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, 2008
 OR
 o         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: 000-49697
  Republic Airways Logo
 
 REPUBLIC
AIRWAYS HOLDINGS INC.
 (Exact
name of registrant as specified in its charter)
 DELAWARE
                (State
      or other jurisdiction of
                incorporation
      or organization)
              
              06-1449146
                (I.R.S.
      Employer Identification Number)
 8909
Purdue Road, Suite 300, Indianapolis, Indiana 46268
 (Address
of principal executive offices) (Zip Code)
 (317)
484-6000
 (Registrant’s
telephone number, including area code)
 __________________
 Securities
registered pursuant to Section 12(b) of the Act: None
 
 Securities
registered pursuant to Section 12(g) of the Act:
 Common
Stock, par value $.001 per share
  Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes oNo
x
  Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act.
 Yes oNo
x
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes xNo
o
 
 Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in the definitive proxy statement incorporated by
reference in Part III of this Form 10-K or any amendment to this Form
10-K. o
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of  "large accelerated filer,"
"accelerated filer” and "smaller reporting company" in Rule 12b-2 of the
Exchange Act. (Check one):
  Large
      accelerated filer o
              Accelerated
      filer x
              Non-accelerated
      filer o
                (Do
      not check if a smaller reporting company)
              Smaller
      reporting company r
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).Yes oNo
x
 
 The
aggregate market value of Common Stock held by non-affiliates (based upon the
closing sale price of the Common Stock on the NASDAQ National Market System (now
the NASDAQ Global Market System) on June 30, 2008 was approximately
$295,909,000.
 
 Indicate the number of shares
outstanding of the registrant’s Common Stock as of the latest practicable date:As of March 16,2009, 34,448,683shares of
common stock were
outstanding.
  DOCUMENTS INCORPORATED BY
      REFERENCEPortions
      of the registrant’s definitive Proxy Statement to be used in connection
      with its 2009 Annual Meeting of Stockholders areincorporated
      by reference into Part III of this report.
 
  TABLE
OF CONTENTS
 
 Part
      IItem 1.
                Business
                4Item 1A.
                Risk Factors
                14Item 1B.
                Unresolved Staff Comments
                17Item 2.
                Properties
                18Item 3.
                Legal Proceedings
                19Item 4.
                Submission of Matters to a Vote of Security
      Holders
                19Part
      IIItem 5.
                Market for Registrant’s Common Stock and Related Stockholder
      Matters and Issuer Purchases
                20Of Equity SecuritiesItem 6.
                Selected Financial Data
                21Item 7.
                Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
                23Item 7A.
                Quantitative and Qualitative Disclosures About Market
      Risk
                31Item 8.
                Financial Statements and Supplementary
    Data
                32Item 9.
                Changes in and Disagreements with Accountants on Accounting
      and Financial Disclosure
                48Item 9A.
                Controls and Procedures
                48Item 9B.
                Other Information
                48Part
      IIIItem 10.
                Directors and Executive Officers of the
      Registrant
                49Item 11.
                Executive Compensation
                49Item 12.
                Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholder Matters
                49Item 13.
                Certain Relationships and Related
      Transactions
                49Item 14.
                Principal Accountant Fees and Services
                49Part
      IVItem 15.
                Exhibits and Financial Statements
    Schedules
                50SignaturesEX-23.1
                Consent of Independent Registered Public Accounting
      Firm10.39(w)*
                Amendment No. 23 to Purchase Agreement
      DCT-014/2004, by and between Embraer-Empresa Brasileira de Aeronáutica
      S.A. and Republic Airways Holdings Inc., dated as of November 10,
      2008.10.40(p)*
                Amendment No. 16 to Letter Agreement
      DCT-015/2004, by and between Embraer-Empresa Brasileira de Aeronáutica
      S.A. and Republic Airline Inc., dated as of November 10,
      2008.10.62(a)
                Amended and Restated Senior Secured Credit
      Agreement, among Midwest Airlines, Inc., Midwest Air Group, Inc., its
      subsidiaries, Wells Fargo Bank Northwest, National Association and the
      lenders party thereto, dated as of September 3, 200810.62(b)
                Amendment No. 1 to Amended and Restated Senior
      Secured Credit Agreement, among Midwest Airlines, Inc., Midwest Air Group,
      Inc., its subsidiaries, Wells Fargo Bank Northwest, National Association
      and the lenders party thereto, dated as of October 28,
      2008.10.63(a)*
                Loan Agreement, among Mokulele Flight Service,
      Inc., its subsidiaries and Republic Airways Holdings Inc., dated as of
      October 10, 2008.10.64(a)
                Amendment to the Credit Agreement, by and between
      US Airways, Inc. and Republic Airways Holdings Inc., dated as of December
      19, 2008.*A request for
      confidential treatment was filed for certain portions of the indicated
      document. Confidential portions have been omitted and filed separately
      with the Commission as required by Rule 24b-2 of the
      Commission.EX-31.1
                Certification of
      Chief Executive OfficerEX-31.2
                Certification of
      Chief Financial OfficerEX-32.1
                Certification of
      Chief Executive OfficerEX-32.2
                Certification of
      Chief Financial Officer
  -2-
  
  Forward-Looking
Statements
 
 
 
 In
addition to historical information, this Annual Report on Form 10-K contains
forward-looking statements. Republic Airways Holdings Inc. (the “Company”) may,
from time to time, make written or oral forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Such statements
encompass our beliefs, expectations, hopes or intentions regarding future
events. Words such as “may,” “will,” “should,” “expect,” “plan,” “intend,”
“anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” the
negative of such terms or other terminology are used to identify forward-looking
statements. All forward-looking statements included in this Annual Report on
Form 10-K are made as of the date hereof and are based on information available
to us as of such date. We assume no obligation to update any forward-looking
statement. Our results could differ materially from those anticipated in these
forward-looking statements for many reasons, including, among others, the “Risk
Factors” set forth herein.
 
 
 
  -3-
  
  PART
I
 ITEM 1. BUSINESS
 
 General
  Overview
  We are a
Delaware holding company organized in 1996 that owns three regional airlines:
Chautauqua Airlines, Inc., (“Chautauqua Airlines”), our operator of 44 to 50
seat aircraft; Shuttle America Corporation (“Shuttle America”), our operator of
70 to 76 seat aircraft; and Republic Airline Inc. (“Republic Airline”), our
operator of 76 to 86 seat aircraft.  As of December 31, 2008, our
subsidiaries offered scheduled passenger service on approximately 1,250 flights
daily to 109 cities in 35 states, Canada, Mexico, and Jamaica pursuant to
code-share agreements with AMR Corp., the parent of American Airlines, Inc.
(“American”), Continental Airlines, Inc. (“Continental”), Delta Air Lines, Inc.
(“Delta”), Midwest Airlines, Inc. (“Midwest”), Mokulele Flight Service, Inc.
(“Mokulele”), United Air Lines, Inc. (“United”), and US Airways, Inc. (“US
Airways”) (collectively referred to as our “Partners”). We began flying for
Midwest and Mokulele in October and November 2008, respectively. Currently, we
provide our Partners with regional jet service, operating as AmericanConnection,
Continental Express, Delta Connection, Midwest Connect, Mokulele Airlines,
United Express, or US Airways Express, including service out of their hubs and
focus cities.
 
 Unless
the context indicates otherwise, the terms “the Company,” “we,” “us,” or “our,”
refer to Republic Airways Holdings Inc. and our subsidiaries.
  We have
long-term, fixed-fee regional jet code-share agreements with each of our
Partners that are subject to our maintaining specified performance levels.
Pursuant to these fixed-fee agreements, which provide for minimum aircraft
utilization at fixed rates, we are authorized to use our Partners' two-character
flight designation codes to identify our flights and fares in our Partners'
computer reservation systems, to paint our aircraft in the style of our
Partners, to use their service marks and to market ourselves as a carrier for
our Partners. In addition, in connection with a marketing agreement among Delta,
Continental and Northwest Airlines, certain of the routes that we fly using
Delta's and Continental’s flight designator codes are also flown under
Northwest's designator code. Our fixed-fee agreements eliminate our exposure to
fluctuations in fuel prices, fare competition and passenger volumes. Our
development of relationships with multiple major airlines has enabled us to
reduce our dependence on any single airline, allocate our overhead more
efficiently among our Partners and reduce the cost of our services to our
Partners.
 
 In
January 2007, we entered into a fixed-fee code-share agreement with Frontier
Airlines, Inc. (“Frontier”).  In April 2008, Frontier rejected the
agreement.  Frontier's rejection of the agreement was prompted by its
filing for Chapter 11 bankruptcy protection on April 11, 2008.  As of
the bankruptcy date, we were operating 12 of the 17 E170 aircraft to be provided
under the terms of the agreement.  All 12 E170 aircraft were removed
from service with Frontier during the second quarter of 2008.
 
 During
2008, we increased our operational fleet by two aircraft from 219 to 221
aircraft.  Our operational fleet is comprised of 127 E170/175, 70-86
seat aircraft, 77 E140/145, 44-50 seat aircraft, and 17 CRJ-200, 50 seat
aircraft.  During 2008, we took delivery of 26 E175 aircraft. Thirteen were
placed into service for US Airways and 13 were placed into service for Delta.
Twenty-four aircraft were removed from operations during the
year.  Fifteen 37 seat E135 aircraft were removed from Delta
operations, two E135 aircraft were removed from charter service and seven 50
seat CRJ-200 aircraft were removed from Continental operations.  All
24 of the aircraft removed from service are under agreement to be sold or will
be returned to the lessor in 2009.
 
 Also
during 2008, we transitioned 12 E170 aircraft from Frontier to Midwest and two
E170 aircraft from Delta to Mokulele. As of December 31, 2008, four E170
aircraft were not operating for our Partners. Of these four aircraft, two are
scheduled to go into operation for Mokulele in 2009 and two are under short-term
agreement to operate for Delta between March and September 2009.
 
 As of
December 31, 2008, we have agreed to place into service an additional three, new
E175 aircraft for Delta during the first quarter of 2009. These aircraft are
covered by firm orders with the aircraft manufacturer. The Company has options
for 54 E170 aircraft, which may be converted to options for E175, E190 or E195
aircraft, which range in size from 78 seats to 110 seats.
 
 We expect
to reduce our E140/145 and CRJ-200 fleets by a total of 19 aircraft in 2009.
Under our Continental agreement, we expect ten of the 17 remaining CRJ-200
aircraft to be removed from service and returned to the lessor during
2009.  The final seven CRJ-200 aircraft are under leases that expire
during the first quarter of 2010. Under our United agreement, seven E145
aircraft are scheduled to be removed in December 2009. We intend to sell or
otherwise sublease these aircraft.  In October 2008 we and American
reached an agreement to amend our airline services agreement. A key term of this
agreement calls for the removal of two of the 15 E140 aircraft currently
operating for American to be removed from service by June 2009. American will
continue to reimburse us for the two aircraft as spares unless we sell, sublease
or otherwise place the aircraft.
  For the
years ended December 31, 2008, 2007 and 2006 respectively, Delta accounted for
approximately 29%, 33% and 35%, US Airways accounted for approximately 25%, 22%
and 24%, United accounted for approximately 21%, 24% and 30% and American
accounted for approximately 10%, 9% and 11% of our regional airline services
revenues. For the years ending December 31, 2008 and 2007 Continental accounted
for approximately 12% and 10% and Frontier accounted for approximately 2% and 2%
of our regional airline services revenues. Midwest accounted for approximately
1% and Mokulele accounted for less than 1% of our regional airline services
revenues for the year ended December 31, 2008.
  
 -4-
 Markets
and Routes
 
 Markets
  As of
December 31, 2008, we offered scheduled passenger service on approximately 1,250
flights daily to 109 cities in 35 states, Canada, Mexico, and Jamaica. The
following illustrates the routes we flew for our Partners as of that
date:
 
 
 
 
    
  
   -5-
        
   
 
 
 
    -6-
  
   
 
   
 
    -7-
       
       -8-
  Maintenance
of Aircraft and Training
  Using a
combination of Federal Aviation Administration (“FAA”) certified maintenance
vendors and our own personnel and facilities, we maintain our aircraft on a
scheduled and "as-needed" basis. We emphasize preventive maintenance and inspect
our aircraft engines and airframes as required. We have maintenance agreements
for engines, auxiliary power units (“APU”) and other airframe components
for our CRJ-200 aircraft, which will cover the aircraft during the short-term
lease period of two to three years. For our E140/145 aircraft, we have
agreements to maintain the engines, APUs, avionics and wheels and brakes through
October 2012, June 2013, December 2014 and June 2014, respectively. For our
E170/175 aircraft, we have agreements to maintain the avionics, wheels and
brakes and engines through December 2014, February 2017 and December 2014,
respectively. Under these agreements, we are charged for covered services based
on a fixed rate for each flight hour or flight cycle accumulated by the engines
or airframes in our service during each month. The rates are subject to annual
revisions, generally based on certain Bureau of Labor Statistics' labor and
material indices.
  We
believe these agreements, coupled with our ongoing maintenance program, reduce
the likelihood of unexpected levels of engine, APU, avionics and wheels and
brakes maintenance expense during their term.
  We
perform our heavy and routine maintenance projects at our facilities in
Indianapolis, Columbus, Louisville, Pittsburgh and St. Louis, and we perform
routine maintenance services from select line maintenance stations.
  All
mechanics and avionics specialists employed by us have appropriate training and
experience and hold required licenses issued by the FAA. We provide periodic
in-house and outside training for our maintenance and flight personnel and also
take advantage of manufacturers’ training programs that are offered when
acquiring new aircraft.
  We have
an agreement with Flight Safety International to provide for aircraft simulator
training for our pilots. We have no current plans to acquire our own simulator
in the near term and believe that Flight Safety or other third party vendors
will be able to provide us with adequate and cost effective flight simulator
training to provide training for our pilots.
 
 Employees
  As of
December 31, 2008, we employed approximately 4,520 full-time equivalent
employees. The following is a table of our principal collective bargaining
agreements and their respective amendable dates as of December 31,
2008:
 Employee
                Group
              Approximate
      Number
                of
      Full-Time
                Equivalent
      Employees
              Representing
      Union
              Amendable
      DatePilots
              1,850
              International
      Brotherhood of Teamsters Airline Division Local 747
              October
      2007Flight
      Attendants
              1,440
              International
      Brotherhood of Teamsters Airline Division Local 210
              September
      2009Dispatchers
              70
              Transport
      Workers Union of America Local 540
              June
      2012
  As of
December 31, 2008, we had approximately 920 maintenance technicians and other
maintenance related personnel, who are not currently represented by any union,
and approximately 240 administration and support personnel. Because of the high
level of unionization among our employees we are subject to risks of work
interruption or stoppage and/or the incurrence of additional expenses associated
with union representation of our employees. We have never experienced any work
stoppages or other job actions and generally consider our relationship with our
employees to be good.
  Executive
Officers of the Company
  The
following table sets forth information regarding our current executive officers,
directors and key employees as of December 31, 2008:
  Name
              Age
              PositionBryan K.
      Bedford
              47
              Chairman
      of the Board, President and Chief
Executive OfficerRobert H.
      Cooper
              49
              Executive
      Vice President, Chief Financial Officer, Treasurer and
      SecretaryWayne C.
      Heller
              50
              Executive
      Vice President, Chief Operating OfficerLawrence
      J. Cohen
              53
              DirectorDouglas J.
      Lambert
              51
              DirectorMark
      E. Landesman
              48
              DirectorMark
      L. Plaumann
              53
              Director
 
 Bryan K.
Bedford joined us in July 1999 as our president and chief executive officer
and a member of our board of directors and became chairman of the board in
August 2001. From July 1995 through July 1999, Mr. Bedford
was the president and chief executive officer and a director of Mesaba
Holdings, Inc., a publicly-owned regional airline. He has over
20 years of experience in the regional airline industry, and was named
regional airline executive of the year in 1998 by Commuter and Regional Airline
News and again in 2005 by Regional Airline World magazine. Mr. Bedford is a
licensed pilot and a certified public accountant. He also served as the 1998
Chairman of the Regional Airline Association (RAA), and remains on the Board of
Directors of the RAA.
  Robert H.
Cooper joined us in August 1999 as vice president and chief financial
officer. In February 2002, he became executive vice president, chief
financial officer, treasurer and secretary and assumed responsibility for all
purchasing and material control. He was previously employed with Mesaba
Holdings, Inc. from September 1995 through August 1999 as its
vice president, chief financial officer and treasurer. Mr. Cooper is a
certified public accountant. He has over 15 years experience in the regional
airline industry. He has responsibility for financial accounting, treasury,
public reporting, investor relations, human resources, information technology,
purchasing and material control.
  Wayne C.
Heller joined us in August 1999 as Vice President—Flight Operations with
responsibility for flight crew supervision, system control, flight safety and
flight quality standards. In February 2002, he became Executive Vice
President and Chief Operating Officer of Chautauqua, and assumed responsibility
for all aircraft maintenance, records and engineering. From April 1996
until August 1999 he was employed by Mesaba Airlines, Inc., as its
Director of System Operations Control. He is a licensed pilot and a licensed
dispatcher and has over 27 years of regional airline experience in
operations.
  Lawrence
J. Cohen has been a director since June 2002. He is the owner and Chairman of
Pembroke Companies, Inc., an investment and management firm that he founded in
1991. The firm makes investments in and provides strategic management services
to real estate and specialty finance related companies. From 1989 to 1991,
Mr. Cohen worked at Bear Stearns & Co. where he attained the position
of Managing Director. From 1983 to 1989, Mr. Cohen served as first Vice
President in the Real Estate Group of Integrated Resources, Inc. From 1980 to
1983, Mr. Cohen was an associate at the law firm of Proskauer Rose Goetz
& Mendelsohn. Mr. Cohen is a member of the bar in both New York and
Florida.
 
 Douglas J.
Lambert has been a director since August 2001. He is presently a Senior
Director in the Debtor Advisory and Crisis Management Group of Alvarez &
Marsal Inc. From 1994 to 2003, Mr. Lambert was a Senior Vice President
of Wexford Capital LLC. From 1983 to 1994, Mr. Lambert held various
financial positions with Integrated Resources, Inc.'s Equipment Leasing
Group, including Treasurer and Chief Financial Officer. He is a certified public
accountant.
  Mark E.
Landesman has been a director since June 2002. Mr. Landesman is President
of ML Management Associates, Inc., an entertainment business management
firm, which he founded in 1988. The firm is responsible for the financial
affairs for numerous entertainment industry clients. Mr. Landesman is a
member of the Media Entertainment Roundtable Committee and he is a certified
public accountant.
  Mark L.
Plaumann has been a director since June 2002. He is presently a Managing-Member
of Greyhawke Capital Advisors LLC, which he co-founded in 1998. From 1995 to
1998, Mr. Plaumann was a Senior Vice President of Wexford Capital LLC. From 1990
to 1995, Mr. Plaumann was employed by Alvarez & Marsal, Inc. as a Managing
Director. From 1985 to 1990, Mr. Plaumann worked for American Healthcare
Management, Inc., where he attained the position of President. From 1974 to
1985, Mr. Plaumann worked in both the audit and consulting divisions of
Ernst & Young, where he attained the position of Senior Manager and he is a
certified public accountant.Mr. Plaumann is the
Chair of our Audit Committee, is an “audit committee financial expert” and is
independent as defined under applicable SEC and Nasdaq rules.
 
 -9-
  Code-Share
Agreements
 
 Through
our subsidiaries, we have entered into code-share agreements with US Airways,
American, Delta, United, Continental, Midwest and Mokulele (collectively, the
"Partners") that authorize us to use their two-character flight designator codes
("US," "AA," " DL," "UA," "CO," "YX" and "MW") to identify our flights and fares
in their computer reservation systems, to paint our aircraft with their colors
and/or logos, to use their service marks and to market and advertise our status
as US Airways Express, AmericanConnection, Delta Connection, United Express,
Continental Express, Midwest Airlines and Mokulele Airlines, respectively. In
connection with a marketing agreement among Delta, Continental and Northwest
Airlines, certain of the routes that we fly using Delta and Continental's flight
designator codes are also flown under Northwest's designator code. Under the
code-share agreements between our subsidiaries and each of US Airways, American,
Delta, United, Continental, Midwest and Mokulele, we are compensated on a
fixed-fee basis on all of our US Airways Express, AmericanConnection, Delta
Connection, United Express, Continental Express, Midwest Airlines and Mokulele
Airlines flights. In addition, under our code-share agreements, our passengers
participate in frequent flyer programs of the Partners, and the Partners provide
additional services such as reservations, ticket issuance, ground support
services, commuter slot rights and airport facilities.
 
 US
Airways Code-Share Agreements
 
 Under our
fixed-fee Jet Services Agreements with US Airways, we operated, as of December
31, 2008, 9 E145 aircraft, 20 E170 aircraft and 38 E175 aircraft. As of December
31, 2008, we were providing 410 flights per day as US Airways
Express.
 
 In
exchange for providing the designated number of flights and performing our other
obligations under the code-share agreements, we receive compensation from US
Airways three times each month in consideration for the services provided under
the code-share agreements. We receive an additional amount per available seat
mile flown and may also receive incentives or pay penalties based upon our
performance, including fleet launch performance, on-time departure performance
and completion percentage rates. In addition, certain operating costs are
considered "pass through" costs whereby US Airways has agreed to reimburse us
the actual amount of costs we incur for these items. Landing fees, passenger
catering, passenger liability insurance and aircraft property tax costs are pass
through costs and included in our regional airline services revenue. Beginning
in May 2005, US Airways elected to provide fuel directly for all of our US
Airways operations. This change eliminated fuel expense and the related fuel
reimbursement (previously recorded as revenue). Operating margins were not
affected by this change.
 
 The
code-share agreement for the E145 aircraft terminates in March
2013.  The code-share agreement for the E170/175 aircraft terminates
in September 2015 with respect to the 20 E170 aircraft and eight of the E175
aircraft.   The remaining 30 E175 aircraft terminate 12 years
from each aircraft’s in-service date. US Airways may terminate the code-share
agreements at any time for cause upon not less than 90 days notice and subject
to our right to cure under the following conditions:
 
 •
      if we fail to perform or observe any material covenant or condition or
      agreement to be performed or observed by us, provided that if we breach
      any payment obligation, US Airways has the right to terminate the
      agreement on 10 days prior written notice unless we cure such breach prior
      to the expiration of 10 days;
 
 •
      if our flight completion factor falls below specified percentages during
      specified periods due to operational deficiencies that are within our
      control;
 
 •
      if our on time departure performance falls below specified percentages
      during specified periods;
 
 •
      if we admit liability or are found liable for any safety infraction by the
      FAA that could reasonably be expected to lead to the suspension or
      revocation of our operating certificate or if in US Airways' reasonable
      opinion we are not complying in any material respect with applicable
      safety and operational
requirements;
 
 •
      if we fail to use commercially reasonable efforts to comply with the
      applicable provisions of the "Jets for Jobs"
  protocol;
 
 •
      if our FAA operating certificate is suspended or revoked;
    or
 
 •
      in the event that we or an affiliate of ours shall have commenced the
      provision of flight services under the code-share agreement between US
      Airways and Republic Airline and such agreement is subsequently
      terminated, among other things.
 
 In
September 2005, we purchased 113 commuter slots at
Ronald Reagan Washington National (DCA) Airport and 24
commuter slots at New York-LaGuardia (LGA) Airport under our commuter slot
option agreement with US Airways. We assigned the right of use for these
commuter slots to US Airways and these commuter slots are being operated by US
Airways and US Airways Express carriers under a licensing agreement for which US
Airways pays us rent. Prior to the expiration of the agreement to license the
commuter slots, US Airways has the right to repurchase all, but not less than
all, of the DCA commuter slots at a predetermined price. The licensing agreement
between us and US Airways for the LGA commuter slots expired on December 31,
2006, but we maintain a security interest in the LGA slots if US Airways fails
to perform under the current licensing agreement.
  The
American Code-Share Agreement
 
 As of
December 31, 2008, we operated 15 E140 aircraft for American under a fixed-fee
code-share agreement and provided 80 flights per day as
AmericanConnection.
 
 On
October 23, 2008, we amended the code-share agreement to remove two E140
aircraft from service on June 1, 2009.  American will reimburse us for
the monthly rental fees until the removed aircraft are sold, subleased or
otherwise transferred as long as we are using commercially reasonable efforts to
dispose of the removed aircraft. The amendment also provided for a two year
extension on American's early termination option so that American may not early
terminate the agreement prior to March 2012, and a rate reduction which will be
effective on April 1, 2009.
 
 Under the
code-share agreement, American retains all passenger, certain cargo and other
revenues associated with each flight, and is responsible for all revenue-related
expenses. We share revenue with American for certain cargo shipments.
Additionally, certain operating costs are considered "pass through" costs and
American has agreed to reimburse us the actual amount of costs we incur for
these items. Fuel, landing fees, hull and liability insurance and aircraft
property tax costs are pass through costs and included in our regional airline
services revenue. Aircraft lease payments are also considered a pass
through cost, but are limited to a specified limit with respect to the first 20
aircraft put into service for American. American pays us periodically throughout
the month on an agreed schedule, subject to American's right to offset amounts
we owe them under the code-share agreement. A reconciliation payment will be
made by American to us if uncontrollable cancellations exceed a specified level
of scheduled block hours during any calendar quarter.
 
 If
American terminates the code-share agreement for cause, American has a call
option to require that we assign to American all of its rights under the leases
of aircraft, and to lease to American the aircraft to the extent we own them,
used at that time under the code-share agreement. If American exercises its call
option, we are required to pay certain maintenance costs in transferring the
aircraft to American's maintenance program.
 
 American
may terminate the code-share agreement without cause upon 180 days notice,
provided that such notice may not be given prior to September 30, 2011. If
American terminates the code-share agreement without cause, we have the right to
put the leases of the aircraft, or to sell the aircraft to American to the
extent owned by us, used under the code-share agreement to American. American
also has a call option to require us to assign to American these leases. If we
exercise our put or American exercises its call right, both parties are
obligated to implement a schedule to terminate the code-share agreement in an
orderly fashion and transition the aircraft from us to American.
 
 -10-
 The term
of the American code-share agreement continues until February 1, 2013. American
may reduce the term by one year each time that we fail to achieve an agreed
performance level. American may only exercise this right three times during the
term of the code-share agreement. The agreement may be subject to termination
for cause prior to that date under various circumstances including:
 
 • a
change in the regulations governing air carriers that materially affects the
rights and/or obligations of either party, subject to negotiation of amendments
to the code-share agreement or third party mediation;
 
 • if we
or American become insolvent or fail to pay our debts as they become due, the
other party may terminate the agreement subject to five business days notice and
rights of assurance;
 
 • failure
by us or American to perform the material terms, covenants or conditions of the
code-share agreement, which includes the American standards of service, subject
to 30 day notice and cure rights;
 
 • if we
or American fail to make a payment when due, subject to five business days
notice and cure rights;
 
 • if
either party suspends or is required to suspend its operations due to any safety
reason, the other party may terminate the agreement on five days
notice;
 
 • if
American, in its reasonable discretion, determines that we materially breached a
representation or warranty to them that creates a serious and imminent threat to
the safe operation of AmericanConnection services, American may immediately
terminate the code-share agreement;
 
 • if we
fail to achieve specified levels of operating performance in completion factor,
on-time arrivals, customer complaints and baggage, American may terminate the
agreement, subject to a corrective action plan and adherence to such plan;
or
 
 • if
either party assigns, by operation of law or otherwise, the code-share agreement
without the written consent of the other party, subject to five days notice and
cure rights, or if we enter into any merger, sale or acquisition of all or
substantially all of our assets or a majority of our outstanding voting
interests with an air carrier other than an entity that is under common control
with us.
 
 The
Delta Code-Share Agreements
 
 As of
December 31, 2008, we operated 24 E145 aircraft, 3 E170 aircraft, and 13 E175
aircraft for Delta under fixed-fee code-share agreements. As of December 31,
2008, we provided 225 flights per day as Delta Connection. In connection with a
marketing agreement among Delta, Continental and Northwest Airlines, certain of
the routes that we fly using Delta and Continental's flight designator codes are
also flown under Northwest's designator code.
 
 In March
2007, we amended our fixed-fee agreements with Delta. On March 27, 2007,
the United States Bankruptcy Court for the Southern District of New York
approved the amended agreements. Key terms of the amended agreements include the
removal of all 15 E135 aircraft beginning in September 2008 at a rate of two
aircraft per month, and effective May 1, 2007, an approximate 3% permanent
reduction of block hour fees charged on our remaining 24 E145 and our 16
E170/E175 aircraft.  During 2008, we agreed to accelerate the removal
of the 15 E135 aircraft between April and October 2008.
 
 On August
22, 2007, we amended our Jet Services Agreement with Delta to provide for the
replacement of 16 E170 aircraft operating as Delta Connection with 16 E175
aircraft.  Thirteen new aircraft were placed into service during the
second half of 2008 and the remainder are expected to be placed into service
during the first quarter of 2009.
 
 The
code-share agreements for the E145 and E170/E175 aircraft terminate in May 2016
and January 2019, respectively. Delta may terminate the code-share agreements at
any time, with or without cause, if it provides us 180 days written notice,
provided that such notice shall not be given prior to November 2009 for the E145
regional jet code-share agreement and July 2015 for the E170 regional jet
code-share agreement.  With the respect to the E145 agreement, if
Delta chooses to terminate any aircraft early, it may not reduce the number of
aircraft in service to less than 12 during the 12-month period following the 180
day initial notice period unless it completely terminates the code-share
agreement. We refer to this as Delta's partial termination right.
 
 If Delta
exercises this right under either agreement or if we terminate either agreement
for cause, we have the right to require Delta either to purchase, sublease or
assume the lease of aircraft leased by us with respect to any of the aircraft we
previously operated for Delta under that agreement. If we choose not to exercise
this right, or if Delta terminates either agreement for cause, Delta may require
us to sell or sublease to it or Delta may assume the lease of aircraft leased by
us with respect to any of the aircraft we previously operated for it under that
agreement.
  Certain
of our operating costs are considered "pass through" costs, whereby Delta has
agreed to reimburse us the actual amount of costs we incur for these items.
Fuel, engine maintenance expenses, landing fees, passenger liability insurance,
hull insurance, war risk insurance, de-icing costs, and aircraft property taxes
are some of the pass through costs included in our regional airline services
revenue. Aircraft rent/ownership expenses are also considered a pass through
cost, but the reimbursement is limited to specified amounts for certain
aircraft.
 
 The
initial term of the E145 code-share agreement is until May 31, 2016. At the end
of the term, Delta has the right to extend the agreement for an additional five
years on the same terms and conditions. If either we or Chautauqua enter into a
merger where we are not the surviving entity or the ultimate beneficial
ownership of the surviving entity following a merger is not substantially
similar (i.e., at least 75% common ownership) to the ultimate beneficial
ownership of us or Chautauqua prior to the merger (which we refer to as a
merger), or if a party acquires more than 49% of our voting power or outstanding
common stock or that of Chautauqua (with limited exceptions) (which we refer to
as a change in control), Delta shall have the right to extend the term of the
code-share agreement for an additional ten years beyond the applicable
termination date of the agreement.
 
 The
agreement may be subject to early termination under various circumstances
including:
 
 •
      if either Delta or we file for bankruptcy, reorganization or similar
      action (or if any such action is imminent) or if either Delta or we make
      an assignment for the benefit of
creditors;
 
 •
      if either Delta or we commit a material breach of the code-share
      agreement, subject to 30 days notice and cure rights;
  or
 
 •
      upon the occurrence of an event of force majeure that continues for a
      period of two or more consecutive months, subject to 30 days prior written
      notice to the party affected by the force majeure
  event.
 
 In
addition, Delta may immediately terminate the code-share agreement upon the
occurrence of one or more of the following events:
 
 •
      if there is a change in control of
us;
 
 •
      if there is a merger involving us;
 
 •
      if Delta is unsatisfied with the product quality we are providing 30 days
      after it has supplied us written notice of its dissatisfaction and has
      proposed remedial measures;
 
 •
      if we fail to maintain a specified completion rate with respect to the
      flights we operate for Delta during a specified period;
  or
 
 •
      if our level of safety is not reasonably satisfactory to Delta, subject to
      30 days notice and cure rights.
  -11-
 The
United Code-Share Agreements
 
 As of
December 31, 2008, we operated seven E145 aircraft and 33 E170 aircraft and
provided 220 flights per day as United Express.
 
 On August
22, 2007, we amended our E170 Jet Services Agreement with United to provide for
the operation of ten additional aircraft as United Express for a total of 38
aircraft. Five of the aircraft, which transitioned from Delta, were placed into
service during the fourth quarter of 2008 and the remaining five are expected to
be placed into service during the first quarter of 2009.
 
 The fixed
rates that we receive from United under the code-share agreements are annually
adjusted in accordance with an agreed escalation formula. Additionally, certain
of our operating costs are considered "pass through" costs whereby United has
agreed to reimburse us the actual amount of costs we incur for these items. Fuel
and oil, landing fees, war risk insurance, liability insurance and aircraft
property taxes are pass through costs and included in our regional airline
services revenue.  Beginning in January 2007, United elected to
provide fuel directly in certain locations, which eliminates a portion of our
fuel expense and the related fuel reimbursement (previously recorded as
revenue).
 
 The E170
code-share agreement terminates on June 30, 2019. We received notice from United
on July 1, 2008 of their intent to terminate the E145 code-share agreement
effective December 31, 2009. United has the option of extending the E170
agreement for five years or less. In addition, the code-share agreements may be
terminated under the following conditions:
 
 •
      if either party becomes insolvent, is not regularly paying its bills when
      due without just cause, takes any step leading to its cessation as a going
      concern, makes an assignment of substantially all of its assets for the
      benefit of creditors or a similar disposition of the assets of the
      business, or either ceases or suspends operations;
  or
 
 •
      if either party fails to fulfill an obligation under the code-share
      agreements for a period of thirty days after written notice to
      cure.
  United
also may terminate the code-share agreements upon at least thirty days notice
and subject to our right to cure under the following conditions:
  •
      our operations fall below certain minimum operating thresholds for a
      period of three consecutive months or any six month period in a rolling
      12 month period regarding controllable flight completion, mishandled
      bags and on-time performance; or
  •
      we knowingly maintain falsified books or records or submit false reports
      of a material nature.
  United
may immediately terminate the respective code-share agreements if Chautauqua
Airlines or Shuttle America operates, except pursuant to preexisting agreements
with US Airways and Delta, any additional aircraft or turboprop aircraft
pursuant to a marketing or code-share relationship with any party other than
United to provide hub service at United's hubs in Denver, Los Angeles, San
Francisco, Chicago, Washington, D.C. or Seattle. Chautauqua Airlines and Shuttle
America also cannot engage or attempt to engage, on its behalf or on behalf of a
third party, in the business of providing air transportation at any of United's
hubs or for any carrier that has or attempts to have hub operations at any of
United's hubs, or operate any additional aircraft or turboprops with any party
other than United to provide hub service at United's hubs.
 
 United
has a call option to assume our ownership or leasehold interest in certain
aircraft if we wrongfully terminate the code-share agreements or if United
terminates the agreements for our breach for certain reasons.
  The
Continental Code-Share Agreement
 
 As of
December 31, 2008, we operated 20 E145 aircraft and 17 CRJ-200 aircraft for
Continental under a fixed-fee code-share agreement and provided 210 flights per
day as Continental Express.
 
 The
CRJ-200 aircraft are operated under the agreement on terms generally equivalent
to our CRJ-200 leases that vary from two to three years. The E145 aircraft have
a term of three to five years.  Under certain conditions, Continental
may extend the term on the aircraft up to five additional years.
 
 All fuel
is purchased directly by Continental and is not charged back to Chautauqua
Airlines. Under the agreement, Continental purchases all capacity at
predetermined rates and industry standard pass through costs.
 
 In
connection with a marketing agreement among Delta, Continental and Northwest
Airlines, certain of the routes that we fly using Delta and Continental's flight
designator codes are also flown under Northwest's designator code.
 
 The
agreement may be subject to early termination under various circumstances,
including:
 
 •
      immediately, by Continental, upon the occurrence of an event that
      constitutes cause, subject to prior written notice to us;
    or
 
 •
      if either Continental or we commit a material breach of the code-share
      agreement, subject to two business days notice if we breach the agreement
      and five business days notice if Continental breaches the agreement;
      or
 
 •if
      there is a change in control of us.
 
 The
Frontier Code-Share Agreement
 
 On
January 11, 2007, we entered into a fixed-fee code-share agreement with
Frontier. Under the terms of the agreement, we were to provide and operate 17
E170 aircraft for Frontier.
 
 On April
22, 2008, Frontier rejected the Airline Services
Agreement.  Frontier's rejection of the agreement was prompted by its
filing for Chapter 11 bankruptcy protection on April 11, 2008.  As of
the bankruptcy date, we were operating 12 of the 17 E170
aircraft.  All 12 aircraft were removed during the second quarter of
2008.
    The
Midwest Code-Share Agreement
 
 On
September 3, 2008, we entered into a fixed-fee code-share agreement with Midwest
Airlines. Under the terms of the agreement, we operate 12 E170
aircraft.  As of December 31, 2008, we had all 12 E170 aircraft placed
into service and we provided 65 flights per day as Midwest
Airlines.
  Midwest
purchases all capacity at predetermined rates and reimburses Republic Airline
for industry standard pass through costs.  All fuel is purchased
directly by Midwest and is not charged back to Republic Airline. Republic
Airline was responsible for all costs and expenses of preparing each covered
aircraft prior to its being placed into service.
 
 The term
of the agreement became effective as of September 2008, and, unless earlier
terminated or extended, will continue until December 2018.  Midwest
has the option to extend the agreement for up to six additional
years.
 
 The
agreement may be subject to early termination under various circumstances
including:
 
 •
      immediately, by Midwest, upon the occurrence of an event that constitutes
      cause, subject to prior written notice to us;
or
 
 •
      if either Midwest or we commit a material breach of the code-share
      agreement, subject to two business days notice if we breach the agreement
      and five business days notice if Midwest breaches the agreement;
      or
 
 •
      if there is a change in control of us or Midwest without the other party's
      prior written consent.
 
 Midwest
may elect to operate the 12 aircraft on its own operating certificate pursuant
to a long-term operating lease, which would be for a term equal to the remaining
term of the airline services agreement.
  -12-
 The
Mokulele Code-Share Agreement
 
 In
October 2008, we entered into a fixed-fee code-share agreement with Mokulele
Flight Service. Under the terms of the agreement, we will provide and operate
four E170 aircraft. As of December 31, 2008 we had two E170 aircraft placed into
service and we provided 30 flights per day as Mokulele Airlines.
 
 Mokulele
purchases all capacity at predetermined rates and reimburses Shuttle America for
industry standard pass through costs. Two aircraft went into service in November
2008. The other two aircraft are scheduled to go into service in March 2009 and
June 2009. All fuel is purchased directly by Mokulele and is not be charged back
to Shuttle America. Shuttle America is responsible for all costs and expenses of
preparing each covered aircraft prior to its being placed into
service.
 
 The term
of the agreement became effective as of October 2008, and, unless earlier
terminated or extended, will continue until October 2018.
  The
agreement may be subject to early termination under various circumstances
including:
 
 •
      immediately, by Mokulele, upon the occurrence of an event that constitutes
      cause, subject to prior written notice to us;
or
 
 •
      if either Mokulele or we commit a material breach of the code-share
      agreement, subject to two business days notice if we breach the agreement
      and five business days notice if Mokulele breaches the agreement;
      or
 
 •
      if there is a change in control of Mokulele without Shuttle America's
      prior written consent.
  Mokulele
is currently in default of its loan and code-share agreement. We are negotiating
with Mokulele the terms of a possible recapitalization of Mokulele, but there
can be no assurance that Mokulele will be recapitalized. As a part of these
negotiations, we are contemplating converting $3.0 million of our loan and
injecting $3.0 million of cash in exchange for 50% of Mokulele's common stock.
Even if this recapitalization is completed, Mokulele could require additional
funding, part or all of which may come from us. If the business environment does
not improve for Mokulele, our financial condition, results of operations and
liquidity could be adversely affected.
 
 Competition
and Economic Conditions
  The
airline industry is highly competitive. We not only compete with other regional
airlines, some of which are owned by or are operated as code-share partners of
major airlines, but also face competition from low-fare airlines and major
airlines on some of our routes.
  The
principal competitive factors in the airline industry are location, fare
pricing, frequent flyer loyalty programs, customer service, routes served,
flight schedules, aircraft types and code-share relationships. Certain of our
competitors are larger and have significantly greater financial and other
resources than we do. Moreover, federal deregulation of the industry allows
competitors to rapidly enter our markets and to quickly discount and restructure
fares. The airline industry is particularly susceptible to price discounting
because airlines incur only nominal costs to provide service to passengers
occupying otherwise unsold seats.
  Generally,
the airline industry is highly sensitive to general economic conditions, in
large part due to the discretionary nature of a substantial percentage of both
business and pleasure travel. In the past, many airlines have reported decreased
earnings or substantial losses resulting from periods of economic recession,
heavy fare discounting, high fuel prices and other factors. Economic down turns
combined with competitive pressures have contributed to a number of bankruptcies
and liquidations among major and regional carriers. The effect of economic down
turns is somewhat mitigated by our fixed-fee code-share agreements with respect
to our flights. In addition, if our Partners remain financially strained by
current economic conditions or higher fuel prices, they may reduce the number of
flights we operate in order to reduce their operating costs.
 
 Government
Regulation
  All
interstate air carriers are subject to regulation by the Department of
Transportation, referred to as the DOT, the Federal Aviation Administration, or
FAA, the Transportation Security Administration, or TSA, and certain other
governmental agencies. Regulations promulgated by the DOT primarily relate to
economic aspects of air service, those of the TSA to security and those of the
FAA to operations and safety. The FAA requires operating, airworthiness and
other certifications; approval of personnel who may engage in flight maintenance
or operations activities; record keeping procedures in accordance with FAA
requirements; and FAA approval of flight training and retraining programs.
Generally, governmental agencies enforce their regulations through, among other
mechanisms, certifications, which are necessary for our continued operations,
and proceedings, which can result in civil or criminal penalties or suspension
or revocation of operating authority. The FAA can also issue maintenance
directives and other mandatory orders relating to, among other things, grounding
of aircraft, inspection of aircraft, installation of new safety-related items
and the mandatory removal, replacement or modification of aircraft parts that
have failed or may fail in the future.
 
 We
believe that we are operating in material compliance with FAA regulations and
hold all necessary operating and airworthiness certificates and licenses. We
incur substantial costs in maintaining our current certifications and otherwise
complying with the laws, rules and regulations to which we are subject. Our
flight operations, maintenance programs, record keeping and training programs
are conducted under FAA approved procedures.
  The DOT
allows local airport authorities to implement procedures designed to abate
special noise problems, provided such procedures do not unreasonably interfere
with interstate or foreign commerce or the national transportation system.
Certain airports, including major airports at Boston, Washington, D.C., the New
York area, Dallas, Philadelphia, Charlotte, Chicago, Los Angeles, San Diego,
Orange County (California) and San Francisco, have established airport
restrictions to limit noise, including restrictions on aircraft types to be used
and limits on the number of hourly or daily operations or the time of such
operations. In some instances, these restrictions have caused curtailments in
service or increases in operating costs, and such restrictions could limit our
ability to commence or expand our operations at affected airports. Local
authorities at other airports are considering adopting similar noise
regulations.
  Pursuant
to law and the regulations of the DOT, we must be actually controlled by United
States citizens. In this regard, our President and at least two-thirds of our
Board of Directors must be United States citizens and not more than 25% of our
voting stock may be owned or controlled by foreign nationals, although subject
to DOT approval the percentage of foreign economic ownership may be as high as
49%.
  -13-
 ITEM 1A. RISK FACTORS
  The
following risk factors, in addition to the information discussed elsewhere
herein, should be carefully considered in evaluating us and our
business:
  Risks
Related To Our Operations
 
 We
are dependent on our code-share relationships with our Partners.
  We depend
on relationships created by our regional jet fixed-fee code-share agreements
with American, Continental, Delta, Midwest, Mokulele, United and US Airways for
all of our regional airline service revenues. Any material modification to, or
termination of, our code-share agreements with any of these Partners could have
a material adverse effect on our financial condition, results of our operations
and the price of our common stock. Each of the code-share agreements contains a
number of grounds for termination by our Partners, including our failure to meet
specified performance levels. In addition, American may terminate its code-share
agreement without cause upon 180 days notice, provided such notice may not
be given prior to September 30, 2011. If American terminates its code-share
agreement for cause, it has the right to require us to assign to them our leases
of all E140 aircraft then operating under the code-share agreement or
to lease such aircraft to them to the extent we own them. If American terminates
our code-share agreement other than for cause, we have the right to require
American to assume our leases of all E140 aircraft then operating
under the code-share agreement, or to lease such jets from us to the extent we
own them. Delta may partially or completely terminate its code-share agreement
with respect to the E145 aircraft, with or without cause, on 180 days
written notice at any time after November 2009, and may partially or
completely terminate its code-share agreement with respect to the E170 aircraft,
with or without cause, on 180 days written notice at any time after
July 2015.  If Delta exercises this right under either agreement or if
we terminate either agreement for cause, we have the right to require Delta
either to purchase, sublease or assume the lease of aircraft leased by us with
respect to any of the aircraft we previously operated for Delta under that
agreement. If we choose not to exercise this right, or if Delta terminates
either agreement for cause, Delta may require us to sell or sublease to it or
Delta may assume the lease of aircraft leased by us with respect to any of the
aircraft we previously operated for it under that agreement. If we wrongfully
terminate our United code-share agreement, breach certain provisions thereof or
fall below certain minimum operating thresholds for three consecutive months or
any six month period in a rolling 12 month period, United can assume our
ownership or leasehold interests in the aircraft we operate for them.
Continental may terminate its code-share agreement with cause or if we breach
certain provisions thereof including a breach of our guaranty granted to it.
Each of Midwest and Mokulele may terminate their code-share agreements with
cause or if we breach certain provisions thereof.
  In
addition, because substantially all of our operating revenues are currently
generated under the code-share agreements, if any one of them is terminated, our
operating revenues and net income will be materially adversely affected unless
we are able to enter into satisfactory substitute arrangements or,
alternatively, fly under our own flight designator code, including obtaining the
airport facilities and gates necessary to do so. We cannot assure you that we
would be able to enter into substitute code-share arrangements, that any such
substitute arrangements would be as favorable to us as the current code-share
agreements or that we could successfully fly under our own flight designator
code.
 
 For the
years ended December 31, 2008, 2007 and 2006 respectively, Delta accounted for
approximately 29%, 33% and 35%, US Airways accounted for approximately 25%, 22%
and 24%, United accounted for approximately 21%, 24% and 30% and American
accounted for approximately 10%, 9% and 11% of our regional airline services
revenues. For the years ending December 31, 2008 and 2007 Continental accounted
for approximately 12% and 10% and Frontier accounted for approximately 2% and 2%
of our regional airline services revenues. Midwest accounted for approximately
1% and Mokulele accounted for less than 1% of our regional airline services
revenues for the year ended December 31, 2008.
 
 We
may be unable to redeploy smaller aircraft removed from service.
  Certain
of our Partners have indicated a desire to schedule fewer 50 seat aircraft. To
the extent that we agree to remove an E140/145 aircraft from service, we must
either sell or sublease the aircraft to another party or redeploy it in order to
cover our carrying expenses for that aircraft. Our inability to sell, sublease
and/or redeploy aircraft that have been removed from service could have a
material adverse effect on our financial condition, results of operations and
the price of our common stock.
  If
the financial strength of any of our Partners decreases, our financial strength
is at risk.
  We are
directly affected by the financial and operating strength of our Partners. In
the event of a decrease in the financial or operational strength of any of our
Partners, such partner may be unable to make the payments due to us under its
code-share agreement. In addition, it may reduce utilization of our aircraft to
the minimum levels specified in the code-share agreements. US Airways, Delta and
United have recently emerged from bankruptcy. Frontier filed for Chapter 11
bankruptcy protection in April 2008. In addition, it is possible that any
code-share agreement with a code-share partner that files for reorganization
under Chapter 11 of the bankruptcy code may not be assumed in bankruptcy and
could be modified or terminated. Any such event could have an adverse effect on
our operations and the price of our common stock. As of February 3, 2009,
Standard & Poor's and Moody's, respectively, maintained ratings of B-
and Caa1 for US Airways, B- and Caa1 for AMR Corp., the parent of American, B
and B2 for Delta, B- and Caa1 for UAL Corp., the parent of United, and B and B2
for Continental. Ratings for Midwest Air Group, parent company of Midwest, and
Mokulele are not available.
 
 In
October 2008, we entered into a credit agreement with US Airways. Under the
agreement, we agreed to make a term loan to US Airways in the amount of $10.0
million. Subject to certain terms and conditions, we also agreed to make an
additional term loan of up to $25.0 million.
 
 In
September 2008, we entered into an amended and restated senior secured credit
agreement with Midwest. Under the agreement, we made a one-year term loan to
Midwest in the amount of $25.0 million. The loan is collateralized by
substantially all of Midwest's unencumbered assets and is generally senior to
unsecured lenders' security positions to the extent of such
collateral.
 
 In
October 2008, we entered into a loan agreement with Mokulele under which we are
providing up to $8.0 million in direct financing to Mokulele in the form of a
line of credit, which can be converted, at our option, for up to 45% of the
common stock of Mokulele. Mokulele is currently in default of its loan and
code-share agreement. We are negotiating with Mokulele the terms of a possible
recapitalization of Mokulele, but there can be no assurance that Mokulele will
be recapitalized. As a part of these negotiations, we are contemplating
converting $3.0 million of our loan and injecting $3.0 million of cash in
exchange for 50% of Mokulele's common stock. Even if this recapitalization is
completed, Mokulele could require additional funding, part or all of which may
come from us. If the business environment does not improve for Mokulele, our
financial condition, results of operations and liquidity could be adversely
affected
  A default
by Frontier, US Airways, or Midwest on the loans we have made to them could
have a material adverse effect on our financial condition, results of
operations, liquidity  and the price of our common stock.
  Our
Partners may expand their direct operation of aircraft thus limiting the
expansion of our relationships with them.
  We depend
on major airlines such as our Partners to contract with us instead of purchasing
and operating their own aircraft. However, some major airlines own their own
regional airlines and operate their own aircraft instead of entering into
contracts with us or other regional carriers. For example, American and Delta
have acquired many aircraft which they fly under their affiliated carriers,
American Eagle, with respect to American, and Comair, with respect to Delta. In
addition, US Airways is operating aircraft through its PSA subsidiary. We have
no guarantee that in the future our Partners will choose to enter into contracts
with us instead of purchasing their own aircraft or entering into relationships
with competing regional airlines. They are not prohibited from doing so under
our code-share agreements. In addition, US Airways previously announced that,
pursuant to an agreement with its pilots, US Airways will not enter into
agreements with its regional affiliates to fly E190 and higher capacity aircraft
and it is possible that our other partners will make the same decision. Midwest
has the option of directly operating the aircraft which we currently operate for
them. A decision by US Airways, American, Delta, United, Continental, Midwest or
Mokulele to phase out our contract based code-share relationships as they expire
and instead acquire and operate their own aircraft or to enter into similar
agreements with one or more of our competitors could have a material adverse
effect on our financial condition, results of operations and the price of our
common stock.
 
 Any
labor disruption or labor strikes by our employees or those of our Partners
would adversely affect our ability to conduct our business.
  All of
our pilots, customer service employees, flight attendants and dispatchers are
represented by unions. Collectively, these employees represent approximately 74%
of our workforce as of December 31, 2008. Although we have never had a work
interruption or stoppage and believe our relations with our unionized employees
are generally good, we are subject to risks of work interruption or stoppage
and/or may incur additional administrative expenses associated with union
representation of our employees. If we are unable to reach agreement with any of
our unionized work groups on the amended terms of their collective bargaining
agreements, we may be subject to work interruptions and/or stoppages. Any
sustained work stoppages could adversely affect our ability to fulfill our
obligations under our code-share agreements and could have a material adverse
effect on our financial condition, results of operations and the price of our
common stock.
 
 Under the
terms of our jet code-share agreement with US Airways, if we are unable to
provide scheduled flights as a result of a strike by our employees, it is only
required to pay us for certain fixed costs for specified periods. Under the
terms of the code-share agreements with the remainder of our Partners, none of
them are required to pay us any amounts during the period our employees are on
strike and we are unable to provide scheduled flights. A sustained strike by our
employees would require us to bear costs otherwise paid by our
Partners.
 
 In
addition, a labor disruption other than a union authorized strike may cause us
to be in material breach of our code-share agreements, all of which require us
to meet specified flight completion levels during specified periods. Our
Partners have the right to terminate their code-share agreements if we fail to
meet these completion levels.
 
 -14-
 Our
Partners may be restricted in increasing the level of business that they conduct
with us, thereby limiting our growth.
 
 In
general, the pilots' unions of certain major airlines have negotiated collective
bargaining agreements that restrict the number and/or size of regional aircraft
that a particular carrier may operate. A "scope" clause in US Airways' current
collective bargaining agreement with its pilots prevents US Airways from using
more than 465 aircraft not flown by its pilots in its operations. There are no
quantity limitations in the US Airways "scope" limitations for small aircraft.
For purposes of this "scope" restriction, a small regional jet is defined as any
aircraft configured with 78 or fewer seats. For purposes of this limitation, a
large regional jet is an aircraft configured with 79 to 90 passenger seats. US
Airways can outsource up to an additional 55 aircraft, including the E175 and
C900, configured with more than 78 seats but less than 90 seats, subject to
certain limitations. We cannot assure you that US Airways will contract with us
to fly any additional aircraft. Our pilots union limited their approval to 80
additional aircraft for US Airways, which includes the 20 E170s and 38 E175s we
currently operate for US Airways. A "scope" clause in American's current
collective bargaining agreement with its pilots limits it from operating
aircraft having 51 or more seats. A "scope" clause in Delta's current collective
bargaining agreement with its pilots restricts it from operating aircraft having
more than 70 to 76 seats and limits it from operating more than 175, or under
certain circumstances, 200 aircraft having 70 to 76 seats. United's "scope"
limitations restrict it from operating aircraft configured with more than 70
seats or any aircraft weighing more than 83,000 pounds. Continental's "scope"
limitations restrict it from operating aircraft configured with more than 51
seats.
  American's
"scope" limitations further limit its partners, in our case Chautauqua, from
operating aircraft with 51 or more seats even for partners other than American.
Delta's "scope" limitations restrict its partners from operating aircraft with
over 76 seats even if those aircraft are operated for an airline other than
Delta. Neither US Airways, United nor Continental has similar "scope" limits on
the size of aircraft we can operate for our other Partners.
  We cannot
assure you that these "scope" clauses will not become more restrictive in the
future. Any additional limit on the number of aircraft we can fly for our
Partners could have a material adverse effect on our expansion plans and the
price of our common stock.
  We
have significant debt and off-balance sheet obligations and any inability to pay
would adversely impact our operations.
  The
airline business is very capital intensive and, as a result, many airline
companies are highly leveraged. During the years ended December 31, 2008 and
2007, our mandatory debt service payments totaled $274.6 million and
$198.6 million, respectively, and our mandatory lease payments totaled
$137.6 million and $138.7 million, respectively. We have significant lease
obligations with respect to our aircraft, which aggregated approximately $976.6
million and $1.1 billion at December 31, 2008 and December 31, 2007,
respectively. Embraer's current aggregate list price for the three aircraft that
we expect to acquire during the first quarter of 2009 is approximately $105.0
million. We expect to acquire on credit a substantial portion of this value,
which will increase our mandatory lease and debt service payments.
  There can
be no assurance that our operations will generate sufficient cash flow to make
such payments or that we will be able to obtain financing to acquire the
additional aircraft or make other capital expenditures necessary for our
expansion. If we default under our loan or lease agreements, the lender/lessor
has available extensive remedies, including, without limitation, repossession of
the respective aircraft and other assets and, in the case of large creditors,
the effective ability to exert control over how we allocate a significant
portion of our revenues. Even if we are able to timely service our debt, the
size of our long-term debt and lease obligations could negatively affect our
financial condition, results of operations and the price of our common stock in
many ways, including:
 
 •
increasing the cost, or limiting the availability of, additional financing for
working capital, acquisitions or other purposes;
 
 •
limiting the ways in which we can use our cash flow, much of which may have to
be used to satisfy debt and lease obligations; and
 
 •
adversely affecting our ability to respond to changing business or economic
conditions.
  We
currently depend on Embraer to support our fleet of regional jet
aircraft.
  Currently,
we are obligated under our code-share agreements to place an additional three
Embraer aircraft in service through 2009. We are dependent on Embraer as the
manufacturer of all of these jets. Our risks in relying primarily on a single
manufacturer include:
  • the
possibility that Embraer could refuse, or may not be financially able, to
perform its obligations under the purchase agreement for the delivery of the
aircraft;
 
 • a fire,
strike or other event could occur that affects Embraer's ability to completely
or timely fulfill its contractual obligations;
  • the
failure or inability of Embraer to provide sufficient parts or related support
services on a timely basis;
 
 • the
interruption of fleet service as a result of unscheduled or unanticipated
maintenance requirements for these aircraft;
 
 • the
issuance of FAA directives restricting or prohibiting the use of Embraer
aircraft or requiring time-consuming inspections and maintenance;
and
 
 • the
adverse public perception of a manufacturer as a result of an accident or other
adverse publicity.
  Any
disruption or change in the delivery schedule of the three additional Embraer
aircraft would affect our overall operations and our ability to fulfill our
obligations under our code-share agreements.
  Further,
E170 and E175 aircraft began operating in the commercial airline market in
February 2004 and July 2005, respectively. As relatively new products,
these aircraft have been, and may continue to be, subject to unforeseen
manufacturing and/or reliability issues.
  Our
operations could be materially adversely affected by the failure or inability of
Embraer or any key component manufacturers to provide sufficient parts or
related support services on a timely basis or by an interruption of fleet
service as a result of unscheduled or unanticipated maintenance requirements for
our aircraft.
  Reduced
utilization levels of our aircraft under the fixed-fee agreements would
adversely impact our revenues, earnings and liquidity.
  Our
agreements with our Partners require each of them to schedule our aircraft to a
minimum level of utilization. However, the aircraft have historically been
utilized more than the minimum requirement. Even though the fixed-fee rates may
adjust, either up or down, based on scheduled utilization levels or require a
fixed amount per day to compensate us for our fixed costs, if our aircraft are
at or below the minimum requirement (including taking into account the stage
length and frequency of our scheduled flights) we will likely lose both the
opportunity to recover a margin on the variable costs of flights that would have
been flown if our aircraft were more fully utilized and the opportunity to earn
incentive compensation on such flights.
 
 Increases
in our labor costs, which constitute a substantial portion of our total
operating costs, will directly impact our earnings.
  Labor
costs constitute a significant percentage of our total operating costs, and we
have experienced pressure to increase wages and benefits for our employees.
Under our code-share agreements, our reimbursement rates contemplate labor costs
that increase on a set schedule generally tied to an increase in the consumer
price index or the actual increase in the contract. We are entirely responsible
for our labor costs, and we may not be entitled to receive increased payments
for our flights if our labor costs increase above the assumed costs included in
the reimbursement rates. As a result, a significant increase in our labor costs
above the levels assumed in our reimbursement rates could result in a material
reduction in our earnings. We have collective bargaining agreements with our
pilots, flight attendants and dispatchers. We cannot assure you that future
agreements with our employees' unions will be on terms in line with our
expectations or comparable to agreements entered into by our competitors, and
any future agreements may increase our labor costs and reduce both our income
and our competitiveness for future business opportunities.
 
 Our
business could be harmed if we lose the services of our key
personnel.
  Our
business depends upon the efforts of our chief executive officer, Bryan Bedford,
and our other key management and operating personnel. American can terminate its
code-share agreement if we replace Mr. Bedford without its consent, which
cannot be unreasonably withheld. We may have difficulty replacing management or
other key personnel who leave and, therefore, the loss of the services of any of
these individuals could harm our business. We maintain a "key man" life
insurance policy in the amount of $10 million for Mr. Bedford, but
this amount may not adequately compensate us in the event we lose his
services.
  -15-
 We
may experience difficulty finding, training and retaining
employees.
  The
airline industry has from time to time experienced a shortage of qualified
personnel, specifically pilots and maintenance technicians. In addition, as is
common with most of our competitors, we have, from time to time, faced
considerable turnover of our employees. Although our employee turnover has
decreased significantly since September 11, 2001, our pilots, flight
attendants and maintenance technicians sometimes leave to work for larger
airlines, which generally offer higher salaries and more extensive benefit
programs than regional airlines are financially able to offer. Should the
turnover of employees, particularly pilots and maintenance technicians, sharply
increase, the result will be significantly higher training costs than otherwise
would be necessary. We cannot assure you that we will be able to recruit, train
and retain the qualified employees that we need to carry out our expansion plans
or to replace departing employees. If we are unable to hire and retain qualified
employees at a reasonable cost, we may be unable to complete our expansion
plans, which could materially adversely affect our financial condition, results
of operations and the price of our common stock.
  We
are at risk of losses stemming from an accident involving any of our
aircraft.
  While we
have never had a crash causing death or serious injury over our 34 year
history, it is possible that one or more of our aircraft may crash or be
involved in an accident in the future, causing death or serious injury to
individual air travelers and our employees and destroying the aircraft and the
property of third parties.
  In
addition, if one of our aircraft were to crash or be involved in an accident we
would be exposed to significant tort liability. Such liability could include
liability arising from the claims of passengers or their estates seeking to
recover damages for death or injury. There can be no assurance that the
insurance we carry to cover such damages will be adequate. Accidents could also
result in unforeseen mechanical and maintenance costs. In addition, any accident
involving an aircraft that we operate could create a public perception that our
aircraft are not safe, which could result in air travelers being reluctant to
fly on our aircraft and a decrease in revenues. Such a decrease could materially
adversely affect our financial condition, results of operations and the price of
our common stock.
  Risks
Associated with the Airline Industry
 
 The airline industry is highly
competitive.
  Within
the airline industry, we not only compete with other regional airlines, some of
which are owned by or operated as partners of major airlines, but we also face
competition from low-fare airlines and major airlines on many of our routes,
including carriers that fly point to point instead of to or through a hub. Other
low-fare carriers serve the Indianapolis International Airport, which
results in significant price competition in the Indianapolis market, one of our
major markets. Competition in the eastern United States markets, which we
service from US Airways' hubs in New York, Boston, Philadelphia and Washington,
D.C. and from Delta's hub in Cincinnati, and Atlanta, is particularly intense,
due to the large number of carriers in those markets.
 
 In
addition, some of our competitors are larger and have significantly greater
financial and other resources than we do. Moreover, federal deregulation of the
industry allows competitors to rapidly enter our markets and to quickly discount
and restructure fares. The airline industry is particularly susceptible to price
discounting because airlines incur only nominal costs to provide service to
passengers occupying otherwise unsold seats.
  In
addition to traditional competition among airlines, the industry faces
competition from video teleconferencing and other methods of electronic
communication. New advances in technology may add a new dimension of competition
to the industry as business travelers seek lower-cost substitutes for air
travel.
  High
fuel costs would harm the airline industry.
  While
fuel is at or near three year lows, the recent spike in the price of oil to $147
per barrel in July 2008 caused airlines significant losses. A return to higher
fuel prices would harm the airline industry's financial condition and results of
operations. Fuel costs constitute a substantial portion of the total operating
expenses of the airline industry. Historically, fuel costs have been subject to
wide price fluctuations based on geopolitical issues, supply and demand and
other factors. Fuel availability is also affected by demand for home heating
oil, gasoline and other petroleum products. Because of the effect of these
events on the price and availability of fuel, the cost and future availability
of fuel cannot be predicted with any degree of certainty. Further, in the event
of a fuel supply shortage or further increases in fuel prices, a curtailment of
scheduled service could result.
  The airline industry has been subject
to a number of strikes which could affect our business.
  The
airline industry has been negatively impacted by a number of labor strikes. Any
new collective bargaining agreement entered into by other regional carriers may
result in higher industry wages and increase pressure on us to increase the
wages and benefits of our employees. Furthermore, since each of our Partners is
a significant source of our operating revenues, any labor disruption or labor
strike by the employees of any one of our Partners could have a material adverse
effect on our financial condition, results of operations and the price of our
common stock.
  Airlines
are often affected by certain factors beyond their control, including weather
conditions, which can affect their operations.
  Generally,
revenues for airlines depend on the number of passengers carried, the fare paid
by each passenger and service factors, such as the timeliness of departure and
arrival. During periods of fog, ice, low temperatures, storms or other adverse
weather conditions, flights may be cancelled or significantly delayed. For
example, in 2005, Hurricane Wilma forced us to suspend some of our operations in
Florida for a number of days. Under our fixed-fee code-share agreements, we are
partially protected against cancellations due to weather or air traffic control,
although these factors may affect our ability to receive incentive payments for
flying more than the minimum number of flights specified in our code-share
agreements. Should we enter into pro-rate revenue sharing agreements in the
future we will not be protected against weather or air traffic control
cancellations and our operating revenues could suffer as a result.
  The
airline industry has recently gone through a period of consolidation and
transition; consequently, we have fewer potential partners.
  Since
1978 and continuing to the present, the airline industry has undergone
substantial consolidation, and it may in the future undergo additional
consolidation. For example, in 2008, Delta and Northwest completed a merger.
Other recent developments include the domestic code-share alliance between
United and US Airways, and the merger of America West and US Airways. We, as
well as our Partners, routinely monitor changes in the competitive landscape and
engage in analysis and discussions regarding our strategic position, including
potential alliances and business combination transactions. Further consolidation
could limit the number of potential partners with whom we could enter into
code-share relationships. Although none of our contracts with our Partners allow
termination or are amendable in the event of consolidation, any additional
consolidation or significant alliance activity within the airline industry could
adversely affect our relationship with our Partners.
 
 The
airline industry is heavily regulated.
  Airlines
are subject to extensive regulatory and legal compliance requirements, both
domestically and internationally, that involve significant costs. In the last
several years, the FAA has issued a number of directives and other regulations
relating to the maintenance and operation of aircraft that have required us to
make significant expenditures. FAA requirements cover, among other things,
retirement of older aircraft, security measures, collision avoidance systems,
airborne wind shear avoidance systems, noise abatement, commuter aircraft safety
and increased inspection and maintenance procedures to be conducted on older
aircraft.
  We incur
substantial costs in maintaining our current certifications and otherwise
complying with the laws, rules and regulations to which we are subject. We
cannot predict whether we will be able to comply with all present and future
laws, rules, regulations and certification requirements or that the cost of
continued compliance will not significantly increase our costs of doing
business.
  The FAA
has the authority to issue mandatory orders relating to, among other things, the
grounding of aircraft, inspection of aircraft, installation of new safety
related items and removal, replacement or modification of aircraft parts that
have failed or may fail in the future. A decision by the FAA to ground, or
require time consuming inspections of or maintenance on, all or any of our
Embraer or Bombardier aircraft, for any reason, could negatively impact our
results of operations.
  In
addition to state and federal regulation, airports and municipalities enact
rules and regulations that affect our operations. From time to time, various
airports throughout the country have considered limiting the use of smaller
aircraft, such as Embraer or Bombardier aircraft, at such airports. The
imposition of any limits on the use of Embraer or Bombardier aircraft at any
airport at which we operate could interfere with our obligations under our
code-share agreements and severely interrupt our business
operations.
  -16-
 Additional
laws, regulations, taxes and airport rates and charges have been proposed from
time to time that could significantly increase the cost of airline operations or
reduce revenues. For instance, "passenger bill of rights" legislation was
introduced in Congress that, if enacted, would have, among other things,
required the payment of compensation to passengers as a result of certain delays
and limited the ability of carriers to prohibit or restrict usage of certain
tickets. This legislation is not currently active but if it is reintroduced,
these measures could have the effect of raising ticket prices, reducing revenue
and increasing costs. Several state legislatures have also considered such
legislation, and the State of New York in fact implemented a "passenger bill of
rights" that was overturned by a federal appeals court in 2008. The DOT has
imposed restrictions on the ownership and transfer of airline routes and takeoff
and landing slots at certain high density airports, including New York LaGuardia
and Reagan National. In addition, as a result of the terrorist attacks in New
York and Washington, D.C. in September 2001, the FAA and the Transportation
Security Administration (TSA) have imposed stringent security requirements on
airlines. We cannot predict what other new regulations may be imposed on
airlines and we cannot assure you that laws or regulations enacted in the future
will not materially adversely affect our financial condition, results of
operations and the price of our common stock.
 
 Risks
Related To Our Common Stock
  Our
stock price is volatile.
  Since
our common stock began trading on The NASDAQ National Market (now the NASDAQ
Global Select Market) on May 27, 2004, the market price of our common stock
has ranged from a low of $4.72 to a high of $23.88 per share. The market
price of our common stock may continue to fluctuate substantially due to a
variety of factors, many of which are beyond our control,
including:
  •
announcements concerning our Partners, competitors, the airline industry or the
economy in general;
 
 •
strategic actions by us, our Partners or our competitors, such as acquisitions
or restructurings;
 
 • media
reports and publications about the safety of our aircraft or the aircraft types
we operate;
 
 • new
regulatory pronouncements and changes in regulatory guidelines;
 
 • general
and industry specific economic conditions, including the price of
oil;
 
 • changes
in financial estimates or recommendations by securities analysts;
 
 • sales
of our common stock or other actions by investors with significant shareholdings
or our Partners; and
 
 • general
market conditions.
 
 The stock
markets in general have experienced substantial volatility that has often been
unrelated to the operating performance of particular companies. These broad
market fluctuations may adversely affect the trading price of our common
stock.
  In the
past, stockholders have sometimes instituted securities class action litigation
against companies following periods of volatility in the market price of their
securities. Any similar litigation against us could result in substantial costs,
divert management's attention and resources and harm our business.
  Future
sales of our common stock by our stockholders could depress the price of our
common stock.
  Sales
of a large number of shares of our common stock or the availability of a large
number of shares for sale could adversely affect the market price of our common
stock and could impair our ability to raise funds in additional stock
offerings.
  Our
incorporation documents and Delaware law have provisions that could delay or
prevent a change in control of our company, which could negatively affect your
investment.
 
 Our
certificate of incorporation and bylaws and Delaware law contain provisions that
could delay or prevent a change in control of our company that stockholders may
consider favorable. Certain of these provisions:
  •
authorize the issuance of up to 5,000,000 shares of preferred stock that can be
created and issued by our board of directors without prior stockholder approval,
commonly referred to as "blank check" preferred stock, with rights senior to
those of our common stock;
 
 • limit
the persons who can call special stockholder meetings;
 
 • provide
that a supermajority vote of our stockholders is required to amend our
certificate of incorporation or bylaws; and
 
 •
establish advance notice requirements to nominate directors for election to our
board of directors or to propose matters that can be acted on by stockholders at
stockholder meetings.
  These and
other provisions in our incorporation documents and Delaware law could allow our
board of directors to affect your rights as a stockholder by making it more
difficult for stockholders to replace board members. Because our board of
directors is responsible for appointing members of our management team, these
provisions could in turn affect any attempt to replace the current management
team. In addition, these provisions could deprive our stockholders of
opportunities to realize a premium on the shares of common stock owned by
them.
  Our
charter documents include provisions limiting voting by foreign
owners.
 
 Our
certificate of incorporation provides that shares of capital stock may not be
voted by or at the direction of persons who are not citizens of the United
States if the number of such shares would exceed applicable foreign ownership
restrictions. U.S. law currently requires that no more than 25% of the voting
stock of our company or any other domestic airline may be owned directly or
indirectly by persons who are not citizens of the United
States.  However, up to 49% of the total equity of our company or any
other domestic airline may be owned directly or indirectly by persons who are
not citizens of the United States.
 
 Additional
Information
 
 The
Company files annual, quarterly and current reports and other information with
the Securities and Exchange Commission (the "SEC" or the "Commission"). These
materials can be inspected and copied at the SEC's Public Reference Room at 450
Fifth Street, N.W., Washington, D.C. 20549. Copies of these materials may
also be obtained by mail at prescribed rates from the SEC's Public Reference
Room at the above address. Information about the Public Reference Room can be
obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an
Internet site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC. The address
of the SEC's Internet site is www.sec.gov.
  On our
website, www.rjet.com/investorrelations.html, we provide free of charge our
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports
on Form 8-K as soon as reasonably practicable after they have been
electronically filed or furnished to the Securities and Exchange Commission. The
code of ethics, adopted by our Board of Directors, which applies to all our
employees, can also be found on our website,
www.rjet.com/investorrelations.html. Our audit committee charter is also
available on our website.
  ITEM 1B. UNRESOLVED STAFF COMMENTS
 
 None
 -17-
  ITEM 2. PROPERTIES
  Flight
Equipment
  As of
December 31, 2008, we operated 221 aircraft as described in the following
table:
 
 Type
              
              Total
                Aircraft
              
              Owned
              
              Leased
              
              Average
      Age
                (in
      years)
              
              Firm
                Orders
              
              Option
                Aircraft
              
              Seats
      in
                Standard
                ConfigurationE140LR
              
              
              15
              
              
              11
              
              
              4
              
              
              6.8
              
              
              
              
              
              
              
              
              44E145LR
      (1)
              
              
              62
              
              
              27
              
              
              35
              
              
              6.8
              
              
              
              
              
              
              
              
              50E170/175LR
      (2)
              
              
              127
              
              
              104
              
              
              23
              
              
              2.3
              
              
              3
              
              
              54
              
              
              70-86CRJ-200
              
              
              17
              
              
              0
              
              
              17
              
              
              7.3
              
              
              
              
              
              
              
              
              50Total
              
              
              221
              
              
              142
              
              
              79
              
              
              
              
              
              3
              
              
              54
 
 (1) Two
of these aircraft are used for charter service and as spares.
 
 (2) Two
of these aircraft are unallocated, two of these aircraft are scheduled to go
into service for Mokulele in 2009, and two aircraft were placed into service
with United in January 2009.
  In
addition to the aircraft listed above, we subleased six E145 aircraft to a
foreign airline, we have nine E135 aircraft classified as held-for-sale, and we
have six CRJ-200 aircraft that will be returned to the lessor.
 
 We have
firm orders to acquire three E175 aircraft.
  All of
our leased aircraft are leased by us pursuant to operating leases, with current
lease expirations ranging from 2009 to 2023. We have fixed-price purchase
options under most of these leases after nine to 14 years of the lease term.
Furthermore, we have options to renew most of the leases for an additional three
to four years, or purchase the leased aircraft at the conclusion of their
current lease terms at fair market value.
 
 The
following table outlines the number and type of aircraft being operated for each
Partner as of December 31, 2008 and the total number of aircraft that we are
required to place in service for each Partner by December 31, 2009:
  
 E175
              E170
              E145
              E140
              E135
              CRJ-200
              Total2008
              2009
              2008
                (1)
              2009
              2008
                (1)
              2009
              2008
              2009
              2008
                (2)
              2009
              2008
              2009
                (3)
              2009US
      Airways
              38
              38
              20
              20
              9
              9
              
              
              
              
              
              
              67American
      (4)
              
              
              
              
              
              
              15
              13
              
              
              
              
              13Delta
      (5)
              13
              16
              3
              
              24
              24
              
              
              
              
              
              
              40United
      (6)
              
              
              33
              38
              7
              
              
              
              
              
              
              
              38Continental
              
              
              
              
              20
              20
              
              
              
              
              17
              7
              27Midwest
              
              
              12
              12
              
              
              
              
              
              
              
              
              12Mokulele
      (7)
              
              
              2
              4
              
              
              
              
              
              
              
              
              4Total
              51
              54
              70
              74
              60
              53
              15
              13
              −
              −
              17
              7
              201
 
  (1)
December 31, 2008 aircraft count excludes six E170 and two E145 aircraft that
are not currently being operated for any of our Partners.
 
 (2) In
July 2008, we entered into an agreement with Delta to remove the final 11 E135
aircraft from our Delta operation effective September 30, 2008.  The
aircraft were originally scheduled to be removed between November 2008 and April
2009.
 
 (3) Under
our Continental agreement, we expect all 24 CRJ-200 aircraft to be removed from
service and returned to the lessor.  We removed seven aircraft in the
fourth quarter of 2008, and we anticipate removing ten aircraft in 2009 and
seven aircraft in 2010.
 
 (4) In
October 2008, the Company and American reached an agreement to amend its airline
services agreement. A key term of this agreement calls for the removal of two of
the 15 E140 aircraft currently operating for American to be removed from service
in June 2009.
 
 (5) In
August 2007, we amended our Jet Services Agreement with Delta to provide for the
replacement of 16 E170 aircraft operating as Delta Connection with 16 E175
aircraft.  Thirteen E170 aircraft have been replaced with E175
aircraft as of December 31, 2008 and the remaining three are expected to be
placed into service during the first quarter of 2009.
 
 (6) In
July 2008, the we received notice  from United, that United was
exercising its right to terminate the United Express Agreement that provides for
the Company to operate seven E145 aircraft.  The termination will be
effective December 31, 2009.
 
 (7) Under
our Mokulele agreement two E170 aircraft were placed into service in 2008 and
the remaining two are scheduled to be placed into service in the first
half of 2009.
 
 -18-
 Ground
Operations and Properties
 
 As of
December 31, 2008, our facilities are summarized in the following
table:
 
 Facility
              Square
      Feet
              LocationCorporate
      Office
              45,000
              Indianapolis,
      INTraining
      Facility
              20,400
              Plainfield,
      INMaintenance
      Hangar
              110,500
              Indianapolis,
      INMaintenance
      Hangar/Office
              232,000
              Columbus,
      OHMaintenance
      Hangar
              70,000
              Louisville,
      KYMaintenance
      Hangar/Office
              86,000
              Pittsburgh,
      PAMaintenance
      Hangar/Office
              35,940
              St.
      Louis, MO
 
 Our
employees perform substantially all routine airframe and engine maintenance and
periodic inspection of equipment. Our Partners or third parties provide ground
support services  and provide ticket handling services in all
109 cities we serve.
  We lease
all of our facilities subject to either long-term leases or on a month to month
basis.
 
 We
believe that our current facilities, along with our planned additional
facilities, are adequate for the current and foreseeable needs of our
business.
  ITEM 3. LEGAL PROCEEDINGS
  We are
subject to certain legal and administrative actions, which we consider routine
to our business activities. Management believes that the ultimate outcome of any
pending legal matters will not have a material adverse effect on our financial
position, liquidity or results of operations.
  ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
 
 None
 
 
 -19-
   PART
II
  ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
  Market
Price
  Our
common stock began trading on The NASDAQ National Market (now the NASDAQ Global
Select Market) on May 27, 2004 and is traded under the symbol "RJET." Prior
to that date, there was no public market for our common stock. The following
table sets forth the high and low sales prices of our common stock for the
periods indicated.
  Year
      Ended December 31, 2007
              
              High
              
              
              LowFirst
      Quarter
              
              $
              23.13
              
              
              $
              16.70Second
      Quarter
              
              
              23.88
              
              
              
              19.80Third
      Quarter
              
              
              22.46
              
              
              
              17.46Fourth
      Quarter
              
              
              22.75
              
              
              
              18.32Year
      Ended December 31, 2008First
      Quarter
              
              $
              22.50
              
              
              $
              19.02Second
      Quarter
              
              
              22.64
              
              
              
              8.66Third
      Quarter
              
              
              12.77
              
              
              
              6.68Fourth
      Quarter
              
              
              15.72
              
              
              
              6.37
  As of
December 31, 2008 there were 42 stockholders of record of our common stock. We
have never paid cash dividends on our common stock. The payment of future
dividends is within the discretion of our board of directors and will depend
upon our future earnings, our capital requirements, bank financing, financial
condition and other relevant factors. The credit facility with Bank of America
Business Capital does not limit the Company’s ability to pay dividends unless
the Company is in default thereunder.
 
 Performance
Graph
 
 The above
graph compares the performance of the Company from May 27, 2004 through December
31, 2008, against the performance of (i) the Composite Index for Nasdaq Stock
Market (U.S. Companies) and (ii) an index of companies engaged in air
transportation (SIC 4512 and 4513), including regional airlines, whose stocks
trade on the Nasdaq, for the same period.
  Below is
a summary of the equity compensation plans as of December 31, 2008:
  A
              
              
              B
              
              CPlan
      Category
              Number
      of securities to be issued upon exercise of outstanding options, warrants
      and rights
              
              
              Weighted-average
      exercise price of outstanding options, warrants and rights
              
              Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding securities reflected in column
      A)Equity
      compensation plans approved by security holdersOptions
      outstanding under the 2002 Equity Incentive Plan
              1,340,668
              
              $
              15.23
              
              —Options
      outstanding under the 2007 Equity Incentive Plan
              2,507,000
              
              
              16.10
              
              2,284,000Equity
      compensation plans not approved by security holders
              —
              
              
              —
              
              —Total
              3,847,668
              
              $
              15.80
              
              2,284,000
 
 Unregistered
Sales of Equity Securities
 
 None
  -20-
  ITEM 6. SELECTED
FINANCIAL DATA
  The
following selected financial data and operating statistics should be read in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations, and the consolidated financial statements and related
notes included in Item 8 of the Form 10-K.
 Years
      Ended December 31,2008
              
              
              2007
              
              
              2006
              
              
              2005
              
              
              2004(in
      thousands, except share, per share and airline operating
    data)Statement
      of Operations Data:Operating
      revenues:Regional
      airline services
              
              $
              1,462,211
              
              
              $
              1,274,607
              
              
              $
              1,118,226
              
              
              $
              883,906
              
              
              $
              637,389Charter
      and ground handling
              
              
              5,138
              
              
              
              5,867
              
              
              
              8,932
              
              
              
              11,611
              
              
              
              8,682Other
              
              
              12,406
              
              
              
              12,203
              
              
              
              15,920
              
              
              
              9,504
              
              
              
              253Total
      operating revenues
              
              
              1,479,755
              
              
              
              1,292,677
              
              
              
              1,143,078
              
              
              
              905,021
              
              
              
              646,324Operating
      expenses:Wages
      and benefits
              
              
              252,336
              
              
              
              226,521
              
              
              
              175,483
              
              
              
              143,826
              
              
              
              112,305Aircraft
      fuel (1)
              
              
              327,791
              
              
              
              296,573
              
              
              
              325,500
              
              
              
              278,923
              
              
              
              174,208Passenger
      fees and commissions
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              2,939Landing
      fees
              
              
              59,891
              
              
              
              53,684
              
              
              
              41,993
              
              
              
              30,376
              
              
              
              24,201Aircraft
      and engine rent
              
              
              134,206
              
              
              
              124,961
              
              
              
              94,773
              
              
              
              77,725
              
              
              
              74,514Maintenance
      and repair
              
              
              169,425
              
              
              
              130,237
              
              
              
              105,198
              
              
              
              76,481
              
              
              
              70,290Insurance
      and taxes
              
              
              25,793
              
              
              
              19,039
              
              
              
              17,652
              
              
              
              16,117
              
              
              
              13,186Depreciation
      and amortization
              
              
              133,206
              
              
              
              106,594
              
              
              
              92,228
              
              
              
              64,877
              
              
              
              34,412Other
              
              
              122,012
              
              
              
              104,790
              
              
              
              77,658
              
              
              
              57,977
              
              
              
              48,924Total
      operating expenses
              
              
              1,224,660
              
              
              
              1,062,399
              
              
              
              930,485
              
              
              
              746,302
              
              
              
              554,979Operating
      income
              
              
              255,095
              
              
              
              230,278
              
              
              
              212,593
              
              
              
              158,719
              
              
              
              91,345Other
      income (expense):Interest
      expense
              
              
              (131,856
              )
              
              
              (107,323
              )
              
              
              (91,128
              )
              
              
              (63,546
              )
              
              
              (28,464
              )Interest
      and other income
              
              
              14,176
              
              
              
              11,013
              
              
              
              9,944
              
              
              
              5,002
              
              
              
              518Total
      other income (expense)
              
              
              (117,680
              )
              
              
              (96,310
              )
              
              
              (81,184
              )
              
              
              (58,544
              )
              
              
              (27,946
              )Income
      before income taxes
              
              
              137,415
              
              
              
              133,968
              
              
              
              131,409
              
              
              
              100,175
              
              
              
              63,399Income
      tax expense
              
              
              52,835
              
              
              
              51,210
              
              
              
              51,899
              
              
              
              39,521
              
              
              
              24,547Net
      income available for common stockholders
              
              $
              84,580
              
              
              $
              82,758
              
              
              $
              79,510
              
              
              $
              60,654
              
              
              $
              38,852Net
      income available for common stockholders
                per
      share:Basic
              
              $
              2.43
              
              
              $
              2.05
              
              
              $
              1.89
              
              
              $
              1.69
              
              
              $
              1.66Diluted
              
              $
              2.42
              
              
              $
              2.02
              
              
              $
              1.82
              
              
              $
              1.66
              
              
              $
              1.62Weighted
      average common shares outstanding:Basic
              
              
              34,855,190
              
              
              
              40,350,256
              
              
              
              42,149,668
              
              
              
              35,854,249
              
              
              
              23,349,613Diluted
              
              
              34,949,152
              
              
              
              41,045,644
              
              
              
              43,615,946
              
              
              
              36,548,340
              
              
              
              23,906,762Other
      Financial Data:Net
      cash from:Operating
      activities
              
              $
              242,287
              
              
              $
              280,490
              
              
              $
              229,147
              
              
              $
              170,879
              
              
              $
              116,827Investing
      activities
              
              $
              (81,938
              )
              
              $
              (76,468
              )
              
              $
              (114,510
              )
              
              $
              (175,152
              )
              
              $
              (102,424
              )Financing
      activities
              
              $
              (194,697
              )
              
              $
              (235,546
              )
              
              $
              (81,114
              )
              
              $
              120,058
              
              
              $
              9,282Years
      Ended December 31,2008
              
              
              2007
              
              
              2006
              
              
              2005
              
              
              2004Airline
      Operating Data:Passengers
      carried (000’s)
              
              
              18,918
              
              
              
              16,287
              
              
              
              12,666
              
              
              
              9,137
              
              
              
              6,842Revenue
      passenger miles  (000’s) (2)
              
              
              9,700,978
              
              
              
              8,581,836
              
              
              
              6,650,399
              
              
              
              4,516,518
              
              
              
              3,062,940Available
      seat miles (000’s) (3)
              
              
              13,213,701
              
              
              
              11,511,795
              
              
              
              9,154,719
              
              
              
              6,559,966
              
              
              
              4,618,042Passenger
      load factor (4)
              
              
              73.4
              %
              
              
              74.5
              %
              
              
              72.6
              %
              
              
              68.8
              %
              
              
              66.3
              %Revenue
      per available seat mile (5)
              
              $
              0.112
              
              
              $
              0.112
              
              
              $
              0.125
              
              
              $
              0.138
              
              
              $
              0.140Cost
      per available seat mile (6)
              
              $
              0.103
              
              
              $
              0.102
              
              
              $
              0.112
              
              
              $
              0.124
              
              
              $
              0.126EBITDA
      (7)
              
              $
              402,477
              
              
              $
              347,885
              
              
              $
              314,765
              
              
              $
              228,597
              
              
              $
              126,275Average
      passenger trip length (miles)
              
              
              513
              
              
              
              527
              
              
              
              525
              
              
              
              494
              
              
              
              448Number
      of aircraft in operations (end of period):Regional
      Jets:Owned
              
              
              142
              
              
              
              131
              
              
              
              109
              
              
              
              90
              
              
              
              62Leased
              
              
              79
              
              
              
              88
              
              
              
              62
              
              
              
              52
              
              
              
              49Saab
      Turboprops (8):Owned
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              4Leased
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              13Total
      aircraft
              
              
              221
              
              
              
              219
              
              
              
              171
              
              
              
              142
              
              
              
              128
  
 -21-
 As
      of December 31,2008
              
              
              2007
              
              
              2006
              
              
              2005
              
              
              2004Consolidated
      Balance Sheet Data:
              
              
              
              
              
              
              
              (in
      thousands)Cash
      and cash equivalents
              
              $
              129,656
              
              
              $
              164,004
              
              
              $
              195,528
              
              
              $
              162,005
              
              
              $
              46,220Aircraft
      and other equipment—net
              
              
              2,692,410
              
              
              
              2,308,726
              
              
              
              1,889,717
              
              
              
              1,662,236
              
              
              
              984,512Total
      assets
              
              
              3,236,578
              
              
              
              2,773,078
              
              
              
              2,358,441
              
              
              
              2,035,947
              
              
              
              1,171,820Long-term
      debt, including current maturities
              
              
              2,277,845
              
              
              
              1,913,580
              
              
              
              1,568,803
              
              
              
              1,413,440
              
              
              
              850,869Total
      stockholders' equity
              
              
              475,939
              
              
              
              426,086
              
              
              
              508,829
              
              
              
              424,698
              
              
              
              174,651
 
 (1) As of
December 31, 2008, approximately 70% of our aircraft fuel is supplied directly
by our code-share partners, and thus we do not record expense or the related
revenue for those gallons of fuel.  United started directly supplying
fuel for certain locations in January 2007.  All fuel related to the
Continental, Midwest, Mokulele and US Airways operations is directly supplied as
well.  Frontier also directly supplied fuel until the aircraft were
removed from service during the second quarter of 2008.  We pass
through all fuel costs relating to our American and Delta operations,
recognizing both the expense and the revenue on a gross basis.
 
 (2) Passengers
carried multiplied by miles flown.
  (3) Passenger
seats available multiplied by miles flown.
  (4) Revenue
passenger miles divided by available seat miles.
  (5) Total
airline operating revenues divided by available seat miles.
  (6) Total
operating and interest expenses divided by available seat miles. Total operating
and interest expenses is not a calculation based on accounting principles
generally accepted in the United States of America and should not be considered
as an alternative to total operating expenses. Cost per available seat mile
utilizing this measurement is included as it is a measurement recognized by the
investing public relative to the airline industry.
  (7) EBITDA
represents earnings before interest expense, income taxes, depreciation and
amortization. EBITDA is not a calculation based on accounting principles
generally accepted in the United States of America and should not be considered
as an alternative to net income or operating income as indicators of our
financial performance or to cash flow as a measure of liquidity. In addition,
our calculations may not be comparable to other similarly titled measures of
other companies. EBITDA is included as a supplemental disclosure because it may
provide useful information regarding our ability to service debt and lease
payments and to fund capital expenditures. Our ability to service debt and lease
payments and to fund capital expenditures in the future, however, may be
affected by other operating or legal requirements or uncertainties. Currently,
aircraft and engine ownership costs, which include aircraft and engine rent,
depreciation, and interest expense, are our most significant cash expenditure.
In addition, EBITDA is a well recognized performance and liquidity measurement
in the airline industry and, consequently, we have provided this
information.
 
 The
following represents a reconciliation of EBITDA to net cash from operating
activities for the periods indicated:
  Years
      Ended December 31,2008
              
              
              2007
              
              
              2006
              
              
              2005
              
              
              2004(in
      thousands)EBITDA
              
              $
              402,477
              
              
              $
              347,885
              
              
              $
              314,765
              
              
              $
              228,597
              
              
              $
              126,275Interest
      expense
              
              
              (131,856
              )
              
              
              (107,323
              )
              
              
              (91,128
              )
              
              
              (63,546
              )
              
              
              (28,464
              )Debt
      issue costs and other amortization
              
              
              7,078
              
              
              
              6,764
              
              
              
              4,551
              
              
              
              2,776
              
              
              
              1,928Warrant
      amortization
              
              
              (15,953
              )
              
              
              102
              
              
              
              565
              
              
              
              372
              
              
              
              800Loss
      (gain) on aircraft and other equipment disposals
              
              
              4,749
              
              
              
              255
              
              
              
              (2,168
              )
              
              
              (4,494
              )
              
              
              2,592Realized
      gain on interest rate swaps
              
              
              (5,785
              )
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Gain
      on extinguishment of debt
              
              
              (5,980
              )
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Notes
      receivable interest
              
              
              (1,087
              )
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Notes
      receivable allowance
              
              
              1,500
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Amortization
      of deferred credits
              
              
              (1,960
              )
              
              
              (1,761
              )
              
              
              (1,438
              )
              
              
              (1,346
              )
              
              
              (1,285
              )Stock
      compensation expense
              
              
              3,925
              
              
              
              3,119
              
              
              
              1,297
              
              
              
              125
              
              
              
              214Current
      income tax expense
              
              
              (3,496
              )
              
              
              (120
              )
              
              
              (495
              )
              
              
              (1,915
              )
              
              
              (520
              )Changes
      in certain assets and liabilities:Receivables
              
              
              2,281
              
              
              
              (7,944
              )
              
              
              (2,939
              )
              
              
              (10,323
              )
              
              
              10,480Inventories
              
              
              (8,212
              )
              
              
              (11,419
              )
              
              
              (11,448
              )
              
              
              1,276
              
              
              
              (2,683
              )Prepaid
      expenses and other current assets
              
              
              (7,996
              )
              
              
              1,554
              
              
              
              1,474
              
              
              
              (4,907
              )
              
              
              (1,022
              )Accounts
      payable
              
              
              (2,158
              )
              
              
              11,299
              
              
              
              10,546
              
              
              
              1,152
              
              
              
              1,963Accrued
      liabilities
              
              
              16,006
              
              
              
              4,022
              
              
              
              16,826
              
              
              
              28,980
              
              
              
              11,370Deferred
      revenue
              
              
              —
              
              
              
              44,590
              
              
              
              —
              
              
              
              —
              
              
              
              —Other
      assets
              
              
              (11,246
              )
              
              
              (10,533
              )
              
              
              (11,261
              )
              
              
              (5,868
              )
              
              
              (4,821
              )Net
      cash from operating activities
              
              $
              242,287
              
              
              $
              280,490
              
              
              $
              229,147
              
              
              $
              170,879
              
              
              $
              116,827
 
 (8) Excludes
five Saab 340 aircraft held for sale as of December 31, 2005 and one as of
December 31, 2004.
 
 -22-
 ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
 
 Overview
 
 We are a
Delaware holding company organized in 1996 that owns three regional airlines:
Chautauqua Airlines, Inc., (“Chautauqua Airlines”), our operator of 44 to 50
seat aircraft; Shuttle America Corporation (“Shuttle America”), our operator of
70 to 76 seat aircraft; and Republic Airline Inc. (“Republic Airline”), our
operator of 76 to 86 seat aircraft.  As of December 31, 2008, our
subsidiaries offered scheduled passenger service on approximately 1,250 flights
daily to 109 cities in 35 states, Canada, Mexico, and Jamaica pursuant to
code-share agreements with AMR Corp., the parent of American Airlines, Inc.
(“American”), Continental Airlines, Inc. (“Continental”), Delta Air Lines, Inc.
(“Delta”), Midwest Airlines, Inc. (“Midwest”), Mokulele Flight Service, Inc.
(“Mokulele”), United Air Lines, Inc. (“United”), and US Airways, Inc. (“US
Airways”), (collectively referred to as our “Partners”). We began flying
for Midwest and Mokulele in October and November 2008, respectively. Currently,
we provide our Partners with regional jet service, operating as
AmericanConnection, Continental Express, Delta Connection, Midwest Connect,
Mokulele Airlines, United Express, or US Airways Express, including service out
of their hubs and focus cities.
 
 Unless
the context indicates otherwise, the terms “the Company,” “we,” “us,” or “our,”
refer to Republic Airways Holdings Inc. and our subsidiaries.
  We have
long-term, fixed-fee regional jet code-share agreements with each of our
Partners that are subject to our maintaining specified performance levels.
Pursuant to these fixed-fee agreements, which provide for minimum aircraft
utilization at fixed rates, we are authorized to use our Partners' two-character
flight designation codes to identify our flights and fares in our Partners'
computer reservation systems, to paint our aircraft in the style of our
Partners, to use their service marks and to market ourselves as a carrier for
our Partners. In addition, in connection with a marketing agreement among Delta,
Continental and Northwest Airlines, certain of the routes that we fly using
Delta's and Continental’s flight designator codes are also flown under
Northwest's designator code. Our fixed-fee agreements eliminate our exposure to
fluctuations in fuel prices, fare competition and passenger volumes. Our
development of relationships with multiple major airlines has enabled us to
reduce our dependence on any single airline, allocate our overhead more
efficiently among our Partners and reduce the cost of our services to our
Partners.
 
 In
January 2007, we entered into a fixed-fee code-share agreement with Frontier
Airlines, Inc. (“Frontier”).  In April 2008, Frontier rejected the
agreement.  Frontier's rejection of the agreement was prompted by its
filing for Chapter 11 bankruptcy protection on April 11, 2008.  As of
the bankruptcy date, we were operating 12 of the 17 E170 aircraft to be provided
under the terms of the agreement.  All 12 E170 aircraft were removed
from service with Frontier during the second quarter of 2008.
 
 During
2008 we increased our operational fleet by two aircraft from 219 to 221
aircraft.  Our operational fleet is comprised of 127 E170/175, 70-86
seat aircraft, 77 E140/145, 44-50 seat aircraft, and 17 CRJ-200, 50 seat
aircraft.  During 2008, we took delivery of 26 E175 aircraft. Thirteen were
placed into service for US Airways and 13 were placed into service for Delta.
Twenty-four aircraft were removed from operations during the
year.  Fifteen 37 seat E135 aircraft were removed from Delta
operations, two E135 aircraft were removed from charter service and seven 50
seat CRJ-200 aircraft were removed from Continental operations.  All
24 of the aircraft removed from service are under agreement to be sold or will
be returned to the lessor in 2009.
 
 Also
during 2008, we transitioned 12 E170 aircraft from Frontier to Midwest and two
E170 aircraft from Delta to Mokulele. As of December 31, 2008, four E170
aircraft were not operating for our Partners. Of these four aircraft, two are
scheduled to go into operation for Mokulele in 2009 and two are under short-term
agreement to operate for Delta between March and September 2009.
 
 As of
December 31, 2008, we have agreed to place into service an additional three, new
E175 aircraft for Delta during the first quarter of 2009. These aircraft are
covered by firm orders with the aircraft manufacturer. The Company has options
for 54 E170 aircraft, which may be converted to options for E175, E190 or E195
aircraft, which range in size from 78 seats to 110 seats.
 
 We expect
to reduce our E140/145 and CRJ-200 fleets by a total of 19 aircraft in 2009.
Under our Continental agreement, we expect ten of the 17 remaining CRJ-200
aircraft to be removed from service and returned to the lessor during
2009.  The final seven CRJ-200 aircraft are under leases that expire
during the first quarter of 2010. Under our United agreement, seven E145
aircraft are scheduled to be removed in December 2009. We intend to sell or
otherwise sublease these aircraft.  In October 2008 we and American
reached an agreement to amend our airline services agreement. A key term of this
agreement calls for the removal of two of the 15 E140 aircraft currently
operating for American to be removed from service by June 2009. American will
continue to reimburse us for the two aircraft as spares unless we sell, sublease
or otherwise place the aircraft.
  For the
years ended December 31, 2008, 2007 and 2006 respectively, Delta accounted for
approximately 29%, 33% and 35%, US Airways accounted for approximately 25%, 22%
and 24%, United accounted for approximately 21%, 24% and 30% and American
accounted for approximately 10%, 9% and 11% of our regional airline services
revenues. For the years ending December 31, 2008 and 2007 Continental accounted
for approximately 12% and 10% and Frontier accounted for approximately 2% and 2%
of our regional airline services revenues. Midwest accounted for approximately
1% and Mokulele accounted for less than 1% of our regional airline services
revenues for the year ended December 31, 2008.
 
 Fleet
Transition and Growth
  The
following table sets forth the number and type of aircraft in service and
operated by us at the dates indicated:
  December
      31,2008
              
              2007
              
              2006Total
              
              Owned
              
              Leased
              
              Total
              
              Owned
              
              Leased
              
              Total
              
              Owned
              
              LeasedAircraft:Embraer
      E135 LR (1)
              
              
              —
              
              —
              
              
              —
              
              17
              
              
              15
              
              2
              
              
              17
              
              15
              
              
              2Embraer
      E140 LR
              
              
              15
              
              11
              
              
              4
              
              15
              
              
              11
              
              4
              
              
              15
              
              11
              
              
              4Embraer
      E145 LR (2)
              
              
              62
              
              27
              
              
              35
              
              62
              
              
              27
              
              35
              
              
              63
              
              27
              
              
              36Embraer
      E170 LR (3)
              
              
              76
              
              56
              
              
              20
              
              76
              
              
              56
              
              20
              
              
              76
              
              56
              
              
              20Embraer
      E175 LR
              
              
              51
              
              48
              
              
              3
              
              25
              
              
              22
              
              3
              
              
              —
              
              —
              
              
              —Bombarier
      CRJ-200
              
              
              17
              
              —
              
              
              17
              
              24
              
              
              —
              
              24
              
              
              —
              
              —
              
              
              —Total
              
              
              221
              
              142
              
              
              79
              
              219
              
              
              131
              
              88
              
              
              171
              
              109
              
              
              62
  (1) Two
of these aircraft were used for charter operations and as spares at December 31,
2007 and 2006.
 
 (2) Two
of these aircraft were used for charter operations and as spares at December 31,
2008 and 2006.  One of these aircraft was used for charter operations
and as a spare at December 31, 2007.
 
 (3) Six
of these aircraft were unassigned or not yet in use for our Partners at December
31, 2008. Four of these aircraft were unassigned at December 31, 2006.
 
 In
addition to the aircraft listed above, we subleased six E145 aircraft to an
airline in Mexico, we have nine E135 aircraft classified as held-for-sale, of
which eight are under an agreement to be sold. We also have six CRJ-200
aircraft that will be returned to the lessor in 2009.
 
 There
were 67 Embraer aircraft operating on behalf of the US Airways agreements at
December 31, 2008, and 58 Embraer aircraft in 2007 and 2006. There were 15
Embraer aircraft operating under the agreement with American at
December 31, 2008, 2007 and 2006. There were 40, 55 and 55 Embraer aircraft
operating under the agreements with Delta at December 31, 2008, 2007 and 2006,
respectively. There were 40, 35 and 35 Embraer aircraft operating under the
agreements with United at December 31, 2008, 2007 and 2006,
respectively.  In January 2007, we began operations for Continental.
There were 20 and 20 Embraer and 17 and 24 Bombardier aircraft in operation with
Continental at December 31, 2008 and 2007, respectively. In March 2007, we began
operations for Frontier, and at December 31, 2007 we had nine aircraft in
operation with Frontier. We began operations for Midwest in September 2008 and
at December 31, 2008 we had 12 aircraft in operation with Midwest. In November
2008 we began operations with Mokulele and at December 31, 2008 we have 2
aircraft in operation with Mokulele.
 
 -23-
 Revenue
  Under our
fixed-fee arrangements with our Partners, we receive fixed-fees, as well as
reimbursement of specified costs on a gross basis with additional possible
incentives from our Partners for superior performance. For the years ended
December 31, 2008, 2007 and 2006 all of our regional airline services
revenue was earned under our fixed-fee arrangements. The number of aircraft we
operate and aircraft utilization are the most significant drivers of our
revenue, as opposed to the number of passengers we carry or the fare the
passengers pay.
  Operating
Expenses
 
 A brief
description of the items included in our operating expenses line items
follows.
 
 Wages
and Benefits
  This
expense includes not only wages and salaries, but also expenses associated with
various employee benefit plans, employee incentives, stock compensation, and
payroll taxes. These expenses will fluctuate based primarily on our level of
operations changes in wage rates for contract and non-contract employees and
changes in costs of our benefit plans.
  Aircraft
Fuel
  As of
December 31, 2008, approximately 70% of our aircraft fuel is supplied directly
by our code-share partners, and thus we do not record expense or the related
revenue for those gallons of fuel.  United started directly supplying
fuel for certain locations in January 2007.  All fuel related to the
Continental, Frontier, Midwest, Mokulele and US Airways operations is directly
supplied as well.  We pass through all fuel costs relating to our
American and Delta operations, realizing both the expense and the
revenue.
 
 Landing
Fees
  This
expense consists of fees charged by airports for each aircraft
landing.   Under our current fixed-fee agreements, we are reimbursed
for the actual costs of landing fees.
  Aircraft
and Engine Rent
  This
expense consists of the costs of leasing aircraft and spare engines. The leased
aircraft and spare engines are operated under long-term operating leases with
third parties. Aircraft rent is reduced by the amortization of integration
funding credits received from the aircraft manufacturer for parts and training.
The credits are amortized on a straight-line basis over the term of the
respective lease of the aircraft.
  Maintenance
and Repair
  Maintenance
and repair expenses include all parts, materials, tooling and spares required to
maintain our aircraft. We have entered into long-term maintenance
"power-by-the-hour" service contracts with third-party maintenance providers
under which we are charged fixed rates for each flight hour accumulated by all
of our engines and some of the major airframe components. The effect of such
contracts is to reduce the volatility of aircraft maintenance expense over the
term of the contract.
  Insurance
and Taxes
  This
expense includes the costs of passenger liability insurance, aircraft hull
insurance, war risk insurance and all other insurance policies, other than
employee welfare insurance. Additionally, this expense includes personal and
real property taxes, including aircraft property taxes. Under our current
fixed-fee agreements, we are reimbursed for the actual costs of passenger
liability insurance, war risk insurance, aircraft hull insurance and property
taxes, subject to certain restrictions. Under our US Airways and United
fixed-fee agreements, we are reimbursed for the actual costs of such items other
than aircraft hull insurance, which is reimbursed at agreed upon
rates.
  Depreciation
and Amortization
  This
expense includes the depreciation of all fixed assets, including aircraft, and
the amortization of the commuter slots that we own.  Goodwill and
intangibles with an indefinite life are required to be evaluated for impairment
on an annual basis. If we determine the goodwill and intangibles are impaired,
we are required to write-off the amount of goodwill and intangibles that are
impaired.  As of December 31, 2008 and 2007, goodwill and intangibles
totaled $61.6 million and $62.0 million respectively, net of
amortization.
 
 Other
  This
expense includes the costs of crew training, crew travel, airport, passenger and
ground handling related expenses, all other lease expenses, professional fees,
impairment loss and accrued aircraft return costs, gains and losses on disposal
of assets and all other administrative, facilities and operational overhead
expenses not included in other line items above.
   
 -24-
 Certain Statistical
Information
 Years
      Ended December 31,Operating
      Expenses per ASM in cents2008
              
              
              2007
              
              
              2006OPERATING
      EXPENSESWages
      and benefits
              
              
              1.91
              
              
              
              1.97
              
              
              
              1.92Aircraft
      fuel (1)
              
              
              2.48
              
              
              
              2.58
              
              
              
              3.55Landing
      fees
              
              
              0.45
              
              
              
              0.47
              
              
              
              0.46Aircraft
      and engine rent
              
              
              1.02
              
              
              
              1.08
              
              
              
              1.03Maintenance
      and repair
              
              
              1.28
              
              
              
              1.13
              
              
              
              1.15Insurance
      and taxes
              
              
              0.20
              
              
              
              0.16
              
              
              
              0.19Depreciation
      and amortization
              
              
              1.01
              
              
              
              0.93
              
              
              
              1.01Other
              
              
              0.92
              
              
              
              0.91
              
              
              
              0.85Total
      operating expenses
              
              
              9.27
              
              
              
              9.23
              
              
              
              10.16Plus
      interest expense
              
              
              1.00
              
              
              
              0.93
              
              
              
              1.00Total
      operating and interest expenses
              
              
              10.27
              
              
              
              10.16
              
              
              
              11.16Total
      operating and interest expenses excluding aircraft fuel
              
              
              7.79
              
              
              
              7.58
              
              
              
              7.61
 
 (1) As of
December 31, 2008, approximately 70% of our aircraft fuel is supplied directly
by our code-share partners, and thus we do not record expense or the related
revenue for those gallons of fuel.  United started directly supplying
fuel for certain locations in January 2007.  All fuel related to the
Continental, Frontier, Midwest, Mokulele and US Airways operations is directly
supplied as well.  We pass through all fuel costs relating to our
American and Delta operations, recognizing both the expense and the revenue on a
gross basis.
 
 Years
      Ended December 31,2008
              
              Increase/
                (Decrease)
                2008-2007
              
              2007
              
              Increase/
                (Decrease)
                2007-2006
              
              2006Passengers
      carried (000’s)
              
              
              18,918
              
              
              16.2
              %
              
              16,287
              
              
              28.6
              %
              
              12,666Revenue
      passenger miles (000’s) (1)
              
              
              9,700,978
              
              
              13.0
              %
              
              8,581,836
              
              
              29.0
              %
              
              6,650,399Available
      seat miles (000’s) (2)
              
              
              13,213,701
              
              
              14.8
              %
              
              11,511,795
              
              
              25.7
              %
              
              9,154,719Passenger
      load factor (3)
              
              
              73.4
              %
              
              (1.1
              pp)
              
              74.5
              %
              
              1.9
              pp
              
              72.6
              %Cost
      per available seat mile (4)
              
              
              10.27
              ¢
              
              1.1
              %
              
              10.16
              ¢
              
              (9.0
              %)
              
              11.16
              ¢Average
      price per gallon of fuel (5)
              
              
              $3.21
              
              
              33.8
              %
              
              $2.40
              
              
              11.1
              %
              
              $2.16Fuel
      gallons consumed (6)
              
              
              101,998,657
              
              
              (17.4
              %)
              
              123,438,728
              
              
              (17.4
              %)
              
              149,383,949Block
      hours (7)
              
              
              740,403
              
              
              8.9
              %
              
              679,718
              
              
              22.1
              %
              
              556,635Average
      passenger trip length (miles)
              
              
              513
              
              
              (2.7
              %)
              
              527
              
              
              0.4
              %
              
              525Average
      daily utilization of each aircraft (hours) (8)
              
              
              10.03
              
              
              (2.8
              %)
              
              10.32
              
              
              (0.3
              %)
              
              10.35Aircraft
      in operations at end of period
              
              
              221
              
              
              0.9
              %
              
              219
              
              
              28.1
              %
              
              171
 
 (1) Passengers
carried multiplied by miles flown.
 
 (2) Passenger
seats available multiplied by miles flown.
 
 (3) Revenue
passenger miles divided by available seat miles.
  (4) Total
operating and interest expenses divided by available seat miles.
 
 (5) Cost
of aircraft fuel, including fuel taxes and into-plane fees.
 
 (6) As of
December 31, 2008, approximately 70% of our aircraft fuel is supplied directly
by our code-share partners, and thus we do not record expense or the related
revenue for those gallons of fuel.  United started directly supplying
fuel for certain locations in January 2007.  All fuel related to the
Continental, Midwest, Mokulele and US Airways operations is directly supplied as
well.  Frontier also directly supplied fuel until the aircraft were
removed from service during the second quarter of 2008.  We pass
through all fuel costs relating to our American and Delta operations,
recognizing both the expense and the revenue on a gross basis.
  (7) Hours
from takeoff to landing, including taxi time.
  (8) Average
number of hours per day that an aircraft flown in revenue service is operated
(from gate departure to gate arrival).
 
 
 -25-
 Results
of Operations
 
 2008
Compared to 2007
 
 The
following table sets forth information regarding the Company’s expense
components for the years ended December 31, 2008 and December 31, 2007.
Individual expense components are also expressed in cents per ASM.
 
 
 Years
      ended December 31,2008
              
              
              2007Amount
              
              
              Cents
                per
      ASM
              
              
              Amount
              
              
              Cents
                per
      ASM(in
      thousands)
              
              
              
              
              
              (in
      thousands)OPERATING
      EXPENSES:Wages
      and benefits
              
              $
              252,336
              
              
              
              1.91
              
              
              $
              226,521
              
              
              
              1.97Aircraft
      fuel
              
              
              327,791
              
              
              
              2.48
              
              
              
              296,573
              
              
              
              2.58Landing
      fees
              
              
              59,891
              
              
              
              0.45
              
              
              
              53,684
              
              
              
              0.47Aircraft
      and engine rent
              
              
              134,206
              
              
              
              1.02
              
              
              
              124,961
              
              
              
              1.08Maintenance
      and repair
              
              
              169,425
              
              
              
              1.28
              
              
              
              130,237
              
              
              
              1.13Insurance
      and taxes
              
              
              25,793
              
              
              
              0.20
              
              
              
              19,039
              
              
              
              0.16Depreciation
      and amortization
              
              
              133,206
              
              
              
              1.01
              
              
              
              106,594
              
              
              
              0.93Other
              
              
              122,012
              
              
              
              0.92
              
              
              
              104,790
              
              
              
              0.91Total
      operating expenses
              
              
              1,224,660
              
              
              
              9.27
              
              
              
              1,062,399
              
              
              
              9.25Interest
      expense
              
              
              131,856
              
              
              
              1.00
              
              
              
              107,323
              
              
              
              0.93Total
      operating expenses and interest expense
              
              $
              1,356,516
              
              
              
              10.27
              
              
              $
              1,169,722
              
              
              
              10.16Total
      operating expenses and interest expense less fuel
              
              $
              1,028,725
              
              
              
              7.79
              
              
              $
              873,149
              
              
              
              7.58
 
 Operating
revenue in 2008 increased by 14.5%, or $187.1 million, to $1.48 billion compared
to $1.29 billion in 2007. Excluding reimbursement for fuel expense, which
is a pass-through cost to our Partners, regional airline service revenues
increased 15.6% for 2008.  The increase was due primarily to fixed-fee
revenue earned from the addition of 26 E175 aircraft that were placed into
service throughout 2008.  Partially offsetting this increase was the
removal of fifteen 37-seat aircraft from Delta, seven 50-seat aircraft from
Continental and two 37-seat aircraft from charter operations.  These
aircraft, which are being sold or returned to the lessor, were removed during
the last six months of 2008.
  Total
operating and interest expenses, excluding fuel increased by 17.8%, or $155.6
million, to $1.03 billion for 2008 compared to $873.1 million during 2007
due to the increase in flight operations. The cost per available seat mile on
total operating and interest expenses, excluding fuel charges, increased to
7.79¢ in 2008 compared to 7.58¢ in 2007.  Factors relating to the
change in operating expenses are discussed below.
  Wages and
benefits increased by 11.4%, or $25.8 million, to $252.3 million for
2008 compared to $226.5 million for 2007 due primarily to a $20.7 million
increase in flight crew and maintenance operations wage expenses to support the
increase in regional jet operations.  Overhead and stock compensation
expense increased $3.2 million while payroll taxes and benefits increased $2.2
million in 2008.  The cost per available seat mile decreased to 1.91¢
for 2008 compared to 1.97¢ in 2007.
  Aircraft
fuel expense increased 10.5%, or $31.2 million, to $327.8 million for 2008
compared to $296.6 million for 2007 due to a 34% increase in the average
fuel price per gallon from $2.40 in 2007 to $3.21 in 2008, partially offset by a
17% decrease in gallons consumed due to United paying for fuel directly for more
locations in 2008.  The unit cost decreased to 2.48¢ in 2008 compared to
2.58¢ in 2007.
  Landing
fees increased by 11.6%, or $6.2 million, to $59.9 million in 2008
compared to $53.7 million in 2007. The increase is due mainly to a 10%
increase in departures. Our fixed-fee agreements provide for a direct
reimbursement of landing fees. The unit cost was 0.45¢ in 2008 compared to 0.47¢
in 2007.
 
 Aircraft
and engine rent increased by 7.4%, or $9.2 million, to $134.2 million in
2008 compared to $125.0 million in 2007 due to a $6.2 million increase in
aircraft rents of CRJ-200 aircraft, which are on short-term leases and a $3.2
million increase in aircraft rents of 70-seat aircraft.  The unit cost
decreased to 1.02¢ for 2008 compared to 1.08¢ for 2007.
 
 Maintenance
and repair expenses increased by 30.1%, or $39.2 million, to $169.4 million in
2008 compared to $130.2 million for 2007 due mainly to the addition of 26
E175 aircraft in 2008, which resulted in a $12.9 million increase in long-term
maintenance agreement expenses.  Long-term maintenance agreement
expenses for the 50-seat jets increased $7.7 million.  Additionally,
repair expenses on parts not under warranty or not included under long term
contracts increased $9.7 million for the fleet.  Scheduled heavy
maintenance events for the fleet also increased by $5.4 million.  The
unit cost increased to 1.28¢ in 2008 compared to 1.13¢ in 2007.
  Insurance
and taxes increased 35.5%, or $6.8 million, to $25.8 million in 2008
compared to $19.0 million in 2007. Property taxes increased $5.6 million
and insurance increased due to the increase in regional jet operations. Our
fixed-fee agreements generally provide for a direct reimbursement of insurance
and property taxes.  The unit cost increased to 0.20¢ in 2008 compared
to 0.16¢ in 2007.
  Depreciation
and amortization increased 25.0%, or $26.6 million, to $133.2 million
in 2008 compared to $106.6 million in 2007 due mainly to $24.6 million of
additional depreciation on E175 aircraft purchased during 2007 and 2008. The
unit cost increased to 1.01¢ in 2008 compared to 0.93¢ in 2007.
 
 Other
expenses increased 16.4%, or $17.2 million, to $122.0 million in 2008 from
$104.8 million in 2007, due primarily to $13.8 million of expenses related to
costs associated with the return of aircraft on lease and the preparation of
aircraft removed from fixed-fee service for future sale. Additionally, there was
a $1.5 million increase in passenger catering costs and other operational
expenses to support the increased regional jet operations. The unit cost
increased to 0.92¢ in 2008 compared to 0.91¢ in 2007.
  Interest
expense increased 22.9% or $24.5 million, to $131.9 million in 2008
from $107.3 million in 2007 primarily due to interest on debt related to the
financing aircraft purchased during 2007 and 2008. The weighted average interest
rate decreased from 6.2% in 2007 to 6.1% in 2008. The unit cost increased to
1.00¢ in 2008 compared to 0.93¢ in 2007.
  We
incurred income tax expense of $52.8 million during 2008, compared to $51.2
million in 2007. The effective tax rates for 2008 and 2007 were 38.4% and 38.2%,
respectively, which were higher than the statutory rate due to state income
taxes and non-deductible meals and entertainment expense, primarily for our
flight crews.
 
 
  -26-
  2007
Compared to 2006
 
 The
following table sets forth information regarding the Company’s expense
components for the years ended December 31, 2007 and December 31, 2006.
Individual expense components are also expressed in cents per ASM.
 
 
 Years
      ended December 31,2007
              
              
              2006Amount
              
              
              Cents
                per
      ASM
              
              
              Amount
              
              
              Cents
                per
      ASM(in
      thousands)
              
              
              
              
              
              (in
      thousands)OPERATING
      EXPENSES:Wages
      and benefits
              
              $
              226,521
              
              
              
              1.97
              
              
              $
              175,483
              
              
              
              1.92Aircraft
      fuel
              
              
              296,573
              
              
              
              2.58
              
              
              
              325,500
              
              
              
              3.55Landing
      fees
              
              
              53,684
              
              
              
              0.47
              
              
              
              41,993
              
              
              
              0.46Aircraft
      and engine rent
              
              
              124,961
              
              
              
              1.08
              
              
              
              94,773
              
              
              
              1.03Maintenance
      and repair
              
              
              130,237
              
              
              
              1.13
              
              
              
              105,198
              
              
              
              1.15Insurance
      and taxes
              
              
              19,039
              
              
              
              0.16
              
              
              
              17,652
              
              
              
              0.19Depreciation
      and amortization
              
              
              106,594
              
              
              
              0.93
              
              
              
              92,228
              
              
              
              1.01Other
              
              
              104,790
              
              
              
              0.91
              
              
              
              77,658
              
              
              
              0.85Total
      operating expenses
              
              
              1,062,399
              
              
              
              9.25
              
              
              
              930,485
              
              
              
              10.16Interest
      expense
              
              
              107,323
              
              
              
              0.93
              
              
              
              91,128
              
              
              
              1.00Total
      operating expenses and interest expense
              
              $
              1,169,722
              
              
              
              10.16
              
              
              $
              1,021,613
              
              
              
              11.16Total
      operating expenses and interest expense less fuel
              
              $
              873,149
              
              
              
              7.58
              
              
              $
              696,113
              
              
              
              7.61
 
 Operating
revenue in 2007 increased by 13.1%, or $149.6 million, to $1.29 billion
compared to $1.14 billion in 2006. Excluding reimbursement for fuel
expense, which is a pass-through cost to our Partners, regional airline service
revenues increased 23.4% for 2007.  The increase was due primarily to
fixed-fee revenue earned from the addition of 49 regional jet aircraft that were
placed into service throughout 2007 and one regional jet aircraft removed from
charter service and subleased to an airline in Mexico during 2007. Other
operating revenue decreased $3.7 million due to a decrease in payments from US
Airways for the use of aircraft take-off and landing slots at LaGuardia airport,
which expired at the end of 2006.
  Total
operating and interest expenses, excluding fuel increased by 25.4%, or $177.0
million, to $873.1 million for 2007 compared to $696.1 million during 2006
due to the increase in flight operations. The cost per available seat mile on
total operating and interest expenses, excluding fuel charges, decreased to
7.58¢ in 2007 compared to 7.61¢ in 2006. Factors relating to the change in
operating expenses are discussed below.
  Wages and
benefits increased by 29.1%, or $51.0 million, to $226.5 million for
2007 compared to $175.5 million for 2006 due primarily to a $34.1 million
increase in flight crew and maintenance operations wage expenses to support the
increase in regional jet operations, a $12.7 million increase in related payroll
taxes and increased employment levels and an increase in stock compensation
expense recognition of $1.8 million, to $3.1 million in 2007. The cost per
available seat mile increased to 1.97¢ for 2007 compared to 1.92¢ in
2006.
  Aircraft
fuel expense decreased 8.9%, or $28.9 million, to $296.6 million for 2007
compared to $325.5 million for 2006 due to a 17% decrease in gallons
consumed due to United paying for fuel directly for certain locations beginning
in January 2007, partially offset by a 11% increase in the average fuel price
per gallon from $2.16 in 2006 to $2.40 in 2007.  The unit cost decreased to
2.58¢ in 2007 compared to 3.55¢ in 2006.
  Landing
fees increased by 27.8%, or $11.7 million, to $53.7 million in 2007
compared to $42.0 million in 2006. The increase is due mainly to a 16%
increase in departures, a 3% increase in the average landing weight and a 7%
increase in the average fee charged by airports. Our fixed-fee agreements
provide for a direct reimbursement of landing fees. The unit cost was 0.47¢ in
2007 compared to 0.46¢ in 2006.
 
 Aircraft
and engine rent increased by 31.9%, or $30.2 million, to $125.0 million in
2007 compared to $94.8 million in 2006 due to a $22.2 million increase in
aircraft rents of CRJ-200 aircraft, which are on short-term leases and an $11.1
million increase in aircraft rents of 70-seat aircraft, and is partially offset
by the effect of the purchase of five previously leased 50-seat aircraft in the
third quarter of 2006.  The unit cost increased to 1.08¢ for 2007
compared to 1.03¢ for 2006.
 
 Maintenance
and repair expenses increased by 23.8%, or $25.0 million, to $130.2 million in
2007 compared to $105.2 million for 2006 due mainly to the addition of 49
aircraft in 2007, which resulted in a $16.6 million increase in long-term
maintenance agreement expenses.  Additionally, repair expenses on
parts not under warranty or not included under long term contracts increased
$5.6 million.  Scheduled heavy maintenance events also increased by
$1.2 million.  The unit cost was down slightly to 1.13¢ in 2007
compared to 1.15¢ in 2006.
  Insurance
and taxes increased 7.9%, or $1.4 million, to $19.0 million in 2007
compared to $17.7 million in 2006. Property taxes increased $1.7 million
and the increase in operations was more than offset by a decline in the average
insurance rates year over. Our fixed-fee agreements generally provide for a
direct reimbursement of insurance and property taxes.  The unit cost
decreased to 0.16¢ in 2007 compared to 0.19¢ in 2006.
  -27-
 Depreciation
and amortization increased 15.6%, or $14.4 million, to $106.6 million
in 2007 compared to $92.2 million in 2006 due mainly to $15.2 million of
additional depreciation on regional jet aircraft due to the purchase of 11
aircraft in 2007 and the full year effect of 16 regional jet aircraft purchased
in 2006. Additionally, amortization for takeoff and landing slots decreased $3.3
million from 2006 due to slots at LaGuardia airport expiring at the end of 2006.
The unit cost decreased to 0.93¢ in 2007 compared to 1.01¢ in 2006.
  Other
expenses increased 34.9%, or $27.1 million, to $104.8 million in 2007 from $77.7
million in 2006, due primarily to $15.8 million of increases in flight crew
training and travel expenses and $7.6 million of increases in passenger catering
costs and other operational expenses to support the increased regional jet
operations and increased pilot attrition. The unit cost increased to 0.91¢ in
2007 compared to 0.85¢ in 2006.
  Interest
expense increased 17.8% or $16.2 million, to $107.3 million in 2007
from $91.1 million in 2006 primarily due to interest on debt related to the
financing of 11 aircraft during 2007 and the full year effect of 16 regional jet
aircraft financed in 2006. The weighted average interest rate remained constant
at 6.2%. The unit cost decreased to 0.93¢ in 2007 compared to 1.00¢ in
2006.
  We
incurred income tax expense of $51.2 million during 2007, compared to $51.9
million in 2006. The effective tax rates for 2007 and 2006 were 38.2% and 39.5%,
respectively, which were higher than the statutory rate due to state income
taxes and non-deductible meals and entertainment expense, primarily for our
flight crews.  In addition, during the fourth quarter of 2007 the
Company reduced its estimated blended state tax rate based on its current
operations.
 
 Liquidity
and Capital Resources
  As of
December 31, 2008, we had $129.7 million in cash and cash equivalents and $2.7
million available under our revolving credit facility, which can only be used to
secure letters of credit. At December 31, 2008, we had a working capital surplus
of $14.7 million.
 
 The
Company’s $15.0 million revolving credit facility with Bank of America Business
Capital expires March 31, 2009.  The Company utilizes the facility to
cover outstanding letters of credit, which total $12.4 million as of December
31, 2008.  The revolving credit facility is collateralized by all of
the Company’s assets, excluding the owned aircraft and engines. The facility
contains a liquidity covenant, a specified fixed charge coverage ratio and a
debt to earnings leverage ratio. The Company pays an annual commitment fee on
the unused portion of the revolving credit facility in an amount equal to
0.375%. The credit facility limits the Company’s ability to incur indebtedness
or create or incur liens on its assets. The Company was in compliance with the
covenants at December 31, 2008.   The Company is currently
negotiating with the bank on replacing the existing facility.  If the
Company is unable to renew the existing facility or secure a new facility with a
bank, it may require the Company to cash collateralize its outstanding letters
of credit.
 
 Net cash
provided by operating activities was $242.3 million in 2008 compared to $280.5
million in 2007.  The decrease of $38.2 million is primarily
attributable to the receipt of cash from the sale of the Company’s $44.6 million
Delta pre-petition claim in 2007 offset by an increase in cash used for working
capital needs of $11.3 million.
 
 Net cash
used in investing activities was $81.9 million in 2008 compared to $76.5 million
in 2007.  During 2008, the Company acquired and debt financed 26 E175
aircraft.  The total debt related to these aircraft of $526.2
million was obtained from banks at terms of 5 to 15 years and interest rates
ranging from 2.73% to 6.91%.  Cash used in the acquisition of
aircraft, net of aircraft deposits totaled $59.2 million in 2008 and $66.1
million in 2007.  Other capital expenditures related to flight
equipment, furniture and fixtures, and leasehold improvements utilized $19.2
million in 2008 and $26.2 million in 2007.  The Company received
proceeds of $52.9 million in 2008 and $15.8 million in 2007 from the sale of
aircraft and other equipment.  The increase of $19.0 million of the
$37.1 million increase in proceeds from 2007 to 2008 is related to the sale of
two E135 aircraft in 2008.  In addition, the Company originated loans
to Frontier Airlines, Midwest, Mokulele and US Airways totaling $55.0 million in
2008.
 
 Net cash
used in financing activities was $194.7 million in 2008.  During 2008,
the Company received proceeds of $6.7 million from the refinancing of six E175
aircraft.  The Company received proceeds of $5.8 million related
to the settlement of interest rate swaps and incurred $4.6 million of debt
issue costs.  The Company received proceeds of $0.3 million related to
the exercise of stock options by employees and non-employee
directors.  The Company made payments on debt of $113.6 million
and additional payments of $50.0 million related to the early extinguishment of
debt on the E135 sold in 2008.  The early extinguishment of debt
resulted in a $6.0 million gain for 2008.  The Company repurchased
2,265,539 shares of its common stock on the open market or through privately
negotiated transactions at a weighted average purchase price of $17.39 for total
consideration of $39.4 million in 2008 under the December 2007 Board of
Director’s authorization, which closed in December 2008.
 
 We
currently anticipate that our available cash resources, cash generated from
operations and anticipated third party funding arrangements for the planned
addition of 3 new aircraft will be sufficient to meet our anticipated working
capital and capital expenditure requirements for at least the next 12
months.
  Aircraft
Leases and Other Off-Balance Sheet Arrangements
  We have
significant obligations for aircraft and engines that are classified as
operating leases and, therefore, are not reflected as liabilities on our balance
sheet. Aircraft leases expire between 2009 and 2023. As of December 31, 2008,
our total mandatory payments under operating leases for aircraft aggregated
approximately $976.6 million and total minimum annual aircraft rental payments
for the next 12 months under all non-cancelable operating leases is
approximately $119.3 million. Other non-cancelable operating leases consist
of engines, terminal space, operating facilities, office space and office
equipment. The leases expire through 2026. As of December 31, 2008, our total
mandatory payments under other non-cancelable operating leases aggregated
approximately $121.6 million. Total minimum annual other rental payments
for the next 12 months are approximately $12.0 million.
  Purchase
Commitments
  As of
December 31, 2008, the Company had firm orders to purchase three E170/175
aircraft. The current total list price of the three aircraft is $105.0
million.  The Company took delivery of one aircraft in January 2009
and two in February 2009, all of which were debt financed.  During the
year ended December 31, 2008, the Company made aircraft deposits in accordance
with the aircraft commitments of $20.9 million. The Company also has a
commitment to acquire seven spare aircraft engines with a current list price of
approximately $31.8 million.  The Company expects to take delivery of
two engines per year through 2011 and one engine in 2012.  These
commitments are subject to customary closing conditions.
 
 At US
Airways’ option, and subject to certain other conditions, the Company has a note
receivable funding commitment of $25.0 million, which is expected in March
2009.  Interest on the note is at the three-month LIBOR rate plus a
margin and is to be paid quarterly, with the principal amounts to be repaid
between October 2009 and October 2011.
 
 On March
5, 2009, we agreed to a firm commitment for $40 million in post-petition
debtor-in-possession (DIP) financing to Frontier.  This new DIP
facility refinances the existing DIP loan that matures in April
2009.  The DIP facility is subject to approval by the United States
Bankruptcy Court for the Southern District of New York and other pre-closing
conditions.  Frontier and its subsidiaries filed voluntary petitions
for reorganization under Chapter 11 of the U.S. Bankruptcy Code on April 10,
2008.  As a condition to the loan, Frontier has agreed to allow the
Company’s damage claim in the amount of $150 million arising out of Frontier’s
rejection of the Airline Services Agreement, dated January 11,
2007.
 
 We expect
to fund future capital and funding commitments through internally generated
funds, third-party aircraft financings, and debt and other
financings.
  -28-
 Our
contractual obligations and commercial commitments at December 31, 2008, include
the following (in thousands):
 Payments
      Due By PeriodLess
      than
                1
      year
              
              
              1-3
      years
              
              
              4-5
      years
              
              
              Over
                5
      years
              
              
              TotalLong-term
      debt (including interest)
              
              $
              270,108
              
              
              $
              818,594
              
              
              $
              586,041
              
              
              $
              1,518,028
              
              
              $
              3,192,771Operating
      leases
              
              
              131,226
              
              
              
              331,075
              
              
              
              201,363
              
              
              
              434,577
              
              
              
              1,098,241Tax
      liability for uncertain tax positions
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              5,252
              
              
              
              5,252Funding
      commitments on notes receivable
              
              
              52,500
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              52,500Debt
      or Lease Financed Aircraft under firm orders (3)
              
              
              105,000
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              105,000Engines
      under firm orders (7)
              
              
              9,100
              
              
              
              22,700
              
              
              
              —
              
              
              
              —
              
              
              
              31,800Total
      contractual cash obligations
              
              $
              567,934
              
              
              $
              1,172,369
              
              
              $
              787,404
              
              
              $
              1,957,857
              
              
              $
              4,485,564
  The
Company has long-term maintenance agreements with an avionics equipment
manufacturer and maintenance provider that has a guaranteed minimum annual
flight hour requirement. The minimum guaranteed amount based on the Company's
current operations is $4.0 million per year through December 2014 for the
E145 family of aircraft and $8.2 million per year through December 2014 for the
E170 family of aircraft.
 
 The
Company has long-term maintenance agreements with aviation equipment
manufacturers to maintain the auxiliary power units for the E145 family of
aircraft and the CRJ-200 regional aircraft through June 2013 and December 2012,
respectively. The agreement has a penalty payment provision if more than twenty
percent of the Company's aircraft are removed from service based on the annual
flight activity prior to the date of removal.
 
 The
Company has long-term maintenance agreements based upon flight activity with
engine manufacturers through February 2010 for the CRJ-200 aircraft, October
2012 for the E145 family of aircraft and through December 2014 for the E170
family of aircraft.
 
 The
Company has long-term maintenance agreements for wheels and brakes through
June 2014 for the E145 family of aircraft and through February 2017 for the
E170 family of aircraft. The agreement has an early termination penalty, if the
Company removes seller's equipment from certain aircraft, sells or leases
certain aircraft to a third party or terminates the services prior to expiration
of the agreement.
 
 The
Company has a long-term agreement to provide, manage and repair certain airframe
components and spare parts on the CRJ-200 aircraft through December 2009 that
has a guaranteed minimum flight hour requirement. Based on the Company’s
projected lease return schedule of the aircraft, the Company believes it will
not meet the minimum requirement for the remaining term and has recorded a
liability of $1.2 million as of December 31, 2008.
 
 Total
payments under these long-term maintenance agreements were $101.9 million, $76.8
million, and $56.1 million for the years ended December 31, 2008, 2007 and
2006, respectively.
  Our
commercial commitments at December 31, 2008 include letters of credit totaling
$12.4 million expiring within one year.
  Cash
payments for interest were approximately $122.4 million in 2008. Tax payments in
2008 were not significant and we are not expecting significant payments in
2009.
 
 -29-
 Critical
Accounting Policies
  The
discussion and analysis of our financial condition and results of operations are
based upon the consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amount of assets and liabilities, revenues
and expenses, and related disclosure of contingent assets and liabilities at the
date of our financial statements. Actual results may differ from these estimates
under different assumptions and conditions.
  Critical
accounting policies are defined as those that are reflective of significant
judgments and uncertainties, and are sufficiently sensitive to result in
materially different results under different assumptions and conditions. We
believe that our critical accounting policies are limited to those described
below. For a detailed discussion on the application of these and other
accounting policies, see Note 2 in the notes to the consolidated financial
statements.
  •Revenue Recognition. Under our fixed-fee arrangements with
American, Delta, Continental, Midwest, Mokulele, United and US Airways, the
Company receives a fixed-fee, as well as reimbursement of specified costs on a
gross basis with additional possible incentives from our Partners for superior
service. Revenues are recognized in the period the service is provided, and we
perform an estimate of the profit component based upon the information available
at the end of the accounting period. The reimbursement of specified costs, known
as “pass-through costs”, may include aircraft ownership cost, passenger
liability and hull insurance, aircraft property taxes, fuel, landing fees and
catering. All revenue recognized under these contracts is presented at the gross
amount billed for reimbursement pursuant to Emerging Issues Tax Force Issue
(“EITF”) No. 99-19  Reporting Revenue Gross as a Principal versus Net as an
Agent. Under the
Company’s code-share agreements, the Company is reimbursed an amount per
aircraft designed to compensate the Company for certain aircraft ownership
costs. In accordance with EITF No. 01-08, Determining Whether an Arrangement
Contains a Lease, the Company has concluded that a component of its
revenue under the agreement discussed above is rental income, inasmuch as the
agreement identifies the “right of use” of a specific type and number of
aircraft over a stated period of time. The amount deemed to be rental income
during fiscal 2008, 2007 and 2006 was $348.4 million, $310.3 million and
$258.6 million, respectively, and has been included in regional airline
services revenue on the Company’s consolidated statements of
income.
 
 •Aircraft Leases.
The Company has aircraft that are leased from third parties. In order to
determine the proper classification of a lease as either an operating lease or a
capital lease, the Company must make certain estimates at the inception of the
lease relating to the economic useful life and the fair value of an asset as
well as select an appropriate discount rate to be used in discounting future
lease payments. These estimates are utilized by management in making
computations as required by existing accounting standards that determine whether
the lease is classified as an operating lease or a capital lease. All of the
Company’s aircraft leases have been classified as operating leases, which
results in rental payments being charged to expense over the term of the related
leases. Additionally, operating leases are not reflected in the Company’s
consolidated balance sheet and accordingly, neither a lease asset nor an
obligation for future lease payments is reflected in the Company’s consolidated
balance sheet. The Company is responsible for all other maintenance costs of its
aircraft and must meet specified return conditions upon lease expiration for
both the airframes and engines. The Company recorded a $4.9 million liability
for the return conditions  for the CRJ-200 aircraft being returned to the
lessor at December 31, 2008.
 
 •Impairments to Long-Lived
Assets. We record impairment losses on long-lived assets used in
operations when events and circumstances indicate that the assets might be
impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amount of those items. Our cash flow estimates
are based on historical results adjusted to reflect our best estimate of future
market and operating conditions. Our estimates of fair value represent our best
estimate based on industry trends and reference to market rates and
transactions. We review, at least annually, the estimated useful lives and
salvage values for our owned aircraft and spare parts.
  • Impairments to Goodwill.SFAS No. 142, Goodwill
and Other Intangible Assets, requires that goodwill be tested for
impairment at the reporting unit level on an annual basis and between annual
tests if a triggering event occurs or circumstances change that would more
likely than not reduce the fair value of the reporting unit below its carrying
value.  Goodwill represents the excess of the purchase price over the
assets acquired and liabilities assumed from the push-down accounting in May
1998.  The Company has one reporting unit and all of the goodwill of
$13.3 million is assigned to that unit. In
assessing the recoverability of goodwill, the Company makes a determination of
the fair value of its business.  Fair value is determined using a
combination of an income approach, which estimates fair value based upon
projections of future revenues, expenses, and cash flows discounted to their
present value, and a market approach, which estimates fair value using market
multiples of various financial measures compared to a set of comparable public
companies in the regional airline industry.  An impairment loss will
generally be recognized when the carrying amount of the net assets of the
business exceeds its estimated fair value. The
valuation methodology and underlying financial information included in the
Company’s determination of fair value require significant judgments to be made
by management.  These judgments include, but are not limited to,
market valuation comparisons to similar airlines, long term projections of
future financial performance and the selection of appropriate discount rates
used to determine the present value of future cash flows.  Changes in
such estimates or the application of alternative assumptions could produce
significantly different results. During
the second and third quarter of 2008, the Company performed an interim test of
its goodwill.  Factors deemed by management to have collectively
constituted a potential triggering event included record high fuel prices, a
softening US economy and the differences between market capitalization of our
stock as compared to the book value of equity.  As of December 31,
2008, the Company performed its annual assessment of the recoverability of its
goodwill.  As a result of these assessments, no impairment was
indicated.  T he
Company’s market capitalization was approximately $367.6 million as
compared to its book value of approximately $475.9 million. For the period
subsequent to December 31, 2008, through the filing date of this Form 10-K, the
Company's market capitalization declined by an additional 55% and continues to
be well below book value. Due to the continued recessionary economic
environment, as well as other uncertainties, the Company may be required to
record an impairment charge as early as the first quarter of 2009. The Company
will continue to monitor circumstances and events in future periods to determine
whether additional goodwill impairment testing is warranted.
  •Aircraft Maintenance and
Repair. We follow a method of expensing aircraft maintenance and repair
costs as incurred. However, maintenance and repairs for engines and airframe
components under power-by-the-hour contracts, such as engines, avionics, APUs,
wheels and brakes, are expensed as the aircraft are operated based upon actual
hours or cycles flown.
 
 •Deferredcredit- Delta Pre-Petition Claim and
Surrendered Warrants.  As a result of the Delta amendment, in
March 2007, we recorded a deferred credit of $44.6 million, which represented
the net realizable value of the pre-petition claim on the approval date by the
Bankruptcy Court. In addition, we recorded a deferred gain on the surrender of
the warrants from Delta of $42.7 million, which was net of the write-off of the
previously reported unamortized deferred warrant charge of $6.4 million. The
deferred credits for the proceeds of the pre-petition claim and the gain on the
surrender of the warrants totaling $87.3 million will be amortized as an
adjustment to revenue over term of the agreements with Delta.
  • Income Taxes. The Company
has generated significant net operating losses (“NOLs”) for federal income tax
purposes primarily from accelerated depreciation on owned
aircraft.  Certain of our NOLs generated prior to July 2005 are
subject to an annual limitation under Internal Revenue Code Section 382 (“IRC
382”). The annual limitation is based upon the enterprise value of the Company
on the IRC 382 ownership change date multiplied by the applicable long-term tax
exempt rate. If the utilization of deferred tax assets, and other carry
forwards becomes uncertain in future years, we will be required to record a
valuation allowance for the deferred tax assets not expected to be
utilized.
 •Intangible Commuter Slots.
The Company acquired commuter slots during 2005 at the New York-LaGuardia and
Ronald Reagan Washington National airports from US Airways.  The licensing
agreement with the Company and US Airways for the LaGuardia commuter slots
expired on December 31, 2006, but we maintain a security interest in the
LaGuardia slots if US Airways fails to perform under the current licensing
agreement. The estimated useful lives of these commuter slots were
determined based upon the period of time cash flows are expected to be generated
by the commuter slots and by researching the estimated useful lives of commuter
slots or similar intangibles by other airlines. In addition, an estimated
residual value was determined using estimates of the expected fair value of the
commuter slots at the end of the expected useful life. The residual value will
be assessed annually for impairment. The estimated useful lives are also
reviewed annually.
  -30-
 Quarterly
Information (unaudited)
  The
following table sets forth summary quarterly financial information for the years
ended December 31, 2008 and 2007.
  Quarters
      EndedMarch
      31
              
              
              June
      30
              
              
              September
      30
              
              
              December
      31(dollars
      in thousands, except net income per share)2008Operating
      revenues
              
              $
              363,883
              
              
              $
              391,372
              
              
              $
              385,248
              
              
              $
              339,252Operating
      income
              
              
              65,813
              
              
              
              65,761
              
              
              
              60,204
              
              
              
              63,317Net
      income
              
              
              20,151
              
              
              
              28,431
              
              
              
              17,007
              
              
              
              18,992Net
      income per share:Basic
              
              $
              0.56
              
              
              $
              0.82
              
              
              $
              0.50
              
              
              $
              0.56Diluted
              
              $
              0.55
              
              
              $
              0.81
              
              
              $
              0.50
              
              
              $
              0.56Weighted
      average number of shares outstanding:Basic
              
              
              36,237,981
              
              
              
              34,854,532
              
              
              
              34,169,104
              
              
              
              34,174,167Diluted
              
              
              36,561,294
              
              
              
              34,977,671
              
              
              
              34,169,104
              
              
              
              34,174,1672007Operating
      revenues
              
              $
              290,443
              
              
              $
              320,313
              
              
              $
              330,082
              
              
              $
              351,839Operating
      income
              
              
              54,829
              
              
              
              54,546
              
              
              
              57,427
              
              
              
              63,476Net
      income
              
              
              19,280
              
              
              
              19,041
              
              
              
              20,170
              
              
              
              24,267Net
      income per share:Basic
              
              $
              0.45
              
              
              $
              0.46
              
              
              $
              0.50
              
              
              $
              0.66Diluted
              
              $
              0.44
              
              
              $
              0.46
              
              
              $
              0.49
              
              
              $
              0.65Weighted
      average number of shares outstanding:Basic
              
              
              42,616,419
              
              
              
              41,319,327
              
              
              
              40,582,516
              
              
              
              36,932,777Diluted
              
              
              44,306,067
              
              
              
              41,707,625
              
              
              
              40,868,412
              
              
              
              37,246,265
  New
Accounting Standards
  In March
2008, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 161, Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No. 133
(SFAS 161).  SFAS 161 requires qualitative disclosures about
objectives and strategies for using derivatives, quantitative disclosures about
fair value amounts of and gains and losses on derivative instruments, and
disclosures about credit-risk-related contingent features in derivative
agreements.  SFAS 161 also requires entities to disclose additional
information about the amounts and location of derivatives located within the
financial statements, how the provisions of SFAS 133 has been applied, and the
impact that hedges have on an entity’s financial position, financial
performance, and cash flows.  SFAS 161 is effective for fiscal years
and interim periods beginning after November 15, 2008, with early application
encouraged.  The Company does not believe the adoption of SFAS 161
will have a material impact to its financial position, results of operations,
and cash flows, however, additional disclosures may be required to the
footnotes.
 
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
  We have
been and are subject to market risks, including commodity price risk (such as,
to a limited extent, aircraft fuel prices) and interest rate risk.
  Interest
Rates
 
 Our
earnings can be affected by changes in interest rates due to amount of cash and
securities held. At December 31, 2008 and December 31, 2007 all of our long-term
debt was fixed rate debt. We anticipate that additional debt will be at fixed
rates. However, we believe we could fund any interest rate increases on
additional variable rate long-term debt with the increased amounts of interest
income.
  We
currently intend to finance the acquisition of aircraft through the
manufacturer, third-party leases or long-term borrowings. Changes in interest
rates may impact the actual cost to us to acquire these aircraft. To the extent
we place these aircraft in service under our code-share agreements our
reimbursement rates may not be adjusted higher or lower to reflect any changes
in our aircraft rental rates.  -31-
 
 
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
 REPUBLIC AIRWAYS HOLDINGS INC.
      AND SUBSIDIARIESINDEX
      TO AUDITED CONSOLIDATED FINANCIAL STATEMENTSReport of Independent Registered Public Accounting
      Firm
              33Consolidated Balance Sheets as of December 31, 2008 and
      2007
              34Consolidated Statements of Income for the years ended
      December 31, 2008, 2007 and 2006
              35Consolidated Statements of Stockholders’ Equity and
      Comprehensive Income for the years ended December 31, 2008, 2007 and
      2006
              36Consolidated Statements of Cash Flows for the
      years ended December 31, 2008, 2007 and 2006
              37Notes to Consolidated Financial
    Statements
              38
 
 
 
 
  -32-
  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
      FIRM
  To the
Board of Directors and Stockholders of
 Republic
Airways Holdings Inc.
 Indianapolis,
Indiana
  We have
audited the accompanying consolidated balance sheets of Republic Airways
Holdings Inc. and subsidiaries (the “Company”) as of December 31, 2008 and
2007, and the related consolidated statements of income, stockholders’ equity
and comprehensive income, and cash flows for each of the three years in the
period ended December 31, 2008. We also have audited the Company’s internal
control over financial reporting as of December 31, 2008, based on criteria
established in Internal
Control—Integrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Company’s management is
responsible for these financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying
Management’s Annual Report on Internal Control Over Financial Reporting included
in Item 9A.  Our responsibility is to express an opinion on these
consolidated financial statements and an opinion on the Company’s internal
control over financial reporting based on our audits.
  We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement and whether effective internal
control over financial reporting was maintained in all material respects. Our
audits of the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included performing
such other procedures as we considered necessary in the
circumstances.  We believe that our audits provide a reasonable basis
for our opinions.
  A
company’s internal control over financial reporting is a process designed by, or
under the supervision of, the company’s principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company’s board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (3) 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.
  Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
  In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of
December 31, 2008 and 2007, and the results of their operations and their
cash flows for each of the three years in the period ended December 31,
2008, in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of
December 31, 2008, based on the criteria established in Internal Control—Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission.
  As
discussed in Note 1 to the consolidated financial statements, substantially all
revenues are derived from code-share agreements with US Airways, Inc., Delta Air
Lines, Inc., AMR Corp., the parent of American Airlines, Inc., United Air Lines,
Inc., and Continental Airlines, Inc.
 As
discussed in Note 12 to the consolidated financial statements, on January 1,
2007, the Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes – an Interpretation of FASB Statement No.
109.
 /s/
DELOITTE & TOUCHE LLP
 Indianapolis,
Indiana
 March 16,
2009  -33-
 
 REPUBLIC
AIRWAYS HOLDINGS INC. AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS
 AS
OF DECEMBER 31, 2008 AND 2007
 (In
thousands, except share and per share amounts)
 
 2008
              
              
              2007ASSETSCurrent
      Assets:Cash
      and cash equivalents
              
              $
              129,656
              
              
              $
              164,004Receivables—net
      of allowance for doubtful accounts of $2,054 and $897,
      respectively
              
              
              25,303
              
              
              
              27,585Inventories—net
              
              
              51,885
              
              
              
              43,424Prepaid
      expenses and other current assets
              
              
              17,924
              
              
              
              9,928Notes
      receivable—net of allowance of $1,500
              
              
              54,394
              
              
              
              —Assets
      held for sale
              
              
              82,959
              
              
              
              —Restricted
      cash
              
              
              1,209
              
              
              
              1,226Deferred
      income taxes
              
              
              7,406
              
              
              
              7,510Total
      current assets
              
              
              370,736
              
              
              
              253,677Aircraft
      and other equipment—net
              
              
              2,692,410
              
              
              
              2,308,726Intangible
      and other assets—net
              
              
              160,097
              
              
              
              197,340Goodwill
              
              
              13,335
              
              
              
              13,335Total
              
              $
              3,236,578
              
              
              $
              2,773,078LIABILITIES AND STOCKHOLDERS'
      EQUITYCurrent
      Liabilities:Current
      portion of long-term debt
              
              $
              196,301
              
              
              $
              131,700Accounts
      payable
              
              
              33,042
              
              
              
              35,201Accrued
      liabilities
              
              
              126,742
              
              
              
              109,792Total
      current liabilities
              
              
              356,085
              
              
              
              276,693Long-term
      debt—less current portion
              
              
              2,081,544
              
              
              
              1,781,880Deferred
      credits and other non current liabilities
              
              
              89,182
              
              
              
              104,115Deferred
      income taxes
              
              
              233,828
              
              
              
              184,304Total
      liabilities
              
              
              2,760,639
              
              
              
              2,346,992Commitments
      and contingenciesStockholders'
      Equity:Preferred
      stock, $.001 par value; 5,000,000 shares authorized; no shares issued or
      outstandingCommon
      stock, $.001 par value; one vote per share; 150,000,000 shares
      authorized; 43,781,116 and 43,474,466 shares issued and 34,448,683
      and 36,407,572 shares outstanding, respectively
              
              
              44
              
              
              
              43Additional
      paid-in capital
              
              
              297,376
              
              
              
              293,127Treasury
      stock, at cost, 9,332,433 and 7,066,894 shares,
    respectively
              
              
              (181,820
              )
              
              
              (142,411
              )Accumulated
      other comprehensive loss
              
              
              (2,577
              )
              
              
              (3,009
              )Accumulated
      earnings
              
              
              362,916
              
              
              
              278,336Total
      stockholders' equity
              
              
              475,939
              
              
              
              426,086Total
              
              $
              3,236,578
              
              
              $
              2,773,078
 
 See
accompanying notes to consolidated financial statements.
  -34-
  
 REPUBLIC
AIRWAYS HOLDINGS INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF INCOME
 FOR
THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
 (In
thousands, except per share amounts)
  2008
              
              
              2007
              
              
              2006OPERATING
      REVENUES:Regional
      airline services
              
              $
              1,462,211
              
              
              $
              1,274,607
              
              
              $
              1,118,226Charter
      and ground handling
              
              
              5,138
              
              
              
              5,867
              
              
              
              8,932Other
              
              
              12,406
              
              
              
              12,203
              
              
              
              15,920Total
      operating revenues
              
              
              1,479,755
              
              
              
              1,292,677
              
              
              
              1,143,078OPERATING
      EXPENSES:Wages
      and benefits
              
              
              252,336
              
              
              
              226,521
              
              
              
              175,483Aircraft
      fuel
              
              
              327,791
              
              
              
              296,573
              
              
              
              325,500Landing
      fees
              
              
              59,891
              
              
              
              53,684
              
              
              
              41,993Aircraft
      and engine rent
              
              
              134,206
              
              
              
              124,961
              
              
              
              94,773Maintenance
      and repair
              
              
              169,425
              
              
              
              130,237
              
              
              
              105,198Insurance
      and taxes
              
              
              25,793
              
              
              
              19,039
              
              
              
              17,652Depreciation
      and amortization
              
              
              133,206
              
              
              
              106,594
              
              
              
              92,228Other
              
              
              122,012
              
              
              
              104,790
              
              
              
              77,658Total
      operating expenses
              
              
              1,224,660
              
              
              
              1,062,399
              
              
              
              930,485OPERATING
      INCOME
              
              
              255,095
              
              
              
              230,278
              
              
              
              212,593OTHER
      INCOME (EXPENSE):Interest
      expense
              
              
              (131,856
              )
              
              
              (107,323
              )
              
              
              (91,128
              )Interest
      and other income
              
              
              14,176
              
              
              
              11,013
              
              
              
              9,944Total
      other income (expense)
              
              
              (117,680
              )
              
              
              (96,310
              )
              
              
              (81,184
              )INCOME
      BEFORE INCOME TAXES
              
              
              137,415
              
              
              
              133,968
              
              
              
              131,409INCOME
      TAX EXPENSE
              
              
              52,835
              
              
              
              51,210
              
              
              
              51,899Net
      income
              
              $
              84,580
              
              
              $
              82,758
              
              
              $
              79,510Basic
      net income per common share
              
              $
              2.43
              
              
              $
              2.05
              
              
              $
              1.89Diluted
      net income per common share
              
              $
              2.42
              
              
              $
              2.02
              
              
              $
              1.82
 
 See
accompanying notes to consolidated financial statements.
  -35-
  
 REPUBLIC
AIRWAYS HOLDINGS INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE
INCOME
 FOR
THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
 (In
thousands)
  Other
                  Comprehensive
                  Income
                
                Common
                  Stock
                
                Additional
                  Paid-In
                  Capital
                
                Warrants
                
                Treasury
                  Stock
                
                Accumulated
                  Other
                  Comprehensive
                  Loss
                
                Accumulated
                  Earnings
                
                TotalBalance
      at January 1, 2006
                
                
                $
                42
                
                $
                277,505
                
                $
                8,574
                
                
                
                $
                (4,176
                )
                $
                142,753
                
                $
                424,698Stock
      compensation expense
                
                
                
                
                
                
                1,297
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,297Exercise
      of employee stock options
                
                
                
                1
                
                
                3,024
                
                
                
                
                
                
                
                
                
                
                
                
                
                3,025Net
      income
                $
                79,510
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                79,510
                
                
                79,510Reclassification
      adjustment for loss realized on derivatives, net of tax
                
                299
                
                
                
                
                
                
                
                
                
                
                
                
                
                299
                
                
                
                
                
                299Comprehensive
      income
                $
                79,809Balance
      at December 31, 2006
                
                
                
                
                43
                
                
                281,826
                
                
                8,574
                
                
                
                
                (3,877
                )
                
                222,263
                
                
                508,829Stock
      compensation expense
                
                
                
                
                
                
                
                3,119
                
                
                
                
                
                
                
                
                
                
                
                
                
                3,119Exercise
      of employee stock options
                
                
                
                
                
                
                
                8,182
                
                
                
                
                
                
                
                
                
                
                
                
                
                8,182Net
      income
                $
                82,758
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                82,758
                
                
                82,758Treasury
      stock repurchases
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                (142,411
                )
                
                
                
                
                
                
                
                (142,411
                )Reclassification
      adjustment for loss realized on derivatives, net of tax
                
                868
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                868
                
                
                
                
                
                868Cummulative
      effect of change in accounting principle (FIN 48)
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (2,367
                )
                
                (2,367
                )Delta
      warrants surrender, net of tax
                
                
                
                
                
                
                
                
                
                
                (8,574
                )
                
                
                
                
                
                
                
                
                (24,318
                )
                
                (32,892
                )Comprehensive
      income
                $
                83,626Balance
      at December 31, 2007
                
                
                
                
                43
                
                
                293,127
                
                
                —
                
                (142,411
                )
                
                (3,009
                )
                
                278,336
                
                
                426,086Stock
      compensation expense
                
                
                
                
                
                
                
                3,925
                
                
                
                
                
                
                
                
                
                
                
                
                
                3,925Exercise
      of employee stock options
                
                
                
                
                1
                
                
                324
                
                
                
                
                
                
                
                
                
                
                
                
                
                325Net
      income
                $
                84,580
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                84,580
                
                
                84,580Treasury
      stock repurchases
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (39,409
                )
                
                
                
                
                
                
                
                (39,409
                )Reclassification
      adjustment for loss realized on derivatives, net of tax
                
                432
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                432
                
                
                
                
                
                432Comprehensive
      income
                $
                85,012Balance
      at December 31, 2008
                
                
                
                $
                44
                
                $
                297,376
                
                $
                —
                
                
                $
                (181,820
                )
                $
                (2,577
                )
                $
                362,916
                
                $
                475,939
 
 See
accompanying notes to consolidated financial statements.
  -36-
  REPUBLIC
AIRWAYS HOLDINGS INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR
THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
 (In
thousands)
 
 2008
              
              
              2007
              
              
              2006OPERATING
      ACTIVITIES:Net
      income
              
              $
              84,580
              
              
              $
              82,758
              
              
              $
              79,510Adjustments
      to reconcile net income to net cash from operating
    activities:Depreciation
      and amortization
              
              
              133,206
              
              
              
              106,594
              
              
              
              92,228Debt
      issue costs and other amortization
              
              
              7,078
              
              
              
              6,764
              
              
              
              4,551Warrant
      amortization
              
              
              (15,953
              )
              
              
              102
              
              
              
              565Loss
      (gain) on aircraft and other equipment disposals
              
              
              4,749
              
              
              
              255
              
              
              
              (2,168
              )Realized
      gain on interest rate swap
              
              
              (5,785
              )
              
              
              —
              
              
              
              —Gain
      on extinguishment of debt
              
              
              (5,980
              )
              
              
              —
              
              
              
              —Notes
      receivable interest
              
              
              (1,087
              )
              
              
              —
              
              
              
              —Notes
      receivable reserve
              
              
              1,500
              
              
              
              —
              
              
              
              —Amortization
      of deferred credits
              
              
              (1,960
              )
              
              
              (1,761
              )
              
              
              (1,438
              )Stock
      compensation expense
              
              
              3,925
              
              
              
              3,119
              
              
              
              1,297Deferred
      income taxes
              
              
              49,339
              
              
              
              51,090
              
              
              
              51,404Changes
      in certain assets and liabilities:Receivables
              
              
              2,281
              
              
              
              (7,944
              )
              
              
              (2,939
              )Inventories
              
              
              (8,212
              )
              
              
              (11,419
              )
              
              
              (11,448
              )Prepaid
      expenses and other current assets
              
              
              (7,996
              )
              
              
              1,554
              
              
              
              1,474Accounts
      payable
              
              
              (2,158
              )
              
              
              11,299
              
              
              
              10,546Accrued
      liabilities
              
              
              16,006
              
              
              
              4,022
              
              
              
              16,826Deferred
      revenue (Delta pre-petition claim)
              
              
              —
              
              
              
              44,590
              
              
              
              —Other
              
              
              (11,246
              )
              
              
              (10,533
              )
              
              
              (11,261
              )Net
      cash from operating activities
              
              
              242,287
              
              
              
              280,490
              
              
              
              229,147INVESTING
      ACTIVITIES:Purchase
      of aircraft and other equipment
              
              
              (127,832
              )
              
              
              (99,545
              )
              
              
              (89,255
              )Proceeds
      from sale of aircraft equipment
              
              
              52,945
              
              
              
              15,798
              
              
              
              18,180Aircraft
      deposits and other
              
              
              (20,884
              )
              
              
              (51,414
              )
              
              
              (67,563
              )Aircraft
      deposits returned
              
              
              68,623
              
              
              
              58,681
              
              
              
              24,148Change
      in restricted cash
              
              
              17
              
              
              
              12
              
              
              
              (20
              )Origination
      of notes receivable
              
              
              (55,032
              )
              
              
              —
              
              
              
              —Principal
      payments on notes receivable
              
              
              225
              
              
              
              —
              
              
              
              —Net
      cash from investing activities
              
              
              (81,938
              )
              
              
              (76,468
              )
              
              
              (114,510
              )FINANCING
      ACTIVITIES:Payments
      on debt
              
              
              (113,565
              )
              
              
              (93,475
              )
              
              
              (79,900
              )Proceeds
      from refinancing of aircraft
              
              
              6,700
              
              
              
              —
              
              
              
              —Payments
      on early extinguishment of debt
              
              
              (49,969
              )
              
              
              —
              
              
              
              —Proceeds
      from exercise of stock options
              
              
              325
              
              
              
              8,182
              
              
              
              3,025Debt
      issue costs
              
              
              (4,564
              )
              
              
              (7,842
              )
              
              
              (4,239
              )Proceeds
      on settlement of interest rate swaps
              
              
              5,785
              
              
              
              —
              
              
              
              —Purchase
      of treasury stock
              
              
              (39,409
              )
              
              
              (142,411
              )
              
              
              —Net
      cash from financing activities
              
              
              (194,697
              )
              
              
              (235,546
              )
              
              
              (81,114
              )Net
      changes in cash and cash equivalents
              
              
              (34,348
              )
              
              
              (31,524
              )
              
              
              33,523CASH
      AND CASH EQUIVALENTS AT BEGINNING OF YEAR
              
              
              164,004
              
              
              
              195,528
              
              
              
              162,005CASH
      AND CASH EQUIVALENTS AT END OF YEAR
              
              $
              129,656
              
              
              $
              164,004
              
              
              $
              195,528
 See
accompanying notes to consolidated financial statements.
  -37-
  REPUBLIC
AIRWAYS HOLDINGS INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008, 2007 and 2006
 (Dollars
in thousands, except share and per share amounts)
  1.
ORGANIZATION & BUSINESS
  We are a
Delaware holding company organized in 1996 that owns three regional airlines:
Chautauqua Airlines, Inc., (“Chautauqua Airlines”), our operator of 44 to 50
seat aircraft; Shuttle America Corporation (“Shuttle America”), our operator of
70 to 76 seat aircraft; and Republic Airline Inc. (“Republic Airline”), our
operator of 76 to 86 seat aircraft.  As of December 31, 2008, our
subsidiaries offered scheduled passenger service on approximately 1,250 flights
daily to 109 cities in 35 states, Canada, Mexico, and Jamaica pursuant to
code-share agreements with AMR Corp., the parent of American Airlines, Inc.
(“American”), Continental Airlines, Inc. (“Continental”), Delta Air Lines, Inc.
(“Delta”), Midwest Airlines, Inc. (“Midwest”), Mokulele Flight Service, Inc.
(“Mokulele”), United Air Lines, Inc. (“United”), and US Airways, Inc. (“US
Airways”) (collectively referred to as our “Partners”). We began flying for
Midwest and Mokulele in October and November 2008, respectively. Currently, we
provide our Partners with regional jet service, operating as AmericanConnection,
Continental Express, Delta Connection, Midwest Connect, Mokulele Airlines,
United Express, or US Airways Express, including service out of their hubs and
focus cities.
 
 The
accompanying consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America
and include the accounts of Republic Airways Holdings Inc., and its wholly-owned
operating subsidiaries.
 
 In April
2008, Frontier Airlines, Inc. (“Frontier”) rejected its air services agreement,
which provided for the Company’s operation of 17 E170 aircraft. The first
aircraft was placed into service in March 2007 and the last aircraft was
expected to be placed into service in December 2008.  Frontier’s
rejection of the agreement was prompted by its filing for Chapter 11 bankruptcy
protection on April 11, 2008.  As of the bankruptcy date, the Company
was operating 12 of the 17 E170 aircraft.  All 12 aircraft were
removed during the second quarter of 2008 and transitioned to Midwest in the
third and fourth quarter of 2008.  The Company filed a damage claim of
approximately $215,000 arising out of Frontier’s rejection of the code-share
agreement (see subsequent events at Note 16).  The ultimate amount of
the Company’s claim will be determined in the future by the Court.  At
this time the Company cannot estimate the recovery value, if any, of the
ultimate allowable claim.  As of December 31, 2008, the Company fully
reserved all pre-petition amounts due from Frontier, which totaled
$676.  Additionally, the Company had removed all 12 E170 aircraft from
service with Frontier and transitioned these aircraft to the Company’s Midwest
code-share agreement.
 The
US Airways Code-Share Agreements
 Under the
Company’s fixed-fee code-share agreements with US Airways, it operates, as of
December 31, 2008, nine E145 aircraft, 20 E170 aircraft and 38 E175
aircraft.  The Company’s code-share agreements with US Airways to
operate E145 aircraft terminates in March 2013.  The code-share
agreement for the E170 aircraft and the E175 aircraft terminates in September
2015 with respect to the E170 aircraft and eight of the E175
aircraft.  The remaining 30 E175 aircraft terminate 12 years from the
in-service date for each aircraft’s in service date. US Airways may terminate
the code-share agreements at any time for cause upon not less than 90 days
notice and subject to the Company’s right to cure.
  The
American Code-Share Agreement
 
 The
Company has a fixed-fee code-share agreement with American to operate E140
aircraft.  As of December 31, 2008, the Company operated 15 E140
aircraft for American.  If American terminates the code-share
agreement for cause, American has a call option to require that the Company
assign to American all of its rights under the leases of aircraft, and to lease
to American the aircraft to the extent the Company owns them, used at that time
under the code-share agreement. If American exercises its call option, the
Company is required to pay certain maintenance costs in transferring the
aircraft to American's maintenance program.
 
 If
American terminates the code-share agreement without cause, the Company has the
right to put the leases of the aircraft, or to sell the aircraft to American to
the extent owned by the Company, used under the code-share agreement to
American. American also has a call option to require the Company to assign to
American these leases. If the Company exercises its put or American
exercises its call right, both parties are obligated to implement a schedule to
terminate the code-share agreement in an orderly fashion and transition the
aircraft from the Company to American.
 
 In
October 2008, the Company amended the code-share agreement to remove two E140
aircraft from service in June 2009.  American will reimburse the
Company for the monthly rental fees until the removed aircraft are sold,
subleased or otherwise transferred as long as the Company is using commercially
reasonable efforts to dispose of the removed aircraft.  The amendment
also provided for a two year extension on American’s early termination option so
that American may not early terminate the agreement prior to March 2012, and a
rate reduction on the remaining aircraft in service with American, which will be
effective in April 2009.
 
 The term
of the American code-share agreement continues until February 1, 2013. American
may reduce the term by one year each time that the Company fails to achieve an
agreed performance level. American may only exercise this right three times
during the term of the code-share agreement. Under certain circumstances, the
agreement may be subject to termination for cause prior to that
date.
  The
Delta Code-Share Agreements
 
 As of
December 31, 2008, the Company operated 24 E145 aircraft, 3 E170 aircraft, and
13 E175 aircraft for Delta.  The fixed-fee code-share agreements for
the E135/145 and E170 aircraft terminate in May 2016 and January 2019,
respectively. Delta may terminate the code-share agreements at any time, with or
without cause, if it provides the Company 180 days written notice, provided that
such notice shall not be given prior to November 2009 for the E145 regional jet
code-share agreement and July 2015 for the E170 regional jet code-share
agreement.  If Delta does choose to eliminate any aircraft at that
time, it may not reduce the number of aircraft in service to less than 12 during
the 12-month period following the 180 day initial notice period unless it
completely terminates the code-share agreement.
 
 If Delta
exercises this right under either agreement or if the Company terminates either
agreement for cause, the Company has the right to require Delta either to
purchase, sublease or assume the lease of aircraft leased by the Company with
respect to any of the aircraft the Company previously operated for Delta under
that agreement. If the Company chooses not to exercise this right, or if Delta
terminates either agreement for cause, Delta may require the Company to sell or
sublease to it or Delta may assume the lease of aircraft leased by the Company
with respect to any of the aircraft the Company previously operated for it under
that agreement.
 In July
2008, the Company entered into a letter agreement with Delta to remove the final
11 E135 aircraft from the Delta Connection program effective September 30,
2008.  The aircraft were originally scheduled to be removed between
November 2008 and April 2009.  Two of these aircraft were sold in
2008, and of the remaining nine E135 aircraft, eight are under an agreement to
be sold in 2009 at a specified price.  The Company has classified all
nine of the E135 aircraft as held for sale at their current estimated sales
price less costs to sell.
 
 The
United Code-Share Agreements
 
 As of
December 31, 2008, the Company operated seven E145 aircraft and 33 E170 aircraft
for United.  The E145 and E170 fixed-fee code-share agreements
terminate on June 30, 2014 and June 30, 2019, respectively. United has the
option of extending each agreement for five years or less.  In
addition, under certain conditions, United may terminate the code-share
agreements.  In July 2008, the Company received notice from United of
their intent to terminate the E145 code-share agreement effective December 31,
2009.
 United
has a call option to assume the Company’s ownership or leasehold interest in
certain aircraft if the Company wrongfully terminates the code-share agreements
or if United terminates the agreements for the Company’s breach for certain
reasons.
 -38-
 The
Continental Code-Share Agreement
 
 As of
December 31, 2008, the Company operated 20 E145 aircraft and 17 CRJ-200 aircraft
for Continental.  The CRJ-200 aircraft are operated under the
fixed-fee code-share agreement on terms generally equivalent to the CRJ-200
leases, which vary from two to five years.  The E145 aircraft have a
term of three to five years.  Under certain circumstances, Continental
may extend the term on the aircraft up to five additional years.  The
term of the agreement is effective as of January 8, 2007 and, unless earlier
terminated or extended, will continue until July 2012.
 
 The
Midwest Code-Share Agreement
 
  
 The
Mokulele Code-Share Agreement
 
 In October 2008, the Company entered
into a fixed-fee code-share agreement with Mokulele. Under the agreement, the
Company will provide and operate four E170 aircraft for Mokulele. The first
two aircraft were placed into service in November 2008 with the additional two
planned for delivery during the second quarter of 2009. The agreement has a term
of ten years.  Mokulele
is currently in default of its loan and code-share agreement. We are negotiating
with Mokulele the terms of a possible recapitalization of Mokulele, but there
can be no assurance that Mokulele will be recapitalized. As a part of these
negotiations, we are contemplating converting $3,000 of our loan and injecting
$3,000 of cash in exchange for 50% of Mokulele's common stock. Even if this
recapitalization is completed, Mokulele could require additional funding, part
or all of which may come from us. If the business environment does not improve
for Mokulele, our financial condition, results of operations and liquidity could
be adversely affected.
 Concentrations
 
 The
following sets forth our Partners’ regional airline services revenue and
accounts receivable as a percentage of total regional airline services revenue
and net receivables:
 
 Regional
      airline services
                revenues
      for the years ended:
              
              Delta
              
              
              United
              
              
              US Airways
              
              
              American
              
              
              Continental
              
              
              Frontier
              
              
              Midwest
              
              
              MokuleleDecember
      31, 2008
              
              
              29
              %
              
              
              21
              %
              
              
              25
              %
              
              
              10
              %
              
              
              12
              %
              
              
              2
              %
              
              
              1
              %
              
              <1
              %December
      31, 2007
              
              
              33
              
              
              
              24
              
              
              
              22
              
              
              
              9
              
              
              
              10
              
              
              
              2
              
              
              
              —
              
              
              
              —December
      31, 2006
              
              
              35
              
              
              
              30
              
              
              
              24
              
              
              
              11
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Receivables
      as of:December
      31, 2008
              
              
              3
              %
              
              
              4
              %
              
              
              16
              %
              
              
              2
              %
              
              
              16
              %
              
              
              3
              %
              
              
              1
              %
              
              
              1
              %December
      31, 2007
              
              
              3
              
              
              
              18
              
              
              
              18
              
              
              
              18
              
              
              
              4
              
              
              
              2
              
              
              
              —
              
              
              
              —
 
 For the
years ended December 31, 2008, 2007 and 2006, substantially all of the Company's
revenue is derived from agreements with its Partners. Termination of any of
these code-share agreements could have a material adverse effect on the
Company's financial position, results of operations and cash flows.
 
 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Basis of
Consolidation—The consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries, Chautauqua, Shuttle America
and Republic Airline. All significant intercompany accounts and transactions are
eliminated in consolidation.
  Reclassification—The
Company reclassified amounts previously recorded as impairment loss and accrued
aircraft return costs to other operating expense  of ($2,050) in the December 31, 2006
consolidated financial statements to conform to current year
presentation.
  Risk
Management—The Company accounts for derivatives in accordance with
Statement of Financial Accounting Standard (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities,as amended and interpreted.
 
 The
Company has recorded within accumulated other comprehensive loss settlements of
derivative transactions from prior periods.  Such amounts are
reclassified to interest expense over the term of the respective aircraft debt.
 During 2008, 2007 and 2006, the Company reclassified $720, $761 and $299
to interest expense, respectively. The Company expects to reclassify $676 to
interest expense for the year ending December 31, 2009.
 
 In March
2008, in anticipation of financing the purchase of E175 aircraft on firm order
with the manufacturer, the Company entered into 21 interest rate swap agreements
for a notional amount of $420,000 and a weighted average interest rate of
4.3%.  In April 2008, the Company terminated the interest rate swap
agreements resulting in a gain and cash proceeds of $5,785, which is recorded in
interest and other income in its consolidated statements of income.
  Cash and Cash
Equivalents—Cash equivalents consist of money market funds and
short-term, highly liquid investments with maturities of three months or less
when purchased. Substantially all of our cash is on hand with two
banks.
  Supplemental
Cash Flow Information:
 Years
      Ended December 31,2008
              
              
              2007
              
              
              2006CASH
      PAID FOR INTEREST AND INCOME TAXES:Interest—net
      of amount capitalized
              
              $
              122,355
              
              
              $
              105,818
              
              
              $
              87,254Income
      taxes paid — net of refunds
              
              
              483
              
              
              
              1,388
              
              
              
              518NON-CASH
      TRANSACTIONS:Parts,
      training and lease credits received from aircraft
    manufacturer
              
              
              (14,900
              )
              
              
              (12,540
              )
              
              
              (7,860
              )Receipt
      of US Airways stock
              
              
              —
              
              
              
              —
              
              
              
              50Aircraft,
      inventories, and other equipment purchased through direct financing
      arrangements
              
              
              526,200
              
              
              
              438,252
              
              
              
              235,260Engines
      received and not yet paid
              
              
              6,283
              
              
              
              3,281
              
              
              
              3,464Refinancing
      of aircraft
              
              
              139,145
              
              
              
              —
              
              
              
              147,792Fair
      value of warrants surrendered by Delta
              
              
              —
              
              
              
              49,103
              
              
              
              —
 
 Inventoriesconsist of spare parts and supplies, which are charged to expense as they
are used in operations. Inventories are valued at average cost. An allowance for
obsolescence is provided to reduce inventory to estimated net realizable value.
As of December 31, 2008 and 2007 this reserve was $3,632 and $2,157,
respectively.
 
 Notes
Receivable—Interest income is recognized on an accrual basis and is
generally suspended for notes receivable at the date when a full recovery of
income and principal becomes doubtful.  Interest income
recognition is resumed when notes receivable become contractually current and
performance is demonstrated to be resumed.
 
 Assets Held for
Saleconsist of the eight E135 aircraft under an agreement to be sold in
2009 and one additional E135 aircraft.  Assets held for sale are
reported at the lower of their carrying value or estimated fair value less costs
to sell.
 
 Aircraft and
Other Equipmentis carried at cost. Incentives received from the aircraft
manufacturer are recorded as reductions to the cost of the aircraft.
Depreciation for aircraft is computed on a straight-line basis to an estimated
salvage value over 16.5 years, the estimated useful life of the regional
jet aircraft. Depreciation for other equipment, including rotable parts, is
computed on a straight-line basis over three to ten years, the estimated
useful lives of the other equipment. Leasehold improvements are amortized over
the expected life or lease term, whichever is less. Interest related to deposits
on aircraft on firm order from the manufacturer is capitalized. The Company
capitalized approximately $2,205, $4,056 and $2,021 of interest
for  the years ended December 31, 2008, 2007 and 2006,
respectively.
 
 Restricted Cashconsists of restricted amounts for satisfying debt and lease payments due
within the next twelve month period.
 -39-
 Debt Issue Costsare capitalized and are amortized using the effective interest method, to
interest expense over the term of the related debt.
  Goodwilland Intangible
Assets areaccounted for in
accordance with SFAS No. 142, Goodwill and Other Intangible
Assets. Goodwill and intangible assets that have indefinite useful lives
are not amortized but are tested if a triggering event occurred or at least
annually for impairment. Management reviewed the carrying value of goodwill and
concluded that no asset impairment existed as of December 31, 2008. Intangible
assets that have finite useful lives are amortized over their useful lives to an
estimated residual value and reviewed for impairment at each reporting date. At
December 31, 2008 the remaining amortization period for the
Ronald Reagan Washington National Airport commuter slots is
22 years. Estimated amortization expense will approximate $388 per
year.
 
 Long-Lived
Assets—Management reviews long-lived assets for possible impairment, if
there is a triggering event that detrimentally affects operations. The primary
financial indicator used by the Company to assess the recoverability of its
long-lived assets held and used is undiscounted future cash flows from
operations. The amount of impairment if any, is measured based on estimated fair
value or projected future cash flows using a discount rate reflecting the
Company's average cost of funds. Management has concluded that no asset
impairment of long-lived assets existed as of December 31, 2008.
 
 Deferred Credits
and Other Non Current Liabilitiesconsist of credits for parts and
training from the aircraft and engine manufacturers, deferred gains from the
sale and leaseback of aircraft and spare jet engines and deferred revenue from
the Delta warrant surrender and pre-petition claim. Deferred credits are
amortized on a straight-line basis as a reduction of aircraft or engine rent
expense over the term of the respective leases.  The deferred revenue
is amortized as an adjustment to regional airline services revenue based on the
weighted average aircraft in service over the life of the Delta
agreements.
 
 Comprehensive
Income—The Company reports comprehensive income in accordance with SFAS
No. 130, Reporting
Comprehensive Income,which establishes standards for reporting and
displaying comprehensive income and its components in financial statements. The
Company had accumulated other comprehensive loss relating to treasury lock
agreements of $2,577, $3,009 and $3,877, net of tax, at December 31, 2008, 2007
and 2006, respectively.
 
 Income
Taxes—The
Company accounts for income taxes using the asset and liability method. Under
the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts for existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in future years in
which those temporary differences are expected to be recovered or settled. The
measurement of deferred tax assets is adjusted by a valuation allowance, if
necessary, to recognize the future tax benefits to the extent, based on
available evidence; it is more likely than not they will be
realized.
  Aircraft
Maintenance and Repairis charged to expense as incurred under the direct
expense method. Engines and certain airframe component overhaul and repair costs
are subject to power-by-the-hour contracts with external vendors and are
expensed as the aircraft are flown.
 
 Use of
Estimates—The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Such management estimates
include, but are not limited to, recognition of revenue, provision for inventory
write-downs, valuation of stock-based compensation, valuation of goodwill and
long-lived assets, valuation of notes receivable, provision for doubtful
accounts, provision for accrued aircraft return costs and valuation of deferred
tax assets. Under the code-share agreements, the Company estimates operating
costs for certain “pass through” costs and records revenue based on these
estimates. Actual results could differ from those estimates.
 
 Revenue
Recognition—Regional airline service revenues, charter revenues and
ground handling revenues are recognized in the period the services are
provided.  Under our fixed-fee arrangements with our Partners, the Company
receives fixed-fees, as well as reimbursement of specified “pass-through” costs
on a gross basis with additional possible incentives from our Partners for
superior service. Regional airline service revenues are recognized in the period
the service is provided and we perform an estimate of the profit component based
upon the information available at the end of the accounting period.
 
 The
reimbursement of specified costs, known as “pass-through costs”, may include
aircraft ownership cost, passenger liability and hull insurance, aircraft
property taxes, fuel, landing fees and catering. All revenue recognized under
these contracts is presented at the gross amount billed for reimbursement
pursuant to Emerging Issues Tax Force Issue (“EITF”) No. 99-19  Reporting Revenue Gross as a
Principal versus Net as an Agent.
 
 Under the
Company’s code-share agreements, the Company is reimbursed an amount per
aircraft designed to compensate the Company for certain aircraft ownership
costs. In accordance with EITF No. 01-08, Determining Whether an Arrangement
Contains a Lease, the Company has concluded that a component of its
revenue under the agreement discussed above is rental income, inasmuch as the
agreement identifies the “right of use” of a specific type and number of
aircraft over a stated period of time. The amount deemed to be rental income
during fiscal 2008, 2007 and 2006 was $348,416, $310,250 and $258,600,
respectively, and has been included in regional airline services revenue on the
Company’s consolidated statements of income.
 
 The
Company recognizes lease revenue for subleases of six E145 aircraft subleased to
an airline in Mexico under operating leases which expire in 2013 and 2015. In
addition, the Company recognizes license revenue from US Airways for commuter
slots that were purchased by the Company in 2005 and were utilized by US Airways
through 2006 for the New York LaGuardia commuter slots, and through 2016 for the
Ronald Reagan Washington National commuter slots. Revenues from subleases and
the commuter slots are recognized when earned over time and included in other
operating revenue.
 
 The
Company records any tax assessed by a governmental authority that is directly
imposed on a revenue-producing transaction between the Company and its customers
on a net basis.  These taxes are currently not material to the
Company’s consolidated financial statements.
 
 Warrants—Warrants
issued to non-employees and Partners are accounted for at fair value on the
measurement date as deferred charges and credits to stockholders’ equity.
Warrants surrendered in a non-monetary transaction are recorded at fair value on
the measurement date as reductions to deferred charges and stockholders’ equity.
The deferred charges for warrants were amortized as a reduction of regional
airline services revenue over the terms of the code-share
agreements.
 
 In March
2007, the Company amended its agreements with Delta and  in return for
these amended terms, Delta agreed to surrender its warrants for 3,435,000 shares
of the Company’s common stock, and the Company was granted a pre-petitioned,
unsecured, general claim in the amount of $91,000 in Delta's Chapter 11
bankruptcy case. In April 2007, the Company sold the $91,000 pre-petition claim
to a third party for $44,590 in cash. As a result of the Delta amendment,
the Company recorded deferred revenue of $44,590, which represented the net
realizable value of the pre-petition claim on the approval date by the
Bankruptcy Court. In addition, the Company recorded deferred revenue on the
surrender of the warrants from Delta of $42,735, which was net of the previously
recorded unamortized deferred charge of $6,369. Stockholders' equity was reduced
by $32,892, net of tax, resulting from the surrender of the warrants and their
retirement. The deferred revenue for the proceeds of the pre-petition claim
and the gain on the surrender of the warrants totaling $87,325 will be amortized
as an adjustment to revenue over the term of the agreements with
Delta.
 Net Income per
Common Shareis based on the weighted average number of shares
outstanding during the period.
 -40-
 The
following is a reconciliation of the weighted average common shares for the
basic and diluted per share computations:
 
 For
      the Years Ended December 31,2008
              
              2007
              
              2006Weighted-average
      common shares outstanding for basic net income per common
      share
              
              
              34,855,190
              
              
              40,350,256
              
              
              42,149,668Effect
      of dilutive employee stock options and warrants
              
              
              93,962
              
              
              695,388
              
              
              1,466,278Adjusted
      weighted-average common shares outstanding and assumed conversions for
      diluted net income per common share
              
              
              34,949,152
              
              
              41,045,644
              
              
              43,615,946
 
 Employee
stock options of 3,451,000 and 1,366,000 were not included in the calculation of
diluted net income per common share due to their anti-dilutive impact for the
year ended December 31, 2008 and 2007, respectively. For the year ended
December 31, 2006, all of the employee stock options and warrants were included
in the calculation of the dilutive net income per common share.
 Fair Value of
Financial Instruments—The carrying amounts reported in the consolidated
balance sheets for receivables, notes receivable, and accounts payable
approximate fair values because of their immediate or short-term maturity of
these financial instruments.
 
 Segment
Information—The Company has one reportable operating segment for the
scheduled transportation of passengers and air freight under code-share
agreements.
  New Accounting
Standards—In March 2008, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 161, Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No. 133
(SFAS 161).  SFAS 161 requires qualitative disclosures about
objectives and strategies for using derivatives, quantitative disclosures about
fair value amounts of and gains and losses on derivative instruments, and
disclosures about credit-risk-related contingent features in derivative
agreements.  SFAS 161 also requires entities to disclose additional
information about the amounts and location of derivatives located within the
financial statements, how the provisions of SFAS 133 has been applied, and the
impact that hedges have on an entity’s financial position, financial
performance, and cash flows.  SFAS 161 is effective for fiscal years
and interim periods beginning after November 15, 2008, with early application
encouraged.  The Company does not believe the adoption of SFAS 161
will have a material impact to its financial position, results of operations,
and cash flows, however, additional disclosures may be required to the
footnotes.
 
 3.
NOTES RECEIVABLE
 
 At
December 31, 2008, notes receivable consisted of the following:
 
 2008Note
      receivable from Midwest
              
              $
              24,776Note
      receivable from Frontier, including interest of $821
              
              
              13,321Note
      receivable from US Airways, including interest of $181
              
              
              10,181Note
      receivable from Mokulele, including interest of $86
              
              
              7,616Total
      notes receivable
              
              
              55,894Less
      valuation allowance on notes receivable
              
              
              (1,500
              )Notes
      receivable—net of allowance
              
              $
              54,394
  In August
2008, the Company in participation with two other creditors provided Frontier a
debtor-in-possession (DIP) financing commitment of $30,000. The Company funded
its portion of this commitment of $12,500 in August 2008. The note is
collateralized by certain assets of Frontier and bears interest at 16%. The note
matures in April 2009 (see subsequent events at Note 16.)
 In
September 2008, the Company entered into an amended and restated senior secured
credit agreement with Midwest.  Under the agreement, the Company made
a one year term loan to Midwest in the amount of $25,000, with interest at
10.25% which is payable monthly.  The loan is collateralized by
substantially all of Midwest’s unencumbered assets and is generally senior
to the unsecured lenders’ security positions to the extent of such
collateral.  The note matures in October 2009.
 
 In
October 2008, the Company entered into a credit agreement with US
Airways.  Under the agreement, we agreed to make a term loan to US
Airways in the amount of $10,000, with interest at LIBOR plus a margin, which is
payable quarterly.  The principal is due in October
2009.  Subject to certain terms and conditions, we also agreed to make
an additional term loan of up to $25,000 in March 2009 and if drawn by US
Airways would extend the maturity date to October 2011, and require periodic
quarterly principal payments beginning in October 2009 of $4,375 plus accrued
interest through the maturity date.
 
 In
October 2008, the Company entered into a loan agreement with Mokulele under
which we are providing up to $8,000, with an interest rate of 10%, which is
payable monthly.  The loan agreement was provided to Mokulele in the
form of a revolving line of credit, which can be converted at the Company’s
option, to as much as 45% of the common stock of Mokulele.  The loan
is collateralized by all of Mokulele’s unencumbered assets and a pledge of the
equity holdings of Mokulele’s majority shareholders.  The loan matures
in October 2010.  Mokulele
is currently in default of its loan and code-share agreement. We are negotiating
with Mokulele the terms of a possible recapitalization of Mokulele, but there
can be no assurance that Mokulele will be recapitalized. As a part of these
negotiations, we are contemplating converting $3,000 of our loan and injecting
$3,000 of cash in exchange for 50% of Mokulele's common stock. Even if this
recapitalization is completed, Mokulele could require additional funding, part
or all of which may come from us. If the business environment does not improve
for Mokulele, our financial condition, results of operations and liquidity could
be adversely affected.
  Due to
the uncertainty of whether or not the Company would receive value equal to the
carrying value of the Mokulele note, the Company recorded a valuation allowance
of $1,500 in December 2008.  The valuation allowance was determined
based estimated fairvalue of the collateral, if the Company exercised its rights under the
loan agreement.
  -41-
  4.
ASSETS HELD FOR SALE
 
 At
December 31, 2008, the Company had nine E135 aircraft classified as held for
sale.  Eight of these aircraft are under an agreement to be
sold.  The Company classified all of the debt associated with these
aircraft of $65,376 within current portion of long-term debt in the consolidated
balance sheets.  The Company expects these aircraft to be sold
throughout the first half of 2009.
 
 5.
AIRCRAFT AND OTHER EQUIPMENT
 
 Aircraft
and other equipment, excluding aircraft held for sale in 2008, consist of
the following as of December 31:
 
 2008
              
              
              2007Aircraft
              
              $
              2,936,311
              
              
              $
              2,498,306Flight
      equipment
              
              
              134,459
              
              
              
              104,475Office
      equipment and leasehold improvements
              
              
              24,866
              
              
              
              21,393Total
      aircraft and other equipment
              
              
              3,095,636
              
              
              
              2,624,174Less
      accumulated depreciation and amortization
              
              
              (403,226
              )
              
              
              (315,448
              )Aircraft
      and other equipment—net
              
              $
              2,692,410
              
              
              $
              2,308,726
 
 Aircraft,
other equipment and slot depreciation and amortization expense for the years
ended December 31, 2008, 2007 and 2006 was $133,206, $106,594 and $92,228,
respectively.
 
 6.
INTANGIBLE AND OTHER ASSETS
 
 Intangible
and other assets consist of the following as of December 31:
 2008
              
              
              2007Prepaid
      aircraft rent
              
              $
              37,372
              
              
              $
              32,077Aircraft
      parts receivable
              
              
              18,447
              
              
              
              13,800Aircraft
      deposits
              
              
              15,118
              
              
              
              65,382Debt
      issue costs, net
              
              
              22,374
              
              
              
              22,271Commuter
      slots, net
              
              
              46,276
              
              
              
              46,664Other
              
              
              20,510
              
              
              
              17,146Intangible
      and other assets—net
              
              $
              160,097
              
              
              $
              197,340
 
 The
Company purchased commuter slots at
Ronald Reagan Washington National Airport (“DCA”) and New
York LaGuardia Airport (“LGA”) in 2005 from US Airways. The licensing
agreement with the Company and US Airways for the LGA commuter slots expired on
December 31, 2006, but we maintain a security interest in the LGA slots if US
Airways fails to perform under the current licensing agreement. The LGA commuter
slots were amortized over a 15 month life ending December 31, 2006, and the DCA
commuter slots are amortized on a straight line basis over a 25 year expected
life to an estimated residual value. Amortization was approximately $388, $388
and $3,671 in 2008, 2007 and 2006, respectively.  The Company assigned the
right of use for these commuter slots to US Airways which will continue to be
operated by US Airways Express carriers until the expiration or termination of
the amended and restated Chautauqua Jet Service Agreement (“JSA”) dated as of
April 26, 2005 between US Airways and Chautauqua or the Republic JSA, whichever
is later, at an agreed rate. Prior to the expiration of the agreement to license
the commuter slots, US Airways has the right to repurchase all, but not less
than all, of the DCA commuter slots at a predetermined price.
 
  -42-
 7.
ACCRUED LIABILITIES
 
 Accrued
liabilities consist of the following as of December 31:
  2008
              
              
              2007Accrued
      wages, benefits and related taxes
              
              $
              14,971
              
              
              $
              16,061Accrued
      maintenance
              
              
              29,823
              
              
              
              28,244Accrued
      property taxes
              
              
              9,250
              
              
              
              5,706Accrued
      interest payable
              
              
              19,054
              
              
              
              13,661Accrued
      liabilities to Partners
              
              
              9,506
              
              
              
              9,766Deferred
      revenue
              
              
              16,495
              
              
              
              11,422Accrued
      aircraft rent
              
              
              106
              
              
              
              2,747Accrued
      landing fees
              
              
              5,592
              
              
              
              7,079Accrued
      pilot training
              
              
              930
              
              
              
              4,582Accrued
      aircraft return costs
              
              
              7,266
              
              
              
              —Other
              
              
              13,749
              
              
              
              10,524Total
      accrued liabilities
              
              $
              126,742
              
              
              $
              109,792
 
 8.
DEBT
 
 Debt
consists of the following as of December 31:
 
 2008
              
              
              2007Revolving
      credit facility with Bank of America Business Capital (the “Bank”),
      maximum of $15,000 available (including outstanding letters of credit),
      subject to 30% of the net book value of spare rotable parts and 15% of the
      net book value of spare non-rotable parts and inventory. Interest is
      payable monthly at the bank’s LIBOR rate plus spreads ranging from 2.50%
      to 2.75% or the Bank’s base rate (which is generally equivalent to the
      prime rate) plus spreads ranging from 0.50% to 0.75%. Fees are payable at
      0.375% on the unused revolver amount. The credit facility expires on March
      31, 2009 and is collateralized by all the Company’s assets, excluding the
      owned aircraft and engines.
              
              $
              —
              
              
              $
              —Promissory
      notes with various banks and aircraft manufacturer, collateralized by
      aircraft, bearing interest at fixed rates ranging from 2.73% to 8.49% with
      semi-annual principal and interest payments totaling $135,054 through
      2023.
              
              
              2,277,845
              
              
              
              1,913,580Total
      debt
              
              
              2,277,845
              
              
              
              1,913,580Current
      portion (including debt related to assets held for sale)
              
              
              196,301
              
              
              
              131,700Long
      term debt, less current portion
              
              $
              2,081,544
              
              
              $
              1,781,880
 
 The
Company has outstanding letters of credit totaling $12,328 and $12,550 as of
December 31, 2008 and 2007, respectively. The American code-share agreement
requires a debt sinking fund for the Company’s required semi-annual
payments.
  The
Company’s revolving credit facility with Bank of America Business Capital has a
liquidity covenant, a specified fixed charge coverage ratio and a debt to
earnings leverage ratio covenant. The Company was in compliance with the
covenants at December 31, 2008.  The credit facility limits the
Company’s ability to incur indebtedness or create or incur liens on its assets. The
Company is currently negotiating with the bank on replacing the existing
facility. If the Company is unable to renew the existing facility or secure a
new facility with a bank, it may require the Company to cash collateralize its
outstanding letters of credit.
  Future
maturities of debt are payable, or expect to be payable as assets held for sale
are sold, as  follows for the years ending December 31:
 
 2009
              
              $
              196,3012010
              
              
              141,2162011
              
              
              150,0172012
              
              
              159,3782013
              
              
              194,831Thereafter
              
              
              1,436,102Total
              
              $
              2,277,845
  During
the year ended December 31, 2008, the Company acquired 26 aircraft through debt
financing totaling approximately $526,200. The debt was obtained from banks and
the aircraft manufacturer for five to fifteen year terms at interest rates
ranging from 2.73% to 6.91%.
 
 The fair
value of a financial instrument is defined as the amount at which the instrument
could be exchanged in an arm's length transaction between knowledgeable, willing
parties. The fair value of long term debt is estimated based on discounting
expected cash flows at the rates currently offered to the Company for debt with
similar remaining maturities and reflective of credit spreads. As of
December 31, 2008 and 2007 respectively, the carrying value of long-term
debt was greater than its fair value by approximately $130,000 and
$112,000.
 -43-
 9.
COMMITMENTS
 
 As of
December 31, 2008, the Company leased 88 aircraft and 22 spare engines with
varying terms extending through 2029 and terminal space, operating facilities
and office equipment with terms extending through 2026 under operating leases.
The components of rent expense for the years ended December 31 are as
follows:
  2008
              
              
              2007
              
              
              2006Aircraft
      and engine rent
              
              $
              134,206
              
              
              $
              124,961
              
              
              $
              94,773Other
              
              
              7,072
              
              
              
              6,008
              
              
              
              5,315Total
      rent expense
              
              $
              141,278
              
              
              $
              130,969
              
              
              $
              100,088
 
 The
Company has long-term maintenance agreements with an avionics equipment
manufacturer and maintenance provider that has a guaranteed minimum annual
flight hour requirement. The minimum guaranteed amount based on the Company's
current operations is $3,975 per year through December 2014 for the E145
family of aircraft and $8,161 per year through December 2014 for the E170 family
of aircraft. The liability for this guarantee is immaterial.
 
 The
Company has long-term maintenance agreements with aviation equipment
manufacturers for the E145 family of aircraft and the CRJ-200 aircraft through
June 2013 and December 2012, respectively. The agreement has a penalty
payment provision if more than twenty percent of the Company's aircraft are
removed from service based on the annual flight activity prior to the date of
removal. The liability for this guarantee is immaterial.
 
 The
Company has long-term maintenance agreements based upon flight activity with
engine manufacturers through February 2010 for the CRJ-200 aircraft, October
2012 for the E145 family of aircraft and through December 2014 for the E170
family of aircraft.
 
 The
Company has long-term maintenance agreements for wheels and brakes through
June 2014 for the E145 family of aircraft and through February 2017 for the
E170 family of aircraft. The agreement has an early termination penalty, if the
Company removes sellers equipment from certain aircraft, sells or leases certain
aircraft to a third party or terminates the services prior to expiration of the
agreement. The liability for this guarantee is immaterial.
 
 The
Company has a long-term agreement to provide, manage and repair certain airframe
components and spare parts on the CRJ-200 aircraft through December
2009. Based on the Company’s projected lease return schedule of the
aircraft, the Company believes it will not meet the minimum requirement for the
remaining term and has recorded a liability of $1,200 as of December 31,
2008.
 Total
payments under these long-term maintenance agreements were $101,872, $76,832 and
$56,070 for the years ended December 31, 2008, 2007 and 2006,
respectively.
  As part
of the Company's lease agreements, the Company typically indemnifies the lessor
of the respective aircraft against liabilities that may arise due to changes in
benefits from tax ownership or tax laws of the respective leased aircraft. The
Company has not recorded a liability for these indemnifications because they are
not estimable. The Company is responsible for all other maintenance costs of its
aircraft and must meet specified return conditions upon lease expiration for
both the air frames and engines. The Company recorded a liability for the return
conditions of $4,263 as of December 31, 2008, for the CRJ-200 aircraft being
returned to the lessor.
 
 Future
minimum payments under non-cancelable operating leases are as follows for the
years ending December 31:
  Aircraft
              
              
              Other
              
              
              Total2009
              
              $
              119,254
              
              
              $
              11,972
              
              
              $
              131,2262010
              
              
              105,648
              
              
              
              11,351
              
              
              
              116,9992011
              
              
              96,860
              
              
              
              11,418
              
              
              
              108,2782012
              
              
              94,354
              
              
              
              11,444
              
              
              
              105,7982013
              
              
              91,671
              
              
              
              11,487
              
              
              
              103,158Thereafter
              
              
              468,854
              
              
              
              63,928
              
              
              
              532,782Total
              
              $
              976,641
              
              
              $
              121,600
              
              
              $
              1,098,241
  As of
December 31, 2008, the Company had firm orders to purchase three E170/175
aircraft all of which are currently allocated to code-share agreements. The
current total list price of the three aircraft is $105,000. The Company has
received commitments from third parties to finance all of these aircraft. During
the year ended December 31, 2008, the Company paid aircraft deposits
totaling $20,884 in accordance with the aircraft commitments. Aircraft deposits
are included in intangible and other assets. The Company also has a commitment
to acquire seven spare aircraft engines with a current list price of
approximately $31,800. These commitments are subject to customary closing
conditions.
 
 The
Company’s firm orders and options with an aircraft manufacturer are shown below
as of December 31, 2008:
  Commitments
      as of December 31, 2008Firm
              
              
              Options
              
              
              TotalAircraft
      Orders with Aircraft Manufacturer:E170/175
              
              
              3
              
              
              
              54
              
              
              
              57
 
 10.
CONTINGENCIES
 
 The
Company is subject to certain legal and administrative actions which management
considers routine to their business activities. As of December 31, 2008,
management believes, after consultation with legal counsel, the ultimate outcome
of any pending legal matters will not have a material adverse effect on the
Company's financial position, liquidity or results of operations.
 
 American
may terminate the code-share agreement without cause upon 180 days notice
on or after September 30, 2011.  If American exercises this right, it is
required to reimburse us for certain costs and the Company and American have
certain "put" and "call" rights with respect to the aircraft we operate for
them.
  If Delta
exercises its partial termination right or if we terminate the code-share
agreement because of Delta's bankruptcy or insolvency, a breach of the agreement
by Delta or because of an event of force majeure has occurred that continues for
at least two consecutive months, we may require Delta to either purchase or
sublease any of the terminated aircraft we own at a specified price or to assume
the lease of any aircraft that we lease. If we choose not to exercise this "put"
right upon any termination by Delta, Delta has the right to require us to sell
or sublease to them the terminated aircraft we own for a specified amount or to
assume the leases of the terminated aircraft that we lease. Delta may also
exercise this "call" right if it terminates the code-share agreement for any of
the reasons set forth above.
 
 United
has a call option to assume our ownership or leasehold interest in certain
aircraft if we wrongfully terminate the code-share agreements or if United
terminates the agreements for our breach of certain reasons.
  As of
December 31, 2008, approximately 74% of the Company's workforce is employed
under union contracts. The union contract for pilots is currently amendable and
the union contract for our flight attendants is amendable in September
2009.
 
 -44-
 11.
CAPITAL STOCK AND STOCK OPTIONS
 
 In March
2007, the Company purchased from WexAir RJET LLC 2,000,000 shares of its
holdings in the Company’s common stock, par value $.001 per share, at a price of
$20.50 per share, for total consideration of $41,000. The transaction was
recorded as treasury stock on the Company’s consolidated balance
sheet.
 
 In August 2007, the Company’s
Board of Directors authorized the purchase of up to $100,000 of the Company’s
common stock.  The buy-back program provided for the shares to be
purchased on the open market or through privately-negotiated transactions from
time-to-time during the twelve month period following the
authorization.  Under the authorization, the timing and amount of
purchase would be based upon market conditions, securities law limitations and
other factors.  The stock buy-back program did not obligate the
Company to acquire any specific number of shares in any period, and could be
modified, suspended, extended or discontinued at any time without prior notice.
The Company purchased 4,994,159 shares of which 4,555,000 were purchased from
WexAir LLC and the remainder were purchased on the open market at a weighted
average stock price of $20.02 for total consideration of $100,000. This
authorization was closed in November 2007.
 
 In
December 2007, the Company’s Board of Directors authorized the purchase of up to
$100,000 of the Company’s common stock for a twelve month period immediately
following the authorization.   As of December 31, 2007, pursuant to
this authorization, the Company purchased 72,735 shares on the open market at a
weighted average stock price of $19.42 for total consideration of $1,412. During
2008, the Company the company repurchased
2,253,039shares for total
consideration of $39,234.The December 2007authorization closed on
December 14, 2008.In addition, the
Company repurchased 12,500 shares of its common stock related to a non-employee
Director’s exercise of vested options for total consideration of
$175.
 Employee
Stock Options and Restricted Stock Grants
  The 2007
Equity Incentive Plan provides for the granting of up to 5,000,000 shares of
which 2,284,000 shares of our common stock remain available for issuance under
the plan  as of December 31, 2008. Stock options granted
typically vest ratably over the term of the employment agreements or between 36
and 48 months and are granted with exercise prices equal to market prices
on the date of grant. The options normally expire ten years from the date of
grant.  Options are typically granted to officers and key employees
selected by the Compensation Committee of the Board of Directors and have
exercise prices ranging from $11.86 to $20.27.
 
 Non-employee Director Stock
Options
  The
Company also granted options for non-employee directors on the day prior to
commencement of the Company’s initial public offering at a price equal to the
fair market value of the common stock on the date of the grant. These options
vested over a 3 year period with 1/24 of the shares vesting monthly for the
first 12 months and 1/48 of the shares vesting monthly over the remaining 24
months. Additionally, non-employee directors receive 2,500 options on the first
trading day after each annual meeting of stockholders at which he or she is
re-elected as a non-employee director. These options vest ratably over 12 months
of continuous service. The non-employee options are exercisable until 10 years
from the date of grant.
 
 The
following table summarizes option activity under the stock option plans as of
December 31, 2008:
 
 Options
              
              
              Weighted
                Average
                Exercise
      Price
              
              
              Aggregate
                Intrinsic
                Value
              
              
              Weighted
                Average
                Contractual
                Term
                (in
      years)Outstanding
      at January 1, 2008
              
              
              2,710,818
              
              
              $
              17.11Granted
              
              
              1,187,000
              
              
              
              12.69Exercised
              
              
              27,650
              
              
              
              11.71Forfeited
              
              
              22,500
              
              
              
              15.69Outstanding
      at December 31, 2008
              
              
              3,847,668
              
              
              $
              15.80
              
              
              $
              (19,720
              )
              
              
              8.48Vested
      or expected to vest at December 31, 2008
              
              
              2,502,403
              
              
              $
              15.25
              
              
              $
              (11,469
              )
              
              
              6.89Exercisable
      at December 31, 2008
              
              
              1,707,752
              
              
              $
              16.24
              
              
              $
              (9,505
              )
              
              
              7.34
  The
intrinsic value of options exercised during the years ended December 31, 2008,
2007 and 2006 was $89, $7,090 and $12,069.
 
 There
were 1,029,995 and 1,199,052 options exercisable at December 31, 2007 and 2006
respectively. The weighted average exercise price for the options exercisable at
December 31, 2007 and 2006 was $14.63 and $11.92. The remaining contractual life
for the options outstanding at December 31, 2007 and 2006 was 7.58 years and
7.60 years, respectively.
 
 During
the years ended December 31, 2008, 2007 and 2006, $3,925 ($2,355 net of tax),
$3,119 ($1,871 net of tax) and $1,297 ($785 net of tax), respectively, was
charged to expense relating to the stock option plans. The Company has a policy
of issuing new common shares to satisfy the exercise of stock options. At
December 31, 2008 there was $13,386 of unrecognized stock-based employee
compensation expense for unvested stock options, and the expected remaining
expense period is 3.1 years. The Company did not recognize excess tax benefits
related to stock option exercises in 2008, 2007 and 2006 since the Company
did not have taxable income in 2008, 2007 and 2006.
 
 The
weighted average grant date fair value of options granted in 2008, 2007 and 2006
was $5.36, $5.30, and $7.62, respectively. The Company estimates the fair value
of stock options issued using the Black-Scholes option pricing model. Expected
volatilities are based on the historical volatility of the Company’s stock and
other factors. The Company uses historical data to estimate option exercises and
employee terminations within the valuation model. Dividends were based on an
estimated dividend yield. The risk-free rates for the periods within the
contractual life of the option are based on the U.S. Treasury rates in effect at
the time of the grant. The forfeiture rate is based on historical information
and managements best estimate of future forfeitures. The expected term of
options granted is derived from historical exercise experience and represents
the period of time the Company expects options granted to be outstanding. Option
valuation models require the input of subjective assumptions including the
expected volatility and lives. Actual values of grants could vary significantly
from the results of the calculations.
 
 The
following assumptions were used to value stock option grants during the
following periods:
 
 December
      31,2008
              
              
              2007
              
              
              2006Dividend
      yield
              
              
              —
              
              
              
              —
              
              
              
              —Expected
      volatility
              
              
              39%-53
              %
              
              
              37%-38
              %
              
              
              38
              %Risk-free
      interest rate
              
              
              1.7%-3.2
              %
              
              
              4.3%-5.1
              %
              
              
              4.5-4.7
              %Expected
      life (in years)
              
              
              4-5
              
              
              
              2-7
              
              
              
              1-4
 
  -45-
  12.
INCOME TAXES
 
 The
components of the provision for income tax expense for the years ended
December 31 are as follows:
 2008
                
                
                2007
                
                
                2006Federal:Current
                
                $
                —
                
                
                $
                —
                
                
                $
                —Deferred
                
                
                46,616
                
                
                
                45,102
                
                
                
                43,171Total
      Federal
                
                
                46,616
                
                
                
                45,102
                
                
                
                43,171State:Current
                
                
                2,092
                
                
                
                120
                
                
                
                495Deferred
                
                
                1,880
                
                
                
                5,094
                
                
                
                8,233Total State
                
                
                3,972
                
                
                
                5,214
                
                
                
                8,728Valuation
      allowance
                
                
                1,404
                
                
                
                —
                
                
                
                —Expense
      for uncertain tax positions (FIN 48)
                
                
                843
                
                
                
                894
                
                
                
                —Income
      tax expense
                
                $
                52,835
                
                
                $
                51,210
                
                
                $
                51,899
 A
reconciliation of income tax expense at the applicable federal statutory income
tax rate to the tax provision as reported for the years ended December 31
are as follows:
  2008
              
              
              2007
              
              
              2006Federal
      income tax expense at statutory rate
              
              $
              48,095
              
              
              $
              46,799
              
              
              $
              45,993State
      income tax expense, net of federal benefit
              
              
              2,569
              
              
              
              3,489
              
              
              
              5,673Other
              
              
              2,171
              
              
              
              922
              
              
              
              233Income
      tax expense
              
              $
              52,835
              
              
              $
              51,210
              
              
              $
              51,899
  The
components of deferred tax assets and liabilities as of December 31 are as
follows:
 
 2008
                
                
                2007DEFERRED
      TAX ASSETSCurrent:Nondeductible
      reserves and accruals
                
                $
                7,406
                
                
                $
                7,510Total
      current deferred tax assets
                
                $
                7,406
                
                
                $
                7,510Noncurrent:Nondeductible
      accruals and deferred revenue
                
                $
                42,301
                
                
                $
                30,561Deferred
      gain on Delta warrant
                
                
                16,794
                
                
                
                14,147Net
      operating loss carryforward, net of liability for uncertain tax positions
      (FIN 48)
                
                
                165,977
                
                
                
                152,806Prepaid
      rent
                
                
                18,094
                
                
                
                20,867Other
                
                
                8,584
                
                
                
                7,170Deferred
      credits and sale leaseback gain
                
                
                9,771
                
                
                
                10,474Total
                
                
                261,521
                
                
                
                236,025Valuation
      allowance
                
                
                (9,523
                )
                
                
                (8,119
                )Total
      noncurrent deferred tax assets
                
                
                251,998
                
                
                
                227,906DEFERRED
      TAX LIABILITIESNoncurrent:Slot
      amortization
                
                
                (5,604
                )
                
                
                (3,880
                )Accelerated
      depreciation and fixed asset basis differences for tax purposes
                
                
                (480,222
                )
                
                
                (408,330
                )Total
      noncurrent deferred tax liabilities
                
                
                (485,826
                )
                
                
                (412,210
                )Total
      net noncurrent deferred tax liabilities
                
                $
                (233,828
                )
                
                $
                (184,304
                )
 The
Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes – An Interpretation of FASB 109(FIN 48) on January 1,
2007.  The total amount of unrecognized tax benefits as of the date of
the adoption was $3,515, of which the Company had previously recorded $1,148 for
income tax contingencies prior to adoption.  Accordingly, the Company
recognized a $2,367 increase in the liability for the unrecognized tax benefits
which was accounted for as a reduction to retained earnings and an increase to
deferred tax liability.  During the year ended December 31, 2008 and
2007, the Company recognized approximately $843 and $894 additional tax expense
for unrecognized tax benefits.  All of the unrecognized tax benefits
as of December 31, 2008, if recognized, would affect the effective tax
rate.  The Company monitors ongoing tax cases related to its
unrecognized tax benefits.  If an unfavorable tax case judgment is
rendered, the Company may increase its tax liability for the unrecognized tax
benefits by as much as $1,650.  In addition, the tax years 2001
through 2005 are currently open and could potentially be adjusted due to an
ongoing Internal Revenue Service audit of the Company. Any adjustments could
potentially increase or decrease the Company's net operating loss and change the
FIN 48 liability. It is expected that the audit will be completed during 2009
and the Company’s 2006 through 2008 tax years would remain subject to
examination by major tax jurisdictions due to our net operating loss
carryforwards.
  -46-
 The
following table reconciles the Company’s tax liability for uncertain tax
positions for the year ended December 31:
  2008
                
                
                2007Balance
      at January 1,
                
                $
                4,409
                
                
                $
                3,515Additions
      based on tax positions taken in current year
                
                
                843
                
                
                
                894Additions
      for tax positions taken in prior years
                
                
                —
                
                
                
                —Reductions
      for tax positions of prior years
                
                
                —
                
                
                
                —Settlements
      with tax authorities
                
                
                —
                
                
                
                —Balance
      at December 31,
                
                $
                5,252
                
                
                $
                4,409
 Deferred
tax assets include benefits expected to be realized from the utilization of
alternative minimum tax credit carry forwards of $1,128, which do not expire,
and net operating loss carry forwards totaling $497,244, which begin expiring in
2021. Approximately $397,640 of the net operating loss carry forwards are
limited under Internal Revenue Code Section 382, and approximately $20,965 of
net operating losses and other carry forwards are not expected to be
realized prior to expiration, and therefore, a valuation allowance has been
recorded of $9,523, a change of $1,404 during 2008.
 13.
BENEFIT PLAN—401(k)
 
 Republic
has a defined contribution retirement plan covering substantially all eligible
employees. The Company matches up to 6% of eligible employees' wages. Employees
are generally vested in matching contributions after three years of service with
the Company. Employees are also permitted to make pre-tax contributions of up to
90% (up to the annual Internal Revenue Code limit) and after-tax contributions
of up to 10% of their annual compensation. The Company's expense under this plan
was $3,190, $2,941, and $2,266 for the years ended December 31, 2008, 2007
and 2006, respectively.
 
 14.
GOODWILL
  SFAS No.
142, Goodwill and Other
Intangible Assets, requires that goodwill be tested for impairment at the
reporting unit level on an annual basis and between annual tests if a triggering
event occurs or circumstances change that would more likely than not reduce the
fair value of the reporting unit below its carrying value.  Goodwill
represents the excess of the purchase price over the assets acquired and
liabilities assumed from the push-down accounting in May 1998.  The
Company has one reporting unit and all of the goodwill of $13,335 is assigned to
that unit.
 
 In
assessing the recoverability of goodwill, the Company makes a determination of
the fair value of its business.  Fair value is determined using a
combination of an income approach, which estimates fair value based upon
projections of future revenues, expenses, and cash flows discounted to their
present value, and a market approach, which estimates fair value using market
multiples of various financial measures compared to a set of comparable public
companies in the regional airline industry.  An impairment loss will
generally be recognized when the carrying amount of the net assets of the
business exceeds its estimated fair value.
 
 The
valuation methodology and underlying financial information included in the
Company’s determination of fair value require significant judgments to be made
by management.  These judgments include, but are not limited to,
market valuation comparisons to similar airlines, long term projections of
future financial performance and the selection of appropriate discount rates
used to determine the present value of future cash flows.  Changes in
such estimates or the application of alternative assumptions could produce
significantly different results.
 
 During
the second and third quarter of 2008, the Company performed an interim test of
its goodwill.  Factors deemed by management to have collectively
constituted a potential triggering event included record high fuel prices, a
softening US economy and the differences between market capitalization of our
stock as compared to the book value of equity.  As of December 31,
2008, the Company performed its annual assessment of the recoverability of its
goodwill.  As a result of these assessments, no impairment was
indicated.
 As of
December 31, 2008, the Company’s market capitalization was approximately
$367,600 as compared to its book value of approximately $475,900. For the period
subsequent to December 31, 2008, through the filing date of this Form 10-K, the
Company's market capitalization declined by an additional 55% and continues to
be well below book value. Due to the continued recessionary economic
environment, as well as other uncertainties, the Company may be required to
record an impairment charge as early as the first quarter of 2009. The Company
will continue to monitor circumstances and events in future periods to determine
whether additional goodwill impairment testing is warranted.
 15.
VALUATION AND QUALIFYING ACCOUNTS
 
 Description
              
              Balance
      at
                Beginning
                Of
      Year
              
              
              Additions
                Charged
      to
                Expense
              
              
              Deductions
      (1)
              
              
              Balance
      at
                End
                of
      YearAllowance
      for doubtful accounts receivables:December
      31, 2008
              
              $
              897
              
              
              $
              1,333
              
              
              $
              (176
              )
              
              $
              2,054December
      31, 2007
              
              
              340
              
              
              
              607
              
              
              
              (50
              )
              
              
              897December
      31, 2006
              
              
              343
              
              
              
              —
              
              
              
              (3
              )
              
              
              340
 
 Valuation
      allowance on notes receivable:December
      31, 2008
              
              $
              —
              
              
              $
              1,500
              
              
              $
              —
              
              
              $
              1,500
 
 (1)
              Uncollectible
      accounts written off net of recoveries, if
any.
  -47-
 16.
SUBSEQUENT EVENTS
 
 On March
5, 2009, we agreed to a firm commitment for $40,000 in post-petition
debtor-in-possession (DIP) financing to Frontier.  This new DIP
facility refinances the existing DIP loan that matures in April
2009.  The DIP facility is subject to approval by the United States
Bankruptcy Court for the Southern District of New York and other pre-closing
conditions.  Frontier and its subsidiaries filed voluntary petitions
for reorganization under Chapter 11 of the U.S. Bankruptcy Code on April 10,
2008.  As a condition to the loan, Frontier has agreed to allow the
Company’s damage claim in the amount of $150,000 arising out of Frontier’s
rejection of the Airline Services Agreement, dated January 11,
2007.
    As of
December 31, 2008, the Company’s market capitalization was approximately
$367,600 as compared to its book value of approximately $475,900. For the period
subsequent to December 31, 2008, through the filing date of this Form 10-K, the
Company's market capitalization declined by an additional 55% and continues to
be well below book value. Due to the continued recessionary economic
environment, as well as other uncertainties, the Company may be required to
record an impairment charge as early as the first quarter of 2009. The Company
will continue to monitor circumstances and events in future periods to determine
whether additional goodwill impairment testing is
warranted.
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
  Not Applicable
  ITEM 9A. CONTROLS AND PROCEDURES
  Evaluation
of Disclosure Controls and Procedures.
  We
maintain "disclosure controls and procedures", as such term is defined under
Securities Exchange Act Rule 13a-15(e), that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms, and that such information is accumulated and communicated
to our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosures. In designing and evaluating the disclosure controls and procedures,
our management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives and our management necessarily was required to apply
its judgment in evaluating the cost-benefit relationship of possible controls
and procedures. We have carried out an evaluation, as of the end of the period
covered by this report, under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and
procedures. Based upon their evaluation and subject to the foregoing, the Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective in ensuring that material information
relating to us is made known to the Chief Executive Officer and Chief Financial
Officer by others within the Company during the period in which this
report was being prepared.
  Management’s
Annual Report on Internal Control Over Financial Reporting
  Management
is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act of 1934. Our internal control over financial
reporting is designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposed in accordance with accounting principles generally accepted in the
United States of America.
  Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies may deteriorate.
  Under the
supervision and with the participation of the Company’s Chief Executive Officer
and Chief Financial Officer, the Company’s management conducted an evaluation of
the effectiveness of our internal control over financial reporting as of
December 31, 2008 using the criteria issued by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control-Integrated
Framework. Based on that evaluation, the Company’s management concluded
that our internal control over financial reporting was effective as of December
31, 2008.
  The
Company's effectiveness of our internal control over financial reporting as of
December 31, 2008 has been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, which also audited our
Consolidated Financial Statements. Deloitte & Touche LLP’s report on the
Company's effectiveness of internal control over financial reporting appears on
page33herein.
  ITEM 9B. OTHER INFORMATION
  Not
applicable.
 
 -48-
 PART
III
  ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
 
 Directors
 
 The
information set forth under the caption "Proposal No. 1—Election of
Directors" in the Company's definitive Proxy Statement to be used in connection
with the 2009 Annual Meeting of Stockholders is incorporated herein by
reference.
  Executive
Officers
 
 See
"Part I—Executive Officers of the Company."
  Code
of Ethics
  We have
adopted a Code of Ethics within the meaning of Item 406(b) of SEC Regulation
S-K. This Code of Ethics applies to our principal executive officer, principal
financial officer and principal accounting officer. This Code of Ethics is
publicly available on our website at www.rjet.com. If we make
substantive amendments to this Code of Ethics or grant any waiver, including any
implicit waiver, we will disclose the nature of such amendment or waiver on our
website or in a report on Form 8-K within four days of such amendment or
waiver.
 
 Section
16(a) Beneficial Ownership Reporting Compliance
  Section
16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
requires the Company’s executive officers and directors, and persons who
beneficially own more than ten percent of the Company’s common stock, to file
initial reports of ownership and reports of changes in ownership with the SEC
and the National Association of Securities Dealers, Inc. Executive officers,
directors, and greater than ten percent beneficial owners are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file. Based upon a review of the copies of such forms furnished to the Company
and written representations from the Company’s executive officers, directors and
greater, we believe that during fiscal  2008 all Section 16(a) filing
requirements applicable to its executive officers, directors and greater than
ten percent beneficial owners were complied with except for one late filing with
respect to one transaction by each of Lawrence J. Cohen, Douglas J. Lambert,
Mark E. Landesman and Mark L. Plaumann.
  Corporate
Governance
  The
information set forth under the caption "Corporate Governance" in the Company's
definitive Proxy Statement to be used in connection with the 2009 Annual Meeting
of Shareholders is incorporated herein by reference.
  ITEM 11. EXECUTIVE COMPENSATION
 
 The
information set forth under the caption "Executive Compensation" in the
Company's definitive Proxy Statement to be used in connection with the 2009
Annual Meeting of Stockholders is incorporated herein by
reference.
 
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
  The
information set forth under the caption "Beneficial Ownership of Common Stock by
Certain Stockholders and Management" in the Company's definitive Proxy Statement
to be used in connection with the 2009 Annual Meeting of Stockholders is
incorporated herein by reference.
  ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
  The
information set forth under the captions "Compensation Committee Interlocks and
Insider Participation" and "Certain Relationships and Related Transactions" in
the Company's definitive Proxy Statement to be used in connection with the 2009
Annual Meeting of Stockholders is incorporated herein by reference.
 
 
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
 
 The
information set forth under "Audit Matters" in the Company's definitive proxy
statement to be used in connection with the 2009 Annual Meeting of Stockholders
is incorporated herein by reference.
 
 -49-
  
 PART
IV
  ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES
  (a)  Documents filed as part of this
report:
  Report of
Independent Registered Public Accounting Firm, Financial
Statements: Consolidated Balance Sheets as of December 31, 2008 and 2007,
Consolidated Statements of Income for the years ended December 31, 2008, 2007
and 2006, Consolidated Statements of Cash Flows for the years ended December 31,
2008, 2007 and 2006, Consolidated Statements of Stockholders’ Equity and
Comprehensive Income for the years ended December 31, 2008, 2007 and 2006 and
Notes to Consolidated Financial Statements.
  (b)  Exhibits
 
 Exhibit
                No.
              Description1.1
              Form
      of Purchase Agreement.(viii)3.1
              Amended
      and Restated Certificate of Incorporation.(i)3.2
              Amended
      and Restated Bylaws.(xxxi)4.1
              Specimen
      Stock Certificate.(i)10.1
              2002
      Equity Incentive Plan.(xxv)10.1(a)
              Restricted
      Stock Agreement.(xxi)10.1(b)
              2007
      Equity Incentive Plan.(xxv)10.2
              Form
      of Option Agreement for Non-Employee Directors.(i)10.3
              Form
      of Option Agreement for Officers.(i)10.3(a)
              Stock
      Option Agreement Pursuant to the Republic Airways Holdings Inc. 2002
      Equity Incentive Plan, by and between Republic Airways Holdings Inc. and
      Bryan K. Bedford, dated as of December 27,
2004.(v)10.3(b)
              Stock
      Option Agreement Pursuant to the Republic Airways Holdings Inc. 2002
      Equity Incentive Plan, by and between Republic Airways Holdings Inc. and
      Bryan K. Bedford, dated as of December 27,
2004.(v)10.3(c)
              Stock
      Option Agreement Pursuant to the Republic Airways Holdings Inc. 2002
      Equity Incentive Plan, by and between Republic Airways Holdings Inc. and
      Robert Hal Cooper, dated as of December 27,
  2004.(v)10.3(d)
              Stock
      Option Agreement Pursuant to the Republic Airways Holdings Inc. 2002
      Equity Incentive Plan, by and between Republic Airways Holdings Inc. and
      Robert Hal Cooper, dated as of December 27,
  2004.(v)10.3(e)
              Stock
      Option Agreement Pursuant to the Republic Airways Holdings Inc. 2002
      Equity Incentive Plan, by and between Republic Airways Holdings Inc. and
      Wayne C. Heller, dated as of December 27, 2004.(v)10.3(f)
              Stock
      Option Agreement Pursuant to the Republic Airways Holdings Inc. 2002
      Equity Incentive Plan, by and between Republic Airways Holdings Inc. and
      Wayne C. Heller, dated as of December 27,
  2004.(xxiii)10.4†
              Amended
      and Restated Regional Jet Air Services Agreement, dated as of
      June 12, 2002, by and between AMR Corporation and Chautauqua
      Airlines, Inc.(i)10.4(a)
              Letter
      Agreement between AMR Corporation and Chautauqua Airlines, Inc. dated
      July 30, 2002.(i)10.4(b)†
              Side
      Letter Agreement, dated as of March 26, 2003, by and between AMR
      Corporation and Chautauqua Airlines, Inc.(i)10.4(c)†
              Amendment
      to Amended and Restated Air Services Agreement, by and between AMR
      Corporation and Chautauqua Airlines, Inc., dated as of October 28,
      2003.(i)10.4(d)†
              Amendment
      to the Amended and Rstated Air Services Agreement, by and between AMR
      Corporation and Chautauqua Airlines, Inc., dated as of October 23, 2008.
      (xxxiv)10.5
              Office
      Lease Agreement, by and between College Park Plaza, LLC and Republic
      Airways Holdings Inc., dated as of April 23,
  2004.(i)10.6†
              Chautauqua
      Jet Service Agreement, by and between US Airways, Inc. and Chautauqua
      Airlines, Inc., dated as of March 19, 1999.(i)10.6(a)†
              First
      Amendment to the Chautauqua Jet Service Agreement, by and between US
      Airways, Inc. and Chautauqua Airlines, Inc., dated as of September 6,
      2000.(i)10.6(b)†
              Second
      Amendment to the Chautauqua Jet Service Agreement, by and between US
      Airways, Inc. and Chautauqua Airlines, Inc., dated as of
      September 20, 2000.(i)10.6(c)†
              Third
      Amendment to the Chautauqua Jet Service Agreement, by and between US
      Airways, Inc. and Chautauqua Airlines, Inc., dated as of July 11,
      2001.(i)10.6(d)†
              Fourth
      Amendment to the Chautauqua Jet Service Agreement, by and between US
      Airways, Inc. and Chautauqua Airlines, Inc., dated as of December 18,
      2002.(i)10.6(e)†
              Amended
      and Restated Chautauqua Jet Service Agreement between US Airways,
      Inc. and Chautauqua Airlines, Inc. dated April
      26, 2005.(xiii)10.6(f)†
              First
      Amendment to Amended and Restated Chautauqua Jet Service Agreement, by and
      between US Airways, Inc. and Chautauqua Airlines, Inc., dated as of July
      21, 2006.(xix)10.7
              Agreement
      between Chautauqua Airlines, Inc. and Teamsters Airline Division Local 747
      representing the Pilots of Chautauqua Airlines, dated as of
      October 17, 2003.(i)10.8
              Agreement
      between Chautauqua Airlines, Inc. and the Flight Attendants of Chautauqua
      Airlines, Inc. as represented by the Airline Division, International
      Brotherhood of Teamsters, AFL-CIO, dated as of March 9,
      1999.(i)10.9
              Agreement
      between Chautauqua Airlines, Inc. and the Flight Dispatchers in the employ
      of Chautauqua Airlines, Inc. as represented by Transport Workers Union of
      America, AFL-CIO, dated as of June 1, 2007.(xxvi)10.10
              Agreement
      between Chautauqua Airlines, Inc. and the Passenger and Fleet Service
      Employees in the service of Chautauqua Airlines, Inc. as represented by
      the International Brotherhood of Teamsters, dated as of December 15,
      1999.(i)10.11
              Agreement
      among Republic Airways Holdings Inc., Chautauqua Airlines, Inc. and
      Solitair Corp., dated as of February 12, 2002.(i)10.12†
              EMB-145LR
      Amended and Restated Purchase Agreement Number GCT-025/98, by and between
      Embraer-Empresa Brasileira de Aeronбutica S.A. and Republic Airways
      Holdings Inc., dated as of April 19,
  2002.(i)10.12(a)†
              Partial
      Assignment and Assumption of Purchase Agreement GCT-025/98, by and between
      Republic Airways Holdings Inc. andSolitair Corp., and consented to by
      Embraer-Empresa Brasileira de Aeronбutica S.A.,
      dated as of April 18, 2002.(i)10.12(b)†
              Amendment
      Number 1 to Amended and Restated Purchase Agreement GCT-025/98 between
      Republic Airways Holdings Inc and Embraer-Empresa Brasileira de
      Aeronбutica S.A., dated as of June 7, 2002.(i)10.12(c)†
              Amendment
      Number 2 to Amended and Restated Purchase Agreement GCT-025/98, by and
      between Embraer-Empresa Brasileira de Aeronбutica S.A. and Republic
      Airways Holdings Inc., dated as of July 25,
  2002.(i)10.12(d)†
              Amendment Number 3
      to Amended and Restated Purchase Agreement GCT-025/98, by and
      between Embraer-Empresa Brasileira de Aeronбutica S.A. and Republic
      Airways Holdings Inc., dated as of December 18,
    2002.(i)
  -50-
 10.12(e)†
              Amendment Number 4
      to Amended and Restated Purchase Agreement GCT-025/98, by and
      between Embraer-Empresa Brasileira de Aeronбutica S.A. and Republic
      Airways Holdings Inc., dated as of May 30,
2003.(i)10.12(f)†
              Amendment
      Number 5 to Amended and Restated Purchase Agreement GCT-025/98, by and
      between Embraer-Empresa Brasileira de Aeronбutica
      S.A. and Republic Airways Holdings Inc., dated as of September 30,
      2003.(i)10.12(g)†
              Amendment
      Number 6 to Amended and Restated Purchase Agreement GCT-025/98, by and
      betweenEmbraer-Empresa Brasileira de Aeronбutica S.A. and Republic
      Airways
      Holdings Inc., dated as of October 31,
  2003.(i)10.12(h)†
              Amendment
      Number 7 to Amended and Restated Purchase Agreement GCT-025/98, by and
      between Embraer-Empresa Brasileira de Aeronбutica S.A. and Republic
      Airways Holdings Inc., dated as of December 31,
      2003.(i)10.12(i)†
              Amendment
      Number 8 to Amended and Restated Purchase Agreement GCT-025/98, by and
      between Embraer-Empresa Brasileira de Aeronбutica S.A. and Republic
      Airways Holdings Inc., dated as of February 16,
    2004.(i)10.12(j)†
              Amendment
      Number 9 to Amended and Restated Purchase Agreement GCT-025/98, by
      and between Republic Airways Holdings Inc. and Embraer-Empresa Brasileira
      de Aeronбutica S.A., dated as of May 24,
  2004.(viii)10.12(l)†
              Amendment Number 10
      to Amended and Restated Purchase Agreement GCT-025/98, by and
      between Republic Airways Holdings Inc. and Embraer-Empresa Brasileira de
      Aeronбutica S.A., dated as of January 17,
  2005.(vii)10.12(m)†
              Amendment
      No. 11 to Amended and Restated Purchase Agreement
      GCT-025/98, by and between Embraer-Empresa Brasilicica de Aeronautica S.A.
      and Republic Airways Holdings Inc., dated May
      31, 2005.(xiii)10.13†
              Amended
      and Restated Letter Agreement GCT-026/98, by and between Embraer-Empresa
      Brasileira de Aeronбutica S.A. and Republic Airways Holdings Inc., dated as of
      April 19, 2002.(i)10.13(a)†
              Amendment
      Number 1 to Amended and Restated Letter Agreement GCT-026/98 between
      Republic Airways Holdings Inc and Embraer-Empresa Brasileira de
      Aeronбutica S.A., dated as of June 7, 2002.(i)10.13(b)†
              Amendment
      Number 2 to Amended and Restated Letter Agreement GCT-026/98 between
      Republic Airways Holdings Inc. and Embraer-Empresa Brasileira de
      Aeronбutica S.A., dated as of July 25, 2002.(i)10.13(c)†
              Amendment Number 3
      to Amended and Restated Letter Agreement GCT-026/98 between
      Republic Airways Holdings Inc. and Embraer-Empresa Brasileira de
      Aeronбutica S.A., dated as of August 29, 2002.(i)10.13(d)†
              Amendment
      Number 4 to Amended and Restated Letter Agreement GCT-026/98 between
      Republic Airways Holdings Inc. and Embraer-Empresa
      Brasileira de Aeronбutica S.A., dated as of December 10,
      2002.(i)10.13(e)†
              Amendment
      Number 5 to Amended and Restated Letter Agreement GCT-026/98 between
      Republic Airways Holdings Inc. and Embraer-Empresa Brasileira de
      Aeronбutica S.A.,dated as of
      April 30, 2003.(i)10.13(f)†
              Amendment
      Number 6 to Amended and Restated Letter Agreement GCT-026/98 between
      Republic Airways Holdings Inc. and Embraer-Empresa Brasileira de
      Aeronбutica S.A., dated as of May 30, 2003.(i)10.13(g)†
              Amendment
      Number 7 to Amended and Restated Letter Agreement GCT-026/98
      between Republic Airways Holdings Inc. and Embraer-Empresa Brasileira de
      Aeronбutica S.A., dated as of December 31,
2003.(i)10.13(h)†
              Amendment Number 8
      to Amended and Restated Letter AgreementGCT-026/98 between
      Republic Airways Holdings Inc. and Embraer-Empresa Brasileira de
      Aeronбutica S.A., dated as of March 22, 2004.(i)10.14
              Amended
      and Restated Registration Rights Agreement, dated as of June 7, 2002,
      by and among Republic Airways Holdings Inc., Imprimis Investors, LLC,
      Wexford Spectrum Fund I, L.P., Wexford Offshore Spectrum Fund, Wexford
      Partners Investment Co. LLC, WexAir LLC, and Delta Air Lines,
      Inc.(i)10.15
              Loan
      and Security Agreement, by and between Fleet Capital Corporation and
      Chautauqua Airlines, Inc., dated as of December 9,
      1998.(i)10.16
              Consolidated
      Amendment No. 1 to Loan and Security Agreement, by and between Fleet
      Capital Corporation and Chautauqua Airlines, Inc., dated as of
      March 27, 2002.(i)10.16(a)†
              Amendment
      No. 3 to Loan and Security Agreement, by and between Fleet Capital
      Corporation and Chautauqua Airlines, Inc., dated as of October 30,
      2003.(i)10.16(b)
              Amendment
      No. 4 to Loan and Security Agreement, by and between Fleet Capital
      Corporation and Chautauqua Airlines, Inc., dated as of January 9,
      2004.(i)10.16(c)
              Amendment
      No. 8 to Loan and Security Agreement, by and between Bank of America, N.A.
      (successor by assignment to Fleet Capital Corporation) and Chautauqua
      Airlines, Inc., dated as of November 2, 2005.(xvi)10.16(d)
              Amendment
      No. 9 to Loan and Security Agreement, by and between Bank of America, N.A.
      (successor by assignment to Fleet Capital Corporation) and Chautauqua
      Airlines, Inc., dated as of January 12, 2006.(xvii)10.16(e)
              Amendment
      No. 10 to Loan and Security Agreement, by and between Bank of America,
      N.A. (successor by assignment to Fleet Capital Corporation) and Chautauqua
      Airlines, Inc., dated as of March 22, 2006.(xvii)10.16(f)
              Joinder
      and Consolidated Amendment to Loan and Security Agreement, by and among
      Bank of America, N.A., Chautauqua Airlines, Inc., Republic Airways
      Holdings Inc., Republic Airline Inc. and Shuttle America Corporation,
      dated as of May 15, 2006.(xviii)10.16(g)
              Amendment
      No. 2 to Loan and Security Agreement, by and among Bank of America, N.A.
      Chautauqua Airlines, Inc., Republic Airways Holdings Inc., Republic
      Airline Inc. and Shuttle America Corporation, dated as of March 21,
      2007.(xxiv)
  -51-
 10.17
              Amendment
      No. 1 to the Term Note, dated as of March 27, 2002, by and between
      Fleet Capital Corporation and Chautauqua Airlines,
  Inc.(i)10.18
              Lease
      Agreement by and between the Indianapolis Airport Authority and Chautauqua
      Airlines, Inc. dba US Airways Express, dated as of June 17,
      1994.(i)10.18(a)
              First
      Amendment to Office Lease Agreement, by and between the Indianapolis
      Airport Authority and Chautauqua Airlines, Inc., dated as of July 17,
      1998.(i)10.18(b)
              Second
      Amendment to Office Lease Agreement, by and between the Indianapolis
      Airport Authority and Chautauqua Airlines, Inc., dated as of
      October 2, 1998.(i)10.18(c)
              Third
      Amendment to Office Lease Agreement, by and between the Indianapolis
      Airport Authority and Chautauqua Airlines, Inc., dated as of
      November 6, 1998.(i)10.18(d)
              Fourth
      Amendment to Office Lease Agreement, by and between the Indianapolis
      Airport Authority and Chautauqua Airlines, Inc., dated as of
      September 3, 1999.(i)10.19
              Letter
      Agreement by and between the Indianapolis Airport Authority and Chautauqua
      Airlines, Inc., dated as of July 17, 2000, amending Lease Agreement
      for office space.(i)10.20†
              Loan
      Agreement between Chautauqua Airlines, Inc. and Agкncia Especial de
      Financiamento Industrial (FINAME), dated as of December 27, 2001.
      There are fourteen additional Loan Agreements which are substantially
      identical in
      all material respects except as indicated on the
      exhibit.(i)10.21
              Aircraft
      Security Agreement between Chautauqua Airlines, Inc. as Borrower and
      JPMorgan Chase Bank as Security Trustee, dated as of December 27,
      2001. There are fourteen additional Aircraft Security Agreements which are
      substantially identical in all material respects except as indicated on
      the exhibit.(i)
 10.22
              Security
      Agreement Supplement No. 1 between Chautauqua Airlines, Inc. as Borrower
      and JPMorgan Chase Bank as Security Trustee, dated as of January 17,
      2002. There are fourteen additional Security Agreement Supplements No. 1
      which are substantially identical in all material respects except as
      indicated on the exhibit.(i)10.23†
              Securities Account
      Control Agreement among Chautauqua Airlines, Inc. as Debtor,
      AgкnciaEspecial de Financiamento Industrial (FINAME) as Lender, and
      JPMorgan Chase Bank as Securities Intermediary and Security Deposit
      Trustee, dated as of December 27, 2001. There are fourteen additional
      Securities Account Control
      Agreements which are substantially identical in all material respects
      except as indicated on the exhibit.(i)10.24†
              Security Deposit
      Agreement, among Chautauqua Airlines, Inc. as Debtor, Agкncia Especial de
      Financiamento Industrial (FINAME) asLender, and JPMorgan Chase
      Bank as Securities Intermediary and Security Deposit Trustee, dated as of
      December 27, 2001. There are fourteen additional Security Deposit
      Agreements which are substantially identical in all material respects
      except as indicated on the exhibit.(i)10.25†
              Funding
      Agreement between Chautauqua Airlines, Inc. and Agкncia Especial de
      Financiamento Industrial(FINAME), dated as of December 27, 2001.
      There are eleven additional Funding Agreements which are substantially
      identical in all material respects except asindicated on the
      exhibit.(i)10.25(a)†
              First
      Amendment to the Funding Agreement, dated as of June 11, 2002, by and
      between Chautauqua Airlines, Inc. and Agкncia Especial de Financiamento
      Industrial.(i)10.26
              Agreement,
      dated as of June 7, 2002, by and between Republic Airways Holdings
      Inc. and Delta Air Lines, Inc.(i)10.27
              Amendment
      No. 1 to Agreement between Republic Airways Holdings Inc. and Delta Air
      Lines, Inc., dated October 1, 2003.(i)10.28
              Warrant
      to purchase shares of common stock of Republic Airways Holdings Inc.
      issued to Delta Air Lines, Inc., dated as of June 7,
      2002.(i)10.28(a)
              Warrant
      to purchase shares of common stock of Republic Airways Holdings Inc.
      issued to Delta Air Lines, Inc., dated as of February 7,
      2003.(i)10.28(b)
              Warrant
      to purchase shares of common stock of Republic Airways Holdings Inc.
      issued to Delta Air Lines, Inc., dated as of October 1,
      2003.(i)10.28(c)
              Warrant
      to purchase shares of common stock of Republic Airways Holdings Inc.
      issued to Delta Air Lines, Inc., dated as of March 10,
      2004.(i)10.28(d)
              Warrant
      Surrender Agreement, by and between Republic Airways Holdings Inc. and
      Delta Air Lines, Inc., dated as of December 22,
    2004.(iv)10.28(e)
              Form
      of Warrant to Purchase Shares of Common Stock of Republic Airways Holdings
      Inc. issued to Delta Air Lines, Inc., dated as of December 22,
      2004.(iv)10.29
              Form
      of warrant to purchase shares of common stock of Republic Airways Holdings
      Inc. issued to Delta Air Lines, Inc.(i)10.30
              Form
      of warrant to purchase shares of common stock of Republic Airways Holdings
      Inc. issued to Delta Air Lines, Inc.(i)10.31†
              Delta
      Connection Agreement, dated as of June 7, 2002, by and among Delta
      Air Lines, Inc., Chautauqua Airlines, Inc., and Republic Airways Holdings
      Inc.(i)10.31(a)†
              Amendment
      No. 1 to Delta Connection Agreement, dated as of February 7, 2003, by
      and among Delta Air Lines, Inc., Chautauqua Airlines, Inc., and Republic
      Airways Holdings Inc.(i)10.31(b)†
              Amendment
      Number Two to Delta Connection Agreement, dated September 30, 2003,
      by and among Delta Air Lines, Inc., Chautauqua Airlines, Inc. and Republic
      Airways Holdings Inc.(i)10.31(c)†
              Amendment
      Number Three to Delta Connection Agreement, dated March, 2004, by and
      among Delta Air Lines, Inc., Chautauqua Airlines, Inc. and Republic
      Airways Holdings Inc.(i)10.31(d)†
              Amendment
      No. 4 to Delta Connection Agreement by and among Delta Air Lines, Inc.,
      Chautauqua Airlines, Inc. and Republic Airways Holdings Inc., dated as of
      August 12, 2004.(iii)10.31(e)†
              Amendment
      Number Five to Delta Connection Agreement, as amended, among Delta Air
      Lines, Inc., Chautauqua Airlines, Inc. and Republic Airways Holdings Inc.,
      dated as of December 22, 2004.(iv)10.31(f)†
              Amendment
      Number Six to Delta Connection Agreement, by and among Delta Air Lines,
      Inc., Chautauqua Airlines, Inc. and Republic Airways Holdings Inc., dated
      as of March 12, 2007.(xxiii)10.31(g)†
              Letter
      Agreement, by and among Delta Airlines, Inc., Republic Airways Holdings
      Inc., Chautauqua Airlines, Inc. and Shuttle America Corp., dated as of
      July 28, 2008.(xxxiii)10.32
              Amended
      Promissory Note of Republic Airways Holdings Inc. (FKA Wexford Air
      Holdings Inc.) (FKA Wexford III Corp.), dated as of May 14, 2003, in
      favor of WexAir LLC in the principal amount of
      $20,391,996.04.(i)10.33
              Second
      Amended and Restated Employment Agreement by and between Bryan K. Bedford
      and Republic Airways Holdings Inc., dated as of July 1,
      2003.(i)10.33(a)
              Amendment
      No. 1 to Second Amended and Restated Employment Agreement, by and between
      Bryan K. Bedford and Republic Airways Holdings Inc., dated as of
      December 27, 2004.(v)10.33(b)
              Amendment
      No. 2 to Second Amended and Restated Employment Agreement, by and
      between Bryan K. Bedford  and Republic Airways Holdings Inc., dated
      as of February 20, 2007. (xx)10.33(c)
              Amendment
      No. 3 to Second Amended and Restated Employment Agreement, by and between
      Bryan K. Bedford and Republic Airways Holdings Inc., dated as of September
      5, 2007. (xxvii)
 -52-
 10.34
              Second
      Amended and Restated Employment Agreement by and between Robert Cooper and
      Republic Airways Holdings Inc., dated as of August 1,
      2003.(i)10.34(a)
              Amendment
      No. 1 to Second Amended and Restated Employment Agreement, by and between
      Robert Hal Cooper and Republic Airways Holdings Inc., dated as of
      December 27, 2004.(v)10.34(b)
              Amendment
      No. 2 to Second Amended and Restated Employment Agreement, by and
      between Robert Hal Cooper and Republic Airways Holdings Inc., dated as of
      February 20, 2007. (xx)10.34(c)
              Amendment
      No. 3 to Second Amended and Restated Employment Agreement, by and between
      Robert Hal Cooper and Republic Airways Holdings Inc., dated as of
      September 5, 2007.(xxvii)10.35
              Second
      Amended and Restated Employment Agreement by and between Wayne Heller and
      Chautauqua Airlines, Inc., dated as of August 1,
    2003.(i)10.35(a)
              Amendment
      No. 1 to Second Amended and Restated Employment Agreement, by and between
      Wayne C. Heller and Chautauqua Airlines, Inc., dated as of
      December 27, 2004.(v)10.35(b)
              Amendment
      No. 2 to Second Amended and Restated Employment Agreement, by and
      between Wayne C. Heller and Republic Airways Holdings Inc.,
      dated as of February 20, 2007. (xx)10.35(c)
              Amendment
      No. 3 to Second Amended and Restated Employment Agreement, by and between
      Wayne C. Heller and Republic Airways Holdings Inc., dated as of September
      5, 2007. (xxvii)10.36
              Port
      Columbus International Airport Signatory Airline Operating Agreement and
      Lease, dated as of January 1, 2000.(i)10.37
              Office/Shop
      Space Permit by and between Signature Combs and Chautauqua Airlines, Inc.,
      dated as of January 16, 2001.(i)10.38
              Hangar
      and Office Lease by and between AMR Combs, Inc. and Chautauqua Airlines,
      Inc., dated as of December 22,
1998.(i)
 10.39†
              Purchase
      Agreement DCT-014/2004, by and between Empresa Brasileira de Aeronбutica
      S.A. and Republic Airline Inc., dated as of March 19,
      2004.(i)10.39(a)†
              Amendment
      No. 1 to Purchase Agreement DCT-014/2004, by and between Embraer — Empresa
      Brasileira de Aeronбutica S.A.and
      Republic Airline Inc., dated as of April 28,
      2004.(ii)10.39(b)†
              Amendment
      No. 2 to Purchase Agreement DCT-014/2004 between Embraer-Empresa
      Brasileira de Aeronбutica S.A. and Republic Airline Inc., dated as of
      dated July 8, 2004.(iii)10.39(c)†
              Amendment
      No. 3 to Purchase Agreement DCT-014/2004 between Embraer-Empresa
      Brasileira de Aeronбutica S.A. and Republic Airline Inc., dated as of
      July 30, 2004.(iii)10.39(d)†
              Amendment No. 4 to
      Purchase Agreement DCT-014/2004 between Embraer-Empresa Brasileira
      de Aeronбutica S.A. and Republic Airline Inc., dated as of August 11,
      2004.(iii)10.39(e)†
              Amendment
      No. 5 to Purchase Agreement DCT-014/2004 between Embraer-Empresa
      Brasileira de Aeronбutica S.A. and Republic Airline Inc., dated as of
      September 29,
      2004.(iii)10.39(f)†
              Amendment
      No. 6 to Purchase Agreement DCT-014/2004 between Embraer-Empresa
      Brasileira de Aeronбutica S.A. and Republic Airline Inc., dated as of
      November 9, 2004.(viii)10.39(g)†
              Amendment No. 7 to
      Purchase Agreement DCT-014/2004 between Embraer-Empresa Brasileira
      de Aeronбutica S.A. and Republic Airline Inc., dated as of
      December 23, 2004.(viii)10.39(h)†
              Amendment
      No. 8 to Purchase Agreement DCT-014/2004, by and between Embraer—Empresa
      Brasileira de Aeronбutica S.A.and Republic Airline Inc.,
      dated as of February 28, 2005. (x)10.39(i)†
              Amendment
      No. 9 to Purchase Agreement DCT-014/2004, by and between Embraer—Empresa
      Brasileira de Aeronбutica S.A.and Republic Airline Inc., dated as of March
      31, 2005. (x)10.39(j)†
              Amendment
      No. 10 to Purchase Agreement DCT-014/2004, by and between Embraer-Empresa
      Brasilicica de Aeronautica S.A. and Republic Airline Inc., dated as of
      April 30, 2005. (xiii)10.39(k)†
              Amendment
      No. 11 to Purchase Agreement DCT-014/2004, by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline Inc., dated as of
      August 30, 2005. (xv)10.39(l)†
              Amendment
      No. 12 to Purchase Agreement DCT-014/2004, by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline Inc., dated as of
      October 7, 2005.(xvi)10.39(m)†
              Amendment
      No. 13 to Purchase Agreement DCT-014/2004, by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline Inc., dated as of
      October 18, 2005.(xvi)10.39(n)†
              Amendment
      No. 14 to Purchase Agreement DCT-014/2004, by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline Inc., dated as of
      November 9, 2005.(xvi)10.39(o)†
              Amendment
      No. 15 to Purchase Agreement DCT-014/2004, by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline Inc., dated as of
      April 24, 2006.(xviii)10.39(p)†
              Amendment
      No. 16 to Purchase Agreement DCT-014/2004, by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline Inc., dated as of July
      21, 2006.(xix)10.39(q)†
              Amendment
      No. 17 to Purchase Agreement DCT-014/2004, by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline Inc., dated as of
      November 14, 2006.(xxi)10.39(r)†
              Amendment
      No. 18 to Purchase Agreement DCT-014/2004, by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline Inc., dated as of
      January 12, 2007.(xxiv)10.39(s)†
              Amendment
      No. 19 to Purchase Agreement DCT-014/2004 by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline Inc., dated as of June
      22, 2007.(xxvi)10.39(t)††
              Amendment
      No. 20 to Purchase Agreement DCT-014/2004 by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline Inc., dated as of
      October 18, 2007.(xxx)10.39(u)†
              Amendment
      No. 21 to Purchase Agreement DCT-014/2004 by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline Inc., dated as of June
      5, 2008.(xxxiii)10.39(v)†
              Amendment
      No. 22 to Purchase Agreement DCT-014/2004 by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline Inc., dated as of
      September 5, 2008.(xxxiv)10.39(w)††
              Amendment
      No. 23 to Purchase Agreement DCT-014/2004 by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline Inc., dated as of
      November 10, 2008.10.40†
              Letter
      Agreement DCT-015/2004, by and between Republic Airline Inc. and
      Embraer-Empresa Brasileira de Aeronбutica S.A., dated as of March 19,
      2004.(i)10.40(a)†
              Amendment
      No. 1 to Letter Agreement DCT-015/2004, by and between Republic Airline
      Inc. and
      Embraer-Empresa Brasileira de Aeronбutica S.A., dated as of July 8,
      2004.(viii)10.40(b)†
              Amendment
      No. 2 to Letter Agreement DCT-015/2004, by and between Republic Airline
      Inc. and Embraer-Empresa Brasileira de Aeronбutica S.A., dated as of
      December 23,
      2004.(viii)10.40(c)†
              Amendment
      No. 3 to Letter Agreement DCT-015/2004, by and between Embraer—Empresa
      Brasileira de Aeronбutica S.A.and Republic Airline Inc., dated as of
      February 28, 2005.(x)10.40(d)†
              Amendment No. 4 to
      Letter Agreement DCT-015/2004, by and between Embraer—Empresa
      Brasileira de Aeronбutica S.A.and Republic Airline Inc., dated as of April
      13, 2005.(x)
 10.40(e)†
              Amendment
      No. 5 to Letter Agreement DCT-015/2004, by and between
      Embraer-Empresa Brasilicica de Aeronautica S.A. and Republic Airline Inc.,
      dated as of April 30, 2005.(xiii)10.40(f)†
              Amendment
      No. 6 to Letter Agreement DCT-015/2004, by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline, Inc., dated as of
      October 18, 2005.(xvi)10.40(g)†
              Amendment
      No. 7 to Letter Agreement DCT-015/2004, by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline, Inc., dated as of
      November 9, 2005.(xvi)10.40(h)†
              Amendment
      No. 8 to Letter Agreement DCT-015/2004, by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline Inc., dated as of July
      21, 2006.(xix)10.40(i)†
              Amendment
      No. 9 to Letter Agreement DCT-015/2004, by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline Inc., dated as of
      September 19, 2006.(xxi)10.40(j)†
              Amendment
      No. 10 to Letter Agreement DCT-015/2004, by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline Inc., dated as of
      November 14, 2006.(xxi)10.40(k)†
              Amendment
      No. 11 to Letter Agreement DCT-015/2004, by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline inc., dated as of May
      29, 2007.(xxvi)10.40(l)†
              Amendment
      No. 12 to Letter Agreement DCT-015/2004, by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline inc., dated as of June
      22, 2007.(xxvi)10.40(m)††
              Amendment
      No. 13 to Letter Agreement DCT-015/2004, by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline inc., dated as of
      October 18, 2007.(xxx)10.40(n)†
              Amendment
      No. 14 to Letter Agreement DCT-015/2004, by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline inc., dated as of June
      5, 2008.(xxxiii)10.40(o)†
              Amendment
      No. 15 to Letter Agreement DCT-015/2004, by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline inc., dated as of
      September 5, 2008.(xxxiv)10.40(p)††
              Amendment
      No. 16 to Letter Agreement DCT-015/2004, by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline inc., dated as of
      November 10, 2008.10.41†
              United
      Express Agreement, by and between United Air Lines, Inc. and Shuttle
      America Corp., dated as of December 28, 2006.(xxi)10.41(a)††
              First
      Amendment to United Express Agreement, by and between United Air Lines,
      Inc. and Shuttle America Corp., dated as of August 21,
      2007.(xxx)10.42†
              United
      Express Agreement, by and between United Air Lines, Inc. and Chautauqua
      Airlines, Inc., dated as of February 13, 2004.(i)10.42(a)
              Amendment
      No. 1 to United Express Agreement, by and between United Air Lines, Inc.
      and Chautauqua Airlines, Inc., dated as of July 6,
      2004.(ii)10.43†
              Letter
      Agreement, by and between United Air Lines, Inc. and Republic Airways
      Holdings Inc., dated as of February 13, 2004.(i)10.43(a)†
              Letter
      Agreement, by and between United Air Lines, Inc. and Republic Airways
      Holdings Inc., dated as of July 7, 2004.(ii)10.44
              Lease
      Agreement, by and between Chautauqua Airlines, Inc. and the Indianapolis
      Airport Authority, dated as of December 17,
    2004.(viii)10.45†
              Delta
      Connection Agreement, dated as of January 13, 2005, by and among
      Delta Air Lines, Inc., Republic Airline Inc. and Republic Airways Holdings
      Inc.(vi)10.45(a)†
              Amendment
      Number One to Delta Connection Agreement, by and among Delta Air Lines,
      Inc., Shuttle America Corp. (as assignee of Republic Airline Inc.) and
      Republic Airways Holdings Inc., dated as of March 12, 2007.
      (xxiii)10.45(b)††
              Amendment
      Number Two to Delta Connection Agreement, by and among Delta Airlines,
      Inc., Shuttle America Corp. (as assignee of Republic Airline Inc.) and
      Republic Airways Holdings Inc., dated as of August 21,
      2007.(xxx)
 10.45(c)†
              Letter
      Agreement, by and among Delta Airlines, Inc., Republic Airways Holdings
      Inc., Chautauqua Airlines, Inc. and Shuttle America Corp., dated as of
      March 12, 2007.(xxiii)10.46
              Stock
      Purchase Agreement, dated May 6, 2005, by and among Republic Airways
      Holdings, inc., Shuttle America Corporation and Shuttle Acquisition
      LLC.(ix)10.47
              Promissory
      Note in the principal amount of $1,000,000 dated May 6, 2005, made by
      Republic Airways Holdings Inc. payable to Shuttle Acquisition
      LLC.(ix)10.48†
              Investment
      Agreement dated as of March 15, 2005 among Wexford Capital LLC, Republic
      Airways Holdings Inc., US Airways Group, Inc. and US Airways,
      Inc.(x)10.49
              Letter
      dated June 23, 2005 from US Airways Group, Inc. and US Airways,
      Inc.(xi)
  -53-
 10.50
              Amendment
      No. 3 to United Express Agreement between United Airlines, Inc.
      and Republic Airline Inc. and Amendment No. 2 to United Express
      Agreement between United Airlines, Inc. and Chautauqua
      Airlines, Inc. dated as of June 22,
2005.(xii)10.51
              Agreement
      between Chautauqua Airlines, Inc. and the Flight Attendants in the service
      of Chautauqua Airlines, Inc. as represented by the International
      Brotherhood Of Teamsters, AFL-CIO, dated as of September 1,
      2005.(xiv)10.52(a)†
              Republic
      Jet Service Agreement, by and between US Airways, Inc. and Republic
      Airline Inc., dated as of September 2, 2005.(xv)10.52(b)†
              Amendment
      Number One to Republic Jet Service Agreement, by and between US Airways,
      Inc. and Republic Airline Inc., dated as of September 21,
      2005.(xv)10.52(c)†
              Second
      Amendment to Republic Jet Service Agreement, by and between US Airways,
      Inc. and Republic Airline Inc., dated as of July 21,
      2006.(xix)10.52(d)†
              Third
      Amendment to Republic Jet Service Agreement, by and between US Airways,
      Inc. and Republic Airline Inc., dated as of December 19,
      2006.(xxi)10.53†
              Global
      Aircraft Transaction Agreement, by and between Republic Airways
      Holdings Inc. and US Airways, Inc., dated as of September 21,
      2005.(xv)10.54†
              Commuter
      Slot Option Agreement, by and between Republic Airways Holdings Inc. and
      US Airways, Inc., dated as of September 22, 2005.(xv)10.55†
              Capacity
      Purchase Agreement, by and between Continental Airlines, Inc., Republic
      Airways Holdings Inc. and Chautauqua Airlines, Inc., dated as of July 21,
      2006.(xix)10.55(a)†
              First
      Amendment to the Capacity Purchase Agreement, by and among Continental
      Airlines, Inc., Republic Airways Holdings Inc. and Chautauqua Airlines,
      Inc., dated as of January 8, 2007.(xxiv)10.56
              Secured
      Super-Priority Debtor in Posssession Credit Agreement, dated as of August
      4, 2008, among Frontier Airlines Holdings, Inc., Frontier Airlines, Inc.,
      Lynx Aviation, Inc., Wells Fargo Bank Northwest, National Association and
      the lenders signatory thereto.(xxxii)10.57
              Evidence
      of Transfer of Claim by Republic Airways Holdings Inc. in favor of
      JPMorgan Chase Bank, N.A., dated as of April 11,
    2007.(xxiv)10.58
              Stock
      Purchase Agreement, dated as of March 16, 2007, by and between Republic
      Airways Holdings Inc. and WexAir LLC.(xxii)10.59
              Stock
      Purchase Agreement, dated as of September 4, 2007, by and between Republic
      Airways Holdings Inc. and WexAir RJET LLC.(xxvii)10.60
              Stock
      Purchase Agreement, dated as of September 11, 2007, by and between
      Republic Airways Holdings Inc. and WexAir RJET
  LLC.(xxviii)10.61
              Stock
      Purchase Agreement, dated as of October 26, 2007, by and between Republic
      Airways Holdings Inc. and WexAir RJET LLC.(xxix)10.62†
              Airline
      Services Agreement, among Midwest Airlines, Inc., Republic Airline Inc.,
      Midwest Air Group, Inc. (in a limited capacity) and Republic Airways
      Holdings Inc. (in a limited capacity), dated September 3,
      2008.(xxxiv)10.62(a)
              Amended
      and Restated Senior Secured Credit Agreement, among Midwest Airlines,
      Inc., Midwest Air Group, Inc., its subsidiaries, Wells Fargo Bank
      Northwest, National Association and the lenders party thereto, dated as of
      September 3, 2008.10.62(b)
              Amendment
      No. 1 to Amended and Restated Senior Secured Credit Agreement, among
      Midwest Airlines, Inc., Midwest Air Group, Inc., its subsidiaries, Wells
      Fargo Bank Northwest, National Association and the lenders party thereto,
      dated as of October 28, 2008.10.63†
              Airline
      Services Agreement, by and between Shuttle America Corporation and
      Mokulele Flight Service, Inc., dated as of October 8,
    2008.(xxxiv)10.63(a)††
              Loan
      Agreement, among Mokulele Flight Service, Inc., its subsidiaries and
      Republic Airways Holdings Inc., dated as of October 10, 2008.10.64†
              Credit
      Agreement, by and between US Airways, Inc. and Republic Airways Holdings
      Inc., dated as of October 20, 2008.(xxxiv)10.64(a)
              Amendment
      to the Credit Agreement, by and between US Airways, Inc. and Republic
      Airways Holdings Inc., dated as of December 19, 2008.21.1
              Subsidiaries
      of Republic Airways Holdings Inc.(i)23.1
              Consent
      of Deloitte & Touche LLP.31.1
              Certification
      by Bryan K. Bedford pursuant to Exchange Act Rules 13a-14(a) and
      15d-14(a), as adopted pursuant to section 302 of the Sarbanes-Oxley Act of
      2002.31.2
              Certification
      by Robert H. Cooper pursuant to Exchange Act Rules 13a-14(a) and
      15d-14(a), as adopted pursuant to section 302 of the Sarbanes-Oxley Act of
      2002.32.1
              Certification
      by Bryan K. Bedford pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.32.2
              Certification
      by Robert H. Cooper pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.
   -54-
 
 †
              Portions
      of the indicated document have been afforded confidential treatment and
      have been filed separately with the Commission as required by Rule
      406.††
              A
      request for confidential treatment was filed for certain portions of the
      indicated document. Confidential portions have been omitted and filed
      separately with the Commission as required by Rule 406.(i)
              Incorporated
      by reference to the Registrant’s Registration Statement on Form S-1, File
      No. 333-84092, which was declared effective on May 26,
    2004.(ii)
              Incorporated
      by reference to the Registrant’s Quarterly Report on Form 10-Q for the
      quarter ended June 30, 2004.(iii)
              Incorporated
      by reference to the Registrant’s Quarterly Report on Form 10-Q for the
      quarter ended September 30, 2004.(iv)
              Incorporated
      by reference to the Registrant’s Current Report on Form 8-K filed on
      December 29, 2004.(v)
              Incorporated
      by reference to the Registrant’s Current Report on Form 8-K filed on
      December 30, 2004.(vi)
              Incorporated
      by reference to the Registrant’s Current Report on Form 8-K filed on
      January 20, 2005.(vii)
              Incorporated
      by reference to the Registrant’s Current Report on Form 8-K filed on
      January 21, 2005.(viii)
              Incorporated
      by reference to the Registrant’s Registration Statement on Form S-1, File
      No. 333-122033, which was declared effective on February 1,
      2005.(ix)
              Incorporated
      by reference to the Registrant’s Current Report on Form 8-K filed on May
      9, 2005(x)
              Incorporated
      by reference to the Registrant’s Quarterly Report on Form 10-Q for the
      quarter ended March 31, 2005.(xi)
              Incorporated
      by reference to the Registrant’s Current Report on Form 8-K filed on June
      28, 2005.(xii)
              Incorporated
      by reference to the Registrant’s Registration Statement on Form S-3, file
      No. 333-126357, which was declared effective on July 18,
    2005.(xiii)
              Incorporated
      by reference to the Registrant’s Quarterly Report on Form 10-Q for the
      quarter ended June 30, 2005.(xiv)
              Incorporated
      by reference to the Registrant’s Current Report on Form 8-K filed on
      September 7, 2005.(xv)
              Incorporated
      by reference to the Registrant’s Quarterly Report on Form 10-Q for the
      quarter ended September 30, 2005.(xvi)
              Incorporated
      by reference to the Registrant’s Annual Report on Form 10-K for the year
      ended December 31, 2005.(xvii)
              Incorporated
      by reference to the Registrant’s Quarterly Report on Form 10-Q for the
      quarter ended March 31, 2006.(xviii)
              Incorporated
      by reference to the Registrant’s Quarterly Report on Form 10-Q for the
      quarter ended June 30, 2006.(xix)
              Incorporated
      by reference to the Registrant’s Quarterly Report on Form 10-Q for the
      quarter ended September 30, 2006.(xx)
              Incorporated
      by reference to the Registrant’s Current Report on Form 8-K filed on
      February 26, 2007.(xxi)
              Incorporated
      by reference to the Registrant's Annual Report on Form 10-K for the year
      ended December 31, 2006.(xxii)
              Incorporated
      by reference to the Registrant's Current Report on Form 8-K filed on March
      19, 2007.(xxiii)
              Incorporated
      by reference to the Registrant's Current Report on Form 8-K filed on March
      30, 2007.(xxiv)
              Incorporated
      by reference to the Registrant's Quarterly Report on Form 10-Q for
      the quarter ended March 31, 2007.(xxv)
              Incorporated
      by reference to the Registrant's Current Report on Form 8-K filed on June
      8, 2007.(xxvi)
              Incorporated
      by reference to the Registrant's Quarterly Report on Form 10-Q for
      the quarter ended June 30, 2007.(xxvii)
              Incorporated
      by reference to the Registrant's Current Report on Form 8-K filed on
      September 5, 2007.(xxviii)
              Incorporated
      by reference to the Registrant's Current Report on Form 8-K filed on
      September 12, 2007.(xxix)
              Incorporated
      by reference to the Registrant's Current Report on Form 8-K filed on
      October 29, 2007.(xxx)
              Incorporated
      by reference to the Registrant's Quarterly Report on Form 10-Q for
      the quarter ended September 30, 2007.(xxxi)
              Incorporated
      by reference to the Registrant's Current Report on Form 8-K filed on
      December 10, 2007.(xxxii)
              Incorporated
      by reference to the Registrant's Current Report on Form 8-K filed on
      August 7, 2008.(xxxiii)
              Incorporated
      by reference to the Registrant's Quarterly Report on Form 10-Q filed on
      August 11, 2008.(xxxiv)
              Incorporated
      by reference to the Registrant's Quarterly Report on Form 10-Q filed on
      November 4, 2008.
   -55-
  
 SIGNATURES
 
 Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
 
 
 REPUBLIC
      AIRWAYS HOLDINGS INC.(Registrant)Dated:
      March 16, 2009
              By:
      /s/ Bryan K. BedfordBryan
      K. BedfordChairman
      of the Board, Chief Executive Officer and President(principal
      executive officer)
 
 
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
 
  Signature
              Title
              Date/s/
      Bryan K. BedfordBryan
      K. Bedford
              Chairman
      of the Board, Chief Executive Officer and President (Principal Executive
      Officer)
              March
      16, 2009/s/
      Robert H. CooperRobert
      H. Cooper
              Executive
      Vice President and Chief Financial Officer (Principal Financial and
      Accounting Officer)
              March
      16, 2009/s/
      Douglas J. LambertDouglas
      J. Lambert
              Director
              March
      16, 2009/s/
      Lawrence J. CohenLawrence
      J. Cohen
              Director
              March
      16, 2009/s/
      Mark E. LandesmanMark
      E. Landesman
              Director
              March
      16, 2009/s/
      Mark L. PlaumannMark
      L. Plaumann
              Director
              March
      16, 2009
 
  -56-