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DAVIS POLK & WARDWELL 450 Lexington Avenue New York, New York 10017 Telephone (212) 450-4000 Facsimile (212) 450-6501 Benjamin S. Kaminetzky Elliot Moskowitz Daniel J. Schwartz Counsel to the Debtors and Debtors in Possession UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x In re FRONTIER AIRLINES HOLDINGS, INC., et al., Debtors. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x FRONTIER AIRLINES, INC., -against- FRONTIER AIRLINE PILOTS ASSOCIATION, Plaintiff, Defendant - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x Chapter 11 Case No. 08-11298 (RDD) (Jointly Administered) Adversary Proceeding No. COMPLAINT

Plaintiff, Frontier Airlines, Inc., as debtor-in-possession ( Frontier, 1 the Company, or Debtor ), by its undersigned counsel, as and for its complaint against the Frontier Airline Pilots Association ( FAPA or the Union ), hereby alleges upon personal knowledge as to the Debtor and the Debtor s own acts, and upon information and belief as to all other matters, as follows I. NATURE OF ACTION AND NEED FOR RELIEF 1. This is an action by Frontier seeking to enforce this Court s Order Approving Restructuring Agreement with the Frontier Airline Pilots Association, dated January 13, 2009 (the FAPA Order, Ex. A hereto). In recent weeks, FAPA has sought to claw back millions of dollars in savings it granted to the Company in concessionary agreements that provided for the temporary suspension of Frontier s 401(k) matching program for its pilots. Three FAPA members have filed notices of dispute and FAPA has threatened to file a grievance and take legal action to compel Frontier to match 401(k) contributions for the months during which the plan was suspended pursuant to those agreements. 2 FAPA s arguments are specious, and the notices of dispute the pilots have brought are specifically precluded by the FAPA Order. 1 Where necessary for clarity, the defined term Frontier also refers collectively to Frontier and its parent holding company, Frontier Airlines Holdings, Inc. Capitalized terms used and not defined herein have the meaning ascribed to them in this Court s Order Approving Restructuring Agreement with the Frontier Airline Pilots Association, dated January 13, 2009. 2 A notice of dispute is the first step of the dispute resolution process wherein the issue is presented by the pilot to the Chief Pilot for informal adjudication. If the pilot and FAPA are not satisfied with the result, FAPA may file a formal grievance with the Chief Pilot. FAPA may thereafter appeal that result to the Vice President of Flight Operations. Ultimately, this process leads to binding arbitration if the parties are unable to resolve their differences. 2

2. The concessionary agreements that this Court approved are the product of months of bargaining between FAPA and Frontier, which FAPA is now pretending did not happen. From August to December of 2008, Frontier and FAPA engaged in extensive negotiations over the terms of a concessionary agreement to amend FAPA s collective bargaining agreement. During that time, FAPA and Frontier entered into an interim agreement (the FAPA Interim Agreement, Ex. B hereto) that provided for, inter alia, the suspension of Frontier s matching contributions to The Frontier Airlines, Inc. Retirement Savings Plan, as amended (the 401(k) Plan or the Plan ) that the Company had established for its employees. The language of the FAPA Interim Agreement was explicit Company matching contributions made to The Frontier Airlines, Inc. 401(k) Retirement Savings Plan will be suspended beginning with the June 20, 2008 paycheck. (emphasis added.) This agreement was extended in October 2008 (Ex. C hereto) and expired on December 1, 2008. Later in December, with the parties on the brink of an 1113 proceeding, the parties finally reached a long-term deal (the FAPA Restructuring Agreement, Ex. D hereto, and, together with the FAPA Interim Agreement, the FAPA Agreements ). The long-term deal likewise explicitly provided for a suspension of the Company s obligation to match 401(k) contributions, beginning in late January 2009 Effective with the January 20, 2009 paycheck, there shall be no Company match to the 401(k) Plan. (emphasis added.) The FAPA Restructuring Agreement provided for a gradual restoration of the 401(k) match from 2010 to 2012. 3. Pursuant to the express terms of the FAPA Interim Agreement, the Company did not match 401(k) pilot contributions from June to December 2008 (though 3

the match was restored for December 2008 when the FAPA Interim Agreement expired). The Company has again suspended the match beginning with the January 20, 2009 paycheck, as it plainly is authorized to do under the FAPA Restructuring Agreement. This element of the FAPA Agreements was heavily negotiated, and has resulted in a savings of $1,748,097 for 2008, and will save Frontier nearly $7 million over the life of the FAPA Agreements. The savings attributable to suspension of the 401(k) match thus represents a material portion of the $28,957,432 unsecured claim the Bankruptcy Court awarded to FAPA in the FAPA Order. 4. The FAPA Order also barred the pilots from later asserting any claim for payment of the 401(k) concessions reflected in the FAPA Agreements other than the FAPA Claim, no pilot that FAPA represents nor any other person shall have any claim or cause of action on account of the FAPA Interim Agreement or the FAPA Restructuring Agreement. 5. Notwithstanding the express provisions of the FAPA Agreements and the FAPA Order, FAPA is trying to claw back millions of dollars in 401(k) savings provided for by the agreements. In recent weeks, FAPA pilots have filed three notices of dispute (Ex. E hereto) and have otherwise argued to Frontier that they are entitled to the full, prepetition level of matching contributions to the 401(k) plan for 2008. While Frontier has explained to the Union that such matching contributions were suspended for portions of 2008 pursuant to the express terms of the FAPA Interim Agreement, the Union has insisted that a true up clause (explained in detail below) contained in the original collective bargaining agreement magically obligates Frontier to match pilot contributions 4

at the end of each calendar year in full. In effect, the pilots have argued that the FAPA Agreements only allow Frontier to defer such payments to the end of each calendar year, but that Frontier s pre-petition obligation to match pilot contributions is otherwise unchanged. Instead of millions of dollars in savings, Frontier is entitled to zero, according to the Union. 6. FAPA and various pilots have begun to take steps to compel Frontier to make these payments, including filing notices of dispute against the Company seeking additional payments for 2008 and threatening to bring a lawsuit either before the Bankruptcy Court or in a Denver court. As such, an actual controversy exists between the parties. 7. Frontier thus seeks a declaratory judgment confirming (1) that no matching contributions are owed by Frontier to the 401(k) Plan for the portions of 2008 during which the plan was suspended and for 2009, and that only reduced matching amounts are due for 2010 through 2012, as expressly provided for in the FAPA Agreements approved by this Court; and (2) that notices of dispute, grievance actions or other litigation brought by FAPA or its members seeking additional payments to the 401(k) plan are barred, as provided by the FAPA Order. II. PARTIES, JURISDICTION, AND VENUE 8. On April 10, 2008 (the Petition Date ), Frontier filed a voluntary petition for relief under chapter 11, title 11 of the United States Code. Frontier has 5

continued to operate its business and manage its property as debtor-in-possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. 9. Frontier and its pilots, as represented by FAPA, are parties to a collective bargaining agreement (as subsequently amended, the CBA ), which sets forth the rates of pay, benefits and working conditions for Frontier s pilots. On January 13, 2009, this Court approved long-term modifications to the CBA, as set forth in the FAPA Restructuring Agreement. By the same order, this Court also allowed FAPA a general non-priority unsecured claim in Frontier s chapter 11 proceedings in the amount of $28,957,432 on account of the economic value of the concessions (including the economic value of the 401(k) plan concessions) made by FAPA through the FAPA Restructuring Agreement and the FAPA Interim Agreement that preceded it. 10. This Court has jurisdiction over these proceedings pursuant to 28 U.S.C. 157(a), 157(b)(1), (b)(2), 1334, the Standing Order of Referral of Cases to Bankruptcy Court Judges of the District Court for the Southern District of New York, dated July 10, 1984 (Ward, Acting C.J.), and the FAPA Order itself. This proceeding is a core proceeding under 28 U.S.C. 157. In addition, this is a proceeding arising under title 11 and arising in or related to a case under title 11 that will have a significant impact on the Debtor s estate. 11. Venue properly lies in this district pursuant to 28 U.S.C. 1408 and 1409. 12. This adversary proceeding is initiated under Federal Rule of Bankruptcy Procedure 7001(9) (to obtain a declaratory judgment) and 28 U.S.C. 2201. 6

III. FACTUAL BACKGROUND A. The Concessionary Agreements 13. Since the Petition Date, Frontier has taken numerous steps to reduce costs and raise revenue so that it is best positioned to attract the exit financing necessary to emerge from bankruptcy. These steps have included imposing painful wage and benefit concessions on its non-unionized work force, and attempting to negotiate concessionary agreements with its three labor unions. 14. With respect to FAPA, Frontier and Union representatives met on numerous occasions since August 2008 to discuss modifications to the pilots CBA. Indeed, between August and December 2008, Frontier and FAPA exchanged seven formal proposals. All of Frontier s proposals involved either a full or partial suspension of Frontier s obligation to match pilot contributions to the Company s 401(k) plan. 15. In June 2008, while the parties were negotiating over a long-term deal, Frontier and FAPA entered into the FAPA Interim Agreement, which, among other things, temporarily reduced the pilots wages by 14.5%, and provided that Company matching contributions made to The Frontier Airlines, Inc. 401(k) Retirement Savings Plan will be suspended beginning with the June 20, 2008 paycheck. 16. The FAPA Interim Agreement provided for an expiration date of September 30, 2008, but the term of the agreement was extended to December 1, 2008 by the Interim Restructuring Relief Extension Agreement LOA, dated October 10, 2008, which was approved by this Court s Order Approving Interim Relief Extension 7

Agreement With Frontier Airline Pilots Association, dated October 20, 2008. [Docket # 593]. The FAPA Interim Agreement (as extended) expired on December 1, 2008 and was not further extended. 17. Pursuant to the terms of the FAPA Interim Agreement, Frontier did not match pilot 401(k) contributions from June through November of 2008. The Company did match contributions for the month of December 2008, when the FAPA Interim Agreement had expired and the FAPA Restructuring Agreement was not yet in effect. 18. In December 2008, with the parties about to commence an 1113 proceeding, Frontier and FAPA finally reached agreement on a long-term concessionary deal the FAPA Restructuring Agreement. 19. The FAPA Restructuring Agreement provided for a one year extension of the CBA, a schedule of wage reductions for each of the next four calendar years, participation in a profit-sharing plan and, critically for purposes of this action, the following concession with respect to the 401(k) plan Effective with the January 20, 2009 paycheck, there shall be no Company match to the 401(k) Plan (as described in Section 16 B.2); Effective with the January 20, 2010 paycheck, the Company shall match thirty percent (30%) of each Pilot s pre-tax contribution to the 401(k) Plan, subject to all regulatory limitations; Effective with the January 20, 2011 paycheck, the Company match as described in Section 16 B.2. shall be restored; In the event the Board of Directors reinstates the Company 401(k) match for any employees, pilots shall have their Company match restored to the greater of the restoration amount approved by the Board of Directors or the match in effect for Pilots at the time of reinstatement. (emphasis added) 8

20. Pursuant to this provision, following the entry of the FAPA Order, Frontier again suspended its match of pilot contributions to the 401(k) plan beginning with the pilots January 20, 2009 paycheck. 21. In addition to reaching agreement on pilot concessions, the parties also reached agreement after extensive negotiations on the amount of an unsecured claim granted to the pilots on account of the economic value of the concessions. Accordingly, the FAPA Order granted FAPA a general, non-priority unsecured claim in the amount of $28,957,432 on account of the concessions contained in the FAPA Interim Agreement and the FAPA Restructuring Agreement. For purposes of calculating the claim, the parties agreed that the suspension of the 401(k) plan would be valued at $1,748,097 for 2008 and $5,050,485 for 2010 though 2012, for a total value of $6,798,582. 22. The FAPA Order also provided that other than the FAPA Claim, no pilot that FAPA represents nor any other person shall have any claim or cause of action on account of the FAPA Interim Agreement or the FAPA Restructuring Agreement. 23. The FAPA rank and file understood that their 401(k) matching program had been suspended and that the amounts they were contributing to the plan would no longer be matched by the Company. Indeed, many pilots reduced or entirely eliminated their contributions to the plan after the FAPA Interim Agreement was ratified. In May 2008, 601 pilots were contributing to their 401(k) plans. After the match was suspended in June 2008, 115 pilots, or 19%, lowered their contribution. The average contribution went from 10% to 8.65%. All told, 65 of the 601 pilots who were participating in the 401(k) plan eliminated their entire contribution. 9

B. FAPA s Recent Attempt to Undo the Agreement 24. In early February 2009, Frontier received notices of dispute from three pilots alleging that (i) Frontier failed to properly true up its matching contributions to those pilots 401(k) plans and (ii) Frontier was required to make a full annual match to the 401(k) plan, specifically the 401(k) plan match for the period from June through December 2008, despite FAPA s express agreement to the suspension of this match under the FAPA Interim Agreement. These notices of dispute claimed, in effect, that the interim and final agreements with FAPA merely allowed Frontier to defer its matching of employee contributions to the end of the year, but that Frontier was obligated to match the entire employee contribution at that time. 25. On February 27, 2009, Frontier sent a letter to FAPA (Ex. F hereto) explaining that the interim and final agreements provided for the suspension of the 401(k) matching contribution, and the proposed grievances were without merit. That same day, FAPA responded with a letter (Ex. G hereto) pointing to section 16B(5) of the original CBA, and asserting that this provision remains in full force and effect and obligates Frontier to match employee contributions for the full calendar year. 26. Section 16B(5) of the CBA (Ex. H hereto) provides [t]he Company shall provide a true-up matching contribution at the end of the plan year for Pilots whose actual aggregate matching contributions made by the Company for all pay periods during the plan year (the Actual Matching Contributions ) is less than the matching contributions that would have been made based on the annual 10% of compensation limitation on matching contributions (the Annual Matching Contribution Limit ). The amount of the true-up matching contribution shall be the difference between the Actual Matching Contributions and the Annual Matching Contribution Limit. 10

27. This true-up matching contribution is necessary because section 16B(2) of the CBA provides that [f]or each pay period, the Company shall not be required to match any portion of the Pilot s pre-tax contribution greater than 10 percent of the Pilot s W-2 compensation. Due to the fluctuation of a pilot s pay from one pay period to the next, combined with the fact that the pilots are among the most highly compensated employees, many pilots 401(k) contributions exceed 10 percent of their W-2 compensation during any given pay period. Additionally, many pilots will contribute the maximum amount allowed under the IRS regulations to their 401(k) plan several months before the calendar year end. Accordingly, a pilot could make the maximum allowable contributions to his or her 401(k) plan, but due to the limitation of 16(B)(2), they would not receive the full benefit of Frontier s matching contribution. The true up provision ensures that the Company makes up for this shortfall at the end of each calendar year, so that the pilot ultimately receives the full benefit of Frontier s matching contribution made during that year. 28. In the above-referenced notices of dispute and in discussions with Frontier, FAPA has claimed that despite its agreement to a suspension of the 401(k) match, the true up provision requires Frontier to make a true up payment equal to a full calendar year match as if Frontier had never suspended the 401(k) match. According to the Union, although the 401(k) match was suspended during the year, Frontier is required at the end of the year to ignore the agreed upon suspension and provide a full twelve-month match after all. Although that would result in zero savings for Frontier 11

not the millions of dollars contemplated by the FAPA Claim the Union insists that Frontier is obligated to make these payments. 29. Frontier has repeatedly explained to FAPA that its position is nonsensical and contradicted by the interim and final concessionary agreements, which provide for a flat suspension of the 401(k) matching program. The true up provision of the CBA, which is addressed solely to ensuring that contributing pilots receive the full benefit of the matching contributions that the Company is otherwise obligated to make under section 16(B)(2), simply does not apply when Frontier s matching obligations have been suspended. 30. Frontier has also explained that the notices of dispute (and threatened grievance and/or legal action) seeking these additional payments violate the FAPA Order, which provides that other than the FAPA Claim, none of FAPA nor any of the pilots that it represents nor any other party shall have any other claim or cause of action on account of this Restructuring Agreement, the Interim Restructuring Relief Agreement, or the Interim Restructuring Relief Extension Agreement (or any extension thereto). 31. Frontier has also explained to FAPA that its position today contradicts the positions it took and representations it made during the entire bargaining process, when the parties engaged in extensive negotiations as to the amount of the 401(k) plan reduction for each year of the agreement, and as to the value of such reduction for purposes of calculating an unsecured claim for FAPA. Indeed, Frontier provided FAPA with valuations of each of its proposals, including the savings relating to the suspension 12

of the 401(k) plan matching contributions, and the Union studied and ultimately agreed with these calculations. 32. The Union has rejected these arguments, ignored the clear language of the FAPA Interim Agreement, FAPA Restructuring Agreement, and the FAPA Order, and has indicated it will prosecute its grievance actions and/or bring a lawsuit either before the Bankruptcy Court or in Denver. COUNT I Declaratory Judgment (Declaration of Rights Under the FAPA Interim Agreement, FAPA Restructuring Agreement and FAPA Order) 33. Frontier incorporates by reference as though fully set forth herein the allegations in paragraphs 1 through 32, above. 34. As stated, attachment A to the FAPA Interim Agreement, as extended, provides that Company matching contributions made to The Frontier Airlines, Inc. 401(k) Retirement Savings Plan will be suspended beginning with the June 20, 2008 paycheck. 35. As stated, the FAPA Restructuring Agreement provides that [e]ffective with the January 20, 2009 paycheck, there shall be no Company match to the 401(k) Plan (as described in Section 16 B.2); [e]ffective with the January 20, 2010 paycheck, the Company shall match thirty percent (30%) of each Pilot s pre-tax contribution to the 401(k) Plan, subject to all regulatory limitations; [and e]ffective with the January 20, 2011 paycheck, the Company match as described in Section 16 B.2. shall be restored.... 36. An actual controversy has arisen and now exists between Frontier on the one hand and FAPA on the other in that Frontier contends that it has paid all amounts 13

owing under the CBA, as amended by the FAPA Interim Agreement, and the FAPA Restructuring Agreement for matching contributions to the 401(k) Plan, and FAPA claims that its members are owed a further true up matching contribution that would eliminate the savings Frontier realized from the suspension of contributions to the 401(k) Plan during certain months in 2008. 37. Frontier desires a judicial declaration that Frontier has made all matching contributions necessary to the 401(k) Plan for FAPA members in 2008, and that in 2009 through 2012, true up amounts will be owed only to the extent they are not suspended by the FAPA Restructuring Agreement, and in no case shall Frontier be obligated to contribute amounts in excess of the amounts set forth in the agreements. 38. Frontier also desires a judicial declaration that any notice of dispute, grievance action or litigation brought by FAPA or its members seeking to compel Frontier to make additional 401(k) payments beyond those set forth in the FAPA Agreements is barred. IV. CONCLUSION For all of these reasons, Frontier respectfully requests that the Court enter a Judgment (1) declaring that Frontier has properly made all payments owing under the matching contribution provisions of the CBA, as amended by the FAPA Interim Agreement and the FAPA Restructuring Agreement, to the 401(k) Plan for the members of FAPA. 14

(2) declaring that in 2009 and 2010, Frontier does not owe true up amounts to the extent the 401(k) match was suspended by the FAPA Restructuring Agreement. (3) declaring that any notice of dispute, grievance or litigation brought by FAPA or its members related to 401(k) Plan matching contribution amounts not owing due to their suspension is barred in accordance with the portions of the FAPA Restructuring Agreement and FAPA Order which provide that FAPA s sole remedy under the FAPA Restructuring Agreement, the FAPA Interim Agreement, and the extension thereto is the general claim allowed under the FAPA Restructuring Agreement; and deems just and proper. New York, New York Dated March 13, 2009 (4) awarding Frontier such other and further relief that this Court By /s/ Benjamin S. Kaminetzky Benjamin S. Kaminetzky DAVIS POLK & WARDWELL 450 Lexington Avenue New York, New York 10017 Telephone (212) 450-4000 Facsimile (212) 450-6501 Counsel to Debtors and Debtors in Possession 15