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 March 31, 2009





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





Commission
file number:  000-51890





FRONTIER AIRLINES HOLDINGS,
INC.


(DEBTOR AND
DEBTOR-IN-POSSESSION as of April 10, 2008)


(Exact
name of registrant as specified in its charter)





Delaware
                  
                  20-4191157(State
      or other jurisdiction of incorporation or organization)
                  
                  (I.R.S.
      Employer Identification No.)7001 Tower Road, Denver, CO
                  
                  80249(Address
      of principal executive offices)
                  
                  (Zip
      Code)





Registrant’s
telephone number including area code:  (720) 374-4200





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





Title of Class
                    
                    Name of exchange on which
      registeredCommon
      Stock, Par Value of $0.001 per share
                    
                    N/A





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





Indicate
by check mark whether the Registrant is a well−known seasoned issuer, as defined
in Rule 405 of the Securities Act.


Yes ̈Nox





Indicate
by check mark whether the Registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes  ̈  No x





Indicate by check mark whether the
Registrant (1) filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act 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.  YesxNo ̈





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 the Registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. ̈





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 definition of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act:


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





Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes  ̈  No x





The
aggregate market value of common stock held by non-affiliates of the Company
computed by reference to the last average bid and asked price of the Company’s
common stock as of September 30, 2008 was $11.1 million.





The
number of shares of the Company’s common stock outstanding as of May 22, 2009 is
36,945,744.





Shares of
common stock held by each executive officer and director and by each person who
owned 5% or more of the outstanding common stock as of such date have been
excluded, as such persons may be deemed to be affiliates.  This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.





Documents Incorporated By
Reference. Part III of this Form 10-K will be filed
with the Securities and Exchange Commission as an amendment to this
Form 10-K in accordance with General
Instruction G(3).








TABLE
OF CONTENTS





PagePART
      IItem
      1:
                                  Business
                                  3Item
      1A:
                                  Risk
      Factors
                                  15Item
      1B:
                                  Unresolved
      Staff Comments
                                  21Item
      2:
                                  Properties
                                  22Item
      3:
                                  Legal
      Proceedings
                                  23Item
      4:
                                  Submission
      of Matters to a Vote of Security Holders
                                  23PART
      IIItem
      5:
                                  Market for
      Registrant’s Common Equity, Related Stockholder Matters and
      Issuer Purchases of Equity Securities
                                  24Item
      7:
                                  Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                  25Item
      8:
                                  Financial
      Statements and Supplementary Data.
                                  52Item
      9:
                                  Changes in and
      Disagreements with Accountants on Accounting and
      Financial Disclosure
                                  52Item
      9A:
                                  Controls
      and Procedures
                                  52Item
      9B:
                                  Other
      Information
                                  52PART
      IIIItem
      10:
                                  Directors,
      Executive Officers and Corporate Governance
                                  53Item
      11:
                                  Executive
      Compensation
                                  53Item
      12:
                                  Security Ownership
      of Certain Beneficial Owners and Management and
      Related Stockholder Matters
                                  53Item
      13:
                                  Certain
      Relationships and Related Transactions and Director
      Independence.
                                  53Item
      14:
                                  Principal
      Accounting Fees and Services
                                  53PART
      IVItem
      15:
                                  Exhibits
      and Financial Statement Schedules
                                  54





PART
I





Item
1:  Business





Forward-Looking
Statements.





This
report contains forward-looking statements within the meaning of Section 21E of
the Securities Exchange Act of 1934 (the “Exchange Act”) that describe the
business and prospects of Frontier Airlines Holdings, Inc. and its subsidiaries
and the expectations of our company and management. All statements included in
this report that address activities, events or developments that we expect,
believe, intend or anticipate will or may occur in the future, are
forward-looking statements. When used in this document, the words “estimate,”
“anticipate,” “intend,” “project,” “believe” and similar expressions are
intended to identify forward-looking statements. Forward-looking statements are
inherently subject to risks and uncertainties, many of which cannot be predicted
with accuracy and some of which might not even be anticipated.





You
should understand that many important factors, in addition to those discussed or
incorporated by reference in this report, could cause our results to differ
materially from those expressed in the forward-looking statements. Potential
factors that could affect our results include, in addition to others not
described in this report, those described in Item 1A of this report under
‘‘Risks Related to Frontier’’ and ‘‘Risks Associated with the Airline
Industry.’’ In light of these risks and uncertainties, the forward-looking
events discussed in this report might not occur. We undertake no obligation to
publicly update or revise any forward-looking statements to reflect events or
circumstances that may arise after the date of this report.





In this
report, references to “us,” “we,” “our” or the “Company” refer to Frontier
Airlines Holdings, Inc. unless the context requires otherwise.





Chapter
11 Reorganization





On April
10, 2008 (the “Petition Date”), Frontier Airlines Holdings, Inc. (“Frontier
Holdings”) and its subsidiaries, Frontier Airlines, Inc. (“Frontier Airlines”)
and Lynx Aviation, Inc. (“Lynx Aviation”), filed voluntary petitions for
reorganization under Chapter 11 of Title 11 of the United States Code (the
“Bankruptcy Code”) in the United States Bankruptcy Court for the Southern
District of New York (the “Bankruptcy Court”).  The cases are being
jointly administered under Case No. 08-11298 (RDD).  Frontier
Holdings, Frontier Airlines, and Lynx Aviation (collectively, the “Debtors” or
the “Company”) continue to operate as “debtors-in-possession” under the
jurisdiction of the Bankruptcy Court and in accordance with the applicable
provisions of the Bankruptcy Code and orders of the Bankruptcy Court. In
general, as debtors-in-possession, the Debtors are authorized under
Chapter 11 to continue to operate as an ongoing business, but may not
engage in transactions outside of the ordinary course of business without the
prior approval of the Bankruptcy Court.  In recent bankruptcies in our
industry, the airline ceased operations, and we can give no assurance that we
will be able to continue to operate our business or successfully
reorganize.





No
assurance can be provided as to what values, if any, will be ascribed in the
Debtors’ bankruptcy proceedings to the Debtors’ pre-petition liabilities, common
stock and other securities. We believe that our currently outstanding common
stock will have no value and will be canceled under any plan of reorganization
we might propose and that the value of the Debtors’ various pre-petition
liabilities and other securities is highly speculative. Accordingly, caution
should be exercised with respect to existing and future investments in any of
these liabilities or securities.




The
Bankruptcy Court has approved various motions for relief designed to allow us to
continue normal operations.  The Bankruptcy Court’s orders authorize
us, among other things, in our discretion to: (a) pay pre-petition and
post-petition employee wages, salaries, benefits and other employee obligations;
(b) pay certain vendors and other providers in the ordinary course for goods and
services received from and after the Petition Date; (c) honor customer service
programs, including our Early
Returns frequent flyer program and our ticketing programs; (d) honor
certain obligations arising prior to the Petition Date related to our interline,
clearinghouse, code sharing and other similar agreements; and (e) continue
maintenance of existing bank accounts and existing cash management
systems.


3





Reporting
Requirements





As a
result of bankruptcy filings, the Debtors are required to periodically file
various documents with and provide certain information to, the Bankruptcy Court,
including statements of financial affairs, schedules of assets and liabilities,
and monthly operating reports prepared according to requirements of federal
bankruptcy law.  While the Company believes that these materials
accurately provide then-current information required under federal bankruptcy
law, they are nonetheless unaudited and are prepared in a format different from
that used in our consolidated financial statements filed under the securities
laws.  Accordingly, we believe that the substance and format do not
allow meaningful comparison with its regular publicly-disclosed consolidated
financial statements.  Moreover, the materials filed with the
Bankruptcy Court are not prepared for the purpose of providing a basis for an
investment decision relating to our securities, or for comparison with other
financial information filed with the Securities and Exchange Commission
(“SEC”).





Reasons
for Bankruptcy





The
Debtors’ Chapter 11 filings followed an unexpected attempt by our principal
bankcard processor in April 2008 to substantially increase a "holdback" of
customer receipts from the sale of tickets. This increase in “holdback” would
have represented a material negative change to the Debtors’ cash forecasts and
business plan, put severe restraints on the Debtors’ liquidity and made it
impossible for the Debtors to continue normal operations.  Due to
historically high aircraft fuel prices, continued low passenger mile yields, and
the threatened increased holdback from our principal bankcard processor, we
determined that we could not continue to operate without the protections
provided by Chapter 11.





Notifications





Shortly
after the Petition Date, the Debtors began notifying all known current or
potential creditors of the Chapter 11 filing. Subject to certain exceptions
under the Bankruptcy Code, the Debtors’ Chapter 11 filing automatically
enjoined, or stayed, the continuation of any judicial or administrative
proceedings or other actions against the Debtors or their property to recover
on, collect or secure a claim arising prior to the Petition Date. Thus, for
example, most creditor actions to obtain possession of property from the
Debtors, or to create, perfect or enforce any lien against the property of the
Debtors, or to collect on monies owed or otherwise exercise rights or remedies
with respect to a pre-petition claim are enjoined unless and until the
Bankruptcy Court lifts the automatic stay. Vendors are being paid for goods
furnished and services provided after the Petition Date in the ordinary course
of business.  The deadline for the filing of proofs of claims against
the Debtors in their cases was November 17, 2008.





Proofs
of Claim





As
permitted under the bankruptcy process, the Debtors’ creditors filed proofs of
claim with the Bankruptcy Court. The total amount of the claims that were filed
far exceeds our estimate of ultimate liability. We believe many of these claims
are invalid because they are duplicative, are based upon contingencies that have
not occurred, have been amended or superseded by later filed claims, or are
otherwise overstated.  Differences in amounts between claims filed by
creditors and liabilities shown in our records are being investigated and
resolved in connection with our claims resolution process. While we have made
significant progress to date, we expect this process to continue for some time
and believe that further reductions to the claims register will enable us to
more precisely determine the likely range of creditor distributions under a
proposed plan of reorganization. The Company has reviewed all major claims that
have been filed and does not expect material exposure remains to be resolved,
however, this process continues and there can be no assurance that the Company
will not continue to record adjustments related to the ultimate amount of claims
allowed.  At this time, we cannot determine the ultimate number and
allowed amount of the claims.





Executory
Contracts and Determination of Allowed Claims





Under
Section 365 and other relevant sections of the Bankruptcy Code, the Debtors
may assume, assume and assign, or reject certain executory contracts and
unexpired leases, including, without limitation, leases of real property,
aircraft and aircraft engines, subject to the approval of the Bankruptcy Court
and certain other conditions. Any description of an executory contract or
unexpired lease in this Form 10-K, including, where applicable, the
Debtors’ express termination rights or a quantification of our obligations, must
be read in conjunction with, and is qualified by, any overriding rejection
rights the Debtors have under Section 365 of the Bankruptcy
Code.  Claims may arise as a result of rejecting any executory
contract.  As of the date of this filing, our most significant
rejected executory contract is the Republic Airlines, Inc. (“Republic”) regional
partner contract as discussed in Note 2 to the accompanying consolidated
financial statements.  We have recorded the amount of the allowed
claim of $150.0 million.  These financial statements also include
allowed claims of $29.8 million related to claims related to union labor
agreements and one rejected real property lease agreement in the amount of $1.0
million.  The consolidated financial statements do not include the
effects of any claims not yet allowed in the case if we have determined that we
cannot estimate the amount that will be allowed by the Bankruptcy
Court.  Known and determinable claims are recorded in accordance with
Statements of Financial Accounting Standards No. 5, Accounting for
Contingencies.  Certain claims filed may have priority above those of
general unsecured creditors.


4





Notwithstanding
the general discussion above of the impact of the automatic stay, under
Section 1110 of the Bankruptcy Code (“Section 1110”), certain secured
parties, lessors and conditional sales vendors may have extra rights regarding
taking possession of certain qualifying aircraft, aircraft engines and other
aircraft-related equipment that are leased or subject to a security interest or
conditional sale contract pursuant to their agreement with the Debtors.
Section 1110 provides that, unless the Debtors agree to perform under the
applicable agreement and cure all defaults within 60 days after the
Petition Date, such financing party can take possession of such equipment.





Section 1110
effectively shortens the automatic stay period to 60 days with respect to
Section 1110-eligible aircraft, engines and related equipment subject to
the following two conditions. First, the debtor may extend the 60-day period by
agreement of the relevant financier, with Bankruptcy Court approval.
 Alternatively, the debtor may agree, with court approval, to perform all
of the obligations under the applicable financing and cure any defaults
thereunder as required by the Bankruptcy Code (which does not preclude later
rejecting any related lease).  On June 9, 2008, we agreed to perform
our obligations under our applicable financings, and we believe we have cured
the defaults under these financings.  We have resolved all cure issues
with all of our aircraft financiers.





Collective
Bargaining Agreements





Under
Section 1113 of the Bankruptcy Code (“Section 1113”), the debtor is
permitted to reject a collective bargaining agreement if the debtor satisfies
several statutorily prescribed substantive and procedural requirements under the
Bankruptcy Code and obtains the Bankruptcy Court’s approval of the
rejection.  Section 1113 requires a debtor to (i) make a proposal to modify
its existing collective bargaining agreements based on the most complete and
reliable information available at the time, (ii) bargain in good faith, and
(iii) establish that the proposed modifications are necessary for the debtor’s
reorganization.





On October 31, 2008, the Bankruptcy Court granted us Section 1113 relief
regarding two of our collective bargaining agreements with the International
Brotherhood of Teamsters (“IBT”). The Bankruptcy Court granted our request for
wage concessions from the IBT and adopted our proposed heavy maintenance plan.
Our plan allows us to furlough our heavy maintenance workers during periods we
do not require heavy maintenance work and recall these workers during periods
when we have work available.





In November 2008 our Transportation Workers Union (“TWU”) ratified a long-term
labor agreement, which was also approved by the Bankruptcy Court. The agreement
extended agreed upon wage and benefit concessions. As part of the consensual
agreement, TWU was allowed a $0.4 million general non-priority unsecured claim
in our bankruptcy case.





In December 2008 our aircraft appearance agents and maintenance cleaners
represented by the IBT ratified a long-term labor agreement with Frontier
Airlines.  The agreement provides Frontier Airlines with wage concessions
through December 12, 2012.  As part of the consensual agreement, IBT was
allowed a $0.5 million general non-priority unsecured claim in our bankruptcy
case.





In January 2009 the members of the Frontier Airline Pilots Association (“FAPA”)
ratified an agreement effective through January 2012 in which they agreed to
long-term wage concessions starting at 10% effective January 1, 2009.  FAPA
represents more than 600 pilots at Frontier Airlines. As part of the consensual
agreement, FAPA was allowed a $29.0 million general non-priority unsecured claim
in our bankruptcy case.





Creditors’
Committee





As
required by the Bankruptcy Code, the United States Trustee for the Southern
District of New York appointed a statutory committee of unsecured creditors (the
“Creditors’ Committee”).  The Creditors’ Committee and its legal
representatives have a right to be heard on all matters that come before the
Bankruptcy Court with respect to the Debtors.  The Creditors’
Committee has been generally supportive of the Debtors’ positions on various
matters; however, there can be no assurance that the Creditors’ Committee will
support the Debtors’ positions on matters to be presented to the Bankruptcy
Court in the future or on any plan of reorganization, once
proposed.  Disagreements between the Debtors and the Creditors’
Committee could protract the Chapter 11 proceedings, negatively impact the
Debtors’ ability to operate, and delay the Debtors’ emergence from the
Chapter 11 proceedings.


5





Plan
of Reorganization





In order
to successfully exit Chapter 11, the Debtors will need to propose, and
obtain confirmation by the Bankruptcy Court, a plan of reorganization that
satisfies the requirements of the Bankruptcy Code. A plan of reorganization
would, among other things, resolve the Debtors’ pre-petition obligations, set
forth the revised capital structure of the newly-reorganized entity, and provide
for corporate governance subsequent to exit from bankruptcy.





Automatically,
upon commencing a Chapter 11 case, a debtor has the exclusive right for
120 days after the petition date to file a plan of reorganization and, if
it does so, 60 additional days to obtain necessary acceptances of its plan.
The Bankruptcy Court may extend these periods, and has done so in these
cases.  In May 2009, the Bankruptcy Court  extended the
Debtors’ exclusive filing and acceptance deadlines to October 9, 2009, and
December 9, 2009, respectively.  If the Debtors’ exclusivity period
lapses, any party in interest will be able to file a plan of reorganization for
any of the Debtors.  In addition to being voted on by holders of
impaired claims and equity interests, a plan of reorganization must satisfy
certain requirements of the Bankruptcy Code and must be approved, or confirmed,
by the Bankruptcy Court in order to become effective.





A plan of
reorganization will be deemed accepted by holders of claims against and equity
interests in the Debtors if (1) at least one-half in number and two-thirds
in dollar amount of claims actually voting in each impaired class of claims have
voted to accept the plan and (2) at least two-thirds in amount of equity
interests actually voting in each impaired class of equity interests has voted
to accept the plan.  Under certain circumstances set forth in
Section 1129(b) of the Bankruptcy Code, however, the Bankruptcy Court may
confirm a plan even if such plan has not been accepted by all impaired classes
of claims and equity interests. A class of claims or equity interests that does
not receive or retain any property under the plan on account of such claims or
interests is deemed to have voted to reject the plan. The precise requirements
and evidentiary showing for confirming a plan notwithstanding its rejection by
one or more impaired classes of claims or equity interests depends upon a number
of factors, including the status and seniority of the claims or an equity
interest in the rejecting class (e.g.., secured claims or unsecured claims,
subordinated or senior claims, preferred or common stock). Generally, with
respect to common stock interests, a plan may be “crammed down” even if the
stockholders receive no recovery if the proponent of the plan demonstrates that
(1) no class junior to the common stock is receiving or retaining property
under the plan and (2) no class of claims or interests senior to the common
stock is being paid more than in full.





Under the
priority scheme established by the Bankruptcy Code, unless creditors agree
otherwise, pre-petition liabilities and post-petition liabilities must be
satisfied in full before stockholders are entitled to receive any distribution
or retain any property under a plan of reorganization. The ultimate recovery to
creditors and/or stockholders, if any, will not be determined until confirmation
of a plan or plans of reorganization. No assurance can be given as to what
values, if any, will be ascribed in the Chapter 11 cases to each of these
constituencies or what types or amounts of distributions, if any, they would
receive. A plan of reorganization could result in holders of the Debtors’
liabilities and/or securities, including our common stock, receiving no
distribution on account of their interests and cancellation of their
holdings.





The
timing of filing of a plan of reorganization by the Debtors will depend on the
timing and outcome of numerous other ongoing matters in the Chapter 11
proceedings.  There can be no assurance at this time that a plan of
reorganization will be confirmed by the Bankruptcy Court, or that any such plan
will be implemented successfully.





Reorganization
Costs





The
Debtors have incurred and will continue to incur significant costs associated
with their reorganization. The amounts of these costs, which are being expensed
as incurred, have affected and are expected to continue to significantly affect
the Debtors’ liquidity and results of operations.  See Note 3
“Reorganization Expenses” in the accompanying consolidated financial statements
for additional information.


6





Risks
and Uncertainties





Our
ability, both during and after the Chapter 11 cases, to continue as a going
concern is dependent upon, among other things, (i) our ability to successfully
achieve required cost savings to complete our restructuring; (ii) our ability of
to maintain adequate liquidity; (iii) our ability of to generate cash from
operations; (iv)  our ability to confirm a plan of reorganization
under the Bankruptcy Code; and (v) our ability to sustain profitability.
Uncertainty as to the outcome of these factors raises substantial doubt about
our ability to continue as a going concern. The accompanying consolidated
financial statements do not include any adjustments to reflect or provide for
the consequences of the bankruptcy proceedings, except for unsecured claims
allowed by the Bankruptcy Court reflected in our consolidated financial
statements as discussed in Note 3 “Reorganization Expenses” in the accompanying
consolidated financial statements.  In particular, such financial
statements do not purport to show (a) as to assets, their realization value on a
liquidation basis or their availability to satisfy liabilities;
(b)  as to pre-petition liabilities, the amounts that may be allowed
for claims or contingencies, or the status and priority thereof; (c) as to
stockholder accounts, the effect of any changes that may be made in our
capitalization; or (d) as to operations, the effects of any changes that may be
made to our business.  A plan of reorganization could materially
change the amounts currently disclosed in the consolidated financial
statements.





Negative
events associated with the Debtors’ Chapter 11 proceedings could adversely
affect sales of tickets and the Debtors’ relationship with customers, as well as
with vendors and employees, which in turn could adversely affect the Debtors’
operations and financial condition, particularly if the Chapter 11
proceedings are protracted. Also, transactions outside of the ordinary course of
business are subject to the prior approval of the Bankruptcy Court, which may
limit the Debtors’ ability to respond timely to certain events or take advantage
of certain opportunities.  Because of the risks and uncertainties
associated with the Debtors’ Chapter 11 proceedings, the ultimate impact
that events that occur during these proceedings will have on the Debtors’
business, financial condition and results of operations cannot be accurately
predicted or quantified, and there is substantial doubt about the Debtors’
ability to continue as a going concern.





As a
result of the bankruptcy filings, realization of assets and liquidation of
liabilities are subject to uncertainty. While operating as debtors-in-possession
under the protection of Chapter 11 of the Bankruptcy Code, and subject to
Bankruptcy Court approval or otherwise as permitted in the normal course of
business, the Debtors may sell or otherwise dispose of assets and liquidate or
settle liabilities for amounts other than those reflected in the consolidated
financial statements. Further, a plan of reorganization could materially change
the amounts and classifications reported in the historical consolidated
financial statements, which do not give effect to any adjustments to the
carrying value of assets or amounts of liabilities that might be necessary as a
consequence of confirmation of a plan of reorganization.





Business





General





We are a
low cost, affordable fare airline operating primarily in a hub and spoke fashion
connecting cities coast to coast through our hub at Denver International Airport
(“DIA”).  We are the second largest jet service carrier at DIA based
on departures.  We offer our customers a differentiated product, with
new Airbus and Bombardier 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 our mainline
routes.  In January 2007 the U.S. Department of Transportation (“DOT”)
designated us as a major carrier.  As of May 18, 2009, Frontier
Airlines and Lynx Aviation operated routes linking our Denver hub to 50 U.S.
cities spanning the nation from coast to coast, five cities in Mexico and one
city in Costa Rica.





As of May
18, 2009, we operated a mainline fleet of 51 jets (37 of which we lease and 14
of which we own), consisting of 38 Airbus A319s, 10 Airbus A318s and three
Airbus A320s, and a regional fleet of 10 Bombardier Q400 turboprop aircraft
operated by Lynx Aviation (five of which we lease and five of which we
own).  During the years ended March 31, 2009 and 2008, year-over-year
total capacity decreased by 11.9% and increased by 14.5%, respectively, and
year-over-year total passenger traffic decreased by 11.9% and increased by
21.2%, respectively.





In
December 2008, we launched AirFairs, a new fare structure that gives customers
the option to choose the fare that best fits their travel needs.  The
fare structure includes three tiers of tickets as follows:





·
            Classic
      Plus. The Classic Plus ticket is fully refundable, changeable and
      provides the customer the ability to confirm a seat on a different flight
      the same day of travel for no charge. In addition, Classic Plus customers
      get priority boarding, two complimentary checked bags, complimentary
      DIRECTV®, an in-flight snack and a premium beverage. Classic Plus
      customers also receive a 150% mileage credit in EarlyReturns®, our
      customer loyalty program.


7





·
            Classic.  The
      Classic customer gets advanced seat assignments, two complimentary checked
      bags, complimentary DIRECTV®, and 125% EarlyReturns mileage
      credit. In addition, customers will be charged a $50 fee for itinerary
      changes and $75 for same day confirmed
changes.





·
            Economy
      is the basic ticket. The Economy ticket is for the customer who is
      traveling light and does not foresee any schedule changes. The Economy
      ticket is our guaranteed lowest
fare.





In
December 2007 Lynx Aviation obtained its operating certificate to provide
scheduled air transportation service from the Federal Aviation Administration
(“FAA”).  Lynx Aviation began revenue service on December 7,
2007.  In its first year of operation, Lynx Aviation carried nearly one
million passengers to 17 cities, which has decreased to 13 destinations as of
May 21, 2009, two of which are supplemental service to our mainline
operations.





On
January 11, 2007, we entered into an agreement with Republic Airlines, Inc.
(“Republic”) for Republic to operate 17 Embraer 170 aircraft with capacity of
76-seats. On April 23, 2008, as part of our bankruptcy proceeding, we
rejected our capacity purchase agreement with Republic.  The agreement
provided for a structured reduction and gradual phase-out of Republic's 12
aircraft which had been delivered to us. The phase-out was completed on June 22,
2008.





In order
to increase connecting traffic, we have a code share agreement with Great Lakes
Aviation Ltd.  We also have interline agreements with 18 domestic and
international airlines serving cities on our route system.  Generally,
these agreements include joint ticketing and baggage services and other
conveniences designed to expedite the connecting process.





In
November 2006, we partnered with AirTran Airways to create the first Low Cost
Carrier referral and frequent flyer partnership in the industry that offers
travelers the ability to reach more than 80 destinations across four
countries.  This partnership enables both airlines to increase
destination options by linking phone and online reservations systems as well as
enabling Frontier’s EarlyReturns® and AirTran’s A+ Rewards
members to earn and redeem mileage/travel credits on both airlines.





Our
filings with the SEC are available at no cost on our website, www.frontierairlines.com,
in the Investor Relations folder contained in the section titled “About
Frontier” and are also available at the SEC’s website, http://www.sec.gov.  These
reports include our annual report on Form 10-K, our quarterly reports on Form
10-Q, our current reports on Form 8-K, Section 16 reports on Forms 3, 4 and 5,
and any related amendments or other documents that we file with or furnish the
SEC, and are made available as soon as reasonably practicable after we file or
furnish the materials with the SEC.





We were
organized in February 1994, and in April 2006, we completed our corporate
reorganization (the “Reorganization”).  We were incorporated in 2006
under the laws of the State of Delaware to become a holding company for Frontier
Airlines.  Frontier Airlines and Lynx Aviation are incorporated under
the laws of the State of Colorado.  Our corporate headquarters are
located at 7001 Tower Road, Denver, Colorado 80249.  Our
administrative office telephone number is 720-374-4200 and our reservations
telephone number is 800-432-1FLY.


8




Business
Strategy




Our
business strategy is to provide air service at affordable fares to high volume
markets from our Denver hub and limited point-to-point routes outside of our
Denver hub while seeking ways to leverage our strong market position in Denver
and excellent product and service.  Our strategy is based on the
following factors:




•
            Stimulate
      demand by offering a combination of low fares, quality service and
      frequent flyer credits in our frequent flyer program, EarlyReturns®.


•
            Continue
      filling gaps in flight frequencies to current markets from our Denver
      hub.


•
            Continue
      to successfully defend our position in Denver against new
      entrants.


•
            Become
      the lowest cost airline among our
competitors.




Our route
system strategy connects our Denver hub to top business and leisure
destinations.  We currently serve 35 of the top 50 destinations from
Denver, as defined by the DOT’s Origin and Destination Market
Survey.  As of May 18, 2009, we operate routes linking our Denver hub
to 56 destinations including Mexico and Costa Rica.




We
believe we have created a widely recognized brand that distinguishes us from our
competitors and identifies us as a safe, reliable, low-fare airline focused on
customer service and providing a high quality travel experience. Similarly, we
believe that customer awareness of our brand has contributed to our ability to
leverage our brand preference in marketing efforts and positions us to be a
preferred marketing partner with companies across many different industries. We
have a strong company culture and will continue to focus on differentiating the
product and service we provide to our passengers.  Our frequent flyer
program offers some of the most generous benefits in the industry, including a
free round-trip award ticket within the contiguous U.S. after accumulating only
20,000 miles (40,000 miles to Costa Rica and 30,000 miles to Alaska or any of
our destinations in Mexico). We believe our friendly and dedicated employees,
affordable pricing, accommodating service, in-flight entertainment systems and
comfortable airplanes distinguish our product and service from our
competitors.  Safety is a primary concern, and we are proud that our
maintenance staff has been awarded the FAA Diamond Award for Excellence for ten
straight years – an award that recognizes our commitment to the ongoing training
and education of our maintenance staff.




Operations
Review for the Year





Our
rankings from the compilation of 2008 DOT statistics include:





·
            We
      ranked first among the recognized major carriers and first in the industry
      in overall flight completion, which means that we cancelled fewer flights
      in 2008 than any other reporting U.S. carrier. This is the second
      consecutive year in which we have led the airline industry in fewest
      flight cancellations.





·
            We
      ranked third among major carriers and fifth among all reporting carriers
      in on-time arrivals. This is the third consecutive year in which we have
      finished among the top three major
carriers.





·
            We
      ranked third among major carriers and fifth among all carriers in fewest
      customer complaints filed with the DOT. The 2008 performance marked the
      third consecutive year that Frontier ranked among the top three major
      carriers in fewest complaints.





·
            We
      tied for fifth among the major carriers and eighth among all reporting
      carriers in lowest mishandled bag ratio. The 2008 performance represented
      a 28% improvement compared to our performance in
  2007.





·
            Frontier
      was one of only two recognized major carriers to rank in the top five in
      all four major DOT reporting categories according to the DOT’s year-end
      “Air Travel Consumer Report.” The report details the operational
      performance of the country’s 19 largest air carriers, including the 11
      recognized major airlines.


9





Industry
Overview





The U.S. domestic airline industry was
negatively impacted by record high fuel prices during the past
year.  As fuel prices increased, the airline industry was unable to
raise average fares enough to offset rising costs.  The price of fuel
per gallon for our fiscal year ended March 31, 2009 increased by 26.9% over the
same period in 2008 and reached a new record high of $147 a barrel (or $4.39 per
gallon for our system-wide average purchase price including our into plane cost,
taxes and storage) on July 11, 2008.  Since this record high, crude
oil fell to $32 a barrel in December 2008, the lowest level since the end of
2003. Oil prices continue to be volatile and are impacted by concerns over the
economy and global demand, including recent price increases due to increased
demand from China.  Oil has been recently trading in a range from $52
to $59 a barrel.  As of May 18, 2009, our weekly average current price
of fuel per gallon was $1.67 per gallon (including into plane costs, taxes and
storage).Domestic
airlines responded to the record fuel costs in mid-2008 and the recent economic
downturn by reducing capacity, grounding airplanes, furloughing and/or reducing
their workforce, raising ticket prices and imposing additional
fees.  Based on airlines’ schedule filings through May 1, 2009, we
anticipate overall domestic airline capacity for the fall of 2009 will be
reduced by 3% to 4% year over year.  This follows capacity reductions
of 10% to 11% in the fall of 2008.  We anticipate capacity at DIA will
only be down 1% year over year for the fall 2009 largely due to growth of
Southwest Airlines at DIA.  This follows capacity reductions of
approximately 3% at DIA in the fall of 2008 reflecting the reductions in our
scheduled service as well as capacity reductions by United
Airlines.





In
response to the increase in fuel costs and as part of our restructuring efforts,
we reduced mainline cost per available seat mile excluding fuel by 7.3% in the
three months ended March 31, 2009, as compared to the three months ended March
31, 2008.  As part of our restructuring efforts, we achieved new labor
contracts with all represented employees and implemented wage reductions for all
non-represented employees.  We have successfully reduced our costs
despite a 16% reduction in our capacity and an 8% reduction in our stage length
during the three months ended March 31, 2009.





We have also taken a number of steps to
improve our fleet and our schedules as we attempt to drive higher unit
revenue.  We sold several of our Airbus aircraft and returned the E170
aircraft that Republic provided under a capacity purchase
agreement.  We have cancelled poor performing non-Denver point to
point routes, redeployed aircraft to our core Denver markets, and adjusted
frequencies in markets to more effectively compete.  We believe these
changes have allowed us to develop a consistent business schedule and strengthen
our connecting flow opportunities.  Additionally, we have increased
our overall revenue performance with the addition of new ancillary and fee
driven revenue sources.





In December 2008 we launched our fare
families product AirFairs, which provides our customers a choice among three
distinct product offerings. AirFairs allows our customers to choose Classic Plus
for the greatest flexibility and amenities; Classic for some flexibility, seat
assignments, and most of our amenities; and Economy for the lowest price, but
with limited flexibility and amenities.  We believe AirFairs will
increase our revenue and allow us to further distinguish our
product.





The
airline industry is, however, still facing an extremely challenging economic
environment.  Although fuel costs have significantly decreased and the
industry is benefiting from earlier capacity reductions, we cannot be certain
how severely the weak economy will impact travel demand and the fare
environment.  Despite the current economic conditions, our
restructuring efforts are showing results.  With our low costs and
product differentiation, including AirFairs, we believe we can continue to
compete effectively in the Denver market.  Our low unit costs coupled
with reductions in fuel prices helped us to achieve operating earnings during
the third and fourth quarters of the fiscal year ended March 31,
2009.  We believe, based on cost guidance provided by many airlines,
we can continue to sustain our industry leading cost structure.




Competition





We compete principally with United
Airlines (“United”), the dominant carrier at DIA, as well as Southwest Airlines
(“Southwest”). United has a competitive advantage due to its larger number of
flights from DIA, its significantly broader domestic and international route
system, its mature and robust loyalty program, and a multiple class cabin for
most of its flights.





In January 2006, Southwest Airlines,
the largest low-cost U.S. airline, introduced service at DIA.  As of
May 18, 2009, Southwest Airlines has 113 daily flights out of DIA to 33
destinations, and has announced plans to add another destination out of DIA with
a schedule that reduces frequencies to 105 daily flights by September
2009.  Southwest pioneered the low−cost model by operating a single
aircraft fleet with high utilization, being highly productive in the use of its
people and assets, providing a simplified fare structure and offering only a
single class of seating with no seat assignments.  These methods
enable Southwest to offer fares that are significantly lower than those charged
by other U.S. airlines.  We believe we need to match these low fares
in the routes in which we compete with Southwest in order to retain market
share, which has impacted our yields.  Further expansion by Southwest
into other markets we serve would require us to respond in similar
fashion.


10





During February 2009, United and its
commuter affiliates had a total market share at DIA of approximately 47.8%, down
from their market share during February 2008 of 50.8%.  During
February 2009, Southwest had a total market share at DIA of approximately 13.2%,
up from 6.6% during February 2008.  Our market share at DIA, including
our codeshare affiliates and Lynx Aviation, during February 2009 was 22.9%, down
from 25.0% during February 2008.  As of May 2009, our seat share was
23.1%, United’s seat share was 43.3% and Southwest’s seat share was
17.9%.  We compete with United and Southwest primarily on the basis of
fares, fare flexibility, the number of markets in which we operate and the
number of frequencies within a market, our frequent flyer programs, brand
recognition (particularly in the Denver market), the level of passenger
entertainment available on our aircraft and the quality of our customer
service.





At the present time, New York’s
LaGuardia and John F. Kennedy International Airports and Washington D.C.’s
Ronald Reagan National Airport are regulated by means of “slot” allocations,
which represent government authorization to take off or land at a particular
airport within a specified time period.  FAA regulations require the
use of each slot at least 80% of the time and provide for forfeiture of slots in
certain circumstances.  At New York’s LaGuardia Airport, we currently
hold and are using four high-density exemption slots to operate two daily
round-trip flights between DIA and LaGuardia.  At Washington Ronald
Reagan National Airport, we currently hold and are using six beyond perimeter
slots for three round-trip flights between DIA and Reagan
National.





Another airport we serve, John Wayne
International Airport in Santa Ana, California (SNA), is also slot controlled at
the local level as mandated by a federal court order.  We currently hold
and use eight arrival and departure slots at SNA for four daily round-trips
between DIA and SNA.





The Open Skies Agreement between the
U.S. and the European Union, or E.U., which took effect in March 2008,
allows any U.S. or European carrier to fly any route between any city in the
E.U. and any city in the U.S. We believe that this new accord will result in
increased competition in the U.S. airline industry by providing customers with
an even greater choice of airlines to fly.





Maintenance
and Repairs





All of
our aircraft maintenance and repairs are accomplished in accordance with our
maintenance program approved by the FAA.  Since mid-1996, we have
trained, staffed and supervised our own maintenance work force in Denver,
Colorado.  We sublease a portion of Continental Airlines' hangar at
DIA where we currently perform most of our own line maintenance and longer
interval maintenance. The sublease for the
facility expired in February 2007, and we are currently on a month-to-month
lease.We also maintain line maintenance facilities in
Phoenix, Arizona and Kansas City, Missouri for Mainline Operations, and in
Kansas City, Missouri and El Paso, Texas for Lynx Operations.  FAA
approved outside contractors perform other major maintenance, such as line
maintenance at our spoke cities, longer interval maintenance when we do not have
adequate facilities or staff to meet maintenance needs and major engine
repairs.





Under our aircraft lease agreements, we
pay all expenses relating to the maintenance and operation of our aircraft, and
we are required to pay supplemental monthly payments to the lessors based on
usage.  Supplemental payments, which increase annually, are applied
against the cost of scheduled major maintenance.  To the extent these
reserves are not used for major maintenance during the lease terms, excess
supplemental payments are forfeited to the aircraft lessors after termination of
the lease.  Additionally, to the extent actual maintenance expenses
incurred exceed these reserves, we are required to pay these
amounts.





Effective
January 1, 2003, we entered into an engine maintenance agreement with GE Engine
Services, Inc. (“GE”) covering the scheduled and unscheduled repair of our
aircraft engines used on most of our Airbus aircraft.  The agreement
was subsequently modified and extended in September 2004.  This
agreement precluded us from using another third party for such services during
the term.  For owned aircraft, this agreement required monthly
payments at a specified rate multiplied by the number of flight hours the
engines were operated during that month.  In August 2008, as part of
our Chapter 11 reorganization process, both parties mutually agreed to terminate
this agreement. Engine maintenance expenses will no longer be covered by a
maintenance cost per hour contract and will be expensed when
incurred.





Our monthly mainline completion factors
for the years ended March 31, 2009, 2008, and 2007, excluding cancellations that
were not related to maintenance, averaged 99.7%, 99.6% and 99.9%,
respectively.  The completion factor is the percentage of our
scheduled flights that were operated by us, whether or not delayed (i.e., not
canceled).  We believe that our high monthly completion factors are
attributable to the reliability of our relatively new Airbus fleet and the
record of excellence in our maintenance department.


11





For ten consecutive years starting in
1999, our maintenance and engineering department received the FAA’s highest
award, the Diamond Certificate of Excellence, in recognition of 100 percent of
our maintenance and engineering employees completing advanced aircraft
maintenance training programs.The
Diamond Award recognizes advanced training for aircraft maintenance
professionals throughout the airline industry.  We were one of the
first Part 121 domestic air carriers to achieve 100 percent participation in
this training program by our maintenance employees.





Fuel





Our average fuel prices increased
significantly over the past three years.  During the years ended March
31, 2009, 2008, and 2007, jet fuel, including hedging activities and our
regional partner and Lynx Aviation operations, accounted for
40.7%,  31.7% and 29.0%, respectively, of our operating
expenses.  We have arrangements with major fuel suppliers for
substantial portions of our fuel requirements, and we believe that these
arrangements assure an adequate supply of fuel for current and anticipated
future operations.  Jet fuel costs are subject to wide fluctuations as
a result of sudden disruptions in supply beyond our
control.  Therefore, we cannot predict the future availability and
cost of jet fuel with any degree of certainty.  Our mainline average
fuel prices per gallon, including realized and non-cash mark to market hedging
activities, taxes and into-plane fees, for the last three fiscal years were as
follows:





Fiscal Year
                                    Ended
                                  
                                  Average Fuel
                                    Price per
                                    Gallon
                                  
                                  
                                  Monthly Low
                                    Price per Gallon
                                  
                                  
                                  Monthly High
                                    Price per GallonMarch
      31, 2009
                                  
                                  $
                                  3.11
                                  
                                  
                                  $
                                  1.45
                                  
                                  
                                  $
                                  4.22March
      31, 2008
                                  
                                  $
                                  2.45
                                  
                                  
                                  $
                                  2.04
                                  
                                  
                                  $
                                  3.04March
      31, 2007
                                  
                                  $
                                  2.12
                                  
                                  
                                  $
                                  1.57
                                  
                                  
                                  $
                                  2.47





As of May
18, 2009, the average fuel price per gallon was approximately
$1.67.





Volatility in fuel prices have had and
could continue to have a material adverse effect on our operations and financial
results.  Based on our current fleet and operations, we estimate that
a 1¢ increase in the price of fuel per gallon increases our operating expenses
by approximately $1.6 million on an annualized basis.  This number
will vary depending on our capacity. Our ability to pass on increased fuel costs
to passengers through price increases or fuel surcharges may be limited,
particularly because of our affordable fare strategy and intense
competition.





We entered into two new fuel hedge
agreements subsequent to March 31, 2009 in which we hedged approximately 30% of
our estimated fuel purchases for the period from August 1, 2009 to December 31,
2009, by purchasing calls at a weighted average rate of $1.74 per gallon for jet
fuel.





Employees





As of
March 31, 2009, we had approximately 5,283 Frontier and Lynx Aviation employees,
including 4,253 full-time and 1,030 part-time and on-call
personnel.  Our employees include 801 pilots, 1,039 flight attendants,
1,490 customer service agents, 187 scouts and on-call personnel, 619 ramp
service agents, 277 reservations agents, 118 aircraft appearance agents, 90
catering agents, 480 mechanics and related personnel, and 132 general management
and administrative personnel.  We consider our relations with our
employees to be good.





Approximately
20% of our employees are represented by unions.  Our relations with
our labor unions are governed by the Railway Labor Act. Under the Railway Labor
Act, a labor union seeking to represent an unrepresented craft or class of
employees is required to file an application with the National Mediation Board
(“NMB”) alleging a representation dispute, along with authorization cards signed
by at least 35% of the employees in that craft or class. The NMB then
investigates the dispute and, if it finds the labor union has obtained a
sufficient number of authorization cards, conducts an election to determine
whether to certify the labor union as the collective bargaining representative
of that craft or class. Under the NMB’s usual rules, a labor union will be
certified as the representative of the employees in a craft or class only if
more than 50% of those employees vote for union representation. A certified
labor union then enters into a collective bargaining agreement with the
employer.  Under the Railway Labor Act, a collective bargaining
agreement between an airline and a labor union does not expire, but instead
becomes amendable as of a stated date. Either party may request the NMB to
appoint a federal mediator to participate in the negotiations for a new or
amended agreement.


12





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





Approximate Number
                          
                          
                          
                          ContractEmployee Group
                          
                          of Employees
                          
                          Representing Union
                          
                          Amendable DateFrontier
      Pilots
                          
                          691
                          
                          Frontier
      Airline PilotsAssociation
      (“FAPA”)
                          
                          March
      2012Mechanics
      and tool room attendants
                          
                          273
                          
                          Teamsters
      Airline Division
                          
                          October
      2011Dispatchers
                          
                          15
                          
                          Transport
      Workers Union
                          
                          September
      2012Aircraft
      appearance agents and maintenance cleaners
                          
                          111
                          
                          Teamsters
      Airline Division
                          
                          September
      2015Material
      Specialist
                          
                          25
                          
                          International
      Brotherhood of Teamsters
                          
                          October
      2011





On
November 6, 2008, the Association of Flight Attendants-CWA (“AFA-CWA”) filed a
petition with the National Mediation Board to hold a representational election
on behalf of 98 Lynx Aviation flight attendants.  In January 2009 Lynx
Aviation flight attendants voted to be represented by the
AFA-CWA.  Lynx Aviation is currently in the process of negotiating a
labor agreement with its flight attendants.





Government
Regulation





All interstate air carriers are subject
to regulation by the DOT, the FAA and other state and federal government
agencies.   The DOT has authority to issue certificates of public
convenience and necessity required for airlines to provide domestic air
transportation. The DOT’s jurisdiction extends primarily to the economic aspects
of air transportation, such as certification and fitness, insurance,
advertising, computer reservation systems, deceptive and unfair competitive
practices, and consumer protection matters such as compliance with the Air
Carrier Access Act, on-time performance, denied boarding, discrimination and
baggage liability.  The DOT also is authorized to require reports from
air carriers and to investigate and institute proceedings to enforce its
economic regulations and may, in certain circumstances, assess civil penalties,
revoke operating authority and seek criminal sanctions.





The FAA’s regulatory authority relates
primarily to flight operations and air safety, including aircraft certification
and operations, crew licensing and training, maintenance standards, and aircraft
standards.  The FAA also oversees aircraft noise regulation, ground
facilities, dispatch, communications, weather observation, and flight and duty
time.  It also controls access to certain airports through slot
allocations, which represent government authorization for airlines to take off
and land at controlled airports during specified time periods.





The availability of international
routes to U.S. carriers is regulated by treaties and related agreements between
the United States and foreign governments.  The United States
typically follows the practice of encouraging foreign governments to enter into
“open skies” agreements that allow multiple carrier designation on foreign
routes.  In some cases, countries have sought to limit the number of
carriers allowed to fly these routes.  Certain foreign governments
impose limitations on the ability of air carriers to serve a particular city
and/or airport within their country from the U.S.  For a U.S. carrier
to fly to any such international destination, it must first obtain approval from
both the United States and the “foreign country authority”.   On
April 3, 2007, the U.S. DOT issued an “Open-Skies Notice” inviting all U.S. air
carriers now certificated to conduct foreign scheduled air transportation and
interested in applying for blanket open-skies certificate authority to file
applications with the Department.  We filed for and obtained this blanket
authority in April 2007.


13





The
Transportation Security Administration (“TSA”) and U.S. Customs and Border
Protection, divisions of the Department of Homeland Security, are responsible
for certain civil aviation security matters, including passenger and baggage
screening at U.S. airports and international passenger prescreening prior
to entry into or departure from the United States. Since 2002, the TSA has
imposed an Aviation Security Infrastructure Fee on all airlines to assist in the
cost of providing aviation security. The fees assessed are based on airlines'
actual 2000 security costs.   Pursuant to authority granted to
the TSA to impose additional fees on air carriers if necessary to cover
additional federal aviation security costs, the TSA has imposed an additional
annual Security Infrastructure Fee on certain airlines, including
us.  The industry has opposed and disagrees with the higher assessment
and is working with the TSA on a resolution.





Airlines
are also subject to various other federal, state, local and foreign laws and
regulations. The U.S. Department of Justice (“DOJ”) has jurisdiction over
airline competition matters. Labor relations in the airline industry are
generally governed by the Railway Labor Act. Environmental matters are regulated
by various federal, state, local and foreign governmental entities. Privacy of
passenger and employee data is regulated by domestic and foreign laws and
regulations.


14


Item
1A.  Risk Factors





In
addition to the other information contained in this Form 10-K, the following
risk factors should be considered carefully in evaluating our business and
us.  Our business, financial condition or results of operations could
be materially adversely affected by any of these risks.  In addition,
please read "Forward-Looking Statements" in this Form 10-K, where we describe
additional uncertainties associated with our business and the forward-looking
statements included or incorporated by reference in this Form 10-K. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including the risks faced by us
described below and elsewhere included or incorporated by reference in this Form
10-K. Please note that additional risks not presently known to us or that we
currently deem immaterial may also impair our business and
operations.





Risks
Related to Frontier





We
filed for protection under Chapter 11 of the Bankruptcy Code on April 10,
2008.





During
our Chapter 11 proceedings, our operations, including our ability to
execute our business plan, are subject to the risks and uncertainties associated
with bankruptcy. Risks and uncertainties associated with our Chapter 11
proceedings include the following:





•
                actions
      and decisions of our creditors and other third parties with interests in
      our Chapter 11 proceedings may be inconsistent with our
      plans;





•
              our
      ability to obtain court approval with respect to motions in the
      Chapter 11 proceedings prosecuted from time to
  time;





•
              our
      ability to develop, prosecute, confirm and consummate a plan of
      reorganization with respect to the Chapter 11
      proceedings;





•
              our
      ability to retain management and other key
  individuals;





•
              our
      ability to obtain and maintain normal terms with bank card processors and
      credit card companies, vendors and service
  providers;





•
            our
      ability to maintain contracts that are critical to our operations;
      and





•
              risks
      associated with third parties seeking and obtaining court approval to
      terminate or shorten the exclusivity period for us to propose and confirm
      a plan of reorganization, to appoint a Chapter 11 trustee or to
      convert the cases to Chapter 7
cases.





These
risks and uncertainties could affect our business and operations in various
ways. For example, negative events or publicity associated with our
Chapter 11 proceedings could adversely affect our sales of tickets and the
relationship with our customers, as well as with vendors and employees, which in
turn could adversely affect our operations and financial condition, particularly
if the Chapter 11 proceedings are protracted. Also, transactions outside of
the ordinary course of business are subject to the prior approval of the
Bankruptcy Court, which may limit our ability to respond timely to certain
events or take advantage of certain opportunities.





Because
of the risks and uncertainties associated with our Chapter 11 proceedings,
the ultimate impact that events that occur during these proceedings will have on
our business, financial condition and results ofoperations
cannot be accurately predicted or quantified, and there is substantial doubt
about our ability to continue as a going concern.





We
face liquidity challenges which could impact our ability to continue our
operations.





We have
substantial liquidity needs in the operation of our business and face
significant liquidity challenges due to volatile aircraft fuel prices, low
passenger yields, credit card processor holdbacks and cash reserves and other
cost pressures. Accordingly, we believe that our cash and cash equivalents and
short-term investments will remain under pressure during 2009 and thereafter. We
are uncertain we will be able to obtain exit financing, secure liquidity to
refinance or repay our Debtor-in-Possession Loan (“DIP Loan”) on or before its
scheduled maturity date, and find a plan sponsor to emerge from our
Chapter 11 proceedings.  We cannot guarantee that these efforts
to raise cash and improve our liquidity will be successful, in which case we
could be forced to discontinue our operations.


15





The
implementation of our business plan cannot keep pace with high fuel costs and
recent yield declines.





During the last year, we implemented
cost, revenue and profit improvement initiatives. We have increased total
passenger unit revenue by 4.2%, primarily due to initiatives to increase
ancillary revenue, and we have decreased mainline CASM excluding fuel by
6.9%.The cost reduction and revenue improvement benefits we
are realizing under our plan have been outpaced by historically high aircraft
fuel prices and our yield is currently being negatively impacted by the economic
recession. We continue to operate in a very competitive environment at DIA,
which limits our ability to increase fares to offset high fuel costs and reduced
demand for travel. We cannot assure you that we will achieve the targeted
benefits under our business plan or that these benefits, even if achieved, will
be adequate for us to maintain financial viability due to fuel
costs.





We
are vulnerable to increases in aircraft fuel costs.




High oil prices have had a
significant adverse impact on the results of operations over the past three
fiscal years. 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 operations and
profitability. 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 a significant portion of our
operating costs, substantial changes in fuel costs 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 operating expenses by
approximately $1.6 million per year based on our current fleet and aircraft fuel
consumption.





Fuel is a major component of our
operating expenses, accounting for 40.7% of our total operating expenses for the
year ended March 31, 2009, up from 31.7% for the year ended March 31,
2008.  Mainline fuel costs including the impact of hedging increased
to $504.3 million, or an average cost of $3.11 per gallon, from $446.8 million,
or $2.45 per gallon, over the same periods.  Our ability to pass on
increased fuel costs has been and may continue to be limited by economic and
competitive conditions.





We
depend heavily on the Denver market to be successful.





Our business strategy has historically
focused on adding flights to and from our Denver base of operations. Currently,
100% of our flights originate or depart from DIA (this does not include seasonal
non-hub flying to Mexico).  A reduction in our share of the Denver
market, increased competition, or reduced passenger traffic to or from 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.





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, accounting for approximately 47.8% of all revenue
passengers out of DIA for March 2009. In addition, Southwest Airlines started
service to and from Denver in January 2006 and currently has 113 daily flights
out of DIA.  Southwest’s introductory fares were significantly below
the fares we were 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. The future activities of United, Southwest
and other carriers may have a material adverse effect on our revenue and results
of operations.


16





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





We operate our hub of flight operations
from 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.





Our
all-Airbus mainline fleet creates certain concentration risks.





As of March 31,
2009, we operated 51 Airbus aircraft. We completed our transition from
Boeing aircraft to operating only Airbus aircraft on our mainline routes in
April 2005. One of the key elements of this strategy is to produce cost savings
because crew training is standardized for aircraft of a common type, maintenance
issues are simplified, spare parts inventory is reduced, and scheduling is more
efficient.





Since we
operate only Airbus aircraft and GE engines on our mainline routes, we are
dependent on single manufacturers for future aircraft acquisitions or
deliveries, spare parts and warranty service. If Airbus is unable to perform its
obligations under existing purchase agreements, or is unable to provide future
aircraft or services, whether by fire, strike or other events that affect its
ability to fulfill contractual obligations or manufacture aircraft or spare
parts, we would have to find another supplier for our aircraft. If acceptable
Airbus aircraft were otherwise not available in the marketplace, Boeing aircraft
is likely to be the only other manufacturer from which we could purchase or
lease alternate aircraft. If we were forced to acquire Boeing aircraft, we would
need to address fleet transition issues, including substantial costs associated
with retraining our employees, acquiring new spare parts, and replacing our
manuals. In addition, the fleet efficiency benefits described above may no
longer be available.





Our
business would be significantly disrupted if an FAA airworthiness directive or
service bulletin were issued that resulted in the grounding of Airbus aircraft
or GE engines of the type we operate while the defect was being corrected. Our
business could also be harmed if the public avoids flying Airbus aircraft due to
an adverse perception about the aircraft’s safety or dependability due to an
accident or other incident involving an Airbus aircraft of the type we
fly.





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 Airbus aircraft is approximately 4.8 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. Compliance with local noise abatement procedures may
lead to increased landing fees.


17





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.





Unionization
affects our costs and may affect our operations.





Six of
our employee groups are represented by unions: our pilots, dispatchers,
mechanics, material specialists, aircraft appearance agents, and the flight
attendants at Lynx Aviation.  In January 2009, Lynx Aviation flight
attendants voted to be represented by the AFA-CWA.  In addition, since
1997, union organizing attempts were defeated by our Frontier flight
attendants.  The collective bargaining agreement with our mechanics union,
the IBT, expires in October 2011.  In February 2007, FAPA pilot membership
ratified a four year agreement that amends the previous five-year contract
signed in May 2000.  As a result of recent bargaining due to bankruptcy,
the pilot contract now expires in March 2012.  In March 2006, our material
specialists voted for union representation by the IBT.  In September 2007,
the material specialists approved a four year agreement. As a result of recent
bargaining due to bankruptcy, the IBT contract now expires in October 2011.
   In September 2006, the contract with our dispatchers, who are
represented by the TWU, expired.  In September 2007, our dispatchers signed
a five year collective bargaining agreement. As a result of recent bargaining
due to bankruptcy, the TWU contract now expires in September 2012.  
The Aircraft Appearance Agents and Maintenance Cleaners contract became
effective September 2005 and is in effect until September 2015.





If we are
unable to reach agreements with any of the represented work groups when their
contracts open for renegotiation, or if currently non-represented employees were
to unionize and we were unable to reach agreement on the terms of their
employment, we may need to go to mediation and may experience widespread
employee dissatisfaction. We could be subject to work slowdowns or stoppages. In
addition, we may be subject to disruptions by organized labor protesting certain
groups for their non-union status or conducting sympathy action for fellow
members striking at other airlines. Any of these events would be disruptive to
our operations and could harm our business.





The
lack of marketing alliances could harm our business.





Many
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. We 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.





If
we are unable to attract and retain qualified personnel at reasonable costs, our
business will be harmed.





We are
dependent on the experience and industry knowledge of our officers and other key
employees to execute our business plans. Our deteriorating financial
performance, along with our Chapter 11 proceedings, creates uncertainty
that has led to unwanted attrition. We are at risk of losing management talent
critical to the successful reorganization and ongoing operation of our business.
If we continue to experience a substantial turnover in our leadership and other
key employees, including as a result of planned overhead reductions required by
our business plan, our performance could be materially adversely impacted.
Furthermore, we may be unable to attract and retain additional qualified
executives as needed in the future.


18





We
rely heavily on automated systems and technology to operate our 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 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
failures 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.





Any
“ownership change” could limit our ability to utilize our net operating loss
carryforwards.




Under federal income tax law, a
corporation is generally permitted to deduct from taxable income in any year net
operating losses carried forward from prior years. As of March 31, 2009, we had
approximately $343.0 million of federal and state net operating loss (“NOL”)
carryforwards.  Our ability to deduct net operating loss carryforwards
could be subject to a significant limitation if we were to undergo an “ownership
change” for purposes of Section 382 of the Internal Revenue Code of 1986,
as amended, during or as a result of our Chapter 11
proceedings.





Our
financial results and reputation could be harmed in the event of an accident or
incident involving our aircraft.





An
accident or incident involving one of our aircraft could involve repair or
replacement of a damaged aircraft and its consequential temporary or permanent
loss from service, and significant potential claims of injured passengers and
others. We are required by the DOT and our lenders and lessors to carry hull,
liability and war risk insurance. Although we believe we currently maintain
liability insurance in amounts and of the type generally consistent with
industry practice, the amount of such coverage may not be adequate and we may be
forced to bear substantial losses from an accident. Substantial claims resulting
from an accident in excess of our related insurance coverage would harm our
business and financial results. Moreover, any aircraft accident or incident,
even if fully insured, could cause a public perception that we are less safe or
reliable than other airlines, which would harm our business.





Risks
Associated with the Airline Industry





The
airline industry has incurred significant losses resulting in airline
restructurings and bankruptcies, which could result in changes in our
industry.





Financial
losses throughout the airline industry in recent years have resulted in airlines
renegotiating or attempting to renegotiate labor contracts, reconfiguring flight
schedules, furloughing or terminating employees, and taking other efficiency and
cost-cutting measures.  Despite these actions, several airlines have
liquidated and ceased operations.  Others, including us, are seeking
reorganization under Chapter 11 of the Bankruptcy Code, which permits them to
reduce labor rates, restructure debt, terminate pension plans and generally
reduce their cost structure.  As the industry encounters continued
financial losses and volatile fuel costs and weak demand, airlines may institute
pricing structures to achieve near-term survival rather than long-term
viability. It is foreseeable that further airline reorganizations, bankruptcies,
or consolidations may occur, the effects of which we are unable to predict. We
cannot assure you that the occurrence of these events, or potential changes
resulting from these events, will not harm our business or the
industry.





Airlines
may be subject to terrorist attacks or other acts of war and increased costs or
reductions in demand for air travel due to hostilities in the Middle East or
other parts of the world.





Although
the entire industry is substantially enhancing security equipment and
procedures, it is impossible to guarantee that additional terrorist attacks,
such as the terrorist attacks that occurred on September 11, 2001 and more
recent threats in August 2006, or other acts of war will not occur. Given the
weakened state of the airline industry, if additional terrorist attacks or acts
of war occur, particularly in the near future, it can be expected that the
impact of those attacks on the industry may be similar in nature to but
substantially greater than those resulting from the September 11 terrorist
attacks.


19





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





Because
the airline industry is seasonal and cyclical, our liquidity and earnings will
fluctuate and be unpredictable. Our 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. Airlines frequently
experience short-term cash requirements. These requirements are caused by
seasonal fluctuations in traffic, which often reduce cash during off-peak
periods, and various other factors, including price competition from other
airlines, national and international events, fuel prices, and general economic
conditions including inflation. 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.





Our
current insurance costs could increase if the U.S. government does not provide
war risk coverage to airlines.





Following
the September 11 terrorist attacks, aviation insurers dramatically increased
airline insurance premiums and significantly reduced the maximum amount of
insurance coverage available to airlines for liability to persons other than
passengers for claims resulting from acts of terrorism, war or similar events to
$50 million per event and in the aggregate. In light of this development, under
the Air Transportation Safety and System Stabilization Act, the U.S. government
has provided domestic airlines with excess war risk coverage above $50 million
up to an estimated $1.6 billion per event for us.





In
December 2002, through authority granted under the Homeland Security Act of
2002, the U.S. government expanded its insurance program to enable airlines to
elect either the government’s excess third-party war risk coverage or for the
government to become the primary insurer for all war risks
coverage.  We elected to take primary government coverage in February
2003 and dropped the commercially available war risk coverage.  The
current government war risk policy is in effect until August 31,
2009.  We do not know whether the government will extend the coverage
beyond August 31, 2009 and if it does how long the extension will
last.  We expect that if the government stops providing excess war
risk coverage to the airline industry, the premiums charged by aviation insurers
for this coverage will be substantially higher than the premiums currently
charged by the government or the coverage will not be available from reputable
underwriters.Significant
increases in insurance premiums would harm our financial condition and results
of operations.





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 our
operating and financial results. Accordingly, a shortfall from expected revenue
yields can have a material adverse effect on our profitability and liquidity. 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.





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.





We
are subject to strict federal regulations, and compliance with federal
regulations increases our costs and decreases our revenue.





Airlines
are subject to extensive regulatory and legal requirements that involve
significant compliance costs. Any future changes in regulatory oversight of
airlines generally, or low-fare carriers in particular, could result in a
material increase in our operating expenses or otherwise hinder our
business.  For example, the FAA issues directives and other
regulations on the maintenance and operation of aircraft that necessitate
significant expenditures.  We expect to continue incurring expenses to
comply with the FAA’s regulations.


20





Other
laws, regulations, taxes and airport rates and charges have also been imposed
significantly increasing the cost of airline operations or reducing revenue. For
example, the Aviation and Transportation Security Act mandates the
federalization of certain airport security procedures and imposes additional
security requirements on airports and airlines, most of which are funded by a
per ticket tax on passengers and a tax on airlines.  The TSA has also
attempted to impose an additional annual Security Infrastructure Fee on certain
airlines, including us.   A revision in the fee structure
assessed by the TSA could result in increased cost for us. The airline industry
has opposed and disagrees with the higher assessment and is working with the TSA
on a resolution.





Although
we have the necessary authority from the DOT and the FAA to conduct flight
operations, we must maintain this authority by our continued compliance with
applicable statutes, rules and regulations pertaining to the airline industry,
including any new rules and regulations that may be adopted in the future. We
may not be able to continue to comply with all present and future rules and
regulations. In addition, we cannot predict the costs of compliance with these
regulations and the effect of compliance on our profitability, although these
costs may be material.





Item 1B.  Unresolved Staff
Comments





None.


21


Item
2:  Properties





Aircraft





We
currently operate 38 Airbus A319 aircraft, 10 Airbus A318 aircraft and three
Airbus A320 in all-coach seating configurations.  Our Lynx Aviation
subsidiary operates 10 Bombardier Q400 aircraft in all-coach seating
configurations.  The age of these aircraft, their passenger capacities
and expiration years for the leased aircraft are shown in the following
table:





Aircraft
                                  
                                  No. of
                                  
                                  Year of
                                  
                                  Approximate
                                  
                                  LeaseModel
                                  
                                  Aircraft
                                  
                                  Manufacture
                                  
                                  Seating Capacity
                                  
                                  ExpirationA319
                                  
                                  34
                                  
                                  2001
      – 2007
                                  
                                  136
                                  
                                  2013
      - 2019A319
                                  
                                  4
                                  
                                  2001
      – 2006
                                  
                                  136
                                  
                                  OwnedA318
                                  
                                  2
                                  
                                  2004
                                  
                                  120
                                  
                                  2016A318
                                  
                                  8
                                  
                                  2003
      – 2007
                                  
                                  120
                                  
                                  OwnedA320
                                  
                                  2
                                  
                                  2007
                                  
                                  162
                                  
                                  OwnedA320
                                  
                                  1
                                  
                                  2002
                                  
                                  162
                                  
                                  2015Q400
                                  
                                  5
                                  
                                  2007
                                  
                                  74
                                  
                                  2022Q400
                                  
                                  5
                                  
                                  2007
                                  
                                  74
                                  
                                  Owned





In March
2000, we entered into a purchaseagreement with Airbus, as
subsequently amended in April 2006, to purchase 38 Airbus
aircraft.  We have taken delivery of 30 of these aircraft, and we have
remaining firm purchase commitments for eight Airbus aircraft.  In
July 2008 we deferred the delivery of the eight remaining Airbus A320 aircraft
that had been scheduled for delivery between February 2009 and November 2010 to
between February 2011 and November 2012.





As part
of our purchase agreement, we were granted options to purchase ten Bombardier
aircraft, the last of which expires in July 2010, subject to additional
extension rights.  In July 2008 Lynx Aviation exercised its option on
the first of the ten additional aircraft with a planned delivery date in July
2009. In January 2009 Lynx Aviation exercised its option on the second of the
remaining ten additional aircraft with a planned delivery date in February 2010.
When taking into account the exercised purchase options as well as those
purchase options that we have elected not to exercise, we have five purchase
options remaining.





Facilities





We lease approximately 70,000 square
feet of space for our headquarters facility near DIA. The lease expires in
January 2015.  We also lease an additional 7,500 square feet of space
in a building adjacent to our main headquarters. This lease expires in June
2011.





Our Denver, Colorado reservations
facility is a 16,000 square foot facility that we have leased for a 10-year
lease term ending in June 2011.  In August 2000, we established a
second reservations center facility in Las Cruces, New Mexico.  This
facility is approximately 12,000 square feet and is leased for a term of 122
months ending August 2010.





Lynx Aviation currently leases
approximately 20,000 square feet of space in Westminster, Colorado. The lease
expires in December 2012.





We have entered into an airport lease
and facilities agreement expiring in 2010 with the City and County of Denver,
Colorado, at DIA for ticket counter space, 17 gates in Concourse A and
associated operations space.  Because our overall rates and charges
will be based on the number of passengers and gross weight landed at the
airport, it is not possible at this time to determine the amount of future rates
and charges at DIA.





We sublease a portion of Continental
Airlines’ hangar at DIA.  The primary term of this sublease expired in
February 2007 and we now occupy that facility on a month-to-month
basis.  Additionally, we lease maintenance facilities in Kansas City,
Missouri and Phoenix, Arizona.


22





Each of our airport locations requires
leased space associated with gate operations, ticketing and baggage
operations.  We either lease the ticket counters, gates, and airport
office facilities at each of the airports we serve from the appropriate airport
authority or sublease them from other airlines.





Item
3:  Legal Proceedings





As discussed above, Frontier Holdings
and its subsidiaries filed voluntary petitions for reorganization under
Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the Southern District of New York and their cases are being
jointly administered under Case No. 08-11298 (RDD). The Debtors continue to
operate their business as “debtors-in-possession” under the jurisdiction of the
Bankruptcy Court and in accordance with the applicable provisions of the
Bankruptcy Code and orders of the Bankruptcy Court. As of the date of the
Chapter 11 filing, virtually all pending litigation was stayed, and absent
further order of the Bankruptcy Court, no party, subject to certain exceptions,
may take any action, also subject to certain exceptions, to recover on
pre-petition claims against the Debtors. At this time, it is not possible to
predict the outcome of the Chapter 11 cases or their effect on our
business.





From time to time, we are engaged in
routine litigation incidental to our business.  Other than our Chapter
11 proceeding, we believe there are no legal proceedings pending in which we are
a party or of which any of our property is the subject that are not adequately
covered by insurance maintained by us or which have sufficient merit to result
in a material adverse effect upon our business, financial condition, results of
operations, or liquidity.





Item
4:  Submission of Matters to a Vote of Security Holders





None


23





PART
II





Item
5:  Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities





Price
Range of Common Stock





Until
April 22, 2008, our common stock was traded on the NASDAQ Stock Exchange under
the symbol “FRNT”.  As a result of our Chapter 11 bankruptcy
proceedings, trading of our common stock on the NASDAQ Stock Exchange was
suspended on April 22, 2008, and our common stock was delisted from the NASDAQ
Stock Exchange on May 18, 2008.  Our common stock has been quoted
since its suspension from the NASDAQ on the Pink Sheets Electronic Quotation
Service (“Pink Sheets”) maintained by Pink Sheets LLC for the National Quotation
Bureau, Inc. The ticker symbol “FRNTQ” has been assigned to our common stock for
over-the-counter quotations.





The
following table shows the range of high and low sales prices per share for our
common stock, as reported by NASDAQ, or the high and low bid quotations for each
share of our common stock on the Pink Sheets, as applicable, for the periods
indicated. The bid quotations on the Pink Sheets reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.





High
                    
                    
                    LowFiscal
      Year 2009 Quarter EndedJune
      30, 2008
                    
                    $
                    2.17
                    
                    
                    $
                    0.24September
      30, 2008
                    
                    $
                    0.40
                    
                    
                    $
                    0.16December
      31, 2008
                    
                    $
                    0.46
                    
                    
                    $
                    0.18March
      31, 2009
                    
                    $
                    0.25
                    
                    
                    $
                    0.18Fiscal
      Year 2008 Quarter EndedJune
      30, 2007
                    
                    $
                    6.75
                    
                    
                    $
                    5.51September
      30, 2007
                    
                    $
                    6.32
                    
                    
                    $
                    4.51December
      31, 2007
                    
                    $
                    7.46
                    
                    
                    $
                    5.20March
      31, 2008
                    
                    $
                    5.44
                    
                    
                    $
                    2.05




As of March 31, 2009, there were 1,747
holders of record of our common stock.  We do not anticipate paying
dividends on our common stock in the foreseeable future.





We
believe that our currently outstanding common stock will have no value and will
be canceled under any plan of reorganization that we propose. Accordingly, we
urge that caution be exercised with respect to existing and future investments
in our common stock and other securities.





For
Equity Compensation Plan Information, see Part III, Item 12 – Security Ownership
of Certain Beneficial Owners and Managers.


24





Item
7:Management’s Discussion and Analysis of Financial Condition and Results of
Operations





Overview





On April 10, 2008, Frontier Holdings,
Frontier Airlines, and Lynx (collectively, the “Debtors”) filed voluntary
petitions for relief under Chapter 11 of the Bankruptcy Code in the
Bankruptcy Court for the Southern District of New York.  The Debtors’
cases are being jointly administered under Case No. 08-11298
(RDD).  The Debtors will continue to operate their businesses as
"debtors-in-possession" under the jurisdiction of the Bankruptcy Court and
in accordance with the applicable provisions of the Bankruptcy Code and
orders of the Bankruptcy Court.  In several recent bankruptcies in our
industry, however, the airline ceased operations, and we can give no assurance
that we will be able to continue to operate our business or successfully
reorganize.





Our Chapter 11 filings followed an
unexpected attempt by our principal credit card processor to substantially
increase a "holdback" of customer receipts from the sale of
tickets.  This change in established practices would have represented
a material negative change to our cash forecasts and business plan, put severe
restraints on our liquidity and made it impossible for us to continue normal
operations.  Due to historically high aircraft fuel prices, continued
low passenger mile yields, and the threatened new holdback, we determined that
we could not continue to operate without the protections provided by
Chapter 11.





During the year ended March 31, 2009,
we had a net loss of $248.2 million or $6.72 per diluted share, as compared to a
net loss of $60.3 million or $1.64 per diluted share for the year ended March
31, 2008. Included in our net loss for the year ended March 31, 2009 were the
following items (i) $202.5 million in reorganization costs, (ii) an increase in
fuel expense for non-cash mark to market derivative losses of $15.6 million and
realized cash payments of $2.6 million on fuel hedging contracts; (iii) $8.6
million in net gains on sales of assets; and (iv) $0.5 million in employee
separation costs.   Included in our net loss for the year ended
March 31, 2008 were the following items (i) a decrease in fuel expense for
non-cash mark to market derivative gains of $1.8 million and realized cash
settlements received of $30.7 million on fuel hedging contracts; (ii) a
post-retirement liability curtailment gain of $6.4 million; (iii) $8.5 million
of start-up costs for Lynx Aviation; (iv) $3.3 million in accelerated
depreciation for our seat replacement project; (v) $1.8 million in net losses on
sales of assets; and (vi) $0.4 million in employee separation
costs.





Mainline passenger revenue decreased by
7.1% in the year ended March 31, 2009, over the prior year which is a result of
decreasing our capacity (as measured by ASM’s) by 9.4% offset by an increase in
our passenger yields by 1.5%.  The increase in our passenger yields
(or the average amount one passenger pays to fly one mile) can be primarily
attributed to the decrease in our average stage length of 5.7%, offset by a
decrease of our average fare from $103.71 to $98.66, or 4.9%.





We have relatively low operating
expenses excluding fuel because we currently operate a single fleet of aircraft
on our mainline routes in a single class of service with high aircraft
utilization rates.  Our mainline CASM, or cost per available seat
mile, for the years ended March 31, 2009 and 2008 was 10.33¢ and 9.90¢,
respectively, an increase of 4.3%.  The increase in mainline CASM was
largely due to an increase in fuel expense to 4.40¢ per ASM from 3.53¢ per ASM
for the years ended March 31, 2009 and 2008, respectively, an increase of
24.6%.  Mainline CASM excluding fuel was 5.93¢ and  6.37¢
for the years ended March 31, 2009 and 2008, respectively, a decrease of
6.9%.  We achieved a 6.9% decrease in mainline CASM excluding fuel
despite the 9.4% decrease in capacity.  We decreased our cost
structure through wage concessions, network adjustments, contract negotiations,
and operational efficiencies that we have largely been able to obtain through
our restructuring process.





Despite our improvements in passenger
yields and decrease in mainline CASM excluding fuel, historically high aircraft
fuel prices had an adverse effect on our financial performance.  Our
losses over the past three years have been primarily driven by rising fuel costs
and our inability to pass these increases on to our customers due to a highly
competitive market.  We saw a sharp rise in fuel costs from January
2005 through January 2009, and fuel costs may return to these historically high
levels.  Our average fuel cost per gallon, including hedging
activities, was $3.11 for the year ended March 31, 2009 compared to $2.45 for
the year ended March 31, 2008, an increase of 26.9%.  Excluding all
hedging activities, our average fuel cost per gallon increased
14.1%.  Additionally, we continue to operate in a highly competitive
pricing environment, which limits our ability to increase
fares.


25


As of April 10, 2008 (the date we filed
for relief under the Bankruptcy Code), we had in excess of $108 million
in unrestricted cash, cash equivalents and short-term investments. Our
ability, both during and after the Chapter 11 case, to continue as a
going-concern is dependent upon, among other things, our ability (i) to
successfully achieve required cost savings to complete our restructuring; (ii)
our ability to maintain adequate liquidity; (iii) our ability to generate
cash from operations; (iv) to secure financing; (v) to confirm a plan
of reorganization under the Bankruptcy Code; and (vi) to sustain
profitability. Uncertainty as to the outcome of these factors raises
substantial doubt about our ability to continue as a going-concern. The
accompanying consolidated financial statements do not include any
adjustments that might result should we be unable to continue as a
going-concern. A plan of reorganization could materially change the amounts
currently disclosed in the consolidated financial statements.





Our
Business Plan




As a
result of the continuing volatility in fuel costs, the weak economy, and our
Chapter 11 bankruptcy proceeding, we are continuing an aggressive examination of
many aspects of our business.  We are implementing a comprehensive
restructuring effort to achieve cost competitiveness by attempting to obtain
economic concessions from key stakeholders in order to allow us to reduce costs,
create financial flexibility and restore our long-term viability and
profitability. Our evaluation has encompassed our network, our total fleet
composition, our cost structure, and our balance sheet.




Network
Adjustments and Capacity Reductions




In June
2008 we announced plans to reduce mainline capacity year-over-year by
approximately 17% from September 2008 through March 2009. These adjustments
included frequency reductions in some markets and seasonal reductions. The
capacity reductions were phased in starting mid-August and we completed them
in January 2009.  Due to route adjustments, termination of the
capacity purchase agreement with Republic Airlines and the sale or lease
termination of a total of 11 aircraft, we had a system-wide year-over-year
capacity decrease of 11.9%.




On April
23, 2008, we rejected our capacity purchase agreement with
Republic.  There was a structured reduction and gradual phase-out of
Republic's 12 aircraft from our daily operation, which was completed in June
2008.  In conjunction with the termination of service by Republic, we
discontinued service to four markets.





In May
2009, we sold an Airbus A318 and, in a separate transaction, signed a lease
agreement for an Airbus A320 for delivery in April 2009.  This
transaction will increase capacity by 42 seats.





Cost
Structure





In May
2008 we reached agreements with our pilot, dispatcher, maintenance, and aircraft
appearance unions on temporary wage and benefit concessions.  All other
employees were given wage reductions effective June 1, 2008.  Wage
concessions for non-represented employees were extended at the end of September
2008 and we reached a permanent restructured wage agreement with the TWU
(representing the dispatchers).  We received a ruling from the
Bankruptcy Court approving permanent concessions from certain of our contracts
with the IBT, and we have received a consensual permanent agreement with the
remaining employees represented by the IBT.  We also reached an
agreement in December 2008, which was ratified by the members and approved by
the Bankruptcy Court in January 2009, with FAPA for long-term wage and benefits
concessions.





In June
2008 we announced reductions in our workforce in conjunction with the
announcement of the reduction in our fleet and routes.  We implemented
early out programs and voluntary leaves, and eliminated over 600 positions
(including layoffs for approximately 170 employees and 115 that were placed on
furlough), most of which took effect in September 2008.





Under
Section 365 and other relevant sections of the Bankruptcy Code, we may
assume, assume and assign, or reject certain executory contracts and unexpired
leases, including, without limitation, leases of real property, aircraft and
aircraft engines, subject to the approval of the Bankruptcy Court and certain
other conditions. We continue to evaluate our executory contracts to ensure
market or below market terms are achieved and our contracts are aligned with our
capacity requirements and cost structure.


26





Liquidity
and Revenue Initiatives





In May 2008 we closed on the sale of
two Airbus A319 aircraft for net proceeds of $25.2 million after retirement of
the related debt.  On August 5, 2008, the Bankruptcy Court authorized
Frontier Airlines to sell an additional six of our 47 Airbus A319 aircraft to an
affiliate of VTB Leasing for onward lease to Rossiya Airlines. This agreement
amended an earlier agreement where an affiliate of VTB Leasing was to purchase
the above referenced two A319 and two additional A318 aircraft. Under the
revised agreement, VTB Leasing did not take delivery of the originally agreed
upon two A318 aircraft and instead purchased an additional six A319
aircraft.  As of March 31, 2009, we closed on the sale of all six
Airbus A319 covered by the agreement and realized total net proceeds of $69.1
million after the retirement of the related aircraft debt of $95.9
million.





On August
5, 2008, the Bankruptcy Court also authorized a transaction between the Company
and GE Commercial Aviation Service LLC (“GECAS”) whereby the Company would sell
and lease back up to four Airbus A319 aircraft. In August 2008, the Company sold
and leased back one Airbus A319 aircraft.  This transaction resulted
in retirement of $23.9 million of mortgage debt on the sold aircraft and a book
loss of $4.3 million on the transaction, for net proceeds of $5.4 million after
retirement of related debt.  We also returned two leased Airbus A319
aircraft to GECAS in September 2008 and returned one Airbus A319 aircraft to
GECAS in January 2009.





In July 2008 we deferred the delivery
of the eight remaining Airbus A320 aircraft that had been scheduled for delivery
between February 2009 and November 2010 to between February 2011 and November
2012.  These deferrals have reduced our near term funding requirements
and debt burden.  This resulted in reimbursement to us of $11.5
million of pre-delivery payments in July 2008.





On August 5, 2008, the Bankruptcy Court
approved a $30.0 million secured super-priority debtor-in-possession credit
agreement (“DIP Credit Agreement”) with Republic Airways Holdings, Inc.,
Credit Suisse Securities (USA) LLC, AQR Capital LLC and CNP Lenders, LLC, each a
member of the Unsecured Creditors Committee in our Chapter 11 bankruptcy
cases.





On March
20, 2009, the Bankruptcy Court approved an order authorizing a $40 million
Amended and Restated DIP Credit Facility (“Amended DIP Credit Agreement”) with
Republic Airways Holdings, Inc.  The Bankruptcy Court also allowed the
damage claim of Republic Airways Holdings, Inc. in the amount of $150 million,
arising from the Debtors’ rejection of the Airline Services Agreement with
Republic Airlines, Inc. and Republic Airways Holdings, Inc.   The
allowance of this claim was a condition to Republic Airways Holdings, Inc.
providing the Amended DIP Credit Agreement.  The Company retired the
existing $30 million DIP Credit Agreement on April 1, 2009.




We have increased revenues through
ancillary charges.  In May 2008 we introduced a $25 fee for a second
checked bag.  In September 2008 we introduced a $15 fee for the first
checked bag. The first bag fee started on November 1, 2008, effective for
tickets purchased on or after September 13, 2008. These fees do not apply
to EarlyReturns Summit
and Ascent members.  We also announced increases in our fees for
certain other services such as checked pets and oversized bag fees. The
increases range from $10 to $100 per service.  We have also announced
more strict policies on unused tickets, changes in add collect fees and
increased change fees.  These new and increased fees have generated an
additional $65 million on an annual basis in ancillary
revenue.  We anticipate additional ancillary passenger related revenue
of approximately $6.50 per passenger based on recent trends.  Due to
the launch of our new AirFairs fee structure, some of this increased revenue
will be reflected as passenger revenue if purchased as part of an upgraded class
of service.




In
December 2008 we launched AirFairs, our new fare structure that lets the
customer choose the fare level that best meets their specific travel needs.
AirFairs offers a choice of three different fare levels: Classic Plus, Classic
or Economy, with varying levels of service. The Classic Plus ticket is fully
refundable, changeable, and provides the customer the ability to confirm a seat
on a different flight the same day of travel for no charge. In addition, Classic
Plus customers get priority boarding, two checked bags, complimentary DIRECTV®,
an in-flight snack, a premium beverage and 150% mileage credit in EarlyReturns.  The
Classic customer gets advanced seat assignments, two complimentary checked bags,
complimentary DIRECTV®, and 125% EarlyReturns® mileage credit.
In addition, they will be charged only a $50 fee for itinerary changes and $75
for same day confirmed changes.  Economy is the lowest fare ticket with no
included amenities.  Early results indicate 29%-47% of eligible
revenue booked on our website or through our reservation center is at higher
fare classes.




In April 2009, we entered into two
separate fuel hedge call agreements that provide us with a 20% and 10% hedged
position for the period August 1, 2009 to December 31, 2009 at $1.78 and $1.67
per gallon, respectively.


27





Results
of Operations





Frontier
Holdings includes the following operations: our mainline operations, which
consisted of 51 Airbus aircraft on March 31, 2009 and our Lynx Aviation
operation, consisting of 10 Q400 aircraft.  Historically, our
operations included our Regional Partner operations operated by Republic and
Horizon (“Regional Partners”).  Lynx Aviation and our Regional
Partners services are separate and apart from our mainline
operations.





To
evaluate the separate segments of our operations, management has segregated the
revenues and costs of our operations as follows:  Passenger revenue
for our Regional Partners and for Lynx Aviation represents the revenue collected
for flights operated by these carriers (including a prorated allocation of
revenues based on miles when tickets are booked with multiple
segments).  Operating expenses for Regional Partner flights include
all direct costs associated with the flights plus payments of performance
bonuses if earned under the contract.  Certain expenses such as
aircraft lease, maintenance and crew costs are included in the operating
agreements with our Regional Partners in which we reimbursed these expenses plus
a margin.  Operating expenses for Lynx Aviation include all direct
costs associated with the flights and the aircraft including aircraft lease and
depreciation, maintenance and crew costs.  Operating expenses for both
Regional Partners and Lynx Aviation also include other direct costs incurred for
which we do not pay a margin.  These expenses are primarily comprised
of fuel, airport facility expenses and passenger related expenses. We also
allocate indirect expenses among mainline, our Regional Partners and Lynx
Aviation operations by using departures, available seat miles, or passengers as
a percentage of system combined departures, available seat miles or
passengers.


28





The
following table provides certain of our financial and operating data for the
years ended March 31, 2009, 2008, and 2007.  Mainline and combined
data exclude the expenses of Lynx Aviation prior to receiving FAA approval to
fly.  The start-up costs excluded were $8.5 million and $3.1 million
for the years ended March 31, 2008 and 2007, respectively.  Lynx
Aviation began revenue service on December 7, 2007.





Year Ended March 31,2009
                  
                  
                  2008
                  
                  
                  2007Selected
      Operating Data - Mainline:Passenger
      revenue (000s) (1)
                  
                  $
                  1,131,417
                  
                  
                  $
                  1,218,242
                  
                  
                  $
                  1,037,302Revenue
      passengers carried (000s)
                  
                  
                  10,261
                  
                  
                  
                  10,622
                  
                  
                  
                  9,140Revenue
      passenger miles (RPMs) (000s) (3)
                  
                  
                  9,342,400
                  
                  
                  
                  10,175,220
                  
                  
                  
                  8,532,577Available
      seat miles (ASMs) (000s) (4)
                  
                  
                  11,472,976
                  
                  
                  
                  12,666,316
                  
                  
                  
                  11,310,070Passenger
      load factor (5)
                  
                  
                  81.4
                  %
                  
                  
                  80.3
                  %
                  
                  
                  75.4
                  %Break-even
      load factor (6)
                  
                  
                  97.4
                  %
                  
                  
                  81.1
                  %
                  
                  
                  76.0
                  %Block
      hours (7)
                  
                  
                  237,015
                  
                  
                  
                  264,468
                  
                  
                  
                  234,965Departures
                  
                  
                  97,868
                  
                  
                  
                  104,548
                  
                  
                  
                  97,554Average
      seats per departure
                  
                  
                  132.5
                  
                  
                  
                  129.2
                  
                  
                  
                  129.6Average
      stage length (miles)
                  
                  
                  885
                  
                  
                  
                  938
                  
                  
                  
                  895Average
      length of haul (miles)
                  
                  
                  910
                  
                  
                  
                  958
                  
                  
                  
                  934Average
      daily block hour utilization (8)
                  
                  
                  11.6
                  
                  
                  
                  12.1
                  
                  
                  
                  11.9Passenger
      yield per RPM (cents) (9)
                  
                  
                  12.01
                  
                  
                  
                  11.83
                  
                  
                  
                  12.05Total
      yield per RPM (cents) (10), (11)
                  
                  
                  12.79
                  
                  
                  
                  12.45
                  
                  
                  
                  12.62Passenger
      yield per ASM (RASM) (cents) (12)
                  
                  
                  9.78
                  
                  
                  
                  9.50
                  
                  
                  
                  9.09Total
      yield per ASM (cents) (13)
                  
                  
                  10.42
                  
                  
                  
                  10.00
                  
                  
                  
                  9.52Cost
      per ASM (cents) (CASM)
                  
                  
                  10.33
                  
                  
                  
                  9.90
                  
                  
                  
                  9.46Fuel
      expense per ASM (cents)
                  
                  
                  4.40
                  
                  
                  
                  3.53
                  
                  
                  
                  3.03Cost
      per ASM excluding fuel (cents) (14)
                  
                  
                  5.93
                  
                  
                  
                  6.37
                  
                  
                  
                  6.43Average
      fare (15)
                  
                  $
                  98.66
                  
                  
                  $
                  103.71
                  
                  
                  $
                  102.59Average
      aircraft in service
                  
                  
                  56.0
                  
                  
                  
                  59.7
                  
                  
                  
                  54.1Aircraft
      in service at end of period
                  
                  
                  51
                  
                  
                  
                  62
                  
                  
                  
                  57Average
      age of aircraft at end of period
                  
                  
                  4.8
                  
                  
                  
                  3.9
                  
                  
                  
                  3.2Average
      fuel cost per gallon (16)
                  
                  $
                  3.11
                  
                  
                  $
                  2.45
                  
                  
                  $
                  2.12Fuel
      gallons consumed (000's)
                  
                  
                  162,367
                  
                  
                  
                  182,793
                  
                  
                  
                  161,616


29





Year Ended March 31,2009
                  
                  
                  2008
                  
                  
                  2007Selected
      Operating Data - Lynx AviationPassenger
      revenue (000s) (1)
                  
                  $
                  76,988
                  
                  
                  $
                  18,989
                  
                  
                  
                  –Revenue
      passengers carried (000s)
                  
                  
                  995
                  
                  
                  
                  234
                  
                  
                  
                  –Revenue
      passenger miles (RPMs) (000s) (3)
                  
                  
                  347,544
                  
                  
                  
                  103,196
                  
                  
                  
                  –Available
      seat miles (ASMs) (000s) (4)
                  
                  
                  575,007
                  
                  
                  
                  169,721
                  
                  
                  
                  –Passenger
      load factor (5)
                  
                  
                  60.4
                  %
                  
                  
                  60.8
                  %
                  
                  
                  –Block
      hours (7)
                  
                  
                  33,111
                  
                  
                  
                  8,880
                  
                  
                  
                  –Departures
                  
                  
                  23,785
                  
                  
                  
                  5,228
                  
                  
                  
                  –Average
      stage length (miles)
                  
                  
                  327
                  
                  
                  
                  439
                  
                  
                  
                  –Passenger
      yield per RPM (cents) (9)
                  
                  
                  22.15
                  
                  
                  
                  18.40
                  
                  
                  
                  –Passenger
      yield per ASM (cents) (12)
                  
                  
                  13.39
                  
                  
                  
                  11.19
                  
                  
                  
                  –Cost
      per ASM (cents) (17)
                  
                  
                  16.46
                  
                  
                  
                  15.17
                  
                  
                  
                  –Average
      fare
                  
                  $
                  77.39
                  
                  
                  $
                  81.30
                  
                  
                  
                  –Aircraft
      in service at end of period
                  
                  
                  10
                  
                  
                  
                  10
                  
                  
                  
                  –





Year Ended March 31,2009
                  
                  
                  2008
                  
                  
                  2007Selected
      Operating Data - Regional Partners (2):Passenger
      revenue (000s) (1)
                  
                  $
                  17,465
                  
                  
                  $
                  113,196
                  
                  
                  $
                  94,164Revenue
      passengers carried (000s)
                  
                  
                  188
                  
                  
                  
                  1,135
                  
                  
                  
                  899Revenue
      passenger miles (RPMs) (000s) (3)
                  
                  
                  135,857
                  
                  
                  
                  763,415
                  
                  
                  
                  576,431Available
      seat miles (ASMs) (000s) (4)
                  
                  
                  167,756
                  
                  
                  
                  1,030,916
                  
                  
                  
                  799,914Passenger
      load factor (5)
                  
                  
                  81.0
                  %
                  
                  
                  74.1
                  %
                  
                  
                  72.1
                  %Passenger
      yield per RPM (cents) (9)
                  
                  
                  12.86
                  
                  
                  
                  14.83
                  
                  
                  
                  16.34Passenger
      yield per ASM (cents) (12)
                  
                  
                  10.41
                  
                  
                  
                  10.98
                  
                  
                  
                  11.77Cost
      per ASM (cents)
                  
                  
                  15.89
                  
                  
                  
                  14.18
                  
                  
                  
                  13.55Average
      fare
                  
                  $
                  92.85
                  
                  
                  $
                  99.74
                  
                  
                  $
                  104.72Aircraft
      in service at end of period
                  
                  
                  –
                  
                  
                  
                  11
                  
                  
                  
                  9





Year Ended March 31,2009
                  
                  
                  2008
                  
                  
                  2007Selected
      Operating Data - Combined:Passenger
      revenue (000s) (1)
                  
                  $
                  1,225,870
                  
                  
                  $
                  1,350,427
                  
                  
                  $
                  1,131,466Revenue
      passengers carried (000s)
                  
                  
                  11,444
                  
                  
                  
                  11,991
                  
                  
                  
                  10,039Revenue
      passenger miles (RPMs) (000s) (3)
                  
                  
                  9,825,801
                  
                  
                  
                  11,041,831
                  
                  
                  
                  9,109,008Available
      seat miles (ASMs) (000s) (4)
                  
                  
                  12,215,739
                  
                  
                  
                  13,866,953
                  
                  
                  
                  12,109,984Passenger
      load factor (5)
                  
                  
                  80.4
                  %
                  
                  
                  79.6
                  %
                  
                  
                  75.2
                  %Passenger
      yield per RPM (cents) (9)
                  
                  
                  12.38
                  
                  
                  
                  12.10
                  
                  
                  
                  12.32Total
      yield per RPM (cents) (10), (11)
                  
                  
                  13.12
                  
                  
                  
                  12.67
                  
                  
                  
                  12.85Yield
      per ASM (cents) (12)
                  
                  
                  9.96
                  
                  
                  
                  9.63
                  
                  
                  
                  9.27Total
      yield per ASM (cents) (13)
                  
                  
                  10.56
                  
                  
                  
                  10.09
                  
                  
                  
                  9.67Cost
      per ASM (cents)
                  
                  
                  10.69
                  
                  
                  
                  10.34
                  
                  
                  
                  9.76


30





(1)
            “Passenger
      revenue” includes revenue for reduced rate stand-by passengers, charter
      revenue, administrative fees, and revenue recognized for unused tickets
      that are greater than one year from issuance date.  The
      incremental revenue from passengers connecting from regional flights on
      our Regional Partners and Lynx Aviation to mainline flights is included in
      our mainline passenger revenue.





(2)
            Regional
      Partners operating data includes the operations of Republic and
      Horizon.  In September 2007, we signed a limited-term contract
      with ExpressJet Airlines, Inc. to operate two to four 50-seat Embraer
      145XR jets on behalf of Frontier.  The ExpressJet service
      started on November 15, 2007 and terminated on December 6, 2007 upon our
      commencement of Lynx Aviation service.  On January 11, 2007, we
      signed an agreement with Republic under which Republic would operate up to
      17 Embraer 170 aircraft with capacity of 76-seats under our Frontier
      JetExpress brand.  The service began on March 4, 2007 and
      replaced our agreement with Horizon, which expired on return of the last
      aircraft in November 2007.   In September 2003, we signed
      an agreement with Horizon, under which Horizon operated up to nine 70-seat
      CRJ 700 aircraft under our Frontier JetExpress brand.  The
      service began on January 1, 2004 and replaced our codeshare with Mesa
      Airlines, which terminated on December 31, 2003.  In accordance
      with Emerging Issues Task Force No. 01-08, “Determining Whether an
      Arrangement Contains a Lease” (“EITF 01-08”), we have concluded
      that the Horizon and Republic agreements contain leases because the
      agreements convey the right to use a specific number and specific type of
      aircraft over a stated period of time.  Therefore, we recorded
      revenue and expenses related to these agreements on a gross
      basis.





(3)
            “Revenue
      passenger miles,” or RPMs, are determined by multiplying the number of
      fare-paying passengers carried by the distance flown.  This
      represents the number of miles flown by revenue paying
      passengers.





(4)
            “Available
      seat miles,” or ASMs, are determined by multiplying the number of seats
      available for passengers by the number of miles
  flown.





(5)
            “Passenger
      load factor” is determined by dividing revenue passenger miles by
      available seat miles.  This represents the percentage of
      aircraft seating capacity that is actually
  utilized.





(6)
            “Break-even
      load factor” is the passenger load factor that will result in operating
      revenue being equal to operating expenses, assuming constant revenue per
      passenger mile and expenses.





A
reconciliation of the components of the calculation of mainline break-even load
factor is as follows:


Year Ended March 31,2009
                  
                  
                  2008
                  
                  
                  2007(in
      thousands)Net
      loss
                  
                  $
                  248,190
                  
                  
                  $
                  60,253
                  
                  
                  $
                  20,370Income
      tax (expense) benefit
                  
                  
                  (1,819
                  )
                  
                  
                  101
                  
                  
                  
                  4,626Passenger
      revenue – Mainline
                  
                  
                  1,131,417
                  
                  
                  
                  1,218,242
                  
                  
                  
                  1,037,302Passenger
      revenue – Regional Partners
                  
                  
                  17,465
                  
                  
                  
                  113,196
                  
                  
                  
                  94,164Passenger
      revenue – Lynx Aviation
                  
                  
                  76,988
                  
                  
                  
                  18,989
                  
                  
                  
                  –Regional
      partner expense
                  
                  
                  (26,650
                  )
                  
                  
                  (146,211
                  )
                  
                  
                  (108,355
                  )Lynx
      Aviation expenses
                  
                  
                  (94,639
                  )
                  
                  
                  (34,196
                  )
                  
                  
                  (3,139
                  )Charter
      revenue
                  
                  
                  (9,494
                  )
                  
                  
                  (14,539
                  )
                  
                  
                  (8,861
                  )Passenger
      revenue - mainline (excluding charter )required to break
      even
                  
                  $
                  1,341,458
                  
                  
                  $
                  1,215,835
                  
                  
                  $
                  1,036,107





The
calculation of the break-even load factor:


Year Ended March 31,2009
                  
                  
                  2008
                  
                  
                  2007Passenger
      revenue - mainline (excluding charter)  ($000s)
                  
                  $
                  1,341,458
                  
                  
                  $
                  1,215,835
                  
                  
                  $
                  1,036,107Mainline
      yield per RPM (cents)
                  
                  
                  12.01
                  
                  
                  
                  11.83
                  
                  
                  
                  12.05Mainline
      revenue passenger miles (000s) to break even assuming constant yield
      per RPM
                  
                  
                  11,169,509
                  
                  
                  
                  10,277,557
                  
                  
                  
                  8,598,398Mainline
      ASMs (000's)
                  
                  
                  11,472,976
                  
                  
                  
                  12,666,316
                  
                  
                  
                  11,310,070Mainline
      break-even load factor
                  
                  
                  97.4
                  %
                  
                  
                  81.1
                  %
                  
                  
                  76.0
                  %


31





(7)
            “Block
      hours” represent the time between aircraft gate departure and aircraft
      gate arrival.





(8)
            “Average
      daily block hour utilization” represents the total block hours divided by
      the number of aircraft days in service, divided by the weighted average of
      aircraft in our fleet during that period. The number of aircraft includes
      all aircraft on our operating certificate, which includes scheduled
      aircraft, as well as aircraft out of service for maintenance and
      operational spare aircraft, and excludes aircraft removed permanently from
      revenue service or new aircraft not yet placed in revenue service. This
      represents the amount of time that our aircraft spend in the air carrying
      passengers.





(9)
            “Passenger
      yield per RPM” is determined by dividing passenger revenue (excluding
      charter revenue) by revenue passenger
miles.





(10)
              For
      purposes of these yield calculations, charter revenue is excluded from
      passenger revenue. These figures may be deemed non-GAAP financial
      measures
      under regulations issued by the Securities and Exchange Commission. We
      believe that presentation of yield excluding charter revenue is useful to
      investors because charter flights are not included in RPMs or ASMs.
      Furthermore, in preparing operating plans and forecasts, we rely on an
      analysis of yield exclusive of charter revenue. Our presentation of
      non-GAAP financial measures should not be viewed as a substitute for our
      financial or statistical results based on GAAP. The calculation of
      passenger revenue excluding charter revenue is as
  follows:





Year Ended March 31,2009
                  
                  
                  2008
                  
                  
                  2007Passenger
      revenue - as reported
                  
                  $
                  1,225,870
                  
                  
                  $
                  1,350,427
                  
                  
                  $
                  1,131,466Less:
      Passenger revenue – Regional  Partners
                  
                  
                  17,465
                  
                  
                  
                  113,196
                  
                  
                  
                  94,164Less:
      Passenger revenue – Lynx Aviation
                  
                  
                  76,988
                  
                  
                  
                  18,989
                  
                  
                  
                  –Passenger
      revenue - mainline service
                  
                  
                  1,131,417
                  
                  
                  
                  1,218,242
                  
                  
                  
                  1,037,302Less:
      charter revenue
                  
                  
                  9,494
                  
                  
                  
                  14,539
                  
                  
                  
                  8,861Passenger
      revenue – mainline (excluding charter,
                    Regional
      Partners and Lynx Aviation)
                  
                  
                  1,121,923
                  
                  
                  
                  1,203,703
                  
                  
                  
                  1,028,441Add:
      Passenger revenue – Regional Partners
                  
                  
                  17,465
                  
                  
                  
                  113,196
                  
                  
                  
                  94,164Add:
      Passenger revenue – Lynx Aviation
                  
                  
                  76,988
                  
                  
                  
                  18,989
                  
                  
                  
                  –Passenger
      revenue, system combined
                  
                  $
                  1,216,376
                  
                  
                  $
                  1,335,888
                  
                  
                  $
                  1,122,605





(11)
              “Total
      yield per RPM” is determined by dividing total revenue by revenue
      passenger miles.  This represents the average amount one
      passenger pays to fly one
mile.





(12)
            “Passenger
      yield per ASM” or “RASM” is determined by dividing passenger revenue
      (excluding charter revenue) by available seat
  miles.





(13)
            “Total
      yield per ASM” is determined by dividing total revenue by available seat
      miles.





(14)
              This
      may be deemed a non-GAAP financial measure under regulations issued by the
      Securities and Exchange Commission.  We believe the presentation
      of financial information excluding fuel expense is useful to investors
      because we believe that fuel expense tends to fluctuate more than other
      operating expenses.  Excluding fuel from the cost of mainline
      operations facilitates the comparison of results of operations between
      current and past periods and enables investors to better forecast future
      trends in our operations.  Furthermore, in preparing operating
      plans and forecasts, we rely, in part, on trends in our historical results
      of operations excluding fuel expense.  However, our presentation
      of non-GAAP financial measures should not be viewed as a substitute for
      our financial results determined in accordance with
  GAAP.





(15)
              “Average
      fare” excludes revenue included in passenger revenue for charter and
      reduced rate stand-by passengers, administrative fees, and revenue
      recognized for unused tickets that are greater than one year from issuance
      date.





(16)
              “Average
      fuel cost per gallon” includes non-cash mark to market gains/(losses) from
      fuel hedging of $(15.6) million, $1.8 million and $12.8 million for the
      years ended March 31, 2009, 2008 and 2007,
  respectively.








(17)
              These
      figures exclude start-up costs from Lynx Aviation.  Excluding
      start-up costs for Lynx Aviation from CASM during the fiscal years ended
      March 31, 2008 and 2007 may be deemed a non-GAAP financial measure under
      regulations issued by the Securities and Exchange
      Commission.  We believe the presentation of financial
      information excluding start-up costs is useful to investors because we
      believe that including start-up costs would not give the reader of the
      financial statements information on the operating cost of the
      business.  Excluding start-up costs facilitates the comparison
      of results of operations between current and past periods and enables
      investors to better forecast future trends in our
      operations.  Furthermore, in preparing operating plans and
      forecasts, we rely, in part, on trends in our historical results of
      operations excluding start-up expenses.  However, our
      presentation of non-GAAP financial measures should not be viewed as a
      substitute for our financial results determined in accordance with
      GAAP.


32





The
break-out of our mainline, Regional Partners and Lynx Aviation operations from
our consolidated statements of operations for the years ended March 31, 2009,
2008 and 2007 is as follows (in thousands):





Year Ended March 31,2009
                  
                  
                  2008
                  
                  
                  2007(in
      thousands)Operating
      revenue:Passenger-
      Mainline
                  
                  $
                  1,131,417
                  
                  
                  $
                  1,218,242
                  
                  
                  $
                  1,037,302Passenger
      - Regional Partners
                  
                  
                  17,465
                  
                  
                  
                  113,196
                  
                  
                  
                  94,164Passenger
      - Lynx Aviation
                  
                  
                  76,988
                  
                  
                  
                  18,989
                  
                  
                  
                  –Cargo
                  
                  
                  6,070
                  
                  
                  
                  6,091
                  
                  
                  
                  6,880Other
                  
                  
                  57,442
                  
                  
                  
                  42,463
                  
                  
                  
                  32,603Total
      operating revenues
                  
                  
                  1,289,382
                  
                  
                  
                  1,398,981
                  
                  
                  
                  1,170,949Operating
      expenses:Flight
      operations
                  
                  
                  152,986
                  
                  
                  
                  179,304
                  
                  
                  
                  161,144Aircraft
      fuel
                  
                  
                  504,336
                  
                  
                  
                  446,791
                  
                  
                  
                  343,082Aircraft
      lease
                  
                  
                  106,455
                  
                  
                  
                  112,856
                  
                  
                  
                  108,623Aircraft
      and traffic servicing
                  
                  
                  163,178
                  
                  
                  
                  183,239
                  
                  
                  
                  166,409Maintenance
                  
                  
                  86,021
                  
                  
                  
                  102,384
                  
                  
                  
                  87,733Promotion
      and sales
                  
                  
                  92,655
                  
                  
                  
                  129,625
                  
                  
                  
                  115,516General
      and administrative
                  
                  
                  51,393
                  
                  
                  
                  60,713
                  
                  
                  
                  53,674Operating
      expenses - Regional Partners
                  
                  
                  26,650
                  
                  
                  
                  146,211
                  
                  
                  
                  108,355Operating
      expenses - Lynx Aviation
                  
                  
                  94,639
                  
                  
                  
                  34,196
                  
                  
                  
                  3,139Employee
      separation costs and other charges (reversals)
                  
                  
                  466
                  
                  
                  
                  442
                  
                  
                  
                  (57
                  )Loss
      (gains) on sales of assets, net
                  
                  
                  (8,598
                  )
                  
                  
                  1,791
                  
                  
                  
                  (656
                  )Post-retirement
      liability curtailment gain
                  
                  
                  –
                  
                  
                  
                  (6,361
                  )
                  
                  
                  –Depreciation
                  
                  
                  36,087
                  
                  
                  
                  43,120
                  
                  
                  
                  34,689Total
      operating expenses
                  
                  
                  1,306,268
                  
                  
                  
                  1,434,311
                  
                  
                  
                  1,181,651Business
      interruption insurance proceeds
                  
                  
                  –
                  
                  
                  
                  300
                  
                  
                  
                  868Operating
      loss
                  
                  $
                  (16,886
                  )
                  
                  $
                  (35,030
                  )
                  
                  $
                  (9,834
                  )


33





Small
fluctuations in our RASM or CASM can significantly affect operating results
because we, like other airlines, have high fixed costs in relation to revenue.
Airline operations are highly sensitive to various factors, including the
actions of competing airlines and general economic factors, which can adversely
affect our liquidity, cash flows and results of operations.





The
following table provides our operating revenue and expenses for our mainline
operations expressed as cents per total mainline ASMs and as a percentage of
total mainline operating revenue, as rounded, for years ended March 31, 2009,
2008, and 2007.  Regional Partners and Lynx Aviation revenue, expenses
and ASMs were excluded from this table to provide comparable amounts to the
prior periods presented.





Year Ended March 31,2009
                      
                      
                      2008
                      
                      
                      2007Revenue/Cost
                        Per
                      
                      
                      Revenue/Cost
                        Per
                      
                      
                      Revenue/Cost
                        PerASM
                      
                      
                      ASM
                      
                      
                      ASM(in
      cents)Operating
      revenue:Passenger
      - mainline
                      
                      
                      9.87
                      
                      
                      
                      9.62
                      
                      
                      
                      9.17Cargo
                      
                      
                      0.05
                      
                      
                      
                      0.05
                      
                      
                      
                      0.06Other
                      
                      
                      0.50
                      
                      
                      
                      0.33
                      
                      
                      
                      0.29Total
      operating revenue
                      
                      
                      10.42
                      
                      
                      
                      10.00
                      
                      
                      
                      9.52Operating
      expenses - mainline:Flight
      operations
                      
                      
                      1.33
                      
                      
                      
                      1.42
                      
                      
                      
                      1.42Aircraft
      lease and engine expense
                      
                      
                      0.93
                      
                      
                      
                      0.89
                      
                      
                      
                      0.96Aircraft
      and traffic servicing
                      
                      
                      1.42
                      
                      
                      
                      1.45
                      
                      
                      
                      1.47Maintenance
                      
                      
                      0.75
                      
                      
                      
                      0.81
                      
                      
                      
                      0.78Promotion
      and sales
                      
                      
                      0.81
                      
                      
                      
                      1.02
                      
                      
                      
                      1.02General
      and administrative
                      
                      
                      0.45
                      
                      
                      
                      0.48
                      
                      
                      
                      0.48Loss
      (gain) on sales of assets, net
                      
                      
                      (0.07
                      )
                      
                      
                      0.01
                      
                      
                      
                      (0.01
                      )Post-retirement
      liability curtailment gain
                      
                      
                      –
                      
                      
                      
                      (0.05
                      )
                      
                      
                      –Depreciation
                      
                      
                      0.31
                      
                      
                      
                      0.34
                      
                      
                      
                      0.31Total
      operating expenses, excluding fuel
                      
                      
                      5.93
                      
                      
                      
                      6.37
                      
                      
                      
                      6.43Aircraft
      fuel expense
                      
                      
                      4.40
                      
                      
                      
                      3.53
                      
                      
                      
                      3.03Total
      mainline operating expenses
                      
                      
                      10.33
                      
                      
                      
                      9.90
                      
                      
                      
                      9.46





Results
of Operations – Year Ended March 31, 2009 Compared to Year Ended March 31,
2008





Mainline
Operating Revenue





Industry
fare pricing behavior has a significant impact on our
revenue.  Because of the elasticity of passenger demand, we believe
that increases in fares may at certain levels result in a decrease in passenger
demand in many markets.  We cannot predict future fare levels, which
depend to a substantial degree on actions of competitors and the
economy.  When sale prices or other price changes are initiated by
competitors in our markets, we believe that we must, in most cases, match those
competitive fares in order to maintain our market share.  In addition,
certain markets we serve are destinations that cater to vacation or leisure
travelers, resulting in seasonal fluctuations in passenger demand and revenue in
these markets.





Passenger Revenue
- Mainline.  Mainline
passenger revenue totaled $1.131 billion for the year ended March 31, 2009
compared to $1.218 billion for the year ended March 31, 2008, a decrease of
7.1%.  Mainline passenger revenue includes revenue for reduced rate
stand-by passengers, charter revenue, administrative fees, revenue recognized
for tickets that are not used and revenue recognized from our co-branded credit
card agreement.


34





Revenue
from passenger tickets flown generated 89.5% of our mainline passenger revenue
and decreased $89.2 million or 8.1% over the prior year.  The decrease
in flown ticket sales resulted from a 9.4% decrease in ASMs, or $103.8 million,
offset by an increase of 1.1 points in load factor, or $13.6 million, and an
increase of 0.1% in our yields from ticket sales, or $1.0
million.   The percentage of revenue generated from other sources
compared to total mainline passenger revenue is as follows: administrative fees
were 2.7%, revenue recognized for tickets that were not used were 4.5%, charter
revenues were 0.8% and revenue from the travel component of our co-branded
credit card were 2.1%.  These sources of revenue increased total
mainline passenger revenue by $3.2 million as compared to the prior year, an
increase of 2.9%.





Other
Revenue.  Other revenue, comprised principally of the revenue
from the marketing component of our co-branded credit card, interline and ground
handling fees, liquor sales, LiveTV sales, pay-per-view movies and excess
baggage fees totaled $57.4 million and $42.5 million for the years ended March
31, 2009 and March 31, 2008, respectively, an increase of 35.3% and were 4.8%
and 3.5% of total mainline operating revenue for the years ended March 31, 2009
and 2008, respectively.  The increase was due to changes in our
policies for additional and increased ancillary fees as well as revenue for a
new buy-on-board program, offset by a decrease in LiveTV and pay-per-view movies
revenue.  Our buy-on-board program offers in-flight snacking options,
fresh food and premium drinks.  With the launch of AirFairs in
December 2008, the revenue for our buy-on-board program, bag fees and liquor are
included in passenger revenue if purchased as part of the bundled ticket
price.





Mainline
Operating Expenses





Total mainline operating expenses were
$1.185 billion and $1.254 billion for the years ended March 31, 2009 and 2008,
respectively, a decrease of 5.5%, and represented 99.1% and 99.0% of total
mainline revenue, respectively.





Salaries, Wages
and Benefits.  We record
salaries, wages and benefits within the specific expense category identified in
our statements of operations to which they pertain.  Salaries, wages
and benefits decreased 13.5% to $241.3 million compared to $279.0 million, for
the years ended March 31, 2009 and 2008, respectively.  Salaries and
wages decreased over the prior comparable period largely as a result of wage
concessions ranging from 10.0%-14.5% for most employees that took effect June 1,
2008, and a decrease in the number of full-time equivalent employees. Our
full-time equivalent employee count decreased 15.4% from approximately 5,200 at
March 31, 2008 to 4,400 at March 31, 2009. Benefits also decreased due to the
suspension of our 401 (k) match effective on June 1, 2008, offset by an increase
in health insurance expense.





Flight
Operations.  Flight operations expenses decreased 14.7% to
$153.0 million as compared to $179.3 million, for the year ended March 31, 2009
and 2008, respectively.  Flight operations expenses decreased
primarily due to a decrease in mainline block hours from 264,468 for the year
ended March 31, 2008 to 237,015 for the year ended March 31, 2009, a decrease of
10.4%.  Flight operations also had reductions in salaries, wages and
benefits of $17.2 million.  Flight operations expenses include all
expenses related directly to the operation of the aircraft excluding
depreciation of owned aircraft and aircraft lease expenses and including
insurance expenses, pilot and flight attendant compensation, in-flight catering,
crew overnight expenses, flight dispatch and flight operations administrative
expenses.





Pilot and
flight attendant salaries before payroll taxes and benefits decreased 12.3% to
$91.7 million compared to $104.5 million, and were 7.7% and 8.3% of total
mainline revenue for the year ended March 31, 2009 and 2008,
respectively.  We employed approximately 1,400 active mainline pilots
and flight attendants at March 31, 2009 as compared to 1,700 at March 31, 2008,
a decrease of 17.6%.  In June 2008, the pilots and flight attendants
agreed to wage and benefit concessions of 14.5% and 10.0%,
respectively.  In December 2008, the pilots ratified an agreement
effective through January 2012 in which they agreed to long-term wages
concessions effective January 1, 2009.





Aircraft
insurance expenses declined by 12.7% and totaled $7.1 million and $8.1 million
for the years ended March 31, 2009 and 2008, respectively.  Aircraft
insurance expenses were 69¢ and 76¢ per passenger for the years ended March 31,
2009 and 2008, respectively.  Our rates were reduced by almost 18% for
the policy that covered January 1, 2008 to December 31, 2008 and were increased
by approximately 8% for the policy period January 1, 2009 to December 31,
2009.


35


Aircraft
Fuel.Aircraft fuel expenses
represented 42.2% and 35.3% of total mainline revenue for the years ended March
31, 2009 and 2008, respectively.  Aircraft fuel expenses include both
the direct cost of fuel including taxes as well as the cost of delivering fuel
into the aircraft (raw fuel expense).  Aircraft fuel expense also
includes the impact of our fuel hedging transactions.  Aircraft fuel
expenses can be very volatile due to fluctuations in prices and the timing of
the settlement of our fuel hedge contracts.  A summary of the
activities are as follows (dollars in 000’s):





Year
      Ended March 31,2009
                  
                  
                  2008
                  
                  
                  %
                    ChangeAircraft
      fuel expense - mainline
                  
                  $
                  504,336
                  
                  
                  $
                  446,791
                  
                  
                  
                  12.9
                  %Cash
      (paid) /received from settled hedges
                  
                  
                  (2,606
                  )
                  
                  
                  30,740
                  
                  
                  NMTotal
      economic fuel expense
                  
                  
                  501,730
                  
                  
                  
                  477,531
                  
                  
                  
                  5.1
                  %Non-cash
      mark-to-market gain/(loss) on fuel hedges
                  
                  
                  (15,576
                  )
                  
                  
                  1,847
                  
                  
                  NMTotal
      raw aircraft fuel expense
                  
                  $
                  486,154
                  
                  
                  $
                  479,378
                  
                  
                  
                  1.4
                  %Fuel
      gallons consumed (in 000's)
                  
                  
                  162,367
                  
                  
                  
                  182,793
                  
                  
                  
                  (11.2
                  )%Aircraft
      fuel expense per gallon
                  
                  $
                  3.11
                  
                  
                  $
                  2.45
                  
                  
                  
                  26.9
                  %Aircraft
      fuel expense per gallon - excluding all hedging
                  
                  $
                  2.99
                  
                  
                  $
                  2.62
                  
                  
                  
                  14.1
                  %Number
      of block hours
                  
                  
                  237,015
                  
                  
                  
                  264,468
                  
                  
                  
                  (10.4
                  )%Gallons
      per bock hour
                  
                  
                  685
                  
                  
                  
                  691
                  
                  
                  
                  (0.9
                  )%





We
continue to focus on reducing our fuel burn rates by increasing awareness of
fuel cost management by our crews, implementing systems and processes to
optimize fuel tankering, and we have implemented other strategic initiatives
including single-engine taxi and the conversion to lighter weight leather seats
which was completed in May 2008.





Aircraft and
Engine Lease.Aircraft lease expenses totaled $106.5 million and $112.9
million for the years ended March 31, 2009 and 2008, respectively, a decrease of
5.7%.  The decrease in lease expense is due to a decrease in the
average number of leased aircraft from 38.0 to 37.2, or 2.1%. We also had
decreases in lease rate for our spare engines and seven of our aircraft that
have variable rents based on LIBOR.





Aircraft and
Traffic Servicing.  Aircraft and traffic servicing expenses
were $163.2 million and $183.2 million, for the years ended March 31, 2009 and
2008, respectively, a decrease of 11.0%.  Aircraft and traffic
servicing expenses include all expenses incurred at airports including landing
fees, facilities rental, station labor, ground handling expenses, glycol
de-icing expense, and interrupted trip expenses associated with delayed or
cancelled flights.  Interrupted trip expenses are amounts paid to
other airlines to protect passengers on cancelled flights as well as hotel, meal
and other incidental expenses.   During the year ended March 31,
2009, our departures decreased to 97,868 from 104,548, a decrease of
6.4%.  Aircraft and traffic servicing expenses were $1,667 per
departure for the year ended March 31, 2009 as compared to $1,753 per departure
for the year ended March 31, 2008, a decrease of $86 per departure or
4.9%.   Aircraft and traffic servicing also had reductions in
salaries, wages and benefits of $6.4 million as well as a reduction in glycol
expense of $3.0 million year-over-year.





Maintenance.  Maintenance
expenses were $86.0 million and $102.4 million for the years ended March 31,
2009 and 2008, respectively, a decrease of 16.0%.   Maintenance
expenses include the costs of all labor, parts and supplies related to the
maintenance of the aircraft.  Maintenance cost per block hour was $363
and $387 for the years ended March 31, 2009 and 2008, respectively, a decrease
of 6.2%.  Maintenance expenses decreased by $5.8 million as a result
of the termination of a service contract we had with GE Engine Services in
September 2008, covering the scheduled and unscheduled repair of Airbus engines,
since reserve payments were not made during the last two fiscal quarters of the
year.  Also, we did not have any unplanned major engine events during
the year ended March 31, 2009; however, we had additional expenses of $1.3
million for two unplanned maintenance events during the year ended March 31,
2008.  Maintenance also had reductions in salaries, wages and benefits
of $4.2 million.  Maintenance expenses will increase as the average
age of our aircraft increases and our aircraft require more scheduled
maintenance events.


36





Promotion and
Sales.Promotion and
sales expenses totaled $92.7 million and $129.6 million, a decrease of 28.5%,
for the years ended March 31, 2009 and 2008, respectively.  These
expenses include advertising expenses, telecommunications expenses, wages and
benefits for reservation agents and related supervision as well as marketing
management and sales personnel, credit card fees, travel agency commissions,
computer reservations costs and adjustments to our frequent flyer
liability.During the
year ended March 31, 2009, promotion and sales expenses per mainline passenger
decreased to $9.03 from $12.20 for the year ended March 31,
2008.  Promotion and sales expenses decreased per passenger primarily
due to a reduction of $13.1 million in our frequent flyer liability as compared
to the prior year as well as $7.3 million of reductions in spending on
promotions and advertising, reduced expenses related to distribution fees of
$3.4 million, $3.1 million reduction in salaries, wages and benefits and $5.7
million in reduced fees associated with our revised LiveTV service
agreement.  The reduction in our frequent flyer liability was driven
by an increase in our base redemption level from 15,000 to 20,000 miles as well
as a reduction in the fuel price per gallon as of March 31, 2008 as compared to
March 31, 2009.





General and
Administrative.  General and administrative expenses for the
years ended March 31, 2009 and 2008 totaled $51.4 million and $60.7 million,
respectively, a decrease of 15.4%. General and administrative expenses include
the wages and benefits for our executive officers and various other
administrative personnel including legal, accounting, information technology,
corporate communications, training and human resources and other expenses
associated with these departments.  General and administrative
expenses also include employee health benefits, accrued vacation, and general
insurance expenses including worker’s compensation for all of our employees.
General and administrative expense decreased primarily due to a reduction in
wages (by a reduction in headcount as well as pay concessions from the remaining
employees) and a corresponding decrease in our vacation liability and a
reduction of expenses related to consultants.  These were partially
offset by an increase in health insurance and worker’s compensation
expense.





Depreciation.  Depreciation
expenses were $36.1 million and $43.1 million, a decrease of 16.3%, for the
years ended March 31, 2009 and 2008, respectively.  The decrease in
depreciation expenses is due to the decrease in the average number of owned
Airbus aircraft from 21.6 for the year ended March 31, 2008 to 18.9 for the year
ended March 31, 2009, or 12.5%, and the completion of our seat replacement
program which resulted in accelerated depreciation on our Airbus aircraft seats
in the prior comparable period.





Lynx
Aviation





Passenger Revenue
– Lynx Aviation.  Passenger revenue
from flights operated by Lynx Aviation totaled $77.0 million for the year ended
March 31, 2009.  Lynx Aviation did not begin revenue service until
December 7, 2007.  Passenger revenue from flights operated by Lynx
Aviation for the year ended March 31, 2008 was $19.0 million.





Lynx Aviation
Expenses.During the year ended
March 31, 2009, Lynx Aviation had $94.6 million of expenses related to the
service of 995,000 passengers.  These expenses included $26.7 million
in aircraft fuel expense, $9.2 million  in aircraft lease expenses,
$9.3 million in maintenance expenses, $5.1 million in pilot and flight attendant
salaries, $8.2 million in promotion and sales expense, $5.1 million in general
and administrative expenses, $5.0 million in depreciation expenses and $26.0
million in flight operations and other allocated expenses.





Lynx Aviation was in the start-up phase
of operations until December 7, 2007 when it began revenue
service.  For the year ended March 31, 2008, operating expenses were
$34.2 million.





Consolidated
Nonoperating Income (Expenses)





Interest Income.Interest
income decreased to $4.1 million from $12.0 million during the year ended March
31, 2009 from the year ended March 31, 2008, a decrease of 66.1%, as a result of
a decrease in our average cash position as compared to the prior year and
falling short-term interest rates.





Interest
Expense.Interest expense decreased to $29.3 million for the
year ended March 31, 2009 from $36.4 million for the year ended March 31, 2008,
a decrease of 19.5%.  Subsequent to our filing for bankruptcy under
Chapter 11, we stopped accruing interest on our convertible
notes.  Had we recorded this interest expense, we would have increased
interest expense by $4.5 million during the year ended March 31,
2009.  Debt related to aircraft decreased from $567.3 million as of
March 31, 2008 to $379.3 million as of March 31, 2009 with a decrease in the
average weighted interest rate from 5.50% to 4.04% as of March 31, 2008 and
2009, respectively.  The decrease in interest expense was primarily
related to the reduction of accrued interest on our convertible notes, a 26.7%
decrease in the weighted average borrowing rate and the retirement of debt of
$153.3 million related to the sale and sale-leaseback of nine
aircraft.


37





Loss on Early
Extinguishment of Debt.During the year ended March 31, 2009
we completed the sale of nine Airbus A319 aircraft and retired debt of $153.5
million.  We also wrote off $1.0 million of related deferred loan
fees. Prior to the closing of the five sale-leaseback transactions for
Bombardier Q400 aircraft during the year ended March 31, 2008, we had temporary
financing for the aircraft which we repaid and wrote off $0.3 million of debt
issuance fees.





Reorganization
Expense





Reorganization items include such items
as realized gains and losses from the settlement of pre-petition liabilities,
provisions for losses resulting from the reorganization and restructuring of the
business, as well as professional fees directly related to the process of
reorganizing under Chapter 11.  Reorganization expenses of $202.5
million were recorded during the year ended March 31, 2009 primarily relating to
$179.0 million for unsecured claims allowed by the courts, professional fees of
$22.4 million, a write-off of a note receivable and a net settlement of $11.8
million and a loss of $4.3 million on a sale-leaseback transaction; which were
offset by the gains on the sale of six A319 aircraft of $13.9 million and net
gains on contract terminations and settlements of $6.6 million.





Income Tax
Expense





We
recorded income tax expense of $1.8 million during the year ended March 31,
2009.  Tax gains on the sales of aircraft resulted in taxable income
for the year ending March 31, 2009.  Under alternative minimum tax
regulations, we can only offset 90% of our taxable income with net operating
loss carryforwards.  The remaining 10% is subject to alternative minimum
tax.  Although we are entitled to an AMT credit against future income
taxes, we recorded a valuation allowance against this credit since it was more
likely than not that this tax credit will not be realized.





We
have a valuation allowance for all deferred tax assets that are not realizable
through the reversal of existing taxable temporary differences as of March 31,
2009 and 2008, accordingly, deferred tax expense is zero during the fiscal year
ended March 31, 2009.  During the year ended March 31, 2009, we
increased our valuation allowance by $84.7 million against deferred tax assets
since it was more likely than not that these tax benefits were not going to be
realized due to lack of taxable income in these jurisdictions before those net
operating loss carryforwards expire and concerns about our ability to continue
as a going concern.





We recorded an income tax benefit of
$0.1 million during the year ended March 31, 2008, comprised of current state
refunds.




38




Results
of Operations – Year Ended March 31, 2008 Compared to Year Ended March 31,
2007




Mainline
Revenue





Passenger Revenue
- Mainline.  Mainline
passenger revenue totaled $1.218 billion for the year ended March 31, 2008
compared to $1.037 billion for the year ended March 31, 2007, an increase of
17.4%.  Mainline passenger revenue includes revenue for reduced rate
stand-by passengers, charter revenue, administrative fees, revenue recognized
for tickets that are not used within one year from their issue dates and revenue
recognized from our co-branded credit card agreement.





Revenue
from passenger tickets flown generated 90.4% of our mainline passenger revenue
and increased $163.9 million or 17.5% over the prior year.  The
increase in flown ticket sales resulted from a 12.0% increase in ASMs, or $112.4
million, an increase of 4.9 points in load factor, or $68.1 million, offset by a
decrease of 1.5% in our yields from ticket sales, or $16.6
million.   The percentage of revenue generated from other sources
compared to total mainline passenger revenue is as follows: Administrative fees
were 2.8%, revenue recognized for tickets that were not used within one year
from issuance were 3.1%, charter revenues were 1.2% and revenue from the travel
component of our co-branded credit card were 2.0%.  These sources of
revenue increased total mainline passenger revenue by $23.5 million as compared
to the prior year, an increase of 26.6%. This increase is primarily due to our
16.2% increase in passengers and the increased usage of our co-branded credit
card.





Other
Revenue.  Other revenue, comprised principally of the revenue
from the marketing component of our co-branded credit card, interline and ground
handling fees, liquor sales, LiveTV sales, pay-per-view movies and excess
baggage fees totaled $42.5 million and $32.6 million for the years ended March
31, 2008 and March 31, 2007, respectively, an increase of 30.2%.  The
increase in other revenue was primarily due to the increase in the revenue
earned from carrying excess baggage, ground handling services provided to other
carriers, and the marketing component of our co-branded credit card agreement
and other partnership agreements.





Mainline
Operating Expenses





Total mainline operating expenses were
$1.254 billion and $1.070 billion for the years ended March 31, 2008 and 2007,
respectively, an increase of 17.2%.





Salaries, Wages
and Benefits.  Salaries, wages
and benefits increased 13.5% to $279.0 million compared to $245.8 million,
­­­­­­­­for the years ended March 31, 2008 and
2007, respectively.  Salaries, wages and benefits increased over the
prior comparable period largely as a result of an increase in the number of
full-time equivalent employees to support the capacity growth. Our full-time
equivalent employee count increased 8.3% from approximately 4,800 at March 31,
2007 to 5,200 at March 31, 2008. The increase in employees and related salaries,
wages and benefits supported the 12.0% increase in mainline
capacity.





Flight
Operations.  Flight operations expenses increased 11.3% to
$179.3 million as compared to $161.1 million, for the year ended March 31, 2008
and 2007, respectively.  Flight operations expenses increased due to
an increase in mainline block hours from 234,965 for the year ended March 31,
2007 to 264,468 for the year ended March 31, 2008, an increase of
12.6%.





Pilot and
flight attendant salaries before payroll taxes and benefits increased 10.1% to
$104.5 million compared to $95.0 million.  We employed approximately
1,707 active mainline pilots and flight attendants at March 31, 2008 as compared
to 1,586 at March 31, 2007, an increase of 7.6%.





Aircraft
insurance expenses totaled $8.1 million and $9.8 million for the years ended
March 31, 2008 and 2007, respectively.  Aircraft insurance expenses
were 76¢ and $1.07 per passenger for the years ended March 31, 2008 and 2007,
respectively.  Our aircraft hull and liability coverage renewed on
January 1, 2006 to December 31, 2006 at rates that were reduced by
9.9%.  Our rates were further reduced by 33.4% for the policy that
covered January 1, 2007 to December 31, 2007.  Our rates were further
reduced by almost 18% for the policy that covered January 1, 2008 to December
31, 2008.


39


Aircraft
Fuel.Aircraft fuel expenses
represented 35.3% and 31.9% of total mainline revenues for the years ended March
31, 2008 and 2007, respectively.  Aircraft fuel expenses include both
the direct cost of fuel including taxes as well as the cost of delivering fuel
into the aircraft (raw fuel expense).  Aircraft fuel expense also
includes the impact of our fuel hedging transactions.  Aircraft fuel
expenses can be very volatile due to fluctuations in prices and the timing of
the settlement of our fuel hedge contracts.  A summary of the
activities are as follows:





Year
      Ended March 31,2008
                  
                  
                  2007
                  
                  
                  % ChangeAircraft
      fuel expense – mainline
                  
                  
                  446,791
                  
                  
                  
                  343,082
                  
                  
                  
                  30.2
                  %Cash
      (paid) /received from settled hedges
                  
                  
                  30,740
                  
                  
                  
                  (3,925
                  )
                  
                  NMTotal
      economic fuel expense
                  
                  
                  477,531
                  
                  
                  
                  339,157
                  
                  
                  
                  40.8
                  %Gain/(loss)
      in fair value of hedges not yet settled
                  
                  
                  1,847
                  
                  
                  
                  12,753
                  
                  
                  
                  (85.5
                  )%Total
      raw aircraft fuel expense
                  
                  
                  479,378
                  
                  
                  
                  351,910
                  
                  
                  
                  36.2
                  %Fuel
      gallons consumed (in 000's)
                  
                  
                  182,793
                  
                  
                  
                  161,616
                  
                  
                  
                  13.1
                  %Aircraft
      fuel expense per gallon - GAAP
                  
                  $
                  2.45
                  
                  
                  $
                  2.12
                  
                  
                  
                  15.6
                  %Aircraft
      fuel expense per gallon - excluding all hedging
                  
                  $
                  2.62
                  
                  
                  $
                  2.18
                  
                  
                  
                  20.2
                  %Number
      of block hours
                  
                  
                  264,468
                  
                  
                  
                  234,965
                  
                  
                  
                  12.6
                  %Gallons
      per bock hour
                  
                  
                  691
                  
                  
                  
                  688
                  
                  
                  
                  0.4
                  %




Aircraft and
Engine Lease.Aircraft lease expenses totaled $112.9 million and $108.6
million for the years ended March 31, 2008 and 2007, respectively, an increase
of 3.9%.  The increase in lease expense is due to an increase in the
average number of leased aircraft from 36.7 to 38.0, or 3.5%.





Aircraft and
Traffic Servicing.  Aircraft and traffic servicing expenses
were $183.2 million and $166.4 million, for the years ended March 31, 2008 and
2007, respectively, an increase of 10.1%.  During the year ended March
31, 2008, our departures increased to 104,548 from 97,554, an increase of
7.2%.  Aircraft and traffic servicing expenses were $1,753 per
departure for the year ended March 31, 2008 as compared to $1,706 per departure
for the year ended March 31, 2007, an increase of $47 per departure or
2.8%.   This increase was primarily due to rent increases for the
additional six gates at DIA and $2.7 million of additional glycol expenses
incurred during the year ended March 31, 2008.





Maintenance.  Maintenance
expenses of $102.4 million and $87.7 million for the years ended March 31, 2008
and 2007, and increased by 16.7%.   Maintenance cost per block
hour was $387 and $373 for the years ended March 31, 2008 and 2007,
respectively, an increase of 3.8%.  During the year ended March 31,
2008, our engine maintenance reserve payments increased by $4.4 million due to
an increase in our rates under the applicable lease and also due to two major
unscheduled maintenance events that were not covered by maintenance agreements
which increased maintenance expenses by $1.3 million.  Maintenance
expenses will increase as the average age of our aircraft increases and our
aircraft require more scheduled maintenance events. The average age of our
aircraft was 3.9 years as of March 31, 2008 as compared to 3.2 as of March 31,
2007.





Promotion and
Sales.Promotion and
sales expenses totaled $129.6 million and $115.5 million, an increase of 12.2%,
for the years ended March 31, 2008 and 2007, respectively.  During the
year ended March 31, 2008, promotion and sales expenses per mainline passenger
decreased to $12.20 from $12.64 for the year ended March 31,
2007.  Promotion and sales expenses decreased per passenger primarily
due to a reduction in spending on promotions and advertising.





General and
Administrative.  General and administrative expenses for the
years ended March 31, 2008 and 2007 totaled $60.7 million and $53.7 million,
respectively, an increase of 13.1%. General and administrative expenses
increased primarily due to general wage rate increases, expenses due to changes
in management, an increase in our vacation liability, offset by a decrease in
our workers compensation expense as compared to the same period last
year.




40


Depreciation.  Depreciation
expenses were $43.1 million and $34.7 million, an increase of 24.3%, for the
years ended March 31, 2008 and 2007, respectively.  The increase in
depreciation is primarily due to an increase in the average number of purchased
aircraft in service to 21.6 during the year ended March 31, 2008 as compared to
17.7 purchased aircraft in service for the year ended March 31, 2007, an
increase of 22.0%.  The increase in depreciation expense is also due
to a project to replace our Airbus seats with new lighter weight leather seats,
which resulted in accelerated depreciation of $3.3 million on the replaced
Airbus aircraft seats. This project was completed in May 2008. The increase is
also due to investments in rotable aircraft components, aircraft improvements
and ground equipment to support the 12.0% increase in our capacity during the
year ended March 31, 2008.





Post-Retirement
Liability Curtailment Gain.In December 2007, the Fair Treatment for Experienced
Pilots Act (the “Pilots Act”), was enacted.  This act increased
the retirement age for commercial pilots to 65 from 60.  Pilots that
have not reached age 60 will now be allowed to work for five more years,
provided they pass regular medical and piloting exams. Pursuant
to our collective bargaining agreement with our pilots, if pilots are forced to
retire due to FAA requirements, the retired pilots and their dependents could
retain medical benefits under the terms and conditions of the Health and Welfare
Plan for Employees of Frontier Airlines, Inc. until age 65.  However,
as a result of the Pilots Act, this retirement health benefit is no longer
required.  It is only required for pilots who reached mandatory
retirement age prior to the effective date of the Pilots Act.As
such, we recorded a one-time post-retirement liability curtailment gain of $6.4
million to reflect the impact of the Pilots Act, which was the reduction in
post-retirement liability for pilots who had not yet attained the age of
60.





Business
Interruption Insurance Proceeds.  During the year ended March
31, 2008, we recorded insurance proceeds of $0.3 million as a result of final
settlements of business interruption claims. During the year ended March 31,
2007 we recorded insurance proceeds of $0.9 million as a result of final
settlements of business interruption claims that covered lost profits when our
service to Cancun, Mexico and New Orleans, Louisiana was disrupted by hurricanes
during the fiscal year ended March 31, 2006.





Consolidated
Nonoperating Income (Expenses).





Interest Income.Interest
income decreased to $12.0 million from $15.0 million during the year ended March
31, 2008 from the year ended March 31, 2007, a decrease of 19.6%, as a result of
a decrease in our average cash position as compared to the prior
year.





Interest
Expense.Interest expense increased to $36.4 million for the
year ended March 31, 2008 from $29.9 million for the year ended March 31, 2007,
an increase of 26.1%. Debt related to aircraft increased from $386.8 million as
of March 31, 2007 to $567.3 million as of March 31, 2008 with a decrease in the
average weighted interest rate from 7.15% to 5.50% as of March 31, 2007 and
2008, respectively.  The increase in interest expense was due to
additional debt for the increase in the average number of owned aircraft during
the year from 17.7 to 21.6, offset by a 23.1% decrease in the weighted average
borrowing rate.





Income Tax Benefit.





We
recorded an income tax benefit of $101,000 during the year ended March 31, 2008,
comprised of current state refunds.  We recorded an income tax benefit
of $4.6 million during the year ended March 31, 2007, which includes a valuation
allowance of $4.0 million which resulted in an effective tax rate of
18.5%.





Loss on Early
Extinguishment of Debt.Prior to the closing of the five
sale-leaseback transactions for Bombardier Q400 aircraft during the year ended
March 31, 2008, we had temporary financing for the aircraft which we repaid and
wrote off $0.3 million of debt issuance fees.





Regional
Partners




Passenger Revenue
– Regional Partner.Regional Partner revenue totaled $113.2
million for the year ended March 31, 2008 and $94.1 million for the year ended
March 31, 2007, a 20.2% increase.  The increase in revenue is due to a
26.3% increase in passengers offset by a decrease in the average fare to $99.74
from $ 104.72, a decrease of 4.8%.  The decrease in average fare is
largely due to the increase in connecting traffic over the year ended March 31,
2007, which results in a lower fare than local traffic.





Operating
Expenses – Regional Partner.Regional partner expense for the
year ended March 31, 2008 and 2007 totaled $146.2 million and $108.4 million,
respectively, a 34.9% increase, and were 129.2% and  115.1% of total
regional partner revenue, respectively.  The increase in Regional
Partner expenses as compared to revenue was primarily related to the transition
of our regional jet service from Horizon to Republic, which caused both airlines
to operate with a sub-optimal number of aircraft during the year and an increase
in fuel costs to $51.8 million for the year ended March 31, 2008 as compared to
$33.2 million during the same period in the prior year.


41




Lynx
Aviation





Passenger Revenue
– Lynx Aviation.  Passenger revenue
from flights operated by Lynx Aviation after obtaining its operating certificate
on December 6, 2007 totaled $19.0 million, for the year ended March 31,
2008.





Lynx
Aviation Expenses. Lynx Aviation was in the start-up phase
of operations until December 7, 2007 when it began revenue
service.  For the year ended March 31, 2008, operating expenses were
$34.2 million.  Due to the start-up activities during
the year ended March 31, 2008, the fleet was flown in sub-optimal routes,
additional crew were required for training and Lynx Aviation had low completion
factors.





During the year ended March 31, 2008,
Lynx Aviation incurred $8.5 million of start-up expense related to flight
operation expenses primarily related to pilot salaries and training, maintenance
expenses related to salaries and wages for material specialists personnel, line
maintenance performed on aircraft and training for our Lynx Aviation mechanics
and general and administrative costs primarily related to costs of constructing
our internal manual and procedures to FAA standards and the FAA certification
process.  After obtaining an operating certificate in December 2007,
additional direct and allocated costs of $25.7 million were incurred related to
5,228 departures.





During the year ended March 31, 2007,
Lynx Aviation incurred $3.1 million of start-up costs primarily related to
consulting and legal expenses incurred in conjunction with signing the purchase
agreement with Bombardier, Inc. for Q400 aircraft and the formation of the
subsidiary.


42





Liquidity
and Capital Resources





The matters described herein, to the
extent that they relate to future events or expectations, may be significantly
affected by our Chapter 11 proceedings. Those proceedings will involve, or
may result in, various restrictions on our activities, limitations on financing,
the need to obtain Bankruptcy Court approval for various matters outside the
ordinary course of our business and uncertainty as to relationships with
vendors, suppliers, customers and others with which we may conduct or seek to
conduct business.  See Item 1A “Risk Factors” for further
information on our liquidity risk.  If our efforts to raise cash and
improve liquidity are not successful, we could be forced to discontinue our
operations.





Our
liquidity depends to a large extent on the number of passengers who fly with us,
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.  Our liquidity will continue to be impacted by
historically high and extremely volatile prices for fuel, which ranged from a
monthly average of $1.45 to $4.22 per gallon during the year ended March 31,
2009 and as of May 18, 2009 was $1.67 per gallon.   During the
year ended March 31, 2009, we closed on the sale of nine Airbus A319 aircraft,
for proceeds of $253.3 million. This resulted in retirement of debt of $153.5
million related to the mortgages on the sold aircraft.





We had cash and cash equivalents of
$71.8 million and $120.8 million at March 31, 2009 and March 31, 2008,
respectively.  At March 31, 2009, total current assets were $280.0
million versus $293.0 million of total current liabilities, resulting in a
working capital deficit of $13.0 million.  At March 31, 2008, total
current assets were $306.3 million versus $449.4 million of total current
liabilities, resulting in a working capital deficit of $143.1
million.  The improvement in working capital is due to the
reclassification of pre-petition liabilities and the current portion of
long-term debt to long-term liabilities under the financial statement caption
“Liabilities subject to compromise.”  Working capital deficits are
customary for airlines since air traffic liability is classified as a currently
liability.  Our air traffic liability decreased by $80.9 million,
which further added to our year-over-year working capital increase.





Operating
Activities.  Cash used by
operating activities for the year ended March 31, 2009 was $135.0 million as
compared to cash provided by operating activities of $30.7 million for the year
ended March 31, 2008, a decrease of $165.7 million.  The decrease in
cash from operating activities was due to an increase in our net loss of $187.9
million, an increase in restricted cash for holdbacks of $60.4 million, an $80.9
million decrease in our air traffic liability and a reduction of $33.3 million
in proceeds received on fuel hedge contracts. Cash used by operating activities
was also negatively impacted by a net $12.4 million of cash used for
reorganization activities.





Investing
Activities.  Cash provided by investing activities for the year
ended March 31, 2009 was $249.3 million.  Cash provided by the sale of
nine Airbus A319 aircraft was $253.3 million.  Cash received from the
return of purchase deposits was $11.5 million.  Capital expenditures
were $18.6 million for the year ended March 31, 2009 which included rotable
aircraft components, aircraft improvements, information technology enhancements,
and ground equipment. Aircraft lease and purchase deposits made for future
aircraft deliveries during the period were $6.4 million. We also received
proceeds of $0.6 million during the year ended March 31, 2009 primarily from the
sale of aircraft parts that were held for sale.





Cash used in investing activities for
the year ended March 31, 2008 was $294.5 million.  Capital
expenditures were $350.8 million for the year ended March 31, 2008, which
included the purchase of three Airbus A318 aircraft, two Airbus A320 aircraft
and ten Bombardier Q400 aircraft, new leather seat sets for 53 aircraft, the
purchase of LiveTV equipment, rotable aircraft components, aircraft
improvements, information technology enhancements, and ground
equipment.  Aircraft lease and purchase deposits made for aircraft
deliveries during the period were $28.3 million.  We also received
$92.5 million during the year ended March 31, 2008 primarily from the sale of
five of the 10 newly acquired Bombardier Q400 aircraft in sale-leaseback
transactions.




Financing
Activities.  Cash used by
financing activities for the year ended March 31, 2009 was $163.3
million.  During the year ended March 31, 2009, we retired debt of
$153.5 million related to the mortgages of the nine sold Airbus A319
aircraft.  We also paid $34.5 million in principal payments on our
owned aircraft, which included additional principal payments of $4.7 million
made from the proceeds on two aircraft sales, and we paid $2.2 million in
financing fees.  We also paid $3.1 million in principal payments on
short-term borrowing used to finance pre-delivery payments on our Airbus
aircraft.  On August 8, 2008, the DIP Credit Agreement was funded in
the amount of $30.0 million, net of $2.1 million in fees.


43




Cash received from financing activities
for the year ended March 31, 2008 was $181.7 million.  During the year
ended March 31, 2008, we borrowed $297.5 million for the purchase of three
Airbus A318, two Airbus A320 and 10 Bombardier Q400 aircraft.  These
were offset by payments of $80.2 million related to the retirement of five loans
for Bombardier Q400 sold in sale-leaseback transactions, debt principal payments
of $33.8 million and $2.6 million in financing fees.




Other
Items That Impact Our Liquidity





We
continue to assess our liquidity position in light of recent record high fuel
prices that could reoccur, significant legal, professional and other fees and
expenses associated with our Chapter 11 bankruptcy proceedings, our aircraft
purchase commitments and other capital requirements, the economy, competition,
and other uncertainties surrounding the airline industry. For further
information on our financing plans, activities and commitments, see “Commercial
Commitments and Off Balance Sheet Arrangements” below.





As of March 31, 2009, we have remaining
firm purchase commitments for eight additional aircraft from Airbus that have
scheduled delivery dates beginning in February 2011 and continuing through
November 2012 and one remaining firm purchase commitment for one spare Airbus
engine scheduled for delivery in December 2009. Also, as of March 31, 2009, we
have two firm purchase commitments for Bombardier aircraft that have scheduled
delivery dates of July 2009 and February 2010.





We have options to purchase ten
Bombardier aircraft, the last of which expires in July 2010, subject to
additional extension rights.  In July 2008 Lynx Aviation exercised its
option on the first of the ten additional aircraft with a planned delivery date
in July 2009. In January 2009 Lynx Aviation exercised its option on the second
of the remaining ten additional aircraft with a planned delivery date in
February 2010. When taking into account the exercised options as well as those
options we have elected not to exercise, we have five options
remaining.





We currently have no financing for the
remaining aircraft options that we have exercised.  To complete the
purchase of the eight Airbus aircraft and two Bombardier aircraft scheduled for
delivery starting in July 2009, we must secure additional aircraft financing
totaling approximately $314.0 million, assuming bank financing would be used for
these remaining aircraft.    The terms of the purchase
agreements do not allow for cancellations of any of the purchase
commitments.  If we are unable to secure all the necessary financing
it could result in the loss of pre-delivery payments and deposits previously
paid to the manufacturers. We expect to finance these remaining firm commitments
through various financing alternatives, including, but not limited to, domestic
and foreign bank financing, leveraged lease arrangements or sale/leaseback
transactions.   There can be no assurances that additional
financing will be available when required or will be on acceptable terms,
especially due to our Chapter 11 status and the current weak credit market.
Additionally, the terms of the purchase agreement with the manufacturers would
require us to pay penalties or damages in the event of any breach of contract
with our supplier, including possible termination of the
agreement.  As of March 31, 2009, we had made pre-delivery payments on
future aircraft deliveries totaling $6.5 million which relate to aircraft for
which we have not secured financing.




44





Commercial
Commitmentsand
Off-Balance Sheet Arrangements





Letters
of Credit and Cash Deposits





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, bond or cash security deposits.  We also
provide letters of credit for our workers’ compensation insurance.  As
of March 31, 2009, we had outstanding letters of credit, bonds and cash security
deposits totaling $19.5 million, $2.0 million and $25.4 million,
respectively.





We also
have an agreement with a financial institution under which we can issue letters
of credit of up to an agreed upon percentage of spare parts inventories less
amounts borrowed under the credit facility.  As of March 31, 2009, we
had letters of credit issued of $12.1 million and cash draws of $3.0 million
under this agreement which is due on July 21, 2009.  In May 2009 the
Company filed a motion to approve an amendment to this agreement for an
extension on two letters of credit in the amounts of $4.5 million and $1.5
million to September 30, 2009 and June 7, 2010, respectively.  As a
result of the Chapter 11 filing, we cannot borrow additional amounts under this
facility.





In July
2005 we entered into an agreement (subsequently amended) with another financial
institution for a $5.8 million revolving line of credit that permits us to issue
letters of credit.  As of March 31, 2009, we have utilized $4.2
million under this agreement for standby letters of credit that provide credit
support for certain facility leases.  We also entered into a separate
agreement with this financial institution under which we have a letter of credit
fully cash collateralized of $2.8 million.  In June 2008, we
entered into a stipulation with the financial institution, which was
approved by the Bankruptcy Court, and which resulted in the financial
institution releasing its liens on our working capital in exchange for cash
collateral.  This stipulation also provided for the issuance of new letters
of credit going forward.  We fully cash collateralized the letters of
credit outstanding and agreed to cash collateralize any additional letters of
credit to be issued. The total $7.6 million in cash collateral as of March 31,
2009 was classified as restricted cash and investments on our consolidated
balance sheet.





We have a
contract with a bankcard processor that requires a holdback of bankcard funds
equal to a certain percentage of the air traffic liability associated with the
estimated amount of bankcard transactions.  As of March 31, 2009 that
amount totaled $109.8 million.  In June 2008, we reached a revised
agreement with this bankcard processor that requires adjustments to the reserve
account based on current and projected air traffic liability associated with
these estimated bankcard transactions.  Any further holdback had been
temporarily suspended pursuant to a court-approved stipulation until October 1,
2008.  Beginning October 1, 2008, the court-approved stipulation
allows the bankcard processor to holdback a certain percentage of bankcard
receipts in order to reach full collateralization at some point in the
future.  In addition, a second credit card company began a holdback
during the fiscal year ended March 31, 2008 which totaled $18.7 million at March
31, 2009.  As of May 21, 2009, the amount of holdback with these
companies was increased to a combined $143.4 million.





We use
the Airline Reporting Corporation (“ARC”) to provide reporting and settlement
services for travel agency sales and other related transactions.  In
order to maintain the minimum bond (or irrevocable letter of credit) coverage of
$100,000, ARC requires participating carriers to meet, on a quarterly basis,
certain financial tests such as working capital ratio and percentage of debt to
debt plus equity.  After our Chapter 11 filing, we signed an addendum
to this agreement under which we agreed to a standing reserve that will not
exceed the average of one week’s cash sales processed by ARC.  As of
March 31, 2009, the amount of holdback obtained by ARC classified as restricted
cash and investments on our consolidated balance sheet was $0.7 million, which
has been reduced to $0.5 million as of May 18, 2009.




Hedging
Transactions





Our fuel
hedge contracts have comprised of swap, collar and call
agreements.  Under a swap agreement, the cash settlements are
calculated based on the difference between a fixed swap price and a price based
on an agreed upon published spot price for the underlying
commodity.  If the index price is higher than the fixed price, we
receive the difference between the fixed price and the spot price.  If
the index price is lower, we pay the difference.  A collar agreement
has a cap price and a floor price.  When the hedged product’s index
price is above the cap, we receive the difference between the index and the
cap.  When the hedged product’s index price is below the floor we pay
the difference between the index and the floor. When the price is between the
cap price and the floor, no payments are required.  Under a call
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, as such realized and mark to market adjustments are
included in aircraft fuel expense.  Our results of operations for the
year ended March 31, 2009 and 2008 include non-cash mark to market derivative
losses of $15.6 million and gains of $1.8 million, respectively.  Cash
settlements for fuel derivatives contracts for the year ended March 31, 2009 and
2008 were payments of $2.6 million and receipts of $30.7 million,
respectively.  As of March 31, 2009, we had no open hedging
contracts.


45




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





Date
                                    
                                    Product
                                    
                                    Notional volume *
                                      (barrels per month)
                                    
                                    Period covered
                                    
                                    Price (per gallon or
                                      barrel)
                                    
                                    Percentage of
                                      estimated fuel
                                      purchasesApril
      7, 2009
                                    
                                    Gulf
                                      Coast
      Jet
                                      A
                                    
                                    
                                    60,000
                                    
                                    August
      1, 2009 –
                                      December
      31, 2009
                                    
                                    $
                                    1.78/gallon
                                    
                                    
                                    20
                                    %April
      27, 2009
                                    
                                    Gulf
                                      Coast
      Jet
                                      A
                                    
                                    
                                    30,000
                                    
                                    August
      1, 2009 –
                                      December
      31, 2009
                                    
                                    $
                                    1.67/gallon
                                    
                                    
                                    10
                                    %




*One
      barrel is equal to 42 gallons.




Maintenance
Contracts





Effective
January 1, 2003, we entered into an engine maintenance agreement with GE Engine
Services, Inc. (“GE”) covering the scheduled and unscheduled repair of our
aircraft engines used on most of our Airbus aircraft.  The agreement
was subsequently modified and extended in September 2004.  This
agreement precluded us from using another third party for such services during
the term.  For owned aircraft, this agreement required monthly
payments at a specified rate multiplied by the number of flight hours the
engines were operated during that month.  In August 2008, as part of
our Chapter 11 reorganization process, both parties mutually agreed to terminate
this agreement, which resulted in a gain of approximately $5.8 million for
reserve payments not yet utilized, less certain fees. The costs under this
agreement for our purchased aircraft for the years ended March 31, 2009 and 2008
were approximately $4.5 million and $9.9 million, respectively. Engine
maintenance expenses will no longer be covered by a maintenance cost per hour
contract and will be expensed when incurred.





Fuel
Consortia





We
participate in numerous fuel consortia with other carriers at major airports to
reduce the costs of fuel distribution and storage. Interline agreements govern
the rights and responsibilities of the consortia members and provide for the
allocation of the overall costs to operate the consortia based on usage. The
consortia (and in limited cases, the participating carriers) have entered into
long-term agreements to lease certain airport fuel storage and distribution
facilities that are typically financed through tax-exempt bonds (either special
facilities lease revenue bonds or general airport revenue bonds), issued by
various local municipalities. In general, each consortium lease agreement
requires the consortium to make lease payments in amounts sufficient to pay the
maturing principal and interest payments on the bonds. As of March 31,
2009, approximately $484.5 million principal amount of such bonds were secured
by fuel facility leases at major hubs in which we participate, as to which each
of the signatory airlines has provided indirect guarantees of the debt. Our
exposure is approximately $21.2 million principal amount of such bonds based on
our most recent consortia participation. Our exposure could increase if the
participation of other carriers decreases or if other carriers
default.  The guarantees will expire when the tax-exempt bonds are
paid in full, which ranges from 2011 to 2033.  We can exit any of our
fuel consortia agreements with limited penalties and certain advance notice
requirements. We have not recorded a liability on our consolidated balance
sheets related to these indirect guarantees.




46




Represented
Employees


The Transportation Workers Union
(“TWU”) ratified a long-term labor agreement on October 31, 2008, which was also
approved by the Bankruptcy Court. The agreement will extend certain earlier
agreed upon wage and benefit concessions.





On October 31, 2008, the Bankruptcy
Court granted us relief we requested regarding two of our collective bargaining
agreements with the International Brotherhood of Teamsters (“IBT”). The
Bankruptcy Court granted our request for wage concessions from the IBT and
adopted our proposed heavy maintenance plan. Our plan allows us to furlough our
heavy maintenance workers during periods during which we do not require heavy
maintenance work and recall these workers during periods when we have work
available.  The IBT subsequently filed an appeal of the Bankruptcy
Court’s order as well as a motion for a stay pending appeal with the United
States District Court for the Southern District of New York (the “District
Court”).  Both motions are fully briefed and remain pending before the
District Court.  In December 2008 our aircraft appearance agents and
maintenance cleaners represented by the IBT ratified a long-term labor agreement
with Frontier Airlines.  The agreement will provide us with wage
concessions through December 12, 2012.





In
December 2008 the members of the Frontier Airline Pilots Association (“FAPA”)
ratified an agreement effective through March 2012 in which they agreed to
long-term wage concessions starting at 10% effective January 1,
2009.  FAPA represents more than 600 pilots at Frontier
Airlines.





On November 6, 2008, the Association of
Flight Attendants-CWA (“AFA-CWA”) filed a petition with the National Mediation
Board to hold a representational election on behalf of 98 Lynx Aviation flight
attendants. In order to file for the election, the AFA-CWA had to collect the
required signature cards from 35% of Lynx Aviation flight
attendants.  In order to successfully unionize, more than 50% of Lynx
Aviation flight attendants had to vote to join the AFA-CWA.  In
January 2009, Lynx Aviation flight attendants voted to be represented by the
AFA-CWA.  Lynx Aviation is currently in the process of negotiating a
labor agreement with the fight attendants.





Critical
Accounting Policies





The preparation of financial statements
in conformity with U.S generally accepted accounting principles 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 revenue and
expenses during the reporting period.  Actual results could differ
from those estimates.  As a result of the Chapter 11 filing, the
realization of assets and liquidation of liabilities are subject to
uncertainty.  A plan of reorganization could materially change the
amounts and classifications reported in the consolidated financial statements,
which do not give effect to any adjustments to the carrying value of assets or
amounts of liabilities as a consequence of confirmation of a plan of
reorganization.





Our consolidated financial statements
do not purport to reflect or provide for the consequences of our Chapter 11
proceedings except for unsecured claims allowed by the court reflected in our
financial statements as discussed in Note 3 “Reorganization
Expenses”.   In particular, the consolidated financial statements
do not purport to show (1) as to assets, their realizable value on a
liquidation basis or their availability to satisfy liabilities; (2) as to
pre-petition liabilities, the amounts that may be allowed for claims or
contingencies, or the status and priority thereof; (3) as to stockholders’
equity accounts, the effect of any changes that may be made in our
capitalization; or (4) as to operations, the effect of any changes that may
be made to our business.





In
accordance with GAAP, we have applied American Institute of Certified Public
Accountants’ (“AICPA”) Statement of Position 90-7, “Financial Reporting by Entities in
Reorganization under the Bankruptcy Code” (“SOP 90-7”), in preparing the
consolidated financial statements.  SOP 90-7 requires that our
financial statements for periods subsequent to the Chapter 11 filing
distinguish transactions and events that are directly associated with the
reorganization from the ongoing operations of the business. Accordingly, certain
expenses (including professional fees), fees and penalties associated with our
temporary payment default on aircraft loans and other provisions for losses that
are realized or incurred in the bankruptcy proceedings are recorded in
reorganization items in the accompanying consolidated statement of operations.
In addition, pre-petition obligations that may be impacted by the bankruptcy
reorganization process have been classified in the consolidated balance sheet at
March 31, 2009 in liabilities subject to compromise. These liabilities are
reported at the amounts expected to be allowed by the Bankruptcy Court, even if
they may be settled for lesser amounts.





Critical accounting policies are
defined as those that are both important to the portrayal of our financial
condition and results, and require management to exercise significant
judgments.  Our most critical accounting policies are described
briefly below.


47




Revenue
Recognition





Passenger Tickets -
Passenger, cargo, and other revenue are recognized when the transportation is
provided or after the tickets expire, one year after date of issuance, and are
net of excise taxes, passenger facility charges and security
fees.  Revenue that have been deferred are included in the
accompanying consolidated balance sheets as air traffic
liability.  Included in passenger 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 fees are collected from
the passenger as they are a separate transaction that occurs subsequent to the
date of the original ticket sale.





Taxes and Fees – We are
required to charge certain taxes and fees on our 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 we have an obligation to act as a
collection agent.  Because we are not entitled to retain these taxes
and fees, such amounts are not included in passenger revenue.  We
record a liability when the amounts are collected and reduce the liability when
payments are made to the applicable government agency or operating
carrier.




Aircraft
Maintenance





We
operate under an FAA-approved continuous inspection and maintenance
program.  We account for maintenance activities on the direct expense
method.  Under this method, major overhaul maintenance costs are
recognized as expense as maintenance services are performed, as flight hours are
flown for nonrefundable maintenance payments required by lease agreements, and
as the obligation is incurred for payments made under service
agreements.  Routine maintenance and repairs are charged to operations
as incurred.





In August
2008 we terminated our agreement with GE Engine Services covering the scheduled
and unscheduled repair of Airbus engines.  Under the terms of the
services agreement, we had agreed to pay GE an annual rate per-engine-hour,
payable monthly, and GE assumed the responsibility to overhaul our engines on
Airbus aircraft as required during the term of the services agreement, subject
to certain exclusions.   As the rate per-engine hour approximated
the periodic cost we would have incurred to service those engines, we expensed
the obligation as paid.  Since engine repairs are no longer covered
under this agreement, engine maintenance expenses will now be expensed when
incurred. This may cause some fluctuations in our maintenance expenses depending
on the timing of planned and unplanned Airbus engine repairs.





Derivative
Instruments





We
account for derivative financial instruments in accordance with the provisions
of Statement of Financial Accounting Standards No. 133, “Accounting for Derivative
Instruments and Hedging Activities” (“SFAS 133”).  SFAS 133
requires us to measure all derivatives at fair value and to recognize them in
the balance sheet as an asset or liability.  For derivatives
designated as cash flow hedges, changes in fair value of the derivative are
generally reported in other comprehensive income and are subsequently
reclassified into earnings when the hedged item affects
earnings.  Changes in fair value of derivative instruments not
designated as hedging instruments and ineffective portions of hedges are
recognized in earnings in the current period.




Accounting for
Long-Lived Assets.




We record property and equipment at
cost and depreciate these assets on a straight-line basis to their estimated
residual values over their respective estimated useful lives. Residual values
for aircraft are at 25% of residual value and aircraft spare parts are at 10% of
cost. We also capitalize certain internal and external costs incurred to develop
internal-use software.




In
accounting for long-lived assets, we make estimates about the expected useful
lives, projected residual values and the potential for impairment.  In
estimating useful lives and residual values of our aircraft, we have relied upon
estimates from industry experts as well as our anticipated utilization of the
aircraft.




Our
long-lived assets are evaluated for impairment at least annually or when events
and circumstances indicate that the assets may be impaired. Indicators include
operating or cash flow losses, significant decreases in market value or changes
in technology.  All of our long-lived assets are relatively new and
our aircraft are actively deployed in our route system.  We have also
recently sold aircraft in amounts in excess of their carrying
values.  We have not identified any significant impairments related to
our long-lived assets at this time.




48




Customer
Loyalty Program





In 2001,
we established EarlyReturns®, a frequent
flyer program to encourage travel on our airline and foster customer
loyalty.  We account for the EarlyReturns® program under
the incremental cost method whereby travel awards are valued at the incremental
cost of carrying one passenger based on expected redemptions.  Those
incremental costs are based on expectations of expenses to be incurred on a per
passenger basis and include food and beverages, fuel, liability insurance, and
ticketing costs.  The incremental costs do not include allocations of
overhead expenses, salaries, aircraft cost or flight profit or
losses.   We do not record a liability for mileage earned by
participants who have not reached the level to become eligible for a free travel
award.  We do not record a liability for the expected redemption of
miles for non-travel awards since the cost to us of these awards is
negligible.





As of
March 31, 2009 and 2008, we estimated that approximately 328,000 and 472,000
round-trip flight awards, respectively, were eligible for redemption by EarlyReturns® members who
have mileage credits exceeding the 20,000-mile free round-trip domestic ticket
award threshold as of March 31, 2009 and 15,000-mile free round-trip domestic
ticket award threshold as of March 31, 2008.  As of March 31, 2009 and
2008, we had recorded a liability of approximately $2.7 million and $10.1
million, respectively, for these rewards.  The reduction in the value
of the liability is also impacted by the then current monthly fuel costs, which
reduced by 46.8% year-over-year.





We sell
points in EarlyReturns®
to third parties.  The portion of the sale that is for travel is
deferred and recognized as passenger revenue when we estimate transportation is
provided.  The remaining portion, referred to as the marketing
component, is recognized in the month received and included in other
revenue.





Co-Branded
Credit Card Arrangement





We
entered into a co-branded credit card arrangement with a MasterCard issuing bank
in March 2003.  In May 2007, this agreement was amended to extend the
contract to December 2014 with enhanced financial terms.  The terms of
this affinity agreement provide that we will receive 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.  We receive an increased
fee for new accounts solicited by us.  We also receive fees for the
purchase of frequent flier miles awarded to the credit card
customers.





We
account for all fees received under the co-branded credit card program by
allocating the fees between the portion that represents the estimated value of
the subsequent travel award to be provided, and the portion which represents a
marketing fee to cover marketing and other related costs to administer the
program.  This latter portion (referred to as the marketing component)
represents the residual after determining the value of the travel
component.  The component representing travel is determined by
reference to an equivalent average restricted fare for that month, which is used
as a proxy for the value of travel of a frequent flyer mileage award. The travel
component is deferred and recognized as revenue over the estimated usage period
of the frequent flyer mileage awards of 20 to 22 months.  We have
estimated the period over which the frequent flier mileage awards will be used
based on the history of usage of the frequent flier mileage
awards.  We record the marketing component of the revenue earned under
this agreement in other revenue in the month received.





For the
year ended March 31, 2009, we received total fees of $39.6
million.  Of that amount, $23.0 million was deferred as the travel
award component, with the remaining marketing component of $16.6 million
recognized as other revenue. For the year ended March 31, 2008, we received
total fees of $44.4 million.  Of that amount, $25.5 million was
deferred as the travel award component, with the remaining marketing component
of $18.8 million recognized as other revenue.  For the year ended
March 31, 2007, we received total fees of $36.9 million.  Of that
amount, $25.2 million was deferred as the travel award component, and the
remaining marketing component of $11.7 million was recognized as other
revenue.  Amortization of deferred revenue recognized in earnings
during the years ended March 31, 2009, 2008 and 2007 was $23.3 million, $24.8
million and $20.2 million, respectively.




49




Income
Taxes


We account for income taxes using the
asset and liability method.  Under that method, deferred income taxes
are recognized for the tax consequences of “temporary differences” by applying
enacted statutory tax rates applicable to future years to differences between
the financial statement carrying amounts and tax bases of existing assets and
liabilities and net operating losses (“NOLs”) and tax credit
carryforwards.  A valuation allowance is provided to the extent that
it is more likely than not that deferred tax assets will not be
realized.





During the year ended March 31, 2009,
we increased our valuation allowance for deferred tax assets by $84.7
million.  The ultimate realization of deferred tax assets is dependent upon
the generation of future taxable income during the periods in which those
temporary differences become deductible.  We have a valuation allowance for
all deferred tax assets that are not realizable through the reversal of existing
taxable temporary differences since it is more likely that not that these
benefits would not be realized due to concerns about our ability to continue as
a going concern.  The NOLs that have been generated are due in large part
to the accelerated depreciation over a shorter useful life for tax
purposes.   Our ability to deduct net operating loss carryforwards
could be subject to a significant limitation if we were to undergo an “ownership
change” for purposes of Section 382 of the Internal Revenue Code of 1986,
as amended, during or as a result of our Chapter 11
proceedings.




Self-Insurance





We are self insured for the majority of
our group health insurance costs, subject to specific retention
levels.  We rely on claims experience and the advice of consulting
actuaries and administrators in determining an adequate liability for
self-insurance claims.  Our self-insurance healthcare liability
represents our estimate of claims that have been incurred but not reported as of
March 31, 2009.  This liability, which totaled $1.5 million at March
31, 2009, was estimated based on our claims experience.  We determine
the actual average claims cost per employee and the number of days between the
incurrence of a claim and the date it is paid.  The estimate of our
liability for employee healthcare represents our estimate of unreported claims
with an increase in claims based on trend factors.





We are also self-insured for the
majority of our workers’ compensation expenses.  Our liability for
workers’ compensation claims is the estimated total cost of the claims on a
fully-developed basis, up to a maximum amount, based on reserves for these
claims that are established by a third-party administrator.  The
liability at March 31, 2009 totaled $6.8 million.





While we believe that the estimate of
our self-insurance liabilities are reasonable, significant differences in our
experience or a significant change in any of our assumptions could materially
affect the amount of healthcare and workers compensation expenses we have
recorded.




New
Accounting Standards Not Yet Adopted




In May
2008 the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles (“SFAS 162”). FAS 162 identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements that are presented in conformity with
GAAP. FAS 162 is effective 60 days following the SEC’s approval of the Public
Company Accounting Oversight Board amendments to AU Section 411, “The
Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles.” We do not expect SFAS 162 to have a material impact on its
consolidated financial statements.





In May
2008 the FASB issued FASB Staff Position (“FSP”) APB 14-1, Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement)(“FSP APB 14-1”). FSP APB 14-1 applies to convertible debt
instruments that, by their stated terms, may be settled in cash (or other
assets) upon conversion, including partial cash settlement of the conversion
option. FSP APB 14-1 requires bifurcation of the instrument into a debt
component that is initially recorded at fair value and an equity component. The
difference between the fair value of the debt component and the initial proceeds
from issuance of the instrument is recorded as a component of equity. The
liability component of the debt instrument is accreted to par using the
effective yield method; accretion is reported as a component of interest
expense. The equity component is not subsequently re-valued as long as it
continues to qualify for equity treatment. FSP APB 14-1 must be applied
retrospectively to previously issued cash-settleable convertible instruments as
well as prospectively to newly issued instruments. FSP APB 14-1 is effective for
fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years. We have not yet determined the impact of adopting FSP APB
14-1 on our consolidated financial statements.




50


In
June 2008 the FASB issued FSP Emerging Issues Task Force (“EITF”) 03-6-1,
Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities (“EITF 03-6-1”) EITF 03-6-1 provides that unvested share-based
payment awards that contain nonforfeitable rights to dividends or dividend
equivalents (whether paid or unpaid) are participating securities and shall be
included in the computation of earnings per share pursuant to the two-class
method. ETIF 03-6-1 is effective for fiscal years beginning after
December 15, 2008, and interim periods within those years. Upon adoption, a
company is required to retrospectively adjust its earnings per share data
(including any amounts related to interim periods, summaries of earnings and
selected financial data) to conform with the provisions of EITF 03-6-1. We have
not yet determined the impact of adopting  EITF 03-6-1 on our
consolidated financial statements.


51





Item
8:  Financial Statements and Supplementary Data





Our
consolidated financial statements are filed as a part of this report immediately
following the signature page.





Item
9:  Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure





Not
applicable.





Item
9A:  Controls and Procedures





Disclosure
Controls and Procedures





Our management, with the participation
of our Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rule
13a-15(e) under the Securities Exchange Act of 1934, as amended) as of March 31,
2009. Based on that evaluation, the Chief Executive Officer and Principal
Financial Officer concluded that our disclosure controls and procedures were
effective to ensure that the information required to be disclosed by us in this
Annual Report on Form 10-K was recorded, processed, summarized and reported
within the time periods specified in the SEC's rules and instructions for Form
10-K.





Management’s
Report on Internal Control over Financial Reporting





Our management is responsible for
establishing and maintaining adequate internal control over financial reporting
(as defined in Rule 13a-15(f) under the Exchange Act). Under the supervision and
with the participation of our management, including our Chief Executive Officer
and Chief Financial Officer, we conducted an evaluation of the effectiveness of
our internal control over financial reporting based on the framework in Internal
Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.  Based on that evaluation,
our management concluded that our internal control over financial reporting was
effective as of March 31, 2009.





This Annual Report on Form 10-K does
not include an attestation report of our registered public accounting firm
regarding internal control over financial reporting.  Management’s
report was not subject to attestation by our registered public accounting firm
pursuant to temporary rules of the SEC that permit us to provide only
management’s report in this Annual Report on Form 10-K.




Changes
in Internal Control





There were no changes in our internal
control over financial reporting identified in connection with the evaluation of
our controls performed during the quarter ended March 31, 2009 that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.





Item
9B. Other Information





None.




52


PART
III





Item
10:  Directors, Executive Officers and Corporate
Governance.





Code
of Ethics





The
information required by this Item will be filed with the Securities and Exchange
Commission as an amendment to this Form 10-K in accordance with General
Instruction G(3).





Audit
Committee Financial Expert





The
information required by this Item will be filed with the Securities and Exchange
Commission as an amendment to this Form 10-K in accordance with General
Instruction G(3).





Item
11.   Executive Compensation.





The
information required by this Item will be filed with the Securities and Exchange
Commission as an amendment to this Form 10-K in accordance with General
Instruction G(3).




Item
12.  Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters.





The
information required by this Item will be filed with the Securities and Exchange
Commission as an amendment to this Form 10-K in accordance with General
Instruction G(3).





Item
13.   Certain Relationships and Related Transactions, and
Director Independence.





The
information required by this Item will be filed with the Securities and Exchange
Commission as an amendment to this Form 10-K in accordance with General
Instruction G(3).





Item 14.   Principal
Accounting Fees and Services.





The
information required by this Item will be filed with the Securities and Exchange
Commission as an amendment to this Form 10-K in accordance with General
Instruction G(3).


53




PART
IV





Item
15(a):  Exhibits and Financial Statement Schedules





ExhibitNumbers
            
            Description of ExhibitsExhibit
      2 – Plan of acquisition, reorganization, arrangement, liquidation or
      succession:2.1
            
            Agreement
      and Plan of Merger, dated as of January 31, 2006, by and among Frontier
      Airlines, Inc., Frontier Airlines Holdings, Inc., and FA Sub, Inc. (Annex
      I to Amendment No. 1 to the Registration Statement on Form S-4 filed by
      Frontier Airlines Holdings, Inc. on February 14, 2006, File No.
      333-131407).Exhibit
      3 – Articles of Incorporation and Bylaws:3.1
            
            Amended
      and Restated Certificate of Incorporation of Frontier Airlines Holdings,
      Inc.  (Annex II to Amendment No. 1 to the Registration Statement
      on Form S-4 filed by Frontier Airlines Holdings, Inc. on February 14,
      2006, File No. 333-131407).3.2
            
            Bylaws
      of Frontier Airlines Holdings, Inc.  (Annex III to Amendment No.
      1 to the Registration Statement on Form S-4 filed by Frontier Airlines
      Holdings, Inc. on February 14, 2006, File No.
  333-131407).Exhibit
      4 – Instruments defining the rights of security
holders:4.1
            
            Specimen
      common stock certificate of Frontier Airlines Holdings, Inc. (Exhibit 4.1
      to the Company’s Annual Report on Form 10-K for the year ended March 31,
      2006).4.2
            
            Frontier
      Airlines, Inc. Warrant to Purchase Common Stock, No. 1 – Air
      Transportation Stabilization Board. Two Warrants, dated as of February 14,
      2003, substantially identical in all material respects to this Exhibit,
      have been entered into with each of the Supplemental Guarantors granting
      each Supplemental Guarantor a warrant to purchase 191,697 shares under the
      same terms and conditions described in this Exhibit.  Portions
      of this Exhibit have been excluded from the publicly available document
      and an order granting confidential treatment of the excluded material has
      been received. (Exhibit 4.6 to the Company’s Current Report on Form 8-K
      dated March 25, 2003).4.2(a)
            
            Warrant
      Supplement to Frontier Airlines, Inc. Warrant to Purchase Common Stock,
      No. 1 – Air Transportation Stabilization Board.  Two Warrant
      Supplements dated March 17, 2006, substantially identical in all material
      respects to this Exhibit have been entered into with each of the
      Supplemental Guarantors.(Exhibit
      4.2(a) to the Company’s Annual Report on Form 10-K for the year ended
      March 31, 2006).4.3
            
            Registration
      Rights Agreement dated as of February 14, 2003 by and between and Frontier
      Airlines, Inc. as the Issuer, and the Holders of Warrants to Purchase
      Common Stock.  Portions of this Exhibit have been omitted
      excluded from the publicly available document and an order granting
      confidential treatment of the excluded material has been
      received.  (Exhibit 4.5 to the Company’s Current Report on Form
      8-K dated March 25, 2003).Exhibit
      10 – Material Contracts:10.1
            
            Airport
      Use and Facilities Agreement, Denver International Airport (Exhibit 10.7
      to the Company’s Annual Report on Form 10-KSB for the year ended March 31,
      1995; Commission File No. 0-4877).




54





10.2
            
            Space
      and Use Agreement between Continental Airlines, Inc. and the
      Company.  (Exhibit 10.43 to the Company’s Annual Report on Form
      10-K for the year ended March 31, 1999).10.2(a)
            
            Second
      Amendment to Space and Use Agreement between Continental Airlines, Inc.
      and the Company.  Portions of this Exhibit have been omitted and
      filed separately with the Securities and Exchange Commission in a
      confidential treatment request under Rule 24b-2 of the Securities Exchange
      Act of 1934, as amended (Exhibit 10.3(a) to the Company’s Annual Report on
      Form 10-K for the year ended March 31, 2003).10.3
            
            Airbus
      A318/A319 Purchase Agreement dated as of March 10, 2000 between AVSA,
      S.A.R.L., Seller, and Frontier Airlines, Inc., Buyer. Portions of this
      exhibit have been excluded from the publicly available document and an
      order granting confidential treatment of the excluded material has been
      received.  (Exhibit 10.51 to the Company’s Annual Report on Form
      10-K for the year ended March 31, 2000).10.3(a)
            
            Amendment
      No. 9 to the A318/A319 Purchase Agreement dated as of March 10,
      2000  between AVSA, S.A.R.L. and Frontier Airlines,
      Inc.  Portions of this exhibit have been excluded from the
      publicly available document and filed separately with the SEC in a
      confidential treatment request under Rule 24b-2 of the Securities Exchange
      Act of 1934, as amended. (Exhibit 10.3(a) to the Company’s Annual Report
      on Form 10-K for the year ended March 31, 2006).10.3(b)
            
            Amendment
      No. 11 to the A318/A319 Purchase Agreement dated as of March 10, 2000
      between AVSA, S.A.R.L. and Frontier Airlines, Inc. (Exhibit 10.3(b) to the
      Company’s Quarterly Report on Form 10-Q for the quarter ended September
      30, 2007).10.4
            
            Aircraft
      Lease Common Terms Agreement dated as of April 20, 2000 between General
      Electric Capital Corporation and Frontier Airlines,
      Inc.  Portions of this exhibit have been excluded from the
      publicly available document and an order granting confidential treatment
      of the excluded material has been received.  (Exhibit 10.52 to
      the Company’s Annual Report on Form 10-K for the year ended March 31,
      2000).10.5
            
            Aircraft
      Lease Agreement dated as of April 20, 2000 between Aviation Financial
      Services, Inc., Lessor, and Frontier Airlines, Inc., Lessee, in respect of
      15 Airbus A319 Aircraft.  After 3 aircraft were leased under
      this Exhibit with Aviation Financial Services, Inc. as Lessor, related
      entities of Aviation Financial Services, Inc. replaced it as the Lessor,
      but each lease with these related entities is substantially identical in
      all material respects to this Exhibit.  Portions of this exhibit
      have been excluded from the publicly available document and an order
      granting confidential treatment of the excluded material has been
      received. (Exhibit 10.53 to the Company’s Annual Report on Form 10-K for
      the year ended March 31, 2000).10.6
            
            Lease
      dated as of May 5, 2000 for Frontier Center One, LLC, as landlord, and
      Frontier Airlines, Inc., as tenant.  Portions of this exhibit
      have been excluded from the publicly available document and an order
      granting confidential treatment of the excluded material has been
      received.  (Exhibit 10.55 to the Company’s Annual Report on Form
      10-K for the year ended March 31, 2000).10.6(a)
            
            Amendment
      Number Two to Lease Agreement.  Portions of this exhibit have
      been omitted and filed separately with the Securities and Exchange
      Commission in a confidential treatment request under Rule 24b-2 of the
      Securities Exchange Act of 1934, as amended. (Exhibit 10.7(a) to the
      Company’s Annual Report on Form 10-K for the year ended March 31,
      2005).10.7
            
            Operating
      Agreement of Frontier Center One, LLC, dated as of May 10, 2000 between
      Shea Frontier Center, LLC, and 7001 Tower, LLC, and Frontier Airlines,
      Inc.  Portions of this exhibit have been excluded from the
      publicly available document and an order granting confidential treatment
      of the excluded material has been received.  (Exhibit 10.56 to
      the Company’s Annual Report on Form 10-K for the year ended March 31,
      2000).10.8
            
            Standard
      Industrial Lease dated April 27, 2000, between Mesilla Valley Business
      Park, LLC, landlord, and Frontier Airlines, Inc.,
      tenant.  Portions of this exhibit have been excluded from the
      publicly available document and an order granting confidential treatment
      of the excluded material has been received.  (Exhibit 10.57 to
      the Company’s Annual Report on Form 10-K for the year ended March 31,
      2000).




55





10.9
            
            General
      Terms Agreement No. 6-13616 between CFM International and Frontier
      Airlines, Inc.  Portions of this exhibit have been excluded from
      the publicly available document and an order granting confidential
      treatment of the excluded material has been received.  (Exhibit
      10.60 to the Company’s Quarterly Report on Form 10-Q for the quarter ended
      September 30, 2000).10.10
            
            Lease
      Agreement dated as of December 15, 2000 between Gateway Office Four, LLC,
      Lessor, and Frontier Airlines, Inc., Lessee.  (Exhibit 10.61 to
      the Company’s Quarterly Report on Form 10-Q for the quarter ended December
      31, 2000).10.11
            
            Code
      Share Agreement dated as of May 3, 2001 between Frontier Airlines, Inc.
      and Great Lakes Aviation, Ltd.  Portions of this exhibit have
      been excluded from the publicly available document and an order granting
      confidential treatment of the excluded material has been
      received.  (Exhibit 10.62 to the Company’s Annual Report on Form
      10-K for the year ended March 31, 2001).10.11(a)
            
            Amendment
      No. 1 to the Codeshare Agreement dated as of May 3, 2001 between Frontier
      Airlines, Inc. and Great Lakes Aviation, Ltd.  Portions of the
      exhibit have been excluded from the publicly available document and an
      order granting confidential treatment of the excluded material has been
      received. (Exhibit 10.62(a) to the Company’s Quarterly Report on Form 10-Q
      for the quarter ended December 31, 2001).+10.12
            
            Employee
      Stock Ownership Plan of Frontier Airlines, Inc. as amended and restated,
      effective August 1, 2006 and executed September 7, 2006. (Exhibit 10.66 to
      the Company’s Quarterly Report on Form 10-Q for the quarter ended December
      31, 2001).+10.12(a)
            
            Amendment
      of the Employee Stock Ownership Plan of Frontier Airlines, Inc. as amended
      and restated, effective August 1, 2006 and executed September 7, 2006 for
      EGTRRA.  (Exhibit 10.66(a) to the Company’s Quarterly Report on
      Form 10-Q for the quarter ended December 31, 2001).10.12(b)
            
            Second
      Amendment to the Employee Stock Ownership Plan of Frontier Airlines, Inc.
      executed March 30, 2006 and effective April 3, 2006. (Exhibit 10.12(b) to
      the Company’s Annual Report on Form 10-K for the year ended March 31,
      2006).+10.13
            
            Director
      Compensation Agreement between Frontier Airlines, Inc. and Samuel D.
      Addoms dated effective April 1, 2002. This agreement was modified on April
      1, 2003, to expressly describe the second installment exercise period as
      on or after December 31, 2003, and the third installment exercise period
      as on or after April 1, 2004.  (Exhibit 10.67 to the Company’s
      Annual Report on Form 10-K for the year ended March 31,
    2002).+10.13(a)
            
            Amendment
      No. 2 to the Director Compensation Agreement between Frontier Airlines,
      Inc. and Samuel D. Addoms dated effective April 1, 2003. (Exhibit
      10.13(a) to the Company’s Quarterly Report on Form 10-Q for
      the quarter ended September 30, 2006).10.14
            
            Secured
      Credit Agreement dated as of October 10, 2002 between Frontier Airlines,
      Inc. and Credit Agricole Indosuez in respect to three Airbus 319 aircraft.
      Portions of this exhibit have been excluded form the publicly available
      document and an order granting confidential treatment of the excluded
      material has been received.  (Exhibit 10.75 to the Company’s
      Quarterly Report on Form 10-Q/A for the quarter ended September 30,
      2002).10.15
            
            Aircraft
      Mortgage and Security Agreement dated as of October 10, 2002 between
      Frontier Airlines, Inc. and Credit Agricole Indosuez in respect to 3
      Airbus 319 aircraft.  Portions of this exhibit have been
      excluded form the publicly available document and an order granting
      confidential treatment of the excluded material has been
      received.  (Exhibit 10.76 to the Company’s Quarterly Report on
      Form 10-Q/A for the quarter ended September 30,
  2002).




56





10.16
            
            Codeshare
      Agreement  dated as of September 18, 2003
      between  Horizon Air Industries,  Inc. and
      Frontier  Airlines,  Inc.  Portions of this
      exhibit have been omitted and filed separately with the Securities and
      Exchange Commission in a confidential treatment request under Rule 24b-2
      of the Securities Exchange Act of 1934, as amended.  (Exhibit
      10.23 to the Company’s Quarterly Report on Form 10-Q for the quarter ended
      September 30, 2003).10.17
            
            Aircraft
      Lease Agreement dated as of December 5, 2003 between International Lease
      Finance Corporation, Inc., and Frontier Airlines, Inc., Lessee, in respect
      of 1 Airbus A319 Aircraft.  Frontier has signed leases for 4
      additional Airbus 319 aircraft with this Lessor under Aircraft Lease
      Agreements that are substantially identical in all material respects to
      this Exhibit.  Portions of this Exhibit have been omitted and
      filed separately with the Securities and Exchange Commission in a
      confidential treatment request under Rule 24b-2 of the Securities Exchange
      Act of 1934, as amended. (Exhibit 10.24 to the Company’s Quarterly Report
      on Form 10-Q for the quarter ended December 31, 2003).+10.18
            
            Frontier
      Airlines 2004 Equity Incentive Plan.  (Exhibit B to the
      Company’s 2004 Annual Meeting of Shareholders; filed July 26,
      2004).+10.18
      (a)
            
            Amendment
      to Frontier Airlines 2004 Equity Incentive Plan executed March 30, 2006
      and effective April 3, 2006.+10.19
            
            Executive
      Bonus Plan for the Company’s fiscal year ending March 31, 2006 (Exhibit
      10.21 to the Company’s Annual Report on Form 10-K for the year ended March
      31, 2005).+10.20
            
            Long
      Term Incentive Plan for the Company’s fiscal year ending March 31, 2006
      (Exhibit 10.22 to the Company’s Annual Report on Form 10-K for the year
      ended March 31, 2005).+10.21
            
            Form
      of Stock Appreciation Rights Agreement for issuance of stock appreciation
      rights pursuant to the Frontier Airlines 2004 Equity Incentive Plan to
      plan participants, including named executive officers (Exhibit 10.23 to
      the Company’s Annual Report on Form 10-K for the year ended March 31,
      2005).+10.22
            
            Form
      of Incentive Stock Option Agreement for issuance on incentive stock
      options pursuant to the Frontier Airlines 2004 Equity Incentive Plan to
      plan participants, including named executive officers (Exhibit 10.24 to
      the Company’s Annual Report on Form 10-K for the year ended March 31,
      2005).+10.23
            
            Form
      of Stock Unit Agreement for issuance of restricted stock units pursuant to
      the Frontier Airlines 2004 Equity Incentive Plan to plan participants,
      including named executive officers (Exhibit 10.25 to the Company’s Annual
      Report on Form 10-K for the year ended March 31, 2005).+10.24
            
            Form
      of Non-Qualified Stock Option Agreement for issuance of non-qualified
      stock options pursuant to the Frontier Airlines 2004 Equity Incentive Plan
      to qualifying members of the Company’s Board of Directors (Exhibit 10.26
      to the Company’s Annual Report on Form 10-K for the year ended March 31,
      2005).10.25
            
            Underwriting
      Agreement dated December 1, 2005, by and among Frontier Airlines, Inc.,
      Morgan Stanley & Co. Incorporated, and Citigroup Global Markets, Inc.
      (Exhibit 1.1 to a Form 8-K filed on December 7, 2005).10.26
            
            Indenture
      dated December 7, 2005, by and between Frontier Airlines, Inc. and U.S.
      Bank National Association, as Trustee (Exhibit 4.1 to Amendment No. 1 to
      Frontier's Registration Statement on Form S-3, File No. 333-128407, filed
      on November 23, 2005).10.27
            
            First
      Supplemental Indenture dated December 7, 2005, by and between Frontier
      Airlines, Inc. and U.S. Bank National Association, as Trustee (Exhibit 4.2
      to a Form 8-K filed on December 7, 2005).10.28
            
            Second
      Supplemental Indenture dated April 3, 2006, by and among Frontier
      Airlines, Inc., Frontier Airlines Holdings, Inc., and U.S. Bank National
      Association, as Trustee. (Exhibit 10.29 to the Company’s Annual Report on
      Form 10-K for the year ended March 31,
2006).




57





10.29
            
            Purchase
      Agreement dated September 1, 2006 between Bombardier, Inc. and Frontier
      Airlines Holdings, Inc., relating to the purchase of Bombardier Q400
      aircraft.  Portions of this exhibit have been excluded from the
      publicly available document and an order granting confidential treatment
      of the excluded material has been received. (Exhibit 10.30 to the
      Company’s Quarterly Report on Form 10-Q for the quarter ended September
      30, 2006).10.30
            
            Airline
      Service Agreement between Frontier Airlines Holdings, Inc. and Republic
      Airlines, Inc. dated January 11, 2007. (Exhibit 10.31 to the
      Company’s Annual Report on Form 10-K for the year ended March 31,
      2007).Exhibit
      21 – List of Subsidiaries:21.1*
            
            List
      of SubsidiariesExhibit
      23 – Consents of Experts:23.1*
            
            Consent
      of KPMG LLP.Exhibit
      31 – Certifications:31.1*
            
            Section
      302 certification of President and Chief Executive Officer, Sean E.
      Menke.31.2*
            
            Section
      302 certification of Senior Vice President and Chief Financial Officer,
      Edward M. Christie, III.Exhibit
      32 – Certifications:32.1**
            
            Section
      906 certifications of President and Chief Executive Officer, Sean E.
      Menke32.2**
            
            Section
      906 certifications of Senior Vice President and Chief Financial Officer,
      Edward M. Christie, III





*
            Filed
      herewith.


**
            Furnished
      herewith.


+
            Management
      contract or compensatory plan or
arrangement.


58





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.








FRONTIER
      AIRLINES HOLDINGS, INC.Date:  May
      26, 2009
            By: /s/ Sean E. MenkeSean
      E. Menke, President, Chief Executive Officer and
  DirectorPursuant
      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.FRONTIER
      AIRLINES HOLDINGS, INC.Date:  May
      26, 2009
            By:
            /s/ Edward M. Christie,
      IIIEdward
      Christie III, Senior Vice President and Chief Financial
              OfficerDate:  May
      26, 2009
            By:
            /s/ Heather R.
      IdenHeather
      R. Iden, Vice President ControllerDate:  May
      26, 2009
            By: /s/ D. Dale BrowningD.
      Dale Browning, DirectorDate:  May
      26, 2009
            By: /s/ Rita M. CuddihyRita
      M. Cuddihy, DirectorDate:  May
      26, 2009
            By: /s/ Paul Stephen
  DempseyPaul
      Stephen Dempsey, DirectorDate:  May
      26, 2009
            By: /s/ Patricia A. EngelsPatricia
      A. Engels, DirectorDate:  May
      26, 2009
            By: /s/ B. LaRae
    OrullianB.
      LaRae Orullian, DirectorDate:  May
      26, 2009
            By: /s/ Jeffery S.
      PotterJeffery
      S. Potter, DirectorDate:  May
      26, 2009
            By: /s/ Robert D.
    TaylorRobert
      D. Taylor, DirectorDate:  May
      26, 2009
            By: /s/ James B.
    UpchurchJames
      B. Upchurch, Director




59




Report
of Independent Registered Public Accounting Firm




The Board
of Directors and Stockholders


Frontier
Airlines Holdings, Inc.:




We have
audited the accompanying consolidated balance sheets of Frontier Airlines
Holdings, Inc. and subsidiaries (Debtors-In-Possession as of April 10,
2008) (the Company) as of March 31, 2009 and 2008, and the related
consolidated statements of operations, stockholders’ equity (deficit) and other
comprehensive income (loss), and cash flows for each of the years in the
three-year period ended March 31, 2009. These consolidated financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.




We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.




In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Frontier Airlines
Holdings, Inc. and subsidiaries (Debtors-In-Possession as of April 10,
2008) as of March 31, 2009 and 2008, and the results of their operations
and their cash flows for each of the years in the three-year period ended
March 31, 2009, in conformity with U.S. generally accepted accounting
principles.




The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in note 1 to the
consolidated financial statements, the Company filed petitions for
reorganization under Chapter 11 of Title 11 of the United States Code
(the Bankruptcy Code), and this raises substantial doubt about the
Company’s ability to continue as a going concern. Management’s plan concerning
this matter is also discussed in note 1 to the consolidated financial
statements. The consolidated financial statements do not include adjustments
that might result from the outcome of this uncertainty.




As
discussed in note 2 to the consolidated financial statements, the Company
adopted the provisions of Financial Accounting Standards Board (FASB)
Interpretation No. 48, Accounting for Uncertainty in Income
Taxes – an interpretation of FASB Statement No. 109, effective
April 1, 2007.





KPMG
LLP





Denver,
Colorado


May 26,
2009


F-1





FRONTIER
AIRLINES HOLDINGS, INC.


(Debtor
and Debtor-in-Possession as of April 10, 2008)


Consolidated
Balance Sheets


March
31, 2009 and 2008


(In
thousands, except share data)





2009
                    
                    
                    2008ASSETSCurrent
      assets:Cash
      and cash equivalents
                    
                    $
                    71,793
                    
                    
                    $
                    120,837Investment
      securities
                    
                    
                    –
                    
                    
                    
                    8,501Restricted
      cash and investments (note 2)
                    
                    
                    134,359
                    
                    
                    
                    74,119Receivables,
      net of allowance for doubtful accounts of $1,380 and $400 at March 31,
      2009 and March 31, 2008, respectively
                    
                    
                    40,469
                    
                    
                    
                    57,687Prepaid
      expenses and other assets
                    
                    
                    20,233
                    
                    
                    
                    26,428Inventories,
      net of allowance of $534 and $490 at March 31, 2009 and March 31, 2008,
      respectively
                    
                    
                    12,464
                    
                    
                    
                    17,451Assets
      held for sale (note 6)
                    
                    
                    704
                    
                    
                    
                    1,263Total
      current assets
                    
                    
                    280,022
                    
                    
                    
                    306,286Property
      and equipment, net (note 7)
                    
                    
                    610,434
                    
                    
                    
                    870,444Security
      and other deposits
                    
                    
                    25,420
                    
                    
                    
                    25,123Aircraft
      pre-delivery payments
                    
                    
                    6,466
                    
                    
                    
                    12,738Restricted
      cash and investments
                    
                    
                    2,987
                    
                    
                    
                    2,845Deferred
      loan fees and other assets
                    
                    
                    4,270
                    
                    
                    
                    32,535TOTAL
      ASSETS
                    
                    $
                    929,599
                    
                    
                    $
                    1,249,971LIABILITIES
      AND STOCKHOLDERS’ EQUITY (DEFICIT)Liabilities
      not subject to compromise:Current
      liabilities:Accounts
      payable
                    
                    $
                    44,890
                    
                    
                    $
                    79,732Air
      traffic liability
                    
                    
                    145,156
                    
                    
                    
                    226,017Other
      accrued expenses (note 8)
                    
                    
                    54,227
                    
                    
                    
                    84,058Current
      portion of long-term debt (note 10)
                    
                    
                    –
                    
                    
                    
                    38,232Short-term
      borrowings
                    
                    
                    3,000
                    
                    
                    
                    3,139Debtor-in-possession
      loan (note 10)
                    
                    
                    30,000
                    
                    
                    
                    –Deferred
      revenue and other liabilities (note 9)
                    
                    
                    15,759
                    
                    
                    
                    18,189Total
      current liabilities not subject to compromise
                    
                    
                    293,032
                    
                    
                    
                    449,367Long-term
      debt related to aircraft notes (note 10)
                    
                    
                    –
                    
                    
                    
                    532,086Convertible
      notes (note 10)
                    
                    
                    –
                    
                    
                    
                    92,000Deferred
      revenue and other liabilities (note 9)
                    
                    
                    18,833
                    
                    
                    
                    24,399Other
      note payable (note 10)
                    
                    
                    3,000
                    
                    
                    
                    –Total
      liabilities not subject to compromise
                    
                    
                    314,865
                    
                    
                    
                    1,097,852Liabilities
      subject to compromise (note 4)
                    
                    
                    708,661
                    
                    
                    
                    –Total
      liabilities
                    
                    $
                    1,023,526
                    
                    
                    $
                    1,097,852STOCKHOLDERS’
      EQUITY (DEFICIT)Preferred
      stock, no par value, authorized 1,000,000 shares; none
    issued
                    
                    
                    –
                    
                    
                    
                    –Common
      stock, no par value, stated value of $.001 per share, authorized
      100,000,000 shares; 36,945,744 and 36,945,744 shares issued and
      outstanding at March 31, 2009 and March 31, 2008,
    respectively
                    
                    
                    37
                    
                    
                    
                    37Additional
      paid-in capital
                    
                    
                    197,102
                    
                    
                    
                    195,874Unearned
      ESOP shares
                    
                    
                    –
                    
                    
                    
                    (616
                    )Accumulated
      other comprehensive loss, net of tax
                    
                    
                    –
                    
                    
                    
                    (299
                    )Retained
      deficit
                    
                    
                    (291,066
                    )
                    
                    
                    (42,877
                    )Total
      stockholders' equity (deficit)
                    
                    
                    (93,927
                    )
                    
                    
                    152,119TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
                    
                    $
                    929,599
                    
                    
                    $
                    1,249,971




See
accompanying notes to the consolidated financial statements.


F-2





FRONTIER
AIRLINES HOLDINGS, INC.


(Debtor
and Debtor-in-Possession as of April 10, 2008)


Consolidated
Statements of Operations


Years
Ended March 31, 2009, 2008 and 2007


(In
thousands, except per share amounts)





2009
                    
                    
                    2008
                    
                    
                    2007OPERATING
      REVENUESPassenger
                    
                    $
                    1,225,870
                    
                    
                    $
                    1,350,427
                    
                    
                    $
                    1,131,466Cargo
                    
                    
                    6,070
                    
                    
                    
                    6,091
                    
                    
                    
                    6,880Other
                    
                    
                    57,442
                    
                    
                    
                    42,463
                    
                    
                    
                    32,603Total
      revenues
                    
                    
                    1,289,382
                    
                    
                    
                    1,398,981
                    
                    
                    
                    1,170,949OPERATING
      EXPENSESFlight
      operations
                    
                    
                    165,137
                    
                    
                    
                    186,120
                    
                    
                    
                    161,544Aircraft
      fuel
                    
                    
                    531,060
                    
                    
                    
                    454,822
                    
                    
                    
                    343,082Aircraft
      lease
                    
                    
                    115,650
                    
                    
                    
                    116,099
                    
                    
                    
                    108,623Aircraft
      and traffic servicing
                    
                    
                    182,255
                    
                    
                    
                    188,245
                    
                    
                    
                    166,525Maintenance
                    
                    
                    95,273
                    
                    
                    
                    106,166
                    
                    
                    
                    87,978Promotion
      and sales
                    
                    
                    100,864
                    
                    
                    
                    131,645
                    
                    
                    
                    115,536General
      and administrative
                    
                    
                    56,470
                    
                    
                    
                    64,490
                    
                    
                    
                    56,019Operating
      expenses - regional partners
                    
                    
                    26,650
                    
                    
                    
                    146,211
                    
                    
                    
                    108,355Post-retirement
      liability curtailment gain
                    
                    
                    –
                    
                    
                    
                    (6,361
                    )
                    
                    
                    –Employee
      separation and exit costs (reversals)
                    
                    
                    466
                    
                    
                    
                    442
                    
                    
                    
                    (57
                    )Loss
      (gain) on sales of assets, net
                    
                    
                    (8,598
                    )
                    
                    
                    1,791
                    
                    
                    
                    (656
                    )Depreciation
                    
                    
                    41,041
                    
                    
                    
                    44,641
                    
                    
                    
                    34,702Total
      operating expenses
                    
                    
                    1,306,268
                    
                    
                    
                    1,434,311
                    
                    
                    
                    1,181,651Business
      interruption insurance proceeds (note 17)
                    
                    
                    –
                    
                    
                    
                    300
                    
                    
                    
                    868OPERATING
      LOSS
                    
                    
                    (16,886
                    )
                    
                    
                    (35,030
                    )
                    
                    
                    (9,834
                    )NONOPERATING
      INCOME (EXPENSE)Interest
      income
                    
                    
                    4,081
                    
                    
                    
                    12,048
                    
                    
                    
                    14,982Interest
      expense (contractual interest expense was$33,813
      for 2009) (Note 10)
                    
                    
                    (29,327
                    )
                    
                    
                    (36,444
                    )
                    
                    
                    (29,899
                    )Loss
      on early extinguishment of debt
                    
                    
                    (990
                    )
                    
                    
                    (283
                    )
                    
                    
                    –Other,
      net
                    
                    
                    (753
                    )
                    
                    
                    (645
                    )
                    
                    
                    (245
                    )Total
      nonoperating income (expense), net
                    
                    
                    (26,989
                    )
                    
                    
                    (25,324
                    )
                    
                    
                    (15,162
                    )LOSS
      BEFORE REORGANIZATION ITEMS AND TAXES
                    
                    
                    (43,875
                    )
                    
                    
                    (60,354
                    )
                    
                    
                    (24,996
                    )Reorganization
      expense (note 3)
                    
                    
                    202,495
                    
                    
                    
                    –
                    
                    
                    
                    –Loss
      before income taxes
                    
                    
                    (246,370
                    )
                    
                    
                    (60,354
                    )
                    
                    
                    (24,996
                    )Income
      tax expense (benefit) (note 12)
                    
                    
                    1,819
                    
                    
                    
                    (101
                    )
                    
                    
                    (4,626
                    )NET
      LOSS
                    
                    $
                    (248,189
                    )
                    
                    $
                    (60,253
                    )
                    
                    $
                    (20,370
                    )LOSS
      PER SHAREBasic
      and diluted (note 16)
                    
                    $
                    (6.72
                    )
                    
                    $
                    (1.64
                    )
                    
                    $
                    (0.56
                    )Weighted
      average shares of common stock outstanding:Basic
      and diluted
                    
                    
                    36,946
                    
                    
                    
                    36,662
                    
                    
                    
                    36,608





See
accompanying notes to the consolidated financial statements.


F-3





FRONTIER
AIRLINES HOLDINGS, INC.


(Debtor and Debtor-in-Possession
as of April 10, 2008)


Consolidated
Statements of Stockholders’ Equity (Deficit) and Other Comprehensive Income
(Loss)


Years
Ended March 31, 2009, 2008 and 2007


(In
thousands, except shares)





AccumulatedAdditional
                    
                    
                    Unearned
                    
                    
                    other
                    
                    
                    Retained
                    
                    
                    TotalCommon
                    
                    
                    Treasury
                    
                    
                    paid-in
                    
                    
                    ESOP
                    
                    
                    comprehensive
                    
                    
                    Earnings
                    
                    
                    stockholders’Stock
                    
                    
                    Stock
                    
                    
                    capital
                    
                    
                    shares
                    
                    
                    income
      (loss)
                    
                    
                    (deficit)
                    
                    
                    equityBALANCES,  March
      31, 2006
                    
                    $
                    37
                    
                    
                    $
                    –
                    
                    
                    $
                    192,936
                    
                    
                    $
                    (2,094
                    )
                    
                    $
                    151
                    
                    
                    $
                    37,746
                    
                    
                    $
                    228,776Net
      loss
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    (20,370
                    )
                    
                    
                    (20,370
                    )Other
      comprehensive loss -Unrealized
      loss on derivative instruments, net of tax of $40
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    (151
                    )
                    
                    
                    –
                    
                    
                    
                    (151
                    )Impact
      of adoption of SFAS 158, net of tax of $14 (note 13)
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    (22
                    )
                    
                    
                    –
                    
                    
                    
                    (22
                    )Total
      comprehensive loss
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (20,543
                    )Exercise
      of common stock options
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    162
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    162Purchase
      of treasury  shares – 300,000 shares
                    
                    
                    –
                    
                    
                    
                    (1,838
                    )
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    (1,838
                    )Amortization
      of employee stock compensation
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    845
                    
                    
                    
                    2,094
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    2,939BALANCES,  March
      31, 2007
                    
                    $
                    37
                    
                    
                    $
                    (1,838
                    )
                    
                    $
                    193,943
                    
                    
                    $
                    –
                    
                    
                    $
                    (22
                    )
                    
                    $
                    17,376
                    
                    
                    $
                    209,496Net
      loss
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    (60,253
                    )
                    
                    
                    (60,253
                    )Other
      comprehensive loss -Post-retirement
      liability curtailment gain
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    22
                    
                    
                    
                    –
                    
                    
                    
                    22Unrealized
      loss on auction rate securities
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    (299
                    )
                    
                    
                    –
                    
                    
                    
                    (299
                    )Total
      comprehensive loss
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (60,530
                    )Transfer
      of treasury shares to ESOP
                    
                    
                    –
                    
                    
                    
                    1,838
                    
                    
                    
                    –
                    
                    
                    
                    (1,838
                    )
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Exercise
      of common stock options
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    40
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    40Contribution
      of  common stock to employee stock ownership
plan
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    822
                    
                    
                    
                    (822
                    )
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Amortization
      of employee stock compensation
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    1,069
                    
                    
                    
                    1,584
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    2,653Transfer
      of accrued ESOP to unearned ESOP
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    460
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    460BALANCES,  March
      31, 2008
                    
                    $
                    37
                    
                    
                    $
                    –
                    
                    
                    $
                    195,874
                    
                    
                    $
                    (616
                    )
                    
                    $
                    (299
                    )
                    
                    $
                    (42,877
                    )
                    
                    $
                    152,119Net
      loss
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    (248,189
                    )
                    
                    
                    (248,189
                    )Other
      comprehensive income -Reclassification
      of previously recorded unrealized loss on auction rate
      securities
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    299
                    
                    
                    
                    –
                    
                    
                    
                    299Total
      comprehensive loss
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (247,890
                    )Amortization
      of employee stock compensation
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    1,228
                    
                    
                    
                    616
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    1,844BALANCES,  March
      31, 2009
                    
                    $
                    37
                    
                    
                    $
                    –
                    
                    
                    $
                    197,102
                    
                    
                    $
                    –
                    
                    
                    $
                    –
                    
                    
                    $
                    (291,066
                    )
                    
                    $
                    (93,927
                    )





See
accompanying notes to the consolidated financial statements.


F-4





FRONTIER
AIRLINES HOLDINGS, INC.


(Debtor
and Debtor-in-Possession as of April 10, 2008)


Consolidated
Statements of Cash Flows


Years
ended March 31, 2009, 2008, and 2007


(In
thousands)





2009
                
                
                2008
                
                
                2007CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
                
                $
                (248,189
                )
                
                $
                (60,253
                )
                
                $
                (20,370
                )Adjustments
      to reconcile net loss to net cash and cash equivalents provided by
      operating activities:Compensation
      expense under long-term incentive plans and employee stock ownership
      plans
                
                
                1,844
                
                
                
                2,653
                
                
                
                3,409Depreciation
      and amortization
                
                
                43,818
                
                
                
                46,176
                
                
                
                36,219Provisions
      recorded on inventories and assets beyond economic repair
                
                
                1,442
                
                
                
                1,423
                
                
                
                1,409Loss
      (gains) on sales of assets, net
                
                
                (8,598
                )
                
                
                1,791
                
                
                
                (656
                )Total
      increase (decrease) in fuel expense for derivative
    contracts
                
                
                18,181
                
                
                
                (32,587
                )
                
                
                (8,828
                )Proceeds
      received (paid) for settlements of derivative contracts
                
                
                (2,606
                )
                
                
                30,740
                
                
                
                (3,925
                )Post-retirement
      liability curtailment gain
                
                
                –
                
                
                
                (6,361
                )
                
                
                –Loss
      on early extinguishment of debt
                
                
                990
                
                
                
                283
                
                
                
                –Deferred
      income taxes
                
                
                –
                
                
                
                –
                
                
                
                (4,883
                )Reorganization
      items (Note 3)
                
                
                202,495
                
                
                
                –
                
                
                
                –Changes
      in operating assets and liabilities:Restricted
      cash and investments
                
                
                (60,382
                )
                
                
                (31,275
                )
                
                
                (9,161
                )Receivables
                
                
                14,300
                
                
                
                (2,415
                )
                
                
                (9,000
                )Prepaid
      expenses and other assets
                
                
                6,195
                
                
                
                (374
                )
                
                
                (2,981
                )Inventories
                
                
                4,943
                
                
                
                (1,927
                )
                
                
                (9,012
                )Other
      assets
                
                
                (650
                )
                
                
                (1,021
                )
                
                
                (1,205
                )Accounts
      payable
                
                
                18,153
                
                
                
                27,731
                
                
                
                7,046Air
      traffic liability
                
                
                (80,861
                )
                
                
                42,263
                
                
                
                30,091Other
      accrued expenses and income tax payable
                
                
                (25,725
                )
                
                
                10,578
                
                
                
                12,135Deferred
      revenue and other liabilities
                
                
                (7,996
                )
                
                
                3,248
                
                
                
                2,939Net
      cash provided (used) by operating activities before
      reorganization
                
                
                (122,646
                )
                
                
                30,673
                
                
                
                23,227CASH
      FLOWS FROM REORGANIZATION ACTIVITIESNet
      cash used by reorganization activities
                
                
                (12,383
                )
                
                
                –
                
                
                
                –Total
      net cash provided (used) by operating activities
                
                
                (135,029
                )
                
                
                30,673
                
                
                
                23,227CASH
      FLOWS FROM INVESTING ACTIVITIESAircraft
      lease and purchase deposits made
                
                
                (6,402
                )
                
                
                (28,332
                )
                
                
                (47,933
                )Aircraft
      lease and purchase deposits returned
                
                
                11,512
                
                
                
                –
                
                
                
                –Purchase
      of available-for-sale securities
                
                
                –
                
                
                
                (10,000
                )
                
                
                –Sale
      of available-for-sale securities
                
                
                8,800
                
                
                
                1,200
                
                
                
                –Proceeds
      from the sale of property and equipment and assets held for
      sale
                
                
                59,645
                
                
                
                917
                
                
                
                2,014Proceeds
      from sale- leaseback transactions
                
                
                –
                
                
                
                92,525
                
                
                
                41,933Capital
      expenditures
                
                
                (18,565
                )
                
                
                (350,844
                )
                
                
                (137,324
                )Proceeds
      from the sales of aircraft - reorganization
                
                
                194,300
                
                
                
                –
                
                
                
                –Net
      cash provided by (used in) investing activities
                
                
                249,290
                
                
                
                (294,534
                )
                
                
                (141,310
                )


F-5





FRONTIER
AIRLINES HOLDINGS, INC.


(Debtor
and Debtor-in-Possession as of April 10, 2008)


Consolidated
Statements of Cash Flows Continued


Years
ended March 31, 2009, 2008, and 2007


(In
thousands)





2009
                  
                  
                  2008
                  
                  
                  2007CASH
      FLOWS FROM FINANCING ACTIVITIESNet
      proceeds from issuance of common stock
                  
                  
                  –
                  
                  
                  
                  40
                  
                  
                  
                  162Proceeds
      from debtor-in-possession loan (post-petition)
                  
                  
                  30,000
                  
                  
                  
                  –
                  
                  
                  
                  –Purchase
      of treasury shares
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  (1,838
                  )Payment
      to bank for compensating balance
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  (750
                  )Proceeds
      from long-term borrowings
                  
                  
                  –
                  
                  
                  
                  297,525
                  
                  
                  
                  74,438Payments
      received on note receivable
                  
                  
                  –
                  
                  
                  
                  716
                  
                  
                  
                  –Extinguishment
      of long-term borrowings
                  
                  
                  (33,754
                  )
                  
                  
                  (80,188
                  )
                  
                  
                  –Principal
      payments on long-term borrowings
                  
                  
                  (34,454
                  )
                  
                  
                  (33,773
                  )
                  
                  
                  (23,439
                  )Principal
      payments on short-term borrowings
                  
                  
                  (3,139
                  )
                  
                  
                  –
                  
                  
                  
                  –Payment
      of financing fees
                  
                  
                  (2,175
                  )
                  
                  
                  (2,603
                  )
                  
                  
                  (349
                  )Extinguishment
      of long-term borrowings – reorganization item
                  
                  
                  (119,783
                  )
                  
                  
                  –
                  
                  
                  
                  –Net
      cash provided by financing activities
                  
                  
                  (163,305
                  )
                  
                  
                  181,717
                  
                  
                  
                  48,224NET
      DECREASE IN CASH AND CASH EQUIVALENTS
                  
                  
                  (49,044
                  )
                  
                  
                  (82,144
                  )
                  
                  
                  (69,859
                  )Cash
      and cash equivalents, beginning of year
                  
                  
                  120,837
                  
                  
                  
                  202,981
                  
                  
                  
                  272,840Cash
      and cash equivalents, end of year
                  
                  $
                  71,793
                  
                  
                  $
                  120,837
                  
                  
                  $
                  202,981





See
accompanying notes to the consolidated financial statements


F-6





FRONTIER
AIRLINES HOLDINGS, INC.


(Debtor
and Debtor-in-Possession as of April 10, 2008)





Notes
to the Consolidated Financial Statements


March
31, 2009










1.
            Chapter
      11 Reorganization





On April
10, 2008 (the “Petition Date”), Frontier Airlines Holdings, Inc. (“Frontier
Holdings”) and its subsidiaries Frontier Airlines, Inc. (“Frontier Airlines”)
and Lynx Aviation, Inc. (“Lynx Aviation”), filed voluntary petitions for
reorganization under Chapter 11 of Title 11 of the United States Code (the
“Bankruptcy Code”) in the United States Bankruptcy Court for the Southern
District of New York (the “Bankruptcy Court”).  The cases are being
jointly administered under Case No. 08-11298 (RDD).  Frontier
Holdings, Frontier Airlines, and Lynx Aviation (collectively, the “Debtors” or
the “Company”) continue to operate as “debtors-in-possession” under the
jurisdiction of the Bankruptcy Court and in accordance with the applicable
provisions of the Bankruptcy Code and orders of the Bankruptcy Court. In
general, as debtors-in-possession, the Debtors are authorized under
Chapter 11 to continue to operate as an ongoing business, but may not
engage in transactions outside of the ordinary course of business without the
prior approval of the Bankruptcy Court.





No
assurance can be provided as to what values, if any, will be ascribed in the
Debtors’ bankruptcy proceedings to the Debtors’ pre-petition liabilities, common
stock and other securities. The Company believes its currently outstanding
common stock will have no value and will be canceled under any plan of
reorganization it might propose and that the value of the Debtors’ various
pre-petition liabilities and other securities is highly speculative.
Accordingly, caution should be exercised with respect to existing and future
investments in any of these liabilities or securities.  In several
recent bankruptcies in the airline industry, the airline ceased operations, and
there is no assurance that the Company will be able to continue to operate its
business or successfully reorganize.





The
Bankruptcy Court has approved various motions for relief designed to allow the
Company to continue normal operations.  The Bankruptcy Court’s orders
authorize the Company, among other things, in its discretion to: (a) pay
pre-petition and post-petition employee wages, salaries, benefits and other
employee obligations; (b) pay certain vendors and other providers in the
ordinary course for goods and services received from and after the Petition
Date; (c) honor customer service programs, including our Early Returns frequent flyer
program and our ticketing programs; (d) honor certain obligations arising prior
to the Petition Date related to our interline, clearinghouse, code sharing and
other similar agreements; and (e) continue maintenance of existing bank accounts
and existing cash management systems.





Reporting
Requirements





As a
result of their bankruptcy filings, the Debtors are required to periodically
file various documents with and provide certain information to, the Bankruptcy
Court, including statements of financial affairs, schedules of assets and
liabilities, and monthly operating reports prepared according to requirements of
federal bankruptcy law.  While these materials accurately provide
then-current information required under federal bankruptcy law, they are
nonetheless unaudited and are prepared in a format different from that used in
the Company’s consolidated financial statements filed under the securities
laws.  Accordingly, the Company believes that the substance and format
do not allow meaningful comparison with its regular publicly-disclosed
consolidated financial statements.  Moreover, the materials filed with
the Bankruptcy Court are not prepared for the purpose of providing a basis for
an investment decision relating to the Company’s securities, or for comparison
with other financial information filed with the Securities and Exchange
Commission (“SEC”).


F-7


FRONTIER
AIRLINES HOLDINGS, INC.


(Debtor
and Debtor-in-Possession as of April 10, 2008)





Notes
to the Consolidated Financial Statements, continued





Reasons
for Bankruptcy





The
Debtors’ Chapter 11 filings followed an unexpected attempt by the Company’s
principal bankcard processor in April 2008 to substantially increase a
"holdback" of customer receipts from the sale of tickets. This increase in
“holdback” would have represented a material negative change to the Debtors’
cash forecasts and business plan, put severe restraints on the Debtors’
liquidity and made it impossible for the Debtors to continue normal
operations.  Due to historically high aircraft fuel prices, continued
low passenger mile yields, and the threatened increased holdback from the
Company’s principal bankcard processor, the Company determined that it could not
continue to operate without the protections provided by
Chapter 11.





Notifications





Shortly
after the Petition Date, the Debtors began notifying all known current or
potential creditors of the Chapter 11 filing. Subject to certain exceptions
under the Bankruptcy Code, the Debtors’ Chapter 11 filing automatically
enjoined, or stayed, the continuation of any judicial or administrative
proceedings or other actions against the Debtors or their property to recover
on, collect or secure a claim arising prior to the Petition Date. Thus, for
example, most creditor actions to obtain possession of property from the
Debtors, or to create, perfect or enforce any lien against the property of the
Debtors, or to collect on monies owed or otherwise exercise rights or remedies
with respect to a pre-petition claim are enjoined unless and until the
Bankruptcy Court lifts the automatic stay. Vendors are being paid for goods
furnished and services provided after the Petition Date in the ordinary course
of business.  The deadline for the filing of proofs of claims against
the Debtors in their cases was November 17, 2008.





Proofs
of Claim





As
permitted under the bankruptcy process, the Company’s creditors filed proofs of
claim with the Bankruptcy Court. The total amount of the claims that were filed
far exceeds the Company’s estimate of ultimate liability. The Company believes
many of these claims are invalid because they are duplicative, are based upon
contingencies that have not occurred, have been amended or superseded by later
filed claims, or are otherwise overstated.  Differences in amounts
between claims filed by creditors and liabilities shown in the Company’s records
are being investigated and resolved in connection with the Company’s claims
resolution process. While the Company has made significant progress to date, the
Company expects this process to continue for some time and believe that further
reductions to the claims register will enable the Company to more precisely
determine the likely range of creditor distributions under a proposed plan of
reorganization. At this time, the Company cannot determine the ultimate number
and allowed amount of the claims.





Executory
Contracts and Determination of Allowed Claims





Under
Section 365 and other relevant sections of the Bankruptcy Code (“Section
365”), the Debtors may assume, assume and assign, or reject certain executory
contracts and unexpired leases, including, without limitation, leases of real
property, aircraft and aircraft engines, subject to the approval of the
Bankruptcy Court and certain other conditions. Any description of an executory
contract or unexpired lease in this Form 10-K, including where applicable,
the Debtors’ express termination rights or a quantification of the Debtors’
obligations, must be read in conjunction with, and is qualified by, any
overriding rejection rights the Debtors have under Section 365 of the
Bankruptcy Code.  Claims may arise as a result of rejecting any
executory contract.  As of the date of this filing, the Company’s most
significant rejected executory contract is the Republic Airlines, Inc.
(“Republic”) regional partner contract as discussed in Note 2.  The
Company has recorded the amount of the allowed claim of $150.0
million.  The consolidated financial statements for the year ended
March 31, 2009 also include allowed claims of $29.8 million related to union
labor agreements discussed in Note 17 and one rejected real property lease
agreement in the amount of $1.0 million.  The consolidated financial
statements do not include the effects of any claims not yet allowed in the case
if the Company has determined it is not able to estimate the amount that will be
allowed.  Known and determinable claims are recorded in accordance
with Statements of Financial Accounting Standards No. 5, Accounting for
Contingencies.  Certain claims may have priority above those of
general unsecured creditors.


F-8


FRONTIER
AIRLINES HOLDINGS, INC.


(Debtor
and Debtor-in-Possession as of April 10, 2008)





Notes
to the Consolidated Financial Statements, continued





Creditors’
Committee





As
required by the Bankruptcy Code, the United States Trustee for the Southern
District of New York appointed a statutory committee of unsecured creditors (the
“Creditors’ Committee”).  The Creditors’ Committee and its legal
representatives have a right to be heard on all matters that come before the
Bankruptcy Court with respect to the Debtors.  The Creditors’
Committee has been generally supportive of the Debtors’ positions on various
matters; however, there can be no assurance that the Creditors’ Committee will
support the Debtors’ positions on matters to be presented to the Bankruptcy
Court in the future or on any plan of reorganization, once
proposed.  Disagreements between the Debtors and the Creditors’
Committee could protract the Chapter 11 proceedings, negatively impact the
Debtors’ ability to operate, and delay the Debtors’ emergence from the
Chapter 11 proceedings.





Plan
of Reorganization





In order
to successfully exit Chapter 11, the Debtors will need to propose, and
obtain confirmation by the Bankruptcy Court of, a plan of reorganization that
satisfies the requirements of the Bankruptcy Code. A plan of reorganization
would, among other things, resolve the Debtors’ pre-petition obligations, set
forth the revised capital structure of the newly-reorganized entity, and provide
for corporate governance subsequent to exit from bankruptcy.





Automatically,
upon commencing a Chapter 11 case, a debtor has the exclusive right for
120 days after the petition date to file a plan of reorganization and, if
it does so, 60 additional days to obtain necessary acceptances of its plan.
They Bankruptcy Court may extend these periods, and have done so in these
cases.  In May 2009, the Bankruptcy Court further extended these
periods to October 9, 2009, and December 9, 2009, respectively, and the
Bankruptcy Court may further extend these periods.If
the Debtors’ exclusivity period lapsed, any party in interest would be able to
file a plan of reorganization for any of the Debtors.  In addition to
being voted on by holders of impaired claims and equity interests, a plan of
reorganization must satisfy certain requirements of the Bankruptcy Code and must
be approved, or confirmed, by the Bankruptcy Court in order to become
effective.





A plan of
reorganization will be deemed accepted by holders of claims against and equity
interests in the Debtors if (1) at least one-half in number and two-thirds
in dollar amount of claims actually voting in each impaired class of claims have
voted to accept the plan and (2) at least two-thirds in amount of equity
interests actually voting in each impaired class of equity interests has voted
to accept the plan.  Under certain circumstances set forth in
Section 1129(b) of the Bankruptcy Code, however, the Bankruptcy Court may
confirm a plan even if such plan has not been accepted by all impaired classes
of claims and equity interests. A class of claims or equity interests that does
not receive or retain any property under the plan on account of such claims or
interests is deemed to have voted to reject the plan. The precise requirements
and evidentiary showing for confirming a plan notwithstanding its rejection by
one or more impaired classes of claims or equity interests depends upon a number
of factors, including the status and seniority of the claims or an equity
interest in the rejecting class (i.e., secured claims or unsecured claims,
subordinated or senior claims, preferred or common stock). Generally, with
respect to common stock interests, a plan may be “crammed down” even if the
stockholders receive no recovery if the proponent of the plan demonstrates that
(1) no class junior to the common stock is receiving or retaining property
under the plan and (2) no class of claims or interests senior to the common
stock is being paid more than in full.


F-9


FRONTIER
AIRLINES HOLDINGS, INC.


(Debtor
and Debtor-in-Possession as of April 10, 2008)





Notes
to the Consolidated Financial Statements, continued





Under the
priority scheme established by the Bankruptcy Code, unless creditors agree
otherwise, pre-petition liabilities and post-petition liabilities must be
satisfied in full before stockholders are entitled to receive any distribution
or retain any property under a plan of reorganization. The ultimate recovery to
creditors and/or stockholders, if any, will not be determined until confirmation
of a plan or plans of reorganization. No assurance can be given as to what
values, if any, will be ascribed in the Chapter 11 cases to each of these
constituencies or what types or amounts of distributions, if any, they would
receive. A plan of reorganization could result in holders of the Debtors’
liabilities and/or securities, including the Company’s common stock, receiving
no distribution on account of their interests and cancellation of their
holdings.





The
timing of filing a plan of reorganization by the Debtors will depend on the
timing and outcome of numerous other ongoing matters in the Chapter 11
proceedings.  There can be no assurance at this time that a plan of
reorganization will be confirmed by the Bankruptcy Court, or that any such plan
will be implemented successfully.





Reorganization
Costs





The
Debtors have incurred and will continue to incur significant costs associated
with their reorganization. The amounts of these costs, which are being expensed
as incurred, have affected and are expected to continue to significantly affect
the Debtors’ liquidity and results of operations.  See Note 3
“Reorganization Expenses” for additional information.





Risks
and Uncertainties





The
ability of the Company, both during and after the Chapter 11 cases, to continue
as a going concern is dependent upon, among other things, (i) the ability of the
Company to successfully achieve required cost savings to complete its
restructuring; (ii) the ability of the Company to maintain adequate liquidity;
(iii) the ability of the Company to generate cash from operations;
(iv)  the ability of the Company to confirm a plan of reorganization
under the Bankruptcy Code; and (v) the Company's ability to sustain
profitability. Uncertainty as to the outcome of these factors raises substantial
doubt about the Company's ability to continue as a going concern. The
consolidated financial statements do not include any adjustments to reflect or
provide for the consequences of the bankruptcy proceedings except for unsecured
claims allowed by the Bankruptcy Court. See Note 3 “Reorganization
Expenses” for additional information.  The consolidated financial
statements do not purport to show (a) as to assets, their realization value on a
liquidation basis or their availability to satisfy liabilities;
(b)  as to pre-petition liabilities, the amounts that may be allowed
for claims or contingencies, or the status and priority thereof; (c) as to
stockholder accounts, the effect of any changes that may be made in the
capitalization of the Company; or (d) as to operations, the effects of any
changes that may be made in its business.  A plan of reorganization
could materially change the amounts currently disclosed in the consolidated
financial statements.





Negative
events associated with the Debtors’ Chapter 11 proceedings could adversely
affect sales of tickets and the Debtors’ relationship with customers, vendors
and employees, which in turn could adversely affect the Debtors’ operations and
financial condition, particularly if the Chapter 11 proceedings are
protracted. Also, transactions outside of the ordinary course of business are
subject to the prior approval of the Bankruptcy Court, which may limit the
Debtors’ ability to respond timely to certain events or take advantage of
certain opportunities.  Because of the risks and uncertainties
associated with the Debtors’ Chapter 11 proceedings, the ultimate impact
that events that occur during these proceedings will have on the Debtors’
business, financial condition and results of operations cannot be accurately
predicted or quantified, and there is substantial doubt about the Debtors’
ability to continue as a going concern.


F-10


FRONTIER
AIRLINES HOLDINGS, INC.


(Debtor
and Debtor-in-Possession as of April 10, 2008)





Notes
to the Consolidated Financial Statements, continued





As a
result of the bankruptcy filings, realization of assets and liquidation of
liabilities are subject to uncertainty. While operating as debtors-in-possession
under the protection of Chapter 11 of the Bankruptcy Code, and subject to
Bankruptcy Court approval or otherwise as permitted in the normal course of
business, the Debtors may sell or otherwise dispose of assets and liquidate or
settle liabilities for amounts other than those reflected in the consolidated
financial statements. Further, a plan of reorganization could materially change
the amounts and classifications reported in the historical consolidated
financial statements, which do not give effect to adjustments to the carrying
value of assets or amounts of liabilities that might be necessary as a
consequence of confirmation of a plan of reorganization.





2.
            Nature
      of Business and Summary of Significant Accounting
  Policies





Nature
of Business





Frontier
Airlines Holdings provides air transportation for passengers and freight through
its wholly-owned subsidiaries. On April 3, 2006, Frontier Airlines completed a
corporate reorganization (the “Reorganization”) and as a result, Frontier
Airlines became a wholly-owned subsidiary of Frontier Airlines Holdings, a
Delaware corporation.  Frontier Airlines was incorporated in the State
of Colorado on February 8, 1994 and commenced operations on July 5,
1994.  In September 2006 the Company formed a new subsidiary, Lynx
Aviation.  The Company currently operates routes linking its Denver,
Colorado hub to over 50 destinations including destinations in Mexico and Costa
Rica.  As of March 31, 2009,  the Company operated a fleet of 38
Airbus A319 aircraft, 11 Airbus A318 aircraft, two Airbus A320 aircraft, and ten
Bombardier Q400 aircraft (operated by Lynx Aviation) from its base in Denver,
Colorado and had approximately 5,300 employees (4,800 full-time
equivalents).





Lynx
Aviation





Frontier
Holdings entered into a purchase agreement with Bombardier, Inc. for ten Q400
turboprop aircraft, each with a seating capacity of 74, with the option to
purchase ten additional aircraft.  The purchase agreement was assumed
by Lynx Aviation, and Lynx Aviation took title of the first ten aircraft
delivered during the year ended March 31, 2008.  The aircraft are
operated by Lynx Aviation under a separate operating
certificate.  Lynx Aviation may exercise its options to purchase the
remaining option aircraft no later than 12 months prior to the first day of the
month of the scheduled delivery date.  On July 31, 2008 and January
26, 2009, Lynx Aviation exercised its purchase options on the first and second
of the ten additional aircraft for delivery dates in July 2009 and February
2010, respectively.  Lynx Aviation has five remaining purchase
options.





Lynx
Aviation has entered into a capacity purchase agreement with Frontier Airlines,
effective December 7, 2007, whereby Frontier Airlines pays Lynx Aviation a
contractual amount for the purchased capacity regardless of the revenue
collected on those flights.  The amount paid to Lynx Aviation is based
on operating expenses plus a margin.  The payments made under this
agreement are eliminated in consolidation, and the passenger revenues generated
by Lynx Aviation are included in passenger revenues in the consolidated
statements of operations.  Payments to Lynx Aviation from Frontier
Airlines made under the capacity purchase agreement during the years ended March
31, 2009 and March 31, 2008 were $50.7 million and  $14.0 million,
respectively.   See Note 18 for operating segment information,
which includes the presentation of the Company’s operating segments and how its
operations impact the overall network and profitability.


F-11


FRONTIER
AIRLINES HOLDINGS, INC.


(Debtor
and Debtor-in-Possession as of April 10, 2008)





Notes
to the Consolidated Financial Statements, continued





Regional
Partners





Frontier
Airlines’ agreement with Republic, under which Republic agreed to operate up to
17 76-seat Embraer 170 aircraft, commenced in January 2007 and terminated in
June 2008. Frontier Airlines established the scheduling, routes and pricing of
the flights operated under the Republic agreement. Frontier Airlines compensated
Republic for its services based on Republic’s operating expenses plus a margin
on certain of its expenses.   In April 2008 as part of the
bankruptcy proceeding, the Company rejected the capacity purchase agreement with
Republic.  There was a structured reduction and gradual phase-out of
12 delivered aircraft, which was completed on June 22, 2008.





On March
20, 2009, the Bankruptcy Court approved an order authorizing a $40 million
Amended and Restated DIP Credit Facility (“Amended DIP Credit Agreement”) with
Republic Airways Holdings, Inc. The Bankruptcy Court also allowed the damage
claim of Republic Airways Holdings, Inc. in the amount of $150 million arising
from the Debtors’ rejection of the Airline Services Agreement with Republic and
Republic Airways Holdings, Inc.   Resolving this claim was a condition
to Republic Airways Holdings, Inc. providing the Amended DIP Credit
Agreement.  The Company repaid the existing $30 million DIP Credit
Agreement on April 1, 2009.  The Company has recorded the $150 million
unsecured claim allowed by the Bankruptcy Court. This claim is included in
reorganization expenses for the year ended March 31, 2009.





In
September 2007, Frontier signed a limited-term contract with ExpressJet
Airlines, Inc. (“ExpressJet”) to operate two to four 50-seat Embraer 145XR jets
on behalf of Frontier.  These jets were used to service previously
announced routes that were intended to be serviced by Lynx
Aviation.  Lynx Aviation replaced ExpressJet on these routes as soon
as its certification was completed.  The service by ExpressJet started
November 15, 2007 and terminated on December 6, 2007.





In
accordance with Emerging Issues Task Force No. 01-08, “Determining Whether an Arrangement
Contains a Lease” (“EITF 01-08”), the Company has concluded that each
agreement with regional partners contains a lease as the agreement conveys the
right to use a specific number and specific type of aircraft over a stated
period of time, and as such, has reported revenues and expenses related to
regional partners on a gross basis.  Revenues for jointly served
routes are pro-rated to the segment operated by the regional partners based on
miles flown and are included in passenger revenues.  Expenses directly
related to the flights flown by the regional partners are included in operating
expenses – regional partners.  The Company allocates indirect expenses
between mainline and regional partners operations by using regional partner
departures, available seat miles, or passengers as a percentage of system
combined departures, available seat miles or passengers





Preparation
of Financial Statements and Use of Estimates





The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles 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
period.  Actual results could differ from those
estimates.





American
Institute of Certified Public Accountants Statement of Position 90-7, “Financial Reporting by Entities in
Reorganization under the Bankruptcy Code” (“SOP 90-7”), which is
applicable to companies in chapter 11, generally does not change the manner in
which financial statements are prepared. It does, however, require that the
financial statements for periods subsequent to the filing of the chapter 11
petition distinguish transactions and events that are directly associated with
the reorganization from the ongoing operations of the business.


F-12


FRONTIER
AIRLINES HOLDINGS, INC.


(Debtor
and Debtor-in-Possession as of April 10, 2008)





Notes
to the Consolidated Financial Statements, continued





Reclassification
of Prior Year Amounts





Certain
prior year items have been reclassified to conform to the current year
presentation.





Cash
and Cash Equivalents





For
financial statement purposes, the Company considers cash and short-term cash
investments with an original maturity of three months or less to be cash
equivalents.





Short-term
cash investments consist of money market funds with maturities of less than
three months, classified as available for sale securities and stated at fair
value.  Interest income is recognized when earned. There were no
unrealized gains or losses on these investments for the years ended March 31,
2009, 2008 and 2007.





Investments
Securities





At March
31, 2008, investment securities consisted solely of two available for sale
securities that were invested in auction rate securities (“ARS”).  At
March 31, 2008, the fair values of the Company’s ARS, all of which are
collateralized by student loan portfolios, were estimated through discounted
cash flow models. As a result of the lack of liquidity in the ARS market, the
Company recorded an unrealized loss on those ARS of $0.3 million, on the
principal value of $8.8 million, which is reflected as accumulated other
comprehensive loss in the consolidated balance sheet at March 31,
2008.





In June
2008  the Company recorded an unrealized loss in other non-operating
expenses of $1.3 million related to the measurement of both ARS at current
estimated fair value.  The reclassification of the impairment from
other comprehensive income was due to the Company’s conclusion that the
impairment was no longer temporary.  This was a result of the sale of
one of the ARS below par value in July 2008.





In
October 2008 the Company received notification that a settlement had been
reached between the brokers of the ARS, the New York Attorney General’s office,
and the SEC covering ARS purchased prior to February 11, 2008. The broker was
required to repay all amounts at par, including the ARS the Company sold below
par during the three months ended June 30, 2008.  In December 2008 the
Company received the full amount of the original par value of $8.8 million and
reversed the $1.3 million unrealized loss upon settlement of the
ARSs.





Restricted
Cash and Investments





Restricted
cash and investments primarily relate to funds held as collateral for a
bankcard processor and credit card processors and are invested in money market
accounts or held by credit card processors directly.  They also
include certificates of deposit that secure certain letters of credit issued for
workers compensation claim reserves and certain airport
authorities.  Restricted cash and investments are carried at cost,
which management believes approximates fair value.


F-13


FRONTIER
AIRLINES HOLDINGS, INC.


(Debtor
and Debtor-in-Possession as of April 10, 2008)





Notes
to the Consolidated Financial Statements, continued





At March
31, 2009 and March 31, 2008, restricted cash and investments consisted of the
following:





March
      31,
                      
                      
                      March
      31,2009
                      
                      
                      2008(In
      thousands)Funds
      held for holdback of customer sales
                      
                      $
                      129,404
                      
                      
                      $
                      70,027Funds
      held for cash supported letters of credit and deposits on charter
      flights
                      
                      
                      4,955
                      
                      
                      
                      4,092$
                      134,359
                      
                      
                      $
                      74,119





The
Company  has a contract with a bankcard processor that requires a
holdback of bankcard funds equal to a certain percentage of air traffic
liability associated with the estimated amount of bankcard
transactions.  In June 2008, the Company reached a revised agreement
with this bankcard processor that requires adjustments to the reserve account
based on current and projected air traffic liability associated with these
estimated bankcard transactions.  Any further holdback had been
temporarily suspended pursuant to a court-approved stipulation until October 1,
2008.  Beginning October 1, 2008, the court-approved stipulation
allowed the bankcard processor to holdback a certain percentage of bankcard
receipts in order to reach full collateralization at some point in the
future.  As of March 31, 2009, that amount totaled $109.8
million. In addition, a second credit card company began a holdback during
the fiscal year ended March 31,
2008 which totaled $18.7 million at March 31, 2009.


F-14


FRONTIER
AIRLINES HOLDINGS, INC.


(Debtor
and Debtor-in-Possession as of April 10, 2008)





Notes
to the Consolidated Financial Statements, continued





Valuation
and Qualifying Accounts





The
following table summarizes the Company’s valuation and qualifying accounts as of
March 31, 2009, 2008, and 2007, and the associated activity for the fiscal years
then ended.





Allowance
      for
                  
                  
                  Allowance
      forDoubtful
      Accounts
                  
                  
                  Inventory(In thousands)
                  
                  
                  (In thousands)Balance
      at March 31, 2006
                  
                  $
                  1,261
                  
                  
                  $
                  378Additional
      provisions
                  
                  
                  400
                  
                  
                  
                  159Deductions
      (1)
                  
                  
                  (1,029
                  )
                  
                  
                  –Transfer
      to assets held for sale
                  
                  
                  –
                  
                  
                  
                  (208
                  )Balance
      at March 31, 2007
                  
                  
                  632
                  
                  
                  $
                  329Additional
      provisions
                  
                  
                  636
                  
                  
                  
                  161Deductions
      (1)
                  
                  
                  (868
                  )
                  
                  
                  –Balance
      at March 31, 2008
                  
                  $
                  400
                  
                  
                  $
                  490Additional
      provisions
                  
                  
                  1,875
                  
                  
                  
                  44Deductions
      (1)
                  
                  
                  (895
                  )
                  
                  
                  –Balance
      at March 31, 2009
                  
                  $
                  1,380
                  
                  
                  $
                  534





(1)  Uncollectible
accounts written off, net of recoveries, for the allowance of doubtful
accounts





The
allowance for doubtful accounts is primarily based on the specific
identification method and historical bad debt on our sales.





Inventories





Inventories
consist of expendable aircraft spare parts, supplies and aircraft fuel and are
stated at the lower of cost or market.  Inventories are accounted for
on a first-in, first-out basis and are charged to expense as they are
used.  An allowance for obsolescence on aircraft spare parts is
provided over the remaining useful life of the related aircraft to reduce the
carrying costs to lower of cost or market.





Assets
Held For Sale





Assets
held for sale are valued at the lower of the carrying amount or the estimated
market value less selling costs.  The Company monitors resale values
for its assets held for sale quarterly using an analysis of current sales and
estimates obtained from outside vendors.





Property
and Equipment





Property
and equipment are carried at cost.  Major additions, betterments and
renewals are capitalized.  Depreciation is provided for on a
straight-line basis to estimated residual values over estimated depreciable
lives as follows:


F-15




FRONTIER
AIRLINES HOLDINGS, INC.


(Debtor
and Debtor-in-Possession as of April 10, 2008)





Notes
to the Consolidated Financial Statements, continued







Description
              
              Estimated
      Useful LifeAircraft:Airbus
      A318, A319 & A320
              
              25
      yearsBombardier
      Q400
              
              20
      yearsAircraft
      spare parts
              
              10
      yearsImprovements
      to leased aircraft
              
              Shorter
      of the life of improvements
                or
      term of leaseCapitalized
      software
              
              3
      to 5 yearsGround
      property; equipment and leasehold improvements
              
              3
      to 5 years or term of lease, which ever is
less





Residual
values for aircraft are at 25% of the aircraft cost and 10% for aircraft spare
parts.  In estimating useful lives and residual values of our
aircraft, the Company relies upon estimates from industry experts as well as
their anticipated utilization of the aircraft.





Manufacturers’ and Lessor Credits:The Company receives credits in connection with its purchase and lease of
aircraft, engines, auxiliary power units and other rotable
parts.  These credits are deferred until the aircraft, engines,
auxiliary power units and other rotable parts are delivered and then applied as
a reduction of the cost of the related equipment.  The Company also
receives credits in connection with certain aircraft lease
agreements.  These credits are recognized as a credit to lease expense
over the lease term.





Deferred
Loan Fees





Deferred
loan fees are deferred and amortized over the term of the related debt
obligation.  Deferred loan fees amortized with unsecured debt subject
to compromise were written off to reorganization expense in accordance with SOP
90-7.





Fair
Value of Financial Instruments





Effective
      April 1, 2008, the Company adopted Statement of Financial Accounting
      Standard (“SFAS”) No. 157,  Fair Value Measurements
      (“SFAS 157”). This standard establishes a framework for measuring fair
      value and requires enhanced disclosures about fair value measurements.
      SFAS 157 clarifies that fair value is an exit price, representing the
      amount that would be received to sell an asset or paid to transfer a
      liability in an orderly transaction between market participants.
      SFAS 157 also requires disclosure about how fair value is determined
      for assets and liabilities and establishes a hierarchy for which these
      assets and liabilities must be grouped, based on significant levels of
      inputs 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;
  or


Level 3
            unobservable
      inputs, such as discounted cash flow models or
  valuations.


F-16


FRONTIER
AIRLINES HOLDINGS, INC.


(Debtor
and Debtor-in-Possession as of April 10, 2008)





Notes
to the Consolidated Financial Statements, continued





The
      determination of where assets and liabilities fall within this hierarchy
      is based upon the lowest level of input that is significant to the fair
      value measurement. The following is a listing of the Company’s assets and
      liabilities required to be measured at fair value on a recurring basis and
      where they are classified within the hierarchy as of March 31, 2009 (in
      thousands):





Level
      1
                    
                    
                    Level
      2
                    
                    
                    Level
      3
                    
                    
                    TotalAssets:Cash
      and cash equivalents
                    
                    $
                    71,793
                    
                    
                    $
                    –
                    
                    
                    $
                    –
                    
                    
                    $
                    71,793Restricted
      cash and investments
                    
                    
                    134,359
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    134,359$
                    206,152
                    
                    
                    $
                    –
                    
                    
                    $
                    –
                    
                    
                    $
                    206,152





Cash and cash equivalents/Restricted
cash and investments





Cash and
cash equivalents consist of money market funds securities that are considered to
be highly liquid and easily tradable.  These securities are valued
using inputs observable in active markets and therefore are classified as level
1 within the fair value hierarchy.





Restricted
cash and investments that are held by our bankcard processors are invested in
money market accounts.  Cash deposits and cash held in escrow are
deposited in bank accounts.  As such, these accounts are valued using
inputs observable in active markets and therefore are classified as level 1
within the fair value hierarchy.





Liabilities





The fair
value of liabilities subject to compromise will be determined upon a plan of
reorganization and is not yet determinable.  See Note 4.





Revenue
Recognition





Passenger tickets -
Passenger, cargo, and other revenues are recognized when the transportation is
provided or after the tickets expire (which is either immediately or one year
after date of issuance depending on the type of ticket purchased), and are net
of excise taxes, passenger facility charges and security fees.  Revenues
that have been deferred are included in the accompanying consolidated balance
sheets as air traffic liability.    Included in passenger 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 fees are collected from the passenger as they are a separate
transaction that occur subsequent to the date of the original ticket
sale.





Taxes and Fees – 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
revenue.  The Company records a liability when the amounts are
collected and reduce the liability when payments are made to the applicable
government agency or operating carrier.


F-17


FRONTIER
AIRLINES HOLDINGS, INC.


(Debtor
and Debtor-in-Possession as of April 10, 2008)





Notes
to the Consolidated Financial Statements, continued





LiveTV
Revenues and Expenses





Effective
October 1, 2008, the Company entered into two separate agreements
with LiveTV LLC (“LiveTV”):  an amended and restated In-Flight
Entertainment System Hardware Agreement (“LiveTV System”) and an amended and
restated In-Flight Entertainment System Service Agreement.  Under the
terms of these agreements, LiveTV retains all ownership interest in the
installed LiveTV Systems as well any systems installed for future aircraft
deliveries.  LiveTV and the Company have agreed to share the revenues
generated from the LiveTV System.





Passenger
Traffic Commissions and Related Computer Reservation Expenses





Passenger
traffic commissions and related computer reservation expenses are expensed when
the transportation is provided and the related revenue is
recognized.  Passenger traffic commissions and related expenses not
yet recognized are included as a prepaid expense.





Aircraft
Maintenance





The
Company operates under an FAA-approved continuous inspection and maintenance
program.  The Company accounts for maintenance activities on the
direct expense method.  Under this method, major overhaul maintenance
costs are recognized as expense as maintenance services are performed, as flight
hours are flown for nonrefundable maintenance payments required by lease
agreements, and as the obligation is incurred for payments made under service
agreements.  Routine maintenance and repairs are charged to operations
as incurred.





Effective
January 1, 2003, the Company entered into an engine maintenance agreement with
GE Engine Services, Inc. (“GE”) covering the scheduled and unscheduled repair of
its aircraft engines used on most of its Airbus aircraft.  The
agreement was subsequently modified and extended in September
2004.  This agreement precluded the Company from using another third
party for such services during the term.  For owned aircraft, this
agreement required monthly payments at a specified rate multiplied by the number
of flight hours the engines were operated during that month.  In
August 2008 the Company terminated the agreement with GE Engine Services
covering the scheduled and unscheduled repair of Airbus
engines.  Under the terms of the services agreement, the Company
agreed to pay GE an annual rate per-engine-hour, payable monthly, and GE assumed
the responsibility to overhaul our engines on Airbus aircraft as required during
the term of the services agreement, subject to certain
exclusions.   As the rate per-engine hour approximated the
periodic cost the Company would have incurred to service those engines, the
Company expensed the obligation as paid.  Since engine repairs are no
longer covered under this agreement, engine maintenance expenses are expensed
when incurred. This may cause some fluctuations in the Company’s maintenance
expenses depending on the timing of planned and unplanned Airbus engine repairs.
The costs under this agreement for the Company’s purchased aircraft for the
years ended March 31, 2009, 2008 and 2007 were approximately $4.5 million, $9.9
million and $6.4 million, respectively.





Advertising
Costs





The
Company expenses the costs of advertising as promotion and sales expense in the
year incurred.  Advertising expense was $4.5 million, $10.1 million
and $12.9 million for the years ended March 31, 2009, 2008 and 2007,
respectively, and the amount of expense recognized related to advertising barter
transactions were $1.0 million, $2.1 million, and $3.8 million,
respectively.  During the years ended March 31, 2009, 2008 and 2007,
the amount of revenue recognized related to advertising barter transactions was
$0.6 million, $1.1 million, and $2.5 million, respectively.  Prepaid
barter expenses as of March 31, 2009 and 2008 were $0.5 million and $0.7
million, respectively.


F-18


FRONTIER
AIRLINES HOLDINGS, INC.


(Debtor
and Debtor-in-Possession as of April 10, 2008)





Notes
to the Consolidated Financial Statements, continued





Income
Taxes





The
Company accounts for income taxes using the asset and liability
method.  Under that method, deferred income taxes are recognized for
the tax consequences of “temporary differences” by applying enacted statutory
tax rates applicable to future years to differences between the financial
statement carrying amounts and tax bases of existing assets and liabilities and
net operating losses and tax credit carryforwards.  A valuation
allowance is provided to the extent that it is more likely than not that
deferred tax assets will not be realized.  The effect on deferred
taxes from a change in tax rates is recognized in income in the period that
includes the enactment date.  Effective April 1, 2007, the
Company adopted the provisions of Financial Accounting Standards Board (“FASB”)
Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, an interpretation of FASB No. 109.





Loss
Per Common Share





Basic
loss per common share excludes the effect of potentially dilutive securities and
is computed by dividing income by the weighted-average number of common shares
outstanding for the period.  Diluted earnings per common share
reflects the potential dilution of all securities that could share in earnings.
Shares outstanding include shares contributed to the Employee Stock Ownership
Plan.





Customer
Loyalty Program





The
Company offers EarlyReturns, a frequent
flyer program to encourage travel on its airline and customer
loyalty.  The Company accounts for the EarlyReturns program under
the incremental cost method whereby travel awards are valued at the incremental
cost, as of the balance sheet date, of carrying one passenger based on members
that have obtained a travel award.  Those incremental costs are based
on expectations of expenses to be incurred on a per passenger basis and include
food and beverages, fuel, liability insurance, and ticketing
costs.  The incremental costs do not include allocations of overhead
expenses, salaries, aircraft cost or flight profit or losses. The Company
records a liability, which is included in air traffic liability on the
consolidated balance sheet, for mileage earned by participants who have reached
the level to become eligible for a free travel award.  The liability
includes awards based on the number of complete free travel awards accumulated
in a participant account and excludes any obligation for partial
awards.  The Company does not record a liability for the expected
redemption of miles for non-travel awards since the cost of these awards to the
Company is negligible.





Effective
September 15, 2008, the Company increased the mileage redemption level for a
domestic roundtrip ticket from 15,000 to 20,000 miles, which reduced the number
of flight awards eligible for redemption. As of March 31, 2009 and 2008, the
Company estimated that approximately 328,000 and 472,000 round-trip flight
awards, respectively, were eligible for redemption by EarlyReturns members who have
mileage credits exceeding the 20,000 and 15,000-mile free round-trip domestic
ticket award threshold, respectively.  As of March 31, 2009 and 2008,
the Company had recorded a liability of approximately $2.7 million and $10.1
million, respectively, for these rewards.  The decrease in the
liability is primarily related to the decrease in the incremental cost of
carriage, which is significantly impacted by fuel price fluctuations and the
increase in the mileage redemption level for a domestic round-trip
ticket.





The
Company also sells points in EarlyReturns to third
parties.  The portion of the sale that is for travel is deferred and
recognized as passenger revenue when the Company estimates the transportation is
provided.  The remaining portion, referred to as the marketing
component, is recognized as other revenue in the month
received.


F-19


FRONTIER
AIRLINES HOLDINGS, INC.


(Debtor
and Debtor-in-Possession as of April 10, 2008)





Notes
to the Consolidated Financial Statements, continued





Co-Branded
Credit Card Arrangement





The
Company entered into a co-branded credit card arrangement with a MasterCard
issuing bank in March 2003.  This affinity agreement provides that the
Company will receive 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.





The
Company accounts for all fees received under the co-branded credit card program
by allocating the fees between the portion that represents the estimated value
of the subsequent travel award to be provided, and the portion which represents
a marketing fee to cover marketing and other related costs to administer the
program.  This latter portion (referred to as the marketing component)
represents the residual after determination of the value of the travel
component.  The component representing travel is determined by
reference to an equivalent average restricted fare for that month, which is used
as a proxy for the value of travel of a frequent flyer mileage award. The travel
component is deferred and recognized as revenue over the estimated usage period
of the frequent flyer mileage awards of 20 to 22 months.  The Company
has estimated the period over which the frequent flier mileage awards will be
used based on the usage period history of the frequent flier mileage awards. The
Company records the marketing component of the revenue earned under this
agreement as other revenue in the month received.





For the
year ended March 31, 2009, the Company received total fees of $39.6
million.  Of that amount, $23.0 million was initially deferred as the
travel component, and the remaining marketing component of $16.6 million was
recognized as other revenue.  For the year ended March 31, 2008, the
Company received total fees of $44.4 million.  Of that amount, $25.5
million was initially deferred as the travel component, and the remaining
marketing component of $18.8 million was recognized as other
revenue.  For the year ended March 31, 2007, the Company received
total fees of $36.9 million under the credit card agreement.  Of that
amount, $25.2 million was deferred as the travel component, and the remaining
marketing component of $11.7 million was recognized as other
revenue.  Amortization of deferred revenue recognized in earnings
during the years ended March 31, 2009, 2008 and 2007 was $23.3 million, $24.8
million and $20.2 million, respectively.





Supplemental
Disclosure of Cash Flow Information





Cash Paid During the
Year for:





2009
                    
                    
                    2008
                    
                    
                    2007(In
      thousands)Interest
                    
                    $
                    25,200
                    
                    
                    $
                    34,197
                    
                    
                    $
                    28,047Taxes
                    
                    $
                    1,510
                    
                    
                    $
                    91
                    
                    
                    $
                    176





Interest
incurred during the year ended March 31, 2009 was $29.8 million, of which $0.5
million was capitalized.  Interest incurred during the year ended March 31,
2008 was $39.1 million, of which $2.6 million was capitalized.





Non-Cash Items:





Application of Pre-Delivery
Payments - In the years ended March 31, 2009, 2008, and 2007, the Company
applied pre-delivery payments of $0, $67.0 million and $34.9 million,
respectively, towards the purchase price of aircraft and LiveTV
equipment.


F-20




FRONTIER
AIRLINES HOLDINGS, INC.


(Debtor
and Debtor-in-Possession as of April 10, 2008)





Notes
to the Consolidated Financial Statements, continued





LiveTV Hardware Agreement -
During the year ended March 31, 2008, the Company sold LiveTV equipment of $14.7
million in exchange for a note receivable.  The Company also had a
non-cash charge of $1.9 million for the difference between the net present value
of the purchase price and the net book value of the equipment
sold.   During the year ended March 31, 2009, the Company
wrote-off this note receivable in conjunction with signing a revised agreement
with LiveTV and this write-off is included in net cash used by reorganization
activities.





Other Note Payable– During the year ended March 31, 2009, the Bankruptcy Court
approved a $3.0 million settlement in the form of a note in satisfaction for
pre-petition debt previously classified as accounts payable.





Derivative
Instruments





The
Company accounts for derivative financial instruments in accordance with the
provisions of Statement of Financial Accounting Standards No. 133, “Accounting for Derivative
Instruments and Hedging Activities” (“SFAS 133”),as amended and
interpreted.  SFAS 133 requires the Company to measure all derivatives
at fair value and to recognize them in the balance sheet as an asset or
liability.  For derivatives designated as cash flow hedges, changes in
fair value of the derivative are generally reported in other comprehensive
income (“OCI”) and are subsequently reclassified into earnings when the hedged
item affects earnings.  Changes in fair value of derivative
instruments not designated as hedging instruments and ineffective portions of
hedges are recognized in earnings in the current period.





Accounting for
Long-Lived Assets




In
accounting for long-lived assets, the Company makes estimates about the expected
useful lives, projected residual values and the potential for
impairment.  In estimating useful lives and residual values of the
aircraft, the Company has relied upon actual industry experience with the same
or similar aircraft types and the anticipated utilization of the
aircraft.  The Company’s long-lived assets are evaluated for
impairment at least annually or when events and circumstances indicate that the
assets may be impaired. Indicators include operating or cash flow losses,
significant decreases in market value or changes in technology.  The
Company’s assets are all relatively new and aircraft are actively deployed in
the Company’s route system.  The Company has recently sold aircraft in
amounts that are in excess of their carrying values.  The Company has
not identified any significant impairments related to long-lived assets at this
time.





Self-Insurance





The
Company is self-insured for the majority of the group health insurance costs,
subject to specific retention levels.  The Company records its
liability for health insurance claims based on its estimate of claims that have
been incurred but not reported.





The
Company is also self-insured for the majority of its workers’ compensation
cost.  The liability for workers’ compensation claims is the estimated
total cost of the claims on a fully-developed basis, up to a maximum stop loss
coverage.  The Company engaged a specialist to assist in evaluating
estimates of reserves for claims.





F-21


FRONTIER
AIRLINES HOLDINGS, INC.
 (Debtor
and Debtor-in-Possession as of April 10, 2008)
 
 Notes
to the Consolidated Financial Statements, continued


Stock-Based
Compensation





Effective
April 1, 2006, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 123(R),Share-Based Payment, and
related interpretations (“SFAS 123(R)”), to account for stock-based compensation
using the modified prospective transition method and therefore did not restate
prior period results.  SFAS 123(R) supersedes Accounting Principles
Board Opinion No. 25,
Accounting for Stock Issued to Employees (“APB No. 25”), and revises
guidance in SFAS 123,Accounting for Stock-Based Compensation. Among other things, SFAS 123(R)
requires that compensation expense be recognized in the financial statements for
share-based awards based on the grant date fair value of those awards. The
modified prospective transition method applies to both (1) unvested awards under
the Company’s 2004 Equity Incentive Plan (“2004 Plan”) outstanding as of March
31, 2006, based on the grant date fair value estimated in accordance with the
pro forma provisions of SFAS 123 and (2) any new share-based awards granted
subsequent to March 31, 2006, based on the grant-date fair value estimated in
accordance with the provisions of SFAS 123(R). Additionally, stock-based
compensation expense includes an estimate for pre-vesting forfeitures and is
recognized over the requisite service periods of the awards on a straight-line
basis, which is commensurate with the vesting term. The Company's options are
typically granted with graded vesting provisions, and compensation cost is
amortized over the service period using the straight-line method.





New
Accounting Standards Not Yet Adopted





In May
2008 the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles(“SFAS 162”). SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements that are presented in conformity with
GAAP.  SFAS 162 is effective 60 days following the SEC’s approval of
the Public Company Accounting Oversight Board amendments to AU Section 411,
“The Meaning of Present Fairly
in Conformity with Generally Accepted Accounting Principles.” The Company
does not expect SFAS 162 to have a material impact on its consolidated financial
statements.





In May
2008 the FASB issued FASB Staff Position (“FSP”) APB 14-1, Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement) (“FSP APB 14-1”). FSP APB 14-1 applies to convertible debt
instruments that, by their stated terms, may be settled in cash (or other
assets) upon conversion, including partial cash settlement of the conversion
option. FSP APB 14-1 requires bifurcation of the instrument into a debt
component that is initially recorded at fair value and an equity component. The
difference between the fair value of the debt component and the initial proceeds
from issuance of the instrument is recorded as a component of equity. The
liability component of the debt instrument is accreted to par using the
effective yield method; accretion is reported as a component of interest
expense. The equity component is not subsequently re-valued as long as it
continues to qualify for equity treatment. FSP APB 14-1 must be applied
retrospectively to previously issued cash-settleable convertible instruments as
well as prospectively to newly issued instruments. FSP APB 14-1 is effective for
fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years. The Company has not yet determined the impact of adopting
FSP APB 14-1 on its consolidated financial statements.





In
June 2008 the FASB issued FSP Emerging Issues Task Force (“EITF”) 03-6-1,
Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities (“EITF 03-6-1”). EITF 03-6-1 provides that unvested
share-based payment awards that contain nonforfeitable rights to dividends or
dividend equivalents (whether paid or unpaid) are participating securities and
shall be included in the computation of earnings per share pursuant to the
two-class method. ETIF 03-6-1 is effective for fiscal years beginning after
December 15, 2008, and interim periods within those years. Upon adoption, a
company is required to retrospectively adjust its earnings per share data
(including any amounts related to interim periods, summaries of earnings and
selected financial data) to conform with the provisions of  EITF
03-6-1. The Company has not yet determined the impact of
adopting  EITF 03-6-1 on its consolidated financial
statements.





F-22




FRONTIER
AIRLINES HOLDINGS, INC.
 (Debtor
and Debtor-in-Possession as of April 10, 2008)
 
 Notes
to the Consolidated Financial Statements, continued


3.
            Reorganization
      Expenses





SOP 90-7
requires separate disclosure of reorganization items such as realized gains and
losses from the settlement of pre-petition liabilities, provisions for losses
resulting from the reorganization and restructuring of the business, as well as
professional fees directly related to the process of reorganizing the Company
under Chapter 11.  The Debtors’ reorganization items consist of the
following (in thousands):





Twelve
      Months Ended
                      March
      31, 2009Professional
      fees directly related to reorganization (a)
                    
                    $
                    22,441Unsecured
      claims allowed by the court (b)
                    
                    
                    178,595Gains
      on the sale of aircraft (c)
                    
                    
                    (13,887
                    )Loss
      on a sale-lease back transaction (c)
                    
                    
                    4,283Gains
      on contract terminations and settlements, net (d)
                    
                    
                    (6,567
                    )Write-off
      of equipment note, net (e)
                    
                    
                    11,817Write-off
      of debt issuance cost (f)
                    
                    
                    1,833Other,
      net (g)
                    
                    
                    3,980Total
      net reorganization expense
                    
                    $
                    202,495





(a)  Professional
fees directly related to the reorganization include fees associated with
advisors to the Debtors, the statutory committee of unsecured creditors and
certain secured creditors.  Professional fees are estimated by the
Debtors and will be reconciled to actual invoices when received.





(b)  Unsecured
claims allowed by the Bankruptcy Court include the allowed claim of $150.0
million to Republic. The amount above represents the incremental amount to
record the full amount of the allowed claim. The consolidated financial
statements for the year ended March 31, 2009 also include allowed claims of
$29.8 million related to claims for union labor agreements and the Company
recorded an estimated allowable claim for rejected a real estate property lease
that was rejected as part of section 365 under the Bankruptcy Code in the amount
of $1.0 million. For information regarding allowed general, unsecured
pre-petition claims in connection with the Company’s union labor contracts, see
Note 17.





(c)  Reorganization
items include the gain on the sale of six aircraft sold and a loss on a
sale-lease back transaction.  These transactions were agreed upon
subsequent to the Company’s bankruptcy filing and approved by the Bankruptcy
Court.





(d)  Gains on contract
terminations included an agreement under which the Company and GE Engine
Services, Inc. mutually agreed to terminate a MCPH Restated and Amended Engine
Service Agreement.  This resulted in a gain of $5.8 million for
reimbursement of maintenance reserve payments less certain fees.  The
remaining amounts relate to the forgiveness of pre-petition amounts on contracts
negotiated.




(e)  This
write-off relates to a net settlement with LiveTV in which the Company signed a
revised agreement that included the write-off of an equipment note.
 
 (f)  The
Company wrote-off the debt issuance costs related to the unsecured convertible
notes because the Company anticipates the entire principal amount will be an
allowed claim for the value of its unsecured convertible notes.
 
 (g)  Other
expenses are primarily related to fees and penalties associated with the
temporary payment defaults on aircraft loans.  Also included in other,
net are other costs associated with the early return of two leased aircraft
during the second fiscal quarter net of deferred credits.


F-23




FRONTIER
AIRLINES HOLDINGS, INC.
 (Debtor
and Debtor-in-Possession as of April 10, 2008)
 
 Notes
to the Consolidated Financial Statements, continued


Net cash
paid for reorganization items for the twelve months ended March 31, 2009 totaled
$12.4 million.  These amounts exclude the net proceeds received from
the sale of aircraft during the Company’s reorganization process.





Reorganization
items exclude the gain on the sale of two aircraft in May 2008 described in Note
7, because those aircraft were part of the Company’s routine operational
decision to address planned reductions in capacity and desires to improve
liquidity in reaction to economic conditions and fuel price
increases.  The Company obtained signed letters of intent and deposits
on the anticipated aircraft sales prior to the Company’s unanticipated
bankruptcy filing.  Reorganization items also exclude the employee
separation and other charges recorded during the second quarter of the year
ended March 31, 2009, as these amounts relate to normal operations of the
business rather than charges resulting from the Chapter 11
reorganization.





4.
            Liabilities
      Subject to Compromise





Liabilities
subject to compromise (“LSTC”) refer to both secured and unsecured obligations
that will be settled under a plan of reorganization. Generally, actions to
enforce or otherwise effect payment of pre-Chapter 11 liabilities are
stayed.  SOP 90-7 requires pre-petition liabilities that are subject
to compromise to be reported at the amounts expected to be allowed, even if they
may be settled for lesser amounts. These liabilities represent the estimated
amount expected to be allowed on known or potential claims to be resolved
through the Chapter 11 process, and remain subject to future adjustments arising
from negotiated settlements, actions of the Bankruptcy Court, rejection of
executory contracts and unexpired leases, the determination as to the value of
collateral securing the claims, proofs of claim, or other
events.  LSTC also includes certain items that may be assumed under
the plan of reorganization, and as such, may be subsequently reclassified to
liabilities not subject to compromise.  The Company has included
secured aircraft debt as a liability subject to compromise because management
believes that there remains uncertainty to the terms under a plan of
reorganization.   At hearings held in April 2008, the Court
granted final approval of many of the Debtors’ “first day” motions covering,
among other things, human capital obligations, supplier relations (including
fuel supply and fuel contracts), insurance, customer relations, business
operations, certain tax matters, cash management, utilities, case management and
retention of professionals. Obligations associated with these matters are not
classified as liabilities subject to compromise.





In
accordance with SOP 90-7, debt discounts or premiums as well as debt issuance
costs should be viewed as valuations of the related debt.  When the
debt has become an allowed claim and the allowed claim differs from the net
carrying amount of the debt, the recorded amount should be adjusted to the
amount of the allowed claim (thereby adjusting existing discounts or premiums,
and debt issuance costs to the extent necessary to report the debt at this
allowed amount).  Premiums and discounts as well as debt issuance cost
on debts that are not subject to compromise, such as fully secured claims,
should not be adjusted.  Debt issuance costs on secured debt have not
been adjusted because the Company continues to make payments based on the
original contract terms. If debt is retired upon the sale of aircraft, the
related debt issuance costs are written off as a loss from early extinguishment
of debt in the period the debt is retired.




F-24




FRONTIER
AIRLINES HOLDINGS, INC.
 (Debtor
and Debtor-in-Possession as of April 10, 2008)
 
 Notes
to the Consolidated Financial Statements, continued


The
Debtors may reject pre-petition executory contracts and unexpired leases with
respect to the Debtors’ operations, with the approval of the Bankruptcy Court.
Damages resulting from rejection of executory contracts and unexpired leases are
generally treated as general unsecured claims and will be classified as LSTC.
Holders of pre-petition claims were required to file proofs of claims by the
November 17, 2008 bar date.  A bar date is the date by which certain
claims against the Debtors must be filed if the claimants wish to receive any
distribution in the Chapter 11 cases.  The Debtors notified all known
claimants subject to the bar date of their need to file a proof of claim with
the Bankruptcy Court. The aggregate amount of claims filed with the Bankruptcy
Court far exceeds the Debtors’ estimate of the ultimate liability. Differences
between liability amounts estimated by the Debtors and claims filed by creditors
are being investigated and, if necessary, the Bankruptcy Court will make a final
determination of the allowable claim.  The Company has reviewed all
major claims that have been filed and do not expect material exposure remains to
be resolved, however, this process continues and there can be no assurance that
the Company will not continue to record adjustments related to the ultimate
amount of claims allowed. The determination of how liabilities will ultimately
be treated cannot be made until the Bankruptcy Court approves a Chapter 11 plan
of reorganization. Accordingly, the ultimate amount or treatment of such
liabilities is not determinable at this time.





Liabilities subject to compromise
consist of the following(in thousands):





March
      31,
                          2009Accounts
      payable and other accrued expenses
                        
                        $
                        53,485Unsecured
      allowed claims under Section 365
                        
                        
                        180,718Accrued
      interest on LSTC
                        
                        
                        3,131Secured
      debt
                        
                        
                        379,327Unsecured
      convertible notes
                        
                        
                        92,000Total
      liabilities subject to compromise
                        
                        $
                        708,661





LSTC
includes trade accounts payable related to pre-petition purchases, all of which
were not paid.  As a result, the Company’s cash flows from operations
were favorably affected by the stay of payment related to these accounts
payable.





5.
            Derivative
      Instruments





Fuel
Hedging




Effective
January 1, 2009, the Company adopted the provisions of FASB Statement
No. 161, Disclosures
about Derivative Instruments and Hedging Activities, an amendment of FASB
Statement No. 133 , which enhances the disclosure requirements
related to derivative instruments and hedging activity to improve the
transparency of financial reporting.




As part
of our risk management strategy, the Company periodically purchases crude oil
option contracts or swap agreements and Jet A crack spread swaps in order to
manage our exposure to the effect of changes in the price and availability of
aircraft fuel. Prices for these commodities are normally highly correlated to
aircraft fuel, making derivatives of them effective at providing short-term
protection against sharp increases in average fuel prices.  Most
recently, the Company purchased call agreements on crude oil. The Company does
not hold or issue any derivative financial instruments for trading purposes.
These fuel hedges do not qualify for hedge accounting under SFAS 133, and, as
such, realized and non-cash marks to market adjustments are included in aircraft
fuel expense.





The
results of operations for the year ended March 31, 2009, 2008 and 2007 include
non-cash mark to market derivative gains/(losses) of $(15.6 million), $1.8
million and $12.8 million, respectively. Cash settlements for fuel derivatives
contracts settled during the years ended March 31, 2009, 2008 and 2007 were
payments of $2.6 million, receipts of $30.7 million and payments of $3.9
million, respectively.




F-25




FRONTIER
AIRLINES HOLDINGS, INC.
 (Debtor
and Debtor-in-Possession as of April 10, 2008)
 
 Notes
to the Consolidated Financial Statements, continued


The
following table summarizes the components of aircraft fuel expense for the years
ended March 31, 2009, 2008 and 2007:




Year
      Ended March 312009
                        
                        
                        2008
                        
                        
                        2007(In
      thousands)Aircraft
      fuel expense – mainline and Lynx Aviation
                        
                        $
                        531,060
                        
                        
                        $
                        454,822
                        
                        
                        $
                        343,082Aircraft
      fuel expense – included in regional partners
                        
                        
                        11,634
                        
                        
                        
                        51,817
                        
                        
                        
                        33,163Total
      system-wide fuel expense
                        
                        
                        542,694
                        
                        
                        
                        506,639
                        
                        
                        
                        376,245Changes
      in fair value and settlement of fuel hedge contracts
                        
                        
                        (18,181
                        )
                        
                        
                        32,587
                        
                        
                        
                        8,828Total
      raw aircraft fuel expense
                        
                        $
                        524,513
                        
                        
                        $
                        539,226
                        
                        
                        $
                        385,073





The
Company entered into fuel hedging swap and collar agreements during the years
ended March 31, 2009 and 2008.  The Company had settled on all
outstanding fuel hedge agreements as of March 31, 2009.  The fair
value of fuel hedge contracts outstanding at March 31, 2009 and 2008 was an
asset of zero and  $15.6 million, respectively.





6.
            Assets
      Held For Sale





In April
2005, the Company retired its remaining Boeing aircraft and has classified all
remaining Boeing aircraft rotable spare parts and expendable inventories as
“assets held for sale.”  As such, these assets have been valued at the
lower of the carrying amount or the estimated market value less selling
costs.





In August
2004, the Company began selling Boeing spare parts and entered into agreements
with two vendors to sell these parts on a consignment basis.  The
Company monitors resale values for Boeing parts quarterly using estimates
obtained from outside vendors.  Based on the current market prices and
recent sales history, the Company has determined that there is currently no
impairment required for the Boeing rotable spare parts and expendable
inventories for the years ending March 31, 2009 and 2008.  During each
of the years ended March 31, 2009 and 2008, the Company realized net gains of
$0.4 million on the sale of these assets.





F-26




FRONTIER
AIRLINES HOLDINGS, INC.
 (Debtor
and Debtor-in-Possession as of April 10, 2008)
 
 Notes
to the Consolidated Financial Statements, continued


7.
            Property
      and Equipment, Net





At March
31, 2009 and 2008, property and equipment consisted of the
following:





2009
                    
                    
                    2008(in
      thousands)Aircraft,
      spare aircraft parts, and improvements to leased aircraft
                    
                    $
                    667,157
                    
                    
                    $
                    942,162Ground
      property, equipment and leasehold improvements
                    
                    
                    56,328
                    
                    
                    
                    55,176Computer
      software
                    
                    
                    19,354
                    
                    
                    
                    17,280Construction
      in progress
                    
                    
                    4,193
                    
                    
                    
                    4,548747,032
                    
                    
                    
                    1,019,166Less
      accumulated depreciation
                    
                    
                    (136,598
                    )
                    
                    
                    (148,722
                    )Property
      and equipment, net
                    
                    $
                    610,434
                    
                    
                    $
                    870,444





Property
and equipment includes capitalized interest of $3.4 million and $2.9 million at
March 31, 2009 and March 31 2008, respectively.





During
the year ended March 31, 2008, the Company recorded additional depreciation
expense of $3.3 million related to a change in estimate of the useful life of
its aircraft seats due to the implementation of a program to replace its Airbus
seats with new leather seats which was completed in May 2008.





Sale
of Aircraft





In March
2008 the Company signed a letter of intent for the sale of four aircraft
including two A319 aircraft and two A318 aircraft.  In May 2008 the
Company sold the two Airbus A319 aircraft for proceeds of $59.0 million, with
total net book values of $52.1 million and approximately $3.0 million of unused
reserves under maintenance contracts for which the Company was to be
reimbursed.  This resulted in retirement of debt of $33.8 million
related to the mortgages on the sold aircraft and a book gain of $9.2 million on
the sales, net of transaction costs.





In August
2008 the Bankruptcy Court authorized the Company to sell a total of six
additional Airbus A319 aircraft to the same party and to terminate the agreement
to sell the final two A318 aircraft under the March 2008 letter of intent,
resulting in the sale of a total of eight owned aircraft.  In the
period from September 2008 to December 2008, the Company sold six Airbus A319
aircraft for proceeds of $165.0 million, with total net book values of $149.4
million.  This resulted in retirement of debt of $95.9 million related
to the mortgages on the sold aircraft and a book gain of $13.9 million on these
sales, net of transaction costs.





In August
2008 the Bankruptcy Court also authorized a transaction between the Company and
GE Commercial Aviation Service LLC (“GECAS”) under which the Company sold and
leased back one Airbus A319 aircraft for proceeds of $29.3 million, with a net
book value of $33.5 million.  This resulted in retirement of debt of
$23.9 million related to the mortgage on the sold aircraft and a book loss of
$4.3 million on the transaction, net of transaction costs.  The
Company also returned three leased Airbus A319 aircraft to GECAS during the year
ended March 31, 2009.





F-27




FRONTIER
AIRLINES HOLDINGS, INC.
 (Debtor
and Debtor-in-Possession as of April 10, 2008)
 
 Notes
to the Consolidated Financial Statements, continued


Aircraft
Purchase Obligations





In July
2008 the Company signed an agreement to defer the delivery of the eight
remaining Airbus A320 aircraft that had been scheduled for delivery between
February 2009 and November 2010 to between February 2011 and November
2012.  This resulted in reimbursement of $11.5 million of pre-delivery
payments in July 2008.





In July
2008 the Company exercised its option on the first of the ten additional Q400
Bombardier aircraft and in January 2009 the Company exercised its option on the
second of the remaining ten additional aircraft.  Planned delivery
dates for these two Bombardier Q400 aircraft to be operated by the Lynx Aviation
subsidiary are July 2009 and February 2010, respectively.  This
resulted in a pre-delivery deposits of $3.7 million.





The
Company currently has $6.5 million in pre-delivery payments.





8.
            Other
      Accrued Expenses Not Subject to
Compromise





At March
31, 2009 and March 31, 2008, other accrued expenses consisted of the
following:





2009
                    
                    
                    2008(In
      thousands)Accrued
      salaries and benefits
                    
                    $
                    29,906
                    
                    
                    $
                    37,456Federal
      excise and other passenger taxes payable
                    
                    
                    20,100
                    
                    
                    
                    30,298Property
      tax payable and income taxes payable
                    
                    
                    304
                    
                    
                    
                    3,801Other
                    
                    
                    3,917
                    
                    
                    
                    12,503Total
      other accrued expenses
                    
                    $
                    54,227
                    
                    
                    $
                    84,058





Certain
balances at March 31, 2008, have subsequently been reclassified out of accrued
expenses and into liabilities subject to compromise (note 4) at March 31,
2009.





9.
            Deferred
      Revenue and Other Liabilities





At March
31, 2009 and March 31, 2008, deferred revenue and other liabilities consisted of
the following:





2009
                      
                      
                      2008(in
      thousands)Deferred
      revenue primarily related to co-branded credit card
                      
                      $
                      21,257
                      
                      
                      $
                      24,472Deferred
      rent
                      
                      
                      12,799
                      
                      
                      
                      17,489Other
                      
                      
                      536
                      
                      
                      
                      627Total
      deferred revenue and other liabilities
                      
                      
                      34,592
                      
                      
                      
                      42,588Less:
      current portion
                      
                      
                      (15,759
                      )
                      
                      
                      (18,189
                      )$
                      18,833
                      
                      
                      $
                      24,399




F-28




FRONTIER
AIRLINES HOLDINGS, INC.
 (Debtor
and Debtor-in-Possession as of April 10, 2008)
 
 Notes
to the Consolidated Financial Statements, continued


10.
            Secured
      and Unsecured Borrowings





Secured
and unsecured borrowings at March 31, 2009 and March 31, 2008 consisted of the
following:





March
      31,
                                                  
                                                  
                                                  March
      31,2009
                                                  
                                                  
                                                  2008(In
      thousands)Unsecured:Convertible
      Notes, fixed interest rate of 5.0% (1)
                                                  
                                                  $
                                                  92,000
                                                  
                                                  
                                                  $
                                                  92,000Secured:Aircraft
      Notes, secured by aircraft:Aircraft
      notes payable, fixed interest rates with a 6.75% and 6.55% weighted
      average interest rate at March 31, 2009 and March 31, 2008, respectively
      (2)
                                                  
                                                  
                                                  46,002
                                                  
                                                  
                                                  
                                                  79,338Aircraft
      notes payable, variable interest rates based
      on    LIBOR plus a margin, for an overall weighted
      average rate of 3.42% and 4.59% at March 31, 2009and March
      31, 2008, respectively (3)
                                                  
                                                  
                                                  330,620
                                                  
                                                  
                                                  
                                                  484,601Aircraft
      junior note payable, variable interest rate based on LIBOR plus a margin,
      with a rate of 4.88% and 8.06% at March 31, 2009 and March 31, 2008,
      respectively (4)
                                                  
                                                  
                                                  2,705
                                                  
                                                  
                                                  
                                                  3,379Total
      secured debt (subject to compromise March 31, 2009
    only)
                                                  
                                                  $
                                                  379,327
                                                  
                                                  
                                                  $
                                                  567,318Borrowings
      not subject to compromise:Credit
      Facility, secured by eligible aircraft parts (5)
                                                  
                                                  $
                                                  3,000
                                                  
                                                  
                                                  $
                                                  3,000Debtor-in-Possession
      loan (6)
                                                  
                                                  
                                                  30,000
                                                  
                                                  
                                                  
                                                  –Other
      note payable (7)
                                                  
                                                  
                                                  3,000
                                                  
                                                  
                                                  
                                                  –Total
      borrowings not subject to compromise
                                                  
                                                  $
                                                  36,000
                                                  
                                                  
                                                  $
                                                  3,000


Total
      Borrowings
                                
                                $
                                507,327
                                
                                
                                $
                                662,318


Maturities
of long-term debt, including balloon payments, are based on the contractual
terms of the obligation as follows (In thousands):




Fiscal
      Year Ending:2010
                  
                  $
                  59,6212011
                  
                  
                  29,2882012
                  
                  
                  31,0602013
                  
                  
                  32,5142014
                  
                  
                  33,053Thereafter
                  
                  
                  321,791$
                  507,327




F-29




FRONTIER
AIRLINES HOLDINGS, INC.
 (Debtor
and Debtor-in-Possession as of April 10, 2008)
 
 Notes
to the Consolidated Financial Statements, continued


(1)
            Convertible
      Notes and Contractual Interest
Expense





In
December 2005, the Company completed the sale of $92.0 million aggregate
principal amount of 5% Convertible Notes due 2025 (“Convertible Notes”) in a
public offering pursuant to the Company’s shelf registration
statement.  Subsequent to the Company’s Chapter 11 bankruptcy filing,
the Company records post-petition interest on pre-petition obligations only to
the extent it believes the interest will be paid during the bankruptcy
proceedings or that it is probable that the interest will be an allowed
claim.  Had the Company recorded interest expense based on all of its
pre-petition contractual obligations, interest expense would have increased by
$4.5 million during the year ended March 31, 2009.





(2)
            Secured
      Aircraft Notes payable – fixed interest
rates





During
the year ended March 31, 2008, the Company borrowed $48.3 million for the
purchase of three Bombardier Q400 aircraft.  These aircraft loans have
terms of 15 years and are payable in semi-annual installments with a floating
interest rate adjusted semi-annually based on LIBOR. Security interests in the
aircraft secure the loans.





During
the year ended March 31, 2009, the Company sold two Airbus 319 aircraft with
fixed rate loans and repaid the loan balances of $30.0 million with the proceeds
of the sale.





(3)
            Secured
      Aircraft Notes payable – variable interest
rates





During
the years ended March 31, 2003 through March 31, 2009, the Company borrowed
$549.5 million for the purchase of 22 Airbus aircraft.  During the
year ended March 31, 2009, the Company sold six aircraft with variable rate
loans and entered into a sale-leaseback transaction for one of these purchased
aircraft and repaid the loan balances of $123.5 million with the proceeds of the
sales.   The remaining 15 senior aircraft loans have terms of 10
to 12 years and are payable in monthly installments with a floating interest
rate adjusted quarterly based on LIBOR.  At the end of the term, there
are balloon payments for each of these loans.  Security interests in
the aircraft secure the loans.





During
the year ended March 31, 2008, the Company borrowed $32.3 million for the
purchase of two Bombardier Q400 aircraft. These aircraft loans have terms of 15
years and are payable in semi-annual installments with a floating interest rate
adjusted semi-annually based on LIBOR.  A security interest in the
aircraft secures these loans.





(4)
            Junior
      Secured Aircraft Notes payable – variable interest
  rates





During
the year ended March 31, 2006, the Company borrowed $4.9 million for the
purchase of an Airbus aircraft.  This junior loan has a seven-year
term with quarterly installments. A security interest in the aircraft secures
the loan.





(5)
            Credit
      Facility




In March 2005 the Company entered into
a two-year revolving credit facility (“Credit Facility”) to support letters of
credit and for general corporate purposes. The initial Credit Facility was
extended until July 2009. Under this facility, the Company was permitted toborrow the lesser of $20.0
million(“maximum
commitment amount”) or an agreed upon percentage of the current market value of
pledged eligible spare parts which secures this debt.  The amount
available for letters of
credit isequal to the
maximum commitment amount under the facility less current
borrowings.  Interest under the Credit Facility
isbased on a designated
rate plus amargin.  In addition, there isa quarterly commitment fee on the
unused portion of the facility based on the maximum commitment
amount.  The Company has lettersof credit issued of $12.1 million and
cash draws of $3.0 millionwhich is due on July 21, 2009.  In
May 2009 the Company filed a motion to approve an amendment to this agreement
for an extension on two letters of credit in the amounts of $4.5 million and
$1.5 million to September 30, 2009 and June 7, 2010,
respectively.  Pursuant to an agreement reached with the lender
as a result of the Chapter 11 filing, the Company currently cannot borrow
additional amounts under this facility.
  F-30
  FRONTIER
AIRLINES HOLDINGS, INC.
 (Debtor
and Debtor-in-Possession as of April 10, 2008)
 
 Notes
to the Consolidated Financial Statements, continued


(6)
            Debtor-in-Possession
      (“DIP”) Financing – Post-Petition





On August
5, 2008, the Bankruptcy Court approved a secured super-priority
debtor-in-possession credit agreement (“DIP Credit Agreement”) with Republic
Airways Holdings, Inc., Credit Suisse Securities (USA) LLC, AQR Capital LLC, and
CNP Partners, LLC (the “Lenders”), each of which is a member of the Unsecured
Creditor’s Committee in the Company’s Chapter 11 bankruptcy
cases.  The DIP Credit Agreement contained various representations,
warranties and covenants by the Debtors that are customary for transactions of
this nature, including reporting requirements and maintenance of financial
covenants.  The DIP Credit Agreement provides for the payment of
interest at an annual rate of 16% interest, or annual interest of 14% if the
Debtors pay the interest monthly.  The DIP Credit Agreement matured on
April 1, 2009 (see Note 20).  On August 8, 2008, funding was provided
under the DIP Credit Agreement in the amount of $30.0 million, before applicable
fees of $2.1 million.





(7)
            Other
      Note Payable





In
September 2008, the Bankruptcy Court approved a settlement in form of a note in
satisfaction of pre-petition debt.   The note is payable in three
equal installments commencing on the one-year anniversary of the effective date
of the plan of reorganization and accrues interest at an annual rate of
3%.





Other
Revolving Facility and Letters of Credit





In July
2005 the Company entered into an agreement with a financial institution, which
was subsequently amended, for a $5.8 million revolving line of credit that
permits the Company to issue letters of credit.  As of March 31, 2009,
the Company had used $4.2 million under this agreement for standby letters of
credit that provide credit support for certain facility leases.  The
Company also entered into a separate agreement with this financial institution
for a letter of credit fully cash collateralized of $2.8 million.  In
June 2008 the Company entered into a stipulation with the financial
institution, which was approved by the Bankruptcy Court, which resulted in the
financial institution releasing its liens on working capital in exchange for
cash collateral.  This stipulation also provided for the issuance of new
letters of credit going forward.  The Company fully cash collateralized the
letters of credit outstanding and agreed to cash collateralize any additional
letters of credit to be issued.  The total of $7.6 million in cash
collateral as of March 31, 2009 is classified as restricted cash and investments
on the consolidated balance sheet.





Debt
Covenants





The
Company’s Chapter 11 bankruptcy filing triggered default provisions in its
pre-petition debt and lease agreements.  Payment defaults were cured
as of June 9, 2008 for all debt secured by aircraft.





The
Amended and Restated DIP Credit Facility (see Note 20) includes certain
affirmative, negative and financial covenants.  The Company was in
compliance with these covenant requirements as of March 31, 2009.




F-31




FRONTIER
AIRLINES HOLDINGS, INC.
 (Debtor
and Debtor-in-Possession as of April 10, 2008)
 
 Notes
to the Consolidated Financial Statements, continued


11.
            Lease
      Commitments





Aircraft
Leases





At March
31, 2009 and 2008, the Company operated 41 and 43leasedaircraft, respectively,
which are accounted for under operating lease agreements with initial terms of
12-15 years.   Security deposits related to leased aircraft and
future leased aircraft deliveries at March 31, 2009 and 2008 totaled $22.9
million and $23.1 million, respectively, and are reported in the consolidated
balance sheets in security and other deposits.





In
addition to scheduled future minimum lease payments, the Company is required to
make supplemental payments to cover the cost of major scheduled maintenance
overhauls of these aircraft. These supplemental payments are based on the number
of flight hours flown and/or flight departures and are included in maintenance
expense. The lease agreements require the Company to pay taxes, maintenance,
insurance, and other operating expenses applicable to the leased
property.  To the extent  these reserves are not used for
major maintenance during the lease terms, excess supplemental payments are
forfeited to the aircraft lessors after termination of the
lease.  Additionally, to the extent actual maintenance expenses
incurred exceed these reserves, the Company is required to pay these amounts.
During the years ended March 31, 2009, 2008 and 2007, supplemental payments were
$27.1 million, $27.6 million and $26.2 million, respectively.





Other
Leases





The
Company leases office and hangar space, spare engines and office equipment for
its headquarters, reservation facilities, airport facilities, and certain other
equipment.  The Company also leases certain airport gate facilities on
a month-to-month basis.  Amounts for leases that are on a
month-to-month basis are not included as an obligation in the table
below.





At March
31, 2009, commitments under non-cancelable operating leases (excluding aircraft
supplemental payment requirements) with terms in excess of one year were as
follows:





Aircraft
                    
                    
                    Other
                    
                    
                    Total(In
      thousands)Fiscal
      year ending:2010
                    
                    $
                    110,845
                    
                    
                    $
                    25,372
                    
                    
                    $
                    136,2172011
                    
                    
                    111,091
                    
                    
                    
                    9,051
                    
                    
                    
                    120,1422012
                    
                    
                    111,091
                    
                    
                    
                    6,592
                    
                    
                    
                    117,6832013
                    
                    
                    111,091
                    
                    
                    
                    5,231
                    
                    
                    
                    116,3222014
                    
                    
                    106,916
                    
                    
                    
                    4,484
                    
                    
                    
                    111,400Thereafter
                    
                    
                    285,707
                    
                    
                    
                    6,267
                    
                    
                    
                    291,974Total
      minimum lease payments
                    
                    $
                    836,741
                    
                    
                    $
                    56,997
                    
                    
                    $
                    893,738




Rental
expense under operating leases, including month-to-month leases, for the years
ended March 31, 2009, 2008 and 2007 was $175.8 million, $175.9 million, and
$159.2 million, respectively.





For
leases that contain escalations, the Company records the total rent payable
during the lease term on a straight-line basis over the term of the lease and
records the difference between the rent paid and the straight-line rent as a
deferred rent liability.




F-32




FRONTIER
AIRLINES HOLDINGS, INC.
 (Debtor
and Debtor-in-Possession as of April 10, 2008)
 
 Notes
to the Consolidated Financial Statements, continued


12.
            Income
      Taxes





Income
tax expense (benefit) for the years ended March 31, 2009, 2008, and 2007 is
presented below:





Current
                                    
                                    
                                    Deferred
                                    
                                    
                                    Total(In
      thousands)Year
      ended March 31, 2009:U.S.
      federal
                                    
                                    $
                                    1,709
                                    
                                    
                                    $
                                    –
                                    
                                    
                                    $
                                    1,709State
      and local
                                    
                                    
                                    110
                                    
                                    
                                    
                                    –
                                    
                                    
                                    
                                    110$
                                    1,819
                                    
                                    
                                    $
                                    –
                                    
                                    
                                    $
                                    1,819Year
      ended March 31, 2008:U.S.
      federal
                                    
                                    $
                                    –
                                    
                                    
                                    $
                                    –
                                    
                                    
                                    $
                                    –State
      and local
                                    
                                    
                                    (101
                                    )
                                    
                                    
                                    –
                                    
                                    
                                    
                                    (101
                                    )$
                                    (101
                                    )
                                    
                                    $
                                    –
                                    
                                    
                                    $
                                    (101
                                    )Year
      ended March 31, 2007:U.S.
      federal
                                    
                                    $
                                    –
                                    
                                    
                                    $
                                    (4,177
                                    )
                                    
                                    $
                                    (4,177
                                    )State
      and local
                                    
                                    
                                    257
                                    
                                    
                                    
                                    (706
                                    )
                                    
                                    
                                    (449
                                    )$
                                    257
                                    
                                    
                                    $
                                    (4,883
                                    )
                                    
                                    $
                                    (4,626
                                    )





The
differences between the Company’s effective rate for income taxes and the
federal statutory rate of 35% are shown in the following table:




2009
                  
                  
                  2008
                  
                  
                  2007(In
      thousands)Income
      tax benefit at the statutory rate
                  
                  $
                  (86,230
                  )
                  
                  $
                  (21,124
                  )
                  
                  $
                  (8,749
                  )State
      and local income tax, net of federal income tax benefit
                  
                  
                  (7,637
                  )
                  
                  
                  (1,515
                  )
                  
                  
                  (667
                  )State
      net operating loss adjustment
                  
                  
                  1,788
                  
                  
                  
                  (219
                  )
                  
                  
                  (63
                  )Valuation
      allowance
                  
                  
                  84,693
                  
                  
                  
                  21,418
                  
                  
                  
                  3,980Nondeductible
      expenses
                  
                  
                  9,263
                  
                  
                  
                  912
                  
                  
                  
                  777Adjustment
      to deferred taxes
                  
                  
                  133
                  
                  
                  
                  456
                  
                  
                  
                  (176
                  )Other,
      net
                  
                  
                  (191
                  )
                  
                  
                  (29
                  )
                  
                  
                  272$
                  1,819
                  
                  
                  $
                  (101
                  )
                  
                  $
                  (4,626
                  )Effective
      tax rate
                  
                  
                  (0.74
                  )%
                  
                  
                  0.2
                  %
                  
                  
                  18.5
                  %




F-33




FRONTIER
AIRLINES HOLDINGS, INC.
 (Debtor
and Debtor-in-Possession as of April 10, 2008)
 
 Notes
to the Consolidated Financial Statements, continued


The tax
effects of temporary differences that give rise to significant portions of the
deferred tax assets (liabilities) at March 31, 2009 and 2008 are presented
below:





2009
                          
                          
                          2008(In
      thousands)Deferred
      tax assets:Net
      operating loss carryforwards
                          
                          $
                          130,115
                          
                          
                          $
                          159,252Accrued
      vacation
                          
                          
                          4,374
                          
                          
                          
                          5,230Accrued
      workers compensation liability
                          
                          
                          2,609
                          
                          
                          
                          2,259Deferred
      rent
                          
                          
                          4,877
                          
                          
                          
                          6,560Provision
      recorded on inventory and impairments of fixed assets
                          
                          
                          1,783
                          
                          
                          
                          1,806Start-up/organizational
      costs, net
                          
                          
                          6,845
                          
                          
                          
                          7,233Stock-based
      compensation
                          
                          
                          987
                          
                          
                          
                          558Alternative
      minimum tax credit carryforward
                          
                          
                          3,485
                          
                          
                          
                          1,758Accruals
                          
                          
                          2,316
                          
                          
                          
                          4,696Deferred
      loan fees and other assets
                          
                          
                          2,378
                          
                          
                          
                          2,000Accrued
      claims
                          
                          
                          68,045
                          
                          
                          
                          –Other
                          
                          
                          715
                          
                          
                          
                          450Deferred
      tax assets
                          
                          
                          228,529
                          
                          
                          
                          191,802Valuation
      allowance
                          
                          
                          (110,633
                          )
                          
                          
                          (25,939
                          )Net
      deferred tax assets
                          
                          
                          117,896
                          
                          
                          
                          165,863Deferred
      tax liabilities:Property
      and equipment
                          
                          
                          (117,295
                          )
                          
                          
                          (158,688
                          )Prepaid
      commissions
                          
                          
                          (552
                          )
                          
                          
                          (1,285
                          )Other
                          
                          
                          (49
                          )
                          
                          
                          (5,890
                          )Total
      gross deferred tax liabilities
                          
                          
                          (117,896
                          )
                          
                          
                          (165,863
                          )Net
      deferred tax liability
                          
                          $
                          –
                          
                          
                          $
                          –




During
the years ended March 31, 2009 and 2008, the Company recorded a valuation
allowance against net deferred tax assets.  In assessing the realizability
of deferred tax assets, management considers whether it is more likely than not
that some portion, or all, of the deferred tax assets will not be
realized.  The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in which those
temporary differences become deductible.  Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment.  The Company
acquired a significant number of new aircraft over the past seven years in
conjunction with its fleet transition plan.  New aircraft purchases are
depreciated for tax purposes on accelerated methods over seven years
compared to book depreciation of 25 years, resulting in significant deferred tax
liabilities that will reverse over their seven year tax life.  The net
operating losses that have been generated over the past seven years are due in
large part to the accelerated depreciation over a shorter useful life for tax
purposes.  The Company expects its fleet acquisitions to be
substantially complete by fiscal 2012.  Since the Company’s net operating
losses do not begin to expire until 2023, the Company expects these net
operating losses to be available in future periods when tax depreciation is at
minimal levels, and taxable income is projected to exceed book income. Based
upon the level of historical book losses, the Company established a valuation
allowance during the year ended March 31, 2007 for the net deferred tax
asset.   Based upon the projections for future taxable income over the
periods in which the deferred tax assets become deductible, and available tax
planning strategies, management believes it is more likely than not that the
Company will realize the benefits of the deductible differences, net of the
existing valuation allowances at March 31, 2009 and 2008.   The
amount of the deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future taxable income during the
carryforward period are reduced.  The Company has included in the total
valuation allowance, a valuation allowance for state net operating loss
carryforwards expected to expire unused which totaled $0.5 million and $1.3
million at March 31, 2009 and 2008, respectively.





F-34




FRONTIER
AIRLINES HOLDINGS, INC.
 (Debtor
and Debtor-in-Possession as of April 10, 2008)
 
 Notes
to the Consolidated Financial Statements, continued


As of
March 31, 2009, the Company had federal net operating loss carryforwards
totaling $343.0 million, expiring as follows:  $25.2 million in 2024, $92.3
million in 2025, $51.8 million in 2026, $69.6 million in 2027 and $104.1 million
in 2028.





In July
2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
No. 48, “Accounting for
Uncertainty in Income Taxes – an Interpretation of FASB Statement No.
109” (FIN 48). The purpose of FIN 48 is to clarify certain aspects of the
recognition and measurement related to accounting for income tax
uncertainties.  Under FIN 48, the impact of an uncertain tax position
must be recognized in the financial statements if that position is more likely
than not of being sustained upon audit by the relevant taxing
authority.





The
Company adopted the provisions of FIN 48 as of April 1, 2007.  At that
time the Company did not have any material uncertain tax positions, as a result,
there were no adjustments to the opening balance sheet retained
earnings.  The Company believes that its tax filing positions and
deductions related to tax periods subject to examination will be sustained upon
audit and does not anticipate any adjustments will result in a material adverse
effect on the Company’s financial condition, results of operations, or cash
flow.  Therefore, no reserves for uncertain income tax positions have
been recorded pursuant to FIN 48.





The
Company’s policy is to recognize interest and penalties related to unrecognized
tax benefits in interest expense and other non-operating income (expense),
respectively, in our consolidated statement of operations.  For the
years ended March 31, 2009 and 2008, there was no interest expense or penalties
related to uncertain tax positions.





The
Company has unused U.S. federal and state NOLs for the years ended March 31,
2003 through March 31, 2008.  As such, these years remain subject to
examination by the relevant taxing authorities.





The
Bankruptcy Court entered a final order that restricts trading of the common
stock and debt interests in the Company.  The NOLs can be used to
offset future taxable income, and thus are a valuable asset of the Company’s
estate.  Certain trading in the Company’s stock (or debt when the
Company is in bankruptcy) could adversely affect the Company’s ability to use
the NOLs.  Thus, the Company obtained an order that enables it to
closely monitor certain transfers of stock and claims, and restricts those
transfers that may compromise the Company’s ability to use its
NOLs.  However, if a change in ownership does occur, as defined in IRC
Section 382, this could result in the need for an additional valuation
allowance, which the Company expects would be material. As of March 31, 2009,
the Company does not believe an ownership change has occurred.





F-35




FRONTIER
AIRLINES HOLDINGS, INC.
 (Debtor
and Debtor-in-Possession as of April 10, 2008)
 
 Notes
to the Consolidated Financial Statements, continued


13.
            Stockholders’
      Equity





Warrants
and Stock Purchase Rights





In
February 2003, the Company issued warrants to purchase 3,833,946 shares of
common stock  at $6.00 per share to the Air Transportation
Stabilization Board (“ATSB”) and to two other guarantors. The warrants were
exercisable immediately.  The warrants had an estimated fair value of
$9.3 million when issued and expire seven years after issuance. The fair value
for these warrants was estimated at the date of grant using a Black-Scholes
option pricing model. These warrants were subsequently repriced in September
2003 as a result of the Company’s secondary public offering and again in
December 2005 as a result of the Company’s convertible debt offering to $5.87
per share.  In May 2006, the ATSB transferred the ownership of all its
outstanding warrants to seven institutional investors. One other guarantor
transferred ownership of its outstanding warrants in December 2003.





Treasury
Stock and Unearned ESOP Shares





In March
2007, the Company purchased 300,000 shares of its common stock for $1.8
million.  These shares were purchased to fund the Company’s 2007
contribution to the Employee Stock Ownership Plan (“ESOP”). These shares were
subsequently contributed to the ESOP.





14.
            Equity
      Based Compensation Plans





On
September 9, 2004, the shareholders of Frontier approved the 2004
Plan.  Frontier Holdings assumed all of the outstanding options and
awards under the 2004 Plan effective upon the closing of the
Reorganization.  The 2004 Plan, which includes stock options issued
since 1994 under a previous equity incentive plan, allows the Compensation
Committee of the Board of Directors to grant stock options, stock appreciation
rights payable only in stock (“SARs”), and restricted stock units (“RSUs”), any
or all of which may be made contingent upon the achievement of service or
performance criteria.  The 2004 Plan expires September 12,
2009.  The 2004 Plan allows up to a maximum of 2,500,000 shares for
option grants and 500,000 shares for RSUs, subject to adjustment only to reflect
stock splits and similar recapitalization events.  The Company issues
new shares of common stock for stock option and SARs exercised and settlement of
vested restricted units.  With certain exceptions, stock options and
SARs issued under the 2004 Plan generally vest in equal installments over a
five-year period from the date of grant and expire ten years from the grant
date.  RSUs cliff vest on the third or fifth anniversary of the date
of grant.  As of March 31, 2009, the Company had 229,000 shares
available for future grants.





SFAS
123(R) requires the Company to estimate pre-vesting option forfeitures at the
time of grant and periodically revise those estimates in subsequent periods if
actual forfeitures differ from those estimates. The Company records stock-based
compensation expense only for those awards expected to vest using an estimated
forfeiture rate based on its historical pre-vesting forfeiture
data.





For the
years ended March 31, 2009, 2008 and 2007, the Company recorded $1.2 million,
$1.1 million and $0.8 million, respectively,  for stock options, stock
appreciation rights, restricted stock units and cash settled restricted stock
awards, net of estimated forfeitures. Unrecognized stock-based compensation
expense related to unvested options, RSUs and cash settled restricted stock
awards outstanding as of March 31, 2009 was approximately $3.8 million, and will
be recorded over the remaining vesting periods of one to five years. At March
31, 2009, the remaining weighted average recognition period for options, RSUs
and cash settled restricted stock awards was 3.5 years, 2.0 years and 2.2 years,
respectively.





F-36




FRONTIER
AIRLINES HOLDINGS, INC.
 (Debtor
and Debtor-in-Possession as of April 10, 2008)
 
 Notes
to the Consolidated Financial Statements, continued


SFAS
123(R) requires the benefits associated with tax deductions in excess of
recognized compensation cost to be reported as a financing cash flow rather than
as an operating cash flow as previously required. For the years ended March 31,
2009, 2008 and 2007, the Company did not record any excess tax benefit generated
from option exercises.





The table
below summarizes the impact on the Company’s results of operations for the years
ended March 31, 2009, 2008 and 2007 of outstanding SARs and RSUs issued under
the 2004 Plan as recognized under the provisions of SFAS 123(R):





2009
                    
                    
                    2008
                    
                    
                    2007(In
      thousands)Stock-based
      compensation expense:Stock
      options and SARs
                    
                    $
                    638
                    
                    
                    $
                    667
                    
                    
                    $
                    630RSUs
                    
                    
                    575
                    
                    
                    
                    402
                    
                    
                    
                    215Cash
      settled RSAs
                    
                    
                    15
                    
                    
                    
                    –
                    
                    
                    
                    –Income
      tax benefit
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    (213
                    )Net
      increase to net loss
                    
                    $
                    1,228
                    
                    
                    $
                    1,069
                    
                    
                    $
                    632Increase
      to loss per share:Basic
      and diluted
                    
                    $
                    0.03
                    
                    
                    $
                    0.03
                    
                    
                    $
                    0.02





Stock
Options and SARs





The
Company utilizes a Black-Scholes-Merton option pricing model to estimate the
fair value of share-based awards under SFAS 123(R).  The
Black-Scholes-Merton option pricing model incorporates various and subjective
assumptions, including expected term and expected volatility.





The
Company estimates the expected term of options and SARs granted using its
historical exercise patterns, which the Company believes are representative of
future exercise behavior.  The Company estimates volatility of its
common stock using the historical closing prices of its common stock for the
period equal to the expected term of the options, which the Company believes is
representative of the future behavior of the common stock.  The
Company’s risk-free interest rate assumption is determined using the Federal
Reserve nominal rates for U.S. Treasury zero-coupon bonds with maturities
similar to those of the expected term of the award being valued.  The
Company has never paid any cash dividends on its common stock and the Company
does not anticipate paying any cash dividends in the foreseeable future.
Therefore, the Company assumed an expected dividend yield of
zero.  Stock options and SARs are classified as equity
awards.





F-37




FRONTIER
AIRLINES HOLDINGS, INC.
 (Debtor
and Debtor-in-Possession as of April 10, 2008)
 
 Notes
to the Consolidated Financial Statements, continued


The
following table shows the Company’s assumptions used to compute the stock-based
compensation expense and pro forma information for stock option and SAR grants
issued during the years ended March 31,
2009, 2008 and 2007:





2009
                  
                  
                  2008
                  
                  
                  2007Assumptions:Risk-free
      interest rate
                  
                  
                  2.08
                  %
                  
                  
                  4.43
                  %
                  
                  
                  4.85
                  %Dividend
      yield
                  
                  
                  0
                  %
                  
                  
                  0
                  %
                  
                  
                  0
                  %Volatility
                  
                  
                  54.35
                  %
                  
                  
                  60.38
                  %
                  
                  
                  70.76
                  %Expected
      life (years)
                  
                  
                  3
                  
                  
                  
                  5
                  
                  
                  
                  5





Using the
above weighted-average assumptions, the per share weighted-average grant-date
fair value of SARs granted during the years ended March 31, 2009, 2008 and 2007
was $0.73, $3.10 and $4.61, respectively.





A summary
of the stock option and SARs activity and related information for the year ended
March 31, 2009 is as follows:





Weighted-Options
                    
                    
                    Averageand
                    
                    
                    ExerciseSARs
                    
                    
                    PriceOutstanding,
      March 31, 2008
                    
                    
                    2,252,674
                    
                    
                    $
                    9.58Granted
                    
                    
                    1,208,858
                    
                    
                    $
                    2.11Surrendered
                    
                    
                    (875,793
                    )
                    
                    $
                    6.50Outstanding,
      March 31, 2009
                    
                    
                    2,585,739
                    
                    
                    $
                    7.14Exercisable
      at end of period
                    
                    
                    1,210,759
                    
                    
                    $
                    11.72





Exercise
prices for options and SARs outstanding under the 2004 Plan as of March 31, 2009
ranged from $2.11 per share to $24.17 per share.  The weighted-average
remaining contractual life of these equity awards is 4.1 years.  The
aggregate intrinsic value of vested options and SARs was $0 as of March 31,
2009.The aggregate intrinsic value of vested options and SARs was $9,000 as of
March 31, 2008 and the intrinsic value of options exercised during the year
ended March 31, 2008 was $57,000.The aggregate intrinsic value of vested
options and SARs was $484,777as of March 31, 2007and the intrinsic value of options
exercised during the year ended March 31, 2007 was $108,000.





F-38




FRONTIER
AIRLINES HOLDINGS, INC.
 (Debtor
and Debtor-in-Possession as of April 10, 2008)
 
 Notes
to the Consolidated Financial Statements, continued


A summary
of the outstanding and exercisable options and SARs at March 31, 2009,
segregated by exercise price ranges, is as follows:


Weighted-Options
                      
                      
                      
                      
                      
                      Average
                      
                      
                      Exercisableand
                      
                      
                      Weighted-
                      
                      
                      Remaining
                      
                      
                      Options
                      
                      
                      Weighted-Exercise
      Price
                      
                      SARs
                      
                      
                      Average
                      
                      
                      Contractual
                      
                      
                      and
                      
                      
                      AverageRange
                      
                      Outstanding
                      
                      
                      Exercise
      Price
                      
                      
                      Life
      (in years)
                      
                      
                      SARs
                      
                      
                      Exercise
      Price$2.11
      - $2.11
                      
                      
                      1,074,929
                      
                      
                      $
                      2.11
                      
                      
                      
                      4.5
                      
                      
                      
                      –
                      
                      
                      $
                      –$2.53
      - $7.77
                      
                      
                      589,909
                      
                      
                      $
                      6.47
                      
                      
                      
                      6.1
                      
                      
                      
                      323,759
                      
                      
                      $
                      6.72$8.13
      - $12.95
                      
                      
                      526,601
                      
                      
                      $
                      10.12
                      
                      
                      
                      3.0
                      
                      
                      
                      492,700
                      
                      
                      $
                      10.08$13.59
      - $23.30
                      
                      
                      386,800
                      
                      
                      $
                      17.74
                      
                      
                      
                      2.6
                      
                      
                      
                      386,800
                      
                      
                      $
                      17.74$24.17
      - $24.17
                      
                      
                      7,500
                      
                      
                      $
                      24.17
                      
                      
                      
                      1.9
                      
                      
                      
                      7,500
                      
                      
                      $
                      24.172,585,739
                      
                      
                      $
                      7.14
                      
                      
                      
                      4.1
                      
                      
                      
                      1,210,759
                      
                      
                      $
                      11.72





Restricted
Stock Units





SFAS 123R
requires that the grant-date fair value of RSUs be equal to the market price of
the share on the date of grant if vesting is based on a service
condition.  The grant-date fair value of RSU awards are being expensed
over the vesting period.  RSUs are classified as equity awards. As of
March 31, 2009, the Company had outstanding RSUs with service conditions and
vesting periods that range from three to five years.





The per
share weighted-average grant-date fair value of RSUs granted during the years
ended March 31, 2009, 2008 and 2007 was $2.11, $5.86 and
$7.36.





A summary of the activity for RSUs for
the twelve months ended March 31, 2009is as follows:





RSUsWeighted-AverageNumber
      of
                          
                          
                          Grant
      DateRSUs
                          
                          
                          Market
      ValueOutstanding,
      March 31, 2008
                          
                          
                          315,932
                          
                          
                          $
                          6.88Granted
                          
                          
                          166,540
                          
                          
                          $
                          2.11Surrendered
                          
                          
                          (73,003
                          )
                          
                          $
                          6.58Outstanding,
      March 31, 2009
                          
                          
                          409,469
                          
                          
                          $
                          4.99





During
the years ended March 31, 2009, 2008 and 2008 the intrinsic value of
RSUs issued was $0, $5,000 and $14,000, respectively.





F-39




FRONTIER
AIRLINES HOLDINGS, INC.
 (Debtor
and Debtor-in-Possession as of April 10, 2008)
 
 Notes
to the Consolidated Financial Statements, continued


Cash
Settled Restricted Stock Awards





SFAS 123R
requires that the grant-date fair value of cash settled RSUs be equal to the
market price of the share on the date of grant.  Cash settled RSU’s
are recorded as a liability and on a mark-to-market basis and amortized over the
vesting period.  As of March 31, 2009, the Company had outstanding
cash settled RSUs with service conditions and vesting periods of two
years.





A summary of the activity forcash settled restricted
stock awardsfor the
twelve months ended March 31, 2009is as follows:




Cash
      Settled RSUsWeighted-AverageNumber
                      
                      
                      Grant
      DateGranted
                      
                      
                      Market
      ValueOutstanding,
      March 31, 2008
                      
                      
                      –
                      
                      
                      $
                      –Granted
                      
                      
                      300,340
                      
                      
                      $
                      2.11Surrendered
                      
                      
                      (70,462
                      )
                      
                      $
                      2.11Outstanding,
      March 31, 2009
                      
                      
                      229,878
                      
                      
                      $
                      2.11




F-40


FRONTIER
AIRLINES HOLDINGS, INC.


(Debtor
and Debtor-in-Possession as of April 10, 2008)





Notes
to the Consolidated Financial Statements, continued




15.  Retirement
Plans





ESOP





The
Company has an Employee Stock Purchase Plan (“ESOP”) by which employees can
receive Company stock based on Company Contributions, except those employees
covered by a collective bargaining agreement that does not provide for
participation in the ESOP.  Company contributions to the ESOP are
discretionary and may vary from year to year.  The Company’s annual
contribution to the ESOP, if any, is allocated among the eligible employees of
the Company as of the end of each plan year in proportion to the relative
compensation (as defined in the ESOP) earned that plan year by each of the
eligible employees.  The ESOP does not provide for contributions by
participating employees.  Employees vest in contributions made to the
ESOP based upon their years of service with the Company.  Vesting
generally occurs at the rate of 20% per year, beginning after the first year of
service, so that a participating employee will be fully vested after five years
of service.  Distributions from the ESOP will not be made to employees
during employment.  However, upon termination of employment with the
Company, each employee will be entitled to receive the vested portion of his or
her account balance.  Forfeitures are reallocated among active
participants.





In March
2008, the Company issued and contributed 300,000 shares to the ESOP. In March
2007, the Company’s Board of Directors approved the purchase of 300,000 shares
of its common stock.  These shares were used to fund the 2007 ESOP
contribution, and the shares were contributed in April 2007.  Total
Company contributions to the ESOP from inception total 3,187,000
shares.





The
Company recognized compensation expense during the years ended March 31,
2009, 2008 and 2007 of $0.6 million, $1.6 million, and $2.6 million,
respectively, related to its contributions to the ESOP.  Compensation
expense under the ESOP is determined by multiplying the number of shares
contributed by the fair market value of the shares on the date contributed, or
the purchase price of the shares.  The fair value of the unearned ESOP
shares contributed to the ESOP for the year ended March 31, 2008 was $0.8
million.  Due to the Company’s bankruptcy filing, the Company does not
believe that the shares in the ESOP Plan will have any value upon emergence from
bankruptcy.




On May 26
2009, the Company filed a motion seeking authority to terminate the ESOP
effective October 31, 2008.  Upon approval after the objection date,
the Company plans to effectuate a distribution by the Plan’s trustee of the
accounts of all affected employees in the form of a single-lump sum stock
distribution.





Retirement
Savings Plans





The
Company has established a Retirement Savings Plan under section 401(k) of the
Internal Revenue Code (“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.  The Company’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. The Company suspended the
match effective June 1, 2008.  During the years ended March 31, 2009,
2008, and 2007, the Company recognized compensation expense associated with the
matching contributions to the 401(k) Plan totaling $0.9 million, $6.0 million,
and $5.1 million, respectively.  Future matching contributions, if
any, will be determined annually by the Board of
Directors.  Participants vest in employer contributions made to the
401(k) Plan based upon their years of service with the
Company.  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 the Company, each participant will be entitled to receive the vested
portion of his or her account balance.




F-41





FRONTIER
AIRLINES HOLDINGS, INC.
 (Debtor
and Debtor-in-Possession as of April 10, 2008)
 
 Notes
to the Consolidated Financial Statements, continued




On March
2, 2007, the Company 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.  The Company 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 years ended March 31, 2009, 2008 and 2007, the Company
recognized compensation expense associated with the contributions to the FAPA
Plan of $3.3 million, $3.0 million and $0.2 million, respectively.




16.  Loss
Per Share





The
Company accounts for earnings per share in accordance with SFAS No. 128, Earnings per
Share.  Basic net income (loss) per share is computed by
dividing net income (loss) by the weighted average number of common shares
outstanding during the periods presented.  Diluted net income per
share reflects the potential dilution that could occur if outstanding stock
option and warrants were exercised.  In addition, diluted convertible
securities are included in the denominator while interest on convertible debt,
net of tax and capitalized interest, is added back to the
numerator.





For the
year ended March 31, 2009, the common stock equivalents of the weighted average
options, SARS, and RSUs, of 172,000 were excluded from the calculation of
diluted earnings per share because they were anti-dilutive as a result of the
loss during the period.  For the year ended March 31, 2009, the weighted
average options, SARs, and RSUs outstanding of 3,786,000 and warrants of
3,834,000 were excluded from the calculation of diluted earnings per share
because the exercise prices were greater than the average market price of the
common stock.  During the years ended March 31, 2008 and 2007,
interest on the convertible notes of $2,629,000 and $1,947,000,
respectively, net of tax in 2007 and capitalized interest, and shares of
8,900,000 that would be issued upon assumed conversion of the convertible notes,
were excluded from the calculation of diluted earnings per share because they
were anti-dilutive.  For the year ended March 31, 2008, the common
stock equivalents of the weighted average options, SARS, RSUs, and warrants
outstanding of 64,000, were excluded from the calculation of diluted earnings
per share because they were anti-dilutive as a result of the loss during the
period.  For the years ended March 31, 2008, the weighted average
options, SARs, and RSUs outstanding of 2,533,000, were excluded from the
calculation of diluted earnings per share because the exercise prices were
greater than the average market price of the common shares. For the year ended
March 31, 2007, the common stock equivalents of the weighted average options,
SARS, RSUs, and warrants outstanding of 830,000, were excluded from the
calculation of diluted earnings per share because they were anti-dilutive as a
result of the loss during the period.  For the year ended March 31,
2007, the weighted average options, SARs, and RSUs outstanding of 2,116,000,
were excluded from the calculation of diluted earnings per share because the
exercise prices were greater than the average market price of the common
shares.




F-42





FRONTIER
AIRLINES HOLDINGS, INC.
 (Debtor
and Debtor-in-Possession as of April 10, 2008)
 
 Notes
to the Consolidated Financial Statements, continued




17.  Commitments
and Contingencies





Legal
Proceedings





As
discussed above, the Company filed voluntary petitions for reorganization under
Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the Southern District of New York and the cases are being
jointly administered under Case No. 08-11298 (RDD). The Debtors continue to
operate their business as “debtors-in-possession” under the jurisdiction of the
Bankruptcy Court and in accordance with the applicable provisions of the
Bankruptcy Code and orders of the Bankruptcy Court. As of the date of the
Chapter 11 filing, virtually all pending litigation was stayed, and absent
further order of the Bankruptcy Court, no party, subject to certain exceptions,
may take any action, also subject to certain exceptions, to recover on
pre-petition claims against the Debtors. At this time, it is not possible to
predict the outcome of the Chapter 11 cases or their effect on the
Company.





From time
to time, the Company is engaged in routine litigation incidental to its
business.  The Company believes there are no legal proceedings pending
in which the Company is a party or of which any of its property may be subject
to that are not adequately covered by insurance, or which, if adversely decided,
would have a material adverse affect upon its business or financial
condition.





Insurance





During
the year ended March 31, 2008, the Company’s services to and from Denver,
Colorado were disrupted by two major snowstorms that impacted the Company’s
service levels, revenues and operating costs.  The Company maintains
business interruption insurance to cover lost profits and received proceeds
to recover lost profits related to these events of $300,000.





During
the year ended March 31, 2007, the Company recorded insurance proceeds of
$868,000.  These insurance proceeds were a result of final settlements
of business interruption claims that covered lost profits when the Company’s
service to Cancun, Mexico and New Orleans, Louisiana was disrupted by hurricanes
during the fiscal year ended March 31, 2006.




Purchase
Commitments





As of March 31, 2009, the
Company has remaining firm purchase commitments for eight additional Airbus A320
aircraft, two Bombardier Q400 aircraft and one spare Airbus engine, which have
scheduled delivery dates continuing throughNovember 2012.  The
Company has not yet obtained financing for any of the scheduled aircraft
deliveries which begin in July 2009.  Under the terms of the purchase
agreement, the Company is required to make scheduled pre-delivery payments for
these aircraft.  These payments are non-refundable with certain
exceptions. As of March 31, 2009, the Company had made pre-delivery payments on
future deliveries totaling $6.5 million to secure these aircraft
purchases.





The
Company has aggregate additional amounts due under purchase commitments and
estimated amounts for buyer-furnished equipment and spare parts for purchased
aircraft. The
Company is not under any contractual obligations with respect to spare parts.In addition, the Company has commercial commitments under an agreement
with SabreSonicä for
its passenger reservations and check-in capabilities.  The estimated
aggregate amount for aircraft and other purchase commitments is $417.6 million,
$65.3 million which is due in fiscal year 2010.




F-43





FRONTIER
AIRLINES HOLDINGS, INC.
 (Debtor
and Debtor-in-Possession as of April 10, 2008)
 
 Notes
to the Consolidated Financial Statements, continued




Fuel
Consortia





The
Company participates in numerous fuel consortia with other carriers at major
airports to reduce the costs of fuel distribution and storage. Interline
agreements govern the rights and responsibilities of the consortia members and
provide for the allocation of the overall costs to operate the consortia based
on usage. The consortia (and in limited cases, the participating carriers) have
entered into long-term agreements to lease certain airport fuel storage and
distribution facilities that are typically financed through tax-exempt bonds
(either special facilities lease revenue bonds or general airport revenue
bonds), issued by various local municipalities. In general, each consortium
lease agreement requires the consortium to make lease payments in amounts
sufficient to pay the maturing principal and interest payments on the bonds. As
of March 31, 2009, approximately $484.5 million principal amount of such
bonds were secured by fuel facility leases at major hubs in which the Company
participates, as to which each of the signatory airlines has provided indirect
guarantees of the debt. The Company’s exposure is approximately $21.2 million
principal amount of such bonds based on its most recent consortia participation.
The Company’s exposure could increase if the participation of other carriers
decreases of if other carriers default. The Company can exit all of their fuel
consortia agreements with limited penaltiesand
certain advance notice requirements. The guarantees will expire when the
tax-exempt bonds are paid in full, which ranges from 2011 to 2033. The Company
has not recorded a liability on the consolidated balance sheets related to
these indirect guarantees.





Concentration
of Credit Risk





The
Company does not believe it is subject to any significant concentration of
credit risk relating to receivables.  At March 31, 2009 and 2008,
53.1% and 45.4% of the Company’s receivables related to tickets sold to
individual passengers through the use of major credit cards, travel agencies
approved by the Airlines Reporting Corporation, tickets sold by other airlines
and used by passengers on Company flights, manufacturers’ credits and the
Internal Revenue Service.  Receivables related to tickets sold are
short-term, generally being settled shortly after sale or in the month following
ticket usage.





Employees





As of
March 31, 2009, the Company had approximately 5,290 employees, of which
approximately 20% are represented by unions.  Of those employees
covered by collective bargaining agreements, no contracts are currently under
negotiation or becoming amendable in fiscal year 2011.




Under
Section 1113 of the Bankruptcy Code (“Section 1113”), the Company is
permitted to reject a collective bargaining agreement if the debtor satisfies
several statutorily prescribed substantive and procedural requirements under the
Bankruptcy Code and obtains the Bankruptcy Court’s approval of the
rejection.  Section 1113 requires a debtor to (i) make a proposal to modify
its existing collective bargaining agreements based on the most complete and
reliable information available at the time, (ii) bargain in good faith, and
(iii) establish the proposed modifications are necessary for the debtor’s
reorganization.





On
October 31, 2008, the Bankruptcy Court granted the Company Section 1113 relief
regarding two collective bargaining agreements with the International
Brotherhood of Teamsters (“IBT”). The Bankruptcy Court granted the Company’s
request for wage concessions from the IBT and adopted the Company’s proposed
heavy maintenance plan. The plan allows the Company to furlough its heavy
maintenance workers during periods it does not require heavy maintenance work
and recall these workers during periods when it has work available. The IBT subsequently filed an appeal of
the Bankruptcy Court’s order as well as a motion for a stay pending appeal with
the United States District Court for the Southern District of New York (the
“District Court”).  Both motions are fully briefed and remain pending
before the District Court.




F-44





FRONTIER
AIRLINES HOLDINGS, INC.
 (Debtor
and Debtor-in-Possession as of April 10, 2008)
 
 Notes
to the Consolidated Financial Statements, continued




In
November 2008 Transportation Workers Union (“TWU”) ratified a long-term labor
agreement, which was also approved by the Bankruptcy Court. The agreement
extended agreed upon wage and benefit concessions. As part of the consensual
agreement, TWU was allowed a $0.4 million general non-priority unsecured claim
in the Company’s bankruptcy case, which has been accrued in these consolidated
financial statements.





In
December 2008 aircraft appearance agents and maintenance cleaners represented by
the IBT ratified a long-term labor agreement with Frontier Airlines.  The
agreement provides Frontier Airlines with wage concessions through December 12,
2012.  As part of the consensual agreement, IBT was allowed a $0.5 million
general non-priority unsecured claim in the Company’s bankruptcy case, which has
been accrued in these consolidated financial statements.





In
January 2009 the members of the Frontier Airline Pilots Association (“FAPA”)
ratified an agreement effective through January 2012 in which they agreed to
long-term wage concessions starting at 10% effective January 1, 2009.  FAPA
represents more than 600 pilots at Frontier Airlines. As part of the consensual
agreement, FAPA was allowed a $29.0 million general non-priority unsecured claim
in the Company’s bankruptcy case, which has been accrued in these consolidated
financial statements.




18.
Operating Segment Information





SFAS No. 131,
“Disclosures about Segments of
an Enterprise and Related Information,” 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. The Company has
three primary operating and reporting segments, which consist of mainline
operations, Regional Partner operations, and Lynx Aviation
operations.  Mainline operations include service operated by Frontier
Airlines using Airbus aircraft.  Regional Partner operations included
regional jet service operated by Republic and Horizon Air Industries,
Inc.  Lynx Aviation’s operations, which include service operated using
Bombardier Q400 aircraft, began revenue flight service on December 7,
2007.  The Company evaluates segment performance based on several
factors, of which the primary financial measure is operating income (loss).
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.





To
evaluate the separate segments of the Company’s operations, management has
segregated the revenues and costs of its operations as
follows:  Passenger revenue for mainline, Regional Partners and Lynx
Aviation represents the revenue collected for flights operated by the Airbus
fleet, the aircraft under lease through contracts with Regional Partners and the
Bombardier Q400 fleet, respectively, carriers (including a prorated allocation
of revenues based on miles when tickets are booked with multiple
segments.).  Operating expenses for Regional Partner flights include
all direct costs associated with the flights plus payments of performance
bonuses if earned under the contract.  Certain expenses such as
aircraft lease, maintenance and crew costs are included in the operating
agreements with Regional Partners in which the Company reimburses these expenses
plus a margin.  Operating expenses for Lynx Aviation include all
direct costs associated with the flights and the aircraft including aircraft
lease and depreciation, maintenance and crew costs.  Operating
expenses for both Regional Partners and Lynx Aviation also include other direct
costs incurred for which the Company does not pay a margin.  These
expenses are primarily composed of fuel, airport facility expenses and passenger
related expenses. The Company also allocates indirect expenses among mainline,
Regional Partners and Lynx Aviation operations by using departures, available
seat miles, or passengers as a percentage of system combined departures,
available seat miles or passengers.




F-45




FRONTIER
AIRLINES HOLDINGS, INC.
 (Debtor
and Debtor-in-Possession as of April 10, 2008)
 
 Notes
to the Consolidated Financial Statements, continued




Financial
information for the years ended March 31, 2009, 2008 and 2007 for the Company’s
operating segments is as follows:




Year
      Ended March 31,2009
                                                      
                                                      
                                                      2008
                                                      
                                                      2007(In
      thousands)Operating
      revenues:Mainline
      – passenger and other (1)
                                                      
                                                      $
                                                      1,194,929
                                                      
                                                      
                                                      $
                                                      1,266,796
                                                      
                                                      
                                                      $
                                                      1,076,785Regional
      Partners – passenger
                                                      
                                                      
                                                      17,465
                                                      
                                                      
                                                      
                                                      113,196
                                                      
                                                      
                                                      
                                                      94,164Lynx
      Aviation – passenger
                                                      
                                                      
                                                      76,988
                                                      
                                                      
                                                      
                                                      18,989
                                                      
                                                      
                                                      
                                                      –Consolidated
                                                      
                                                      $
                                                      1,289,382
                                                      
                                                      
                                                      $
                                                      1,398,981
                                                      
                                                      
                                                      $
                                                      1,170,949Operating
      income (loss):Mainline
      (2)
                                                      
                                                      $
                                                      9,950
                                                      
                                                      
                                                      $
                                                      13,192
                                                      
                                                      
                                                      $
                                                      7,496Regional
      Partner
                                                      
                                                      
                                                      (9,185
                                                      )
                                                      
                                                      
                                                      (33,015
                                                      )
                                                      
                                                      
                                                      (14,191
                                                      )Lynx
      Aviation (3)
                                                      
                                                      
                                                      (17,651
                                                      )
                                                      
                                                      
                                                      (15,207
                                                      )
                                                      
                                                      
                                                      (3,139
                                                      )Consolidated
                                                      
                                                      $
                                                      (16,886
                                                      )
                                                      
                                                      $
                                                      (35,030
                                                      )
                                                      
                                                      $
                                                      (9,834
                                                      )




March 31,
                    2009
                  
                  
                  March 31,
                    2008Total
      assets at end of period (4):Mainline
                  
                  $
                  809,643
                  
                  
                  $
                  1,129,123Regional
      Partner
                  
                  
                  –
                  
                  
                  
                  202Lynx
      Aviation
                  
                  
                  111,424
                  
                  
                  
                  110,338Other
      (4)
                  
                  
                  8,532
                  
                  
                  
                  10,308Consolidated
                  
                  $
                  929,599
                  
                  
                  $
                  1,249,971




(1) Other
revenues included in Mainline revenues consist primarily of cargo revenues, the
marketing component of revenues earned under a co-branded credit card agreement
and auxiliary services.


(2) Mainline
operating income (loss) includes realized and non-cash mark-to-market
adjustments on fuel  hedges, gains on sales of assets, net and
employee separation costs and other charges.


(3) Lynx
Aviation operating costs consisted solely of start-up costs prior to December 7,
2007.


(4) All
amounts are net of intercompany balances, which are eliminated in
consolidation.




F-46





FRONTIER
AIRLINES HOLDINGS, INC.
 (Debtor
and Debtor-in-Possession as of April 10, 2008)
 
 Notes
to the Consolidated Financial Statements, continued




19.  Selected
Quarterly Financial Data (Unaudited)





First
                      
                      
                      Second
                      
                      
                      Third
                      
                      
                      FourthQuarter
                      
                      
                      Quarter
                      
                      
                      Quarter
                      
                      
                      Quarter(In
      thousands, except for per share amounts)2009Revenues
                      
                      $
                      360,487
                      
                      
                      $
                      363,994
                      
                      
                      $
                      300,981
                      
                      
                      $
                      263,920Operating
      expenses
                      
                      
                      401,975
                      
                      
                      
                      369,826
                      
                      
                      
                      295,410
                      
                      
                      
                      239,057Operating
      income (loss)
                      
                      
                      (41,488
                      )
                      
                      
                      (5,832
                      )
                      
                      
                      5,571
                      
                      
                      
                      24,863Net
      income (loss)
                      
                      $
                      (57,739
                      )
                      
                      $
                      (30,367
                      )
                      
                      $
                      1,126
                      
                      
                      $
                      (161,209
                      )Loss
      per share:Basic
                      
                      $
                      (1.56
                      )
                      
                      $
                      (0.82
                      )
                      
                      $
                      0.03
                      
                      
                      $
                      (4.36
                      )Diluted
                      
                      $
                      (1.56
                      )
                      
                      $
                      (0.82
                      )
                      
                      $
                      0.03
                      
                      
                      $
                      (4.36
                      )2008Revenues
                      
                      $
                      344,770
                      
                      
                      $
                      372,966
                      
                      
                      $
                      333,909
                      
                      
                      $
                      347,336Operating
      expenses
                      
                      
                      343,167
                      
                      
                      
                      350,419
                      
                      
                      
                      359,511
                      
                      
                      
                      381,214Business
      interruption insurance proceeds
                      
                      
                      –
                      
                      
                      
                      300
                      
                      
                      
                      –
                      
                      
                      
                      –Operating
      income (loss)
                      
                      
                      1,603
                      
                      
                      
                      22,847
                      
                      
                      
                      (25,602
                      )
                      
                      
                      (33,878
                      )Net
      income (loss)
                      
                      $
                      (3,483
                      )
                      
                      $
                      17,317
                      
                      
                      $
                      (32,508
                      )
                      
                      $
                      (41,579
                      )Loss
      per share:Basic
                      
                      $
                      (0.10
                      )
                      
                      $
                      0.47
                      
                      
                      $
                      (0.89
                      )
                      
                      $
                      (1.13
                      )Diluted
                      
                      $
                      (0.10
                      )
                      
                      $
                      0.39
                      
                      
                      $
                      (0.89
                      )
                      
                      $
                      (1.13
                      )




F-47




FRONTIER
AIRLINES HOLDINGS, INC.
 (Debtor
and Debtor-in-Possession as of April 10, 2008)
 
 Notes
to the Consolidated Financial Statements, continued




20. 
Subsequent Events





Debtor-in-Possession
Financing





On March
20, 2009, the Bankruptcy Court approved an order authorizing a $40 million
Amended and Restated DIP Credit Facility (“Amended DIP Credit Agreement”) with
Republic Airways Holdings, Inc. The Amended DIP Credit Agreement provides for
the payment of interest at an annual rate of 15% interest, or annual interest of
13% if the Debtors pay the interest monthly.  The Bankruptcy Court
also allowed the damage claim of Republic Airways Holdings, Inc. in the amount
of $150 million arising from the Debtors’ rejection of the Airline Services
Agreement with Republic Airlines, Inc. and Republic Airways Holdings, Inc. 
 The allowance of this claim was a condition to Republic Airways Holdings,
Inc. providing the Amended DIP Credit Agreement.  The Company retired the
existing $30 million DIP Credit Agreement on April 1, 2009.




Aircraft
transactions




In April
2009, the Company signed a lease agreement for an Airbus A320 which was
delivered on April 2, 2009.




In May
2009, the Company sold an Airbus A318 at a book loss of approximately $7.5
million, however, the proceeds from the sale were in excess of the carrying
value of this aircraft’s debt. Should the Company’s fleet requirements change in
the future and require additional aircraft disposals, there can be no assurances
that the Company would be able to sell the aircraft at book
value.




F-48