UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549


__________________





FORM
      10-K





x
            ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934





FOR
      THE
      FISCAL YEAR ENDED DECEMBER 31, 2005


OR


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 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)


(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 whether the registrant is a well-known seasoned issuer as defined
      in Rule 405 of the Securities Act. Yes **o** No **x**




Indicate
      by checkmark if the registrant is not required to file reports pursuant to
      Section 13 or 15(d) of the Act. **o** Yes **x** No





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





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):


Large
                accelerated filer**o**
            Accelerated
                filer**x**
            Non-accelerated
                filer**o**





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Act). Yes **o** No **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 )
      June
      30, 2005


was
      approximately $470,053,000.





Indicate
      the number of shares outstanding of the issuer’s common stock as of the latest
      practicable date: As of February 1, 2006, 41,837,685 shares of common stock
      were
      outstanding.





**DOCUMENTS
                INCORPORATED BY REFERENCE**Portions
                of the registrant’s definitive Proxy Statement to be used in connection
                with its 2006 Annual Meeting of Stockholders areincorporated
                by reference into Part III of this
                report.














**TABLE
      OF CONTENTS**










***Part
                I***Item
                1.
            Business
            4Item
                1A.
            Risk
                Factors
            17Item
                1B.
            Unresolved
                Staff
                Comments
            27Item
                2.
            Properties
            27Item
                3.
            Legal
                Proceedings
            29Item
                4.
            Submission
                of matters to a Vote of Security
                Holders
            29***Part
                II***Item
                5.
            Market
                for Registrant’s Common Stock and Related
                Stockholder Matters and Issuer Purchases
            30Of
                Equity SecuritiesItem
                6.
            Selected
                Financial
                Data
            31Item
                7.
            Management’s
                Discussion and Analysis of Financial
                Condition and Results of Operations
            34Item
                7A.
            Quantitative
                and Qualitative Disclosures About
                Market Risk
            45Item
                8.
            Financial
                Statements and Supplementary
                Data
            46Item
                9.
            Changes
                in and Disagreements with
                Accountants on Accounting and Financial Disclosure
            66Item
                9A.
            Controls
                and Procedures
            66Item
                9B.
            Other
                Information
            66***Part
                III***Item
                10.
            Directors
                and Executive Officers of the
                Registrant
            67Item
                11.
            Executive
                Compensation
            67Item
                12.
            Security
                Ownership of Certain Beneficial
                Owners and Management and Related Stockholder Matters
            67Item
                13.
            Certain
                Relationships and Related
                Transactions
            67Item
                14.
            Principal
                Accountant Fees and
                Services
            67***Part
                IV***Item
                15.
            Exhibits
                and Financial Statements
                Schedules
            68Signatures
            
            74-75EX-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.EX-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 October
              7, 2005.EX-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 October
              18, 2005.EX-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 November 9, 2005.EX-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 October
              18, 2005.EX-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 November
              9, 2005.EX-23.1
            Consent
                of Independent Registered Public Accounting FirmEX-31.1
            Certificationof
                Chief Executive OfficerEX-31.2
            Certificationof
                Chief Financial OfficerEX
                32.1
            Certificationof
                Chief Executive OfficerEX-32.2
            Certificationof
                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 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




Republic
      Airways Holdings Inc., (“the Company”) is a Delaware holding company organized
      in 1996 that operates Chautauqua Airlines, Inc., (“Chautauqua Airlines”),
      Republic Airline Inc. (“Republic Airline”) and Shuttle America Corporation
      (“Shuttle America”). As of December 31, 2005, we offered scheduled
      passenger service on approximately 800 flights daily to 78 cities in 33
      states ,
      Canada
      and the Bahamas pursuant to code-share agreements with AMR Corp., the parent
      of
      American Airlines, Inc. (“American”), US Airways, Inc. (“US Airways”),
      Delta Air Lines, Inc. (“Delta”) and United Air Lines, Inc. (“United”).
      Currently, we provide our four partners with regional jet service, operating
      as
      US Airways Express, AmericanConnection, Delta Connection or United Express,
      including service out of their hubs and focus cities in Boston, Chicago,
      Columbus, Fort Lauderdale, Indianapolis, New York, Orlando, Philadelphia,
      Pittsburgh, Washington, D.C., ( Dulles and National ) and St. Louis.




Chautauqua
      Airlines is our platform for flying the 37 to 50 seat ERJ-145 family of aircraft
      and as of December 31, 2005, operated 95 aircraft. Shuttle America, which we
      acquired from an affiliate on May 6, 2005, is our platform for flying
      70-seat aircraft and as of December 31, 2005, operated 37 ERJ-170 aircraft.
      Republic Airline is our platform for aircraft with more than 70 seats, and
      as of
      December 31, 2005, Republic Airline operated ten 72-seat
      ERJ-170 aircraft for US Airways.




In
      January 2005, the Company and Delta entered into a code-share agreement whereby
      the Company will operate 16 ERJ-170 aircraft for Delta. As of December 31,
      2005, nine of these aircraft have been placed into service.





On
      June
      22, 2005, the Company amended its code-share agreements with United increasing
      the ERJ-170 fleet from 23 to 28 aircraft and reducing the ERJ-145 fleet from
      nine to seven aircraft. The five additional ERJ-170 aircraft were all placed
      into service by December 31, 2005. The two ERJ-145 aircraft were removed from
      service and added to the Company’s charter operations beginning in November,
      2005.





On
      March
      15, 2005, the Company and Wexford Capital LLC, our largest shareholder, entered
      into an investment agreement with US Airways Group, Inc. and US Airways. The
      agreement included provisions for the affirmation of an amended Chautauqua
      code-share agreement, a new jet service agreement for the operation of
      ERJ-170 and ERJ-190 aircraft, a conditional $125 million equity commitment
      and
      up to $110 million in asset related financing. The Bankruptcy Court approved
      the
      agreement on March 31, 2005.





On
      June
      23, 2005, the Company received notification from US Airways Group that
      it would not be requested to make the $125 million equity investment but US
      Airways notified the Company that it would exercise its right to receive up
      to $110 million in asset related financing in connection with its reorganization
      plan.





On
      September 21, 2005, we and US Airways entered into a global aircraft transaction
      agreement. Under this agreement, we purchased 10 ERJ-170 aircraft owned by
      US
      Airways. We leased the 10 purchased aircraft back to US Airways subject to
      their
      transfer to Republic Airline under a 10-year fixed-fee jet service agreement
      we
      entered into with US Airways on September 2, 2005. As of December 31, 2005,
      seven of these aircraft had been transferred to Republic Airline. We also agreed
      to assume the leases of 15 additional ERJ-170 aircraft operated by US Airways
      and to enter into new leases for an additional three ERJ-170 aircraft. All
      28
      aircraft are expected to be in operation with Republic Airline by September
      2006. In addition, under a commuter slot option agreement that we and US Airways
      entered into on September 22, 2005, we purchased 113 commuter slots at Ronald
      Reagan Washington National Airport and 24 commuter slots at New York-LaGuardia
      Airport. Republic 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 Washington and
      LaGuardia commuter slots at a predetermined price.




From
      2001
      to 2005, our available seat miles, or ASMs, grew at a compounded annual growth
      rate of 41.2 %.
      As of
      December 31, 2005, our operational fleet consisted of 142 aircraft, including 47 ERJ-170, 70-seat and larger regional jets and
      95 ERJ-145
      family, 37-50 seat regional jets. Further, as of December 31, 2005,
      and in addition to the 18 regional jets which we will obtain from US Airways,
      we
      have agreed to place into service an additional seven  ERJ-170
      regional jets for Delta through 2006. These seven 70-seat regional jets are
      covered by firm orders we have with Embraer. We also had four additional firm
      orders which have not yet been allotted to a major airline partner and options
      for 35 regional jets as of December 31, 2005. All of the options are for
      ERJ-170 aircraft, which may be converted to options for ERJ-175, ERJ-190 or
      ERJ-195 aircraft, which range in size from 78 seats to 110 seats.




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-letter
      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 Airlines and Northwest Airlines, certain of the routes that we
      fly
      using Delta's flight designator code are also flown under Continental's or
      Northwest's designator codes. Our shift from pro-rate revenue sharing agreements
      to fixed-fee agreements has eliminated 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.




For
      the years
      ended December 31, 2005 and 2004 respectively, US Airways accounted for
      approximately 21 %
      and 38%
      of our passenger revenues, Delta accounted for approximately 34 %
      and 36%
      of our passenger revenues, American accounted for approximately 13 %
      and 16%
      of our passenger revenues and United accounted for approximately 32 %
      and 10%
      of our passenger revenues.




**Markets
      and Routes**





*Markets*




We
      believe that our development of hub operations in St. Louis with American,
      in
      New York, Boston, Indianapolis, Philadelphia, Pittsburgh and Washington, D.C.
      with US Airways in Orlando, Columbus and Fort Lauderdale with Delta and in
      Chicago and Washington D.C. with United has been a principal factor in the
      growth of our flight operations and will facilitate implementation of our growth
      and operating strategy. As of December 31, 2005, we offered scheduled
      passenger services on approximately 800 daily flights to 78 cities in 33 states,
      Canada and
      the
      Bahamas. The following illustrates the routes we currently fly for our
      code-share partners:





-4-















-5-






















-6-







**Maintenance
      of Aircraft and Training**




Using
      a
      combination of 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 an agreement with Rolls-Royce to maintain the engines
      on
      our ERJ-145 family of regional jet aircraft through November 2012, an
      agreement with Hamilton Sunstrand to maintain the auxiliary power units, or
      APUs, on our ERJ-145 family of regional jets through August 2009,
      agreements with Honeywell to maintain the avionics on our ERJ-145 and ERJ-170
      Embraer regional jets, through December 2014, an agreement with Goodrich to
      maintain wheels and brakes on our ERJ-145 family of regional jet aircraft
      through June 2014 and an agreement with GE Engine Services to maintain the
      engines on our ERJ-170 regional jets through December 2014. 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 a month. The rates are subject to annual revisions generally
      based on the Bureau of Labor Statistics' labor and material
      indices.




We
      believe these agreements, coupled with our ongoing maintenance program, reduces
      the likelihood of unexpected levels of engine, APU and avionics maintenance
      expense during their term.




We
      have
      also developed an inventory of aircraft spare parts and have utilized a
      computerized tracking system to increase maintenance efficiency and to avoid
      excess inventories of spare parts.




We
      perform our heavy and routine maintenance projects at our facilities in
      Indianapolis, Columbus, Louisville and Orlando, 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 manufacturer's training programs that are offered when
      acquiring new aircraft.




We
      have
      an agreement with FlightSafety International to provide for aircraft simulator
      training for all of our pilots. We have no current plans to acquire our own
      simulator in the near term and believe that FlightSafety or other third party
      vendors will be able to provide us with adequate and cost effective flight
      simulator training to implement our growth plans.





**Employees**




As
      of
      December 31, 2005, we employed approximately 3,060 full-time
      equivalent employees. The following is a table of our principal collective
      bargaining agreements and their respective amendable dates as of
      December 31, 2005:







**Employee
                Group**
            **Approximate
                Number**
              **of
                Full-Time**
              **Equivalent
                Employees**
            **Representing
                Union**
            **Amendable
                Date**Pilots
            1,300
            International
                Brotherhood of Teamsters Airline Division Local 747
            October
                2007Flight
                Attendants
            775
            International
                Brotherhood of Teamsters Airline Division Local 210
            September
                2009Customer
                Service
            200
            International
                Brotherhood of Teamsters Airline Division Local 135
            December
                2005Dispatchers
            60
            Transport
                Workers Union of America Local 540
            February
                2007




As
      of
      December 31, 2005, we had approximately 425 maintenance technicians and
      other maintenance related personnel, who are not currently represented by any
      union, and approximately 300 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. In connection with our
      proposed acquisition of 25  additional
      Embraer regional jets required to meet our obligations under our code-share
      agreements and related expansion, we anticipate hiring approximately 670 additional
      employees, many of whom will be represented by a union in their employment.
      We
      have never experienced any work stoppages or other job actions and generally
      consider our relationship with our employees to be good.




-7-


**Executive
        Officers of the Company**
 
 The
        following table sets forth information regarding our current executive officers,
        directors and key employees as of December 31, 2005:
  Name
              Age
              PositionBryan K.
                  Bedford
              44
              Chairman
                  of the Board, President and Chief
                  Executive OfficerRobert H.
                  Cooper
              46
              Executive
                  Vice President, Chief Financial Officer, Treasurer and
                  SecretaryWayne C.
                  Heller
              47
              Executive
                  Vice President—Chief Operating
                  Officer of ChautauquaLawrence
                  J. Cohen
              50
              DirectorJoseph M.
                  Jacobs
              52
              DirectorDouglas J.
                  Lambert
              48
              DirectorMark
                  E. Landesman
              45
              DirectorJay L.
                  Maymudes
              44
              DirectorMark
                  L. Plaumann
              50
              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
        18 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 13 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 Chautauqua 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 25 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.
 
 Joseph M.
        Jacobs has been a director since May 1998, and served as Vice-Chairman of
        the Board from May 1998 to August 2001. He co-founded Wexford Capital
        LLC in 1994 and serves as its President. From 1982 to 1994, Mr. Jacobs was
        employed by Bear Stearns & Co., Inc. where he attained the
        position of Senior Managing Director. From 1979 to 1982, he was employed
        as a
        commercial lending officer at Citibank, N.A. Mr. Jacobs is a director of
        several privately-held companies in which Wexford Capital has an
        investment.
  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.
  Jay L.
        Maymudes has been a director since May 1998. He joined Wexford Capital LLC
        in 1994, became a Principal in 1997 and serves as Wexford's Chief Financial
        Officer. From 1988 to 1994, Mr. Maymudes was the Chief Financial Officer of
        Dusco, Inc., a real estate investment advisory firm which managed
        publicly-traded and privately-held real estate investment trusts. He is a
        certified public accountant. Mr. Maymudes is a director of several
        privately-held companies in which Wexford Capital has an
        investment.
  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.


-8-





**Code-Share
      Agreements**




Through
      our subsidiaries, we have entered into code-share agreements with US Airways,
      American, Delta and United that authorize us to use their two-letter flight
      designator codes ("US," "AA," "DL" and "UA") 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 and United Express,
      respectively. In connection with a marketing agreement among Delta, Continental
      Airlines and Northwest Airlines, certain of the routes that we fly using Delta's
      flight designator code are also flown under Continental's or Northwest's
      designator codes. Under the code-share agreements between our subsidiaries
      and
      each of US Airways, American, Delta and United, we are compensated on a
      fixed-fee basis on all of our US Airways Express, AmericanConnection, Delta
      Connection and United Express flights. In addition, under our code-share
      agreements, our passengers participate in frequent flyer programs of the major
      airline, and the major airline provides additional services such as
      reservations, ticket issuance, ground support services, commuter slot rights
      and
      airport facilities.




*US
      Airways Code-Share Agreements*




We
      have
      entered into an Amended and Restated Chautauqua Jet Services Agreement with
      US
      Airways, dated April 26, 2005. As of December 31, 2005, we operated 30
      ERJ-145 regional jets including two spares, under this agreement. The code-share
      agreement provides that we will operate these aircraft to provide US Airways
      Express service between US Airways hubs and cities designated by US Airways.
      As
      of December 31, 2005, we were providing 250 flights per day as US Airways
      Express between New York, Boston, Philadelphia, Pittsburgh, Indianapolis,
      Washington, D.C. and designated outlying cities.





We
      have
      also entered into a fixed-fee code-share agreement with US Airways to operate
      28
      ERJ-170 aircraft on terms substantially similar to those of the ERJ-145
      code-share agreement between us and US Airways. Thirteen of the 28 aircraft
      have
      been acquired by us, and we will assume the leases of 15 ERJ-170 aircraft from
      US Airways. We will be subject to monetary penalties if we are unable to
      transition the subject aircraft by certain specified dates, generally by the
      end
      of 2006, subject to certain exclusions.





US
      Airways provides reservation, check-in, baggage-handling, ground-support and
      other passenger services, landing slots, gates, tickets, baggage tags, ticket
      wallets and similar items with respect to such flights and also controls
      scheduling, ticket prices and seat inventories with respect to such flights.
      Under the code-share agreement, US Airways retains all passenger, cargo and
      other revenues associated with each flight, and is responsible for all
      revenue-related expenses. In exchange for providing the designated number of
      flights and performing our other obligations under the code-share agreement,
      we
      receive compensation from US Airways three times each month in consideration
      for
      the services provided under the code-share agreement. We receive an additional
      amount per available seat mile flown. We also may receive incentives or pay
      penalties based upon our performance, including fleet launch performance,
      on-time departure performance and completion percentage rates. These incentive
      and penalty payments are a relatively small component of the total compensation
      that we are entitled to receive for each of our flights. Additionally, certain
      of our 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.
      Fuel, landing fees, passenger catering, passenger liability insurance and
      aircraft property tax costs are pass through costs.





Beginning
      in May 2005, US Airways elected to provide fuel directly for all of the
      Company’s US Airways Express aircraft operations. This change eliminated fuel
      expense and the related fuel reimbursement (previously recorded as revenue)
      for
      the US Airways operations. Operating profits are not affected by this change.




The
      code-share agreements for the ERJ-145 and ERJ-170 regional jets terminate in
      March  2013 and September 2015, respectively; however, 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 between US Airways
                and
                Republic Airline and such agreement is subsequently terminated, among
                other things.





-9-


In
      addition, if there is a regulatory change that materially and adversely affects
      the economic value of the agreement to us or US Airways, and we are unable
      to
      agree to amendments to the code-share agreement to alleviate those regulatory
      changes within 30 days, the party materially and adversely affected may
      terminate the agreement upon not less than 90 days notice.





In
      certain circumstances, US Airways has the right to terminate from service up
      to
      five, or in other circumstances, up to 15 regional jet aircraft. In no event
      is
      US Airways able to terminate more than two aircraft in any calendar month.
      We
      have the right to terminate from service a specified number of regional jet
      aircraft (not to exceed 15 aircraft).




In
      general, we have agreed to indemnify US Airways and US Airways has agreed to
      indemnify us for any damages caused by any breaches of our respective
      obligations under the code-share agreement or caused by our respective actions
      or inactions under the code-share agreement.




US
      Airways pays us three times each month in advance based on agreed assumptions,
      which amount is reconciled at the end of the month based on actual flight
      activity. The code-share agreement requires US Airways to pay our fixed costs
      and per aircraft per day costs for a specified period of time in the event
      of a
      grounding of the Embraer regional jets as a result of a design or manufacturing
      defect or a strike by our employees. If we do not perform the services under
      the
      agreement due to our failure to maintain the aircraft or comply with FAA
      regulations, US Airways is not required to make any payments to us under the
      agreement during that time period. If we cannot provide services for any other
      reason, including a US Airways strike, US Airways is required to pay us during
      that time period the costs which are not dependent on operation of the
      aircraft.




Under
      a
      commuter slot option agreement that we and US Airways entered into on September
      22, 2005, we purchased 113 commuter slots at Ronald Reagan Washington National
      Airport and 24 commuter slots at New York-LaGuardia Airport. Republic 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 Washington and
      LaGuardia commuter slots at a predetermined price.





-10-


*The
      American Code-Share Agreemen* t




As
      of
      December 31, 2005, we operated 15 ERJ-140 regional jets for American under
      a fixed-fee code-share agreement and provided 90 flights per day between St.
      Louis and designated outlying cities.




American
      provides reservation services, tickets, baggage handling, ticket jackets and
      similar items with respect to such flights and also controls scheduling, ticket
      prices and seat inventories with respect to such flights. In exchange for
      providing the designated number of flights and performing our other obligations
      under the code-share agreement, we receive from American a fixed-fee per block
      hour flown in revenue service. We are also eligible to receive semi-annual
      per
      passenger incentives based upon on-time performance, flight completion rates,
      lack of complaints and correct baggage handling. Conversely, we must pay
      semi-annual per passenger penalties should our performance not meet minimum
      standards for on-time performance, flight completion rates, complaints and
      correct baggage handling. 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, property and liability
      insurance and aircraft property tax costs are pass through costs. 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.




The
      fixed
      rates for each scheduled block hour that we receive from American under the
      code-share agreement have been determined through the term of the code-share
      agreement, subject to certain revisions and an agreed annual escalation rate.
      In
      March 2003, we agreed to a one-time waiver of certain escalations in exchange
      for American's termination of a warrant to purchase shares of our common stock
      that we had previously issued to American. In addition, in October 2003, we
      agreed to grant American a one-time waiver of certain escalations and economic
      concessions in the form of a monthly rebate in exchange for an extension of
      the
      date of American's early termination right. Certain costs, including fuel costs,
      aircraft ownership and financing costs (subject to a limitation), landing fees,
      property and liability insurance, aircraft property taxes and de-icing costs,
      are "trued-up" for differences between actual costs and the assumed costs
      included in our fixed rates. In addition, 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. We are reimbursed for all
      third party ground handling costs at certain airport locations, and there is
      a
      reconciliation for shared ground services between us and American. We are
      responsible for certain training, automation and other charges and costs.




The
      block
      hour rate we are paid varies based on the number of scheduled block hours per
      day to be flown in revenue service, subject to a minimum rate without regard
      to
      actual number of hours flown. This means that even if we fly less than the
      specified minimum number of scheduled block hours a day, we are paid as if
      we
      had flown the minimum number of block hours. The block hour rate can only be
      adjusted in connection with schedule changes that change the scheduled block
      hour utilization, but the minimum number of scheduled block hours cannot be
      changed. American has agreed to schedule the aircraft under the code-share
      agreement for no less than the specified minimum number of block hours per
      aircraft per day on average.




Under
      the
      terms of the code-share agreement, we are required at specified locations to
      provide ground support and other passenger services at our expense, and American
      is required to provide those services at their expense at other locations.
      At
      the hub in St. Louis, we are responsible for providing gate operations, security
      and leasing facilities (which are leased from American) until March 5, 2006,
      when we will no longer provide these services and American is responsible for
      providing ticketing services and de-icing for the aircraft. Certain costs of
      personnel training are shared with American.




The
      code-share agreement provides that, during its term, we will provide regional
      airline services exclusively for American at the St. Louis hub and within 50
      statute miles of that hub, and we are prohibited from providing competing
      regional hub services at Memphis, Nashville and Kansas City. This means that,
      without American's consent, we are prohibited from operating flights under
      our
      own code or on behalf of any other air carrier providing hub services in or
      out
      of these airports. In addition, during the term of the agreement, we are
      prohibited from operating any of our aircraft subject to the code-share
      agreement on behalf of any other carrier. Otherwise, the agreement does not
      prohibit us from flying aircraft on behalf of other airlines utilizing the
      airport facilities of those airlines or other airport facilities that we may
      obtain in the future.




At
      any
      time that we enter into an agreement with a third party for code-share using
      ERJ-140 aircraft, we must offer American the right, on an all or nothing basis,
      to amend the code-share agreement to incorporate the terms of the agreement
      with
      the third party. However, this provision does not apply to our existing
      arrangements with US Airways to supply additional aircraft. If American elects
      to incorporate the terms of the agreement with the third party, those terms
      will
      govern all of the aircraft covered by the code-share agreement. If we reach
      an
      agreement in principle with a third party to provide service using an aircraft
      other than an ERJ-140 aircraft, we are required to offer the right of first
      refusal to American on a one time basis to enter into that agreement. American
      can only exercise their right of first refusal on an all or nothing basis,
      and
      American must have previously exercised, or agree to exercise, all of its
      outstanding options for aircraft under the terms of the existing code-share
      agreement.




-11-


Should
      we
      have aircraft in excess of our operational needs, we have granted American
      a
      right of first refusal to use those aircraft pursuant to the terms of the
      code-share agreement. In addition, should American require more than 25 regional
      jets to fly under its AmericanConnection code out of St. Louis, American has
      agreed to grant us a right of first refusal to supply up to five additional
      ERJ-140 aircraft at our election.




Under
      the
      code-share agreement, we are required to have specified terms in the leases
      of
      our aircraft. These terms include a limit on the minimum term of the lease,
      a
      clause permitting assignment to American without penalty and under identical
      terms, certain return conditions and a purchase option on terms acceptable
      to
      American. We also cannot amend any of the ERJ-140 leases without American's
      prior consent, such consent not to be unreasonably withheld.




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 their
      call option, we are required to pay certain maintenance costs in transferring
      the aircraft to American's maintenance program.




If
      American terminates the code-share agreement without cause, we have the right
      to
      put the leases of the aircraft, or to lease the aircraft to them 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 their call, 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. With the exception of
      performance incentives, which are deemed inapplicable during such transition,
      the term of the code-share agreement is deemed to continue during the transition
      period. Moreover, we would be entitled to receive payments of fixed costs and
      reimbursement of pass-through costs during such period.





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
      our
      President and CEO is replaced, American has the right to terminate the agreement
      if it does not approve of the replacement CEO; however, American cannot
      unreasonably withhold its approval;




•
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 corrective action plan and adherence to such plan;




•
if
      we
      fail to represent the American brand favorably (subject to certain standards
      and
      conditions), American may terminate the agreement; 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.




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, 2008. If
      American exercises this right, it is required to reimburse us for certain
      deferred costs and we and American have certain "put" and "call" rights with
      respect to the aircraft we operate for them.




If
      American terminates the code-share agreement for any reason prior to
      September 30, 2008, or we terminate the code-share agreement prior to
      September 30, 2008, due to a breach of the agreement by American, American
      has agreed to reimburse us for certain price concessions that we granted
      American.




In
      general, we have agreed to indemnify American and American has agreed to
      indemnify us for any damages caused by any breaches of our respective
      obligations under the code-share agreement or caused by our respective actions
      or inactions under the code-share agreement.





In
      October, 2004, in order to accommodate American with respect to its scope
      restrictions, we agreed to modify our Agreement with American to preclude the
      continued use of larger regional jets on our Chautauqua Airlines Air Carrier
      Operating Certificate. Between October 2004 and September 2005, we paid $6.7
      million in penalties in connection with our operation of ERJ-170 aircraft by
      Chautauqua Airlines.







-12-


*The
      Delta Code-Share Agreements*




As
      of
      December 31, 2005, we operated 15 ERJ-135 aircraft and 24 ERJ-145 aircraft,
      including two spares, for Delta under a fixed-fee code-share agreement. As
      of
      December 31, 2005, we provided 258 flights per day as Delta Connection
      between Cincinnati, Orlando and Fort Lauderdale and designated outlying cities.
      In connection with a marketing agreement among Delta, Continental Airlines
      and
      Northwest Airlines, certain of the routes that we fly using Delta's flight
      designator code are also flown under Continental's or Northwest's designator
      codes.





In
      January 2005, we entered into a fixed-fee code-share agreement with Delta
      to operate 16 ERJ-170 aircraft on terms substantially similar to those of the
      code-share agreement between Chautauqua and Delta. As of December 31, 2005,
      we
      operated nine ERJ-170 aircraft.




The
      code-share agreements for the ERJ-135/145 and ERJ-170 regional jets 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 2009
      for
      the ERJ-135/145 regional jet agreement and 2013 for the ERJ-170 regional jet
      agreement..





Delta
      provides us with reservation services, baggage handling and other ground
      support, tickets and similar items with respect to the flights we operate for
      them and Delta controls scheduling, ticket prices and seat inventories with
      respect to such flights. In exchange for providing the designated number of
      flights and performing our other obligations under the code-share agreement,
      we
      receive from Delta monthly compensation made up of a fixed-fee per block hour,
      a
      fixed-fee per flight hour, a fixed-fee per departure, a fixed-fee per scheduled
      aircraft per day and a fixed-fee per day. The fixed rates that we receive from
      Delta for a given month may be increased if we achieve a specified flight
      completion rate in that month. We are eligible to receive additional
      compensation based upon our actual completion rate and on-time arrival rate
      for
      each month. Further, for each semi-annual period during the term of the
      agreement, we are eligible to receive additional compensation from Delta.




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. Aircraft rent/ownership expenses are also
      considered a pass through cost, but the reimbursement is limited to specified
      amounts for certain aircraft.




The
      fixed
      rates payable to us by Delta under the code-share agreement have been determined
      through the term of the code-share agreement and are subject to annual
      escalation. Certain costs, including fuel costs, aircraft ownership and
      financing costs (subject to limitation), landing fees, property and liability
      insurance, aircraft property taxes and de-icing costs, are adjusted on a monthly
      basis for differences between the actual costs and the assumed costs. In the
      event we are unable to operate the aircraft due to a strike, labor dispute,
      work
      stoppage or similar event, that is substantially within our control, or caused
      by some action or inaction by us or relates to the aircraft we operate for
      Delta, Delta is not obligated to pay us pursuant to the code-share agreement.
      However, if we cannot operate the aircraft due to a strike, labor dispute,
      work
      stoppage or similar event that is substantially within the control of Delta,
      or
      caused by some action or inaction by Delta, Delta shall still be obligated
      to
      pay us the fixed amounts due under the agreement, plus monthly and semi-annual
      incentive payments if we achieve certain milestones. If we cannot operate the
      aircraft due to an event that is not substantially within the control of either
      us or Delta, or caused by some action or inaction of either us or Delta, Delta
      is only obligated to pay us our fixed costs and our pass through costs during
      the period in which we cannot operate the flights for Delta.




Under
      the
      terms of the code-share agreement, except for (1) the aircraft we currently
      operate for US Airways and American, (2) the additional aircraft allocated
      to US Airways and American under our existing code-share agreements and
      (3) other limited exceptions, we have agreed to list its flights only under
      Delta's code during the term of our code-share agreement with them unless we
      obtain prior written approval from Delta. Delta granted written approval of
      our
      entry into a code-share agreement with United in February 2004. If we enter
      into a new code-share agreement with Delta's permission, we remain prohibited
      from operating any aircraft for the new code-share partner into or out of
      several major metropolitan airports. During the term of the code-share
      agreement, we may not operate any flights under our own flight designator code
      into or out of several major metropolitan airports unless that flight is flown
      under its code for one of our existing code-share partners and that partner
      remains obligated to compensate us for operating that flight.




Pursuant
      to the terms of the code-share agreement, Delta has the right, prior to the
      entrance by us into an agreement with a third party to operate aircraft that
      we
      previously operated for another existing code-share party for that third party
      or for us, to purchase, lease or code-share (or any combination thereof) such
      repositioned aircraft on terms no less favorable than those offered to the
      third
      party. If Delta does not exercise this right within a specified amount of time,
      we will be permitted to enter into the arrangement with the third party, but
      we
      will be prohibited during the term of the code-share agreement with Delta from
      flying more than a specified number of flights per day with such repositioned
      aircraft into each of several major metropolitan airports without Delta's prior
      written consent.




For
      each
      additional aircraft put into service for Delta beyond the initial 22, Delta
      receives a warrant to purchase 60,000 shares of our common stock. In accordance
      with this provision, on February 3, 2003 we granted Delta a warrant to
      purchase 720,000 shares of common stock, on October 1, 2003 we granted
      Delta a warrant to purchase an additional 300,000 shares of common stock and
      on
      March 10, 2004 we granted Delta a warrant to purchase an additional 480,000
      shares of common stock. In December 2004, the parties agreed to reduce the
      amount of such warrants by 45%. In addition, in December 2004, we issued
      Delta a warrant for 960,000 shares in connection with Delta entering into a
      code-share agreement with us.




For
      illustrative purposes only, we estimate that, should Delta acquire all of the
      common stock they are entitled to acquire under their warrants and assuming
      the
      warrant shares are 100% vested, Delta will own approximately 7.6% of our common
      stock.





-13-


The
      initial term of the ERJ-135/145 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 period.




In
      addition, Delta may terminate the code-share agreement 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. 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 agreement. We refer
      to
      this as Delta's partial termination right.




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.




In
      general, we have agreed to indemnify Delta and Delta has agreed to indemnify
      us
      for any damages caused by any breaches of our respective obligations under
      the
      code-share agreement or caused by our respective actions or inactions under
      the
      code-share agreement.




Pursuant
      to the agreement, Delta must give us notice if it changes the location of the
      hub from which we fly for them from Orlando and Fort Lauderdale to another
      location, except that Delta cannot change the hub location to St. Louis,
      Memphis, Kansas City, Nashville or any other location within 50 statute miles
      of
      St. Louis, Missouri.




Subject
      to the right of first refusal that we granted to American pursuant to our
      code-share agreement with them, should we receive an offer, bid or other
      expression of inquiry from a third party to purchase, lease, sublease, encumber
      or otherwise acquire any interest in, or to operate on behalf of a third party,
      any aircraft that it owns or leases, which we desire to accept, we have granted
      to Delta a right of first refusal to acquire the aircraft which we desire to
      dispose of on the same terms as those offered to us by the third party.




At
      any
      time that we enter into an agreement in principle with a third party for a
      code-share (or similar) relationship using ERJ-135 or ERJ-145 aircraft, other
      than certain permitted amendments to our pre-existing code-share agreements,
      we
      must offer Delta the right, on an all or nothing basis, to amend the code-share
      agreement to incorporate the terms of the agreement with a third party. If
      Delta
      elects to incorporate the terms of the agreement with the third party, those
      terms will govern all of the aircraft covered by the code-share agreement.





-14-


*The
      United Code-Share Agreements*




We
      have
      entered into fixed-fee code-share agreements with United to operate seven
      ERJ-145 aircraft and 28 ERJ-170 aircraft to provide United Express Service
      in
      markets to be determined by United. As of December 31, 2005, we provided 188
      flights per day as United Express between Chicago, Washington D.C. and
      designated outlying cities.




United
      provides reservation, check-in, ground-support and other passenger services
      and
      also controls seat inventories. Under the code-share agreements, United retains
      all air fares, cargo rates, mail charges and other revenues associated with
      each
      flight, and is responsible for revenue-related expenses. In exchange for
      providing the designated number of flights and performing our obligations under
      the code-share agreements, we receive from United compensation of a fixed-fee
      per completed block hour, fixed-fee per completed departure, fixed-fee per
      passenger, fixed-fee for overhead and aircraft costs, and one-time start-up
      costs. We receive incentives based upon its performance, including controllable
      flight completion percentage rates, on-time percentage rates, mishandled bags
      percentage rates, and customer responses to surveys about their intent to reuse
      United Express.




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 it incurs for these items.
      Fuel and oil, landing fees, war risk insurance, liability insurance and aircraft
      property taxes are pass through costs.




The
      agreements terminate on June 30, 2014 and June 30, 2015. United has the
      option of extending the agreement for five (5) years or less; however, the
      ERJ-145 code-share agreement may be terminated by United upon 18 months
      prior written notice provided that such notice shall not be delivered prior
      to
      December 31, 2008. 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 a certain performance level for a period of three
      consecutive months or for a period of six months within a twelve-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 code-share agreements if we operate, except
      pursuant to preexisting agreements with US Airways and Delta, any additional
      regional jets 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. We 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 regional jets 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 any one of the following reasons:




•
Our
      operations fall below a certain performance level for a period of three
      consecutive months or for a period of six months within a 12-month period
      regarding controllable flight completion and on-time performance;




•
We
      enter into a new code-share with another airline in breach of the United
      code-share agreement; or




•
Our
      operating certificate is revoked or suspended by the FAA, for safety issues
      or
      concerns, for a period of four consecutive months.




-15-


The
      call
      option is governed by certain limitations relating to the number of aircraft
      for
      which the call option is exercised, notice requirements, indemnification in
      the
      event of a lease assumption, calculation of the purchase price in the event
      of a
      sale, payment of aircraft ownership costs, delivery of spare parts and
      reimbursement of prepaid rent.




If
      we
      enter into certain corporate transactions, including a merger, sale of
      substantially all of our or our subsidiaries assets, or issuance or sale of
      stock of us or our subsidiaries representing 20% beneficial ownership or voting
      control, then we must grant United a right of first refusal to enter into the
      proposed transaction on the same or comparable terms. If United and we cannot
      agree on the terms, then we can enter into the transaction with a third party,
      but not on terms more beneficial to the third party than those that were offered
      to United.




In
      general, we have agreed to indemnify United and United has agreed to indemnify
      us for any damages caused by any breaches of each party's respective obligations
      under the code-share agreement or caused by each party's respective actions
      or
      inactions under the code-share agreement.





United
      will pay aircraft ownership costs and reserves the right to finance any aircraft
      allocated for United Express services, subject to certain limitations. In
      addition, United will have the right to recall furloughed pilots required to
      be
      hired by us. Except for certain exceptions, United does not have a right to
      early termination of the ERJ-170 code-share agreement.





We
      have
      assigned the obligation to operate some or all of the aircraft to be operated
      under this code-share agreement from Republic Airline to Shuttle, after
      obtaining United’s approval.




**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 regional 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 downturns
      combined with competitive pressures have contributed to a number of bankruptcies
      and liquidations among major and regional carriers. The effect of economic
      downturns is somewhat mitigated by our fixed-fee arrangements with respect
      to
      our flights. In addition, if our major airline code-share partners remain
      financially strained by low ticket prices or high fuel prices, they will likely
      seek to reduce our fixed-fees or cancel a number of flights in order to reduce
      their 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 TSA, or Transportation Security Administration 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 safety. The FAA requires operating, air worthiness and other
      certificates; 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 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 and replacement 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 air worthiness 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 the major airports at Boston, Washington, D.C.,
      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 services 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 effectively 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 percent of foreign economic ownership may be as
      high
      as 49%).







-16-


**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 major partners.**




We
      depend
      on relationships created by our regional jet code-share agreements with US
      Airways, American, Delta and United for all of our passenger revenue. 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, 2008. If American terminates its code-share agreement for
      cause, it has the right to require us to assign to them our leases of
      all ERJ-140 regional jets then operating under the code-share
      agreement or to lease such jets 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 ERJ-140 regional jets
      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 ERJ-135/145 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 ERJ-170 aircraft, with or without cause, on 180 days written notice at
      any time after July 2012. 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. In addition,
      our code share agreements with Delta have not been and may not be assumed by
      Delta in bankruptcy and may be modified or terminated. United may terminate
      its
      code-share agreement with respect to the ERJ-145 aircraft without cause on
      18 months prior written notice, provided that such notice may not be
      delivered prior to December 31, 2008. If we wrongfully terminate our
      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 jets we operate for them.




In
      addition, because substantially all of our passenger 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, 2005 and 2004, respectively, US Airways accounted
      for approximately 21%and 38%
      of our passenger revenues, Delta accounted for approximately 34%and
      36%
      of our passenger revenues, American accounted for approximately 13%and
      16%
      of our passenger revenues and United accounted for approximately 32%and
      10%
      of our passenger revenues. We have granted to Delta warrants to purchase an
      aggregate of 3,435,000 shares of our common stock. The exercise prices of these
      warrants range from $11.60 to $13.00 per share. In addition, beyond the 16
      aircraft that we are contractually committed to place into service for Delta
      through 2006, Delta is entitled to a warrant to purchase 60,000 shares of our
      common stock for each additional aircraft we place into service for it. The
      exercise price of each of these warrants will be the lower of the then current
      market price of our common stock or the average of the closing prices of our
      common stock for the 30 days prior to such aircraft being placed into
      service.




**Our
      code-share agreement with Delta will be terminated if Delta does not emerge
      from
      bankruptcy.**




Delta
      is
      attempting to reorganize its business under Chapter 11 of the bankruptcy code.
      Under the terms of our code-share agreement with Delta, if the plan of
      reorganization is not confirmed in Chapter 11 bankruptcy or if the bankruptcy
      is
      converted to liquidation under Chapter 7 of the bankruptcy code, then our
      code-share agreements will be terminated. If the agreements are terminated,
      we
      must still accept for delivery the aircraft which had not been delivered but
      that we would have flown for that airline. Although we are entitled to recoup
      certain expenses in connection with the aircraft, including certain fees paid
      to
      the manufacturer as well as our ownership costs of the aircraft for a
      transitional period of time, a termination of these agreements could have a
      material adverse effect on our financial condition, operating revenues and
      net
      income unless we are able to enter into satisfactory substitute arrangements
      for
      the utilization of these aircraft by other code-share partners, or,
      alternatively, obtain the airport facilities and gates and make the other
      arrangements necessary to fly under our own flight designator code. We cannot
      assure you that we would be able to enter into substitute code-share
      arrangements, that any such substitute code-share arrangements would be as
      favorable to us as the current code-share arrangements with Delta, or that
      we
      could, in the alternative, successfully fly under our own flight designator
      code.






-17-


**We
      may be unable to redeploy smaller aircraft removed from service in response
      to
      our code-share partners' demand for larger aircraft.**




Certain
      of our code-share partners have requested that we replace ERJ-145 and smaller
      aircraft with larger regional jets. To the extent that we agree to remove an
      ERJ-145 or smaller aircraft from service, we must either sell or sublease the
      aircraft to another carrier 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 code-share partners decreases, our
      financial strength is at risk.**




We
      are
      directly affected by the financial and operating strength of our code-share
      partners. In the event of a decrease in the financial or operational strength
      of
      any of our code-share 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 and United recently emerged from bankruptcy, and Delta has filed to
      reorganize its business under Chapter 11 of the bankruptcy code. 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.
      Our
      code-share agreements with Delta have not yet been assumed. As of February
      1,
      2006, Standard & Poor's and Moody's, respectively, maintained ratings
      of B- and Ba2 for US Airways, B- and Caa2 for AMR Corp., the parent of American,
      D and C for Delta and D and B1 for UAL Corp., the parent of United.




**Our
      code-share partners may expand their direct operation of regional jets thus
      limiting the expansion of our relationships with them.**




We
      depend
      on major airlines like US Airways, American, Delta and United electing to
      contract with us instead of purchasing and operating their own regional jets.
      However, some major airlines own their own regional airlines and operate their
      own regional jets instead of entering into contracts with us or other regional
      carriers. For example, American and Delta have acquired many regional jets
      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 regional jets through its PSA subsidiary. We have no guarantee that
      in
      the future our code-share partners will choose to enter into contracts with
      us
      instead of purchasing their own regional jets or entering into relationships
      with competing regional airlines. They are not prohibited from doing so under
      our code-share agreements. In addition, US Airways recently announced that,
      pursuant to an agreement with its pilots, US Airways will not enter into
      agreements with its regional affiliates to fly ERJ-190 and higher capacity
      regional jets and it is possible that our other partners will make the same
      decision. A decision by US Airways, American, Delta or United to phase out
      our
      contract based code-share relationships and instead acquire and operate their
      own regional jets 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 code-share
      partners, including Delta's pilots, 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
      76% of our
      workforce as of December 31, 2005. 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 American, Delta and United, 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 code-share
      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
      code-share partners have the right to terminate their code-share agreements
      if
      we fail to meet these completion levels.




Delta's
      pilots have threatened to strike if Delta is successful in rejecting the pilots'
      labor agreement. Such a strike would most likely cause Delta to suspend
      operations for at least the length of the strike and, consequently, could force
      Delta to liquidate. In the event of such a strike and/or liquidation of Delta,
      our financial condition, results of operations and the price of our common
      stock
      would be adversely affected.




-18-


**Our
      current growth plans may be materially adversely affected by substantial risks,
      some of which are outside of our control.**




In
      addition to the remaining 18 Embraer ERJ-170 aircraft which will be transitioned
      from US Airways, we plan to acquire an additional 11 Embraer ERJ-170 regional
      jets by the end of 2006, all of which are subject to firm orders. Of these
      aircraft, four aircraft, are not yet allocated to any of our partners. We have
      financing commitments in place for all of these firm orders. If we are incorrect
      in our assessment of the profitability and feasibility of our growth plans,
      if
      circumstances change in a way that was unforeseen by us or if we are unable
      to
      consummate financing for these aircraft, we may not be able to grow as planned.




Under
      our
      code-share agreements, as of December 31, 2005 we were obligated to place
      in service an additional 25 Embraer
      regional jets through 2006 at an aggregate cost (excluding the cost of acquiring
      the aircraft and related parts) to us of approximately $6.3 million.
      These costs, which are related to the acquisition of these aircraft, include
      the
      acquisition of related additional ground and maintenance facilities and support
      equipment, the employment of approximately 670 additional employees and the integration of those aircraft, facilities and
      employees into our existing operations.




As
      of
      December 31, 2005, we had four firm orders and options to purchase an
      aggregate of 35 regional jets from Embraer, in addition to the 18 regional
      jets which we will obtain from US Airways and the seven regional
      jets we will fly for Delta. If we choose to exercise options to purchase
      aircraft from Embraer prior to obtaining a commitment from existing or future
      code-share partners to place the aircraft in service, we will be obligated
      to
      purchase the aircraft from Embraer and to bear the cost of operation even if
      we
      cannot place the aircraft in service with a code-share partner, which could
      have
      a material adverse effect on our financial condition, results of operations
      and
      the price of our common stock.




Our
      ability to manage our growth effectively and efficiently requires us to continue
      to forecast accurately our equipment and human resources needs and to continue
      to expend funds to improve our operating, financial and management controls,
      reporting systems, procurement process and procedures. In addition, we must
      effectively expand, train and manage our employee base, which could be costly.
      Our growth will place a significant strain on our management and other corporate
      resources. If we are unable to manage our anticipated growth effectively and
      efficiently, our business could be harmed.




Our
      growth plans may be adversely affected by our code-share agreements with
      American and Delta. Our American agreement requires us to provide regional
      airline services exclusively for American at its St. Louis hub and within 50
      statute miles of that hub. This agreement also prohibits us from providing
      competing regional hub services at Memphis, Nashville and Kansas City and means
      that, without American's consent, we are prohibited from operating flights
      under
      our own flight designator code or on behalf of any other air carrier providing
      "hub" services in or out of these airports. Chautauqua's Delta agreement
      prohibits it from conducting code-share flying into several major metropolitan
      airports, except under its existing code-share agreements with American and
      US
      Airways. Pursuant to the terms of Chautauqua's code-share agreement with Delta,
      it is prohibited from operating aircraft other than for Delta except for
      (1) those it operates for its existing code-share partners, (2) the
      additional aircraft it may operate under its existing agreements and
      (3) aircraft subject to other limited exceptions. Furthermore, pursuant to
      the terms of our code-share agreements with United, except for our current
      code-share flying, we are prohibited from operating 50 seat or larger regional
      jets or turboprops from United’s current hub airports. United’s hub airports are
      Denver, Washington Dulles, Los Angeles, Chicago O'Hare, Seattle and San
      Francisco.




**Our
      code-share 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 large regional jets not flown by its pilots in its operations.
      For
      purposes of this limitation, a large regional jet is an aircraft configured
      with
      86 or more passenger seats. There are no quantity limitations in the US Airways
      “scope” limitations for small regional jets. For purposes of this “scope”
restriction, a small regional jet is defined as any aircraft configured with
      78
      or fewer seats. US Airways can outsource up to an additional 55 aircraft,
      including the ERJ-175 and CRJ-900, 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 ability to
      participate in additional regional jet flying for US Airways is subject to
      the
      further limitation that we employ furloughed US Airways pilots. Our utilization
      of US Airways pilots was approved by our pilots union; however, they limited
      their approval to 80 additional aircraft for US Airways which includes the
      25
      ERJ-170s which we will obtain from US Airways. A "scope" clause in American's
      current collective bargaining agreement with its pilots limits it from operating
      regional jets having 51 or more seats. A "scope" clause in Delta's current
      collective bargaining agreement with its pilots restricts it from operating
      regional jets having more than 70 seats and limits it from operating more than
      125, or under certain circumstances, 150, regional jets having 70 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.




American's
      "scope" limitations further limit its code-share partners, in our case
      Chautauqua, from operating regional jets with 51 or more seats even for partners
      other than American. Delta's "scope" limitations restrict its partners from
      operating aircraft with over 70 seats even if those aircraft are operated for
      an
      airline other than Delta. Neither US Airways nor United have similar "scope"
      limits on the size of aircraft we can operate for our other code-share partners.




We
      cannot
      assure you that these "scope" clauses will not become more restrictive in the
      future. Any additional limit on the number of regional jets we can fly for
      our
      code-share partners could have a material adverse effect on our expansion plans
      and the price of our common stock.






-19-


**Our
      fleet expansion program will require a significant increase in our leverage
      and
      the financing we require may not be available on favorable terms or at all.**




The
      airline business is very capital intensive and, as a result, many airline
      companies are highly leveraged. During the years ended December 31, 2005
      and 2004, our mandatory debt service payments totaled $53.4 million
      and $47.4 million, respectively, and our mandatory lease payments totaled
      $82.0 million
      and $77.8 million, respectively. We have significant lease obligations with
      respect to our aircraft, which aggregated approximately $883.6 million
      at December 31, 2005 and $793.0 million at December 31, 2004. Our
      current growth strategy involves the acquisition by purchase or lease of at
      least 26 more Embraer regional jets through 2006, including 15 which we will
      obtain from US Airways, all of which we will place in service for US Airways
      and
      Delta under our existing code-share agreements with them, except for four which
      are not yet allocated. Embraer's current aggregate list price for the
      11 Embraer
      regional jets that we will acquire from Embraer is approximately $296.0 million.
      We expect to lease or otherwise acquire on credit a substantial portion of
      these
      Embraer regional jets, which will increase significantly 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
      or
      continue our growth strategy.




If
      we
      need funds and cannot raise them on acceptable terms, or at all, we may be
      unable to realize our current plans or take advantage of unanticipated
      opportunities and could be required to slow or stop our growth.




**We
      currently depend on Embraer to supply us with the aircraft we require to expand.**




As
      of
      December 31, 2005, we were obligated under our code-share agreements to
      place an additional 25 Embraer regional jets in service through 2006, including
      the 18 Embraer regional jets which we will obtain from US Airways. The remaining
      seven regional jets are subject to firm orders. We have financing commitments
      in
      place for all seven of these aircraft, which will be placed into service with
      Delta. We also have four additional firm orders and 35 options to acquire
      regional jets that are exercisable through September 2007. We are dependent
      on Embraer as the manufacturer of all of these jets. Our risks in relying 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
      regional jets;





•
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
      regional jets 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 these Embraer regional jets
      would affect our overall operations and our ability to fulfill our obligations
      under our code-share agreements.




Further,
      ERJ-170 aircraft began operating in the commercial airline market in
      February 2004. As a new product, 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 and earnings.**




Our
      agreements with US Airways, American, Delta and United 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 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. For example, as
      a
      result of Delta's bankruptcy, Delta has begun to utilize our smaller aircraft
      at
      less than historical levels.






-20-


**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, customer service employees, flight attendants and dispatchers. Our
      customer  service
      agents, pilots, dispatchers and flight attendant agreements are amendable in
      December 2005, October 2007, February 2007 and
      September 2009, respectively. 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.




**We
      may experience difficulty finding, training and retaining employees.**




Our
      business is labor intensive. We intend to hire a large number of pilots, flight
      attendants, maintenance technicians and other personnel associated with our
      expansion plans.




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 over our 32 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 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.




-21-


**We
      have been named as a defendant in a lawsuit filed by certain US Airways pilots**




We
      and an
      affiliate of Wexford Capital, among others including US Airways and the Airline
      Pilots Association, have been named as defendants in a lawsuit filed in October
      2005 by certain US Airways pilots. The lawsuit as it relates to us would require
      us to employ certain pilots of US Airways under terms that would be more
      favorable to the pilots as compared to terms that were contemplated to be
      offered to the pilots by us. Subsequent to the filing of the case, an arbitrator
      has ruled that we are not required to provide the number of positions that
      were
      demanded by the plaintiffs. We, on the advice of our counsel, believe that
      the
      lawsuit, as it relates to us, is wholly without merit and we will ask the court
      to dismiss the lawsuit against us at the earliest practicable date. The lawsuit
      asks for monetary damages of $1.2 billion.




**Wexford
      Capital has significant influence over our affairs by virtue of its significant
      ownership of our common stock and they may make decisions with which you
      disagree.**




WexAir
      LLC, which is owned by several investment funds managed by Wexford Capital,
      on a
      fully diluted basis, owns beneficially approximately 21.5% of
      our
      common stock. As a result of its significant level of ownership, Wexford Capital
      and its affiliates have significant influence over matters affecting us,
      including the election of directors as long as they own or control a significant
      percentage of our common stock. They may make decisions which you and other
      stockholders will not be able to affect by voting your shares.




**We
      may have conflicts of interest with Wexford Capital, and because of its
      significant ownership, we may not be able to resolve these conflicts on an
      arm's
      length basis.**




Wexford
      Capital and its affiliates are actively engaged in the airline business.
      Conflicts of interest may in the future arise between Wexford Capital and its
      affiliates, on the one hand, and us, on the other hand, in a number of areas
      relating to our business and our past and ongoing relationships. Factors that
      may create a conflict of interest between Wexford Capital and us include the
      following:




•
on
      May 6, 2005, we acquired Shuttle America from an affiliate of Wexford
      Capital, in connection with which we executed a $1.0 million promissory
      note in favor of such affiliate of Wexford Capital and assumed less than
      $0.7 million of Shuttle America's debt. This promissory note has since been
      repaid. In addition, for Wexford Capital's assistance in structuring the
      investment agreement with US Airways, we agreed to pay Wexford Capital $500,000
      upon US Airway's emergence from bankruptcy as well as the payment of Wexford
      Capital's expenses, including the payment of up to approximately $850,000 to
      an
      unrelated third party consultant retained by us and Wexford Capital;





•
Wexford
      Capital may in the future make significant investments in other airline
      companies that directly compete with us;





•
sales
      or distributions by the selling stockholder, WexAir LLC, of all or any portion
      of its ownership interest in us; and





•
two
      of
      our directors also are directors, managing members or general partners of
      Wexford Capital and its affiliates.




Wexford
      Capital is under no obligation to resolve any conflicts that might develop
      between it and its affiliates and us in a manner that is favorable to us and
      we
      cannot guarantee that such conflicts will not result in harmful consequences
      to
      our business or future prospects. In addition, Wexford Capital and its
      affiliates are not obligated to advise us of any investment or business
      opportunities of which they are aware, and they are not contractually restricted
      or prohibited from competing with us. We have specifically renounced in our
      certificate of incorporation any interest or expectancy that Wexford Capital
      and
      its affiliates, including its directors and officers, will offer to us any
      investment or business opportunity of which they are aware.






-22-


**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 code-share 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 Orlando, 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.




**Continued
      high fuel costs would harm the airline industry.**




Fuel
      costs constitute a substantial portion of the total operating expenses of the
      airline industry. There have been significant increases in fuel costs and
      continued high fuel costs such as those which have been experienced during
      2005
      would harm the airline industry's financial condition and results of operations.
      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 code-share
      partners is a significant source of revenue, any labor disruption or labor
      strike by the employees of any one of our code-share 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, 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 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 April 2001, American acquired the majority
      of Trans World Airlines, Inc.'s assets. Our relationship with American
      resulted from this transaction. Other recent developments include the domestic
      code-share alliance between United and US Airways, a similar new relationship
      among Delta, Continental and Northwest and the merger of America West and US
      Airways. We, as well as our code-share 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. Any additional
      consolidation or significant alliance activity within the airline industry
      could
      materially adversely affect our relationship with our code-share partners.




-23-


**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 and replacement 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 regional
      jets, 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 regional jets, at such airports. The imposition of
      any
      limits on the use of Embraer regional jets at any airport at which we operate
      could interfere with our obligations under our code-share agreements and
      severely interrupt our business operations.




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. Restrictions on the ownership and transfer of airline
      routes and takeoff and landing slots have also been proposed. 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.






-24-


**Risks
      Related To Our Common Stock**




**Our
      stock price is volatile.**




Since
      our common stock began trading on The NASDAQ National Market on May 27,
      2004, the market price of our common stock has ranged from a low of $8.15 to
      a high
      of $16.85 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 code-share partners, competitors, the airline
      industry or the economy in general;





•
      strategic actions by us, our code-share 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;





•
changes
      in financial estimates or recommendations by securities analysts;





•
sales
      of our common stock or other actions by investors with significant shareholdings
      or our code-share 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, the availability of a large
      number of shares for sale, or sales of shares of our common stock by Wexford
      Capital and/or its affiliates or Delta could adversely affect the market price
      of our common stock and could impair our ability to raise funds in additional
      stock offerings. We have 41,837,685 shares of common stock outstanding as of
      February 1, 2006. We are subject to an agreement with the underwriters of our
      last public offering that restricts our ability to sell or transfer our stock
      until March 15, 2006. In addition, the selling stockholder and our directors
      and
      executive officers are subject to agreements with the underwriters of our last
      public offering that restrict their ability to sell or transfer their stock
      until March 1, 2006, with certain exceptions, including the ability of
      certain executive officers to sell up to 200,000 shares of common stock under
      their existing 10b5-1 plans. Merrill Lynch & Co., on behalf of the
      underwriters, may, in its sole discretion and at any time, waive the
      restrictions on transfer under these agreements during the applicable periods.
      After these agreements expire, all of these shares will be eligible for sale
      in
      the public market.






-25-


**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.**






In
      addition to the fact that Wexford Capital, through its affiliates owns
      approximately 21.5% of our common stock, 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.




**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, rjet.com/Investment.asp, we provide free of charge our Annual Report
      on
      From 10K, 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, rjet.com/Investment.asp. Our audit committee charter is also available
      on our website.


-26-





**ITEM
      1B. UNRESOLVED STAFF
      COMMENTS**





**Not
      Applicable**





**ITEM
      2. PROPERTIES**




**Flight
      Equipment**




As
      of
      December 31, 2005, we operated 142 Embraer
      regional jets as described in the following table:




**Type**
            
            **Total**
              **Aircraft**
            
            **Owned**
            
            **Leased**
            
            **Average
                  Age**
                **(in
                  years)**
            
            **Firm**
                **Orders**
            
            **Option**
              **Aircraft**
            
            **Seats
                in**
              **Standard**
              **Configuration**ERJ-135LR
                (1)
            
            
            17
            
            
            15
            
            
            2
            
            
            2.5
            
            
            —
            
            
            
            
            
            37ERJ-140LR
            
            
            15
            
            
            11
            
            
            4
            
            
            3.8
            
            
            —
            
            
            
            
            
            44ERJ-145LR
                (2)
            
            
            63
            
            
            22
            
            
            41
            
            
            3.8
            
            
            —
            
            
            
            
            
            50ERJ-170LR
                (3)
            
            
            47
            
            
            42
            
            
            5
            
            
            0.6
            
            
            11
            
            
            35
            
            
            70Total
            
            
            142
            
            
            90
            
            
            52
            
            
            
            
            
            11
            
            
            35





(1) Two
      of these aircraft are used for charter service.




(2)
      Two
      of these aircraft are used for charter service and as spares.





(3)
      Ten
      of the ERJ-170 aircraft are configured with 72 seats





In
      addition to the aircraft listed above, we sub-leased five ERJ-145 Aircraft
      to an
      airline in Mexico and three ERJ-170 aircraft to US Airways for use in their
      operations.





We
      have
      the option to acquire 35 ERJ-170 regional jets. We may convert some or all
      of our 35 options
      for ERJ-170 regional jets into options for ERJ-175s, ERJ-190s or
      ERJ-195s.




All
      of
      our leased regional jet aircraft are leased by us pursuant to long-term leases,
      with current lease expirations ranging from 2009 to 2020. We also hold
      fixed-price purchase options under these leases at approximately 14.0
      to
      14.5 years
      after these leases commenced. Furthermore, we have options to renew most of
      the
      leases for an additional three years, or purchase outright the leased aircraft
      at the conclusion of their current lease terms at fair market
      value.




-27-





The
      following table outlines the number and type of aircraft being operated for
      each
      code-share partner and the total number of Embraer regional jets that we are
      required to place in service for each code-share partner as of December 31,
      2005:





**ERJ-170
                  Aircraft**
              **ERJ-145
                  Aircraft**
              **ERJ-140
                  Aircraft**
              **ERJ-135
                  Aircraft**
              **Total****In**
                **Operation**
              **Total**
                **Required**
                **Aircraft**
              **In**
                **Operation**
                **(1)**
              **Total**
                **Required**
                **Aircraft**
              **In**
                **Operation**
              **Total**
                **Required**
                **Aircraft**
              **In**
                **Operation**
                **(1)**
              **Total**
                **Required**
                **Aircraft**
              **Jets
                  In**
                **Operation**
                **(1)**
              **Total
                  Required**
                **Embraer**
                **Regional**
                **Jets**US
                  Airways
              10
              28
              30
              30
              
              
              
              
              40
              58American
              
              
              
              
              15
              15
              
              
              15
              15Delta
              9
              16
              24
              24
              
              
              15
              15
              48
              55United
              28
              28
              7
              7
              
              
              
              
              35
              35Total
              47
              72
              61
              61
              15
              15
              15
              15
              138
              163




(
      1 )
      Excludes two ERJ-135s and two ERJ-145s that are not operated for any code-share
      partners. We use these aircraft for charter service and spares.





**Ground
      Operations and Properties**





As
      of
      December 31, 2005, our facilities are summarized in the following
      table:


**Facility**
              **Square
                  Feet**
              **Location**Corporate
                Office
              45,000
              Indianapolis,
                  INMaintenance
                Hangar
              30,400
              Indianapolis,
                  INMaintenance
                Hangar
              110,500
              Indianapolis,
                  INMaintenance
                Hangar/Office
              82,700
              Columbus,
                  OHMaintenance
                Hangar
              23,000
              Louisville,
                  KYMaintenance
                Hangar
              22,000
              Orlando,
                  FL




Our
      employees perform substantially all routine airframe and engine maintenance
      and
      periodic inspection of equipment. We provide facilities and personnel to perform
      passenger and aircraft handling in St. Louis for all AmericanConnection and
      American Eagle regional jet operations in that hub until March 5, 2006, when
      we
      will no longer provide these services and American is responsible. We also
      provide all US Airways Express airport gate and ground handling at the
      Indianapolis International airport. Our partners or third parties provide ticket
      handling and ground support services in 71 of the 73 cities
      we
      serve.




We
      lease
      all of our facilities subject to long-term leases or on a month to month basis.





Consistent
      with our planned growth in 2006 we are planning to add additional
      facilities  and
      expand certain other facilities. We believe that our current facilities, along
      with our planned additional facilities, are adequate for the current and
      foreseeable needs of our business.


-28-








**ITEM
      3. LEGAL PROCEEDINGS**






We
      and an
      affiliate of Wexford Capital, among others including US Airways and the Airline
      Pilots Association, have been named as defendants in a lawsuit filed in October
      2005 by certain US Airways pilots. The lawsuit was filed on October 7, 2005
      in
      the United States District Court for the Eastern District of New York. The
      lawsuit as it relates to us, would require us to employ certain pilots of US
      Airways under terms that would be more favorable to the pilots as compared
      to
      terms that were contemplated to be offered to the pilots by us. We, on the
      advice of our counsel, believe that the lawsuit, as it relates to us, is wholly
      without merit and we will ask the court to dismiss the lawsuit against us at
      the
      earliest practicable date. The lawsuit asks for monetary damages of
      $1.2 billion.







We
      are
      subject to certain other 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**




Not
      applicable.


-29-





**PART
      II**




**ITEM
      5. MARKET FOR REGISTRANT’S COMMON STOCK AND RELATED
      STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
      SECURITIES**




**Market
      Price**




Our
      common stock began trading on The Nasdaq National 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, 2004**
            
            
            
            High
            
            
            LowSecond
                Quarter (beginning May 27, 2004)
            
            
            $
            15.00
            
            $
            11.58Third
                Quarter
            
            
            
            14.08
            
            
            8.37Fourth
                Quarter
            
            
            
            13.54
            
            
            8.15**Year
                Ended December 31, 2005**First
                Quarter
            
            
            $
            14.65
            
            $
            10.51Second
                Quarter
            
            
            
            14.69
            
            
            11.17Third
                Quarter
            
            
            
            14.72
            
            
            12.04Fourth
                Quarter
            
            
            
            16.85
            
            
            13.25




As of
      February 1, 2006 there were 42 stockholders of record of our common stock. We have not 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.
      Chautauqua’s credit facility with Bank of America Business Capital does not
      limit its ability to pay dividends to Republic Airways Holdings unless
      Chautauqua is in default thereunder.




Below
      is
      a summary of the equity compensation plans as of December 31, 2005:





**A**
            
            
            **B**
            
            
            **C****Plan
                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 holders
            
            
            6,059,435
            
            $
            10.92
            
            
            1,468,600Equity
                compensation plans not approved by security holders
            
            
            —
            
            
            —
            
            
            —Total
            
            
            6,059,435
            
            $
            10.92
            
            
            1,468,600


-30-


**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,****2005**
            
            **2004**
            
            **2003**
            
            **2002**
            
            **2001
                (11)****(in
                thousands, except share, per share and airline operating
                data)****Statement
                of Operations Data:**Total
                operating revenues
            
            
            $
            905,021
            
            $
            646,324
            
            $
            492,280
            
            $
            356,197
            
            $
            241,028Operating
                expenses:Wages
                and benefits
            
            
            
            143,826
            
            
            112,305
            
            
            86,949
            
            
            63,572
            
            
            45,107Aircraft
                fuel(12)
            
            
            
            278,923
            
            
            174,208
            
            
            106,840
            
            
            64,869
            
            
            41,426Passenger
                fees and commissions
            
            
            
            —
            
            
            2,939
            
            
            6,254
            
            
            7,925
            
            
            11,065Landing
                fees
            
            
            
            30,376
            
            
            24,201
            
            
            19,098
            
            
            13,053
            
            
            7,091Aircraft
                and engine rent
            
            
            
            77,725
            
            
            74,514
            
            
            67,350
            
            
            64,991
            
            
            46,160Maintenance
                and repair
            
            
            
            76,481
            
            
            70,290
            
            
            53,475
            
            
            43,441
            
            
            34,069Insurance
                and taxes
            
            
            
            16,117
            
            
            13,186
            
            
            12,859
            
            
            17,103
            
            
            5,710Depreciation
                and amortization
            
            
            
            64,877
            
            
            34,412
            
            
            23,873
            
            
            12,032
            
            
            7,783Impairment
                loss and accrued aircraft return costs(1)
            
            
            
            (4,218
            )
            
            1,441
            
            
            2,756
            
            
            7,196
            
            
            8,100Other
            
            
            
            62,195
            
            
            47,483
            
            
            30,115
            
            
            32,444
            
            
            19,070Total
                operating expenses
            
            
            
            746,302
            
            
            554,979
            
            
            409,569
            
            
            326,626
            
            
            225,581Operating
                income
            
            
            
            158,719
            
            
            91,345
            
            
            82,711
            
            
            29,571
            
            
            15,447Other
                income (expense):Interest
                expense
            
            
            
            (63,546
            )
            
            (28,464
            )
            
            (22,789
            )
            
            (12,868
            )
            
            (6,227
            )Other
                income
            
            
            
            5,002
            
            
            518
            
            
            195
            
            
            526
            
            
            1,607Total
                other income (expense)
            
            
            
            (58,544
            )
            
            (27,946
            )
            
            (22,594
            )
            
            (12,342
            )
            
            (4,620
            )Income
                before income taxes
            
            
            
            100,175
            
            
            63,399
            
            
            60,117
            
            
            17,229
            
            
            10,827Income
                tax expense
            
            
            
            39,521
            
            
            24,547
            
            
            23,979
            
            
            9,540
            
            
            4,760Net
                income
            
            
            
            60,654
            
            
            38,852
            
            
            36,138
            
            
            7,689
            
            
            6,067Preferred
              stock dividends(2)
            
            
            
            —
            
            
            —
            
            
            (170
            )
            
            (413
            )
            
            (418
            )Net
                income available for common stockholders
            
            
            $
            60,654
            
            $
            38,852
            
            $
            35,968
            
            $
            7,276
            
            $
            5,649Net
                income available for common stockholders per share:Basic
            
            
            $
            1.69
            
            $
            1.66
            
            $
            1.80
            
            $
            0.36
            
            $
            0.28Diluted
            
            
            $
            1.66
            
            $
            1.62
            
            $
            1.73
            
            $
            0.35
            
            $
            0.27Weighted
                average common shares outstanding(3):Basic
            
            
            
            35,854,249
            
            
            23,349,613
            
            
            20,000,000
            
            
            20,000,000
            
            
            20,000,000Diluted
            
            
            
            36,548,340
            
            
            23,906,762
            
            
            20,841,415
            
            
            20,832,750
            
            
            20,689,886**Other
                Financial Data:**Net
                cash from:Operating
                activities
            
            
            $
            170,879
            
            $
            116,827
            
            $
            91,627
            
            $
            42,710
            
            $
            22,956Investing
                activities
            
            
            $
            (175,152
            )
            $
            (102,424
            )
            $
            (30,683
            )
            $
            (34,552
            )
            $
            (12,690
            )Financing
                activities
            
            
            $
            120,058
            
            $
            9,282
            
            $
            (45,093
            )
            $
            (4,747
            )
            $
            (7,383
            )**Airline
                Operating Data:**Passengers
                carried
            
            
            
            9,137,132
            
            
            6,842,407
            
            
            5,120,987
            
            
            3,758,748
            
            
            2,240,822Revenue
                passenger miles(4)
            
            
            
            4,516,518,136
            
            
            3,062,940,174
            
            
            2,319,261,441
            
            
            1,523,201,642
            
            
            880,569,802Available
                seat miles(5)
            
            
            
            6,559,966,278
            
            
            4,618,042,586
            
            
            3,665,876,102
            
            
            2,535,087,476
            
            
            1,649,171,823Passenger
                load factor(6)
            
            
            
            68.8
            %
            
            66.3
            %
            
            63.3
            %
            
            60.1
            %
            
            53.4
            %Revenue
                per available seat mile(7)
            
            
            $
            0.138
            
            $
            0.140
            
            $
            0.134
            
            $
            0.141
            
            $
            0.146Cost
                per available seat mile(8)
            
            
            $
            0.124
            
            $
            0.126
            
            $
            0.118
            
            $
            0.134
            
            $
            0.141EBITDA(9)
            
            
            $
            228,595
            
            $
            126,275
            
            $
            106,779
            
            $
            42,129
            
            $
            24,837Average
                passenger trip length(miles)
            
            
            
            494
            
            
            448
            
            
            453
            
            
            405
            
            
            393Number
                of aircraft in service (end of period):Embraer
                Regional Jets:Owned
            
            
            
            90
            
            
            62
            
            
            38
            
            
            18
            
            
            7Leased
            
            
            
            52
            
            
            49
            
            
            45
            
            
            41
            
            
            38Saab
                Turboprops(10):Owned
            
            
            
            —
            
            
            4
            
            
            —
            
            
            —
            
            
            2Leased
            
            
            
            —
            
            
            13
            
            
            21
            
            
            21
            
            
            23Total
                aircraft
            
            
            
            142
            
            
            128
            
            
            104
            
            
            80
            
            
            70




-31-





**As
                of December 31,****2005**
            
            **2004**
            
            **2003**
            
            **2002**
            
            **2001****(in
                thousands)****Consolidated
                Balance Sheet Data:**Cash
                and cash equivalents
            
            $
            162,005
            
            $
            46,220
            
            $
            22,535
            
            $
            6,684
            
            $
            3,272Aircraft
                and other equipment, net
            
            
            1,662,236
            
            
            984,512
            
            
            549,009
            
            
            301,905
            
            
            133,810Total
                assets
            
            
            2,035,947
            
            
            1,171,820
            
            
            669,783
            
            
            401,260
            
            
            204,802Long-term
                debt, including current maturities
            
            
            1,413,440
            
            
            850,869
            
            
            486,146
            
            
            284,067
            
            
            131,350Redeemable
                preferred stock
              of
                subsidiary
              at
                redemption value
            
            
            —
            
            
            —
            
            
            —
            
            
            5,160
            
            
            4,747Total
                stockholders' equity
            
            
            424,698
            
            
            174,651
            
            
            72,406
            
            
            31,270
            
            
            9,792





(1) We
      recorded impairment losses and accrued aircraft return cost of $8.1, $7.2,
      $2.8,
      and $1.4 million in 2001, 2002, 2003, and 2004 respectively. In 2005, we
      reversed a $4.2 million reserve after an agreement to return all the Saab
      turboprop aircraft to lessors was executed and all liabilities were settled.




(2) Preferred
      stock dividends represent dividends on 16.295828 shares of Series A
      redeemable preferred stock at a par value of $.01 per share issued by Chautauqua
      to an affiliate of our majority stockholder. The preferred stockholder is
      entitled to receive cumulative dividends equal to 10% per annum of the stated
      value of the preferred stock. The preferred stock, including accrued and unpaid
      dividends, was purchased and retired during 2003.




(3) On
      June 4, 2002, our board of directors declared a 200,000:1 stock split. All
      per share amounts, number of shares and options outstanding in the consolidated
      financial statements have been adjusted for the stock split.




(4) Revenue
      passengers multiplied by miles flown.




(5) Passenger
      seats available multiplied by miles flown .




(6) Revenue
      passenger miles divided by available seat miles.




(7) Total
      airline operating revenues divided by available seat miles.




(8) Total
      operating and interest expenses divided by available seat miles. Total operating
      and interest expenses is not a calculation based on generally accepted
      accounting principles 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.




(9) EBITDA
      represents earnings before interest expense, income taxes, depreciation and
      amortization. EBITDA is not a calculation based on generally accepted accounting
      principles 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 measurement in the regional
      airline industry and, consequently, we have provided this
      information .




-32-


The
      following represents a reconciliation of EBITDA to net cash from operating
      activities for the periods indicated (dollars in thousands):




**Years
                Ended December 31,****2005**
            **2004**
            
            **2003**
            
            **2002**
            
            **2001****EBITDA**
            
            $
            228,597
            $
            126,275
            
            $
            106,779
            
            $
            42,129
            
            $
            24,837Interest
                expense
            
            
            (63,546
            )
            (28,464
            )
            
            (22,789
            )
            
            (12,868
            )
            
            (6,227
            )Debt
                issue and other amortization
            
            
            2,776
            
            1,928
            
            
            1,968
            
            
            339
            
            
            —Warrant
                amortization
            
            
            372
            
            800
            
            
            359
            
            
            9
            
            
            —(Gain)
                loss on aircraft and other equipment disposals
            
            
            (276
            )
            1,151
            
            
            1,079
            
            
            193
            
            
            (460
            )Impairment
                (gain) loss and accrued aircraft return costs
            
            
            (4,218
            )
            1,441
            
            
            2,756
            
            
            7,196
            
            
            8,100Amortization
                of deferred credits
            
            
            (1,346
            )
            (1,285
            )
            
            (1,249
            )
            
            (1,132
            )
            
            (889
            )Unrealized
                loss on fuel swaps
            
            
            —
            
            —
            
            
            —
            
            
            —
            
            
            202Stock
                compensation expense
            
            
            125
            
            214
            
            
            214
            
            
            214
            
            
            90Current
                income tax (expense) benefit
            
            
            (1,915
            )
            (520
            )
            
            (237
            )
            
            4,485
            
            
            (6,659
            )Changes
                in certain assets and liabilities:Receivables
            
            
            (10,323
            )
            10,480
            
            
            (7,124
            )
            
            (481
            )
            
            896Inventories
            
            
            1,276
            
            (2,683
            )
            
            (2
            )
            
            715
            
            
            579Prepaid
                expenses and other current assets
            
            
            (4,907
            )
            (1,022
            )
            
            1,057
            
            
            (1,116
            )
            
            (368
            )Accounts
                payable
            
            
            1,152
            
            1,963
            
            
            (4,405
            )
            
            4,209
            
            
            1,490Accrued
                liabilities
            
            
            28,980
            
            11,370
            
            
            14,937
            
            
            1,805
            
            
            10,826Other
                assets
            
            
            (5,868
            )
            (4,821
            )
            
            (1,716
            )
            
            (2,987
            )
            
            (9,461
            )Net
                cash from operating activities
            
            $
            170,879
            $
            116,827
            
            $
            91,627
            
            $
            42,710
            
            $
            22,956





(10) Excludes
      two Saab 340 aircraft held for sale at December 31, 2002 and 2003, one as
      of December 31, 2004, five as of December 31, 2005 and one leased Saab 340
      aircraft at December 31, 2002.




(11)
      Amounts for 2001 have not been restated to include Shuttle America because
      it
      was not controlled by Wexford Capital LLC until December 7, 2001 and the
      operating activity of Shuttle America from December 7, 2001 through December
      31,
      2001 was not significant.





(12)
      Beginning in May 2005, we do not record fuel expense and the related revenue
      for
      US Airways operations because US Airways pays for fuel directly.





-33-


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





**Overview**




We
      are a
      holding company that operates Chautauqua Airlines, Inc. (“Chautauqua
      Airlines”), Republic Airline Inc. (“Republic Airline”) and Shuttle America
      Corporation (“Shuttle America’). As of December 31, 2005, we offered
      scheduled passenger service on over approximately 800 flights daily to 78 cities
      in 33 states ,
      Canada
      and the Bahamas pursuant to code-share agreements with AMR Corp., the parent
      of
      American Airlines, Inc. (“American”), US Airways, Inc. (“US Airways”),
      Delta Air Lines, Inc. (“Delta”) and United Air Lines, Inc. (“United”).
      Currently, we provide our four partners with regional jet service, operating
      as
      US Airways Express, AmericanConnection, Delta Connection or United Express,
      including service out of their hubs and focus cities in Boston, Chicago,
      Columbus, Fort Lauderdale, Indianapolis, New York, Orlando, Philadelphia,
      Pittsburgh, Washington, D.C. ( Dulles and National) and St. Louis.




Chautauqua
      Airlines is our platform for flying the 37 to 50 seat ERJ-145 family of
      aircraft, and as December 31. 2005 operated 95 aircraft.
      Shuttle America, which we acquired from an affiliate on May 6, 2005, is our
      platform for flying 70-seat aircraft and as of December 31, 2005, operated
      37
      ERJ-170 aircraft. Republic Airline is our platform for aircraft with more than
      70 seats. As of December 31, 2005, Republic Airline operated ten 72-seat
      ERJ-170 aircraft for US Airways.




In
      January 2005, we and Delta entered into a code-share agreement whereby the
      Company will operate 16 ERJ-170 aircraft for Delta, of which 9 were in
      service at December 31, 2005.





On
      June
      22, 2005, the Company amended its code-share agreements with United, increasing
      the ERJ-170 fleet from 23 to 28 aircraft and reducing the ERJ-145 fleet from
      nine to seven aircraft. The five additional ERJ-170 aircraft were all placed
      into service by December 31, 2005. The two ERJ-145 aircraft were removed from
      service and added to the Company’s charter operations beginning in November,
      2005.





On
      March
      15, 2005, we and Wexford Capital LLC entered into an investment agreement with
      US Airways Group, Inc. and US Airways. The agreement included provisions for
      the
      affirmation of an amended Chautauqua code-share agreement, a new jet service
      agreement for the operation of ERJ-170 and ERJ-190 aircraft, a conditional
      $125,000 equity commitment and up to $110,000 in asset related financing. The
      Bankruptcy Court approved the agreement on March 31, 2005.





On
      September 21, 2005, we and US Airways entered into a global aircraft transaction
      agreement. Under this agreement, we purchased 10 ERJ-170 aircraft owned by
      US
      Airways. We leased the 10 purchased aircraft back to US Airways subject to
      their
      transfer to Republic Airline under a 10-year fixed-fee jet service agreement
      we
      entered into with US Airways on September 2, 2005. As of December 31, 2005,
      seven of these aircraft had been transferred to Republic Airline. We also agreed
      to assume the leases of 15 additional ERJ-170 aircraft operated by US Airways
      and to enter into new leases for an additional three ERJ-170 aircraft. All
      28
      aircraft are expected to be in operation with Republic Airline by September
      2006. In addition, under a commuter slot option agreement that we and US Airways
      entered into on September 22, 2005, we purchased 113 commuter slots at Ronald
      Reagan Washington National Airport and 24 commuter slots at New York-LaGuardia
      Airport. Republic 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 Washington and
      LaGuardia commuter slots at a predetermined price.




From
      2001
      to 2005, our available seat miles, or ASMs, grew at a compounded annual growth
      rate of 41.2 %.
      As of
      December 31, 2005, our operational fleet consisted of 142 aircraft,
      including 47 ERJ-170, 70-seat and larger regional jets and 95 ERJ-145
      family, 37-50
      seat regional jets. Further, as of December 31, 2005, and in addition to
      the 18 regional
      jets which we will obtain from US Airways, we have agreed to place into service
      an additional seven 70-seat
      regional jets for Delta through 2006. These seven 70-seat regional jets are
      covered by firm orders we have with Embraer. We also had four firm orders and
      options for 35 regional
      jets as of December 31, 2005, which we may convert to options for ERJ-175,
      ERJ-190 or ERJ-195 aircraft which range in size from 78 seats to 110 seats.




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-letter
      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 Airlines and Northwest Airlines, certain of the routes that we
      fly
      using Delta's flight designator code are also flown under Continental's or
      Northwest's designator codes. Our shift from pro-rate revenue sharing agreements
      to fixed-fee agreements has eliminated 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.




For
      the
      years ended December 31, 2005 and 2004, respectively, US Airways accounted
      for approximately 21 %
      and 38%
      of our passenger revenues, Delta accounted for approximately 34 %
      and 36%
      of our passenger revenues, American accounted for approximately 13 %
      and 16%
      of our passenger revenues and United accounted for approximately 32 %
      and 10%
      of our passenger revenues.




We
      have a
      long operating history as a regional airline, having operated as a code-share
      partner of US Airways or its predecessors for more than 30 years. We became
      a TWA code-share partner in April 2000, which became a code-share
      relationship with American following its acquisition of TWA, an America West
      code-share partner in August 2001 until June 2003, a Delta code-share
      partner in June 2002 and a United code-share partner in February 2004. We have
      worked proactively with our code-share partners to adapt to the new airline
      environment by renegotiating our code-share agreements. For example, in
      October 2003, in exchange for agreeing to extend the date of their early
      termination right, we granted American certain economic concessions in the
      form
      of a monthly rebate. In December 2004, in exchange for, among other things,
      Delta extending the term of its code-share agreement and canceling previously
      issued warrants to purchase 2,025,000 shares of our common stock, we agreed
      to
      reduce our compensation level on the ERJ-145 fleet by 3% for the remainder
      of
      the term of the agreement . We
      also
      agreed to amend our code-share agreement with US Airways in 2005 by amending
      the
      existing Chautauqua Jet Service Agreement to provide for, among other things,
      the operation of regional jets at a reduced cost to US Airways, US Airways'
      right to terminate from service up to five 50-seat aircraft, and in other
      circumstances up to 15 regional jet aircraft, but not in excess of more than
      two
      aircraft in any calendar month; Chautauqua's right to terminate from service
      a
      specified number of regional jet aircraft (not to exceed fifteen 50-seat
      aircraft); and a one-year extension of the agreement to March 2013. In no event
      is the number of 50-seat aircraft permitted to fall below 20 without our
      consent. We also received a new jet service agreement with US Airways for the
      operation of 28 ERJ-170 aircraft.




-34-


**Code-Share
      Agreements**




On
      September 12, 2004, US Airways, which represented 21% of our revenue for
      the year ended December 31, 2005, filed a petition for Chapter 11 bankruptcy
      protection. We have been paid for all amounts due post-petition in accordance
      with our code-share agreement . In
      October 2005, US Airways emerged from bankruptcy. We received 6,638 shares
      of US
      Airways common stock for our pre-petition claims. The fair value of the shares
      as of December 31, 2005 was $248,000 .
      United,
      which represented 32% of our
      passenger revenues for the year ended December 31, 2005, emerged from bankruptcy
      on February 1, 2006.





Delta,
      which represented 34% of our
      passenger revenues for the year ended December 31, 2005, is attempting to
      reorganize its respective businesses under Chapter 11 of the bankruptcy code.
      We continue
      to operate normal flight schedules for Delta; however, contingency plans have
      been developed to address potential outcomes of the Delta bankruptcy
      proceedings.




Termination
      of any of our regional jet code-share agreements could have a material adverse
      effect on our financial position, results of operations and cash flows.





**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,****2003**
            
            **2004**
            
            **2005****Total**
            
            **Owned**
            
            **Leased**
            
            **Total**
            
            **Owned**
            
            **Leased**
            
            **Total**
            
            **Owned**
            
            **Leased**Regional
                Jets:Embraer
                ERJ-135 LR  (1)
            
            
            15
            
            
            15
            
            
            —
            
            
            17
            
            
            15
            
            
            2
            
            
            17
            
            
            15
            
            
            2Embraer
                ERJ-140 LR
            
            
            15
            
            
            11
            
            
            4
            
            
            15
            
            
            11
            
            
            4
            
            
            15
            
            
            11
            
            
            4Embraer
                ERJ-145 LR  (2)
            
            
            53
            
            
            12
            
            
            41
            
            
            68
            
            
            25
            
            
            43
            
            
            63
            
            
            22
            
            
            41Embraer
                ERJ-170 LR
            
            
            —
            
            
            —
            
            
            —
            
            
            11
            
            
            11
            
            
            —
            
            
            47
            
            
            42
            
            
            5**Turboprops:**Saab
                340 (3)
            
            
            21
            
            
            —
            
            
            21
            
            
            17
            
            
            4
            
            
            13
            
            
            —
            
            
            —
            
            
            —Total
            
            
            104
            
            
            38
            
            
            66
            
            
            128
            
            
            66
            
            
            62
            
            
            142
            
            
            90
            
            
            52




(1) Two
      of these aircraft are used for charter at December 31, 2004 and 2005.


(2)
      Two
      of these aircraft are used for charter and as spares at December 31,
      2005.


(3) Excludes
      two, one and five Saab 340 aircraft held for sale at December 31,
      2003, 2004 and 2005, respectively.





We
      recorded impairment losses and accrued aircraft return cost of $2.8 and
      $1.4 million in 2003 and 2004, respectively. The impairment losses reduced
      the
      carrying value of the owned Saab 340 aircraft to be disposed of to the estimated
      fair value less costs to sell. The impairment losses were based on the estimated
      fair values obtained from aircraft dealers, less selling costs. The accrued
      aircraft return costs represented the estimate of the Company's overhaul and
      return costs in order to meet required return conditions.  In December
      2005, we reversed a $4.2 million reserve for estimated return costs after the
      Saab turboprops were returned to lessors and all liabilities were
      settled.




During
      1999, we began operating Embraer regional jets on behalf of US Airways under
      a
      fixed-fee arrangement. There were 34, 35 and 40 Embraer
      aircraft operating on behalf of US Airways at December 31, 2003, 2004 and
      2005, respectively. During 2000, we began operating Saab 340 turboprops and
      Embraer regional jets on behalf of TWA under a fixed-fee arrangement; TWA was
      subsequently acquired by American. There were 15 Embraer
      regional jets operating under the agreement with American at December 31,
      2003, 2004 and 2005. At December 31, 2003, 2004 and 2005,
      respectively, we had 34, 39 and 48 aircraft
      in operation under our agreements with Delta. We began flying Embraer regional
      jets and Saab turboprops for United in June 2004 and at December 31, 2004 and
      2005 respectively, we had 20 and 35 Embraer
      regional jets in operation under the agreement with United. In December 2005,
      Shuttle America’s turboprop code-share agreement with United expired.





During
      2003, 94.5% of our ASMs and 91.0% of our passenger revenues were generated
      under
      fixed-fee agreements. During 2004, 97.6% of our ASMs and 96.0% of our passenger
      revenues were generated under fixed-fee agreements. During 2005,
      100% of our
      ASMs and passenger revenues were generated under fixed-fee agreements. The
      shift
      to fixed-fee flying has reduced our exposure to fluctuations in fuel prices,
      fare competition and passenger volumes. As of December 31, 2005, we
      operated 138 Embraer regional jets for four code-share partners under fixed-fee
      agreements.




**Revenue**




Under
      our
      fixed-fee arrangements with American, Delta, US Airways and United for regional
      jets, we receive a fixed-fee, as well as reimbursement of specified costs on
      a
      gross basis with additional possible incentives from our partners for superior
      performance. Under our previous pro-rate revenue sharing agreement with US
      Airways for turboprop aircraft, we received a negotiated portion of ticket
      revenue. As of December 31, 2003, 2004 and 2005 approximately 91.0%, 96.0%
      and 100% ,
      respectively, of our passenger revenue was earned under our fixed-fee
      arrangements. Because all of our passenger revenue is now derived from these
      fixed-fee arrangements, the number of aircraft we operate, as opposed to the
      number of passengers that we carry, will have the largest impact on our
      revenues.




**Operating
      Expenses**




A
      brief
      description of the items included in our operating expenses line items follows.





-35-


**Wages
      and Benefits**




This
      expense includes not only wages and salaries, but also expenses associated
      with
      various employee benefit plans, employee incentives and payroll taxes. These
      expenses will fluctuate based primarily on our level of operations and changes
      in wage rates for contract and non-contract employees.




**Aircraft
      Fuel**




Fuel
      expense includes the cost of aircraft fuel, including fuel taxes and into-plane
      fees.




**Passenger
      Fees and Commissions**




This
      expense includes the costs of travel agent commissions, computer reservation
      system fees and certain fees paid to US Airways for aircraft ground and
      passenger handling and use of the US Airways aircraft facilities and services
      with respect to turboprop pro-rate revenue sharing flights on behalf of US
      Airways.  These expenses are not borne by us under any of the fixed-fee
      agreements.




**Landing
      Fees**




This
      expense consists of fees charged by airports for each aircraft
      landing.




**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. The lease payments associated with future aircraft deliveries
      are
      subject to market conditions for interest rates and contractual price increases
      for the aircraft. 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. Under our fixed-fee agreements we
      generally are reimbursed for our actual costs.




**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
      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
      are required to be evaluated for impairment on an annual basis to determine
      if
      the intangibles are properly impaired.  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, 2005 and 2004,
      goodwill and intangibles were $64.0 million and $13.0 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 expense, professional fees
      and
      all other administrative, facilities and operational overhead expenses not
      included in other line items above.


**Deferred
      Warrant Charge**




Pursuant
      to our code-share agreements with Delta, we have fully vested, issued and
      outstanding warrants to Delta as follows:




**Issued**
            
            **Number**
              **of
                Shares**
            
            **Exercise**
              **Price**
            **Expiration**
              **Date**June
                2002
            
            
            825,000
            
            $
            12.50
            (1)
            June
                2012June
                2004
            
            
            825,000
            
            
            12.35
            (1)
            May
                2014February
                2003
            
            
            396,000
            
            
            13.00
            
            February
                2013October
                2003
            
            
            165,000
            
            
            12.35
            
            October
                2013March
                2004
            
            
            264,000
            
            
            12.35
            
            March
                2014December
                2004
            
            
            960,000
            
            
            11.60
            
            December
                2014




(1)  The
      exercise price is subject to downward adjustment, if we issue additional shares
      of our common stock in certain instances.





The
      deferred warrant charge as of December 31, 2005 was approximately
      $7.0 million which is amortized over the term of the Delta code-share
      agreement, as amended. The annual reduction in revenue is a non-cash charge
      of
      approximately $370,000.






-36-


**Certain
      Statistical Information**




**Years
                Ended December 31,****Operating
                Expenses per ASM in cents****2005**
            
            **2004**
            
            **2003**Wages
                and benefits
            
            
            2.19
            
            
            2.43
            
            
            2.37Aircraft
                fuel(2)
            
            
            4.25
            
            
            3.77
            
            
            2.91Passenger
                fees and commissions
            
            
            —
            
            
            0.06
            
            
            0.17Landing
                fees
            
            
            0.46
            
            
            0.52
            
            
            0.52Aircraft
                and engine rent
            
            
            1.18
            
            
            1.61
            
            
            1.84Maintenance
                and repair
            
            
            1.17
            
            
            1.52
            
            
            1.46Insurance
                and taxes
            
            
            0.25
            
            
            0.29
            
            
            0.35Depreciation
                and amortization
            
            
            0.99
            
            
            0.75
            
            
            0.65Impairment
                loss and accrued aircraft returncosts
                (1)
            
            
            (0.06
            )
            
            0.03
            
            
            0.08Other
            
            
            0.95
            
            
            1.03
            
            
            0.82Total
                operating expenses
            
            
            11.38
            
            
            12.01
            
            
            11.17Plus
                interest expense
            
            
            0.97
            
            
            0.62
            
            
            0.62Total
                operating and interest expenses
            
            
            12.35
            
            
            12.63
            
            
            11.79Total
                operating and interest expenses excluding aircraft fuel
            
            
            8.10
            
            
            8.86
            
            
            8.88




(1) We
      recorded impairment losses and accrued aircraft return cost of $8.1, $7.2,
      $2.8,
      and $1.4 million in 2001, 2002, 2003, and 2004 respectively. In 2005, we
      reversed a $4.2 million reserve after an agreement to return all the Saab
      turboprop aircraft to lessors was executed and all liabilities were settled.




(2) Beginning
      in May 2005, we do not record fuel expense and the related revenue for US
      Airways operations because US Airways pays for fuel directly.







-37-





**Years
                Ended December 31,****2005**
            
            **Increase/**
              **(Decrease)**
              **2005-2004**
            
            **2004**
            
            **Increase/**
              **(Decrease)**
              **2004-2003**
            
            **2003**Revenue
                passengers
            
            
            9,137,132
            
            
            33.5
            %
            
            6,842,407
            
            
            33.6
            %
            
            5,120,987Revenue
                passenger miles (1)
            
            
            4,516,518,136
            
            
            47.5
            %
            
            3,062,940,174
            
            
            32.1
            %
            
            2,319,261,441Available
                seat miles (2)
            
            
            6,559,966,278
            
            
            42.1
            %
            
            4,618,042,586
            
            
            26.0
            %
            
            3,665,876,102Passenger
                load factor (3)
            
            
            68.8
            %
            
            2.5
            pp
            
            66.3
            %
            
            3.0
            pp
            
            63.3
            %Cost
                per available seat mile (4)
            
            
            12.35
            ¢
            
            (2.2)
            %
            
            12.63
            ¢
            
            7.12
            %
            
            11.79
            ¢Average
                price per gallon of fuel (5)
            
            
            $1.98
            
            
            43.5
            %
            
            $1.38
            
            
            25.5
            %
            
            $1.10Fuel
                gallons consumed(6)
            
            
            141,159,425
            
            
            11.7
            %
            
            126,344,270
            
            
            30.4
            %
            
            96,863,325Block
                hours (7)
            
            
            464,041
            
            
            23.8
            %
            
            374,749
            
            
            27.0
            %
            
            295,021Average
                length of aircraft flight (miles)
            
            
            487
            
            
            10.7
            %
            
            440
            
            
            (0.5)
            %
            
            442Average
                daily utilization of each aircraft (hours) (8)
            
            
            10.50
            
            
            2.2
            %
            
            10.27
            
            
            5.1
            %
            
            9.77Aircraft
                in service at end of period
            
            
            142
            
            
            10.9
            %
            
            128
            
            
            20.8
            %
            
            106




(1) Revenue
      passenger miles are the number of scheduled miles flown by revenue passengers.




(2) Available
      seat miles are the number of seats available for passengers multiplied by the
      number of scheduled miles those seats are 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) Beginning
        in May 2005, we do not record fuel expense and the related revenue for US
        Airways operations because US Airways pays for fuel directly.


(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).








-38-


**Results
      of Operations**




*2005
      Compared to 2004*





Operating
      revenue in 2005 increased by 40.0%, or $258.7 million, to
      $905.0 million compared to $646.3 million in 2004 .
      The
      increase was due to the 36 additional 70-seat regional jets added to revenue
      service in 2005 offset by the reduction of seven ERJ-145 regional jet
      aircraft that were removed from operations between September and November 2005.
      Five aircraft were removed from US Airways and two were removed from United.
      Of
      these seven aircraft, five have been subleased to an airline in Mexico and
      two
      have been placed into our charter operations. Seventeen regional jets were
      added
      for United, nine were added for Delta, and ten were added for US Airways.




Total
      operating expenses increased by 34.5%, or $191.3 million, to $746.3 million
      in
      2005 compared
      to $555.0 million in 2004 due to the increase in flight operations and the
      average price of fuel per gallon. Fuel is 100% reimbursed by our major airline
      partners and recorded as revenue. Total operating and interest expenses
      increased by 38.8%, or $226.4 million, to $809.8 million for 2005 compared
      to $583.4 million during 2004. The cost per available seat mile on total
      operating and interest expenses, excluding fuel charges, decreased to 8.1¢ in
      2005 compared to 8.9¢ in 2004. Factors relating to the change in operating
      expenses are discussed below.




Wages
      and
      benefits increased by 28.1%, or $31.5 million, to $143.8 million for
      2005 compared to $112.3 million for 2004 due to a 23%
      increase in full time equivalent employees to support the increased 70-seat
      regional jet operations combined with normal wage increases. The cost per
      available seat mile decreased to 2.2¢ for 2005 compared to 2.4¢ in
      2004.




Aircraft
      fuel expense increased 60.1%, or $104.7 million, to $278.9 million for 2005
      compared to $174.2 million for 2004 due to a
      43%
      increase in average fuel prices and a 12% increase in fuel consumption. Beginning
      in May 2005, we do not record fuel expense and the related revenue for US
      Airways operations because US Airways pays for fuel directly. The
      average price per gallon was $1.97 in 2005 and $1.38 in 2004.  The unit
      cost increased to 4.3¢ in 2005 compared to 3.8¢ in 2004 due to the increase in
      average fuel prices.




Passenger
      fees and commissions were $0 for 2005 compared to $2.9 million for 2004 due
      to
      the elimination of pro-rate operations in September 2004. There are no passenger
      fees and commissions on any of the fixed-fee operations in 2005, including
      the
      turboprops which ceased operations for United in November, 2005. The unit cost
      was 0.1¢ in 2004.




Landing
      fees increased by 25.5%, or $6.2 million, to $30.4 million in 2005
      compared to $24.2 million in 2004 .
      The
      increase is due to a 17% increase in departures and a 12% increase in the
      average landing weight resulting from the increase in 70-seat operations in
      2005. Our fixed-fee agreements provide for a direct reimbursement of landing
      fees. The unit cost remained unchanged at 0.5¢.




Aircraft
      and engine rent increased by 4.3%, or $3.2 million, to $77.7 million in
      2005 compared to $74.5 million in 2004 due to the
      addition of five leased regional jets in 2005 and the full year effect of four
      regional jets leased in 2004. This increase was partially offset by the
      termination of 13 leased Saab 340 turboprops. The unit cost decrease to 1.2¢ for
      2005 compared to 1.6¢ for 2004 is attributable to the increase in capacity from
      the 70-seat regional jet operations and because we lease financed only five
      of
      the 36 aircraft added to the regional jet fleet in 2005.




Maintenance
      and repair expenses increased by 8.8%, or $6.2 million, to $76.5 million in
      2005
      compared to $70.3 million for 2004  due
      the
      increase in flying of the regional jets but partially offset by turboprop
      expenses that were approximately $10 million less in 2005 than in 2004. The
      unit
      cost decreased to 1.2¢ in 2005 from 1.5¢ in 2004.




Insurance
      and taxes increased 22.2%, or $2.9 million, to $16.1 million in 2005
      compared to $13.2 million in 2004 .
      The
      increase in operations and an increase in aircraft property taxes were partially
      offset by a decline in the average insurance rates year over year. The unit
      cost
      remained unchanged at 0.3¢.




Depreciation
      and amortization increased 88.5%, or $30.5 million, to $64.9 million
      in 2005 compared to $34.4 million in 2004 due to depreciation on thirty-one 70-seat regional jet aircraft purchased in 2005
      and
      the full year effect of 24 regional jet aircraft purchased in 2004. The unit
      cost increased to 1.0¢ in 2005 compared to  0.8¢
in
      2004 .




Impairment
      loss and accrued return costs of ($4.2) million were recorded in 2005 to reverse
      the remaining balance of a reserve for the return of our Saab fleet of aircraft
      after an agreement to return all the Saab turboprop aircraft to lessors was
      executed and all liabilities were settled. Impairment charges in 2004 of $1.4
      million mainly consisted of a write off of purchased route costs on markets
      that
      were abandoned during 2004.





Other
      expenses increased 31.0%, or $14.7 million, to $62.2 million in 2005 from $47.5
      million in 2004, due mainly to $6.3 million of charges paid to American Airlines
      for having 70-seat aircraft on the Chautauqua operating certificate in 2005
      and
      higher pilot training, crew-related and administrative expenses to support
      the
      growing 70-seat regional jet operations. The unit cost decreased to 0.9¢ in 2005
      compared to 1.0¢ in 2004.




Interest
      expense increased 123.3% or $35.1 million, to $63.5 million in 2005
      from $28.5 million in 2004 primarily due to interest
      on debt related to the purchase of 31 additional 70-seat aircraft in 2005 and
      the full year effect of 24 regional jet aircraft purchased in 2004. The weighted
      average interest rate increased to 5.6% in 2005 from 5.0% in 2004. The unit
      cost
      increased to 1.0¢ in 2005 compared to 0.6¢ in 2004.




We
      incurred income tax expense of $39.5 million during 2005, compared to $24.5
      million in 2004. The effective tax rates for 2005 and 2004 were 39.5% and 38.7%,
      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.





-39-


*2004
      Compared to 2003*




Operating
      revenue in 2004 increased by 31.3%, or $154.0 million, to
      $646.3 million compared to $492.3 million in 2003. The increase was
      due to the 28 additional regional jets added to revenue service in 2004. Twenty
      regional jets were added for United, including 11 Embraer 170 regional jets,
      five were added for Delta, one was added for US Airways and two were added
      for
      spares and charters and were not currently assigned to any of our
      code-share partners. In February 2003, we and America West mutually agreed
      to
      terminate our code-share agreement and we concurrently allocated the aircraft
      previously designated for America West to Delta. The transition of these
      aircraft was completed during the second quarter of 2003. We recorded a breakage
      fee of $6.0 million from America West in the second quarter of 2003 as a result
      of this transaction.




Total
      operating expenses increased by 35.5%, or $145.4 million, to $555.0 million
      in
      2004 compared to $409.6 million in 2003 due to the increase in flight
      operations. Total operating and interest expenses increased by 34.9%, or $151.1
      million, to $583.4 million for 2004 compared to $432.4 million during 2003.
      The unit cost on total operating and interest expenses, excluding fuel charges,
      remained unchanged at 8.9¢ per available seat mile in 2004 compared to 2003.
      Factors relating to the change in operating expenses are discussed below.




Wages
      and
      benefits increased by 29.2%, or $25.4 million, to $112.3 million for
      2004 compared to $86.9 million for 2003 due to a 24.5% increase in full
      time equivalent employees to support the increased regional jet operations
      and
      an increase in the costs of providing employee benefits. The cost per available
      seat mile remained unchanged at 2.4¢.




Aircraft
      fuel expense increased 63.1%, or $67.4 million, to $174.2 million for 2004
      compared to $106.8 million for 2003 due to a 30.4% increase in fuel
      consumption and a 25.5% increase in average fuel prices. The average price
      per
      gallon was $1.38 in 2004 and $1.10 in 2003.  The unit cost increased to
      3.8¢ in 2004 compared to 2.9¢ in 2003 due to the increase in average fuel
      prices.




Passenger
      fees and commissions decreased by 53.0%, or $3.3 million, to $2.9 million for
      2004 compared to $6.3 million for 2003 due to the phase out and elimination
      of
      pro-rate operations by September 2004. There were no passenger fees and
      commissions on any of the fixed-fee operations, including the turboprops
      operated for United. The unit cost decreased to 0.1¢ in 2004 compared to 0.2¢ in
      2003.




Landing
      fees increased by 26.7%, or $5.1 million, to $24.2 million in 2004
      compared to $19.1 million in 2003. The increase was due to a 24.6%
      increase in departures. Our fixed-fee agreements provide for a direct
      reimbursement of landing fees. The unit cost remained unchanged at
      0.5¢.




Aircraft
      and engine rent increased by 10.6%, or $7.2 million, to $74.5 million in
      2004 compared to $67.4 million in 2003 due to the addition of four leased
      regional jets in 2004 and the full year effect of four regional jets leased
      in
      2003. This increase was partially offset by the termination of eight leased
      Saab
      340 turboprops. The unit cost decrease of 12.5% to 1.6¢ for 2004 compared to
      1.8¢ for 2003 was attributable to the increase in capacity from the
      regional jet operations and because we lease financed only four of the 28
      aircraft added to the regional jet fleet in 2004.




Maintenance
      and repair expenses increased by 31.4%, or $16.8 million, to $70.3 million
      in
      2004 compared to $53.5 million for 2003 due the increase in flying of the
      regional jets, an increase in the number of heavy airframe inspections, increase
      in regional jet aircraft not covered under the manufacturer’s warranty. The unit
      cost remained unchanged at 1.5¢.




Insurance
      and taxes increased 2.5%, or $0.3 million, to $13.2 million in 2004
      compared to $12.9 million in 2003. The increase in operations and an
      increase in aircraft property taxes were mostly offset by a decline in insurance
      rates during 2004. The unit cost decreased to 0.3¢ in 2004 compared to 0.4¢ in
      2003 due to the decline in insurance rates.




Depreciation
      and amortization increased 44.1%, or $10.5 million, to $34.4 million
      in 2004 compared to $23.9 million in 2003 due to depreciation on 24
      regional jet aircraft purchased in 2004, including 11 Embraer 170 regional
      jets.
      The unit cost increased to 0.8¢ in 2004 compared to 0.7¢ in 2003.




Impairment
      loss and accrued aircraft return costs decreased 47.7%, or $1.3 million to
      $1.4
      million in 2004 compared to $2.8 million in 2003. In 2004, this charge consisted
      of a reduction of $0.2 million to reflect the estimated liability for Saab
      340
      aircraft lease return costs, $1.3 million to reflect the write off of purchased
      route costs on markets that were abandoned and $0.2 million due to the
      retirement of one owned Saab 340 aircraft. In 2003 this charge consisted of
      $2.1
      million to reflect deterioration of the market value for Saab turboprop aircraft
      and related spare parts and a reduction of $0.3 million to reflect the estimated
      liability for Saab 340 aircraft lease return costs.




Other
      expenses increased 57.7%, or $17.4 million, to $47.5 million in 2004 from $30.1
      million in 2003, due to an increase in bad debt reserves (primarily attributable
      to obligations owed to us by US Airways), increased pilot training costs, and
      higher crew-related and administrative expenses to support the growing regional
      jet operations. The unit cost increased to 1.0¢ in 2004 compared to 0.8¢ in
      2003.




Interest
      expense increased 24.9% or $5.7 million, to $28.5 million in 2004 from
      $22.8 million in 2003 primarily due to interest on debt related to the purchase
      of additional aircraft since the beginning of 2003. The weighted average
      interest rate was unchanged at 5.2%. The unit cost remained unchanged at 0.6¢.




We
      incurred income tax expense of $24.5 million during 2004, compared to $24.0
      million in 2003. The effective tax rates for 2004 and 2003 were 38.7% and 39.9%,
      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.





-40-


**Liquidity
      and Capital Resources**




Prior
      to
      June 2004, we had used internally generated funds and third-party financing
      to
      meet our working capital and capital expenditure requirements. In
      June 2004, we completed our initial public common stock offering, which
      provided approximately $58.2 million, net of offering expenses and before
      the repayment of debt. In addition, we completed follow-on offerings in February
      and July 2005, which provided approximately $186.8 million of proceeds, net
      of
      offering expenses. As a result of our code-share agreements with US Airways
      and
      Delta., which require us to significantly increase our fleet of regional jets,
      we will significantly increase our cash requirements for debt service and lease
      payments.




As
      of
      December 31, 2005, we had $162.0 million
      in cash and $14.9 million
      available under our revolving credit facility. At December 31, 2005, we had
      working capital surplus of $ 57.2
      million.





Chautauqua
      has a credit facility with Bank of America Business Capital which provides
      for a
      $25.0 million
      revolving credit facility. The revolving credit facility allows Chautauqua
      to
      borrow up to 70% of the lower of net book value or appraised orderly liquidation
      value of spare rotable parts and up to 40% of the lower of net book value or
      appraised orderly liquidation value of spare non-rotable parts for our regional
      jet fleet. The revolving credit facility is collateralized by all of
      Chautauqua's assets, excluding the owned aircraft and engines. Borrowings under
      the credit facility bear interest at a rate equal to, at Chautauqua's option,
      LIBOR plus spreads ranging from 2.0% to 2.75% or the bank's base rate (which
      is
      generally equivalent to the prime rate) plus spreads ranging from 0.25% to
      0.75%. Chautauqua pays an annual commitment fee on the unused portion of the
      revolving credit facility in an amount equal to 0.375% of the unused amounts.
      The credit facility limits Chautauqua's ability to incur indebtedness or create
      or incur liens on our assets. In addition, the credit facility requires
      Chautauqua to maintain a specified fixed charge coverage ratio and a debt to
      earnings leverage ratio. Chautauqua was in compliance with both ratios at
      December 31, 2005. This credit facility expires March 31, 2006 and we are
      negotiating to extend or replace the facility.




At
      December 31, 2005, Chautauqua had $7.5 million
      of outstanding letters of credit. At December 31, 2005 we had $2.6 million
      outstanding under a term loan. The proceeds of the term loan were obtained
      in
      December 2004 for a GE engine purchased in October 2004. The loan is payable
      in
      monthly principal installments of $ 53,543  through
      March 2006 with the remaining balance due March 31, 2006. The $ 2.6  million
      is classified as a current liability on the balance sheet.





As
      of
      December 31, 2005, we leased nine spare
      regional jet engines from General Electric Capital Aviation Services and five  spare
      regional jet engines from RRPF Engine Leasing (US) LLC.




Net
      cash
      from operating activities was $91.6 million, $116.8 million and $170.9 million
      for the years ended December 31, 2003, 2004 and 2005, respectively. The
      increase from operating activities is primarily due to the continued growth
      of
      our business. For 2005, net cash from operating activities is primarily net
      income of $60.7 million, depreciation and amortization of $68.0 million, the
      change in deferred income taxes of $37.6 million and the increase in
      accrued liabilities of $29.0 million .
      For
      2004, net cash from operating activities is primarily net income of
      $38.9 million, depreciation and amortization of $37.1 million, the
      change in deferred income taxes of $24.0 million and the increase in
      accounts payable and other current liabilities of $13.3 million. For 2003,
      net cash from operating activities consisted primarily of net income of
      $36.1 million, depreciation and amortization of $26.2 million, the
      change in deferred income taxes of $23.7 million, a non-cash charge for
      impairment loss and accrued aircraft return costs of $2.8 million and an
      increase in current accrued liabilities of $14.9 million partially offset
      by increases in receivables and other assets of $(7.8) million..




Net
      cash
      from investing activities was $(30.7) million, $(102.4) million and
      $(175.2) for
      the
      years ended December 31, 2003, 2004 and 2005, respectively. In 2005, we
      purchased 35 Embraer regional jets and paid $51.6 million for commuter slots.
      In
      2004, we purchased 24 Embraer regional jets and our net aircraft deposits
      totaled $38.8 million. In 2003, we purchased 20 Embraer regional jets,
      $4.3 million of spare parts, $2.4 million in aircraft leasehold
      improvements and $1.1 million of maintenance equipment.




Net
      cash
      from financing activities was $(45.1) million, $9.3 million and $120.1 million
      for the years ended December 31, 2003, 2004 and 2005, respectively. In 2005
      we completed two follow on public stock offering providing $186.8 million and
      made debt payments of $53.4 million.
      For 2004, we made debt payments and payments to the debt sinking fund of
      $26.9 million. Our net cash from financing activities included
      $58.2 million net cash received from our initial stock offering in June
      2004. We used $20.4 million to repay WexAir LLC for indebtedness we
      originally incurred in May 1998 to finance a portion of our purchase of
      Chautauqua. In 2003, we made $39.1 million of debt payments primarily
      related to the Embraer regional jets, paid $5.4 million to redeem preferred
      stock to an affiliate of WexAir LLC and paid $2.0 million in fees to obtain
      financing for the Embraer regional jets





We
      currently
      anticipate that our available cash resources, cash generated from operations
      and
      anticipated third party funding arrangements 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. These leases expire between 2006 and 2022 .
      As of
      December 31, 2005, our total mandatory payments under operating leases
      aggregated approximately $ 883.6 million
      and total minimum annual aircraft rental payments for the next 12 months
      under all non-cancelable operating leases is approximately $83.2 million. Other
      non-cancelable operating leases consist of engines, terminal space, operating
      facilities, office space and office equipment. The leases expire through 2016
      As
      of December 31, 2005, our total mandatory payments under other non-cancelable
      operating leases aggregated approximately $ 68.6  million.
      Total minimum annual other rental payments for the next 12 months are
      approximately $7.3 million.




Under
      the
      US Airways Aircraft Agreement, we will assume the leases of 15 ERJ-170 aircraft,
      which will be operated by Republic Airline. The transfer is expected to be
      completed by September 2006. In connection with the assumption of the leases
      of
      the additional aircraft, we will assume approximately $350 million in lease
      obligations. The transfer of all 15 aircraft is expected to be completed by
      September 2006.





-41-


*Purchase
      Commitments*




Subsequent
      to December 31, 2005, we acquired one aircraft through debt financing from
      a
      bank and the aircraft manufacturer with a fifteen year term and an interest
      rate
      of 6.68%. We
      have
      substantial commitments for capital expenditures, primarily for the acquisition
      of new aircraft. We intend to finance these aircraft through long-term loans
      or
      lease arrangements, although there can be no assurance we will be able to do
      so.




As
      of
      December 31, 2005, our code-share agreements required that we acquire from
      the aircraft manufacturer (subject to financing commitments) and place into
      service an additional
      seven regional
      jets over the next 9 months. Embraer's current list price of these 7 regional
      jets is approximately $196.8 million. We
      also
      had four additional firm orders which have not yet been allotted to a major
      airline partner. Embraer’s current list price of these 4 regional jets is
      approximately $112.5 million. We
      have
      commitments to obtain financing for these 11 firm order regional jets. These
      commitments are subject to customary closing conditions.




We
      expect
      to fund future capital commitments through internally generated funds,
      third-party aircraft financings, and debt and other financings.




We
      currently anticipate that our available cash resources, cash generated from
      operations and anticipated third-party financing arrangements will be sufficient
      to meet our anticipated working capital and capital expenditure requirements
      for
      at least the next 12 months. We may need to raise additional funds,
      however, to fund more rapid expansion, principally the acquisition of additional
      aircraft, or meet unanticipated working capital requirements. It is possible
      that future funding may not be available to us on favorable terms, or at all.







Our
      contractual obligations and commitments at December 31, 2005, include the
      following (in thousands):




**Payments
                Due By Period****Less
                than**
              **1
                year**
            
            **1-3
                years**
            
            **4-5
                years**
            
            **Over**
              **5
                years**
            
            **Total**Long-term
                debt (including interest)
            
            $
            156,706
            
            $
            460,594
            
            $
            306,300
            
            $
            1,146,533
            
            $
            2,070,133Operating
                leases
            
            
            90,462
            
            
            259,371
            
            
            162,325
            
            
            440,031
            
            
            952,189Aircraft
                under firm orders:US
                Airways Lease Obligations (15)
            
            
            2,644
            
            
            92,120
            
            
            56,814
            
            
            198,325
            
            
            349,903Debt-financed
                (11)
            
            
            309,307
            
            
            —
            
            
            —
            
            
            —
            
            
            309,307Engine
                under firm orders
            
            
            3,557
            
            
            —
            
            
            —
            
            
            —
            
            
            3,557Total
                contractual cash obligations
            
            $
            562,676
            
            $
            812,085
            
            $
            525,439
            
            $
            1,784,889
            
            $
            3,685,089




We
      have a
      long-term maintenance agreement with an avionics equipment manufacturer and
      maintenance provider that has a guaranteed minimum annual flight hour
      requirement. The minimum guaranteed amount based on our current operations
      is $4.4 million
      per year through January 2012. We did not record a liability for this
      guarantee because we did not believe that our aircraft will be utilized below
      the minimum flight hour requirement during the term of the agreement.




We
      have a
      long-term maintenance agreement with an aviation equipment manufacturer through
      October 2013. The agreement has a penalty payment provision if more than
      twenty percent of Chautauqua's aircraft are removed from service based on the
      annual flight activity prior to the date of removal. We did not record a
      liability for this penalty provision because we do not believe that more than
      twenty percent of their aircraft will be removed from service during the term
      of
      the agreement.




We
      have
      long-term maintenance agreements based upon flight activity with engine
      manufacturers and maintenance providers through June 2014.




We
      have a
      long-term maintenance agreement for wheels and brakes through June 2014.
      The agreement has an early termination penalty if Chautauqua removes the
      equipment from certain aircraft, sells or leases certain aircraft to a third
      party or terminates the services prior to expiration of agreement. The maximum
      penalty during the two years subsequent to December 31, 2005 is $0.6 million
      and
      is reduced every two years thereafter. We did not record a liability for this
      penalty provision because we did not believe the contract would be terminated
      prior to the expiration date.




Total
      payments under these long-term maintenance agreements were $29.4 million,
      $40.0 and $53.6 million
      for the years ended December 31, 2003, 2004 and 2005, respectively.


Our
      commercial commitments at December 31, 2005 include letters of credit
      totaling $7.5 million expiring
      within one year.




Cash
      payments for interest were approximately $67.5 million in 2005. Tax payments
      in
      2005 were not significant and we are not expecting significant payments in
      2006.




-42-


**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.




§ 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 aircraft and spare parts.




§  Aircraft
      Maintenance and Repair. We follow a method of expensing such amounts as incurred
      rather than accruing for expected costs or capitalizing and amortizing such
      costs. However, maintenance and repairs for engines and airframe components
      under power-by-the-hour contracts (such as avionics, APUs, wheels and brakes)
      are accrued for as the aircraft are operated; therefore, amounts are expensed
      based upon actual hours flown.




§ Warrants. Warrants issued to non-employees are accounted for under SFAS
      No. 123, Accounting for Stock-Based Compensation, and EITF 96-18,
      Accounting for Equity Instruments That Are Issued to Other Than Employees for
      Acquiring, or in Conjunction with Selling, Goods or Services, at fair value
      on
      the measurement date. Fair value for warrants issued to Delta (for which a
      measurement date has occurred) have been determined based upon the estimated
      fair value of the equity instrument issued rather than the consideration
      received because we believe it is more reliably measured. Various option pricing
      models are available; however, we have used a model that allows continuous
      compounding of dividends which begins three years after the grant date and
      the
      dilutive effects of our initial public offering and the follow-on offerings
      in
      2005. Option pricing models require estimates of dividend yield, a risk free
      rate commensurate with the warrant term, stock volatility and the expected
      life
      of the warrant. Each of these variables has been determined based upon relevant
      industry market data, our strategic business plan and consultation with
      appropriate professionals experienced in valuing similar equity instruments.





§ Income
      Taxes. The Company has generated significant net operating losses (“NOLs”) for
      federal income tax purposes primarily from accelerated depreciation on owned
      aircraft. In July 2005, Wexford Capital LLC’s ownership percentage of the
      Company was reduced to less than 50% as a result of a follow-on offering of
      our
      common stock. As a result of this decrease in ownership, the utilization of
      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 pre July
      2005
      NOLs becomes uncertain in future years, we will be required to record a
      valuation allowance for the NOLs not expected to be utilized.





§ Intangible Commuter Slots. The Company acquired commuter slots at the New
      York-LaGuardia and Ronald Reagan Washington National airports from US
      Airways.  The estimated useful lives of these commuter slots were
      determined based upon the period of time cash flows are expected to 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 reviewed
      annually.





§ Reportable Segments. The Company’s only reportable segment is scheduled
      transportation of passengers and air freight under code-share agreements. In
      addition, the Company has charter service, aircraft leasing and commuter slot
      licensing fee revenues. These activities aggregated represent less than 10%
      of
      consolidated revenues, operating income and assets. If these activities become
      more significant in future years, additional reportable segments would need
      to
      be disclosed.







-43-


**Quarterly
      Information (unaudited)**




The
      following table sets forth summary quarterly financial information for the
      years
      ended December 31, 2004 and 2005.




**Quarters
                Ended****March
                31**
            
            **June
                30**
            
            **September
                30**
            
            **December
                31****(dollars
                in thousands)**2005Operating
                revenues
            
            $
            209,759
            
            $
            213,248
            
            $
            230,238
            
            $
            251,776Operating
                income
            
            
            36,540
            
            
            34,969
            
            
            37,425
            
            
            49,785Net
                income
            
            
            14,825
            
            
            13,396
            
            
            13,971
            
            
            18,462Net
                income per share:Basic
            
            $
            0.50
            
            $
            0.41
            
            $
            0.36
            
            $
            0.44Diluted
            
            $
            0.49
            
            $
            0.40
            
            $
            0.35
            
            $
            0.43Weighted
                average number of shares outstanding:Basic
            
            
            29,785,423
            
            
            32,482,867
            
            
            39,283,985
            
            
            41,696,145Diluted
            
            
            30,538,283
            
            
            33,341,317
            
            
            40,149,831
            
            
            42,916,2332004Operating
                revenues
            
            $
            141,885
            
            $
            150,466
            
            $
            165,453
            
            $
            188,520Operating
                income
            
            
            20,641
            
            
            18,762
            
            
            20,670
            
            
            31,272Net
                income
            
            
            8,280
            
            
            7,234
            
            
            8,572
            
            
            14,766Net
                income per share:Basic
            
            $
            0.41
            
            $
            0.32
            
            $
            0.34
            
            $
            0.58Diluted
            
            $
            0.40
            
            $
            0.31
            
            $
            0.33
            
            $
            0.56Weighted
                average number of shares outstanding:Basic
            
            
            20,000,000
            
            
            22,317,363
            
            
            25,508,756
            
            
            25,542,702Diluted
            
            
            20,887,240
            
            
            23,055,110
            
            
            26,203,207
            
            
            26,164,628




**New
      Accounting Standards**




In
      December 2004, the Financial Accounting Standards Board issued SFAS
      No. 123(R), Share-Based Payment, as a replacement of SFAS No. 123,
      Accounting for Stock-Based Compensation, and APB Opinion No. 25, Accounting
      for Stock Issued to Employees, was rescinded. This statement requires
      compensation costs related to share-based payment transactions to be recognized
      in the financial statements. With limited exceptions, the amount of compensation
      cost will be measured based upon the grant date fair value of the equity or
      liability issued. In addition, liability awards will be remeasured each
      reporting period and compensation costs will be recognized over the period
      that
      an employee provides service in exchange for the award. This statement is
      effective for public companies as of the first annual reporting period beginning
      after June 15, 2005. We have not yet completed our final assessment of the
      impact of this statement on our financial condition and results of operations.
      However, we estimate the stock compensation expense for previously granted
      options to be approximately $900,000 for the year ending December 31,
      2006.





-44-





**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 are affected by changes in interest rates due to the amounts of
      variable rate debt and the amount of cash and securities held. The interest
      rate
      applicable to variable rate debt may rise and increase the amount of interest
      expense. At December 31, 2005, 0.2 %
      of our
      total long-term debt was variable rate debt, compared to 0.4% at December 31,
      2004. For illustrative purposes only, we have estimated the impact of market
      risk using a hypothetical increase in interest rates of one percentage point
      for
      both our variable rate long-term debt and cash and securities. Based on this
      hypothetical assumption, we would have incurred an additional $ 35,000 in
      interest expense for the year ended December 31, 2005. As a result of this
      hypothetical assumption, we believe we could fund interest rate increases on
      our
      variable rate long-term debt with the increased amounts of interest income.
      We
      do not believe we have significant exposure to the changing interest rates
      on
      our fixed-rate, long-term debt instruments, which represented 99.8 %
      of our
      total long-term debt at December 31, 2005, and 99.6% of our total long-term
      debt
      at December 31, 2004.




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 with
      American, US Airways, Delta and United, our reimbursement rates will be adjusted
      higher or lower to reflect any changes in our aircraft rental rates.




Beginning
      in April 2004, in anticipation of financing the purchase of regional jet
      aircraft on firm order with the manufacturer, we entered into fourteen treasury
      lock agreements with notional amounts totaling $373.5 million and a
      weighted average interest rate of 4.47% with expiration dates through
      June 2005. Management designated the treasury lock agreements as cash flow
      hedges of forecasted transactions. The treasury lock agreements were settled
      at
      each respective settlement date, which were the purchase dates of the respective
      aircraft. We settled ten agreements during 2005 and the net amount paid was
      $4.5 million. Amounts paid or received on the settlement date are
      reclassified to interest expense over the term of the respective aircraft debt.
      We reclassified  $262,000  to
      interest expense during the year ended December 31, 2005. As of
      December 31, 2005, all of the treasury locks had been settled.




-45-





**ITEM
      8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
      DATA**







**REPUBLIC
                AIRWAYS HOLDINGS INC. AND SUBSIDIARIES****INDEX
                TO AUDITED CONSOLIDATED
                FINANCIAL STATEMENTS**Report
                of Independent Registered
                Public Accounting Firm
            47Consolidated
                Balance Sheets as of
                December 31, 2005 and 2004
            48Consolidated
                Statements of Income
                for the years ended December 31, 2005, 2004 and 2003
            49Consolidated
                Statements
                of Stockholders' Equity and Comprehensive Income for the years
                ended December 31, 2005, 2004 and 2003
            50Consolidated
                Statements of Cash
                Flows for the years ended December 31, 2005, 2004 and
                2003
            51Notes
                to Consolidated Financial
                Statements
            52





-46-




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC
      ACCOUNTING FIRM**


To
      the
      Board of Directors and Stockholders of


Republic
      Airways Holdings Inc.




We have audited the accompanying consolidated balance sheets of
      Republic Airways Holdings Inc. and subsidiaries (the “Company”) as of December
      31, 2005 and 2004, 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, 2005.  We also have audited
      management's assessment, included in the accompanying Management Report on
      Internal Control Over Financial Reporting included in Item 9A, that the Company
      maintained effective internal control over financial reporting as of December
      31, 2005, based on criteria established in *Internal
      Control—Integrated Framework* issued
      by
      the Committee of Sponsoring Organizations of the Treadway Commission.  The
      Company's management is responsible for these consolidated financial statements,
      for maintaining effective internal control over financial reporting, and for
      its
      assessment of the effectiveness of internal control over financial
      reporting.  Our responsibility is to express an opinion on these
      consolidated financial statements, an opinion on management's assessment, and
      an
      opinion on the effectiveness of 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 audit of 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, evaluating management's assessment, testing and evaluating the design
      and operating effectiveness of internal control, and 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, 2005 and 2004, and the results of their operations
      and cash flows for each of the three years in the period ended December 31,
      2005, in conformity with accounting principles generally accepted in the United
      States of America.  Also in our opinion, management's assessment that the
      Company maintained effective internal control over financial reporting as of
      December 31, 2005, is fairly stated, in all material respects, based on the
      criteria established in *Internal
      Control—Integrated Framework* issued
      by
      the Committee of Sponsoring Organizations of the Treadway Commission. 
Furthermore, in our opinion, the Company maintained, in all material respects,
      effective internal control over financial reporting as of December 31, 2005,
      based on the criteria established in *Internal
      Control—Integrated Framework* issued
      by
      the Committee of Sponsoring Organizations of the Treadway Commission *.*




As
      discussed in Note 1 to
      the consolidated financial statements, the accompanying consolidated financial
      statements give retroactive effect to the merger of Republic Airways Holdings
      Inc. and Shuttle America Corporation on May 6, 2005, which was accounted for
      in
      a manner similar to a pooling of interests, and 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. and United Air Lines,
      Inc.






/s/
      DELOITTE & TOUCHE LLP


Indianapolis,
      Indiana


February
      24, 2006  -47-





**REPUBLIC
      AIRWAYS HOLDINGS INC. AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE
      SHEETS**


**AS
      OF DECEMBER 31, 2005 AND 2004**


**(In
      thousands, except share and per share amounts)**








**2005**
            
            **2004****ASSETS**Current
                Assets:Cash
                and cash equivalents
            
            $
            162,005
            
            $
            46,220Receivables—net
                of allowance for doubtful accounts of $343and
                $3,869, respectively
            
            
            16,701
            
            
            6,385Inventories-net
            
            
            18,756
            
            
            18,234Prepaid
                expenses and other current assets
            
            
            13,841
            
            
            4,630Restricted
                cash
            
            
            1,218
            
            
            1,203Deferred
                income taxes
            
            
            3,656
            
            
            6,428Total
                current assets
            
            
            216,177
            
            
            83,100Aircraft
                and other equipment—net
            
            
            1,662,236
            
            
            984,512Other
                assets
            
            
            144,199
            
            
            90,873Goodwill
            
            
            13,335
            
            
            13,335Total
            
            $
            2,035,947
            
            $
            1,171,820**LIABILITIES
                AND STOCKHOLDERS' EQUITY**Current
                Liabilities:Current
                portion of long-term debt
            
            $
            73,935
            
            $
            46,986Accounts
                payable
            
            
            13,353
            
            
            12,100Fair
                value of interest rate hedge
            
            
            
            
            
            4,012Accrued
                liabilities
            
            
            71,648
            
            
            53,385Total
                current liabilities
            
            
            158,936
            
            
            116,483Long-term
                debt—less current portion
            
            
            1,339,505
            
            
            803,883Deferred
                credits and other non current liabilities
            
            
            23,137
            
            
            19,847Deferred
                income taxes
            
            
            89,671
            
            
            56,956Total
                liabilities
            
            
            1,611,249
            
            
            997,169Commitments
                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; 75,000,000 shares
                authorized;41,787,685and25,558,756shares issued and outstanding, respectively
            
            
            42
            
            
            26Additional
                paid-in capital
            
            
            277,505
            
            
            87,120Warrants
            
            
            8,574
            
            
            8,574Accumulated
                other comprehensive loss
            
            
            (4,176
            )
            
            (4,168
            )Accumulated
                earnings
            
            
            142,753
            
            
            83,099Total
                stockholders' equity
            
            
            424,698
            
            
            174,651Total
            
            $
            2,035,947
            
            $
            1,171,820


See
      accompanying notes to consolidated financial statements.


-48-





**REPUBLIC
      AIRWAYS HOLDINGS INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF
      INCOME**


**FOR
      THE YEARS ENDED DECEMBER 31, 2005, 2004, AND 2003**


**(In
      thousands, except per share amounts)**




**2005**
            
            **2004**
            
            **2003****OPERATING
                REVENUES:**Passenger
            
            $
            883,906
            
            $
            636,389
            
            $
            479,343Contract
                termination fee
            
            
            
            
            
            
            
            
            6,000Other
            
            
            21,115
            
            
            9,935
            
            
            6,937Total
                operating revenues
            
            
            905,021
            
            
            646,324
            
            
            492,280**OPERATING
                EXPENSES:**Wages
                and benefits
            
            
            143,826
            
            
            112,305
            
            
            86,949Aircraft
                fuel
            
            
            278,923
            
            
            174,208
            
            
            106,840Passenger
                fees and commissions
            
            
            —
            
            
            2,939
            
            
            6,254Landing
                fees
            
            
            30,376
            
            
            24,201
            
            
            19,098Aircraft
                and engine rent
            
            
            77,725
            
            
            74,514
            
            
            67,350Maintenance
                and repair
            
            
            76,481
            
            
            70,290
            
            
            53,475Insurance
                and taxes
            
            
            16,117
            
            
            13,186
            
            
            12,859Depreciation
                and amortization
            
            
            64,877
            
            
            34,412
            
            
            23,873Impairment
                loss and accrued aircraft return costs
            
            
            (4,218
            )
            
            1,441
            
            
            2,756Other
            
            
            62,195
            
            
            47,483
            
            
            30,115Total
                operating expenses
            
            
            746,302
            
            
            554,979
            
            
            409,569OPERATING
                INCOME
            
            
            158,719
            
            
            91,345
            
            
            82,711OTHER
                INCOME (EXPENSE):Interest
                expense:Non-related
                party
            
            
            (63,503
            )
            
            (27,812
            )
            
            (21,183)Related
                party
            
            
            (43
            )
            
            (652
            )
            
            (1,606)Interest
                and other income
            
            
            5,002
            
            
            518
            
            
            195Total
                other income (expense)
            
            
            (58,544
            )
            
            (27,946
            )
            
            (22,594
            )INCOME
                BEFORE INCOME TAXES
            
            
            100,175
            
            
            63,399
            
            
            60,117INCOME
                TAX EXPENSE
            
            
            39,521
            
            
            24,547
            
            
            23,979NET
                INCOME
            
            
            60,654
            
            
            38,852
            
            
            36,138Preferred
                stock dividends
            
            
            
            
            
            
            
            
            (170)Net
                income available
              for
                common stockholders
            
            $
            60,654
            
            $
            38,852
            
            $
            35,968Basic
                net income available for common stockholders per share
            
            $
            1.69
            
            $
            1.66
            
            $
            1.80Diluted
                net income available for common stockholders per share
            
            $
            1.66
            
            $
            1.62
            
            $
            1.73


See
      accompanying notes to consolidated financial statements.


-49-





**REPUBLIC
      AIRWAYS HOLDINGS INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS' EQUITY
      AND COMPREHENSIVE INCOME**


**FOR
      THE YEARS ENDED DECEMBER 31, 2005, 2004, AND 2003**


**(In
      thousands)**


**Other**
              **Comprehensive**
              **Income**
            
            **Common**
              **Stock**
            
            **Additional**
              **Paid-in**
              **Capital**
            
            **Warrants**
            
            **Accumulated**
              **Other**
              **Comprehensive**
              **Loss**
            
            **Accumulated**
              **Earnings**
            
            **Total**Balance
                at January 1, 2003
            
            
            
            
            $
            20
            
            $
            19,491
            
            $
            3,480
            
            
            
            
            $
            8,279
            
            $
            31,270Stock
                compensation expense
            
            
            
            
            
            
            
            
            214
            
            
            
            
            
            
            
            
            
            
            
            214Dividends
                on redeemable preferred stock of subsidiary
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (170
            )
            
            (170
            )Warrants
                issued and revalued
            
            
            
            
            
            
            
            
            
            
            
            1,587
            
            
            
            
            
            
            
            
            1,587Capital
                contribution
            
            
            
            
            
            
            
            
            3,367
            
            
            
            
            
            
            
            
            
            
            
            3,367Net
                income
            
            $
            36,138
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            36,138
            
            
            36,138Comprehensive
                income
            
            $
            36,138Balance
                at December 31, 2003
            
            
            
            
            
            20
            
            
            23,072
            
            
            5,067
            
            
            
            
            
            44,247
            
            
            72,406Stock
                compensation expense
            
            
            
            
            
            
            
            
            214
            
            
            
            
            
            
            
            
            
            
            
            214Common
                stock offering, net
            
            
            
            
            
            5
            
            
            58,167
            
            
            
            
            
            
            
            
            
            
            
            58,172Exercise
                of employee stock options
            
            
            
            
            
            1
            
            
            1,717
            
            
            
            
            
            
            
            
            
            
            
            1,718Warrants
                issued
            
            
            
            
            
            
            
            
            
            
            
            10,263
            
            
            
            
            
            
            
            
            10,263Warrants
                surrendered
            
            
            
            
            
            
            
            
            
            
            
            (6,756
            )
            
            
            
            
            
            
            
            (6,756
            )Capital
                contribution
            
            
            
            
            
            
            
            
            3,950
            
            
            
            
            
            
            
            
            
            
            
            3,950Net
                income
            
            $
            38,852
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            38,852
            
            
            38,852Unrealized
                losses on derivative instruments, net of tax
            
            
            (4,168
            )
            
            
            
            
            
            
            
            
            
            $
            (4,168
            )
            
            
            
            
            (4,168
            )Comprehensive
                income
            
            $
            34,684Balance
                at December 31, 2004
            
            
            
            
            
            26
            
            
            87,120
            
            
            8,574
            
            
            (4,168
            )
            
            83,099
            
            
            174,651Stock
                compensation expense
            
            
            
            
            
            
            
            
            125
            
            
            
            
            
            
            
            
            
            
            
            125Common
                stock offerings net
            
            
            
            
            
            16
            
            
            186,749
            
            
            
            
            
            
            
            
            
            
            
            186,765Exercise
                of employee stock options
            
            
            
            
            
            
            
            
            3,111
            
            
            
            
            
            
            
            
            
            
            
            3,111Capital
                contribution
            
            
            
            
            
            
            
            
            400
            
            
            
            
            
            
            
            
            
            
            
            400Distribution
                to WexAir LLC for Shuttle America merger
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,000
            )
            
            (1,000
            )Net
                income
            
            $
            60,654
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            60,654
            
            
            60,654Unrealized
                losses on derivative instruments, net of tax
            
            
            (8
            )
            
            
            
            
            
            
            
            
            
            
            (8
            )
            
            
            
            
            (8
            )Comprehensive
                income
            
            $
            60,646Balance
                at December 31, 2005
            
            
            
            
            $
            42
            
            $
            277,505
            
            $
            8,574
            
            $
            (4,176
            )
            $
            142,753
            
            $
            424,698


S ee
      accompanying notes to consolidated financial statements.








-50-


**REPUBLIC
      AIRWAYS HOLDINGS INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH
      FLOWS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2005, 2004 and 2003**


**(In
      thousands)**


**2005**
            
            **2004**
            
            **2003**OPERATING
                ACTIVITIES:Net
                income
            
            $
            60,654
            
            $
            38,852
            
            $
            36,138Adjustments
                to reconcile net income to net cash from operating
                activities:Depreciation
                and amortization
            
            
            64,877
            
            
            34,412
            
            
            23,873Debt
                issue costs and other amortization
            
            
            2,776
            
            
            1,928
            
            
            1,968Warrant
                amortization
            
            
            372
            
            
            800
            
            
            359Loss
                (gain) on aircraft and other equipment disposals
            
            
            (276
            )
            
            1,151
            
            
            1,079Impairment
                loss and accrued aircraft return costs
            
            
            (4,218
            )
            
            1,441
            
            
            2,756Amortization
                of deferred credits
            
            
            (1,346
            )
            
            (1,285
            )
            
            (1,249
            )Stock
                compensation expense
            
            
            125
            
            
            214
            
            
            214Deferred
                income taxes
            
            
            37,606
            
            
            24,027
            
            
            23,742Changes
                in certain assets and liabilities:Receivables
            
            
            (10,323
            )
            
            10,480
            
            
            (7,124
            )Inventories
            
            
            1,276
            
            
            (2,683
            )
            
            (2
            )Prepaid
                expenses and other current assets
            
            
            (4,907
            )
            
            (1,022
            )
            
            1,057Accounts
                payable
            
            
            1,152
            
            
            1,963
            
            
            (4,405
            )Accrued
                and other liabilities
            
            
            28,980
            
            
            11,370
            
            
            14,937Other
                assets
            
            
            (5,869
            )
            
            (4,821
            )
            
            (1,716
            )Net
                cash from operating activities
            
            
            170,879
            
            
            116,827
            
            
            91,627INVESTING
                ACTIVITIES:Purchase
                of aircraft and other equipment
            
            
            (126,928
            )
            
            (64,361
            )
            
            (37,071
            )Purchase
                of commuter slots
            
            
            (51,640
            )Proceeds
                from sale of aircraft equipment
            
            
            2,479
            
            
            699
            
            
            826Aircraft
                deposits and other
            
            
            (37,206)
            
            
            (79,244)
            
            
            (9,628
            )Aircraft
                deposits returned
            
            
            38,158
            
            
            40,480
            
            
            15,192Change
                in restricted cash
            
            
            (15)
            
            
            2
            
            
            (2
            )Net
                cash from investing activities
            
            
            (175,152
            )
            
            (102,424
            )
            
            (30,683
            )FINANCING
                ACTIVITIES:Payments
                on short/long-term debt
            
            
            (53,363)
            
            
            (26,947
            )
            
            (39,129
            )Proceeds
                from short/long-term debt
            
            
            
            
            
            3,213Repayment
                of subordinated notes payable to affiliate (Wexford)
            
            
            (1,250)
            
            
            (43,672
            )
            
            (37,559
            )Proceeds
                from capital contribution (Wexford)
            
            
            400
            
            
            3,950
            
            
            3,367Proceeds
                from subordinated notes payable from affiliate (Wexford)
            
            
            250
            
            
            20,390
            
            
            35,566Proceeds
                from common stock offerings, net
            
            
            186,765
            
            
            58,172Payments
                on redemption of redeemable preferred stock of subsidiary
            
            
            
            
            
            
            
            
            (5,368
            )Payments
                on settlement of treasury locks
            
            
            (4,694
            )
            
            (3,562
            )Proceeds
                on settlement of treasury locks
            
            
            192
            
            
            593Proceeds
                from exercise of stock options
            
            
            1,189
            
            
            978Debt
                issue costs
            
            
            (9,431
            )
            
            (3,835
            )
            
            (1,968
            )Other
            
            
            
            
            
            2
            
            
            (2
            )Net
                cash from financing activities
            
            
            120,058
            
            
            9,282
            
            
            (45,093
            )Net
                changes in cash and cash equivalents
            
            
            115,785
            
            
            23,685
            
            
            15,851CASH
                AND CASH EQUIVALENTS AT BEGINNING OF YEAR
            
            
            46,220
            
            
            22,535
            
            
            6,684CASH
                AND CASH EQUIVALENTS AT END OF YEAR
            
            $
            162,005
            
            $
            46,220
            
            $
            22,535


See
      accompanying notes to consolidated financial statements.


-51-





**REPUBLIC
      AIRWAYS HOLDINGS INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL
      STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2005, 2004, and 2003**


**(Dollars
      in thousands, except share and per share amounts)**






**1.
      ORGANIZATION & BUSINESS**




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 (collectively “Republic” or the “Company”), Chautauqua
      Airlines, Inc. (“Chautauqua”), an Indiana Corporation and certified air carrier;
      Shuttle America Corporation (“Shuttle America”), an Indiana Corporation and
      certified air carrier and  Republic Airline Inc. (“Republic Airline”) an
      Indiana Corporation and certified air carrier. Republic Airline received
      its air carrier operating certificate in August 2005.





Effective
      May 6, 2005, Republic entered into a stock purchase agreement (the “Agreement”)
      with Shuttle America and Shuttle Acquisition LLC (“Shuttle LLC”), pursuant to
      which the Company acquired all of the issued and outstanding common stock of
      Shuttle America from Shuttle LLC. Consideration paid was a promissory note
      in
      the aggregate principal amount of $1,000 payable by Republic to Shuttle LLC
      and
      the assumption of certain debt of Shuttle America totaling approximately $679.
      Because Republic and Shuttle America was commonly controlled by Wexford Capital
      LLC (“Wexford”), the acquisition was accounted for in a manner similar to
      pooling of interests. The consolidated financial statements give retroactive
      effect to the merger of Republic and Shuttle America since they were under
      common control during the periods presented.




The
      Company operates as an air carrier providing scheduled passenger and air freight
      service as US Airways Express, American Connection, Delta Connection and United
      Express under code-share agreements with US Airways, Inc. ("US Airways"),
      AMR Corporation ("American"), Delta Air Lines, Inc. ("Delta") and United
      Air Lines, Inc. (“United”), respectively. The Company has a code-share
      agreement with US Airways and offers passenger and air freight service from
      US
      Airways' hub and focus airports in Philadelphia and Pittsburgh, Pennsylvania,
      Indianapolis, Indiana, Boston, Massachusetts, New York, New York (LaGuardia)
      and
      Washington, D.C. Under the code-share agreement with American, the Company
      offers passenger and air freight service from American's hub airport in St.
      Louis, Missouri. The code-share agreement with Delta offers passenger and air
      freight service from Delta's hub and focus airports in Orlando, Cincinnati
      and
      Fort Lauderdale. Under the code-share agreement with United, the
      Company offers passengers and air freight service from United’s hub
      airports in Chicago and Washington D.C, (Dulles and National).





In
      August
      2005, Republic Airline received its FAA Operating Certificate and began revenue
      service for US Airways, on September 1, 2005, operating 72-seat ERJ-170
      aircraft. Under
      the
      US Airways code-share agreement for 50 seat aircraft, which expires in
      2013, the Company provides service to designated areas utilizing jet
      aircraft. The US Airways code-share agreements with the Company, as amended,
      allows the Company to operate up to 35 but not less than twenty 50 seat regional
      jets on a fixed-fee basis with reimbursement of certain pass-through costs.
      As
      of December 31, 2005, the Company has thirty 50 seat regional
      jets dedicated to US Airways' service.





On
      March
      15, 2005, the Company and Wexford entered into an investment agreement with
      US
      Airways Group, Inc. and US Airways. The agreement included provisions for the
      affirmation of an amended Chautauqua code-share agreement, a new jet service
      agreement for the operation of ERJ-170 and ERJ-190 aircraft, a conditional
      $125,000 equity commitment and up to $110,000 in asset related financing. The
      Bankruptcy Court approved the agreement on March 31, 2005.





On
      June
      23, 2005, the Company received notification from US Airways Group that
      it would not be requested to make the $125,000 equity investment, but US
      Airways notified the Company that it would exercise its right to receive up
      to $110,000 in asset related financing in connection with its reorganization
      plan.





On
      September 21, 2005, the Company and US Airways entered into a global aircraft
      transaction agreement. Under this agreement, the Company purchased 10 ERJ-170
      aircraft owned by US Airways and leased the 10 aircraft back to US Airways
      subject to their transfer to Republic Airline under a 10-year fixed-fee jet
      service agreement the Company entered into with US Airways on September 2,
      2005.
      The Company also agreed to assume the leases of 15 additional ERJ-170 aircraft,
      which it expects to transition to Republic Airline by September 2006. In
      addition, under a commuter slot option agreement that the Company and US Airways
      entered into on September 22, 2005, the Company purchased 113 commuter slots
      at
      Ronald Reagan Washington National Airport and 24 commuter slots at New
      York-LaGuardia Airport. Republic assigned the right of use of 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.




Under
      the
      American code-share agreement, which expires in 2013, the
      Company provides regional jet service on a fixed-fee basis with
      reimbursement of certain pass-through costs and allows the the
      Company to operate fifteen 44 seat regional jets. The agreement may be
      terminated by American without cause at any time after September 30, 2008
      with 180 days notice. As of December 31, 2005, the Company had 15
      regional jets dedicated to American service.





The
      Company started regional jet service for Delta in November 2002. The
      regional jet code-share agreement with Delta for 37 and 50 seat aircraft, as
      amended, which expires in 2016, is on a fixed-fee basis with reimbursement
      of
      certain pass-through costs and provides for 39 aircraft to be placed into
      service. The agreement may be partially or completely terminated by Delta with
      or without cause at any time after November 2009 with 180 days notice.
      As of December 31, 2005, the Company has thirty-nine regional
      jets dedicated to Delta service.





In
      January 2005, the Company and Delta entered into a code-share agreement whereby
      the Company will operate 16 ERJ-170 aircraft for Delta. This agreement
      expires in 2019 and can be terminated by Delta with or without cause at any
      time
      after 2013.  As of
      December 31, 2005, the Company had nine ERJ-170’s dedicated to Delta
      service.





The
      Company previously provided regional jet service for America West and, in
      February 2003, the Company and America West agreed to terminate
      their code-share agreement. The code-share agreement with America West commenced
      in August 2001 and was on a fixed-fee basis with reimbursement of certain
      pass-through costs. Pursuant to the termination of the code-share
      agreement, the Company and America West agreed to remove the 12
      aircraft from service during April, May and June 2003 and America West
      paid the Company a contract termination fee of $6,000 as the aircraft
      were taken out of service. The Company amended the Delta code-share
      agreement on February 7, 2003 to utilize these 12 aircraft.





The
      Company's previous pro-rate code-share agreement with US Airways was terminated
      in October 2004. The code-share agreement with US Airways allowed the Company
      to
      operate Saab 340 turbo-prop aircraft under a pro-rate arrangement, for which
      the
      Company received an allocated portion of the passengers’ fare and paid for all
      of the costs of transporting the passengers. In 2004 the Company transitioned
      the Saab 340 turbo-prop aircraft in service with US Airways to
      United.





-52-


In
      February 2004, the Company entered into separate code-share agreements with
      United to operate nine 50 seat regional jets, twenty-three 70 seat regional
      jets
      and ten turboprop aircraft. The agreements for the ERJ-145 and ERJ-170
      regional jet aircraft expire in 2014 and 2015, respectively, and the turboprop
      agreement expired in 2005. The 50 seat regional jet agreement may be terminated
      with or without cause by United upon 18 months prior written notice after
      December 31, 2007.  As of December 31, 2005, twenty-eight 70 seat
      regional jets and seven 50 seat regional jets were in operation.




On
      June
      22, 2005, the Company amended its code-share agreements with United increasing
      the ERJ-170 fleet from 23 to 28 aircraft and reducing the ERJ-145 fleet from
      nine to seven aircraft. The five additional ERJ-170 aircraft were all placed
      into service by December 31, 2005. The two ERJ-145 aircraft were removed from
      service and added to the Company’s charter operations beginning in November,
      2005.





During
      2005, the Company sub-leased five ERJ-145 aircraft to an airline operating
      in
      Mexico through 2013.





The
      code-share agreements provide the Company with a nonexclusive license to the
      code-share partners' trademarks, as well as general air carrier support
      services, and contain provisions relating to the size and use of aircraft,
      insurance and service requirements. Under certain code-share agreements, the
      code-share partners are required to provide reservation systems, ground handling
      and other services to the Company. The Company may receive operating performance
      incentives from the code-share partners based on several metrics of customer
      service. The Company may also be liable to the code-share partners for operating
      performance penalties if customer service metrics are less than specified
      minimum levels.







T he
      following sets forth code-share partners’ passenger revenue and accounts
      receivable as a percentage of total passenger revenue and net receivables:


**US
                Airways**
            
            **American**
            
            **Delta**
            
            **United**
            
            **America**
              **West**Passenger
                revenues for the years ended:December
                31, 2005
            
            
            21
            %
            
            13
            %
            
            34
            %
            
            32
            %December
                31, 2004
            
            
            38
            
            
            16
            
            
            36
            
            
            10December
                31, 2003
            
            
            43
            
            
            21
            
            
            29
            
            
            
            
            
            7
            %Receivables
                as of:December
                31, 2005
            
            
            13
            
            
            17
            
            
            9
            
            
            32December
                31, 2004
            
            
            31
            
            
            37
            
            
            6
            
            
            2








Substantially
      all of the Company's revenue is derived from agreements with its four code-share
      partners. Termination of the US Airways, American, Delta or United regional
      code-share agreements could have a material adverse effect on the Company's
      financial position, results of operations and cash flows. On September 12,
      2004, US Airways filed a petition for Chapter 11 bankruptcy protection. Unpaid
      amounts related to pre-petition claims were approximately $ 3.2 million,
      which were written off as of September 30, 2005. We have been paid for all
      amounts due post-petition in accordance with our code-share
      agreement .
      In
      October 2005, US Airways emerged from bankruptcy. We have received 6,638 shares
      of US Airways common stock for our pre-petition claims. The fair value of the
      shares as of December 31, 2005 was $248. United emerged from bankruptcy on
      February 1, 2006.





Delta
      is
      attempting to reorganize its respective businesses under Chapter 11 of the
      bankruptcy code. We continue to
      operate all of our Delta aircraft; however, contingency plans are being
      developed to address potential outcomes of the Delta bankruptcy
      proceedings.







**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.





***Risk
      Management*** —The
      Company accounts for derivatives in accordance with SFAS No. 133, *Accounting
      for Derivative Instruments and Hedging Activities,* as
      amended and interpreted *.* Fuel
      swaps were not designated as hedging instruments and, accordingly, were carried
      at fair value in prepaid expenses and other current assets or accrued
      liabilities with gains and losses recorded in other income.





During
      2004 in anticipation of financing the purchase of regional jet aircraft on
      firm
      order with the manufacturer, the Company entered into fourteen treasury lock
      agreements with notional amounts totaling $373,500 and a weighted average
      interest rate of 4.47% with expiration dates through June 2005. Management
      designated the treasury lock agreements as cash flow hedges of forecasted
      transactions. The treasury lock agreements were settled at each respective
      settlement date, which were the purchase dates of the respective aircraft.
      The
      Company settled seven agreements during each of the years ended December 31,
      2004 and 2005. The net amount paid was $2,969 and $4,502 in 2004 and 2005,
      respectively, and was recorded in accumulated other comprehensive loss, net
      of
      tax. Of these amounts ,  the
      Company reclassified $21 and $286 to interest expense for the years ended
      December 31, 2004 and 2005, respectively .
      The
      Company expects to reclassify $299 to interest expense for the year ending
      December 31, 2006. Amounts are amortized to interest expense over the terms
      of
      the respective aircraft debt. All
      treasury locks had been settled as of December 31, 2005.




***Cash
      and Cash Equivalents*** —Cash
      equivalents consist of short-term, highly liquid investments with maturities
      of
      three months or less when purchased. Substantially all of our cash is on hand
      with one bank.








-53-


***Supplemental
      Cash Flow Information:***





**Years
                Ended December 31,****2005**
            
            **2004**
            
            **2003**CASH
                PAID (REFUNDED) FOR INTEREST AND INCOME TAXES:Interest—net
                of amount capitalized
            
            $
            64,763
            
            $
            27,073
            
            $
            18,862Income
                taxes paid (refunded)
            
            
            1,212
            
            
            380
            
            
            (607
            )NON-CASH
                TRANSACTIONS:Parts,
                training and lease credits from aircraft manufacturer
            
            
            (26,381
            )
            
            662
            
            
            650Receipt
                of US Airways stock
            
            
            248Conversion
                of accrued interest to subordinated note payable to
                affiliate
            
            
            43
            
            
            107
            
            
            1,512Preferred
                stock dividends declared
            
            
            —
            
            
            —
            
            
            170Aircraft,
                inventories, and other equipment purchased through financing
                arrangements
            
            
            616,010
            
            
            411,631
            
            
            241,690Warrants
                issued
            
            
            —
            
            
            10,263
            
            
            1,587Warrants
                surrendered
            
            
            —
            
            
            (6,756
            )
            
            —Fair
                value of interest rate hedge
            
            
            4,012
            
            
            (4,012
            )
            
            —Tax
              benefit for stock options exercised
            
            
            1,922





***Inventories*** consist
      primarily 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, 2005, 2004 and 2003 this reserve was $ 340 ,
      $1,500
      and $1,500, respectively.





***Aircraft
      and Other Equipment*** is
      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
      3
      to 10 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 $ 1,904 ,
      $1,692
      and $434 of interest for the years ended December 31, 2005, 2004 and 2003,
      respectively.





***Restricted
      Cash*** consists
      of restricted amounts for satisfying future debt and lease payments.





***Debt
      Issue Costs*** are
      capitalized and included in other assets and are amortized, using the effective
      interest method, to interest expense over the term of the related debt. Debt
      issue costs, net of accumulated amortization, of $15,779 and
      $8,048, are included in other assets in the consolidated balance sheets as
      of
      December 31, 2005 and 2004, respectively.





***Goodwill*** ** ***and
      Intangible Assets*** are
      accounted 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 at least annually for impairment. Intangible assets
      that have finite useful lives are amortized over their useful lives and reviewed
      for impairment at each reporting date. The weighted average life of the commuter
      slots is 23 years. Estimated aggregated amortization expense will approximate
      $3,584 in 2006 and $400 per year thereafter.





***Long-Lived
      Assets*** —Management
      reviews long-lived assets for possible impairment, if there is a significant
      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.





***Deferred
      Credits*** consist
      of credits for parts and training from the aircraft and engine manufacturers
      and
      deferred gains from the sale and leaseback of aircraft and spare jet engines.
      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.





***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 $4,176 and $4,168,
      net of tax, at December 31, 2005 and 2004, respectively. There were no other
      comprehensive income components for the years ended December 31, 2003.





***Income
      Taxes*** *—* Republic
      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 Repair*** is
      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 accrued 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. Under the code-share agreements, we estimate
      operating costs for certain “pass through” costs and record revenue based on
      these estimates. Actual results could differ from those estimates.





***Revenue
      Recognition—*** Revenues
      are recognized in the period the service is provided. The Company
      recognizes revenues and expenses in accordance with the terms of the fixed
      fee
      code-share agreements, which includes pass-through costs. The
      Company recognizes lease revenue for sub-leases for five ERJ-145 aircraft leased
      to an airline in Mexico and 3 ERJ-170 aircraft to US Airways. In addition,
      the
      Company recognizes license revenue from US Airways for commuter slots that
      were
      purchased by the Company and are being 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 sub-leases and the
      commuter slots are recognized when earned and included in other operating
      revenue.





-54-


***Warrants—*** Equity
      instruments issued to code-share partners are recorded on the measurement date
      as deferred charges and credits to stockholders’ equity. Warrants surrendered in
      a nonmonetary transaction are recorded at fair value on the measurement date
      as
      reductions to deferred warrant charges and stockholders’ equity. The deferred
      charges for warrants are amortized as a reduction of passenger revenue over
      the
      terms of the code-share agreements.





***Stock
      Compensation—*** The
      Company applies Accounting Principles Board Opinion No. 25, *Accounting
      for Stock Issued to Employees,* and
      related interpretations in accounting for stock options. No compensation expense
      is recorded for stock options with exercise prices equal to or greater than
      the fair market value on the grant date. Warrants issued to non-employees are
      accounted for under SFAS No. 123, *Accounting
      for Stock-Based Compensation* and
      EITF
      96-18, *Accounting
      for Equity Instruments That Are Issued to Other Than Employees for Acquiring,
      or
      in Conjunction with Selling, Goods or Services,* at
      fair
      value on the measurement date.





SFAS
      No. 148, *Accounting
      for Stock-Based Compensation—Transition and Disclosure—an Amendment of FASB
      Statement No. 123, Accounting for Stock-Based Compensation* ,
      requires disclosing the effects on net income available for common stockholders
      and net income available for common stockholders per share under the fair value
      method for all outstanding and unvested stock awards. SFAS No. 148
      disclosure requirements, including the effect on net income available for common
      stockholders and net income available for common stockholders per share, if
      the
      fair value based method had been applied to all outstanding and unvested stock
      awards in each period, are as follows:




**For
                the years ended December 31,****2005**
            
            
            **2004**
            
            
            **2003**Net
                income available for common stockholders, as reported
            
            $
            60,654
            
            $
            38,852
            
            $
            35,968Add:
                Stock-based employee compensation expense determined under the intrinsic
                value based method, net of tax
            
            
            75
            
            
            129
            
            
            128Deduct:
                Stock-based employee compensation expense determined under the fair
                value
                based method, net of tax
            
            
            (1,496
            )
            
            (327
            )
            
            (338
            )Pro
                forma net income available for common
              Stockholders
            
            $
            59,233
            
            $
            38,654
            
            $
            35,758Pro
                forma net income available for common stockholders per
                share:Basic
            
            $
            1.65
            
            $
            1.66
            
            $
            1.79Diluted
            
            $
            1.62
            
            $
            1.62
            
            $
            1.72





The
      fair
      value of options granted were estimated on the date of the grant using the
      Black-Scholes option pricing model with the following assumptions: no dividend
      yield; risk-free interest rates ranging from 2.0% to 6.70%; volatility of
      40%-50%; and an expected life ranging from 4 to 6.5 years. The pro forma
      amounts are not representative of the effects on reported earnings for future
      years.





***Net
      Income Available for Common Stockholders Per Share*** is based
      on the weighted average number of shares outstanding during the period.





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,****2005**
            
            **2004**
            
            **2003**Weighted-average
                common shares outstanding for basic net income available for common
                stockholders per share
            
            
            35,854,249
            
            
            23,349,613
            
            
            20,000,000Effect
                of dilutive employee stock options
            
            
            694,091
            
            
            557,150
            
            
            841,415Adjusted
                weighted-average common shares outstanding and assumed conversions
                for
                diluted net income available for common stockholders per
                share
            
            
            36,548,340
            
            
            23,906,763
            
            
            20,841,415





Employee
      stock options and warrants of 2,927,400 and 2,640,000 are not included in the
      calculation of diluted net income available for common stockholder per share
      due
      to their anti-dilutive impact for the years ended December 31, 2004 and
      2003, respectively. For the year ended December 31, 2005 all of the employee
      stock options and warrants were included in the calculation of diluted net
      income available for common stockholder per share.





***Segment
      Information*** —The
      Company has one reportable operating segment for the scheduled transportation
      of
      passengers and air freight under code-share agreements. The Company’s charter
      service and aircraft leasing revenues are immaterial.





***New
      Accounting Standards—*** In
      December 2004, SFAS No. 123(R), *Share-Based
      Payment* ,
      a
      replacement of SFAS No. 123, *Accounting
      for Stock-Based Compensation* ,
      and a
      rescission of APB Opinion No. 25, *Accounting
      for Stock Issued to Employees* ,
      was
      issued. This statement requires compensation costs related to share-based
      payment transactions to be recognized in the financial statements. With limited
      exceptions, the amount of compensation cost will be measured based upon the
      grant date fair value of the equity or liability issued. In addition, liability
      awards will be remeasured each reporting period and compensation costs will
      be
      recognized over the period that an employee provides service in exchange for
      the
      award. This statement is effective for public companies as of the first annual
      reporting period beginning after June 15, 2005. The Company has not yet
      completed its assessment of the impact of this statement on its financial
      condition and results of operations. However, the Company estimates the stock
      compensation expense for previously granted options to be approximately $900,000
      for the year ending December 31, 2006.





-55-


**3.
      AIRCRAFT AND OTHER EQUIPMENT**





At
      December 31, 2005, the Company has a total fleet of 150 regional jets,
      including sixty-eight 50-seat ERJ- 145 regional
      jets, fifteen 44-seat
      ERJ-140 regional jets, seventeen 37-seat
      ERJ-135 regional jets, and fifty 70-seat ERJ-170 regional
      jets. The Company owns five Saab 340
      aircraft, 25 ERJ-145 regional jets, 11  ERJ-140
      regional jets, 15 ERJ-135
      regional jets, 45 ERJ-170 regional jets and leases the other aircraft under
      operating lease agreements (see Note 8). The
      five
      Saab 340 aircraft and related spare parts are currently held for sale and
      recorded in prepaid and other current assets at a net realizable value of
      $956.





Aircraft
      and other equipment, excluding aircraft and other equipment held for sale,
      consist of the following as of December 31:





**2005**
            
            **2004**Aircraft
            
            $
            1,702,611
            
            $
            993,913Flight
                equipment
            
            
            69,635
            
            
            53,054Furniture
                and equipment
            
            
            4,729
            
            
            3,694Leasehold
                improvements
            
            
            9,126
            
            
            8,180Total
                aircraft and other equipment
            
            
            1,786,101
            
            
            1,058,841Less
                accumulated depreciation and amortization
            
            
            (123,865
            )
            
            (74,329
            )Aircraft
                and other equipment—Net
            
            $
            1,662,236
            
            $
            984,512





Aircraft
      and other equipment depreciation and amortization expense for the years ended
      December 31, 2005, 2004 and 2003 was $64,877 ,
      $34,412
      and $23,873, respectively.





**4.
      OTHER ASSETS**





Other
      assets consist of the following as of December 31:





**2005**
            
            
            **2004**Prepaid
                aircraft rent
            
            $
            23,708
            
            $
            20,744Aircraft
                deposits
            
            
            25,655
            
            
            47,428Deferred
                warrant charge, net (see Note 11)
            
            
            7,035
            
            
            7,407Debt
                issue costs, net
            
            
            15,779
            
            
            8,048Commuter
                slots
            
            
            50,722
            
            
            —Other
            
            
            21,300
            
            
            7,246$
            144,199
            
            $
            90,873





As
      part
      of the US Airways global aircraft transaction agreement, the Company purchased
      commuter slots at Ronald Reagan Washington National Airport and New York
      LaGuardia Airport. The
      New
      York LaGuardia Airport commuter slots are amortized over a 15 month life and
      the
      Ronald Reagan Washington National Airport commuter slots are amortized on a
      straight line basis over a 25 year life to a residual value. Amortization began
      in September 2005 and was approximately $918 in 2005. 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 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
      Washington and LaGuardia commuter slots at a predetermined price.





-56-


**5.
      ACCRUED LIABILITIES**





Accrued
      liabilities consist of the following as of December 31:




**2005**
            
            **2004**Accrued
                wages, benefits and related taxes
            
            $
            13,724
            
            $
            9,623Accrued
                maintenance
            
            
            10,709
            
            
            11,822Accrued
                aircraft return costs (see Note 15)
            
            
            —
            
            
            4,599Accrued
                property taxes
            
            
            2,976
            
            
            2,004Accrued
                interest payable to non-affiliates
            
            
            11,854
            
            
            6,726Accrued
                liabilities to code-share partners
            
            
            14,866
            
            
            8,808Other
            
            
            17,519
            
            
            9,803Total
                accrued liabilities
            
            $
            71,648
            
            $
            53,385






**6.
      DEBT**





Debt
      consists of the following as of December 31:





**2005**
            
            
            **2004**Revolving
                credit facility with Bank of America Business Capital (the "Bank"),
                maximum of $25,000 available (including outstanding letters of credit),
                subject to 70% of the net book value of spare rotable parts and 40%
                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
                2.0% to
                2.75% or the Bank's base rate (which is generally equivalent to the
                prime
                rate) plus spreads ranging from 0.25% to 0.75%. The weighted average
                interest rates for the years ended December 31, 2005, 2004 and 2003
                were
                6.0%, 4.2%, and 4.5%, respectively. Fees are payable at 0.375% on
                the
                unused revolver amount. The credit facility expires on March 31,
                2006 and
                is collateralized by all of Chautauqua's assets, excluding the owned
                aircraft and engines. The Company is currently negotiating to extend
                or
                replace this facility.
            
            $
            —
            
            $
            —Term
                loans with the Bank due March 2006 or upon termination of the Bank
                credit
                facility, with monthly principal payments of $54, and interest payable
                monthly at the Bank's LIBOR rate plus spreads ranging from 2.0% to
                2.75%
                or the Bank's base rate (which is generally equivalent to the prime
                rate)
                plus spreads ranging from 0.25% to 0.75% (5.3% at December 31, 2005).
                The
                term loans are collateralized by substantially all of Chautauqua's
                assets,
                except for aircraft collateralized by various banks and aircraft
                manufacturer.
            
            
            2,624
            
            
            3,212Promissory
                notes with various banks and aircraft manufacturer, collateralized
                by
                aircraft, bearing interest at fixed rates ranging from 4.01% to 7.08%
                with
                semi-annual principal and interest payments of $76,983 through
                2019.
            
            
            1,410,700
            
            
            846,974Other
            
            
            116
            
            
            683Total
            
            
            1,413,440
            
            
            850,869Current
                portion (including Bank term loan)
            
            
            73,935
            
            
            46,986Debt
                and notes payable—Less current portion
            
            $
            1,339,505
            
            $
            803,833





Chautauqua's
      debt agreements with the Bank contain restrictive covenants that require, among
      other things, that Chautauqua maintain a certain fixed charge coverage ratio
      and
      a debt to earnings leverage ratio.  Chautauqua
      was in compliance with both ratios at December 31, 2005. Chautauqua
      has outstanding letters of credit totaling $7,462 and
      $4,782 as of December 31, 2005 and 2004, respectively. The American
      code-share agreement requires a debt sinking fund for Chautauqua's required
      semi-annual payments.




Future
      maturities of debt are payable as follows for the years ending December 31:





2006
            
            $
            73,9352007
            
            
            75,7082008
            
            
            79,5722009
            
            
            83,9732010
            
            
            88,987Thereafter
            
            
            1,011,265Total
            
            $
            1,413,440





During
      the year ended December 31, 2005, the Company acquired 34 aircraft
      through debt financing totaling
      $616,010 .
      The
      debt was obtained from a bank and the aircraft manufacturer for fifteen year
      terms at interest rates ranging from 4.01% to 7.08%.





-57-


**7.
      REDEEMABLE PREFERRED STOCK**





Chautauqua
      had 1,000,000 authorized shares of Series A redeemable preferred stock at a
      par value of $.01 per share. In May 2000, 10.295828 shares of Series A
      redeemable preferred stock were issued with a stated value of $250 per share
      in
      full satisfaction of a related party note payable and accrued interest thereon,
      and Chautauqua issued six shares of Series A redeemable preferred stock for
      cash of $1,500. At December 31, 2002, 16.295828 shares were issued and
      outstanding and held by a related party. The preferred stockholder was entitled
      to receive cumulative dividends equal to 10% per annum of the stated value
      of
      the preferred stock. The redeemable preferred stock, including accrued and
      unpaid dividends, was purchased and retired by Chautauqua during 2003.





**8.
      COMMITMENTS**





As
      of
      December 31, 2005, the Company leases 54 regional
      jets and 14 spare
      regional jet engines with varying terms extending through 2022 and
      terminal space, operating facilities and office equipment with terms extending
      through 2016 under
      operating leases .
      The
      components of rent expense for the years ended December 31 are as follows:





**2005**
            
            **2004**
            
            **2003**Aircraft
                and engine rent
            
            $
            77,725
            
            $
            74,514
            
            $
            67,350Other
            
            
            4,225
            
            
            3,320
            
            
            2,518Total
                rent expense
            
            $
            81,950
            
            $
            77,834
            
            $
            69,868





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 $4,384 per year
      through January 2012 .
      The
      Company did not record a liability for this guarantee, because the Company
      does
      not believe that any aircraft will be utilized below the minimum flight hour
      requirement during the term of the agreement.





The
      Company has a long-term maintenance agreement with an aviation equipment
      manufacturer through October 2013. 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 did not record a liability for this penalty provision because the
      Company does not believe that more than twenty percent of their aircraft will
      be
      removed from service during the term of the agreement.





The
      Company has long-term maintenance agreements based upon flight activity with
      engine manufacturers and maintenance providers through 2014.





The
      Company has long-term maintenance agreements for wheels and brakes through
      June 2014. 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 did not record a liability for this penalty provision,
      because the Company does not believe the contract will be terminated prior
      to
      the expiration date.





Total
      payments under these long-term maintenance agreements were $ 53,647 , $39,982
      and $29,357 for the years ended December 31, 2005, 2004 and 2003,
      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 airframes and engines. The Company is unable to estimate the liability
      for these return conditions as of December 31, 2005, because the leases
      expire beginning in 2009. The Company will record a liability for these return
      conditions once the liability is estimable.




-58-


Future
      minimum payments under noncancellable operating leases are as follows for the
      years ending December 31:




**Regional
                Jet**
              **Aircraft**
            
            **Other**
            
            **Total**2006
            
            $
            83,177
            
            $
            7,285
            
            $
            90,4622007
            
            
            80,071
            
            
            7,003
            
            
            87,0742008
            
            
            79,899
            
            
            7,015
            
            
            86,9142009
            
            
            78,634
            
            
            6,749
            
            
            85,3832010
            
            
            76,643
            
            
            6,329
            
            
            82,972Thereafter
            
            
            485,139
            
            
            34,246
            
            
            519,385Total
            
            $
            883,563
            
            
            68,627
            
            
            952,190




As
      of
      December 31, 2005, the Company’s Delta and United code-share agreements
      require that the Company acquire and place in service an additional seven
      ERJ-170 regional jets and the Company has firm orders for 11 regional jets.
      The
      current list price of these 11 regional jets is $309,307.  The
      Company has a commitment to obtain financing for all of these 11 regional
      jets. The Company also has a commitment to acquire one
      spare aircraft
      engine with
      a
      current list price of $3,557 .
      These
      commitments are subject to customary closing conditions. The
      Company’s firm orders and options with the aircraft manufacturer are shown below
      as of December 31, 2005.




Under
        the
        US Airways Aircraft Agreement, we will assume the leases of 15 ERJ-170 aircraft,
        which will be operated by Republic Airline. The transfer is expected to be
        completed by September 2006. In connection with the assumption of the leases
        of
        the additional aircraft, we will assume approximately $350 million in lease
        obligations. The transfer of all 15 aircraft is expected to be completed
        by
        September 2006.


**Commitments
                as of**
              **December
                31, 2005****Firm**
            
            **Options**
            
            **Total****Aircraft
                Orders with Aircraft Manufacturer:**ERJ-170
            
            11
            
            
            35
            
            
            46





During
      the year ended December 31, 2005, the Company made aircraft deposits in
      accordance with the aircraft commitments of
      $37,206. Aircraft deposits
      are included in other assets.





-59-


**9.
      CONTINGENCIES**





The
      Company is subject to certain legal and administrative actions which management
      considers routine to their business activities. As of December 31, 2005,
      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.





Under
      the
      American code-share agreement, the Company is subject to American’s scope
      restrictions. The Company paid American $6,466 in 2005 for operating the
      ERJ-170s for United at Chautauqua Airlines in violation of the scope
      restrictions of the code-share agreement. These payments terminated in September
      2005 when the ERJ-170s were no longer operated by Chautauqua.




As
      of
      December 31, 2005, approximately 76 %
      of the
      Company's workforce is employed under union contracts.





On
      September 1, 2005, the Company entered into a new four-year collective
      bargaining agreement with its flight attendants who are represented by the
      International Brotherhood of Teamsters, AFL-CIO.




The
      Company and an affiliate of Wexford Capital, among others including US Airways
      and the Airline Pilots Association, have been named as defendants in a lawsuit
      filed in October, 2005 by certain US Airways pilots. The lawsuit was filed
      in
      the United States District Court for the Eastern District of New York. The
      lawsuit as it relates to the Company, would require the Company to employ
      certain pilots of US Airways under terms that would be more favorable to the
      pilots as compared to terms that were contemplated to be offered to the pilots
      by the Company. The Company, on the advice of its legal counsel, believes that
      the lawsuit, as it relates to the Company, is wholly without merit and the
      Company intends to ask the court to dismiss the lawsuit against it at the
      earliest practicable date. The lawsuit asks for monetary damages of
      $1.2 billion.


-60-


**10.
      RELATED PARTY TRANSACTIONS**





Fees
      are
      paid to Wexford Capital LLC for administrative functions not performed by the
      Company. Fees incurred were approximately $ 1,065 , $241 and
      $268 for the years ended December 31, 2005, 2004 and 2003, respectively. In
      addition, included in accrued liabilities were $ 307  and
      $217
      due to Wexford Capital LLC as of December 31, 2005 and 2004,
      respectively.





As
      of
      December 31, 2005, the Company has accrued $450 for expenses incurred relating
      to a stock offering in December 2005 on behalf of WexAir LLC.





Wexford
      Capital LLC provided advances to Shuttle America to finance its working capital
      needs.





On
      April
      16, 2004, the Company made a payment of $2,800 on the subordinated note payable
      to WexAir LLC. The payment consisted of $1,400 for principal and $1,400 for
      accrued interest. In May 2004, the maturity date of the subordinated note
      payable to affiliate was extended to June 13, 2004. On June 2, 2004, the Company
      fully repaid the principal balance of $19,100 of the subordinated note payable
      to WexAir LLC and accrued interest of $80.





The
      Company purchased Shuttle America from Shuttle Acquisition LLC, an affiliate
      of
      Wexford Capital LLC on May 6, 2005 for $1,000 and the assumption of $679 in
      debt. The Company entered into a note payable with WexAir LLC for the $1 million
      purchase price, and the note was repaid in November 2005. In addition, for
      Wexford Capital's assistance in structuring the investment agreement with US
      Airways, we agreed to pay Wexford Capital $500,000 upon US Airway's emergence
      from bankruptcy as well as the payment of Wexford Capital's expenses, including
      the payment of up to approximately $850,000 to an unrelated third party
      consultant retained by us and Wexford Capital.




**11.
      CAPITAL STOCK, STOCK OPTIONS AND WARRANTS**





**Common
      Stock and Capital Contributions**





In
      June
      2004, the Company completed its initial public stock offering. The Company
      issued 5,000,000 shares of common stock at $13 per share. The net proceeds
      provided by this offering were $58,172, before the repayment of
      debt.





In
      2005,
      the Company completed two follow-on public common stock offerings and issued
      a
      total of 15,812,500 shares of common stock, for approximately $186,765, net
      of
      offering expenses.





In
      2005 and 2004, Wexford made
      capital contributions to Shuttle America of $400 and $3,950 respectively. The
      Company made a capital distribution to WexAir LLC of $1,000 related to the
      merger transaction with Shuttle America.





At
      December 31, 2005, 6,059,435
      shares of the
      Company’s 75,000,000 authorized shares were reserved for issuances under the
      2002 Equity Incentive Plan and warrants. At December 31, 2005, the number of
      securities remaining available for future issuance under equity compensation
      plans was 1,468,600 shares.


-61-


**Stock
      Options**





In
      connection with employment agreements for certain key employees, Republic
      granted options to purchase shares of Republic's common stock. The stock options
      vest ratably over the term of the employment agreements (generally
      48 months) and are exercisable for five years following the vesting dates.
      Generally, stock options are granted with exercise prices equal to market prices
      on the grant date. Because stock options granted in August 2001 had an
      exercise price below market price, annual compensation expense of $125, $214
      and
      $214 was recorded for the years ended December 31, 2005, 2004 and 2003,
      respectively. Options granted during 2004 vest ratably over periods ranging
      from
      8 months to 48 months, and are exercisable until 10 years from the date of
      grant. During 2005, the options granted vest ratably over periods ranging from
      12 months to 48 months, and are exercisable until 10 years from the date of
      grant. The following is a summary of stock option activity for stock options
      outstanding at the end of the respective years:





**December 31,**
              **2005**
            
            **December 31,**
              **2004**
            
            **December 31,**
              **2003****Options**
            
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**
            
            
            **Options**
            
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**
            
            
            **Options**
            
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**Outstanding,
                beginning of year
            
            
            2,781,864
            
            $
            7.76
            
            
            1,920,000
            
            $
            2.13
            
            
            1,920,000
            
            $
            2.13Granted
            
            
            259,000
            
            
            14.18
            
            
            1,420,620
            
            
            13.00Exercised
            
            
            416,429
            
            
            2.86
            
            
            558,756
            
            
            1.75Outstanding,
                end of year
            
            
            2,624,435
            
            $
            9.17
            
            
            2,781,864
            
            $
            7.76
            
            
            1,920,000
            
            $
            2.13Weighted
                average remaining contractual life in years
            
            
            6.3
            
            
            
            
            
            6.3
            
            
            
            
            
            2.7Options
                exercisable, end of year
            
            
            1,709,700
            
            $
            4.07
            
            
            1,409,892
            
            $
            2.72
            
            
            1,872,500
            
            $
            1.99






The
      weighted average grant date fair value of options granted in 2005 and 2004
      was
      $ 14.18 and
      $3.32, respectively. No options were granted during 2003. The following
      represents options outstanding and exercisable as of December 31, 2005 by
      exercise price:







**Options
                Outstanding**
            
            **Options
                Exercisab**le**Exercise
                Price**
            
            **Number**
            
            **Average
                Remaining Contractual Life**
            
            **Weighted-Average
                Exercise Price**
            
            **Number**
            
            **Weighted-Average
                Exercise Price**$1.75
            
            
            870,363
            
            
            1.6
            
            
            $1.75
            
            
            870,363
            
            
            $1.757.83
            
            
            110,000
            
            
            2.9
            
            
            7.83
            
            
            110,000
            
            
            7.8313.00
            
            
            1,385,072
            
            
            8.8
            
            
            13.00
            
            
            723,004
            
            
            13.0013.18
            
            
            15,000
            
            
            9.7
            
            
            13.18
            
            
            1,250
            
            
            13.1814.24
            
            
            244,000
            
            
            9.9
            
            
            14.24
            
            
            5,083
            
            
            14.242,624,435
            
            
            
            
            
            9.17
            
            
            1,709,700
            
            
            6.94




-62-





**Warrants**





In
      connection with the Delta code-share agreement, the Company has issued warrants
      to purchase shares of its common stock related to the code-share agreement.




The
      warrants, net of amounts surrendered in December 2004, are fully vested and
      exercisable as follows:




**Issued**
            
            **Number**
              **of
                Shares**
            
            **Exercise****Price**
            
            **Exercise
                Period**June
                2002
            
            
            825,000
            
            $
            12.50
            (1)
            
            June
                2012June
                2004
            
            
            825,000
            
            
            12.35
            (1)
            
            May
                2014February
                2003
            
            
            396,000
            
            
            13.00
            
            
            February
                2013October
                2003
            
            
            165,000
            
            
            12.35
            
            
            October
                2013March
                2004
            
            
            264,000
            
            
            12.35
            
            
            March
                2014December
                2004
            
            
            960,000
            
            
            11.60
            
            
            December
                20143,435,000





(1)
      The
      exercise price is subject to downward adjustment, if the Company issues
      additional shares of common stock in certain instances.




In
      December 2004, the Company and Delta agreed to reduce the amounts of all
      warrants issued pursuant to the Chautauqua code-share agreement by 45%, which
      reduced deferred warrant charges and warrant equity by $6,756. Amortization
      of
      deferred warrant charges were $372 ,
      $800
      and $359 for the years ended December 31, 2005, 2004 and 2003, respectively.





The
      Company records deferred warrant charges on the measurement date based upon
      an
      option pricing model that considered continuous compounding of dividends and
      dilution using an estimated fair value of the Company’s common stock on the
      grant date, an estimated dividend yield, a risk-free interest rate commensurate
      with the warrant term, volatility of 40% and an expected life of 10
      years.





-63-


**12.
      INCOME TAXES**


The
      components of the provision for income tax expense (benefit) for the years
      ended
      December 31 are as follows:





**2005**
            
            
            **2004**
            
            
            **2003**Federal:Deferred
            
            $
            32,855
            
            $
            18,941
            
            $
            19,81232,855
            
            
            18,941
            
            
            19,812State:Current
            
            
            1,915
            
            
            520
            
            
            237Deferred
            
            
            4,751
            
            
            5,086
            
            
            3,9306,666
            
            
            5,606
            
            
            4,167Income
                tax expense
            
            $
            39,521
            
            $
            24,547
            
            $
            23,979




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:





**2005**
            
            **2004**
            
            **2003**Federal
                income tax expense at statutory rate
            
            $
            35,163
            
            $
            22,190
            
            $
            21,041State
                income tax expense, net of federal benefit
            
            
            4,333
            
            
            3,644
            
            
            2,709Other
            
            
            25
            
            
            (1,287
            )
            
            229Income
                tax expense
            
            $
            39,521
            
            $
            24,547
            
            $
            23,979




The
      components of deferred tax assets and liabilities as of December 31 are as
      follows:





**2005**
            
            
            **2004****DEFERRED
                TAX ASSETS**Current:Nondeductible
                accruals
            
            $
            1,619
            
            $
            4,553Nondeductible
                accrued interest
            
            
            
            
            
            1,351Asset
                impairment expenses
            
            
            1,463Prepaid
                rent
            
            
            574
            
            
            5243,656
            
            
            6,428Noncurrent:Nondeductible
                reserves
            
            
            —
            
            
            2,920Nondeductible
                accruals
            
            
            5,107
            
            
            1,868Treasury
                locks
            
            
            2,989
            
            
            2,793Stock
                option benefit
            
            
            1,922
            
            
            —Alternative
                minimum tax credit
            
            
            457
            
            
            457Net
                operating loss carryforward
            
            
            176,280
            
            
            142,874Prepaid
                rent
            
            
            6,889
            
            
            6,284Deferred
                credits and sale leaseback gain
            
            
            7,749
            
            
            7,831Total
            
            
            201,393
            
            
            165,027Valuation
                allowance
            
            
            (8,119
            )
            
            (8,119
            )193,274
            
            
            156,908Total
                assets
            
            
            196,930
            
            
            163,336**DEFERRED
                TAX LIABILITIES**Noncurrent:Accelerated
                depreciation and fixed asset basis differences for tax purposes
            
            
            (282,945
            )
            
            (213,864
            )Total
                noncurrent deferred tax liability
            
            
            (89,671
            )
            
            (56,956
            )Total
                deferred tax liability
            
            $
            (86,015
            )
            $
            (50,528
            )





-64-


Deferred
      tax assets include benefits expected to be realized from the utilization of
      alternative minimum tax credit carryforwards of $457, which do not expire,
      and
      net operating loss carryforwards of $504,000, which begin expiring in 2022.
      Approximately $450,000 net operating loss carryforwards are limited under
      Internal Revenue Code Section 382, and approximately $23,000 is not expected
      to
      be realized prior to expiration.





**13.
      FAIR VALUE OF FINANCIAL INSTRUMENTS**





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. As of December 31, 2005 and 2004
      respectively, the carrying value of long-term debt was greater than its fair
      value by approximately $95,302 and $67,000. As of
      December 31, 2004, the fair value of the treasury locks was a liability of
      $4,012 based on quoted market values.





**14.
      BENEFIT PLAN—401(k)**





Republic
      has a defined contribution retirement plan covering substantially all eligible
      employees. The Company matches up to 6.0% 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 $1,660 ,
      $1,128
      and $540 for the years ended December 31, 2005, 2004 and 2003,
      respectively.




**15.
      IMPAIRMENT LOSS AND ACCRUED AIRCRAFT RETURN COSTS**




In
      connection with the Company’s plan to fly only regional jets under fixed fee
      code-share agreements and market conditions for turboprop aircraft in the air
      transportation industry, impairment losses of $2,931 in 2003 were recorded
      to
      reduce the carrying values of Saab 340 aircraft and related spare parts and
      supplies to estimated fair values. Estimated fair value of Saab 340
      aircraft was based on quotations from aircraft dealers, less selling costs.
      Net realizable value of spare parts and supplies was based on quotations
      from aircraft parts manufacturers and dealers. In 2004, the Company recorded
      additional impairment losses of $416 on Saab 340 aircraft and related spare
      parts and supplies and $1,255 for intangible assets related to routes
      discontinued by US Airways.





Pursuant
      to the aircraft lease agreements, the Company is required to return Saab 340
      aircraft to the lessor in specified conditions. Based upon flight schedules
      and
      maintenance costs, return costs were estimated and accrued. Each year the
      Company decreased the accrual for actual costs incurred and adjusted the accrual
      for its revised estimate of expected return costs. In December 2005, Shuttle
      America’s turboprop code-share agreement with United expired for the return of
      our Saab aircraft to the lessor. An agreement was reached with the lessors
      that
      will release the Company of any further financial obligations upon return of
      the
      aircraft resulting in a $4,218 reduction in the accrued liability.





The
      following table reflects impairment costs and accrued aircraft return costs
      for
      the year ended December 31, 2003, 2004 and 2005.








**Description
                of Charge**
            
            **Reserve**
              **at
                Jan. 1, 2003**
            
            **2003
                Provision (Adjustment) Charged to Expense**
            
            **2003
                Payments**
            
            **Reserve at 
                Dec. 31, 2003**
            
            **2004
                Provision (Adjustment) Charged to Expense**
            
            **2004
                Payments**
            
            **Reserve
                at**
              **Dec.
                31, 2004**
            
            **2004**
              **Provision**
              **(Adjustment)**
              **Charged
                to**
              **Expense**
            
            **2005
                Payments**
            
            **Reserve at**
              **Dec.
                31, 2005**Aircraft
                return costs:Costs
                to return aircraft
            
            
            5,706
            
            
            (175
            )
            
            (278
            )
            
            5,253
            
            
            (230
            )
            
            (424
            )
            
            4,599
            
            $
            (4,218
            )
            $
            (381
            )
            
            —Impairment
                loss
            
            
            
            
            
            2,931
            
            
            
            
            
            
            
            
            1,671
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            —Total
            
            $
            5,706
            
            $
            2,756
            
            $
            (278
            )
            $
            5,253
            
            $
            1,441
            
            $
            (424
            )
            $
            4,599
            
            $
            (4,218
            )
            $
            (381
            )
            $
            —




















-65-







**16.
      VALUATION AND QUALIFYING ACCOUNTS**





**Description**
            
            **Balance
                at**
              **Beginning**
              **of
                Year**
            
            **Additions**
              **Charged
                to**
              **Expense**
            
            **Deductions**
            
            **Balance
                at**
              **End**
              **of
                Year****Allowance
                for doubtful accounts receivables:**December
                31, 2005
            
            $
            3,869
            
            $
            87
            
            $
            (3,613)(4)
            (2)
            $
            343December
                31, 2004
            
            
            819
            
            
            3,385
            (3)
            
            (335)
            (2)
            
            3,869December
                31, 2003
            
            
            2,231
            
            
            637
            
            
            (2,049)(1)
            (2)
            
            819





(1)
      Write
      off of the US Airways receivable in 2003.





(2)
      Uncollectible accounts written off net of recoveries





(3)
      In
      2004, the Company recorded an allowance for doubtful accounts of $3,200 because
      of US Airways’ bankruptcy.





(4)
      Write
      off of US Airways receivable in 2004 .




**ITEM
      9. CHANGES IN AND DISAGREEMENTS WITH
      ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**




There
      were no disagreements with accountants on accounting and financial
      disclosure.




**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 principal executive
      officer and principal financial officer, the Company’s management conducted an
      evaluation of the effectiveness of our internal control over financial reporting
      as of December 31, 2005 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, 2005.




Management’s
      assessment of the effectiveness of our internal control over financial reporting
      as of December 31, 2005 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
      management’s assessment of internal control over financial reporting appears on
      page 47 herein.




**ITEM
      9B. OTHER INFORMATION**




Not
      applicable.





-66-





**PART
      III**






**ITEM
      10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
      REGISTRANT**





**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 2006 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 *republic-airways.net* .
      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 that Company’s executive officers and directors, and person 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 2005 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
      made
      on behalf of Mr. Bedford.




**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 2006
      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 2006 Annual Meeting of Stockholders is
      incorporated herein by reference.




**ITEM
      13. CERTAIN RELATIONSHIPS AND RELATED
      TRANSACTIONS**




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
      2006
      Annual Meeting of Stockholders is incorporated herein by
      reference.





**ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND
      SERVICES**





The
      information set forth under "Audit Matters" in the Company's definitive proxy
      statement to be used in connection with the 2006 Annual Meeting of Stockholders
      is incorporated herein by reference.








-67-





**PART
      IV**




**ITEM
      15. EXHIBITS AND 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, 2005 and 2004,
      Consolidated Statements of Income for the years ended December 31, 2005, 2004
      and 2003, Consolidated Statements of Cash Flows for the years ended December
      31,
      2005, 2004 and 2003, Consolidated Statements of Stockholders’ Equity for the
      years ended December 31, 2005, 2004 and 2003 and Notes to Consolidated Financial
      Statements.




(b) **Exhibits**




**Exhibit**
              **No.**
            
            **Description**1.1
            
            Form
                of Purchase Agreement.(viii)3.1
            
            Amended
                and Restated Certificate of Incorporation.(i)3.2
            
            Amended
                and Restated Bylaws.(i)4.1
            
            Specimen
                Stock Certificate.(i)10.1
            
            2002
                Equity Incentive Plan.(i)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.(v)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)10.5
            
            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)10.7
            
            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 February 19,
                2001.(i)




-68-


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 Aeronáutica 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. and Solitair Corp., and consented
                to by
                Embraer-Empresa Brasileira de Aeronáutica 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
                Aeronáutica 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 Aeronáutica 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 Aeronáutica S.A. and Republic
                Airways Holdings Inc., dated as of December 18,
                2002.(i)10.12(e)†
            
            Amendment
                Number 4 to Amended and Restated Purchase Agreement GCT-025/98, by
                and
                between Embraer-Empresa Brasileira de Aeronáutica 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 Aeronáutica 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
                between Embraer-Empresa Brasileira de Aeronáutica 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 Aeronáutica 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 Aeronáutica 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
                Aeronáutica 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
                Aeronáutica 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 Aeronáutica 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
                Aeronáutica 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
                Aeronáutica 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
                Aeronáutica 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
                Aeronáutica 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
                Aeronáutica 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
                Aeronáutica 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
                Aeronáutica S.A., dated as of December 31,
                2003.(i)10.13(h)†
            
            Amendment
                Number 8 to Amended and Restated Letter Agreement GCT-026/98 between
                Republic Airways Holdings Inc. and Embraer-Empresa Brasileira de
                Aeronáutica 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.




-69-


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 Agência 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,
                Agência Especial 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, Agência
                Especial 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 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 Agência 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 as indicated 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 Agência 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)




-70-


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)10.32
            
            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)10.34
            
            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)10.35
            
            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)10.36
            
            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 Aeronáutica
                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 Aeronáutica 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 Aeronáutica 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 Aeronáutica 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 Aeronáutica 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 Aeronáutica 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 Aeronáutica 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 Aeronáutica 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 Aeronáutica 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 Aeronáutica 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
                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
                October
                7, 2005.10.39(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
                October
                18, 2005.10.39(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
                November
                9, 2005.




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10.40†
            
            Letter
                Agreement DCT-015/2004, by and between Republic Airline Inc. and
                Embraer-Empresa Brasileira de Aeronáutica 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 Aeronáutica 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 Aeronáutica 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 Aeronáutica 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 Aeronáutica 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 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
                October
                18, 2005.10.40(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
                November
                9, 2005.10.41†
            
            United
                Express Agreement, by and between United Air Lines, Inc. and Republic
                Airline Inc., dated as of February 9, 2004.(i)10.41(a)†
            
            Amendment
                No. 1 to United Express Agreement, by and between United Air Lines,
                Inc.
                and Republic Airline Inc., dated as of February 13,
                2004.(i)10.41(b)†
            
            Amendment
                No. 2 to United Express Agreement, by and between United Air Lines,
                Inc.
                and Republic Airline, Inc., dated as of July 6,
                2004.(ii)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)10.46
            
            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)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 Chatauqua
                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., dated as of September 21,
                2005.(xv)10.53†
            
            Global
                Aircraft Transaction Agreement, by and between Republic Airways
                Holdings Inc. and US Airways, Inc., dated as of September 21,
                2005.(xv)




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10.54†
            
            Commuter
                Slot Option Agreement, by and between Republic Airways Holdings Inc.
                and
                US Airways, Inc., dated as of September 22, 2005.(xv)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.*
            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.†
            Portions
                of the indicated document have been afforded confidential treatment
                and
                have been 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.


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**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:
                February 27, 2006
            By:
                /s/ Bryan K. BedfordBryan
                K. BedfordChairman
                of the Board, Chief Executive Officer and President(principal
                executive officer)





-74-








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)
            February
                27, 2006/s/
                Robert H. CooperRobert
                H. Cooper
            Executive
                Vice President and Chief Financial Officer (Principal Financial and
                Accounting Officer)
            February
                  27, 2006/s/
                Joseph M. JacobsJoseph
                M. Jacobs
            Director
            February
                  27, 2006/s/
                Douglas J. LambertDouglas
                J. Lambert
            Director
            February
                  27, 2006/s/
                Jay L. MaymudesJay
                L. Maymudes
            Director
            February
                  27, 2006/s/
                Lawrence J. CohenLawrence
                J. Cohen
            Director
            February
                  27, 2006/s/
                Mark E. LandesmanMark
                E. Landesman
            Director
            February
                  27, 2006/s/
                Mark L. PlaumannMark
                L. Plaumann
            Director
            February
                  27, 2006





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