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, 2009




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) (Zip Code)




(317)
484-6000


(Registrant’s
telephone number, including area code)





Securities
registered pursuant to Section 12(b) of the Act: None





Securities
registered pursuant to Section 12(g) of the Act:




Common
Stock, par value $.001 per share




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes oNo
x




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act. Yes oNo
x





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes xNo
o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). £  Yes   £   No




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in the definitive proxy statement incorporated by
reference in Part III of this Form 10-K or any amendment to this Form
10-K. o





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




Large
      accelerated filer o
            Accelerated
      filer x
            Non-accelerated
      filer o
              (Do
      not check if a smaller reporting company)
            Smaller
      reporting company o





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes oNo
x





The
aggregate market value of Common Stock held by non-affiliates (based upon the
closing sale price of the Common Stock on the NASDAQ National Market System (now
the NASDAQ Global Market System) on June 30, 2009 was approximately
$223,128,000.





Indicate the number of shares
outstanding of the registrant’s Common Stock as of the latest practicable date:As of March 15,
2010, 34,598,683shares of common stock were
outstanding.




DOCUMENTS INCORPORATED BY
REFERENCE
  Portions
of the registrant’s definitive Proxy Statement to be used in connection with its
2010 Annual Meeting of Stockholders are incorporated by reference into Part III
of this report.




TABLE
OF CONTENTS





Part
      IItem
      1.
              Business
              
              4Item
      1A.
              Risk
      Factors
              
              15Item
      1B.
              Unresolved
      Staff Comments
              
              25Item
      2.
              Properties
              
              26Item
      3.
              Legal
      Proceedings
              
              27Item
      4.
              [Reserved]
              
              27Part
      IIItem
      5.
              Market
      for Registrant’s Common Equity and Related Stockholder Matters and Issuer
      Purchases Of
      Equity Securities
              
              28Item
      6.
              Selected
      Financial Data
              
              30Item
      7.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              
              32Item
      7A.
              Quantitative
      and Qualitative Disclosures About Market Risk
              
              47Item
      8.
              Financial
      Statements and Supplementary Data
              
              48Item
      9.
              Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
              
              81Item
      9A.
              Controls
      and Procedures
              
              81Item
      9B.
              Other
      Information
              
              82Part
      IIIItem
      10.
              Directors,
      Executive Officers and Corporate Governance
              
              83Item
      11.
              Executive
      Compensation
              
              83Item
      12.
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
              
              83Item
      13.
              Certain
      Relationships and Related Transactions, and Director
      Independence
              
              83Item
      14.
              Principal
      Accounting Fees and Services
              
              83Part
      IVItem
      15.
              Exhibits,
      Financial Statements Schedules
              
              84Signatures
              
              
              94EX-10.64
              Employment
      Agreement by and between Republic Airways Holdings Inc. and Sean Menke,
      dated as of October 2, 2009EX-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 are used to identify forward-looking
statements. All forward-looking statements included in this Annual Report on
Form 10-K are made as of the date hereof and are based on information available
to us as of such date. We assume no obligation to update any forward-looking
statement. Our results could differ materially from those anticipated in these
forward-looking statements for many reasons, including, among others, the “Risk
Factors” set forth herein.





3




PART
I




ITEM 1.
BUSINESS





General




Overview




We are a
Delaware holding company organized in 1996 that offers scheduled passenger
services through our wholly-owned operating subsidiaries:  Chautauqua
Airlines, Inc., (“Chautauqua Airlines”), Shuttle America Corporation (“Shuttle
America”), Republic Airline Inc. (“Republic Airline”), Frontier Airlines, Inc.,
and Lynx Airlines, Inc. (“Lynx”).  The Company acquired Midwest Air
Group, Inc. (“Midwest”) and Frontier Airlines Holdings, Inc. (“Frontier”) on
July 31, 2009 and October 1, 2009, respectively.  On November 3, 2009,
Midwest Airlines, Inc. ceased to exist as an actual operating airline and we
allowed its Department of Transportation (“DOT”) air carrier operating
certificate to lapse.  Midwest’s branding, livery and route structure
are all operated by our other operating subsidiaries.  We plan to
fully integrate the operations of Midwest and Frontier as promptly as is
feasible, which we anticipate will be substantially completed by the end of
2010.  Unless the context indicates otherwise, the terms “the
Company,” “we,” “us,” or “our,” refer to Republic Airways Holdings Inc. and our
subsidiaries.





As of
December 31, 2009, our operating subsidiaries offered scheduled passenger
service on approximately 1,600 flights daily to 121 cities in 44 states, Canada,
Mexico, and Costa Rica under branded operations as Frontier and Midwest, and
through fixed-fee code-share agreements with AMR Corp., the parent of American
Airlines, Inc. (“American”), Continental Airlines, Inc. (“Continental”), Delta
Air Lines, Inc. (“Delta”),  United Air Lines, Inc. (“United”), and US
Airways, Inc. (“US Airways”) (collectively referred to as our “Partners”).
Currently, we provide our Partners with fixed-fee regional airline services,
operating as AmericanConnection, Continental Express, Delta Connection, United
Express, or US Airways Express, including service out of their hubs and focus
cities.





The
following table outlines the type of aircraft our subsidiaries operate and their
respective operations within our business units as of December 31,
2009:




Operating
                  
                  Aircraft
                  
                  Branded Operations
                  
                  Fixed-Fee
      Code-Share Agreement Partners
                  
                  Other
                  
                  Number
      ofSubsidiaries
                  
                  Size
                  
                  Frontier /Midwest
                  
                  American
                  
                  Continental
                  
                  Delta
                  
                  United
                  
                  US
      Airways
                  
                  Unallocated
                  
                  AircraftChautauqua
      Airlines
                  
                  37
      to 50
                  
                  6
                  
                  15
                  
                  22
                  
                  24
                  
                  7
                  
                  9
                  
                  4
                  
                  87Shuttle
      America
                  
                  70
      to 76
                  
                  —
                  
                  —
                  
                  —
                  
                  16
                  
                  38
                  
                  —
                  
                  2
                  
                  56Republic
      Airline
                  
                  70
      to 99
                  
                  27
                  
                  —
                  
                  —
                  
                  —
                  
                  —
                  
                  58
                  
                  —
                  
                  85Frontier
                  
                  120
      to 162
                  
                  51
                  
                  —
                  
                  —
                  
                  —
                  
                  —
                  
                  —
                  
                  —
                  
                  51Lynx
                  
                  74
                  
                  11
                  
                  —
                  
                  —
                  
                  —
                  
                  —
                  
                  —
                  
                  —
                  
                  11Total
      number of operating aircraft
                  
                  95
                  
                  15
                  
                  22
                  
                  40
                  
                  45
                  
                  67
                  
                  6
                  
                  290





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. Our fixed-fee agreements have historically limited 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.





Midwest
has a regional focus in Milwaukee and Kansas City, and Frontier has a regional
focus in Denver.  Our branded operations expose us to changes in passenger
demand, fare competition and fluctuations in fuel prices.  Midwest is the
largest carrier in Milwaukee, and Frontier is the second largest carrier in
Denver.  Each brand has a significant base of frequent flyer members and
strong support in their local communities.





Since
acquiring the branded carriers, we have rebuilt the Milwaukee network to
reconnect Midwest passengers to the west coast and Florida destinations and we
have expanded operations in Denver now offering select point to point flying on
Frontier Airlines.  In 2010, we will work to further integrate the two
branded operations, which will allow for similar passenger experiences and lower
the costs of our branded flying.





During 2009, our operational fleet
increased from 221 to 290 aircraft.  The acquisition of Frontier added
62 aircraft that are operated by Frontier and Lynx.  Additionally, during
2009, we took delivery of 11 E190 aircraft, which have been placed into branded
service, three E175 aircraft, which were placed into service with Delta and six
E135 aircraft which were placed into branded service.  We also returned 10
CRJ-200 aircraft to the lessor and subleased three E145 aircraft offshore. 
As of December 31, 2009, our operational fleet was comprised of 51 Airbus
aircraft ranging from 120 to 162 seats, 141 EJet aircraft ranging from 70-99
seats, 11 Q400 aircraft with 74 seats, 80 Embraer aircraft ranging from 37 to 50
seats, and seven CRJ-200 aircraft with 50 seats.





4


In order
to simplify our fleet and reduce expenses, we expect to remove our Q400 and
CRJ-200 fleets in 2010. The remaining seven CRJ-200 aircraft will be removed
from service for Continental and returned to the lessor by April 2010 and we
expect to reduce the operations on the Q400 aircraft in April 2010 and eliminate
all Q400 flying by September 2010.




Markets and
Routes





Markets




As of
December 31, 2009, we offered scheduled passenger service on approximately 1,600
flights daily to 121 cities in 44 states, Canada, Mexico, and Costa
Rica.





Fixed-fee
Routes





Our
Partners determine the routes that we operate for them, which are subject to
certain parameters in our agreements.  The following table illustrates
the flying done for each Partner as of December 31, 2009:




Partner
              
              Hub
      and Focus CitiesAmerican
              
              St.
      Louis, MO (we expect operation to transfer to Chicago, IL in
      2010)Continental
              
              Houston,
      TX (we expect operation to close in 2010) and Cleveland,
  OHDelta
              
              Atlanta,
      GA, Cincinnati, OH, and New York, NYUnited
              
              Chicago,
      IL, Denver, CO, and Washington D.C.US
      Airways
              
              Charlotte,
      NC, New York, NY, Philadelphia, PA, and
    Washington D.C.





Branded
Routes





The
following illustrates the routes we flew for our branded operations as of
December 31, 2009:











5


Maintenance
of Aircraft and Training




Using a
combination of Federal Aviation Administration (“FAA”) certified maintenance
vendors and our own personnel and facilities; we maintain our aircraft on a
scheduled and "as-needed" basis. We emphasize preventive maintenance and inspect
our aircraft engines and airframes as required.





We have
maintenance agreements for engines, auxiliary power units (“APU”) and other
airframe components for our CRJ-200 aircraft, that cover the aircraft during the
short-term leases, all of which expire by March 2010.  For our
E140/145 aircraft, we have agreements to maintain the engines, APUs, avionics
and wheels and brakes through October 2012, June 2013, December 2014 and June
2014, respectively.  For our E170/175 aircraft, we have agreements to
maintain the avionics, wheels and brakes, APUs and engines through December
2014, February 2017, July 2019 and December 2014, respectively. Under these
agreements, we are charged for covered services based on a fixed rate for each
flight hour or flight cycle accumulated by the engines or airframes in our
service during each month. The rates are subject to annual revisions, generally
based on certain Bureau of Labor Statistics' labor and material
indices.  We believe these agreements, coupled with our ongoing
maintenance program, reduce the likelihood of unexpected levels of engine, APU,
avionics and wheels and brakes maintenance expense during their
term.





While we
do not have long term maintenance agreements for our Airbus and Q400 fleets, we
have made significant deposits with the aircraft lessors for future maintenance
events which will reduce our future cash requirements.  As of December
31, 2009, we had maintenance deposits of $143.9 million.




We
perform our heavy and routine maintenance projects at our facilities in
Columbus, Denver, Indianapolis, Louisville, Milwaukee, Pittsburgh and St. Louis,
and we perform routine maintenance services from select line maintenance
stations.




6


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
agreements with Flight Safety International to provide for aircraft simulator
training for our pilots. We have no current plans to acquire our own simulator
in the near term and believe that Flight Safety or other third party vendors
will be able to provide us with adequate and cost effective flight simulator
training to provide training for our pilots.





Employees




As of
December 31, 2009, we employed approximately 10,340 full-time equivalent
employees. The following is a table of our principal collective bargaining
agreements and their respective amendable dates as of December 31,
2009:


Employee
                        Group
                      
                      Number
      of Full-
                        Time Equivalent
                        Employees
                      
                      Representing
      Union
                      
                      Amendable
                        DatePilots
                      
                      1,849
                      
                      International
      Brotherhood of Teamsters Airline Division Local 747
                      
                      Oct-07640
                      
                      Frontier
      Airline Pilots Association ("FAPA")
                      
                      Mar-12125
                      
                      United
      Transportation Union (Lynx)
                      
                      *Flight
      Attendants
                      
                      1,474
                      
                      International
      Brotherhood of Teamsters Airline Division Local 210
                      
                      Sep-09114
                      
                      Association
      of Flight Attendants - CWA ("AFA-CWA")
                      
                      *Mechanics
      and tool room attendants
                      
                      274
                      
                      Teamsters
      Airline Division
                      
                      Oct-11Groomers
      and cleaners
                      
                      87
                      
                      Teamsters
      Airline Division
                      
                      Sep-15Dispatchers
                      
                      82
                      
                      Transport
      Workers Union of America Local 540
                      
                      Jun-1214
                      
                      Transport
      Workers Union
                      
                      Sep-12Material
      Specialists
                      
                      18
                      
                      International
      Brotherhood of Teamsters
                      
                      Oct-11


*
Currently in negotiations


As of
December 31, 2009, we had approximately 1,340 maintenance technicians and other
maintenance related personnel, approximately 2,300 customer service personnel,
and approximately 2,020 administration and support personnel, who are not
currently represented by any union.  Because of the high level of
unionization among our employees, we are subject to risks of work interruption
or stoppage and/or the incurrence of additional expenses associated with union
representation of our employees.  We have never experienced any work
stoppages or other job actions and generally consider our relationship with our
employees to be good.  The union contract for our pilots, except
Frontier’s pilots and our flight attendants, is currently
amendable.





Executive
Officers of the Company




The
following table sets forth information regarding our current executive officers,
directors and key employees as of December 31, 2009:





Name
                  
                  Age
                  
                  PositionBryan K.
      Bedford
                  
                  48
                  
                  Chairman
      of the Board, President and Chief
Executive OfficerRobert H.
      Cooper
                  
                  50
                  
                  Executive
      Vice President, Chief Financial Officer, Treasurer and
      SecretaryWayne C.
      Heller
                  
                  51
                  
                  Executive
      Vice President, Chief Operating OfficerSean
      E. Menke
                  
                  41
                  
                  Executive
      Vice President, Chief Marketing OfficerLawrence
      J. Cohen
                  
                  54
                  
                  DirectorDouglas J.
      Lambert
                  
                  52
                  
                  DirectorMark
      L. Plaumann
                  
                  54
                  
                  DirectorRichard
      P. Schifter
                  
                  57
                  
                  DirectorNeal
      S. Cohen
                  
                  49
                  
                  DirectorDavid
      N. Siegel
                  
                  48
                  
                  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
21 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.




7


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 16 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 28 years of regional airline experience in
operations.





Sean E.
Menke joined us in October 2009 as Executive Vice President and Chief Marketing
Officer.  Previously, he served as Frontier’s President and Chief
Executive Officer since September 2007.  Mr. Menke was the
Executive Vice President - Commercial Strategy for Air Canada from
May 2007 to August 2007, and was Executive Vice President and Chief
Commercial Officer for Air Canada from July 2005 to May 2007. 
Mr. Menke has over 16 years of aviation experience, including serving
as Frontier’s Senior Vice President - Chief Operating Officer from
July 2004 to July 2005, Senior Vice President - Marketing from
November 2003 to June 2004, and Vice-President - Marketing and
Planning from June 2000 to November 2003.  Mr. Menke held
various positions with United Airlines, America West Airlines, and Western
Pacific Airlines before his prior tenure at Frontier Airlines.  In January
2010, Mr. Menke resigned from the organization. He will remain in his position
through April 2010.





Lawrence
J. Cohen has been a director since June 2002. He is the owner and Chairman of
Pembroke Companies, Inc., an investment and management firm that he founded in
1991. The firm makes investments in and provides strategic management services
to real estate and specialty finance related companies. From 1989 to 1991,
Mr. Cohen worked at Bear Stearns & Co. where he attained the position
of Managing Director. From 1983 to 1989, Mr. Cohen served as first Vice
President in the Real Estate Group of Integrated Resources, Inc. From 1980 to
1983, Mr. Cohen was an associate at the law firm of Proskauer Rose Goetz
& Mendelsohn. Mr. Cohen is a member of the bar in both New York and
Florida.





Douglas J.
Lambert has been a director since August 2001. He is presently a Senior
Director in the Debtor Advisory and Crisis Management Group of Alvarez &
Marsal Inc. From 1994 to 2003, Mr. Lambert was a Senior Vice President
of Wexford Capital LLC. From 1983 to 1994, Mr. Lambert held various
financial positions with Integrated Resources, Inc.'s Equipment Leasing
Group, including Treasurer and Chief Financial Officer. He is a certified public
accountant.




Mark 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.





Richard
P. Schifter has been a director since July 2009.  He has been a
partner at TPG Capital (formerly Texas Pacific Group) since 1994. Prior to
joining TPG, Mr. Schifter was a partner at the law firm of Arnold & Porter
in Washington, D.C., where he specialized in bankruptcy law and corporate
restructuring and represented Air Partners in connection with the acquisition of
Continental Airlines in 1993.  Mr. Schifter joined Arnold & Porter
in 1979 and was a partner from 1986 through 1994.  Mr. Schifter also
served on the Boards of Directors of Ryanair, PLC from 1996 through 2003,
America West Holdings from 1994 to 2005, US Airways Group from 2005 to 2006 and
Midwest Airlines from 2007 to 2009.





Neal S.
Cohen has been a director since October 2009.  He is president and
chief operating officer for Laureate Education, Inc. Previously, Mr. Cohen was
executive vice president for international strategy and chief executive officer
for regional airlines at Northwest Airlines.  In addition, Mr. Cohen had
served as executive vice president and chief financial officer at Northwest
Airlines. Prior to his tenure with Northwest Airlines, Mr. Cohen was executive
vice president and chief financial officer for US Airways. Mr. Cohen has served
as chief financial officer for various service and financial organizations as
well as Sylvan Learning, the predecessor company of Laureate Education,
Inc.





8


David N.
Siegel has been a director since October 2009.  Mr. Siegel has
commercial aviation experience spanning more than two decades including serving
as the president and chief executive officer of US Airways and in senior
executive roles at Northwest Airlines and Continental Airlines.  Most
recently, Mr. Siegel was chairman and chief executive officer of Gate Gourmet
Group, Inc., the world’s largest independent airline catering, hospitality and
logistics company. Prior to Gate Gourmet Group, Mr. Siegel served as president,
chief executive and member of the board of US Airways Group, Inc., and US
Airways, Inc., the airline operating unit.  Prior to joining US
Airways, Mr. Siegel was chairman and chief executive officer of Avis Rent A Car
System, Inc., a subsidiary of Cendant Corp.  Mr. Siegel’s extensive
experience in the airline industry includes seven years at Continental Airlines
in various senior management roles, including president of its Continental
Express subsidiary.





Business
Strategy





Our
vision is to provide safe, clean, reliable and cost efficient service with
highly engaged and motivated employees.  We are focused on continuing
to provide high quality performance as a fixed-fee operator with low-costs and a
diverse number of partners.  We are committed to improving our cost
structure on all branded operations to compete and win in competitive markets
and utilize our fleet flexibility to optimize our network connectivity and
revenues.  We believe the diversity in our operations provide us a
platform for long-term sustainability, profitability, and growth.





Branded
Operations





Our
recent acquisitions of Midwest and Frontier provide us with route networks that
are complimentary and present the opportunity to expand both networks beyond
their historic capabilities.  The Midwest brand has earned its
reputation as “The best care in the air®” by providing travelers with impeccable
service and onboard amenities at competitive fares. Our commitment to offering
personal, attentive service both on the ground and in the air has earned Midwest
national and international recognition from frequent travelers and the airline
industry, including Condé Nast Traveler, Travel+Leisure and the Zagat Airline
Survey.  Frontier has created a widely recognized brand that
distinguishes itself as a safe, reliable, low-fare airline focused on customer
service and providing a high quality travel experience.  On our
Frontier branded flights we offer our customers a differentiated product, with
new Airbus and Embraer aircraft, comfortable passenger cabins that we configure
with one class of seating, ample leg room, affordable pricing, and in-seat
LiveTV with 24 channels of live television entertainment and three additional
channels of current-run pay-per-view movies on most of our routes  We
have implemented a full code-share between Midwest and Frontier providing a
wider choice of travel destinations and additional flight options and connection
possibilities, and our frequent flyer partnership allows members of the Midwest
Miles and Frontier Early Rewards programs to earn and redeem miles on either
airline.  Our frequent flyer programs have minimal overlap and we now
have access to more than 2.7 million frequent flyers.





We plan
to fully integrate the operations of Midwest and Frontier as promptly as is
feasible, which we anticipate will be substantially completed by the end of
2010.  In addition, we are focused on harmonizing the best aspects of
the Midwest and Frontier brands, which we believe will leverage our collective
advantages and provide our customers with consistent product offerings, on-board
experiences, and customer-facing touch points.





Fixed-Fee
Operations





Code-Share
Agreements





Through
our subsidiaries, we have entered into code-share agreements with US Airways,
American, Delta, United and Continental that authorize us to use their
two-character flight designator codes ("US," "AA," "DL," "UA" and "CO") 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 or Continental Express, respectively. Under the
code-share agreements between our subsidiaries and each of US Airways, American,
Delta, United and Continental, we are compensated on a fixed-fee basis on all of
our US Airways Express, AmericanConnection, Delta Connection, United Express and
Continental Express flights. In addition, under our code-share agreements, our
passengers participate in frequent flyer programs of the Partners, and the
Partners provide additional services such as reservations, ticket issuance,
ground support services, commuter slot rights and airport
facilities.





US
Airways Code-Share Agreements





Under our
fixed-fee Jet Services Agreements with US Airways, we operated, as of December
31, 2009, 9 E145 aircraft, 20 E170 aircraft and 38 E175 aircraft. As of December
31, 2009, we were providing 418 flights per day as US Airways
Express.





9


In
exchange for providing the designated number of flights and performing our other
obligations under the code-share agreements, we receive compensation from US
Airways three times each month in consideration for the services provided under
the code-share agreements. We receive an additional amount per available seat
mile flown and may also receive incentives or pay penalties based upon our
performance, including fleet launch performance, on-time departure performance
and completion percentage rates. In addition, certain operating costs are
considered "pass through" costs whereby US Airways has agreed to reimburse us
the actual amount of costs we incur for these items. Landing fees, passenger
catering, passenger liability insurance and aircraft property tax costs are pass
through costs and included in our fixed-fee services revenue. US Airways
provides fuel directly for all of our US Airways operations.





The
code-share agreement for the E145 aircraft terminates in July
2014.  The code-share agreement for the E170/175 aircraft terminates
in September 2015 with respect to the 20 E170 aircraft and eight of the E175
aircraft.   The remaining 30 E175 aircraft terminate 12 years
from each aircraft’s in-service date and therefore would terminate from February
2019 to July 2020. 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 certain conditions.





Pursuant
to a licensing agreement, we assigned 113 commuter slots at
Ronald Reagan Washington National (DCA) Airport and 24
commuter slots at New York-LaGuardia (LGA) Airport to US Airways and these
commuter slots are being operated by US Airways and US Airways Express carriers.
Prior to the expiration of this agreement, US Airways has the right to
repurchase all, but not less than all, of the DCA commuter slots at a
predetermined price. The licensing agreement between us and US Airways for the
LGA commuter slots expired on December 31, 2006, but we maintain a security
interest in the LGA slots if US Airways fails to perform under the current
licensing agreement.




The
American Code-Share Agreement





As of
December 31, 2009, we operated 13 E140 aircraft for American under a fixed-fee
code-share agreement and provided 82 flights per day as
AmericanConnection.





On
October 23, 2008, we amended the code-share agreement to remove two E140
aircraft from service on June 1, 2009.  American reimburses us for the
monthly rental fees unless the removed aircraft are sold, subleased or otherwise
transferred as long as we are using commercially reasonable efforts to dispose
of the removed aircraft. The amendment also provided for a two year extension on
American's early termination option so that American may not early terminate the
agreement prior to March 2012, and a rate reduction which became effective on
April 1, 2009.





Under the
code-share agreement, American retains all passenger, certain cargo and other
revenues associated with each flight, and is responsible for all revenue-related
expenses. We share revenue with American for certain cargo shipments.
Additionally, certain operating costs are considered "pass through" costs and
American has agreed to reimburse us the actual amount of costs we incur for
these items. Fuel, landing fees, hull and liability insurance and aircraft
property tax costs are pass through costs and included in our fixed-fee
services revenue. Beginning in May 2009 we did not record fuel expense and
the related revenue for the American operations.  Aircraft lease
payments are also considered a pass through cost, but are limited to a specified
amount.





If
American terminates the code-share agreement for cause, American has a call
option to require that we assign to American all of its rights under the leases
of aircraft, and to lease to American the aircraft to the extent we own them,
used at that time under the code-share agreement. If American exercises its call
option, we are required to pay certain maintenance costs in transferring the
aircraft to American's maintenance program.





The term
of the American code-share agreement continues until February 1, 2013. However,
American may terminate the code-share agreement without cause upon 180 days
notice, provided that such notice may not be given prior to September 30, 2011.
If American terminates the code-share agreement without cause, we have the right
to put the leases of the aircraft, or to sell the aircraft to American to the
extent owned by us, used under the code-share agreement to American. The
agreement may be subject to termination for cause prior to that date under
various circumstances.





The
Delta Code-Share Agreements





As of
December 31, 2009, we operated 24 E145 aircraft and 16 E175 aircraft for Delta
under fixed-fee code-share agreements.  As of December 31, 2009, we
provided 213 flights per day as Delta Connection.





The
code-share agreements for the E145 and E175 aircraft terminate in May 2016 and
January 2019, respectively, subject to certain extension rights. Delta may
terminate the code-share agreements at any time, with or without cause, if it
provides us 180 days written notice, provided that such notice shall not be
given prior to November 2009 for the E145 regional jet code-share agreement and
July 2015 for the E170 regional jet code-share agreement. With the respect
to the E145 agreement, if Delta chooses to terminate any aircraft early, it may
not reduce the number of aircraft in service to less than 12 during the 12-month
period following the 180 day initial notice period unless it completely
terminates the code-share agreement. We refer to this as Delta's partial
termination right.





10


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.  As of December
31, 2009, the Company estimates a payment of $184.0 million would be required
from Delta should they exercise the early termination provision.  If
we choose not to exercise our put right, or if Delta terminates either agreement
for cause, they may require us to sell or sublease to them or Delta may assume
the lease of aircraft leased by us with respect to any of the aircraft we
previously operated for it under that agreement.




Certain
of our operating costs are considered "pass through" costs, whereby Delta has
agreed to reimburse us the actual amount of costs we incur for these items.
Fuel, engine maintenance expenses, landing fees, passenger liability insurance,
hull insurance, war risk insurance, de-icing costs, and aircraft property taxes
are some of the pass through costs included in our fixed-fee services revenue.
Beginning in June 2009 we did not record fuel expense and the related revenue
for the Delta operations. Aircraft rent/ownership expenses are also considered a
pass through cost, but the reimbursement is limited to specified amounts for
certain aircraft.




The
agreements may be subject to immediate or early termination under various
circumstances.





The
United Code-Share Agreements





As of
December 31, 2009, we operated seven E145 aircraft and 38 E170 aircraft and
provided 252 flights per day as United Express.  Five E170 aircraft
were placed into service during 2009.  The seven E145 aircraft were
removed from service in early January 2010.  Two of the aircraft are
being returned to the lessor and the remaining five have been placed into our
branded operations.





The fixed
rates that we receive from United under the code-share agreements are annually
adjusted in accordance with an agreed escalation formula. Additionally, certain
of our operating costs are considered "pass through" costs whereby United has
agreed to reimburse us the actual amount of costs we incur for these
items.  Fuel and oil, landing fees, war risk insurance, liability
insurance and aircraft property taxes are pass through costs and included in our
fixed-fee services revenue.  United provides fuel directly in certain
locations.





The E170
code-share agreement terminates on June 30, 2019.  The E145 code-share
agreement was terminated effective January 2010.  United has the
option of extending the E170 agreement for five years or less.  In
addition, the code-share agreements may be terminated under certain
conditions.





United
has a call option to assume our ownership or leasehold interest in certain
aircraft if we wrongfully terminate the code-share agreements or if United
terminates the agreements for our breach for certain reasons.




The
Continental Code-Share Agreement





As of
December 31, 2009, we operated 15 E145 aircraft and seven CRJ-200 aircraft for
Continental under a fixed-fee code-share agreement and provided 125 flights per
day as Continental Express.  During 2009, we removed ten CRJ-200
aircraft and five E145 aircraft from the Continental agreement.  The
CRJ-200 aircraft were returned to the lessor and the E145 aircraft are being
subleased offshore.





The
CRJ-200 aircraft are operated under the agreement on terms generally equivalent
to our CRJ-200 leases that vary from two to three years.  The
remaining CRJ aircraft will come out of service in the first quarter of 2010 and
be returned to the lessor.  The E145 aircraft have a term of three to
five years.  Under certain conditions, Continental may extend the term on
the aircraft up to five additional years.





All fuel
is purchased directly by Continental and is not charged back to Chautauqua
Airlines.  Under the agreement, Continental purchases all capacity at
predetermined rates and industry standard pass through costs.





The
agreement may be subject to early termination under various
circumstances.





11


Competition
and Economic Conditions





The airline industry is
highly competitive.  Generally, the airline industry is highly
sensitive to general economic conditions, in large part due to the discretionary
nature of a substantial percentage of both business and pleasure travel. In the
past, many airlines have reported decreased earnings or substantial losses
resulting from periods of economic recession, heavy fare discounting, high fuel
prices and other factors. Economic down turns combined with competitive
pressures have contributed to a number of bankruptcies and liquidations among
major and regional carriers and our recent acquisitions of branded carriers adds
these risks to our business.





The
principal competitive factors in the airline industry are fare pricing, customer
service, flight schedules and aircraft types.  The airline industry is
particularly susceptible to price discounting because airlines incur only
nominal costs to provide service to passengers occupying otherwise unsold
seats.  We face significant competition with respect to routes,
services and fares. Our domestic routes are subject to competition from carriers
that provide service at low fares to destinations also served by us. In
particular, we face significant competition at our hub airports in Milwaukee and
Denver either directly at those airports or at the hubs of other airlines that
are located in close proximity to our hubs.  Certain of our
competitors are larger and have significant financial resources.  Our
ability to compete effectively depends, in significant part, on our ability to
maintain a cost structure that is competitive with other carriers.





The
growth in the fixed fee business for regional carriers which occurred over the
past decade has significantly diminished in recent times as major carriers have
reduced capacity and as increased fuel prices have limited the cost efficiencies
of small regional jets.  We believe future growth opportunities in the
fixed-fee business will most likely come as contracts come up for renewal though
competition for market share may lead to lower margins and higher
risks.  If our Partners are negatively effected by economic conditions
or higher fuel prices, they may file for bankruptcy or reduce the number of
flights we operate in order to reduce their operating costs.





Regulatory
Matters




Government
Regulation





All
interstate air carriers are subject to regulation by the Department of
Transportation, referred to as the DOT, the Federal Aviation Administration, or
FAA, the Transportation Security Administration, or TSA, and certain other
governmental agencies. Regulations promulgated by the DOT primarily relate to
economic aspects of air service, those of the TSA to security and those of the
FAA to operations and safety. The FAA requires operating, airworthiness and
other certifications; approval of personnel who may engage in flight maintenance
or operations activities; record keeping procedures in accordance with FAA
requirements; and FAA approval of flight training and retraining programs.
Generally, governmental agencies enforce their regulations through, among other
mechanisms, certifications, which are necessary for our continued operations,
and proceedings, which can result in civil or criminal penalties or suspension
or revocation of operating authority. The FAA can also issue maintenance
directives and other mandatory orders relating to, among other things, grounding
of aircraft, inspection of aircraft, installation of new safety-related items
and the mandatory removal, replacement or modification of aircraft parts that
have failed or may fail in the future.





We
believe that we are operating in material compliance with FAA regulations and
hold all necessary operating and airworthiness certificates and licenses. We
incur substantial costs in maintaining our current certifications and otherwise
complying with the laws, rules and regulations to which we are subject. Our
flight operations, maintenance programs, record keeping and training programs
are conducted under FAA approved procedures.




The DOT
allows local airport authorities to implement procedures designed to abate
special noise problems, provided such procedures do not unreasonably interfere
with interstate or foreign commerce or the national transportation system.
Certain airports, including major airports at Boston, Washington, D.C., the New
York area, Dallas, Philadelphia, Charlotte, Chicago, Los Angeles, San Diego,
Orange County (California) and San Francisco, have established airport
restrictions to limit noise, including restrictions on aircraft types to be used
and limits on the number of hourly or daily operations or the time of such
operations. In some instances, these restrictions have caused curtailments in
service or increases in operating costs, and such restrictions could limit our
ability to commence or expand our operations at affected airports. Local
authorities at other airports are considering adopting similar noise
regulations.




Pursuant
to law and the regulations of the DOT, we must be actually controlled by United
States citizens. In this regard, our President and at least two-thirds of our
Board of Directors must be United States citizens and not more than 25% of our
voting stock may be owned or controlled by foreign nationals, although subject
to DOT approval the percentage of foreign economic ownership may be as high as
49%.





12


Environmental
Regulation





The
Airport Noise and Capacity Act of 1990 (ANCA) generally recognizes the rights of
airport operators with noise problems to implement local noise abatement
programs so long as such programs do not interfere unreasonably with interstate
or foreign commerce or the national air transportation system. The ANCA
generally requires FAA approval of local noise restrictions on Stage 3 aircraft.
While we have had sufficient scheduling flexibility to accommodate local noise
restrictions imposed to date, our operations could be adversely affected if
locally-imposed regulations become more restrictive or widespread.





The
Environmental Protection Agency (EPA) regulates operations, including air
carrier operations, which affect the quality of air in the United States. We
believe the aircraft in our fleet meet all emission standards issued by the EPA.
We may become subject to additional taxes or requirements to obtain permits for
green house gas emissions.





Safety
and Health Regulation





The
Company and its third-party maintenance providers are subject to the
jurisdiction of the FAA with respect to the Company’s aircraft maintenance and
operations, including equipment, ground facilities, dispatch, communications,
flight training personnel, and other matters affecting air safety. To ensure
compliance with its regulations, the FAA requires airlines to obtain, and the
Company has obtained, operating, airworthiness, and other certificates. These
certificates are subject to suspension or revocation for cause. In addition,
pursuant to FAA regulations, the Company has established, and the FAA has
approved, the Company’s operations specifications and a maintenance program for
the Company’s aircraft, ranging from frequent routine inspections to major
overhauls. The FAA, acting through its own powers or through the appropriate
U.S. Attorney, also has the power to bring proceedings for the imposition
and collection of fines for violation of the Federal Aviation
Regulations.





The
Company is subject to various other federal, state, and local laws and
regulations relating to occupational safety and health, including Occupational
Safety and Health Administration and Food and Drug Administration
regulations.





Security
Regulation





Pursuant
to the Aviation and Transportation Security Act (the “Aviation Security Act”),
the Transportation Security Administration (the “TSA”), a division of the
U.S. Department of Homeland Security is responsible for certain civil
aviation security matters. The Aviation Security Act addresses procedures for,
among other things, flight deck security, the use of federal air marshals
onboard flights, airport perimeter access security, airline crew security
training, security screening of passengers, baggage, cargo, mail, employees, and
vendors, training and qualifications of security screening personnel, provision
of passenger data to U.S. Customs and Border Protection, and background
checks. Under the Aviation Security Act, substantially all security screeners at
airports are federal employees, and significant other elements of airline and
airport security are overseen and performed by federal employees, including
federal security managers, federal law enforcement officers, and federal air
marshals.





TSA-mandated
security procedures can have a negative effect on the Customer experience and
the Company’s operations. For example, in 2006, the TSA implemented security
measures regulating the types of liquid items that can be carried onboard
aircraft. In 2009, the TSA introduced its Secure Flight Initiative. As part of
that initiative, the Company has begun collecting additional Customer data. The
Secure Flight Initiative was created to help reduce the number of passengers who
are misidentified as possible terrorists because their names are similar to
those of people on security watch lists. The program standardized how names are
matched, as well as added age and gender to a passenger’s profile. Under the
program, the Company is required to ask for  Customer names exactly as
they appear on a government-issued photo ID such as a passport or driver’s
license. In addition, the Company must ask Customers for their gender and date
of birth. The TSA has also indicated its intent to expand its use of whole body
imaging machines around the United States.




The
Company has made significant investments to address the effect of security
regulations, including investments in facilities, equipment, and technology to
process Customers efficiently and restore the airport experience; however, the
Company is not able to predict the ongoing impact, if any, that various security
measures will have on Passenger revenues and the Company’s costs, both in the
short-term and the long-term.





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.




13


On our
website, www.rjet.com/investorrelations.html, we provide free of charge our
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports
on Form 8-K as soon as reasonably practicable after they have been
electronically filed or furnished to the Securities and Exchange Commission. The
code of ethics, adopted by our Board of Directors, which applies to all our
employees, can also be found on our website,
www.rjet.com/investorrelations.html. Our audit committee charter is also
available on our website.




14


ITEM
1A. RISK FACTORS




The
following risk factors, in addition to the information discussed elsewhere
herein, should be carefully considered in evaluating us and our
business:




Risks
Related To Our Operations





We
are dependent on our code-share relationships with our Partners.




We depend
on relationships created by our regional jet fixed-fee code-share agreements
with American, Continental, Delta, United and US Airways for all of our
fixed-fee service revenues. Any material modification to, or termination of, our
code-share agreements with any of these Partners could have a material adverse
effect on our financial condition, results of our operations and the price of
our common stock. Each of the code-share agreements contains a number of grounds
for termination by our Partners, including our failure to meet specified
performance levels. In addition, American may terminate its code-share agreement
without cause upon 180 days notice, provided such notice may not be given
prior to September 30, 2011. If American terminates its code-share
agreement for cause, it has the right to require us to assign to them our leases
of all E140 aircraft then operating under the code-share agreement or
to lease such aircraft to them to the extent we own them. If American terminates
our code-share agreement other than for cause, we have the right to require
American to assume our leases of all E140 aircraft then operating
under the code-share agreement, or to lease such jets from us to the extent we
own them. Delta may partially or completely terminate its code-share agreement
with respect to the E145 aircraft, with or without cause, on 180 days
written notice at any time after November 2009, and may partially or
completely terminate its code-share agreement with respect to the E170 aircraft,
with or without cause, on 180 days written notice at any time after
July 2015.  If Delta exercises this right under either agreement or if
we terminate either agreement for cause, we have the right to require Delta
either to purchase, sublease or assume the lease of aircraft leased by us with
respect to any of the aircraft we previously operated for Delta under that
agreement. If we choose not to exercise this right, or if Delta terminates
either agreement for cause, Delta may require us to sell or sublease to it or
Delta may assume the lease of aircraft leased by us with respect to any of the
aircraft we previously operated for it under that agreement. If we wrongfully
terminate our United code-share agreement, breach certain provisions thereof or
fall below certain minimum operating thresholds for three consecutive months or
any six month period in a rolling 12 month period, United can assume our
ownership or leasehold interests in the aircraft we operate for them.
Continental may terminate its code-share agreement with cause or if we breach
certain provisions thereof including a breach of our guaranty granted to
it.




In
addition, because all of our fixed-fee service 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, utilize
those aircraft in our branded operations, 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 utilize those aircraft in our branded
operations.





The
ability to realize fully the anticipated benefits of our acquisition of Midwest
and Frontier may depend on the successful integration of the businesses of
Republic, Midwest, and Frontier.





Our
acquisition of Midwest and Frontier involved the combination of three companies
which operated as independent private and public companies prior to the
acquisitions. We are devoting significant attention and resources to integrating
our business practices and operations in order to achieve the benefits of the
acquisitions, including expected synergies. If we are unable to integrate our
business practices and operations in a manner that allows us to achieve the
anticipated revenue and cost synergies, or if achievement of such synergies
takes longer or costs more than expected, the anticipated benefits of the
acquisitions may not be realized fully or may take longer to realize than
expected.  In addition, it is possible that the integration process
could result in the loss of key employees, diversion of management’s attention,
the disruption or interruption of, or the loss of momentum in our ongoing
businesses or inconsistencies in standards, controls, procedures and policies,
any of which could adversely affect our ability to maintain relationships with
customers and employees or our ability to achieve the anticipated benefits of
the acquisitions, or could reduce our earnings or otherwise adversely affect our
business and financial results.





15


We
may be unable to redeploy smaller aircraft removed from service.




Certain
of our Partners have indicated a desire to schedule fewer 50 seat aircraft. To
the extent that we agree to remove an E140/145 aircraft from service, we must
either sell or sublease the aircraft to another party or redeploy it in order to
cover our carrying expenses for that aircraft. Our inability to sell, sublease
and/or redeploy aircraft that have been removed from service could have a
material adverse effect on our financial condition, results of operations and
the price of our common stock.




If
the financial strength of any of our Partners decreases, our financial strength
is at risk.




We are
directly affected by the financial and operating strength of the Partners in our
fixed-fee regional airline code-share business.  In the event of a
decrease in the financial or operational strength of any of our Partners, such
partner may be unable to make the payments due to us under its code-share
agreement.  In addition, it may reduce utilization of our aircraft to
the minimum levels specified in the code-share agreements and, 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 19, 2010, Standard & Poor’s and Moody’s,
respectively, maintained ratings of B- and Caa1 for US Airways, B- and Caa1 for
AMR Corp., the parent of American, B and B2 for Delta, B- and Caa1 for UAL
Corp., the parent of United, and B and B2 for Continental.




Our
Partners may expand their direct operation of aircraft thus limiting the
expansion of our relationships with them.




We depend
on major airlines such as our Partners to contract with us instead of purchasing
and operating their own aircraft. However, some major airlines own their own
regional airlines and operate their own aircraft instead of entering into
contracts with us or other regional carriers. For example, American and Delta
have acquired many aircraft which they fly under their affiliated carriers,
American Eagle, with respect to American, and Comair, with respect to Delta. In
addition, US Airways is operating aircraft through its PSA subsidiary. We have
no guarantee that in the future our Partners will choose to enter into contracts
with us instead of purchasing their own aircraft or entering into relationships
with competing regional airlines. They are not prohibited from doing so under
our code-share agreements. In addition, US Airways previously announced that,
pursuant to an agreement with its pilots, US Airways will not enter into
agreements with its regional affiliates to fly E190 and higher capacity aircraft
and it is possible that our other partners will make the same decision. A
decision by US Airways, American, Delta, United, or Continental to phase out our
contract based code-share relationships as they expire and instead acquire and
operate their own aircraft or to enter into similar agreements with one or more
of our competitors could have a material adverse effect on our financial
condition, results of operations and the price of our common stock.





Any
labor disruption or labor strikes by our employees or those of our Partners
would adversely affect our ability to conduct our business.




All of
our pilots, customer service employees, flight attendants and dispatchers are
represented by unions. Collectively, these employees represent approximately 45%
of our workforce as of December 31, 2009. Although we have never had a work
interruption or stoppage and believe our relations with our unionized employees
are generally good, we are subject to risks of work interruption or stoppage
and/or may incur additional administrative expenses associated with union
representation of our employees. If we are unable to reach agreement with any of
our unionized work groups on the amended terms of their collective bargaining
agreements, we may be subject to work interruptions and/or stoppages. Any
sustained work stoppages could adversely affect our ability to fulfill our
obligations under our code-share agreements and could have a material adverse
effect on our financial condition, results of operations and the price of our
common stock.





Under the
terms of our jet code-share agreement with US Airways, if we are unable to
provide scheduled flights as a result of a strike by our employees, it is only
required to pay us for certain fixed costs for specified periods. Under the
terms of the code-share agreements with the remainder of our Partners, none of
them are required to pay us any amounts during the period our employees are on
strike and we are unable to provide scheduled flights. A sustained strike by our
employees would require us to bear costs otherwise paid by our
Partners.





In
addition, a labor disruption other than a union authorized strike may cause us
to be in material breach of our code-share agreements, all of which require us
to meet specified flight completion levels during specified periods. Our
Partners have the right to terminate their code-share agreements if we fail to
meet these completion levels.





Our
Partners may be restricted in increasing the level of business that they conduct
with us, thereby limiting our growth.





In
general, the pilots' unions of certain major airlines have negotiated collective
bargaining agreements that restrict the number and/or size of regional aircraft
that a particular carrier may operate. A "scope" clause in US Airways' current
collective bargaining agreement with its pilots prevents US Airways from using
more than 465 aircraft not flown by its pilots in its operations. There are no
quantity limitations in the US Airways "scope" limitations for small aircraft.
For purposes of this "scope" restriction, a small regional jet is defined as any
aircraft configured with 78 or fewer seats. For purposes of this limitation, a
large regional jet is an aircraft configured with 79 to 90 passenger seats. US
Airways can outsource up to an additional 55 aircraft, including the E175 and
C900, configured with more than 78 seats but less than 90 seats, subject to
certain limitations. We cannot assure you that US Airways will contract with us
to fly any additional aircraft. Our pilots union limited their approval to 80
additional aircraft for US Airways, which includes the 20 E170s and 38 E175s we
currently operate for US Airways. A "scope" clause in American's current
collective bargaining agreement with its pilots limits it from operating
aircraft having 51 or more seats. A "scope" clause in Delta's current collective
bargaining agreement with its pilots restricts it from operating aircraft having
more than 70 to 76 seats and limits it from operating more than 175, or under
certain circumstances, 200 aircraft having 70 to 76 seats. United's "scope"
limitations restrict it from operating aircraft configured with more than 70
seats or any aircraft weighing more than 83,000 pounds. Continental's "scope"
limitations restrict it from operating aircraft configured with more than 51
seats.




16


American's
"scope" limitations further limit its partners, in our case Chautauqua, from
operating aircraft with 51 or more seats even for partners other than American.
Delta's "scope" limitations restrict its partners from operating aircraft with
over 76 seats even if those aircraft are operated for an airline other than
Delta. Neither US Airways, United nor Continental has similar "scope" limits on
the size of aircraft we can operate for our other Partners.




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




We
have significant debt and off-balance sheet obligations and any inability to pay
would adversely impact our operations.




The
airline business is very capital intensive and, as a result, many airline
companies are highly leveraged. During the years ended December 31, 2009 and
2008, our mandatory debt service payments totaled $278.3 million and
$274.6 million, respectively, and our mandatory lease payments totaled
$194.3 million and $137.6 million, respectively. We have significant lease
obligations with respect to our aircraft, which aggregated approximately $1.6
billion and $1.0 billion at December 31, 2009 and 2008,
respectively.  Airbus’ current aggregate list price for the eight A320
aircraft on firm order is $349 million.  We expect to acquire on
credit a substantial portion of this value which will increase our mandatory
lease and debt service payments.




We have a
significant amount of variable interest rate debt.  Approximately
$506.8 million of our debt as of December 31, 2009 is subject to variable market
interest rates.  If rates increase significantly, our results and cash
flows could be adversely impacted.  None of our debt was variable as
of December 31, 2008.





There can
be no assurance that our operations will generate sufficient cash flow to make
such payments or that we will be able to obtain financing to acquire the
additional aircraft or make other capital expenditures necessary for our
expansion. If we default under our loan or lease agreements, the lender/lessor
has available extensive remedies, including, without limitation, repossession of
the respective aircraft and other assets and, in the case of large creditors,
the effective ability to exert control over how we allocate a significant
portion of our revenues. Even if we are able to timely service our debt, the
size of our long-term debt and lease obligations could negatively affect our
financial condition, results of operations and the price of our common stock in
many ways, including:





·
              increasing
      the cost, or limiting the availability of, additional financing for
      working capital, acquisitions or other
purposes;





·
              limiting
      the ways in which we can use our cash flow, much of which may have to be
      used to satisfy debt and lease obligations;
and





·
              adversely
      affecting our ability to respond to changing business or economic
      conditions.




We
may be unable to continue to comply with financial covenants in certain
financing agreements, which, if not complied with, could materially and
adversely affect our liquidity and financial condition.
  We are
required to comply with certain financial covenants under certain of our
financing arrangements.  We are required to maintain a certain level
of minimum unrestricted cash and maintain certain cash flow and working capital
covenants.
  As of
December 31, 2009, we were in compliance with all our covenants, however, we
believe it is probable that we will be unable to comply with certain of these
covenants during 2010.  We are currently in discussions to renegotiate
these covenants, however, our ability to renegotiate or obtain a waiver of, or
otherwise mitigate, the impact of a default, could potentially provide for the
accelerated repayment of principal totaling approximately $25 million and
the discontinuation of the monthly pre-purchase of airline miles from our
affinity card provider, which totals approximately $2.9 million per
month.   If we are unable to successfully renegotiate the
covenants, of which there can be no assurance or if a default were to occur and
we were unable to obtain a waiver, or otherwise mitigate the impact of a
default, our financial condition and liquidity could be materially and adversely
affected.




We
currently depend on Embraer and Airbus to support our fleet of jet
aircraft.




We rely
on Embraer as the manufacturer of substantially all of our regional jets and on
Airbus as the manufacturer of our narrow-body jets.  Our risks in
relying primarily on a single manufacturer for each aircraft type
include:




·
              the
      failure or inability of Embraer or Airbus 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
      or Airbus aircraft or requiring time-consuming inspections and
      maintenance; and




17




·
              the
      adverse public perception of a manufacturer as a result of an accident or
      other adverse publicity.




Our
operations could be materially adversely affected by the failure or inability of
Embraer, Airbus or any key component manufacturers to provide sufficient parts
or related support services on a timely basis or by an interruption of fleet
service as a result of unscheduled or unanticipated maintenance requirements for
our aircraft.




Reduced
utilization levels of our aircraft under the fixed-fee agreements would
adversely impact our revenues, earnings and liquidity.




Our
agreements with our Partners require each of them to schedule our aircraft to a
minimum level of utilization.  However, the aircraft have historically
been utilized more than the minimum requirement.  Even though the
fixed-fee rates may adjust, either up or down, based on scheduled utilization
levels or require a fixed amount per day to compensate us for our fixed costs,
if our aircraft are at or below the minimum requirement (including taking into
account the stage length and frequency of our scheduled flights) we will likely
lose both the opportunity to recover a margin on the variable costs of flights
that would have been flown if our aircraft were more fully utilized and the
opportunity to earn incentive compensation on such flights.





Increases
in our labor costs, which constitute a substantial portion of our total
operating costs, will directly impact our earnings.




Labor
costs constitute a significant percentage of our total operating costs, and we
have experienced pressure to increase wages and benefits for our
employees.  Under our code-share agreements, our reimbursement rates
contemplate labor costs that increase on a set schedule generally tied to an
increase in the consumer price index or the actual increase in the
contract.  We are entirely responsible for our labor costs, and we may
not be entitled to receive increased payments for our flights if our labor costs
increase above the assumed costs included in the reimbursement
rates.  As a result, a significant increase in our labor costs above
the levels assumed in our reimbursement rates could result in a material
reduction in our earnings.  We have collective bargaining agreements
with our pilots, flight attendants, dispatchers, mechanics, material specialists
and aircraft appearance agents.  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
credit card processors have the ability to increase their holdbacks in certain
circumstances.  The initiation of such holdbacks likely would have a
material adverse effect on our liquidity.





In our
branded business, most of the tickets we sell are paid for by customers who use
credit cards.  Our credit card processing agreements provide 100%
holdback of receivables.  If circumstances were to occur that would
allow our processor to increase their holdbacks, the negative impact on our
liquidity likely would be material.




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.





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 regional jet
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.




18


Our
acquisition of Midwest and Frontier affects the comparability of our historical
financial results.





On July
31, 2009, the Company acquired Midwest and on October 1, 2009 the Company
acquired Frontier upon its emergence from bankruptcy.  While our
financial results for the year ended December 31, 2009 include the results of
Midwest for five months and Frontier for three months, the results for the year
ended December 31, 2008 and all prior periods do not.  None of our
historical financial statements include Frontier’s results.  This
complicates your ability to compare our results of operations and financial
condition for periods that include Midwest’s and Frontier’s results with periods
that do not.





We
are vulnerable to increases in aircraft fuel costs.





High oil
prices may have a significant adverse impact on the future results of
operations.  We cannot predict the future cost and availability of
fuel, or the impact of disruptions in oil supplies or refinery productivity
based on natural disasters, which would affect our ability to
compete.  The unavailability of adequate fuel supplies could have an
adverse effect on our Midwest and Frontier operations.  In addition,
larger airlines may have a competitive advantage because they pay lower prices
for fuel, and other airlines, such as Southwest Airlines, may have substantial
fuel hedges that give them a competitive advantage.  Because fuel
costs are now a significant portion of our operating costs, substantial changes
in fuel costs can materially affect our operating results.  Fuel
prices continue to be susceptible to, among other factors, speculative trading
in the commodities market, political unrest in various parts of the world,
Organization of Petroleum Exporting Countries policy, the rapid growth of
economies in China and India, the levels of inventory carried by the oil
companies, the amounts of reserves built by governments, refining capacity, and
weather.  These and other factors that impact the global supply and
demand for aircraft fuel may affect our financial performance due to its high
sensitivity to fuel prices.  A one-cent change in the cost of each
gallon of fuel would impact our pre-tax income by approximately $2.4 million per
year based on our current fleet and aircraft fuel consumption.




Since the
acquisitions of Midwest and Frontier, fuel has become a major component of our
operating expenses, accounting for 21.2% of our total operating expenses for the
year ended December 31, 2009, on a pro forma basis, giving effect to the
acquisitions on January 1, 2009.  Our ability to pass on increased
fuel costs has been and may continue to be limited by economic and competitive
conditions.





Midwest
and Frontier depend heavily on the Milwaukee and Denver markets to be
successful.





Our
business strategy for Midwest and Frontier is focused on adding flights to and
from our Milwaukee and Denver bases of operations.  Currently, 95% of
our flights originate or depart from General Mitchell International Airport in
Milwaukee, known as MKE, and Denver International Airport, known as DIA (this
does not include seasonal non-hub flying to Mexico).  A reduction in
our share of either market, increased competition, or reduced passenger traffic
to or from Milwaukee or Denver could have an adverse effect on our financial
condition and results of operations.  In addition, our dependence on a
hub system operating out of DIA makes us more susceptible to adverse weather
conditions and other traffic delays in the Rocky Mountain region than some of
our competitors that may be better able to spread these traffic risks over
larger route networks.





We
face intense competition by United Airlines, Southwest Airlines and other
airlines at DIA and by AirTran Airways, Southwest Airlines, and Delta Airlines
at MKE.





The
airline industry is highly competitive.  We compete with United in our
hub in Denver, and we anticipate that we will compete with United in any
additional markets we elect to serve in the future.  United and
United’s regional airline affiliates are the dominant carriers out of DIA. In
addition, Southwest Airlines started service to and from Denver in January
2006.  Southwest’s introductory fares were significantly below the
fares Frontier was able to offer prior to its arrival.  Fare pressure
exerted by Southwest on its announced routes and on any future expansion in
Denver by Southwest will require us to be fare competitive, and may place
additional downward pressure on our yields.  In addition, in the last
four years Alaska Airlines, JetBlue Airways and AirTran Airways have commenced
service at DIA.  These airlines have offered low introductory fares
and compete on several of our routes.  Fare wars, predatory pricing,
‘‘capacity dumping,’’ in which a competitor places additional aircraft on
selected routes, and other competitive activities could adversely affect
us.  In Milwaukee, although Midwest is the dominant brand, we face
competition from AirTran Airways, Southwest Airlines, and Delta
Airlines.  The future activities of competing branded carriers in DIA,
MKE and any other hub from which we operate may have a material adverse effect
on our revenue and results of operations.





We
experience high costs at DIA, which may impact our results of
operations.





Our
largest hub of flight operations is DIA where we experience high
costs.  Financed through revenue bonds, DIA depends on landing fees,
gate rentals, income from airlines and the traveling public, and other fees to
generate income to service its debt and to support its
operations.  Our cost of operations at DIA will vary as traffic
increases or diminishes at the airport or as significant improvement projects
are undertaken by the airport.  We believe that our operating costs at
DIA substantially exceed those that other airlines incur at most hub airports in
other cities, which decreases our ability to compete with other airlines with
lower costs at their hub airports.





19


Our
maintenance expenses may be higher than we anticipate and will increase as our
fleet ages.





We bear
the cost of all routine and major maintenance on our owned and leased
aircraft.  Maintenance expenses comprise a significant portion of our
operating expenses.  In addition, we are required periodically to take
aircraft out of service for heavy maintenance checks, which can increase costs
and reduce revenue.  We also may be required to comply with
regulations and airworthiness directives the FAA issues, the cost of which our
aircraft lessors may only partially assume depending upon the magnitude of the
expense.  Although we believe that our owned and leased aircraft are
currently in compliance with all FAA issued airworthiness directives, additional
airworthiness directives likely will be required in the future, necessitating
additional expense.




Because
the average age of our Embraer aircraft is approximately 4.6 years old and that
of our Airbus aircraft is approximately 5.6 years, our aircraft require less
maintenance now than they will in the future.  We have incurred lower
maintenance expenses because most of the parts on our aircraft are under
multi-year warranties.  Our maintenance costs will increase
significantly, both on an absolute basis and as a percentage of our operating
expenses, as our fleet ages and these warranties expire.




Our
landing fees may increase because of local noise abatement procedures and due to
reduced capacity in the industry.





As a
result of litigation and pressure from residents in the areas surrounding
airports, airport operators have taken actions over the years to reduce aircraft
noise.  These actions have included regulations requiring aircraft to
meet prescribed decibel limits by designated dates, curfews during nighttime
hours, restrictions on frequency of aircraft operations, and various operational
procedures for noise abatement.  The Airport Noise and Capacity Act of
1990 recognized the right of airport operators with special noise problems to
implement local noise abatement procedures as long as the procedures do not
interfere unreasonably with the interstate and foreign commerce of the national
air transportation system.  Although we are reimbursed by our Partners
for landing fees, compliance with local noise abatement procedures may lead to
increased landing fees for Midwest and Frontier.




An
agreement between the City and County of Denver and another county adjacent to
Denver specifies maximum aircraft noise levels at designated monitoring points
in the vicinity of DIA with significant amounts payable by the city to the other
county for each substantiated noise violation under the
agreement.  DIA has incurred these payment obligations and likely will
incur such obligations in the future, which it will pass on to us and other air
carriers serving DIA by increasing landing fees.  Additionally, noise
regulations could be enacted in the future that would increase our expenses and
could have a material adverse effect on our operations.




In
addition, the recent capacity reductions by all airlines have forced some
airport authorities to increase lease rates and landing fees to adjust for lower
volume.




Our
ability to utilize net operating loss carry-forwards may be
limited.





At
December 31, 2009, we had estimated federal net operating loss carry-forwards
(“NOLs”) of $1.1 billion for federal  income tax purposes that begin
to expire in 2015.  We have recorded a valuation allowance for $558
million of those NOLs.  Section 382 of the Internal Revenue Code
(“Section 382”) imposes limitations on a corporation’s ability to utilize NOLs
if it experiences an “ownership change.” In general terms, an ownership change
may result from transactions increasing the ownership of certain stockholders in
the stock of a corporation by more than 50 percentage points over a three-year
period. In the event of an ownership change, utilization of our NOLs would be
subject to an annual limitation under Section 382.  Any unused NOLs in
excess of the annual limitation may be carried over to later years.





The
imposition of a limitation on our ability to use our NOLs to offset future
taxable income could cause U.S. federal income taxes to be paid earlier than
otherwise would be paid if such limitation were not in effect and could cause
such NOLs to expire unused, reducing or eliminating the benefit of such NOLs.
Based on analysis that we performed, we believe we have not experienced a change
in ownership as defined by Section 382, and, therefore, our NOLs are not
currently under any Section 382 limitation, except for NOLs acquired from
Midwest and Frontier.





The
lack of marketing alliances could harm our business.





Many
branded airlines have marketing alliances with other airlines, under which they
market and advertise their status as marketing alliance
partners.  Among other things, they share the use of two-letter flight
designator codes to identify their flights and fares in the computerized
reservation systems and permit reciprocity in their frequent flyer
programs.  Midwest and Frontier do not have an extensive network of
marketing partners.  The lack of marketing alliances puts us at a
competitive disadvantage to global network carriers, whose ability to attract
passengers through more widespread alliances, particularly on international
routes, may adversely affect our passenger traffic and our results of
operations.




20


We
rely heavily on automated systems and technology to operate our Midwest and
Frontier business and any failure of these systems could harm our
business.





We are
increasingly dependent on automated systems, information technology personnel
and technology to operate our Midwest and Frontier business, enhance customer
service and achieve low operating costs, including our computerized airline
reservation system, telecommunication systems, website, check-in kiosks and
in-flight entertainment systems.  Substantial or repeated system
failures to any of the above systems could reduce the attractiveness of our
services and could result in our customers purchasing tickets from another
airline.  Any disruptions in these systems or loss of key personnel
could result in the loss of important data, increase our expenses and generally
harm our business.  In addition, we have experienced an increase in
customers booking flights on our airline through third-party websites, which has
increased our distribution costs.  If any of these third-party
websites experiences system failure or discontinues listing our flights on its
systems, our bookings and revenue may be adversely impacted.




We
implement improvements to our website and reservations system from time to
time.  Implementation of changes to these systems may cause
operational and financial disruptions if we experience transition or system
cutover issues, if the new systems do not perform as we expect them to, or if
vendors do not deliver systems upgrades or other components on a timely
basis.  Any such disruptions may have the effect of discouraging some
travelers from purchasing tickets from us and increasing our reservations
staffing.




We
are at risk of losses stemming from an accident involving any of our
aircraft.





While we
have never had a crash causing death or serious injury over our 35 year history,
it is possible that one or more of our aircraft may crash or be involved in an
accident in the future, causing death or serious injury to individual air
travelers and our employees and destroying the aircraft and the property of
third parties.




In
addition, if one of our aircraft were to crash or be involved in an accident we
would be exposed to significant tort liability.  Such liability could
include liability arising from the claims of passengers or their estates seeking
to recover damages for death or injury.  There can be no assurance
that the insurance we carry to cover such damages will be
adequate.  Accidents could also result in unforeseen mechanical and
maintenance costs.  In addition, any accident involving an aircraft
that we operate could create a public perception that our aircraft are not safe,
which could result in air travelers being reluctant to fly on our aircraft and a
decrease in revenues.  Such a decrease could materially adversely
affect our financial condition, results of operations and the price of our
common stock.




Customer
loyalty may be affected due to diminishing product differentiation.





The
Company’s branded business strategy includes a premium travel experience at
competitive fares.  The Company seeks to differentiate itself through
better customer service throughout the customer’s travel
experience.  Due to the current state of the airline industry in
general, and the Company’s current state, it has been forced to reduce or
suspend some of the amenities that helped it originally achieve
differentiation.  Any loss of customers due to diminishing product
differentiation could harm business.





Risks
Associated with the Airline Industry





The
airline industry is highly competitive.




Within
the airline industry, we not only compete with major and other regional
airlines, some of which are owned by or operated as partners of major airlines,
but we also face competition from low-fare airlines and major airlines on many
of our routes, including carriers that fly point to point instead of to or
through a hub.





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.





If
passengers perceive the operations of regional airlines as being unsafe, our
business will be harmed.





In
February 2009, Colgan Flight 3407, operating as Continental Connection, crashed
on its approach into Buffalo, New York.  A total of 50 people were
killed.  Since the date of this tragedy, there have been numerous
press reports questioning some of the operating policies of regional
airlines.  In response, there have also been legislative initiatives
aimed at heightening safety requirements, such as The Airline Safety and Pilot
Training Improvement Act of 2009, which was passed in
October.  Although we have never had a crash causing death or serious
injury in over 35 years of operations, should the public perceive our operations
as less safe or should new legislation impose additional burdens on us, our
financial condition, results of operations and the price of our common stock
could be materially adversely effected.




21


High
fuel costs would harm the airline industry.




While
fuel is at or near three-year lows, a return to higher fuel prices would harm
the airline industry’s financial condition and results of
operations.  Fuel costs constitute a substantial portion of the total
operating expenses of the airline industry.  Historically, fuel costs
have been subject to wide price fluctuations based on geopolitical issues,
supply and demand and other factors.  Fuel availability is also
affected by demand for home heating oil, gasoline and other petroleum
products.  Because of the effect of these events on the price and
availability of fuel, the cost and future availability of fuel cannot be
predicted with any degree of certainty.  Further, in the event of a
fuel supply shortage or further increases in fuel prices, a curtailment of
scheduled service could result.




The
airline industry has been subject to a number of strikes, which could affect our
business.





The
airline industry has been negatively impacted by a number of labor
strikes.  Any new collective bargaining agreement entered into by
other carriers may result in higher industry wages and increase pressure on us
to increase the wages and benefits of our employees.  Furthermore,
since each of our Partners is a significant source of our operating revenues,
any labor disruption or labor strike by the employees of any one of our Partners
could have a material adverse effect on our financial condition, results of
operations and the price of our common stock.




Airlines
are often affected by certain factors beyond their control, including weather
conditions, which can affect their operations.





Generally,
revenues for airlines depend on the number of passengers carried, the fare paid
by each passenger and service factors, such as the timeliness of departure and
arrival.  During periods of fog, ice, low temperatures, storms or
other adverse weather conditions, flights may be cancelled or significantly
delayed.  For example, in 2005, Hurricane Wilma forced us to suspend
some of our operations in Florida for a number of days.  In addition
under our fixed-fee code-share agreements, our regional airline business 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 our regional airline business will not be protected against
weather or air traffic control cancellations and our operating revenues could
suffer as a result.  Our branded operations are not insulated against
weather or air traffic control cancellations.




The
airline industry has recently gone through a period of consolidation and
transition; consequently, we have fewer potential Partners.





Since
1978 and continuing to the present, the airline industry has undergone
substantial consolidation, and it may in the future undergo additional
consolidation.  For example, in 2008, Delta and Northwest completed a
merger.  Other recent developments include the domestic code-share
alliance between United and US Airways, and the merger of America West and US
Airways.  We, as well as our Partners, routinely monitor changes in
the competitive landscape and engage in analysis and discussions regarding our
strategic position, including potential alliances and business combination
transactions.  Further consolidation could limit the number of
potential partners with whom we could enter into code-share
relationships.  Although none of our contracts with our Partners allow
termination or are amendable in the event of consolidation, any additional
consolidation or significant alliance activity within the airline industry could
adversely affect our relationship with our Partners.




The
global financial crisis may have an impact on our business and financial
condition in ways that we currently cannot predict.





The
credit crisis and related turmoil in the global financial system has had and may
continue to have an impact on our business and our financial
condition.  For example, our ability to access the capital markets may
be severely restricted at a time when we would like, or need, to do so, which
could have an impact on our flexibility to react to changing economic and
business conditions.  Moreover, our ability to sell excess aircraft
may be restricted by a potential buyer’s inability to secure
credit.




The
global economic recession has resulted in weaker demand for air travel and may
create challenges for us that could have a material adverse effect on our
business and results of operations.





As the
effects of the global economic recession have been felt in our domestic markets,
we are experiencing significantly weaker demand for air
travel.  Global economic conditions in 2009 substantially reduced U.S.
airline industry revenues in 2009 compared to 2008.  Demand for air
travel could remain weak or even continue to fall if the global economic
recession continues for an extended period.  The weakness in the
United States and international economies is having a significant negative
impact on our results of operations and could continue to have a significant
negative impact on our future results of operations.




22


The
airline industry is heavily regulated.





Airlines
are subject to extensive regulatory and legal compliance requirements, both
domestically and internationally, that involve significant costs.  In
the last several years, the FAA has issued a number of directives and other
regulations relating to the maintenance and operation of aircraft that have
required us to make significant expenditures.  FAA requirements cover,
among other things, retirement of older aircraft, security measures, collision
avoidance systems, airborne wind shear avoidance systems, noise abatement,
commuter aircraft safety and increased inspection and maintenance procedures to
be conducted on older aircraft.




We incur
substantial costs in maintaining our current certifications and otherwise
complying with the laws, rules and regulations to which we are
subject.  We cannot predict whether we will be able to comply with all
present and future laws, rules, regulations and certification requirements or
that the cost of continued compliance will not significantly increase our costs
of doing business.




The FAA
has the authority to issue mandatory orders relating to, among other things, the
grounding of aircraft, inspection of aircraft, installation of new safety
related items and removal, replacement or modification of aircraft parts that
have failed or may fail in the future.  A decision by the FAA to
ground, or require time consuming inspections of or maintenance on, all or any
of our Embraer or Airbus aircraft, for any reason, could negatively impact our
results of operations.




In
addition to state and federal regulation, airports and municipalities enact
rules and regulations that affect our operations.  From time to time,
various airports throughout the country have considered limiting the use of
smaller aircraft, such as Embraer or Bombardier aircraft, at such
airports.  The imposition of any limits on the use of Embraer or
Bombardier aircraft at any airport at which we operate could interfere with our
obligations under our code-share agreements and severely interrupt our business
operations.




Additional
laws, regulations, taxes and airport rates and charges have been proposed from
time to time that could significantly increase the cost of airline operations or
reduce revenues.  For instance, “passenger bill of rights” legislation
was introduced in Congress that, if enacted, would have, among other things,
required the payment of compensation to passengers as a result of certain delays
and limited the ability of carriers to prohibit or restrict usage of certain
tickets.  This legislation is not currently active but if it is
reintroduced, these measures could have the effect of raising ticket prices,
reducing revenue and increasing costs.  Several state legislatures
have also considered such legislation, and the State of New York in fact
implemented a “passenger bill of rights” that was overturned by a federal
appeals court in 2008.  The DOT has imposed restrictions on the
ownership and transfer of airline routes and takeoff and landing slots at
certain high-density airports, including New York LaGuardia and Reagan
National.  In addition, as a result of the terrorist attacks in New
York and Washington, D.C. in September 2001, the FAA and the Transportation
Security Administration (TSA) have imposed stringent security requirements on
airlines.  We cannot predict what other new regulations may be imposed
on airlines and we cannot assure you that laws or regulations enacted in the
future will not materially adversely affect our financial condition, results of
operations and the price of our common stock.





The
Company’s results of operations fluctuate due to seasonality and other factors
associated with the airline industry.





Due to
greater demand for air travel during the summer months, revenues in the airline
industry in the second and third quarters of the year are generally stronger
than revenues in the first and fourth quarters of the year.  The
Company’s results of operations generally reflect this seasonality, but have
also been impacted by numerous other factors that are not necessarily seasonal
including, among others, the imposition of excise and similar taxes, extreme or
severe weather, air traffic control congestion, changes in the competitive
environment due to industry consolidation and other factors and general economic
conditions.  As a result, the Company’s quarterly operating results
are not necessarily indicative of operating results for an entire year and
historical operating results in a quarterly or annual period are not necessarily
indicative of future operating results.





The
airline industry is seasonal and cyclical resulting in unpredictable liquidity
and earnings.





Because
the airline industry is seasonal and cyclical, our earnings related to Midwest
and Frontier will fluctuate and be unpredictable.  These operations
primarily depend on passenger travel demand and seasonal
variations.  Our weakest travel periods are generally during the
quarters ending in March and December.  The airline industry is also a
highly cyclical business with substantial volatility.  Our operating
and financial results are likely to be negatively impacted by national or
regional economic conditions in the U.S., and particularly in Colorado and
Wisconsin.





We
are in a high fixed cost business and any unexpected decrease in revenue would
harm us.





The
airline industry is characterized by low profit margins and high fixed costs
primarily for personnel, fuel, aircraft ownership and lease costs and other
rents.  The expenses of an aircraft flight do not vary significantly
with the number of passengers carried and, as a result, a relatively small
change in the number of passengers or in pricing would have a disproportionate
effect on the operating and financial results of Midwest and Frontier and
possibly on us as a whole.  We are often affected by factors beyond
our control, including weather conditions, traffic congestion at airports and
increased security measures, and irrational pricing from competitors, any of
which could harm our operating results and financial condition.





23


Delays
or cancellations due to adverse weather conditions or other factors beyond our
control could adversely affect us.





Like
other airlines, we are subject to delays caused by factors beyond our control,
including adverse weather conditions, air traffic congestion at airports and
increased security measures.  Delays frustrate passengers, reduce
aircraft utilization and increase costs, all of which negatively affect
profitability.  During periods of snow, rain, fog, hurricanes or other
storms, or other adverse weather conditions, flights may be cancelled or
significantly delayed.  Cancellations or delays due to weather
conditions, traffic control problems and breaches in security could harm our
operating results and financial condition.





Risks
Related To Our Common Stock





Our
stock price is volatile.




Since our
common stock began trading on The NASDAQ National Market (now the NASDAQ Global
Select Market) on May 27, 2004, the market price of our common stock has ranged
from a low of $4.10 to a high of $23.88 per share.  The market price
of our common stock may continue to fluctuate substantially due to a variety of
factors, many of which are beyond our control, including:




·
              announcements
      concerning our Partners, competitors, the airline industry or the economy
      in general;




·
              strategic
      actions by us, our Partners or our competitors, such as acquisitions or
      restructurings;




·
              the
      results of our branded
business;




·
              media
      reports and publications about the safety of our aircraft or the aircraft
      types we operate;




·
              new
      regulatory pronouncements and changes in regulatory
      guidelines;




·
              general
      and industry specific economic conditions, including the price of
      oil;




·
              changes
      in financial estimates or recommendations by securities
      analysts;




·
              sales
      of our common stock or other actions by investors with significant
      shareholdings or our Partners;
and




·
              general
      market conditions.




The stock
markets in general have experienced substantial volatility that has often been
unrelated to the operating performance of particular companies.  These
broad market fluctuations may adversely affect the trading price of our common
stock.




In the
past, stockholders have sometimes instituted securities class action litigation
against companies following periods of volatility in the market price of their
securities.  Any similar litigation against us could result in
substantial costs, divert management’s attention and resources and harm our
business.





Future
sales of our common stock by our stockholders could depress the price of our
common stock.




Sales of
a large number of shares of our common stock or the availability of a large
number of shares for sale could adversely affect the market price of our common
stock and could impair our ability to raise funds in additional stock
offerings.





Our
incorporation documents and Delaware law have provisions that could delay or
prevent a change in control of our company, which could negatively affect your
investment.





Our
certificate of incorporation and bylaws and Delaware law contain provisions that
could delay or prevent a change in control of our company that stockholders may
consider favorable.  Certain of these provisions:





·
              authorize
      the issuance of up to 5,000,000 shares of preferred stock that can be
      created and issued by our board of directors without prior stockholder
      approval, commonly referred to as “blank check” preferred stock, with
      rights senior to those of our common
stock;




24




·
              limit
      the persons who can call special stockholder
  meetings;




·
              provide
      that a supermajority vote of our stockholders is required to amend our
      certificate of incorporation or bylaws;
and




·
              establish
      advance notice requirements to nominate directors for election to our
      board of directors or to propose matters that can be acted on by
      stockholders at stockholder
meetings.




These and
other provisions in our incorporation documents and Delaware law could allow our
board of directors to affect your rights as a stockholder by making it more
difficult for stockholders to replace board members.  Because our
board of directors is responsible for appointing members of our management team,
these provisions could in turn affect any attempt to replace the current
management team.  In addition, these provisions could deprive our
stockholders of opportunities to realize a premium on the shares of common stock
owned by them.




Our
charter documents include provisions limiting voting by foreign
owners.





Our
certificate of incorporation provides that shares of capital stock may not be
voted by or at the direction of persons who are not citizens of the United
States if the number of such shares would exceed applicable foreign ownership
restrictions. U.S. law currently requires that no more than 25% of the voting
stock of our company or any other domestic airline may be owned directly or
indirectly by persons who are not citizens of the United
States.  However, up to 49% of the total equity of our company or any
other domestic airline may be owned directly or indirectly by persons who are
not citizens of the United States.





ITEM
1B. UNRESOLVED STAFF COMMENTS





None




25




ITEM
2. PROPERTIES




Flight
Equipment




As of
December 31, 2009, we operated 290 aircraft as described in the following
table:


Type
              
              Total
                Aircraft
              
              Owned
              
              Leased
              
              Average
      Age
                (in
      years)
              
              Seats
      in
                Standard
                ConfigurationE135/140LR
              
              21
              
              12
              
              9
              
              6.0
              
              44E145LR
      (1)
              
              59
              
              25
              
              34
              
              7.7
              
              50E170/175LR
      (2)
              
              130
              
              107
              
              23
              
              3.3
              
              70-86E190LR
              
              11
              
              6
              
              5
              
              0.3
              
              99CRJ-200
              
              7
              
              -
              
              7
              
              2.9
              
              50A318
              
              9
              
              7
              
              2
              
              5.5
              
              120A319
              
              38
              
              4
              
              34
              
              5.8
              
              136A320
              
              4
              
              2
              
              2
              
              4.1
              
              162Q400
              
              11
              
              6
              
              5
              
              1.9
              
              74Total
              
              290
              
              169
              
              121







(1) Four
of these aircraft are used for charter service and as spares.





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




In
addition to the aircraft listed above, we subleased nine E145 aircraft to a
foreign airline, we subleased four E190 aircraft to US Airways, and we have four
Fairchild Regional Jet (“FRJ”) aircraft and five McDonnell Douglass (“MD80”)
aircraft classified as held-for-sale.





All of
our leased aircraft are leased by us pursuant to operating leases, with current
lease expirations ranging from 2010 to 2024. We have fixed-price purchase
options under most of these leases after nine to 14 years of the lease term.
Furthermore, we have options to renew most of the leases for an additional three
to four years, or purchase the leased aircraft at the conclusion of their
current lease terms at fair market value.





Ground
Operations and Properties





As of
December 31, 2009, our facilities are summarized in the following
table:





Facility
              
              Square
      Feet
              
              LocationCorporate
      Office - Republic
              
              45,100
              
              Indianapolis,
      INTraining
      Facility
              
              20,400
              
              Plainfield,
      INMaintenance
      Hangar
              
              110,500
              
              Indianapolis,
      INMaintenance
      Hangar/Office
              
              232,100
              
              Columbus,
      OHMaintenance
      Hangar
              
              70,000
              
              Louisville,
      KYMaintenance
      Hangar/Office
              
              86,000
              
              Pittsburgh,
      PAMaintenance
      Hangar/Office
              
              35,940
              
              St.
      Louis, MOCorporate
      Office - Frontier
              
              77,500
              
              Denver,
      COCorporate
      Office - Lynx
              
              20,000
              
              Westminster,
      COReservations
      Facility
              
              16,000
              
              Denver,
      COReservations
      Facility
              
              12,000
              
              Las
      Cruces, NM (1)Corporate
      Office - Midwest
              
              120,000
              
              Oak
      Creek, WIMaintenance
      Hangar/Office
              
              190,000
              
              Oak
      Creek, WIMaintenance
      Hangar/Office
              
              93,000
              
              Oak
      Creek, WI





Our
employees perform substantially all routine airframe and engine maintenance and
periodic inspection of equipment. Our Partners or third parties provide ground
support services and ticket handling services in all cities we serve our
Partners and we provide ground support services and ticket handling services for
the majority of our branded operations.




26


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





We
believe that our current facilities, along with our planned additional
facilities, are adequate for the current and foreseeable needs of our
business.




ITEM
3. LEGAL PROCEEDINGS




We are
subject to certain legal and administrative actions, which we consider routine
to our business activities. Management believes that the ultimate outcome of any
pending legal matters will not have a material adverse effect on our financial
position, liquidity or results of operations.




ITEM
4. [Reserved]





27




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, 2008
              
              High
              
              
              LowFirst
      Quarter
              
              $
              22.50
              
              
              $
              19.02Second
      Quarter
              
              
              22.64
              
              
              
              8.66Third
      Quarter
              
              
              12.77
              
              
              
              6.68Fourth
      Quarter
              
              
              15.72
              
              
              
              6.37Year
      Ended December 31, 2009First
      Quarter
              
              $
              10.94
              
              
              $
              4.23Second
      Quarter
              
              
              8.34
              
              
              
              4.10Third
      Quarter
              
              
              10.64
              
              
              
              4.85Fourth
      Quarter
              
              
              10.29
              
              
              
              6.39




As of
December 31, 2009 there were 4,192 stockholders of record of our common stock.
We have never paid cash dividends on our common stock. The payment of future
dividends is within the discretion of our board of directors and will depend
upon our future earnings, our capital requirements, bank or other lender
financing, financial condition and other relevant factors.





Performance
Graph










28




The above
graph compares the performance of the Company from May 27, 2004 through December
31, 2009, against the performance of (i) the Composite Index for Nasdaq Stock
Market (U.S. Companies) and (ii) an index of companies engaged in air
transportation (SIC 4512 and 4513), including regional airlines, whose stocks
trade on the Nasdaq, for the same period.




Below is
a summary of the equity compensation plans as of December 31, 2009:




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
              
              
              1,310,669
              
              
              $
              15.27
              
              
              
              29,715Options
      outstanding under the 2007 Equity Incentive Plan
              
              
              2,995,333
              
              
              
              14.05
              
              
              
              1,645,667Equity
      compensation plans not approved by security holders
              
              
              -
              
              
              
              -
              
              
              
              -Total
              
              
              4,306,002
              
              
              $
              14.42
              
              
              
              1,675,382





Unregistered
Sales of Equity Securities





None





29


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 31,2009
      (1)
              
              
              2008
              
              
              2007
              
              
              2006
              
              
              2005(in
      thousands, except share, per share and airline operating
    data)Statement
      of Income Data:Operating
      revenues:Fixed-fee
      service
              
              $
              1,180,209
              
              
              $
              1,462,211
              
              
              $
              1,274,607
              
              
              $
              1,118,226
              
              
              $
              883,906Passenger
      service
              
              
              389,653
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Cargo
      and other
              
              
              72,356
              
              
              
              17,544
              
              
              
              18,070
              
              
              
              24,852
              
              
              
              21,115Total
      operating revenues
              
              
              1,642,218
              
              
              
              1,479,755
              
              
              
              1,292,677
              
              
              
              1,143,078
              
              
              
              905,021Operating
      expenses:Wages
      and benefits
              
              
              342,364
              
              
              
              252,336
              
              
              
              226,521
              
              
              
              175,483
              
              
              
              143,826Aircraft
      fuel (2)
              
              
              236,620
              
              
              
              327,791
              
              
              
              296,573
              
              
              
              325,500
              
              
              
              278,923Landing
      fees and airport rents
              
              
              96,915
              
              
              
              59,891
              
              
              
              53,684
              
              
              
              41,993
              
              
              
              30,376Aircraft
      and engine rent
              
              
              156,773
              
              
              
              134,206
              
              
              
              124,961
              
              
              
              94,773
              
              
              
              77,725Maintenance
      and repair
              
              
              211,503
              
              
              
              169,425
              
              
              
              130,237
              
              
              
              105,198
              
              
              
              76,481Insurance
      and taxes
              
              
              28,105
              
              
              
              25,793
              
              
              
              19,039
              
              
              
              17,652
              
              
              
              16,117Depreciation
      and amortization
              
              
              163,584
              
              
              
              133,206
              
              
              
              106,594
              
              
              
              92,228
              
              
              
              64,877Promotion
      and sales
              
              
              36,265
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Goodwill
      impairment
              
              
              113,759
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Other
      impairment charges
              
              
              8,800
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Gain
      on bargain purchase
              
              
              (203,698
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Other
              
              
              179,828
              
              
              
              122,012
              
              
              
              104,790
              
              
              
              77,658
              
              
              
              57,977Total
      operating expenses
              
              
              1,370,818
              
              
              
              1,224,660
              
              
              
              1,062,399
              
              
              
              930,485
              
              
              
              746,302Operating
      income
              
              
              271,400
              
              
              
              255,095
              
              
              
              230,278
              
              
              
              212,593
              
              
              
              158,719Other
      income (expense):Interest
      expense
              
              
              (144,994
              )
              
              
              (131,856
              )
              
              
              (107,323
              )
              
              
              (91,128
              )
              
              
              (63,546
              )Other
      - net
              
              
              9,784
              
              
              
              14,176
              
              
              
              11,013
              
              
              
              9,944
              
              
              
              5,002Total
      other income (expense)
              
              
              (135,210
              )
              
              
              (117,680
              )
              
              
              (96,310
              )
              
              
              (81,184
              )
              
              
              (58,544
              )Income
      before income taxes
              
              
              136,190
              
              
              
              137,415
              
              
              
              133,968
              
              
              
              131,409
              
              
              
              100,175Income
      tax expense
              
              
              99,805
              
              
              
              52,835
              
              
              
              51,210
              
              
              
              51,899
              
              
              
              39,521Net
      income
              
              
              36,385
              
              
              
              84,580
              
              
              
              82,758
              
              
              
              79,510
              
              
              
              60,654Add:
      Net loss attributable to noncontrolling interest in Mokulele Flight
      Service Inc.
              
              
              3,270
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Net
      income of the Company
              
              $
              39,655
              
              
              $
              84,580
              
              
              $
              82,758
              
              
              $
              79,510
              
              
              $
              60,654Net
      income available for commonstockholders per
      share:Basic
              
              $
              1.15
              
              
              $
              2.43
              
              
              $
              2.05
              
              
              $
              1.89
              
              
              $
              1.69Diluted
              
              $
              1.13
              
              
              $
              2.42
              
              
              $
              2.02
              
              
              $
              1.82
              
              
              $
              1.66Weighted
      average common shares outstanding:Basic
              
              
              34,598,683
              
              
              
              34,855,190
              
              
              
              40,350,256
              
              
              
              42,149,668
              
              
              
              35,854,249Diluted
              
              
              35,699,115
              
              
              
              34,949,152
              
              
              
              41,045,644
              
              
              
              43,615,946
              
              
              
              36,548,340Other
      Financial Data:Net
      cash from:Operating
      activities
              
              $
              168,618
              
              
              $
              242,287
              
              
              $
              280,490
              
              
              $
              229,147
              
              
              $
              170,879Investing
      activities
              
              $
              3,385
              
              
              $
              (81,938
              )
              
              $
              (76,468
              )
              
              $
              (114,510
              )
              
              $
              (175,152
              )Financing
      activities
              
              $
              (144,127
              )
              
              $
              (194,697
              )
              
              $
              (235,546
              )
              
              $
              (81,114
              )
              
              $
              120,058




30




Years
      Ended December 31,2009
                                            
                                            
                                            2008
                                            
                                            
                                            2007
                                            
                                            
                                            2006
                                            
                                            
                                            2005Airline
      Operating Data:Passengers
      carried (000’s)
                                            
                                            
                                            22,984
                                            
                                            
                                            
                                            18,918
                                            
                                            
                                            
                                            16,287
                                            
                                            
                                            
                                            12,666
                                            
                                            
                                            
                                            9,137Revenue
      passenger miles  (000’s) (3)
                                            
                                            
                                            12,905,590
                                            
                                            
                                            
                                            9,700,978
                                            
                                            
                                            
                                            8,581,836
                                            
                                            
                                            
                                            6,650,399
                                            
                                            
                                            
                                            4,516,518Available
      seat miles (000’s) (4)
                                            
                                            
                                            17,116,528
                                            
                                            
                                            
                                            13,213,701
                                            
                                            
                                            
                                            11,511,795
                                            
                                            
                                            
                                            9,154,719
                                            
                                            
                                            
                                            6,559,966Passenger
      load factor (5)
                                            
                                            
                                            75.4
                                            %
                                            
                                            
                                            73.4
                                            %
                                            
                                            
                                            74.5
                                            %
                                            
                                            
                                            72.6
                                            %
                                            
                                            
                                            68.8
                                            %Revenue
      per available seat mile (6)
                                            
                                            $
                                            0.096
                                            
                                            
                                            $
                                            0.112
                                            
                                            
                                            $
                                            0.112
                                            
                                            
                                            $
                                            0.125
                                            
                                            
                                            $
                                            0.138Cost
      per available seat mile (7)
                                            
                                            $
                                            0.093
                                            
                                            
                                            $
                                            0.103
                                            
                                            
                                            $
                                            0.102
                                            
                                            
                                            $
                                            0.112
                                            
                                            
                                            $
                                            0.124Average
      passenger trip length(miles)
                                            
                                            
                                            562
                                            
                                            
                                            
                                            513
                                            
                                            
                                            
                                            527
                                            
                                            
                                            
                                            525
                                            
                                            
                                            
                                            494Number
      of aircraft in operations(end
      of period):Regional
      Jets:Owned
                                            
                                            
                                            150
                                            
                                            
                                            
                                            142
                                            
                                            
                                            
                                            131
                                            
                                            
                                            
                                            109
                                            
                                            
                                            
                                            90Leased
                                            
                                            
                                            78
                                            
                                            
                                            
                                            79
                                            
                                            
                                            
                                            88
                                            
                                            
                                            
                                            62
                                            
                                            
                                            
                                            52Airbus:Owned
                                            
                                            
                                            13
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Leased
                                            
                                            
                                            38
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Q400:Owned
                                            
                                            
                                            6
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Leased
                                            
                                            
                                            5
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Total
      aircraft
                                            
                                            
                                            290
                                            
                                            
                                            
                                            221
                                            
                                            
                                            
                                            219
                                            
                                            
                                            
                                            171
                                            
                                            
                                            
                                            142




As
      of December 31,2009
            
            
            2008
            
            
            2007
            
            
            2006
            
            
            2005Consolidated
      Balance Sheet Data:
            
            (in
      thousands)Cash
      and cash equivalents
            
            $
            157,532
            
            
            $
            129,656
            
            
            $
            164,004
            
            
            $
            195,528
            
            
            $
            162,005Aircraft
      and other equipment—net
            
            
            3,418,160
            
            
            
            2,692,410
            
            
            
            2,308,726
            
            
            
            1,889,717
            
            
            
            1,662,236Total
      assets
            
            
            4,450,472
            
            
            
            3,236,578
            
            
            
            2,773,078
            
            
            
            2,358,441
            
            
            
            2,035,947Long-term
      debt, including current maturities
            
            
            2,789,419
            
            
            
            2,277,845
            
            
            
            1,913,580
            
            
            
            1,568,803
            
            
            
            1,413,440Total
      stockholders' equity
            
            
            517,880
            
            
            
            475,939
            
            
            
            426,086
            
            
            
            508,829
            
            
            
            424,698







(1) The
full year 2009 is not comparable to the years ended December 31, 2008, 2007,
2006  and 2005.  The results of operations for 2009 include
Midwest beginning in August 2009 and Frontier in October 2009.





(2) As of
December 31, 2009, approximately 89% of our aircraft fuel for our fixed fee
business is supplied directly by our Partners, and thus we do not record expense
or the related reimbursement revenue within our fixed-fee services revenue for
those gallons of fuel.  United started directly supplying fuel for
certain locations in January 2007.  All fuel related to the
Continental and US Airways operations is directly supplied as
well.  Prior to the acquisition of Midwest and Mokulele, all fuel was
directly supplied by them.  Prior to the acquisition of Frontier,
Frontier directly supplied fuel until the aircraft were removed from service
during the second quarter of 2008.   Beginning in May 2009 and June
2009, we did not record fuel expense and the related revenue for the American
and Delta operations, respectively.





(3) Passengers
carried multiplied by miles flown.




(4) Passenger
seats available multiplied by miles flown.




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




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




(7) Total
operating and interest expenses excluding goodwill impairment and other
impairment charges as well as the gain on bargain purchase divided by available
seat miles. Total operating and interest expenses excluding goodwill impairment
and other impairment charges as well as the gain on bargain purchase is not a
calculation based on accounting principles generally accepted in the United
States of America and should not be considered as an alternative to total
operating expenses.   Cost per available seat mile utilizing this
measurement is included as it is a measurement recognized by the investing
public relative to the airline industry.




31




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





Overview





We are a
Delaware holding company organized in 1996 that offers scheduled passenger
services through our wholly-owned operating subsidiaries:  Chautauqua
Airlines, Inc., (“Chautauqua Airlines”), Shuttle America Corporation (“Shuttle
America”), Republic Airline Inc. (“Republic Airline”), Frontier Airlines, Inc.,
and Lynx Airlines, Inc. (“Lynx”).  The Company acquired Midwest Air
Group, Inc. (“Midwest”) and Frontier Airlines Holdings, Inc. (“Frontier”) on
July 31, 2009 and October 1, 2009, respectively.  On November 3, 2009,
Midwest Airlines, Inc. ceased to exist as an actual operating airline and we
allowed its Department of Transportation (“DOT”) air carrier operating
certificate to lapse.  Midwest’s branding, livery and route structure
are all operated by our other operating subsidiaries.  We plan to
fully integrate the operations of Midwest and Frontier as promptly as is
feasible, which we anticipate will be substantially completed by the end of
2010.  Unless the context indicates otherwise, the terms “the
Company,” “we,” “us,” or “our,” refer to Republic Airways Holdings Inc. and our
subsidiaries.





As of
December 31, 2009, our operating subsidiaries offered scheduled passenger
service on approximately 1,600 flights daily to 121 cities in 44 states, Canada,
Mexico, and Costa Rica under branded operations as Frontier and Midwest, and
through fixed-fee code-share agreements with AMR Corp., the parent of American
Airlines, Inc. (“American”), Continental Airlines, Inc. (“Continental”), Delta
Air Lines, Inc. (“Delta”),  United Air Lines, Inc. (“United”), and US
Airways, Inc. (“US Airways”) (collectively referred to as our “Partners”).
Currently, we provide our Partners with fixed-fee regional airline services,
operating as AmericanConnection, Continental Express, Delta Connection, United
Express, or US Airways Express, including service out of their hubs and focus
cities.





The
following table outlines the type of aircraft our subsidiaries operate and their
respective operations within our business units as of December 31,
2009:




Branded
      Operations
              
              
              
              
              
              
              
              
              NumberOperating
              
              Aircraft
              
              
              Frontier /
              
              
              Fixed-Fee
      Code-Share Agreement Partners
              
              
              Other
              
              
              ofSubsidiaries
              
              Size
              
              
              Midwest
              
              
              American
              
              
              Continental
              
              
              Delta
              
              
              United
              
              
              US
      Airways
              
              
              Unallocated
              
              
              AircraftChautauqua
      Airlines
              
              37
      to 50
              
              
              6
              
              
              15
              
              
              22
              
              
              24
              
              
              7
              
              
              9
              
              
              4
              
              
              87Shuttle
      America
              
              70
      to 76
              
              
              —
              
              
              —
              
              
              —
              
              
              16
              
              
              38
              
              
              —
              
              
              2
              
              
              56Republic
      Airline
              
              70
      to 99
              
              
              27
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              58
              
              
              —
              
              
              85Frontier
              
              120
      to 162
              
              
              51
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              51Lynx
              
              
              74
              
              
              11
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              11Total
      number of operating aircraft
              
              
              95
              
              
              15
              
              
              22
              
              
              40
              
              
              45
              
              
              67
              
              
              6
              
              
              290


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. Our fixed-fee agreements have historically limited 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.





Midwest
has a regional focus in Milwaukee and Kansas City, and Frontier has a regional
focus in Denver.  Our branded operations expose us to changes in passenger
demand, fare competition and fluctuations in fuel prices.  Midwest is the
largest carrier in Milwaukee, and Frontier is the second largest carrier in
Denver.  Each brand has a significant base of frequent flyer members and
strong support in their local communities.





Since
acquiring the branded carriers, we have rebuilt the Milwaukee network to
reconnect Midwest passengers to the west coast and Florida destinations and we
have expanded operations in Denver now offering select point to point flying on
Frontier Airlines.  In 2010, we will work to further integrate the two
branded operations, which will allow for similar passenger experiences and lower
the costs of our branded flying.





During 2009, our operational fleet
increased from 221 to 290 aircraft.  The acquisition of Frontier added
62 aircraft that are operated by Frontier and Lynx.  Additionally, during
2009, we took delivery of 11 E190 aircraft, which have been placed into branded
service, three E175 aircraft, which were placed into service with Delta and six
E135 aircraft which were placed into branded service.  We also returned 10
CRJ200 aircraft to the lessor and subleased three E145 aircraft offshore. 
As of December 31, 2009, our operational fleet was comprised of 51 Airbus
aircraft ranging from 120 to 162 seats, 141 EJet aircraft ranging from 70-99
seats, 11 Q400 aircraft with 74 seats, 80 Embraer aircraft ranging from 37 to 50
seats, and seven CRJ-200 aircraft with 50 seats.




32





In order
to simplify our fleet and reduce expenses, we expect to remove our Q400 and
CRJ-200 fleets in 2010. The remaining seven CRJ-200 aircraft will be removed
from service for Continental and returned to the lessor by April 2010 and we
expect to reduce the operations on the Q400 aircraft in April 2010 and eliminate
all Q400 flying by September 2010.





Fleet
Composition




The
following table sets forth the number and type of aircraft in service and
operated by us at the dates indicated:




December
      31,2009
              
              
              2008
              
              
              2007Aircraft:
              
              Total
              
              
              Owned
              
              
              Leased
              
              
              Total
              
              
              Owned
              
              
              Leased
              
              
              Total
              
              
              Owned
              
              
              LeasedEmbraer
      E135 LR (1)
              
              6
              
              
              1
              
              
              5
              
              
              -
              
              
              -
              
              
              -
              
              
              17
              
              
              15
              
              
              2Embraer
      E140 LR
              
              15
              
              
              11
              
              
              4
              
              
              15
              
              
              11
              
              
              4
              
              
              15
              
              
              11
              
              
              4Embraer
      E145 LR (2)
              
              59
              
              
              25
              
              
              34
              
              
              62
              
              
              27
              
              
              35
              
              
              62
              
              
              27
              
              
              35Embraer
      E170 LR (3)
              
              76
              
              
              56
              
              
              20
              
              
              76
              
              
              56
              
              
              20
              
              
              76
              
              
              56
              
              
              20Embraer
      E175 LR
              
              54
              
              
              51
              
              
              3
              
              
              51
              
              
              48
              
              
              3
              
              
              25
              
              
              22
              
              
              3Embraer
      E190 LR
              
              11
              
              
              6
              
              
              5
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Bombarier
      CRJ-200
              
              7
              
              
              -
              
              
              7
              
              
              17
              
              
              -
              
              
              17
              
              
              24
              
              
              -
              
              
              24Airbus
      A318
              
              9
              
              
              7
              
              
              2
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Airbus
      A319
              
              38
              
              
              4
              
              
              34
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Airbus
      A320
              
              4
              
              
              2
              
              
              2
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Bombarier
      Q400
              
              11
              
              
              6
              
              
              5
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Total
      (4)
              
              290
              
              
              169
              
              
              121
              
              
              221
              
              
              142
              
              
              79
              
              
              219
              
              
              131
              
              
              88










(2) Four,
two and one of these aircraft were used for charter operations and as spares at
December 31, 2009, 2008, and 2007, respectively.





(3)  Two
of these aircraft were used for charter operations at December 31, 2009 and six
of these aircraft were unassigned or not yet in use as of December 31,
2008.





(4)  In
addition to the aircraft listed above, as of December 31, 2009, we subleased
nine E145 aircraft to an airline in Mexico, we subleased four E190 aircraft to
US Airways, we have four FRJ aircraft and five MD80 aircraft classified as
held-for-sale, and we have seven CRJ-200 aircraft that will be returned to the
lessor by the end of Q1 2010.





Revenue




Fixed-Fee Service - Under our
code-share arrangements with our Partners, we receive fixed-fees, as well as
reimbursement of specified costs on a gross basis with additional possible
incentives from our Partners for superior performance. For the years ended
December 31, 2009, 2008 and 2007, all of our fixed-fee revenue was earned
under our fixed-fee arrangements. The number of aircraft we operate and aircraft
utilization are the most significant drivers of our revenue, as opposed to the
number of passengers we carry or the fare the passengers pay.





Passenger Service - Branded
passenger service includes passenger ticket revenue on our branded airlines:
Frontier, Midwest, and Mokulele.  Unlike our fixed fee business, the
most significant drivers of our revenue are the number of passengers we carry
and the fare paid by the passenger.





Cargo and Other
-  Cargo and other revenues is comprised principally of the revenue
from the marketing component of the sale of our miles for our co-branded credit
cards, sublease revenue, licensing revenue from slots leased to other airlines,
charter revenue, cargo revenue, interline and ground handling fees, liquor
sales, and excess baggage fees.


33




Operating
Expenses





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





Wages
and Benefits




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




Aircraft
Fuel




As of
December 31, 2009, the majority of our aircraft fuel for the fixed-fee
operations is supplied directly by our code-share partners, and thus we do not
record expense or the related revenue for those gallons of
fuel.  Beginning in May 2009 and June 2009, we did not record fuel
expense and the related revenue for the American and Delta operations,
respectively.  We also did not pay for or record fuel expense and the
related revenue for Continental or US Airways operations.  United has
continued to increase the portion of flying for which they pay
directly.   All fuel costs including into-plane fees and taxes
are expensed as incurred for our branded operations.  Aircraft fuel
also includes the realized and unrealized mark-to-market adjustments on fuel
derivatives.





Landing
Fees and Airport Rents




This
expense consists of fees charged by airports for each aircraft landing and
airport rental fees for ticket counter, gate and common space.   Under
our fixed-fee agreements, we are reimbursed for the actual costs of landing
fees.  Landing fees and airport rents are expensed as incurred for the
branded operations.




Aircraft
and Engine Rent




This
expense consists of the costs of leasing aircraft and spare engines. The leased
aircraft and spare engines are operated under long-term operating leases with
third parties. Aircraft rent is reduced by the amortization of deferred credits
received from the aircraft manufacturer for parts and training. The credits are
deferred and amortized on a straight-line basis over the term of the respective
lease of the aircraft.




Maintenance
and Repair




Maintenance
and repair expenses include all parts, materials, tooling and spares required to
maintain our aircraft. We have entered into long-term maintenance
"power-by-the-hour" service contracts with third-party maintenance providers
under which we are charged fixed rates for each flight hour accumulated by all
of our engines and some of the major airframe components. The effect of such
contracts is to reduce the volatility of aircraft maintenance expense over the
term of the contract.  All other maintenance is expensed as incurred
under the direct expense method of accounting.




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 intangible assets with definite lives.





Promotion
and Sales





This
expense is incurred on our branded operation only and consists of advertising
costs, reservation and booking fees, credit card processing fees and
commissions.




34





Goodwill
Impairment





Goodwill
is required to be evaluated for impairment on an annual basis. If we determine
that goodwill is impaired, we are required to write-off the amount of goodwill
that is impaired.





Other
Impairment Charges





Other
intangibles with an indefinite life are required to be evaluated for impairment
on an annual basis. If we determine other intangibles are impaired, we are
required to write-off the amount of other intangibles that are
impaired.  This expense includes the impairment of trade names and
other intangible assets that were impaired during 2009.





Gain
on Bargain Purchase





This
represents the amount that the preliminary fair values of assets acquired
exceeds the assumed liabilities and purchase price from the acquisition of
Frontier.





Other




This
expense includes the costs of crew training, crew travel, airport, passenger and
ground handling related expenses, all hangar and administrative lease expenses,
professional fees, and all other administrative and operational overhead
expenses not included in other line items above. Additionally, if incurred,
this expense will include accrued aircraft return costs, gains and losses on
disposal of assets and bad debt expenses.




Results
of Operations





The
following tables sets forth information regarding the Company’s statistical
performance for the years ended December 31, 2009, 2008, and 2007.




Operating
      Highlights - Fixed-Fee
              
              Twelve
      Months Ended December 31,2009
              
              
              Change
              
              
              2008
              
              
              Change
              
              
              2007Fixed-fee
      service revenues, excluding fuel (000's)
              
              $
              1,089,051
              
              
              
              -4.1
              %
              
              $
              1,135,431
              
              
              
              15.7
              %
              
              $
              981,449Passengers
      carried
              
              
              18,783,773
              
              
              
              -0.7
              %
              
              
              18,917,502
              
              
              
              16.2
              %
              
              
              16,286,807Revenue
      passenger miles (000's) (1)
              
              
              9,560,637
              
              
              
              -1.4
              %
              
              
              9,700,978
              
              
              
              13.0
              %
              
              
              8,581,836Available
      seat miles (000's) (2)
              
              
              12,894,899
              
              
              
              -2.4
              %
              
              
              13,213,701
              
              
              
              14.8
              %
              
              
              11,511,795Passenger
      load factor (3)
              
              
              74.1
              %
              
              0.7
              pts
              
              
              73.4
              %
              
              -1.1
              pts
              
              
              74.5
              %Cost
      per available seat mile,
              
              
              8.36
              
              
              
              -16.1
              %
              
              
              9.97
              
              
              
              -0.2
              %
              
              
              9.99including
      interest expense (cents) (4) (5)Fuel
      cost per available seat mile (cents)
              
              
              0.71
              
              
              
              -71.3
              %
              
              
              2.47
              
              
              
              -3.5
              %
              
              
              2.56Cost
      per available seat mile, including
              
              
              7.65
              
              
              
              2.0
              %
              
              
              7.50
              
              
              
              0.9
              %
              
              
              7.43interest
      expense and excluding fuel expense (cents) (5)Operating
      aircraft at period end:37-50
      seats
              
              
              77
              
              
              
              -16.3
              %
              
              
              92
              
              
              
              -19.3
              %
              
              
              11470-86
      seats
              
              
              112
              
              
              
              -7.4
              %
              
              
              121
              
              
              
              19.8
              %
              
              
              101Block
      hours (6)
              
              
              674,454
              
              
              
              -8.9
              %
              
              
              740,403
              
              
              
              8.9
              %
              
              
              679,718Departures
              
              
              396,559
              
              
              
              -6.2
              %
              
              
              422,558
              
              
              
              10.8
              %
              
              
              381,415Average
      daily utilization of each aircraft (hours) (7)
              
              
              10.1
              
              
              
              0.0
              %
              
              
              10.1
              
              
              
              -2.0
              %
              
              
              10.3Average
      length of aircraft flight (miles)
              
              
              494
              
              
              
              -1.6
              %
              
              
              502
              
              
              
              -3.8
              %
              
              
              522Average
      seat density
              
              
              66
              
              
              
              6.5
              %
              
              
              62
              
              
              
              6.9
              %
              
              
              58





(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)
            Costs
      (in all periods) exclude goodwill and other impairment expenses and other
      expenses not attributable to the fixed-fee segment (e.g. subleased
      aircraft and amortization of slots). Total operating and interest
      expenses excluding goodwill impairment and other impairment charges as
      well as the gain on bargain purchase is not a calculation based on
      accounting principles generally accepted in the United States of America
      and should not be considered as an alternative to total operating
      expenses.   Cost per available seat mile utilizing this
      measurement is included as it is a measurement recognized by the investing
      public relative to the airline industry.(6)
            Hours
      from takeoff to landing, including taxi time.(7)
            Average
      number of hours per day that an aircraft flown in revenue service is
      operated (from gate departure to gate
arrival).




35




Operating
      Highlights - Branded
              
              Twelve
      Months Ended (9)December
      31, 2009Total
      revenues (000's)
              
              $
              444,312Passengers
      carried
              
              
              4,200,044Revenue
      passenger miles (000's) (1)
              
              
              3,344,953Available
      seat miles (000's) (2)
              
              
              4,221,629Passenger
      load factor (3)
              
              
              79.2
              %Total
      revenue per available seat mile (cents)
              
              
              10.52Passenger
      revenue per available seat mile (cents)
              
              
              9.23Cost
      per available seat mile (cents) (4) (5)
              
              
              11.44Fuel
      cost per available seat mile
              
              
              3.43Cost
      per available seat mile, excluding fuel expense (cents)
(5)
              
              
              8.01Operating
      aircraft at period end:37-50
      seats (6)
              
              
              1170-99
      seats
              
              
              38120+
      seats
              
              
              51Block
      hours (7)
              
              
              121,167Departures
              
              
              64,379Average
      daily utilization of each aircraft (hours) (8)
              
              
              10.7Average
      length of aircraft flight (miles)
              
              
              749Average
      seat density
              
              
              88





(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)
            Costs
      exclude gain on bargain purchase and other impairment
      charges  and other expenses not attributable to the fixed-fee
      segment (e.g. subleased aircraft and amortization of slots). Total
      operating and interest expenses excluding goodwill impairment and other
      impairment charges as well as the gain on bargain purchase is not a
      calculation based on accounting principles generally accepted in the
      United States of America and should not be considered as an alternative to
      total operating expenses.   Cost per available seat mile
      utilizing this measurement is included as it is a measurement recognized
      by the investing public relative to the airline
  industry.(6)
            Includes
      four aircraft operated by SkyWest Airlines under an agreement with
      Midwest, which terminated in January 2010.(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).(9)
            Branded
      statistics include the results of Midwest and Frontier beginning in August
      and October 2009, respectively.  In addition, the table includes
      the results of Mokulele beginning in April 2009 until October 2009 when
      the Company deconsolidated
Mokulele.




36





The
following table sets forth information regarding the Company’s revenues and
expenses for the years ended December 31, 2009, 2008, and 2007. Individual
expense components are also expressed in cents per available seat mile
(“ASM”).


Consolidated
      Results of Operations
              
              Years
      ended December 31,2009
              
              
              2008
              
              
              2007Amount
              
              
              Centsper
    ASM
              
              
              Amount
              
              
              Centsper
    ASM
              
              
              Amount
              
              
              Cents

                  per
      ASM(in
      thousands)
              
              
              
              
              
              (in
      thousands)
              
              
              
              
              
              (in
      thousands)OPERATING
      REVENUES:Fixed-fee
      service
              
              $
              1,180,209
              
              
              
              
              
              $
              1,462,211
              
              
              
              
              
              $
              1,274,607Passenger
      service
              
              
              389,653
              
              
              
              
              
              
              -
              
              
              
              
              
              
              -Cargo
      and other
              
              
              72,356
              
              
              
              
              
              
              17,544
              
              
              
              
              
              
              18,070Total
      operating revenues
              
              
              1,642,218
              
              
              
              
              
              
              1,479,755
              
              
              
              
              
              
              1,292,677OPERATING
      EXPENSES:Wages
      and benefits
              
              
              342,364
              
              
              
              2.00
              
              
              
              252,336
              
              
              
              1.91
              
              
              
              226,521
              
              
              
              1.97Aircraft
      fuel
              
              
              236,620
              
              
              
              1.38
              
              
              
              327,791
              
              
              
              2.48
              
              
              
              296,573
              
              
              
              2.58Landing
      fees and airport rents
              
              
              96,915
              
              
              
              0.57
              
              
              
              59,891
              
              
              
              0.45
              
              
              
              53,684
              
              
              
              0.47Aircraft
      and engine rent
              
              
              156,773
              
              
              
              0.92
              
              
              
              134,206
              
              
              
              1.02
              
              
              
              124,961
              
              
              
              1.08Maintenance
      and repair
              
              
              211,503
              
              
              
              1.24
              
              
              
              169,425
              
              
              
              1.28
              
              
              
              130,237
              
              
              
              1.13Insurance
      and taxes
              
              
              28,105
              
              
              
              0.16
              
              
              
              25,793
              
              
              
              0.20
              
              
              
              19,039
              
              
              
              0.16Depreciation
      and amortization
              
              
              163,584
              
              
              
              0.96
              
              
              
              133,206
              
              
              
              1.01
              
              
              
              106,594
              
              
              
              0.93Promotion
      and sales
              
              
              36,265
              
              
              
              0.21
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Goodwill
      impairment
              
              
              113,759
              
              
              
              0.66
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Other
      impairment charges
              
              
              8,800
              
              
              
              0.05
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Gain
      on bargain purchase
              
              
              (203,698
              )
              
              
              (1.19
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Other
              
              
              179,828
              
              
              
              1.05
              
              
              
              122,012
              
              
              
              0.92
              
              
              
              104,790
              
              
              
              0.91Total
      operating expenses
              
              
              1,370,818
              
              
              
              8.01
              
              
              
              1,224,660
              
              
              
              9.27
              
              
              
              1,062,399
              
              
              
              9.23OPERATING
      INCOME
              
              
              271,400
              
              
              
              
              
              
              
              255,095
              
              
              
              
              
              
              
              230,278OTHER
      INCOME (EXPENSE):Interest
      expense
              
              
              (144,994
              )
              
              
              (0.85
              )
              
              
              (131,856
              )
              
              
              (1.00
              )
              
              
              (107,323
              )
              
              
              (0.93
              )Other
      - net
              
              
              9,784
              
              
              
              0.06
              
              
              
              14,176
              
              
              
              0.11
              
              
              
              11,013
              
              
              
              0.10Total
      other income (expense)
              
              
              (135,210
              )
              
              
              (0.79
              )
              
              
              (117,680
              )
              
              
              (0.89
              )
              
              
              (96,310
              )
              
              
              (0.84
              )INCOME
      BEFORE INCOME TAXES
              
              
              136,190
              
              
              
              
              
              
              
              137,415
              
              
              
              
              
              
              
              133,968INCOME
      TAX EXPENSE
              
              
              99,805
              
              
              
              
              
              
              
              52,835
              
              
              
              
              
              
              
              51,210NET
      INCOME
              
              
              36,385
              
              
              
              
              
              
              
              84,580
              
              
              
              
              
              
              
              82,758Add:
      Net loss attributable to noncontrolling interest in Mokulele Flight
      Service, Inc.
              
              
              (3,270
              )
              
              
              
              
              
              
              -
              
              
              
              
              
              
              
              -NET
      INCOME OF THE COMPANY
              
              $
              39,655
              
              
              
              
              
              
              $
              84,580
              
              
              
              
              
              
              $
              82,758Total
      operating and interest expense
              
              $
              1,515,812
              
              
              
              8.86
              
              
              $
              1,356,516
              
              
              
              10.27
              
              
              $
              1,169,722
              
              
              
              10.16Total
      operating and interest expense less fuel, goodwill impairment, other
      impairment charges and gain on bargain purchase
              
              $
              1,360,331
              
              
              
              7.95
              
              
              $
              1,028,725
              
              
              
              7.79
              
              
              $
              873,149
              
              
              
              7.58





2009
Compared to 2008





Operating
revenue in 2009 increased by 11%, or $162.5 million, to $1.64 billion compared
to $1.48 billion in 2008. Excluding reimbursement for fuel expense, which
is a pass-through cost to our Partners, fixed-fee service revenues decreased
4.1% for 2009.  Block hour production for the fixed-fee business was
down 8.9% in 2009 because of the reduction of aircraft operated for
Continental.  Also, the aircraft operations for Midwest are reported
as branded flying beginning in August 2009.  Branded revenues were
$444.3 million, which represented passenger and ancillary revenues on our
Midwest operations beginning in August 2009, Frontier operations beginning in
October 2009, and Mokulele operations between April and October
2009.




Total
operating and interest expenses, excluding fuel, goodwill impairment, and other
impairment charges increased $331.6 million, to $1.36 billion for 2009
compared to $1.03 billion during 2008 due to the acquisitions of Midwest and
Frontier.  The cost per available seat mile on total operating and
interest expenses, excluding fuel charges, increased to 7.95¢ in 2009 compared
to 7.79¢ in 2008.  Factors relating to the change in operating
expenses are discussed below.




Wages and
benefits increased by 35.7%, or $90.1 million, to $342.4 million for
2009 compared to $252.3 million for 2008 due primarily to the acquisition of
Midwest and Frontier.   Of the increase, $86.0 million relates to
expenses at Midwest and Frontier.  The cost per available seat mile
increased to 2.00¢ for 2009 compared to 1.91¢ in 2008.




37




Aircraft
fuel expense decreased 27.8%, or $91.2 million, to $236.6 million for 2009
compared to $327.8 million for 2008.  Beginning in May 2009 and
June 2009, we did not record fuel expense and the related revenue for the
American and Delta operations, respectively.  We also did not pay for
or record fuel expense and the related revenue for Continental or US Airways
operations.  United has continued to increase the portion of flying
for which they pay directly.  These decreases were partially offset by
fuel expense of $144.9 million related to Midwest and Frontier
operations.  The cost per gallon for fuel used in the branded
operation was $2.15 in 2009.  The unit cost decreased to 1.38¢ in 2009
compared to 2.48¢ in 2008.




Landing
fees and airport rents increased by 61.8%, or $37.0 million, to
$96.9 million in 2009 compared to $59.9 million in
2008.  This was due to the acquisition of Frontier and Midwest during
the year, which accounted for $34.3 million of additional expense in
2009.  Our fixed-fee agreements provide for a direct reimbursement of
landing fees.  The unit cost was 0.57¢ in 2009 compared to 0.45¢ in
2008.





Aircraft
and engine rent increased by 16.8%, or $22.6 million, to $156.8 million in
2009 compared to $134.2 million in 2008.   Midwest and
Frontier accounted for additional expense of $37.7 million.  This was
partially offset by a decrease in rents on the CRJ aircraft of $15.1
million.  The unit cost decreased to 0.92¢ for 2009 compared to 1.02¢
for 2008.





Maintenance
and repair expenses increased by 24.8%, or $42.1 million, to $211.5 million in
2009 compared to $169.4 million for 2008 due mainly to the acquisition of
Midwest and Frontier and engine limited life parts for the fixed-fee small
jets.  Midwest and Frontier maintenance expenses for the year were
$24.2 million.  The fixed-fee maintenance expenses increased for the
large jets due mainly to a 17% increase in block hours, or a $31.5 million
increase in expense, offset by a decrease in small jet expenses of $4.5 million
that includes $11.7 million of engine limited life parts.  The unit
cost decreased to 1.24¢ in 2009 compared to 1.28¢ in 2008.




Insurance
and taxes increased 9.0%, or $2.3 million, to $28.1 million in 2009
compared to $25.8 million in 2008. Midwest and Frontier expenses are $6.3
million, which is offset by decreases on the fixed-fee operations for property
taxes of $3.1 million and liability insurance of $0.6 million.  Our
fixed-fee agreements generally provide for a direct reimbursement of insurance
and property taxes.  The unit cost decreased to 0.16¢ in 2009 compared
to 0.20¢ in 2008.




Depreciation
and amortization increased 22.8%, or $30.4 million, to $163.6 million
in 2009 compared to $133.2 million in 2008 due mainly to $22.1 million of
depreciation from Midwest and Frontier.  Additionally, depreciation on
EJet aircraft increased on aircraft purchased during 2008 and 2009. The unit
cost decreased to 0.96¢ in 2009 compared to 1.01¢ in 2008.





Promotion
and sales expenses of $36.3 million were included as a result of the
acquisitions of Midwest, Mokulele, and Frontier to our branded
services.  All of these expenses relate to the branded operations
only.  The unit cost was 0.21¢ in 2009.





Goodwill
impairment and other impairment charges of $122.6 million in 2009 is primarily a
result of goodwill impairment during the first quarter from the fixed-fee
services as well as goodwill impairment during the fourth quarter that was
generated from the acquisition of Midwest.  The unit cost was 0.71¢ in
2009.





The gain
on bargain purchase of $203.7 million is related to the acquisition of
Frontier.  The unit benefit was 1.19¢.





Other
expenses increased 47.4%, or $57.8 million, to $179.8 million in 2009 from
$122.0 million in 2008.  Of the increase, $58.0 million related to
expenses from Frontier and Midwest.  The unit cost increased to 1.05¢
in 2009 compared to 0.92¢ in 2008.




Interest
expense increased 10.0% or $13.1 million, to $145.0 million in 2009
from $131.9 million in 2008 primarily due to $12.6 million of expense from
Midwest and Frontier. The unit cost decreased to 0.85¢ in 2009 compared to 1.00¢
in 2008.




We
incurred income tax expense of $99.8 million during 2009, compared to $52.8
million in 2008. The effective tax rates for 2009 and 2008 were 73.3% and 38.4%,
respectively, which were higher than the statutory rate due primarily to the
non-deductible goodwill impairment in 2009 and state income taxes and
non-deductible meals and entertainment expense, primarily for our flight crews
in 2009 and 2008.





2008
Compared to 2007





Operating revenue in 2008 increased by
14.5%, or $187.1 million, to $1.48 billion compared to $1.29 billion in
2007. Excluding reimbursement for fuel expense, which is a pass-through cost to
our Partners, fixed-fee service revenues increased 15.6% for
2008.  The increase was due primarily to fixed-fee revenue earned from
the addition of 26 E175 aircraft that were placed into service throughout
2008.  Partially offsetting this increase was the removal of fifteen
37-seat aircraft from Delta, seven 50-seat aircraft from Continental and two
37-seat aircraft from charter operations.  These aircraft, which are
being sold or returned to the lessor, were removed during the last six months of
2008.




38




Total
operating and interest expenses, excluding fuel increased by 17.8%, or $155.6
million, to $1.03 billion for 2008 compared to $873.1 million during 2007
due to the increase in flight operations. The cost per available seat mile on
total operating and interest expenses, excluding fuel charges, increased to
7.79¢ in 2008 compared to 7.58¢ in 2007.  Factors relating to the
change in operating expenses are discussed below.




Wages and
benefits increased by 11.4%, or $25.8 million, to $252.3 million for
2008 compared to $226.5 million for 2007 due primarily to a $20.7 million
increase in flight crew and maintenance operations wage expenses to support the
increase in regional jet operations.  Overhead and stock compensation
expense increased $3.2 million while payroll taxes and benefits increased $2.2
million in 2008.  The cost per available seat mile decreased to 1.91¢
for 2008 compared to 1.97¢ in 2007.




Aircraft
fuel expense increased 10.5%, or $31.2 million, to $327.8 million for 2008
compared to $296.6 million for 2007 due to a 34% increase in the average
fuel price per gallon from $2.40 in 2007 to $3.21 in 2008, partially offset by a
17% decrease in gallons consumed due to United paying for fuel directly for more
locations in 2008.  The unit cost decreased to 2.48¢ in 2008 compared to
2.58¢ in 2007.




Landing
fees increased by 11.6%, or $6.2 million, to $59.9 million in 2008
compared to $53.7 million in 2007. The increase is due mainly to a 10%
increase in departures. Our fixed-fee agreements provide for a direct
reimbursement of landing fees. The unit cost was 0.45¢ in 2008 compared to 0.47¢
in 2007.





Aircraft
and engine rent increased by 7.4%, or $9.2 million, to $134.2 million in
2008 compared to $125.0 million in 2007 due to a $6.2 million increase in
aircraft rents of CRJ-200 aircraft, which are on short-term leases and a $3.2
million increase in aircraft rents of 70-seat aircraft.  The unit cost
decreased to 1.02¢ for 2008 compared to 1.08¢ for 2007.





Maintenance
and repair expenses increased by 30.1%, or $39.2 million, to $169.4 million in
2008 compared to $130.2 million for 2007 due mainly to the addition of 26
E175 aircraft in 2008, which resulted in a $12.9 million increase in long-term
maintenance agreement expenses.  Long-term maintenance agreement
expenses for the 50-seat jets increased $7.7 million.  Additionally,
repair expenses on parts not under warranty or not included under long term
contracts increased $9.7 million for the fleet.  Scheduled heavy
maintenance events for the fleet also increased by $5.4 million.  The
unit cost increased to 1.28¢ in 2008 compared to 1.13¢ in 2007.




Insurance
and taxes increased 35.5%, or $6.8 million, to $25.8 million in 2008
compared to $19.0 million in 2007. Property taxes increased $5.6 million
and insurance increased due to the increase in regional jet operations. Our
fixed-fee agreements generally provide for a direct reimbursement of insurance
and property taxes.  The unit cost increased to 0.20¢ in 2008 compared
to 0.16¢ in 2007.




Depreciation
and amortization increased 25.0%, or $26.6 million, to $133.2 million
in 2008 compared to $106.6 million in 2007 due mainly to $24.6 million of
additional depreciation on E175 aircraft purchased during 2007 and 2008. The
unit cost increased to 1.01¢ in 2008 compared to 0.93¢ in 2007.





Other
expenses increased 16.4%, or $17.2 million, to $122.0 million in 2008 from
$104.8 million in 2007, due primarily to $13.8 million of expenses related to
costs associated with the return of aircraft on lease and the preparation of
aircraft removed from fixed-fee service for future sale. Additionally, there was
a $1.5 million increase in passenger catering costs and other operational
expenses to support the increased regional jet operations. The unit cost
increased to 0.92¢ in 2008 compared to 0.91¢ in 2007.




Interest
expense increased 22.9% or $24.5 million, to $131.9 million in 2008
from $107.3 million in 2007 primarily due to interest on debt related to the
financing aircraft purchased during 2007 and 2008. The weighted average interest
rate decreased from 6.2% in 2007 to 6.1% in 2008. The unit cost increased to
1.00¢ in 2008 compared to 0.93¢ in 2007.




We
incurred income tax expense of $52.8 million during 2008, compared to $51.2
million in 2007. The effective tax rates for 2008 and 2007 were 38.4% and 38.2%,
respectively, which were higher than the statutory rate due to state income
taxes and non-deductible meals and entertainment expense, primarily for our
flight crews.





Liquidity
and Capital Resources




2009
compared to 2008





As of
December 31, 2009, we had total cash of $350.2 million of which $157.5 million
was unrestricted.  At December 31, 2009, we had a working capital
deficit of $155.2 million.   The Company currently anticipates
that its unrestricted cash on hand, the cash generated from operations, and
other financings will be sufficient to meet its anticipated working capital
and capital expenditure requirements for at least the next
12 months.




39





Working
capital deficits are customary for airlines since the air traffic liability and
a portion of the deferred frequent flyer revenue are classified as current
liabilities.  Our liquidity depends to a large extent on the financial
strength of our Partners in relation to our fixed-fee business  and the
number of passengers who fly in our branded passenger service, the fares they
pay, our operating and capital expenditures, our financing activities, the
amount of cash holdbacks imposed by our credit card processors, and the cost of
fuel.  We cannot predict what the effect on our business might be from the
extremely competitive environment we are operating in or from events that are
beyond our control, such as volatile fuel prices, the economic recession, the
global credit and liquidity crisis, weather-related disruptions, the impact of
airline bankruptcies or consolidations, U.S. military actions or acts of
terrorism.





Net cash
provided by operating activities was $168.6 million in 2009 compared to $242.3
million in 2008.  The $73.7 million decrease in operating cash flows
is primarily attributable to the lower operating margin associated with our
branded operations and the related reductions in our net income period over
period of $44.9 million.





Net cash
provided by (used in) investing activities was $3.4 million in 2009 compared to
($81.9) million in 2008.  During 2009, the Company acquired and debt
financed 3 E175 aircraft and 10 E190 aircraft.  The total debt related
to these aircraft of $280.0 million was obtained from banks at terms of 10
to 15 years and fixed interest rates ranging from 2.80% to 2.94% and variable
rates at LIBOR plus a margin.  Cash used in the acquisition of
aircraft and other equipment, net of aircraft deposits totaled $25.5 million in
2009 and $59.2 million in 2008.  The Company has lease financed all
other aircraft deliveries during 2009.  The Company received proceeds
from the sale of its E135 assets and other equipment totaling $72.9 million in
2009 compared to $52.9 million in 2008.  Additionally, the Company
funded notes receivable of approximately $61.1 million (to Frontier, US Airways,
Midwest, and Mokulele) in 2009 compared to $55 million in
2008.  Additionally, the Company acquired new businesses Midwest
and Frontier, net of cash acquired totaling $23.3 million.





Net cash
used in financing activities was $144.1 million in 2009 compared to $194.7
million in 2008.  During 2009, the Company received proceeds of $75.1
million from the refinancing of aircraft and issuance of debt compared to $6.7
million in 2008.  During 2009, the Company made principal repayments
of $145.7 million and retired $70.9 million of aircraft debt totaling $216.6
million compared to repayments of $113.6 million and retirements of $50.0
million totaling $163.6 million in 2008.  During the prior year, the
Company repurchased $39.4 million of treasury stock and there were no treasury
stock repurchases in 2009.





2008
compared to 2007





Net cash
provided by operating activities was $242.3 million in 2008 compared to $280.5
million in 2007.  The decrease of $38.2 million is primarily
attributable to the receipt of cash from the sale of the Company’s $44.6 million
Delta pre-petition claim in 2007 offset by an increase in cash used for working
capital needs of $11.3 million.





Net cash
used in investing activities was $81.9 million in 2008 compared to $76.5 million
in 2007.  During 2008, the Company acquired and debt financed 26 E175
aircraft.  The total debt related to these aircraft of $526.2
million was obtained from banks at terms of 5 to 15 years and interest rates
ranging from 2.73% to 6.91%.  Cash used in the acquisition of aircraft
and other equipment, net of aircraft deposits totaled $59.2 million in 2008 and
$40.9 million in 2007.  The Company received proceeds of $52.9 million
in 2008 and $15.8 million in 2007 from the sale of aircraft and other
equipment.  The increase of $37.1 million is primarily related to the
increase in proceeds from the sale of two E135 aircraft in 2008.  In
addition, the Company originated loans to Frontier Airlines, Midwest, Mokulele
and US Airways totaling $55.0 million in 2008.





Net cash
used in financing activities was $194.7 million in 2008.  During 2008,
the Company received proceeds of $6.7 million from the refinancing of six E175
aircraft.  The Company received proceeds of $5.8 million related
to the settlement of interest rate swaps and incurred $4.6 million of debt
issue costs.  The Company received proceeds of $0.3 million related to
the exercise of stock options by employees and non-employee
directors.  The Company made payments on debt of $113.6 million
and additional payments of $50.0 million related to the early extinguishment of
debt on the E135 sold in 2008.  The early extinguishment of debt
resulted in a $6.0 million gain for 2008.  The Company repurchased
2,265,539 shares of its common stock on the open market or through privately
negotiated transactions at a weighted average purchase price of $17.39 for total
consideration of $39.4 million in 2008 under the December 2007 Board of
Director’s authorization, which closed in December 2008.





Other
liquidity initiatives





The
Company has contracts with bankcard processors that require full
collateralization of bankcard funds equal to the air traffic liability
associated with the estimated amount of bankcard transactions plus related
passenger taxes.  As of December 31, 2009 that amount totaled $159.7
million.




40





On
October 30, 2009, the Company entered into a credit agreement with Airbus
Financial Services (“Airbus”).  In accordance with the agreement,
Airbus provided a $25 million term loan to Frontier.  The loan is
scheduled to be repaid in twelve quarterly installments with interest beginning
in January 2010.  Interest on the note is the three-month LIBOR rate
plus a margin and the note is secured by certain assets of
Frontier.





The
Company has co-branded credit card arrangements with MasterCard issuing
banks.  One of the affinity credit card agreements provides the Company
with a fixed fee for each new account, which varies based on the type of
account, and a percentage of the annual renewal fees that the bank
receives.  The Company receives an increased fee for new accounts it
solicits.  The Company also receives fees for the purchase of frequent
flier miles awarded to the credit card customers. During 2009, the Company
amended this agreement whereas the credit card company agreed to pre-purchase
miles.  In October 2009, the Company received $35 million in cash from
the bank related to its pre-purchase of miles.   These fees are to be
used to compensate the Company for fees otherwise earned under the
agreement.  In addition, the Company will pay to the bank interest on the
value of the outstanding pre-purchased miles at an adjustable rate of LIBOR plus
a margin.  This purchase is recorded as debt in the consolidated
balance sheet.


We are
required to comply with certain financial covenants under certain of our
financing arrangements.  We are required to maintain a certain level
of minimum unrestricted cash and maintain certain cash flow and working capital
covenants.
  As of
December 31, 2009, we were in compliance with all our covenants, however, we
believe it is probable that we will be unable to comply with certain of these
covenants during 2010.  We are currently in discussions to renegotiate
these covenants, however, our ability to renegotiate or obtain a waiver of, or
otherwise mitigate, the impact of a default, could potentially provide for the
accelerated repayment of principal totaling approximately $25 million and
the discontinuation of the monthly pre-purchase of airline miles from our
affinity card provider, which totals approximately $2.9 million per
month.   If we are unable to successfully renegotiate the
covenants, of which there can be no assurance or if a default were to occur and
we were unable to obtain a waiver, or otherwise mitigate the impact of a
default, our financial condition and liquidity could be materially and adversely
affected.




Letters
of Credit





As we
enter new markets, increase the amount of space we lease, or add leased
aircraft, we are often required to provide the airport authorities and lessors
with a letter of credit.  We also provide letters of credit for our
workers’ compensation insurance.  As of December 31, 2009, we had
outstanding letters of credit totaling $31.8 million, all of which are cash
collateralized.





Hedging
Transactions





Our fuel
hedge contracts are comprised of purchased call option agreements.  
Under a purchased call option agreement, we have the right to buy a certain
quantity of fuel from the writer of the option, at a specified price (the strike
price) up to a specified date (the expiration date).  These fuel
hedges have been designated as trading instruments and as such, realized and
mark to market adjustments are included in aircraft fuel expense.  Our
results of operations for the year ended December 31, 2009 include non-cash mark
to market derivative losses of $0.1 million.  We paid $3.3 million in
fuel hedge premiums and had cash settlement receipts for fuel derivative
contracts of $3.6 million.





We
entered into the following call agreements prior to December 31, 2009 which are
still outstanding:




Date
              
              Product
              
              Notional
      volume(gallons per month)
              
              Periodcovered
              
              Price
      (per gallon or barrel)
              
              Percentage
      of estimated fuel purchases7-Dec-09
              
              Gulf
      Coast Jet A
              
              2,856,000
              
              Q2
      2010
              
              $2.34/gallon
              
              14.3%7-Dec-09
              
              Gulf
      Coast Jet A
              
              2,940,000
              
              Q3
      2010
              
              $2.43/gallon
              
              14.3%





We
entered into the following call agreements subsequent to December 31, 2009 for
the second and third quarters of 2010:




Date
              
              Product
              
              Notional
      volume (gallons per month)
              
              Period
      covered
              
              Price
      (per gallon or barrel)
              
              Percentage
      of estimated fuelpurchases13-Jan-10
              
              Gulf
      Coast Jet A
              
              2,100,000
              
              Q2
      2010
              
              $2.34/gallon
              
              10.5%13-Jan-10
              
              Gulf
      Coast Jet A
              
              2,100,000
              
              Q3
      2010
              
              $2.43/gallon
              
              10.2%5-Feb-10
              
              Gulf
      Coast Jet A
              
              2,100,000
              
              Q3
      2010
              
              $2.23/gallon
              
              10.2%5-Feb-10
              
              Gulf
      Coast Jet A
              
              2,100,000
              
              Q4
      2010
              
              $2.23/gallon
              
              10.3%


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 2010 and 2024. As of December 31, 2009,
our total mandatory payments under operating leases for aircraft aggregated
approximately $1.58 billion and total minimum annual aircraft rental payments
for the next 12 months under all non-cancelable operating leases is
approximately $233.1 million. Other non-cancelable operating leases consist
of engines, terminal space, operating facilities, office space and office
equipment. The leases expire through 2033. As of December 31, 2009, our total
mandatory payments under other non-cancelable operating leases aggregated
approximately $206.3 million. Total minimum annual other rental payments for the
next 12 months are approximately $44.5 million.




41




Purchase
Commitments




As of
December 31, 2009, the Company had firm orders to purchase eight A320 aircraft
that have scheduled delivery dates beginning in February 2013 and continuing
through November 2014. The current total list price of the eight aircraft is
$349.0 million.  During the year ended December 31, 2009, the Company
made aircraft deposits in accordance with the aircraft commitments of $5.5
million. The Company also has a commitment to acquire eight spare aircraft
engines with a current list price of approximately $41.9 million.  The
Company expects to take delivery of three engines per year during 2010 and 2011
and two engines in 2012.  These commitments are subject to customary
closing conditions.





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




Our
contractual obligations and commercial commitments at December 31, 2009, include
the following (in thousands):




Payments
      Due By PeriodBeyond2010
              
              
              
              2011-2012
              
              
              
              2013-2014
              
              
              2014
              
              
              TotalLong-term
      debt (including interest)
              
              $
              372,046
              
              
              $
              688,375
              
              
              $
              720,558
              
              
              $
              1,909,320
              
              
              $
              3,690,299Operating
      leases
              
              
              277,632
              
              
              
              472,084
              
              
              
              435,426
              
              
              
              598,483
              
              
              
              1,783,625Tax
      liability for uncertain tax positions
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              6,268
              
              
              
              6,268Debt
      or lease financed aircraft plus rotables under purchase obligations
      (8)
              
              
              -
              
              
              
              31,590
              
              
              
              329,353
              
              
              
              -
              
              
              
              360,943Engines
      under firm orders (8)
              
              
              15,580
              
              
              
              17,246
              
              
              
              9,092
              
              
              
              -
              
              
              
              41,918Other
      long-term commitments
              
              
              16,782
              
              
              
              29,395
              
              
              
              27,172
              
              
              
              -
              
              
              
              73,349Total
      contractual cash obligations
              
              $
              682,040
              
              
              $
              1,238,690
              
              
              $
              1,521,601
              
              
              $
              2,514,071
              
              
              $
              5,956,402


The
Company has maintenance agreements for engines, auxiliary power units
(“APU”) and other airframe components for our CRJ-200 aircraft that cover the
aircraft during the short-term leases, all of which expire by March
2010.  For E140/145 aircraft, the Company has agreements to maintain
the engines, APUs, avionics and wheels and brakes through October 2012, June
2013, December 2014 and June 2014, respectively.  For E170/175
aircraft, the Company has agreements to maintain the avionics, wheels and
brakes, APUs and engines through December 2014, February 2017, July 2019, and
December 2014, respectively. Under these agreements, the Company is 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.  The Company believes
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.





While the
Company does not have long term maintenance agreements for Airbus and Q400
fleets, it has made significant deposits with the aircraft lessors for future
maintenance events which will reduce future cash requirements.  As of
December 31, 2009 we had maintenance deposits of $143.9 million.





Total
payments under these long-term maintenance agreements were $96.0 million, $101.9
million, and $76.8 million, for the years ended December 31, 2009, 2008 and
2007, respectively.




Cash
payments for interest were approximately $134.8 million in 2009. Tax payments in
2009 were not significant and we are not expecting significant tax payments in
2010.





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.




42




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(Fixed-feeservice)– Under our fixed-fee arrangements with our
      Partners, the Company receives fixed-fees for our capacity purchase
      agreements, as well as reimbursement of specified “pass-through” costs on
      a gross basis with additional possible incentives from our Partners for
      superior service. These 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.


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.  The Company has concluded that a component of its fixed-fee
service revenues 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 2009, 2008 and 2007 was $358.2 million, $348.4 million, and $310.3
million, respectively, and has been included in fixed-fee service
revenues in the Company’s consolidated statements of
income.




Revenue Recognition (Passenger
Service) –Passenger service revenues are recognized when the
transportation is provided or after the tickets expire (which is either
immediately upon the scheduled departure of the flight or up to thirteen months
after the date of issuance depending on the type of ticket purchased), and are
net of excise taxes, passenger facility charges and security fees. 
Passenger service revenues that have been deferred are included in the
accompanying consolidated balance sheets as air traffic
liability.    Included in passenger service revenue are change
fees imposed on passengers for making schedule changes to non-refundable
tickets.  Change fees are recognized as revenue at the time the change is
made for the passenger as these fees are a separate transaction that occur
subsequent to the date of the original ticket sale.  Certain passenger
tickets include a bundle of services such as bag fees and other buy-on-board
services and these revenues are included in passenger service revenue as part of
the bundled ticket price.  During the year ended December 31, 2009, no
unused tickets were recognized as revenue since the air traffic liability was
recorded at fair value as of July 31, 2009 for Midwest and October 1, 2009 for
Frontier, which included the impact of estimated
breakage.


The
Company is required to charge certain taxes and fees on passenger
tickets.  These taxes and fees include U.S. federal transportation
taxes, federal security charges, airport passenger facility charges and foreign
arrival and departure taxes.  These taxes and fees are legal
assessments on the customer, for which the Company has an obligation to act as a
collection agent.  Because the Company is not entitled to retain these
taxes and fees, such amounts are not included in passenger service
revenue.  The Company records a liability when the amounts are
collected and reduces the liability when payments are made to the applicable
government agency or operating carrier.


·
              Frequent Flyer
      Programs—The Company has frequent flyer programs that offer
      incentives to travel on its airlines and promote customer
      loyalty.  The programs allow participants to earn mileage
      credits by flying on Midwest or Frontier as well as participating airlines
      and through participating companies, such as credit card companies,
      hotels, and car rental agencies.  The Company also sells mileage
      credits to other airlines and to nonairline businesses.  The
      mileage credits may be redeemed for free air travel on Midwest, Frontier,
      or other airlines, as well as hotels, rental cars, and other
      awards.
 
 Mileage
Credits– The Company has agreements with its co-branded credit
card partner that requires its partner to purchase miles as they are awarded to
the co-branded partner cardholders.  The air transportation element
for the awarded miles are included in deferred frequent flyer revenue at the
estimated fair value of the air transportation element and the residual
marketing element is recorded as other revenue when the miles are
awarded.  The deferred frequent flyer revenue is subsequently
recognized as passenger service revenue when the transportation is
provided.
 
 Earned Mileage Credits–The Company
also defers the portion of the sales proceeds that represents the estimated fair
value of the air transportation for mileage credits awarded and recognizes that
amount as passenger service revenue when the mileage credit is redeemed and the
transportation is provided.  The fair value of the air transportation
component is determined utilizing the deferred revenue method as further
described below.  The initial revenue deferral is presented as
deferred frequent flyer revenue in the consolidated balance
sheets.  When recognized, the revenue related to the air
transportation component is classified as passenger service revenue in the
Company’s consolidated statements of income.




The
Company’s accounting policy for its frequent flyer program is the deferred
revenue method.  The deferred revenue method is to record the frequent
flyer obligation by allocating an equivalent weighted-average ticket value to
each outstanding mile based on projected redemption patterns for available award
choices when such miles are consumed.  Such value is estimated
assuming redemptions on our branded airlines, other airlines, and other
redemption choices and by estimating the relative proportions of awards to be
redeemed by class of service and redemption choices.  The estimation
of the value of each award mile requires the use of several significant
assumptions for which significant management judgment is
required.  For example, management must estimate how many miles are
projected to be redeemed on the Company’s airlines versus on other airline
partners.  Since the equivalent ticket value on miles redeemed on our
brands and on other carriers can vary greatly, this assumption can materially
affect the calculation of the weighted-average ticket value from period to
period.


43




Management
must also estimate the expected redemption patterns of Midwest and Frontier
customers who have a number of different award choices when redeeming their
miles, each of which can have materially different estimated values. Such
choices include different classes of service and award
levels.  Customer redemption patterns may also be influenced by
program changes, which occur from time to time, introducing new award choices or
making material changes to the terms of existing award
choices.  Management must often estimate the probable impact of such
program changes on future customer behavior, which requires the use of
significant judgment.  Management uses historical customer redemption
patterns as the best single indicator of future redemption behavior in making
its estimates, but changes in customer mileage redemption behavior patterns,
which are not consistent with historical behavior can result in historical
changes to deferred frequent flyer revenue balances and to recognized
revenue.
 
 The
Company measures its deferred revenue obligation using all awarded and
outstanding miles, regardless of whether or not the customer has accumulated
enough miles to redeem an award.  Eventually these customers will
accumulate enough miles to redeem awards, or their account will deactivate after
a period of inactivity, in which case the Company will recognize the related
revenue when the miles expire as passenger service revenue.
 
 Current
and future changes to the expiration policy, or to program rules and program
redemption opportunities, may result in material changes to the deferred
frequent flyer revenue balance as well as recognized revenue from the
program.
 
 The
Company also sells points in its frequent flyer programs to third
parties.  The travel portion of the sale is recognized as part of the
deferred frequent flyer revenue liability.  The remaining portion,
referred to as the marketing component, is recognized as Cargo and Other Revenue
in the month the miles are sold.


·
            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.





·
            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 residual values for our definite lived
      assets.  As a result of the Company’s annual impairment test for
      the indefinite-lived other intangible assets the Company recorded an
      impairment for the trade names.  The calculation of the fair
      value of the trade names was determined primarily using a discounted cash
      flow analysis.  Management determined that this fair value
      measurement would be classified as Level 3 in the fair value
      hierarchy.  These trade names are included in the Branded
      reportable operating segment. The Company also recorded an impairment for
      other indefinite-lived intangible assets that were included in the
      Fixed-fee reportable operating segment. These impairment losses are
      include in other impairment loses in the consolidated statements of
      income.




·
            Impairments to Goodwill.Goodwill is required to be tested for impairment at the reporting
      unit level on an annual basis and between annual tests if a triggering
      event occurs or circumstances change that would more likely than not
      reduce the fair value of the reporting unit below its carrying
      value.  The following table reflects the changes in the carrying
      amount of goodwill for the years ended December 31, 2009 and 2008 (in
      thousands):





Gross
      CarryingAmount
              
              
              Impairment
              
              
              NetBalance
      at January 1, 2008 and December 31, 2008
              
              $
              13,335
              
              
              $
              -
              
              
              $
              13,335Impairment
              
              
              -
              
              
              
              (13,335
              )
              
              
              (13,335
              )Midwest
      Acquisistion
              
              
              100,424
              
              
              
              (100,424
              )
              
              
              -Balance
      at December 31, 2009
              
              $
              113,759
              
              
              $
              (113,759
              )
              
              $
              -
  44


During
2008 and prior to the acquisition of Midwest in July 2009, the Company had one
reporting unit and all of the goodwill of $13.3 million was assigned to
that unit.




In
assessing the recoverability of goodwill, the Company makes a determination of
the fair value of its business.  Fair value is determined using a
combination of an income approach, which estimates fair value based upon
projections of future revenues, expenses, and cash flows discounted to their
present value, and a market approach, which estimates fair value using market
multiples of various financial measures compared to a set of comparable public
companies in the regional airline industry.  An impairment loss will
generally be recognized when the carrying amount of the net assets of the
business exceeds its estimated fair value.  The valuation methodology and
underlying financial information included in the Company’s determination of fair
value require significant judgments to be made by management.  These
judgments include, but are not limited to, market valuation comparisons to
similar airlines, long term projections of future financial performance and the
selection of appropriate discount rates used to determine the present value of
future cash flows.  Changes in such estimates or the application of
alternative assumptions could produce significantly different
results.






During
the first quarter of 2009, the Company performed an interim test of its
goodwill.  Factors deemed by management to have collectively
constituted a potential triggering event included record high fuel prices, a
softening US economy and the differences between market capitalization of our
stock as compared to the book value of equity.  As a result of the
testing, the Company determined that the goodwill was completely impaired and
recorded an impairment charge during the first quarter of 2009 to write-off the
full value of goodwill.


The
Company’s acquisition of Midwest resulted in approximately $100.4 million of
goodwill which was assigned to the Company’s branded operations reporting
unit.  As of December 31, 2009, the Company performed its annual
assessment of the recoverability of its goodwill.  The branded
operations reporting unit book value of invested capital exceeded
its fair value by approximately $200 million.  The Company
determined the fair value of the branded invested capital utilizing the income,
market, and cost approach.  The Company's fair value calculations for
goodwill are classified within Level 3 of the fair value hierarchy as defined in
ASC Topic 820,Fair Value
Measurements and Disclosures.  As a result of failing Step One,
the Company was required to perform Step Two of the ASC Topic 350 goodwill
impairment testing methodology.
 
 In Step
Two of the impairment testing, the Company determined the implied fair value of
goodwill of the reporting unit by allocating the fair value of the reporting
unit determined in Step One to all the assets and liabilities of the reporting
unit.  The Company utilized its recent valuations of tangible and
intangible assets related to the branded operations reporting unit to determine
the fair value assets and liabilities.  As a result of the Step Two
testing, the Company determined that goodwill was impaired and recorded a full
impairment charge on December 31, 2009, the Company’s annual assessment
date.  In addition, as a result of the Step Two analysis the Company
reduced the value of its tradenames allocated to the branded operations
reporting unit by $6.8 million.
 
 Factors
attributable to the impairment of goodwill and intangible assets consisted of
the following: increased competition in our key markets including Denver and
Milwaukee, current economic conditions and forecasts within the United States,
volatility of fuel prices, and other related factors.





·
            Aircraft Maintenance and
      Repair. The Company charges expenses as incurred under the direct
      expense method. Engines and certain airframe component overhaul and repair
      costs are subject to power-by-the-hour contracts with external vendors and
      are expensed as the aircraft are flown.  As a result of the
      acquisition of Frontier, the Company acquired deposits related to leased
      aircraft at Frontier.  The Company has determined that it is probable
      that all maintenance deposits will be refunded through qualifying
      maintenance activities.  Maintenance deposits for the five
      leased Q400 Lynx Aviation aircraft are fully refundable if all return
      conditions are satisfied and the Company is not in default under the terms
      of the agreement.   Deposits are reimbursed based on the
      specific event for each specified deposit, as determined by the lease. The
      projected ultimate cost was based on actual historical repair invoices as
      well as estimates.  This analysis was performed by lease and by
      deposit type. As of December 31, 2009, the Company anticipates no unused
      excess amounts to be expensed based on this analysis.  The
      Company will continue to evaluate whether it is probable the deposits will
      be returned to reimburse the costs of the maintenance activities
      incurred.  As the Company makes future payments, if the deposits
      are less than probable of being returned, they will be recognized as
      additional expense at that time.





·
            Income Taxes. The
      Company has generated significant net operating losses (“NOLs”) for
      federal income tax purposes primarily from accelerated depreciation on
      owned aircraft.  Certain of our NOLs generated prior to July
      2005 and acquired from Midwest and Frontier are subject to an annual
      limitation under Internal Revenue Code Section 382 (“IRC 382”). The annual
      limitation is based upon the enterprise value of the Company on the IRC
      382 ownership change date multiplied by the applicable long-term tax
      exempt rate. If the utilization of deferred tax assets, and other carry
      forwards becomes uncertain in future years, we will be required to
      record a valuation allowance for the deferred tax assets not expected to
      be utilized.




·
            Intangible Assets - 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.




45


As a
result of the acquisitions of Frontier and Midwest during the year ended
December 31, 2009, the Company acquired slots at the New York, LaGuardia, Ronald
Reagan Washington National and Newark Liberty International
airports.  Management concluded these slots were indefinite lived
assets given the nature of the assets and existing and pending legislation
regarding slots at the aforementioned airports.




Quarterly
Information (unaudited)




The
following table sets forth summary quarterly financial information for the years
ended December 31, 2009 and 2008.





Quarters
      EndedMarch
      31
              
              
              June
      30
              
              
              September
      30
              
              
              December
      31(dollars
      in thousands, except net income per share)2009Operating
      revenues
              
              $
              325,305
              
              
              $
              319,962
              
              
              $
              359,627
              
              
              $
              637,324Operating
      income
              
              
              44,767
              
              
              
              53,638
              
              
              
              36,595
              
              
              
              136,400Net
      income of the Company
              
              
              2,160
              
              
              
              14,117
              
              
              
              3,271
              
              
              
              20,107Net
      income per share:Basic
              
              $
              0.06
              
              
              $
              0.41
              
              
              $
              0.09
              
              
              $
              0.58Diluted
              
              $
              0.06
              
              
              $
              0.41
              
              
              $
              0.09
              
              
              $
              0.55Weighted
      average number of shares outstanding:Basic
              
              
              34,448,683
              
              
              
              34,448,683
              
              
              
              34,448,683
              
              
              
              34,598,683Diluted
              
              
              34,448,683
              
              
              
              34,448,683
              
              
              
              34,528,690
              
              
              
              37,217,6612008Operating
      revenues
              
              $
              363,883
              
              
              $
              391,372
              
              
              $
              385,248
              
              
              $
              339,252Operating
      income
              
              
              65,813
              
              
              
              65,761
              
              
              
              60,204
              
              
              
              63,317Net
      income of the Company
              
              
              20,151
              
              
              
              28,431
              
              
              
              17,007
              
              
              
              18,992Net
      income per share:Basic
              
              $
              0.56
              
              
              $
              0.82
              
              
              $
              0.50
              
              
              $
              0.56Diluted
              
              $
              0.55
              
              
              $
              0.81
              
              
              $
              0.50
              
              
              $
              0.56Weighted
      average number of shares outstanding:Basic
              
              
              36,237,981
              
              
              
              34,854,532
              
              
              
              34,169,104
              
              
              
              34,174,167Diluted
              
              
              36,561,294
              
              
              
              34,977,671
              
              
              
              34,169,104
              
              
              
              34,174,167




New Accounting
Standards




Effective
January 1, 2009, the Company adopted ASC Topic 805, “Business Combinations,” which
establishes principles and requirements for how the acquirer of a business
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any non-controlling interest in the
acquiree.  ASC Topic 805 also provides guidance for recognizing and
measuring the goodwill acquired in the business combination and determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination.





Effective
January 1, 2009, the Company adopted the revision to ASC Topic 810-10, “Consolidation,” which revised
the Topic to establish accounting and reporting standards for the
non-controlling interest in a subsidiary and for the deconsolidation of a
subsidiary.  It clarifies that a noncontrolling interest in a
subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements.  In
addition, ASC Topic 260-10, “Earnings per Share,” was
revised so that earnings-per-share data will continue to be calculated the same
way those data were calculated before this Statement was issued.  The
adoption of this ASC Topic had no impact on the consolidated financial
statements and was applied during 2009 for the noncontrolling interest from the
Mokulele acquisition.





In June
2009, the FASB issued ASC Topic 105, “Generally Accepted Accounting
Principles,” as the authoritative source of generally accepted accounting
principles in the United States.  Rules and interpretive releases of
the Securities and Exchange Commission (“SEC”) under federal securities laws are
also sources of authoritative GAAP for SEC registrants.  ASC Topic 105
is effective for financial statements issued for interim and annual periods
ending after September 15, 2009.  The adoption of the ASC Topic
did not have an impact on the Company’s financial condition or results of
operations, but will impact our financial reporting process by eliminating all
references to pre-codification standards.




46





In
October 2009, the FASB issued an Accounting Standards Update (ASU No. 2009-13)
pertaining to multiple-deliverable revenue arrangements. The new guidance will
affect accounting and reporting for companies that enter into
multiple-deliverable revenue arrangements with their customers when those
arrangements are within the scope of ASC 605-25 “Revenue Recognition – Multiple
Element Arrangements”.  The new guidance will eliminate the residual
method of allocation and require that arrangement consideration be allocated at
the inception of the arrangement to all deliverables using the relative selling
price method.  The new guidance will be effective for the Company
prospectively for revenue arrangements entered into or materially modified on or
after January 1, 2011, with early adoption permitted. We are currently
evaluating the impact that ASU No. 2009-13 will have on our consolidated
financial statements.





In
February 2010, the FASB issued Accounting Standards Update 2010-09, Subsequent Events (Topic 855):
Amendments to Certain Recognition and Disclosure Requirements,which
revised the general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued or
available to be issued.  The adoption did not have a material impact
on the Company’s consolidated results of operations or financial condition,
except the Company no longer needs to disclose the date subsequent events are
evaluated through.





ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




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




Interest
Rates





Our
earnings can be affected by changes in interest rates due to amount of cash and
securities held and variable rate debt. At December 31, 2009, approximately
$506.8 million of our outstanding debt was at variable interest
rates.  However, at December 31, 2008 and 2007 all of our long-term
debt was fixed rate debt.  A one hundred basis point change in the
LIBOR rate would increase or decrease interest expense by $5.1
million.




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.





Aircraft
Fuel Price Risk





Our
results of operations are materially impacted by changes in aircraft fuel
prices. In an effort to manage our exposure to this risk, we periodically
purchase call options on crude oil. We do not hold or issue any derivative
financial instruments for trading purposes. These fuel hedges do not qualify for
hedge accounting, and, as such, realized and unrealized non-cash mark-to-market
adjustments are included in aircraft fuel expense.  A one dollar
change in price per barrel of crude oil will increase or decrease our fuel
expense by $5.7 million.  A one-cent change in the cost of each gallon
of fuel would impact our pre-tax income by approximately $2.4 million per year
based on our current fleet and aircraft fuel consumption.




47








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
            
            
            49Consolidated Balance Sheets as of December 31,
      2009 and 2008
            
            
            50Consolidated Statements of Income for the years
      ended December 31, 2009, 2008 and 2007
            
            
            51Consolidated Statements of Stockholders’ Equity
      and Comprehensive Income for the years ended December 31, 2009, 2008 and
      2007
            
            
            52Consolidated Statements of Cash
      Flows for the years ended December 31, 2009, 2008 and
      2007
            
            
            53Notes
      to Consolidated Financial Statements
            
            
            54




48





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, 2009 and 2008,
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, 2009.  We have also audited the internal control
over financial reporting of the Company as of December 31, 2009, based on
criteria established in Internal Control — Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission. As described in Management’s Annual Report on Internal
Control Over Financial Reporting included in Item 9A, management excluded from
its assessment the internal control over financial reporting at Midwest Air
Group, Inc. and subsidiaries (“Midwest”) and Frontier Airlines Holdings, Inc.
and subsidiaries (“Frontier”), which were acquired on July 31, 2009 and October
1, 2009, respectively, and whose financial statements constitute collectively
28% and 26%, respectively, of total assets and revenues of the consolidated
financial statement amounts as of and for the year ended December 31, 2009.Accordingly, our audit
did not include the internal control over financial reporting at Midwest and
Frontier.The
Company's management is responsible for these financial statements, for
maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Annual Report on Internal Control Over
Financial Reporting included in Item 9A. Our responsibility is to express an
opinion on these consolidated financial statements and an opinion on the
Company's internal control over financial reporting based on our
audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free from material misstatement and whether
effective internal control over financial reporting was maintained in all
material respects. Our audits of the financial statements including examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation.  Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk.  Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.





A
company's internal control over financial reporting is a process designed by, or
under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.





Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Republic Airways
Holdings Inc. and subsidiaries as of December 31, 2009 and 2008, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2009, in conformity with accounting principles
generally accepted in the United States of America.  Also, in our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2009, based on the criteria
established in Internal
Control — Integrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission.





As
discussed in Note 1 to the consolidated financial statements, substantially all
fixed-fee service revenues are derived from code-share agreements with US
Airways, Inc., Delta Air Lines, Inc., AMR Corp., the parent of American Airline,
Inc., United Air Line, Inc., and Continental Airlines, Inc.





/s/
DELOITTE & TOUCHE LLP


Indianapolis,
Indiana


March 16,
2010




49





REPUBLIC
      AIRWAYS HOLDINGS INC. AND SUBSIDIARIESCONSOLIDATED
      BALANCE SHEETSAS
      OF DECEMBER 31, 2009 AND 2008(In
      thousands, except share and per share
amounts)
  2009
                
                
                2008ASSETSCurrent
      Assets:Cash
      and cash equivalents
                
                $
                157,532
                
                
                $
                129,656Restricted
      cash
                
                
                192,700
                
                
                
                1,209Receivables—net
      of allowance for doubtful accounts of $743 and $2,054,
      respectively
                
                
                69,510
                
                
                
                25,303Inventories—net
                
                
                81,391
                
                
                
                51,885Prepaid
      expenses and other current assets
                
                
                42,568
                
                
                
                17,924Notes
      receivable—net
                
                
                -
                
                
                
                54,394Assets
      held for sale
                
                
                25,649
                
                
                
                82,959Deferred
      income taxes
                
                
                21,023
                
                
                
                7,406Total
      current assets
                
                
                590,373
                
                
                
                370,736Aircraft
      and other equipment—net
                
                
                3,418,160
                
                
                
                2,692,410Maintenance
      deposits
                
                
                143,868
                
                
                
                438Other
      intangible assets—net
                
                
                166,025
                
                
                
                48,276Other
      assets
                
                
                132,046
                
                
                
                111,383Goodwill
                
                
                -
                
                
                
                13,335Total
                
                $
                4,450,472
                
                
                $
                3,236,578LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      Liabilities:Current
      portion of long-term debt
                
                $
                243,259
                
                
                $
                196,301Accounts
      payable
                
                
                106,178
                
                
                
                33,042Air
      traffic liability
                
                
                138,242
                
                
                
                -Deferred
      frequent flyer revenue
                
                
                46,213
                
                
                
                -Accrued
      liabilities
                
                
                211,632
                
                
                
                126,742Total
      current liabilities
                
                
                745,524
                
                
                
                356,085Long-term
      debt—less current portion
                
                
                2,546,160
                
                
                
                2,081,544Deferred
      frequent flyer revenue
                
                
                108,545
                
                
                
                -Deferred
      credits and other non current liabilities
                
                
                97,788
                
                
                
                89,182Deferred
      income taxes
                
                
                434,575
                
                
                
                233,828Total
      liabilities
                
                
                3,932,592
                
                
                
                2,760,639Commitments
      and contingenciesRepublic
      Airways Holdings Inc. Stockholders' Equity:Preferred
      stock, $.001 par value; 5,000,000 shares authorized; no shares
      issued
                
                
                -
                
                
                
                -or
      outstandingCommon
      stock, $.001 par value; one vote per share; 150,000,000 shares
      authorized;
                
                
                44
                
                
                
                4443,931,116
      and 43,781,116 shares issued and 34,598,683 and 34,448,683
      sharesoutstanding,
      respectivelyAdditional
      paid-in capital
                
                
                299,257
                
                
                
                297,376Treasury
      stock, 9,332,433 shares at cost
                
                
                (181,820
                )
                
                
                (181,820
                )Accumulated
      other comprehensive loss
                
                
                (2,172
                )
                
                
                (2,577
                )Accumulated
      earnings
                
                
                402,571
                
                
                
                362,916Total
      Republic Airways Holdings Inc. stockholders' equity
                
                
                517,880
                
                
                
                475,939Noncontrolling
      interests in Mokulele Flight Service, Inc. ("MFSI")
                
                
                -
                
                
                
                -Total
      equity
                
                
                517,880
                
                
                
                475,939Total
                
                $
                4,450,472
                
                
                $
                3,236,578
  See
accompanying notes to consolidated financial statements.
  50


REPUBLIC
      AIRWAYS HOLDINGS, INC. AND SUBSIDIAIRESCONSOLIDATED
      SATEMENTS OF INCOMEFOR
      THE YEARS ENDED DECEMBER 31, 2009, 2008, AND 2007(In
      thousands, except per share
amounts)
  2009
              
              
              2008
              
              
              2007OPERATING
      REVENUES:Fixed-fee
      service
              
              $
              1,180,209
              
              
              $
              1,462,211
              
              
              $
              1,274,607Passenger
      service
              
              
              389,653
              
              
              
              -
              
              
              
              -Cargo
      and other
              
              
              72,356
              
              
              
              17,544
              
              
              
              18,070Total
      operating revenues
              
              
              1,642,218
              
              
              
              1,479,755
              
              
              
              1,292,677OPERATING
      EXPENSES:Wages
      and benefits
              
              
              342,364
              
              
              
              252,336
              
              
              
              226,521Aircraft
      fuel
              
              
              236,620
              
              
              
              327,791
              
              
              
              296,573Landing
      fees and airport rents
              
              
              96,915
              
              
              
              59,891
              
              
              
              53,684Aircraft
      and engine rent
              
              
              156,773
              
              
              
              134,206
              
              
              
              124,961Maintenance
      and repair
              
              
              211,503
              
              
              
              169,425
              
              
              
              130,237Insurance
      and taxes
              
              
              28,105
              
              
              
              25,793
              
              
              
              19,039Depreciation
      and amortization
              
              
              163,584
              
              
              
              133,206
              
              
              
              106,594Promotion
      and sales
              
              
              36,265
              
              
              
              -
              
              
              
              -Goodwill
      impairment
              
              
              113,759
              
              
              
              -
              
              
              
              -Other
      impairment charges
              
              
              8,800
              
              
              
              -
              
              
              
              -Gain
      on bargain purchase
              
              
              (203,698
              )
              
              
              -
              
              
              
              -Other
              
              
              179,828
              
              
              
              122,012
              
              
              
              104,790Total
      operating expenses
              
              
              1,370,818
              
              
              
              1,224,660
              
              
              
              1,062,399OPERATING
      INCOME
              
              
              271,400
              
              
              
              255,095
              
              
              
              230,278OTHER
      INCOME (EXPENSE):Interest
      expense
              
              
              (144,994
              )
              
              
              (131,856
              )
              
              
              (107,323
              )Other-net
              
              
              9,784
              
              
              
              14,176
              
              
              
              11,013Total
      other income (expense)
              
              
              (135,210
              )
              
              
              (117,680
              )
              
              
              (96,310
              )INCOME
      BEFORE INCOME TAXES
              
              
              136,190
              
              
              
              137,415
              
              
              
              133,968INCOME
      TAX EXPENSE
              
              
              99,805
              
              
              
              52,835
              
              
              
              51,210NET
      INCOME
              
              
              36,385
              
              
              
              84,580
              
              
              
              82,758Add:
      Net loss attributable to noncontrolling interest in Mokulele Flight
      Service Inc.
              
              
              3,270
              
              
              
              -
              
              
              
              -NET
      INCOME OF THE COMPANY
              
              $
              39,655
              
              
              $
              84,580
              
              
              $
              82,758NET
      INCOME PER COMMON SHARE - BASIC
              
              $
              1.15
              
              
              $
              2.43
              
              
              $
              2.05NET
      INCOME PER COMMON SHARE - DILUTED
              
              $
              1.13
              
              
              $
              2.42
              
              
              $
              2.02




See
accompanying notes to consolidated financial statements.




51




REPUBLIC
AIRWAYS HOLDINGS INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME


FOR
THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007


(In
thousands)




Republic
      Airways Holdings Inc. StockholdersAccumulatedOther
              
              
              
              
              
              Additional
              
              
              
              
              
              
              
              
              OtherComprehensive
              
              
              Common
              
              
              Paid-In
              
              
              
              
              
              Treasury
              
              
              Comprehensive
              
              
              Accumulated
              
              
              NoncontrollingIncome
              
              
              Stock
              
              
              Capital
              
              
              Warrants
              
              
              Stock
              
              
              Loss
              
              
              Earnings
              
              
              Interest
              
              
              TotalBalance
      at January 1, 2007
              
              
              
              
              $
              43
              
              
              $
              281,826
              
              
              $
              8,574
              
              
              $
              -
              
              
              $
              (3,877
              )
              
              $
              222,263
              
              
              $
              -
              
              
              
              508,829Stock
      compensation expense
              
              
              
              
              
              
              
              
              
              3,119
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              3,119Exercise
      of employee stock options
              
              
              
              
              
              
              
              
              
              8,182
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              8,182Net
      income
              
              $
              82,758
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              82,758
              
              
              
              
              
              
              
              82,758Treasury
      stock repurchases
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (142,411
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (142,411
              )Reclassification
      adjustment for loss realized on derivatives, net of tax
              
              
              868
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              868
              
              
              
              
              
              
              
              
              
              
              
              868Cummulative
      effect of change in accounting principle (FIN 48)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (2,367
              )
              
              
              
              
              
              
              (2,367
              )Delta
      warrants surrender, net of tax
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (8,574
              )
              
              
              
              
              
              
              
              
              
              
              (24,318
              )
              
              
              
              
              
              
              (32,892
              )Comprehensive
      income
              
              $
              83,626Balance
      at December 31, 2007
              
              
              
              
              
              
              43
              
              
              
              293,127
              
              
              
              -
              
              
              
              (142,411
              )
              
              
              (3,009
              )
              
              
              278,336
              
              
              
              -
              
              
              
              426,086Stock
      compensation expense
              
              
              
              
              
              
              
              
              
              
              3,925
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              3,925Exercise
      of employee stock options
              
              
              
              
              
              
              1
              
              
              
              324
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              325Net
      income
              
              $
              84,580
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              84,580
              
              
              
              
              
              
              
              84,580Treasury
      stock repurchases
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (39,409
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (39,409
              )Reclassification
      adjustment for loss realized on derivatives, net of tax
              
              
              432
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              432
              
              
              
              
              
              
              
              
              
              
              
              432Comprehensive
      income
              
              $
              85,012Balance
      at December 31, 2008
              
              
              
              
              
              
              44
              
              
              
              297,376
              
              
              
              -
              
              
              
              (181,820
              )
              
              
              (2,577
              )
              
              
              362,916
              
              
              
              -
              
              
              
              475,939Stock
      compensation expense
              
              
              
              
              
              
              
              
              
              
              5,151
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              5,151Decrease
      in Republic's APIC for purchase of Mokulele Flight Services, Inc. common
      stock from noncontrolling interest
              
              
              
              
              
              
              
              
              
              
              (3,270
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              3,270
              
              
              
              -Net
      income
              
              $
              36,385
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              39,655
              
              
              
              (3,270
              )
              
              
              36,385Reclassification
      adjustment for loss realized on derivatives, net of tax
              
              
              405
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              405
              
              
              
              
              
              
              
              
              
              
              
              405Comprehensive
      income
              
              $
              36,790Balance
      at December 31, 2009
              
              
              
              
              
              $
              44
              
              
              $
              299,257
              
              
              $
              -
              
              
              $
              (181,820
              )
              
              $
              (2,172
              )
              
              $
              402,571
              
              
              $
              -
              
              
              $
              517,880


See
accompanying notes to consolidated financial statements.




52





REPUBLIC
      AIRWAYS HOLDINGS INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF CASH FLOWSFOR
      THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007(In
      thousands)
  2009
                  
                  
                  2008
                  
                  
                  2007OPERATING
      ACTIVITIES:Net
      income
                  
                  $
                  36,385
                  
                  
                  $
                  84,580
                  
                  
                  $
                  82,758Adjustments
      to reconcile net income to net cash from operating
    activities:Goodwill
      and other impairment charges
                  
                  
                  122,559
                  
                  
                  
                  -
                  
                  
                  
                  -Gain
      on bargain purchase
                  
                  
                  (203,698
                  )
                  
                  
                  -
                  
                  
                  
                  -Depreciation
      and amortization
                  
                  
                  163,584
                  
                  
                  
                  133,206
                  
                  
                  
                  106,594Debt
      issue costs and other amortization
                  
                  
                  8,375
                  
                  
                  
                  7,078
                  
                  
                  
                  6,764Curtailment
      gain and non-cash pension expense
                  
                  
                  (7,500
                  )
                  
                  
                  -
                  
                  
                  
                  -Warrant
      amortization
                  
                  
                  (10,781
                  )
                  
                  
                  (15,953
                  )
                  
                  
                  102Loss
      on aircraft and other equipment disposals
                  
                  
                  4,906
                  
                  
                  
                  4,749
                  
                  
                  
                  255Realized
      gain on interest rate swap
                  
                  
                  -
                  
                  
                  
                  (5,785
                  )
                  
                  
                  -Gain
      on extinguishment of debt
                  
                  
                  -
                  
                  
                  
                  (5,980
                  )
                  
                  
                  -Stock
      compensation expense
                  
                  
                  5,151
                  
                  
                  
                  3,925
                  
                  
                  
                  3,119Deferred
      income taxes
                  
                  
                  101,713
                  
                  
                  
                  49,339
                  
                  
                  
                  51,090Other,
      net
                  
                  
                  1,397
                  
                  
                  
                  (1,547
                  )
                  
                  
                  (1,761
                  )Changes
      in certain assets and liabilities:Restricted
      cash
                  
                  
                  9,604
                  
                  
                  
                  -
                  
                  
                  
                  -Receivables
                  
                  
                  (4,260
                  )
                  
                  
                  2,281
                  
                  
                  
                  (7,944
                  )Inventories
                  
                  
                  (15,595
                  )
                  
                  
                  (8,212
                  )
                  
                  
                  (11,419
                  )Prepaid
      expenses and other current assets
                  
                  
                  (3,560
                  )
                  
                  
                  (7,996
                  )
                  
                  
                  1,554Accounts
      payable
                  
                  
                  (6,309
                  )
                  
                  
                  (2,158
                  )
                  
                  
                  11,299Air
      traffic liability
                  
                  
                  (15,692
                  )
                  
                  
                  -
                  
                  
                  
                  -Deferred
      frequent flyer liability
                  
                  
                  7,548
                  
                  
                  
                  -
                  
                  
                  
                  -Accrued
      liabilities
                  
                  
                  (13,695
                  )
                  
                  
                  16,006
                  
                  
                  
                  4,022Deferred
      revenue (Delta pre-petition claim)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  44,590Other,
      net
                  
                  
                  (11,514
                  )
                  
                  
                  (11,246
                  )
                  
                  
                  (10,533
                  )Net
      cash from operating activities
                  
                  
                  168,618
                  
                  
                  
                  242,287
                  
                  
                  
                  280,490INVESTING
      ACTIVITIES:Purchase
      of aircraft and other equipment
                  
                  
                  (39,997
                  )
                  
                  
                  (127,832
                  )
                  
                  
                  (99,545
                  )Proceeds
      from sale of aircraft and other equipment
                  
                  
                  72,869
                  
                  
                  
                  52,945
                  
                  
                  
                  15,798Aircraft
      deposits
                  
                  
                  (5,506
                  )
                  
                  
                  (20,884
                  )
                  
                  
                  (51,414
                  )Aircraft
      deposits returned
                  
                  
                  14,459
                  
                  
                  
                  68,623
                  
                  
                  
                  58,681Funding
      of notes receivable
                  
                  
                  (61,117
                  )
                  
                  
                  (55,032
                  )
                  
                  
                  -Acquisition
      of Frontier, net of cash acquired
                  
                  
                  25,193
                  
                  
                  
                  -
                  
                  
                  
                  -Acquisition
      of Midwest, net of cash acquired
                  
                  
                  (1,894
                  )
                  
                  
                  -
                  
                  
                  
                  -Other,
      net
                  
                  
                  (622
                  )
                  
                  
                  242
                  
                  
                  
                  12Net
      cash from investing activities
                  
                  
                  3,385
                  
                  
                  
                  (81,938
                  )
                  
                  
                  (76,468
                  )FINANCING
      ACTIVITIES:Payments
      on debt
                  
                  
                  (145,709
                  )
                  
                  
                  (113,565
                  )
                  
                  
                  (93,475
                  )Proceeds
      from refinancing of aircraft and issuance of debt
                  
                  
                  75,123
                  
                  
                  
                  6,700
                  
                  
                  
                  -Payments
      on early extinguishment of debt
                  
                  
                  (70,887
                  )
                  
                  
                  (49,969
                  )
                  
                  
                  -Proceeds
      from exercise of stock options
                  
                  
                  -
                  
                  
                  
                  325
                  
                  
                  
                  8,182Payments
      for debt issue costs
                  
                  
                  (2,654
                  )
                  
                  
                  (4,564
                  )
                  
                  
                  (7,842
                  )Proceeds
      on settlement of interest rate swaps
                  
                  
                  -
                  
                  
                  
                  5,785
                  
                  
                  
                  -Purchase
      of treasury stock
                  
                  
                  -
                  
                  
                  
                  (39,409
                  )
                  
                  
                  (142,411
                  )Net
      cash from financing activities
                  
                  
                  (144,127
                  )
                  
                  
                  (194,697
                  )
                  
                  
                  (235,546
                  )Net
      changes in cash and cash equivalents
                  
                  
                  27,876
                  
                  
                  
                  (34,348
                  )
                  
                  
                  (31,524
                  )CASH
      AND CASH EQUIVALENTS AT BEGINNING OF YEAR
                  
                  
                  129,656
                  
                  
                  
                  164,004
                  
                  
                  
                  195,528CASH
      AND CASH EQUIVALENTS AT END OF YEAR
                  
                  $
                  157,532
                  
                  
                  $
                  129,656
                  
                  
                  $
                  164,004
  See
accompanying notes to consolidated financial statements.
  53




REPUBLIC
AIRWAYS HOLDINGS INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009, 2008 and 2007




1.
            ORGANIZATION &
      BUSINESS




We are a
Delaware holding company organized in 1996 that offers scheduled passenger
services through our wholly-owned operating subsidiaries:  Chautauqua
Airlines, Inc., (“Chautauqua Airlines”), Shuttle America Corporation (“Shuttle
America”), Republic Airline Inc. (“Republic Airline”), Frontier Airlines, Inc.,
and Lynx Airlines, Inc. (“Lynx”).  The Company acquired Midwest Air
Group, Inc. (“Midwest”) and Frontier Airlines Holdings, Inc. (“Frontier”) on
July 31, 2009 and October 1, 2009, respectively.  On November 3, 2009,
Midwest Airlines, Inc. ceased to exist as an actual operating airline and we
allowed its Department of Transportation (“DOT”) air carrier operating
certificate to lapse.  Midwest’s branding, livery and route structure
are all operated by our other operating subsidiaries.  We plan to
fully integrate the operations of Midwest and Frontier as promptly as is
feasible, which we anticipate will be substantially completed by the end of
2010.  Unless the context indicates otherwise, the terms “the
Company,” “we,” “us,” or “our,” refer to Republic Airways Holdings Inc. and our
subsidiaries.





As of
December 31, 2009, our operating subsidiaries offered scheduled passenger
service on approximately 1,600 flights daily to 121 cities in 44 states, Canada,
Mexico, and Costa Rica under branded operations as Frontier and Midwest, and
through fixed-fee code-share agreements with AMR Corp., the parent of American
Airlines, Inc. (“American”), Continental Airlines, Inc. (“Continental”), Delta
Air Lines, Inc. (“Delta”),  United Air Lines, Inc. (“United”), and US
Airways, Inc. (“US Airways”) (collectively referred to as our “Partners”).
Currently, we provide our Partners with fixed-fee regional airline services,
operating as AmericanConnection, Continental Express, Delta Connection, United
Express, or US Airways Express, including service out of their hubs and focus
cities.





The
following table outlines the type of aircraft our subsidiaries operate and their
respective operations within our business units as of December 31,
2009:




Branded
      Operations
              
              
              Fixed-Fee
      Code-Share Agreement Partners
              
              
              Other
              
              
              NumberOperating
                Subsidiaries
              
              Aircraft
                Size
              
              
              Frontier
      /
                Midwest
              
              
              American
              
              
              Continental
              
              
              Delta
              
              
              United
              
              
              US
                Airways
              
              
              Unallocated
              
              
              of
                AircraftChautauqua
      Airlines
              
              37
      to 50
              
              
              
              6
              
              
              
              15
              
              
              
              22
              
              
              
              24
              
              
              
              7
              
              
              
              9
              
              
              
              4
              
              
              
              87Shuttle
      America
              
              70
      to 76
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              16
              
              
              
              38
              
              
              
              —
              
              
              
              2
              
              
              
              56Republic
      Airline
              
              70
      to 99
              
              
              
              27
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              58
              
              
              
              —
              
              
              
              85Frontier
              
              120
      to 162
              
              
              
              51
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              51Lynx
              
              74
              
              
              
              11
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              11Total
      number of operating aircraft
              
              
              
              95
              
              
              
              15
              
              
              
              22
              
              
              
              40
              
              
              
              45
              
              
              
              67
              
              
              
              6
              
              
              
              290




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. Our fixed-fee agreements have historically limited 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.





US
Airways Code-Share Agreements





The
code-share agreement for the E145 aircraft terminates in July
2014.  The code-share agreement for the E170/175 aircraft terminates
in September 2015 with respect to the 20 E170 aircraft and eight of the E175
aircraft.   The remaining 30 E175 aircraft terminate 12 years
from each aircraft’s in-service date and therefore would terminate from February
2019 to July 2020. 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 certain conditions.





The
American Code-Share Agreement





The term
of the American code-share agreement continues until February 1, 2013. However,
American may terminate the code-share agreement without cause upon 180 days
notice, provided that such notice may not be given prior to September 30, 2011.
If American terminates the code-share agreement without cause, we have the right
to put the leases of the aircraft, or to sell the aircraft to American to the
extent owned by us, used under the code-share agreement to American. The
agreement may be subject to termination for cause prior to that date under
various circumstances.




54





The
Delta Code-Share Agreements





The
code-share agreements for the E145 and E170/175 aircraft terminate in May 2016
and January 2019, respectively, subject to certain extension rights. Delta may
terminate the code-share agreements at any time, with or without cause, if it
provides us 180 days written notice, provided that such notice shall not be
given prior to November 2009 for the E145 regional jet code-share agreement and
July 2015 for the E170/175 regional jet code-share agreement. With the
respect to the E145 agreement, if Delta chooses to terminate any aircraft early,
it may not reduce the number of aircraft in service to less than 12 during the
12-month period following the 180 day initial notice period unless it completely
terminates the code-share agreement. We refer to this as Delta's partial
termination right.





If Delta
exercises this right under either agreement or if we terminate either agreement
for cause, we have the right to require Delta either to purchase, sublease or
assume the lease of aircraft leased by us with respect to any of the aircraft we
previously operated for Delta under that agreement.





The
United Code-Share Agreements





The E170
code-share agreement terminates on June 30, 2019.  The E145 code-share
agreement was terminated effective January 2010.  The E145 aircraft
are being transitioned to our branded business unit or returned to lessor during
the first quarter of 2010.  United has the option of extending the
E170 agreement for five years or less.  In addition, the code-share
agreements may be terminated under certain conditions.





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





The
CRJ-200 aircraft are operated under the agreement on terms generally equivalent
to our CRJ-200 leases that vary from two to three years.  The
remaining CRJ aircraft will come out of service in the first quarter of 2010 and
be returned to the lessor.  The E145 aircraft have a term of three to
five years.  Under certain conditions, Continental may extend the term on
the aircraft up to five additional years.





Branded
Operations





Our
Midwest brand has a regional focus in Milwaukee and Kansas City, and our
Frontier brand has a regional focus in Denver.  Our branded operations
expose us to changes in passenger demand, fare competition and fluctuations in
fuel prices.  Midwest is the largest carrier in Milwaukee, and Frontier is
the second largest carrier in Denver.  Each brand has a significant base of
frequent flyer members and strong support in their local
communities.





During 2009, our operational fleet
increased from 221 to 290 aircraft.  The acquisition of Frontier added
62 aircraft that are operated by Frontier and Lynx.  Additionally, during
2009, we took delivery of 11 E190 aircraft, which have been placed into branded
service, three E175 aircraft, which were placed into service with Delta and six
E135 aircraft which were placed into branded service.  We also returned 10
CRJ200 aircraft to the lessor and subleased three E145 aircraft
offshore.





In order
to simplify our fleet and reduce expenses, we expect to remove our Q400 and
CRJ-200 fleets in 2010. The remaining seven CRJ-200 aircraft will be removed
from service for Continental and returned to the lessor by April 2010 and we
expect to reduce the operations on the Q400 aircraft in April 2010 and eliminate
all Q400 flying by September 2010.





Concentrations





As of
December 31, 2009, substantially all fixed-fee service revenues are derived from
code-share agreements with US Airways, Delta, American, United, and
Continental.  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.





During
the years ended December 31, 2009, 2008, and 2007, Delta was approximately 19%,
29% and 33%, US Airways was approximately 33%, 25%, and 22%, and United was
approximately 29%, 21%, and 24% of the Company’s fixed-fee service revenue,
respectively.





Frontier
and Midwest operate primarily out of the Denver and Milwaukee airports with 95%
of our flights originating or departing from the Milwaukee or Denver
airports.  A reduction in the Company’s market share, increased
competition, or reduced passenger traffic to or from these airports could have
an adverse effect on our financial position and results of
operations.  In addition, our dependence on a hub system operating out
of these airports makes us more susceptible to adverse weather conditions and
other traffic delays than some of our competitors that may be able to spread
these traffic risks over larger route networks.




55





2.
              SUMMARY
      OF SIGNIFICANT ACCOUNTING
POLICIES


Basis ofConsolidation—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 the Company and its wholly-owned subsidiaries,
Chautauqua Airlines, Shuttle America, Republic Airline, Frontier and
Midwest.  The Company’s financial statements include the results of
operations and cash flows for Midwest and Frontier beginning August 1, 2009 and
October 1, 2009, respectively.  The Company’s financial statements
include the results of operations and cash flows for Mokulele Flight Services,
Inc. (“MFSI or Mokulele”) beginning April 1, 2009 through October 16,
2009.  Intercompany transactions and balances are eliminated in
consolidation.




Risk
Management—As part of our risk management strategy, the Company
periodically purchases crude oil option contracts in order to manage our
exposure to the effect of changes in the price of aircraft
fuel.  Prices for crude oil are normally correlated to aircraft fuel,
making derivatives of crude oil effective at providing short-term protection
against sharp increases in average fuel prices.  The Company does not
hold or issue any derivative financial instruments for speculative trading
purposes.  The Company chose not to designate these derivatives as
hedges, and, as such, realized and unrealized mark-to-market adjustments are
included in aircraft fuel expense in the consolidated statements of
income.





The
Company has recorded within accumulated other comprehensive loss settlements of
derivative transactions from prior periods.  Such amounts are
reclassified to interest expense over the term of the respective aircraft debt.
 During 2009, 2008 and 2007, the Company reclassified $0.7 million, $0.7
million, and $0.8 million to interest expense, respectively. The Company expects
to reclassify $0.6 million to interest expense for the year ending December 31,
2010.





In March
2008, in anticipation of financing the purchase of E175 aircraft on firm order
with the manufacturer, the Company entered into 21 interest rate swap agreements
for a notional amount of $420 million.  In April 2008, the Company
terminated the interest rate swap agreements resulting in a gain and cash
proceeds of $5.8 million, which is recorded in other income, net in the
consolidated statement of income in 2008.





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 three
banks.




Supplemental
Statement of  Cash Flow Information:




Years
      ended December 31,(amounts
      in 000's)
                
                2009
                
                
                2008
                
                
                2007CASH
      PAID FOR INTEREST AND INCOME TAXES:Interest
      paid-net of amount capitalized
                
                $
                134,700
                
                
                $
                122,355
                
                
                $
                105,818Income
      taxes paid-net of refunds
                
                
                (319
                )
                
                
                483
                
                
                
                1,388NON-CASH
      INVESTING AND FINANCING TRANSACTIONS:Parts,
      training and lease credits received from aircraft
    manufacturer
                
                
                (1,710
                )
                
                
                (14,900
                )
                
                
                (12,540
                )Liabilities
      assumed in Mokulele transaction
                
                
                9,300
                
                
                
                -
                
                
                
                -Liabilities
      removed in Mokulele deconsolidation
                
                
                6,800
                
                
                
                -
                
                
                
                -Conversion
      of Mokulele note to equity
                
                
                3,000
                
                
                
                -
                
                
                
                -Liabilities
      assumed in Midwest acquisition
                
                
                182,000
                
                
                
                -
                
                
                
                -Liabilities
      assumed in Frontier acquisition
                
                
                757,700
                
                
                
                -
                
                
                
                -Convertible
      debt issued in Midwest acquisition
                
                
                25,000
                
                
                
                -
                
                
                
                -Frontier
      debtor-in-possession loan settled upon acquisition
                
                
                43,104
                
                
                
                -
                
                
                
                -US
      Airways note receivable and accrued interest applied to aicraft
      purchases
                
                
                35,228
                
                
                
                -
                
                
                
                -Aircraft,
      inventories, and other equipment purchased through direct financing
      arrangements
                
                
                315,272
                
                
                
                526,200
                
                
                
                438,252Engines
      received and not yet paid
                
                
                8,124
                
                
                
                6,283
                
                
                
                3,281Refinancing
      of aircraft
                
                
                -
                
                
                
                139,145
                
                
                
                -Fair
      value of warrants surrendered by Delta
                
                
                -
                
                
                
                -
                
                
                
                49,103Engines
      contributed in settlement of liability
                
                
                6,400
                
                
                
                -
                
                
                
                -




56





Restricted Cash—Restricted cash primarily consists of funds held as collateral for
bankcard and credit card processors and are invested in money market accounts or
held by credit card processors directly.  These contracts with the
processors require a holdback of funds equal to a certain percentage of the air
traffic liability associated with the estimated amount of bankcard
transactions.The
Company also maintains restricted amounts for satisfying debt and lease payments
due within the next year and certificates of deposit that secure certain letters
of credit issued for workers compensation claim reserves and certain airport
authorities.  Restricted cash is carried at cost, which management
believes approximates fair value.  Restricted cash consisted of the
following as of December 31, 2009 and 2008:




December
      31,($
      in 000's)
              
              2009
              
              
              2008Funds
      held for holdback of customer sales
              
              $
              159,704
              
              
              $
              -Funds
      held for cash supported letters of credit and deposits on charter
      flights
              
              
              31,811
              
              
              
              -Other
              
              
              1,185
              
              
              
              1,209Total
              
              $
              192,700
              
              
              $
              1,209





Inventoriesconsist of spare parts and supplies, which are charged to expense as they
are used in operations. Inventories are valued at the lower of cost or net
realizable value using either the average cost or first-in first-out
methods.  An allowance for obsolescence is provided to reduce
inventory to estimated net realizable value. As of December 31, 2009 and 2008,
this reserve was $5.8 million and $3.6 million, respectively.


Prepaid Expenses
and Other Current Assetsconsist of prepaid expenses, primarily fuel,
deposits, facility and engine rent, and commissions, and other current assets,
primarily the fair value of derivative contracts.  Passenger traffic
commissions are expensed when the transportation is provided and the related
revenue is recognized.





Notes
Receivable—Interest income is recognized on an accrual basis and is
generally suspended for notes receivable at the date when a full recovery of
income and principal becomes doubtful.  Interest income
recognition is resumed when notes receivable become contractually current and
performance is demonstrated to be resumed.  The Company’s accounting
policy used to estimate whether an allowance for loan losses was necessary was
based on management’s judgment and assessment of counterparty’s financial
condition, the counterparty’s performance under the existing obligations within
the loan, and an assessment of the underlying collateral security, if
any.





Assets Held for
Saleare reported at the lower of their carrying value or estimated fair
value less costs to sell.  We expect to sell all such assets during
the next twelve months.




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 residual value, over the estimated useful life of
16.5 to 25 years. Depreciation for other equipment, including rotable
parts, is computed on a straight-line basis, to an estimated residual value,
over the estimated useful lives of three to 25 years. Leasehold improvements are
amortized over the expected life or lease term, whichever is shorter. Interest
related to deposits on aircraft on firm order from the manufacturer is
capitalized. The Company capitalized approximately $0.1 million, $2.2 million,
and $4.1 million of interest for  the years ended December 31,
2009, 2008 and 2007, respectively.




Goodwilland Other
Intangible Assetsthat have indefinite useful lives are not amortized but
are tested if a triggering event occurred or at least annually for
impairment.  Intangible assets that have finite useful lives are
amortized over their useful lives to an estimated residual value and reviewed
for impairment at least annually.  See Note 8, Other Intangible Assets
and Note 9, Goodwill, for further information.





Other Assetsconsists primarily of prepaid aircraft rent, debt issue costs, and
aircraft lease and other long-term deposits. Debt issue costsare
capitalized and are amortized using the effective interest method, to interest
expense over the term of the related debt.





Long-Lived
Assets—Management reviews long-lived assets for possible impairment, if
there is a triggering event that detrimentally affects operations. The primary
financial indicator used by the Company to assess the recoverability of its
long-lived assets held and used is undiscounted future cash flows from
operations. The amount of impairment, if any, is measured based on estimated
fair value or projected future cash flows using a discount rate reflecting the
Company's average cost of funds.





Deferred Credits
and Other Non Current Liabilitiesconsist primarily of credits for parts
and training from the aircraft and engine manufacturers, deferred gains from the
sale and leaseback of aircraft and spare jet engines, unfavorable leases assumed
from acquisitions of businesses, and deferred revenue from the Delta warrant
surrender and pre-petition claim. Deferred credits are amortized on a
straight-line basis as a reduction of aircraft or engine rent expense over the
term of the respective leases.  The deferred revenue is amortized as
an adjustment to fixed-fee services revenue based on the weighted average
aircraft in service over the life of the Delta agreements.




57





Comprehensive
Income—The Company reports comprehensive income in accordance with
Accounting Standards Codification (“ASC”) Topic 220, Comprehensive Income,which
establishes standards for reporting and displaying comprehensive income and its
components in financial statements. The Company had accumulated other
comprehensive loss relating to treasury lock agreements of $2.2 million, $2.6
million, and $3.0 million, net of tax, at December 31, 2009, 2008 and 2007,
respectively.





Income
Taxes—The
Company accounts for income taxes using the asset and liability method. Under
the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts for existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in future years in
which those temporary differences are expected to be recovered or settled. The
measurement of deferred tax assets is adjusted by a valuation allowance, if
necessary, to recognize the future tax benefits to the extent, based on
available evidence; it is more likely than not they will be
realized.




Aircraft
Maintenance and 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
expensed as the aircraft are flown.  As a result of the acquisition of
Frontier, the Company acquired deposits related to leased aircraft at
Frontier.  The Company has determined that it is probable that all
maintenance deposits will be refunded through qualifying maintenance
activities.  Maintenance deposits for the five leased Q400 Lynx
Aviation aircraft are fully refundable if all return conditions are satisfied
and the Company is not in default under the terms of the agreement.
  Deposits are reimbursed based on the specific event for each
specified deposit, as determined by the lease. The projected ultimate cost was
based on actual historical repair invoices as well as estimates.  This
analysis was performed by lease and by deposit type. As of December 31, 2009,
the Company anticipates no unused excess amounts to be expensed based on this
analysis.  The Company will continue to evaluate whether it is
probable the deposits will be returned to reimburse the costs of the maintenance
activities incurred.  As the Company makes future payments, if the
deposits are less than probable of being returned, they will be recognized as
additional expense at that time.





Use of
Estimates—The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Such management estimates
include, but are not limited to, recognition of revenue, including deferred
revenue from the frequent flyer program, fair value of assets acquired and
liabilities assumed in business combinations, fair value of the reporting units
of the Company, valuation of goodwill and long-lived assets, valuation of notes
receivable, provision for accrued aircraft return costs and valuation of
deferred tax assets. Under the code-share agreements, the Company estimates
operating costs for certain “pass through” costs and records revenue based on
these estimates. Actual results could differ from those estimates.





Fixed-fee Service
Revenues—Under our fixed-fee arrangements with our Partners, the Company
receives fixed-fees for our capacity purchase agreements, as well as
reimbursement of specified “pass-through” costs on a gross basis with additional
possible incentives from our Partners for superior service. These 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.





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.  The Company has concluded that a component of its fixed-fee
service revenues 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 2009, 2008 and 2007 was $358.2 million, $348.4 million, and $310.3
million, respectively, and has been included in fixed-fee service revenues in
the Company’s consolidated statements of income.





Passenger Service
Revenues—Passenger
service revenues are recognized when the transportation is provided or after the
tickets expire (which is either immediately upon the scheduled departure of the
flight or up to thirteen months after the date of issuance depending on the type
of ticket purchased), and are net of excise taxes, passenger facility charges
and security fees.  Passenger service revenues that have been deferred are
included in the accompanying consolidated balance sheets as air traffic
liability.    Included in passenger service revenue are change
fees imposed on passengers for making schedule changes to non-refundable
tickets.  Change fees are recognized as revenue at the time the change is
made for the passenger as these fees are a separate transaction that occur
subsequent to the date of the original ticket sale.  Certain passenger
tickets include a bundle of services such as bag fees and other buy-on-board
services and these revenues are included in passenger service revenue as part of
the bundled ticket price.  During the year ended December 31, 2009, no
unused tickets were recognized as revenue since the air traffic liability was
recorded at fair value as of July 31, 2009 for Midwest and October 1, 2009 for
Frontier, which included the impact of estimated breakage.




58


The Company is required to charge
certain taxes and fees on passenger tickets.  These taxes and fees
include U.S. federal transportation taxes, federal security charges, airport
passenger facility charges and foreign arrival and departure
taxes.  These taxes and fees are legal assessments on the customer,
for which the Company has an obligation to act as a collection
agent.  Because the Company is not entitled to retain these taxes and
fees, such amounts are not included in passenger service revenue.  The
Company records a liability when the amounts are collected and reduces the
liability when payments are made to the applicable government agency or
operating carrier.
 
 Cargo and Other
Revenues—Cargo and other revenues consist primarily of the marketing
component of our co-branded credit cards, charter and cargo revenues, interline
and ground handling fees, on-board sales of LiveTV, liquor and food, excess bag
fees, lease revenue for aircraft subleased  under operating leases and
revenue from commuter slots leased to US Airways at Ronald Reagan Washington
National Airport.
 
 Frequent Flyer
Programs—The
Company has frequent flyer programs that offer incentives to travel on its
airlines and promote customer loyalty.  The programs allow
participants to earn mileage credits by flying on Midwest or Frontier as well as
participating airlines and through participating companies, such as credit card
companies, hotels, and car rental agencies.  The Company also sells
mileage credits to other airlines and to nonairline businesses.  The
mileage credits may be redeemed for free air travel on Midwest, Frontier, or
other airlines, as well as hotels, rental cars, and other awards.
 
 Mileage Credits – The Company
has agreements with its co-branded credit card partner that requires its partner
to purchase miles as they are awarded to the co-branded partner
cardholders.  The air transportation element for the awarded miles are
included in deferred frequent flyer revenue at the estimated fair value of the
air transportation element and the residual marketing element is recorded as
other revenue when the miles are awarded.  The deferred frequent flyer
revenue is subsequently recognized as passenger service revenue when the
transportation is provided.
 
 Earned Mileage Credits –The
Company also defers the portion of the sales proceeds that represents the
estimated fair value of the air transportation for mileage credits awarded and
recognizes that amount as passenger service revenue when the mileage credit is
redeemed and the transportation is provided.  The fair value of the
air transportation component is determined utilizing the deferred revenue method
as further described below.  The initial revenue deferral is presented
as deferred frequent flyer revenue in the consolidated balance
sheets.  When recognized, the revenue related to the air
transportation component is classified as passenger service revenue in the
Company’s consolidated statements of income.
 
 The
Company’s accounting policy for its frequent flyer program is the deferred
revenue method.  The deferred revenue method is to record the frequent
flyer obligation by allocating an equivalent weighted-average ticket value to
each outstanding mile based on projected redemption patterns for available award
choices when such miles are consumed.  Such value is estimated
assuming redemptions on our branded airlines, other airlines, and other
redemption choices and by estimating the relative proportions of awards to be
redeemed by class of service and redemption choices.  The estimation
of the value of each award mile requires the use of several significant
assumptions for which significant management judgment is
required.  For example, management must estimate how many miles are
projected to be redeemed on the Company’s airlines versus on other airline
partners.  Since the equivalent ticket value on miles redeemed on our
brands and on other carriers can vary greatly, this assumption can materially
affect the calculation of the weighted-average ticket value from period to
period.
 
 Management
must also estimate the expected redemption patterns of Midwest and Frontier
customers who have a number of different award choices when redeeming their
miles, each of which can have materially different estimated values. Such
choices include different classes of service and award
levels.  Customer redemption patterns may also be influenced by
program changes, which occur from time to time, introducing new award choices or
making material changes to the terms of existing award
choices.  Management must often estimate the probable impact of such
program changes on future customer behavior, which requires the use of
significant judgment.  Management uses historical customer redemption
patterns as the best single indicator of future redemption behavior in making
its estimates, but changes in customer mileage redemption behavior patterns,
which are not consistent with historical behavior can result in historical
changes to deferred frequent flyer revenue balances and to recognized
revenue.
 
 The
Company measures its deferred revenue obligation using all awarded and
outstanding miles, regardless of whether or not the customer has accumulated
enough miles to redeem an award.  Eventually these customers will
accumulate enough miles to redeem awards, or their account will deactivate after
a period of inactivity, in which case the Company will recognize the related
revenue when the miles expire as passenger service revenue.
 
 Current
and future changes to the expiration policy, or to program rules and program
redemption opportunities, may result in material changes to the deferred
frequent flyer revenue balance as well as recognized revenue from the
program.
  59





The
Company also sells points in its frequent flyer programs to third
parties.  The travel portion of the sale is recognized as part of the
deferred frequent flyer revenue liability.  The remaining portion,
referred to as the marketing component, is recognized as Cargo and Other Revenue
in the month the miles are sold.





Promotion and
Sales includes commissions, promotions, reservation system fees,
advertising, and other similar costs.  The Company expenses the costs
of advertising expense in the year incurred.  Advertising expense was
$2.8 million for the year ended December 31, 2009.  No advertising
expense was incurred in the years ended December 31, 2008 or 2007.





Lease Return
Conditions—The
Company must meet specified return conditions upon lease expiration for both the
airframes and engines.  The Company estimates lease return conditions
specified in leases and accrues these amounts as contingent rent ratably over
the lease term while the aircraft are operating once such costs are probable and
reasonably estimable.  These expenses are included in accrued
liabilities in the consolidated balance sheets.





Retirement and
Benefit Plans—The
Company uses an annual December 31 measurement date for purposes of
calculations of plan assets and obligations and all other related
measurements.





Defined Benefit Plans—Midwest
has two defined benefit plans.  The Pilots’ Supplemental Pension Plan
is a qualified defined benefit plan and provides retirement benefits to Midwest
pilots covered by their collective bargaining agreement. The Pilots’
Nonqualified Supplemental Pension Plan is a nonqualified defined benefit plan
that provides Midwest pilots with annuity benefits for salary in excess of IRS
salary limits that cannot be covered by the qualified Pilots’ Supplemental
Pension Plan.





Other Postretirement
Plans—Midwest
has Postretirement Health Care and Life Insurance Benefits plans that allow
retirees to participate in unfunded health care and life insurance benefit
plans. Benefits are based on years of service and age at retirement. The plans
are principally noncontributory for current retirees and are contributory for
most future retirees.  Midwest also has a Pilots’ Severance
Plan that provides certain benefits to a select group of pilots based on
the pilot’s age and years of service at termination.





Warrants—Warrants
issued to non-employees and Partners are accounted for at fair value on the
measurement date as deferred charges and credits to stockholders’ equity.
Warrants surrendered in a non-monetary transaction are recorded at fair value on
the measurement date as reductions to deferred charges and stockholders’ equity.
The deferred charges for warrants were amortized as a reduction of fixed-fee
services revenue over the terms of the code-share agreements.





In March
2007, the Company amended its agreements with Delta and  in return for
these amended terms, Delta agreed to surrender its warrants for 3,435,000 shares
of the Company’s common stock, and the Company was granted a pre-petitioned,
unsecured, general claim in the amount of $91.0 million in Delta's Chapter 11
bankruptcy case. Key terms of the amended agreements include the removal of all
15 thirty-seven seat ERJ-135 aircraft beginning in September 2008 at a rate of 2
aircraft per month, and effective May 1, 2007, an approximate 3% permanent
reduction of block hour fees charged on Chautauqua Airlines’ remaining 24 fifty
seat ERJ-145 and Shuttle America's 16 seventy seat ERJ-170 aircraft. In
April 2007, the Company sold the $91.0 million pre-petition claim to a third
party for $44.6 million in cash. As a result of the Delta amendment, the
Company recorded deferred revenue of $44.6 million, which represented the
net realizable value of the pre-petition claim on the approval date by the
Bankruptcy Court. In addition, the Company recorded deferred revenue on the
surrender of the warrants from Delta of $42.7 million, which was net of the
previously recorded unamortized deferred charge of $6.4 million. Stockholders'
equity was reduced by $32.9 million, net of tax, resulting from the surrender of
the warrants and their retirement. The deferred revenue for the proceeds of
the pre-petition claim and the gain on the surrender of the warrants totaling
$87.3 million is being amortized as an adjustment to revenue over the term
of the agreements with Delta.  As of December 31, 2009, the remaining
deferred revenue is being amortized on a straight-line basis until
2016.




60





Net Income per
Common Shareis based on the weighted average number of shares
outstanding during the period.  The following is a reconciliation of
the diluted net income per common share computations (amounts in
thousands):




For
      the Years Ended December 31,2009
              
              
              2008
              
              
              2007Net
      income of the Company
              
              $
              39,655
              
              
              $
              84,580
              
              
              $
              82,758Reduction
      in interest expense from convertible note (net of tax)
              
              
              517
              
              
              
              -
              
              
              
              -Net
      income of the Company for diluted net income per common share
      calculation
              
              $
              40,172
              
              
              $
              84,580
              
              
              $
              82,758Weighted-average
      common shares outstanding for basic net income per common
      share
              
              
              34,599
              
              
              
              34,855
              
              
              
              40,350Effect
      of dilutive convertible note
              
              
              1,041
              
              
              
              -
              
              
              
              -Effect
      of dilutive employee stock options and warrants
              
              
              59
              
              
              
              94
              
              
              
              695Adjusted
      weighted-average common shares outstanding and assumed conversions for
      diluted net income per common share
              
              
              35,699
              
              
              
              34,949
              
              
              
              41,045





Employee
stock options of 4.2 million, 3.5 million, and 1.4 million were not included in
the calculation of diluted net income per common share due to their
anti-dilutive impact for the years ended December 31, 2009, 2008, and 2007,
respectively.  The convertible note has a $25.0 million face value and
is convertible in whole or in part, at the option of the holder, for up to 2.5
million shares of the Company’s common stock.




Fair Value of
Financial Instruments—The carrying amounts reported in the consolidated
balance sheets for restricted cash, receivables, notes receivable, and accounts
payable approximate fair values because of their immediate or short-term
maturity of these financial instruments.





Segment
Information—Historically, the Company has always considered its
operations as one operating and reportable segment, fixed-fee
services.  During 2009, the Company acquired Mokulele, Midwest, and
Frontier, and the Company reassessed the number of segments of the Company and
determined that the Company has three reportable operating
segments:  fixed-fee service, branded passenger service, and
other.  Additional information about segment reporting is presented in
Note 17.




New Accounting
Standards—Effective January 1, 2009, the Company adopted ASC Topic 805,
“Business
Combinations,” which establishes principles and requirements for how the
acquirer of a business recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any non-controlling
interest in the acquiree.  ASC Topic 805 also provides guidance for
recognizing and measuring the goodwill acquired in the business combination and
determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination.





Effective
January 1, 2009, the Company adopted the revision to ASC Topic 810-10, “Consolidation,” which revised
the Topic to establish accounting and reporting standards for the
non-controlling interest in a subsidiary and for the deconsolidation of a
subsidiary.  It clarifies that a noncontrolling interest in a
subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements.  In
addition, ASC Topic 260-10, “Earnings per Share,” was
revised so that earnings-per-share data will continue to be calculated the same
way those data were calculated before this Statement was issued.  The
adoption of this ASC Topic had no impact on the consolidated financial
statements and was applied during 2009 for the noncontrolling interest from the
Mokulele acquisition.





In June
2009, the FASB issued ASC Topic 105, “Generally Accepted Accounting
Principles,” as the authoritative source of generally accepted accounting
principles in the United States.  Rules and interpretive releases of
the Securities and Exchange Commission (“SEC”) under federal securities laws are
also sources of authoritative GAAP for SEC registrants.  ASC Topic 105
is effective for financial statements issued for interim and annual periods
ending after September 15, 2009.  The adoption of the ASC Topic
did not have an impact on the Company’s financial condition or results of
operations, but will impact our financial reporting process by eliminating all
references to pre-codification standards.





In
October 2009, the FASB issued an Accounting Standards Update (ASU No. 2009-13)
pertaining to multiple-deliverable revenue arrangements. The new guidance will
affect accounting and reporting for companies that enter into
multiple-deliverable revenue arrangements with their customers when those
arrangements are within the scope of ASC 605-25 “Revenue Recognition – Multiple
Element Arrangements”.  The new guidance will eliminate the residual
method of allocation and require that arrangement consideration be allocated at
the inception of the arrangement to all deliverables using the relative selling
price method.  The new guidance will be effective for the Company
prospectively for revenue arrangements entered into or materially modified on or
after January 1, 2011, with early adoption permitted. We are currently
evaluating the impact that ASU No. 2009-13 will have on our consolidated
financial statements.




61





In
February 2010, the FASB issued Accounting Standards Update 2010-09, Subsequent Events (Topic 855):
Amendments to Certain Recognition and Disclosure Requirements,which
revised the general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued or
available to be issued.  The adoption did not have a material impact
on the Company’s consolidated results of operations or financial condition,
except the Company no longer needs to disclose the date subsequent events are
evaluated through.





Reclassification—
The Company reclassified certain prior year amounts to conform to current year
presentation.  The Company separated the December 31, 2008 balance
sheet financial statement line item of intangible assets and other assets, net
of $160.1 million to create three separate financial statement lines items of
other intangible assets, net for $48.3 million, maintenance deposits for $0.4
million, and other assets for $111.4 million due to the significant other
intangible assets and maintenance deposits acquired in the Company’s business
acquisitions during the current year.  The Company also combined the
two statements of income financial statement line items of charter and ground
handling and other to create one combined statement of income financial
statement line item titled cargo and other revenue as these separate line items
were no longer individually significant due to the acquisitions in the current
year.





3.
              FAIR
      VALUE MEASUREMENTS





ASC Topic
820, “Fair Value Measurements
and Disclosures” requires disclosures about how fair value is determined
for assets and liabilities and a hierarchy for which these assets and
liabilities must be grouped is established.  The Topic establishes a
three-tier fair value hierarchy which prioritizes the inputs used in measuring
fair value as follows:





Level 1
            quoted
      prices in active markets for identical assets or
    liabilities;Level 2
            quoted
      prices in active markets for similar assets and liabilities and inputs
      that are observable for the asset or liability; orLevel 3
            unobservable
      inputs, such as discounted cash flow models or
  valuations.





The
Company only fair values fuel derivatives on a recurring basis.  The
fuel derivatives as of December 31, 2009 were fair valued at $2.8 million, are
included in prepaid expenses and other current assets, and are classified as
Level 2 in the fair value hierarchy.





4.
              ACQUISITIONS
      AND DIVESTITURES





Frontier
Airlines Holdings, Inc.




On
October 1, 2009, pursuant to the terms of the amended and restated investment
agreement, as amended (the “Investment Agreement”), dated as of August 13, 2009,
the Company completed its acquisition of Frontier.  The Company
purchased 1,000 newly issued shares of common stock, constituting all of the
outstanding shares of Frontier, in connection with its emergence from
bankruptcy. Under the Investment Agreement, the Company served as equity plan
sponsor for Frontier’s plan of reorganization and paid $108.8 million and
relinquished its rights to any distribution on account of the Company’s allowed
general unsecured claims against Frontier of $150 million arising out of
Frontier’s rejection of the fixed-fee code-share agreement.





The
acquisition of Frontier provided the Company additional revenue diversity from
its traditional fixed-fee services and allowed it to expand operations into
branded passenger service.  The Company accounted for the acquisition
in accordance with ASC Topic 805, whereby the purchase price paid was allocated
to the tangible and identifiable intangible assets acquired and liabilities
assumed from Frontier based on their estimated fair values as of the closing
date.   The Company is still in the process of evaluating the
fair value of the air traffic liability, the deferred frequent flyer revenue,
and the income tax implications of the transaction, and will likely complete its
purchase price allocation process during the second or third quarter of
2010.





As a
result of the preliminary purchase allocation, the Company has recognized a
bargain purchase gain of $203.7 million.  Management believes that the
significant gain on bargain purchase from the acquisition of Frontier is due
primarily to the following factors:





·
              Republic
      was the largest unsecured creditor with a claim of $150.0 million and
      Republic would have received a significant portion of any payment made to
      the pool of unsecured creditors if another bidder would have successfully
      outbid Republic during the auction
process


62
  ·
              Frontier
      was in bankruptcy and operates in a heavily regulated
    industry


·
              The
      airline industry is highly volatile and subject to significant fluctuation
      in one of its largest expenses, aircraft
fuel


·
              The
      Denver market is highly
competitive


·
              The
      illiquidity in the credit market may have kept other bidders from
      potentially coming forward to bid against Republic in the auction process
      because of their inability to obtain
financing


·
              General
      recessionary economy


·
              There
      was only one other bidder in the auction process and their bid became
      nonbinding


·
              Frontier
      has significant net operating losses, net of Section 382 limitations, that
      Republic will be able to apply to future taxable
  income


·
              Frontier
      has a significant amount of operating leases that require significant cash
      flows for several years and the operating leases have return conditions
      that will potentially require significant cash flow at the end of the
      leases


·
              The
      aircraft acquired are used aircraft and therefore will require more
      maintenance in future periods


·
              The
      acquired business is expected to generate losses from continued operations
      for several months





The
Company has included operating revenues from Frontier of $266.1 million and net
loss before income taxes of $16.5 million for the period from October 1, 2009 to
December 31, 2009.  Transaction costs of $1.1 million for the year
ended December 31, 2009, related to the Company’s acquisition of Frontier are
included in other operating expenses.





The
following table represents a preliminary allocation of the total consideration
to tangible and intangible assets acquired and liabilities assumed from Frontier
based on Republic’s preliminary estimate of their respective fair
values (rounded to the nearest hundred):




($
      in 000's)
              
              AmountTotal
      purchase consideration
              
              $
              108,800Assets
      acquired:Current
      assets *
              
              $
              318,700Aircraft
      and other equipment—net
              
              
              487,900Other
      intangible assets
              
              
              83,300Other
      assets
              
              
              180,300Total
      assets acquired
              
              $
              1,070,200Liabilities
      assumed:Current
      liabilites
              
              $
              298,800Long-term
      liabilities
              
              
              360,500Deferred
      income taxes
              
              
              98,400Total
      liabilities assumed
              
              $
              757,700Gain
      on bargain purchase
              
              $
              (203,700
              )
 
 *
                Current
      assets include $37,000 of cash injected into Frontier from
      Republic.


63





The
following table summarizes the identifiable intangible assets
acquired:




($
      in 000's)
                
                Weighted-Average
                  Amortization
                  Period
                
                Fair
      Value
                  at
      Acquisition
                  DateIndefinite-lived
      intangible assets:Airport
      slots
                
                Indefinite
                
                $
                5,800Frontier
      trade name
                
                Indefinite
                
                
                23,600Total
      indefinite-lived intangible assets
                
                
                
                $
                29,400Definite-lived
      intangible assets:Affinity
      credit card programs
                
                7.7
      years
                
                $
                47,600Leasehold
      interests
                
                6.2
      years
                
                
                6,300Total
      definite-lived intangible assets
                
                7.5
      years
                
                $
                53,900Total
      identifiable intangible assets
                
                
                
                $
                83,300





Midwest
Air Group, LLC





On July
31, 2009, pursuant to the terms of the Agreement and Plan of Merger, dated as of
June 23, 2009, among the Company, RJET Acquisition, Inc. and Midwest, as
amended (the “Merger Agreement”), RJET Acquisition, Inc. merged with and into
Midwest (the “Merger”) with Midwest continuing as the surviving corporation and
becoming a wholly-owned subsidiary of the Company.  Pursuant to the
Merger Agreement, at the effective time of the Merger, the shares of Midwest
that were outstanding immediately prior to the effective time of the Merger were
converted into the right to receive an aggregate amount in cash equal to
$1.00.  In connection with the closing of the Merger, the Company also
consummated the transactions contemplated by the Investment Agreement, dated
June 23, 2009 (the “Midwest Investment Agreement”), among TPG Midwest US V, LLC,
TPG Midwest International V, LLC (together, the “TPG Entities”) and the
Company.  Pursuant to the Midwest Investment Agreement, at the
effective time of the Merger, the Company purchased from the TPG Entities their
$31.0 million secured note from Midwest, for approximately $6.0 million in cash
and issued the TPG Entities an 8% convertible note having a principal
amount of $25.0 million and a five-year maturity and convertible by the TPG
Entities in whole or in part, from time to time, prior to maturity into
2,500,000  shares of the Company’s common stock, subject to adjustment
in certain circumstances.





The
acquisition of Midwest provided the Company additional revenue diversity from
its traditional fixed-fee services and allowed it to expand operations into
branded passenger service.  The Company accounted for the acquisition
in accordance with ASC Topic 805, whereby the purchase price paid was allocated
to the tangible and identifiable intangible assets acquired and liabilities
assumed from Midwest based on their estimated fair values as of the closing
date.   The Company is still in the process of evaluating the
fair value of the air traffic liability, the deferred frequent flyer revenue,
and the income tax implications of the transaction, and will likely complete its
purchase price allocation process during the second or third quarter of
2010.





As a
result of the preliminary purchase allocation, the Company has recognized
goodwill of $100.4 million.  None of the goodwill generated is
deductible for tax purposes.  All of the goodwill was assigned to the
Branded reportable segment on the date of acquisition and all of the goodwill
was impaired as of December 31, 2009, as discussed further in Note
9.





The
Company has included operating revenues from Midwest of $163.2 million and net
loss before income taxes of $116.4 million for the period from August 1, 2009 to
December 31, 2009.  Transaction costs of $1.4 million for the year
ended December 31, 2009, related to the Company’s acquisition of Midwest are
included in other operating expenses.




64





The following table represents a
preliminary allocation of the total consideration to tangible and intangible
assets acquired and liabilities assumed from Midwest based on Republic’s
preliminary estimate of their respective fair values (rounded to the nearest
hundred):




($
      in 000's)
              
              AmountTotal
      purchase considerationCash
              
              $
              6,000Convertible
      note
              
              
              25,000Assumed
      debt
              
              
              34,300Total
      purchase consideration
              
              $
              65,300Assets
      acquired:Current
      assets
              
              $
              81,800Deferred
      income taxes
              
              
              3,000Aircraft
      and other equipment—net
              
              
              9,800Other
      intangible assets
              
              
              48,100Other
      assets
              
              
              4,200Total
      assets acquired
              
              $
              146,900Liabilities
      assumed:Current
      liabilites
              
              $
              122,500Other
      liabilities
              
              
              59,500Total
      liabilities assumed
              
              $
              182,000Goodwill
              
              $
              100,400





The
following table summarizes the identifiable intangible assets
acquired:




($
      in 000's)
                
                Weighted-Average
                  Amortization
                  Period
                
                Fair
      Value
                  atAcquisition
                  DateIndefinite-lived
      intangible assets:Airport
      slots
                
                
                
                $
                21,825Midwest
      trade name
                
                
                
                
                11,400Total
      indefinite-lived intangible assets
                
                
                
                $
                33,225Definite-lived
      intangible assets:Affinity
      credit card programs
                
                2.0
      years
                
                $
                12,100Cargo
      contracts
                
                13.0
      years
                
                
                2,800Total
      definite-lived intangible assets
                
                4.1
      years
                
                $
                14,900Total
      identifiable intangible assets
                
                
                
                $
                48,125




65





Pro forma Information
(unaudited)





The
following unaudited pro forma combined results of operations give effect to the
acquisition of Midwest and Frontier as if they had occurred at the beginning of
the periods presented. The unaudited pro forma combined results of operations do
not purport to represent Republic’s consolidated results of operations had the
acquisition occurred on the dates assumed, nor are these results necessarily
indicative of the Company’s future consolidated results of operations. We expect
to realize significant benefits from integrating the operations of the Company,
Midwest, and Frontier. The unaudited pro forma combined results of operations do
not reflect these benefits or costs.




December
      31,in (000's), except per share
      amounts
              
              2009
              
              
              2008Operating
      revenues
              
              $
              2,683,541
              
              
              $
              3,467,614Net
      income (loss) of the Company
              
              
              4,741
              
              
              
              (630,942
              )Basic
      earnings per share
              
              $
              0.14
              
              
              $
              (18.10
              )Diluted
      earnings per share
              
              $
              0.13
              
              
              $
              (18.10
              )





Mokulele
Flight Services Inc.





In
October 2008, the Company entered into a loan agreement with Mokulele under
which we were to provide up to $8.0 million, with an interest rate of 10%,
payable monthly.  The loan agreement was provided to Mokulele in the
form of a revolving line of credit, convertible at the Company’s option, to as
much as 45% of the common stock of Mokulele.  The loan was
collateralized by all of Mokulele’s unencumbered assets and a pledge of the
equity holdings of Mokulele’s majority shareholders.  The loan was
scheduled to mature in October 2010.  Due to the uncertainty of
whether or not the Company would receive value equal to the carrying value of
the Mokulele note, the Company recorded a valuation allowance of $1.5 million in
December 2008.





In March
2009, the Company and certain shareholders of Mokulele agreed to participate in
a restructuring of Mokulele.  Under this agreement, the Company agreed
to convert $3.0 million of our $8.0 million loan to equity and invest an
additional $3.0 million of cash in exchange for 50% ownership of Mokulele’s
common stock and three of the five Mokulele Board of Directors’
seats.  The recapitalization effectively provided us control of
Mokulele and its Hawaii inter island passenger service.  Accordingly,
we accounted for the recapitalization of  Mokulele as a business
combination.  The Company assigned preliminary fair values to the
assets acquired and liabilities assumed and the transaction resulted in no
goodwill.  The Company acquired approximately $4.1 million of current
assets, $9.3 million of aircraft and other equipment, and $0.4 million of other
long-term assets and assumed $9.3 million of liabilities.  The Company
did not incur any significant transaction costs associated with its acquisition
of Mokulele.  The effect of Mokulele’s operations for the last twelve
days of March 2009 have not been included in the Company’s results of
operations, as they were immaterial.  Additionally, pro forma revenues,
earnings and net income per common share were immaterial for disclosure for each
of the two years ended December 31, 2009.





In July
2009, the Company invested an additional $7.5 million in Mokulele, increasing
its ownership in the operation from 55% to an 89% interest.  The change in
ownership of Mokulele resulting from the July 2009 additional investment was
accounted for as an equity transaction that decreased our additional paid-in
capital by $3.3 million as well as reduced noncontrolling interests by $3.3
million.  In addition, the fixed-fee code-share agreement was amended
to provide for either Mokulele or us to early terminate the fixed-fee code-share
agreement with 90 days prior written notice and the remaining $1.5 million in
aircraft security deposits held by us would be forfeited by Mokulele on the
termination date.  The amendment also provided that the fourth
aircraft would not be delivered and Mokulele forfeited a $0.5 million security
deposit to the Company.





On
October 16, 2009, the Company entered into an agreement with Mesa Air Group,
Inc. (“Mesa”) to form Mo-Go, LLC (“Mo-Go”), a new business venture that will
provide commercial airline services in Hawaii.  Pursuant to the
agreement, Mesa will own 75% of Mo-Go and the former Mokulele
shareholders, including Republic, own the remaining
25%.  Immediately prior to consummation of the transaction with Mesa,
the Company forgave certain indebtedness of Mokulele, and agreed to voluntarily
terminate our existing capacity purchase agreement with
Mokulele.  Additionally, current Mokulele shareholders will be
obligated to fund up to $1.5 million to capitalize Mo-Go, all of which is
expected to come from Republic.





The
Company deconsolidated Mokulele in the fourth quarter and began accounting for
its investment in Mo-Go under the equity method of accounting.  As of
the date of the transaction, and subsequent to the forgiveness of the Mokulele
note and forfeiture of the remaining security deposits by
Mokulele,  Mokulele had approximately $9.9 million of assets, of which
$7.3 million related to aircraft and other equipment, and had liabilities of
$6.8 million.  The deconsolidation resulted in a loss of $3.1 million
which is included in other operating expenses.  The fair value of the
investment in Mokulele is $0.3 million which is recorded in other assets in the
consolidated balance sheet.  We do not expect any significant
continuing involvement in Mo-Go.





The
Company has included operating revenues from Mokulele of $15.0 million and net
loss before income taxes of $12.9 million for the period from April 1, 2009 to
October 16, 2009.  Transaction costs were immaterial for the year
ended December 31, 2009 related to the Company’s acquisition of
Mokulele.




66





The
following schedule shows the effect of changes in Republic’s ownership interest
in Mokulele on Republic’s equity (in thousands):


Net
Income Attributable to Republic and Transfers to Noncontrolling
Interests
 For
the year ended December 31, 2009
 AmountNet
      income attributable to Republic
              
              $
              39,655Decrease
      in Republic's additional paid-in capital for purchase of Mokulele common
      shares
              
              
              (3,270
              )Change
      from net income attributable to Republic and tranfers to noncontrolling
      interest
              
              $
              36,385





5.
              NOTES
      RECEIVABLE





At
December 31, 2008, notes receivable consisted of the following (in
thousands):




Note
      receivable from Midwest
              
              $
              24,776Note
      receivable from Frontier, including interest of $821
              
              
              13,321Note
      receivable from US Airways, including interest of $181
              
              
              10,181Note
      receivable from Mokulele, including interest of $86 (See Note
      4)
              
              
              7,616Total
      notes receivable
              
              
              55,894Less:  Valuation
      allowance on notes receivable
              
              
              (1,500
              )Total
      notes receivable, net
              
              $
              54,394




In August
2008, the Company, in participation with two other creditors, provided Frontier
a debtor-in-possession (“DIP”) financing commitment of $30.0 million. The
Company funded its portion of this commitment of $12.5 million in August 2008.
In March 2009, the Company agreed to a firm commitment for $40 million in
post-petition DIP financing to Frontier.  The new DIP facility
refinanced the existing DIP loan that was set to mature in April
2009.  As a condition to the loan, Frontier agreed to allow the
Company’s damage claim in the amount of $150.0 million arising out of Frontier’s
rejection of the Airline Services Agreement, dated January 11, 2007, by and
among Frontier and Republic.  Republic acquired Frontier on October 1,
2009 and the DIP loan was repaid with the cash infusion from Republic into
Frontier.




In
September 2008, the Company entered into an amended and restated senior secured
credit agreement with Midwest.  Under the agreement, the Company made
a one year term loan to Midwest in the amount of $25.0 million, with interest at
10.25% which was payable monthly.   The note was scheduled to mature
in October 2009.  In July 2009, the Company acquired Midwest and the
note was eliminated in consolidation.





In
October 2008, the Company entered into a credit agreement with US
Airways.  Under the agreement, we agreed to make a term loan to US
Airways in the amount of $10.0 million, with interest at LIBOR plus a margin,
which was payable quarterly.  The principal was initially due in
October 2009.  We agreed to make an additional term loan of up to
$25.0 million which if drawn by US Airways would extend the maturity date to
October 2011, and require periodic quarterly principal payments beginning in
October 2009.  In October 2009, the Company entered into an agreement
to acquire 10 Embraer 190AR jets from US Airways.  Subject to this
agreement, Republic agreed to apply the full balance of its $35.0 million loan
from US Airways toward the purchase of the aircraft and assume the remaining
debt on the aircraft.





6.
              ASSETS
      HELD FOR SALE





Assets
held for sale consisted of the following aircraft and flight equipment as of
December 31 (in thousands):




2009
              
              
              2008Nine
      Embraer E135 Aircraft
              
              $
              -
              
              
              $
              82,959Four
      Fairchild 328 Regional Jets
              
              
              11,520
              
              
              
              -Five
      McDonnell Douglas MD-80 Aicraft
              
              
              2,300
              
              
              
              -Flight
      equipment
              
              
              11,829
              
              
              
              -Assets
      held for sale
              
              $
              25,649
              
              
              $
              82,959




67





The
assets held for sale as of December 31, 2008 were sold for a loss of $3.5
million which was recognized and recorded in other operating expenses in the
consolidated statements of income.  These assets are included in the
Other segment in Note 17.  One of the nine ERJs was not sold and
placed back into operations in the branded service segment during
2009.  The assets held for sale as of December 31, 2009 consist of
assets acquired from Midwest and Frontier that will not be used in
operations.





7.
              AIRCRAFT
      AND OTHER EQUIPMENT





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




2009
              
              
              2008Aircraft
              
              $
              3,670,816
              
              
              $
              2,936,311Flight
      equipment
              
              
              256,200
              
              
              
              134,459Office
      equipment and leasehold improvements
              
              
              53,563
              
              
              
              24,866Total
      aircraft and other equipment
              
              
              3,980,579
              
              
              
              3,095,636Less
      accumulated depreciation and amortization
              
              
              (562,419
              )
              
              
              (403,226
              )Aircraft
      and other equipment—net
              
              $
              3,418,160
              
              
              $
              2,692,410





Aircraft
and other equipment depreciation and amortization expense for the years ended
December 31, 2009, 2008 and 2007 was $159.0 million, $132.8 million, and
$106.2 million, respectively.





8.
              OTHER
      INTANGIBLE ASSETS





As of
December 31, 2008, other intangible assets consisted of a gross carrying value
of $47.5 million (accumulated amortization of $1.2 million) for airport slots
that are being leased to US Airways and $2.0 million of indefinite-lived
intangible assets.  These slots are being amortized over a
weighted-average amortization period of 25 years to an estimated residual value
of $37.8 million.





The
Company assigned the right of use for these commuter slots to US Airways which
will continue to be operated by US Airways Express carriers until the expiration
or termination of the amended and restated Chautauqua Jet Service Agreement
(“JSA”) dated as of April 26, 2005 between US Airways and Chautauqua or the
Republic JSA, whichever is later, at an agreed rate. Prior to the expiration of
the agreement to license the commuter slots, US Airways has the right to
repurchase all, but not less than all, of the DCA commuter slots at a
predetermined price.





The
acquisitions of Frontier and Midwest created several new intangible
assets.  Other intangible assets as of December 31, 2009 consist of
the following (in thousands):




As
      of December 31, 2009Gross
      carrying
                amount
              
              
              Accumulated
                amoritzation
              
              Weighted-Average
                Amortization
                PeriodIndefinite-lived
      intangible assets:Airport
      slots
              
              $
              27,625Trade
      names
              
              
              28,200Total
      indefinite-lived intangible assets
              
              $
              55,825Definite-lived
      intangible assets:Airport
      slots leased to US Airways
              
              $
              47,536
              
              
              $
              1,648
              
              25.0
      yearsAffinity
      credit card programs
              
              
              59,704
              
              
              
              4,143
              
              6.6
      yearsOther
              
              
              9,100
              
              
              
              349
              
              8.3
      yearsTotal
      definite-lived intangible assets
              
              $
              116,340
              
              
              $
              6,140
              
              14.2
      yearsIntangible
      assets - net
              
              $
              172,165





The
aggregated amortization expense for the years ended December 31, 2009 and 2008
was $4.6 million and $0.4 million, respectively.  The estimated
aggregate amortization expense for the next five years is expected to be $14.2
million, $11.6 million, $7.9 million, $7.3 million and $7.3 million,
respectively.




68





During
the year ended December 31, 2009, the Company recorded an impairment loss of
$6.8 million for the trade names as a result of the Company’s annual impairment
test for indefinite-lived intangible assets.  The impairment reduced
the carrying amount of the trade names from $35.0 million to $28.2
million.  The calculation of the fair value of the trade names was
determined primarily using a discounted cash flow analysis (relief from royalty
method).  Management determined that this fair value measurement would
be included as Level 3 in the fair value hierarchy.  These trade names
are included in the Branded reportable operating segment. The Company also
recorded an impairment of $2.0 million for other indefinite-lived intangible
assets that were included in the Fixed-fee reportable operating segment during
the year ended December 31, 2009.  These impairment losses are
included in other impairment losses in the consolidated statements of
income.





9.
              GOODWILL
  Goodwill
is required be tested for impairment at the reporting unit level on an annual
basis and between annual tests if a triggering event occurs or circumstances
change that would more likely than not reduce the fair value of the reporting
unit below its carrying value.
 
 During
2008 and prior to the acquisition of Midwest in July 2009, the Company had one
reporting unit and all of the goodwill of $13.3 million was assigned to
that unit.
 
 In
assessing the recoverability of goodwill, the Company makes a determination of
the fair value of its business.  Fair value is determined using a
combination of an income approach, which estimates fair value based upon
projections of future revenues, expenses, and cash flows discounted to their
present value, and a market approach, which estimates fair value using market
multiples of various financial measures compared to a set of comparable public
companies in the regional airline industry.  An impairment loss will
generally be recognized when the carrying amount of the net assets of the
business exceeds its estimated fair value.  The valuation methodology and
underlying financial information included in the Company’s determination of fair
value require significant judgments to be made by management.  These
judgments include, but are not limited to, market valuation comparisons to
similar airlines, long term projections of future financial performance and the
selection of appropriate discount rates used to determine the present value of
future cash flows.  Changes in such estimates or the application of
alternative assumptions could produce significantly different
results.
 
 During
the first quarter of 2009, the Company performed an interim test of its
goodwill.  Factors deemed by management to have collectively
constituted a potential triggering event included record high fuel prices, a
softening US economy and the differences between market capitalization of our
stock as compared to the book value of equity.  As a result of the
testing, the Company determined that the goodwill was completely impaired and
recorded an impairment charge during the first quarter of 2009 to write-off the
full value of goodwill.
 
 The
Company’s acquisition of Midwest resulted in approximately $100.4 million of
goodwill which was assigned to the Company’s branded operations reporting
unit.  As of December 31, 2009, the Company performed its annual
assessment of the recoverability of its goodwill.  The branded
operations book value of invested capital exceeded its fair value by
approximately $200 million.  The Company determined the fair value of
the branded invested capital utilizing the income, market, and cost
approach.  The Company's fair value calculations for goodwill are
classified within Level 3 of the fair value hierarchy as defined in ASC Topic
820,Fair Value Measurements
and Disclosures.  As a result of failing Step One, the Company
was required to perform Step Two of the ASC Topic 350 goodwill impairment
testing methodology.
 
 In Step
Two of the impairment testing, the Company determined the implied fair value of
goodwill of the reporting unit by allocating the fair value of the reporting
unit determined in Step One to all the assets and liabilities of the reporting
unit.  The Company utilized its recent valuations of tangible and
intangible assets related to the branded operations reporting unit to determine
the fair value assets and liabilities.  As a result of the Step Two
testing, the Company determined that goodwill was impaired and recorded a full
impairment charge on December 31, 2009, the Company’s annual assessment
date.  In addition, as a result of the Step Two analysis the Company
reduced the value of its tradenames allocated to the branded operations
reporting unit by $6.8 million.
 
 The gross
and net carrying value of goodwill was $13.3 million at January 1, 2008 and
December 31, 2008.  The changes in the carrying amount of goodwill for
the year ended December 31, 2009 are as follows (in
thousands):


Fixed-fee
              
              
              Branded
              
              
              TotalGross
      goodwill balance as of January 1, 2009
              
              $
              13,335
              
              
              $
              -
              
              
              $
              13,335Accumulated
      impairment losses
              
              
              -
              
              
              
              -
              
              
              
              -Net
      goodwill balance as of January 1, 2009
              
              $
              13,335
              
              
              $
              -
              
              
              $
              13,335Changes
      in goodwill during the year:Goodwill
      acquired
              
              $
              -
              
              
              $
              100,424
              
              
              $
              100,424Goodwil
      impaired
              
              
              (13,335
              )
              
              
              (100,424
              )
              
              
              (113,759
              )Balance
      as of December 31, 2009
              
              $
              -
              
              
              $
              -
              
              
              $
              -




69





10.
              ACCRUED
      LIABILITIES





Accrued
liabilities consist of the following as of December 31 (in
thousands):




2009
              
              
              2008Accrued
      wages, benefits and related taxes
              
              $
              57,593
              
              
              $
              14,971Accrued
      maintenance
              
              
              38,655
              
              
              
              29,823Accrued
      property taxes
              
              
              13,965
              
              
              
              9,250Accrued
      interest payable
              
              
              21,866
              
              
              
              19,054Accrued
      liabilities to Partners
              
              
              10,143
              
              
              
              9,506Deferred
      revenue
              
              
              20,242
              
              
              
              16,495Accrued
      landing fees and airport rents
              
              
              6,280
              
              
              
              5,592Accrued
      aircraft return costs
              
              
              2,884
              
              
              
              7,266Accrued
      excise and other taxes
              
              
              17,452
              
              
              
              -Accrued
      station costs
              
              
              6,089
              
              
              
              -Other
              
              
              16,463
              
              
              
              14,785Total
      accrued liabilities
              
              $
              211,632
              
              
              $
              126,742





11.
              DEBT





Debt
consists of the following as of December 31 (in thousands):




Secured
      debt:
              
              2009
              
              
              2008Promissory
      notes payable, collateralized by aircraft, bearing interest at fixed rates
      ranging from 2.73% to 8.49% at December 31, 2009 with semi-annual
      principal and interest payments totaling $75.2 million through
      2024.
              
              $
              2,194,320
              
              
              $
              2,277,845Promissory
      notes payable, collateralized by aircraft, bearing interest at variable
      rates based on LIBOR plus a margin, ranging from 1.88% to 4.98% at
      December 31, 2009 with semi-annual principal and interest payments
      totaling $24.6 million through 2020.
              
              
              506,773
              
              
              
              -Promissory
      notes payable, collateralized by aircraft that is held for sale, bearing
      interest at 5%, due December 31, 2010.
              
              
              15,000
              
              
              
              -Promissory
      note payable, collateralized by eligible spare parts and equipment,
      bearing interest at a variable rate of LIBOR plus a margin, 6.75% as of
      December 31, 2009, due in 12 quarterly installments beginning in January
      2010.
              
              
              25,000
              
              
              
              -Discount
      on debt
              
              
              (14,763
              )
              
              
              -Total
      secured debt by aircraft and parts
              
              
              2,726,330
              
              
              
              2,277,845Unsecured
      debt:Convertible
      note payable, bearing interest at a fixed rate of 8%, due in full in
      2014.
              
              
              25,000
              
              
              
              -Debt
      from affinity credit card program bank, bearing interest of 2.23% as of
      December 31, 2009 (LIBOR plus 2%), principal due monthly for twelve months
      beginning in 2016.
              
              
              35,000
              
              
              
              -Other
              
              
              3,089
              
              
              
              -Total
      unsecured debt
              
              
              63,089
              
              
              
              -Total
      debt
              
              
              2,789,419
              
              
              
              2,277,845Current
      portion (including debt related to assets held for sale)
              
              
              (243,259
              )
              
              
              (196,301
              )Long
      term debt, less current portion
              
              $
              2,546,160
              
              
              $
              2,081,544
  The
Company has outstanding letters of credit totaling $31.8 million and $12.3
million as of December 31, 2009 and 2008, respectively, that is
collateralized by restricted cash.
 
 The $25
million convertible note is convertible at the option of the holder, in whole or
in part, prior to maturity for up to 2,500,000 shares of the Company’s
common stock.  The convertible debt does not allow for cash
settlement, and there is no embedded derivative.
 
 We are
required to comply with certain financial covenants under certain of our
financing arrangements.  We are required to maintain a certain level
of minimum unrestricted cash and maintain certain cash flow and working capital
covenants.




70
 
  As of
December 31, 2009, we were in compliance with all our covenants, however, we
believe it is probable that we will be unable to comply with certain of these
covenants during 2010.  We are currently in discussions to renegotiate
these covenants, however, our ability to renegotiate or obtain a waiver of, or
otherwise mitigate, the impact of a default, could potentially provide for the
accelerated repayment of principal totaling approximately $25 million and the
discontinuation of the monthly pre-purchase of airline miles from our affinity
card provider, which totals approximately $2.9 million per month.
 
 The
discount on debt is from the application of purchase accounting from the
Frontier and Midwest acquisitions.  The discount will be amortized to
interest expense using the effective interest method through January
2023.
 
 Future
maturities of debt are payable, or expect to be payable as assets held for sale
are sold, as follows for the years ending December 31 (in
thousands):


2010
                
                $
                244,3182011
                
                
                205,3962012
                
                
                217,0062013
                
                
                245,1192014
                
                
                272,925Thereafter
                
                
                1,619,418Total
                
                $
                2,804,182




During
the year ended December 31, 2009, the Company acquired 13 aircraft through debt
financing totaling approximately $280.0 million. The debt was obtained from
banks and the aircraft manufacturer for ten to fifteen year terms at fixed
interest rates ranging from 2.80% to 2.94% and variable interest rates based on
LIBOR plus a spread of 1.65%.





The fair
value of long term debt is estimated based on discounting expected cash flows at
the rates currently offered to the Company for debt with similar remaining
maturities and reflective of credit spreads. As of December 31, 2009 and
2008 respectively, the carrying value of long-term debt was greater than its
fair value by approximately $56 million and $130 million.





12.
            COMMITMENTS





As of
December 31, 2009, the Company leased 124 aircraft and 26 spare engines with
varying terms extending through 2024 and terminal space, operating facilities
and office equipment with terms extending through 2033 under operating leases.
The components of rent expense for the years ended December 31 are as
follows (in thousands):




2009
                
                
                2008
                
                
                2007Aircraft
      and engine rent
                
                $
                156,773
                
                
                $
                134,206
                
                
                $
                124,961Other
                
                
                26,023
                
                
                
                7,072
                
                
                
                6,008Total
      rent expense
                
                $
                182,796
                
                
                $
                141,278
                
                
                $
                130,969


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 $4.2 million per year through December 2014 for the
E145 family of aircraft and $9.4 million per year through December 2014 for the
E170 family of aircraft. The liability for this guarantee is
immaterial.





The
Company has maintenance agreements for engines, auxiliary power units
(“APU”) and other airframe components for our CRJ-200 aircraft, that cover the
aircraft during the short-term leases, all of  which expire by March
2010.  For E140/145 aircraft, the Company has agreements to maintain
the engines, APUs, avionics and wheels and brakes through October 2012, June
2013, December 2014 and June 2014, respectively.  For E170/175
aircraft, the Company has agreements to maintain the avionics, wheels and
brakes, APUs and engines through December 2014, February 2017, July 2019, and
December 2014, respectively. Under these agreements, the Company is 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.  The Company believes
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.  Certain of these agreements
contain minimum guarantee amounts, penalty provisions for either the early
removal of aircraft or agreement termination for activity levels below the
minimums.  The liabilities for these guarantees are
immaterial.




71





Total
payments under these long-term maintenance agreements were $96.0 million, $101.9
million, and $76.8 million for the years ended December 31, 2009, 2008 and
2007, respectively.





While the
Company does not have long term maintenance agreements for its Airbus and Q400
fleets, it has made significant deposits with the aircraft lessors for future
maintenance events which will reduce future cash requirements.  As of
December 31, 2009 we had maintenance deposits of $143.9 million.





As part
of the Company's lease agreements, the Company typically indemnifies the lessor
of the respective aircraft against liabilities that may arise due to changes in
benefits from tax ownership or tax laws of the respective leased aircraft. The
Company has not recorded a liability for these indemnifications because they are
not estimable. The Company is responsible for all other maintenance costs of its
aircraft and must meet specified return conditions upon lease expiration for
both the air frames and engines. The Company recorded a liability for the return
conditions of $2.9 million as of December 31, 2009, for the CRJ-200 aircraft
being returned to the lessor.  The Company will record a liability for
lease return conditions for the remaining leased aircraft once it is probable
and estimable.





Future
minimum payments under non-cancelable operating leases are as follows for the
years ending December 31 (in thousands):




Aircraft
                
                
                Other
                
                
                Total2010
                
                $
                233,141
                
                
                $
                44,490
                
                
                $
                277,6312011
                
                
                216,900
                
                
                
                20,977
                
                
                
                237,8772012
                
                
                213,858
                
                
                
                20,349
                
                
                
                234,2072013
                
                
                208,869
                
                
                
                18,968
                
                
                
                227,8372014
                
                
                189,307
                
                
                
                18,283
                
                
                
                207,590Thereafter
                
                
                515,252
                
                
                
                83,228
                
                
                
                598,480Total
                
                $
                1,577,327
                
                
                $
                206,295
                
                
                $
                1,783,622


As of
December 31, 2009, the Company has subleased nine E145 aircraft to a foreign
airline and subleased four E190 aircraft to US Airway.  As of December
31, 2009, the total amount of minimum rentals to be received in the future under
noncancelable subleases is $75.6 million.  During the years ended
December 31, 2009, 2008, and 2007, the Company recognized $12.2 million, $7.8
million and $8.2 million of sublease income that is included in cargo and other
revenue in the consolidated statements of income.





As of
December 31, 2009, the Company had firm orders to purchase eight A320
aircraft.  The current total list price of the aircraft on firm order
is $349 million.  To complete the purchase of the eight Airbus
aircraft scheduled for delivery starting in February 2013, the Company must
secure additional aircraft financing totaling approximately $280 million,
assuming debt financing versus lease financing would be used to acquire these
aircraft.  The Company also has a commitment to acquire eight spare
aircraft engines with a current list price of approximately $41.9 million. These
commitments are subject to customary closing conditions.





In
February 1997, Midwest agreed to pay $9.3 million over 15 years for the
naming rights to the Midwest Airlines Center, an 800,000-square-foot convention
center in Milwaukee that opened in July 1998.  As of December 31,
2009, the Company had remaining payments on this commitment of $2.4
million.





13.
            CONTINGENCIES





The
Company is subject to certain legal and administrative actions which management
considers routine to their business activities. As of December 31, 2009,
management believes, after consultation with legal counsel, the ultimate outcome
of any pending legal matters will not have a material adverse effect on the
Company's financial position, liquidity or results of operations.





American
may terminate the code-share agreement without cause upon 180 days notice
on or after September 30, 2011.  If American exercises this right, it is
required to reimburse us for certain costs and the Company and American have
certain "put" and "call" rights with respect to the aircraft we operate for
them.




If Delta
exercises its partial termination right or if we terminate the code-share
agreement because of Delta's bankruptcy or insolvency, a breach of the agreement
by Delta or because of an event of force majeure has occurred that continues for
at least two consecutive months, we may require Delta to either purchase or
sublease any of the terminated aircraft we own at a specified price or to assume
the lease of any aircraft that we lease. If we choose not to exercise this "put"
right upon any termination by Delta, Delta has the right to require us to sell
or sublease to them the terminated aircraft we own for a specified amount or to
assume the leases of the terminated aircraft that we lease. Delta may also
exercise this "call" right if it terminates the code-share agreement for any of
the reasons set forth above.




72





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, 2009, approximately 45% of the Company's workforce is employed
under union contracts. The union contract for our pilots, except Frontier’s
pilots and our flight attendants, is currently amendable.





14.
            CAPITAL
      STOCK AND STOCK OPTIONS





In March
2007, the Company purchased from WexAir RJET LLC 2,000,000 shares of its
holdings in the Company’s common stock, par value $.001 per share, at a price of
$20.50 per share, for total consideration of $41.0 million. The transaction was
recorded as treasury stock on the Company’s consolidated balance
sheet.





In August 2007, the Company’s
Board of Directors authorized the purchase of up to $100.0 million of the
Company’s common stock.  The buy-back program provided for the shares
to be purchased on the open market or through privately-negotiated transactions
from time-to-time during the twelve month period following the
authorization.  Under the authorization, the timing and amount of
purchase would be based upon market conditions, securities law limitations and
other factors.  The stock buy-back program did not obligate the
Company to acquire any specific number of shares in any period, and could be
modified, suspended, extended or discontinued at any time without prior notice.
The Company purchased 4,994,159 shares of which 4,555,000 were purchased from
WexAir LLC and the remainder were purchased on the open market at a weighted
average stock price of $20.02 for total consideration of $100.0 million. This
authorization was closed in November 2007.





In
December 2007, the Company’s Board of Directors authorized the purchase of up to
$100.0 million of the Company’s common stock for a twelve month period
immediately following the authorization.   As of December 31, 2007,
pursuant to this authorization, the Company purchased 72,735 shares on the open
market at a weighted average stock price of $19.42 for total consideration of
$1.4 million.  During 2008, the Company repurchased
2,253,039 shares for total consideration of $39.2 million. The December
2007 authorization closed on December 14, 2008.  In addition, the
Company repurchased 12,500 shares of its common stock related to a non-employee
Director’s exercise of vested options for total consideration of $0.2
million.





Employee
Stock Options




The 2002
and 2007 Equity Incentive Plan provides for the granting of up to 5,000,000
shares of which 29,715 and  1,645,667, respectively, shares of our
common stock remain available for issuance under the plan as of December
31, 2009. Stock options granted typically vest ratably over the term of the
employment agreements or between 36 and 48 months and are granted with
exercise prices equal to market prices on the date of grant. The options
normally expire ten years from the date of grant.  Options are typically
granted to officers and key employees selected by the Compensation Committee of
the Board of Directors and have exercise prices ranging from $4.10 to
$20.27.





Non-employee Director Stock
Options




The
Company also granted options for non-employee directors on the day prior to
commencement of the Company’s initial public offering at a price equal to the
fair market value of the common stock on the date of the grant. These options
vested over a 3 year period with 1/24 of the shares vesting monthly for the
first 12 months and 1/48 of the shares vesting monthly over the remaining 24
months. Additionally, non-employee directors receive 2,500 options on the first
trading day after each annual meeting of stockholders at which he or she is
re-elected as a non-employee director. These options vest ratably over 12 months
of continuous service. The non-employee options are exercisable until 10 years
from the date of grant.




73





The
following table summarizes option activity under the stock option plans as of
December 31, 2009:




Options
              
              
              Weighted
                Average
                Exercise Price
              
              
              Aggregate
                Intrinsic
      Value
              
              
              WeightedAverage
                ContractualTerm
                (in
      years)Outstanding
      at January 1, 2009
              
              
              3,847,668
              
              
              $
              15.80Granted
              
              
              540,000
              
              
              
              4.73Exercised
              
              
              -
              
              
              
              -Forfeited
              
              
              (81,666
              )
              
              
              15.37Outstanding
      at December 31, 2009
              
              
              4,306,002
              
              
              $
              14.42
              
              
              $
              1,512,250
              
              
              
              7.74Vested
      or expected to vest at December 31, 2009
              
              
              3,580,577
              
              
              $
              15.37
              
              
              $
              1,336,527
              
              
              
              6.59Exercisable
      at December 31, 2009
              
              
              2,744,940
              
              
              $
              16.03
              
              
              $
              196,579
              
              
              
              7.08




The
intrinsic value of options exercised during the years ended December 31, 2009,
2008 and 2007 was $0, $0.1 million, and $7.1 million, respectively.





There
were 1,707,752 and 1,029,995 options exercisable at December 31, 2008 and 2007
respectively. The weighted average exercise price for the options exercisable at
December 31, 2008 and 2007 was $16.24 and $14.63, respectively. The remaining
contractual life for the options outstanding at December 31, 2008 and 2007 was
7.34 years and 7.58 years, respectively.





During
the years ended December 31, 2009, 2008 and 2007, $4.2 million ($2.6 million net
of tax), $3.6 million ($2.2 million net of tax) and $2.7 million ($1.6 million
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, 2009 there was $6.7
million of unrecognized stock-based employee compensation expense for unvested
stock options, and the expected remaining expense period is 3.8 years. The
Company did not recognize excess tax benefits related to stock option exercises
in 2009, 2008 or 2007 since the Company did not have taxable income during
these years.





The
weighted average grant date fair value of options granted in 2009, 2008 and 2007
was $2.32, $5.36, and $5.30, 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
      31,2009
              
              
              2008
              
              
              2007Dividend
      yield
              
              
              -
              
              
              
              -
              
              
              
              -Expected
      volatility
              
              
              58%-63
              %
              
              
              39%-53
              %
              
              
              37%-38
              %Risk-free
      interest rate
              
              
              2.2%-2.9
              %
              
              
              1.7%-3.2
              %
              
              
              4.3%-5.1
              %Expected
      life (in years)
              
              
              4-5
              
              
              
              4-5
              
              
              
              2-7





Restricted
Stock Grants





Restricted
stock awards have been granted to certain of our officers, directors, and key
employees.  Restricted stock awards are grants of shares of our common
stock which typically vest over time (generally three years).




Compensation
expense for our restricted stock grants was $1.0 million, $0.3 million, and $0.4
million during the years ended December 31, 2009, 2008 and 2007,
respectively.  As of December 31, 2009, we have $3.9 million in
total unrecognized future compensation expense that will be recognized over the
next four years relating to awards for 349,875 restricted shares which were
outstanding but which had not yet vested.




74




A summary
of restricted stock activity under the aforementioned plan is as
follows:




Restricted
      Stock
                AwardsUnvested
      at January 1, 2009
              
              
              279,000Vested
              
              
              (79,125
              )Issued
              
              
              150,000Surrendered
              
              
              -Unvested
      at December 31, 2009
              
              
              349,875





The grant
date weighted-average fair value per share of restricted stock awards granted
during the years ended December 31, 2009, 2008, and 2007, was $8.59, $12.70
and $18.59, respectively.  The total fair value of shares vested
during the years ended December 31, 2009, 2008, and 2007, was $1.0 million,
$0.4 million, and $0.3 million, respectively.





15.
            INCOME
      TAXES





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




2009
              
              
              2008
              
              
              2007Federal:Deferred
              
              $
              92,931
              
              
              $
              46,616
              
              
              $
              45,102Total
      Federal
              
              
              92,931
              
              
              
              46,616
              
              
              
              45,102State:Current
              
              
              (1,101
              )
              
              
              2,092
              
              
              
              120Deferred
              
              
              7,966
              
              
              
              1,880
              
              
              
              5,094Total State
              
              
              6,865
              
              
              
              3,972
              
              
              
              5,214Valuation
      allowance
              
              
              (807
              )
              
              
              1,404
              
              
              
              -Expense
      for uncertain tax positions
              
              
              816
              
              
              
              843
              
              
              
              894Income
      tax expense
              
              $
              99,805
              
              
              $
              52,835
              
              
              $
              51,210





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 (in thousands):




2009
              
              
              2008
              
              
              2007Federal
      income tax expense at statutory rate
              
              $
              47,667
              
              
              $
              48,095
              
              
              $
              46,799State
      income tax expense, net of federal benefit
              
              
              4,086
              
              
              
              2,569
              
              
              
              3,489Goodwill
      impairment
              
              
              43,228
              
              
              
              -
              
              
              
              -Valuation
      allowance
              
              
              (807
              )
              
              
              1,404
              
              
              
              -Other
              
              
              5,631
              
              
              
              767
              
              
              
              922Income
      tax expense
              
              $
              99,805
              
              
              $
              52,835
              
              
              $
              51,210




75





The
components of deferred tax assets and liabilities as of December 31 are as
follows (in thousands):




2009
                
                
                2008DEFERRED
      TAX ASSETS:Current:Deferred
      frequent flyer revenue
                
                $
                17,561
                
                
                $
                -Nondeductible
      reserves and accruals
                
                
                14,277
                
                
                
                7,406Total
                
                
                31,838
                
                
                
                7,406Valuation
      allowance
                
                
                (10,815
                )
                
                
                -Total
      current deferred tax assets
                
                $
                21,023
                
                
                $
                7,406Noncurrent:Nondeductible
      accruals and deferred revenue
                
                $
                35,374
                
                
                $
                42,301Deferred
      frequent flyer revenue
                
                
                41,247
                
                
                
                -Deferred
      gain on Delta warrant
                
                
                11,999
                
                
                
                16,794Federal
      and state net operating loss carryforwards, net of liability for uncertain
      tax positions
                
                
                413,523
                
                
                
                165,977AMT
      credits
                
                
                10,256
                
                
                
                1,128Prepaid
      rent
                
                
                13,901
                
                
                
                18,094Deferred
      credits and sale leaseback gain
                
                
                10,867
                
                
                
                9,771Other
                
                
                11,509
                
                
                
                7,456Total
                
                
                548,676
                
                
                
                261,521Valuation
      allowance
                
                
                (190,156
                )
                
                
                (9,523
                )Total
      noncurrent deferred tax assets
                
                
                358,520
                
                
                
                251,998DEFERRED
      TAX LIABILITIES:Noncurrent:Other
      intangible assets, including slot amortization
                
                
                (51,564
                )
                
                
                (5,604
                )Maintenance
      deposits
                
                
                (54,283
                )
                
                
                -Stock
      basis difference in subsidiary from gain on bargain
    purchase
                
                
                (77,405
                )
                
                
                -Accelerated
      depreciation and fixed asset basis differences for tax purposes
                
                
                (609,843
                )
                
                
                (480,222
                )Total
      noncurrent deferred tax liabilities
                
                
                (793,095
                )
                
                
                (485,826
                )Total
      net noncurrent deferred tax liabilities
                
                $
                (434,575
                )
                
                $
                (233,828
                )





The
Company adopted the provisions of ASC 740, Income Taxes,(formerly FASB
Interpretation No. 48, Accounting for Uncertainty in Income
Taxes – An Interpretation of FASB 109) on January 1, 2007.  The
total amount of unrecognized tax benefits as of the date of the adoption was
$3,515, of which the Company had previously recorded $1,148 for income tax
contingencies prior to adoption.  Accordingly, the Company recognized
a $2,367 increase in the liability for the unrecognized tax benefits which was
accounted for as a reduction to retained earnings and an increase to net
noncurrent deferred tax liability.   All of the unrecognized tax
benefits as of December 31, 2009, if recognized, would affect the effective tax
rate.  The Company monitors ongoing tax cases related to its
unrecognized tax benefits.   In addition, the tax years 2001 through
2005 are currently open and could potentially be adjusted due to an ongoing
Internal Revenue Service audit of the Company. Any adjustments could potentially
increase or decrease the Company's net operating losses and change the FIN 48
liability. It is expected that the audit will be completed during 2010 and the
Company’s 2006 through 2008 tax years would remain subject to examination by
major tax jurisdictions due to our net operating loss
carryforwards.




76





The
following table reconciles the Company’s tax liability for uncertain tax
positions for the year ended December 31 (in thousands):




2009
              
              
              2008
              
              
              2007Balance
      at January 1,
              
              $
              5,252
              
              
              $
              4,409
              
              
              $
              3,515Additions
      based on tax positions taken in current year
              
              
              816
              
              
              
              843
              
              
              
              894Additions
      based on acquisitions in current year
              
              
              200
              
              
              
              -
              
              
              
              -Additions
      for tax positions taken in prior years
              
              
              -
              
              
              
              -
              
              
              
              -Reductions
      for tax positions of prior years
              
              
              -
              
              
              
              -
              
              
              
              -Settlements
      with tax authorities
              
              
              -
              
              
              
              -
              
              
              
              -Balance
      at December 31,
              
              $
              6,268
              
              
              $
              5,252
              
              
              $
              4,409




The
following table reconciles the Company’s valuation allowance for the year ended
December 31 (in thousands):




2009
              
              
              2008
              
              
              2007Balance
      at January 1,
              
              $
              9,523
              
              
              $
              8,119
              
              
              $
              8,119Additions
      based on current year acquisitions and 382 limitation
              
              
              192,255
              
              
              
              -
              
              
              
              -Additions
      (deductions) for change in current year analysis
              
              
              (807
              )
              
              
              1,404
              
              
              
              -Balance
      at December 31,
              
              $
              200,971
              
              
              $
              9,523
              
              
              $
              8,119





During
2009, Republic acquired Midwest and Frontier.  The future use of the
net operating losses (“NOLs”) acquired from both companies are limited based on
Internal Revenue Code Section 382 due to the change in control that occurred
from the acquisitions.  Management evaluated the deferred tax assets
and determined that more likely than not, certain deferred tax assets would not
be utilized and therefore a valuation allowance was required.  The net
operating losses generated by the Company after the change in control date do
not have a related valuation allowance.  Management may take a
one-time election during 2010 to reduce the NOLs acquired and the related
valuation allowance when the tax returns are filed.  Therefore, the
NOLs deferred tax asset and related valuation allowance may decrease
significantly when these tax returns are filed during 2010. As of
December 31, 2009, the Company has federal NOL carryforwards totaling $1.1
billion, which begin expiring in 2015, and of which approximately $558 million
are not expected to be realized prior to expiration mostly due to the
limitations under Internal Revenue Code Section 382.  Therefore, a
valuation allowance has been recorded for these net operating loss
carryforwards.





Deferred tax assets include benefits
expected to be realized from the utilization of alternative minimum tax (“AMT”)
credit carryforwards of $10.2 million, which do not expire.  A
valuation allowance of $5.5 million has been recorded against AMT credit
carryforwards that were acquired during the current year as these credits are
not expected to be realized.





In
connection with Midwest’s initial public offering in 1995 (the “Offering”),
Midwest and Kimberly-Clark entered into a Tax Allocation and Separation
Agreement (“Tax Agreement”).  Pursuant to the Tax Agreement, Midwest
is treated for tax purposes as if it purchased all of Midwest’s assets at the
time of the Offering, and as a result, the tax basis of Midwest’s assets were
increased to the deemed purchase price of the assets.  The tax on the
amount of the gain on the deemed asset purchase was paid by
Kimberly-Clark.  Midwest would pay to Kimberly-Clark 90% of the amount
of the tax benefit associated with this additional basis (retaining 10% of the
tax benefit).  In the event of certain business combination or other
acquisitions involving Midwest, tax benefit amounts thereafter will not take
into account, under certain circumstances, income, losses, credits, or
carryovers of businesses other than those historically conducted by
Midwest.  These tax benefits will not be realized by the Company as
the losses are limited based on Section 382 and a full valuation allowance has
been recorded for these NOLs.  Therefore, management has determined
that no liability is necessary related to this Tax Agreement.





16.
            RETIREMENT
      AND BENEFIT PLANS




Defined Contributions Plans—
Shuttle America, Chautauqua Airlines, and Republic Airlines have a defined
contribution retirement plan covering substantially all eligible
employees.  The Company matches up to 6% of eligible employees' wages.
Employees are generally vested in matching contributions after three years of
service with the Company. Employees are also permitted to make pre-tax
contributions of up to 90% (up to the annual Internal Revenue Code limit) and
after-tax contributions of up to 10% of their annual compensation. The Company's
expense under this plan was $3.8 million, $3.2 million, and $2.9 million for the
years ended December 31, 2009, 2008 and 2007, respectively.





Frontier
has established a Retirement Savings Plan under section 401(k) of the Internal
Revenue Code (“Frontier 401(k) Plan”).  Participants may contribute
from 1% to 60% of their pre-tax annual compensation up to the maximum amount
allowed under the Internal Revenue Code.  Participants are immediately
vested in their voluntary contributions.  Frontier’s Board of
Directors had elected to match 50% of participant contributions up to 10% of
salaries for the participants of the 401(k) Plan. Frontier suspended the match
effective June 1, 2008.  Future matching contributions, if any, will
be determined annually by the Board of Directors.  Participants vest
in employer contributions made to the Frontier 401(k) Plan based upon their
years of service with Frontier.  Vesting generally occurs at the rate
of 20% per year, beginning after the first year of service, so that a
participant will be fully vested after five years of service.  Upon
termination of employment with Frontier, each participant will be entitled to
receive the vested portion of his or her account balance.  There was
no expense for the year ended December 31, 2009.




77





Frontier
also has established the Frontier Airlines, Inc. Pilots Retirement Plan (“the
FAPA Plan”) for pilots covered under the collective bargaining agreement with
the Frontier Airlines Pilots’ Association. The FAPA Plan is a defined
contribution retirement plan.  Frontier contributes up to 6% of each
eligible and active participant’s compensation.  Contributions begin
after a pilot has reached two years of service and the contributions vest
immediately.  Participants are entitled to begin receiving
distributions of all vested amounts beginning at age 59 1⁄2.  During the
period from October 1, 2009 to December 31, 2009, Frontier recognized
compensation expense associated with the contributions to the FAPA Plan of $1.1
million.





Midwest
has two voluntary defined contribution investment plans covering substantially
all employees.  Under these plans, Midwest matches a portion of an
employee’s contributions if certain thresholds are met.  No expense
was incurred for 2009.





Qualified Defined Benefit
Plan — Midwest has one qualified defined benefit plan, the Pilots’
Supplemental Pension Plan. This plan provides retirement benefits to Midwest
pilots covered by their collective bargaining agreement.





As a
result of the remeasurement on the acquisition date of July 31, 2009, all
previously existing unrecognized net actuarial gains or losses and unrecognized
prior service costs were eliminated for the plans as of July 31,
2009.  During 2009, curtailment gains were recognized within wages and
benefits in the consolidated statement of income due to employee layoffs,
furloughs, and other workforce reductions and reduced the obligation as of
December 31, 2009.








The
following table  sets forth the status of the plan as of December 31,
2009 (in thousands):




Midwest
      Qualified
                Defined-Benefit
      PlanChange in Projected Benefit
      Obligation
              
              Period
      From
                August
      1, 2009 to
                December
      31, 2009Net
      benefit obligation — beginning of period
              
              $
              9,678Service
      cost
              
              
              204Interest
      cost
              
              
              245Actuarial
      gain
              
              
              (69
              )Gross
      benefits paid
              
              
              (89
              )Curtailments
              
              
              1,442Settlements
              
              
              -Net
      projected obligation — end of period
              
              $
              11,411Change
      in Plan AssetsFair
      value of assets — beginning of period
              
              $
              8,267Actual
      return on plan assets
              
              
              866Employer
      contributions
              
              
              -Gross
      benefits paid
              
              
              (89
              )Fair
      value of plan assets — end of period
              
              $
              9,044Accrued
      benefit liability (recorded in deferred credits and other noncurrent
      liabilities)
              
              $
              (2,367
              )




The
accumulated benefit obligation as of December 31, 2009 is $9.4
million.  The net periodic benefit cost of defined benefit pension
plan for the year ended December 31, 2009 was $1.0 million.




78





The
expected long-term rate of return on these plan assets was 8.0% in
2009.  The return on plan assets reflects the weighted average of the
expected long-term rates of return for the broad categories of investments held
in the plan. The expected long-term rate of return is adjusted when there are
fundamental changes in expected returns on the plan investments; this adjustment
takes into account consideration from the actuary regarding long-term market
conditions and investment management performance. All of
the Plan Assets would be classified as Level 1 of the fair value
hierarchy.





Nonqualified Defined Benefit
Plan — Midwest has one nonqualified defined benefit plan, the
Pilots’ Nonqualified Supplemental Pension Plan. This plan provides Midwest
pilots with annuity benefits for salary in excess of IRS salary limits that
cannot be covered by the qualified Pilots’ Supplemental Pension
Plan.  The plan does not have a projected benefit obligation, plan
assets, or accrued liability as of December 31, 2009.  The Company
recognized net periodic benefit income of $0.1 million during the period from
August 1, 2009 to December 31, 2009.





Postretirement Health Care and Life
Insurance Benefits — Midwest allows retirees to participate in
unfunded health care and life insurance benefit plans. Benefits are based on
years of service and age at retirement. The plans are principally
noncontributory for current retirees and are contributory for most future
retirees.  During 2009, curtailment gains were recognized due to
employee layoffs, furloughs, and other workforce reductions, and reduced the
obligation as of December 31, 2009.




Pilots’ Severance Plan —
Midwest provides certain benefits to a select group of pilots based on the
pilot’s age and years of service at termination. During 2009, curtailment gains
were recognized as income within wages and benefits in the consolidated
statement of income due to employee layoffs, furloughs, and other workforce
reductions, and reduced the obligation as of December 31,
2009.  The increased retirement age for commercial pilots from 60 to
65 has the effect of a reduced liability reflected in the actuarial gain
disclosed in the following table.





The
status of the postretirement plans as of December 31, 2009 is as follows
(in thousands):




Postretirement
      Health Care and Life Insurance Benefits
              
              
              Pilots’
      Severance PlanProjected Change in Benefit
      Obligation
              
              Period
      From
                August
      1, 2009 to
                December
      31, 2009
              
              
              Period
      From
                August
      1, 2009 to
                December
      31, 2009Net
      benefit obligation — beginning of period
              
              $
              3,739
              
              
              $
              4,709Service
      cost
              
              
              86
              
              
              
              110Interest
      cost
              
              
              95
              
              
              
              120Actuarial
      (gain) loss
              
              
              578
              
              
              
              (60
              )Curtailment
      gain
              
              
              (4,273
              )
              
              
              (4,879
              )Gross
      benefits paid
              
              
              (72
              )
              
              
              -Net
      projected obligation — end of period
              
              $
              153
              
              
              $
              -





The net
periodic benefit cost (income) of the plans for the period from August 1, 2009
to December 31, 2009, includes the following (in thousands):




Components
      of Net Period Benefit Cost (Income)
              
              Postretirement
      Health Care and Life Insurance Benefits
              
              
              Pilots’
      Severance PlanService
      cost
              
              $
              86
              
              
              $
              110Interest
      cost
              
              
              95
              
              
              
              120Settlement
      gain
              
              
              -
              
              
              
              (60
              )Curtailment
      gain
              
              
              (3,694
              )
              
              
              (4,879
              )Net
      period benefit benefit income
              
              $
              (3,513
              )
              
              $
              (4,709
              )





As a
result of the Postretirement Health Care and Life Insurance Benefits Plan, a
current liability $0.1 million and a non-current liability of $0.1 million are
recorded in the consolidated balance sheets as a component of accrued
liabilities and deferred credits and other non current liabilities,
respectively.




79





Expected Cash Flows – In 2010,
no significant employer contributions are expected for the defined
benefit plans.  Expected future benefit payments for the next
five years are as follows (in thousands):


Expected
      Benefit Payments
                
                Pension
      Benefits
                
                
                Other
      Benefits2010
                
                $
                343
                
                
                $
                372011
                
                
                426
                
                
                
                272012
                
                
                524
                
                
                
                162013
                
                
                636
                
                
                
                132014
                
                
                758
                
                
                
                13Thereafter
                
                
                5,960
                
                
                
                40





17.
            OPERATING
      SEGMENT INFORMATION





ASC Topic
280, “Segments
Reporting,” requires disclosures related to components of a company for
which separate financial information is available that is evaluated regularly by
a company’s chief operating decision maker in deciding the allocation of
resources and assessing performance.  Prior to 2009, the Company
considered its operations as one segment.  Due to the Company’s
acquisitions of Midwest and Frontier, the Company concluded that it
had three reportable segments, fixed-fee service, branded passenger
service, and other.


Fixed-fee
services are typically operated under an agreement with a domestic network
airline partner.  As of
December 31, 2009, substantially all fixed-fee service revenues are derived from
code-share agreements with US Airways, Delta, American, United, and
Continental.  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.  During the years ended December 31, 2009,
2008, and 2007, Delta was approximately 19%, 29% and 33%, US Airways was
approximately 33%, 25%, and 22%, and United was approximately 29%, 21%, and 24%
of the Company’s fixed-fee service revenue, respectively.  During the
year ended December 31, 2009, the Company recorded an impairment of goodwill and
other impairment charges of $13.3 million and $2.0 million, respectively,
related to the fixed-fee service segment.




The
Company’s branded operations relate to the passenger service revenues and
expenses generated under the Company’s brands: Frontier and
Midwest.  During
the year ended December 31, 2009, the Company recorded an impairment of goodwill
and other impairment charges of $100.4 million and $6.8 million, respectively,
related to the branded operations segment. As a result of the preliminary
purchase allocation from the acquisition of Frontier, the Company recognized a
bargain purchase of $203.7 million related to the branded operations
segment.




The Other
segment consists of slot leasing activities, charter operations, and idle or
unallocated aircraft not currently assigned to the fixed-fee or branded
operations.  The Other segment also includes the activities associated
with subleasing activities, and the related aircraft rents, depreciation expense
and interest expense on idle, unallocated, or subleased aircraft.




The
Company evaluates segment performance based on several factors, of which the
primary financial measure is income (loss) before income taxes. However, the
Company does not manage the business or allocate resources solely based on
segment operating income or loss, and scheduling decisions of the Company’s
chief operating decision maker are based on each segment’s contribution to the
overall network.  Substantially all intersegment revenues and expenses
are eliminated within the segments.  Total operating revenues of
fixed-fee service and branded passenger service include some amounts classified
as cargo and other revenue on consolidated statements of income.  The
Company allocates assets and liabilities by aircraft assigned to each
segment.


Financial
information for the year ended December 31, 2009 for the Company’s operating
segments is as follows (in thousands):




Year
      Ended December 31, 2009
            
            Fixed-fee
            
            
            Branded
            
            
            Other
            
            
            TotalTotal
      operating revenue
            
            $
            1,180,362
            
            
            $
            444,312
            
            
            $
            17,544
            
            
            $
            1,642,218Aircraft
      fuel
            
            
            91,310
            
            
            
            144,933
            
            
            
            377
            
            
            
            236,620Depreciation
      and amortization
            
            
            132,435
            
            
            
            21,934
            
            
            
            9,215
            
            
            
            163,584Income
      (loss) before income taxes
            
            
            86,659
            
            
            
            57,938
            
            
            
            (8,407
            )
            
            
            136,190Total
      assets
            
            
            2,548,962
            
            
            
            1,672,736
            
            
            
            228,774
            
            
            
            4,450,472Total
      debt
            
            
            1,830,701
            
            
            
            780,231
            
            
            
            193,250
            
            
            
            2,804,182




Segment
financial information for the years ended December 31, 2008 and 2007 for the
Company’s operating segments is as follows (in thousands):


Year
      Ended December 31, 2008
            
            Fixed-fee
            
            
            Other
            
            
            TotalTotal
      operating revenue
            
            $
            1,461,774
            
            
            $
            17,981
            
            
            $
            1,479,755Aircraft
      fuel
            
            
            326,343
            
            
            
            1,448
            
            
            
            327,791Depreciation
      and amortization
            
            
            125,096
            
            
            
            8,110
            
            
            
            133,206Income
      (loss) before income taxes
            
            
            147,079
            
            
            
            (9,664
            )
            
            
            137,415Total
      assets
            
            
            3,076,100
            
            
            
            160,478
            
            
            
            3,236,578Total
      debt
            
            
            2,137,852
            
            
            
            139,993
            
            
            
            2,277,845




Year
      Ended December 31, 2007
              
              Fixed-fee
              
              
              Other
              
              
              TotalTotal
      operating revenue
              
              $
              1,276,555
              
              
              $
              16,122
              
              
              $
              1,292,677Aircraft
      fuel
              
              
              295,104
              
              
              
              1,469
              
              
              
              296,573Depreciation
      and amortization
              
              
              103,750
              
              
              
              2,844
              
              
              
              106,594Income
      before income taxes
              
              
              126,370
              
              
              
              7,598
              
              
              
              133,968Total
      assets
              
              
              2,693,384
              
              
              
              79,694
              
              
              
              2,773,078Total
      debt
              
              
              1,887,454
              
              
              
              26,126
              
              
              
              1,913,580


80




18.
            VALUATION
      AND QUALIFYING ACCOUNTS




($
      in 000's)
                  Description
                
                Balance
      at Beginning of Year
                
                
                Additions
      Charged to Expense
                
                
                Deductions
                
                
                Balance
      at End of YearAllowance
      for doubtful accounts receivables:12/31/2009
                
                $
                2,054
                
                
                $
                327
                
                
                $
                (1,638
                )(1)
                
                
                74312/31/2008
                
                
                897
                
                
                
                1,333
                
                
                
                (176
                )(1)
                
                
                2,05412/31/2007
                
                
                340
                
                
                
                607
                
                
                
                (50
                )(1)
                
                
                897Valuation
      allowance on notes receivable:12/31/2009
                
                $
                1,500
                
                
                $
                3,000
                
                
                $
                (4,500
                )(2)
                
                $
                -12/31/2008
                
                
                -
                
                
                
                1,500
                
                
                
                -
                
                
                
                1,50012/31/2007
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -


(1)
              Uncollectible
      accounts written off net of recoveries, if any.


(2)
              Valuation
      allowance from Mokulele notes receivable was eliminated upon consolidation
      of Mokulele.





19.
            SUBSEQUENT
      EVENTS





On
February 4, 2010, the Company announced it will transition the regional service
provided by Lynx Aviation Bombardier Q400 turboprop aircraft to Embraer 170 and
190 regional jet service provided by Republic Airlines. The Company will remove
three Bombardier Q400 turboprop aircraft from service effective April 6, 2010.
Another three aircraft will be removed from service on April 19,
2010.  The remaining five leased aircraft will be gradually taken out
of service starting in July 2010 and returned to the lessor.  Service
will continue to all current Lynx destinations with the exception of Fargo,
N.D., and Tulsa, Okla., where the Company will cease operations on April
5.  The Company expects operations at Lynx Aviation to be phased out
by mid-September.  These changes will result in the reduction in April
2010 of approximately 175 positions at Lynx Aviation.





On
February 25, 2010, the Company entered into a purchase agreement with
Bombardier for the purchase of 40 CS300 jets and the option to purchase up to an
additional 40 aircraft.  In connection with the purchase agreement,
the Company also signed an exclusive 15-year maintenance contract with Pratt
& Whitney for support of the aircraft engines.





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




Not
Applicable




ITEM
9A. CONTROLS AND PROCEDURES




Evaluation
of Disclosure Controls and Procedures.




We
maintain "disclosure controls and procedures", as such term is defined under
Securities Exchange Act Rule 13a-15(e), that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms, and that such information is accumulated and communicated
to our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosures. In designing and evaluating the disclosure controls and procedures,
our management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives and our management necessarily was required to apply
its judgment in evaluating the cost-benefit relationship of possible controls
and procedures. We have carried out an evaluation, as of the end of the period
covered by this report, under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and
procedures. Based upon their evaluation and subject to the foregoing, the Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective.





Changes
in Internal Control





During
the year ended December 31, 2009, we did not make any changes in our
internal control over financial reporting that has materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.




81





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, 2009 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, 2009.





On July
31, 2009 and October 1, 2009, we completed our acquisition of Midwest Air Group,
Inc. and Frontier Airlines Holdings, Inc., respectively. As permitted by the
Securities and Exchange Commission, management has elected to exclude Midwest
and Frontier from management’s assessment of the effectiveness of our internal
control over financial reporting as of December 31, 2009. Combined assets
and revenues of Midwest and Frontier  represent 28% and 26%, respectively,
of our total assets and total revenues as reported in our consolidated financial
statements as of and for the year ended December 31, 2009.





The
Company's effectiveness of our internal control over financial reporting as of
December 31, 2009 has been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, which also audited our
Consolidated Financial Statements. Deloitte & Touche LLP’s report on the
Company's effectiveness of internal control over financial reporting appears on
page 49.




ITEM
9B. OTHER INFORMATION




Not
applicable.




82





PART
III




ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE





Directors





The
information set forth under the caption "Proposal No. 1—Election of
Directors" in the Company's definitive Proxy Statement to be used in connection
with the 2010 Annual Meeting of Stockholders is incorporated herein by
reference.




Executive
Officers





See
"Part I—Executive Officers of the Company."




Code
of Ethics




We have
adopted a Code of Ethics within the meaning of Item 406(b) of SEC Regulation
S-K. This Code of Ethics applies to our principal executive officer, principal
financial officer and principal accounting officer. This Code of Ethics is
publicly available on our website at www.rjet.com. If we make
substantive amendments to this Code of Ethics or grant any waiver, including any
implicit waiver, we will disclose the nature of such amendment or waiver on our
website or in a report on Form 8-K within four days of such amendment or
waiver.





Section
16(a) Beneficial Ownership Reporting Compliance




Section
16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
requires the Company’s executive officers and directors, and persons who
beneficially own more than ten percent of the Company’s common stock, to file
initial reports of ownership and reports of changes in ownership with the SEC
and the National Association of Securities Dealers, Inc. Executive officers,
directors, and greater than ten percent beneficial owners are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file. Based upon a review of the copies of such forms furnished to the Company
and written representations from the Company’s executive officers, directors and
greater, we believe that during fiscal  2009 all Section 16(a) filing
requirements applicable to its executive officers, directors and greater than
ten percent beneficial owners were complied with except for one late filing with
respect to one transaction by each of Neil S. Cohen and David N.
Siegel.




Corporate
Governance




The
information set forth under the caption "Corporate Governance" in the Company's
definitive Proxy Statement to be used in connection with the 2010 Annual Meeting
of Shareholders is incorporated herein by reference.




ITEM
11. EXECUTIVE COMPENSATION





The
information set forth under the caption "Executive Compensation" in the
Company's definitive Proxy Statement to be used in connection with the 2010
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 2010 Annual Meeting of Stockholders is
incorporated herein by reference.




ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE




The
information set forth under the captions "Compensation Committee Interlocks and
Insider Participation" and "Certain Relationships and Related Transactions" in
the Company's definitive Proxy Statement to be used in connection with the 2010
Annual Meeting of Stockholders is incorporated herein by reference.





ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES





The
information set forth under "Audit Matters" in the Company's definitive proxy
statement to be used in connection with the 2010 Annual Meeting of Stockholders
is incorporated herein by reference.




83





PART
IV




ITEM
15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES




(a)  Documents filed as part of this
report:




Report of
Independent Registered Public Accounting Firm, Financial
Statements: Consolidated Balance Sheets as of December 31, 2009 and 2008,
Consolidated Statements of Income for the years ended December 31, 2009, 2008
and 2007, Consolidated Statements of Cash Flows for the years ended December 31,
2009, 2008 and 2007, Consolidated Statements of Stockholders’ Equity and
Comprehensive Income for the years ended December 31, 2009, 2008 and 2007 and
Notes to Consolidated Financial Statements.




(b)  Exhibits





Exhibit
      No.
              
              Description1.1
              
              Form
      of Purchase Agreement.(viii)3.1
              
              Amended
      and Restated Certificate of Incorporation.(i)3.2
              
              Amended
      and Restated Bylaws.(xxxi)4.1
              
              Specimen
      Stock Certificate.(i)10.1
              
              2002
      Equity Incentive Plan.(xxv)10.1(a)
              
              Restricted
      Stock Agreement.(xxi)10.1(b)
              
              2007
      Equity Incentive Plan.(xxv)10.2
              
              Form
      of Option Agreement for Non-Employee Directors.(i)10.3
              
              Form
      of Option Agreement for Officers.(i)10.3(a)
              
              Stock
      Option Agreement Pursuant to the Republic Airways Holdings Inc. 2002
      Equity Incentive Plan, by and between Republic Airways Holdings Inc. and
      Bryan K. Bedford, dated as of December 27,
2004.(v)10.3(b)
              
              Stock
      Option Agreement Pursuant to the Republic Airways Holdings Inc. 2002
      Equity Incentive Plan, by and between Republic Airways Holdings Inc. and
      Bryan K. Bedford, dated as of December 27,
2004.(v)10.3(c)
              
              Stock
      Option Agreement Pursuant to the Republic Airways Holdings Inc. 2002
      Equity Incentive Plan, by and between Republic Airways Holdings Inc. and
      Robert Hal Cooper, dated as of December 27,
  2004.(v)10.3(d)
              
              Stock
      Option Agreement Pursuant to the Republic Airways Holdings Inc. 2002
      Equity Incentive Plan, by and between Republic Airways Holdings Inc. and
      Robert Hal Cooper, dated as of December 27,
  2004.(v)10.3(e)
              
              Stock
      Option Agreement Pursuant to the Republic Airways Holdings Inc. 2002
      Equity Incentive Plan, by and between Republic Airways Holdings Inc. and
      Wayne C. Heller, dated as of December 27, 2004.(v)10.3(f)
              
              Stock
      Option Agreement Pursuant to the Republic Airways Holdings Inc. 2002
      Equity Incentive Plan, by and between Republic Airways Holdings Inc. and
      Wayne C. Heller, dated as of December 27,
  2004.(xxiii)10.4†
              
              Amended
      and Restated Regional Jet Air Services Agreement, dated as of
      June 12, 2002, by and between AMR Corporation and Chautauqua
      Airlines, Inc.(i)10.4(a)
              
              Letter
      Agreement between AMR Corporation and Chautauqua Airlines, Inc. dated
      July 30, 2002.(i)10.4(b)†
              
              Side
      Letter Agreement, dated as of March 26, 2003, by and between AMR
      Corporation and Chautauqua Airlines, Inc.(i)10.4(c)†
              
              Amendment
      to Amended and Restated Air Services Agreement, by and between AMR
      Corporation and Chautauqua Airlines, Inc., dated as of October 28,
      2003.(i)10.4(d)†
              
              Amendment
      to the Amended and Restated Air Services Agreement, by and between AMR
      Corporation and Chautauqua Airlines, Inc., dated as of October 23, 2008.
      (xxxiv)10.5
              
              Office
      Lease Agreement, by and between College Park Plaza, LLC and Republic
      Airways Holdings Inc., dated as of April 23,
  2004.(i)10.6†
              
              Chautauqua
      Jet Service Agreement, by and between US Airways, Inc. and Chautauqua
      Airlines, Inc., dated as of March 19, 1999.(i)10.6(a)†
              
              First
      Amendment to the Chautauqua Jet Service Agreement, by and between US
      Airways, Inc. and Chautauqua Airlines, Inc., dated as of September 6,
      2000.(i)10.6(b)†
              
              Second
      Amendment to the Chautauqua Jet Service Agreement, by and between US
      Airways, Inc. and Chautauqua Airlines, Inc., dated as of
      September 20, 2000.(i)
  84
  10.6(c)†
              
              Third
      Amendment to the Chautauqua Jet Service Agreement, by and between US
      Airways, Inc. and Chautauqua Airlines, Inc., dated as of July 11,
      2001.(i)10.6(d)†
              
              Fourth
      Amendment to the Chautauqua Jet Service Agreement, by and between US
      Airways, Inc. and Chautauqua Airlines, Inc., dated as of December 18,
      2002.(i)10.6(e)†
              
              Amended
      and Restated Chautauqua Jet Service Agreement between US Airways,
      Inc. and Chautauqua Airlines, Inc. dated April
      26, 2005.(xiii)10.6(f)†
              
              First
      Amendment to Amended and Restated Chautauqua Jet Service Agreement, by and
      between US Airways, Inc. and Chautauqua Airlines, Inc., dated as of July
      21, 2006.(xix)10.7
              
              Agreement
      between Chautauqua Airlines, Inc. and Teamsters Airline Division Local 747
      representing the Pilots of Chautauqua Airlines, dated as of
      October 17, 2003.(i)10.8
              
              Agreement
      between Chautauqua Airlines, Inc. and the Flight Attendants of Chautauqua
      Airlines, Inc. as represented by the Airline Division, International
      Brotherhood of Teamsters, AFL-CIO, dated as of March 9,
      1999.(i)10.9
              
              Agreement
      between Chautauqua Airlines, Inc. and the Flight Dispatchers in the employ
      of Chautauqua Airlines, Inc. as represented by Transport Workers Union of
      America, AFL-CIO, dated as of June 1, 2007.(xxvi)10.1
              
              Agreement
      between Chautauqua Airlines, Inc. and the Passenger and Fleet Service
      Employees in the service of Chautauqua Airlines, Inc. as represented by
      the International Brotherhood of Teamsters, dated as of December 15,
      1999.(i)10.11
              
              Agreement
      among Republic Airways Holdings Inc., Chautauqua Airlines, Inc. and
      Solitair Corp., dated as of February 12, 2002.(i)10.12†
              
              EMB-145LR
      Amended and Restated Purchase Agreement Number GCT-025/98, by and between
      Embraer-Empresa Brasileira de
      Aeronбutica S.A. and Republic Airways Holdings Inc., dated as of
      April 19, 2002.(i)10.12(a)†
              
              Partial
      Assignment and Assumption of Purchase Agreement GCT-025/98, by and between
      Republic Airways Holdings Inc. and Solitair Corp., and consented to by Embraer-Empresa
      Brasileira de Aeronбutica S.A., dated as of April 18,
      2002.(i)10.12(b)†
              
              Amendment
      Number 1 to Amended and Restated Purchase Agreement GCT-025/98 between
      Republic Airways Holdings Inc and Embraer-Empresa Brasileira de
      Aeronбutica S.A., dated as of
      June 7, 2002.(i)10.12(c)†
              
              Amendment
      Number 2 to Amended and Restated Purchase Agreement GCT-025/98, by and
      between Embraer-Empresa Brasileira de Aeronбutica S.A. and Republic
      Airways Holdings Inc., dated as of July 25,
  2002.(i)10.12(d)†
              
              Amendment
      Number 3 to Amended and Restated Purchase Agreement GCT-025/98, by and
      between Embraer-Empresa Brasileira de Aeronбutica S.A. and Republic
      Airways Holdings Inc., dated as of December 18,
    2002.(i)10.12(e)†
              
              Amendment Number 4
      to Amended and Restated Purchase Agreement GCT-025/98, by and
      between Embraer-Empresa Brasileira de Aeronбutica S.A. and Republic
      Airways Holdings Inc., dated as of May 30,
2003.(i)10.12(f)†
              
              Amendment Number 5
      to Amended and Restated Purchase Agreement GCT-025/98, by and
      between Embraer-Empresa Brasileira de Aeronбutica S.A. and Republic
      Airways Holdings Inc., dated as of September 30,
    2003.(i)10.12(g)†
              
              Amendment
      Number 6 to Amended and Restated Purchase Agreement GCT-025/98, by and
      between Embraer-Empresa Brasileira de Aeronбutica S.A. and
      Republic Airways Holdings Inc., dated as of October 31,
      2003.(i)10.12(h)†
              
              Amendment
      Number 7 to Amended and Restated Purchase Agreement GCT-025/98, by and
      between Embraer-Empresa Brasileira de Aeronбutica S.A. and Republic
      Airways Holdings Inc., dated as of
      December 31, 2003.(i)10.12(i)†
              
              Amendment
      Number 8 to Amended and Restated Purchase Agreement GCT-025/98, by and
      between Embraer-Empresa Brasileira de Aeronбutica S.A. and Republic
      Airways Holdings Inc., dated as of February 16, 2004.(i)10.12(j)†
              
              Amendment
      Number 9 to Amended and Restated Purchase Agreement GCT-025/98, by and
      between Republic Airways Holdings Inc. and Embraer-Empresa Brasileira de
      Aeronбutica S.A., dated as of May 24, 2004.(viii)10.12(l)†
              
              Amendment Number 10
      to Amended and Restated Purchase Agreement GCT-025/98, by and
      between Republic Airways Holdings Inc. and Embraer-Empresa Brasileira de
      Aeronбutica S.A., dated as of January 17,
  2005.(vii)10.12(m)†
              
              Amendment
      No. 11 to Amended and Restated Purchase Agreement
      GCT-025/98, by and between Embraer-Empresa Brasilicica de Aeronautica S.A.
      and Republic Airways Holdings Inc., dated May
      31, 2005.(xiii)10.13†
              
              Amended
      and Restated Letter Agreement GCT-026/98, by and between Embraer-Empresa
      Brasileira de Aeronбutica S.A. and Republic Airways
      Holdings Inc., dated as of April 19,
  2002.(i)10.13(a)†
              
              Amendment
      Number 1 to Amended and Restated Letter Agreement GCT-026/98 between
      Republic Airways Holdings Inc and Embraer-Empresa Brasileira de
      Aeronбutica S.A., dated as of June 7,2002.(i)10.13(b)†
              
              Amendment
      Number 2 to Amended and Restated Letter Agreement GCT-026/98 between
      Republic Airways Holdings Inc. and Embraer-Empresa Brasileira de
      Aeronбutica S.A., dated as of July 25, 2002.(i)10.13(c)†
              
              Amendment Number 3
      to Amended and Restated Letter Agreement GCT-026/98 between
      Republic Airways Holdings Inc. and Embraer-Empresa Brasileira de
      Aeronбutica S.A., dated as of August 29,
  2002.(i)
  85
  10.13(d)†
              
              Amendment Number 4
      to Amended and Restated Letter Agreement GCT-026/98 between
      Republic Airways Holdings Inc. and Embraer-Empresa Brasileira de
      Aeronбutica S.A., dated as of December 10,
2002.(i)10.13(e)†
              
              Amendment
      Number 5 to Amended and Restated Letter Agreement GCT-026/98 between
      Republic Airways Holdings Inc. and Embraer-Empresa Brasileira de
      Aeronбutica S.A., dated as of April 30,
    2003.(i)10.13(f)†
              
              Amendment
      Number 6 to Amended and Restated Letter Agreement GCT-026/98 between
      Republic Airways Holdings Inc. and Embraer-Empresa Brasileira de
      Aeronбutica S.A., dated as of May 30, 2003.(i)10.13(g)†
              
              Amendment
      Number 7 to Amended and Restated Letter Agreement GCT-026/98 between
      Republic Airways Holdings Inc. and Embraer-Empresa Brasileira de
      Aeronбutica S.A., dated as of December 31,
2003.(i)10.13(h)†
              
              Amendment Number 8
      to Amended and Restated Letter Agreement GCT-026/98 between
      Republic Airways Holdings Inc. and Embraer-Empresa Brasileira de
      Aeronбutica S.A., dated as of March 22, 2004.(i)10.14
              
              Amended
      and Restated Registration Rights Agreement, dated as of June 7, 2002,
      by and among Republic Airways Holdings Inc., Imprimis Investors, LLC,
      Wexford Spectrum Fund I, L.P., Wexford Offshore Spectrum Fund, Wexford
      Partners Investment Co. LLC, WexAir LLC, and Delta Air Lines,
      Inc.(i)10.15
              
              Loan
      and Security Agreement, by and between Fleet Capital Corporation and
      Chautauqua Airlines, Inc., dated as of December 9,
      1998.(i)10.16
              
              Consolidated
      Amendment No. 1 to Loan and Security Agreement, by and between Fleet
      Capital Corporation and Chautauqua Airlines, Inc., dated as of
      March 27, 2002.(i)10.16(a)†
              
              Amendment
      No. 3 to Loan and Security Agreement, by and between Fleet Capital
      Corporation and Chautauqua Airlines, Inc., dated as of October 30,
      2003.(i)10.16(b)
              
              Amendment
      No. 4 to Loan and Security Agreement, by and between Fleet Capital
      Corporation and Chautauqua Airlines, Inc., dated as of January 9,
      2004.(i)10.16(c)
              
              Amendment
      No. 8 to Loan and Security Agreement, by and between Bank of America, N.A.
      (successor by assignment to Fleet Capital Corporation) and Chautauqua
      Airlines, Inc., dated as of November 2, 2005.(xvi)10.16(d)
              
              Amendment
      No. 9 to Loan and Security Agreement, by and between Bank of America, N.A.
      (successor by assignment to Fleet Capital Corporation) and Chautauqua
      Airlines, Inc., dated as of January 12, 2006.(xvii)10.16(e)
              
              Amendment
      No. 10 to Loan and Security Agreement, by and between Bank of America,
      N.A. (successor by assignment to Fleet Capital Corporation) and Chautauqua
      Airlines, Inc., dated as of March 22, 2006.(xvii)10.16(f)
              
              Joinder
      and Consolidated Amendment to Loan and Security Agreement, by and among
      Bank of America, N.A., Chautauqua Airlines, Inc., Republic Airways
      Holdings Inc., Republic Airline Inc. and Shuttle America Corporation,
      dated as of May 15, 2006.(xviii)10.16(g)
              
              Amendment
      No. 2 to Loan and Security Agreement, by and among Bank of America, N.A.
      Chautauqua Airlines, Inc., Republic Airways Holdings Inc., Republic
      Airline Inc. and Shuttle America Corporation, dated as of March 21,
      2007.(xxiv)10.17
              
              Amendment
      No. 1 to the Term Note, dated as of March 27, 2002, by and between
      Fleet Capital Corporation and Chautauqua Airlines,
  Inc.(i)10.18
              
              Lease
      Agreement by and between the Indianapolis Airport Authority and Chautauqua
      Airlines, Inc. dba US Airways Express, dated as of June 17,
      1994.(i)10.18(a)
              
              First
      Amendment to Office Lease Agreement, by and between the Indianapolis
      Airport Authority and Chautauqua Airlines, Inc., dated as of July 17,
      1998.(i)10.18(b)
              
              Second
      Amendment to Office Lease Agreement, by and between the Indianapolis
      Airport Authority and Chautauqua Airlines, Inc., dated as of
      October 2, 1998.(i)10.18(c)
              
              Third
      Amendment to Office Lease Agreement, by and between the Indianapolis
      Airport Authority and Chautauqua Airlines, Inc., dated as of
      November 6, 1998.(i)10.18(d)
              
              Fourth
      Amendment to Office Lease Agreement, by and between the Indianapolis
      Airport Authority and Chautauqua Airlines, Inc., dated as of
      September 3, 1999.(i)10.19
              
              Letter
      Agreement by and between the Indianapolis Airport Authority and Chautauqua
      Airlines, Inc., dated as of July 17, 2000, amending Lease Agreement
      for office space.(i)10.20†
              
              Loan
      Agreement between Chautauqua Airlines, Inc. and Agкncia Especial de
      Financiamento Industrial (FINAME), dated as of December 27, 2001.
      There are fourteen additional Loan Agreements which are
      substantially identical in all material respects except as indicated on
      the exhibit.(i)10.21
              
              Aircraft
      Security Agreement between Chautauqua Airlines, Inc. as Borrower and
      JPMorgan Chase Bank as Security Trustee, dated as of December 27,
      2001. There are fourteen additional Aircraft Security Agreements which are
      substantially identical in all material respects except as indicated on
      the exhibit.(i)
  86
  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 AccountControl Agreement among Chautauqua Airlines, Inc. as Debtor,
      AgкnciaEspecial de Financiamento Industrial (FINAME) as Lender, and
      JPMorgan Chase Bank as Securities Intermediary and Security Deposit
      Trustee, dated as of December 27, 2001. There are fourteen additional
      Securities Account Control Agreements which are substantially identical in
      all material respects except as indicated on the
      exhibit.(i)10.24†
              
              Security Deposit
      Agreement, among Chautauqua Airlines, Inc. as Debtor, Agкncia Especial de
      Financiamento Industrial (FINAME) 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 Agкncia Especial de
      Financiamento Industrial (FINAME), dated as of December 27, 2001.
      There are eleven additional Funding Agreements which are substantially
      identical in all material respects except 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 Agкncia Especial de Financiamento
      Industrial.(i)10.26
              
              Agreement,
      dated as of June 7, 2002, by and between Republic Airways Holdings
      Inc. and Delta Air Lines, Inc.(i)10.27
              
              Amendment
      No. 1 to Agreement between Republic Airways Holdings Inc. and Delta Air
      Lines, Inc., dated October 1, 2003.(i)10.28
              
              Warrant
      to purchase shares of common stock of Republic Airways Holdings Inc.
      issued to Delta Air Lines, Inc., dated as of June 7,
      2002.(i)10.28(a)
              
              Warrant
      to purchase shares of common stock of Republic Airways Holdings Inc.
      issued to Delta Air Lines, Inc., dated as of February 7,
      2003.(i)10.28(b)
              
              Warrant
      to purchase shares of common stock of Republic Airways Holdings Inc.
      issued to Delta Air Lines, Inc., dated as of October 1,
      2003.(i)10.28(c)
              
              Warrant
      to purchase shares of common stock of Republic Airways Holdings Inc.
      issued to Delta Air Lines, Inc., dated as of March 10,
      2004.(i)10.28(d)
              
              Warrant
      Surrender Agreement, by and between Republic Airways Holdings Inc. and
      Delta Air Lines, Inc., dated as of December 22,
    2004.(iv)10.28(e)
              
              Form
      of Warrant to Purchase Shares of Common Stock of Republic Airways Holdings
      Inc. issued to Delta Air Lines, Inc., dated as of December 22,
      2004.(iv)10.29
              
              Form
      of warrant to purchase shares of common stock of Republic Airways Holdings
      Inc. issued to Delta Air Lines, Inc.(i)10.3
              
              Form
      of warrant to purchase shares of common stock of Republic Airways Holdings
      Inc. issued to Delta Air Lines, Inc.(i)10.31†
              
              Delta
      Connection Agreement, dated as of June 7, 2002, by and among Delta
      Air Lines, Inc., Chautauqua Airlines, Inc., and Republic Airways Holdings
      Inc.(i)10.31(a)†
              
              Amendment
      No. 1 to Delta Connection Agreement, dated as of February 7, 2003, by
      and among Delta Air Lines, Inc., Chautauqua Airlines, Inc., and Republic
      Airways Holdings Inc.(i)10.31(b)†
              
              Amendment
      Number Two to Delta Connection Agreement, dated September 30, 2003,
      by and among Delta Air Lines, Inc., Chautauqua Airlines, Inc. and Republic
      Airways Holdings Inc.(i)10.31(c)†
              
              Amendment
      Number Three to Delta Connection Agreement, dated March, 2004, by and
      among Delta Air Lines, Inc., Chautauqua Airlines, Inc. and Republic
      Airways Holdings Inc.(i)10.31(d)†
              
              Amendment
      No. 4 to Delta Connection Agreement by and among Delta Air Lines, Inc.,
      Chautauqua Airlines, Inc. and Republic Airways Holdings Inc., dated as of
      August 12, 2004.(iii)10.31(e)†
              
              Amendment
      Number Five to Delta Connection Agreement, as amended, among Delta Air
      Lines, Inc., Chautauqua Airlines, Inc. and Republic Airways Holdings Inc.,
      dated as of December 22, 2004.(iv)10.31(f)†
              
              Amendment
      Number Six to Delta Connection Agreement, by and among Delta Air Lines,
      Inc., Chautauqua Airlines, Inc. and Republic Airways Holdings Inc., dated
      as of March 12, 2007.(xxiii)10.31(g)†
              
              Letter
      Agreement, by and among Delta Airlines, Inc., Republic Airways Holdings
      Inc., Chautauqua Airlines, Inc. and Shuttle America Corp., dated as of
      July 28, 2008.(xxxiii)10.32
              
              Amended
      Promissory Note of Republic Airways Holdings Inc. (FKA Wexford Air
      Holdings Inc.) (FKA Wexford III Corp.), dated as of May 14, 2003, in
      favor of WexAir LLC in the principal amount of
      $20,391,996.04.(i)
  87
  10.33
              
              Second
      Amended and Restated Employment Agreement by and between Bryan K. Bedford
      and Republic Airways Holdings Inc., dated as of July 1,
      2003.(i)10.33(a)
              
              Amendment
      No. 1 to Second Amended and Restated Employment Agreement, by and between
      Bryan K. Bedford and Republic Airways Holdings Inc., dated as of
      December 27, 2004.(v)10.33(b)
              
              Amendment
      No. 2 to Second Amended and Restated Employment Agreement, by and
      between Bryan K. Bedford and Republic Airways Holdings Inc., dated as
      of February 20, 2007. (xx)10.33(c)
              
              Amendment
      No. 3 to Second Amended and Restated Employment Agreement, by and between
      Bryan K. Bedford and Republic Airways Holdings Inc., dated as of September
      5, 2007. (xxvii)10.33(d)
              
              Amendment
      No. 4 to Second Amended and Restated Employment Agreement dated as of June
      22, 2009 by and between Republic Airways Holdings Inc. and Bryan K.
      Bedford. (xli)10.33(e)
              
              Amendment
      No. 5 to Second Amended and Restated Employment Agreement dated as of
      October 29, 2009 by and between the Company and Bryan K. Bedford.
      (xlii)10.34
              
              Second
      Amended and Restated Employment Agreement by and between Robert Cooper and
      Republic Airways Holdings Inc., dated as of August 1,
      2003.(i)10.34(a)
              
              Amendment
      No. 1 to Second Amended and Restated Employment Agreement, by and between
      Robert Hal Cooper and Republic Airways Holdings Inc., dated as of
      December 27, 2004.(v)10.34(b)
              
              Amendment
      No. 2 to Second Amended and Restated Employment Agreement, by and
      between Robert Hal Cooper and Republic Airways Holdings Inc., dated as of
      February 20, 2007. (xx)10.34(c)
              
              Amendment
      No. 3 to Second Amended and Restated Employment Agreement, by and between
      Robert Hal Cooper and Republic Airways Holdings Inc., dated as of
      September 5, 2007.(xxvii)10.34(d)
              
              Amendment
      No. 4 to Second Amended and Restated Employment Agreement dated as of June
      22, 2009 by and between Republic Airways Holdings Inc. and Robert Hal
      Cooper. (xli)10.34(e)
              
              Amendment
      No. 5 to Second Amended and Restated Employment Agreement dated as of
      October 29, 2009 by and between the Company and Robert Hal Cooper.
      (xlii)10.35(a)
              
              Amendment
      No. 1 to Second Amended and Restated Employment Agreement, by and between
      Wayne C. Heller and Chautauqua Airlines, Inc., dated as of
      December 27, 2004.(v)10.35(b)
              
              Amendment
      No. 2 to Second Amended and Restated Employment Agreement, by and
      between Wayne C. Heller and Republic Airways Holdings Inc.,
      dated as of February 20, 2007. (xx)10.35(c)
              
              Amendment
      No. 3 to Second Amended and Restated Employment Agreement, by and between
      Wayne C. Heller and Republic Airways Holdings Inc., dated as of September
      5, 2007. (xxvii)10.35(d)
              
              Amendment
      No. 4 to Second Amended and Restated Employment Agreement dated as of June
      22, 2009 by and between Republic Airways Holdings Inc. and Wayne C.
      Heller. (xli)10.35(e)
              
              Amendment
      No. 5 to Second Amended and Restated Employment Agreement dated as of
      October 29, 2009 by and between the Company and Wayne C. Heller.
      (xlii)10.37
              
              Office/Shop
      Space Permit by and between Signature Combs and Chautauqua Airlines, Inc.,
      dated as of January 16, 2001.(i)10.38
              
              Hangar
      and Office Lease by and between AMR Combs, Inc. and Chautauqua Airlines,
      Inc., dated as of December 22, 1998.(i)10.39†
              
              Purchase
      Agreement DCT-014/2004, by and between Empresa Brasileira de Aeronбutica
      S.A. and Republic Airline
      Inc., dated as of March 19, 2004.(i)10.39(a)†
              
              Amendment
      No. 1 to Purchase Agreement DCT-014/2004, by and between Embraer — Empresa
      Brasileira de Aeronбutica S.A. and Republic Airline Inc., dated as of
      April 28, 2004.(ii)10.39(b)†
              
              Amendment No.
      2 to Purchase Agreement DCT-014/2004 between Embraer-Empresa Brasileira de
      Aeronбutica S.A. and Republic Airline Inc., dated as of dated July 8,
      2004.(iii)10.39(c)†
              
              Amendment No. 3 to
      Purchase Agreement DCT-014/2004 between Embraer-Empresa Brasileira
      de Aeronбutica S.A. and Republic Airline Inc., dated as of July 30,
      2004.(iii)10.39(d)†
              
              Amendment
      No. 4 to Purchase Agreement DCT-014/2004 between Embraer-Empresa
      Brasileira de Aeronбutica S.A. and Republic Airline Inc., dated as of
      August 11, 2004.(iii)10.39(e)†
              
              Amendment
      No. 5 to Purchase Agreement DCT-014/2004 between Embraer-Empresa
      Brasileira de Aeronбutica S.A. and Republic Airline Inc., dated as of
      September 29, 2004.(iii)10.39(f)†
              
              Amendment No. 6 to
      Purchase Agreement DCT-014/2004 between Embraer-Empresa Brasileira
      de Aeronбutica S.A. and Republic Airline Inc., dated as of
      November 9, 2004.(viii)10.39(g)†
              
              Amendment
      No. 7 to Purchase Agreement DCT-014/2004 between Embraer-Empresa
      Brasileira de Aeronбutica S.A. and Republic Airline Inc., dated as of
      December 23,
2004.(viii)
  88
  10.39(h)†
              
              Amendment
      No. 8 to Purchase Agreement DCT-014/2004, by and between Embraer—Empresa
      Brasileira de Aeronбutica S.A. and Republic Airline Inc., dated as of
      February 28, 2005. (x)10.39(i)†
              
              Amendment No. 9 to
      Purchase Agreement DCT-014/2004, by and between Embraer—Empresa
      Brasileira de Aeronбutica S.A. and Republic Airline Inc., dated as of
      March 31, 2005. (x)10.39(j)†
              
              Amendment
      No. 10 to Purchase Agreement DCT-014/2004, by and between Embraer-Empresa
      Brasilicica de Aeronautica S.A. and Republic Airline Inc., dated as of
      April 30, 2005. (xiii)10.39(k)†
              
              Amendment
      No. 11 to Purchase Agreement DCT-014/2004, by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline Inc., dated as of
      August 30, 2005. (xv)10.39(l)†
              
              Amendment
      No. 12 to Purchase Agreement DCT-014/2004, by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline Inc., dated as of
      October 7, 2005.(xvi)10.39(m)†
              
              Amendment
      No. 13 to Purchase Agreement DCT-014/2004, by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline Inc., dated as of
      October 18, 2005.(xvi)10.39(n)†
              
              Amendment
      No. 14 to Purchase Agreement DCT-014/2004, by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline Inc., dated as of
      November 9, 2005.(xvi)10.39(o)†
              
              Amendment
      No. 15 to Purchase Agreement DCT-014/2004, by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline Inc., dated as of
      April 24, 2006.(xviii)10.39(p)†
              
              Amendment
      No. 16 to Purchase Agreement DCT-014/2004, by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline Inc., dated as of July
      21, 2006.(xix)10.39(q)†
              
              Amendment
      No. 17 to Purchase Agreement DCT-014/2004, by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline Inc., dated as of
      November 14, 2006.(xxi)10.39(r)†
              
              Amendment
      No. 18 to Purchase Agreement DCT-014/2004, by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline Inc., dated as of
      January 12, 2007.(xxiv)10.39(s)†
              
              Amendment
      No. 19 to Purchase Agreement DCT-014/2004 by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline Inc., dated as of June
      22, 2007.(xxvi)10.39(t)†
              
              Amendment
      No. 20 to Purchase Agreement DCT-014/2004 by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline Inc., dated as of
      October 18, 2007.(xxx)10.39(u)†
              
              Amendment
      No. 21 to Purchase Agreement DCT-014/2004 by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline Inc., dated as of June
      5, 2008.(xxxiii)10.39(v)†
              
              Amendment
      No. 22 to Purchase Agreement DCT-014/2004 by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline Inc., dated as of
      September 5, 2008.(xxxiv)10.39(w)†
              
              Amendment
      No. 23 to Purchase Agreement DCT-014/2004 by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline Inc., dated as of
      November 10, 2008.10.40†
              
              Letter Agreement
      DCT-015/2004, by and between Republic Airline Inc. and
      Embraer-Empresa Brasileira de Aeronбutica S.A., dated as of March 19,
      2004.(i)10.40(a)†
              
              Amendment
      No. 1 to Letter Agreement DCT-015/2004, by and between Republic Airline
      Inc. and Embraer-Empresa Brasileira de Aeronбutica S.A., dated as
      of July 8, 2004.(viii)10.40(b)†
              
              Amendment
      No. 2 to Letter Agreement DCT-015/2004, by and between Republic Airline
      Inc. and Embraer-Empresa Brasileira de Aeronбutica S.A., dated as of
      December 23, 2004.(viii)10.40(c)†
              
              Amendment No. 3to Letter Agreement DCT-015/2004, by and between Embraer—Empresa
      Brasileira de Aeronбutica S.A. and Republic Airline Inc., dated as of
      February 28, 2005.(x)10.40(d)†
              
              Amendment
      No. 4 to Letter Agreement DCT-015/2004, by and between Embraer—Empresa
      Brasileira de
      Aeronбutica S.A. and Republic Airline Inc., dated as of April 13,
      2005.(x)10.40(e)†
              
              Amendment
      No. 5 to Letter Agreement DCT-015/2004, by and between
      Embraer-Empresa Brasilicica de Aeronautica S.A. and Republic Airline Inc.,
      dated as of April 30, 2005.(xiii)10.40(f)†
              
              Amendment
      No. 6 to Letter Agreement DCT-015/2004, by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline, Inc., dated as of
      October 18, 2005.(xvi)10.40(g)†
              
              Amendment
      No. 7 to Letter Agreement DCT-015/2004, by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline, Inc., dated as of
      November 9, 2005.(xvi)10.40(h)†
              
              Amendment
      No. 8 to Letter Agreement DCT-015/2004, by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline Inc., dated as of July
      21, 2006.(xix)10.40(i)†
              
              Amendment
      No. 9 to Letter Agreement DCT-015/2004, by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline Inc., dated as of
      September 19, 2006.(xxi)10.40(j)†
              
              Amendment
      No. 10 to Letter Agreement DCT-015/2004, by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline Inc., dated as of
      November 14, 2006.(xxi)
  89
  10.40(k)†
              
              Amendment
      No. 11 to Letter Agreement DCT-015/2004, by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline inc., dated as of May
      29, 2007.(xxvi)10.40(l)†
              
              Amendment
      No. 12 to Letter Agreement DCT-015/2004, by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline inc., dated as of June
      22, 2007.(xxvi)10.40(m)†
              
              Amendment
      No. 13 to Letter Agreement DCT-015/2004, by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline inc., dated as of
      October 18, 2007.(xxx)10.40(n)†
              
              Amendment
      No. 14 to Letter Agreement DCT-015/2004, by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline inc., dated as of June
      5, 2008.(xxxiii)10.40(o)†
              
              Amendment
      No. 15 to Letter Agreement DCT-015/2004, by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline inc., dated as of
      September 5, 2008.(xxxiv)10.40(p)†
              
              Amendment
      No. 16 to Letter Agreement DCT-015/2004, by and between Embraer-Empresa
      Brasileira de Aeronautica S.A. and Republic Airline inc., dated as of
      November 10, 2008.10.41†
              
              United
      Express Agreement, by and between United Air Lines, Inc. and Shuttle
      America Corp., dated as of December 28, 2006.(xxi)10.41(a)†
              
              First
      Amendment to United Express Agreement, by and between United Air Lines,
      Inc. and Shuttle America Corp., dated as of August 21,
      2007.(xxx)10.42
              
              Amendment
      No. 1 to United Express Agreement, by and between United Air Lines, Inc.
      and Chautauqua Airlines, Inc., dated as of July 6,
      2004.(ii)10.43†
              
              Letter
      Agreement, by and between United Air Lines, Inc. and Republic Airways
      Holdings Inc., dated as of February 13, 2004.(i)10.43(a)†
              
              Letter
      Agreement, by and between United Air Lines, Inc. and Republic Airways
      Holdings Inc., dated as of July 7, 2004.(ii)10.44
              
              Lease
      Agreement, by and between Chautauqua Airlines, Inc. and the Indianapolis
      Airport Authority, dated as of December 17,
    2004.(viii)10.45†
              
              Delta
      Connection Agreement, dated as of January 13, 2005, by and among
      Delta Air Lines, Inc., Republic Airline Inc. and Republic Airways Holdings
      Inc.(vi)10.45(a)†
              
              Amendment
      Number One to Delta Connection Agreement, by and among Delta Air Lines,
      Inc., Shuttle America Corp. (as assignee of Republic Airline Inc.) and
      Republic Airways Holdings Inc., dated as of March 12, 2007.
      (xxiii)10.45(b)†
              
              Amendment
      Number Two to Delta Connection Agreement, by and among Delta Airlines,
      Inc., Shuttle America Corp. (as assignee of Republic Airline Inc.) and
      Republic Airways Holdings Inc., dated as of August 21,
      2007.(xxx)10.45(c)†
              
              Letter
      Agreement, by and among Delta Airlines, Inc., Republic Airways Holdings
      Inc., Chautauqua Airlines, Inc. and Shuttle America Corp., dated as of
      March 12, 2007.(xxiii)10.46
              
              Stock
      Purchase Agreement, dated May 6, 2005, by and among Republic Airways
      Holdings, inc., Shuttle America Corporation and Shuttle Acquisition
      LLC.(ix)10.47
              
              Promissory
      Note in the principal amount of $1,000,000 dated May 6, 2005, made by
      Republic Airways Holdings Inc. payable to Shuttle Acquisition
      LLC.(ix)10.48†
              
              Investment
      Agreement dated as of March 15, 2005 among Wexford Capital LLC, Republic
      Airways Holdings Inc., US Airways Group, Inc. and US Airways,
      Inc.(x)10.49
              
              Letter
      dated June 23, 2005 from US Airways Group, Inc. and US Airways,
      Inc.(xi)10.50
              
              Amendment
      No. 3 to United Express Agreement between United Airlines, Inc.
      and Republic Airline Inc. and Amendment No. 2 to United Express
      Agreement between United Airlines, Inc. and Chautauqua
      Airlines, Inc. dated as of June 22,
2005.(xii)10.51
              
              Agreement
      between Chautauqua Airlines, Inc. and the Flight Attendants in the service
      of Chautauqua Airlines, Inc. as represented by the International
      Brotherhood Of Teamsters, AFL-CIO, dated as of September 1,
      2005.(xiv)10.52(a)†
              
              Republic
      Jet Service Agreement, by and between US Airways, Inc. and Republic
      Airline Inc., dated as of September 2, 2005.(xv)10.52(b)†
              
              Amendment
      Number One to Republic Jet Service Agreement, by and between US Airways,
      Inc. and Republic Airline Inc., dated as of September 21,
      2005.(xv)10.52(c)†
              
              Second
      Amendment to Republic Jet Service Agreement, by and between US Airways,
      Inc. and Republic Airline Inc., dated as of July 21,
      2006.(xix)10.52(d)†
              
              Third
      Amendment to Republic Jet Service Agreement, by and between US Airways,
      Inc. and Republic Airline Inc., dated as of December 19,
      2006.(xxi)
  90
  10.53†
                
                Global
      Aircraft Transaction Agreement, by and between Republic Airways
      Holdings Inc. and US Airways, Inc., dated as of September 21,
      2005.(xv)10.54†
                
                Commuter
      Slot Option Agreement, by and between Republic Airways Holdings Inc. and
      US Airways, Inc., dated as of September 22, 2005.(xv)10.55†
                
                Capacity
      Purchase Agreement, by and between Continental Airlines, Inc., Republic
      Airways Holdings Inc. and Chautauqua Airlines, Inc., dated as of July 21,
      2006.(xix)10.55(a)†
                
                First
      Amendment to the Capacity Purchase Agreement, by and among Continental
      Airlines, Inc., Republic Airways Holdings Inc. and Chautauqua Airlines,
      Inc., dated as of January 8, 2007.(xxiv)10.56
                
                Amended
      and Restated Secured Super Priority Debtor In Possession Credit Agreement
      dated April 1, 2009. (xxxv)10.56(a)
                
                Second
      Amended and Restated Investment Agreement dated August 13, 2009 by and
      among Frontier Airlines Holdings, Inc. and its subsidiaries, Frontier
      Airlines, Inc. and Lynx Aviation, Inc. (xxxvi)10.56(b)
      ††
                
                Credit
      Agreement among Frontier Airlines, Inc., Republic Airways Holdings Inc.,
      Lynx Aviation, Inc. and Airbus Financial Services, dated as of October 30,
      2009. (xxxvii)10.57
                
                Evidence
      of Transfer of Claim by Republic Airways Holdings Inc. in favor of
      JPMorgan Chase Bank, N.A., dated as of April 11,
    2007.(xxiv)10.58
                
                Stock
      Purchase Agreement, dated as of March 16, 2007, by and between Republic
      Airways Holdings Inc. and WexAir LLC.(xxii)10.59
                
                Stock
      Purchase Agreement, dated as of September 4, 2007, by and between Republic
      Airways Holdings Inc. and WexAir RJET LLC.(xxvii)10.6
                
                Stock
      Purchase Agreement, dated as of September 11, 2007, by and between
      Republic Airways Holdings Inc. and WexAir RJET
  LLC.(xxviii)10.61
                
                Stock
      Purchase Agreement, dated as of October 26, 2007, by and between Republic
      Airways Holdings Inc. and WexAir RJET LLC.(xxix)10.62†
                
                Airline
      Services Agreement, among Midwest Airlines, Inc., Republic Airline Inc.,
      Midwest Air Group, Inc. (in a limited capacity) and Republic Airways
      Holdings Inc. (in a limited capacity), dated September 3,
      2008.(xxxiv)10.62(a)
                
                Amended
      and Restated Senior Secured Credit Agreement, among Midwest Airlines,
      Inc., Midwest Air Group, Inc., its subsidiaries, Wells Fargo Bank
      Northwest, National Association and the lenders party thereto, dated as of
      September 3, 2008.10.62(b)
                
                Amendment
      No. 1 to Amended and Restated Senior Secured Credit Agreement, among
      Midwest Airlines, Inc., Midwest Air Group, Inc., its subsidiaries, Wells
      Fargo Bank Northwest, National Association and the lenders party thereto,
      dated as of October 28, 2008.10.62(c)
                
                Amendment
      No. 1 to Airline Services Agreement, among Midwest
      Airlines, Inc., Republic Airline Inc., Midwest Air Group, Inc.
      and Republic Airways Holdings Inc., dated May 15, 2009.
      (xxxviii)10.62(d)
                
                Amendment
      No. 3 to the Amended and Restated Senior Secured Credit Agreement, dated
      as of September 3, 2008, among Midwest Airlines, Inc., Midwest Air Group,
      Inc., each of the subsidiaries of Midwest from time to time party thereto,
      each lender from time to time party thereto (including Republic Airways
      Holdings Inc.), Wells Fargo Bank Northwest, National Association, as
      administrative agent and Wells Fargo, as collateral agent, dated as of
      June 2, 2009. (xxxix)10.62(e)
                
                Amendment
      No. 2 to the Airline Services Agreement dated as of September 3, 2008
      among Midwest Airlines, Inc., Republic Airline Inc., Midwest Air Group,
      Inc. and Republic Airways Holdings Inc., dated as of June 3, 2009.
      (xxxix)10.62(f)
                
                Agreement
      and Plan of Merger, by and among Republic Airways Holdings Inc., RJET
      Acquisition, Inc. and Midwest Air Group, Inc., dated as of June 23, 2009.
      (xl)10.62(g)
                
                Investment
      Agreement, by and among TPG Midwest US V, LLC, TPG Midwest International
      V, LLC and Republic Airways Holdings Inc., dated as of June 23, 2009.
      (xl)10.63†
                
                Credit
      Agreement, by and between US Airways, Inc. and Republic Airways Holdings
      Inc., dated as of October 20, 2008.(xxxiv)10.63(a)
                
                Amendment
      to the Credit Agreement, by and between US Airways, Inc. and Republic
      Airways Holdings Inc., dated as of December 19, 2008.10.64
                
                Employment
      Agreement by and between Republic Airways Holdings Inc. and Sean Menke,
      dated as of October 2, 200921.1
                
                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.
  91
  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.†
              
              Portions
      of the indicated document have been afforded confidential treatment and
      have been filed separately with the Commission as required by Rule
      406.††
              
              A
      request for confidential treatment was filed for certain portions of the
      indicated document. Confidential portions have been omitted and filed
      separately with the Commission as required by Rule 406.(i)
              
              Incorporated
      by reference to the Registrant’s Registration Statement on Form S-1, File
      No. 333-84092, which was declared effective on May 26,
    2004.(ii)
              
              Incorporated
      by reference to the Registrant’s Quarterly Report on Form 10-Q for the
      quarter ended June 30, 2004.(iii)
              
              Incorporated
      by reference to the Registrant’s Quarterly Report on Form 10-Q for the
      quarter ended September 30, 2004.(iv)
              
              Incorporated
      by reference to the Registrant’s Current Report on Form 8-K filed on
      December 29, 2004.(v)
              
              Incorporated
      by reference to the Registrant’s Current Report on Form 8-K filed on
      December 30, 2004.(vi)
              
              Incorporated
      by reference to the Registrant’s Current Report on Form 8-K filed on
      January 20, 2005.(vii)
              
              Incorporated
      by reference to the Registrant’s Current Report on Form 8-K filed on
      January 21, 2005.(viii)
              
              Incorporated
      by reference to the Registrant’s Registration Statement on Form S-1, File
      No. 333-122033, which was declared effective on February 1,
      2005.(ix)
              
              Incorporated
      by reference to the Registrant’s Current Report on Form 8-K filed on May
      9, 2005(x)
              
              Incorporated
      by reference to the Registrant’s Quarterly Report on Form 10-Q for the
      quarter ended March 31, 2005.(xi)
              
              Incorporated
      by reference to the Registrant’s Current Report on Form 8-K filed on June
      28, 2005.(xii)
              
              Incorporated
      by reference to the Registrant’s Registration Statement on Form S-3, file
      No. 333-126357, which was declared effective on July 18,
    2005.(xiii)
              
              Incorporated
      by reference to the Registrant’s Quarterly Report on Form 10-Q for the
      quarter ended June 30, 2005.(xiv)
              
              Incorporated
      by reference to the Registrant’s Current Report on Form 8-K filed on
      September 7, 2005.(xv)
              
              Incorporated
      by reference to the Registrant’s Quarterly Report on Form 10-Q for the
      quarter ended September 30, 2005.(xvi)
              
              Incorporated
      by reference to the Registrant’s Annual Report on Form 10-K for the year
      ended December 31, 2005.(xvii)
              
              Incorporated
      by reference to the Registrant’s Quarterly Report on Form 10-Q for the
      quarter ended March 31, 2006.(xviii)
              
              Incorporated
      by reference to the Registrant’s Quarterly Report on Form 10-Q for the
      quarter ended June 30, 2006.(xix)
              
              Incorporated
      by reference to the Registrant’s Quarterly Report on Form 10-Q for the
      quarter ended September 30, 2006.(xx)
              
              Incorporated
      by reference to the Registrant’s Current Report on Form 8-K filed on
      February 26, 2007.(xxi)
              
              Incorporated
      by reference to the Registrant's Annual Report on Form 10-K for the year
      ended December 31, 2006.(xxii)
              
              Incorporated
      by reference to the Registrant's Current Report on Form 8-K filed on March
      19, 2007.(xxiii)
              
              Incorporated
      by reference to the Registrant's Current Report on Form 8-K filed on March
      30, 2007.(xxiv)
              
              Incorporated
      by reference to the Registrant's Quarterly Report on Form 10-Q for
      the quarter ended March 31, 2007.(xxv)
              
              Incorporated
      by reference to the Registrant's Current Report on Form 8-K filed on June
      8, 2007.(xxvi)
              
              Incorporated
      by reference to the Registrant's Quarterly Report on Form 10-Q for
      the quarter ended June 30, 2007.(xxvii)
              
              Incorporated
      by reference to the Registrant's Current Report on Form 8-K filed on
      September 5, 2007.(xxviii)
              
              Incorporated
      by reference to the Registrant's Current Report on Form 8-K filed on
      September 12, 2007.(xxix)
              
              Incorporated
      by reference to the Registrant's Current Report on Form 8-K filed on
      October 29, 2007.
  92
  (xxx)
              
              Incorporated
      by reference to the Registrant's Quarterly Report on Form 10-Q for
      the quarter ended September 30, 2007.(xxxi)
              
              Incorporated
      by reference to the Registrant's Current Report on Form 8-K filed on
      December 10, 2007.(xxxii)
              
              Incorporated
      by reference to the Registrant's Current Report on Form 8-K filed on
      August 7, 2008.(xxxiii)
              
              Incorporated
      by reference to the Registrant's Quarterly Report on Form 10-Q filed on
      August 11, 2008.(xxxiv)
              
              Incorporated
      by reference to the Registrant's Quarterly Report on Form 10-Q filed on
      November 4, 2008.(xxxv)
              
              Incorporated
      by reference to the Registrant’s Quarterly Report on Form 10-Q filed on
      May 11, 2009.(xxxvi)
              
              Incorporated
      by reference to the Registrant’s Quarterly Report on Form 10-Q filed on
      November 9, 2009.(xxxvii)
              
              Incorporated
      by reference to Registrant’s Current Report on Form 8-K filed November 5,
      2009.(xxxviii)
              
              Incorporated
      by reference to the Registrant’s Current Report on Form 8-K filed on May
      5, 2009.(xxix)
              
              Incorporated
      by reference to Registrant’s Quarterly Report on Form 10-Q filed on August
      6, 2009.(xl)
              
              Incorporated
      by reference to Registrant’s Current Report on Form 8-K filed on June 24,
      2009.(xli)
              
              Incorporated
      by reference to Registrant’s Current Report on Form 8-K filed on June 26,
      2009.(xlii)
              
              Incorporated
      by reference to Registrant’s Current Report on Form 8-K filed November 2,
      2009.




93





SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.




REPUBLIC
      AIRWAYS HOLDINGS INC.(Registrant)Dated:
      March 16, 2010
              By:
              /s/
      Bryan K. BedfordBryan
      K. BedfordChairman
      of the Board, Chief Executive Officer and President(principal
      executive officer)




Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.


Signature
              
              Title
              
              Date/s/
      Bryan K. BedfordBryan
      K. Bedford
              
              Chairman
      of the Board, Chief Executive Officer and President (Principal Executive
      Officer)
              
              March
      16, 2010/s/
      Robert H. CooperRobert
      H. Cooper
              
              Executive
      Vice President and Chief Financial Officer (Principal Financial and
      Accounting Officer)
              
              March
      16, 2010/s/
      Lawrence J. CohenLawrence
      J. Cohen
              
              Director
              
              March
      16, 2010/s/
      Neal S. CohenNeal
      S. Cohen
              
              Director
              
              March
      16, 2010/s/
      Douglas J. LambertDouglas
      J. Lambert
              
              Director
              
              March
      16, 2010/s/
      Mark L. PlaumannMark
      L. Plaumann
              
              Director
              
              March
      16, 2010/s/
      Richard P. SchifterRichard
      P. Schifter
              
              Director
              
              March
      16, 2010/s/
      David N. SiegelDavid
      N. Siegel
              
              Director
              
              March
      16, 2010




94