacity purchaseagreement or those approved by Continental outside of the capacity purchase agreement.                                                                                                                                                                                                                                                                                        |
|                                      | (3)   | The prevailing margin used to calculate the reconciliation payment does not take into accountperformance incentive payments, including payments from controllable cancellation performance, litigation costs above a historicalbenchmark and other costs that are not included in the block hour rates (or covered by adjustments to them) or are not reasonableand customary in the industry.                                                                                 |

            In 2005, the fully reconciledcosts and costs within the margin band under the capacity purchase agreement represented approximately 64% and 36% of totaloperating costs, respectively.

            Certain costs that wereunreconciled under the capacity purchase agreement prior to 2005 now require Airlines to make a reconciliation payment toContinental if the differences cause the prevailing margin to be greater than 10.0%.  However, if the differences cause theprevailing margin to be less than 8.5%, they remain unreconciled.  These costs are:

|        | •  | wages and salaries;and                                                                                                                     |
|--------------------------------------|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                      | •  | benefits not included in the table above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

            ***2006 RateSetting.***  Because we have not agreed on the 2006 rates, Continental has agreed to continue paying Airlines at theDecember 2005 rates until an agreement is reached.  Any agreement to revise the current rate structure will be retroactive toJanuary 1, 2006.  We cannot currently estimate what our 2006 rates will ultimately be.  If we cannot agree on the 2006rates, the capacity purchase agreement allows either party to submit the matter to arbitration.

            ***Capacity and FleetMatters.***  Subject to the aircraft withdrawal beginning in December 2006, the capacity purchase agreement currentlyapplies to all of Airlines’ 266 aircraft, as well as the aircraft subject to firm orders through December 2006, at which timeContinental will withdraw 69 aircraft from the capacity purchase agreement.  Under the capacity purchase agreement,Continental is required to purchase or lease from Embraer or its designee all of our current firm order aircraft under theagreement, as well as participate in the financing, and to lease or sublease these aircraft to us. 

            The capacity purchase agreementalso allows us to be Continental’s exclusive regional jet service provider at Newark’s Liberty International,Houston’s Bush Intercontinental and Cleveland’s Hopkins International airports through December 31, 2006. However, Continental has the right to reduce the number of our regional jets covered by the agreement at any time upon12 months’ notice.  As noted above, on December 28, 2005, Continental gave us notice of its intention to withdraw69 aircraft from the capacity purchase agreement beginning in December 2006 and ending in June 2007.  Under the terms of theagreement, Continental cannot withdraw additional aircraft from the agreement until December 28, 2009 unless the agreement isterminated.  If the agreement were terminated, withdrawal would be limited to 15 aircraft per month.  With respect to the69 aircraft released from the capacity purchase agreement, we have the option to:

|          | •  | fly the released aircraft for other parties or under our own code, subject to our ability to obtainfacilities, such as gates and slots, and subject to our exclusive arrangement with Continental at its hubairports;  |
|--------------------------------------------------|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                  | •  | sublease the aircraft to other parties; or                                                                                                                                                                                  |
|                                                  | •  | decline to fly these aircraft and cancel the related subleases with Continental.                                                                                                                                            |

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            If we choose to retain theaircraft released from the capacity purchase agreement, the capacity purchase agreement has a provision for the interest rateimplicit in calculating the scheduled lease payments we make to Continental to increase by 200 basis points.  See Item 1.“Business–Capacity Purchase and Other Agreements with Continental Airlines – Aircraft Financing.  ”Ifwe elect not to retain these aircraft, the related leases or subleases between us and Continental will be canceled, and Continentalwill take possession of the aircraft. In that event, Continental will be responsible for all direct reasonable costs we incur inremoving those aircraft from our fleet.

            We have options for 100 ERJ-145XRaircraft that may be exercised for other types of aircraft within the ERJ-145 Family.  During 2005, Continental declined theright to exercise any of these options.  We retain the right to exercise them and fly these aircraft for other airlines orunder our own code, subject to some restrictions; however, we will have to finance our acquisition of these aircraftindependently. 

            So long as scheduled flightsunder the capacity purchase agreement with Continental represent either at least 50% of all our scheduled flights or at least 200of our aircraft are covered by the capacity purchase agreement, we are required to allocate our crews, maintenance personnel,facilities and other resources on a priority basis to scheduled flights under the capacity purchase agreement above all of ourother flights and aircraft.

            ***Term ofAgreement*.**  The capacity purchase agreement is scheduled to expire on December 31, 2010.  Continental hasthe option to extend the term of the agreement with 24 months’ notice for up to four additional five-year terms throughDecember 31, 2030.

            Continental may terminate theagreement at any time upon 12 months’ notice, or at any time without notice for cause, which is defined as:

|          | •  | our bankruptcy;                                                                                                                                                                     |
|--------------------------------------------------|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                  | •  | suspension or revocation of our authority to operate as a scheduled airline;                                                                                                        |
|                                                  | •  | cessation of our operations as a scheduled airline, other than as a result of a union-authorizedlabor strike or any temporary cessation not to exceed 14 days;                 |
|                                                  | •  | a union-authorized labor strike that continues for 90 days; or                                                                                                                 |
|                                                  | •  | our intentional or willful material breach that substantially deprives Continental of the benefitsof the agreement, which is not cured within 90 days of notice of the breach. |

            Continental may also terminatethe agreement at any time upon our material breach that does not constitute cause and continues for 90 days after we receivenotice of the breach.  If we materially breach the agreement (including for cause) and, for breaches other than cause, fail tocure the breach within 60 days after we receive notice of the breach, we will have to pay Continental an amount equal to theexpected margin contained in the block hour rates for scheduled flights from the 60th day (or immediately, without receipt of anynotice, if the breach is for cause) until the breach is cured.  In addition, Continental may terminate the agreementimmediately without notice or giving us an opportunity to cure if it makes a reasonable and good faith determination, usingrecognized standards of safety, that there is a material safety concern with our operation of any flight under the capacitypurchase agreement.

            If Continental materiallybreaches the agreement and fails to cure the breach within 60 days after we notify it of the breach, we will be entitled toobtain our payments directly from Airline Clearing House, Inc. from the 60th day for the duration of the default.  Inaddition, Continental and we are each entitled to seek damages and equitable remedies in arbitration.

            ***Continental’sOutlook.***  We are directly affected by Continental’s financial and operational stability because we depend on itsability to make payments to us under our capacity purchase and other agreements.  Continental has reported significant lossessince September 11, 2001, excluding special items.  For the years ended December 31, 2005 and 2004, Continental reported netlosses of $68 million and $409 million, respectively.  Excluding special items, Continental’s losses would have beenmore significant. 

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            Continental and the unionrepresenting its flight attendants recently ratified their labor agreement to allow Continental to meet its $0.5 billioncost-savings goal previously announced; absent additional adverse factors due to external influences, such as additional terroristattacks or unreasonable increase in fuel prices, we are not aware of any other factors that would lead us to believe thatContinental will not be able to maintain adequate liquidity through December 31, 2006, as previously disclosed in its quarterlyfilings.  However, a combination of some or all of several events, most of which are outside of Continental’s directcontrol, may result in its inability to maintain adequate liquidity through December 31, 2006.

            As discussed above, Continentalhas reduced the level of its commitment for our aircraft under the capacity purchase agreement, which could materially reduce ourrevenue and earnings.  Furthermore, Continental leases from third parties a substantial portion of the aircraft and airportfacilities that it subleases to us.  If Continental declared bankruptcy or otherwise defaulted under these leases, we wouldhave no rights to these aircraft or facilities; our access to our aircraft and airport facilities would depend on negotiationsbetween the lessors and us. 

**Note 3 –– Security Fee**

            On April 16, 2003, President Bushsigned into law the Emergency Wartime Supplemental Appropriation Act 2003 (“Wartime Act”), which was include as part ofa larger bill to fund the war in Iraq.  Highlights of the Wartime Act affecting us are as follows:

|           | •  | $2.3 billion for reimbursement of airline security fees that were paid or collected by airlines asof the date of enactment, which means reimbursement for fees paid from February 1, 2002 through April 16, 2003, and from June 1 toSeptember 30, 2003; and |
|--------------------------------------------------------|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                        | •  | $100 million was authorized to reimburse carriers for installing fortified flight deckdoors.                                                                                                                                                                |

            In May 2003, we received $3.0million to reimburse security fees under the Wartime Act. However, since the reimbursement represented fully reconciled costs underthe capacity purchase agreement, we distributed 100% of the funds received to Continental.  For detailed discussion of fullyreconciled costs, please see “––– Note 2.”  The net impact of this reimbursement was immaterialto our results of operations.  In September 2003, we also received $0.6 million for reimbursement of costs related toinstallation of the fortified flight deck doors pursuant to the Wartime Act.  The amount received was used to reduce thecapitalized cost of our property and equipment.

            On January 3, 2006, Airlines and42 other carriers received demand notices from the TSA related to the alleged underreported, uncollected ASIF.  Airlines wasinvoiced by the TSA for an additional $2.1 million for 2005, due on or before February 2, 2006.  We recorded this additionalliability as of December 31, 2005, of which $0.8 million was recorded as additional security expense pursuant to a previouslyagreed allocation methodology with Continental.  On January 16, 2006, Continental and we jointly submitted a letter to the TSAseeking a joint administrative review of the ASIF assessments and a stay of any related payments.  At this time, we cannotpredict the outcome of this review.

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**Note 4 –– Details of Certain Accounts**

            Accrued other liabilities consistof the following (in thousands):

|                                                                                                                                                                                                                                                                                                                                                           |   | **As of December 31,** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---|------------------------|
|                                                                                                                                                                                                                                                                                                                                                           |   | **2005**               |  |  | **2004** |
|                                                                                                                                                                                                                                                                                                                                                           |   | ****                   |  |  | **** |
| Airportservices                                                        | $ | 16,596                 |    | $ | 11,833 |
| Maintenance, materials and repairs                                                                                                                                                                                                                                                                                                                        |   | 17,627                 |  |  | 13,584 |
| Taxes (1)                                                                                                                                                                                                                                                                                                                                                 |   | 16,592                 |  |  | 13,857 |
| Flight operation related expenses                                                                                                                                                                                                                                                                                                                         |   | 7,343                  |  |  | 6,079 |
| Interest                                                                                                                                                                                                                                                                                                                                                  |   | 2,574                  |  |  | 2,519 |
| Other                                                                                                                                                                                                                                                                                                                                                     |   | 7,947                  |  |  | 3,972 |
|                                                                                                                                                                                                                                                                                                                                                           |   |                        |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                           | $ | 68,679                 |  | $ | 51,844 |
|                                                                                                                                                                                                                                                                                                                                                           |   |                        |  |  |  |

(1) Includes income taxes payable as well as other taxes payable.

            Other long-term liabilitiesconsist of the following (in thousands):

|                                                                                                                                                                                                                                                                                                                               |   | **As of December 31,** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---|------------------------|
|                                                                                                                                                                                                                                                                                                                               |   | **2005**               |  |  | **2004** |
|                                                                                                                                                                                                                                                                                                                               |   | ****                   |  |  | **** |
| Spare partscredit                                                   | $ | 4,630                  |    | $ | 5,345 |
| Flight training credits                                                                                                                                                                                                                                                                                                       |   | 6,235                  |  |  | 5,996 |
| Other                                                                                                                                                                                                                                                                                                                         |   | 614                    |  |  | 1,180 |
|                                                                                                                                                                                                                                                                                                                               |   |                        |  |  |  |
|                                                                                                                                                                                                                                                                                                                               | $ | 11,479                 |  | $ | 12,521 |
|                                                                                                                                                                                                                                                                                                                               |   |                        |  |  |  |

**Note 5 –– Leases**

            We lease or sublease all 266 ofour aircraft under operating leases with lease terms ranging from 16 to 16.5 years from Continental.  Our sublease agreementswith Continental have substantially the same terms as the lease agreements between Continental and the third-party lessors, andexpire between 2013 and 2022.  Rental payments for each aircraft are fixed upon lease execution with no escalationclauses.  We also lease or sublease, under various operating leases, ground equipment and substantially all of our groundfacilities, including facilities at public airports from Continental or the municipalities or agencies owning and controlling suchairports.  Though the duration and terms of these leases vary greatly, we expect, in most cases, leases to be renewed orreplaced by new leases as required in the normal course of business.  Our leases do not include residual valueguarantees.

            At December 31, 2005, thescheduled future minimum lease payments under capital leases due to third-party lessors and the scheduled future minimum leasepayments under operating leases that have initial or remaining non-cancelable lease terms in excess of one year are as follows (inmillions):

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|                                                                                                                                                                                                                                                                                                                                                                                                                                          |              |   |                    |                    |              | **Operating Leases** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|---|--------------------|--------------------|--------------|----------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                          |              |   | **Capital Leases** |                    |              | ****                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                          |              |   |                    |                    | **Aircraft** |                      |  | **Non-Aircraft** |
| **                                                                      ** |    |   |                    |                    |              |                      |  |  |  |
| Year ending December 31,2006                                                                                                                                                                                                                                                                                                                                                                                                             |              | $ | 0.9                |     | $            | 324.4                |    | $ | 14.6 |
| 2007                                                                                                                                                                                                                                                                                                                                                                                                                                     |              |   | 0.8                |                    |              | 257.7                |  |  | 13.2 |
| 2008                                                                                                                                                                                                                                                                                                                                                                                                                                     |              |   | 0.2                |                    |              | 236.4                |  |  | 12.2 |
| 2009                                                                                                                                                                                                                                                                                                                                                                                                                                     |              |   | —            |                    |              | 236.4                |  |  | 11.6 |
| 2010                                                                                                                                                                                                                                                                                                                                                                                                                                     |              |   | —            |                    |              | 236.4                |  |  | 10.7 |
| Later years                                                                                                                                                                                                                                                                                                                                                                                                                              |              |   | —            |                    |              | 1,679.8              |  |  | 65.8 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                          |              |   |                    |                    |              |                      |  |  |  |
| Total minimum lease payments                                                                                                                                                                                                                                                                                                                                                                                                             |              |   | 1.9                |                    | $            | 2971.3               |  | $ | 128.1 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                          |              |   |                    |                    |              |                      |  |  |  |
| Less:  amount representing interest                                                                                                                                                                                                                                                                                                                                                                                                 |              |   | 0.1                |                    |              |                      |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                     |              |   |                    |                    |              |                      |  |  |  |
| Present value of capital leases                                                                                                                                                                                                                                                                                                                                                                                                          |              |   | 1.8                |                    |              |                      |  |  |  |
| Less:  current maturities of capital leases                                                                                                                                                                                                                                                                                                                                                                                         |              |   | 0.8                |                    |              |                      |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                          |              |   |                    |                    |              |                      |  |  |  |
| Long-term capital leases                                                                                                                                                                                                                                                                                                                                                                                                                 |              | $ | 1.0                |                    |              |                      |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                          |              |   |                    |                    |              |                      |  |  |  |

            Our total rental expense for allnon-aircraft operating leases was approximately $39.3 million, $33.4 million and $51.5 million for the years ended December 31,2005, 2004 and 2003, respectively.

            Total aircraft and non-aircraftrent expense was approximately $348.3 million, $314.8 million and $300.6 million for the years ended December 31, 2005, 2004 and2003, which included $323.3 million, $292.6 million and $280.7 million of payments under leases with Continental under the capacitypurchase agreement.  In addition, of the total rental expense, $290.4 million, $262.7 million and $249.4 million are relatedto subleases with Continental for 2005, 2004 and 2003, respectively.  As a result of 2003 amendment to our Master Facility andGround Handling Agreement with Continental, we no longer pay Continental rent related to our hub stations.  See Item 1.“Business –– Capacity Purchase and other Agreements with Continental Airlines –– Airport Facilities,Slots and Route Authorities” for more detailed description of this amendment.

            If we defaulted on our paymentobligations under our aircraft and facility leases or subleases with Continental, Continental would be entitled to reduce futurepayments to us under the capacity purchase agreement by the amount of the defaulted payment.

            The scheduled minimum aircraftoperating lease payments in the above table include the estimated reduction for the withdrawal of 69 aircraft beginning in December2006.  The scheduled minimum non-aircraft operating lease payments in the above table include payments for seven new engineleases. Prior to December 2005, under our power-by-the-hour agreement with Rolls Royce, we were obligated to acquire up to threespare engines to support our existing aircraft and the remaining eight aircraft on firm order.  In December 2005, wenegotiated the sale of eight engines to Rolls Royce and, in exchange, entered into seven new engine leases with a Rolls Roycesubsidiary. The engines leased have greater interchangeability than the engines sold. As a result, we have satisfied our engineobligations and are no longer obligated to purchase the three engines.  These leases are classified as operating leases; hencethey are not reflected as assets and liabilities on our balance sheet.  These leases do not have residual value guarantees andannual escalation of rental payments is based on customer price index.

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            In July 2005, we purchasedcertain building, land and related improvements (from a party related to American Composites) for an aggregate price ofapproximately $4.9 million.  $4.2 million was recorded as building and related improvements and the balance was allocated toland.  As of December 31, 2005, we have recorded approximately $0.1 million in accumulated depreciation for thisbuilding.  At the same time, we lease the building, land and related improvements to American Composites for use in itsoperation.  We account for the lease as an operating lease.  The scheduled minimum future lease payments from AmericanComposite are to be as follows (in millions):

| **Year ending December31,                 ** |   |     |
|-----------------------------------------------------------------------------------------------------------------------------------|---|-----|
|     2006                                                                                                      | $ | 0.5 |
|     2007                                                                                                      |   | 0.5 |
|     2008                                                                                                      |   | 0.5 |
|     2009                                                                                                      |   | 0.5 |
|     2010                                                                                                      |   | 0.5 |
|     Thereafter                                                                                                |   | 2.3 |
|                                                                                                                                   |   |     |
| Total                                                                                                                             | $ | 4.8 |
|                                                                                                                                   |   |     |

**Note 6 –– Long-term Debt**

            As of December 31, 2005,long–term debt, including current maturities, totaled $15.3 million, which consisted of $15.3 million of secured debt owed toEDC.

            EDC loaned us $10.7 million inMay 2003 and $6.6 million in September 2003.  The loan is secured by certain of our flight simulators, flight data softwareand other equipment related to the simulators.  We used all of the proceeds from the loans to reduce the principal under ournote payable to Continental.  The amount due to EDC accrues interest at the six-month LIBOR plus 1.75% per annum.  Theterm of each advance to us is 96 months.  The loan agreement has customary representations, warranties and covenants. Additionally, Continental is the guarantor of this loan, and a default under the guarantee would cause an acceleration of theloan.

            Prior to the completion of ourinitial public offering, Airlines issued the sole authorized and outstanding share of its non-voting Series A Preferred Stock, parvalue $.01 per share, to our subsidiary XJT Holdings, Inc. as partial consideration for its assets and liabilities.  Theseries A Preferred Stock was entitled to receive, on a cumulative basis, dividends at a rate of 14% per annum on a liquidationpreference of $5.0 million, callable beginning in April 2005 and mandatorily redeemable in April 2012.  Upon issuance, XJTHoldings, Inc. sold the Preferred Stock to an independent third party in exchange for a $5.0 million promissory note, with norights of offset, due in April 2012.  The note bore interest equal to the three-month LIBOR plus 0.6% per annum, payablequarterly which commenced on August 1, 2002.  On July 1, 2003, we adopted Statement of Financial Accounting Standard No.150––“Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” Upon adoption, we reclassified our Series A Preferred Stock to long-term debt.  We also began to recognize dividends declaredrelated to our Series A Preferred Stock as interest expense.

            On April 1, 2005, Airlines calledthe Series A Preferred Stock for redemption.  The redemption price, including accrued but unpaid dividends, wasapproximately $5.0 million.  The share was redeemed on April 16, 2005, and the corresponding dividends ceased.  Inaddition, we received $5.0 million, including accrued but unpaid interest income, from the holder of the stock to retire a $5.0million promissory note held by us. 

            Maturities of these long-termdebts are summarized below in “–– Note 8.”

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**Note 7 –– Note Payable to Continental**

            Under the promissory note datedMarch 31, 2001, net amounts due Continental were converted into a long-term note payable of $552.3 million, which bore interest ata fixed rate of 4.9% through June 30, 2001.  Effective July 1, 2001, the rate for subsequent quarters was set at thethree-month LIBOR plus 1.25% per annum.  The note is our unsecured general obligation and is subordinated in right of paymentto all of our future senior indebtedness and is junior to any of our secured obligations and the secured obligations of our whollyowned subsidiaries to the extent of the collateral pledged.

            In 2004, we made a discretionaryprepayment of $27.0 million in addition to our scheduled quarterly principal and interest payments, net of prepayments made inprior periods, to the extent required.  The quarterly payment on our note payable to Continental for principal and interest is$27.9 million, to be paid through the earlier of March 31, 2007 or until the principal balance and any accrued interest are paid infull.  We currently expect to pay off this obligation on March 31, 2006.  Total payments made during 2005 and 2004(including the discretionary prepayments) were $84.7 million and $98.8 million, respectively, of which $81.3 million and $94.4million, respectively, related to principal.  Based on the three-month LIBOR on December 31, 2005 plus 1.25% per annum and ourcurrent principal balance of $17.5 million, maturities of our note payable to Continental as of December 31, 2005 are detailed onthe table included in “–– Note 8” below.

            The weighted average interestrate for the year ended December 31, 2005, 2004 and 2003 was 4.4%, 2.6% and 2.5% per annum, respectively.  The statements ofoperations include total interest charges from Continental of $3.5 million, $4.3 million and $6.7 million for the years endedDecember 31, 2005, 2004 and 2003, respectively.

**Note 8 –– 4.25% Senior Convertible Notes due 2023**

            During 2003, we completed theprivate placement of $137.2 million senior convertible notes due 2023, which were resold by the initial purchasers to qualifiedinstitutional buyers pursuant to Rule 144A of the Securities Act of 1933.  Cash interest is payable on the notes at a rate of4.25% per year on the principal amount at maturity, payable semiannually in arrears on February 1 and August 1 of each year,beginning February 1, 2004.  The aggregate amount of the principal will be due on August 1, 2023.  The notes and thenotes guarantee are senior unsecured obligations and rank equally with our existing and future senior unsecured indebtedness. The notes and the notes guarantee are junior to any of our secured obligations and the secured obligations of our wholly ownedsubsidiaries to the extent of the collateral pledged.

            The notes are convertible intoshares of our common stock at a conversion rate of 54.9451 shares per $1,000 in principal amount at maturity of the notes. This conversion rate is subject to adjustment in certain circumstances.  Holders of the notes may convert all or a portion oftheir notes into shares of our common stock under the following circumstances: (i) at any time during or after any fiscal quartercommencing after September 30, 2003 if the closing sale price of our common stock for at least 20 trading days in a period of 30consecutive trading days ending on the last trading day of the fiscal quarter prior to such quarter is greater than 120% of theconversion price per share of common stock on such last day; (ii) subject to certain exceptions, during the five business dayperiod after any five consecutive trading day period in which the trading price per $1,000 principal amount of the notes for eachof the five trading days was less than 98% of the product of the closing sales price of our common stock and the number of sharesissuable upon conversion of $1,000 principal amount of the notes; (iii) if the notes have been called for redemption; or (iv) uponthe occurrence of specified corporate transactions.  We have reserved sufficient shares of our common stock to be issued uponconversion of these notes.

            We can redeem the notes, in wholeor in part, beginning on August 4, 2008, at a redemption price equal to 100% of the principal amount, plus accrued and unpaid cashinterest, if any.  The holders of the notes may require us to repurchase the notes on August 1, 2008, August 1, 2013 andAugust 1, 2018 (“Redemption Dates”) at a purchase price equal to 100% of their principal amount, plus accrued andunpaid interest, if any.  We can choose to pay the repurchase price for any such notes in cash, in shares of common stock orany combination thereof should we be required to redeem the notes at any of the Redemption Dates.  We have a shelfregistration statement on file with the Securities and Exchange Commission covering the resale of the notes and the underlyingcommon stock for the security holders name therein.

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            Proceeds from the offering, netof initial purchasers’ fees, were used to repurchase 9,835,125 shares of our common stock from Continental at $13.60125 pershare pursuant to a stock repurchase agreement with Continental.  As a result of this repurchase, Continental’sbeneficial ownership of our common stock dropped below 50%. 

            Repayment of the convertiblenotes is jointly and severally guaranteed on an unconditional basis by Airlines.  Except as otherwise specified in theindenture pursuant to which the notes were issued, there are no restrictions on Airlines’ ability to transfer funds to us inthe form of cash dividends, loans or advances.  General provisions of applicable state law, however, may limit the ability ofany subsidiary to pay dividends or make distributions to us in certain circumstances.

            Separate financial statements ofAirlines are not included herein because the aggregate assets, liabilities, earnings, and equity of that subsidiary remainsubstantially equivalent to our assets, liabilities, earnings and equity on a consolidated basis.  Airlines is jointly andseverally liable for the repayment of the notes.  We do not believe that separate financial statements and other disclosuresconcerning Airlines would be material to investors.

            The amount of all scheduled debtmaturities, as described in Notes 6, 7 and 8 above, due over the next five years and thereafter is as follows (inmillions):

| **Year ending December31,                      ** |   |       |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|---|-------|
|     2006                                                                                                                                    | $ | 18.4  |
|     2007                                                                                                                                    | $ | 1.7   |
|     2008                                                                                                                                    | $ | 140.7 |
|     2009                                                                                                                                    | $ | 3.5   |
|     2010                                                                                                                                    | $ | 3.5   |
|     Thereafter                                                                                                                              | $ | 2.4   |

            The table above assumes thesenior convertible notes will be due on August 1, 2008, the earliest date that the holders of the notes may require us torepurchase the notes.

            Other than the debt obligationsdescribed above, we do not have any other source of long-term borrowings or available lines of credit.  There is no covenantunder any of our current long-term debt agreements that restrict our ability to undertake additional debt or equityfinancing.

**Note 9 –– Income Taxes**

            Income tax expense (benefit) forthe year ended December 2005, 2004 and 2003 consisted of the following (in millions):

|                                                                                                                                                                                                                                                                                                                                                      |                  |   | **2005** |                    |   | **2004** |                    |   | **2003** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------|---|----------|--------------------|---|----------|--------------------|---|----------|---|
| **                                                        ** | **  ** |   | ****     |                    |   | ****     |                    |   | ****     |   |
| Federal                                                                                                                                                                                                                                                                                                                                              |                  |   |          |     |   |          |     |   |          |   |
|     Current                                                                                                                                                                                                                                                                                                                      |                  | $ | 51.7     |                    | $ | 60.6     |                    | $ | 23.5     |   |
|     Deferred                                                                                                                                                                                                                                                                                                                     |                  |   | 1.5      |                    |   | 10.4     |                    |   | 39.0     |   |
| State:                                                                                                                                                                                                                                                                                                                                               |                  |   |          |                    |   |          |                    |   |          |   |
|     Current                                                                                                                                                                                                                                                                                                                      |                  |   | 2.5      |                    |   | 0.2      |                    |   | (0.1     | ) |
|     Deferred                                                                                                                                                                                                                                                                                                                     |                  |   | 0.5      |                    |   | 4.0      |                    |   | 4.3      |   |
|                                                                                                                                                                                                                                                                                                                                                      |                  |   |          |                    |   |          |                    |   |          |   |
| Total Income Tax Expense                                                                                                                                                                                                                                                                                                                             |                  | $ | 56.2     |                    | $ | 75.2     |                    | $ | 66.7     |   |
|                                                                                                                                                                                                                                                                                                                                                      |                  |   |          |                    |   |          |                    |   |          |   |

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            The reconciliations of income taxcomputed at the United States federal statutory tax rates to income tax expense for the years ended December 31, 2005, 2004 and2003 are as follows:

|                                                                                                                                                                                                                                                                                                                                                                              |        |   | **Amount**    |        |   | **Percentage** |        |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---|---------------|--------|---|----------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                              |        |   | ****          |        |   | ****           |        |
|                                                                                                                                                                                                                                                                                                                                                                              |        |   | **2005**      |        |   | **2004**       |        |  | **2003** |  |  | **2005** |  |  | **2004** |  |  | **2003** |  |
| **                                                            ** |        |   | ****          |        |   | ****           |        |  | **** |  |  | **** |  |  | **** |  |  | **** |  |
|                                                                                                                                                                                                                                                                                                                                                                              |        |   | (in millions) |        |   |                |        |  |  |  |  |  |  |
| Income tax expense at United States   statutory rates                                                                                                                                                                                                                                                                                                              |   | $ | 53.9          |   | $ | 69.3           |   | $ | 61.3 |   |  | 35.0 | % |  | 35.0 | % |  | 35.0 | % |
| State income tax expense (net of   federal benefit)                                                                                                                                                                                                                                                                                                                |        |   | 2.3           |        |   | 4.2            |        |  | 4.2 |  |  | 1.5 |  |  | 2.1 |  |  | 2.4 |  |
| Meals and entertainment disallowance                                                                                                                                                                                                                                                                                                                                         |        |   | 1.7           |        |   | 1.4            |        |  | 1.2 |  |  | 1.1 |  |  | 0.7 |  |  | 0.7 |  |
| Other                                                                                                                                                                                                                                                                                                                                                                        |        |   | (1.7          | )      |   | 0.3            |        |  | — |  |  | (1.1 | ) |  | 0.2 |  |  | — |  |
|                                                                                                                                                                                                                                                                                                                                                                              |        |   |               |        |   |                |        |  |  |  |  |  |  |  |  |  |  |  |  |
| Income tax expense, net                                                                                                                                                                                                                                                                                                                                                      |        | $ | 56.2          |        | $ | 75.2           |        | $ | 66.7 |  |  | 36.5 | % |  | 38.0 | % |  | 38.1 | % |
|                                                                                                                                                                                                                                                                                                                                                                              |        |   |               |        |   |                |        |  |  |  |  |  |  |  |  |  |  |  |  |

            Deferred income taxes reflect thenet tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposesand the related amounts used for income tax purposes.  Significant components of our deferred tax liabilities and assets as ofDecember 31, 2005 and 2004 are as follows (in millions):

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |        |   | **2005** |        |   | **2004** |        |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---|----------|--------|---|----------|--------|
| **                                                                                         ** |        |   | ****     |        |   | ****     |        |
| Deferred Tax Liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |          |   |   |          |   |
|   Fixed assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |        | $ | 48.3     |        | $ | 44.7     |        |
|   Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |        |   | 1.7      |        |   | 2.5      |        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |        |   |          |        |   |          |        |
| Gross deferred tax liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |        |   | 50.0     |        |   | 47.2     |        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |        |   |          |        |   |          |        |
| Deferred Tax Assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |        |   |          |        |   |          |        |
|   Federal loss carryforwards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |        | $ | —  |        | $ | 6.1      |        |
|   State loss carryforwards, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |        |   | 5.4      |        |   | 5.6      |        |
|   Intangible assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |        |   | 317.8    |        |   | 343.8    |        |
|   Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |        |   | 13.0     |        |   | 7.1      |        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |        |   |          |        |   |          |        |
| Gross deferred tax assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |        |   | 336.2    |        |   | 362.6    |        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |        |   |          |        |   |          |        |
| Valuation allowance / net tax agreement obligation   to Continental                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |        |   | 334.8    |        |   | 362.0    |        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |        |   |          |        |   |          |        |
| Net deferred tax assets (liabilities)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |        | $ | (48.6    | )      | $ | (46.6    | )      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |        |   |          |        |   |          |        |

            At December 31, 2004, we hadfederal net operating loss carryforwards of approximately $17.4 million, which expire in 2019.  In September 2005, Continentalentered into a final settlement agreement with the IRS that included periods when we were included in its consolidated federalincome tax return.  Our taxable income was not adjusted, but the amount of net operating losses allocated to us was reduced byapproximately $16.4 million.  In accordance with our tax agreement with Continental, we recorded a receivable from Continentalfor approximately $5.7 million for the reduction of our federal net operating loss carryforwards.  In addition, we adjustedour tax accounts to reflect a federal net operating loss carryforward at December 31, 2004 of approximately $1.0 million, which wasutilized in 2005.

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            In conjunction with our initialpublic offering in April 2002, the tax basis of our tangible and intangible assets was adjusted to fair value.  Thisadjustment to tax basis should result in additional tax deductions being available to us through 2017.  In accordance with ourtax agreement with Continental, to the extent we generate taxable income sufficient to realize the additional tax deductions, weare required to pay Continental a percentage of the amount of tax savings actually realized, excluding the effect of any losscarrybacks.  We are required to pay Continental 100% of the first third of the anticipated tax benefit, 90% of the secondthird and 80% of the last third.  However, if the tax benefits are not realized by the end of 2018, we will be obligated topay Continental 100% of any benefit realized after that date.  Since these payments are solely dependent on our ability togenerate sufficient taxable income to realize these deferred tax assets, they are recorded as an obligation to Continental withinthe deferred tax asset accounts, and the portion we may retain in the future is offset by a valuation allowance.  At the timeof the initial public offering, the valuation allowance and the obligation to Continental offset the step-up in basis of assets inour long-term deferred tax asset account.  We made approximately $25.3 million and $57.0 million of net payments toContinental under the tax agreement during 2005 and 2004, respectively.

            The tax agreement requiresContinental to reimburse us for any net increase in our cash tax payments resulting from any decreased availability of netoperating loss carryovers related to the basis increase at the time our payment occurs.  The resulting receivable and/orpayable is recorded within the deferred tax asset account since its performance is dependent on our ability to generate taxableincome.

            No valuation allowance wasestablished on our net operating loss carryforwards or on our receivable from Continental for reimbursing carryforward lossesutilized resulting from the basis increase because we believe our stand-alone taxable income will be sufficient to utilizesubstantially all of these assets within the next several years.

            We believe that our initialpublic offering created a change in ownership limitation on the utilization of our federal tax attribute carryforwards, primarilynet operating losses.  Section 382 of the Internal Revenue Code limits our utilization of these attributes to offset up toapproximately $43.3 million of post-change taxable income per year.  This limitation did not have any impact on our financialcondition during the years ending 2005 and 2004.

            Our tax agreement increases ourdependence on Continental’s financial condition.  If it is determined that any of the tax benefits related to the basisincrease should not have been available at the time of utilization and, as a result, we are required to pay additional taxes,interest and penalties, then we could be adversely affected if Continental were unable to indemnify us under theagreement.

**Note 10 –– Preferred, Common and TreasuryStock**

            ***PreferredStock.***  We have 10 million shares of authorized preferred stock, par value $.01 per share.  One share ofpreferred stock was issued and outstanding at December 31, 2004.

            After Continental’sownership of common shares fell below 10% on April 7, 2005, we redeemed the sole share of our Special Voting Preferred Stock heldby Continental. The redemption terminated Continental’s right to elect a director to our board of directors. Pursuant to ourcapacity purchase agreement, Continental had the right to nominate a director to our board, but relinquished this right, effectiveOctober 2005. Continental currently owns less than 10% of our common stock and has indicated that it intends to dispose of some orall of its remaining shares, subject to market conditions.  We do not believe that Continental’s sale of its ownershipinterest will have an adverse impact on our results of operation or financial position.

            Our board is divided into threeclasses, and our directors are elected by stockholders for three-year terms.  Two of the classes are comprised of twodirectors and the third is comprised of three.

            ***Common Stock.*** We currently have one class of common stock, par value $.01 per share, with 54.7 million shares issued.  Each share of commonstock is entitled to one vote.  Common stockholders participate ratably in any dividends or distributions on the commonstock. 

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            ***TreasuryStock.***  In July 2005, our board of directors authorized the expenditure of up to $30 million to repurchase shares ofour common stock.  Purchases have been made from time to time in the open market; the timing of any share repurchases underthe program depends on a variety of factors, including market conditions, and may be suspended or discontinued at any time. Common stock acquired through the program will be available for general corporate purposes.  In 2005, we purchased 590,800shares of our common stock at an average cost per share of $9.55.

            In addition, under the IncentivePlan, our board of directors can approve the issuance of restricted stock to various employees and non-employee directors. Forfeitures of awarded shares resulted in common stock held in treasury from which subsequent restricted stock awards can be issuedand stock option exercises can be satisfied. 

**Note 11 –– Stock Based Compensation Plans**

            At December 31, 2005, we had astock incentive plan and an employee stock purchase plan.

            Stock Incentive Plans. Prior to the completion of our initial public offering, Continental, as our then sole stockholder, and our board of directorsapproved the Incentive Plan, which was subsequently ratified by our public stockholders in 2003.  The Incentive Plan providesthat we may grant awards in the form of stock options or restricted stock to our non-employee directors, our employees or employeesof our subsidiaries.  The aggregate number of shares of our common stock that may be issued under the Incentive Plan may notexceed 3.2 million shares, subject to adjustments as provided in the Incentive Plan.  We have reserved 3.2 million shares ofour common stock for issuance under this plan.  Options granted under the Incentive Plan have been awarded with exerciseprices equaling the fair market value of the stock on the date of grant, vest over a four-year period for employees or a six-monthperiod for non-employee directors and expire seven years after the date of grant in the case of employees and ten years after thedate of grant in the case of directors.  During 2005, 2004, and 2003, we issued 489,500, 155,500 and 389,000 options,respectively, to purchase our common stock under the Incentive Plan, with a grant date fair value of approximately $2.4 million,$1.4 million and $3.2 million, respectively.

            On November 4, 2005, our board ofdirectors approved accelerating the vesting of 669,750 unvested options currently held by employees, including executive officers,with exercise prices greater than $11.00 per share and extended the term of 868,500 employee options that had a five-year term toseven years.  These options were and remain out of the money, and the acceleration and extension were effectiveimmediately.  No options held by non-employee directors were subject to acceleration or extension.  The acceleration ofvesting reduces compensation expense upon the adoption of SFAS 123R.  The reduction in compensation expense in the future,based on our implementation date of January 1, 2006, was approximately $3.1 million.  We reported this future compensationexpense in our 2005 pro forma footnote disclosures, as permitted under the transition guidance provided by theFASB.   

            In 2005 and 2004, our board ofdirectors approved the issuance of 214,750 and 135,750 shares of restricted stock, respectively, net of forfeitures, to variousemployees and non-employee directors pursuant to the Incentive Plan, with fair value totaling $2.1 million and $1.7 million,respectively.  The restricted shares granted to our employees to date vest ratably over three or four-year periods. Restricted shares granted to our non-employee directors vest over six months. Total expense recognized related to restricted stockfor the year ended December 31, 2005 and 2004 was $1.6 million and $0.7 million, respectively.  As of December 31, 2005 and2004, we had 287,563 and 123,750 shares of restricted stock outstanding.

            Continental has stock option andincentive plans under which our employees were granted awards of Continental common stock in the form of stock options orrestricted stock (the “Continental Plans”).  Our employees’ eligibility to participate in the ContinentalPlans ceased in August 2003, when Continental’s beneficial ownership of our common stock dropped below 50%.  All optionsoutstanding were either exercised or cancelled in 2003.

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            The table below summarizes stockoption transactions pursuant to the Incentive Plan and Continental Plans (share data in thousands):

|                                                                                                                                                                                                                                                                                                                                                                                                |              | **2005**    |         |          | **2004**                            |              |        | **2003**    |         |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|-------------|---------|----------|-------------------------------------|--------------|--------|-------------|---------|
| **                                                               ** |              | ****        |         |          | ****                                |              |        | ****        |         |
|                                                                                                                                                                                                                                                                                                                                                                                                |              | **Options** |         |          | **Weighted Average Exercise Price** |              |        | **Options** |         |  | **Weighted Average Exercise Price** |  |  | **Options** |  |  | **Weighted Average Exercise Price** |  |
| ****                                                                                                                                                                                                                                                                                                                                                                                           |              | ****        |         |          | ****                                |              |        | ****        |         |  | **** | **  ** |  | **** |  |  | **** |  |
| **ExpressJet Options**                                                                                                                                                                                                                                                                                                                                                                         |    |             |         |          |                                     |    |        |             |         |  |  |  |  |  |  |  |  |  |
| Outstanding at Beginning of Year                                                                                                                                                                                                                                                                                                                                                               |              | 1,402       |         | $        | 15.12                               |              |   | 1,276       |         | $ | 15.46 |  |   | 989 |  | $ | 15.96 |  |
| Granted                                                                                                                                                                                                                                                                                                                                                                                        |              | 491         |         | $        | 9.99                                |              |        | 156         |         | $ | 12.94 |  |  | 389 |  | $ | 11.67 |  |
| Exercised                                                                                                                                                                                                                                                                                                                                                                                      |              | —     |         | $        | —                             |              |        | —     |         | $ | — |  |  | — |  | $ | — |  |
| Cancelled                                                                                                                                                                                                                                                                                                                                                                                      |              | (21         | )  | $        | 14.04                               |              |        | (30         | )  | $ | 15.27 |  |  | (102 | )  | $ | 15.47 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                |              |             |         |          |                                     |              |        |             |         |  |  |  |  |  |  |  |  |  |
| Outstanding at End of Year                                                                                                                                                                                                                                                                                                                                                                     |              | 1,872       |         |   $ | 14.63                               |              |        | 1,402       |         | $ | 15.12 |  |  | 1,276 |  | $ | 15.46 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                |              |             |         |          |                                     |              |        |             |         |  |  |  |  |  |  |  |  |  |
| Options Exercisable at End of Year                                                                                                                                                                                                                                                                                                                                                             |              | 1,842       |         | $        | 14.93                               |              |        | 582         |         | $ | 15.38 |  |  | 270 |  | $ | 15.73 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                |              |             |         |          |                                     |              |        |             |         |  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                           |              |             |         |          |                                     |              |        |             |         |  |  |  |  |  |  |  |  |  |
| **Continental Options**                                                                                                                                                                                                                                                                                                                                                                        |              |             |         |          |                                     |              |        |             |         |  |  |  |  |  |  |  |  |  |
| Outstanding at Beginning of Year                                                                                                                                                                                                                                                                                                                                                               |              | —     |         | $        | —                             |              |        | —     |         | $ | — |  |  | 18 |  | $ | 36.03 |  |
| Granted                                                                                                                                                                                                                                                                                                                                                                                        |              | —     |         | $        | —                             |              |        | —     |         | $ | — |  |  | — |  | $ | — |  |
| Exercised                                                                                                                                                                                                                                                                                                                                                                                      |              | —     |         | $        | —                             |              |        | —     |         | $ | — |  |  | (2 | ) | $ | 10.69 |  |
| Cancelled                                                                                                                                                                                                                                                                                                                                                                                      |              | —     |         | $        | —                             |              |        | —     |         | $ | — |  |  | (16 | ) | $ | 39.20 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                |              |             |         |          |                                     |              |        |             |         |  |  |  |  |  |  |  |  |  |
| Outstanding at End of Year                                                                                                                                                                                                                                                                                                                                                                     |              | —     |         | $        | —                             |              |        | —     |         | $ | — |  |  | — |  | $ | — |  |
|                                                                                                                                                                                                                                                                                                                                                                                                |              |             |         |          |                                     |              |        |             |         |  |  |  |  |  |  |  |  |  |
| Options Exercisable at End of Year                                                                                                                                                                                                                                                                                                                                                             |              | —     |         | $        | —                             |              |        | —     |         | $ | — |  |  | — |  | $ | — |  |
|                                                                                                                                                                                                                                                                                                                                                                                                |              |             |         |          |                                     |              |        |             |         |  |  |  |  |  |  |  |  |  |

            The following tables summarizethe range of exercise prices and the weighted average remaining contractual life of our options outstanding and the range ofexercise prices for our options exercisable at December 31, 2005 (share data in thousands):

| **Options Outstanding**                                                                                                                                                                                                                                                                                                         |               |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------|
| ****                                                                                                                                                                                                                                                                                                                            |               |
| **Range of Exercise Prices**                                                                                                                                                                                                                                                                                                    |                    | **Shares** |  | **Weighted Average Remaining Contractual Life (in years)** |  |  | **Weighted Average Exercise Price** |
|                                                                                                                                                                                                                                                                                                                                 |     |  |     |  |     |   |  |
| $8.99 -$11.50                                                    |                    | 781 |  | 5.11 |  | $ | 11.02 |
| $11.51 - $14.00                                                                                                                                                                                                                                                                                                                 |                    | 135 |  | 5.42 |  | $ | 12.72 |
| $14.01 - $16.00                                                                                                                                                                                                                                                                                                                 |                    | 956 |  | 3.39 |  | $ | 15.91 |
|                                                                                                                                                                                                                                                                                                                                 |                    |  |  |  |  |  |  |
| $8.99 - $16.00                                                                                                                                                                                                                                                                                                                  |                    | 1,872 |  | 3.88 |  | $ | 14.63 |
|                                                                                                                                                                                                                                                                                                                                 |                    |  |  |  |  |  |  |

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| **Options Exercisable**                                                                                                                                                                                                                                                                                       |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ****                                                                                                                                                                                                                                                                                                          |
| **Range of Exercise Prices**                                                                                                                                                                                                                                                                                  |  | **Shares** |  |  | **Weighted Average Exercise Price** |
| ****                                                                                                                                                                                                                                                                                                          |  | **** | **  ** |  | **** |
| $8.99 -$11.50                                                 |    | 751 |  |  $ | 11.13 |
| $11.51 - $14.00                                                                                                                                                                                                                                                                                               |  | 135 |  | $ | 12.72 |
| $14.01 - $16.00                                                                                                                                                                                                                                                                                               |  | 956 |  | $ | 15.91 |
|                                                                                                                                                                                                                                                                                                               |  |  |  |  |  |
| $8.99 - $16.00                                                                                                                                                                                                                                                                                                |  | 1,842 |  |  $ | 14.93 |
|                                                                                                                                                                                                                                                                                                               |  |  |  |  |  |

            Employee Stock PurchasePlans.  On May 7, 2003, our stockholders approved the ESPP, which authorized the sale of up to one million shares of ourcommon stock.  We have reserved one million shares of our common stock for issuance under the ESPP.  Under the plan, allof our employees are eligible to purchase shares of our common stock at 85% of the lower of the fair market value on the first orlast day of the semi-annual purchase period.  Our first purchase period began on July 1, 2003.  Employees may sell sharesobtained under the ESPP six months after the end of the plan period in which the shares were purchased.  During 2005 and 2004,69,347 and 72,970 shares, respectively, of our common stock were issued to our employees at prices ranging from $7.23 to $10.37 in2005 and prices ranging from $10.32 to $12.75 in 2004.  In January 2006, we issued 39,985 shares of our common stock to ouremployees at $6.88 per share.

            Pro Forma SFAS 123 Results. Pro forma information regarding net income and earnings per share, as detailed in “––Note 1––Summaryof Significant Accounting Policies––(p) Stock Plans and Awards,” has been determined as if we had accounted forour stock options and stock purchase plan under the fair value method of SFAS 123.  The fair value of Holdings’ optionsgranted during 2005, 2004 and 2003 was estimated at the date of grant using the Black-Scholes options pricing model with thefollowing weighted-average assumptions for 2005, 2004 and 2003, respectively: risk-free interest rate of 3.9%, 3.5% and 3.3%,dividend yield of 0%, expected life of the option of 4.8, 7.4 and 6.6 years and expected volatility of Holdings’ stock of55.0%, 68.7% and 69.3%.  Volatility used for options granted in 2005 was based on the actual volatility of our stock. 2004 and 2003 volatility was calculated as an average of the volatility of our and other comparable regional airlines’ stockas our historical data is only available from April 23, 2002.  We changed the method used to estimate volatility in 2005because we believe this is more reflective of our actual volatility than using an industry average.  The weighted-averagegrant date fair value of the stock options granted in 2005, 2004 and 2003 was $5.02, $8.96 and $8.03 per option,respectively.

            The fair value of the purchaserights under the ESPP was also estimated using the Black-Scholes model with the following assumptions for 2005, 2004 and 2003,respectively: risk-free interest rate of 3.8%, 2.0% and 1.0%, dividend yield of 0%, expected volatility of Holdings’ stock of60.8%, 57.3% and 53.7% and an expected life of six months.  The weighted-average fair value of each purchase right granted in2005, 2004 and 2003 was $2.51, $3.53 and $4.20, respectively.

            The Black-Scholes optionvaluation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and arefully transferable.  In addition, option valuation models require the input of highly subjective assumptions including theexpected stock price volatility.  As a result, we believe there are limitations in the Black-Scholes option valuation modelwhen calculating the fair value of our options and purchase rights.  However, due to the limited historical data related toour stock compensation, we believe the Black-Scholes option valuation model currently provides the best estimate.

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**Note 12 –– Employee Benefit Plans**

            Effective December 31, 2002, theExpressJet Airlines, Inc. 401(k) Savings Plan (“401(k) Plan”) was adopted.  Substantially all our domesticemployees are covered by this plan.  Under the plan, we offered the following benefits:

|           | •  | a retirement match up to 5.0% of pay per person (which vests over five years); and                                                                   |
|--------------------------------------------------------|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                        | •  | a service-based match (which vested immediately), depending on years of service and the terms of thecollective bargaining agreements, as applicable. |

            Effective October 1, 2004 forAirlines’ mechanics, who are represented by the International Brotherhood of Teamsters, and January 1, 2005 for all otheremployees, the 401(k) Plan was amended.  Under the amended plan, we offer the following benefits:

|           | •  | a service-based retirement match from 4.0% up to 6.0% of pay per person (which vests over fiveyears) depending on years of service; and                           |
|--------------------------------------------------------|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                        | •  | a service-based retirement contribution (with 5-year cliff vesting) depending on years of serviceand the terms of the collective bargaining agreements, as applicable. |

            For the years ended December 31,2005, 2004 and 2003, our total expense for the defined contribution plan was $18.2 million, $14.5 million and $10.8 million,respectively.

            The ExpressJet Airlines, Inc.Profit Sharing Plan (the “Profit Sharing Plan”) was adopted effective January 1, 2002 and amended on February 17,2005.  Under this plan, if Airlines achieves a 10% operating margin, the Profit Sharing Plan will pay out 5% of eligible basepay received during the year to our eligible employees, which excludes employees whose collective bargaining agreements provideotherwise and employees who participate in our management bonus program or any other bonus program designated by the HumanResources Committee of our Board.  Profit sharing expense for the years ended December 31, 2005, 2004 and 2003 was $11.0million, $10.0 million, and $8.3 million, respectively.

            We also provide medical bridgecoverage for employees between the age of 60 to 65, with at least 10 years of service who have retired from the company.  Asof December 31, 2005 and 2004, our benefit obligation was $2.6 million and $1.8 million, respectively. Total expense recognizedrelated to this obligation for the years ended December 31, 2005, 2004 and 2003 was $0.6 million, $0.7 million and $1.3million.

**Note 13 –– Commitments and Contingencies**

            ***Capacity PurchaseAgreement.***  So long as Continental is our largest customer, if we enter into a capacity purchase or economicallysimilar agreement with another major airline (defined as any airline with annual revenues greater than $500 million, prior toadjustment for inflation since 2000) to provide regional airline service for more than 10 aircraft on terms and conditions thatare, in the aggregate, less favorable to us than those in the capacity purchase agreement, the capacity purchase agreement has aprovision that may allow Continental to amend its agreement with us to conform to the terms and conditions of our newagreement.

            In addition, there are provisionsin the capacity purchase agreement that require us to use commercially reasonable efforts to transfer, subject to applicable laws,to Continental or its designee any of our airport take-off or landing slots, route authorities or other regulatory authorizationsused for Airlines’ scheduled flights under the agreement.

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            Continental is generallyresponsible for all capital and start-up costs for airport terminal facilities at its hub airports and at any other facilitieswhere it elects to provide baggage handling services to us.  If Continental elects to provide baggage handling services at anyfacility where we previously provided baggage handling services, Continental will reimburse us for most of the capital and start-upcosts we incurred at that facility.  We are generally responsible for any capital and start-up costs associated with anyairport terminal facilities at other airports where we fly and any non-terminal facilities not regularly used by Continental. If we exit a market at the direction of Continental (and we do not re-enter that market under our own code or that of an airlineother than Continental within six months), Continental will reimburse us for certain losses incurred in connection with the closureof the related facility.  If the capacity purchase agreement is terminated, we may be required to vacate the terminalfacilities (or all facilities if the termination results from our material breach of the agreement) that are subleased to us byContinental, and to use commercially reasonable efforts to assign to Continental or designee any lease in our name for thesefacilities.

            ***PurchaseCommitments.***  As of December 31, 2005, we had firm commitments to acquire 8 regional jets from Embraer through2006.  The estimated aggregate cost of these firm commitments is approximately $0.2 billion.  We will not have anyobligation to take any of the aircraft under firm commitments if they are not financed by a third party and leased or subleased toeither Continental or us.  We also have options to purchase an additional 100 Embraer regional jets. 

            Prior to December 2005, under ourpower-by-the-hour agreement with Rolls Royce, we were obligated to acquire up to three spare engines to support our existingaircraft and the remaining eight aircraft on firm order.  In December 2005, we negotiated the sale of eight engines to RollsRoyce and, in exchange, entered into seven new engine leases with an affiliate of Rolls Royce. The engines leased have greaterinterchangeability than the engines sold. As a result, we have satisfied our engine obligations and are no longer obligated topurchase the three engines.

            We also have other contractualobligations of approximately $1.3 billion under our power-by-the-hour contracts with various service providers.  Thepower–by-the-hour contracts dictate the method by which we pay a vendor based on our actual level of operations in exchangefor vendor coverage on specific parts and equipment on our aircraft when those parts and equipment are in need of repair orreplacement.  As a result of these agreements, our overall future maintenance costs will not increase; however, our short-termfuture costs will be higher, as we forego our warranty of these components and systems in return for future cost savings, insuranceand more predictable maintenance expense.  These agreements are expected to provide a better match of expenses with the usageof the aircraft.  Each contract varies in term and payment procedure.  The estimated amount of our future commitment isbased on assumptions related to future level of operations and forecasted payment rates.  Our level of operations isdetermined by Continental, which has exclusive scheduling authority over our fleet under the capacity purchase agreement.  Thelevel of operation inherent in the estimate is based on Continental’s most recent operating plan for us, which can be alteredat Continental’s sole discretion.  Forecasted payment rates are based on actual rates as of December 31, 2005 andincreased annually according to the particular inflation index detailed in each individual contract.  Contractual rateincreases at actual time of occurrence may be different than the forecasted rates

            See a summary of all ourcontractual obligations in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results ofOperations – Liquidity and Capital Commitments – Contractual Obligations and Commercial Commitments.”

            ***General Guarantees andIndemnifications.***  Pursuant to the capacity purchase agreement, we indemnify Continental for certain of our actionsand it indemnifies us for some of its actions.  During 2004, we incurred $4.0 million in other operating expenses relating toa claim by Continental for costs incurred during the post-retirement storage of certain turboprop aircraftengines. 

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            Additionally, we are party tomany contracts, in which it is common for us to agree to indemnify third parties for tort liabilities that arise out of or relateto the subject matter of the contract.  In some cases, this indemnity extends to related liabilities that arising from thenegligence of the indemnified parties, but typically excludes liabilities caused by gross negligence or willful misconduct. We cannot estimate the potential amount of future payments under these indemnities until events arise that would trigger aliability under the indemnities.  However, we expect to be covered by insurance for a material portion of these liabilities,subject to deductibles, policy terms and condition.

           ***Employees.*****  As of December 31, 2005, approximately 70% of our employees are covered by collectivebargaining agreements, which include pilots, mechanics, dispatchers and flight attendants.  Our contracts with our pilots,dispatchers and mechanics will be amendable in December 2008, July 2009 and August 2009, respectively.  Our contract with ourflight attendants, which represents approximately 16% of our employees, became amendable in December 2004.  We are currentlyengaged in labor negotiations with our flight attendants.  At this time we cannot predict the outcome of thesenegotiations.  Our other employees are not covered by collective bargaining agreements.

            ***LegalProceedings.***  We are a defendant in various lawsuits and proceedings arising in the ordinary course of ourbusiness.  While the outcome of these lawsuits and proceedings cannot be predicted with certainty and could have a materialadverse effect on our financial position, results of operations or cash flows, we do not believe that the ultimate disposition ofthese proceedings will have a material adverse effect on our financial position, results of operations or cash flows.

**Note 14 –– Related Party Transactions**

            The following is a summary ofsignificant related party transactions that occurred during the three years ended December 31, 2005, other than those discussedelsewhere in the Notes to Consolidated Financial Statements.

            Continental controls thescheduling, ticket prices and seat inventories with respect to Airlines’ operations.  In connection with this activity,Continental performs all sales and ticketing functions for Airlines on Continental ticket stock and receives cash directly from thesale of Airlines’ tickets.  Continental purchases or provides payment of certain items on our behalf, including fuel,certain payroll expenditures (including related benefits) and insurance, and charges us amounts as stipulated in the capacitypurchase agreement.  In general, transfers or sales of assets between us and Continental are recorded at net bookvalue.

            Continental provides variousservices to us and charges us amounts at rates in accordance with the capacity purchase and other agreements.  The servicesprovided to us by Continental are as follows.

|           | •  | Certain customer services such as ground handling.  Charges related to these services wereapproximately $75.3 million, $106.5 million and $90.1 million for the years ended December 31, 2005, 2004 and 2003.                                                                     |
|--------------------------------------------------------|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                        | •  | Centralized services and infrastructure costs, such as technology, transaction processing, treasuryand risk management.  Charges related to these services were approximately $8.7 million, $13.8 million and $14.4 million forthe years ended December 31, 2005, 2004, and 2003. |

            During 2004, we amended ouradministrative support and information services provisioning agreement with Continental, which primarily extended the agreement forthe term of the capacity purchase agreement.  We also amended the capacity purchase agreement to incorporate the amendment toour power-by-the-hour agreement with Rolls Royce that was signed in September 2004.

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            Effective November 1, 2003, weamended our master facility and ground handling agreement with Continental to clarify how Continental allocates rent expenses to usat the airport locations where Airlines operates.  Under this amendment, all terminal facility rents at the hub airports arenow borne by Continental and Airlines pays for incremental rent at other Continental–managed locations unless Continentaldoes not operate any aircraft there.  In these situations, Airlines is responsible for the rent expense.  At locationsAirlines manages, rent is allocated between Continental and Airlines based on the number of respective passengers.

            In December 2005, we recorded acurrent receivable from Continental in the amount of $1.7 million related to the reimbursement of the life-limited parts used onseven of the eight engines sold to Rolls Royce.  This receivable is included in “Amounts due from Continental Airlines,Inc., net” on the face of the balance sheet.

            During 2003, we finalized our2002 income tax returns reflecting the tax impact of our spin-off from Continental.  Upon reconciling the tax impact of thespin-off in our deferred tax accounts, a deferred tax asset of approximately $6.7 million remained.  At the end of 2003, thisasset was included in our deferred tax accounts.  In 2004, based on Continental’s agreement with our reconciliation andthe conclusion that this asset was related to our spin-off from Continental, the item was reclassified as a receivable fromContinental.  In December 2004, we reached an agreement with Continental under which it agreed to pay half of thisbalance.  As a result, in the fourth quarter we recorded a $3.4 million charge in other operating expenses.  Continentalpaid us the remaining balance as full and final satisfaction of this matter in January 2005.

            We also have related-partytransactions between us (including our subsidiaries) and our equity investees or Continental.  The following quantifies suchactivities:

|          | •  | In July 2005, we purchased a 74,000 square foot maintenance facility shop in Miami, Florida for $4.9million.  We lease this property to American Composites, in which we own a 49% interest, under an operating lease.  Rentrevenue from American Composites totaled approximately $0.2 million in 2005. |
|--------------------------------------------------|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                  | •  | During 2005, Wing Holdings and American Composites, in which Holdings owns a non-controllinginterest, provided approximately $0.2 million and $0.1 million worth of services to Airlines, respectively.                                                                                                            |
|                                                  | •  | During 2005, ExpressJet Services, a wholly owned subsidiary of Holdings, performed repair servicesfor Wing Holdings in the amount of $0.1 million.                                                                                                                                                                 |
|                                                  | •  | During 2005, InTech, a wholly owned subsidiary of Holdings since November 2005, reported sales toContinental totaling $0.8 million.                                                                                                                                                                                |

            As of December 31, 2005 and 2004,we had approximately $0.7 million of receivables from our employees (which does not include any of our officers).  Thesereceivables are related to uniforms, flight benefit charges and membership fees that are paid back to us through payrolldeductions. 

**Note 15 –– Subsequent Event**

            In February 2005, our board ofdirectors authorized the inclusion of our 4.25% convertible notes due 2023 in our previously announced $30 million securitiesrepurchase program, which includes our common stock.  We expect any purchases of the notes or the stock to be made from timeto time in the open market or in privately negotiated transactions. The timing of any repurchases under the program will depend ona variety of factors, including market conditions, and may be suspended or discontinued at any time. Common stock acquired throughthe repurchase program will be available for general corporate purposes, and convertible notes repurchased under the program willbe cancelled.

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**Note 16 –– Selected Quarterly Financial Data (Unaudited)**

            Unaudited summarized financialdata by quarter for 2005 and 2004 is as follows (in millions, except per share data):

|                                                                                                                                                                                                                                                                                                                                                      |   | **March 31,** |   |        |   | **June 30,** |   |        |   | **September 30,** |   |        |   | **December 31,** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---|---------------|---|--------|---|--------------|---|--------|---|-------------------|---|--------|---|------------------|---|
| **                                                        ** |   | ****          |   |        |   | ****         |   |        |   | ****              |   |        |   | ****             |   |
| **2005**                                                                                                                                                                                                                                                                                                                                             |   |               |   |        |   |              |   |        |   |                   |   |        |   |                  |   |
| Operating revenue                                                                                                                                                                                                                                                                                                                                    | $ | 375.4         |   |   | $ | 388.7        |   |   | $ | 393.8             |   |   | $ | 404.9            |   |
| Operating income                                                                                                                                                                                                                                                                                                                                     |   | 38.8          |   |        |   | 40.0         |   |        |   | 38.0              |   |        |   | 39.7             |   |
| Non-operating expense, net                                                                                                                                                                                                                                                                                                                           |   | (1.2          | ) |        |   | (0.6         | ) |        |   | (0.5              | ) |        |   | —          |   |
| Net income                                                                                                                                                                                                                                                                                                                                           |   | 23.3          |   |        |   | 24.3         |   |        |   | 25.5              |   |        |   | 24.9             |   |
| Basic earnings per share(1)                                                                                                                                                                                                                                                                                                                          | $ | 0.43          |   |        | $ | 0.45         |   |        | $ | 0.47              |   |        | $ | 0.46             |   |
| Diluted earnings per share(3)                                                                                                                                                                                                                                                                                                                        | $ | 0.39          |   |        | $ | 0.41         |   |        | $ | 0.43              |   |        | $ | 0.42             |   |
|                                                                                                                                                                                                                                                                                                                                            |   |               |   |        |   |              |   |        |   |                   |   |        |   |                  |   |
| **2004**                                                                                                                                                                                                                                                                                                                                             |   |               |   |        |   |              |   |        |   |                   |   |        |   |                  |   |
| Operating revenue                                                                                                                                                                                                                                                                                                                                    | $ | 364.0         |   |        | $ | 370.8        |   |        | $ | 385.7             |   |        | $ | 387.0            |   |
| Operating income                                                                                                                                                                                                                                                                                                                                     |   | 48.6          |   |        |   | 50.1         |   |        |   | 51.6              |   |        |   | 55.0             |   |
| Non-operating expense, net                                                                                                                                                                                                                                                                                                                           |   | (2.1          | ) |        |   | (2.2         | ) |        |   | (1.8              | ) |        |   | (1.3             | ) |
| Net income                                                                                                                                                                                                                                                                                                                                           |   | 28.7          |   |        |   | 29.7         |   |        |   | 30.8              |   |        |   | 33.6             |   |
| Basic earnings per share(1)                                                                                                                                                                                                                                                                                                                          | $ | 0.53          |   |        | $ | 0.55         |   |        | $ | 0.57              |   |        | $ | 0.62             |   |
| Diluted earnings per share(2)(3)                                                                                                                                                                                                                                                                                                                     | $ | 0.48          |   |        | $ | 0.49         |   |        | $ | 0.51              |   |        | $ | 0.56             |   |

|        | (1)   | The sum of the individual quarterly earnings per share does not agree with year-to-date net incomeper share as each quarterly computation is based on the weighted average number of shares outstanding during thatperiod.                                                                   |
|--------------------------------------|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                      | (2)   | We adopted EITF 04-08 in 2004.  As a result, we restated our Diluted EPS to include thepotential common stock equivalents related to our senior convertible notes in our computation of Diluted EPS for all periods inwhich the convertible notes were outstanding (since August 2003). |
|                                      | (3)   | See detailed reconciliation of the numerator and denominator of Basic EPS to the numerator anddenominator of Diluted EPS at - Note 1 - Summary of Significant Accounting Policies - (o) Earnings per Share."                                                                                 |

**Item 9. Changes in and Disagreement with Accountants on Accounting andFinancial Disclosure**

            There were no changes in ordisagreements on any matters of accounting principles of financial statement disclosure between us and our independentauditors.

**Item 9A. Controls and Procedures**

*           **(a)* *Evaluation of disclosure controls and procedures*.  Based on their evaluation of our disclosure controlsand procedures as of the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer haveconcluded that our disclosure controls and procedures are effective.

            *(b) Changes in internalcontrol over financial reporting.*  During the third quarter 2005, we implemented a new software application, AuRA, tomanage our inventory, maintenance and engineering process.  Effective August 1, 2005, AuRA became our system of record forfinancial reporting purposes, which has resulted in a significant change to our internal control over financial reporting. The new business process and the corresponding internal control relating to inventory management continue to be defined bymanagement as we work through the implementation period.  We had identified a significant deficiency relating to thereconciliation of AuRA as of September 30, 2005.  While we have not identified any material weakness in our internal controlover financial reporting at December 31, 2005, we were unable to successfully remediate this significant deficiency in the fourthquarter.  Management expects to take various actions in the first half of 2006 to correct this significantdeficiency. 

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            There have been no changes in ourinternal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.

            *(c)* The Board ofDirectors, acting through its Audit Committee, is responsible for the oversight of our accounting policies, financial reporting andinternal control.  The Audit Committee is comprised entirely of outside directors who are independent and approves decisionsregarding the appointment or removal of the Director of Internal Audit.  It meets periodically with management, theindependent auditors and the internal auditors to ensure that they are carrying out their responsibilities.  The AuditCommittee is also responsible for performing an oversight role by reviewing the Company’s financial reports.  Theindependent auditors and the internal auditors have full and unlimited access to the Audit Committee, with or without management,to discuss the adequacy of internal control over financial reporting, and any other matters which they believe should be brought tothe attention of the Audit Committee.

**Item 9B. Other Information**

****

**Resignation of Director and Reclassification of Director**

            On February 23, 2006, L.E.Simmons resigned from the company’s board of directors due to the time demands of his own business and its investments andsubsidiaries.  Mr. Simmons was serving in Class III of the company’s board.  As a result of his departure, and tocomply with the rules of the New York Stock Exchange, the board voted on February 23, 2006, to reduce the size of each of Class Iand Class III to two directors and to move director Thomas W. Horton, who currently serves on our Audit and Human ResourcesCommittees, from Class I to Class III to fill the vacancy in Class III.  As a result, the company’s board of directorsis now comprised of the following directors and classes:

| **Class I**            |                      | **Class II**            |     | **Class III**          |
|------------------------|--------------------------------|-------------------------|--------------------|------------------------|
| (terms expire in 2008) |       | (terms expire in 2006)  |          | (terms expire in 2007) |
|              |                                |                         |                    |                        |
| James B. Ream          |                                | George R. Bravante, Jr. |                    | Thomas W. Horton       |
| Richard Reitz          |                                | Janet M. Clarke         |                    | Kim A. Fadel           |
|                        |                                | Richard F. Wallman      |                    |                        |

**Incentive Awards**

            On February 21, 2006, the HumanResources Committee of the board of directors made awards under the ExpressJet Holdings, Inc. Long Term Incentive Plan to certainmanagement employees of the company, including the executive officers named in our most recent proxy statement.  The materialterms of the plan were previously disclosed in, and the plan and form of participation agreement were previously filed with, ourcurrent report on Form 8-K filed on January 31, 2006.  Pursuant to the awards, James Ream will be entitled to a cash bonuspayable at the end of 2006 equal to $280,000, and Frederick Cromer, Jerry Losness and Scott Peterson will be entitled to cashbonuses equal to approximately $150,800, $130,500 and $121,800, respectively, provided they remain employed by the company throughthe end of the year.

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**PART III**

****

**Item 10. Directors and Executive Officers of the Registrant**

            The information required by Item10 is incorporated herein by reference to the information set forth in the definitive proxy statement for our 2006 annual meetingof stockholders.

**Item 11. Executive Compensation**

            The information required by Item11 is incorporated herein by reference to the information set forth in the definitive proxy statement for our 2006 annual meetingof stockholders.

**Item 12. Security Ownership of Certain Beneficial Owners andManagement**

            The information required by Item12 is incorporated herein by reference to the information set forth in the definitive proxy statement for our 2006 annual meetingof stockholders.

**Item 13. Certain Relationships and Related Transactions**

            The information required by Item13 is incorporated herein by reference to the information set forth in the definitive proxy statement for our 2006 annual meetingof stockholders.

**Item 14. Principal Accounting Fees and Services**

            The information required by Item14 is incorporated herein by reference to the information set forth in the definitive proxy statement for our 2006 annual meetingof stockholders.

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**PART IV**

**Item 15. Exhibits, Financial Statement Schedules**

The following financial statements are included in Part II, Item 8. "Financial Statements andSupplementary Data":
| (a) |    | (1) |    | Financial Statements                                                                                                    |
|-----|--------------|-----|--------------|-------------------------------------------------------------------------------------------------------------------------|
|     |              |     |              |                                                                                                                    |
|     |              |     | •  | Report of Management                                                                                                    |
|     |              |     | •  | Report of Independent Registered Public Accounting Firm                                                                 |
|     |              |     | •  | Report of Independent Registered Public Accounting Firm on Internal Control over FinancialReporting                     |
|     |              |     | •  | Consolidated Statements of Operations for each of the Three Years in the Period Ended December 31,2005                  |
|     |              |     | •  | Consolidated Balance Sheets as of December 31, 2005 and 2004                                                            |
|     |              |     | •  | Consolidated Statements of Cash Flows for each of the Three Years in the Period Ended December 312005                   |
|     |              |     | •  | Consolidated Statements of Common Stockholders' Equity for each of the Three Years in the PeriodEnded December 31, 2005 |
|     |              |     | •  | Notes to Consolidated Financial Statements                                                                              |
|     |              |     |         |                                                                                                                         |
|     |              | (2) |              | Financial Statement Schedules:                                                                                          |
|     |              |     |              |                                                                                                               |
|     |              |     | •  | Report of Independent Registered Public Accounting Firm                                                                 |
|     |              |     | •  | Schedule II - Valuation and Qualifying Accounts                                                                         |

            All other schedules have beenomitted because they are inapplicable, not required or the information is included elsewhere in the consolidated financialstatements or notes thereto.

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| **Exhibit Number** |        |         |        | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|--------------------|--------|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|          |        |         |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 3.1                |   | — |   | Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company'sreport on Form 10-Q for the quarter ended March 31, 2005, File No. 1-31300, the “Q105 10-Q”).                                                                                                                                                                                                                                                 |
| 3.2                |        | — |   | Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Company's report on Form 10-K for the year endedDecember 31, 2002, file No. 1-31300, the "2002 10-K").                                                                                                                                                                                                                                                                       |
| 4.1                |        | — |   | Specimen Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement onForm S-1, Reg. No. 333-64808, the “S-1”).                                                                                                                                                                                                                                                                      |
| 4.2                |        | — |   | Rights Agreement among the Company, Continental Airlines, Inc. ("Continental") and Mellon Investor Services LLC, as Rights Agent,including form of Rights Certificate, dated April 1, 2002 (incorporated by reference to Exhibit 4.2 to the Company's report on Form10-Q for the quarter ended March 31, 2002, File No. 1-31300, the "Q102 10-Q").                                                                                                        |
| 4.3                |        | — |   | Indenture among the Company, ExpressJet Airlines, Inc., ("Airlines") and Bank One, N.A., dated August 5, 2003, relating to theCompany's 4.25% Convertible Notes due 2023 (incorporated by reference to Exhibit 10.1 to the Company's report on Form 8-K datedSeptember 2, 2003, File No. 1-31300).                                                                                                                                                        |
| 4.3                | (a)    | — |   | Form of 4.25% Convertible Note due 2023 (included with Exhibit 4.3).                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.3                | (b)    | — |   | Form of Notation of Guarantee (included with Exhibit 4.3).                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.4                |        | — |   | Registration Rights Agreement among the Company and Citigroup Global Markets Inc., Credit Suisse First Boston LLC, Morgan Stanley& Co. Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Goldman Sachs & Co. and UBS Securities LLC, asinitial purchasers, dated August 5, 2003 (incorporated by reference to Exhibit 10.3 to the Company's Registration Statement on FormS-3 dated September 25, 2003, Reg. No. 333-109108). |
| 10.1               |        | — |   | Amended and Restated Capacity Purchase Agreement (the "CPA") among the Company, XJT Holdings, Inc. ("XJT"), Airlines andContinental (incorporated by reference to Exhibit 10.1 to the S-1).(3)                                                                                                                                                                                                                                                            |
| 10.1               | (a)    | — |   | First Amendment to the CPA dated March 27, 2003 (incorporated by reference to Exhibit 10.1 to the Company's report on Form 10-Qfor the quarter ended March 31, 2003, File No. 1-31300, the "Q103 10-Q").                                                                                                                                                                                                                                                  |
| 10.1               | (b)    | — |   | Second Amendment to the CPA dated December 9, 2003 (incorporated by reference to Exhibit 10.1(b) to the Company's report on Form10-K for the year ended December 31, 2003, File No. 1-31300, the "2003 10-K").                                                                                                                                                                                                                                            |
| 10.1               | (c)    | — |   | Third Amendment to the CPA dated September 28, 2004 (incorporated by reference to Exhibit 10.2 to the Company’s report onForm 10-Q for the quarter ended September 30, 2004, File No. 1-31300).                                                                                                                                                                                                                                                     |
| 10.1               | (d)    | — |   | Fourth Amendment to the CPA dated March 11, 2005 (incorporated by reference to Exhibit 10.1(d) to the Company’s Report onForm 10-K for the year ended December 31, 2004, File No. 1-31300, the “2004 10-K”).(3)                                                                                                                                                                                                                         |

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| 10.2 |     | — |   | Master Facility and Ground Handling Agreement (the "Facility Agreement") among the Company, Airlines and Continental dated January1, 2001 (incorporated by reference to Exhibit 10.2 to the S-1).                                                |
|------|-----|---------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.2 | (a) | — |   | First Amendment to the Facility Agreement dated November 1, 2003 (incorporated by reference to Exhibit 10.2(a) to the 200310-K).                                                                                                                 |
| 10.3 |     | — |   | Amended and Restated Administrative Support and Information Services Provisioning Agreement dated March 11, 2005(incorporated by reference to Exhibit 10.1(d) to the 2004 10-K).                                                                 |
| 10.4 |     | — |   | Initial Public Offering Agreement between the Company and Continental dated April 17, 2002 (incorporated by reference to Exhibit10.4 to the Q102 10-Q).                                                                                          |
| 10.5 |     | — |   | Registration Rights Agreement between the Company and Continental dated April 17, 2002 (incorporated by reference to Exhibit 10.5to the Q102 10-Q).                                                                                              |
| 10.6 |     | — |   | Employee Benefits Separation Agreement (the "Separation Agreement") among the Company, XJT, Airlines and Continental dated April17, 2002 (incorporated by reference to Exhibit 10.6 to the Q102 10-Q).                                           |
| 10.6 | (a) | — |   | First Amendment to the Separation Agreement dated March 27, 2003 (incorporated by reference to Exhibit 10.5 to the Q10310-Q).                                                                                                                    |
| 10.6 | (b) | — |   | Second Amendment to the Separation Agreement dated December 9, 2003 (incorporated by reference to Exhibit 10.6(b) to the 200310-K).                                                                                                              |
| 10.6 | (c) | — |   | Third Amendment to the Separation Agreement dated June 24, 2005 (incorporated by reference to Exhibit 10.1 to the Company’sreport on Form 10-Q for the quarter ended June 30, 2005, File No. 1-31300, the “Q205 10-Q”).        |
| 10.7 |     | — |   | Amended and Restated Tax Agreement among the Company, Airlines and Continental dated April 17, 2002 (incorporated by reference toExhibit 10.6 to the Company’s report on Form 10-Q for the quarter ended June 30, 2002, File No. 1-31300). |
| 10.8 |     | — |   | Promissory Note, amended and restated effective November 5, 2002, made by Airlines in favor of Continental (incorporated byreference to Exhibit 10.20 to the 2002 10-K).                                                                         |
| 10.8 | (a) | — |   | First Amendment to Promissory Note, dated March 27, 2003 (incorporated by reference to Exhibit 10.4 to the Q103 10-Q).                                                                                                                           |
| 10.9 |     | — |   | 2002 Stock Incentive Plan ("SIP") (incorporated by reference to Exhibit 10.8 to the Q102 10-Q). (5)                                                                                                                                              |
| 10.9 | (a) | — |   | Form of Employee Stock Option Agreement pursuant to SIP (incorporated by reference to Exhibit 10.8(a) to the S-1).(5)                                                                                                                            |
| 10.9 | (b) | — |   | Form of Outside Director Stock Option Agreement pursuant to SIP (incorporated by reference to Exhibit 10.8(b) to the S-1).(5)                                                                                                                    |

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| 10.9  | (c) | — |   | Form of Employee Restricted Stock Option Agreement pursuant to SIP (incorporated by reference to Exhibit 10.1 to theCompany’s report on Form 10-Q for the quarter ended June 30, 2004, File No. 1-31300, the “Q204 10-Q”).(5)                                                                                               |
|-------|-----|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.9  | (d) | — |   | Form of Outside Director Restricted Stock Agreement pursuant to SIP (incorporated by reference to Exhibit 10.2 to the Q204 10-Q).(5)                                                                                                                                                                                                          |
| 10.10 |     | — |   | Management Bonus Plan as amended and restated through February 17, 2005 (incorporated by reference to Exhibit 99.1 to theCompany's report on Form 8-K dated February 17, 2005, File No. 1-31300). (5)                                                                                                                                         |
| 10.11 |     | — |   | Supplemental Retirement Plan as amended and restated effective May 5, 2004 (incorporated by reference to Exhibit 10.3 to the Q20410-Q). (5)                                                                                                                                                                                                   |
| 10.12 |     | — |   | Employment Agreement among the Company, Continental and James. B. Ream (incorporated by reference to Exhibit 10.9 to the S-1).(5)                                                                                                                                                                                                             |
| 10.12 | (a) | — |   | Letter Agreement among the Company, Continental and Mr. Ream dated April 24, 2002 (incorporated by reference to Exhibit 10.9(a) tothe Q102 10-Q). (5)                                                                                                                                                                                         |
| 10.12 | (b) | — |   | Amendment to Mr. Ream's Employment Agreement dated March 14, 2005 (incorporated by reference to Exhibit 10.12(b) to the 200410-K). (5)                                                                                                                                                                                                        |
| 10.13 |     | — |   | Employment Agreement among the Company, Continental and Frederick S. Cromer (incorporated by reference to Exhibit 10.10 to theS-1). (5)                                                                                                                                                                                                       |
| 10.13 | (a) | — |   | Letter Agreement among the Company, Continental and Mr. Cromer dated April 24, 2002 (incorporated by reference to Exhibit 10.10(a)to the Q102 10-Q). (5)                                                                                                                                                                                      |
| 10.13 | (b) | — |   | Amendment to Mr. Cromer's Employment Agreement dated March 14, 2005 (incorporated by reference to Exhibit 10.13(b) to the 200410-K). (5)                                                                                                                                                                                                      |
| 10.14 |     | — |   | Employment Agreement among the Company, Continental and Jerry E. Losness (incorporated by reference to Exhibit 10.10 to the S-1).(5)                                                                                                                                                                                                          |
| 10.14 | (a) | — |   | Letter Agreement among the Company, Continental and Mr. Losness dated April 24, 2002 (incorporated by reference to Exhibit10.10(a) to the Q102 10-Q). (5)                                                                                                                                                                                     |
| 10.14 | (b) | — |   | Amendment to Mr. Losness's Employment Agreement dated March 14, 2005 (incorporated by reference to Exhibit 10.14(b) to the 200410-K). (5)                                                                                                                                                                                                     |
| 10.15 |     | — |   | Employment Agreement among the Company, Continental and Scott R. Peterson  as amended and restated through March 14, 2005(incorporated by reference to Exhibit 10.15 to the 2004 10-K). (5)                                                                                                                                              |
| 10.16 |     | — |   | Purchase Agreement No. GPJ-003/96, between Empresa Brasileira de Aeronautica S. A. ("Embraer") and Airlines dated August 5, 1996relating to the purchase of EMB 145 aircraft ("P.A. 3/96") (incorporated by reference to Exhibit 10.3 to Amendment No. 1 toEmbraer's Form F-1 Registration Statement (No. 333-12220) (the "Embraer F-1"). (3) |
| 10.16 | (a) | — |   | Amendment No. 1 to P.A. 3/96 dated August 31, 1996 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).                                                                                                                                                                                                                            |

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| 10.16 | (b) | — |   | Amendment No. 2 to P.A. 3/96 dated May 22, 1997 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).(3)                                                                                                                        |
|-------|-----|---------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.16 | (c) | — |   | Amendment No. 3 to P.A. 3/96 dated August 20, 1997 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).(3)                                                                                                                     |
| 10.16 | (d) | — |   | Amendment No. 4 to P.A. 3/96 dated October 1, 1997 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).(3)                                                                                                                     |
| 10.16 | (e) | — |   | Amendment No. 5 to P.A. 3/96 dated November 12, 1997 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).(3)                                                                                                                   |
| 10.16 | (f) | — |   | Amendment No. 6 to P.A. 3/96 dated August 19, 1998 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).(3)                                                                                                                     |
| 10.16 | (g) | — |   | Amendment No. 7 to P.A. 3/96 dated February 19, 1999 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).(3)                                                                                                                   |
| 10.16 | (h) | — |   | Amendment No. 8 to P.A. 3/96 dated March 31, 1999 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).(3)                                                                                                                      |
| 10.16 | (i) | — |   | Amendment No. 9 to P.A. 3/96 dated October 29, 1999 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).(3)                                                                                                                    |
| 10.16 | (j) | — |   | Amendment No. 10 to P.A. 3/96 dated October 20, 1999 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).(3)                                                                                                                   |
| 10.16 | (k) | — |   | Amendment No. 11 to P.A. 3/96 dated December 15, 1999 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).(3)                                                                                                                  |
| 10.16 | (l) | — |   | Amendment No. 12 to P.A. 3/96 dated February 18, 2000 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).(3)                                                                                                                  |
| 10.16 | (m) | — |   | Amendment No. 13 to P.A. 3/96 dated April 28, 2000 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).(3)                                                                                                                     |
| 10.16 | (n) | — |   | Amendment No. 14 to P.A. 3/96 dated April 28, 2000 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).(3)                                                                                                                     |
| 10.16 | (o) | — |   | Amendment No. 15 to P.A. 3/96 dated July 25, 2000 (incorporated by reference to Exhibit 10.3(o) to Continental's report on Form10-K for the year ended December  31, 2000, File No. 1-10323, the “Continental 2000 10-K"). (3) |
| 10.16 | (p) | — |   | Amendment No. 16 to P.A. 3/96 dated July 24, 2000 (incorporated by reference to Exhibit 10.33(p) to the Continental 2000 10-K).(3)                                                                                                        |
| 10.16 | (q) | — |   | Amendment No. 17 to P.A. 3/96 dated November 7, 2000 (incorporated by reference to Exhibit 10.33(q) to the Continental 2000 10-K).(3)                                                                                                     |
| 10.16 | (r) | — |   | Amendment No. 18 to P.A. 3/96 dated November 17, 2000 (incorporated by reference to Exhibit 10.33(r) to the Continental 200010-K). (3)                                                                                                    |

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| 10.16 | (s)  | — |   | Amendment No. 19 to P.A. 3/96 dated July 31, 2001 (incorporated by reference to Exhibit 10.35(s) to Continental's report on Form10-K for the year ended December 31, 2001, File no. 1-10323, the "Continental 2001 10-K"). (3)     |
|-------|------|---------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.16 | (t)  | — |   | Amendment No. 20 to P.A. 3/96 dated July 31, 2001 (incorporated by reference to Exhibit 10.35(t) to the Continental 2000 10-K).(3)                                                                                                 |
| 10.16 | (u)  | — |   | Amendment No. 21 to P.A. 3/96 dated October 10, 2001 (incorporated by reference to Exhibit 10.35(u) to the Continental 2000 10-K).(3)                                                                                              |
| 10.16 | (v)  | — |   | Amendment No. 22 to P.A. 3/96 dated January 24, 2002 (incorporated by reference to Exhibit 10.35(v) to the Continental 2000 10-K).(3)                                                                                              |
| 10.16 | (w)  | — |   | Amendment No. 23 to P.A. 3/96 dated February 28, 2002 (incorporated by reference to Exhibit 10.6 to Continental's report on Form10-Q for the quarterly period ended March 31, 2002, File No. 1-10323, the "Continental 10-Q"). (3) |
| 10.16 | (x)  | — |   | Amendment No. 24 to P.A. 3/96 dated March 28, 2002 (incorporated by reference to Exhibit 10.7 to the Continental 10-Q).(3)                                                                                                         |
| 10.16 | (y)  | — |   | Amendment No. 25 to P.A. 3/96 dated July 9, 2002 (incorporated by reference to Exhibit 10.22 to the Company's report on Form 10-Qfor the quarter ended September 30, 2002, the "Q302 10-Q"). (3)                                   |
| 10.16 | (z)  | — |   | Amendment No. 26 to P.A. 3/96 dated August 30, 2002 (incorporated by reference to Exhibit 10.23 to the Q302 10-Q).(3)                                                                                                              |
| 10.16 | (aa) | — |   | Amendment No. 27 to P.A. 3/96 dated December 27, 2002 (incorporated by reference to Exhibit 10.24 to the 2002 10-K).(3)                                                                                                            |
| 10.16 | (ab) | — |   | Amendment No. 28 to P.A. 3/96 dated February 10, 2003 (incorporated by reference to Exhibit 10.2 to the Q103 10-Q).(3)                                                                                                             |
| 10.16 | (ac) | — |   | Amendment No. 29 to P.A. 3/96 dated February 26, 2003 (incorporated by reference to Exhibit 10.3 to the Q103 10-Q).(3)                                                                                                             |
| 10.16 | (ad) | — |   | Amendment No. 30 to P.A. 3/96 dated January 12, 2004 (incorporated by reference to Exhibit 10.2 to the Q104 10-Q).(3)                                                                                                              |
| 10.16 | (ae) | — |   | Amendment No. 31 to P.A. 3/96 dated March 16, 2004 (incorporated by reference to Exhibit 10.3 to the Q104 10-Q).(3)                                                                                                                |
| 10.16 | (af) | — |   | Amendment No. 32 to P.A. 3/96 dated May 31, 2005 (incorporated by reference to Exhibit 10.2 to the Q205 10-Q).(3)                                                                                                                  |
| 10.16 | (ag) | — |   | Amendment No. 33 to P.A. 3/96 dated December 1, 2005. (1)(4)                                                                                                                                                                       |
| 10.17 |      | — |   | Letter Agreement No. GPJ-004/96 dated August 5, 1996 between Embraer and Airlines ("L.A. 4/96") (incorporated by reference toExhibit 10.3 to the Embraer F-1) (3)                                                                  |

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| 10.17 | (a) | — |   | Amendment No. 1 to L.A. 4/96 dated August 31, 1996 (incorporated by reference to Exhibit 10.34(a) to the Continental 200010-K).                                                                                     |
|-------|-----|---------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.17 | (b) | — |   | Amendment No. 2 to L.A. 4/96 and Amendment No. 1 to L.A. 4A/96 (defined below) dated July 24, 2000 between Embraer and Airlines(incorporated by reference to Exhibit 10.34(b) to the Continental 2000 10-K). (3)    |
| 10.17 | (c) | — |   | Amendment No. 3 to L.A. 4/96 and Amendment No. 1 to L.A. 4A/96 (defined below) dated January 24, 2002 between Embraer and Airlines(incorporated by reference to Exhibit 10.36(c) to the Continental 2001 10-K). (3) |
| 10.17 | (d) | — |   | Amendment No.4 to L.A. 4/96 dated January 12, 2004 between Embraer and Airlines (incorporated by reference to Exhibit 10.1 to theQ104 10-Q). (3)                                                                    |
| 10.18 |     | — |   | Letter Agreement No. PCJ-004A/96 dated August 31, 1996 among Continental Airlines and Embraer ("L.A. 4A/96") (incorporated byreference to Exhibit 10.3 to the Embraer F-1) (3)                                      |
| 10.19 |     | — |   | Letter Agreement DCT 059/2000 dated October 27, 2000 between Airlines and Embraer (incorporated by reference to Exhibit 10.36 tothe Continental 2000 10-K). (3)                                                     |
| 10.20 |     | — |   | Purchase Agreement No. DCT-054/98 dated December 23, 1998 between Embraer and Airlines ("P.A. 54/98") (incorporated by referenceto Exhibit 10.3 to the Embraer F-1). (3)                                            |
| 10.20 | (a) | — |   | Amendment No. 1 to P.A. 54/98 dated July 30, 1999 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).(3)                                                                                                |
| 10.20 | (b) | — |   | Amendment No. 2 to P.A. 54/98 dated July 30, 1999 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).(3)                                                                                                |
| 10.20 | (c) | — |   | Amendment No. 3 to P.A. 54/98 dated October 21, 1999 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).(3)                                                                                             |
| 10.20 | (d) | — |   | Amendment No. 4 to P.A. 54/98 dated January 31, 2000 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).(3)                                                                                             |
| 10.20 | (e) | — |   | Amendment No. 5 to P.A. 54/98 dated February 15, 2000 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).(3)                                                                                            |
| 10.20 | (f) | — |   | Amendment No. 6 to P.A. 54/98 dated April 17, 2000 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).(3)                                                                                               |
| 10.20 | (g) | — |        | Amendment No. 7 to P.A. 54/98 dated July 24, 2000 (incorporated by reference to Exhibit 10.37(g) to the Continental 2000 10-K.(3)                                                                                   |
| 10.20 | (h) | — |        | Amendment No. 8 to P.A. 54/98 dated November 7, 2000 (incorporated by reference to Exhibit 10.37(h) to the Continental 2000 10-K).(3)                                                                               |
| 10.20 | (i) | — |        | Amendment No. 9 to P.A. 54/98 dated September 20, 2000 (incorporated by reference to Exhibit 10.37(i) to the Continental 200010-K). (3)                                                                             |

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| 10.20 | (j) | — |   | Amendment No. 10 to P.A. 54/98 dated November 17, 2000 (incorporated by reference to Exhibit 10.37(j) to the Continental 200010-K). (3)                                                                       |
|-------|-----|---------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.20 | (k) | — |        | Amendment No. 11 to P.A. 54/98 dated July 31, 2001 (incorporated by reference to Exhibit 10.39(k) to the Continental 2000 10-K).(3)                                                                           |
| 10.20 | (l) | — |        | Amendment No. 12 to P.A. 54/98 dated July 31, 2001 (incorporated by reference to Exhibit 10.39(l) to the Continental 2000 10-K).(3)                                                                           |
| 10.20 | (m) | — |        | Amendment No. 13 to P.A. 54/98 dated October 10, 2001 (incorporated by reference to Exhibit 10.39(m) to the Continental 200010-K). (3)                                                                        |
| 10.20 | (n) | — |        | Amendment No. 14 to P.A. 54/98 dated January 24, 2002 (incorporated by reference to Exhibit 10.39(n) to the Continental 200010-K). (3)                                                                        |
| 10.21 |     | — |        | Letter of Agreement DCT-055/98 dated December 23, 1998 between Airlines and Embraer ("L.A. 55/98") (incorporated by reference toExhibit 10.38 to the Continental 2000 10-K). (3)                              |
| 10.21 | (a) | — |        | Amendment No. 1 to L.A. 55/98 dated July 24, 2000 (incorporated by reference to Exhibit 10.38(a) to the Continental 2000 10-K).(3)                                                                            |
| 10.22 |     | — |        | EMB-135 Financing Letter of Agreement dated March 23, 2000 among Continental, Airlines and Embraer ("L.A. 135") (incorporated byreference to Exhibit 10.39 to the Continental 2000 10-K). (3)                 |
| 10.22 | (a) | — |        | Amendment No. 1 to L.A. 135 (incorporated by reference to Exhibit 10.39(a) to the Continental 2000 10-K).(3)                                                                                                  |
| 10.22 | (b) | — |        | Amendment No. 2 to L.A.135 (incorporated by reference to Exhibit 10.39(b) to the Continental 2000 10-K). (3)                                                                                                  |
| 10.22 | (c) | — |        | Amendment No. 3 to L.A.135 (incorporated by reference to Exhibit 10.39(c) to the Continental 2000 10-K). (3)                                                                                                  |
| 10.23 |     | — |        | Letter Agreement DCT-058/2000 dated October 27, 2000 between Embraer and Airlines (incorporated by reference to Exhibit 10.40 tothe Continental 2000 10-K). (3)                                               |
| 10.24 |     | — |        | Form of Amended and Restated Letter Agreement relating to certain flight benefits between the Company and each of its non-employeedirectors (incorporated by reference to Exhibit 10.1 to the 3Q04 10-Q). (5) |
| 10.25 |     | — |        | Schedule of compensation payable to the Company’s non-employee directors (incorporated by reference to Exhibit 10.1 to theQ105 10-Q). (5)                                                               |
| 10.26 |     | — |        | ExpressJet Holdings, Inc. Long Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s report onForm 8-K dated January 31, 2006, File No. 1-31300). (5)                         |
| 10.26 | (a) | — |        | Form of Participation Agreement under the ExpressJet Holdings, Inc. Long Term Incentive Plan (included with Exhibit 10.26).(5)                                                                                |

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| 21.1   |              | —                                                                                                                                                                                                 |   | Subsidiaries of the Company. (1)                                       |
|--------|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------|
| 23.1   |              | —                                                                                                                                                                                                 |        | Consent of Independent Registered Public Accounting Firm. (1)          |
| 24.1   |              | —                                                                                                                                                                                                 |        | Powers of Attorney. (1)                                                |
| 31.1   |              | —                                                                                                                                                                                                 |        | Rule 13a-14(a)/15d-14(a) Certification by Chief Executive Officer. (1) |
| 31.2   |              | —                                                                                                                                                                                                 |        | Rule 13a-14(a)/15d-14(a) Certification by Chief Financial Officer. (1) |
| 32.1   |              | —                                                                                                                                                                                                 |        | Section 1350 Certification by Chief Executive Officer. (2)             |
| 32.2   |              | —                                                                                                                                                                                                 |        | Section 1350 Certification by Chief Financial Officer. (2)             |
|   |    |
| (1)    |         | Filed herewith.                                                                                                                                                                                         |
| (2)    |              | Furnished herewith.                                                                                                                                                                                     |
| (3)    |              | The SEC has granted confidential treatment for portions of these exhibits.  Omitted materialfor which confidential treatment has been granted has been filed separately with the SEC.              |
| (4)    |              | The Company has applied to the SEC for confidential treatment for portions of this exhibit. Omittedmaterial for which confidential treatment has been requested has been filed separately with the SEC. |
| (5)    |              | Management contract or compensatory plan or arrangement in which a director or executive officerparticipates.                                                                                           |

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SIGNATURES

            Pursuant to the requirements ofSection 13 or 15(d) of the Securities Exchange Act of 1934, ExpressJet Holdings, Inc. has duly caused this report to be signed onits behalf by the undersigned, thereunto duly authorized.

|                                                                                                             |                                                   |           | EXPRESSJET HOLDINGS, INC. (Registrant)                                                                                                                                                                                                                                       |
|------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------|-----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Date:  February 27, 2006              |           |  By: | /s/ Frederick S.Cromer                                          |
|                                                                                                                  |                                                        |           | Frederick S. Cromer Vice President and Chief Financial Officer                                                                                                                                                                                                               |

            Pursuant to the requirements ofthe Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and inthe capacities indicated on February 27, 2006.

| Signatures                                                     |                                      | Capacity                                                                      |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------|-------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                    |                                      |                                                                               |
|    /s/ JAMES B.REAM                              James B. Ream                                                                                                     |        | President, Chief Executive Officer and Director (Principal Executive Officer) |
|    /s/ FREDERICK S.CROMER                 Frederick S. Cromer                                                                                                                                                                       |                                      | Vice President and Chief Financial Officer (Principal Financial Officer)      |
|    /s/ PHUNGNGO-BURNS                       Phung Ngo-Burns                                                                                                                                           |                                      | Staff Vice President and Controller (Principal Accounting Officer)            |
|    /s/ GEORGE R. BRAVANTE, JR. *         George R. Bravante, Jr.                                                                                                                                                                                                            |                                      | Director                                                                      |
|    /s/ JANETCLARKE*                  Janet Clarke                                                                                                                                                                              |                                      | Director                                                                      |
|    /s/ KIM A.FADEL*                                 Kim A. Fadel                                                                                    |                                      | Director                                                                      |
|    /s/ THOMAS W.HORTON*                     Thomas W. Horton                                                                                                                                                    |                                      | Director                                                                      |
|    /s/ RICHARDREITZ*                              Richard Reitz                                                                                                    |                                      | Director                                                                      |
|    /s/ RICHARD F.WALLMAN*                   Richard F. Wallman                                                                                                                                                            |                                      | Director                                                                      |

|                                                            |    | * By: | /s/ SCOTT R.PETERSON                  |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|-------|----------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                              |              |       | Scott R. Peterson Attorney in Fact February 27, 2006                                                                       |

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

We have audited the consolidated financial statements of ExpressJet Holdings, Inc. (the“Company”) as of December 31, 2005 and 2004, and for each of the three years in the period ended December 31, 2005, andhave issued our report thereon dated February 24, 2006 (included elsewhere in this Form 10-K).  Our audits also included thefinancial statement schedule listed in Item 15(a)(2) of this Form 10-K.  This schedule is the responsibility of theCompany’s management.  Our responsibility is to express an opinion based on our audits.

In our opinion, the financial statement schedule referred to above, when considered in relation tothe basic financial statements taken as a whole, presents fairly in all material respects the information set forththerein.

                                                                                   

                                                                                                           ERNST & YOUNG LLP

Houston, Texas

February 24, 2006

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**EXPRESSJET HOLDINGS, INC.SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTSFor the Years Ended December 31, 2003, 2004, and 2005(In thousands)**

|                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | **Allowance for Doubtful Receivables** |   |              |   | **Allowance for Obsolescence** |   |              |   | **Deferred Tax Asset Valuation Allowance (1)** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---|----------------------------------------|---|--------------|---|--------------------------------|---|--------------|---|------------------------------------------------|---|
|                                                                        |   |                                        |   |              |   |                                |   |              |   |                                                |   |
| Balance, December 31, 2002                                                                                                                                                                                                                                                                                                                                                                                                           | $ | 57                                     |   |              | $ | 16,960                         |   |              | $ | 384,514                                        |   |
|    Additions charged to expense                                                                                                                                                                                                                                                                                                                                                                                       |   | 42                                     |   |    |   | 1,703                          |   |    |   | —                                        |   |
|    Deductions from reserve (2)                                                                                                                                                                                                                                                                                                                                                                                        |   | —                                |   |              |   | (12,148                        | ) |              |   | (16,603                                        | ) |
|    Other (3)                                                                                                                                                                                                                                                                                                                                                                                                          |   | —                                |   |              |   | 392                            |   |              |   | 52,757                                         |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                        |   |              |   |                                |   |              |   |                                                |   |
| Balance, December 31, 2003                                                                                                                                                                                                                                                                                                                                                                                                           |   | 99                                     |   |              |   | 6,907                          |   |              |   | 420,668                                        |   |
|    Additions charged to expense                                                                                                                                                                                                                                                                                                                                                                                       |   | 147                                    |   |              |   | 1,825                          |   |              |   | —                                        |   |
|    Deductions from reserve (2)                                                                                                                                                                                                                                                                                                                                                                                        |   | (147                                   | ) |              |   | (793                           | ) |              |   | (56,964                                        | ) |
|    Other (3)                                                                                                                                                                                                                                                                                                                                                                                                          |   | —                                |   |              |   | 519                            |   |              |   | (1,666                                         | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                        |   |              |   |                                |   |              |   |                                                |   |
| Balance, December 31, 2004                                                                                                                                                                                                                                                                                                                                                                                                           |   | 99                                     |   |              |   | 8,458                          |   |              |   | 362,038                                        |   |
|    Additions charged to expense                                                                                                                                                                                                                                                                                                                                                                                       |   | 7                                      |   |              |   | 1,840                          |   |              |   | —                                        |   |
|    Deductions from reserve (2)                                                                                                                                                                                                                                                                                                                                                                                        |   | (7                                     | ) |              |   | (1,350                         | ) |              |   | (25,266                                        | ) |
|    Other (3)                                                                                                                                                                                                                                                                                                                                                                                                          |   | —                                |   |              |   | 153                            |   |              |   | (1,966                                         | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                        |   |              |   |                                |   |              |   |                                                |   |
| Balance, December 31, 2005                                                                                                                                                                                                                                                                                                                                                                                                           | $ | 99                                     |   |              | $ | 9,101                          |   |              | $ | 334,806                                        |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                        |   |              |   |                                |   |              |   |                                                |   |

 

| (1)  | The deferred tax asset valuation allowance includes the net tax agreement obligation toContinental.                                                                                                                                                                                                                                                       |
|-----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)  | “Deductions from reserve” related to the allowance for obsolescence consist of entriesmade to remove spare parts with zero net book value from our general ledger.  “Deductions from reserve” related tothe deferred tax asset valuation allowance are related to payments made to Continental under the tax agreement.      |
| (3)  | “Other” related to the deferred tax asset valuation allowance for 2003, 2004 and 2005 isrelated to the adjustment of the fair value of the tax basis of our tangible and intangible assets as described in Item 8.“Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note9.” |

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****

**INDEX TO EXHIBITSOF EXPRESSJET HOLDINGS INC.**

| **Exhibit Number** |        |         |        | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|--------------------|--------|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |        |         |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.1                |   | — |   | Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company'sreport on Form 10-Q for the quarter ended March 31, 2005, File No. 1-31300, the “Q105 10-Q”).                                                                                                                                                                                                                                                 |
| 3.2                |        | — |        | Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Company's report on Form 10-K for the year endedDecember 31, 2002, file No. 1-31300, the "2002 10-K").                                                                                                                                                                                                                                                                       |
| 4.1                |        | — |        | Specimen Stock Certificate (incorporated by reference to Exhibit 4.1 to the  Company’s Registration Statement onForm S-1, Reg. No. 333-64808, the “S-1”).                                                                                                                                                                                                                                                                |
| 4.2                |        | — |        | Rights Agreement among the Company, Continental Airlines, Inc. ("Continental") and Mellon Investor Services LLC, as Rights Agent,including form of Rights Certificate, dated April 1, 2002 (incorporated by reference to Exhibit 4.2 to the Company's report on Form10-Q for the quarter ended March 31, 2002, File No. 1-31300, the "Q102 10-Q").                                                                                                        |
| 4.3                |        | — |        | Indenture among the Company, ExpressJet Airlines, Inc., ("Airlines") and Bank One, N.A., dated August 5, 2003, relating to theCompany's 4.25% Convertible Notes due 2023 (incorporated by reference to Exhibit 10.1 to the Company's report on Form 8-K datedSeptember 2, 2003, File No. 1-31300).                                                                                                                                                        |
| 4.3                | (a)    | — |        | Form of 4.25% Convertible Note due 2023 (included with Exhibit 4.3).                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.3                | (b)    | — |        | Form of Notation of Guarantee (included with Exhibit 4.3).                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.4                |        | — |        | Registration Rights Agreement among the Company and Citigroup Global Markets Inc., Credit Suisse First Boston LLC, Morgan Stanley& Co. Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Goldman Sachs & Co. and UBS Securities LLC, asinitial purchasers, dated August 5, 2003 (incorporated by reference to Exhibit 10.3 to the Company's Registration Statement on FormS-3 dated September 25, 2003, Reg. No. 333-109108). |
| 10.1               |        | — |        | Amended and Restated Capacity Purchase Agreement (the "CPA") among the Company, XJT Holdings, Inc. ("XJT"), Airlines andContinental (incorporated by reference to Exhibit 10.1 to the S-1).(3)                                                                                                                                                                                                                                                            |
| 10.1               | (a)    | — |        | First Amendment to the CPA dated March 27, 2003 (incorporated by reference to Exhibit 10.1 to the Company's report on Form 10-Qfor the quarter ended March 31, 2003, File No. 1-31300, the "Q103 10-Q").                                                                                                                                                                                                                                                  |
| 10.1               | (b)    | — |        | Second Amendment to the CPA dated December 9, 2003 (incorporated by reference to Exhibit 10.1(b) to the Company's report on Form10-K for the year ended December 31, 2003, File No. 1-31300, the "2003 10-K").                                                                                                                                                                                                                                            |
| 10.1               | (c)    | — |        | Third Amendment to the CPA dated September 28, 2004 (incorporated by reference to Exhibit 10.2 to the Company’s report onForm 10-Q for the quarter ended September 30, 2004, File No. 1-31300).                                                                                                                                                                                                                                                     |
| 10.1               | (d)    | — |   | Fourth Amendment to the CPA dated March 11, 2005 (incorporated by reference to Exhibit 10.1(d) to the Company’s Report onForm 10-K for the year ended December 31, 2004, File No. 1-31300, the “2004 10-K”).(3)                                                                                                                                                                                                                         |

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| 10.2 |     | — |   | Master Facility and Ground Handling Agreement (the "Facility Agreement") among the Company, Airlines and Continental dated January1, 2001 (incorporated by reference to Exhibit 10.2 to the S-1).                                                |
|------|-----|---------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.2 | (a) | — |        | First Amendment to the Facility Agreement dated November 1, 2003 (incorporated by reference to Exhibit 10.2(a) to the 200310-K).                                                                                                                 |
| 10.3 |     | — |        | Amended and Restated Administrative Support and Information Services Provisioning Agreement dated March 11, 2005(incorporated by reference to Exhibit 10.1(d) to the 2004 10-K).                                                                 |
| 10.4 |     | — |        | Initial Public Offering Agreement between the Company and Continental dated April 17, 2002 (incorporated by reference to Exhibit10.4 to the Q102 10-Q).                                                                                          |
| 10.5 |     | — |        | Registration Rights Agreement between the Company and Continental dated April 17, 2002 (incorporated by reference to Exhibit 10.5to the Q102 10-Q).                                                                                              |
| 10.6 |     | — |        | Employee Benefits Separation Agreement (the "Separation Agreement") among the Company, XJT, Airlines and Continental dated April17, 2002 (incorporated by reference to Exhibit 10.6 to the Q102 10-Q).                                           |
| 10.6 | (a) | — |        | First Amendment to the Separation Agreement dated March 27, 2003 (incorporated by reference to Exhibit 10.5 to the Q10310-Q).                                                                                                                    |
| 10.6 | (b) | — |        | Second Amendment to the Separation Agreement dated December 9, 2003 (incorporated by reference to Exhibit 10.6(b) to the 200310-K).                                                                                                              |
| 10.6 | (c) | — |        | Third Amendment to the Separation Agreement dated June 24, 2005 (incorporated by reference to Exhibit 10.1 to the Company’sreport on Form 10-Q for the quarter ended June 30, 2005, File No. 1-31300, the “Q205 10-Q”).        |
| 10.7 |     | — |        | Amended and Restated Tax Agreement among the Company, Airlines and Continental dated April 17, 2002 (incorporated by reference toExhibit 10.6 to the Company’s report on Form 10-Q for the quarter ended June 30, 2002, File No. 1-31300). |
| 10.8 |     | — |        | Promissory Note, amended and restated effective November 5, 2002, made by Airlines in favor of Continental (incorporated byreference to Exhibit 10.20 to the 2002 10-K).                                                                         |
| 10.8 | (a) | — |        | First Amendment to Promissory Note, dated March 27, 2003 (incorporated by reference to Exhibit 10.4 to the Q103 10-Q).                                                                                                                           |
| 10.9 |     | — |        | 2002 Stock Incentive Plan ("SIP") (incorporated by reference to Exhibit 10.8 to the Q102 10-Q). (5)                                                                                                                                              |
| 10.9 | (a) | — |        | Form of Employee Stock Option Agreement pursuant to SIP (incorporated by reference to Exhibit 10.8(a) to the S-1).(5)                                                                                                                            |
| 10.9 | (b) | — |        | Form of Outside Director Stock Option Agreement pursuant to SIP (incorporated by reference to Exhibit 10.8(b) to the S-1).(5)                                                                                                                    |

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| 10.9  | (c) | — |   | Form of Employee Restricted Stock Option Agreement pursuant to SIP (incorporated by reference to Exhibit 10.1 to theCompany’s report on Form 10-Q for the quarter ended June 30, 2004, File No. 1-31300, the “Q204 10-Q”).(5)                                                                                               |
|-------|-----|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.9  | (d) | — |        | Form of Outside Director Restricted Stock Agreement pursuant to SIP (incorporated by reference to Exhibit 10.2 to the Q204 10-Q).(5)                                                                                                                                                                                                          |
| 10.10 |     | — |        | Management Bonus Plan as amended and restated through February 17, 2005 (incorporated by reference to Exhibit 99.1 to theCompany's report on Form 8-K dated February 17, 2005, File No. 1-31300). (5)                                                                                                                                         |
| 10.11 |     | — |        | Supplemental Retirement Plan as amended and restated effective May 5, 2004 (incorporated by reference to Exhibit 10.3 to the Q20410-Q). (5)                                                                                                                                                                                                   |
| 10.12 |     | — |        | Employment Agreement among the Company, Continental and James. B. Ream (incorporated by reference to Exhibit 10.9 to the S-1).(5)                                                                                                                                                                                                             |
| 10.12 | (a) | — |   | Letter Agreement among the Company, Continental and Mr. Ream dated April 24, 2002 (incorporated by reference to Exhibit 10.9(a) tothe Q102 10-Q). (5)                                                                                                                                                                                         |
| 10.12 | (b) | — |   | Amendment to Mr. Ream's Employment Agreement dated March 14, 2005 (incorporated by reference to Exhibit 10.12(b) to the 200410-K). (5)                                                                                                                                                                                                        |
| 10.13 |     | — |        | Employment Agreement among the Company, Continental and Frederick S. Cromer (incorporated by reference to Exhibit 10.10 to theS-1). (5)                                                                                                                                                                                                       |
| 10.13 | (a) | — |   | Letter Agreement among the Company, Continental and Mr. Cromer dated April 24, 2002 (incorporated by reference to Exhibit 10.10(a)to the Q102 10-Q). (5)                                                                                                                                                                                      |
| 10.13 | (b) | — |   | Amendment to Mr. Cromer's Employment Agreement dated March 14, 2005 (incorporated by reference to Exhibit 10.13(b) to the 200410-K). (5)                                                                                                                                                                                                      |
| 10.14 |     | — |        | Employment Agreement among the Company, Continental and Jerry E. Losness (incorporated by reference to Exhibit 10.10 to the S-1).(5)                                                                                                                                                                                                          |
| 10.14 | (a) | — |   | Letter Agreement among the Company, Continental and Mr. Losness dated April 24, 2002 (incorporated by reference to Exhibit10.10(a) to the Q102 10-Q). (5)                                                                                                                                                                                     |
| 10.14 | (b) | — |   | Amendment to Mr. Losness's Employment Agreement dated March 14, 2005 (incorporated by reference to Exhibit 10.14(b) to the 200410-K). (5)                                                                                                                                                                                                     |
| 10.15 |     | — |        | Employment Agreement among the Company, Continental and Scott R. Peterson  as amended and restated through March 14, 2005(incorporated by reference to Exhibit 10.15 to the 2004 10-K). (5)                                                                                                                                              |
| 10.16 |     | — |   | Purchase Agreement No. GPJ-003/96, between Empresa Brasileira de Aeronautica S. A. ("Embraer") and Airlines dated August 5, 1996relating to the purchase of EMB 145 aircraft ("P.A. 3/96") (incorporated by reference to Exhibit 10.3 to Amendment No. 1 toEmbraer's Form F-1 Registration Statement (No. 333-12220) (the "Embraer F-1"). (3) |
| 10.16 | (a) | — |   | Amendment No. 1 to P.A. 3/96 dated August 31, 1996 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).                                                                                                                                                                                                                            |

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| 10.16 | (b) | — |   | Amendment No. 2 to P.A. 3/96 dated May 22, 1997 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).(3)                                                                                                                        |
|-------|-----|---------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.16 | (c) | — |   | Amendment No. 3 to P.A. 3/96 dated August 20, 1997 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).(3)                                                                                                                     |
| 10.16 | (d) | — |   | Amendment No. 4 to P.A. 3/96 dated October 1, 1997 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).(3)                                                                                                                     |
| 10.16 | (e) | — |   | Amendment No. 5 to P.A. 3/96 dated November 12, 1997 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).(3)                                                                                                                   |
| 10.16 | (f) | — |   | Amendment No. 6 to P.A. 3/96 dated August 19, 1998 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).(3)                                                                                                                     |
| 10.16 | (g) | — |   | Amendment No. 7 to P.A. 3/96 dated February 19, 1999 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).(3)                                                                                                                   |
| 10.16 | (h) | — |   | Amendment No. 8 to P.A. 3/96 dated March 31, 1999 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).(3)                                                                                                                      |
| 10.16 | (i) | — |   | Amendment No. 9 to P.A. 3/96 dated October 29, 1999 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).(3)                                                                                                                    |
| 10.16 | (j) | — |   | Amendment No. 10 to P.A. 3/96 dated October 20, 1999 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).(3)                                                                                                                   |
| 10.16 | (k) | — |   | Amendment No. 11 to P.A. 3/96 dated December 15, 1999 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).(3)                                                                                                                  |
| 10.16 | (l) | — |   | Amendment No. 12 to P.A. 3/96 dated February 18, 2000 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).(3)                                                                                                                  |
| 10.16 | (m) | — |   | Amendment No. 13 to P.A. 3/96 dated April 28, 2000 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).(3)                                                                                                                     |
| 10.16 | (n) | — |   | Amendment No. 14 to P.A. 3/96 dated April 28, 2000 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).(3)                                                                                                                     |
| 10.16 | (o) | — |   | Amendment No. 15 to P.A. 3/96 dated July 25, 2000 (incorporated by reference to Exhibit 10.3(o) to Continental's report on Form10-K for the year ended December  31, 2000, File No. 1-10323, the “Continental 2000 10-K"). (3) |
| 10.16 | (p) | — |   | Amendment No. 16 to P.A. 3/96 dated July 24, 2000 (incorporated by reference to Exhibit 10.33(p) to the Continental 2000 10-K).(3)                                                                                                        |
| 10.16 | (q) | — |   | Amendment No. 17 to P.A. 3/96 dated November 7, 2000 (incorporated by reference to Exhibit 10.33(q) to the Continental 2000 10-K).(3)                                                                                                     |
| 10.16 | (r) | — |   | Amendment No. 18 to P.A. 3/96 dated November 17, 2000 (incorporated by reference to Exhibit 10.33(r) to the Continental 200010-K). (3)                                                                                                    |

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| 10.16 | (s)  | — |   | Amendment No. 19 to P.A. 3/96 dated July 31, 2001 (incorporated by reference to Exhibit 10.35(s) to Continental's report on Form10-K for the year ended December 31, 2001, File no. 1-10323, the "Continental 2001 10-K"). (3)     |
|-------|------|---------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.16 | (t)  | — |   | Amendment No. 20 to P.A. 3/96 dated July 31, 2001 (incorporated by reference to Exhibit 10.35(t) to the Continental 2000 10-K).(3)                                                                                                 |
| 10.16 | (u)  | — |   | Amendment No. 21 to P.A. 3/96 dated October 10, 2001 (incorporated by reference to Exhibit 10.35(u) to the Continental 2000 10-K).(3)                                                                                              |
| 10.16 | (v)  | — |   | Amendment No. 22 to P.A. 3/96 dated January 24, 2002 (incorporated by reference to Exhibit 10.35(v) to the Continental 2000 10-K).(3)                                                                                              |
| 10.16 | (w)  | — |   | Amendment No. 23 to P.A. 3/96 dated February 28, 2002 (incorporated by reference to Exhibit 10.6 to Continental's report on Form10-Q for the quarterly period ended March 31, 2002, File No. 1-10323, the "Continental 10-Q"). (3) |
| 10.16 | (x)  | — |   | Amendment No. 24 to P.A. 3/96 dated March 28, 2002 (incorporated by reference to Exhibit 10.7 to the Continental 10-Q).(3)                                                                                                         |
| 10.16 | (y)  | — |   | Amendment No. 25 to P.A. 3/96 dated July 9, 2002 (incorporated by reference to Exhibit 10.22 to the Company's report on Form 10-Qfor the quarter ended September 30, 2002, the "Q302 10-Q"). (3)                                   |
| 10.16 | (z)  | — |   | Amendment No. 26 to P.A. 3/96 dated August 30, 2002 (incorporated by reference to Exhibit 10.23 to the Q302 10-Q).(3)                                                                                                              |
| 10.16 | (aa) | — |   | Amendment No. 27 to P.A. 3/96 dated December 27, 2002 (incorporated by reference to Exhibit 10.24 to the 2002 10-K).(3)                                                                                                            |
| 10.16 | (ab) | — |   | Amendment No. 28 to P.A. 3/96 dated February 10, 2003 (incorporated by reference to Exhibit 10.2 to the Q103 10-Q).(3)                                                                                                             |
| 10.16 | (ac) | — |   | Amendment No. 29 to P.A. 3/96 dated February 26, 2003 (incorporated by reference to Exhibit 10.3 to the Q103 10-Q).(3)                                                                                                             |
| 10.16 | (ad) | — |   | Amendment No. 30 to P.A. 3/96 dated January 12, 2004 (incorporated by reference to Exhibit 10.2 to the Q104 10-Q).(3)                                                                                                              |
| 10.16 | (ae) | — |   | Amendment No. 31 to P.A. 3/96 dated March 16, 2004 (incorporated by reference to Exhibit 10.3 to the Q104 10-Q).(3)                                                                                                                |
| 10.16 | (af) | — |   | Amendment No. 32 to P.A. 3/96 dated May 31, 2005 (incorporated by reference to Exhibit 10.2 to the Q205 10-Q).(3)                                                                                                                  |
| 10.16 | (ag) | — |        | Amendment No. 33 to P.A. 3/96 dated December 1, 2005. (1)(4)                                                                                                                                                                       |
| 10.17 |      | — |        | Letter Agreement No. GPJ-004/96 dated August 5, 1996 between Embraer and Airlines ("L.A. 4/96") (incorporated by reference toExhibit 10.3 to the Embraer F-1) (3)                                                                  |

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| 10.17 | (a) | — |   | Amendment No. 1 to L.A. 4/96 dated August 31, 1996 (incorporated by reference to Exhibit 10.34(a) to the Continental 200010-K).                                                                                     |
|-------|-----|---------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.17 | (b) | — |        | Amendment No. 2 to L.A. 4/96 and Amendment No. 1 to L.A. 4A/96 (defined below) dated July 24, 2000 between Embraer and Airlines(incorporated by reference to Exhibit 10.34(b) to the Continental 2000 10-K). (3)    |
| 10.17 | (c) | — |        | Amendment No. 3 to L.A. 4/96 and Amendment No. 1 to L.A. 4A/96 (defined below) dated January 24, 2002 between Embraer and Airlines(incorporated by reference to Exhibit 10.36(c) to the Continental 2001 10-K). (3) |
| 10.17 | (d) | — |        | Amendment No.4 to L.A. 4/96 dated January 12, 2004 between Embraer and Airlines (incorporated by reference to Exhibit 10.1 to theQ104 10-Q). (3)                                                                    |
| 10.18 |     | — |        | Letter Agreement No. PCJ-004A/96 dated August 31, 1996 among Continental Airlines and Embraer ("L.A. 4A/96") (incorporated byreference to Exhibit 10.3 to the Embraer F-1) (3)                                      |
| 10.19 |     | — |        | Letter Agreement DCT 059/2000 dated October 27, 2000 between Airlines and Embraer (incorporated by reference to Exhibit 10.36 tothe Continental 2000 10-K). (3)                                                     |
| 10.20 |     | — |        | Purchase Agreement No. DCT-054/98 dated December 23, 1998 between Embraer and Airlines ("P.A. 54/98") (incorporated by referenceto Exhibit 10.3 to the Embraer F-1). (3)                                            |
| 10.20 | (a) | — |        | Amendment No. 1 to P.A. 54/98 dated July 30, 1999 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).(3)                                                                                                |
| 10.20 | (b) | — |        | Amendment No. 2 to P.A. 54/98 dated July 30, 1999 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).(3)                                                                                                |
| 10.20 | (c) | — |        | Amendment No. 3 to P.A. 54/98 dated October 21, 1999 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).(3)                                                                                             |
| 10.20 | (d) | — |        | Amendment No. 4 to P.A. 54/98 dated January 31, 2000 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).(3)                                                                                             |
| 10.20 | (e) | — |        | Amendment No. 5 to P.A. 54/98 dated February 15, 2000 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).(3)                                                                                            |
| 10.20 | (f) | — |        | Amendment No. 6 to P.A. 54/98 dated April 17, 2000 (incorporated by reference to Exhibit 10.3 to the Embraer F-1).(3)                                                                                               |
| 10.20 | (g) | — |        | Amendment No. 7 to P.A. 54/98 dated July 24, 2000 (incorporated by reference to Exhibit 10.37(g) to the Continental 2000 10-K.(3)                                                                                   |
| 10.20 | (h) | — |        | Amendment No. 8 to P.A. 54/98 dated November 7, 2000 (incorporated by reference to Exhibit 10.37(h) to the Continental 2000 10-K).(3)                                                                               |
| 10.20 | (i) | — |        | Amendment No. 9 to P.A. 54/98 dated September 20, 2000 (incorporated by reference to Exhibit 10.37(i) to the Continental 200010-K). (3)                                                                             |

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| 10.20 | (j) | — |   | Amendment No. 10 to P.A. 54/98 dated November 17, 2000 (incorporated by reference to Exhibit 10.37(j) to the Continental 200010-K). (3)                                                                       |
|-------|-----|---------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.20 | (k) | — |        | Amendment No. 11 to P.A. 54/98 dated July 31, 2001 (incorporated by reference to Exhibit 10.39(k) to the Continental 2000 10-K).(3)                                                                           |
| 10.20 | (l) | — |        | Amendment No. 12 to P.A. 54/98 dated July 31, 2001 (incorporated by reference to Exhibit 10.39(l) to the Continental 2000 10-K).(3)                                                                           |
| 10.20 | (m) | — |        | Amendment No. 13 to P.A. 54/98 dated October 10, 2001 (incorporated by reference to Exhibit 10.39(m) to the Continental 200010-K). (3)                                                                        |
| 10.20 | (n) | — |        | Amendment No. 14 to P.A. 54/98 dated January 24, 2002 (incorporated by reference to Exhibit 10.39(n) to the Continental 200010-K). (3)                                                                        |
| 10.21 |     | — |        | Letter of Agreement DCT-055/98 dated December 23, 1998 between Airlines and Embraer ("L.A. 55/98") (incorporated by reference toExhibit 10.38 to the Continental 2000 10-K). (3)                              |
| 10.21 | (a) | — |        | Amendment No. 1 to L.A. 55/98 dated July 24, 2000 (incorporated by reference to Exhibit 10.38(a) to the Continental 2000 10-K).(3)                                                                            |
| 10.22 |     | — |        | EMB-135 Financing Letter of Agreement dated March 23, 2000 among Continental, Airlines and Embraer ("L.A. 135") (incorporated byreference to Exhibit 10.39 to the Continental 2000 10-K). (3)                 |
| 10.22 | (a) | — |        | Amendment No. 1 to L.A. 135 (incorporated by reference to Exhibit 10.39(a) to the Continental 2000 10-K).(3)                                                                                                  |
| 10.22 | (b) | — |        | Amendment No. 2 to L.A.135 (incorporated by reference to Exhibit 10.39(b) to the Continental 2000 10-K). (3)                                                                                                  |
| 10.22 | (c) | — |        | Amendment No. 3 to L.A.135 (incorporated by reference to Exhibit 10.39(c) to the Continental 2000 10-K). (3)                                                                                                  |
| 10.23 |     | — |        | Letter Agreement DCT-058/2000 dated October 27, 2000 between Embraer and Airlines (incorporated by reference to Exhibit 10.40 tothe Continental 2000 10-K). (3)                                               |
| 10.24 |     | — |        | Form of Amended and Restated Letter Agreement relating to certain flight benefits between the Company and each of its non-employeedirectors (incorporated by reference to Exhibit 10.1 to the 3Q04 10-Q). (5) |
| 10.25 |     | — |        | Schedule of compensation payable to the Company’s non-employee directors (incorporated by reference to Exhibit 10.1 to theQ105 10-Q). (5)                                                               |
| 10.26 |     | — |        | ExpressJet Holdings, Inc. Long Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s report onForm 8-K dated January 31, 2006, File No. 1-31300). (5)                         |
| 10.26 | (a) | — |        | Form of Participation Agreement under the ExpressJet Holdings, Inc. Long Term Incentive Plan (included with Exhibit 10.26).(5)                                                                                |

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| 21.1         |              | —                                                                                                                                                                                                       |   | Subsidiaries of the Company. (1)                                       |
|--------------|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------|
| 23.1         |              | —                                                                                                                                                                                                       |   | Consent of Independent Registered Public Accounting Firm. (1)          |
| 24.1         |              | —                                                                                                                                                                                                       |        | Powers of Attorney. (1)                                                |
| 31.1         |              | —                                                                                                                                                                                                       |        | Rule 13a-14(a)/15d-14(a) Certification by Chief Executive Officer. (1) |
| 31.2         |              | —                                                                                                                                                                                                       |        | Rule 13a-14(a)/15d-14(a) Certification by Chief Financial Officer. (1) |
| 32.1         |              | —                                                                                                                                                                                                       |        | Section 1350 Certification by Chief Executive Officer. (2)             |
| 32.2         |              | —                                                                                                                                                                                                       |        | Section 1350 Certification by Chief Financial Officer. (2)             |
|    |              |
| (1)          |    | Filed herewith.                                                                                                                                                                                               |
| (2)          |              | Furnished herewith.                                                                                                                                                                                           |
| (3)          |              | The SEC has granted confidential treatment for portions of these exhibits.  Omitted materialfor which confidential treatment has been granted has been filed separately with the SEC.                    |
| (4)          |              | The Company has applied to the SEC for confidential treatment for portions of this exhibit. Omitted material for which confidential treatment has been requested has been filed separately with the SEC. |
| (5)          |              | Management contract or compensatory plan or arrangement in which a director or executive officerparticipates.                                                                                                 |

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