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, 2006
 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 check mark 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 Exchange 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
        (now
        the NASDAQ Global Market System) on June 30, 2006 was approximately
        $582,322,000 .
 
 Indicate
        the number of shares outstanding of the issuer’s common stock as of the latest
        practicable date: As of March 1, 2007, 42,862,799 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 2007 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
              16Item
                  1B.
              Unresolved
                  Staff Comments
              22Item
                  2.
              Properties
              23Item
                  3.
              Legal
                  Proceedings
              24Item
                  4.
              Submission
                  of matters to a Vote of Security
                  Holders
              24***Part
                  II***Item
                  5.
              Market
                  for Registrant’s Common Stock and Related Stockholder
                  Matters and Issuer Purchases
              25Of
                  Equity SecuritiesItem
                  6.
              Selected
                  Financial Data
              27Item
                  7.
              Management’s
                  Discussion and Analysis of Financial Condition
                  and Results of Operations
              30Item
                  7A.
              Quantitative
                  and Qualitative Disclosures About Market
                  Risk
              42Item
                  8.
              Financial
                  Statements and Supplementary
                  Data
              43Item
                  9.
              Changes
                  in and Disagreements with Accountants on Accounting
                  and Financial Disclosure
              62Item
                  9A.
              Controls
                  and Procedures
              62Item
                  9B.
              Other
                  Information
              62***Part
                  III***Item
                  10.
              Directors
                  and Executive Officers of the
                  Registrant
              63Item
                  11.
              Executive
                  Compensation
              63Item
                  12.
              Security
                  Ownership of Certain Beneficial Owners and
                  Management and Related Stockholder Matters
              63Item
                  13.
              Certain
                  Relationships and Related
                  Transactions
              63Item
                  14.
              Principal
                  Accountant Fees and Services
              63***Part
                  IV***Item
                  15.
              Exhibits
                  and Financial Statements
                  Schedules
              64SignaturesEX10.1(a)
              Restricted
                  Stock AgreementEX10.39(q)
              Amendment
                  No. 17 to Purchase Agreement
                  DCT-014/2004 by and between Embraer-Empresa Brasileira de Aeronautica
                  S.A.
                  and Republic Airline Inc., dated November 14, 2006.EX10.40(i)
              Amendment
                  No. 9 to Letter Agreement DCT-015/2004
                  by and between Embraer-Empresa Brasileira de Aeronautica S.A. and
                  Republic
                  Airline Inc., dated September 19, 2006.EX10.40(j)
              Amendment
                  No. 10 to Letter Agreement DCT-015/2004
                  by and between Embraer-Empresa Brasileira de Aeronautica S.A. and
                  Republic
                  Airline Inc., dated November 14, 2006.EX-10.41
              United
                  Express Agreement, by and between United
                  Air Lines, Inc. and Shuttle America Corp., dated December 28,
                  2006.EX10.52(d)
              Third
                  Amendment to Republic Jet Service
                  Agreement, by and between US Airways, Inc. and Republic Airline
                  Inc.,
                  dated as of December 19, 2006.EX-10.56
              Airline
                  Services Agreement, by and between
                  Frontier Airlines, Inc., Republic Airline Inc., Frontier Airlines
                  Holdings, Inc. and Republic Airways Holdings Inc., dated January
                  11,
                  2007.EX-23.1
              Consent
                  of Independent Registered Public Accounting
                  FirmEX-31.1
              Certification of
                  Chief Executive
                  OfficerEX-31.2
              Certification of
                  Chief Financial
                  OfficerEX
                  32.1
              Certification of
                  Chief Executive
                  OfficerEX-32.2
              Certification of
                  Chief Financial
                  Officer
  
 
 -2-
  
  **Forward-Looking
        Statements**
 
 
 
 *In
        addition to historical information, this Annual Report on Form 10-K contains
        forward-looking statements. Republic Airways Holdings Inc. (the “Company”) may,
        from time to time, make written or oral forward-looking statements within
        the
        meaning of the Private Securities Litigation Reform Act of 1995. Such statements
        encompass our beliefs, expectations, hopes or intentions regarding future
        events. Words such as “may,” “will,” “should,” “expect,” “plan,” “intend,”
“anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” the
        negative of such terms or other terminology 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, 2006, we offered scheduled passenger
          service on approximately 1,000 flights daily to 90 cities in 35 states,
          Canada,
          Mexico and the U.S. Virgin Islands 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”). In July 2006, we entered into a code-share agreement with
          Continental Airlines, Inc. (“Continental”) and we began flying for Continental
          in January 2007. Also, in January 2007, we entered into a code-share agreement
          with Frontier Airlines, Inc. (“Frontier”). We expect to begin flying for
          Frontier in March 2007. Currently, we provide five of our six partners
          with
          regional jet service, operating as AmericanConnection, US Airways Express,
          Delta
          Connection, United Express or Continental Express, including service out
          of
          their hubs and focus cities in Atlanta, Boston, Chicago, Cincinnati, Columbus,
          Houston, Indianapolis, New York, Philadelphia, Pittsburgh, St. Louis and
          Washington, D.C. (Dulles and National).
  Chautauqua
          Airlines is our platform for
          flying 37 to 50 seat aircraft, and as of December 31, 2006, operated 95
          aircraft. Shuttle America is our platform for flying 70-seat aircraft and,
          as of
          December 31, 2006, operated 48 ERJ-170 aircraft. Republic Airline is our
          platform for aircraft with more than 70 seats, and, as of December 31,
          2006,
          Republic Airline operated twenty-eight 72-seat ERJ-170 aircraft.
 From 2002 to 2006, our
        available seat miles, or ASMs, grew at a compounded annual growth rate of
        37.9 %.
        As of
        December 31, 2006, our operational fleet consisted of 171 aircraft, including
        76
        ERJ-170, 70-seat and larger regional jets and 95
        ERJ-145 family, 37- 50
        seat
        regional jets. Currently,
        we have agreed to place into service an additional 30 ERJ-175 regional jets
        for
        US Airways through
        2008. These 30 aircraft are covered by firm orders that we have with
        Embraer. We have
        also agreed to place forty-four 50-seat regional jets into service for
        Continental between
        January and July 2007. We will transition 20 ERJ-145 aircraft
        from our US Airways operations and we plan to lease 24 CRJ-200 regional jets
        to
        fulfill the commitment. As of December 31, 2006, four leases for such CRJ-200
        aircraft had been obtained and
        began service in January 2007. We have commitments to lease the remaining
        20
        CRJ-200 aircraft. In addition, we have entered into an agreement with Frontier
        to operate 17 ERJ-170 regional jets .
        Four of
        the 17 aircraft are currently in our fleet but are not allocated to a code-share
        partner and
        the
        remaining 13 aircraft will be funded by delivery positions available with
        Embraer in 2007 and 2008. The
        Company has options for 79 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-character
        flight designation codes to identify our flights and fares in our partners'
        computer reservation systems, to paint our aircraft in the style of our
        partners, to use their service marks and to market ourselves as a carrier
        for
        our partners. In addition, in connection with a marketing agreement among
        Delta,
        Continental and Northwest Airlines, certain of the routes that we fly using
        Delta's and Continental’s flight designator codes are also flown under
        Northwest's designator code. Our fixed-fee agreements eliminate our exposure
        to
        fluctuations in fuel prices, fare competition and passenger volumes. Our
        development of relationships with multiple major airlines has enabled us
        to
        reduce our dependence on any single airline, allocate our overhead more
        efficiently among our partners and reduce the cost of our services to our
        partners.
 For
          the years ended December 31,
          2006, 2005 and 2004 respectively, US Airways accounted for approximately
          24%,
          21% and 38% of our passenger revenues, Delta accounted for approximately
          35%,
          34% and 36% of our passenger revenues, American accounted for approximately
          11%,
          13% and 16% of our passenger revenues and United accounted for approximately
          30%, 32% and 10% of our passenger revenues.
   -4-
 **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 Columbus, Atlanta and Cincinnati 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, 2006, we offered scheduled passenger services
        on
        approximately 1,000 flights daily to 90 cities in 35 states, Canada, Mexico,
        and
        the U.S. Virgin Islands. We are
        currently offering daily passenger service on our Continental Express flights
        out of Houston. Starting in March of 2007, we began offering daily passenger
        service on our Frontier flights out of Denver. The following illustrates
        the
        routes we currently fly for our code-share partners:
 
  
 
 -5-




-6-
  
 
 
  
 
 
  -7-
  
 
  
  
 
 -8-
 **Maintenance
        of Aircraft and Training**
  Using
        a
        combination of Federal Aviation Administration (“FAA) certified maintenance
        vendors and our own personnel and facilities, we maintain our aircraft on
        a
        scheduled and "as-needed" basis. We emphasize preventive maintenance and
        inspect
        our aircraft engines and airframes as required. We have an agreement with
        Rolls-Royce to maintain the engines on our ERJ-145 family of regional jets
        through October 2012, an agreement with Hamilton Sunstrand to maintain the
        auxiliary power units, or APUs, on our ERJ-145 family of regional jets through
        April 2009, agreements with Honeywell to maintain the avionics on our
        ERJ-145 family of regional jets and ERJ-170 regional jets through December
        2014,
        an agreement with Goodrich to maintain wheels and brakes on our ERJ-145 family
        of regional jets through June 2014, an agreement with GE Engine Services
        to
        maintain the engines on our ERJ-170 regional jets through December 2014 and
        an
        agreement with AAR Services to provide, manage and repair the airframe
        components and spare parts on our CRJ-200 regional jet aircraft, and to provide
        access to a pool of spare parts through December 2009. Under these agreements,
        we are charged for covered services based on a fixed rate for each flight
        hour
        or flight cycle accumulated by the engines or airframes in our service during
        each month. The rates are subject to annual revisions, generally based on
        certain Bureau of Labor Statistics' labor and material indices.
  We
        believe these agreements, coupled with our ongoing maintenance program, reduce
        the likelihood of unexpected levels of engine, APU, avionics and wheels and
        brakes maintenance expense during their term.
  We
        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, Pittsburgh and St. Louis, and we perform
        routine maintenance services from select line maintenance stations.
  All
        mechanics and avionics specialists employed by us have appropriate training
        and
        experience and hold required licenses issued by the FAA. We provide periodic
        in-house and outside training for our maintenance and flight personnel and
        also
        take advantage of manufacturers’ training programs that are offered when
        acquiring new aircraft.
  We
        have
        an agreement with 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, 2006, we employed approximately 3,700 full-time equivalent employees. The following is a table of our principal
        collective bargaining agreements and their respective amendable dates as
        of
        December 31, 2006:
  
 **Employee
                  Group**
              **Approximate
                  Number**
                **of
                  Full-Time**
                **Equivalent
                  Employees**
              **Representing
                  Union**
              **Amendable
                  Date**Pilots
              1,600
              International
                  Brotherhood of Teamsters Airline Division Local 747
              October
                  2007Flight
                  Attendants
              1,100
              International
                  Brotherhood of Teamsters Airline Division Local 210
              September
                  2009Customer
                  Service
              40
              International
                  Brotherhood of Teamsters Airline Division Local 135
              December
                  2005Dispatchers
              50
              Transport
                  Workers Union of America Local 540
              February
                  2007
  As
        of
        December 31, 2006, we had approximately 650 maintenance technicians and other
        maintenance related personnel, who are not currently represented by any union,
        and approximately 230 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
        obligation to place 71 additional regional
        jets into revenue service to meet our obligations under our code-share
        agreements and related expansion, we anticipate hiring approximately 1,700 additional employees ,
        many of
        whom will be represented by a union in their employment. Our Customer Service
        Agreement is being negotiated and we expect it to be amended in 2007. We
        have
        never experienced any work stoppages or other job actions and generally consider
        our relationship with our employees to be good.
  -9-
 **Executive
        Officers of the Company**
  The
        following table sets forth information regarding our current executive officers,
        directors and key employees as of December 31, 2006:
  Name
              Age
              PositionBryan K.
                  Bedford
              45
              Chairman
                  of the Board, President and Chief
                  Executive OfficerRobert H.
                  Cooper
              47
              Executive
                  Vice President, Chief Financial Officer, Treasurer and
                  SecretaryWayne C.
                  Heller
              48
              Executive
                  Vice President, Chief Operating OfficerLawrence
                  J. Cohen
              51
              DirectorJoseph M.
                  Jacobs
              53
              DirectorDouglas J.
                  Lambert
              49
              DirectorMark
                  E. Landesman
              46
              DirectorJay L.
                  Maymudes
              45
              DirectorMark
                  L. Plaumann
              51
              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 us in August 1999 as Vice President—Flight Operations with
        responsibility for flight crew supervision, system control, flight safety
        and
        flight quality standards. In February 2002, he became Executive Vice
        President and Chief Operating Officer of Chautauqua, and assumed responsibility
        for all aircraft maintenance, records and engineering. From April 1996
        until August 1999 he was employed by Mesaba Airlines, Inc., as its
        Director of System Operations Control. He is a licensed pilot and a licensed
        dispatcher and has over 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.
  
 -10-
 **Code-Share
        Agreements**
 
 Through
        our subsidiaries, we have entered into code-share agreements with US Airways,
        American, Delta, United, Continental and Frontier that authorize us to use
        their
        two-character flight designator codes (“US,” “AA,” “DL,” “UA,” “CO” and “F9”) to
        identify our flights and fares in their computer reservation systems, to
        paint
        our aircraft with their colors and/or logos, to use their service marks and
        to
        market and advertise our status as US Airways Express, AmericanConnection,
        Delta
        Connection, United Express, Continental Express and Frontier Airlines,
        respectively. In connection with a marketing agreement among Delta, Continental
        and Northwest Airlines, certain of the routes that we fly using Delta's and
        Continental’s flight designator codes are also flown under Northwest's
        designator code. Under the code-share agreements between our subsidiaries
        and
        each of US Airways, American, Delta, United, Continental and Frontier, we
        are
        compensated on a fixed-fee basis on all of our US Airways Express,
        AmericanConnection, Delta Connection, United Express, Continental Express
        and
        Frontier Airlines 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 Jet Services Agreement with US Airways,
        dated April 26, 2005. As of December 31, 2006, 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. On July
        21,
        2006, we amended this agreement and agreed to remove 20 ERJ-145 aircraft
        from US Airways operations and transition into operation under the Continental
        code-share agreement during 2007. 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.
 
 In
        exchange for providing the designated number of flights and performing our
        other
        obligations under the code-share agreements, we receive compensation from
        US
        Airways three times each month in consideration for the services provided
        under
        the code-share 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. 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. Landing fees, passenger
        catering, passenger liability insurance and aircraft property tax costs are
        pass
        through costs.
 
 As
        of
        December 31, 2006, with our ERJ 145 regional jets and our ERJ 170 regional
        jets,
        we were providing 370 flights
        per day as US Airways Express between New York, Boston, Philadelphia,
        Pittsburgh, Indianapolis, Washington, D.C. and designated outlying
        cities.
 
 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 margins are not affected by this change.
 
 On
        July
        24, 2006, we amended the Jet Service Agreement (JSA”) with US Airways to operate
        30 ERJ-175 aircraft
        on terms substantially similar to those of the ERJ-145 and ERJ-170 agreements
        between us and US Airways. The amended agreement has a term of twelve years
        for
        each aircraft. We expect to place these 30 ERJ-175 aircraft into service
        for US
        Airways beginning in 2007 and through 2008.
 
 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.
 
 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. We assigned
        the
        right of use for these commuter slots to US Airways and these commuter slots
        are
        being operated by US Airways and US Airways Express carriers under a licensing
        agreement for which US Airways pays us rent. Prior to the expiration of the
        agreement to license the commuter slots, US Airways has the right to repurchase
        all, but not less than all, of the Washington commuter slots at a predetermined
        price. The licensing agreement between us and US Airways for the LaGuardia
        commuter slots expired on December 31, 2006 ,
        but we
        maintain a security interest in the LaGuardia slots if US Airways fails to
        perform under the current licensing agreement.
 
 -11-
 *The
        American Code-Share Agreement*
 
 As
        of
        December 31, 2006, 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.
 
 Under
        the
        code-share agreement, American retains all passenger, certain cargo and other
        revenues associated with each flight, and is responsible for all revenue-related
        expenses. We share revenue with American for certain cargo shipments.
        Additionally, certain operating costs are considered "pass through" costs
        and
        American has agreed to reimburse us the actual amount of costs we incur for
        these items. Fuel, landing fees, hull and liability insurance and aircraft
        property tax costs are pass through costs. Aircraft lease payments are also
        considered a pass through cost, but are limited to a specified limit with
        respect to the first 20 aircraft put into service for American. American
        pays us
        periodically throughout the month on an agreed schedule, subject to American's
        right to offset amounts we owe them under the code-share agreement. A
        reconciliation payment will be made by American to us if uncontrollable
        cancellations exceed a specified level of scheduled block hours during any
        calendar quarter.
 
 If
        American terminates the code-share agreement for cause, American has a call
        option to require that we assign to American all of its rights under the
        leases
        of aircraft, and to lease to American the aircraft to the extent we own them,
        used at that time under the code-share agreement. If American exercises 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 American to the
        extent owned by us, used under the code-share agreement to American. American
        also has a call option to require us to assign to American these leases.
        If we
        exercise our put or American exercises 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.
 
 The
        term
        of the American code-share agreement continues until February 1, 2013. American
        may reduce the term by one year each time that we fail to achieve an agreed
        performance level. American may only exercise this right three times during
        the
        term of the code-share agreement. The agreement may be subject to termination
        for cause prior to that date under various circumstances including:
 
 •
a
        change in the regulations governing air carriers that materially affects
        the
        rights and/or obligations of either party, subject to negotiation of amendments
        to the code-share agreement or third party mediation;
 
 •
if
        we
        or American become insolvent or fail to pay our debts as they become due,
        the
        other party may terminate the agreement subject to five business days notice
        and
        rights of assurance;
 
 •
failure
        by us or American to perform the material terms, covenants or conditions
        of the
        code-share agreement, which includes the American standards of service, subject
        to 30 day notice and cure rights;
 
 •
if
        we
        or American fail to make a payment when due, subject to five business days
        notice and cure rights;
 
 •
if
        either party suspends or is required to suspend its operations due to any
        safety
        reason, the other party may terminate the agreement on five days notice;
 
 •
if
        American, in its reasonable discretion, determines that we materially breached
        a
        representation or warranty to them that creates a serious and imminent threat
        to
        the safe operation of AmericanConnection services, American may immediately
        terminate the code-share agreement;
 
 •
if
        we
        fail to achieve specified levels of operating performance in completion factor,
        on-time arrivals, customer complaints and baggage, American may terminate
        the
        agreement, subject to corrective action plan and adherence to such plan;
        or
 
 •
if
        either party assigns, by operation of law or otherwise, the code-share agreement
        without the written consent of the other party, subject to five days notice
        and
        cure rights, or if we enter into any merger, sale or acquisition of all or
        substantially all of our assets or a majority of our outstanding voting
        interests with an air carrier other than an entity that is under common control
        with us.
 
 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
        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.
 
 -12-
 *The
        Delta Code-Share Agreements*
 
 As
        of
        December 31, 2006, we operated 15 ERJ-135 aircraft, 24 ERJ-145 aircraft,
        including two spares, and 16 ERJ-170 aircraft
        for Delta under fixed-fee code-share agreements. As of December 31, 2006,
        we
        provided 330 flights per day as Delta
        Connection between Cincinnati, Columbus and Atlanta and designated outlying
        cities. In connection with a marketing agreement among Delta, Continental
        and
        Northwest Airlines, certain of the routes that we fly using Delta's and
        Continental’s flight designator codes are also flown under Northwest's
        designator code.
 
 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.
  On
        March
        13, 2007, we and Delta amended our code-share agreements. The amendments,
        if
        approved by the bankruptcy court, provide for early removal of all 15 ERJ-135
        aircraft between September 2008 and April 2009 at a rate of 2 aircraft per
        month, and an approximate 3% reduction in the reimbursement rates on our
        ERJ-145/170 aircraft for the remaining term of the agreements. In return
        for
        these amended terms, Delta has agreed that we will have a negotiated
        pre-petition claim in the amount of $91 million, and Delta will surrender
        all of
        its warrants on approximately 3.4 million shares of our common stock.
  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.
 
 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 an ERJ-170 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 7.4% of our
        common
        stock.
 
 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.
 
 -13-
 *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, 2006, we provided 195 flights per day as
        United Express between Chicago, Washington D.C. and designated outlying cities.
 
 The
        fixed
        rates that we receive from United under the code-share agreements are annually
        adjusted in accordance with an agreed escalation formula. Additionally, certain
        of our operating costs are considered "pass through" costs whereby United
        has
        agreed to reimburse us the actual amount of costs we incur for these items.
        Fuel
        and oil, landing fees, war risk insurance, liability insurance and aircraft
        property taxes are pass through costs.
 
 The
        agreements terminate on June 30, 2014 and June 30, 2015, respectively. United
        has the option of extending each agreement for five 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 certain minimum
        operating thresholds for a
        period of three consecutive months or any six
        month
        period in a rolling 12 month period regarding controllable flight completion, mishandled bags and on-time
        performance; or
  •
We
        knowingly maintain falsified books or records or submit false reports of
        a
        material nature.
  United
        may immediately terminate the respective code-share agreements if Chautauqua
        Airlines or Shuttle America operates, except pursuant to preexisting agreements
        with US Airways and Delta, any additional 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. Chautauqua Airlines and
        Shuttle
        America also cannot engage or attempt to engage, on its behalf or on behalf
        of a
        third party, in the business of providing air transportation at any of United’s
        hubs or for any carrier that has or attempts to have hub operations at any
        of
        United’s hubs, or operate any additional 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 certain reasons.
 
 *The
        Continental Code-Share Agreement*
 
 As
        of
        July 21, 2006, we
        entered into a code-share agreement with Continental to provide and operate
        forty-four 50-seat regional jets as a Continental Express carrier. We
        will
        transition 20 ERJ-145 aircraft from our US Airways operations and we plan
        to
        lease 24 CRJ-200 regional jets to fulfill the commitment. As of December
        31,
        2006, four leases for such CRJ-200 aircraft had been obtained, and we have
        commitments to lease the remaining 20 CRJ-200 aircraft. The
        first six aircraft were placed into service in January 2007 and the last
        aircraft is expected to be placed into service in August 2007. Continental
        is
        responsible for Chautauqua Airlines' reasonable out-of-pocket costs of preparing
        each covered aircraft, other than the spare aircraft, up to a maximum amount,
        prior to its being placed into service. The aircraft are operated under the
        agreement on terms that vary from two years to five years. Under certain
        conditions, Continental may extend the term on the aircraft up to five
        additional years.
 
 All
        fuel
        will be purchased directly by Continental and will not be charged back to
        Chautauqua Airlines. Under the agreement, Continental purchases all capacity
        at
        predetermined rates and industry standard pass-through costs.
 
 In
        connection with a marketing agreement among Delta, Continental and Northwest
        Airlines, certain of the routes that we fly using Delta's and Continental’s
        flight designator codes are also flown under Northwest's designator
        code.
 
 The
        term
        of the agreement is effective as of January 8, 2007 and, unless earlier
        terminated or extended, will continue until July, 2012.
  The
        agreement may be subject to early termination under various circumstances,
        including:
 
 -14-
 •
        immediately, by Continental, upon the occurrence of an event that constitutes
        cause, subject to prior written notice to us; or
 
 •
if
        either Continental or we commit a material breach of the code-share agreement,
        subject to two business days notice if we breach the agreement and five business
        days notice if Continental breaches the agreement; or
 
 •
if
        there is a change in control of us or Continental.
 
 *The
        Frontier Code-Share Agreement*
 
 On
        January 11, 2007, we
        entered into a code-share agreement with Frontier. Under the agreement, we
        will
        provide and operate seventeen 76-seat Embraer 170 regional jets for Frontier
        and
        expect to begin service in March 2007.
  Frontier
        will purchase all capacity at predetermined rates and will directly pay or
        reimburse Republic Airline for industry standard pass-through costs. The
        first
        aircraft is expected to be placed into service in March 2007 and the last
        aircraft in December 2008. The agreement has a term of eleven years from
        the
        date of the last aircraft delivery. Frontier has the option to extend the
        agreement for up to six additional years. All fuel will be purchased directly
        by
        Frontier and will not be charged back to Republic. Republic Airline
        is responsible for all costs and expenses of preparing each covered aircraft
        prior to its being placed into service.
 
 The
        term
        of the agreement is effective as of March, 2007, and, unless earlier terminated
        or extended, will continue until December 2019.
 
 The
        agreement may be subject to early termination under various circumstances
        including:
 
 •
        immediately, by Frontier, upon the occurrence of an event that constitutes
        cause, subject to prior written notice to us; or
 
 •
if
        either Frontier or we commit a material breach of the code-share agreement,
        subject to two business days notice if we breach the agreement and five business
        days notice if Frontier breaches the agreement; or
 
 •
if
        there is a change in control of us or Frontier.
 
 **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 reduce the number of flights we operate
        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.
  -15-
 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%.
  **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, United, Continental and Frontier 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 2013. 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. On March 13,
        2007,
        we and Delta reached an agreement to amend our code-share agreements. Delta
        has
        submitted the amendments to the bankruptcy court for approval, and the
        amendments are currently docketed for action on March 27, 2007. 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. Each of Continental
        and Frontier may terminate these code share agreements with cause or if we
        breach certain provisions thereof including a breach of our guaranty granted
        to
        each of 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, 2006, 2005
        and
        2004 respectively, US Airways accounted for approximately 24%, 21% and 38% of
        our
        passenger revenues, Delta accounted for approximately 35%, 34% and 36% of
        our
        passenger revenues, American accounted for approximately 11%, 13% and 16%
        of our
        passenger revenues and United accounted for approximately 30%, 32% and 10%
        of
        our passenger revenues. We
        commenced flying for Continental in January 2007 and we expect to commence
        flying for Frontier in March 2007.
  **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. 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.
  **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 party or redeploy it in order to cover our carrying expenses
        for that aircraft. Our inability to sell, sublease and/or redeploy aircraft
        that
        have been removed from service could have a material adverse effect on our
        financial condition, results of operations and the price of our common stock.
  -16-
 **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 have recently emerged from bankruptcy, and Delta is still
        attempting to reorganize under bankruptcy protection.  On March 13, 2007,
        we and Delta amended our code-share agreements. Delta has submitted the
        amendments to the bankruptcy court for approval, and the amendments are
        currently docketed for action on March 27, 2007. In addition, it is possible
        that any code-share agreement with a code-share partner that files for
        reorganization under Chapter 11 of the bankruptcy code may not be assumed
        in
        bankruptcy and could be modified or terminated. Any such event could have
        an
        adverse effect on our operations and the price of our common
        stock. As of February 1, 2007, Standard & Poor's and Moody's,
        respectively, maintained ratings of B- and B3 for US Airways, B and B3 for
        AMR
        Corp., the parent of American, B and B2 for UAL Corp., the parent of United,
        B
        and B3 for Continental. Ratings for Delta and for Frontier Airlines Holdings,
        Inc., the parent of Frontier, are not available. ****
  **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 such as our code-share partners 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 previously 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, United, Continental or Frontier 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 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, 2006. 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, United, Continental
        and
        Frontier, 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.
 
 **Our
        current growth plans may be materially adversely affected by substantial
        risks,
        some of which are outside of our control.**
  We
        plan
        to acquire an additional 43 Embraer ERJ-170/175 regional jets by the end
        of
        2008, 38 of which are subject to firm orders. At December 31, 2006, we had
        an
        agreement to place 30 of the 38 firm orders into service. Currently, we have
        agreements to place all 38 firm orders into service. We have financing
        commitments in place for all of these firm orders. In addition, we plan to
        lease
        an additional 20 CRJ-200 aircraft. 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, we are obligated to place in service an
        additional **** 71 regional
        jets through 2008, including four ERJ-170 regional jets that are not assigned
        to
        any of our code-share partners as of December 31, 2006 and four CRJ-200 regional
        jets which have been leased as of December 31, 2006 and which were placed
        into
        service with Continental in January 2007, at an aggregate cost, excluding
        the
        cost of acquiring the aircraft and related parts, to us of approximately
        $14.7
        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 1,700 additional employees and the integration of those aircraft, facilities and
        employees into our existing operations.
 
 In
        January 2007, our Chautauqua operating subsidiary began operating CRJ-200
        aircraft and is no longer operating just one fleet type. Historically, each
        of
        our operating subsidiaries have operated with one fleet type to take advantage
        of the efficiencies in employee training, aircraft maintenance, lower spare
        parts inventory requirements and aircraft scheduling. As we expand Chautauqua’s
        operations to include more than one fleet type, some of these efficiencies
        may
        no longer be realized.
  As
        of
        December 31, 2006, we had options to purchase an aggregate of 79 regional
        jets from Embraer. 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 accurately forecast 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.
 
 -17-
 Our
        growth plans may be adversely affected by our code-share agreements with
        American and Delta. Chautauqua’s 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. Republic Airline’s Delta agreement prohibits it from
        conducting code share flying into several major metropolitan airports, except
        under its existing code-share agreement with United. Pursuant to the terms
        of
        Chautauqua's and Republic Airline’s code-share agreement with Delta, we are
        prohibited from operating aircraft other than for Delta except for
        (1) those we operates for our 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, Shuttle America and Chautauqua 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 regional jets not flown by its pilots in its operations. 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. For purposes of this
        limitation, a large regional jet is an aircraft configured with 79 to 90
        passenger seats. US Airways can outsource up to an additional 55 aircraft,
        including the 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
        28
        ERJ-170s which we obtained from US Airways and the incremental ten aircraft
        that
        will be placed in service in 2008. 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 to 76 seats and limits it from operating
        more
        than 175, or under certain circumstances, 200 regional jets having 70 to
        76
        seats. United’s "scope" limitations restrict it from operating aircraft
        configured with more than 70 seats or any aircraft weighing more than 83,000
        pounds. Continental’s “scope” limitations restrict it from operating regional
        jets configured with more than 51 seats.
  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, United, Continental nor Frontier
        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.
  **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, 2006
        and
        2005, our mandatory debt service payments totaled $79.9 million and
        $53.4 million, respectively, and our mandatory lease payments totaled $99.5
        million and $82.0 million, respectively. We have significant lease
        obligations with respect to our aircraft, which aggregated approximately
        $1.1
        billion at December 31, 2006 and $883.6 million at December 31, 2005.
        Our current growth strategy involves the acquisition by purchase or leases
        of at
        least **** 63 **** more
        regional jets through 2008, including 20 CRJ-200 regional jets which we intend
        to lease, but not including the four unassigned 70-seat regional jets and
        four
        CRJ-200 regional jets leased, but not in operation as of December 31, 2006.
        Embraer's current aggregate list price for the 43 Embraer
        regional jets that we expect to acquire from Embraer is approximately $1.3
        billion. 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.
  -18-
 **We
        currently depend on Embraer to supply us with the aircraft we require to
        expand.**
  Currently,
        we are obligated under our code-share agreements to place an additional 43
        Embraer regional jets in service through 2008, not including four 70-seat
        regional jets delivered, but unassigned as of December 31, 2006. We are
        dependent on Embraer as the manufacturer of all of these jets. Our risks
        in
        relying primarily on a single manufacturer include:
  •
the
        possibility that Embraer could refuse, or may not be financially able, to
        perform its obligations under the purchase agreement for the delivery of
        the
        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 and ERJ-175 aircraft began operating in the commercial airline market
        in
        February 2004 and July 2005, respectively. As relatively new products, these aircraft have been, and may
        continue to be, subject to unforeseen manufacturing and/or reliability issues.
  Our
        operations could be materially adversely affected by the failure or inability
        of
        Embraer or any key component manufacturers to provide sufficient parts or
        related support services on a timely basis or by an interruption of fleet
        service as a result of unscheduled or unanticipated maintenance requirements
        for
        our aircraft.
  **Reduced
        utilization levels of our aircraft under the fixed-fee agreements would
        adversely impact our revenues and earnings.**
  Our
        agreements with US Airways, American, Delta, United, Continental and Frontier
        require each of them to schedule our aircraft to a minimum level of utilization.
        However, the aircraft have historically been utilized more than the minimum
        requirement. Even though the fixed-fee rates may adjust, either up or down,
        based on scheduled utilization levels or require a fixed amount per day to
        compensate us for our fixed costs, if our aircraft are at or below the minimum
        requirement (including taking into account the stage length and frequency
        of our
        scheduled flights) we will likely lose both the opportunity to recover a
        margin
        on the variable costs of flights that would have been flown if our aircraft
        were
        more fully utilized and the opportunity to earn incentive compensation on
        such
        flights. For example, as a result of Delta's bankruptcy, Delta has utilized
        our
        smaller aircraft at less than historical levels.
  **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
        pilots, dispatchers and flight attendant agreements are amendable in
        October 2007, February 2007 and September 2009, respectively. Our
        Customer Service Agreement is currently amendable and being negotiated and
        we
        expect it to be amended in 2007. 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 33 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.
  -19-
 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.
  **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 16% 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:
  •
Wexford
        Capital may in the future make significant investments in other airline
        companies that directly compete with us;
 
 •
sales
        or distributions by 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.
 
 **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 Cincinnati, and Atlanta, is particularly intense,
        due to the large number of carriers in those markets.
  In
        addition, some of our competitors are larger and have significantly greater
        financial and other resources than we do. Moreover, federal deregulation
        of the
        industry allows competitors to rapidly enter our markets and to quickly discount
        and restructure fares. The airline industry is particularly susceptible to
        price
        discounting because airlines incur only nominal costs to provide service
        to
        passengers occupying otherwise unsold seats.
  In
        addition to traditional competition among airlines, the industry faces
        competition from video teleconferencing and other methods of electronic
        communication. New advances in technology may add a new dimension of competition
        to the industry as business travelers seek lower-cost substitutes for air
        travel.
  **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
        2006
        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.
  -20-
 **Airlines
        are often affected by certain factors beyond their control, including weather
        conditions which can affect their operations.**
  Generally,
        revenues for airlines depend on the number of passengers carried, the fare
        paid
        by each passenger and service factors, such as the timeliness of departure
        and
        arrival. During periods of fog, ice, low temperatures, storms or other adverse
        weather conditions, flights may be cancelled or significantly delayed. For
        example, in 2005, Hurricane Wilma forced us to suspend some of our operations
        in
        Florida for a number of days. Under our fixed-fee code-share agreements,
        we are
        partially protected against cancellations due to weather or air traffic control,
        although these factors may affect our ability to receive incentive payments
        for
        flying more than the minimum number of flights specified in our code-share
        agreements. Should we enter into pro-rate revenue sharing agreements in the
        future we will not be protected against weather or air traffic control
        cancellations and our 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.
 
 **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.
  **Risks
        Related To Our Common Stock**
  **Our
        stock price is volatile.**
  Since
        our common stock began trading on The NASDAQ National Market (now the NASDAQ
        Global Select Market) on May 27, 2004, the market price of our common stock
        has ranged from a low of $8.15 to a high of **$** 20.60 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.
  -21-
 The
        stock
        markets in general have experienced substantial volatility that has often
        been
        unrelated to the operating performance of particular companies. These broad
        market fluctuations may adversely affect the trading price of our common
        stock.
  In
        the
        past, stockholders have sometimes instituted securities class action litigation
        against companies following periods of volatility in the market price of
        their
        securities. Any similar litigation against us could result in substantial
        costs,
        divert management's attention and resources and harm our business.
  **Future
        sales of our common stock by our stockholders could depress the price of
        our
        common stock.**
  Sales
        of a large number of shares of our common stock or the availability of a
        large
        number of shares for sale could adversely affect the market price of our
        common
        stock and could impair our ability to raise funds in additional stock offerings.
  **Our
        incorporation documents and Delaware law have provisions that could delay
        or
        prevent a change in control of our company, which could negatively affect
        your
        investment.**
 
 In
        addition to the fact that Wexford Capital, through its affiliates owns
        approximately 16% 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
        Form 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.
 
 **ITEM
        1B. UNRESOLVED STAFF COMMENTS**
 
 **Not
        Applicable**
  -22-
 **ITEM
        2. PROPERTIES**
  **Flight
        Equipment**
  As
        of
        December 31, 2006, we operated 171 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
              
              
              3.5
              
              
              —
              
              
              
              
              
              37ERJ-140LR
              
              
              15
              
              
              11
              
              
              4
              
              
              4.8
              
              
              —
              
              
              
              
              
              44ERJ-145LR
                  (2)
              
              
              63
              
              
              27
              
              
              36
              
              
              4.8
              
              
              —
              
              
              
              
              
              50ERJ-170/175LR
                  (3),(4)
              
              
              76
              
              
              56
              
              
              20
              
              
              1.2
              
              
              38
              
              
              79
              
              
              70/86Total
              
              
              171
              
              
              109
              
              
              62
              
              
              
              
              
              38
              
              
              79
 
 (1) Two
        of these aircraft are used for charter service and as spares.
  (2)
        Two
        of these aircraft are used for charter service and as spares.
 
 (3)
        Four
        of these aircraft were unassigned.
 
 (4)
        Twenty-eight 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 leased four CRJ-200 50 seat regional jets that began
        operations in January 2007.
 
 We
        have
        firm orders to acquire 38 ERJ-170/175
        regional jets and expect to order five additional ERJ-170 regional jets to
        fulfill our commitments to our code-share partners.
  All
        of
        our leased regional jet aircraft are leased by us pursuant to long-term leases,
        with current lease expirations ranging from 2009 to 2022 .
        We also
        hold fixed-price purchase options under these leases at approximately
        9.2 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.
 
 -23-
 The
        following table outlines the number and type of aircraft being operated for
        each
        code-share partner and the total number of regional jets that we are required
        to
        place in service for each code-share partner as of December 31,
        2006:
 
 
 **ERJ
                  175**
              **ERJ
                  170**
              **ERJ45**
              **ERJ140**
              **ERJ
                  135**
              **CRJ
                  200**In
                Operation
              Total
                Required
                Aircraft
              In
                Operation
                (2)
              Total
                Required
                Aircraft
              In
                Operation
                (1)
              Total
                Required
                  Aircraft
              In
                Operation
              Total
                Required
                Aircraft
              In
                Operation
                (1)
              Total
                Required
                Aircraft
              In
                Operation
              Total
                Required
                Aircraft
              Total
                  Required
                AircraftUS
                Airways
              0
              30
              28
              28
              30
              10
              
              
              
              
              
              
              68American
              
              
              
              
              
              
              15
              15
              
              
              
              
              15Delta
              
              
              16
              16
              24
              24
              
              
              15
              15
              
              
              55United
              
              
              28
              28
              7
              7
              
              
              
              
              
              
              35Continental
                (3)
              
              
              
              
              
              20
              
              
              
              
              
              24
              44Total
              0
              30
              72
              72
              61
              61
              15
              15
              15
              15
              0
              24
              217
 
 (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.
 
 (2)
        Excludes four ERJ-170 aircraft that were unassigned at December 31,
        2006.
 
 (3)
        At
        December 31, 2006 we leased 4 CRJ-200
        regional aircraft that began revenue service in January 2007.
 
 **Ground
        Operations and Properties**
 
 As
        of
        December 31, 2006, our facilities are summarized in the following
        table:
 
 **Facility**
              **Square
                  Feet**
              **Location**Corporate
                  Office
              45,000
              Indianapolis,
                  INMaintenance
                  Hangar
              110,500
              Indianapolis,
                  INMaintenance
                  Hangar/Office
              144,000
              Columbus,
                  OHMaintenance
                  Hangar
              70,000
              Louisville,
                  KYMaintenance
                  Hangar/Office
              86,000
              Pittsburgh,
                  PA
  Our
        employees perform substantially all routine airframe and engine maintenance
        and
        periodic inspection of equipment. We 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 89
        of the
        90  cities
        we
        serve.
  We
        lease
        all of our facilities subject to either long-term leases or on a month to
        month
        basis.
 
 Consistent
        with our planned growth in 2007 we are planning to add additional maintenance
        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.
 
 **ITEM
        3. LEGAL PROCEEDINGS**
  We
        are
        subject to certain legal and administrative actions, which we consider routine
        to our business activities. Management believes that the ultimate outcome
        of any
        pending legal matters will not have a material adverse effect on our financial
        position, liquidity or results of operations.
  **ITEM
        4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
        HOLDERS**
 
 Not
        applicable.
 
 -24-
 **PART
        II**
  **ITEM
        5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
        STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
        SECURITIES**
  **Market
        Price**
  Our
        common stock began trading on The NASDAQ National Market (now the NASDAQ
        Global
        Select Market) on May 27, 2004 and is traded under the symbol "RJET." Prior
        to that date, there was no public market for our common stock. The following
        table sets forth the high and low sales prices of our common stock for the
        periods indicated.
  **Year
                  Ended December 31, 2005**
              **High**
              
              **Low**First
                  Quarter
              $
              14.65
              
              $
              10.51Second
                  Quarter
              
              14.69
              
              
              11.17Third
                  Quarter
              
              14.72
              
              
              12.04Fourth
                  Quarter
              
              16.85
              
              
              13.25**Year
                  Ended December 31, 2006**First
                  Quarter
              $
              15.75
              
              $
              13.57Second
                  Quarter
              
              17.33
              
              
              13.73Third
                  Quarter
              
              17.67
              
              
              14.75Fourth
                  Quarter
              
              18.49
              
              
              15.30
  As
        of
        February 1, 2007 there were
        38 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. The credit
        facility with Bank of America Business Capital does not limit the Company’s
        ability to pay dividends unless the Company is in default
        thereunder.
  Performance
        Graph
    
 The
        above
        graph compares the performance of the Company from May 27, 2004 through December
        31, 2006, against the performance of (i) the Composite Index for Nasdaq Stock
        Market (U.S. Companies) and (ii) an index of companies engaged in air
        transportation (SIC 4512 and 4513), including regional airlines, whose stocks
        trade on the Nasdaq, for the same period.
  -25-
 Below
          is
          a summary of the equity compensation plans as of December 31,
          2006:
  **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 holdersOptions
                    outstanding under the 2002 Equity Incentive Plan
                
                
                1,725,577
                
                $
                12.54
                
                
                478,180Warrants
                    issued to Delta relating to code-share agreement
                
                
                3,435,000
                
                
                12.25
                
                
                —Equity
                    compensation plans not approved by security holders
                
                
                —
                
                
                —
                
                
                —Total
                
                
                5,160,577
                
                $
                12.35
                
                
                478,180
       -26-
 **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,****2006**
              
              **2005**
              
              **2004**
              
              **2003**
              
              **2002****(in
                  thousands, except share, per share and airline operating
                  data)****Statement
                  of Operations Data:**Operating
                  revenues:Passenger
              
              $
              1,118,226
              
              $
              883,906
              
              $
              637,389
              
              $
              480,025
              
              
              S353,208Charter
                  and ground handling
              
              
              8,932
              
              
              11,611
              
              
              8,682
              
              
              5,899
              
              
              2,451Other
              
              
              15,920
              
              
              9,504
              
              
              253
              
              
              6,356
              
              
              538Total
                  operating revenues
              
              
              1,143,078
              
              
              905,021
              
              
              646,324
              
              
              492,280
              
              
              356,197Operating
                  expenses:Wages
                  and benefits
              
              
              175,483
              
              
              143,826
              
              
              112,305
              
              
              86,949
              
              
              63,572Aircraft
                  fuel(11)
              
              
              325,500
              
              
              278,923
              
              
              174,208
              
              
              106,840
              
              
              64,869Passenger
                  fees and commissions
              
              
              —
              
              
              —
              
              
              2,939
              
              
              6,254
              
              
              7,925Landing
                  fees
              
              
              41,993
              
              
              30,376
              
              
              24,201
              
              
              19,098
              
              
              13,053Aircraft
                  and engine rent
              
              
              94,773
              
              
              77,725
              
              
              74,514
              
              
              67,350
              
              
              64,991Maintenance
                  and repair
              
              
              105,198
              
              
              76,481
              
              
              70,290
              
              
              53,475
              
              
              43,441Insurance
                  and taxes
              
              
              17,652
              
              
              16,117
              
              
              13,186
              
              
              12,859
              
              
              17,103Depreciation
                  and amortization
              
              
              92,228
              
              
              64,877
              
              
              34,412
              
              
              23,873
              
              
              12,032Impairment
                  loss and accrued aircraft return costs (credits)(1)
              
              
              (2,050
              )
              
              (4,218
              )
              
              1,441
              
              
              2,756
              
              
              7,196Other
              
              
              79,708
              
              
              62,195
              
              
              47,483
              
              
              30,115
              
              
              32,444Total
                  operating expenses
              
              
              930,485
              
              
              746,302
              
              
              554,979
              
              
              409,569
              
              
              326,626Operating
                  income
              
              
              212,593
              
              
              158,719
              
              
              91,345
              
              
              82,711
              
              
              29,571Other
                  income (expense):Interest
                  expense
              
              
              (91,128
              )
              
              (63,546
              )
              
              (28,464
              )
              
              (22,789
              )
              
              (12,868
              )Interest
                  and other income
              
              
              9,944
              
              
              5,002
              
              
              518
              
              
              195
              
              
              526Total
                  other income (expense)
              
              
              (81,184
              )
              
              (58,544
              )
              
              (27,946
              )
              
              (22,594
              )
              
              (12,342
              )Income
                  before income taxes
              
              
              131,409
              
              
              100,175
              
              
              63,399
              
              
              60,117
              
              
              17,229Income
                  tax expense
              
              
              51,899
              
              
              39,521
              
              
              24,547
              
              
              23,979
              
              
              9,540Net
                  income
              
              
              79,510
              
              
              60,654
              
              
              38,852
              
              
              36,138
              
              
              7,689Preferred
                  stock dividends(2)
              
              
              —
              
              
              —
              
              
              —
              
              
              (170
              )
              
              (413
              )Net
                  income available for common stockholders
              
              $
              79,510
              
              $
              60,654
              
              $
              38,852
              
              $
              35,968
              
              $
              7,276Net
                  income available for common stockholders per share:Basic
              
              $
              1.89
              
              $
              1.69
              
              $
              1.66
              
              $
              1.80
              
              $
              0.36Diluted
              
              $
              1.82
              
              $
              1.66
              
              $
              1.62
              
              $
              1.73
              
              $
              0.35Weighted
                  average common shares outstanding(3):Basic
              
              
              42,149,668
              
              
              35,854,249
              
              
              23,349,613
              
              
              20,000,000
              
              
              20,000,000Diluted
              
              
              43,615,946
              
              
              36,548,340
              
              
              23,906,762
              
              
              20,841,415
              
              
              20,832,750**Other
                  Financial Data:**Net
                  cash from:Operating
                  activities
              
              $
              229,147
              
              $
              170,879
              
              $
              116,827
              
              $
              91,627
              
              $
              42,710Investing
                  activities
              
              $
              (114,510
              )
              $
              (175,152
              )
              $
              (102,424
              )
              $
              (30,683
              )
              $
              (34,552
              )Financing
                  activities
              
              $
              (81,114
              )
              $
              120,058
              
              $
              9,282
              
              $
              (45,093
              )
              $
              (4,747
              )**Airline
                  Operating Data:**Passengers
                  carried
              
              
              12,666,130
              
              
              9,137,132
              
              
              6,842,407
              
              
              5,120,987
              
              
              3,758,748Revenue
                  passenger miles(4)
              
              
              6,650,398,521
              
              
              4,516,518,136
              
              
              3,062,940,174
              
              
              2,319,261,441
              
              
              1,523,201,642Available
                  seat miles(5)
              
              
              9,154,719,233
              
              
              6,559,966,278
              
              
              4,618,042,586
              
              
              3,665,876,102
              
              
              2,535,087,476Passenger
                  load factor(6)
              
              
              72.6
              **%**
              
              68.8
              **%**
              
              66.3
              **%**
              
              63.3
              **%**
              
              60.1
              **%**Revenue
                  per available seat mile(7)
              
              $
              0.125
              
              $
              0.138
              
              $
              0.140
              
              $
              0.134
              
              $
              0.141Cost
                  per available seat mile(8)
              
              $
              0.112
              
              $
              0.124
              
              $
              0.126
              
              $
              0.118
              
              $
              0.134EBITDA
                  (9)
              
              $
              314,765
              
              $
              228,597
              
              $
              126,275
              
              $
              106,779
              
              $
              42,129Average
                  passenger trip length (miles)
              
              
              515
              
              
              494
              
              
              448
              
              
              453
              
              
              405Number
                  of aircraft in service (end of period):Regional
                  Jets:Owned
              
              
              109
              
              
              90
              
              
              62
              
              
              38
              
              
              18Leased
              
              
              62
              
              
              52
              
              
              49
              
              
              45
              
              
              41Saab
                  Turboprops(10):Owned
              
              
              —
              
              
              —
              
              
              4
              
              
              —
              
              
              —Leased
              
              
              —
              
              
              —
              
              
              13
              
              
              21
              
              
              21Total
                  aircraft
              
              
              171
              
              
              142
              
              
              128
              
              
              104
              
              
              80
 -27-
   **As
                of December 31,****2006******
              
              **2005**
              
              **2004**
              ****
              **2003**
              ****
              **2002****Consolidated
                  Balance Sheet Data:**
              
              
              
              
              
              **(in
                    thousands)**Cash
                  and cash equivalents
              $
              195,528
              $
              162,005
              $
              46,220
              $
              22,535
              $
              6,684Aircraft
                  and other equipment, net
              
              1,889,717
              
              1,662,236
              
              984,512
              
              549,009
              
              301,905Total
                  assets
              
              2,358,441
              
              2,035,947
              
              1,171,820
              
              669,783
              
              401,260Long-term
                  debt, including current maturities
              
              1,568,803
              
              1,413,440
              
              850,869
              
              486,146
              
              284,067Redeemable
                  preferred stock
                of
                  subsidiary
                at
                  redemption value
              
              —
              
              —
              
              —
              
              —
              
              5,160Total
                  stockholders' equity
              
              508,829
              
              424,698
              
              174,651
              
              72,406
              
              31,270
 
 (1) We
        recorded impairment losses and accrued aircraft return costs of $7.2, $2.8,
        and
        $1.4 million in 2002, 2003, and 2004 respectively, related to Saab turboprop
        aircraft. In 2005, we reversed a $4.2 million reserve after a final agreement
        to
        return all the Saab turboprop aircraft to lessors was executed and all
        liabilities were settled. In 2006, we recorded a $2.1 million
        gain relating to the disposition of Saab aircraft and spare parts.
  (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 was
        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.
  -28-
 The
        following represents a reconciliation of EBITDA to net cash from operating
        activities for the periods indicated (dollars in thousands):
  **Years
                  Ended December 31,****2006**
              
              **2005**
              
              
              **2004**
              
              
              **2003**
              
              
              **2002**(in
                  thousands)**EBITDA**
              $
              314,765
              $
              228,597
              
              $
              126,275
              
              $
              106,779
              
              $
              42,129Interest
                  expense
              
              (91,128
              )
              (63,546
              )
              
              (28,464
              )
              
              (22,789
              )
              
              (12,868
              )Debt
                  issue and other amortization
              
              4,551
              
              2,776
              
              
              1,928
              
              
              1,968
              
              
              339Warrant
                  amortization
              
              565
              
              372
              
              
              800
              
              
              359
              
              
              9(Gain)
                  loss on aircraft and other equipment disposals
              
              (118
              )
              (276
              )
              
              1,151
              
              
              1,079
              
              
              193Impairment
                  loss and accrued aircraft return costs (credits)
              
              (2,050)
              
              (4,218
              )
              
              1,441
              
              
              2,756
              
              
              7,196Amortization
                  of deferred credits
              
              (1,438
              )
              (1,346
              )
              
              (1,285
              )
              
              (1,249
              )
              
              (1,132
              )Stock
                  compensation expense
              
              1,297
              
              125
              
              
              214
              
              
              214
              
              
              214Current
                  income tax (expense) benefit
              
              (495
              )
              (1,915
              )
              
              (520
              )
              
              (237
              )
              
              4,485
              )Changes
                  in certain assets and liabilities:Receivables
              
              (2,939
              )
              (10,323
              )
              
              10,480
              
              
              (7,124
              )
              
              (481
              )Inventories
              
              (11,448
              )
              1,276
              
              
              (2,683
              )
              
              (2
              )
              
              715Prepaid
                  expenses and other current assets
              
              1,474
              
              (4,907
              )
              
              (1,022
              )
              
              1,057
              
              
              (1,116
              )Accounts
                  payable
              
              10,546
              
              1,152
              
              
              1,963
              
              
              (4,405
              )
              
              4,209Accrued
                  liabilities
              
              16,826
              
              28,980
              
              
              11,370
              
              
              14,937
              
              
              1,805Other
                  assets
              
              (11,261
              )
              (5,868
              )
              
              (4,821
              )
              
              (1,716
              )
              
              (2,987
              )Net
                  cash from operating activities
              $
              229,147
              $
              170,879
              
              $
              116,827
              
              $
              91,627
              
              $
              42,710
 
 (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)
        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.
 
 
 -29-
  **ITEM
        7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
        CONDITION AND RESULTS OF OPERATION**
 
 **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, 2006, we offered scheduled passenger
        service on approximately 1,000 flights daily to 90 cities in 35 states, Canada,
        Mexico and the U.S. Virgin Islands 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”). In
        July
        2006, we
        entered into a code-share agreement with Continental Airlines, Inc.
        (“Continental”) and we began flying for Continental in January 2007. Also, in
        January 2007, we
        entered into a code-share agreement with Frontier Airlines, Inc. (“Frontier”).
        We expect to begin flying for Frontier in March 2007. Currently, we provide
        five
        of our six partners
        with regional jet service, operating as AmericanConnection, US Airways Express,
        Delta Connection , United Express
        or Continental Express,
        including service out of their hubs and focus cities in Atlanta, Boston,
        Chicago, Cincinnati, Columbus, Houston, Indianapolis, New York, Philadelphia,
        Pittsburgh, St. Louis, and Washington, D.C., ( Dulles and National ).
  Chautauqua
        Airlines is our platform for flying 37 to 50 seat aircraft, and, as
        of
        December 31, 2006, operated 95 aircraft. Shuttle America is our platform for flying 70-seat aircraft
        and , as of
        December 31, 2006, operated 48 ERJ-170
        aircraft. Republic Airline is our platform for aircraft with more than 70
        seats,
        and , as of
        December 31, 2006, Republic Airline operated twenty-eight 72-seat
        ERJ-170 aircraft.
  From 2002 to 2006, our
        available seat miles, or ASMs, grew at a compounded annual growth rate of
        37.9 %.
        As of
        December 31, 2006, our operational fleet consisted of 171 aircraft, including
        76
        ERJ-170, 70-seat and larger regional jets and 95
        ERJ-145 family, 37- 50
        seat
        regional jets. Currently,
        we have agreed to place into service an additional 30 ERJ-175 regional jets
        for
        US Airways through 2008. These 30 aircraft are covered by firm orders that
        we
        have with Embraer. We have also agreed to place forty-four 50-seat regional
        jets
        into service for Continental between January and July 2007. We will transition
        20 ERJ-145 aircraft from our US Airways operations and we plan to lease 24
        CRJ-200 regional jets to fulfill the commitment. As of December 31, 2006,
        four
        leases for such CRJ-200 aircraft had been obtained and began service in January
        2007. We have commitments to lease the remaining 20 CRJ-200 aircraft. In
        addition, we have entered into an agreement with Frontier to operate 17 ERJ-170
        regional jets. Four of the 17 aircraft are currently in our fleet but are
        not
        allocated to a code-share partner and
        the
        remaining 13 aircraft will be funded by delivery positions available with
        Embraer in 2007 and 2008. The Company has options for 79 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.
  For
        the
        years ended December 31, 2006, 2005
        and
        2004 respectively, US Airways accounted for approximately 24%, 21% and 38% of
        our
        passenger revenues, Delta accounted for approximately 35%, 34% and 36% of
        our
        passenger revenues, American accounted for approximately 11%, 13% and 16%
        of our
        passenger revenues and United accounted for approximately 30%, 32% and 10%
        of
        our passenger revenues.
 
 **Code-Share
        Agreements**
  We
        have
        long-term, fixed-fee regional jet code-share agreements with each of our
        partners that are subject to our maintaining specified performance levels.
        Pursuant to these fixed-fee agreements, which provide for minimum aircraft
        utilization at fixed rates, we are authorized to use our partners' two-character
        flight designation codes to identify our flights and fares in our partners'
        computer reservation systems, to paint our aircraft in the style of our
        partners, to use their service marks and to market ourselves as a carrier
        for
        our partners. In addition, in connection with a marketing agreement among
        Delta,
        Continental and Northwest Airlines, certain of the routes that we fly using
        Delta's and Continental’s flight designator codes are also flown under
        Northwest's designator code. Our fixed-fee agreements have 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.
 
 In
        October 2005, US Airways which represented 24% of our revenue for the year
        ended
        December 31, 2006, emerged from bankruptcy. United, which represented
        30 %
        of our
        passenger revenues for the year ended December 31, 2006, emerged from bankruptcy
        on February 1, 2006. Delta, which represented 35 %
        of our
        passenger revenues for the year ended December 31, 2006, is attempting to
        reorganize its respective businesses under Chapter 11 of the bankruptcy code.
        On
        March 13, 2007, we and Delta amended our code-share agreements. Delta has
        submitted the amendments to the bankruptcy court for approval, and the
        amendments are currently docketed for action on March 27, 2007. The amendments,
        if approved, provide for early removal of all 15 ERJ-135 aircraft between
        September 2008 and April 2009 at a rate of 2 aircraft per month, and an
        approximate 3% reduction in the reimbursement rates on our ERJ-145/170 aircraft
        for the remaining term of the agreements. In return for these amended terms,
        Delta has agreed that we will have a negotiated pre-petition claim in the
        amount
        of $91 million, and Delta will surrender all of its warrants on approximately
        3.4 million shares of our common stock. 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.
 
 -30-
 **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,****2004**
              
              **2005**
              
              **2006****Total**
              
              **Owned**
              
              **Leased**
              
              **Total**
              
              **Owned**
              
              **Leased**
              
              **Total**
              
              **Owned**
              
              **Leased****Regional
                  Jets:**Embraer
                  ERJ-135 LR (1)
              
              
              17
              
              
              15
              
              
              2
              
              
              17
              
              
              15
              
              
              2
              
              
              17
              
              
              15
              
              
              2Embraer
                  ERJ-140 LR
              
              
              15
              
              
              11
              
              
              4
              
              
              15
              
              
              11
              
              
              4
              
              
              15
              
              
              11
              
              
              4Embraer
                  ERJ-145 LR (2)
              
              
              68
              
              
              25
              
              
              43
              
              
              63
              
              
              22
              
              
              41
              
              
              63
              
              
              27
              
              
              36Embraer
                  ERJ-170 LR (3)
              
              
              11
              
              
              11
              
              
              —
              
              
              47
              
              
              42
              
              
              5
              
              
              76
              
              
              56
              
              
              20**Turboprops:**Saab
                  340 (4)
              
              
              17
              
              
              4
              
              
              13
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Total
              
              
              128
              
              
              66
              
              
              62
              
              
              142
              
              
              90
              
              
              52
              
              
              171
              
              
              109
              
              
              62
  (1) Two
        of these aircraft are used for charter operations and as spares at December
        31,
        2004, 2005 and 2006.
 
 (2)
        Two
        of these aircraft are used for charter operations and as spares at December
        31,
        2005 and 2006.
 
 (3)
        Four
        of these aircraft were unassigned at December 31, 2006.
 
 (4) Excludes
        one and five Saab 340 aircraft held for sale at December 31, 2004 and
        2005, respectively. The remaining 5 Saab 340 aircraft were sold in
        2006.
 
 In
        addition to the aircraft listed above, we sub-leased five ERJ-145 aircraft
        to an
        airline in Mexico and had four CRJ-200 aircraft which began revenue service
        in
        January 2007.
 
 We
        recorded impairment losses and accrued aircraft return cost of $1.4 million
        in
        2004. 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 $4.2 million of the
        reserve for estimated return costs after the Saab turboprops were returned
        to
        lessors and all liabilities were settled. In 2006, we recorded a $2.1 million
        gain relating to the disposition of Saab aircraft and spare parts.
  During
        1999, we began operating Embraer regional jets on behalf of US Airways under
        a
        fixed-fee arrangement. There were 35, 40 and 58 Embraer aircraft operating
        on
        behalf of US Airways at December 31, 2004, 2005 and 2006, respectively.
        During 2000, we began operations 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, 2004, 2005 and
        2006. At December 31, 2004, 2005 and 2006, respectively, we had 39, 48
        and 55 aircraft in operation under our agreements with Delta. We began
        operations for United in June 2004, and at December 31, 2004, 2005 and 2006
        respectively, we had 20, 35 and 35 Embraer regional jets in operation under
        the
        agreement with United.
 
 During
        2004, 97.6% of our ASMs and 96.0% of our passenger revenues were generated
        under
        fixed-fee agreements. During 2005 and 2006, 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, 2006, we operated 163 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. As of December 31, 2006, 2005 and 2004 approximately 100.0.%,
        100.0% and 96.0%, 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.
 
 -31-
 **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.  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.
        Under the respective agreements, Continental and Frontier will also pay for
        fuel
        directly.
  **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.
  **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
        most
        of our engines and some of the major airframe components. The effect of such
        contracts is to reduce the volatility of aircraft maintenance expense over
        the
        term of the contract.
  **Insurance
        and Taxes**
  This
        expense includes the costs of passenger liability insurance, aircraft hull
        insurance, war risk insurance and all other insurance policies, other than
        employee welfare insurance. Additionally, this expense includes personal
        and
        real property taxes, including aircraft property taxes. Under our current
        fixed-fee agreements, we are reimbursed for the actual costs of passenger
        liability insurance, war risk insurance, aircraft hull insurance and property
        taxes, subject to certain restrictions. Under our US Airways and United
        fixed-fee agreements, we are reimbursed for the actual costs of such items
        other
        than aircraft hull insurance, which is reimbursed at agreed upon rates.
  **Depreciation
        and Amortization**
  This
        expense includes the depreciation of all fixed assets, including aircraft,
        and
        the amortization of the commuter slots that we own.  Goodwill and
        intangibles with an indefinite life are required to be evaluated for impairment
        on an annual basis. If we determine the goodwill and intangibles are impaired,
        we are required to write-off the amount of goodwill and intangibles that
        are
        impaired.  As of December 31, 2006 and 2005, goodwill and intangibles was
        $62.4 million and
        $65.7 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.
   -32-
 **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, 2006 was approximately
        $6.5 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 $565,000.
  On
        March 13, 2007, we and Delta amended out
        code-share agreements. The amendments, if approved, provide for early removal
        of
        all 15 ERJ-135 aircraft between September 2008 and April 2009 at a rate of
        2
        aircraft per month, and an approximate 3% reduction in the reimbursement
        rates
        on the Company's ERJ-145/170 aircraft for the remaining term of the agreements.
        In return for these amended terms, Delta has agreed that we will have a
        negotiated pre-petition claim in the amount of $91 million, and Delta, will
        surrender all of its warrants on approximately 3.4 million shares of our
        common
        stock.
  **Certain
        Statistical Information**
 **Years
                  Ended December 31,****Operating
                  Expenses per ASM in cents****2006**
              
              **2005**
              
              **2004**Wages
                  and benefits
              
              1.92
              
              2.19
              
              2.43Aircraft
                  fuel(2)
              
              3.55
              
              4.25
              
              3.77Passenger
                  fees and commissions
              
              —
              
              —
              
              0.06Landing
                  fees
              
              0.46
              
              0.46
              
              0.52Aircraft
                  and engine rent
              
              1.03
              
              1.18
              
              1.61Maintenance
                  and repair
              
              1.15
              
              1.17
              
              1.52Insurance
                  and taxes
              
              0.19
              
              0.25
              
              0.29Depreciation
                  and amortization
              
              1.01
              
              0.99
              
              0.75Impairment
                  loss and accrued aircraft return costs (1)
              
              (0.02
              )
              (0.06
              )
              0.03Other
              
              0.87
              
              0.95
              
              1.03Total
                  operating expenses
              
              10.16
              
              11.38
              
              12.01Plus
                  interest expense
              
              1.00
              
              0.97
              
              0.62Total
                  operating and interest expenses
              
              11.16
              
              12.35
              
              12.63Total
                  operating and interest expenses excluding aircraft fuel
              
              7.61
              
              8.10
              
              8.86
  (1) We
        recorded impairment losses and accrued aircraft return cost of $1.4 million
        in
        2004. 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. In 2006, we recorded a $2.1 million gain relating to the disposition
        of
        Saab aircraft and spare parts.
  (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.
  -33-
  **Years
                  Ended December 31,****2006**
              
              **Increase/**
                **(Decrease)**
                **2006-2005**
              
              **2005**
              
              **Increase/**
                **(Decrease)**
                **2005-2004**
              
              **2004**Revenue
                  passengers
              
              
              12,666,130
              
              
              38.6
              %
              
              9,137,132
              
              
              33.5
              %
              
              6,842,407Revenue
                  passenger miles (1)
              
              
              6,650,398,521
              
              
              47.2
              %
              
              4,516,518,136
              
              
              47.5
              %
              
              3,062,940,174Available
                  seat miles (2)
              
              
              9,154,719,233
              
              
              39.6
              %
              
              6,559,966,278
              
              
              42.1
              %
              
              4,618,042,586Passenger
                  load factor (3)
              
              
              72.6
              %
              
              3.8
              pp
              
              68.8
              %
              
              2.5
              pp
              
              66.3
              %Cost
                  per available seat mile (4)
              
              
              11.16
              
              
              (9.6
              %)
              
              12.35
              
              
              (2.2
              %)
              
              12.63Average
                  price per gallon of fuel (5)
              
              
              $2.16
              
              
              9.1
              %
              
              $1.98
              
              
              43.5
              %
              
              $1.38Fuel
                  gallons consumed(6)
              
              
              149,383,949
              
              
              5.8
              %
              
              141,159,425
              
              
              11.7
              %
              
              126,344,270Block
                  hours (7)
              
              
              556,635
              
              
              20.0
              %
              
              464,041
              
              
              23.8
              %
              
              374,749Average
                  length of aircraft flight (miles)
              
              
              515
              
              
              5.7
              %
              
              487
              
              
              10.7
              %
              
              440Average
                  daily utilization of each aircraft (hours) (8)
              
              
              10.35
              
              
              (1.4
              %)
              
              10.50
              
              
              2.2
              %
              
              10.27Aircraft
                  in service at end of period
              
              
              171
              
              
              20.4
              %
              
              142
              
              
              10.9
              %
              
              128
 
 (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).
 
 -34-
 **Results
        of Operations**
 
 **** ***2006
        Compared to 2005***
 
 Operating
        revenue in 2006 increased by 26.3%, or $238.1 million, to $1.1 billion
        compared to $905.0 million in 2005. The increase was due primarily to
        fixed-fee revenue earned from twenty-nine 70-seat regional jets added to
        revenue
        service in 2006. Eighteen regional jets were added for US Airways, seven
        were
        added for Delta, and four were placed on short-term assignment in late 2006
        with
        current partners and will begin service for Frontier in the spring of 2007.
        Other operating revenue increased $6.4 million due to a full year of sublease
        revenue on aircraft and payments from US Airways for the use of aircraft
        take-off and landing slots in 2006 which we began recording in September
        2005.
  Total
        operating expenses increased by 24.7%, or $184.2 million, to $ 930.5 million
        in
        2006 compared
        to $746.3 million in 2005
        due
        to the increase in flight operations. Total operating and interest expenses
        increased by 26.2%, or $211.9 million, to $1,021.6 million for 2006
        compared to $809.8 million during 2005 due to the increase in flight operations.
        The cost per available seat mile on total operating and interest expenses,
        excluding fuel charges, decreased to 7.6¢ in 2006 compared to 8.1¢ in 2005.
        Factors relating to the change in operating expenses are discussed
        below.
  Wages
        and
        benefits increased by 22.0%, or $31.7 million, to
        $175.5 million for 2006 compared
        to $143.8 due primarily to a $25.3 million increase in flight crew and
        maintenance operations wage expenses to support the increase in 70-seat regional
        jet operations and a $8.7 million increase in related employee benefit costs
        resulting from the additional wage expense and stock compensation expense
        recognition of $1.3 million in 2006. These increases were partially offset
        by a
        $4.4 million decrease in the wage expense for Customer Service employees
        due to
        the elimination of ground handling operations for American in St. Louis in
        March
        2006. The cost per available seat mile decreased to 1.9¢ for 2006 compared to
        2.2¢ in 2005.
  Aircraft
        fuel expense increased 16.7%, or $46.6 million, to $325.5 million for
        2006 compared
        to $278.9 million for 2005 due to a 10% increase in the average fuel price
        per gallon and a 6% increase in gallons consumed. Beginning in May 2005, we no longer record fuel expense and the related revenue
        for US Airways operations because US Airways pays for fuel directly. The
        average
        price per gallon was $2.16 in 2006 and $1.97 in 2005.  The unit cost
        decreased to 3.6¢ in 2006 compared to 4.3¢ in 2005 due to the increase in the
        70-seat US Airways operations, for which no fuel expense is
        recorded.
  Landing
        fees increased by 38.2%, or $11.6 million, to $42.0 million in 2006 compared
        to $30.4 million in 2005. The increase is due to a 16% increase in
        departures and a 17% increase in the average landing weight resulting from
        the
        increase in 70-seat operations in 2006. 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 21.9%, or $17.0 million, to $94.8 million in
        2006 compared
        to $77.7 million in 2005 due to a $22.4 million increase in aircraft rents
        of 70-seat regional jets resulting from the additional leases of fifteen
        70-seat
        regional jets in 2006, and is partially offset by the effect of buying out
        five
        50-seat regional jets in the third quarter of 2006 and removing the final
        seven
        turboprop aircraft from lease in the fourth quarter of 2005. The unit cost
        decreased to 1.0¢ for 2006 compared to 1.2¢ for 2005.
 
 Maintenance
        and repair expenses increased by 37.6%, or $28.7 million, to $105.2 million
        in
        2006 compared
        to $76.5 million for 2005 due mainly to a $29.6 million increase in 70-seat
        regional jet maintenance expenses resulting from the increase in 70-seat
        operations in 2006. Additionally, maintenance expenses on our smaller jets
        (37-50 seats) increased $5.4 million over 2005 due mainly to contractual
        rate
        increases on certain of our engines under a long-term maintenance agreement,
        which are reimbursed as pass-through expenses. The increase in regional jet
        expenses was partially offset by a decrease of $6.4 million from 2005 turboprop
        maintenance expenses as a result of the removal of the turboprops. The unit
        cost
        remained unchanged at 1.2¢ .
  Insurance
        and taxes increased 9.5%, or $1.5 million, to $17.7 million in 2006 compared
        to $16.1 million in 2005. The increase in operations was mostly offset by a
        decline in the average insurance rates year over year and a $0.4 million
        decrease in aircraft property taxes. The unit cost decreased to 0.2¢ for 2006
        compared to 0.3¢ in 2005.
  Depreciation
        and amortization increased 42.2%, or $27.4 million, to $92.2 million
        in 2006 compared
        to $64.9 million in 2005 due mainly to $24.1 million of additional
        depreciation on regional jet aircraft due to the purchase of 16 regional
        jets in
        2006 and the full year effect of 31 regional jet aircraft purchased in 2005.
        Additionally, amortization for takeoff and landing slots increased $2.8 million
        from 2005. The unit cost remained unchanged at 1.0¢.
  Impairment
        loss and accrued return costs was a ($2.1) million benefit in 2006 compared
        to
        ($4.2) million benefit in 2005. The ($2.1) million in 2006 represent the
        gain on
        the disposition of Saab aircraft and spare parts. The ($4.2) million in 2005
        was
        the reversal of 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.
 
 Other
        expenses increased 28.2%, or $17.5 million, to $79.7 million in 2006 from
        $62.2 million in 2005, due primarily to $22.5 million of increases in flight
        crew training and travel expenses, passenger catering costs, and administrative
        expenses to support the increased 70-seat regional jet operations, offset
        by a
        decrease of $6.3 million in payments made to American in 2005 related to
        operating 70-seat aircraft at Chautauqua . The unit
        cost remained unchanged at 0.9¢.
  -35-
 Interest
        expense increased 43.4% or $27.6 million, to $91.1 million in 2006 from
        $63.5 million in 2005 primarily due to interest on debt related to the financing
        of 16 regional jets during 2006 and the full year effect of 31 regional jet
        aircraft financed in 2005. The weighted average interest rate increased to
        6.1%
        in 2006 from 5.6% in 2005. The unit cost remained unchanged at 1.0 ¢ .
  We
        incurred income tax expense of $51.9 million
        during 2006, compared to $39.5 million in 2005. The effective tax rates for
        2006
        and 2005 were 39.5 %
        and
        39.5%, respectively, which were higher than the statutory rate due to state
        income taxes and non-deductible meals and entertainment expense, primarily
        for
        our flight crews.
 
 ***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.
  -36-
 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.
 
 **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,
        Continental and Frontier, 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, 2006, we had $195.5 million
        in cash and $14.0 million available under our revolving credit facility.
        At
        December 31, 2006, we had working capital surplus of $60.1
        million.
 
 Chautauqua’s
        debt agreements with the bank were amended during 2006 to a Republic Airways
        Holdings Inc. consolidated agreement. The Company 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 the Company to borrow
        up
        to 50% of the lower of net book value or appraised orderly liquidation value
        of
        spare rotable parts and up to 20% 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 the Company’s assets,
        excluding the owned aircraft and engines. Borrowings under the credit facility
        bear interest at a rate equal to, at the Company’s option, LIBOR plus spreads
        ranging from 2.5% to 2.75% or the bank's base rate (which is generally
        equivalent to the prime rate) plus spreads ranging from 0.50% to 0.75%. The
        Company 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 the Company’s ability to incur indebtedness or create or incur
        liens on our assets. In addition, the credit facility requires the Company
        to
        maintain a specified fixed charge coverage ratio and a debt to earnings leverage
        ratio. The Company was in compliance with both ratios at December 31, 2006.
        This
        credit facility expires May 31, 2007.
  At
        December 31, 2006, the Company had $11.0 million
        of outstanding letters of credit.
 
 During
        2006, the Company acquired 11 aircraft through debt financing totaling $194.7
        million. The debt was obtained from banks and the aircraft manufacturer for
        twelve to fifteen year terms at interest rates ranging from 4.75% to 7.523%.
        In
        addition, during 2006, the Company acquired five previously leased ERJ-145
        aircraft from the lessors. Debt was obtained for $40.5 million from a
        third-party lender for a term of ten years at interest rates between 8.46%
        and
        8.49%. ****
 
 As
        of
        December 31, 2006, we leased nine spare regional jet engines from General
        Electric Capital Aviation Services, five spare regional jet engines from
        RRPF Engine Leasing (US) LLC and four regional jet engines from Miyabi Engine
        Leasing.
  Net
        cash
        from operating activities was $116.8 million, $170.9 million and
        $229.1 million
        for the years ended December 31, 2004, 2005 and 2006, respectively. The
        increase from operating activities is primarily due to the continued growth
        of
        our business. For 2006, net cash from operating activities is primarily net
        income of $79.5 million, depreciation and amortization of $92.2 million,
        the
        change in deferred income taxes of $51.4 million, the increase in accrued
        liabilities of $16.8 million partially offset by decreases of $11.4 million
        in inventories. 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.
  Net
        cash
        used by investing activities was $(102.4) million, $(175.2) million and
        $(114.5) million
        for the years ended December 31, 2004, 2005 and 2006, respectively. In
        2006, we purchased 11 regional jets and five previously leased aircraft from
        the
        lessor. Net aircraft deposits increased **** $43.4 million
        in 2006. In 2005, we purchased 35 regional jets and paid $51.6 million for
        commuter slots. In 2004, we purchased 24 regional jets and our net aircraft
        deposits increased $38.8 million.
  Net
        cash
        from or (used by) financing activities was $9.3 million, $120.1 million and
        $(81.1) million
        for the years ended December 31, 2004, 2005 and 2006, respectively. In
        2006
        we made debt payments of $79.9 million . **** 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.
 
 -37-
 Delta,
        which represented 35 %
        of our
        passenger revenues for the year ended December 31, 2006, is attempting to
        reorganize its respective businesses under Chapter 11 of the bankruptcy code.
        In
        2006, Delta utilized our smaller aircraft at less than historical levels.
        On
        March 13, 2007, we and Delta amended out code-share agreements. The amendments,
        if approved, provide for early removal of all 15 ERJ-135 aircraft between
        September 2008 and April 2009 at a rate of 2 aircraft per month, and an
        approximate 3% reduction in the reimbursement rates on the Company's ERJ-145/170
        aircraft for the remaining term of the agreements. In return for these amended
        terms, Delta has agreed that we will have a negotiated pre-petition claim
        in the
        amount of $91 million, and Delta will surrender all of its warrants on
        approximately 3.4 million shares of the Company's common stock.
 
 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. Aircraft leases expire between 2009 and 2022. As of December 31, 2006,
        our total mandatory payments under operating leases for aircraft aggregated
        approximately $1.1 billion and total minimum annual aircraft rental
        payments for the next 12 months under all non-cancelable operating leases
        is approximately $108.2 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, 2006,
        our
        total mandatory payments under other non-cancelable operating leases aggregated
        approximately $104.3 million. Total minimum annual other rental payments
        for the next 12 months are approximately $10.1 million.
  *Purchase
        Commitments*
  The
        Company has reached an agreement with US Airways to acquire and operate thirty
        86 seat ERJ-175 regional jets. As of December 31, 2006, the Company had firm
        orders to purchase 38 ERJ-170/175 regional jets. The current total list price
        of
        the 38 regional jets is $1.1 billion. During the year ended December 31,
        2006,
        the Company made aircraft deposits in accordance with the aircraft commitments
        of $67.6 million. The Company also has a commitment to acquire seven spare
        aircraft engines with a current list price of approximately $30.5 million.
        These
        commitments are subject to customary closing conditions.
 
 In
        July
        2006, the Company announced that it had reached an agreement to operate
        forty-four 50-seat regional jets for Continental. Twenty of the aircraft
        are
        ERJ-145 regional jets that will transition from the Company’s US Airways
        operations. The Company has firm commitments to lease 24 CRJ-200 regional
        jets
        with lease terms from 24 to 36 months. As of December 31, 2006, the Company
        had
        taken delivery of 4 CRJ-200 regional jets. All 44 of the aircraft are expected
        to be placed into service for Continental between January and August 2007
        and
        will be operated for terms that vary from two years to five years. Under
        certain
        conditions Continental may extend the term on the aircraft up to five additional
        years.
 
 In
        January 2007, the
        Company and Frontier entered into an agreement, whereby, Republic will operate
        for Frontier seventeen, 76-seat Embraer 170 regional jets. Four of the seventeen
        aircraft are currently in the Republic fleet but not allocated to a code-share
        partner and the remaining 13 aircraft will be funded by delivery positions
        available from Embraer.
  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, 2006, 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)
              $
              182,205
              
              $
              541,721
              
              $
              360,928
              
              $
              1,191,647
              
              $
              2,276,501Operating
                  leases
              
              118,347
              
              
              335,966
              
              
              199,293
              
              
              539,779
              
              
              1,193,385Aircraft
                  under firm orders:Lease
                  Obligations for CRJ-200 Aircraft (20)
              
              18,545
              
              
              26,505
              
              
              —
              
              
              —
              
              
              45,050Debt
                  or Lease Financed Aircraft under firm orders (38)
              
              1,140,000
              
              
              —
              
              
              —
              
              
              —
              
              
              1,140,000Engines
                  under firm orders (7)
              
              30,513
              
              
              —
              
              
              —
              
              
              —
              
              
              30,513Total
                  contractual cash obligations
              $
              1,489,610
              
              $
              904,192
              
              $
              560,221
              
              $
              1,731,426
              
              $
              4,685,449
  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 December 2012 for the Embraer 145 family of
        regional jets and $5.1 million per year through December 2014 for the Embraer
        170 regional jets. 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
        April 2009. 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.
  -38-
 We
        have
        long-term maintenance agreements based upon flight activity with engine
        manufacturers and maintenance providers through October 2012 for the Embraer
        ERJ-145 family of regional jets and through December 2014 for the Embraer
        ERJ-170 regional jets.
  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 year subsequent to December 31, 2006 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.
 
 We
        have a
        long-term agreement to provide, manage and repair certain spare parts on
        our
        CRJ-200 regional jets through December 2009. The agreement has a guaranteed
        minimum annual flight hour requirement for certain periods of time during
        the
        agreement.
 
 Total
        payments under these long-term maintenance agreements were $40.0 million,
        $53.6 and $56.1 million
        for the years ended December 31, 2004, 2005 and 2006,
        respectively.
  Our
        commercial commitments at December 31, 2006 include letters of credit totaling
        $11.0 million expiring within one year.
  Cash
        payments for interest were approximately $87.3 million in 2006 .
        Tax
        payments in 2006 were not significant and we are not expecting significant
        payments in 2007.
 
 **Critical
        Accounting Policies**
  The
        discussion and analysis of our financial condition and results of operations
        are
        based upon the consolidated financial statements, which have been prepared
        in
        accordance with accounting principles generally accepted in the United States.
        The preparation of these financial statements requires us to make estimates
        and
        judgments that affect the reported amount of assets and liabilities, revenues
        and expenses, and related disclosure of contingent assets and liabilities
        at the
        date of our financial statements. Actual results may differ from these estimates
        under different assumptions and conditions.
  Critical
        accounting policies are defined as those that are reflective of significant
        judgments and uncertainties, and are sufficiently sensitive to result in
        materially different results under different assumptions and conditions.
        We
        believe that our critical accounting policies are limited to those described
        below. For a detailed discussion on the application of these and other
        accounting policies, see Note 2 in the notes to the consolidated financial
        statements.
  ·
            *Revenue
                Recognition*.
                Under our fixed-fee arrangements with American, Delta, US Airways,
                United,
                Continental and Frontier, the Company receives a fixed-fee, as well
                as
                reimbursement of specified costs on a gross basis with additional
                possible
                incentives from our partners for superior service. Revenues are recognized
                in the period the service is provided, and we perform an estimate
                of the
                profit component based upon the information available at the end
                of the
                accounting period. The reimbursement of specified costs, known as
                “pass-through costs”, may include aircraft ownership cost, passenger
                liability and hull insurance, aircraft property taxes, fuel, landing
                fees
                and catering. All revenue recognized under these contracts is presented
                at
                the gross amount billed for reimbursement pursuant to Emerging Issues
                Tax
                Force Issue (“EITF”) No. 99-19*Reporting
                Revenue Gross as a Principal versus Net as an Agent*.   Under the Company’s code-share agreements,
                the Company is reimbursed an amount per aircraft designed to compensate
                the Company for certain aircraft ownership costs. In accordance with
                EITF
                No. 01-08, *Determining
                Whether an Arrangement Contains a Lease*,
                the Company has concluded that a component of its revenue under the
                agreement discussed above is rental income, inasmuch as the agreement
                identifies the “right of use” of a specific type and number of aircraft
                over a stated period of time. The amount deemed to be rental income
                during
                fiscal 2006, 2005 and 2004 was $258.6 million, $189.8 million
                and $128.6 million, respectively, and has been included in passenger
                revenue on the Company’s consolidated statements of
                income.·
              *Aircraft
                  Leases*.
                  The Company has aircraft that are leased from third parties. In
                  order to
                  determine the proper classification of a lease as either an operating
                  lease or a capital lease, the Company must make certain estimates
                  at the
                  inception of the lease relating to the economic useful life and
                  the fair
                  value of an asset as well as select an appropriate discount rate
                  to be
                  used in discounting future lease payments. These estimates are
                  utilized by
                  management in making computations as required by existing accounting
                  standards that determine whether the lease is classified as an
                  operating
                  lease or a capital lease. All of the Company’s aircraft leases have been
                  classified as operating leases, which results in rental payments
                  being
                  charged to expense over the term of the related leases. Additionally,
                  operating leases are not reflected in the Company’s consolidated balance
                  sheet and accordingly, neither a lease asset nor an obligation
                  for future
                  lease payments is reflected in the Company’s consolidated balance sheet.The
                  Company is responsible for all other maintenance costs of its aircraft
                  and
                  must meet specified return conditions upon lease expiration for
                  both the
                  airframes and engines. The Company is unable to estimate the liability
                  for
                  these return conditions as of December 31, 2006, because the leases
                  expire
                  beginning in 2009. The Company will record a liability for these
                  return
                  conditions once the liability is
                  estimable.
 
 -39-
   ·
            *Impairments
                to Long-Lived Assets*.
                We record impairment losses on long-lived assets used in operations
                when
                events and circumstances indicate that the assets might be impaired
                and
                the undiscounted cash flows estimated to be generated by those assets
                are
                less than the carrying amount of those items. Our cash flow estimates
                are
                based on historical results adjusted to reflect our best estimate
                of
                future market and operating conditions. Our estimates of fair value
                represent our best estimate based on industry trends and reference
                to
                market rates and transactions. We review, at least annually, the
                estimated
                useful lives and salvage values for our owned aircraft and spare
                parts.  ·
            *Aircraft
                Maintenance and Repair*.
                We follow a method of expensing aircraft maintenance and repair costs.
                However, maintenance and repairs for engines and airframe components
                under
                power-by-the-hour contracts, such as engines, avionics, APUs, wheels
                and
                brakes, are accrued for as the aircraft are operated; therefore,
                amounts
                are expensed based upon actual hours or cycles flown.  ·
            *Warrants*.
                Warrants issued to non-employees are accounted for under SFAS
                No. 123(R),*Share-Based
                Payments,*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 during 2005 at the New York-LaGuardia
                and Ronald Reagan Washington National airports from US Airways.  The
                licensing agreement with the Company and US Airways for the LaGuardia
                commuter slots expired on December 31, 2006, but we maintain a security
                interest in the LaGuardia slots if US Airways fails to perform under
                the
                current licensing agreement. The estimated useful lives of these
                commuter
                slots were determined based upon the period of time cash flows are
                expected to be generated by the commuter slots and by researching
                the
                estimated useful lives of commuter slots or similar intangibles by
                other
                airlines. In addition, an estimated residual value was determined
                using
                estimates of the expected fair value of the commuter slots at the
                end of
                the expected useful life. The residual value will be assessed annually
                for
                impairment. The estimated useful lives are also reviewed
                annually. 
 ·
            *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.  -40-
 **Quarterly
        Information (unaudited)**
  The
        following table sets forth summary quarterly financial information for the
        years
        ended December 31, 2005 and 2006.
  **Quarters
                  Ended****March
                  31**
              
              **June
                  30**
              
              **September
                  30**
              
              **December
                  31****(dollars
                  in thousands, except net income per share)****2006**Operating
                  revenues
              $
              257,344
              
              $
              284,313
              
              $
              306,132
              
              $
              295,289Operating
                  income
              
              47,917
              
              
              52,560
              
              
              56,554
              
              
              55,562Net
                  income
              
              16,900
              
              
              20,255
              
              
              21,932
              
              
              20,423Net
                  income per share:Basic
              $
              0.40
              
              $
              0.48
              
              $
              0.52
              
              $
              0.48Diluted
              $
              0.39
              
              $
              0.47
              
              $
              0.50
              
              $
              0.46Weighted
                  average number of shares outstanding:Basic
              
              41,836,296
              
              
              41,941,377
              
              
              42,205,300
              
              
              42,606,404Diluted
              
              42,943,911
              
              
              43,277,470
              
              
              43,539,180
              
              
              43,948,625**2005**Operating
                  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
              
              
              42,916,233
  
 -41-
 **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. The
        Company adopted SFAS No. 123(R) in January 2006 and recorded, pre-tax, $1.3
        million in stock-based employee compensation expense for the year ended December
        31, 2006. At
        December 31, 2006 there was $2.0 million of unrecognized stock-base employee
        compensation expense associated with unvested stock options, and the weighted
        average remaining expense period is 1.2 years.
 
 In
        July
        2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
        No. 48, *Accounting
        for Uncertainty in Income Taxes—an Interpretation of FASB Statement
        No. 109* (FIN 48), which clarifies the accounting for uncertainty in tax positions.
        This Interpretation requires that we recognize in our financial statements,
        the
        impact of a tax position, if that position is more likely than not of being
        sustained on audit, based on the technical merits of the position. The
        provisions of FIN 48 are effective beginning January 1, 2007. The cumulative
        effect of adopting FIN 48 will be recorded as a change to opening retained
        earnings in the first quarter of 2007. We are in the process of completing
        our
        assessment of the impact on our consolidated financial statements and estimate
        that the impact upon adoption will range from $2.0 to $2.5 million. At December
        31, 2006, we had $1.2 million recorded for income tax contingencies for a
        probable loss for uncertain tax positions.
 
 In
        September 2006, the FASB issued FASB Staff Position (“FSP”) No. AUG AIR-1, *Accounting
        for Planned Major Maintenance Activities* ,
        which
        clarifies the accounting methods that are acceptable for major maintenance
        expenses. We use the direct expense method, which is in accordance with this
        pronouncement.
 
 In
        September 2006, the FASB issued Statements of Financial Accounting Standards
        (SFAS) No. 157, *Fair
        Value Measurements* ,
        which
        defines fair value, establishes a framework for measuring fair value and
        requires expanded disclosures about fair value measurements. This statement
        is
        effective for fiscal years beginning after November 15, 2007. We have not
        yet
        completed our assessment of the impact of this statement on our financial
        statements.
 
 In
        September 2006, the Securities and Exchange Commission issued Staff Accounting
        Bulletin No. 108, *Considering
        the Effects of Prior Year Misstatements when Quantifying Misstatements in
        Current Year Financial Statements* .
        The
        bulletin provides guidance on assessing materiality of the effects of prior
        year
        misstatements when quantifying current year misstatements. We have considered
        this bulletin and concluded that it did not have a material impact on our
        financial statements.
  **ITEM
        7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
        RISK**
  We
        have
        been and are subject to market risks, including commodity price risk (such
        as,
        to a limited extent, aircraft fuel prices) and interest rate risk.
  **Interest
        Rates**
  Our
        earnings can be affected by changes in interest rates due to 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, 2006 all of our long-term debt was fixed rate debt and
        at
        December 31, 2005, 99.8% of our long term debt was at fixed rates. We anticipate
        that additional debt well be at fixed rates. However, we believe we could
        fund
        any interest rate increases on additional variable rate long-term debt with
        the
        increased amounts of interest income.
  We
        currently intend to finance the acquisition of aircraft through the
        manufacturer, third-party leases or long-term borrowings. Changes in interest
        rates may impact the actual cost to us to acquire these aircraft. To the
        extent
        we place these aircraft in service under our code-share agreements our
        reimbursement rates may not be adjusted higher or lower to reflect any changes
        in our aircraft rental rates.
  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 all of the agreements during 2004 and 2005 and the net
        amount paid was $7.5 million. Amounts paid or received on the settlement
        date are reclassified to interest expense over the term of the respective
        aircraft debt. During 2005 and 2006, we reclassified $286,000 and $299,000
        to
        interest expense, respectively. The Company expects to reclassify
        $867,000 to
        interest expense for the year ended December 31, 2007.
   -42-
 **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
              44Consolidated
                  Balance Sheets as of December 31, 2006
                  and 2005
              45Consolidated
                  Statements of Income for the years
                  ended December 31, 2006, 2005 and 2004
              46Consolidated
                  Statements of Stockholders’ Equity
                  and Comprehensive Income for the years ended December 31, 2006,
                  2005 and
                  2004
              47Consolidated
                  Statements of Cash Flows for the
                  years ended December 31, 2006, 2005 and 2004
              48Notes
                  to Consolidated Financial
                  Statements
              49
 
 
 
 -43-
  **REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
        FIRM**
 To
        the
        Board of Directors and Stockholders of
 Republic
        Airways Holdings Inc.
 Indianapolis,
        Indiana
  We
        have
        audited the accompanying consolidated balance sheets of Republic Airways
        Holdings Inc. and subsidiaries (the “Company”) as of December 31, 2006 and 2005,
        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, 2006.  We also have audited management's assessment,
        included in the accompanying Management’s Annual 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, 2006, 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, 2006 and 2005, and the results of their operations and their cash flows
        for
        each of the three years in the period ended December 31, 2006, 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, 2006, 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, 2006,
        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, 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.
 
 As
        discussed in Note 2 to the consolidated financial statements, on January
        1,
        2006, the Company adopted Statement of Financial Accounting Standards, No.
        123
        (Revised 2004), *Share-Based
        Payment* ,
        using
        the modified prospective transition method.
 
 /s/
        DELOITTE & TOUCHE LLP
 Indianapolis,
        Indiana
 March
        13,
        2007
   
 
 -44-
 **REPUBLIC
        AIRWAYS HOLDINGS INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEETS**
 **AS
        OF DECEMBER 31, 2006 AND 2005**
 **(In
        thousands, except share and per share amounts)**
 
 **2006**
              **2005****ASSETS**Current
                  Assets:Cash
                  and cash equivalents
              $
              195,528
              $
              162,005Receivables—net
                  of allowance for doubtful accounts of $340 and $343,
                  respectively
              
              19,639
              
              16,701Inventories—net
              
              31,821
              
              18,756Prepaid
                  expenses and other current assets
              
              11,411
              
              13,841Restricted
                  cash
              
              1,238
              
              1,218Deferred
                  income taxes
              
              3,467
              
              3,656Total
                  current assets
              
              263,104
              
              216,177Aircraft
                  and other equipment—net
              
              1,889,717
              
              1,662,236Intangible
                  and other assets
              
              192,285
              
              144,199Goodwill
              
              13,335
              
              13,335Total
              $
              2,358,441
              $
              2,035,947**LIABILITIES
                  AND STOCKHOLDERS' EQUITY**Current
                  Liabilities:Current
                  portion of long-term debt
              $
              86,688
              $
              73,935Accounts
                  payable
              
              23,899
              
              13,353Accrued
                  liabilities
              
              92,458
              
              71,648Total
                  current liabilities
              
              203,045
              
              158,936Long-term
                  debt—less current portion
              
              1,482,115
              
              1,339,505Deferred
                  credits and other non current liabilities
              
              23,566
              
              23,137Deferred
                  income taxes
              
              140,886
              
              89,671Total
                  liabilities
              
              1,849,612
              
              1,611,249Commitments
                  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; 42,708,743and 41,787,685 shares
                issued
                  and outstanding, respectively
              
              43
              
              42Additional
                  paid-in capital
              
              281,826
              
              277,505Warrants
              
              8,574
              
              8,574Accumulated
                  other comprehensive loss
              
              (3,877
              )
              (4,176
              )Accumulated
                  earnings
              
              222,263
              
              142,753Total
                  stockholders' equity
              
              508,829
              
              424,698Total
              $
              2,358,441
              $
              2,035,947
 
 See
        accompanying notes to consolidated financial statements.
 
 
 -45-
 **REPUBLIC
        AIRWAYS HOLDINGS INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF
        INCOME**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2006, 2005, AND 2004**
 **(In
        thousands, except per share amounts)**
  **2006**
              
              **2005**
              
              **2004**OPERATING
                  REVENUES:Passenger
              
              $
              1,118,226
              
              $
              883,906
              
              $
              637,389Charter
                  and ground handling
              
              
              8,932
              
              
              11,611
              
              
              8,682Other
              
              
              15,920
              
              
              9,504
              
              
              253Total operating revenues
              
              
              1,143,078
              
              
              905,021
              
              
              646,324OPERATING
                  EXPENSES:Wages
                  and benefits
              
              
              175,483
              
              
              143,826
              
              
              112,305Aircraft
                  fuel
              
              
              325,500
              
              
              278,923
              
              
              174,208Passenger
                  fees and commissions
              
              
              —
              
              
              —
              
              
              2,939Landing
                  fees
              
              
              41,993
              
              
              30,376
              
              
              24,201Aircraft
                  and engine rent
              
              
              94,773
              
              
              77,725
              
              
              74,514Maintenance
                  and repair
              
              
              105,198
              
              
              76,481
              
              
              70,290Insurance
                  and taxes
              
              
              17,652
              
              
              16,117
              
              
              13,186Depreciation
                  and amortization
              
              
              92,228
              
              
              64,877
              
              
              34,412Impairment
                  loss and accrued aircraft return costs (credits)
              
              
              (2,050
              )
              
              (4,218
              )
              
              1,441Other
              
              
              79,708
              
              
              62,195
              
              
              47,483Total
                  operating expenses
              
              
              930,485
              
              
              746,302
              
              
              554,979OPERATING
                  INCOME
              
              
              212,593
              
              
              158,719
              
              
              91,345OTHER
                  INCOME (EXPENSE):Interest
                  expense:Non-related
                  party
              
              
              (91,128
              )
              
              (63,503
              )
              
              (27,812
              )Related
                  party
              
              
              —
              
              
              (43
              )
              
              (652
              )Interest
                  and other income
              
              
              9,944
              
              
              5,002
              
              
              518Total
                  other income (expense)
              
              
              (81,184
              )
              
              (58,544
              )
              
              (27,946
              )INCOME
                  BEFORE INCOME TAXES
              
              
              131,409
              
              
              100,175
              
              
              63,399INCOME
                  TAX EXPENSE
              
              
              51,899
              
              
              39,521
              
              
              24,547Net
                  income
              
              $
              79,510
              
              $
              60,654
              
              $
              38,852Basic
                  net income per common share
              
              $
              1.89
              
              $
              1.69
              
              $
              1.66Diluted
                  net income per common share
              
              $
              1.82
              
              $
              1.66
              
              $
              1.62
 
 See
        accompanying notes to consolidated financial statements.
 
 
  
 -46-
 **REPUBLIC
        AIRWAYS HOLDINGS INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF STOCKHOLDERS' EQUITY AND
        COMPREHENSIVE INCOME**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2006, 2005, AND 2004**
 **(In
        thousands)**
 
 
 **Other**
                **Comprehensive**
                **Income
                  (Loss)**
              
              **Common**
                **Stock**
              
              **Additional**
                **Paid-In**
                **Capital**
              
              **Warrants**
              
              **Accumulated**
                **Other**
                **Comprehensive**
                **Loss**
              
              **Accumulated**
                **Earnings**
              
              **Total****Balance
                  at January 1, 2004**
              
              
              
              
              $
              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, including excess tax benefit
              
              
              
              
              
              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
              
              $
              34,684**Balance
                  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, including excess tax benefit
              
              
              
              
              
              
              
              
              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
              
              $
              60,646**Balance
                  at December 31, 2005**
              
              
              
              
              
              42
              
              
              277,505
              
              
              8,574
              
              
              (4,176
              )
              
              142,753
              
              
              424,698Stock
                  compensation expense
              
              
              
              
              
              
              
              
              1,297
              
              
              
              
              
              
              
              
              
              
              
              1,297Exercise
                  of employee stock options
              
              
              
              
              
              1
              
              
              3,024
              
              
              
              
              
              
              
              
              
              
              
              3,025Net
                  income
              
              $
              79,510
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              79,510
              
              
              79,510Reclassification
                  adjustment for net realized losses on derivative instruments, included
                  in
                  net income, net of tax
              
              
              299
              
              
              
              
              
              
              
              
              
              
              
              299
              
              
              
              
              
              299Comprehensive
                  income
              
              $
              79,809**Balance
                  at December 31, 2006**
              
              
              
              
              $
              43
              
              $
              281,826
              
              $
              8,574
              
              $
              (3,877
              )
              $
              222,263
              
              $
              508,829
 
 See
        accompanying notes to consolidated financial statements.
 
 -47-
  **REPUBLIC
        AIRWAYS HOLDINGS INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004**
 **(In
        thousands)**
 
 **2006**
              
              **2005**
              
              **2004**OPERATING
                  ACTIVITIES:Net
                  income
              $
              79,510
              
              $
              60,654
              
              $
              38,852Adjustments
                  to reconcile net income to net cash from operating
                  activities:Depreciation
                  and amortization
              
              92,228
              
              
              64,877
              
              
              34,412Debt
                  issue costs and other amortization
              
              4,551
              
              
              2,776
              
              
              1,928Warrant
                  amortization
              
              565
              
              
              372
              
              
              800Loss
                  (gain) on aircraft and other equipment disposals
              
              (118
              )
              
              (276
              )
              
              1,151Impairment
                  loss and accrued aircraft return costs (credits)
              
              (2,050
              )
              
              (4,218
              )
              
              1,441Amortization
                  of deferred credits
              
              (1,438
              )
              
              (1,346
              )
              
              (1,285
              )Stock
                  compensation expense
              
              1,297
              
              
              125
              
              
              214Deferred
                  income taxes
              
              51,404
              
              
              37,606
              
              
              24,027Changes
                  in certain assets and liabilities:Receivables
              
              (2,939
              )
              
              (10,323
              )
              
              10,480Inventories
              
              (11,448
              )
              
              1,276
              
              
              (2,683
              )Prepaid
                  expenses and other current assets
              
              1,474
              
              
              (4,907
              )
              
              (1,022
              )Accounts
                  payable
              
              10,546
              
              
              1,152
              
              
              1,963Accrued
                  and other liabilities
              
              16,826
              
              
              28,980
              
              
              11,370Other
                  assets
              
              (11,261
              )
              
              (5,869
              )
              
              (4,821
              )Net
                  cash from operating activities
              
              229,147
              
              
              170,879
              
              
              116,827INVESTING
                  ACTIVITIES:Purchase
                  of aircraft and other equipment
              
              (89,255
              )
              
              (126,928
              )
              
              (64,361
              )Purchase
                  of commuter slots
              
              —
              
              
              (51,640
              )
              
              —Proceeds
                  from sale of aircraft equipment
              
              18,180
              
              
              2,479
              
              
              699Aircraft
                  deposits and other
              
              (67,563
              )
              
              (37,206)
              
              
              (79,244
              )Aircraft
                  deposits returned
              
              24,148
              
              
              38,158
              
              
              40,480Change
                  in restricted cash
              
              (20
              )
              
              (15)
              
              
              2Net
                  cash from investing activities
              
              (114,510
              )
              
              (175,152
              )
              
              (102,424
              )FINANCING
                  ACTIVITIES:Payments
                  on short/long-term debt
              
              (79,900
              )
              
              (53,363
              )
              
              (26,947
              )Proceeds
                  from short/long-term debt
              
              —
              
              
              —
              
              
              3,213Repayment
                  of subordinated notes payable to affiliate (Wexford)
              
              —
              
              
              (1,250
              )
              
              (43,672
              )Proceeds
                  from capital contribution (Wexford)
              
              —
              
              
              400
              
              
              3,950Proceeds
                  from subordinated notes payable from affiliate (Wexford)
              
              —
              
              
              250
              
              
              20,390Proceeds
                  from common stock offerings, net
              
              —
              
              
              186,765
              
              
              58,172Payments
                  on settlement of treasury locks
              
              —
              
              
              (4,694
              )
              
              (3,562
              )Proceeds
                  on settlement of treasury locks
              
              —
              
              
              192
              
              
              593Proceeds
                  from exercise of stock options
              
              3,025
              
              
              1,189
              
              
              978Debt
                  issue costs
              
              (4,239
              )
              
              (9,431
              )
              
              (3,835
              )Other
              
              —
              
              
              —
              
              
              2Net
                  cash from financing activities
              
              (81,114
              )
              
              120,058
              
              
              9,282Net
                  changes in cash and cash equivalents
              
              33,523
              
              
              115,785
              
              
              23,685CASH
                  AND CASH EQUIVALENTS AT BEGINNING OF YEAR
              
              162,005
              
              
              46,220
              
              
              22,535CASH
                  AND CASH EQUIVALENTS AT END OF YEAR
              $
              195,528
              
              $
              162,005
              
              $
              46,220
 
 See
        accompanying notes to consolidated financial statements.
 
 
 -48-
 **REPUBLIC
        AIRWAYS HOLDINGS INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL
        STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2006, 2005, and 2004**
 **(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., a Delaware
        Corporation, 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.
 
 Effective
        May 6, 2005, the Company 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 were commonly controlled by Wexford
        Capital LLC (“Wexford”), the acquisition was accounted for in a manner similar
        to a pooling of interests.
  The
        Company operates as an air carrier providing scheduled passenger and air
        freight
        service as US Airways Express, AmericanConnection, 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 code-share
        agreements with US Airways offering 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 agreements with Delta offer passenger and
        air
        freight service from Delta's hub and focus airports in Atlanta, Georgia,
        Columbus, Ohio and Cincinnati, Ohio. Under the code-share agreements with
        United, the Company offers passengers and air freight service from
        United’s hub airports in Chicago, Illinois and Washington D.C, (Dulles and
        National).
 
 The
        code-share agreements with US Airways for the ERJ-145, ERJ-170 and ERJ-175
        regional jets terminate in March 2013, September 2015, and July 2020,
        respectively; however, under certain conditions, US Airways may terminate
        the
        code-share agreements at any time for cause upon not less than 90 days notice
        and subject to the Company’s right to cure.
 
 The
        term
        of the American code-share agreement continues until February 1, 2013. American
        may reduce the term by one year each time that the Company fails to achieve
        an
        agreed performance level. American may only exercise this right three times
        during the term of the code-share agreement. Under certain circumstances,
        the
        agreement may be subject to termination for cause prior to that
        date.
 
 The
        code-share agreements with Delta 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
        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.
 
 The
        United code-share agreements terminate on June 30, 2014 and June 30, 2015,
        respectively, for the ERJ-145 and ERJ-170 regional jets. United has the option
        of extending the agreements for five 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, under certain conditions, United may terminate the code-share
        agreements.
 
 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. The code-share partners are required
        to
        provide reservation systems, and under certain code-share agreements, the
        partners may provide 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.
  
 -49-
 The
        following sets forth code-share partners’ passenger revenue and accounts
        receivable as a percentage of total passenger revenue and net receivables:
 Passenger
                    revenues for the years ended:
                
                
                Delta
                
                
                United
                
                
                US
                  Airways
                
                
                AmericanDecember
                    31, 2006
                
                
                35
                %
                
                30
                %
                
                24
                %
                
                11
                %December
                    31, 2005
                
                
                34
                
                
                32
                
                
                21
                
                
                13December
                    31, 2004
                
                
                36
                
                
                10
                
                
                38
                
                
                16Receivables
                    as of:December
                    31, 2006
                
                
                4
                
                
                19
                
                
                31
                
                
                16December
                    31, 2005
                
                
                9
                
                
                32
                
                
                13
                
                
                17
 
 For
        the
        years ended December 31, 2006, 2005 and 2004, substantially all of the Company's
        revenue is derived from agreements with its code-share partners. Termination
        of
        any of these code-share agreements could have a material adverse effect on
        the
        Company's financial position, results of operations and cash flows.
 
 On
        September 12, 2004, US Airways filed a petition for Chapter 11 bankruptcy
        protection. Unpaid amounts related to pre-petition claims were approximately
        $3,200, 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, and we received 13,272
        shares
        of US Airways common stock for our pre-petition claims during 2005 and 2006.
        During 2006, we sold 12,338 shares for a gain of $588. The value of the
        remaining 934 shares at December 31, 2006 was $50.
 
 Delta
        is
        attempting to reorganize its respective businesses under Chapter 11 of the
        bankruptcy code. Delta has begun to utilize our smaller aircraft at less
        than
        historical levels, and contingency plans are being developed to address
        potential outcomes of the Delta bankruptcy proceedings. On March 13, 2007,
        we
        and Delta amended out code-share agreements. The amendments, if approved,
        provide for early removal of all 15 ERJ-135 aircraft between September 2008
        and
        April 2009 at a rate of 2 aircraft per month, and an approximate 3% reduction
        in
        the reimbursement rates on the Company's ERJ-145/170 aircraft for the remaining
        term of the agreements. In return for these amended terms, Delta has agreed
        that
        we will have a negotiated pre-petition claim in the amount of $91 million,
        and
        Delta, will surrender all of its warrants on approximately 3.4 million shares
        of
        the Company's common stock.
 
 In
        July
        2006, the Company entered into a code-share agreement with Continental Airlines,
        Inc. (‘Continental”). The Company began flying for Continental in January 2007.
        (See Note 7.)
 
 On
        January 11, 2007, we entered into an air services agreement with Frontier.
        Under
        the agreement, we will provide and operate seventeen 76-seat Embraer 170
        regional jets for Frontier beginning in March 2007.
  **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 Statement of Financial
        Accounting Standard (SFAS) No. 133, *Accounting
        for Derivative Instruments and Hedging Activities,* as
        amended and interpreted *.*
 
 Beginning
        in April 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 all of the agreements during 2004 and 2005
        and the
        net amount paid was $7,472, and was recorded in accumulated other comprehensive
        loss, net of tax. Amounts paid or received on the settlement date are
        reclassified to interest expense over the term of the respective aircraft
        debt.
        During 2004, 2005 and 2006, the Company reclassified $21, $286 and $299 to
        interest expense, respectively. The Company expects to reclassify
        $867 to
        interest expense for the year ending December 31, 2007.
  ***Cash
        and Cash Equivalents*** —Cash
        equivalents consist of money market funds and short-term, highly liquid
        investments with maturities of three months or less when purchased.
        Substantially all of our cash is on hand with one bank.
 
 -50-
 ***Supplemental
        Cash Flow Information:***
 
 **Years
                  Ended December 31,****2006**
              
              **2005**
              
              **2004**CASH
                  PAID FOR INTEREST AND INCOME TAXES:Interest—net
                  of amount capitalized
              
              $
              87,254
              
              $
              64,763
              
              $
              27,073Income
                  taxes paid — net of refunds
              
              
              518
              
              
              1,212
              
              
              380NON-CASH
                  TRANSACTIONS:Parts,
                  training and lease credits received from aircraft
                  manufacturer
              
              
              (7,860
              )
              
              (26,381
              )
              
              662Receipt
                  of US Airways stock
              
              
              50
              
              
              248
              
              
              —Conversion
                  of accrued interest to subordinated note payable to
                  affiliate
              
              
              —
              
              
              43
              
              
              107Aircraft,
                  inventories, and other equipment purchased through direct financing
                  arrangements
              
              
              235,260
              
              
              616,010
              
              
              411,631Engine
                  received and to be financed
              
              
              3,464
              
              
              —
              
              
              —Refinancing
                  of aircraft
              
              
              147,792
              
              
              240,235
              
              
              83,371Warrants
                  issued
              
              
              —
              
              
              —
              
              
              10,263Warrants
                  surrendered
              
              
              —
              
              
              —
              
              
              (6,756
              )Fair
                  value of interest rate hedge
              
              
              —
              
              
              4,012
              
              
              (4,012
              )Excess
                  tax benefit for stock options exercised
              
              
              —
              
              
              1,922
              
              
              739
 
 ***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, 2006 and 2005 this reserve was $1,004 and
        $340,
        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
        $2,021 ,
        $1,904,
        and $1,692 of interest for the years ended December 31, 2006, 2005 and
        2004, respectively.
 
 ***Restricted
        Cash*** consists
        of restricted amounts for satisfying debt and lease payments due within the
        next
        twelve month period.
 
 ***Debt
        Issue Costs*** are
        capitalized and included in intangible and 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 $17,560 and
        $15,779 are included in intangible and other assets in the consolidated balance
        sheets as of December 31, 2006 and 2005, 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. Management reviewed
        the carrying value of goodwill and concluded that no asset impairment existed
        as
        of December 31, 2006. Intangible assets that have finite useful lives are
        amortized over their useful lives to an estimated residual value and reviewed
        for impairment at each reporting date. At December 31, 2006 the remaining
        amortization period for the Ronald Reagan Washington National Airport commuter
        slots is 24 years. Estimated amortization expense will approximate $390 per
        year.
 
 ***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.
        Based on projected future cash flows, management has concluded that no asset
        impairment existed as of December 31, 2006.
 
 ***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 $3,877, $4,176
        and $4,168, net of tax, at December 31, 2006, 2005 and 2004, respectively.
 
 ***Income
        Taxes*** *—* The
        Company accounts for income taxes using the asset and liability method. Under
        the asset and liability method, deferred tax assets and liabilities are
        recognized for the future tax consequences attributable to differences between
        the financial statement carrying amounts for existing assets and liabilities
        and
        their respective tax bases. Deferred tax assets and liabilities are measured
        using enacted tax rates expected to apply to taxable income in future years
        in
        which those temporary differences are expected to be recovered or settled.
        The
        measurement of deferred tax assets is adjusted by a valuation allowance,
        if
        necessary, to recognize the future tax benefits to the extent, based on
        available evidence; it is more likely than not they will be
        realized.
  -51-
 ***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, the Company
        estimates operating costs for certain “pass through” costs and records revenue
        based on these estimates. Actual results could differ from those
        estimates.
 
 ***Revenue
        Recognition—*** Passenger
        revenues, charter revenues and ground handling revenues are recognized in
        the
        period the services are provided. Under
        our
        fixed-fee arrangements with American, Delta, US Airways, United, Continental
        and
        Frontier, the Company receives a fixed-fee, as well as reimbursement of
        specified costs on a gross basis with additional possible incentives from
        our
        partners for superior service. Passenger revenues are recognized in the period
        the service is provided, and we perform an estimate of the profit component
        based upon the information available at the end of the accounting period.
        The
        reimbursement of specified costs, known as “pass-through costs”, may include
        aircraft ownership cost, passenger liability and hull insurance, aircraft
        property taxes, fuel, landing fees and catering. All revenue recognized under
        these contracts is presented at the gross amount billed for reimbursement
        pursuant to Emerging Issues Tax Force Issue (“EITF”) No. 99-19 *Reporting
        Revenue Gross as a Principal versus Net as an Agent* .
 
 Under
        the
        Company’s code-share agreements, the Company is reimbursed an amount per
        aircraft designed to compensate the Company for certain aircraft ownership
        costs. In accordance with EITF No. 01-08, *Determining
        Whether an Arrangement Contains a Lease* ,
        the
        Company has concluded that a component of its revenue under the agreement
        discussed above is rental income, inasmuch as the agreement identifies the
        “right of use” of a specific type and number of aircraft over a stated period of
        time. The amount deemed to be rental income during fiscal 2006, 2005 and
        2004
        was $258,600, $189,800 and $128,600, respectively, and has been included
        in
        passenger revenue on the Company’s consolidated statements of
        income.
 
 The
        Company recognizes lease revenue for sub-leases for five ERJ-145 aircraft
        leased
        to an airline in Mexico under operating leases which expire in 2013 and 2015.
        In
        addition, the Company recognizes license revenue from US Airways for commuter
        slots that were purchased by the Company in 2005 and were utilized by US
        Airways
        through 2006 for the New-York LaGuardia commuter slots, and through 2016
        for the
        Ronald Reagan Washington National commuter slots. Revenues from sub-leases
        and
        the commuter slots are recognized when earned and included in other operating
        revenue.
 
 ***Warrants—*** Warrants
        issued to non-employees and code-share partners are accounted for under SFAS
        No.
        123(R), *Share-Based
        Payment* , ** 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 as deferred charges and credits to stockholders’
equity. Warrants surrendered in a non-monetary transaction are recorded at
        fair
        value on the measurement date as reductions to deferred 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 maintains stock-based compensation plans which allow for the issuance
        of
        nonqualified stock options to officers, other key employees of the Company,
        and
        to members of the Board of Directors. Prior to 2006, the Company accounted
        for
        the stock option plans under the provisions of Accounting Principles Board
        Opinion No. 25, *Accounting
        for Stock Issued to Employees* ,
        and
        related Interpretations, whereby, stock options granted that had an
        exercise price below the market value were recorded as stock compensation
        expense. Effective January 1, 2006, the Company adopted the fair value
        recognition provisions of SFAS No. 123(R), *Share-Based
        Payment* (SFAS
        No. 123(R)). This statement applies to all awards granted after the effective
        date and to modifications, repurchases or cancellations of existing awards.
        Additionally, under the modified prospective method of adoption, the Company
        recognizes compensation expense for the portion of outstanding awards on
        the
        adoption date for which the requisite service period has not yet been rendered
        based on the grant-date fair value of those awards calculated under SFAS
        No.
        123(R) *.* SFAS No.
        123(R) also requires that forfeitures be estimated over the vesting period
        of an
        award, rather than being recognized as a reduction of compensation expense
        when
        the forfeiture actually occurs.
 
 -52-
 The
        following table illustrates the effect on net income and earnings per share
        if
        the Company had applied the fair value recognition provisions of SFAS 123(R)
        to
        stock-based employee compensation for the years ended December 2005 and
        2004.
 
 
 **For
                  the years ended December 31,****2005**
              
              **2004**Net
                  income, as reported
              
              $
              60,654
              
              $
              38,852Add:
                  Stock-based employee compensation expense determined under the
                  intrinsic
                  value
                based
                  method, net of tax of $50 and $85, respectively
              
              
              75
              
              
              129Deduct:
                  Stock-based employee compensation expense determined under the
                  fair value
                based
                  method, net of tax of $997 and $218, respectively
              
              
              (1,496
              )
              
              (327
              )Pro
                  forma net income
              
              $
              59,233
              
              $
              38,654Pro
                  forma net income per share:Basic
              
              $
              1.65
              
              $
              1.66Diluted
              
              $
              1.62
              
              $
              1.62
 
 ***Net
        Income per Common 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,****2006**
              
              **2005**
              
              **2004**Weighted-average
                  common shares outstanding for basic net income per common
                  share
              
              
              42,149,668
              
              
              35,854,249
              
              
              23,349,613Effect
                  of dilutive employee stock options and warrants
              
              
              1,466,278
              
              
              694,091
              
              
              557,150Adjusted
                  weighted-average common shares outstanding and assumed conversions
                  for
                  diluted net income per common share
              
              
              43,615,946
              
              
              36,548,340
              
              
              23,906,763
 
 Employee
        stock options and warrants of 2,927,400 are not included in the calculation
        of
        diluted net income per common share due to their anti-dilutive impact for
        the
        year ended December 31, 2004. For
        the
        years ended December 31, 2005 and 2006, all of the employee stock options
        and
        warrants were included in the calculation of the dilutive net income per
        common
        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, slot leasing and aircraft leasing revenues are not considered material.
 
 ***New
        Accounting Standards*** — In
        July
        2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
        No. 48, *Accounting
        for Uncertainty in Income Taxes—an Interpretation of FASB Statement
        No. 109* (FIN 48), which clarifies the accounting for uncertainty in tax positions.
        This Interpretation requires that the Company recognize in our consolidated
        financial statements, the financial effects of a tax position, if that position
        is more likely than not of being sustained on audit, based on the technical
        merits of the position. The provisions of FIN 48 are effective beginning
        January
        1, 2007. The cumulative effect of adopting FIN 48 will be recorded as a change
        to opening retained earnings in the first quarter of 2007. We are in the
        process
        of completing our assessment of the impact on our consolidated financial
        statements and estimate that the impact upon adoption will range from $2,000
        to
        $2,500. At December 31, 2006, we had $1,200 recorded for income tax
        contingencies for a probable loss for uncertain tax positions.
 
 In
        September 2006, the FASB issued FASB Staff Position (“FSP”) No. AUG AIR-1, *Accounting
        for Planned Major Maintenance Activities* ,
        which
        clarifies the accounting methods that are acceptable for major maintenance
        expenses. The Company uses the direct expense method, which is in accordance
        with this pronouncement.
 
 In
        September 2006, the FASB issued SFAS No. 157, *Fair
        Value Measurements* ,
        which
        defines fair value, establishes a framework for measuring fair value and
        requires expanded disclosures about fair value measurements. This statement
        is
        effective for fiscal years beginning after November 15, 2007. The Company
        has
        not yet completed its assessment of the impact of this statement on its
        consolidated financial statements.
 
 In
        September 2006, the Securities and Exchange Commission issued Staff Accounting
        Bulletin No. 108, *Considering
        the Effects of Prior Year Misstatements when Quantifying Misstatements in
        Current Year Financial Statements* .
        The
        bulletin provides guidance on assessing materiality of the effects of prior
        year
        misstatements when quantifying current year misstatements. The Company has
        considered this bulletin and concluded that it did not have a material impact
        on
        its consolidated financial statements.
 
 -53-
 
 **3.
        AIRCRAFT AND OTHER EQUIPMENT**
 
 At
        December 31, 2006, the Company had a total fleet of 180 regional jets, including
        sixty-eight 50-seat ERJ-145 aircraft, fifteen 44-seat ERJ-140 aircraft,
        seventeen 37-seat ERJ-135 aircraft, seventy-six 70-seat ERJ-170 aircraft,
        and
        four CRJ-200 aircraft. The Company owns 30 ERJ-145 aircraft,
        11 ERJ-140 aircraft, 15 ERJ-135 aircraft, 56 ERJ-170 aircraft, and leases
        the other aircraft under operating lease agreements (see Note 7).
 
 Aircraft
        and other equipment, excluding aircraft and other equipment held for sale,
        consist of the following as of December 31:
 
 **2006**
              
              **2005**Aircraft
              
              $
              1,994,907
              
              $
              1,702,611Flight
                  equipment
              
              
              87,625
              
              
              69,635Furniture
                  and equipment
              
              
              5,718
              
              
              4,729Leasehold
                  improvements
              
              
              11,115
              
              
              9,126Total
                  aircraft and other equipment
              
              
              2,099,365
              
              
              1,786,101Less
                  accumulated depreciation and amortization
              
              
              (209,648
              )
              
              (123,865
              )Aircraft
                  and other equipment—net
              
              $
              1,889,717
              
              $
              1,662,236
 
 Aircraft,
        other equipment and slot depreciation and amortization expense for the years
        ended December 31, 2006, 2005 and 2004 was $92,228 ,
        $64,877, and $34,412, respectively.
 
 **4.
        INTANGIBLE AND OTHER ASSETS**
 
 Intangible
        and other assets consist of the following as of December 31:
 
 **2006**
              
              **2005**Prepaid
                  aircraft rent
              
              $
              29,062
              
              $
              23,708Aircraft
                  deposits
              
              
              71,571
              
              
              25,655Deferred
                  warrant charge, net (see Note 10)
              
              
              6,470
              
              
              7,035Debt
                  issue costs, net
              
              
              17,560
              
              
              15,779Commuter
                  slots, net
              
              
              47,052
              
              
              50,722Other
              
              
              20,570
              
              
              21,300$
              192,285
              
              $
              144,199
 
 The
        Company purchased commuter slots at Ronald Reagan Washington National Airport
        (“Washington”) and New York LaGuardia Airport (“LaGuardia”) in 2005 from US
        Airways. The licensing agreement with the Company and US Airways for the
        LaGuardia commuter slots expired on December 31, 2006, but
        we
        maintain a security interest in the LaGuardia slots if US Airways fails to
        perform under the current licensing agreement. The
        LaGuardia commuter slots were amortized over a 15 month life ending December
        31,
        2006, and the Washington commuter slots are amortized on a straight line
        basis
        over a 25 year expected life to an estimated residual value. Amortization
        began
        in September 2005 and was approximately $918 in 2005 and $3,671 in 2006.
        The Company assigned the right of use for these commuter slots to US Airways
        which will continue to be operated by US Airways Express carriers until the
        expiration or termination of the amended and restated Chautauqua Jet Service
        Agreement (“JSA”) dated as of April 26, 2005 between US Airways and Chautauqua
        or the Republic JSA, whichever is later, at an agreed rate. Prior to the
        expiration of the agreement to license the commuter slots, US Airways has
        the
        right to repurchase all, but not less than all, of the Washington commuter
        slots
        at a predetermined price.
 
 **5.
        ACCRUED LIABILITIES**
 
 Accrued
        liabilities consist of the following as of December 31:
  **2006**
              
              
              
              **2005**Accrued
                  wages, benefits and related taxes
              
              $
              13,966
              
              
              $
              13,724Accrued
                  maintenance
              
              
              23,366
              
              
              
              10,709Accrued
                  property taxes
              
              
              3,459
              
              
              
              2,976Accrued
                  interest payable
              
              
              13,484
              
              
              
              11,854Accrued
                  liabilities to code-share partners
              
              
              13,935
              
              
              
              14,866Accrued
                  aircraft rent
              
              
              7,984
              
              
              
              —Other
              
              
              16,264
              
              
              
              17,519Total
                  accrued liabilities
              
              $
              92,458
              
              
              $
              71,648
 
 -54-
 **6.
        DEBT**
 
 Debt
        consists of the following as of December 31:
 
 **2006**
              
              
              **2005**Revolving
                  credit facility with Bank of America Business Capital (the “Bank”),
                  maximum of $25,000 available (including outstanding letters of
                  credit),
                  subject to 50% of the net book value of spare rotable parts and
                  20% of the
                  net bookvalue of spare non-rotable parts and inventory. Interest
                  is
                  payable monthly at the bank’s LIBOR rate plus spreads ranging from 2.50%
                  to 2.75% or the Bank’s base rate (which is generally equivalent to the
                  prime rate) plus spreads ranging from 0.50% to 0.75%. Fees are
                  payable at
                  0.375% on the unused revolver amount. The credit facility expires
                  on May
                  31, 2007 and is collateralized by all the Company’s assets, excluding the
                  owned aircraft and engines.
              
              $
              —
              
              $
              —Term
                  loans with the Bank, repaid in 2006.
              
              
              —
              
              
              2,624Promissory
                  notes with various banks and aircraft manufacturer, collateralized
                  by
                  aircraft, bearing interest at fixed rates ranging from 4.01% to
                  8.49% with
                  semi-annual principal and interest payments of $91,565through 2021.
              
              
              1,568,803
              
              
              1,410,700Other
              
              
              —
              
              
              116Total
              
              
              1,568,803
              
              
              1,413,440Current
                  portion (including Bank term loan)
              
              
              86,688
              
              
              73,935Debt
                  and notes payable—less current portion
              
              $
              1,482,115
              
              $
              1,339,505
 
 Chautauqua’s
        debt agreements with the Bank were amended during 2006 to a Republic Airways
        Holdings Inc. consolidated agreement. The Company’s debt agreements with the
        Bank contain restrictive covenants that require, among other things, that
        the
        Company maintain a certain fixed charge coverage ratio and a debt to earnings
        leverage ratio. The Company was in compliance with both ratios at December
        31, 2006. The Company has outstanding letters of credit totaling $10,957
        and
        $7,462 as of December 31, 2006 and 2005, respectively. The American
        code-share agreement requires a debt sinking fund for the Company’s required
        semi-annual payments.
  Future
        maturities of debt are payable as follows for the years ending December 31:
 
 2007
              
              $
              86,6882008
              
              
              91,1442009
              
              
              96,4512010
              
              
              102,4412011
              
              
              108,815Thereafter
              
              
              1,083,264Total
              
              $
              1,568,803
 
 During
        the year ended December 31, 2006, the Company acquired 11 aircraft through
        debt
        financing totaling approximately $194,700. The debt was obtained from banks
        and
        the aircraft manufacturer for twelve to fifteen year terms at interest rates
        ranging from 4.75% to 7.52%. In addition, during 2006, the Company acquired
        five
        previously leased ERJ-145 aircraft from the lessors. Debt was obtained for
        approximately $40,500 from a third party lender for a term of ten years at
        interest rates between 8.46% and 8.49%.
 
 -55-
 **7.
        COMMITMENTS**
 
 As
        of
        December 31, 2006, the Company leases 68 regional
        jets and 18 spare
        regional jet engines with varying terms extending through 2023 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:
 
 **2006**
              
              **2005**
              
              **2004**Aircraft
                  and engine rent
              
              $
              94,773
              
              $
              77,725
              
              $
              74,514Other
              
              
              5,315
              
              
              4,225
              
              
              3,320Total
                  rent expense
              
              $
              100,088
              
              $
              81,950
              
              $
              77,834
 
 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 December 2014 for the ERJ-145 family
        of regional jets and $ 5,130 per
        year
        through December 2014 for the ERJ-170 regional jets. 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
        April 2009. 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 October 2012 for the ERJ-145 family of regional
        jets and through December 2014 for the ERJ-170 regional jets.
 
 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.
 
 The
        Company has a long-term agreement to provide, manage and repair certain airframe
        components and spare parts on the CRJ-200 regional jets through December
        2009.
 
 Total
        payments under these long-term maintenance agreements were
        $56,070, $53,647,
        and $39,982 for the years ended December 31, 2006, 2005 and 2004,
        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, 2006, because the leases expire
        beginning in 2009. The Company will record a liability for these return
        conditions once the liability is estimable.
  Future
        minimum payments under non-cancelable operating leases are as follows for
        the
        years ending December 31:
  **Regional
                  Jet**
                **Aircraft**
              
              **Other**
              
              **Total**2007
              
              $
              108,226
              
              $
              10,121
              
              $
              118,3472008
              
              
              107,220
              
              
              9,752
              
              
              116,9722009
              
              
              101,407
              
              
              9,273
              
              
              110,6802010
              
              
              99,463
              
              
              8,851
              
              
              108,3142011
              
              
              92,164
              
              
              8,825
              
              
              100,989Thereafter
              
              
              580,602
              
              
              57,481
              
              
              638,083Total
              
              $
              1,089,082
              
              $
              104,303
              
              $
              1,193,385
  The
        Company has reached an agreement with US Airways to acquire and operate an
        additional 30 ERJ-175 regional jets. As of December 31, 2006, the Company
        had
        firm orders to purchase 38 ERJ-170/175 regional jets all of which are currently
        allocated to code-share agreements. The current total list price of the 38
        regional jets is $1,140,000. The Company has commitments to obtain financing
        for
        all of these aircraft. During the year ended December 31, 2006, the Company
        made
        aircraft deposits in accordance with the aircraft commitments of $67,600.
        Aircraft deposits are included in intangible and other assets. The Company
        also
        has a commitment to acquire seven spare aircraft engines with a current list
        price of approximately $30,500. These
        commitments are subject to customary closing conditions.
 
 In
        July
        2006, the Company announced that it had reached an agreement to operate
        forty-four 50-seat regional jets for Continental. Twenty of the aircraft
        are
        ERJ-145 regional jets that will transition from the Company’s US Airways
        operations. The Company has firm commitments to lease 24 CRJ-200 regional
        jets
        with lease terms from 24 to 36 months. As of December 31, 2006, the Company
        had
        taken delivery of 4 CRJ-200 regional jets. All 44 of the aircraft are expected
        to be placed into service for Continental between January and August 2007
        and
        will be operated for terms that vary from two years to five years. Under
        certain
        conditions Continental may extend the term on the aircraft up to five additional
        years.
 
 In
        January 2007, the
        Company and Frontier entered into an agreement, whereby Republic will operate
        for Frontier seventeen, 76-seat Embraer 170 regional jets. Four of the seventeen
        regional jets are currently in the Republic fleet but not allocated to a
        code-share partner and the remaining 13 aircraft will be funded by delivery
        positions available from Embraer.
  -56-
 
 The
        Company’s firm orders and options with an aircraft manufacturer are shown below
        as of December 31, 2006:
 
  **Commitments
                  as of December 31, 2006****Firm**
              
              **Options**
              
              **Total**Aircraft
                  Orders with Aircraft Manufacturer:ERJ-170/175
              38
              
              79
              
              117
 
 
 **8.
        CONTINGENCIES**
 
 The
        Company is subject to certain legal and administrative actions which management
        considers routine to their business activities. As of December 31, 2006,
        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 ERJ-170
        aircraft for United at Chautauqua in violation of the scope restrictions
        of the
        American code-share agreement. These payments terminated in September 2005
        when
        the ERJ-170 aircraft were no longer operated by Chautauqua.
 
 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
        costs
        and the Company and American have certain "put" and "call" rights with respect
        to the aircraft we operate for them.
  If
        Delta
        exercises its partial termination right or if we terminate the code-share
        agreement because of Delta's bankruptcy or insolvency, a breach of the agreement
        by Delta or because of an event of force majeure has occurred that continues
        for
        at least two consecutive months, we may require Delta to either purchase
        or
        sublease any of the terminated aircraft we own at a specified price or to
        assume
        the lease of any aircraft that we lease. If we choose not to exercise this
        "put"
        right upon any termination by Delta, Delta has the right to require us to
        sell
        or sublease to them the terminated aircraft we own for a specified amount
        or to
        assume the leases of the terminated aircraft that we lease. Delta may also
        exercise this "call" right if it terminates the code-share agreement for
        any of
        the reasons set forth above.
 
 United
        has a call option to assume our ownership or leasehold interest in certain
        aircraft if we wrongfully terminate the code-share agreements or if United
        terminates the agreements for our breach of certain reasons.
 
 As
        of
        December 31, 2006, approximately 76% of the Company's workforce is employed
        under union contracts. The union contract for Customer Service is currently
        amendable. In addition, the union contracts for pilots and dispatchers are
        amendable in 2007.
 
 **9.
        RELATED PARTY TRANSACTIONS**
 
 Fees
        are
        paid to Wexford Capital LLC (“Wexford Capital”) for administrative functions not
        performed by the Company. Fees incurred were approximately  $324, **** $1,065, and
        $241
        for the years ended December 31, 2006, 2005 and 2004, respectively. In
        addition, included in accrued liabilities were $26 and $307 due to Wexford
        Capital as of December 31, 2006 and 2005, respectively.
 
 On
        April
        16, 2004, the Company made a payment of $2,800 on the subordinated note payable
        to WexAir LLC (“WexAir”). 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 and accrued interest of $80. During 2005, the Company incurred
        $450 of expenses relating to a stock offering on behalf of WexAir
        LLC.
 
 The
        Company purchased Shuttle America from Shuttle Acquisition LLC, an affiliate
        of
        Wexford Capital on May 6, 2005 for $1,000 and the assumption of $679 in debt.
        The Company entered into a note payable with WexAir for the $1,000 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
        paid Wexford Capital $500 upon US Airways emergence from bankruptcy and paid
        Wexford Capital's expenses, including the payment of approximately $660 in
        2005
        and $125 in 2006
        to an unrelated third party consultant retained by us and Wexford
        Capital.
 
 -57-
 **10.
        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 Capital made capital contributions to Shuttle America
        of
        $400 and $3,950 respectively. The Company made a capital distribution to
        WexAir
        of $1,000 in 2005 related to the merger transaction with Shuttle America.
 
 At
        December 31, 2006, 5,160,576 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, 2006, the number of securities remaining available
        for
        future issuance under equity compensation plans was 478,180
        shares.
 
 *Employee
        Stock Options*
  In
        connection with employment agreements for certain key employees, the
        Company granted options to purchase shares of the Company's common stock
        with exercise prices ranging from $1.75 to $17.00. These stock options vest
        ratably over the term of the employment agreements (generally 48 months)
        and are
        exercisable for five years following the vesting dates. Additional
        options have been granted and these options vest ratably over
        periods ranging from 8 months to 48 months, and are exercisable until 10
        years
        from the date of grant.
 
 The
        2002
        Equity Incentive Plan provides for the granting of up to 2,180,000 shares
        of our
        common stock. The stock options vest ratably over 48 months and were
        granted with exercise prices equal to market prices on the grant date. The
        options expire ten years from the date of grant. Options are granted to officers
        and key employees selected by the Compensation Committee of the Board of
        Directors.
  *Non-employee
        Director Stock Options*
  The
        Company has also granted options for non-employee directors under the 2002
        Equity Incentive Plan at a price equal to the fair market value of the Common
        Stock on the date of the grant. Each non-employee director was automatically
        granted options to purchase shares of common stock in May 2004 on the day
        prior
        to commencement of the initial public offering. The options vest over a 3
        year
        period with 1/24 of the shares vesting monthly for the first 12 months and
        1/48
        of the shares vesting monthly over the remaining 24 months. The non-employee
        directors are to receive 2,500 options on the first trading day after each
        annual meeting of stockholders at which he or she is re-elected as a
        non-employee director. These options vest ratably over 12 months of continuous
        service. The non-employee options are exercisable until 10 years from the
        date
        of grant.
 
 The
        following table summarizes option activity under the stock option plans as
        of
        December 31, 2006:
 
 **Options**
              
              **Weighted**
                **Average**
                **Exercise
                  Price**
              
              **Aggregate**
                **Intrinsic**
                **Value**
              
              **Weighted**
                **Average**
                **Contractual**
                **Term**
                **(in
                  years)**Outstanding
                  at January 1, 2006
              
              
              2,624,435
              
              $
              9.17Granted
              
              
              97,000
              
              
              16.37Forfeited
              
              
              74,800
              
              
              13.17Exercised
              
              
              921,058
              
              
              3.29Outstanding
                  at December 31, 2006
              
              
              1,725,577
              
              $
              12.54
              
              $
              7,316
              
              
              7.60Vested
                  or expected to vest at December 31, 2006
              
              
              1,613,565
              
              $
              12.57
              
              $
              7,182
              
              
              6.70Exercisable
                  to December 31, 2006
              
              
              1,199,052
              
              $
              11.92
              
              $
              5,824
              
              
              7.25
  The
        intrinsic value of options exercised during the years ended December 31,
        2006,
        2005 and 2004 was $12,429, $5,140 and $6,437.
 
 There
        were 1,709,700 and 1,409,892 options exercisable at December 31, 2005 and
        2004
        respectively. The weighted average exercise price for the options exercisable
        at
        December 31, 2005 and 2004 was $4.07 and $2.72. The remaining contractual
        life
        for the options outstanding at December 31, 2005 and 2004 was 6.3 years.
 
 -58-
 During
        the years ended December 31, 2006, 2005 and 2004, $1,297 ($785 net of tax),
        $125
        ($75 net of tax) and $214 ($129 net of tax), respectively, was charged to
        expense relating to the stock option plans. The Company has a policy of issuing
        new common shares to satisfy the exercise of stock options. At
        December 31, 2006 there was $2,035 of unrecognized stock-based employee
        compensation expense for unvested stock options, and the expected remaining
        expense period is 1.2 years. The Company did not recognize excess tax benefits
        related to stock option exercises in 2006 since the Company did not have
        taxable
        income in 2006.
 
 The
        weighted average grant date fair value of options granted in 2006, 2005 and
        2004
        was $7.62, $3.98 and $3.32, respectively. The
        Company estimates the fair value of stock options issued using the Black-Scholes
        option pricing model. Expected volatilities are based on the historical
        volatility of the Company’s stock and other factors. The Company uses historical
        data to estimate option exercises and employee terminations within the valuation
        model. Dividends were based on an estimated dividend yield. The risk-free
        rates
        for the periods within the contractual life of the option are based on the
        U.S.
        Treasury rates in effect at the time of the grant. The forfeiture rate is
        based
        on historical information and management’s best estimate of future forfeitures.
        The expected term of options granted is derived from historical exercise
        experience and represents the period of time the Company expects options
        granted
        to be outstanding. Option valuation models require the input of subjective
        assumptions including the expected volatility and lives. Actual values of
        grants
        could vary significantly from the results of the calculations.
 
 The
        following assumptions were used to value stock option grants during the
        following periods:
 
 **December
                  31,****2006**
              
              **2005**
              
              **2004**Dividend
                  yield
              
              
              —
              
              
              —
              
              
              —Expected
                  volatility
              
              
              38
              %
              
              40
              %
              
              40
              %Risk-free
                  interest rate
              
              
              4.5-4.7
              %
              
              3.9
              %
              
              2
              %Expected
                  life ( in years )
              
              
              1-4
              
              
              1-4
              
              
              3-4
  **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.
        Warrants issued have been accounted for under SFAS No. 123 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. Accordingly, there is no impact on the accounting
        for warrants from the adoption of SFAS 123(R).
 
  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 code-share agreement by 45%, which reduced
        deferred warrant charges and warrant equity by $6,756. Amortization of deferred
        warrant charges were $565, $ 372 and $800
        for the years ended December 31, 2006, 2005 and 2004, respectively.
 
 The
        Company recorded 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.
        On
        March 13, 2007, we and Delta amended out code-share agreements. The amendments,
        if approved, provide for early removal of all 15 ERJ-135 aircraft between
        September 2008 and April 2009 at a rate of 2 aircraft per month, and an
        approximate 3% reduction in the reimbursement rates on the Company's ERJ-145/170
        aircraft for the remaining term of the agreements. In return for these amended
        terms, Delta has agreed that we will have a negotiated pre-petition claim
        in the
        amount of $91 million, and Delta, will surrender all of its warrants on
        approximately 3.4 million shares of the Company's common stock.
 
 -59-
 **11.
        INCOME TAXES**
 
 The
        components of the provision for income tax expense (benefit) for the years
        ended
        December 31 are as follows:
 
 **2006**
              
              **2005**
              
              **2004**Federal:Deferred
              
              $
              43,171
              
              $
              32,855
              
              $
              18,94143,171
              
              
              32,855
              
              
              18,941State:Current
              
              
              495
              
              
              1,915
              
              
              520Deferred
              
              
              8,233
              
              
              4,751
              
              
              5,0868,728
              
              
              6,666
              
              
              5,606Income
                  tax expense
              
              $
              51,899
              
              $
              39,521
              
              $
              24,547
  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:
 **2006**
              
              **2005**
              
              **2004**Federal
                  income tax expense at statutory rate
              
              $
              45,993
              
              $
              35,163
              
              $
              22,190State
                  income tax expense, net of federal benefit
              
              
              5,673
              
              
              4,333
              
              
              3,644Other
              
              
              233
              
              
              25
              
              
              (1,287
              )Income
                  tax expense
              
              $
              51,899
              
              $
              39,521
              
              $
              24,547
 
 The
        components of deferred tax assets and liabilities as of December 31 are as
        follows:
 
 **2006**
              
              **2005**DEFERRED
                  TAX ASSETSCurrent:Nondeductible
                  reserves and accruals
              
              $
              3,467
              
              $
              1,619Asset
                  impairment expenses
              
              
              —
              
              
              1,463Prepaid
                  rent
              
              
              —
              
              
              574Total
              
              
              3,467
              
              
              3,656Noncurrent:Slot
                  amortization
              
              
              (2,272
              )Nondeductible
                  accruals
              
              
              4,156
              
              
              5,107Treasury
                  locks
              
              
              2,585
              
              
              2,989Stock
                  option excess tax benefits
              
              
              2,661
              
              
              1,922Alternative
                  minimum tax credit
              
              
              636
              
              
              457Net
                  operating loss carryforward
              
              
              150,508
              
              
              176,280Prepaid
                  rent
              
              
              14,894
              
              
              6,889Share-based
                  compensation
              
              
              540
              
              
              —Deferred
                  credits and sale leaseback gain
              
              
              8,446
              
              
              7,749Total
              
              
              182,154
              
              
              201,393Valuation
                  allowance
              
              
              (8,119
              )
              
              (8,119
              )174,035
              
              
              193,274Total
                  assets
              
              
              177,502
              
              
              196,930DEFERRED
                  TAX LIABILITIESNoncurrent:Accelerated
                  depreciation and fixed asset basis differences for tax purposes
              
              
              (314,921
              )
              
              (282,945
              )Total
              
              
              (140,886
              )
              
              (89,671
              )Total
                  deferred tax liability
              
              $
              (137,419
              )
              $
              (86,015
              )
 -60-
  The
        Company accrues for potential income tax contingencies when it is probable
        that
        a liability has been incurred and the amount of the contingency can be
        reasonably estimated. The Company’s accrual for income tax contingencies is
        adjusted for changes in circumstances and additional uncertainties, such
        as
        amendments to existing tax law, both legislated and concluded through the
        various jurisdictions’ tax court systems. At December 31, 2006, the Company had
        an accrual for income tax contingencies of approximately $1,200. If the amounts
        ultimately settled are greater than the accrued contingencies, the Company
        would
        record additional income tax expense in the period in which the assessment
        is
        determined. To the extent amounts are ultimately settled for less than the
        accrued contingencies, or the Company determines that a liability is no longer
        probable, the liability is reversed as a reduction of income tax expense
        in the
        period the determination is made.
 
 Deferred
        tax assets include benefits expected to be realized from the utilization
        of
        alternative minimum tax credit carryforwards of $636, which do not expire,
        and
        net operating loss carryforwards totaling $430,000, which begin expiring
        in
        2022. Approximately $396,000 of the 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, and therefore, a valuation
        allowance has been recorded of $8,119.
 
 **12.
        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, 2006 and 2005
        respectively, the carrying value of long-term debt was greater than its fair
        value by approximately $112,200 and
        $95,300.
 
 
 **13.
        BENEFIT PLAN—401(k)**
 
 Republic
        has a defined contribution retirement plan covering substantially all eligible
        employees. The Company matches up to 6% of eligible employees' wages. Employees
        are generally vested in matching contributions after three years of service
        with
        the Company. Employees are also permitted to make pre-tax contributions of
        up to
        90% (up to the annual Internal Revenue Code limit) and after-tax contributions
        of up to 10% of their annual compensation. The Company's expense under this
        plan
        was $2,266, $1,660,
        and $1,128 for the years ended December 31, 2006, 2005 and 2004,
        respectively.
 
 **14.
        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 thus allowing for
        the return of our Saab aircraft to the lessor. An agreement was reached with
        the
        lessors that released the Company of any further financial obligations upon
        return of the aircraft resulting in a $4,218 reduction in the accrued liability.
        In 2006, we recorded a gain of $2,050 relating to the disposition of Saab
        aircraft and spare parts.
  
 The
        following table reflects impairment costs and accrued aircraft return costs
        for
        the year ended December 31, 2004, 2005 and 2006.
 
 **Description**
                **Of
                  Charge**
              
              **Reserve
                  at**
                **Jan
                  1, 2004**
              
              **2004
                  Provision**
                **(Adjustment)
                  Charged**
                **To
                  Expense**
              
              **2004**
                **Payments**
              
              **Reserve
                  at**
                **Dec.
                  31,**
                **2004**
              
              **2005
                  Provision**
                **(Adjustment)**
                **Charged
                  to**
                **Expense**
              
              **2005**
                **Payments**
              
              **Reserve
                  at**
                **Dec.
                  31,**
                **2005**
              
              **2006
                  Provision**
                **(Adjustment)**
                **Charged
                  to**
                **Expense**Aircraft
                Return
                  costs:Costs
                  to return aircraft
              
              $
              5,253
              
              $
              (230
              )
              $
              (424
              )
              $
              4,599
              
              $
              (4,218
              )
              $
              (381
              )
              
              -Impairment
                  loss
              
              
              
              
              
              1,671
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -Gain
                  on disposition of Saab aircraft and spare parts
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              (2,050
              )Total
              
              $
              5,253
              
              $
              1,441
              
              $
              (424
              )
              $
              4,599
              
              $
              (4,218
              )
              $
              (381
              )
              
              -
              
              $
              (2,050
              )
 
 -61-
 
 **15.
        VALUATION AND QUALIFYING ACCOUNTS**
 
 **Description**
              **Balance
                  at**
                **Beginning**
                **Of
                  Year**
              
              **Additions**
                **Charged
                  to**
                **Expense**
              
              **Deductions
                  (1)**
              
              **Balance
                  at**
                **End**
                **of
                  Year****Allowance
                  for doubtful accounts receivables:**December
                  31, 2006
              
              343
              
              
              -
              
              
              (3
              )
              
              340December
                  31, 2005
              
              3,869
              
              $
              87
              
              $
              (3,613
              )(3)
              $
              343December
                  31, 2004
              
              819
              
              
              3,385
              (2)
              
              (335
              )
              
              3,869
 
 (1)
        Uncollectible accounts written off net of recoveries, if any.
 
 (2)
        In
        2004, the Company recorded an allowance for doubtful accounts of $3,200 because
        of US Airways’ bankruptcy.
 
 (3)
        Write
        off of US Airways receivable.
  16.
        SUBSEQUENT EVENT
  On
        March
        13, 2007, we and Delta amended our code-share agreements. The amendments,
        if
        approved by the bankruptcy court, provide for early removal of all 15 ERJ-135
        aircraft between September 2008 and April 2009 at a rate of 2 aircraft per
        month, and an approximate 3% reduction in the reimbursement rates on the
        Company's ERJ-145/170 aircraft for the remaining term of the agreements.
        In
        return for these amended terms, Delta has agreed that we will have a negotiated
        pre-petition claim in the amount of $91,000, and Delta, will surrender all
        of
        its warrants on approximately 3,435 shares of the Company's common
        stock.
 
 **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 Chief Executive Officer
        and Chief Financial Officer, the Company’s management conducted an evaluation of
        the effectiveness of our internal control over financial reporting as of
        December 31, 2006 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, 2006.
  Management’s
        assessment of the effectiveness of our internal control over financial reporting
        as of December 31, 2006 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.
 
 -62-
 
 **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 2007 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 and 2006 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 2007
        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 2007 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
        2007
        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 2007 Annual Meeting of Stockholders
        is incorporated herein by reference.
  
  -63-
 **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, 2006 and 2005,
        Consolidated Statements of Income for the years ended December 31, 2006,
        2005
        and 2004, Consolidated Statements of Cash Flows for the years ended December
        31,
        2006, 2005 and 2004, Consolidated Statements of Stockholders’ Equity and
        Comprehensive Income for the years ended December 31, 2006, 2005 and 2004
        and
        Notes to Consolidated Financial Statements.
  (b) **Exhibits**
 
 Exhibit
                  No.
                Description1.1
                Form
                    of Purchase Agreement.(viii)3.1
                Amended
                    and Restated Certificate of Incorporation.(i)3.2
                Amended
                    and Restated Bylaws.(i)4.1
                Specimen
                    Stock Certificate.(i)10.1
                2002
                    Equity Incentive Plan.(i)10.1(a)
                Restricted
                    Stock Agreement10.2
                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)10.6(f)††
                First
                    Amendment to Amended and Restated Chautauqua Jet Service Agreement,
                    by and
                    between US Airways, Inc. and Chautauqua Airlines, Inc., dated
                    as of July
                    21, 2006.(xix)10.7
                Agreement
                    between Chautauqua Airlines, Inc. and Teamsters Airline Division
                    Local 747
                    representing the Pilots of Chautauqua Airlines, dated as of
                    October 17, 2003.(i)10.8
                Agreement
                    between Chautauqua Airlines, Inc. and the Flight Attendants of
                    Chautauqua
                    Airlines, Inc. as represented by the Airline Division, International
                    Brotherhood of Teamsters, AFL-CIO, dated as of March 9,
                    1999.(i)10.9
                Agreement
                    between Chautauqua Airlines, Inc. and the Flight Dispatchers
                    in the employ
                    of Chautauqua Airlines, Inc. as represented by Transport Workers
                    Union of
                    America, AFL-CIO, dated as of February 19,
                    2001.(i)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)
  -64-
 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.(xvi)10.16(d)
                Amendment
                    No. 9 to Loan and Security Agreement, by and between Bank of
                    America, N.A.
                    (successor by assignment to Fleet Capital Corporation) and Chautauqua
                    Airlines, Inc., dated as of January 12, 2006.(xvii)10.16(e)
                Amendment
                    No. 10 to Loan and Security Agreement, by and between Bank of
                    America,
                    N.A. (successor by assignment to Fleet Capital Corporation) and
                    Chautauqua
                    Airlines, Inc., dated as of March 22, 2006.(xvii)10.16(f)
                Joinder
                    and Consolidated Amendment to Loan and Security Agreement, by
                    and among
                    Bank of America, N.A., Chautauqua Airlines, Inc., Republic Airways
                    Holdings Inc., Republic Airline Inc. and Shuttle America Corporation,
                    dated as of May 15, 2006.(xviii)10.17
                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)
 
 -65-
 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)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)10.33(b)
                Amendment
                    No. 2 to Second Amended and Restated Employment Agreement, by and
                    between Bryan K. Bedford  and Republic Airways Holdings Inc., dated
                    as of February 20, 2007. (xx)10.34
                Second
                    Amended and Restated Employment Agreement by and between Robert
                    Cooper and
                    Republic Airways Holdings Inc., dated as of August 1,
                    2003.(i)10.34(a)
                Amendment
                    No. 1 to Second Amended and Restated Employment Agreement, by
                    and between
                    Robert Hal Cooper and Republic Airways Holdings Inc., dated as
                    of
                    December 27, 2004.(v)10.34(b)
                Amendment
                      No. 2 to Second Amended and Restated Employment Agreement, by and
                      between Robert Hal Cooper and Republic Airways Holdings Inc.,
                      dated as of
                      February 20, 2007. (xx)10.35
                Second
                    Amended and Restated Employment Agreement by and between Wayne
                    Heller and
                    Chautauqua Airlines, Inc., dated as of August 1,
                    2003.(i)10.35(a)
                Amendment
                    No. 1 to Second Amended and Restated Employment Agreement, by
                    and between
                    Wayne C. Heller and Chautauqua Airlines, Inc., dated as of
                    December 27, 2004.(v)10.35(b)
                Amendment
                      No. 2 to Second Amended and Restated Employment Agreement, by and
                      between Wayne C. Heller and Republic Airways Holdings Inc.,
                      dated as of February 20, 2007. (xx)10.36
                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)
  -66-
 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
                    as of
                    April 30, 2005. (xiii)10.39(k)†
                Amendment
                    No. 11 to Purchase Agreement DCT-014/2004, by and between Embraer-Empresa
                    Brasileira de Aeronautica S.A. and Republic Airline Inc., dated
                    as of
                    August 30, 2005. (xv)10.39(l)†
                Amendment
                    No. 12 to Purchase Agreement DCT-014/2004, by and between Embraer-Empresa
                    Brasileira de Aeronautica S.A. and Republic Airline Inc., dated
                    as of
                    October 7, 2005.(xvi)10.39(m)†
                Amendment
                    No. 13 to Purchase Agreement DCT-014/2004, by and between Embraer-Empresa
                    Brasileira de Aeronautica S.A. and Republic Airline Inc., dated
                    as of
                    October 18, 2005.(xvi)10.39(n)†
                Amendment
                    No. 14 to Purchase Agreement DCT-014/2004, by and between Embraer-Empresa
                    Brasileira de Aeronautica S.A. and Republic Airline Inc., dated
                    as of
                    November 9, 2005.(xvi)10.39(o)††
                Amendment
                    No. 15 to Purchase Agreement DCT-014/2004, by and between Embraer-Empresa
                    Brasileira de Aeronautica S.A. and Republic Airline Inc., dated
                    as of
                    April 24, 2006.(xviii)10.39(p)††
                Amendment
                    No. 16 to Purchase Agreement DCT-014/2004, by and between Embraer-Empresa
                    Brasileira de Aeronautica S.A. and Republic Airline Inc., dated
                    as of July
                    21, 2006.(xix)10.39(q)*
                Amendment
                    No. 17 to Purchase Agreement DCT-014/2004, by and between Embraer-Empresa
                    Brasileira de Aeronautica S.A. and Republic Airline Inc., dated
                    as of
                    November 14, 2006.10.40†
                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 as of April 30, 2005.(xiii)10.40(f)†
                  Amendment
                      No. 6 to Letter Agreement DCT-015/2004, by and between Embraer-Empresa
                      Brasileira de Aeronautica S.A. and Republic Airline, Inc.,
                      dated as of
                      October 18, 2005.(xvi)10.40(g)†
                  Amendment
                      No. 7 to Letter Agreement DCT-015/2004, by and between Embraer-Empresa
                      Brasileira de Aeronautica S.A. and Republic Airline, Inc.,
                      dated as of
                      November 9, 2005.(xvi)10.40(h)††
                  Amendment
                      No. 8 to Letter Agreement DCT-015/2004, by and between Embraer-Empresa
                      Brasileira de Aeronautica S.A. and Republic Airline Inc., dated
                      as of July
                      21, 2006.(xix)10.40(i)*
                  Amendment
                      No. 9 to Letter Agreement DCT-015/2004, by and between Embraer-Empresa
                      Brasileira de Aeronautica S.A. and Republic Airline Inc., dated
                      as of
                      September 19, 2006.10.40(j)*
                  Amendment
                      No. 10 to Letter Agreement DCT-015/2004, by and between Embraer-Empresa
                      Brasileira de Aeronautica S.A. and Republic Airline Inc., dated
                      as of
                      November 14, 2006.10.41*
                  United
                      Express Agreement, by and between United Air Lines, Inc. and
                      Shuttle
                      America Corp., dated as of December 28, 2006.10.42†
                  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)
  -67-
 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 Inc., dated as of September 21,
                      2005.(xv)10.52(c)††
                  Second
                      Amendment to Republic Jet Service Agreement, by and between
                      US Airways,
                      Inc. and Republic Airline Inc., dated as of July 21,
                      2006.(xix)10.52(d)*
                  Third
                      Amendment to Republic Jet Service Agreement, by and between
                      US Airways,
                      Inc. and Republic Airline Inc., dated as of December 19,
                      2006.10.53†
                  Global
                      Aircraft Transaction Agreement, by and between Republic Airways
                      Holdings Inc. and US Airways, Inc., dated as of September 21,
                      2005.(xv)10.54†
                  Commuter
                      Slot Option Agreement, by and between Republic Airways Holdings
                      Inc. and
                      US Airways, Inc., dated as of September 22, 2005.(xv)10.55††
                  Capacity
                      Purchase Agreement, by and between Continental Airlines, Inc.,
                      Republic
                      Airways Holdings Inc. and Chautauqua Airlines, Inc., dated
                      as of July 21,
                      2006.(xix)10.56*
                  Airline
                      Services Agreement, by and between Frontier Airlines, Inc.,
                      Republic
                      Airline Inc., Frontier Airlines Holdings, Inc. and Republic
                      Airways
                      Holdings Inc., dated as of January 11, 2007.21.1
                  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.
   -68-
 *
                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.††
                A
                    request for confidential treatment was filed for certain portions
                    of the
                    indicated document. Confidential portions have been omitted and
                    filed
                    separately with the Commission as required by Rule 406.(i)
                Incorporated
                    by reference to the Registrant’s Registration Statement on Form S-1, File
                    No. 333-84092, which was declared effective on May 26,
                    2004.(ii)
                Incorporated
                    by reference to the Registrant’s Quarterly Report on Form 10-Q for the
                    quarter ended June 30, 2004.(iii)
                Incorporated
                    by reference to the Registrant’s Quarterly Report on Form 10-Q for the
                    quarter ended September 30, 2004.(iv)
                Incorporated
                    by reference to the Registrant’s Current Report on Form 8-K filed on
                    December 29, 2004.(v)
                Incorporated
                    by reference to the Registrant’s Current Report on Form 8-K filed on
                    December 30, 2004.(vi)
                Incorporated
                    by reference to the Registrant’s Current Report on Form 8-K filed on
                    January 20, 2005.(vii)
                Incorporated
                    by reference to the Registrant’s Current Report on Form 8-K filed on
                    January 21, 2005.(viii)
                Incorporated
                    by reference to the Registrant’s Registration Statement on Form S-1, File
                    No. 333-122033, which was declared effective on February 1,
                    2005.(ix)
                Incorporated
                    by reference to the Registrant’s Current Report on Form 8-K filed on May
                    9, 2005(x)
                Incorporated
                    by reference to the Registrant’s Quarterly Report on Form 10-Q for the
                    quarter ended March 31, 2005.(xi)
                Incorporated
                    by reference to the Registrant’s Current Report on Form 8-K filed on June
                    28, 2005.(xii)
                Incorporated
                    by reference to the Registrant’s Registration Statement on Form S-3, file
                    No. 333-126357, which was declared effective on July 18,
                    2005.(xiii)
                Incorporated
                    by reference to the Registrant’s Quarterly Report on Form 10-Q for the
                    quarter ended June 30, 2005.(xiv)
                Incorporated
                    by reference to the Registrant’s Current Report on Form 8-K filed on
                    September 7, 2005.(xv)
                Incorporated
                    by reference to the Registrant’s Quarterly Report on Form 10-Q for the
                    quarter ended September 30, 2005.(xvi)
                Incorporated
                    by reference to the Registrant’s Annual Report on Form 10-K for the year
                    ended December 31, 2005.(xvii)
                Incorporated
                    by reference to the Registrant’s Quarterly Report on Form 10-Q for the
                    quarter ended March 31, 2006.(xviii)
                Incorporated
                    by reference to the Registrant’s Quarterly Report on Form 10-Q for the
                    quarter ended June 30, 2006.(xix)
                Incorporated
                    by reference to the Registrant’s Quarterly Report on Form 10-Q for the
                    quarter ended September 30, 2006.(xx)
                Incorporated
                    by reference to the Registrant’s Current Report on Form 8-K filed on
                    February 26, 2007.
  
 
 
 -69-
 **SIGNATURES**
 
 Pursuant
        to the requirements of Section 13 or 15(d) of the Securities Exchange Act
        of
        1934, the registrant has duly caused this report to be signed on its behalf
        by
        the undersigned, thereunto duly authorized.
 
 
 REPUBLIC
                  AIRWAYS HOLDINGS INC.(Registrant)Dated:
                  March 15, 2007
              By:
                  /s/ Bryan K. BedfordBryan
                  K. BedfordChairman
                  of the Board, Chief Executive Officer and President(principal
                  executive officer)
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, this report has
        been
        signed below by the following persons on behalf of the registrant and in
        the
        capacities and on the dates indicated.
  **Signature**
              **Title**
              **Date**/s/
                  Bryan K. BedfordBryan
                  K. Bedford
              Chairman
                  of the Board, Chief Executive Officer and President (Principal
                  Executive
                  Officer)
              March
                  15 , 2007/s/
                  Robert H. CooperRobert
                  H. Cooper
              Executive
                  Vice President and Chief Financial Officer (Principal Financial
                  and
                  Accounting Officer)
              March
                    15 , 2007/s/
                  Joseph M. JacobsJoseph
                  M. Jacobs
              Director
              March
                    15 , 2007/s/
                  Douglas J. LambertDouglas
                  J. Lambert
              Director
              March
                    15 , 2007/s/
                  Jay L. MaymudesJay
                  L. Maymudes
              Director
              March
                    15 , 2007/s/
                  Lawrence J. CohenLawrence
                  J. Cohen
              Director
              March
                    15 , 2007/s/
                  Mark E. LandesmanMark
                  E. Landesman
              Director
              March
                    15 , 2007/s/
                  Mark L. PlaumannMark
                  L. Plaumann
              Director
              March
                    15 , 2007
 
 -70-