United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~December~~June 3130, ~~2008~~2009

o¨ 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~~4191157_________
(State or other jurisdiction of incorporated or organization)		(I.R.S. Employer Identification No.)
7001 Tower Road, Denver, CO		~~80249~~80249_
(Address of principal executive offices)		(Zip Code)

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

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

Yes x No o¨

Indicate by check mark 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 x No ¨

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

~~Indicate by~~(Do not check ~~mark~~if ~~whether the Registrant is~~ a ~~shell~~smaller ~~company (as defined in Rule~~reporting ~~12b-2 of the Exchange Act~~company)~~. Yes o No x~~

~~The~~Indicate ~~number~~by ofcheck ~~shares~~mark ofwhether the ~~Company’s~~Registrant ~~Common~~is ~~Stock~~a ~~outstanding~~shell company (as ofdefined ~~February~~in ~~12,~~Rule ~~2009~~12b-2 ~~was~~of ~~36,945,744~~the Exchange Act). Yes ¨ No x

The number of shares of the Company’s Common Stock outstanding as of August 17, 2009 was 36,945,744.

TABLE OF CONTENTS

		Page

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets at June 30, 2009 and March 31, 2009 (unaudited)	1
	Consolidated Statements of Operations (unaudited) for the three months ended June 30, 2009 and 2008	2
	Consolidated Statements of Cash Flows (unaudited) for the three months ended June 30, 2009 and 2008	3
	Notes to the Consolidated Financial Statements (unaudited)	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

Item 4.	Controls and Procedures	47

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	47

Item 3.	Defaults Upon Senior Securities	47

Item 6.	Exhibits	48

PART I. FINANCIAL INFORMATION

	Page
Item 1.	Financial Statements
	Consolidated Balance Sheets at December 31, 2008 and March 31, 2008 (unaudited)	1
	Consolidated Statements of Operations (unaudited) for the three and nine months ended
	December 31, 2008 and 2007	2
	Consolidated Statements of Cash Flows (unaudited) for the nine months ended
	December 31, 2008 and 2007	3
	Notes to the Consolidated Financial Statements (unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and
	Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	54
Item 4.	Controls and Procedures	56
	PART II. OTHER INFORMATION
Item 1. Legal Proceedings		56
Item 1A. Risk Factors		56
Item 3.	Defaults Upon Senior Securities	57
Item 6.	Exhibits	59

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

FRONTIER AIRLINES HOLDINGS, INC. AND SUBSIDIARIES
(Debtor and Debtor-in-Possession as of April 10, 2008)
Consolidated Balance Sheets (Unaudited)
(In thousands, except share data)	December 31,			March 31,
	2008			2008
Assets
Current assets:
Cash and cash equivalents	$	69,055		$	120,837
Investment securities		–			8,501
Restricted cash and investments (note 15)		114,683			74,119
Receivables, net of allowance for doubtful accounts of $1,215
and $400 at December 31, 2008 and March 31, 2008, respectively		36,322			57,687
Prepaid expenses and other assets		18,539			26,428
Inventories, net of allowance of $574 and $490
at December 31, 2008 and March 31, 2008, respectively		12,631			17,451
Deposits on fuel hedges		15,590			–
Assets held for sale		743			1,263
Total current assets		267,563			306,286
Property and equipment, net (note 7)		612,798			870,444
Security and other deposits		25,348			25,123
Aircraft pre-delivery payments		5,133			12,738
Restricted cash and investments		2,987			2,845
Deferred loan fees and other assets		5,430			32,535
Total Assets	$	919,259		$	1,249,971
Liabilities and Stockholders' Equity
Liabilities not subject to compromise:
Current liabilities:
Accounts payable	$	42,479		$	79,732
Air traffic liability		133,005			226,017
Other accrued expenses (note 9)		50,598			84,058
Current portion of long-term debt (note 10)		–			38,232
Pre-delivery payment financing		–			3,139
Debtor-in-possession loan (note 10)		30,000			–
Deferred revenue and other liabilities (note 8)		28,828			18,189
Total current liabilities not subject to compromise		284,910			449,367
Long-term debt related to aircraft notes (note 10)		–			532,086
Convertible notes (note 10)		–			92,000
Deferred revenue and other liabilities (note 8)		20,761			24,399
Other note payable (note 10)		3,000			–
Total liabilities not subject to compromise		308,671			1,097,852
Liabilities subject to compromise (note 5)		543,530			–
Total liabilities	$	852,201		$	1,097,852
Stockholders' equity:
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 December 31, 2008 and March 31, 2008, respectively		37			37
Additional paid-in capital		196,879			195,874
Unearned ESOP shares (note 11)		–			(616	)
Accumulated other comprehensive loss, net of tax (note 11)		–			(299	)
Retained deficit		(129,858	)		(42,877	)
Total stockholders' equity		67,058			152,119
Total Liabilities and Stockholders’ Equity	$	919,259		$	1,249,971

FRONTIER AIRLINES HOLDINGS, INC. AND SUBSIDIARIES

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

Consolidated Balance Sheets (Unaudited)

(In thousands, except share data)

	June 30,			March 31,
	2009			2009
Assets
Current assets:
Cash and cash equivalents	$	69,401		$	71,793
Restricted cash and investments (note 7)		161,042			134,359
Receivables, net of allowance for doubtful accounts of $1,371 and $1,380 at June 30, 2009 and March 31, 2009, respectively		37,473			40,469
Prepaid expenses and other assets		19,946			19,474
Inventories, net of allowance of $589 and $534 at June 30, 2009 and March 31, 2009, respectively		13,387			12,464
Other assets		639			1,463
Total current assets		301,888			280,022
Property and equipment, net (note 9)		571,048			610,434
Security and other deposits		27,097			25,420
Prepaid maintenance payments		131,326			–
Aircraft pre-delivery payments		7,835			6,466
Restricted cash		2,987			2,987
Deferred loan fees and other assets		10,031			4,270
Total Assets	$	1,052,212		$	929,599

Liabilities and Stockholders' Equity
Liabilities not subject to compromise:
Current liabilities:
Accounts payable	$	41,440		$	44,890
Air traffic liability		159,682			145,156
Other accrued expenses (note 11)		50,879			54,227
Short-term borrowings		3,000			3,000
Debtor-in-possession loan (note 12)		40,000			30,000
Deferred revenue and other liabilities (note 10)		14,070			15,759
Total current liabilities not subject to compromise		309,071			293,032
Deferred revenue and other liabilities (note 10)		18,051			18,833
Other note payable (note 12)		3,000			3,000
Total liabilities not subject to compromise		330,122			314,865
Liabilities subject to compromise (note 5)		682,300			708,661
Total liabilities		1,012,422			1,023,526

Stockholders' 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 June 30, 2009 and March 31, 2009, respectively		37			37
Additional paid-in capital		197,328			197,102
Retained deficit (notes 3 and 13)		(157,575	)		(291,066	)
Total stockholders' equity (deficit)		39,790			(93,927	)
Total Liabilities and Stockholders’ Equity (Deficit)	$	1,052,212		$	929,599

See accompanying notes to consolidated financial statements.

- 1 -

FRONTIER AIRLINES HOLDINGS, INC. AND SUBSIDIARIES ~~(Debtor and Debtor-in-Possession as of April 10, 2008) Consolidated Statements of Operations (Unaudited) (In thousands, except per share amounts)~~

	Three Months Ended						Nine Months Ended
	December 31,			December 31,			December 31,			December 31,
	2008			2007			2008			2007
Revenues:
Passenger	$	282,238		$	321,550		$	982,346		$	1,014,348
Cargo		1,330			1,424			4,838			4,587
Other		17,413			10,935			38,279			32,711
Total revenues		300,981			333,909			1,025,463			1,051,646
Operating expenses:
Flight operations		37,847			46,302			125,897			138,558
Aircraft fuel		115,186			117,493			469,016			329,578
Aircraft lease		28,746			29,253			87,878			85,831
Aircraft and traffic servicing		45,280			49,000			136,756			135,802
Maintenance		21,932			25,337			77,394			77,508
Promotion and sales		21,302			32,356			77,075			102,733
General and administrative		15,333			15,907			42,886			45,934
Operating expenses - regional partners		–			38,579			26,650			109,602
Post-retirement liability curtailment gain		–			(6,361	)		–			(6,361	)
Employee separation and other charges		–			442			466			442
Loss (gains) on sales of assets, net		78			(4	)		(8,594	)		–
Depreciation		9,706			11,207			31,788			33,471
Total operating expenses		295,410			359,511			1,067,212			1,053,098
Business interruption insurance proceeds		–			–			–			300
Operating income (loss)		5,571			(25,602	)		(41,749	)		(1,152	)
Nonoperating income (expense):
Interest income		856			2,840			3,510			10,037
Interest expense		(8,376	)		(9,301	)		(23,258	)		(26,939	)
Loss from early extinguishment of debt		(427	)		(283	)		(990	)		(283	)
Other, net		632			(162	)		(711	)		(337	)
Total nonoperating expense, net		(7,315	)		(6,906	)		(21,449	)		(17,522	)
Income (loss) before reorganization items and income tax		(1,744	)		(32,508	)		(63,198	)		(18,674	)
Reorganization expense (gain) (note 4)		(2,651	)		–			22,646			–
Income (loss) before income tax expense		907			(32,508	)		(85,844	)		(18,674	)
Income tax expense (benefit)		(219	)		–			1,137			–
Net income (loss)	$	1,126		$	(32,508	)	$	(86,981	)	$	(18,674	)
Earnings per share (note 10):
Basic	$	0.03		$	(0.89	)	$	(2.35	)	$	(0.51	)
Diluted	$	0.03		$	(0.89	)	$	(2.35	)	$	(0.51	)
Weighted average shares of common stock outstanding
Basic		36,946			36,642			36,946			36,639
Diluted		37,193			36,642			36,946			36,639

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

Consolidated Statements of Operations (Unaudited)

(In thousands, except per share amounts)

	Three Months Ended
	June 30,			June 30,
	2009			2008
Revenues:
Passenger	$	253,524		$	349,091
Cargo		1,457			1,699
Other		20,628			9,697

Total revenues		275,609			360,487

Operating expenses:
Flight operations		39,284			46,465
Aircraft fuel		69,124			174,389
Aircraft lease		28,070			29,524
Aircraft and traffic servicing		43,331			46,422
Maintenance		14,424			29,736
Promotion and sales		27,655			32,889
General and administrative		15,065			12,832
Operating expenses - regional partners		–			26,650
Employee separation and other charges		–			574
Loss (gains) on sales of assets, net		69			(8,833	)
Depreciation		9,266			11,327

Total operating expenses		246,288			401,975

Operating income (loss)		29,321			(41,488	)

Nonoperating income (expense):
Interest income		249			1,291
Interest expense (contractual interest expense was $6,231 and $8,318 for the periods ending June 30, 2009 and 2008, respectively) (note 12)		(5,082	)		(7,294	)
Loss from early extinguishment of debt		(185	)		(239	)
Other, net		155			(1,422	)

Total nonoperating expense, net		(4,863	)		(7,664	)

Income (loss) before reorganization items and income tax expense		24,458			(49,152	)

Reorganization expenses (note 4)		14,946			45,548

Income (loss) before income tax expense		9,512			(94,700	)

Income tax expense		532			–

Net income (loss)	$	8,980		$	(94,700	)

Income (loss) per share (note 15):
Basic and diluted	$	0.24		$	(2.56	)

Weighted average shares of common stock outstanding:
Basic		36,946			36,946
Diluted		37,299			36,946

See accompanying notes to consolidated financial statements.

- 2 -

FRONTIER AIRLINES HOLDINGS, INC. AND SUBSIDIARIES ~~(Debtor and Debtor-in-Possession as of April 10, 2008) Consolidated Statements of Cash Flows (Unaudited) (In thousands)~~

	Nine Months Ended
	December 31,			December 31,
	2008			2007
Cash flows from operating activities:
Net loss	$	(86,981	)	$	(18,674	)
Adjustments to reconcile net loss to net cash and cash
equivalents provided by operating activities prior to reorganization items:
Compensation expense under long-term incentive plans and
employee stock ownership plans		1,622			2,237
Depreciation and amortization		33,590			34,640
Provisions recorded on inventories and assets
beyond economic repair		1,133			1,138
Gains on disposal of equipment and other, net		(8,594	)
Mark to market loss on derivative contracts		16,892			(16,246	)
Proceeds received from settlement of derivative contracts		10,278			21,958
Post-retirement liability curtailment gain		–			(6,361	)
Loss on early extinguishment of debt		990			283
Reorganization items		22,646			–
Changes in operating assets and liabilities:
Restricted cash and investments		(40,707	)		1,429
Receivables		18,441			12,280
Deposits on fuel hedges and other deposits		(16,183	)		(75	)
Prepaid expenses and other assets		7,890			4,378
Inventories		4,745			(2,579	)
Other assets		(102	)		(401	)
Accounts payable		11,439			7,407
Air traffic liability		(93,013	)		(9,002	)
Other accrued expenses and income tax payable		(31,465	)		(4,204	)
Deferred revenue and other liabilities		7,002			4,479
Net cash provided (used) by operating activities before reorganization		(140,377	)		32,687
Cash flows from reorganization activities:
Net cash used by reorganization activities		(13,888	)		–
Total net cash provided (used) by operating activities		(154,265	)		32,687
Cash flows from investing activities:
Aircraft lease and purchase deposits made		(4,725	)		(24,259	)
Aircraft lease and purchase deposits returned		11,485			–
Proceeds from the sale of property and equipment and assets held for sale		59,556			93,147
Sale of short-term investment		8,800			–
Capital expenditures		(10,244	)		(240,212	)
Proceeds from the sales of aircraft – reorganization		194,300			–
Net cash provided by (used in) investing activities		259,172			(171,324	)

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

Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

	Three Months Ended
	June 30,			June 30,
	2009			2008
Cash flows from operating activities:
Net income (loss)	$	8,980		$	(94,700	)
Adjustments to reconcile net income (loss) to net cash and cash equivalents provided by operating activities prior to reorganization items:
Compensation expense under long-term incentive plans and employee stock ownership plans		226			563
Depreciation and amortization		9,924			11,536
Provisions recorded on inventories and assets beyond economic repair		292			395
Loss (gains) on disposal of equipment and other, net		69			(8,833	)
Mark to market gains on derivative contracts		(1,455	)		(7,352	)
Proceeds received from settlement of derivative contracts		–			23,151
Loss on early extinguishment of debt		185			239
Unrealized loss on short-term investments		–			1,320
Reorganization items		14,946			45,548
Changes in operating assets and liabilities:
Restricted cash and investments		(26,683	)		(41,384	)
Receivables		2,997			624
Deposits on fuel hedges and other deposits		(2,900	)		(800	)
Prepaid maintenance payments		(6,815	)		–
Prepaid expenses and other assets		(472	)		(2,852	)
Inventories		(977	)		(1,453	)
Other assets		(14	)		(146	)
Accounts payable		(2,920	)		14,271
Air traffic liability		14,526			10,886
Other accrued expenses		(5,182	)		(14,422	)
Deferred revenue and other liabilities		(2,471	)		(773	)
Net cash provided (used) by operating activities before reorganization		2,256			(64,182	)

Cash flows from reorganization activities:
Net cash used by reorganization activities		(4,014	)		(3,871	)

Total net cash used by operating activities		(1,758	)		(68,053	)

Cash flows from investing activities:
Aircraft lease and purchase deposits made		(3,130	)		(1,247	)
Aircraft lease and purchase deposits returned		92			–
Proceeds from the sale of property and equipment and assets held for sale		108			59,304
Capital expenditures		(1,209	)		(4,949	)
Proceeds from the sales of aircraft – reorganization		19,996			–
Net cash provided by investing activities		15,857			53,108

(Continued)

- 3 -

FRONTIER AIRLINES HOLDINGS, INC. AND SUBSIDIARIES ~~(Debtor and Debtor-in-Possession as of April 10, 2008) Consolidated Statements of Cash Flows (Unaudited) (In thousands)~~

	Nine Months Ended
	December 31,			December 31,
	2008			2007
Cash flows from financing activities:
Net proceeds from issuance of common stock and warrants		–			31
Proceeds from debtor-in-possession loan (post-petition)		30,000			–
Proceeds from long-term borrowings		–			201,136
Proceeds from short-term borrowings		–			44,150
Extinguishment of long-term borrowings		(70,136	)		(80,188	)
Principal payments on long-term borrowings		(27,843	)		(26,138	)
Principal payments on short-term borrowings		(3,139	)		(31,817	)
Payment of financing fees		(2,170	)		(1,084	)
Extinguishment of long-term borrowings – reorganization item		(83,401	)		–
Net cash provided (used) by financing activities		(156,689	)		106,090
Net decrease in cash and cash equivalents		(51,782	)		(32,547	)
Cash and cash equivalents, beginning of period		120,837			202,981
Cash and cash equivalents, end of period	$	69,055		$	170,434

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

~~Supplemental~~Consolidated ~~Disclosure~~Statements of Cash ~~Flow~~Flows ~~Information:~~(Unaudited)

~~Application of Pre-Delivery~~(In ~~Payments: During the nine months ended December 31, 2007, the Company applied pre-delivery payments of $42,780,000 towards the purchase of aircraft and LiveTV equipment.~~thousands)

	Three Months Ended
	June 30,			June 30,
	2009			2008

Cash flows from financing activities:
Proceeds from debtor-in-possession loan (post-petition)		10,000			–
Extinguishment of long-term borrowings		–			(33,754	)
Principal payments on long-term borrowings		(6,135	)		(12,741	)
Payment of financing fees		(1,485	)		(83	)
Extinguishment of long-term borrowings – reorganization item		(18,871	)		–
Net cash used in financing activities		(16,491	)		(46,578	)

Net decrease in cash and cash equivalents		(2,392	)		(61,523	)

Cash and cash equivalents, beginning of period		71,793			120,837

Cash and cash equivalents, end of period	$	69,401		$	59,314

See accompanying notes to consolidated financial statements

- 4 -

FRONTIER AIRLINES HOLDINGS, INC. AND SUBSIDIARIES

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

Notes to Consolidated Financial Statements

~~December~~June 3130, ~~2008~~2009

1.	Chapter 11 Reorganization

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 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.

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.

On July 8, 2009, the Debtors entered into an Amended and Restated Investment Agreement with Republic Airways Holdings, Inc. (the “Investment Agreement”) that was approved by the Bankruptcy Court on July 13, 2009. Under the terms of the Investment Agreement, Republic Airways Holdings, Inc. (“Republic”) made a stalking horse offer to acquire 100% ownership of the Debtors for an aggregate purchase price of $108.8 million. The Investment Agreement also established an auction process allowing the Debtors to solicit proposals and bids from third parties and to terminate the Investment Agreement if the Debtors received a higher or otherwise better offer. Under the auction process, interested parties had to submit preliminary non-binding proposals no later than August 3, 2009, and final binding proposals no later than August 10, 2009. On July 30, 2009, Southwest Airlines Co. submitted its initial non-binding proposal to participate in the auction process and subsequently submitted a binding proposal on August 10, 2009. On August 13, 2009, the Debtors concluded the auction and determined that Republic had submitted the highest and otherwise best proposal for the purchase of the Debtors. As part of the winning proposal, Republic agreed to waive recovery on its allowed $150.0 million unsecured claims increasing the potential recovery for the remaining unsecured claims. The Debtors entered into the Second Amended and Restated Investment Agreement with Republic on August 13, 2009. This revised Investment Agreement retains a purchase price of $108.8 million, with $28.8 million of the purchase price allocated to payment of the unsecured creditors. Under the revised Investment Agreement and the Debtors’ Plan of Reorganization, the Company’s current outstanding common stock will have no value and will be canceled. No assurance can be provided as to what values will ultimately be realized by holders of claims against the Debtors. The Debtors disclaim any responsibility for correcting or updating any recovery estimates provided herein or elsewhere, and any such estimates shall not be binding against the Debtors and should not be relied upon by any party. Caution should be exercised with respect to existing and future investments in any of the Debtors' liabilities or securities (including the prepetition stock of Frontier Holdings, which will have no value and will be cancelled if the Debtors' proposed plan of reorganization is approved and consummated).

- 5 -

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”).

-5-

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, ~~cash holdbacks instituted by the Company’s other credit card processor,~~ 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, ~~our~~the Company’s creditors filed proofs of claim with the Bankruptcy Court. The total amount of the claims that were filed far exceeds ~~our~~ the Company’s estimate of ultimate liability. WeThe ~~believe~~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 ~~our~~the Company’s records are being investigated and resolved in connection with ~~our~~the Company’s claims resolution process. While wethe ~~have~~Company has made significant progress to date, wethe ~~expect~~Company expects this process to continue for some time and believe that further reductions to the ~~claims~~claim register will enable usthe Company to more precisely determine the likely range of creditor distributions under a proposed plan of reorganization. At this time, wethe Company cannot determine the ultimate ~~number~~ number and allowed amount of the claims.

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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-Q, including where applicable, the Debtors’ express termination rights or a quantification of ~~our~~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 ~~rejected~~ is the Republic Airlines, Inc. (“Republic”) regional partner ~~contract~~ ascontract. ~~discussed~~The inCompany ~~Note~~has ~~2. The~~recorded ~~Debtors~~the ~~cannot~~amount atof ~~this~~the ~~time~~allowed ~~determine~~claim ~~the~~of $150.0 million. The consolidated financial statements also include allowed ~~amount~~claims of $29.8 ~~Republic’s~~million ~~rejection~~related ~~damage~~to ~~claim~~union labor agreements (not including the $7. ~~These~~1 ~~financial~~million ~~statements,~~unsecured ~~however,~~claim ~~include~~related to a subsequent settlement with IBT which will be recorded in the ~~allowed~~fiscal ~~claim~~second ofquarter) and one rejected real property ~~lease~~ lease agreement in the amount of $01.90 million. ~~These~~ The consolidated financial ~~statements~~ 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~~ with Statements of Financial Accounting Standards No. 5, Accounting for Contingencies. Certain claims ~~filed~~ may have priority above those of general unsecured creditors.

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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~~ 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 and is supportive of the Debtors’ proposed plan of reorganization; 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

InOn ~~order~~June to22, ~~successfully exit Chapter 11~~2009, the Debtors ~~will~~filed ~~need~~their toMotion ~~propose,~~for ~~and~~Approval of Disclosure Statement ~~obtain~~and ~~confirmation~~Solicitation byProcedures. Also on July 22, 2009 the Bankruptcy Court ~~of,~~entered its aorder ~~plan~~approving ofthe ~~reorganization~~Disclosure ~~that~~Statement for the Debtors’ Joint Plan of ~~satisfies~~Reorganization and established the ~~requirements~~solicitation and voting procedures for the Debtor’s Plan of Reorganization. The Debtors’ Plan of Reorganization is based on the ~~Bankruptcy~~Investment ~~Code~~Agreement. The Acreditors’ ~~plan~~votes either for or against, and any objections to, the Debtors’ Plan of ~~reorganization~~Reorganization must be ~~would~~submitted on or before August 28, ~~among~~2009. The ~~other~~confirmation ~~things~~hearing on the Debtors’ Plan of Reorganization is currently scheduled for September 10, ~~resolve~~2009. Assuming the Debtors’ ~~pre-petition~~Plan ~~obligations~~of Reorganization is confirmed at that hearing, ~~set~~the ~~forth~~Debtors ~~the~~expect ~~revised~~to ~~capital~~consummate ~~structure~~the ofPlan and the ~~newly-reorganized~~Investment ~~entity,~~Agreement and ~~provide~~emerge ~~for~~from ~~corporate~~Chapter ~~governance~~11 ~~subsequent~~in toSeptember ~~exit~~2009. ~~from~~There ~~bankruptcy~~can be no assurance at this time, however, that the Plan of Reorganization will be confirmed by the Bankruptcy Court, or that the plan will be implemented successfully.

~~Automatically,~~The Plan ~~upon~~of ~~commencing~~Reorganization awill ~~Chapter~~be 11deemed ~~case,~~accepted aby ~~debtor~~holders ~~has~~of ~~the~~claims ~~exclusive~~against ~~right for~~and ~~120 days~~equity ~~after~~interests in the ~~petition~~Debtors ~~date~~if to(1) at ~~file~~least aone-half ~~plan~~in ofnumber ~~reorganization~~ and~~, if~~ ittwo-thirds ~~does~~in ~~so,~~dollar ~~60 additional~~amount ~~days~~of toclaims ~~obtain~~actually ~~necessary~~voting ~~acceptances~~in ofeach ~~its~~impaired ~~plan.~~class of ~~They~~claims ~~Bankruptcy~~have ~~Court~~voted ~~may~~to ~~extend~~accept ~~these~~the ~~periods,~~plan and ~~have~~(2) at ~~done~~least sotwo-thirds in ~~these~~amount ~~cases. On~~of ~~January~~equity ~~21,~~interests ~~2009,~~actually ~~the~~voting ~~Bankruptcy~~in ~~Court~~each ~~further~~impaired ~~extended~~class of equity interests ~~these~~has ~~periods~~voted to ~~June~~accept 4,the ~~2009,~~plan. ~~and~~Under ~~August~~certain 4,circumstances ~~2009~~set forth in Section 1129(b) of the Bankruptcy Code, ~~respectively~~however, ~~and~~ the Bankruptcy Court may confirm ~~further~~a ~~extend~~plan ~~these~~even ~~periods. If~~if ~~the~~such ~~Debtors’ exclusivity~~plan ~~period~~has ~~lapsed,~~not ~~any~~been ~~party~~accepted inby ~~interest~~all ~~would~~impaired beclasses of ~~able~~claims toand ~~file~~equity ainterests. ~~plan~~A class of claims or equity interests that does ~~reorganization~~not ~~for~~receive or retain any ofproperty under the ~~Debtors. In~~plan ~~addition~~on account of such claims or interests is deemed to ~~being~~have voted onto reject the plan. The precise requirements and evidentiary showing for confirming a plan notwithstanding its rejection by one ~~holders~~or ofmore 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 ofmay ~~reorganization~~be “crammed down” even if the ~~must~~stockholders ~~satisfy~~receive ~~certain~~no ~~requirements~~recovery ofif the ~~Bankruptcy~~proponent ~~Code~~of ~~and~~the ~~must~~plan bedemonstrates ~~approved,~~that (1) no class junior to the common stock is receiving or ~~confirmed,~~retaining byproperty under the ~~Bankruptcy~~plan ~~Court~~and in(2) no ~~order~~class of claims or interests senior to ~~become~~the ~~effective~~common stock is being paid more than in full.

~~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~~7 ~~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.

~~Under the~~Automatically, ~~priority~~upon ~~scheme~~commencing ~~established~~a byChapter ~~the~~11 ~~Bankruptcy Code~~case, ~~unless~~a ~~creditors~~debtor ~~agree otherwise,~~has ~~pre-petition~~the ~~liabilities~~exclusive ~~and~~right ~~post-petition~~for 120 days ~~liabilities~~after ~~must~~the ~~be satisfied~~petition indate ~~full~~to ~~before~~file ~~stockholders~~a ~~are~~plan ~~entitled~~of toreorganization ~~receive~~and, ~~any distribution~~if orit ~~retain~~does ~~any~~so, ~~property~~60 additional ~~under~~days ato ~~plan~~obtain necessary acceptances of ~~reorganization.~~its plan. The ~~ultimate~~Bankruptcy ~~recovery~~Court ~~to creditors~~may ~~and/or~~extend ~~stockholders,~~these ~~if any~~periods, ~~will~~and ~~not~~has bedone ~~determined~~so ~~until~~in ~~confirmation~~these cases. ofIn aMay ~~plan~~2009, orthe ~~plans~~Bankruptcy ofCourt ~~reorganization.~~extended Nothe ~~assurance~~Debtors’ ~~can~~exclusive befiling ~~given~~and acceptance asdeadlines to ~~what values~~October 9, ~~if any~~2009, ~~will~~and beDecember ~~ascribed~~9, in2009, respectively. If the ~~Chapter 11~~Debtors’ ~~cases~~exclusivity toperiod ~~each~~lapses, ofany ~~these constituencies~~party orin ~~what~~interest ~~types~~will orbe ~~amounts~~able to file a plan of ~~distributions,~~reorganization iffor any, ~~they~~of ~~would receive~~the Debtors. AIn ~~plan~~addition ofto ~~reorganization~~being ~~could~~voted on ~~result~~by in holders of ~~the~~impaired ~~Debtors’ liabilities~~claims and~~/or~~ ~~securities~~equity interests, ~~including~~the Plan of Reorganization must satisfy certain requirements of the ~~Company’s~~Bankruptcy ~~common~~Code ~~stock,~~and ~~receiving~~must nobe ~~distribution~~approved, onor ~~account~~confirmed, ofby ~~their~~the ~~interests~~Bankruptcy ~~and~~Court ~~cancellation~~in oforder ~~their~~to become ~~holdings~~effective.

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.

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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 4 “Reorganization Items” 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 accompanying consolidated financial statements do not include any adjustments to reflect or provide for the consequences of the bankruptcy proceedings. 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 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 Debtor’s Chapter 11 proceedings could adversely affect sales of tickets and the Debtor’s relationship with customers, as well as with vendors and employees, which in turn could adversely affect the Debtor’s 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.

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2.	Basis of Presentation and Nature of Business

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended March 31, ~~2008~~2009. The preparation of financial statements in conformity with 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. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included.

-8-

The accompanying unaudited consolidated financial statements have been prepared assuming the Company will continue as a going concern. This assumes a continuing of operations and the realization of assets and liabilities in the ordinary course of business. The unaudited consolidated financial statements do not include any adjustments that might result if the Company were forced to discontinue operations. The Company has substantial liquidity needs in the operation of its business and faces significant liquidity challenges due to the volatility of aircraft fuel prices, which reached record levels in July 2008, holdback of customer receipts from its bankcard processor and credit cards, and required cash deposits on fuel hedge positions.

The accompanying unaudited consolidated financial statements do not purport to reflect or provide for the consequences of the Chapter 11 proceedings. In particular, the 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 shareowners’ 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 U.S. generally accepted accounting principles (“GAAP”), the Company has 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 the 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 the 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 ~~December~~June 3130, ~~2008~~2009 as 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 (see Note 5).

While operating as debtors-in-possession, the Debtors may sell or otherwise dispose of or liquidate assets or settle liabilities, subject to the approval of the Bankruptcy Court or as permitted in the ordinary course of business. These dispositions and settlements may be in amounts other than those reflected in the unaudited consolidated financial statements. Further, a plan of reorganization could materially change the amounts and classifications in the historical consolidated financial statements.

Financial results, as measured by net income, for the Company and airlines in general, are seasonal in nature. Historically, the financial results for the Company’s first and second fiscal quarters generally have exceeded its third and fourth fiscal quarters. Due to seasonal variations in the demand for air travel, the volatility of aircraft fuel prices, the Company’s bankruptcy and other factors, operating results for the ~~nine~~three months ended ~~December~~June 3130, ~~2008,~~ 2009 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, ~~2009~~2010.

~~Reclassification of~~- ~~Prior Year Amounts~~9 -

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

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Nature of Business

~~The~~Frontier ~~Company~~Airlines Holdings provides air transportation for passengers and freight through ~~its~~ 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 of Colorado on February 8, 1994 and commenced operations on July 5, 1994. In In September 2006 the Company formed a new subsidiary, Lynx Aviation. The Company currently operates routes linking its Denver, Colorado hub to 57over 50 destinations including destinations in Mexico and Costa Rica. As of ~~December~~June 3130, ~~2008~~ 2009, the Company operated a fleet of 39 38 Airbus A319 aircraft, 11ten Airbus A318 aircraft, ~~two~~three 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).

Midwest Code Share

On June 25, 2009, Frontier Airlines entered into a codeshare agreement with Milwaukee-based Midwest Airlines (“Midwest”). Under the codeshare, Frontier's code will be placed on Midwest flights in select markets, providing customers the ability to connect in Milwaukee to destinations in the Ohio Valley and East Coast, including Cleveland, Fort Myers, Indianapolis, Nashville, New York-LaGuardia, Orlando, Philadelphia, Pittsburgh, Tampa and Washington, D.C.-National. Similarly, Midwest's code will be placed on Frontier flights in select markets, allowing their customers to connect in Denver to Frontier and Lynx Aviation destinations including Aspen, Colorado Springs, Boise, Billings, Bozeman, Rapid City and other destinations in the Rocky Mountain region. Travelers can purchase tickets and fly on the codeshare routes beginning September 1, 2009. Additional codeshare cities will be added following the initial launch. In addition to the codeshare, a new marketing relationship is planned to include a reciprocal frequent flyer agreement, allowing members of the Frontier EarlyReturns and the Midwest Miles programs to earn and redeem miles on either airline.

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~~ 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~~ January 26, 2009, Lynx Aviation exercised its ~~option~~purchase options on the first and second of the ten additional aircraft, ~~respectively,~~ for delivery dates in ~~June~~August 2009 and ~~February~~ February 2010, respectively. When taking into account the exercised options as well as those options the Company has elected not to exercise, Lynx Aviation has remaining purchase options for three aircraft.

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 three ~~and nine~~ months ended ~~December~~June 3130, ~~2008~~2009 ~~were $13,037,000~~ and June ~~$37~~30,~~915,000,~~ ~~respectively. Payments~~2008 ~~made~~were ~~under~~$12.8 ~~the~~million ~~capacity purchase~~and ~~agreement~~$12.0 ~~during the month ended December 31~~million, ~~2007 were $2,295,000~~respectively. See Note 14 16 for operating segment information, ~~that~~ which includes the presentation of the Company’s operating segments and how ~~their~~ its operations impact the overall network and profitability.

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Regional Partners

Frontier Airlines’ agreement with Republic ~~Airlines~~, ~~Inc. (“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. ~~The agreement provided for financial incentives and penalties based on the performance of Republic which are accrued for in the period earned.~~ In April 2008 as part of the bankruptcy proceeding, the Company ~~reached~~rejected athe ~~mutual~~capacity purchase agreement with Republic ~~under which Frontier~~. ~~Airlines~~There ~~would~~was ~~reject the original agreement and replace it with an agreement for~~ a structured reduction and gradual phase-out of 12 delivered aircraft, ~~which~~ which was completed on June 22, 2008. In November 2008 Republic filed a claim in the amount of $215 million against the Company. The Company does not believe the amount of the claim is representative of the amount that will ultimately be allowed under the plan of reorganization. The claim is subject to the mitigation of damages and other criteria that may significantly change the amount of the clam filed. No provision has been recorded in the financial statements for this claim as the Company does not believe it can reasonably estimate the amount of the allowed claim at this time.

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.

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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 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 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 us 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 December 31, 2008 and March 31, 2008, the Company estimated that approximately 320,000 and 472,000 and 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 December 31, 2008 and March 31, 2008, the Company had recorded a liability of approximately $3,859,000 and $10,059,000, respectively, for these rewards.

3.	New Accounting Standards

New Accounting Standards Not Yet Adopted

In March 2008 the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 161, Disclosures about Derivative Instruments and Hedging Activities - an Amendment of FASB Statement 133 (“FAS 161”). This standard enhances required disclosures regarding derivatives and hedging activities to help investors better understand how derivative instruments and hedging activities affect an entity’s financial position, financial performance and cash flows. Requirements under FAS 161 include disclosure of the objectives for using derivative instruments, disclosure of the fair values of derivative instruments and their gains and losses in a tabular format, disclosure of credit risk related features, and cross-referencing within the footnotes of derivative-related information. FAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. The Company expects to comply with the disclosure requirements of FAS 161 upon adoption.

In May 2008 the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (“FAS 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.” The Company does not expect FAS 162 to have a material impact on its consolidated financial statements.

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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.

New Accounting Standards Adopted During the Fiscal Year

~~Effective~~EITF ~~April~~08-3 ~ 1,In June 2008, the ~~Company~~FASB ~~adopted~~issued ~~Statement~~EITF of08-3, ~~Financial~~ "Accounting ~~Standard~~by ~~No.~~Lessees ~~157,~~for Maintenance ~~Fair~~Deposits ~~Value Measurements~~ (“~~FAS~~EITF ~~157~~08-3”)", on the accounting for maintenance deposits under an arrangement accounted for as a lease. ~~This~~EITF ~~standard~~08-3 ~~establishes~~applies to the lessee’s accounting for maintenance deposits paid by a ~~framework~~lessee under an arrangement accounted for ~~measuring~~as ~~fair~~a ~~value~~lease ~~and~~that ~~requires~~are ~~enhanced~~refunded ~~disclosures~~only ~~about~~if ~~fair~~the ~~value~~lessee performs ~~measurements.~~specified ~~FAS~~maintenance ~~157~~activities. EITF ~~clarifies~~08-3 requires that ~~fair~~lessees continually ~~value~~evaluate iswhether anit ~~exit~~is ~~price,~~probable ~~representing~~that ~~the~~an amount ~~that~~on ~~would~~deposit with a lessor will be ~~received~~returned to ~~sell~~reimburse anthe ~~asset~~costs orof ~~paid~~the tomaintenance ~~transfer~~activities incurred aby ~~liability~~the inlessee. When an ~~orderly~~amount ~~transaction~~on ~~between~~deposit ~~market~~is ~~participants.~~less ~~SFAS~~than ~~157~~probable ~~also~~of ~~requires~~being returned, ~~disclosure~~it ~~about~~shall ~~how~~be ~~fair~~recognized ~~value~~as additional expense. When the underlying maintenance is ~~determined~~performed, ~~for~~the ~~assets~~maintenance ~~and~~costs ~~liabilities~~shall ~~and~~be ~~establishes~~expensed aor ~~hierarchy~~capitalized in accordance with the lessee's maintenance accounting policy. EITF 08-3 is effective for ~~which~~financial ~~these~~statements ~~assets~~issued ~~and~~for ~~liabilities~~fiscal ~~must~~years bebeginning ~~grouped~~on or after December 15, ~~based~~2008, onincluding ~~significant~~interim ~~levels~~periods within those fiscal years. Earlier application by an entity that has previously adopted an alternative accounting policy is not permitted. Prior to the adoption of ~~inputs~~EITF 08-3, the Company recorded its maintenance payments, or supplemental monthly payments under aircraft lease agreements, as ~~follows:~~an expense when paid.

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.

The Company recognized the effect of the change as a change in accounting principle as of April 1, 2009, for all arrangements existing at this effective date, as an adjustment to the opening balance of retained earnings in the amount of $124.5 million. The cumulative effect adjustment is the difference between the amounts recognized in the statement of financial position before initial application of this EITF 08-3 and the amounts recognized in the statement of financial position at initial application of this EITF 08-3. The Company has determined that all prepaid maintenance payments will be refunded through qualifying maintenance activities. Reserves are reimbursed based on the specific event for each specified reserve, as determined by the lease. The Company reached that conclusion through a detailed analysis of the current reserve balances and projected balances as compared to the projected ultimate cost of the underlying maintenance events. In addition, 36% of the Company’s leases provide for caps on the total reserves required. The projected ultimate cost was based on actual historical repair invoices as well as estimates. This analysis was performed by lease and by reserve type. As of April 1, 2009 and June 30, 2009, the Company anticipates no unused excess amounts to be expensed based on this analysis. The Company will continue to evaluate whether it is probable that prepaid amounts will be returned to reimburse the costs of the maintenance activities incurred. As the Company makes future payments, if they are less than probable of being returned, they will be recognized as additional expense at that time.

~~The~~For income ~~determination~~tax ofpurposes, ~~where~~the ~~assets~~Company ~~and~~expenses ~~liabilities~~these ~~fall~~payments ~~within~~as ~~this~~paid. As ~~hierarchy~~a result ~~is based upon the lowest level~~ of ~~input~~this ~~that~~accounting ischange ~~significant~~for tobook purposes the ~~fair~~Company ~~value~~now ~~measurement.~~deducts ~~The~~these payments ~~following~~in isadvance ~~a listing~~ of the ~~Company’s~~book ~~assets~~expense, ~~and~~causing ~~liabilities~~a ~~required~~deferred totax beliability. The ~~measured~~tax atconsequence ~~fair~~of ~~value~~this onchange ain ~~recurring~~accounting ~~basis~~is ~~and~~approximately ~~where~~$48 ~~they~~million, which ~~are~~was ~~classified~~fully ~~within~~offset ~~the~~by ~~hierarchy~~a asreduction ofin ~~December~~the ~~31,~~valuation ~~2008~~allowance ~~(in~~for ~~thousands):~~deferred tax assets.

		Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents	$	69,055	$	–	$	–	$	69,055
Restricted cash and investments		114,683		–		–		114,683
	$	183,738	$	–	$	–	$	183,738

- 11 -

FSP APB 14-1 ~ 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 ~~and~~Settlement) (“FSP APB 14-1”). FSP APB 14-1 applies to convertible debt instruments that, by their stated terms, may be settled in cash ~~equivalents/Restricted~~(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 ~~investments:~~ 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 was effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years.

~~Short-term~~On ~~cash~~December ~~investments~~7, ~~consist~~2005, the Company completed the sale of ~~money~~$92.0 ~~market~~million ~~funds~~aggregate ~~with~~principal ~~maturities~~amount of ~~less~~5.0% Convertible ~~than~~Notes ~~three~~due ~~months,~~2025 ~~classified~~(“Convertible asNotes”) ~~available~~in a public offering pursuant to the Company’s shelf registration statement. Holders may require the Company to repurchase the Convertible Notes for ~~sale~~cash ~~securities~~at a repurchase price of 100% of the principal amount plus accrued interest on December 15, 2010, 2015 and ~~stated~~2020. The Convertible Notes are convertible, at ~~fair~~the ~~value~~option of the holders, into shares of the Company’s common stock at a conversion rate of 96.7352 ~~These~~shares ~~securities~~per principal ~~are~~amount ~~valued~~of ~~using~~notes ~~inputs~~(representing ~~observable~~a inconversion ~~active~~price ~~markets~~of approximately $10.34 per share), subject to certain adjustments, at any time prior to maturity. The terms of the original instrument provided that upon conversion, the Company would have the right to deliver a combination of cash and ~~therefore~~shares of common stock. These Convertible Notes are ~~classified~~subject asto ~~level~~the provisions of FSP APB 14-1 ~~within~~since the ~~fair~~notes ~~value~~can ~~hierarchy~~be settled in cash upon conversion.

The Company adopted FSP APB 14-121 on April 1, 2009. The Company concluded that the fair value of the equity component of the Convertible Notes at the time of issuance in 2005 was approximately $39.5 million. The effective borrowing rate for Convertible Notes at the time of issuance of the 5% Debentures was estimated to be 10%, which resulted in $39.5 million of the $92 million aggregate principal amount of debentures issued being attributable to equity and recorded as additional debt discount. Subsequent to the Company’s Chapter 11 bankruptcy filing, the Company stopped accruing for interest on unsecured borrowings since it was probable the interest would not be an allowed claim. Under SOP 90-7 the Company reinstated the bonds to the claim value which resulted in writing off the remaining unamortized debt discount on the balance sheet because the entire principal amount is an allowed claim. As such, the Company has reflected $37.0 million as additional reorganization expense during the three months ended June 30, 2008, eliminating any impact to equity and interest expense for the adoption of this standard for the three months ended June 30, 2009.

~~Restricted~~FAS ~~cash~~165 ~~and~~~ In ~~investments~~May ~~primarily~~2009 ~~relates~~the toFASB ~~funds~~issued ~~held~~Statement byof ~~companies~~Financial ~~that~~Accounting ~~process~~Standard ~~credit~~(“SFAS”) No. ~~card~~165, ~~sale~~Subsequent ~~transactions~~Events (“FAS ~~and~~165”). ~~are~~FAS ~~invested~~165 inprovides ~~money~~guidance ~~market~~on ~~accounts.~~events ~~They~~that ~~also~~occur ~~include~~after ~~cash~~the balance ~~deposits~~sheet ~~that~~date ~~secure~~but ~~certain~~prior ~~letters~~to the issuance of ~~credit~~the ~~issued~~financial ~~for~~statements. ~~workers~~FAS 165 ~~compensation~~distinguishes ~~claim~~events ~~reserves~~requiring ~~and~~recognition ~~certain~~in ~~airport~~the ~~authorities~~financial statements and those ~~cash~~that ~~held~~may require disclosure in ~~escrow~~the ~~for~~financial ~~future~~statements ~~charter~~and ~~flights~~requires disclosure of the date through which subsequent events were evaluated. ~~Restricted~~FAS ~~cash~~165 is effective for interim and ~~investments~~annual ~~are~~periods ~~stated~~after atJune ~~fair~~15, ~~value~~2009. We have adopted FAS 165 for the quarter ended June 30, 2009.

~~Short-term~~New ~~investments:~~ Accounting Standards Not Yet Adopted

AtIn ~~March 31~~June 2009, ~~2008,~~the ~~short-term~~FASB ~~investments~~issued ~~consisted~~SFAS ~~solely~~No. of168, ~~two~~The ~~available~~FASB ~~for~~Accounting ~~sale~~Standards Codification TM ~~securities~~and ~~that~~the ~~were~~Hierarchy ~~invested~~of Generally inAccepted ~~auction~~Accounting ~~rate~~Principles ~~securities~~ (“~~ARS~~FAS 168”). AtFAS ~~March~~168 ~~31, 2008,~~ establishes the ~~fair~~FASB ~~values~~Accounting ofStandards ~~the~~Codification ~~Company’s ARS~~TM (“Codification”), ~~all~~which ofsupersedes ~~which~~all ~~are~~existing ~~collateralized~~accounting bystandard ~~student~~documents and ~~loan~~will ~~portfolios,~~become ~~were~~the ~~estimated~~single ~~through~~source ~~discounted~~of ~~cash~~authoritative ~~flow~~non-governmental ~~models~~U.S. AsGAAP. All aother ~~result~~accounting ofliterature ~~the~~not ~~lack~~included ~~of liquidity~~ in the ~~ARS~~Codification ~~market,~~will ~~the~~be considered ~~Company~~non-authoritative. ~~recorded~~The anCodification ~~unrealized~~was ~~loss~~implemented on ~~those~~July ~~ARS~~1, of2009 and ~~$0.3~~will ~~million,~~be oneffective ~~the~~for ~~principal~~interim ~~value~~and ofannual ~~$8.8~~periods ~~million,~~ending ~~which~~after isSeptember ~~reflected~~15, 2009. asWe ~~accumulated~~expect ~~other~~to ~~comprehensive~~adopt ~~loss~~FAS in168 for the ~~consolidated~~quarter ~~balance~~ended ~~sheet~~September ~~at March 31~~30, ~~2008~~ 2009.

~~During the three months ended June 30, 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 2008.12 -

In October 2008 the Company received notification that a settlement had been reached between the brokers; the New York Attorney General’s office, and the SEC covering ARS purchased prior to February 11, 2008. The broker was required to pay back all amounts at par; including the ARS the Company sold below par during the three months ended June 30, 2008. The repayment process was to begin no later than December 15, 2008. In December 2008 the Company received the full amount of the original par value during the year of $8.8 million and reversed the $1.3 million unrealized loss upon settlement of the ARSs.

4.	Reorganization Items

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 Debtors under Chapter 11. The Debtors’ reorganization items consist of the following:

	Three Months Ended December 31, 2008			Nine Months Ended December 31, 2008
	Three Months Ended June 30, 2009			Three Months Ended June 30, 2008
	(In thousands)
Professional fees directly related to reorganization (a)	$	54,~~121~~366		$	187,~~459~~361
Gains on the sale of aircraft (b)		(8,093	)		(13,887	)
Loss on the sale of aircraft (b)		11,031			–
Loss on a sale-lease back transaction (b)	–				4,654
Gains on contract terminations cure payment reductions, net		(451	)		–
Gains on contract terminations and settlements, net (c)		(1,819	)		(6,100	)
Write-off of remaining unamortized debt discount (see note 3)		–			36,961
Write-off of note receivable (d)	–				13,541
Other, net (c)		–			1,226
Write-off of debt issuance cost (e)	–				1,833
Total loss on reorganization items	$	14,946		$	45,548
Estimated allowable claim for rejected contract (f)		915			915
Other, net (g)		1,225			3,231
Total (gain)/loss on reorganization items	$	(2,651	)	$	22,646

(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.

~~-13-~~(b) Reorganization items include a loss of $7.6 million on the sale of one A318 aircraft in May 2009 and $3.4 million of accelerated depreciation for an A318 aircraft that the Company plans to sell in August 2009. These transactions were agreed upon subsequent to the Company’s bankruptcy filing as part of the Company’s efforts to restructure its fleet and were approved by the Bankruptcy Court.

(bc) ~~Reorganization~~ Other ~~items~~expenses ~~include~~incurred ~~the~~during ~~gain on~~ the ~~sale~~three ofmonths ~~six~~ended ~~aircraft~~June ~~sold~~30, ~~and~~2008 aare ~~sale-lease back~~primarily ~~transaction~~related into ~~August~~fees ~~2008. These~~and ~~transactions~~penalties ~~were~~associated ~~agreed~~with ~~upon subsequent to~~ the ~~Company’s~~temporary ~~Bankruptcy~~payment ~~filing~~default penalties ~~and~~on ~~approved~~aircraft ~~by the Bankruptcy Court~~loans.

~~(c) Effective~~Net cash aspaid offor ~~August~~reorganization ~~31,~~items ~~2008,~~for the ~~Company~~three ~~and~~months GEended ~~Engine~~June ~~Services~~30, ~~Inc.~~2009 ~~mutually~~and ~~agreed~~June to30, ~~terminate~~2008 atotaled ~~MCPH~~$4.0 ~~Restated~~million and ~~Amended~~$3.9 ~~Engine~~million, ~~Service Agreement~~respectively. ~~This~~ ~~resulted~~These inamounts exclude athe ~~gain of~~ $51.81 million ~~for~~net ~~reimbursement~~proceeds received during the three months ended ofJune ~~maintenance~~30, ~~reserve~~2009 ~~payments~~from ~~less~~the ~~certain~~sale ~~fees~~of aircraft during the Company’s reorganization process.

~~(d) The~~During ~~write-off~~the ofthree amonths ~~note~~ended ~~receivable~~June ~~relates~~30, to2008 areorganization ~~contract~~items inexclude ~~which~~the gain on the ~~Company~~sale ~~has~~of two aircraft in May 2008, because those aircraft were part of the ~~agreed~~Company’s routine operational decision to ~~forgive~~address aplanned ~~note~~reductions ~~receivable~~in ~~from~~capacity and adesires ~~vendor~~to improve liquidity in ~~exchange~~reaction ~~for~~to aeconomic ~~revised~~conditions and fuel ~~contract~~price ~~that~~increases. ~~will~~The ~~support~~Company obtained signed letters of intent and deposits on the anticipated aircraft sales prior to the Company’s ~~lower~~unanticipated ~~aircraft~~bankruptcy filing. ~~capacity~~Reorganization items also exclude employee separation and other charges, as these amounts relate to normal operations of the business rather than charges resulting from the Chapter 11 reorganization.

~~(e) The Company wrote~~-~~off~~ ~~the debt issuance costs related to the unsecured convertible~~13 ~~notes since the Company anticipates the entire principal amount will be an allowed claim for the value of its unsecured convertible notes.~~-

(f) 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.

(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.

Net cash paid for reorganization items for the three and nine months ended December 31, 2008 totaled $5.4 million and $13.9 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, as these amounts relate to normal operations of the business rather than charges resulting from the Chapter 11 reorganization.

5.	Liabilities Subject to Compromise

Liabilities subject to compromise (“LSTC”) refer to both secured and unsecured obligations that will be accounted for 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 debt as a liability subject to compromise as management believes that there remains uncertainty to the terms under a plan of reorganization. At hearings held in April 2008, the Bankruptcy 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.

-14-

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.

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 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:

	December 31, 2008		March 31, 2008
	June 30, 2009		March 31, 2009
	(In thousands)
Accounts payable and other accrued expenses	$	5852,~~831~~309	$	–53,485
Accrued interest expense on LSTC		3,761		–
Unsecured allowed claims under Section 365		180,718		180,718
Secured debt		388,938		–
Accrued interest on LSTC		2,953		3,131
Unsecured convertible notes		92,000		–
Secured debt (note 12)		354,320		379,327
Total liabilities subject to compromise	$	543,530	$	–
Unsecured convertible notes (note 12)		92,000		92,000
Total liabilities subject to compromise	$	682,300	$	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.

6.- ~~Equity Based Compensation Plans~~14 -

For the three and nine months ended December 31, 2008, the Company recognized stock-based compensation expense of $464,000 and $1,005,000, respectively, for stock options, stock appreciation rights (“SARs”), restricted stock units (“RSUs”) and cash settled restricted stock awards granted under the Company’s 2004 Equity Incentive Plan6. ~~For~~ ~~the~~Fair ~~three~~Value ~~and nine months ended December 31, 2007, the Company recognized stock-based compensation expense~~ of ~~$309,000 and~~Financial $859,000, respectively, for stock options, SARs and RSUs. Unrecognized stock-based compensation expense related to unvested options and awards outstanding as of December 31, 2008 was approximately $2,928,000, and will be recorded over the remaining vesting periods of one to five years (if the Company’s Equity Incentive Plan is not canceled pursuant to a plan of reorganization). At December 31, 2008, the weighted average remaining recognition period for options, RSU awards, and cash settled restricted stock awards was 2.3 years, 2.3 years and 2.1 years, respectively.Instruments

~~-15-~~Effective April 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements (“FAS 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:

During the nine months ended December 31, 2008 (and prior to the Company filing for bankruptcy under Chapter 11), the Company granted 1,208,858 SARs at a weighted average exercise price of $2.11 per share with a grant-date fair value of $0.73. During the nine months ended December 31, 2008, the Company also granted 166,540 RSUs and 300,340 cash settled restricted stock awards at a weighted average grant date market value of $2.11. Due to the Company’s bankruptcy filing, the Company does not believe that the share-based compensation granted under the 2004 Equity Incentive Plan will have any value.

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.

7The 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. ~~Property~~The following is a listing of the Company’s assets and ~~Equipment~~liabilities required to be measured at fair value on a recurring basis and where they are classified within the hierarchy as of June 30, ~~Net~~2009 (in thousands):

As of December 31, 2008 and March 31, 2008, property and equipment consisted of the following:

	Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	69,401	$	–	$	–	$	69,401
Restricted cash and investments		161,042		–		–		161,042
Aircraft fuel derivatives		–		5,155		–		5,155
	$	230,443	$	5,155	$	–	$	235,598

	December 31,			March 31,
	2008			2008
	(In thousands)
Aircraft, spare aircraft parts, and improvements to
leased aircraft	$	661,596		$	942,162
Ground property, equipment and leasehold improvements		55,960			55,176
Computer software		18,882			17,280
Construction in progress		4,041			4,548
		740,479			1,019,166
Less accumulated depreciation		(127,681	)		(148,722	)
Property and equipment, net	$	612,978		$	870,444

Cash and cash equivalents/Restricted cash and investments

~~Property~~ Cash and cash ~~equipment~~equivalents ~~includes~~consist ~~capitalized~~of ~~interest~~money ofmarket ~~$2,869,000~~funds securities that are considered to be highly liquid and ~~$2,864,000~~easily attradable. These securities are valued using inputs ~~December~~observable ~~31,~~in ~~2008~~active markets and ~~March~~therefore ~~31,~~are ~~2008,~~classified ~~respectively~~as level 1 within the fair value hierarchy.

~~During~~Restricted ~~the~~cash ~~three~~ and ~~nine~~investments ~~months~~that ~~ended~~are ~~December~~held ~~31,~~by ~~2007,~~our ~~the~~bankcard ~~Company~~processors ~~recorded~~are invested in ~~additional~~money ~~depreciation~~market ~~expense~~accounts. ofCash ~~$354,000~~deposits and ~~$3,228,000,~~cash ~~respectively, related~~held toin aescrow ~~change~~are deposited in bank ~~estimate~~accounts. ofAs ~~the~~such, ~~useful~~these ~~life~~accounts ofare ~~its~~valued ~~aircraft~~using ~~seats~~inputs ~~due~~observable ~~the~~in ~~implementation~~active ofmarkets aand ~~program~~therefore toare ~~replace~~classified ~~the~~as ~~Airbus~~level ~~seats~~1 ~~with~~within ~~new~~the ~~leather~~fair ~~seats~~value ~~that was completed in May 2008~~hierarchy.

Aircraft fuel derivatives

The Company’s derivative contracts are privately negotiated contracts and are not exchange traded. Fair value measurements are estimated with option pricing models that employ observable and unobservable inputs. Inputs to the valuation models include contractual terms, market prices, yield curves, fuel price curves and measures of volatility, among others. The fair value of fuel hedging derivatives is recorded in other assets on the consolidated balance sheet. Refer to Note 14 for further discussion of the Company’s fuel hedging derivatives.

Liabilities

The fair value of liabilities subject to compromise will be determined upon a plan of reorganization and is not yet determinable. See Note 5.

7.	Restricted cash and investments

Restricted cash and investments primarily relates to funds held by companies that process credit card sale transactions, credit card companies and escrow funds for future charter service. They also include cash deposits that secure certain letters of credit issued for workers compensation claim reserves and certain airport authorities.

- 15 -

At June 30, 2009 and March 31, 2009, restricted cash and investments consisted of the following:

	June 30,		March 31,
	2009		2009
	(In thousands)
Funds held for holdback of customer sales	$	154,573	$	129,404
Funds held for cash supported letters of credit and deposits on charter flights		6,469		4,955
	$	161,042	$	134,359

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. Full collateralization was reached in July 2009. As of June 30, 2009 and March 31, 2009, that amount totaled $133.6 million and $109.8 million, respectively. In addition, a second credit card company began a holdback during the fiscal year ended March 31, 2008 which totaled $20.4 million and $18.7 million at June 30, 2009 and March 31, 2009, respectively.

8.	Equity Based Compensation Plans

For the three months ended June 30, 2009 and 2008, the Company recognized stock-based compensation expense of $226,000 and $358,000, respectively, for stock options, stock appreciation rights (“SARs”), restricted stock units (“RSUs”) and cash settled restricted stock units granted under the Company’s 2004 Equity Plan. Unrecognized stock-based compensation expense related to unvested options and awards outstanding as of June 30, 2009 was approximately $2.8 million, and will be recorded over the remaining vesting periods of one to five years (if the Company’s Equity Incentive Plan is not canceled pursuant to a plan of reorganization). At June 30, 2009, the weighted average remaining recognition period for options, RSU awards, and cash settled restricted stock awards was 3.3 years, 2.0 years and 1.8 years, respectively. Under the Investment Agreement and the Debtors’ Plan of Reorganization, the Company’s current outstanding common stock will have no value and will be canceled.

- 16 -

9.	Property and Equipment, Net

As of June 30, 2009 and March 31, 2009, property and equipment consisted of the following:

	June 30,			March 31,
	2009			2009
	(In thousands)
Aircraft, spare aircraft parts, and improvements to leased aircraft	$	637,756		$	667,157
Ground property, equipment and leasehold improvements		57,567			56,328
Computer software		20,221			19,354
Construction in progress		2,502			4,193
		718,046			747,032
Less accumulated depreciation		(146,998	)		(136,598	)

Property and equipment, net	$	571,048		$	610,434

Property and equipment includes capitalized interest of $3.6 million and $3.4 million at June 30, 2009 and March 31, 2009, respectively.

Sale of Aircraft

In ~~March~~May ~~2008~~2009 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~~one ~~two~~ Airbus ~~A319~~A318 aircraft for proceeds of $~~59,000,000,~~20.0 ~~with~~million, with a total net book ~~values~~value of $~~52,116,000~~27.5 ~~and approximately $3,000,000 of unused reserves under maintenance contracts for which the Company was to be reimbursed~~million. This resulted in retirement of debt of $~~33,754,000~~ 18.9 million related to the ~~mortgages~~mortgage on the sold aircraft and a book ~~gain~~loss of $~~9,200,000~~7.6 ~~on the sales~~million, ~~net~~including of transaction and exit 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 aircraft10. ~~In September~~ ~~2008~~Deferred ~~the~~Revenue Company sold two Airbus A319 aircraft for proceeds of $55,000,000, with total net book values of $47,739,000. This resulted in retirement of debt of $30,037,000 related to the mortgages on the sold aircraft and aOther ~~book gain of $5,793,000 on the sales, net of transaction costs.~~Liabilities

~~In November~~At ~~2008 the Company sold two Airbus A319 aircraft for proceeds of~~June ~~$55~~30,~~000,000,~~ ~~with~~2009 ~~total net book values of $50,921,000. This resulted in retirement of debt of $36,381,000 related to the mortgages on the sold aircraft~~ and aMarch ~~book gain of $3~~31,~~990,000~~ ~~on the sales~~2009, ~~net~~deferred ofrevenue transaction costs. In December 2008 the Company sold two Airbus A319 aircraft for proceeds of $55,000,000, with total net book values of $50,726,000. This resulted in retirement of debt of $29,488,000 related to the mortgages on the sold aircraft and aother ~~book~~liabilities ~~gain~~consisted of ~~$4,103,000 on~~ the ~~sales, net of transaction costs.~~following:

-16-

	June 30,			March 31,
	2009			2009
	(In thousands)
Deferred revenue primarily related to co-branded credit card	$	19,148		$	21,257
Deferred rent		12,457			12,799
Other		516			536

Total deferred revenue and other liabilities		32,121			34,592
Less current portion		(14,070	)		(15,759	)

	$	18,051		$	18,833

In- ~~August~~17 2008 the Bankruptcy Court also authorized a transaction between the Company and GE Commercial Aviation Service LLC (“GECAS”) whereby the Company sold and leased back one Airbus A319 aircraft for proceeds of $29,300,000, with a net book value of $33,470,000. This resulted in retirement of debt of $23,877,000 related to the mortgage on the sold aircraft and a book loss of $4,654,000 on the transaction, net of transaction costs. The Company also returned two leased Airbus A319 aircraft to GECAS during the second fiscal quarter and returned one additional A319 aircraft to GECAS in January 2009.-

~~Aircraft Purchase~~11. ~~Obligations~~Other Accrued Expenses Not Subject to Compromise

InAt ~~July~~June ~~2008~~30, ~~the~~2009 ~~Company~~and ~~signed~~March an31, ~~agreement~~2009, toother ~~defer~~accrued ~~the~~expenses ~~delivery~~not ofsubject ~~the eight remaining Airbus A320 aircraft that had been scheduled for delivery between February 2009 and November 2010~~ to ~~between February 2011 and November~~compromise ~~2012. This~~consisted ~~resulted in reimbursement~~ of ~~$11,485,000~~the ~~of pre-delivery payments in July 2008.~~following:

In July 2008 the Company exercised its option on the first of the ten additional Q400 Bombardier aircraft resulting in a pre-delivery deposit of $2,633,000. 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 June 2009 and February 2010, respectively.

	June 30,		March 31,
	2009		2009
	(In thousands)
Accrued salaries and benefits	$	30,368	$	29,906
Federal excise and other passenger taxes payable		18,167		20,100
Property and income taxes payable		68		304
Other		2,276		3,917

	$	50,879	$	54,227

812. ~~Deferred~~Secured ~~Revenue~~ and ~~Other~~Unsecured ~~Liabilities~~Borrowings

AtSecured ~~December~~and ~~31,~~unsecured ~~2008~~borrowings ~~and~~subject ~~March~~to ~~31,~~compromise ~~2008,~~at ~~deferred~~June ~~revenue~~30, 2009 and ~~other~~March ~~liabilities~~31, 2009 consisted of the following:

	December 31,			March 31,
	June 30,			March 31,
	2008			2008
	2009			2009
	(In thousands)
Deferred revenue primarily related to co-branded credit card	$	23,399		$	24,472
Unsecured:
Deferred rent		14,263			17,489
Convertible Notes, fixed interest rate of 5.0% (a)	$	92,000		$	92,000
Fair value of fuel hedge contracts		11,372			–
Secured:
Other		555			627
Aircraft Notes, secured by aircraft:
Total deferred revenue and other liabilities		49,589			42,588
Aircraft notes payable, fixed interest rates with a 6.75% weighted average interest rate at June 30, 2009 and March 31, 2009 (b)		45,322			46,002
Less current portion		(28,828	)		(18,189	)
Aircraft notes payable, variable interest rates based on LIBOR plus a margin, for an overall weighted average rate of 2.68% and 3.42% at June 30, 2009 and March 31, 2009, respectively (c)		306,469			330,620
	$	20,761		$	24,399
Aircraft junior note payable, variable interest rate based on LIBOR plus a margin, with a rate of 4.88% at June 30, 2009 and March 31, 2009 (d)		2,529			2,705
Total secured debt	$	354,320		$	379,327
Borrowings not subject to compromise:
Credit Facility, secured by eligible aircraft parts (e)	$	3,000		$	3,000
Debtor-in-Possession loan (f)		40,000			30,000
Other note payable (g)		3,000			3,000
Total borrowings not subject to compromise	$	46,000		$	36,000
Total Borrowings	$	492,320		$	507,327

-17 18 -

9.(a) ~~Other~~Convertible ~~Accrued~~Notes ~~Expenses~~and ~~Not~~Contractual ~~Subject~~Interest ~~to Compromise~~Expense

AtIn December 312005, ~~2008~~the ~~and~~Company ~~March~~completed ~~31,~~the ~~2008~~sale of $92.0 million aggregate principal amount of Convertible Notes in a public offering pursuant to the Company’s shelf registration statement. Subsequent to the Company’s Chapter 11 bankruptcy filing, ~~other~~the ~~accrued~~Company ~~expenses~~records ~~not~~post-petition interest ~~subject~~on pre-petition obligations only to the extent it believes the interest ~~compromise~~will ~~consisted~~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 $1.2 million during the ~~following:~~three months ended June 30, 2009.

	December 31,		March 31,
	2008		2008
	(In thousands)
Accrued salaries and benefits	$	31,097	$	37,456
Federal excise and other passenger taxes payable		14,367		30,298
Property and income taxes payable		988		3,801
Other		4,146		12,503
	$	50,598	$	84,058

(b)	Secured Aircraft Notes payable – fixed interest rates

10During the year ended March 31, 2008, the Company borrowed $48.3 ~~Secured~~million for the purchase of three Bombardier Q400 aircraft. These aircraft loans have terms of 15 years and ~~Unsecured~~are ~~Borrowings~~payable in semi-annual installments with a floating interest rate adjusted semi-annually based on LIBOR. Security interests in the aircraft secure the loans.

(c) Secured ~~and~~ ~~unsecured~~Aircraft ~~borrowings~~Notes ~~subject~~payable to– ~~compromise~~variable atinterest ~~December 31, 2008 and March 31, 2008 consisted of the following:~~rates

	December 31,		March 31,
	2008		2008
	(In thousands)
Unsecured:
Convertible Notes, fixed interest rate of 5.0% (5)	$	92,000	$	92,000
Secured:
Credit Facility, secured by eligible aircraft parts (1)	$	3,000	$	3,000
Aircraft Notes, secured by aircraft:
Aircraft notes payable, fixed interest rates with a 6.75% and 6.55% weighted average interest rate at December 31, 2008 and March 31, 2008, respectively (2)		46,342		79,338
Aircraft notes payable, variable interest rates based on LIBOR plus a margin, for an overall weighted average rate of 4.76% and 4.59% at December 31, 2008 and March 31, 2008, respectively (3)		336,719		484,601
Aircraft junior note payable, variable interest rate based on LIBOR plus a margin, with a rate of 8.56% and 8.06% at December 31, 2008 and March 31, 2008, respectively (4)		2,877		3,379
Total Secured Debt Subject to Compromise	$	388,938	$	570,318

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. During the three months ended June 30, 2009 the Company sold one aircraft and repaid the loan balance of $18.9 million with the proceeds of the sale. The remaining 14 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 terms, there are balloon payments for each of these loans. Security interests in the aircraft secure the loans.

~~Unsecured~~During ~~Borrowings~~the ~~not~~year ~~subject~~ended toMarch ~~compromise at December~~ 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. Security interests in the aircraft secures these loans.

Debtor-in-Possession loan (6)	$	30,000
Other note payable (7)		3,000
Total Unsecured Debt Not Subject to Compromise	$	33,000

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

During the year ended March 31, 2006, the Company borrowed an additional $4.9 million in conjunction with the purchase of an Airbus aircraft. This junior loan has a seven-~~18-~~year term with quarterly installments. A security interest in the aircraft secures the loan.

(1e) 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 to borrow the lesser of $20~~,000,000~~.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 was equal to the maximum commitment amount under the facility less current borrowings. Interest under the Credit Facility was based on a designated rate plus a margin. In addition, there ~~was a~~is a quarterly commitment fee on the unused portion of the facility based on the maximum commitment amount. The Company ~~has~~had letters of credit issued of $12~~,054,000~~.1 million and cash draws of $3.0 million as of June 30,~~000~~ 2009. The revolving credit facility was repaid on July 21,~~000~~ 2009 and letters of credit were decreased to $6.1 million. ~~Pursuant~~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.

~~(2)~~- ~~Secured Aircraft Notes payable – fixed interest rates~~19 -

~~During the~~(f) ~~year ended March 31, 2008, the Company borrowed $48,326,000 for the purchase of three Bombardier Q400 aircraft. These aircraft loans have terms of 15 years and are payable~~ Debtor-in ~~semi~~-~~annual~~Possession ~~installments~~(“DIP”) ~~with~~Financing a– ~~floating interest rate adjusted semi~~Post-~~annually based on LIBOR. Security interests in the aircraft secure the loans.~~Petition

~~During~~On August 5, 2008, the ~~nine~~Bankruptcy ~~months~~Court ~~ended~~approved ~~December~~a 31secured super-priority debtor-in-possession credit agreement (“DIP Credit Agreement”) with Republic Airways Holdings, ~~2008~~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 ~~sold~~Chapter ~~two~~11 ~~Airbus~~bankruptcy cases. The ~~319~~DIP Credit Agreement contained various representations, ~~aircraft~~warranties ~~with~~and ~~fixed~~covenants ~~rate~~by ~~loans~~the Debtors that are customary for transactions of this nature, including reporting requirements and ~~repaid~~maintenance of financial covenants. The DIP Credit Agreement provided for the ~~loan~~payment ~~balances~~of interest at an annual rate of ~~$30~~16% interest,~~037~~ or annual interest of 14% if the Debtors pay the interest monthly. The DIP Credit Agreement matured on April 1,~~000~~ ~~with~~2009. On August 8, 2008, funding was provided under the DIP Credit Agreement in the ~~proceeds~~amount of ~~the~~$30.0 ~~sale~~million, before applicable fees of $2.1 million.

On March 20, 2009, the Bankruptcy Court approved an order authorizing a $40.0 million Amended and Restated DIP Credit Facility (3“Amended DIP Credit Agreement”) ~~Secured~~with Republic ~~Aircraft~~Airways ~~Notes~~Holdings, ~~payable~~Inc. –The ~~variable~~Bankruptcy ~~interest~~Court ~~rates~~also allowed the damage claim of Republic Airways Holdings, Inc. in the amount of $150.0 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 replaced the existing $30.0 million DIP Credit Agreement with the Amended DIP Credit Agreement on April 1, 2009.

~~During the~~(g) ~~years~~Other ~~ended~~Note March 31, 2003 through March 31, 2008, the Company borrowed $549,503,000 for the purchase of 22 Airbus aircraft. During the nine months ended December 31, 2008, 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 $123,500,000 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.Payable

~~During~~In ~~the~~September ~~year ended March 31,~~ 2008, the ~~Company~~Bankruptcy ~~borrowed~~Court ~~$32,346,000~~approved ~~for~~a ~~the~~settlement ~~purchase of~~in ~~two~~form ~~Bombardier~~of ~~Q400~~a ~~aircraft.~~note ~~These~~in satisfaction ~~aircraft~~of ~~loans~~pre-petition ~~have~~debt. The ~~terms~~note ofis 15payable ~~years~~in ~~and~~three ~~are~~equal ~~payable~~installments incommencing ~~semi-annual~~on ~~installments~~the ~~with~~one-year aanniversary ~~floating~~of ~~interest~~the ~~rate~~effective ~~adjusted~~date ~~semi-annually~~of ~~based~~the onplan ~~LIBOR. A~~of ~~security~~reorganization and accrues interest inat ~~the~~an ~~aircraft secures~~annual ~~these~~rate ~~loans~~of 3%.

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

During the year ended March 31, 2006, the Company borrowed $4,900,000 for the purchase of an Airbus aircraft. This junior loan has a seven-year term with quarterly installments currently of $250,000. A security interest in the aircraft secures the loan.

-19-

(5) Convertible Notes and Contractual Interest Expense

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 $3,349,000 during the nine months ended December 31, 2008.

(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 contains 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 that varies depending on when the interest is paid. The DIP Credit Agreement will mature on April 1, 2009. On August 8, 2008, funding was provided under the DIP Credit Agreement in the amount of $30,000,000, before applicable fees of $2,058,000.

(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.

Other Revolving Facility and Letters of Credit

In July 2005 the Company entered into an agreement with a financial institution, ~~that~~which was subsequently amended, for a $~~5,750,000~~12.6 million revolving line of credit that ~~permits~~ permits the Company to issue letters of credit ~~up to $5,000,000~~. As of ~~December~~ ~~31,~~June ~~2008~~30, 2009, the Company had used $~~4,083,000~~5.6 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~~,845,000~~.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 $~~7,437,000~~8.9 million in cash collateral as of ~~December~~June 3130, ~~2008~~ 2009 is classified as restricted cash and investments on the consolidated balance sheet. In July 2009, the Company increased letters of credit by $6.0 million to $11.6 million, which increased the amount of required cash collateralization by $6.2 million, or a total of $15.2 million.

Debt Covenants

~~As of~~The ~~December 31, 2008, the~~ Company ~~was in compliance with its debt covenants. However, the Company~~’s Chapter 11 bankruptcy filing triggered default provisions in ~~its~~on its pre-petition debt and lease agreements. Payment defaults were ~~cured~~ cured as of June 9, 2008 for all debt secured by aircraft.

~~-20-~~The Amended DIP Credit Agreement includes certain affirmative, negative and financial covenants. The Company was in compliance with these covenant requirements as of June 30, 2009.

~~11.~~- ~~Equity~~20 -

13.

Equity

Unearned ESOP shares

InOn ~~March~~May ~~2008~~26, 2009, the Company ~~issued~~filed ~~and~~a ~~contributed~~motion ~~300,000~~seeking ~~shares~~authority to ~~the~~terminate ~~Employee Stock Ownership Plan (“ESOP”). Compensation expense for~~ the ESOP ~~for the~~ ~~three~~effective ~~and~~October ~~nine months ended December~~ 31, 2008 ~~was $206,000 and $617,000, respectively~~. ~~Compensation~~Upon ~~expense~~approval ~~for~~after the ~~ESOP~~objection ~~for~~ date, the ~~three~~Company ~~and nine~~plans ~~months~~to ~~ended~~effectuate ~~December~~a ~~31,~~distribution ~~2007~~by ~~was $459,000 and $1,378,000, respectively. Due to~~ the ~~Company~~Plan’s ~~bankruptcy~~trustee ~~filing,~~of the ~~Company~~ ~~does~~accounts ~~not~~of ~~believe~~all ~~that~~affected ~~the~~employees ~~shares~~ in the ~~ESOP~~form ~~Plan~~of ~~will~~a ~~have~~single-lump ~~any~~sum ~~value upon~~stock ~~emergence from bankruptcy~~distribution.

Comprehensive Income (Loss)

A summary of the comprehensive income (loss) for the three ~~and nine~~ months ended ~~December 31~~June 30, ~~2008~~2009 and 2008 ~~2007~~ is as follows:

	Three months ended December 31,					Nine months ended December 31,
	June 30,		June 30,
	2008		2007			2008			2007
	2009		2008
	(In thousands)					~~(In thousands)~~
Net income (loss)	$	18,~~126~~980	$	(3294,~~508~~700	)	$	~~(86,981~~	)	$	~~(18,674~~	)
Other comprehensive income (loss):
Post-retirement liability curtailment gain		–		22			–			22
Reclassification of previously recognized unrealized losses now deemed other than temporary		–		299
Reclassification of previously recognized unrealized losses now deemed other than temporary		–		–			299			–
Total comprehensive income (loss)	$	8,980	$	(94,401	)
Total comprehensive income (loss)	$	1,126	$	(32,486	)	$	(86,682	)	$	(18,652	)

~~12.~~Retained ~~Fuel Hedging Transactions~~Deficit

~~The Company’s~~A ~~operations are inherently dependent upon the price of and availability~~summary of ~~aircraft~~the ~~fuel.~~components ~~The Company currently has a fuel hedging program using a variety~~ of ~~financial~~retained ~~derivative~~earnings ~~instruments. These~~(deficit) ~~fuel~~is ~~hedges do not qualify for hedge accounting under SFAS 133 “Accounting for Derivative Instruments and Hedging Activities”, and,~~ as ~~such,~~follows ~~realized and non-cash mark to market adjustments are included~~ (in ~~aircraft fuel~~ ~~expense.~~ thousands):

Due to the Company’s Chapter 11 filing, all fuel hedge contracts outstanding as of March 31, 2008 were terminated in May 2008 and subsequently settled, which resulted in cash receipts of $23,409,000. In August 2008 the Company resumed its fuel hedging program, and as of December 31, 2008 the fair value of the hedge agreements recorded on the balance sheet as a liability was $11,372,000.

	June 30,
	2009
Retained deficit – April 1, 2009 as reported	$	(291,066	)
Cumulative effect of change in accounting principle		124,511
Retained deficit – April 1, 2009 as revised		(166,555	)
Net income		8,980
Retained deficit – June 30, 2009	$	(157,575	)

Aircraft fuel expense for the three months ended December 31, 2008 and 2007 includes a mark to market derivative loss of $8,748,000 and $3,535,000, respectively, recorded as an increase to fuel expense14. ~~Cash~~Fuel ~~settlements~~Hedging ~~for fuel derivatives contracts settled during the three months ended December 31, 2008 and 2007 were payments of $12,873,000 and receipts of $12,829,000, respectively.~~Transactions

~~Aircraft~~Effective ~~fuel~~January 1, ~~expense~~2009, ~~for~~ the ~~nine~~Company ~~months~~adopted ~~ended~~the ~~December~~provisions ~~31,~~of ~~2008~~FASB ~~and~~Statement No. 161, ~~2007 includes mark~~Disclosures toabout ~~market~~Derivative ~~derivative~~Instruments ~~losses of $4,019,000~~ and ~~$5,712,000,~~Hedging ~~respectively~~Activities, ~~recorded as~~ an ~~increase~~amendment toof ~~fuel~~FASB Statement ~~expense~~No. ~~Our~~ 133, ~~aircraft~~which ~~fuel~~enhances ~~expense for~~ the ~~nine~~ ~~months~~disclosure ~~ended December 31, 2008 also includes a $23,151,000 loss on~~requirements ~~unwinding~~related ato ~~fuel~~derivative ~~hedge. Cash~~instruments ~~settlements~~and ~~for~~hedging ~~fuel~~activity ~~derivatives contracts~~to ~~settled~~improve ~~during~~ the ~~nine months ended December 31, 2008 and 2007 were~~ ~~receipts~~transparency of ~~$10,278,000~~financial ~~and $21,958,000, respectively~~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-21term 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 following~~- ~~table summarizes the components of aircraft fuel expense for the three~~21 ~~and nine months ended December 31, 2008 and 2007:~~-

	Three Months Ended December 31,					Nine Months Ended December 31,
	2008			2007		2008			2007
	(In thousands)					(In thousands)
Aircraft fuel expense – mainline and Lynx Aviation	$	115,186		$	117,493	$	469,016		$	329,578
Aircraft fuel expense – included in regional partners		–			13,902		11,634			37,701
Total system-wide fuel expense		115,186			131,395		480,650			367,279
Changes in fair value and settlement of fuel hedge contracts gains (losses)		(21,621	)		9,294		(16,892	)		16,246
Total raw aircraft fuel expense	$	93,565		$	140,689	$	463,758		$	383,525

The results of operations for the three months ended June 30, 2009 and 2008 include increases to the fair value of fuel hedge contracts in the amount of $1.5 million and $7.4 million, respectively, recorded as a reduction to fuel expense. Cash settlements for fuel derivatives contracts settled during the three months ended June 30, 2008 were receipts of $23.2 million.

~~The~~As of June 30, 2009 the Company ishad entered into two call agreements for the second and third quarters of fiscal year 2010. These call agreements required premium payments equal to ~~cash~~the ~~collateralize~~fair ~~its~~value ~~fuel~~at ~~hedge~~the ~~position.~~time Asof purchase of ~~December~~$3.6 ~~31,~~million. The ~~2008,~~fair ~~this~~value ~~resulted~~of inthese ~~deposits~~agreements ofincreased to $155.1 million as of June 30,~~590,000~~ 2009.

13Due to the Company’s Chapter 11 filing, all fuel hedge contracts outstanding as of March 31, 2008 were terminated in May 2008 and subsequently settled. In ~~Earnings~~August ~~(Loss)~~2008, ~~Per~~the ~~Share~~Company resumed its fuel hedging program, and as of June 30, 2009 the fair value of the hedge agreements recorded on the balance sheet was an asset of $5.1 million.

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. The following table summarizes the components of aircraft fuel expense for the three months ended June 30, 2009 and 2008:

	Three Months Ended June 30,
	2009		2008
	(In thousands)
Aircraft fuel expense – mainline and Lynx Aviation	$	69,124	$	174,389
Aircraft fuel expense – included in regional partners		–		11,633
Total system-wide fuel expense	$	69,124		186,022
Changes in fair value and settlement of fuel hedge contracts		1,455		7,352
Total raw aircraft fuel expense	$	70,579	$	193,374

15.	Earnings (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.

The following table sets forth the computation of basic and diluted earnings (loss) per share (in thousands, except per share amounts) for the three ~~and nine~~ months ended June ~~December 31~~30, ~~2008~~2009 and ~~2007~~2008:

	Three months ended					~~Nine months ended~~
	December 31,					December 31,
	June 30,
	2008		2007			2008			2007
	2009		2008
Numerator:
Net income (loss) as reported	$	18,~~126~~980	$	(3294,~~508~~700	)	$	~~(86,981~~	)	$	~~(18,674~~	)
Denominator:
Weighted average shares outstanding, basic		36,946		36,~~642~~946			~~36,946~~			~~36,639~~
Effects of dilutive securities:
Employee stock awards		~~247~~353		–			–			–
Adjusted weighted average shares outstanding, diluted		37,~~193~~299		36,~~642~~946			~~36,946~~			~~36,639~~
Earnings (loss) per share, basic	$	0.0324	$	(02.8956	)	$	~~(2.35~~	)	$	~~(0.51~~	)
Earnings (loss) per share, diluted	$	0.0324	$	(02.8956	)	$	~~(2.35~~	)	$	~~(0.51~~	)

- 22 -

~~For the~~During ~~nine months ended December 31, 2008,~~ the common stock equivalents of the weighted average options, SARS, and RSUs, of 135,000 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 three ~~and nine~~ months ended ~~December~~June 3130, ~~2008,~~2009 ~~the weighted average options, SARs,~~ and ~~RSUs outstanding of 3~~2008,~~634,000~~ ~~and 3~~8,~~884~~900,000, ~~respectively,~~shares ~~and~~that ~~warrants~~would ~~of 3,834,000~~be ~~were~~issued ~~excluded~~upon ~~from~~assumed ~~the~~conversion ~~calculation~~ of ~~diluted earnings per share because~~ the ~~exercise~~ ~~prices were greater than the average market price of the common stock. For the three and nine months ended December 31, 2007, interest on~~ convertible notes, ~~net of capitalized interest, of $335,000 and $1,493,000, respectively, and 8,900,000 shares~~ were excluded from the calculation of diluted ~~loss~~earnings per share because they were anti-dilutive. For the three and nine months ended December 31, 2007, the common stock equivalents of the weighted average options, SARS, RSUs and warrants outstanding of 413,000 and 239,000, respectively, were excluded from the calculation of diluted loss per share because they were anti-dilutive. For the three and nine months ended December 31, 2007, the weighted average options, SARS and RSUs outstanding of 2,091,000 and 2,149,000, respectively, were excluded from the calculation of diluted loss per share because the exercise prices were greater than the average market price of the common shares.

14For the three months ended June 30, 2008, the common stock equivalents of the weighted average options, SARS, and RSUs, of 77,000, 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 ~~Operating~~the ~~Segment~~three ~~Information~~months ended June 30, 2009 and 2008, the weighted average options, SARs, and RSUs outstanding of 2,441,515 and 4,135,000, respectively, and warrants of 3,833,946 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.

~~SFAS No~~16. ~~131, “Disclosures~~ ~~about~~Operating ~~Segments~~Segment ~~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 include 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.

ToSFAS No. 131, ~~evaluate~~“Disclosures ~~the~~about ~~separate~~Segments ~~segments~~ of an ~~the~~Enterprise ~~Company’s~~and ~~operations~~Related Information,” ~~management~~requires ~~has segregated~~disclosures ~~the~~related ~~revenues~~to components ~~and costs~~ of ~~its~~a ~~operations~~company ~~as follows: Passenger revenue~~ for ~~mainline,~~which ~~Regional~~separate ~~Partners~~financial ~~and~~information ~~Lynx~~is available ~~Aviation~~that ~~represents~~is ~~the~~evaluated ~~revenue~~regularly ~~collected~~by ~~for~~a ~~flights~~company’s ~~operated~~chief byoperating ~~the~~decision ~~Airbus~~maker in ~~fleet,~~deciding the ~~aircraft~~allocation ~~under~~of ~~lease~~resources ~~through~~and ~~contracts~~assessing ~~with~~performance. ~~Regional~~The ~~Partners~~Company ~~and the~~has ~~Bombardier~~three ~~Q400~~primary ~~fleet,~~operating ~~respectively,~~and ~~carriers~~reporting ~~(including~~segments, awhich ~~prorated~~consist ~~allocation~~ of ~~revenues~~mainline operations, ~~based~~Regional onPartner ~~miles~~operations, ~~when~~and ~~tickets~~Lynx ~~are booked with multiple~~Aviation ~~segments~~operations.). ~~Operating~~Mainline ~~expenses~~operations ~~for Regional Partner flights~~ include ~~all~~ ~~direct~~service ~~costs~~operated ~~associated~~by ~~with the flights plus payments of performance~~Frontier ~~bonuses~~Airlines ifusing ~~earned~~Airbus ~~under the contract~~aircraft. ~~Certain~~Regional ~~expenses~~Partner ~~such~~operations ~~as aircraft lease, maintenance and crew costs are~~ included ~~in the operating~~ ~~agreements~~regional ~~with~~jet ~~Regional~~service ~~Partners~~operated inby ~~which~~Republic ~~the~~and ~~Company~~Horizon ~~reimburses~~Air ~~these expenses~~Industries, ~~plus a margin~~Inc. ~~Operating expenses for~~ Lynx Aviation’s ~~include~~operations, ~~all direct~~which ~~costs~~include ~~associated~~service ~~with~~operated ~~the~~using Bombardier ~~flights~~Q400 ~~and the~~ aircraft, ~~including~~began ~~aircraft lease~~revenue ~~and~~flight ~~depreciation,~~service ~~maintenance~~on ~~and~~December ~~crew costs~~7, 2007. ~~Operating expenses~~The ~~for~~Company ~~both~~evaluates ~~Regional~~segment ~~Partners~~performance ~~and~~based ~~Lynx~~on ~~Aviation also include other direct~~several ~~costs~~factors, ~~incurred~~of ~~for~~ which the ~~Company~~primary ~~does~~financial ~~not~~measure ~~pay~~is aoperating ~~margin~~income (loss). ~~These~~ ~~expenses~~However, ~~are~~the ~~primarily~~Company ~~composed~~does ofnot ~~fuel,~~manage ~~airport~~the ~~facility~~business ~~expenses~~or ~~and~~allocate ~~passenger~~resources solely ~~related~~based ~~expenses.~~on ~~The~~segment ~~Company~~operating ~~also~~income ~~allocates~~or ~~indirect expenses among mainline~~loss, ~~Regional~~ ~~Partners~~ and ~~Lynx~~scheduling ~~Aviation~~decisions ~~operations~~of ~~by using departures, available~~the ~~seat~~Company’s ~~miles,~~chief oroperating ~~passengers~~decision asmaker aare ~~percentage~~based ofon ~~system~~each ~~combined departures,~~segment’s ~~available~~contribution ~~seat~~to ~~miles~~the oroverall ~~passengers~~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. Even though the Company believes such allocations are reasonable, they may not be reflective of what a third party would determine on a stand-~~23-~~alone basis.

~~Financial information~~- ~~for the three and nine months ended December 31, 2008 and 2007 for~~23 ~~the Company’s operating segments is as follows:~~-

	Three months ended						Nine months ended
	December 31,						December 31,
	2008			2007			2008			2007
	(In thousands)
Operating revenues:
Mainline – passenger and other (1)	$	281,867		$	304,610		$	946,952		$	960,597
Regional Partners – passenger		–			26,640			17,465			88,390
Lynx Aviation – passenger		19,114			2,659			61,046			2,659
Consolidated	$	300,981		$	333,909		$	1,025,463		$	1,051,646
Operating income (loss):
Mainline (2)	$	9,064		$	(8,830	)	$	(20,708	)	$	29,951
Regional Partner		–			(11,939	)		(9,185	)		(21,212	)
Lynx Aviation (3)		(3,493	)		(4,833	)		(11,856	)		(9,891	)
Consolidated	$	5,571		$	(25,602	)	$	(41,749	)	$	(1,152	)

Financial information for the three months ended June 30, 2009 and 2008 for the Company’s operating segments is as follows:

	December 31,			March 31,
	Three months ended
	2008			2008
	June 30,
	2009			2008
	(In thousands)
Total assets at end of period (4):
Operating revenues:
Mainline	$	803,150		$	1,129,123
Mainline – passenger and other (1)	$	258,586		$	325,046
Regional Partner		–			202
Regional Partners – passenger		–			17,465
Lynx Aviation		107,578			110,338
Lynx Aviation – passenger		17,023			17,976
Other		8,531			10,308
Consolidated	$	275,609		$	360,487
Consolidated	$	919,259		$	1,249,971
Operating income (loss):
Mainline (2)	$	34,204		$	(26,487	)
Regional Partner		–			(9,185	)
Lynx Aviation (3)		(4,883	)		(5,816	)
Consolidated	$	29,321		$	(41,488	)

	June 30,		March 31,
	2009		2009
	(In thousands)
Total assets at end of period:
Mainline	$	930,410	$	809,643
Lynx Aviation		113,269		111,424
Other (4)		8,533		8,532
Consolidated	$	1,052,212	$	929,599

(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.

1517. ~~Restricted~~Income ~~cash and investments~~Taxes

~~Restricted~~The ~~cash~~Company ~~and~~recorded ~~investments~~$532,000 ~~primarily~~of ~~relates~~alternative tominimum ~~funds~~tax (“AMT”) expense ~~held~~during bythe ~~companies~~three ~~that~~months ~~process~~ended June 30, 2009 ~~credit~~because ~~card~~net ~~sale~~income ~~transactions,~~coupled ~~credit~~with ~~card~~the ~~companies~~tax ~~and~~gains ~~escrow~~on ~~funds~~the ~~for~~sales ~~future~~of aircraft are ~~charter~~currently ~~service~~estimated to result in taxable income for the year ending March 31, 2010. ~~They~~ Under ~~also~~AMT ~~include~~regulations, ~~cash~~the ~~deposits~~Company ~~that~~can ~~secure~~only ~~certain~~offset 90% of its ~~letters~~taxable income with net operating loss carryforwards. The remaining 10% is subject to AMT at a tax rate of 20%. Although the Company is entitled to an AMT credit ~~issued~~against ~~for~~future ~~workers~~income ~~compensation~~taxes, ~~claim~~the ~~reserves~~Company ~~and~~recorded ~~certain~~a valuation ~~airport~~allowance ~~authorities~~against this credit since it was more likely than not that this tax credit will not be realized.

~~At December~~- ~~31, 2008 and March 31, 2008, restricted cash and investments consisted~~24 ~~of the following:~~-

	December 31,		March 31,
	2008		2008
	(In thousands)
Funds held for holdback of customer sales	$	109,894	$	70,027
Funds held for cash supported letters of credit and deposits on charter flights		4,789		4,092
	$	114,683	$	74,119

18.	Subsequent Events

The Company has evaluated subsequent events through August 19, 2009, the date this Form 10-~~24-~~Q was issued.

~~The~~Republic ~~Company~~Airways ~~has~~Holdings aWinner ~~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 December 31, 2008 and March 31, 2008, that amount totaled and $88,020,000 $54,500,000, respectively. 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 was 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. In addition, a credit card company began a holdback during the fiscal year ended March 31, 2008 which totaled $21,098,000 at December 31, 2008 as compared to $15,500,000 at March 31, 2008. As of February 12, 2009, the amount of holdback with our bankcard processor was $97,300,000 and the holdback for the credit card company was $18,800,000.Auction

16On August 13, 2009, Republic Airways Holdings, Inc. ~~Income~~was ~~Taxes~~declared the winning bidder in the auction to acquire the Company. The auction was conducted under procedures established in the Debtors’ Chapter 11 bankruptcy cases.

~~The~~Republic ~~Company~~submitted ~~recorded $1,137,000 of alternative minimum tax (“AMT”) expense during~~ the ~~nine~~highest ~~months~~or ~~ended~~otherwise ~~December~~best 31bid, ~~2008~~which ~~because~~included ~~tax gains on the sales of~~substantial ~~aircraft~~improvements ~~are~~from ~~currently~~its ~~estimated~~original toinvestment ~~result~~proposal. Republic inreceived Hart-Scott-Rodino ~~taxable~~antitrust ~~income~~clearance for the ~~year ending~~transaction. Republic ~~March~~also ~~31,~~agreed ~~2009. Under~~to ~~alternative~~waive ~~minimum~~distributions ~~tax~~on ~~regulations, the Company can only offset 90% of~~ its ~~taxable~~two ~~income~~$150 ~~with~~million ~~net~~prepetition ~~operating loss carryforwards and~~unsecured isclaims, ~~required~~which ~~to make certain other AMT adjustments. The remaining 10%~~ is ~~subject~~ toexpected ~~alternative minimum tax. Although the Company is entitled~~ to result an ~~AMT~~ ~~credit~~increase ~~against~~in ~~future income taxes,~~ the ~~Company~~distribution recorded a valuation allowance against this credit since it was more likely than not that this tax credit will not be realized. The Company had no provision for income taxes for the nine months ended December 31, 2007 due to ~~accumulated losses for which~~ ~~valuation~~Frontier’s ~~allowances~~general ~~have~~unsecured ~~been recorded~~creditors.

~~17. Subsequent Events~~Aircraft Transactions

~~Return~~On July 21, 2009 the Company filed a motion with the Bankruptcy Court for authorization to enter into an aircraft lease agreement. The lease term is for a 72 month period for the lease of ~~Aircraft~~an A320 with a planned delivery date of August 24, 2009. The motion was approved on July 31, 2009.

On ~~August~~July 521, ~~2008,~~2009 the ~~Bankruptcy~~Company ~~Court~~filed ~~authorized~~ a ~~transaction~~motion ~~between~~with the ~~Company~~Bankruptcy ~~and~~Court for authorization ~~GECAS~~to ~~whereby~~sell ~~the~~an ~~Company~~A318 ~~would~~aircraft ~~sell~~back to the lender free and ~~lease~~clear ~~back~~of upall liens, claims and encumbrances to ~~four~~receive ~~Airbus~~a ~~A319 aircraft. In~~release ~~January~~of ~~2009~~all the Company’s ~~returned~~outstanding obligations under the ~~final~~loan ~~Airbus~~agreements. ~~A319 aircraft~~This tomotion ~~GECAS~~was ~~for~~approved aJuly ~~total~~31, 2009. This oftransaction ~~three~~is ~~returned~~scheduled ~~aircraft~~to close in August 2009.

~~Exercise~~Represented ~~of Purchase Options~~Employees

~~The~~In August 2009, the Company ~~has~~and ~~options~~the toIBT ~~purchase~~announced ~~ten~~that ~~Bombardier~~they ~~Q400~~entered ~~aircraft~~into a consensual long-term agreement, that amended a previous agreement that covered the ~~last~~period through March 2, 2012 with the IBT under Section 1113 of ~~which~~the Bankruptcy ~~expires~~Code. This resulted in ~~July~~an ~~2010,~~additional ~~subject~~unsecured toclaim ~~additional~~of ~~extension rights~~$7. In1 ~~July~~million ~~2008~~which ~~the~~will ~~Company~~be ~~exercised~~reflected ~~its~~in ~~option~~our onresults for the ~~first~~three ofmonths ~~the~~ended ~~ten~~September ~~additional~~30, ~~aircraft~~2009. InThe ~~January~~agreement ~~2009~~modifies benefit reductions the Company ~~exercised~~obtained from its ~~option~~IBT-represented onemployees ~~the~~in November 2008. The new agreement’s ~~second~~modified ofwage and benefit reductions are comparable to the ~~remaining~~consensual ~~ten~~reductions obtained ~~additional~~from ~~aircraft~~all other employee groups. ~~These~~ ~~aircraft~~The ~~are~~settlement, if approved by the ~~scheduled~~Bankruptcy ~~for~~Court, ~~delivery~~also inwill ~~June~~resolve ~~2009~~the ongoing appeals of the Bankruptcy Court order. The IBT anticipates it will hold the ratification vote on the agreement and ~~February~~count ~~2010~~ballots by August 20, ~~respectively~~ 2009.

~~-25-~~Fuel Hedge Transactions

In July 2009 the Company entered into a new fuel hedge agreement in which the Company hedged approximately 20% of its estimated fuel purchases for the period from August 1, 2009 to October 30, 2009, by purchasing call agreements at $1.71 per gallon for jet fuel. The fuel hedge agreement required a premium payment of $1.1 million.

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Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

The information contained in this Item 2 updates, and should be read in conjunction with, the information set forth in Part II, Item 7 of our ~~2008~~2009 Form 10-K.

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 ‘‘Risks Related to Frontier’’ and ‘‘Risks Associated with the Airline Industry” of our Annual Report on Form 10-K for the fiscal year ended March 31, ~~2008~~2009 (“~~2008~~2009 Form 10-K”)~~, Item 1A “Risk Factors” in our Form 10-Q for the quarter ended September 30, 2008 and Item 1A “Risk Factors” in this Form 10-Q~~.. 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,” “Frontier Holdings” or the “Company” refer to Frontier Airlines Holdings, Inc. and its subsidiaries on a consolidated basis, 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”) (collectively the “Debtors”), 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). We cannot provide any assurance as to what values, if any, will be ascribed in our bankruptcy proceedings to our various 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 our 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 addition, 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 22, 2008. Additional information about our Chapter 11 filings is available on the internet at www.frontierairlines.com/restructure and Bankruptcy Court filings and claims information are also available at www.frontier-restructuring.com. Information contained on these websites is not deemed to be part of this Quarterly report on Form 10-Q.

~~Our~~On July ~~ability~~8, ~~both~~ ~~during~~2009, the Debtors entered into an Amended and ~~after~~Restated ~~the~~Investment ~~Chapter~~Agreement with 11Republic ~~cases~~Airways Holdings, toInc. ~~continue~~(the as“Investment aAgreement”) that was ~~going concern is~~approved ~~dependent~~by ~~upon~~the Bankruptcy Court on July 13, ~~among~~2009. Under ~~other~~the ~~things~~terms of the Investment Agreement, ~~our~~Republic ~~ability~~Airways Holdings, Inc. (i“Republic”) made an offer to ~~successfully~~acquire ~~achieve~~100% ~~required~~ownership ~~cost~~of ~~savings~~the toDebtors ~~complete~~for ~~our~~an ~~restructuring;~~aggregate purchase price ~~(ii)~~of to$108.8 ~~maintain~~million. The ~~adequate~~Investment ~~liquidity;~~Agreement ~~(iii)~~also established an auction process allowing the Debtors to ~~generate~~solicit ~~cash~~ proposals and bids from third ~~operations;~~parties ~~(iv)~~and to ~~secure~~terminate ~~exit~~the ~~financing; (v)~~Investment toAgreement ~~negotiate~~if ~~favorable~~the ~~terms~~Debtors received a ~~with~~higher ~~our~~or ~~bankcard~~otherwise ~~processors~~better offer. Under the auction process, interested parties had to submit preliminary non-binding proposals no later than August 3, 2009, and ~~credit~~final ~~card~~binding ~~companies;~~proposals no later than August 10, 2009. ~~(vi)~~On July 30, 2009, Southwest Airlines Co. submitted its initial non-binding proposal to participate in the auction process and subsequently ~~confirm~~submitted a ~~plan~~binding ~~of reorganization~~proposal ~~under~~on August 10, 2009. On August 13, 2009, the ~~Bankruptcy~~Debtors ~~Code;~~concluded the auction and ~~(vii)~~determined that Republic had submitted the ~~to achieve~~highest ~~profitability.~~and ~~Uncertainty~~otherwise asbest toproposal for the ~~outcome~~purchase of ~~these~~the ~~factors raises~~Debtors. As ~~substantial~~part ~~doubt~~of ~~about~~the ~~our~~winning ~~ability~~proposal, Republic agreed to ~~continue~~waive recovery ason its allowed unsecured claims, thereby increasing the potential recovery for the remaining unsecured claims. The Debtors entered into the Second Amended and Restated Investment Agreement with Republic on August 13, 2009. This revised Investment Agreement still provides a ~~going concern~~ purchase price of $108.8 ~~The~~million, ~~accompanying~~with ~~consolidated~~$28.8 million of the purchase price allocated to ~~financial statements~~payment doof ~~not~~the ~~include~~unsecured ~~any~~creditors. Under ~~adjustments~~the ~~that~~Investment ~~might~~Agreement and ~~result~~the Debtors’ Plan of Reorganization, the Company’s currently outstanding ~~should~~common westock will have no value and will be ~~unable~~canceled. toNo ~~continue~~assurance can be provided as ato ~~going concern.~~what Avalues ~~plan~~will ultimately be realized by holders of claims ~~reorganization could~~against ~~materially~~the ~~change~~Debtors. The Debtors disclaim any responsibility for correcting or updating any recovery estimates provided herein or elsewhere, and any such estimates shall not be binding against the ~~amounts~~Debtors ~~currently~~and ~~disclosed~~should not be relied upon by any party. Caution should be exercised with respect to existing and future investments in any of the Debtors' liabilities or securities (including the ~~consolidated~~prepetition ~~financial~~stock ~~statements~~of Frontier Holdings, which will have no value and will be cancelled if the Debtors' proposed plan of reorganization is approved and consummated).

- 26 -

~~Automatically,~~We ~~upon~~anticipate ~~commencing~~that athe ~~Chapter~~transaction 11with ~~case,~~Republic awill ~~debtor~~close ~~has~~and ~~the~~that ~~exclusive~~we ~~right~~will ~~for~~emerge ~~120 days~~from ~~after~~Chapter ~~the~~11 ~~petition~~Bankruptcy ~~date~~in toSeptember ~~file~~2009. There ais ~~plan~~no ~~of reorganization and, if~~assurance itthat ~~does~~the ~~so,~~transaction ~~60 additional~~will ~~days to obtain necessary acceptances of its plan~~close. OnAdditional ~~January~~information ~~21,~~about ~~2009, the Bankruptcy Court further extended~~our ~~these~~Chapter ~~periods~~11 tofilings and ~~June~~copies 4,of ~~2009,~~the ~~and~~Debtors’ ~~August~~Disclosure 4,Statement ~~2009, respectively,~~ and ~~the~~Plan ~~Bankruptcy~~of ~~Court~~Reorganization ~~may~~are ~~further~~available ~~extend~~on ~~these~~the ~~periods. If~~internet ~~our~~at ~~exclusivity~~www.frontierairlines.com/restructure ~~period~~and ~~lapsed,~~Bankruptcy ~~any~~Court ~~party~~filings inand ~~interest~~claims ~~would~~information beare ~~able~~also toavailable ~~file~~at ~~a plan of~~www.frontier-restructuring.com. Information ~~reorganization~~contained ~~for~~on ~~any~~these ofwebsites ~~the~~is ~~Debtors. In~~not ~~addition~~deemed to ~~being~~be ~~voted~~part ~~on by holders~~ of ~~impaired~~this ~~claims~~Quarterly ~~and~~Report ~~equity interests, a plan of reorganization~~on ~~must~~Form ~~satisfy certain requirements of the Bankruptcy Code and must be approved, or confirmed, by the Bankruptcy Court in order to become effective~~10-Q.

Our ability, both during and after the Chapter 11 cases, 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) to maintain adequate liquidity; (iii) to generate cash from operations; (iv) to secure exit financing; (v) to negotiate favorable terms with our bankcard processors and credit card companies; (vi) to confirm a plan of reorganization under the Bankruptcy Code; and (vii) 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.

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.

Overview

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 on departures. We offer our customers a differentiated product, with ~~new~~ new Airbus and Bombardier aircraft, comfortable passenger cabins that we ~~configure~~ 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~~ 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 ~~February~~August 1214, 2009, Frontier Airlines and Lynx Aviation operated routes linking our Denver hub to 57 U.S. cities spanning the nation from coast to coast, five cities in Mexico and one city in Costa Rica.

InOn ~~December~~June 25, ~~2007~~2009, ~~Lynx~~we ~~Aviation~~entered ~~obtained~~into a codeshare agreement with Milwaukee-based Midwest ~~its~~Airlines ~~operating~~(“Midwest”). ~~certificate~~Under tothe ~~provide~~codeshare, ~~scheduled~~Frontier's code ~~air~~will ~~transportation~~be ~~service~~placed on ~~from~~Midwest flights in select markets, providing customers the ability to connect in Milwaukee to destinations in the Ohio Valley and East Coast, ~~Federal~~including ~~Aviation~~Cleveland, Fort ~~Administration~~Myers, ~~(“FAA”)~~Indianapolis, Nashville, New York-LaGuardia, Orlando, Philadelphia, Pittsburgh, Tampa and Washington, D. ~~The~~C.-National. ~~aircraft~~Similarly, ~~are~~Midwest's code will ~~operated~~be byplaced on Frontier flights in select markets, allowing their customers to connect in Denver to Frontier and Lynx Aviation destinations including Aspen, ~~under~~Colorado ~~its~~Springs, ~~operating~~Boise, ~~certificate. Lynx~~Billings, ~~Aviation~~Bozeman, ~~began~~Rapid ~~revenue~~City ~~service~~and other destinations in the Rocky Mountain region. Travelers can purchase tickets and fly on ~~December~~the 7codeshare routes beginning September 1, ~~2007~~2009. ~~and~~Additional ~~currently~~codeshare ~~provides~~cities will be added following ~~service~~the initial launch. In addition to the codeshare, this new 13marketing relationship ~~destinations~~is planned to include a reciprocal frequent flyer agreement, ~~two~~allowing members of ~~which~~the ~~are~~Frontier ~~supplemental~~EarlyReturns ~~service~~and tothe ~~our~~Midwest ~~mainline~~Miles ~~operations~~programs to earn and redeem miles on either airline.

- 27 -

In December 2007 Lynx Aviation obtained its operating certificate to provide scheduled air transportation service from the Federal Aviation Administration (“FAA”). The aircraft are operated by Lynx Aviation under its operating certificate. Lynx Aviation began revenue service on December 7, 2007 and currently provides service to 13 destinations, two of which are supplemental service to our mainline operations. In September 2009, Lynx Aviation will begin supplemental service to Albuquerque, New Mexico, Omaha, Nebraska and Salt Lake City, Utah, and will discontinue service to El Paso, Texas and Grand Junction, Colorado.

On April 23, 2008, as part of our bankruptcy proceeding, we announced a mutual agreement with Republic Airlines, Inc. (“Republic”) to terminate our capacity purchase agreement with Republic as of June 22, 2008. 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.

As of ~~February~~August 1214, 2009, we operated a mainline fleet of 51 jets (3637 of which we lease and 1514 of which we own), consisting of 38 Airbus A319s, 1110 Airbus A318s and ~~two~~three Airbus A320s, and a regional fleet of 10 Bombardier Q400 turboprop aircraft operated by Lynx Aviation. During the three months ended ~~December~~June 3130, ~~2008~~2009 and ~~2007~~2008, year-over-year mainline capacity decreased by 1615.~~0% and increased by 16.~~3%~~, respectively,~~ and ~~year-over-year mainline passenger traffic decreased by 11~~0.~~8% and increased by 25.3%, respectively. During the nine months ended December 31, 2008 and 2007, year-over-year mainline capacity decreased by 7.2% and increased by 14.~~1%, respectively, and year-over-year mainline passenger traffic decreased by 415.4% and increased by 20 2.08%, respectively.

As of ~~February~~August 1214, 2009, we currently lease or have preferential use of 17 gates on Concourse A at DIA. We use these 17 gates and seven commuter ground gates and share use of up to five common use gates to operate approximately ~~250~~260 daily mainline flight departures and arrivals and 70 Lynx Aviation daily flight departures and arrivals at DIA.

-27-

Industry Overview

The ~~U.S. domestic~~continued ~~airline~~global ~~industry~~economic ~~was~~recession resulted ~~negatively~~in ~~impacted~~a bysoftening ~~record~~in ~~high~~demand ~~fuel~~for ~~prices during~~domestic ~~the~~leisure ~~nine~~and ~~months~~business ~~ended~~air ~~December 31, 2008~~travel. ~~As fuel prices~~ ~~increased,~~The ~~the airline~~ industry ~~was~~has ~~unable~~continued to ~~raise~~be ~~average~~aggressive ~~fares~~with ~~enough~~fare ~~to offset~~sales, ~~rising~~which ~~costs. The~~adds ~~price~~to ofan already ~~fuel~~competitive ~~per~~pricing ~~gallon~~environment. ~~for~~The ~~the~~Federal ~~nine~~Aviation ~~months~~Administration ~~ended December 31~~(“FAA”), ~~2008~~released ~~increased~~projections bythat ~~48.9% over the same period~~ in ~~2007~~2009, ~~and reached~~domestic aairlines ~~new~~would ~~record~~see ~~high of $147~~ a 9% ~~barrel~~reduction ~~(or~~in ~~$4.39~~passengers, ~~per~~which ~~gallon~~would ~~for~~mark ~~our~~the ~~system-wide~~largest ~~average~~percentage ~~purchase~~decline ~~price including~~in ~~our~~capacity ~~into plane~~since ~~cost,~~deregulation ~~taxes~~of ~~and~~the ~~storage)~~industry onin ~~July 11, 2008~~1978. ~~Since this record~~Passenger ~~high,~~traffic ~~crude~~at ~~oil~~DIA ~~fell~~was to5.8% ~~$32~~lower ~~a barrel~~ in ~~December,~~May ~~the~~2009 ~~lowest~~as ~~level~~compared ~~since~~to the ~~end~~prior ~~of 2003~~year. According ~~Oil prices have stabilized in recent weeks due~~ to ~~a reduction in output by~~ the ~~Organization~~Air ofTransport ~~the~~Association ~~Petroleum Exporting Countries~~ (“~~OPEC~~ATA”), ~~which have~~domestic ~~influenced~~passenger ~~the~~yields ~~markets and prices~~ have ~~been~~declined ~~recently~~on ~~trading~~average inon a ~~range~~year-over-year ~~from~~basis ~~$35 to~~by ~~$45 a barrel~~10. As7% ~~of February~~ to 18.9,% ~~2009,~~during ~~our~~the ~~current~~period ~~price~~from ofApril ~~fuel per~~2009 ~~gallon~~to ~~was~~June $12009.63 In ~~(including~~response ~~into plane costs, taxes and storage). Domestic~~to ~~airlines~~the ~~responded~~uncertain toeconomic ~~these~~conditions ~~record fuel costs~~ and ~~the~~softening ~~economic~~revenue ~~downturn by reducing capacity~~environment, ~~grounding~~we ~~airplanes, furloughing and/or reducing their~~continue ~~workforce,~~to ~~raising~~focus ~~ticket prices and imposing additional fees. Based~~ on ~~airlines’~~cost ~~schedule~~discipline, ~~filings~~careful ~~through~~management ~~July~~of ~~31,~~our ~~2008~~fleet, byand ~~November 2008 overall~~ancillary ~~domestic~~revenue ~~airline capacity was reduced by 11% year over year~~opportunities. ~~Capacity at DIA is only be down 5.2% year over year for November 2008 largely due to growth of Southwest Airlines at DIA.~~

In the ~~response~~first quarter of 2009, fuel prices began to ~~increasing~~rise, ~~costs~~although ~~and~~significantly aslower than ~~part~~the high prices of ~~the~~last ~~Company’s~~year. ~~restructuring~~In ~~efforts~~response, we ~~reduced~~ ~~CASM~~began ~~(excluding~~to ~~fuel~~enter ~~and~~into ~~extraordinary~~fuel hedge ~~items)~~contracts ~~for~~capping ~~our fiscal~~the ~~third~~price ~~quarter~~of ~~by 4.3%~~crude ~~year~~oil ~~over~~for ~~year.. As~~approximately ~~part~~30% of our forecasted ~~restructuring~~consumption ~~efforts,~~covering wethe ~~have~~period ~~achieved~~of ~~new~~August 2009 ~~labor contracts with all~~through ~~represented~~December 2010. ~~employees~~Additionally, ~~and~~in ~~implemented~~July 2009, ~~wage~~we ~~reductions~~entered ~~for~~into ~~all non-represented~~another ~~employees,~~call ~~allowing~~contract uscovering toapproximately ~~achieve~~another ~~some~~20% of ~~the~~our ~~most~~estimated ~~competitive~~consumption for August ~~labor~~2009 ~~costs~~to ~~in the~~October ~~industry~~2009. We ~~have~~will ~~used~~continue ~~the bankruptcy process~~ to ~~successfully~~ ~~reduce~~closely ~~our~~monitor ~~costs~~fuel ~~despite~~prices aand ~~16%~~plan ~~reduction~~to intake ~~our~~a ~~capacity~~prudent ~~and~~approach anto ~~8% reduction in~~fuel ~~our stage length~~hedging.

WeIn ~~have~~December ~~also~~2008 ~~taken~~we alaunched ~~number~~our ~~of steps to~~fare ~~improve~~families ~~our~~product ~~fleet~~AirFairs, ~~and~~which provides our ~~schedules~~customers asa wechoice ~~attempt~~among tothree distinct ~~drive~~product ~~higher unit revenue~~offerings. We ~~sold~~AirFairs ~~several~~allows of our ~~older~~customers ~~Airbus~~to ~~aircraft~~choose ~~and~~Classic ~~terminated~~Plus for the ~~E170~~greatest ~~aircraft that~~flexibility ~~Republic~~and ~~provided~~amenities; ~~under~~Classic afor ~~capacity~~some ~~purchase agreement. We~~flexibility, ~~have cancelled poor performing non-Denver point to~~seat ~~point routes~~assignments, ~~redeployed~~and ~~aircraft~~most toof our ~~core~~amenities; ~~Denver markets,~~ and ~~adjusted frequencies~~Economy infor ~~markets~~the tolowest ~~more~~price, ~~effectively compete. We believe these~~but ~~changes~~with ~~have~~limited ~~allowed~~flexibility ~~us to develop a consistent business schedule~~ and ~~strengthen our connecting flow opportunities~~amenities. ~~Additionally, we have increased our overall revenue performance through ancillary charges such as bag charges.~~

InThe airline ~~December~~industry ~~2008~~is westill ~~launched~~facing ~~our~~an ~~fare families~~extremely ~~product~~challenging ~~“AirFairs”,~~economic environment. Although ~~which~~fuel ~~provides~~costs ~~our~~have ~~customers~~significantly adecreased ~~choice~~and ~~among three~~the ~~distinct~~industry ~~product~~is ~~offerings.~~benefiting ~~AirFairs~~from ~~allows~~earlier ~~our~~capacity ~~customers~~reductions, towe ~~choose~~cannot ~~Classic~~be ~~Plus~~certain ~~for~~how severely the ~~greatest~~weak ~~flexibility~~economy will impact travel demand and ~~amenities;~~the ~~Classic~~fare environment. Despite ~~for~~the ~~some~~current ~~flexibility~~economic conditions, ~~seat~~our ~~assignments,~~restructuring ~~and~~efforts ~~most~~are ofshowing results. With our ~~amenities;~~low costs and product ~~Economy~~differentiation, ~~for~~including ~~the~~AirFairs, ~~lowest~~we ~~price,~~believe ~~but~~we can continue to ~~with~~compete ~~limited~~effectively ~~flexibility~~in ~~and~~the ~~amenities~~highly competitive Denver market. WeOur ~~believe~~low unit ~~AirFairs~~costs ~~will~~coupled ~~also~~with reductions in fuel prices helped us to achieve operating ~~increase~~profits ~~our~~for ~~internal~~eight ~~bookings~~consecutive months. We believe, ~~lower~~based ~~our~~on ~~overall~~cost guidance ~~distribution~~provided ~~costs~~by many airlines, ~~and~~we ~~allow us~~can continue to ~~further~~sustain ~~distinguish~~ our ~~product~~industry leading cost structure.

~~The airline~~- ~~industry is, however, still facing an extremely challenging economic~~28 environment. Although fuel costs have significantly decreased and the industry is benefitting 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 effectively compete in the Denver market. Our cost reductions and recent reductions in fuel prices allowed us to achieve record operating earnings during our third fiscal quarter. We believe, based on cost guidance provided by many airlines, we can continue 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, the largest low-cost U.S. airline, introduced service at DIA. As of May 18, 2009, Southwest has 113 daily flights out of DIA to 34 destinations, and has 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 may require us to respond in a similar fashion.

During May 2009, United and its commuter affiliates had a total market share at DIA of approximately 45.1%, down from 47.7% in March 2009 and down from their market share during May 2008 of 48.1%. During May 2009 Southwest had a total market share at DIA of approximately 14.6%, down from March 2009 of 14.8%, and up from 8.7% during May 2008. Our market share at DIA, including Lynx Aviation during May 2009 was 24.8%, an increase from March 2009 of 22.7%, down from 28.5% during May 2008. As of May 2009, our seat share at DIA 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.

Quarter in Review

During the three months ended ~~December~~June 30, 312009, ~~2008,~~ we had net income of $~~1,126,000~~9.0 million or 324¢ per diluted share, as compared to to a net loss of $~~32,508,000~~94.7 million or ~~89¢~~$2.56 per diluted share for the three months ~~ended~~ ~~December~~ended 31June 30, ~~2007~~2008. Our net income for the three months ended ~~December~~June 3130, ~~2008~~2009, includes a$14.9 ~~gain~~million of ~~$2,651,000 on~~ reorganization items ~~(which related primarily to the sale of four A319 aircraft~~ offset by ~~professional~~a ~~fees)~~non ~~offset~~cash mark-to-market bygain ~~a loss~~ of $~~21,621,000~~1.5 million on fuel hedge contracts. Included in our net loss for the quarter ended ~~December~~June 3130, ~~2007~~2008 ~~was~~were a$8.6 ~~gain~~million of reorganization expenses related to our bankruptcy filing, $937.0 million for the write-off of the unamortized debt discount on our convertible notes included in reorganization,~~294,000~~ ~~from~~non cash mark-to-market loss of $15.6 million on fuel hedge contracts, a gain on the sale of assets of $8.8 million and employee separation costs of $0.6 million. ~~Also~~Operating ~~included~~margins, inexcluding ~~our~~special ~~net~~items were ~~loss~~10.1% and a negative 9.5% for the ~~quarter~~three months ended ~~December~~ ~~31,~~June ~~2007~~30, ~~was~~2009 $3and 2008,~~396,000~~ respectively. Our improved results over the prior year are largely due to the 53.8% reduction in the price of ~~start-up~~fuel, ~~costs~~offset ~~for~~by ~~Lynx~~a challenging ~~Aviation~~revenue environment in which our yields decreased by 10.0%.

~~Revenue~~Mainline passenger revenues decreased ~~per~~by ~~Available~~24.6% ~~Seat~~in ~~Mile~~the three months ended June 30, 2009 as compared to the prior period. Our mainline passenger revenues decreased due to a 15.3% reduction in capacity (as measured by available seat miles) and ~~Total~~a ~~Yield~~decrease in RASM, or revenue per ~~Available~~available ~~Seat~~seat ~~Mile~~mile, of 10.2%. The decrease in RASM was as a result of a 15.1% reduction in our average fare. Mainline total yield per ASM was 9.58¢ as compared to 10.21¢, a decrease of 6.2% in the three months ended June 30, 2009 and 2008, respectively. The increase in other revenues of $10.9 million primarily related to additional revenues generated in the quarter due to our new policy on bag fees and other ancillary charges. The additional ancillary revenues in 2009 increased total yield by 83¢ as compared to 47¢ in 2008.

~~Mainline~~- ~~passenger revenue decreased by~~29 10.0% in the three months ended December 31, 2008, as compared to the prior period. Our mainline passenger revenue decreased due to a 16.0% reduction in capacity (as measured by available seat miles) which was offset by an increase in RASM, or revenue per available seat mile, of 7.2%. The increase in RASM was as a result of improved pricing techniques, new policies on unused tickets and a 3.9 point increase in the load factor year-~~over-year.~~

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 three months ended June 30, 2009 and 2008 was 8.32¢ and 11.04¢, respectively, a decrease of 24.6%. The decrease in mainline CASM was largely due to a decrease in fuel expense to 2.41¢ per ASM from 5.22¢ per ASM for the three months ended June 30, 2009 and 2008, respectively, a decrease of 53.8%. Mainline CASM excluding fuel was 5.91¢ and 5.82¢ for the three months ended June 30, 2009 and 2008, respectively, an increase of 1.7%. Mainline CASM excluding special items and fuel was 5.91¢ per ASM for the three months ended June 30, 2009 as compared to 6.07¢ per ASM for the three months ended June 30, 2008, a decrease of 2.7% despite the 15.3% decrease in capacity. This decrease in CASM is partially due to a change in accounting for non-28refundable advanced maintenance payments (as discussed in note 3 to our consolidated financial statements) and the termination of a rate-per-hour services agreement for engines in September 2008, which increased CASM for the three months ended June 30, 2008 by 0.33¢.

~~Mainline~~Certain ~~total~~items ~~yield~~discussed ~~per~~below ~~ASM~~may ~~increased~~be 10deemed a non-GAAP financial measure under regulations issued by the Securities and Exchange Commission.2% We inbelieve the ~~three~~presentation ~~months~~of ~~ended~~financial information ~~December~~excluding ~~31,~~fuel ~~2008,~~and asother ~~compared~~certain items is useful to investors because we believe that fuel expense tends to fluctuate more than other operating expenses, and the ~~prior~~Company has incurred one-time gains and charges ~~period~~associated with the restructure of the business in bankruptcy. ~~This~~Excluding ~~increase,~~fuel ~~which~~and ~~was~~certain ~~driven~~items byfrom anthe ~~increase~~cost of mainline operations facilitates the comparison of results of operations between current and past periods and enables investors to forecast future trends in ~~other~~our ~~revenues~~operations. Furthermore, ofin $6preparing operating plans and forecasts,~~478~~ we rely,~~000~~ in part, ~~primarily~~on ~~related~~trends toin ~~additional~~our ~~revenue~~historical ~~generated~~results inof ~~the~~operations excluding ~~quarter~~fuel ~~due~~expense toand special items. However, our ~~new~~presentation ~~policy~~of onnon-GAAP financial ~~bag~~measures ~~fees~~should ~~and~~not ~~other~~be ~~ancillary~~viewed as a substitute for our financial ~~charges~~results determined in accordance with GAAP. A reconciliation of non-GAAP financial items is as follows:

Mainline Operating Costs per Available Seat Mile

Non-GAAP reconciliation of net income excluding certain items:
(In thousands)	Three months ended			Three months ended
	June 30, 2009			June 30, 2008

Net income (loss) as reported	$	8,980		$	(94,700	)
Reorganization expenses		14,946			45,548
Net income excluding reorganization items		23,926			(49,152	)

Less: non-cash mark-to-market fuel hedge (gain) loss		(1,455	)		15,576
Plus: loss on early extinguishment of debt		185			239
Plus: loss on the sale of assets		69			(8,833	)
Plus: exit cost		–			574
Net income (loss) excluding special items	$	22,725		$	(41,596	)

Revenue	$	275,609		$	360,487
Total margin excluding special items		8.2	%		(11.5	)%

~~Operating costs per ASM (CASM) is an important metric in the industry and we use it to gauge the effectiveness of our cost~~-~~reduction~~ ~~efforts. Our effort to reduce unit costs focuses~~30 ~~not only on controlling the actual dollars we spend, but also on the ability to maintain or reduce or CASM with changes in capacity.~~-

	Quarters Ended December 31,									Nine Months Ended December 31,
Non-GAAP reconciliation of operating profit (loss) excluding certain items:
	2008			2007			% Change			2008			2007			% Change
(In thousands)	Three months ended			Three months ended
Total mainline operating expenses per ASM :
	June 30, 2009			June 30, 2008
Cost per ASM		10.37	¢		10.00	¢		3.7	%		10.92	¢		9.75	¢		12.0	%
Operating income (loss) as reported	$	29,321		$	(41,488	)
Less: Fuel expense per ASM		(4.16	)¢		(3.71	)¢		12.2	%		(5.03	)¢		(3.44	)¢		46.2	%
Less: non-cash mark-to-market fuel hedge (gains) loss		(1,455	)		15,576
Plus: Post-retirement liability curtailment gain per ASM	-				0.20	¢		100	%		-			0.07	¢		100	%
Plus: loss on the sale of assets		69			(8,833	)
Total mainline operating expenses excluding fuel and non-operating gains		6.21	¢		6.49	¢		(4.3	)%		5.89	¢		6.38	¢		(7.7	)%
Plus: exit cost		–			574
Operating income (loss) excluding special items	$	27,935		$	(34,171	)
Revenue	$	275,609		$	360,487
Operating margin, excluding special items		10.1	%		(9.5	)%

We have separately listed in the above table our fuel costs and a one-time post retirement curtailment gain cost per ASM. We believe breaking out these items from CASM presents the performance on a more consistent basis giving more transparency to the on-going operations. We believe this information is important to investors and other readers of our financial statements.

Non-GAAP reconciliation of CASM excluding certain items:
(In thousands)	Three months ended			Three months ended
	June 30, 2009			June 30, 2008

Total operating expenses	$	246,288		$	401,975
Less: gain (loss) on the sale of assets		(69	)		8,833
Less: exit cost		–			(574	)
Less: operating expenses for Lynx Aviation (including fuel)		(21,906	)		(23,792	)
Less: operating expenses for Republic (including fuel)		–			(26,650	)
Less: mainline fuel expense		(64,887	)		(166,370	)
Operating expenses excluding fuel & regional jet operations	$	159,426		$	193,422

ASM's (000's)		2,697,871			3,184,290

Mainline CASM (¢)		8.32	¢		11.04	¢
Mainline CASM excluding special items and fuel (¢)		5.91	¢		6.07	¢

Our mainline CASM excluding fuel and the gain on the post-retirement liability decreased 4.3% and 7.7% for the three and nine months ended December 31, 2008, respectively, year over year due to several cost savings strategies implemented, including workforce reductions in response to capacity reductions, wage and benefit concessions and reductions, and network adjustments to more effectively use the remaining capacity.

Operations Review for the Quarter

During the three months ended December 31, 2008, Frontier Airlines had the following operating highlights:

· According to the Department of Transportation (“DOT”) monthly Air Consumer Report, Frontier Airlines finished first in fewest complaints in November 2008 with zero complaints logged. Frontier also ranked third for lowest mishandled bag rate in November, the fifth consecutive month in which we have ranked in the top five.

· AirFairs, Frontier's new fare structure that lets the customer choose the fare level that best meets their specific travel needs, was launched in December. AirFairs allows the customer to choose between three different fare levels: Classic Plus, Classic and Economy.

· On December 7, 2008, Lynx Aviation celebrated its one-year anniversary. In is first year of operation, Lynx Aviation carried nearly one million passengers to 17 cities.

· On December 18, 2008, Lynx Aviation began service to the Yampa Valley Regional Airport serving the Steamboat Springs/Hayden area. With the addition of Steamboat Springs/Hayden, Lynx Aviation currently provides services to 13 destinations.

-29-

· Safety is a primary concern, and we are proud that our maintenance staff has been awarded the FAA Diamond Award for Excellence for the tenth straight year – an award that recognizes our commitment to the ongoing training and education of our maintenance staff.

Our Business Plan

As a result of the continuing drastic escalation and volatility in fuel costs 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. With the route adjustments, termination of the Republic contract and the sale or lease termination of a total of 11 aircraft, we had a system-wide capacity decrease of 16.0% during the three months ending December 2008 over the same period last year.

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.

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 Transport Workers Union of America (“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 the Frontier Airlines Pilot Association, (“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.

-30-

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 December 2008 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 of mortgage debt on the sold aircraft and a book loss of $4.7 million on the transaction, net of transaction cost, for net proceeds of $4.2 million. 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 $11,485,000 of pre-delivery payments in July 2008.

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 Lenders, LLC, each a member of the Unsecured Creditors Committee in our Chapter 11 bankruptcy cases. The DIP Credit Agreement contains various representations, warranties and covenants by the Company 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 which varies depending on when the interest is paid. The DIP Credit Agreement will mature on April 1, 2009. On August 8, 2008, the Company received funding under the DIP Credit Agreement in the amount of $30 million, which is gross of approximately $2.1 million of applicable fees.

We have greatly improved 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. The fee does 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 mostly 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 generated $10.4 million in incremental ancillary revenue during the third fiscal quarter and we anticipate additional incremental annual revenues of $60 to $70 million related to these new fees. 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. Classic offers the important comforts for the best overall value. The Classic customer gets advanced seat assignments, two complimentary checked bags, 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 35%-40% of revenue booked on our website is at higher fare classes. We believe the advantage of the AirFairs product will increase internal bookings on our website, and lower our overall distribution costs.

-31-

Results of Operations

Frontier Holdings includes the following operations: our mainline operations, which consisted of 5251 Airbus aircraft on ~~December~~June 3130, ~~2008~~2009 and our Lynx Aviation operation, consisting of 10 Q400 aircraft. Historically, our operation included our Regional Partner operations operated by Republic and Horizon (“Regional Partners”). Lynx Aviation and our Regional Partners services are presented 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~~Partners 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 reimburse 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 composed 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. Even though we believe such allocations are reasonable, they may not be reflective of what a third party would determine on a stand-alone basis.

-32 31 -

The following table provides certain of our financial and operating data for the three ~~and nine~~ months ended ~~December~~June 3130, ~~2008~~2009 and ~~2007~~2008. Mainline and combined data exclude the expenses of Lynx Aviation prior to receiving FAA approval to fly, which occurred in December 2007. The start-up costs excluded were $3,396,000 and $8,454,000 for the three and nine months ended December 31, 2007, respectively.

	Three Months Ended December 31,									Nine Months Ended December 31,
	Year Ended March 31,			Three Months Ended June 30,						June 30, 2009 to June 30, 2008
	2008			2007			Change			2008			2007			Change
	2009			2009			2008			% Change
Selected Operating Data - Mainline:
Selected Operating Data – Mainline:
Passenger revenue (000s) (1)	$	~~263~~1,~~124~~131,417		$	~~292~~236,~~251~~500		$	~~(10.0~~313,650	)%	$	~~903,835~~(24.6	)%	$	~~923,299~~			~~(2.1~~	)%
Revenue passengers carried (000s)		210,~~387~~261			2,~~521~~498			~~(5.3~~2,830	)%		~~8,102~~(11.7	)%		~~8,145~~			~~(0.5~~	)%
Revenue passenger miles (RPMs) (000s) (2)		29,~~121~~342,~~028~~400			2,~~404~~252,~~926~~782			~~(11.8~~2,662,619	)%		~~7,396,624~~(15.4	)%		~~7,734,437~~			~~(4.4~~	)%
Available seat miles (ASMs) (000s) (3)		211,~~631~~472,~~944~~976			32,~~133~~697,~~507~~871			~~(16.0~~3,184,290	)%		~~8,863,379~~(15.3	)%		~~9,551,889~~			~~(7.2~~	)%
Passenger load factor (4)		8081.64	%		7683.75	%	~~3.9~~	83.6	~~pts~~%	(0.1	~~83.5~~	%) pts		~~81.0~~	%	~~2.5~~		~~pts~~
Break-even load factor (5)		79.2	%		80.9	%	(1.7)		pts		89.5	%		79.9	%	9.6		pts
Block hours (5)		237,015			55,049			66,102			(16.7	)%
Block hours (6)		54,767			66,023			(17.0	)%		183,402			199,026			(7.9	)%
Departures		97,868			23,130			26,411			(12.4	)%
Departures		22,883			25,803			(11.3	)%		75,669			79,779			(5.2	)%
Average seats per departure		132.5			134.1			132.1			1.5	%
Average seats per departure		132.6			128.9			2.9	%		132.3			128.9			2.6	%
Average stage length		885			870			913			(4.7	)%
Average stage length		867			942			(7.9	)%		885			929			(4.7	)%
Average length of haul		910			902			941			(4.1	)%
Average length of haul		889			954			(6.8	)%		913			950			(3.9	)%
Average daily block hour utilization (6)		11.6			11.9			11.9			–
Average daily block hour utilization (7)		11.1			12.0			(7.5	)%		11.6			12.2			(4.9	)%
Passenger yield per RPM (cents) (7)		12.01			10.48			11.65			(10.0	)%
Passenger yield per RPM (cents) (8)		12.23			11.99			2.0	%		12.10			11.83			2.3	%
Total yield per RPM (cents) (8), (9)		12.79			11.48			12.21			(6.0	)%
Total yield per RPM (cents) (9), (10)		13.29			12.67			4.9	%		12.80			12.42			3.1	%
Passenger yield per ASM (RASM) (cents) (10)		9.78			8.75			9.74			(10.2	)%
Passenger yield per ASM (RASM) (cents) (11)		9.86			9.20			7.2	%		10.09			9.58			5.3	%
Total yield per ASM (cents) (11)		10.42			9.58			10.21			(6.2	)%
Total yield per ASM (cents) (12)		10.71			9.72			10.2	%		10.68			10.06			6.2	%
Cost per ASM (cents) (CASM)		10.33			8.32			11.04			(24.6	)%
Cost per ASM (cents) (CASM)		10.37			10.00			3.7	%		10.92			9.75			12.0	%
Fuel expense per ASM (cents)		4.40			2.41			5.22			(53.8	)%
Fuel expense per ASM (cents)		4.16			3.71			12.2	%		5.03			3.44			46.2	%
Cost per ASM excluding fuel (cents) (12)		5.93			5.91			5.82			1.7	%
Cost per ASM excluding fuel (cents) (13)		6.21			6.17			0.7	%		5.89			6.27			(6.1	)%
Average fare (13)	$	98.66		$	84.27		$	99.21			(15.1	)%
Average fare (14)	$	97.63		$	104.16			(6.3	)%	$	100.30		$	102.97			(2.6	)%
Average aircraft in service		56.0			51.0			60.9			(16.3	)%
Average aircraft in service		53.6			60.0			(10.7	)%		57.6			59.5			(3.2	)%
Aircraft in service at end of period		51			51			60			(15.0	)%
Aircraft in service at end of period		52			60			(13.3	)%		52			60			(13.3	)%
Average age of aircraft at end of period (years)		4.8			5.1			4.1			24.4	%
Average age of aircraft at end of period (years)		4.5			3.8			18.4	%		4.5			3.8			18.4	%
Average fuel cost per gallon	$	3.11		$	1.70		$	3.68			(53.8	)%
Average fuel cost per gallon	$	2.93		$	2.58			13.6	%	$	3.53		$	2.37			48.9	%
Fuel gallons consumed (000's)		162,367			38,159			45,219			(15.6	)%
Fuel gallons consumed (000's)		37,384			45,103			(17.1	)%		126,179			138,617			(9.0	)%

-33-

	Year Ended March 31,			Three Months Ended June 30,						June 30, 2009 to June 30, 2008
	2009			2009			2008			% Change
Selected Operating Data – Lynx Aviation:

Passenger revenue (000s) (1)	$	76,988		$	17,023		$	17,976			(5.3	)%
Revenue passengers carried (000s)		995			265			235			12.8	%
Revenue passenger miles (RPMs) (000s) (2)		347,544			90,279			82,124			9.9	%
Available seat miles (ASMs) (000s) (3)		575,007			148,287			132,708			11.7	%
Passenger load factor (4)		60.4	%		60.9	%		61.9	%	(1.0		) pts
Block hours (5)		33,111			8,694			7,405			17.4	%
Departures		23,785			6,161			5,396			14.2	%
Average stage length		327			325			332			(2.1	)%
Passenger yield per RPM (cents) (7)		22.15			18.86			21.89			(13.8	)%
Passenger yield per ASM (cents) (10)		13.39			11.48			13.55			(15.3	)%
Cost per ASM (cents) (CASM)		16.46			14.77			17.93			(17.6	)%
Average fare	$	77.39		$	64.26		$	76.44			(15.9	)%
Aircraft in service at end of period		10			10			10			–

	Three Months Ended December 31,									Nine Months Ended December 31,
	2008			2007			Change			2008			2007			Change
Selected Operating Data – Lynx Aviation:
Passenger revenue (000s) (1)	$	19,114		$	2,659			618.8	%	$	61,046		$	2,659			2195.8	%
Revenue passengers carried (000s)		243			31			683.9	%		781			31			2419.4	%
Revenue passenger miles (RPMs) (000s) (2)		87,652			13,641			542.6	%		274,083			13,641			1909.3	%
Available seat miles (ASMs) (000s) (3)		150,568			21,496			600.4	%		438,262			21,496			1938.8	%
Passenger load factor (4)		58.2	%		63.5	%	(5.3)		pts		62.5	%		63.5	%	(1.0)		pts
Passenger yield per RPM (cents) (8)		21.81			19.49			11.9	%		22.27			19.49			14.3	%
Passenger yield per ASM (cents) (11)		12.69			12.37			2.6	%		13.93			12.37			12.6	%
Cost per ASM (cents) (CASM)		15.01			19.05			(21.2	)%		16.63			19.05			(12.7	)%
Average fare	$	78.54		$	85.42			(8.1	)%	$	78.14		$	85.42			(8.5	)%
Aircraft in service at end of period		10			8			25.0	%		10			8			25.0	%

- 32 -

Three Months Ended December 31,

Nine Months Ended December 31,

Year Ended March 31,

Three Months Ended June 30,

June 30, 2009 to June 30, 2008

2008

2007

Change

2008

2007

Change

2009

2008

% Change

Selected Operating Data - Regional Partners:

Selected Operating Data – Regional Partner:

Passenger revenue (000s) (1)

–17,465

~~26,640~~–

$17,465

~~17,465~~

~~88,390~~

~~(80.2~~

Revenue passengers carried (000s)

–188

~~270~~–

188

~~188~~

~~890~~

~~(78.9~~

Revenue passenger miles (RPMs) (000s) (2)

–135,857

~~187,538~~–

135,857

~~135,857~~

~~575,934~~

~~(76.4~~

Available seat miles (ASMs) (000s) (3)

–167,756

~~268,381~~–

167,756

~~167,756~~

~~781,371~~

~~(78.5~~

Passenger load factor (4)

–81.0

~~69.9~~–

81.0

~~81.0~~%

%NA

~~73.7~~

~~7.3~~

~~pts~~

Passenger yield per RPM (cents) (8)

–

14.21

12.86

15.35

(16.2

Passenger yield per RPM (cents) (7)

12.86

–

12.86

Passenger yield per ASM (cents) (11)

–

9.93

10.41

11.31

(8.0

Passenger yield per ASM (cents) (10)

10.41

–

10.41

Cost per ASM (cents) (CASM)

–15.89

~~14.37~~–

15.89

~~15.89~~

~~14.03~~

~~13.3~~

Average fare

–92.85

~~98.82~~–

$92.85

~~92.85~~

~~99.29~~

~~(6.5~~

Aircraft in service at end of period

–

10–

–

~~(100.0~~

	Three Months Ended December 31,									Nine Months Ended December 31,
	Year Ended March 31,			Three Months Ended June 30,						June 30, 2009 to June 30, 2008
	2008			2007			Change			2008			2007			Change
	2009			2009			2008			% Change
Selected Operating Data - Combined:
Selected Operating Data – Combined:
Passenger revenue (000s) (1)	$	~~282~~1,~~238~~225,870		$	~~321~~253,~~550~~523		$	~~(12.2~~349,091	)%	$	~~982,346~~(27.4	)%	$	~~1,014,348~~			~~(3.2~~	)%
Revenue passengers carried (000s)		211,~~630~~444			2,~~822~~763			~~(6.8~~3,253	)%		~~9,071~~(15.1	)%		~~9,066~~			~~0.1~~	%
Revenue passenger miles (RPMs) (000s) (2)		29,~~208~~825,~~680~~801			2,~~606~~343,~~105~~061			~~(15.~~2,880,600	)%		(18.7~~,806,564~~	)%		~~8,324,012~~			~~(6.2~~	)%
Available seat miles (ASMs) (000s) (3)		212,~~782~~215,~~512~~739			32,~~423~~846,~~384~~158			~~(18.7~~3,484,754	)%		~~9,469,397~~(18.3	)%		~~10,354,756~~			~~(8.6~~	)%
Passenger load factor (4)		7980.4	%		7682.13	%	~~3.3~~	82.7	~~pts~~%	(0.4	~~82.4~~	%) pts		~~80.4~~	%	~~2.0~~		~~pts~~
Passenger Yield per RPM (cents) (8)		12.61			12.19			3.5	%		12.47			12.08			3.2	%
Passenger yield per RPM (cents) (7)		12.38			10.80			12.00			(10.0	)%
Total yield per RPM (cents) (9), (10)		13.63			12.81			6.4	%		13.14			12.63			4.0	%
Total yield per RPM (cents) (8), (9)		13.12			11.76			12.51			(6.0	)%
Passenger yield per ASM (cents) (11)		10.01			9.28			7.9	%		10.28			9.71			5.9	%
Yield per ASM (cents) (10)		9.96			8.89			9.92			(10.4	)%
Total yield per ASM (cents) (12)		10.82			9.75			10.9	%		10.83			10.16			6.6	%
Total yield per ASM (cents) (11)		10.56			9.68			10.34			(6.4	)%
Cost per ASM (cents)		10.6269			108.4065			211.154	%		11(25.270	)%		~~10.09~~			~~11.7~~	%

- 33 -

(1)	“Passenger revenue” includes revenues for reduced rate stand-by passengers, charter revenues, administrative fees, and revenue recognized for unused tickets. The incremental revenue from passengers connecting from regional flights to mainline flights is included in our mainline passenger revenue.

(2)	“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.

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

(4)	“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.

(5) “~~Break-even~~Mainline ~~load~~block ~~factor~~hours” isrepresent the ~~passenger~~time ~~load~~between ~~factor~~aircraft ~~that~~gate ~~will~~departure ~~result~~and inaircraft ~~operating~~gate ~~revenues being equal to operating expenses, assuming constant revenue per passenger mile and expenses~~arrival.

~~-34-~~(6) “Mainline 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.

~~A reconciliation~~(7) of“Yield ~~the~~per ~~components~~RPM” ofis ~~the~~determined ~~calculation~~by ofdividing ~~mainline~~passenger ~~break-even~~revenues ~~load factor~~(excluding ischarter asrevenue) ~~follows:~~by revenue passenger miles.

	Three Months Ended December 31,						Nine Months Ended December 31,
(In thousands)	2008			2007			2008			2007
	(In thousands)
Net loss (income)	$	(1,126	)	$	32,508		$	86,981		$	18,674
Income tax benefit (expense)		219			–			(1,137	)		–
Passenger revenue – Mainline		263,124			292,251			903,835			923,299
Passenger revenue – Regional Partners		–			26,640			17,465			88,390
Passenger revenue – Lynx Aviation		19,114			2,659			61,046			2,659
Regional partner expense		–			(38,579	)		(26,650	)		(109,602	)
Lynx Aviation expense		(22,606	)		(7,492	)		(72,902	)		(12,550	)
Charter revenue		(3,657	)		(3,945	)		(9,126	)		(8,440	)
Passenger revenue – mainline (excluding charter) required to break even	$	255,068		$	304,042		$	959,512		$	902,430

(8)

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 reconciliation of passenger revenue excluding charter revenue is as follows:

The calculation of the break-even load factor:

	Year Ended March 31,		Three Months Ended June 30,
	2009		2009		2008
Passenger revenue – as reported	$	1,225,870	$	253,523	$	349,091
Less: Passenger revenue – Regional Partners		17,465		–		17,465
Less: Passenger revenue – Lynx Aviation		76,988		17,023		17,976
Passenger revenue – mainline service		1,131,417		236,500		313,650
Less: charter revenue		9,494		458		3,489
Passenger revenue – mainline (excluding charter, Regional Partners and Lynx Aviation)		1,121,923		236,042		310,161
Add: Passenger revenue – Regional Partners		17,465		–		17,465
Add: Passenger revenue – Lynx Aviation		76,988		17,023		17,976
Passenger revenue, system combined	$	1,216,376	$	253,065	$	345,602

	Three Months Ended December 31,						Nine Months Ended December 31,
	2008			2007			2008			2007
Passenger revenue – mainline (excluding charter) required to break even ($000s)	$	255,068		$	304,042		$	959,512		$	902,430
Mainline yield per RPM (cents)		12.23			11.99			12.10			11.83
Mainline revenue passenger miles (000s) to break even assuming constant yield per RPM		2,085,593			2,535,796			7,929,851			7,628,318
Mainline ASMs (000s)		2,631,944			3,133,507			8,863,379			9,551,889
Mainline break-even load factor		79.2	%		80.9	%		89.5	%		79.9	%

- 34 -

~~-35-~~(9) “Total yield per RPM” is determined by dividing total revenues by revenue passenger miles. This represents the average amount one passenger pays to fly one mile.

(610) “~~Mainlineblock~~Passenger ~~hours~~yield per ASM” ~~represent~~or ~~the~~“RASM” ~~time~~is ~~between~~determined ~~aircraft~~by ~~gate~~dividing ~~departure~~passenger ~~and~~revenues ~~aircraft~~(excluding ~~gate~~charter ~~arrival~~revenue) by available seat miles.

(711) “~~Mainline~~Total ~~average~~yield ~~daily~~per ~~block hour utilization~~ASM” ~~represents~~is ~~the~~determined ~~total block hours divided~~ by ~~the~~dividing ~~number~~total ofrevenues ~~aircraft days in service, divided~~ by ~~the~~available ~~weighted~~seat ~~average of aircraft in our fleet during that period~~miles. 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.

(812) ~~“Yield~~Cost per ~~RPM”~~ASM isexcluding ~~determined~~fuel may be deemed a non-GAAP financial measure under regulations issued by ~~dividing~~the ~~passenger~~Securities ~~revenues~~and (Exchange Commission. We believe the presentation of financial information excluding ~~charter~~fuel ~~revenue)~~expense byis ~~revenue~~useful ~~passenger~~to ~~miles~~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 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.

(913) ~~For~~“Mainline ~~purposes~~average offare” ~~these~~excludes ~~yield calculations, charter~~ revenue isincluded ~~excluded~~in ~~from~~ passenger revenue. ~~These~~for ~~figures~~charter ~~may~~and bereduced ~~deemed~~rate ~~non~~stand-~~GAAP financialmeasures under regulations issued~~ by ~~the~~passengers, ~~Securities~~administrative ~~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~~fees, ~~in preparing operating plans~~ and ~~forecasts, we rely on an analysis of yield exclusive of charter~~ revenue. ~~Our~~recognized ~~presentation of non-GAAP financial measures should not be viewed as a substitute~~ for ~~our~~unused ~~financial~~tickets orthat ~~statistical~~are ~~results~~greater ~~based~~than onone ~~GAAP.~~year ~~The~~from ~~reconciliation~~issuance ~~of passenger revenue excluding charter revenue is as follows:~~date.

(In thousands)	Three Months Ended December 31,				Nine Months Ended December 31,
	2008		2007		2008		2007
Passenger revenue – as reported	$	282,238	$	321,550	$	982,346	$	1,014,348
Less: Passenger revenue – Regional Partners		–		26,640		17,465		88,390
Less: Passenger revenue – Lynx Aviation		19,114		2,659		61,046		2,659
Passenger revenue – mainline service		263,124		292,251		903,835		923,299
Less: charter revenue		3,657		3,945		9,126		8,440
Passenger revenue – mainline (excluding charter, Regional Partners and Lynx Aviation)		259,467		288,306		894,709		914,859
Add: Passenger revenue – Regional Partners		–		26,640		17,465		88,390
Add: Passenger revenue – Lynx Aviation		19,114		2,659		61,046		2,659
Passenger revenue, system combined	$	278,581	$	317,605	$	973,220	$	1,005,908

- 35 -

~~(10)~~The break-out ~~“Total~~of ~~yield~~our ~~per~~mainline, ~~RPM”~~Regional isPartners ~~determined~~and byLynx ~~dividing~~Aviation ~~total~~operations ~~revenues~~from our byconsolidated ~~revenue~~statement ~~passenger~~of ~~miles.~~operations ~~This~~for ~~represents~~ the ~~average~~three ~~amount~~months ~~one~~ended ~~passenger~~June ~~pays~~30, 2008 toand ~~fly~~2009 ~~one~~are ~~mile.~~as follows (in thousands):

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

	Three Months Ended June 30,					%
	2009		2008			Change
Revenues:
Passenger - Mainline	$	236,500	$	313,650			(24.6	)%
Passenger - Regional Partner		–		17,465		NM
Passenger - Lynx Aviation		17,023		17,976			(0.1	)%
Cargo		1,457		1,699			(14.2	)%
Other		20,629		9,697			112.7	%

Total revenues		275,609		360,487			(23.5	)%

Operating expenses:
Flight operations		35,964		43,633			(17.6	)%
Aircraft fuel		64,887		166,370			(61.0	)%
Aircraft lease		25,768		27,220			(5.3	)%
Aircraft and traffic servicing		38,404		41,992			(8.5	)%
Maintenance		12,261		27,818			(55.9	)%
Promotion and sales		25,410		30,972			(18.0	)%
General and administrative		13,732		11,656			17.8	%
Operating expenses - Regional Partners		–		26,650		NM
Operating expenses - Lynx Aviation		21,906		23,792			(7.9	)%
Employee separation costs and other charges (reversals)		–		574		NM
Gains on sales of assets, net		69		(8,833	)	NM
Depreciation		7,887		10,131			(22.1	)%
Total operating expenses		246,288		401,975			(38.7	)%

Operating (loss) income	$	29,321	$	(41,488	)	NM

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

(13) Cost per ASM excluding fuel 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 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.

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

-36-

The break-out of our mainline, Regional Partners and Lynx Aviation operations from our consolidated statement of operations for the three and nine months ended December 31, 2008 and 2007 are as follows (in thousands):

	Three Months Ended								Nine Months Ended
	December 31,								December 31,
	2008		2007			Change			2008			2007			Change
Revenues:
Passenger - Mainline	$	263,124	$	292,251			(10.0	)%	$	903,835		$	923,299			(2.1	)%
Passenger - Regional Partner		–		26,640			(100.0	)%		17,465			88,390			(80.2	)%
Passenger - Lynx Aviation		19,114		2,659		NM				61,046			2,659		NM
Cargo		1,330		1,424			(6.6	)%		4,838			4,587			5.5	%
Other		17,413		10,935			59.2	%		38,279			32,711			17.0	%
Total revenues		300,981		333,909			(9.9	)%		1,025,463			1,051,646			(2.5	)%
Operating expenses:
Flight operations		35,058		44,569			(21.3	)%		117,575			134,346			(12.5	)%
Aircraft fuel		109,420		116,145			(5.8	)%		445,945			328,173			35.9	%
Aircraft lease		26,488		28,314			(6.5	)%		80,988			84,892			(4.6	)%
Aircraft and traffic servicing		40,438		48,084			(15.9	)%		122,717			134,697			(8.9	)%
Maintenance		19,609		24,431			(19.7	)%		70,609			75,662			(6.7	)%
Promotion and sales		19,280		32,072			(39.9	)%		70,724			102,440			(31.0	)%
General and administrative		13,976		14,764			(5.3	)%		39,106			43,564			(10.2	)%
Operating expenses - Regional Partners		–		38,579			(100.0	)%		26,650			109,602			(75.9	)%
Operating expenses - Lynx Aviation		22,606		7,492		NM				72,902			12,550		NM
Employee separation costs and other charges (reversals)		–		442			(100.0	)%		466			442			5.4	%
Gains on sales of assets, net		78		(4	)	NM				(8,594	)		–		NM
Post-retirement liability curtailment gain		–		(6,361	)		100.0	%		–			(6,361	)		100.0	%
Depreciation		8,457		10,984			(23.0	)%		28,124			33,091			(15.0	)%
Total operating expenses		295,410		359,511			(17.8	)%		1,067,212			1,053,098			1.3	%
Business interruption insurance proceeds		–		–			–			–			300			(100.0	)%
Operating income (loss)	$	5,571	$	(25,602	)		121.8	%	$	(41,749	)	$	(1,152	)	NM

NM = Change not meaningful or applicable

-37 36 -

Small fluctuations in our RASM or CASM can significantly affect operating results because we, like other airlines, have high fixed costs in relation to revenues. 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 revenues and expenses for our mainline operations expressed as cents per total mainline ASMs and as a percentage of total mainline operating revenues, as rounded, for the three ~~and nine~~ months ended ~~December~~June 3130, ~~2008~~2009 and ~~2007~~2008. Regional Partners and Lynx Aviation revenues, expenses and ASMs were excluded from this table to provide comparable amounts to the prior period presented.

	Three Months Ended December 31,												Nine Months Ended December 31,
	Year Ended March 31,			Three Months Ended June 30,
	2008						2007						2008						2007
	2009			2009			2008
	Revenue/			%			Revenue/			%			Revenue/			%			Revenue/			%
	Revenue/ Cost Per			Revenue/ Cost Per			Revenue/ Cost Per
	cost Per			of Total			cost Per			of Total			cost Per			of Total			cost Per			of Total
	ASM			ASM			ASM
	ASM			Revenue			ASM			Revenue			ASM			Revenue			ASM			Revenue
Revenues:
Revenues:
Passenger - mainline		9.87			8.77			9.85
Passenger - mainline		10.00			93.3	%		9.33			95.9	%		10.20			95.5	%		9.67			96.1	%
Cargo		0.05			0.05			0.05
Cargo		0.05			0.5	%		0.04			0.5	%		0.05			0.5	%		0.05			0.5	%
Other		0.50			0.76			0.31
Other		0.66			6.2	%		0.35			3.6	%		0.43			4.0	%		0.34			3.4	%
Total revenues		10.42			9.58			10.21
Total revenues		10.71			100.0	%		9.72			100.0	%		10.68			100.0	%		10.06			100.0	%
Operating expenses:
Operating expenses:
Flight operations		1.33			1.33			1.37
Flight operations		1.33			12.4	%		1.42			14.6	%		1.33			12.4	%		1.41			14.0	%
Aircraft lease expense		0.93			0.96			0.86
Aircraft fuel expense		4.16			38.8	%		3.71			38.2	%		5.03			47.1	%		3.44			34.2	%
Aircraft and traffic servicing		1.42			1.42			1.32
Aircraft lease expense		1.01			9.4	%		0.90			9.3	%		0.91			8.6	%		0.89			8.8	%
Maintenance		0.75			0.46			0.87
Aircraft and traffic servicing		1.54			14.3	%		1.54			15.8	%		1.38			13.0	%		1.41			14.0	%
Promotion and sales		0.81			0.94			0.97
Maintenance		0.75			7.0	%		0.78			8.0	%		0.80			7.5	%		0.79			7.9	%
General and administrative		0.45			0.51			0.37
Promotion and sales		0.73			6.8	%		1.02			10.5	%		0.80			7.5	%		1.07			10.7	%
Employee separation and other exit costs		–			–			0.02
General and administrative		0.53			5.0	%		0.47			4.8	%		0.44			4.1	%		0.46			4.6	%
(Gain) loss on sales of assets, net		(0.07	)		–			(0.28	)
Employee separation and other exits costs		–			0.0	%		0.01			0.2	%		0.01			0.0	%		0.00			0.0	%
Depreciation		0.31			0.29			0.32
Loss (gains) on sales of assets, net		0.00			0.0	%		(0.00	)		0.0	%		(0.10	)		(0.9	)%		–			0.0	%
Total operating expenses, excluding fuel		5.93			5.91			5.82
Post-retirement liability curtailment gain		–			0.0	%		(0.20	)		(2.1	)%		–			0.0	%		(0.07	)		(0.7	)%
Aircraft fuel expense		4.40			2.41			5.22
Depreciation		0.32			3.0	%		0.35			3.6	%		0.32			3.0	%		0.35			3.4	%
Total mainline operating expenses		10.33			8.32			11.04
Total operating expenses		10.37			96.7	%		10.00			102.9	%		10.92			102.3	%		9.75			96.9	%

Three months ended ~~December~~June 3130, ~~2008~~2009 as compared to the three months ended ~~December 31,~~June ~~2007~~30, 2008

Mainline Revenues

Industry fare pricing behavior has a significant impact on our revenues. 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. In addition, certain markets we serve are destinations that cater to vacation or leisure travelers, resulting in seasonal fluctuations in passenger demand and revenues in these markets.

Passenger Revenues - Mainline. Mainline passenger revenues totaled $~~263,124,000~~236.5 million for the three months ended ~~December~~June 3130, ~~2008~~2009 compared to $~~292,251,000~~313.7 million for the three months ended ~~December~~June 3130, ~~2007~~2008, a decrease of 1024.06%. Mainline passenger revenues include revenues for reduced rate stand-by passengers, charter revenue, administrative fees, ~~revenue~~and ~~recognized~~revenue recognized for tickets that are not used ~~and charter revenue~~.

-38 37 -

Revenues from ticket sales generated 8889.60% of our mainline passenger revenues and decreased $~~29,596,000~~70.2 million or 1125.30% from the ~~prior~~three month period in the prior year. The decrease in ticket sales resulted from a 1615.03% decrease in ASM’s, or $42.9 million,~~036,000,~~ ~~offset by~~ a 011.64% ~~increase~~decrease in our yields from ticket sales, or $~~1,406,000~~27.0 million and ana ~~increase~~ decrease of 30.91 points in load factor, or $~~11,034,000~~0.3 million. The percentage of revenues generated from other sources ~~and~~as ~~the~~ a percentage of mainline passenger revenues are as follows: administrative fees were 2.94%; revenue recognized for tickets that were not used was 46.51%; charter revenues were 10.42% and earnings from the travel component of our co-branded credit card were 2.32%. These sources of ~~revenue increased~~revenues ~~mainline~~decreased mainline passenger ~~revenue~~revenues by $~~1,483,000~~5.5 million as compared to the three months ended ~~December 31~~June 30, ~~2007~~2008, or 517.45%.

Other Revenues. Other revenues, 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, buy-on-board revenue and baggage fees, totaled $~~17,413,000~~20.6 million and $~~10,935,000~~9.7 million or 68.20% and 3.60% of total operating revenues excluding Regional Partner and Lynx Aviation ~~revenue~~ revenue for the three months ended ~~December~~June 3130, ~~2008~~2009 and ~~2007~~2008, respectively, an ~~increase~~ increase of 59112.27% period over period. 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 the buy-on-board program, bag fees and liquor ~~will~~ beare included in passenger revenue if purchased as part of the bundled ticket ~~price~~ ~~in future periods~~price.

Mainline Operating Expenses

Total mainline operating expenses were $~~272,804,000~~224.4 million and $~~313,440,000~~351.5 million for the three months ended ~~December~~June 3130, ~~2008~~2009 and ~~2007~~2008, respectively, and represented 9686.78% and ~~102~~108.91% of total mainline revenues, respectively. Mainline operating expenses decreased as a percentage of mainline revenues during the three months ended December 31, 2008 largely as a result of a 7.2% increase in RASM offset by a 3.7% increase in CASM.

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 1715.63% to $~~58,527,000~~56.5 million compared to $~~71,058,000, and were 20~~66.8%7 ~~and~~million ~~23.0% of total mainline revenues~~ for the three months ended ~~December~~June 3130, ~~2008~~2009 and ~~2007~~2008, respectively. Salaries and wages decreased over the prior comparable period largely as a result of wage concessions ranging from 10.0%- to 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 1412.67% from approximately 54,~~200~~949 at June ~~December 31~~30, ~~2007~~2008 to approximately 4,~~440~~321 at ~~December~~June 3130, ~~2008~~2009. Benefits also decreased due to the suspension of our 401(k) match effective on June 1, 2008 and a decrease in health insurance expense, offset by an increase in ~~health~~our workers compensation insurance ~~expense~~due to negative development of claim reserves.

Flight Operations. Flight operations expenses decreased 2117.36% to $~~35,058,000~~36.0 million as compared to $~~44,569,000, and were 12~~43.~~4% and 14.~~6% million ~~of total mainline revenues~~ for the three months ended ~~December~~ 31June 30, ~~2008~~2009 and ~~2007~~2008, respectively. Flight operations expenses decreased due to a 1716.07% decrease in mainline block hours from 66,~~023~~102 for the three months ended ~~December~~June 3130, 2008 ~~2007~~ to 5455,~~767~~049 for the three months ended ~~December~~ 31June 30, ~~2008~~2009. 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 1917.36% to $21~~,292,000~~.6 million compared to $26~~,375,000, and were 8~~.1%2 ~~and~~million, ~~9.0% of passenger mainline revenues~~ for the three months ended ~~December~~June 3130, 2009 ~~2008~~ and ~~2007~~2008, respectively. We employed approximately 1,~~545~~530 pilots and flight attendants at ~~December~~June 3130, ~~2008~~2009 as compared to 1,~~690~~675 at ~~December~~June 3130, ~~2007~~2008, a decrease of 8.67%. 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 wage concessions effective January 1, 2009.

~~-39-~~Aircraft insurance expenses totaled $1.8 million and $1.9 million for the three months ended June 30, 2009 and 2008, respectively. Aircraft insurance expenses were 71¢ and 66¢ per passenger for the three months ended June 30, 2009 and 2008, respectively. Our rates were reduced by almost 18% for the policy that covered January 1, 2008 to December 31, 2008 and increased by approximately 8% for the policy period January 1, 2009 to December 31, 2009.

Aircraft insurance expenses totaled $1,581,000 (0.6% of total mainline revenues) and $2,037,000 (0.7% of total mainline revenues) for the three months ended December 31, 2008 and 2007, respectively. Aircraft insurance expenses were 66¢ and 81¢ per passenger for the three months ended December 31, 2008 and 2007, respectively. Our aircraft hull and liability coverage renewed on January 1, 2007 to December 31, 2007 at rates that were reduced by 33.4%. Our rates were further reduced by nearly 18% for the policy that covers January 1, 2008 to December 31, 2008. 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~~38 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 has been extended until March 31, 2009. We do not know whether the government will extend the coverage beyond March 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.-

Aircraft Fuel. Aircraft fuel expenses represented 3825.81% and 3851.2% of total mainline revenues for the three months ended ~~December~~June 3130, ~~2008~~2009 and ~~2007~~2008, respectively. Aircraft fuel ~~expenses~~ 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~~ hedging transactions. Aircraft fuel expenses can be very volatile due to to fluctuations in prices and the timing of the settlement of our fuel hedge contracts. A summary of the activities are as follows:

	Quarters Ended December 31,
	Three Months Ended June 30,
	2008			2007			% Change
	2009			2008			% Change
Aircraft fuel expense - mainline	$	~~109~~64,~~420~~887		$	~~116~~166,~~145~~370			(561.80	%)%
Less: Cash (paid) /received from settled hedges		(12,873	)		12,829		NM
Cash (paid) /received from settled hedges		–			22,928		NM
Total economic fuel expense		9664,~~547~~887			~~128~~189,~~974~~298			(2565.17	%)%
Less: Loss in fair value of hedges not yet settled		(8,748	)		(3,535	)		147.4	%
Non-cash mark-to-market gain/(loss) on fuel hedges		1,455			(15,576	)	NM
Total raw aircraft fuel expense	$	8766,~~799~~342		$	~~125~~173,~~439~~722			(3061.08	%)%
Fuel gallons consumed (in 000's)		3738,~~384~~159			45,~~103~~219			(1715.16	%)%
Aircraft fuel expense per gallon - GAAP	$	21.9370		$	23.5868			13(53.68	)%
Aircraft fuel expense per gallon - excluding all hedging	$	21.3574		$	23.7884			(1554.67	%)%
Number of block hours		5455,~~767~~049			66,~~023~~102			(1716.07	%)%
Gallons per bock hour		~~683~~693			~~683~~684			01.03	%

Aircraft and Engine Lease. Aircraft and engine lease expenses totaled $~~26,488,000 (9~~25.4%8 ~~of total mainline revenues)~~ million and $~~28,314,000 (9~~27.3%2 ofmillion ~~total mainline revenues)~~ for the three months ended ~~December~~June 3130, ~~2008~~2009 and ~~2007~~2008, respectively, or a decrease of 6.5.3%. The number of leased aircraft during the three months ended ~~December~~June 3130, ~~2008~~2009 was 37 as compared to 38 for the same period last year. We also had decreases in lease rates for our spare engines and seven of our aircraft that have variable rents based on LIBOR.

~~-40-~~Aircraft and Traffic Servicing. Aircraft and traffic servicing expenses were $38.4 million and $42.0 million, a decrease of 8.5%, for the three months ended June 30, 2009 and 2008, respectively. Aircraft and traffic servicing expenses include all expenses incurred at airports including landing fees, facilities rental, station labor, ground handling expenses, 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 three months ended June 30, 2009, our mainline departures decreased to 23,130 from 26,411 for the three months ended June 30, 2008, or a decrease of 12.4%. Aircraft and traffic servicing expenses were $1,660 per departure for the three months ended June 30, 2009 as compared to $1,590 per departure for the three months ended June 30, 2008, or an increase of 4.4%, primarily due to increases in rates at certain airports and increases in glycol expenses.

~~Aircraft and~~Maintenance. Maintenance ~~Traffic~~expenses ~~Servicing~~were $12.3 ~~Aircraft~~million and ~~traffic~~$27.8 ~~servicing~~million ~~expenses~~for ~~were~~the three months ended June ~~$40~~30,~~438,000~~ 2009 and ~~$48~~2008,~~084~~ respectively,~~000,~~ a decrease of 1555.9%~~, for the three months ended~~. Maintenance ~~December~~expenses ~~31,~~include ~~2008~~all ~~and 2007~~labor, ~~respectively,~~parts and ~~represented~~supplies ~~14.3%~~expenses ~~and~~related ~~15.8%~~to ofthe ~~total~~maintenance ~~mainline~~of ~~revenues~~the aircraft. ~~Aircraft~~Maintenance ~~and~~cost ~~traffic~~per ~~servicing~~block ~~expenses include~~hour ~~all~~was ~~expenses~~$223 and ~~incurred~~$421 atfor ~~airports~~the ~~including~~three ~~landing~~months ~~fees,~~ended ~~facilities rental~~June, ~~station~~2009 ~~labor~~and 2008, ~~ground handling expenses~~respectively, ~~and~~a decrease ~~interrupted~~of ~~trip~~47.0%. Maintenance expenses ~~associated~~ ~~with~~decreased ~~delayed~~as orcompared ~~cancelled~~to ~~flights. Interrupted trip~~the ~~expenses~~prior ~~are~~comparable ~~amounts~~year ~~paid~~primarily due to ~~other~~the ~~airlines~~adoption toof ~~protect~~EITF ~~passengers~~08-3 on“Accounting ~~cancelled~~by Lessees for ~~flights~~Maintenance asDeposits ~~well~~(“EITF as08-3”)” ~~hotel,~~(see ~~meal~~note ~~and~~3 ~~other~~to ~~incidental~~our financial ~~expenses~~statements). ~~During~~ Prior to the ~~three~~adoption ~~months~~of ~~ended~~EITF ~~December 31~~08-3, ~~2008,~~we recorded our ~~mainline~~non-refundable ~~departures~~advance ~~decreased~~maintenance ~~to 22~~payments,~~883~~ ~~from~~or ~~25,803~~supplemental ~~for~~monthly ~~the~~payments under ~~three~~aircraft ~~months~~lease ~~ended December 31~~agreements, ~~2007,~~as oran aexpense ~~decrease~~when ~~of 11~~paid.~~3%.~~ ~~Aircraft~~The ~~and traffic~~Company ~~servicing~~also ~~expenses~~terminated ~~were~~a ~~$1,767~~service ~~per~~contract ~~departure~~with ~~for~~GE Engine Services covering the scheduled ~~three~~and ~~months~~unscheduled ~~ended~~repair ~~December 31,~~of Airbus engines in September 2008. The asamount ~~compared~~of toexpense ~~$1,864~~included ~~per~~in ~~departure~~the results of operations for the three months ended ~~December 31,~~June ~~2007~~30, or2008 afor ~~decrease~~these oftwo 5items was $10.2%6 million.

Maintenance. Maintenance expenses of $19,609,000 and $24,431,000 were 7.0% and 8.0% of total revenues for the three months ended December 31, 2008 and 2007, respectively, and decreased by 19.7% in the current period as compared to the three months ended December 31, 2007. Maintenance expenses include all labor, parts and supplies expenses related to the maintenance of the aircraft. Maintenance cost per block hour was $358 and $370 for the three months ended December 31, 2008 and 2007, respectively, a decrease of 3.2%. Maintenance expenses decreased as compared to the prior comparable year primarily due to a decrease in wages. Maintenance expenses also decreased as a result of the termination of a service contract we had with GE Engine Services covering the scheduled and unscheduled repair of Airbus engines. Under the terms of theservices agreement, we had agreed to pay GE an annual rate per-~~engine-hour,~~ ~~payable monthly, and GE assumed the~~39 ~~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.

Promotion and Sales. Promotion and sales expenses totaled $~~19,280,000~~25.4 ~~and~~million ~~$32,072,000~~ and ~~were 6~~$31.8%0 ~~and~~million ~~10.5% of total mainline revenues~~ for the three months ended ~~December~~June 3130, ~~2008~~2009 and ~~2007~~2008, respectively, ~~and~~a ~~decreased~~decrease ~~by 39~~of 18.90% ~~in the current period as compared to the three months ended December 31, 2007~~. 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 three months ended ~~December~~June 3130, ~~2008~~2009, promotion and sales expenses per mainline passenger decreased to $810.0817 from $1210.7294 for the three months ended ~~December~~June 3130, ~~2007~~ 2008. Promotion and sales expenses decreased per passenger primarily due to a reduction in our frequent flyer liability (due to the reduction in the cost of fuel) as compared to the prior year as well as reductions in spending on promotions and advertising~~, reduced expenses related to travel agent commissions and reduced fees associated with our LiveTV service~~.

General and Administrative. General and administrative expenses for the three months ended ~~December~~June 31, ~~2008~~2009 and ~~2007~~2008 totaled $13~~,976,000~~.7 million and $1411.7 million,~~764,000,~~ respectively, aan ~~decrease~~increase of 517.~~3%, and were 5.0% and 4.~~8% ~~of total mainline revenues, respectively~~. General and administrative expenses include the salaries 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~~ 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 expenses ~~decreased~~increased primarily due to ~~a reduction in~~an ~~wages~~increase ~~(by a reduction~~ in ~~headcount as well as pay concessions from the remaining employees) and a corresponding decrease in~~ our vacation liability and ~~the reduction~~worker’s ~~of expenses related to consultants~~compensation expense. These were partially offset by ana ~~increase~~decrease in ~~health~~wages ~~insurance~~ and ~~worker’s compensation~~in ~~expense~~health insurance expenses.

~~Post-Retirement Liability Curtailment Gain~~Depreciation. ~~On December 14, 2007, the~~Depreciation ~~President~~expenses ~~signed~~for the ~~Fair Treatment~~three ~~for~~months ~~Experienced~~ended ~~Pilots~~June ~~Act (the “Pilots Act”)~~30, ~~which~~2009 ~~increased the~~and ~~retirement~~2008 ~~age~~totaled ~~for commercial pilots to 65 from 60~~$7. ~~Pilots~~9 ~~that~~million ~~have not reached age 60 will now be allowed to work for five more years, provided they pass regular medical~~ and ~~piloting exams~~$10. ~~Pursuant to~~1 ~~our collective bargaining agreement with our pilots~~million, ~~if pilots are forced to retire due to FAA requirements~~respectively, ~~the~~a ~~retired~~decrease ~~pilots~~of ~~and~~22.1%. These ~~their dependents could~~expenses ~~retain~~include ~~medical~~depreciation ~~benefits under the terms and conditions~~ of ~~the~~aircraft ~~Health~~ and ~~Welfare Plan~~aircraft ~~for Employees of Frontier Airlines~~components, ~~Inc.~~office ~~until age 65. However~~equipment, asground astation ~~result of the Pilots Act~~equipment, ~~this~~and ~~retirement~~other ~~health~~fixed ~~benefit is no longer required~~assets. ItThe isdecrease ~~only~~in depreciation ~~required~~expenses ~~for~~is ~~pilots~~primarily ~~who~~due ~~reached~~to ~~mandatory retirement~~the ~~age~~decrease ~~prior~~in to the ~~effective~~average ~~date~~number of owned ~~the~~Airbus ~~Pilots~~aircraft ~~Act~~from 22. ~~As such,~~9 ~~during~~for the three months ended ~~December~~June 3130, ~~2007,~~2008 ~~we recorded a one-time post-retirement liability curtailment gain of $6,361,000~~ to ~~reflect the impact~~14.2 offor the ~~Pilots~~three ~~Act,~~months ~~which~~ended ~~was~~June ~~the~~30, ~~reduction~~2009, inor ~~post-retirement liability for pilots who had not yet attained the age of 60~~38.0%.

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Depreciation. Depreciation expenses for the three months ended December 31, 2008 and 2007 totaled $8,457,000 and $10,984,000, a decrease of 23.0%, and were approximately 3.0% and 3.6% of total mainline revenues for the three months ended December 31, 2008 and 2007, respectively. These expenses include depreciation of aircraft and aircraft components, office equipment, ground station equipment, and other fixed assets. The decrease in depreciation expenses is due to the decrease in the average number of owned Airbus aircraft from 22.0 for the three months ended December 31, 2007 to 16.6 for the three months ended December 31, 2008, or 24.5%, and the completion of our seat replacement program which resulted in accelerated depreciation on our Airbus aircraft seats in the prior comparable period.

Regional Partners

Regional Partner ~~revenue~~revenues ~~was~~were derived from flights operated by Republic ~~(and Horizon in the prior period)~~, including an allocation based on percentage of miles flown for tickets with multiple segments. Regional Partner operating expenses include all direct costs associated with Regional Partners flights plus a margin and 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, and we reimbursed these expenses plus a margin. Regional Partner operating expenses also include other direct costs incurred for which we do not pay a margin. These expenses are primarily composed of fuel, airport facility expenses and passenger related expenses.

On April 23, 2008, as part of our bankruptcy proceeding, we announced a mutual agreement with Republic ~~on the terms~~ under which we ~~would~~rejected ~~reject~~ the 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. Regional Partner revenues totaled $~~26,640,000~~17.5 million for the three months ended ~~December~~June 3130, ~~2007~~2008. Regional Partner expenses totaled $~~38,579,000~~ 26.7 million for the three months ended ~~December~~June 3130, ~~2007, and were 144.8% of total Regional~~ ~~Rartner revenues~~2008.

Lynx Aviation

Passenger ~~revenue~~revenues for Lynx Aviation ~~represents~~represent the revenue collected for flights operated by Lynx Aviation, including a prorated allocation of revenues based on miles when tickets are booked with multiple segments. 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 also include other direct costs incurred which are directly related to the Lynx Aviation operations. These expenses are primarily composed of fuel, airport facility expenses and passenger related expenses. We also allocate indirect expenses among mainline and Lynx Aviation operations by using departures, available seat miles, or passengers as a percentage of system combined departures, available seat miles or passengers.

-42 40 -

Passenger ~~Revenue~~ Revenues – Lynx Aviation. Passenger ~~revenue~~ revenues from flights operated by Lynx Aviation totaled $~~19,114,000 for the three months ended December 31, 2008~~17. ~~Lynx~~0 ~~Aviation~~million ~~did~~and ~~not begin revenue service until December 7, 2007~~$18. ~~Passenger revenue from flights operated by~~0 ~~Lynx~~million ~~Aviation~~ for the ~~month~~three months ended ~~December~~June 3130, ~~2007~~2009 ~~was~~and $22008,~~659~~ respectively,~~000~~ a decrease of 0.1%.

Lynx Aviation Expenses. During the three months ended ~~December~~June 3130, ~~2008~~2009, Lynx Aviation ~~had~~incurred $~~22,606,000~~21.9 million of expenses related to the service of ~~243~~265,000 passengers. These expenses included $~~5,765,000~~4.2 million in aircraft fuel expense, $2~~,259,000~~.3 million in aircraft ~~lease~~rent ~~expenses~~expense, $2~~,323,000~~.2 million in maintenance ~~expenses~~expense, $1~~,281,000~~.4 million in pilot and flight attendant salaries, $~~2,022,000~~1.3 million in ~~promotion~~general administrative and ~~sales expense~~benefits, $1~~,357,000 in~~.4 ~~general~~million ~~and administrative expenses, $1,249,000~~ in depreciation ~~expenses~~expense and $~~6,350,000~~9.1 million in flight ~~operations~~operation and other allocated expenses.

During the three months ended ~~December~~ 31June 30, ~~2007~~2008, Lynx Aviation incurred $~~3,396,000~~23.8 inmillion ~~start-up costs consisting~~ of ~~flight operations~~ expenses ~~primarily~~ related to ~~pilot~~the ~~salaries~~service ~~and training~~of 235,000 ~~maintenance~~passengers. These expenses included ~~related~~$8.0 tomillion ~~salaries~~in ~~and~~aircraft ~~wages~~fuel ~~for material specialists personnel~~expense, ~~line~~$2.3 ~~maintenance~~million ~~performed~~in on aircraft ~~and~~rent expense, ~~training~~$1.8 ~~for our~~million ~~Lynx~~in ~~Aviation~~maintenance ~~mechanics~~expense, ~~and~~$1.3 ~~general~~million ~~and~~in ~~administrative~~pilot ~~costs~~and ~~primarily~~flight ~~related~~attendant tosalaries, ~~costs~~$1.1 ofmillion ~~constructing~~in ~~our~~general ~~internal~~administrative ~~manual~~ and ~~procedures~~benefits, ~~to FAA standards and the FAA certification process~~$1. ~~After obtaining an~~2 ~~operating~~million ~~certificate~~ in ~~December~~depreciation ~~2007,~~expense ~~additional direct~~ and ~~allocated costs of~~ $~~4,096,000~~8.0 ~~were~~million ~~incurred~~in ~~related~~flight tooperation ~~the~~and ~~service of 31,000~~other ~~passengers~~allocated expenses.

Consolidated Nonoperating Expenses

~~Nonoperating~~Interest ~~Expenses~~Expense. ~~Net~~Interest ~~nonoperating~~expense ~~expenses~~decreased ~~totaled~~to $75.1 million for the three months ended June 30,~~315,000~~ ~~and~~2008 from $~~6,905,000~~7.3 million for the three months ended ~~December~~June 3130, 2008, a decrease of 30.3%. Subsequent to our filing for bankruptcy under Chapter 11, we stopped accruing interest on our convertible notes. Had we recorded interest expense, we would have increased interest expense by $1.1 million and $1.0 ~~2007~~million during the three months ended June 30, 2009 and 2008, respectively. Debt related to aircraft decreased from $520.8 million as of June 30, an2008 ~~increase~~to $354.3 million as of June 30, 2009 with a decrease in the 5average weighted interest rate from 4.993% to 3.46% as June 30, 2008 and 2009, respectively. The decrease in interest expense was primarily related to the reduction of accrued interest on our convertible notes, a 29.8% decrease in the weighted average borrowing rate and the retirement of debt of $172.4 million related to the sale and sale-leaseback of ten aircraft starting in May 2008.

~~Interest Income. Interest income~~Loss ~~was~~on ~~$856,000~~Early Extinguishment ~~for~~of Debt. During the three months ended ~~December~~June 3130, ~~2008~~2009 aswe ~~compared~~completed tothe sale of one Airbus A318 aircraft and retired debt of $18.9 million. We also wrote off $0.2~~,840,000~~ million ~~for~~of related deferred loan fees. During the three months ended ~~December~~June 3130, 2008 ~~2007,~~we acompleted ~~decrease~~the ofsale ~~69.9%, as a result~~ of atwo ~~decrease~~Airbus inA319 ~~our~~aircraft ~~average~~and ~~cash~~retired ~~position~~debt asof ~~compared~~$33.8 million. We toalso ~~the~~wrote ~~prior year~~off ~~and~~$0.2 amillion ~~decrease~~of inthe ~~interest~~related ~~rates~~deferred loan fees.

~~Interest~~Reorganization ~~Expense~~Expenses. ~~Interest~~ Reorganization ~~expense~~items ~~decreased~~include tosuch ~~$8,376,000~~items ~~for~~as ~~the~~realized ~~three~~gains ~~months~~and ~~ended~~losses ~~December~~from ~~31,~~the ~~2008~~settlement of ~~from~~pre-petition $9liabilities,~~301,000~~ provisions for losses resulting from the reorganization ~~three~~and ~~months~~restructuring ~~ended~~of ~~December~~the 31business, ~~2007,~~as awell ~~decrease~~as ofprofessional fees ~~9.9%. Subsequent~~directly related to ~~our~~the ~~filing~~process ~~for~~of ~~bankruptcy~~reorganizing under Chapter 11~~, we~~. Reorganization ~~stopped~~expenses ~~accruing~~were ~~interest~~$14.9 onmillion ~~our~~and ~~convertible notes~~$45. ~~Had~~5 wemillion ~~recorded interest~~for ~~expense,~~the wethree ~~would~~months ~~have~~ended ~~increased~~June 30, ~~interest~~2009 ~~expense~~and ~~by $1~~2008,~~163,000~~ ~~during~~ respectively. During the three months ended ~~December~~June 30, 312009, ~~2008. Debt~~reorganization ~~related~~expenses toincluded ~~aircraft decreased from~~ $~~478,564,000~~3.4 asmillion ofin ~~December~~accelerated depreciation ~~31,~~for ~~2007~~an toA318 ~~$385,938,000~~aircraft asplanned ~~of December~~for ~~31,~~August ~~2008~~2009 ~~with~~and a ~~decrease~~$7.6 inmillion loss on the ~~average~~sale ~~weighted~~of ~~interest~~an ~~rate~~A318 ~~from 6.90%~~aircraft toin 5May 2009.~~03%~~ During asthe ~~December~~three months ~~31,~~ended ~~2007~~June ~~and~~30, 2008, ~~respectively. The decrease~~reorganization inexpenses ~~interest~~included ~~expense~~$7.4 ~~was~~million ~~primarily related to the reduction of accrued~~in ~~interest~~professional ~~on our convertible notes~~fees, ~~a 27.~~$1%.2 ~~decrease~~million in ~~the~~default ~~weighted~~penalties ~~average borrowing rate~~ and ~~the retirement of debt of~~ $~~153,537,000~~36.7 ~~related~~million toin ~~the sale~~a ~~and sale~~write-~~leaseback~~off of ~~nine~~remaining ~~aircraft~~unamortized debt discount.

~~Loss~~Income Taxes. We onrecorded ~~Early Extinguishment~~income tax expense of ~~Debt~~$0. ~~During~~5 million during the three months ended ~~December~~June 3130, ~~2008~~2009 webecause ~~completed~~income ~~the~~coupled ~~sale~~with oftax ~~four~~gains ~~Airbus~~on ~~A319~~the ~~aircraft~~sales ~~and retired debt~~ of ~~$65,869,000. We~~aircraft ~~also~~are ~~wrote~~currently ~~off $427,000~~estimated ~~of related deferred loan fees. Prior~~ to ~~the~~result ~~closing~~in oftaxable ~~the~~income ~~five~~for ~~sale-leaseback transactions during~~ the ~~three~~year ~~months~~ending ~~ended~~March ~~December~~ 31, ~~2007~~2010, ~~we had~~of ~~temporary~~which ~~financing~~only ~~for~~90% ~~our~~can ~~Bombardier~~be ~~Q400~~offset ~~aircraft~~by ~~which~~net weoperating loss ~~repaid~~carryforwards. The ~~and~~remaining ~~we wrote~~10% ~~off~~is ~~$283,000~~subject ofto ~~debt~~alternative minimum ~~issuance~~tax ~~fees~~of 20%.

~~Reorganization Expense~~There ~~(Gain). Reorganization items~~was ~~include~~no ~~such~~provision ~~items~~for asincome ~~realized gains and losses from the settlement of~~taxes ~~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. A reorganization gain of $2,651,000 was recorded during the~~ three months ended ~~December~~ 31June 30, 2008 ~~and~~due ~~primarily related~~ to ~~the~~accumulated ~~gains~~losses onfor ~~the sale of four A319~~which ~~aircraft~~valuation ofallowances ~~$8,093,000~~have ~~and~~been ~~professional fees of $5,121,000~~recorded.

~~Income Taxes. We~~- ~~recorded a tax benefit of $219,000 during the three~~41 months ended December 31, 2008 as a reduction in alternative minimum tax expenses. We reduced our estimated alternative minimum tax expense during the three month ended December 31, 2008 because we increased our forecasted net loss for the year. Tax gains on the sales of aircraft are currently estimated to result 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 had no provision for income taxes for the three months ended December 31, 2007 due to accumulated losses for which valuation allowances have been recorded. -

-43-

Nine months ended December 31, 2008 as compared to the nine months ended December 31, 2007

Mainline Revenues

Passenger Revenues - Mainline. Mainline passenger revenues totaled $903,835,000 for the nine months ended December 31, 2008 compared to $923,299,000 for the nine months ended December 31, 2007, a decrease of 2.1%.

Revenues from ticket sales generated 89.9% of our mainline passenger revenues and decreased $26,044,000 or 3.1% from the prior year. The decrease in ticket sales resulted from 7.1% decrease in ASM’s, or $60,455,000, offset by an increase of 2.5 points in load factor, or $23,823,000 and a 1.3% increase in our yields from ticket sales, or $10,588,000. The percentage of revenues generated from other sources and the percentage of mainline passenger revenues are as follows: administrative fees were 2.8%; revenue recognized for tickets that were not used was 4.0%; charter revenues were 1.0% and earnings from our co-branded credit card were 2.0%. These sources of revenue increased mainline passenger revenue by $8,363,000 as compared to the nine months ended December 31, 2007, or 10.4%.

Other Revenues. Other revenues totaled $38,279,000 and $32,711,000 or 4.0% and 3.4% of total operating revenues excluding Regional Partner and Lynx Aviation revenue for the nine months ended December 31, 2008 and 2007, respectively, an increase of 17.0% period over period. 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.

Mainline Operating Expenses

Total mainline operating expenses were $967,660,000 and $930,946,000 for the nine months ended December 31, 2008 and 2007, respectively, and represented 102.3% and 96.9% of total mainline revenues, respectively. Mainline operating expenses increased as a percentage of mainline revenues during the nine months ended December 31, 2008 largely as a result of a 12.0% increase in our mainline CASM offset by a 5.3% increase in RASM.

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 10.2% to $185,936,000 compared to $206,949,000, and were 19.6% and 21.5% of total mainline revenues for the nine months ended December 31, 2008 and 2007, 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. Benefits decreased due to a decrease in the vacation liability for wage concessions and the suspension of our 401(k) match effective on June 1, 2008, offset by increases in our health insurance expense and workers compensation.

Flight Operations. Flight operations expenses decreased 12.5% to $117,575,000 as compared to $134,346,000, and were 12.4% and 14.0% of total mainline revenues for the nine months ended December 31, 2008 and 2007, respectively. Flight operations expenses decreased primarily due to a 7.9% decrease in mainline block hours from 199,026 for the nine months ended December 31, 2007 to 183,402 for the nine months ended December 31, 2008 as well as decreased in wage rates and benefits.

Pilot and flight attendant salaries before payroll taxes and benefits decreased 10.1% to $70,432,000 compared to $78,339,000, and were 7.4% and 8.2% of passenger mainline revenues for the nine months ended December 31, 2008 and 2007, respectively.

Aircraft insurance expenses totaled $5,527,000 (0.6% of total mainline revenues) and $6,346,000 (0.7% of total mainline revenues) for the nine months ended December 31, 2008 and 2007, respectively. Aircraft insurance expenses were 68¢ and 78¢ per passenger for the nine months ended December 31, 2008 and 2007, respectively.

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Aircraft Fuel. Aircraft fuel expenses represented 47.1% and 34.2% of total mainline revenues for the nine months ended December 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 market prices and the timing of the settlement of our fuel hedge contracts. A summary of the activities are as follows:

	Nine Months Ended December 31,
	2008			2007			% Change
Aircraft fuel expense - mainline		445,945			328,173			35.9	%
Plus: Cash received from settled hedges		10,278			21,958			(53.2	%)
Total economic fuel expense		456,223			350,131			30.3	%
Less: Loss in fair value of hedges and terminated contracts		(27,170	)		(5,712	)		375.7	%
Total raw aircraft fuel expense		429,053			344,419			24.6	%
Fuel gallons consumed (in 000's)		126,179			138,617			(9.0	%)
Aircraft fuel expense per gallon - GAAP	$	3.53		$	2.37			48.9	%
Aircraft fuel expense per gallon - excluding all hedging	$	3.40		$	2.48			37.1	%
Number of block hours		183,402			199,026			(7.9	%)
Gallons per bock hour		688			696			(1.2	%)

Aircraft and Engine Lease. Aircraft and engine lease expenses totaled $80,988,000 (8.6% of total mainline revenues) and $84,892,000 (8.8% of total mainline revenues) for the nine months ended December 31, 2008 and 2007, respectively, or a decrease of 4.6%. The average number of leased aircraft during the nine months ended December 31, 2008 was 37.6 as compared to 38.0 for the same period last year. We returned two leased aircraft to a lessor and completed a sale-leaseback transaction during the second fiscal quarter of 2009. We also had decreases in lease rates 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 $122,717,000 and $134,697,000, a decrease of 8.9%, for the nine months ended December 31, 2008 and 2007, respectively, and represented 13.0% and 14.0% of total mainline revenues. During the nine months ended December 31, 2008, our mainline departures decreased to 75,669 from 79,779 for the nine months ended December 31, 2007, or a decrease of 5.2%. Aircraft and traffic servicing expenses were $1,622 per departure for the nine months ended December 31, 2008 as compared to $1,688 per departure for the nine months ended December 31, 2007, or a decrease of 3.9%. The decrease is due to a reduction in the usage of glycol, LiveTV service fees and decreased in wage rates and benefits.

Maintenance. Maintenance expenses of $70,609,000 and $75,662,000 were 7.5% and 7.9% of total revenues for the nine months ended December 31, 2008 and 2007, respectively, and decreased by 6.7% in the current period as compared to the nine months ended December 31, 2007. Maintenance cost per block hour was $385 and $380 for the nine months ended December 31, 2008 and 2007, respectively, an increase of 1.3%. 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 4.5 years as of December 31, 2008 as compared to 3.8 years as of December 31, 2007, an increase of 18.4%.

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Promotion and Sales. Promotion and sales expenses totaled $70,724,000 and $102,440,000 and were 7.5% and 10.7% of total mainline revenues for the nine months ended December 31, 2008 and 2007, respectively, a decrease of 31.0%. During the nine months ended December 31, 2008, promotion and sales expenses per mainline passenger decreased to $8.73 from $12.58 for the nine months ended December 31, 2007. During the nine months ended December 31, 2008, we increased the mileage redemption level for a domestic roundtrip ticket from 15,000 to 20,000 miles. This decreased our frequent flyer liability $4,472,000. This was a result of reducing the number of awards eligible for redemption by 40%. The frequent flyer expense was further reduced primarily by a reduction in the cost of carriage by another $5,467,000 as compared to the same period last year. Promotion and sales expenses also decreased per passenger primarily due to reductions in spending on promotions and advertising as well as reduced fees related to our LiveTV service.

General and Administrative. General and administrative expenses for the nine months ended December 31, 2008 and 2007 totaled $39,106,000 and $43,564,000, respectively, a decrease of 10.2%, and were 4.1% and 4.6% of total mainline revenues, respectively. General and administrative expenses decreased primarily due to a reduction in wages and a corresponding decrease in our vacation liability and the reduction of expenses related to consultants. These were partially offset by an increase in health insurance and worker’s compensation expense.

Depreciation. Depreciation expenses for the nine months ended December 31, 2008 and 2007 totaled $28,124,000 and $33,091,000, a decrease of 15.0%, and were approximately 3.0% and 3.4% of total mainline revenues for the nine months ended December 31, 2008 and 2007, respectively. The decrease in depreciation expenses is due to a 6.1% decrease in the average number of owned Airbus aircraft from 21.4 for the nine months ended December 31, 2007 to 20.1 for the nine months ended December 31, 2008 and the completion of our seat replacement program which resulted in accelerated depreciation on our Airbus aircraft seats in the prior comparable period.

Regional Partners

Passenger Revenue – Regional Partner. Regional Partner revenues totaled $17,465,000 for the nine months ended December 31, 2008 and $88,390,000 for the nine months ended December 31, 2007, an 80.2% decrease. The decrease was due to the wind-down of the Republic agreement which was completed on June 22, 2008.

Operating Expenses – Regional Partner. Regional partner expenses for the nine months ended December 31, 2008 and 2007 totaled $26,650,000 and $109,602,000, respectively, a 75.9% decrease, and were 152.6% and 124.0% of total Regional Partner revenues, respectively. The increase in expenses as a percentage of revenues is due to an increase in fuel costs and inefficiencies in fleet utilization caused by the wind-down of the Republic agreement, which was completed on June 22, 2008.

Lynx Aviation

Passenger Revenue – Lynx Aviation. Passenger revenue from flights operated by Lynx Aviation totaled $61,046,000 for the nine months ended December 31, 2008. Lynx Aviation did not begin revenue service until December 7, 2007. Passenger revenue from flights operated by Lynx Aviation for the month ended December 31, 2007 was $2,659,000.

Lynx Aviation Expenses. Lynx Aviation was in the start-up phase of operations until December 7, 2007 when it began revenue service. For the nine months ended December 31, 2008, operating expenses were $72,902,000. During the nine months ended December 31, 2007 Lynx Aviation incurred $8,454,000 of start up costs and $4,096,000 of operating expenses.

During the nine months ended December 31, 2008, Lynx Aviation incurred $72,902,000 of expenses related to the service of 781,000 passengers. These expenses included $23,070,000 in aircraft fuel expenses, $6,890,000 in aircraft lease expenses, $6,786,000 in maintenance expenses, $3,765,000 in pilot and flight attendant salaries, $6,351,000 in promotion and sales expenses, $3,781,000 in general and administrative expenses, $3,664,000 in depreciation expenses and $18,595,000 in flight operations and other allocated expenses.

During the nine months ended December 31, 2007, Lynx Aviation incurred $8,454,000 of start-up expenses related to flight operations expenses primarily for 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 $4,096,000 were incurred related to the service of 31,000 passengers.

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Consolidated Nonoperating Expenses

Nonoperating Expenses. Net nonoperating expenses totaled $21,449,000 and $17,522,000 for the nine months ended December 31, 2008 and 2007, respectively, an increase of 22.4%.

Interest Income. Interest income was $3,510,000 for the nine months ended December 31, 2008 as compared to $10,037,000 for the nine months ended December 31, 2007, a decrease of 65.0%, as a result of a decrease in our average cash position as compared to the prior year and a decrease in interest rates.

Interest Expense. Interest expense decreased to $23,258,000 for the nine months ended December 31, 2008 from $26,939,000 for the nine months ended December 31, 2007, a decrease of 13.7%. Subsequent to our filing for bankruptcy under Chapter 11, we stopped accruing interest on our convertible notes. Had we recorded interest expense, we would have increased interest expense by $3,349,000 during the nine months ended December 31, 2008. Debt related to aircraft decreased from $478,564,000 as of December 31, 2007 to $385,938,000 as of December 31, 2008 with a decrease in the average weighted interest rate from 6.90% to 5.03% as December 31, 2007 and 2008, respectively. The decrease in interest expense was related to the reduction of accrued interest on our convertible notes, a 27.1% decrease in the weighted average borrowing rate and the retirement of debt of $153,537,000 related to the sale and sale-leaseback of nine aircraft.

Loss on Early Extinguishment of Debt. During the nine months ended December 31, 2008, we completed the sale of nine Airbus A319 aircraft and retired debt of $153,537,000. We also wrote off $990,000 of related deferred loan fees. Prior to the closing of the five sale-leaseback transactions during the nine months ended December 31, 2007, we had temporary financing for our Bombardier Q400 aircraft which we repaid and we wrote off $283,000 of debt issuance fees.

Reorganization Expense (Gain). Reorganization expenses of $22,646,000 was recorded during the nine months ended December 31, 2009 and primarily related to professional fees of $18,459,000, a loss of $4,654,000 on a sale-leaseback transaction, a write-off of $13,541,000 of a note receivable, offset by the gains on the sale of six A319 aircraft of $13,887,000 and gains on contract terminations and settlements of $6,100,000.

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.

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 $1.32 to $1.87 per gallon during the three months ended June 30, 2009 and as of ~~February~~August 917, 2009 ~~were~~was $12.6318 per gallon. During the ~~nine~~three months ended ~~December~~June 30, 312009, ~~2008,~~ we closed on the sale of ~~nine~~one Airbus ~~A319~~A318 aircraft, for proceeds of $~~253,300,000~~20.0 million. This resulted in retirement of debt of $~~153,537,000~~18.9 million related to the ~~mortgages~~mortgage on the sold aircraft. In July 2009, we reached full collateralization with our credit card processors.

~~-47-~~We had cash and cash equivalents of $69.4 million and $71.8 million at June 30, 2009 and March 31, 2009, respectively. At June 30, 2009, total current assets were $301.9 million versus $309.1 million of total current liabilities, resulting in a working capital deficit of $7.2 million. 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. Working capital deficits are customary for airlines since air traffic liability is classified as a currently liability. The improvement in working capital is due to the increase in our air traffic liability of $14.5 million offset by an increase in restricted cash of $26.7 million.

WeOperating Activities. Cash ~~had cash, cash equivalents and~~provided ~~short-term~~by ~~investments~~operating ofactivities ~~$69,055,000~~for ~~and~~the ~~$129,338,000~~three atmonths ~~December~~ended ~~31,~~June ~~2008 and March 31~~30, ~~2008,~~2009 ~~respectively. At~~was ~~December 31, 2008, total current~~$2.3 ~~assets~~million ~~were $267,563,000~~ as compared to ~~$284,910,000~~cash ofused ~~total~~by ~~current liabilities,~~operating ~~resulting~~activities inof a$64.2 ~~working~~million ~~capital~~for the ~~deficit~~three ~~of $17,347,000. At~~months ~~March~~ended 31June 30, 2008, ~~total~~an ~~current~~increase ~~assets~~of ~~were~~ $~~306,286,000~~66.4 asmillion. ~~compared~~The toincrease in ~~$449,367,000~~operating ofactivities ~~total~~was ~~current~~due ~~liabilities,~~to ~~resulting~~ an increase in aour ~~working~~net ~~capital~~operating ~~deficit~~results of $~~143,081,000~~103. ~~The~~7 million and an increase in ~~working capital~~our isair ~~due~~traffic toliability ~~the~~of ~~reclassification~~$14.5 ofmillion offset ~~pre-petition~~by ~~liabilities~~cash ~~and~~used ~~the current~~for ~~portion~~restricted investments of ~~long-term~~$26.7 ~~debt~~million toprimarily ~~long~~due to hold-~~term~~back ~~liabilities~~provisions ~~under~~from ~~the~~our ~~financial statement~~credit ~~caption~~card ~~“Liabilities~~processor ~~subject~~in order to ~~compromise~~reach full collateralization.”

~~Operating~~Investing Activities. Cash ~~used~~provided by ~~operating~~ investing activities for the three ~~nine~~ months ended ~~December~~June 3130, ~~2008~~2009 was $~~154,265,000~~15.9 asmillion. Cash ~~compared to cash~~ provided by ~~operating activities of $32,687,000~~ ~~for~~ the ~~nine~~sale ~~months ended December 31, 2007, a decrease~~ of ~~$186,952,000.~~one ~~The decrease~~Airbus inA318 ~~cash~~aircraft ~~from operating activities~~ was ~~due to an increase in our net loss of~~ $~~68,307,000,~~20.0 ~~a decrease in cash provided by changes in operating assets~~million. Capital ~~and~~expenditures ~~liabilities~~were of $~~103,531,000,~~1.2 anmillion ~~increase in restricted cash~~ for ~~holdbacks of $42,136,000 during~~ the ~~nine~~three months ended ~~December~~June 3130, ~~2008~~2009 ~~and~~which included arotable ~~reduction~~aircraft ~~of $11~~components,~~680,000~~ inaircraft ~~proceeds~~improvements, ~~received~~information technology onenhancements, ~~fuel~~and ~~hedge~~ground ~~contracts~~equipment. ~~The~~Aircraft ~~$103,531,000 reduction~~lease ~~in operating assets~~ and ~~liabilities is primarily due to seasonally low~~purchase ~~balance~~deposits inmade ~~our~~for ~~air~~future ~~traffic~~aircraft ~~liability~~deliveries ~~combined~~during ~~with~~the aperiod ~~reduction~~were in$3.1 ~~our capacity,~~million ~~a corresponding reduction in passenger related taxes~~ and $~~16,183,000~~0.1 ~~paid~~million ~~for fuel~~of ~~hedge~~purchase ~~contacts~~deposits ~~and~~were ~~other~~returned ~~deposits~~to us.

~~Investing Activities.~~ Cash provided by investing activities for the ~~nine~~ three months ended ~~December~~June 3130, 2008 was $~~259,172,000~~53.1 million. Cash provided by the sale of ~~nine~~ two Airbus A319 aircraft was $~~253,300,000~~59. ~~Cash~~3 ~~received from the return of purchase deposits was $11,485,000~~million. Capital expenditures were $~~10,244,000~~4.9 million for the three ~~nine~~ months ended ~~December~~June 3130, 2008 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 $~~4,725,000~~1.2 ~~We also received proceeds of $556,000 primarily from the sale of aircraft parts that are held for sale~~million.

Financing Activities. Cash used by infinancing ~~investing~~ activities for the ~~nine~~three months ended ~~December~~June 3130, ~~2007~~2009 was $~~171,324,000~~16.5 million. ~~Capital~~During ~~expenditures were $240,212,000 for~~ the ~~nine~~ three months ended ~~December~~June 3130, ~~2007~~2009, ~~which~~we ~~included~~retired ~~the purchase~~ debt of ~~three~~$18.9 ~~Airbus~~million ~~A318 and~~related ~~eight~~to ~~Bombardier Q400 aircraft, new leather seats for 24 aircraft,~~ the ~~purchase~~ mortgage of ~~LiveTV~~a ~~equipment,~~sold ~~rotable~~A318 aircraft ~~components, aircraft improvements, information technology enhancements, and ground equipment~~. We ~~received~~also paid $~~93,147,000~~6.1 ~~primarily~~million ~~from~~in ~~the~~principal ~~sale~~payments ofon ~~five~~our ofowned ~~the~~aircraft ~~eight~~and ~~newly~~we ~~acquired~~paid ~~Bombardier~~$1.5 ~~Q400~~million ~~aircraft~~ in ~~sale-leaseback~~financing ~~transactions~~fees. ~~Aircraft lease and purchase deposits made for future aircraft deliveries during the period were $24,259,000.~~

~~Financing Activities.~~ Cash used by by financing activities for the ~~nine~~quarter ~~months~~ ended ~~December~~June 3130, 2008 was $~~156,689,000~~46.6 million. During the ~~nine~~quarter ~~months~~ ended ~~December~~June 3130, 2008, we retired debt of $~~153,537,000~~33.8 million related to the mortgages of the ~~nine~~two sold ~~Airbus~~ A319 aircraft. We also paid $~~27,843,000~~12.7 million in principal payments on our remaining 27 owned aircraft, which included additional principal payments of $4~~,679,000~~.7 million made from the proceeds on the two aircraft sales, and we paid $~~2,170,000 in financing fees~~0. ~~We also paid $3,139,000 in principal payments on short-term~~1 ~~borrowing~~million ~~used to finance pre-delivery payments on our Airbus aircraft. On August 8, 2008, the DIP Credit Agreement was funded~~ in ~~the~~ ~~amount~~financing ~~of $30,000,000, net of $2,058,000 in~~ fees.

~~Cash received from financing activities for the nine months ended December 31, 2007 was $106,090,000. During the nine months ended December 31, 2007, we had short~~-~~term~~ ~~borrowings of $31,817,000 for the purchase of two of our~~42 ~~Bombardier aircraft. During the period we refinanced these aircraft with long~~-term borrowings and repaid the total amount of the borrowings. During the nine months ended December 31, 2007, we also borrowed $201,136,000 for the purchase of three Airbus A318 and eight Bombardier Q400 aircraft, $12,333,000 under a PDP deposit financing and $3,000,000 in a line of credit. These were offset by debt principal payments of $26,138,000 on 30 of our owned Airbus and Bombardier aircraft and we paid $1,084,000 in financing fees. Payments of $80,188,000 were paid on the retirement of debt of five of the Bombardier Q400 aircraft upon completion of sale-leaseback transactions during the period.

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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 “~~Contractual Obligations” and “~~Commercial Commitments and Off -Balance Sheet Arrangements” below.

WeAs ~~have options to purchase ten~~of ~~Bombardier~~June ~~aircraft~~30, ~~the last of which expires in July 2010~~2009, ~~subject~~we ~~to additional~~have ~~extension~~remaining ~~rights. In~~firm ~~July~~purchase ~~2008~~commitments ~~Lynx~~for ~~Aviation~~eight ~~exercised its~~additional ~~option~~aircraft onfrom ~~the~~Airbus ~~first~~that ofhave ~~the~~scheduled ~~ten~~delivery ~~additional~~dates ~~aircraft~~beginning ~~with~~in ~~a planned delivery date~~February in2011 ~~June~~and ~~2009.~~continuing Inthrough ~~January~~November ~~2009~~2012 ~~Lynx~~and ~~Aviation~~one ~~exercised~~remaining ~~its~~firm ~~option on the second~~purchase ofcommitment ~~the~~for ~~remaining~~one ~~ten~~spare ~~additional~~Airbus ~~aircraft~~engine ~~with~~scheduled afor ~~planned~~ delivery ~~date~~ in February 2010. Also, Weas of June 30, 2009, we have ~~eight~~two ~~remaining~~firm purchase ~~obligations~~commitments for ~~Airbus A320~~Bombardier aircraft ~~under~~that ~~our~~have ~~agreement~~scheduled ~~with Airbus with~~ delivery dates ~~from~~of ~~February~~August ~~2011 to~~2009 ~~November~~and ~~2012~~February 2010.

~~Union~~We ~~Agreements~~had options to purchase ten Bombardier aircraft, the last of which expires in September 2009. In July 2008 Lynx Aviation exercised its option on the first of the ten additional aircraft with a planned delivery date in August 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 three options remaining.

We currently have no committed financing for the eight firm Airbus aircraft. We have obtained preliminary approval for financing for the two Bombardier aircraft options; however, it is subject to approval from our equity sponsor. To complete the purchase of the eight Airbus aircraft and two Bombardier aircraft scheduled for delivery starting in August 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 June 30, 2009, we had made pre-delivery payments on future aircraft deliveries totaling $7.8 million which relate to aircraft for which we have not secured financing.

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 under Section 113 of the Bankruptcy Code 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”). 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~~provides ~~provide~~us ~~Frontier Airlines~~ with wage concessions through December 12, 2012.

~~In December 2008 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,~~43 ~~2009. FAPA represents more than 600 pilots at Frontier Airlines.~~-

OnIn ~~November 6~~July 2009, the ~~2008,~~District Court vacated the ~~Association~~Bankruptcy Court’s October 2008 ruling under section 1113 of ~~Flight~~the ~~Attendants-CWA~~Bankruptcy ~~(“AFA-CWA”)~~Code ~~filed~~that aprovided ~~petition~~us with wage and other concessions from our maintenance groups represented by the ~~National~~IBT. In August ~~Mediation~~2009, ~~Board~~the toCompany ~~hold~~and the IBT announced that they entered into a ~~representational~~consensual long-term ~~election~~agreement onwith ~~behalf~~the Company’s litigation under the IBT under Section 1113 of 98the ~~Lynx~~Bankruptcy Code. This resulted in an additional ~~Aviation~~allowed ~~flight~~claim ~~attendants~~of $7.1 Inmillion ~~order~~which towill ~~file~~be reflected in our results for the three ~~election~~months ended September 30, ~~the~~2009. The ~~AFA-CWA~~agreement ~~had~~modifies benefit toreductions ~~collect~~ the ~~required~~Company ~~signature~~obtained ~~cards~~ from ~~35%~~its ofIBT-represented ~~Lynx~~employees ~~Aviation~~in ~~flight~~October ~~attendants~~2008. In ~~order~~The tonew ~~successfully~~agreement’s ~~unionize,~~modified ~~more~~wage ~~than~~and ~~50%~~benefit ofreductions ~~Lynx~~are comparable to ~~Aviation~~the ~~flight~~consensual ~~attendants~~reductions ~~must~~obtained ~~vote~~from toall ~~join~~other ~~the~~employee ~~AFA-CWA~~groups. In ~~January~~The ~~2009~~settlement, ~~Lynx~~if ~~Aviation~~approved ~~flight~~by ~~attendants~~the ~~voted~~Bankruptcy toCourt, bealso ~~represented~~will byresolve the ongoing ~~AFA-CWA. Lynx~~appeals ~~Aviation~~of isthe ~~currently~~Bankruptcy inCourt ~~the~~order. ~~process~~The ofIBT ~~negotiating~~anticipates ait will hold the ~~labor~~ratification ~~agreement~~vote ~~with~~on the ~~fight~~agreement ~~attendants~~and count ballots by August 20, 2009.

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-~~49-~~term wage concessions starting at 10% effective January 1, 2009. FAPA represents more than 600 pilots at Frontier Airlines.

~~The~~On ~~following~~November ~~table~~6, ~~summarizes~~2008, ~~our~~the ~~contractual~~Association ~~obligations~~of asFlight ofAttendants-CWA ~~December~~(“AFA-CWA”) ~~31,~~filed ~~2008,~~a ~~for~~petition ~~debt;~~with ~~operating~~the ~~leases;~~National ~~aircraft~~Mediation ~~order~~Board ~~commitments;~~to ~~capital~~hold ~~leases;~~a ~~interest~~representational election ~~and~~on ~~related~~behalf ~~payments;~~of ~~other~~98 ~~material,~~Lynx ~~noncancelable~~Aviation ~~purchase~~flight ~~obligations; other liabilities~~attendants. ~~The~~ ~~following~~In ~~table~~order ~~also~~to ~~has~~file ~~been adjusted~~ for the ~~early~~ ~~return~~election, ofthe ~~one~~AFA-CWA ~~leased~~had ~~aircraft~~to incollect ~~January 2009,~~ the ~~exercise~~required ofsignature ancards ~~option~~from to35% of ~~purchase~~Lynx ~~one~~Aviation ~~additional~~flight ~~Bombardier~~attendants. In ~~Q400~~order ~~aircraft~~to ~~that~~successfully ~~occurred in January 2009~~unionize, ~~and~~more ~~the~~than ~~purchase~~50% of ~~two~~Lynx ~~Q400~~Aviation ~~engines. We~~flight ~~are~~attendants inhad ~~the~~to ~~process~~vote ~~of evaluating~~to ~~our~~join ~~executory~~the AFA-CWA. In ~~contracts~~January in2009, ~~order~~Lynx toAviation ~~determine~~flight ~~which~~attendants ~~contracts~~voted ~~will~~to be ~~assumed~~represented inby ~~our~~the ~~Chapter 11 proceedings~~AFA-CWA. ~~Therefore,~~Lynx ~~obligations~~Aviation as is currently ~~quantified~~ in the ~~table~~process of ~~below~~negotiating ~~and~~a inlabor ~~the~~agreement ~~text~~with ~~immediately following~~ the ~~footnotes~~flight ~~to the table will continue to change~~attendants.

			Less than		2-3		4-5		After
	Total		1 year		years		years		5 years
Long-term debt - principal payments (1)	$	480,927	$	29,208	$	57,453	$	63,779	$	330,487
Long-term debt - interest payments (1)		213,628		25,184		45,619		39,376		103,449
Post-petition debt – principal and interest payments (2)		36,332		33,242		2,060		1,030		–
Operating leases (3)		937,084		138,918		244,161		235,518		318,487
Unconditional purchase obligations (4) (5) (6)		378,618		17,027		212,178		149,413		–
Total contractual cash obligations	$	2,046,589	$	243,579	$	561,471	$	489,116	$	752,423

In July, 2009, the United Transportation Union (“UTU”) filed a petition with the National Mediation Board to hold a representational election on behalf of 120 Lynx Aviation pilots. In order to file for the election, the UTU had to collect the required signature cards from 35% of Lynx Aviation pilots. In order to successfully unionize, more than 50% of Lynx Aviation pilots will have to vote to join the UTU. Voting is scheduled to close on September 3, 2009.

(1) At December 31, 2008, we had loans covering four Airbus A319 aircraft, nine Airbus A318 aircraft, five Bombardier Q400 aircraft and two Airbus A320 aircraft.

Three of these loans have fixed payment terms of ten to 15 years and bear interest at an average of 6.8%.

The remaining 17 loans have interest rates based on LIBOR plus margins that adjust quarterly or semi-annually. At December 31, 2008, interest rates for these loans ranged from 3.7% to 7.0%. Each of these loans has terms of 10 to 15 years, with balloon payments ranging from $2,640,000 to $9,312,000 at the end of the term. All of the loans are secured by the aircraft. Actual interest payments will change based on changes in LIBOR. In July 2005, we also entered into a junior loan in the amount of $4,900,000 on an Airbus A319 aircraft. This loan has a seven-year term with quarterly installments. The loan bears interest at a floating rate adjusted quarterly based on LIBOR, which was 8.56% at December 31, 2008.

In December 2005, we issued $92,000,000 of 5% convertible notes due 2025. In the contractual obligations table above, the convertible notes are reflected based on their stated maturity of December 2025 with the corresponding interest payments.

(2) On August 5, 2008, the Bankruptcy Court approved a secured super-priority DIP Credit Agreement with the Lenders, each a member of the Unsecured Creditors Committee in our Chapter 11 bankruptcy cases. The DIP Credit Agreement contains various representations, warranties and covenants by the Company 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 which varies depending on when the interest is paid. The DIP Credit Agreement will mature on April 1, 2009. On August 8, 2008, the DIP Credit Agreement was funded in the amount of $30,000,000.

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(3) As of December 31, 2008, we leased 35 Airbus A319 type aircraft, two Airbus A318 aircraft, and five Bombardier Q400 aircraft under operating leases with expiration dates ranging from 2013 to 2022. Under all of our leases, we have made cash security deposits, which totaled $23,146,000 at December 31, 2008. Additionally, we are required to make additional rent payments to cover the cost of major scheduled maintenance overhauls of these aircraft. These additional rent payments are based on the number of flight hours flown and/or flight departures and are not included as an obligation in the table above. During the nine months ended December 31, 2008 and 2007, additional rent expense to cover the cost of major scheduled maintenance overhauls of these aircraft totaled $22,696,000 and $20,055,000, respectively, and are included in maintenance expense in the statements of operations.

We also lease office space, spare engines and office equipment for our headquarters and airport facilities, and certain other equipment with expiration dates ranging from 2009 to 2015. In addition, we lease certain airport gate facilities and maintenance 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 above.

(4) As of December 31, 2008, 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,one remaining firm purchase commitment for one spare Airbus engine scheduled for delivery in December 2009 and two spare Q400 engines scheduled for delivery in our fiscal 2009 fourth quarter. Also as of February 13, 2009, we have two firm purchase commitments for Bombardier aircraft that have scheduled delivery dates of June 2009 and February 2010. Included in the purchase obligations are the remaining amounts due to Airbus and amounts for spare aircraft components to support the additional aircraft. We are not under any contractual obligations with respect to spare parts.

We have no financing as of now for the purchase of our remaining eight Airbus aircraft. To complete the purchase of the remaining eight Airbus aircraft and two Bombardier aircraft scheduled for delivery starting in June 2009, we must secure additional aircraft financing totaling approximately $314,000,000, 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. 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 December 31, 2008, we had made pre-delivery payments on future aircraft deliveries totaling $5,133,000 which relate to aircraft for which we have not secured financing. In July 2008, due to the revised Airbus delivery schedule, $11,485,000 of pre-delivery payments were returned to us leaving $2,500,000 in pre-delivery payments remaining for Airbus aircraft in which we have not secured financing.

(5) In October 2002, we entered into a purchase and 12-year services agreement with LiveTV to bring DIRECTV AIRBORNE™ satellite programming to every seatback in our Airbus fleet which was restructured and amended in January 2009. We intend to install LiveTV in every new Airbus aircraft we place in service. The table above includes amounts for the installation of DirecTV for the remaining eight Airbus aircraft we currently expect to purchase.

(6) In March 2004, we entered into a services agreement with Sabre, Inc. for a reservations and check-in system. The table above includes minimum annual system usage fees. Usage fees are based on passengers booked, and actual amounts paid may be in excess of the minimum per the contract terms.

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Commercial Commitments and 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 ~~December~~June 3130, ~~2008~~2009, we had outstanding letters of credit, bonds and cash ~~security~~ security deposits totaling $1820.5 million,~~982,000,~~ $~~1,321,000~~0.8 million and $2527.1 million,~~348,000,~~ respectively.

We ~~also~~ have an agreement with a financial institution under which we can issue letters of of credit of up to an agreed upon percentage of spare parts inventories less amounts borrowed under the credit facility. As of ~~December~~June 3130, ~~2008~~2009, we we had letters of credit issued of $12~~,054,000~~.1 million and cash draws of $3~~,000,000~~.0 million under this agreement. The revolving credit facility was repaid on July 21, 2009 and letters of credit were decreased to $6.1 million. In May 2009 we 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~~ borrow additional amounts under this facility.

In July 2005 we entered into an agreement (subsequently amended) with another financial institution for a $~~5,750,000~~12.6 million revolving line of credit that permits us to ~~issue~~ issue letters of credit ~~up to $5,000,000~~. As of ~~December~~June 3130, ~~2008~~2009, we have utilized $~~4,083,000~~5.6 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~~,845,000~~.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 $~~7,437,000~~8.9 million in cash collateral as of ~~December~~June 3130, ~~2008~~2009 was classified as restricted cash and investments on our consolidated balance sheet. In July 2009, we increased letters of credit by $6.0 million for a total of $11.6 million, which increased the amount of required cash collateralization by $6.2 million, or a total of $15.2 million.

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 December 31, 2008 that amount totaled $88,020,000. In June 2008, we reached a revised agreement with this bankca

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