PORTER AVIATION HOLDINGS INC

No securities regulatory authority has expressed an opinion about these securities and it is an offence to claim otherwise. This prospectus constitutes a public offering of these securities only inthose jurisdictions where they may be lawfully offered for sale and therein only by persons permitted to sell such securities.This prospectus has been filed under procedures in each of the provinces and territories of Canada that permit certain information about these securities to be determined after the prospectushas become final and that permit the omission of that information from this prospectus. The procedures require the delivery to purchasers of a supplemented PREP prospectus containing theomitted information within a specified period of time after agreeing to purchase any of these securities. All of the information contained in the supplemented PREP prospectus that is notcontained in this base PREP prospectus will be incorporated by reference into this base PREP prospectus as of the date of the supplemented PREP prospectus.These securities have not been and will not be registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”) or any state securities legislation and may not beoffered or sold in the United States except pursuant to an exemption from the registration requirements of the U.S. Securities Act and applicable state securities legislation. This prospectus does notconstitute an offer to sell or a solicitation of an offer to buy any of the securities offered hereby within the United States. See “Plan of Distribution”.

BASE PREP PROSPECTUSInitial Public Offering May 21, 2010

PORTER AVIATION HOLDINGS INC.$120,000,000

k Common Voting Shares andVariable Voting Shares

(depending on the residency of the purchaser)This prospectus qualifies the distribution (the “Offering”) of an aggregate of k common voting shares (the “Common Voting Shares”) and variable voting shares (the “Variable VotingShares” and, together with the Common Voting Shares, the “Offered Shares”) of Porter Aviation Holdings Inc. (“we”, “us”, the “Corporation” or “Porter”) at a price of $ k per Offered Share(the “Offering Price”). The Offered Shares are being offered by RBC Dominion Securities Inc., National Bank Financial Inc., BMO Nesbitt Burns Inc., CIBC World Markets Inc., TD SecuritiesInc., GMP Securities L.P., Credit Suisse Securities (Canada) Inc., Raymond James Ltd. and Versant Partners Inc. (collectively, the “Underwriters”). Purchasers of Offered Shares who areQualified Canadians (as defined herein) will receive Common Voting Shares and purchasers of Offered Shares who are not Qualified Canadians will receive Variable Voting Shares.

There is currently no market through which the Offered Shares may be sold and purchasers may not be able to resell the Offered Shares purchased under this prospectus. This mayaffect the pricing of the Offered Shares in the secondary market, the transparency and availability of trading prices, the liquidity of the Offered Shares, and the extent of issuerregulation. An investment in the Offered Shares is subject to a number of risks that should be considered by a prospective purchaser. Investors should carefully consider the risk factorsdescribed under “Risk Factors” before purchasing the Offered Shares. The Toronto Stock Exchange (“TSX”) has conditionally approved the listing of the Offered Shares to be issuedpursuant to the Offering and that may be sold pursuant to the exercise of the Over-Allotment Option (as defined below) under the symbol “ FLY ”, subject to the Corporation fulfilling allthe listing requirements of the TSX on or before August 9, 2010, including distribution of the Offered Shares to a minimum number of public holders.

Price: $ k per Offered Share

Price to the Public(1) Underwriters’ FeeNet Proceeds to

the Corporation(2)

Per Offered Share . . . . . . . . . . . . . . . . . . . . . . . . . . $ k $ k $ k

Total Offering(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . $120,000,000 $ k $ k

(1) The Offering Price has been determined by negotiation between the Corporation and the Underwriters.(2) Before deducting the expenses of the Offering which are estimated to be approximately $ k , which expenses, together with the Underwriters’ fee , will be paid by the Corporation out of the proceeds of the Offering.(3) The Corporation has granted the Underwriters an over-allotment option (the “Over-Allotment Option”), exercisable, in whole or in part, at the sole discretion of the Underwriters, for a period of 30 days from the closing of

the Offering (the “Closing”), to purchase from the Corporation up to an additional k Offered Shares at the Offering Price solely to cover over-allotments, if any, and for market stabilization purposes. TheCorporation will pay the Underwriters’ fee in respect of Offered Shares sold under the Over-Allotment Option if the Over-Allotment Option is exercised. If the Over-Allotment Option is exercised in full, the total “Price tothe Public”, “Underwriters’ Fee” and “Net Proceeds to the Corporation” (before deducting expenses of the Offering) will be $138,000,000, $ k and $ k , respectively. This prospectus qualifies the distributionof the Over-Allotment Option and up to k Offered Shares to be sold by the Corporation upon exercise of the Over-Allotment Option. A purchaser who acquires Offered Shares forming part of the Underwriters’ over-allocation position acquires those shares under this prospectus, regardless of whether the position is ultimately filled through the exercise of the Over-Allotment Option or secondary market purchases. See “Plan ofDistribution”.

The following table sets out the number of Offered Shares that may be issued by the Corporation to the Underwriters pursuant to the Over-Allotment Option:

Maximum Number ofOffered Shares Available Exercise Period Exercise Price

Over-Allotment Option. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Option to acquire upto k Offered Shares

Up to 30 daysfollowing Closing

$ k per Offered Share

In connection with the Offering, the Underwriters may over-allot or effect transactions that stabilize or maintain the market price of the Offered Shares at levels other than those which otherwisemight prevail on the open market. See “Plan of Distribution”.

The Underwriters, as principals, conditionally offer the Offered Shares, subject to prior sale, if, as and when issued by the Corporation and accepted by the Underwriters in accordance with theconditions contained in the underwriting agreement referred to under “Plan of Distribution” and subject to the approval of certain legal matters on behalf of the Corporation by Ogilvy Renault LLPand on behalf of the Underwriters by Torys LLP.

RBC Dominion Securities Inc. and TD Securities Inc., Underwriters with respect to the Offering, are wholly-owned subsidiaries of Canadian chartered banks, both of which have madecredit facilities available to Porter. Consequently, Porter may be considered to be a connected issuer of such Underwriters under applicable Canadian securities legislation. See“Relationship Between the Corporation and Certain Underwriters”.In the opinion of Ogilvy Renault LLP, counsel to Porter, and Torys LLP, counsel to the Underwriters, on the basis of applicable legislation in effect on the date hereof, and subject to thequalifications and assumptions discussed under the heading “Eligibility for Investment”, the Common Voting Shares, on Closing, will be qualified investments under the Income Tax Act (Canada)and the regulations thereunder (the “Tax Act”) for trusts governed by registered retirement savings plans, registered retirement income funds, deferred profit sharing plans, registered disabilitysavings plans, registered education savings plans and tax-free savings accounts. See “Eligibility for Investment”.

Subscriptions will be received subject to rejection or allotment in whole or in part and the right is reserved to close the subscription books at any time without notice. It is expected that Closing willoccur on or about k , 2010, or such later date as the Corporation and the Underwriters may agree, but in any event not later than k , 2010. Certificates representing the Offered Sharessold in the Offering will be issued in registered form to CDS Clearing and Depository Services Inc. (“CDS”), or to its nominee, and deposited with CDS on the date of Closing. A purchaser ofOffered Shares will receive only a customer confirmation from the registered dealer from or through which the Offered Shares are purchased. See “Plan of Distribution”.

MYRTLE BEACH

BOSTON

HALIFAX

ST. JOHN’S

MONTRÉAL MONCTON

SUDBURY

THUNDER BAY

CHICAGO

QUÉBEC CITYMONT TREMBLANT

OTTAWA

TORONTO

NEW YORK

USA

CANADA

Seasonal routesItinéraires saisonniers

Announced routesItinéraires annoncés

Current routesItinéraires actuels

3

TABLE OF CONTENTS

Page Page

General Matters............................................................................... 4 GAAP and Non-GAAP Measures ................................................... 4 Forward-Looking Statements .......................................................... 4 Market Data and Industry Forecasts................................................ 5 Trademarks, Trade Names and Service Marks................................ 5 Prospectus Summary....................................................................... 6 Corporate Structure ....................................................................... 14

Name, Address and Incorporation............................................ 14 Intercorporate Relationships .................................................... 14

Business of the Corporation .......................................................... 15 Industry Overview.................................................................... 15 Passenger Traffic Through Toronto ......................................... 18 Company Overview ................................................................. 19 Key Measures of Operating and Financial Performance .......... 21 Business Strategy ..................................................................... 25 Growth Strategy ....................................................................... 28 Current and Planned Aircraft Fleet........................................... 32 BBTCA .................................................................................... 32 Fare Offering............................................................................ 35 Operations................................................................................ 35 Sales and Distribution .............................................................. 36 Marketing and Communications .............................................. 37 Trademarks .............................................................................. 37 Employee and Labour Relations .............................................. 37 Safety Management System..................................................... 37 Corporate Social Responsibility ............................................... 38

Regulatory Environment ............................................................... 38 Domestic .................................................................................. 38

Use of Proceeds............................................................................. 40 Selected Consolidated Financial and Operational Information ................................................................................... 40 Management Discussion and Analysis .......................................... 42

Basis of Presentation ................................................................ 42 Overview.................................................................................. 42 Results of Operations ............................................................... 44 Liquidity and Capital Resources .............................................. 54 Contractual Obligations and Off-Balance Sheet Arrangements........................................................................... 56 Debt Financing......................................................................... 57 Related Party Transactions....................................................... 60 Financial Instruments and Risk Management........................... 60 Critical Accounting Estimates.................................................. 62 Changes in Accounting Policies............................................... 63 Future Changes in Accounting Policies.................................... 63 Conversion to International Financial Reporting Standards ..... 64 Non-GAAP Financial Measures............................................... 66 Reconciliation of Non-GAAP measures to GAAP................... 67 Outstanding Share Data............................................................ 67

Dividend Policy ............................................................................ 68 Pre-Closing Reorganization .......................................................... 68 Description of Securities ............................................................... 68

Common Voting Shares ........................................................... 69 Variable Voting Shares ............................................................ 70 Preferred Shares ....................................................................... 71

Consolidated Capitalization .......................................................... 71 Options to Purchase Securities ...................................................... 72 Prior Sales ..................................................................................... 72 Trading Price and Volume ............................................................ 73 Principal Shareholders .................................................................. 73 Registration Rights Agreement ..................................................... 74 Directors and Executive Officers .................................................. 74

Directors and Executive Officers ............................................. 74 Biographies .............................................................................. 75 Cease Trade Orders or Bankruptcies........................................ 77 Penalties or Sanctions .............................................................. 78 Conflicts of Interest.................................................................. 78 Indemnification and Insurance................................................. 78

Statement of Executive Compensation.......................................... 78 Compensation Policy and Objectives....................................... 78 Elements of Compensation ...................................................... 78 Summary Compensation Table for Named Executive Officers .................................................................................... 80 Director Compensation ............................................................ 80

Indebtedness of Directors and Officers ......................................... 81 Corporate Governance .................................................................. 81

Board of Directors.................................................................... 81 Ethical Business Conduct......................................................... 82 Nomination and Assessment of Directors ................................ 83 Compensation Committee........................................................ 83 Audit Committee...................................................................... 83

Plan of Distribution....................................................................... 84 Over-Allotment Option ............................................................ 85 Price Stabilization, Short Positions and Passive Market Making..................................................................................... 85 Pricing of the Offering ............................................................. 86 Lock-Up................................................................................... 86 Fees and Expenses ................................................................... 86 Book Entry System .................................................................. 87

Qualified Canadian Declaration .................................................... 87 Relationship Between the Corporation and Certain Underwriters ................................................................................. 87 Risk Factors .................................................................................. 87

Risks Relating to Porter ........................................................... 88 Risks Relating to the Industry .................................................. 93 Risks Relating to the Offering.................................................. 96

Material Contracts......................................................................... 97 Certain Canadian Federal Income Tax Considerations ................. 98

Residents of Canada................................................................. 98 Non-Resident Holders.............................................................. 99

Eligibility for Investment ............................................................ 100 Interest of Management and Others in Material Transactions................................................................................ 100 Experts ........................................................................................ 100 Legal Proceedings and Regulatory Actions ................................ 101 Auditors, Transfer Agent and Registrar ...................................... 102 Purchasers’ Statutory Rights of Withdrawal and Rescission....... 102 Glossary of Terms....................................................................... 103 Index To Financial Statements.....................................................F-1 Auditors’ Consent ......................................................................F-51 Appendix “A” – Board Mandate................................................. A-1 Appendix “B” – Audit Committee Mandate ............................... B-1 Certificate of the Corporation ..................................................... C-1 Certificate of the Underwriters.................................................... C-2

4

GENERAL MATTERS

Unless otherwise noted or the context otherwise indicates, “Porter”, the “Corporation”, “we”, “us” and “our” refers to Porter Aviation Holdings Inc. together, if the context requires, with one or more of its subsidiaries. Unless otherwise indicated, the disclosure contained in this prospectus (i) assumes that the Over-Allotment Option has not been exercised, (ii) gives effect to the transactions referred to under the heading “Pre-Closing Reorganization”, (iii) includes Shares awarded on a restricted basis pursuant to the Corporation’s Restricted Share Plan, and (iv) excludes Shares reserved for issuance under the Corporation’s Option Plan.

All references to “$” or “dollars” in this prospectus are to Canadian dollars, unless indicated otherwise. Certain totals, subtotals and percentages throughout this prospectus may not reconcile due to rounding.

Words importing the singular number include the plural, and vice versa, and words importing any gender include all genders.

Certain capitalized terms and phrases used in this prospectus are defined in the “Glossary of Terms” beginning on page 103.

GAAP AND NON-GAAP MEASURES

Unless otherwise indicated and as hereinafter provided, all financial statement data in this prospectus has been prepared using Canadian generally accepted accounting principles (“GAAP”). Porter’s consolidated financial statements included in this prospectus have been prepared in accordance with GAAP. This prospectus makes reference to certain non-GAAP measures. These non-GAAP measures are not recognized measures under GAAP, do not have a standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those GAAP measures by providing a further understanding of the Corporation’s results of operations from management’s perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of our financial information reported under GAAP. See “Selected Consolidated Financial and Operational Information” and “Management Discussion and Analysis – Non-GAAP Financial Measures” for the definition of the non-GAAP measures used and presented in this prospectus and a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures.

FORWARD-LOOKING STATEMENTS

This prospectus contains “forward-looking statements” within the meaning of Canadian legislation, concerning the business, operations and financial performance and condition of Porter. Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might”, “will” or “will be taken”, “occur” or “be achieved”. Forward-looking statements are based on the opinions and estimates of management as of the date such statements are made, and they are subject to known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, level of activity, performance or achievements of Porter to be materially different from those expressed or implied by such forward-looking statements, including but not limited to assumptions discussed in “Business of the Corporation – Key Measures of Operating and Financial Performance” and the following factors described in greater detail in “Risk Factors”: our dependence on Billy Bishop Toronto City Airport, a failure to achieve our growth strategy, price and availability of jet fuel, our ability to obtain financing for additional aircraft, dependence on relations with third parties, dependence on our ability to hire and retain qualified personnel, litigation risks, foreign currency and interest rate fluctuations, our use of a single type of aircraft, limited fleet size, maintenance costs increase as our fleet ages, dependence on technology, significant changes in corporate culture or customer experience, unionization or increased labour costs, limitations due to restrictive covenants, lack of operational history, ability to obtain additional capital, economic conditions, terrorist attacks and security measures, a localized epidemic or global pandemic, major safety incidents, environmental requirements, insurable and uninsurable risks, seasonal nature of the business, competition, government intervention, regulations, rulings and decisions, airport user fees and air navigation fees, external factors such as weather conditions or special events, Shares have no prior public market and the share price may decline after the Offering, volatile market price for Offered Shares, we have no plans to pay dividends, future sale of Shares, influence by existing shareholders, future sales of Shares by our existing shareholders, and discretion in use of proceeds.

5

These factors and assumptions are not intended to represent a complete list of the factors and assumptions that could affect us; however, these factors and assumptions should be considered carefully. Although management of Porter has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Porter does not undertake to update any forward-looking statements that are contained herein, except in accordance with applicable securities laws.

MARKET DATA AND INDUSTRY FORECASTS

Market data and certain industry forecasts used throughout this prospectus were obtained from internal surveys, market research, publicly available information and independent industry publications. Industry publications generally state that the information contained therein has been obtained from sources believed to be reliable, but the accuracy and the completeness of such information is not guaranteed and neither Porter nor the Underwriters make any representation as to the accuracy of such information. Similarly, internal surveys, industry forecasts, market research and publicly available information while believed to be reliable, have not been independently verified from third party sources and neither Porter nor the Underwriters make any representation as to the accuracy of such information.

TRADEMARKS, TRADE NAMES AND SERVICE MARKS

This prospectus includes trademarks, such as Porter® and VIPorter®, which are protected under applicable intellectual property laws and are the property of Porter. Solely for convenience, our trademarks and trade names referred to in this prospectus may appear without the ® symbol, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks and trade names. Any other trademarks used in this prospectus are the property of their respective owners.

6

PROSPECTUS SUMMARY

The following is a summary of the principal features of the Offering and should be read together with the more detailed information and financial data and statements (including “Risk Factors”) contained elsewhere in this prospectus. Please refer to the “Glossary of Terms” beginning on page 103 of this prospectus for a list of defined terms and phrases used herein.

Company Overview

Porter is a holding company that operates its business through a number of wholly-owned subsidiaries. Porter’s core airline business is operated through Porter Airlines. Porter is Canada’s third largest scheduled airline with an expanding flight network that includes a number of short-haul routes throughout Eastern and Central Canada and the U.S. Porter is focused on quality-conscious passengers who travel during the week primarily for business and on the weekend for leisure.

Porter launched its airline on October 23, 2006 with a fleet of two aircraft offering round-trip flights between Toronto and Ottawa. As of April 30, 2010, Porter operates a fleet of 20 aircraft with service to 12 North American destinations: Ottawa, Montreal, Halifax, Thunder Bay, St. John’s, Quebec City, Sudbury and Mont Tremblant in Canada and New York, Chicago, Boston and Myrtle Beach in the U.S.

Business Strengths

Innovative Growth Company in the Airline Business

Since its inception, Porter has experienced significant growth. Porter combines a low cost operating structure with a focus on higher yield passengers who value premium service. As a result, Porter has achieved an industry leading breakeven load factor (an airline’s load factor multiplied by total operating expenses divided by total revenue) relative to North American publicly traded airlines. The number of passengers Porter has flown per year has grown significantly from approximately 300,000 in calendar 2007 (first full year of operations) to over 900,000 in calendar 2009 (this number consists of approximately 800,000 passengers flying through BBTCA and the balance flying through Porter’s point-to-point airports). Porter’s capacity, measured in Available Seat Miles (or ASMs), has also grown significantly from approximately 152 million in Fiscal 2007 to an estimated level of 1.1 billion ASMs (based on the current schedule of flights and expected completion rate1 for Fiscal 2010). Porter has also been successful in gaining significant market share on competitive routes such as Toronto – Ottawa and Toronto – Montreal.

Porter’s growth strategy includes expanding its existing network by increasing passenger load factors on existing flights, increasing the number of round trips on existing or announced routes and expanding its short-haul network to include new destinations and additional point-to-point markets in Eastern Canada and the U.S. Additional opportunities for growth include potential code-sharing arrangements with other airlines and access to potential new markets through U.S. customs preclearance, if approved, at Porter’s primary hub airport, BBTCA.

Premium Service Offering

Porter’s premium service offering targets quality-conscious business and leisure travelers. Porter applies a straightforward structure of three classes of fares with differing levels of flexibility. All of Porter’s passengers are offered the same standard of premium in-flight service, including complimentary food and beverage service, complimentary passenger lounge access at BBTCA and Ottawa International Airport and a simplified loyalty program to reward frequent travelers with free airline travel.

Porter has achieved industry leading customer satisfaction among business travelers, as independently measured by Ipsos, demonstrating Porter’s superior customer service performance.

Integrated, Scalable, Low Cost Platform

Porter achieves industry leading breakeven load factors (approximately 49% in 2009), significantly below its Canadian competitors WestJet and Air Canada (approximately 71% and 83% in 2009, respectively), and below the successful U.S. carriers Southwest Airlines Co. and JetBlue Airways Corporation (approximately 74% and 73% in 2009, respectively). Porter utilizes a single class of aircraft, the Q400, which helps to control the overall cost of fleet operations and maintenance. As at December 31, 2009, Porter had a non-unionized workforce made up of 847 full-time equivalent employees (“FTE”), with an FTE-to-aircraft ratio of approximately 47 versus WestJet with a ratio 1 Completion rate refers to the number of completed scheduled flights, excluding flights cancelled due to adverse weather conditions, maintenance or other unforeseen factors.

7

of approximately 73, resulting in lower labour costs relative to certain of its competitors. Porter reduced its Cost per Available Seat Mile (or CASM) by approximately 35% from $0.334 in Fiscal 2007 to $0.217 in the fourth quarter of 2009.

Porter has constructed and operates the new terminal at BBTCA, the first phase of which (comprising approximately 75% of the total development) opened in March 2010. The terminal has been built to accommodate Porter’s long-term growth plans and is part of a vertically integrated infrastructure that, in addition to the terminal, includes operation of four hangers, a corporate flight centre, office space, ramp handling and fuel facilities. The new approximately 150,000 square foot terminal has been designed to accommodate more than two million passengers annually. The remainder of the facility is scheduled to be completed by the end of 2010.

Modern Fleet

Porter operates a fleet of 20 Q400 turboprop aircraft. Over the next 12 months, management expects to acquire up to seven additional aircraft. Any additional acquisitions by Porter will be dependent on a number of factors including Porter’s financial condition, aircraft pricing and availability of financing. All of Porter’s aircraft were new when initially purchased and the average age of Porter’s fleet is less than two years. The Q400 represents state-of–the-art aviation technology and is optimized for short-haul operations. The Q400 is estimated to use as much as 23% less fuel than comparable jet aircraft currently in operation and features a revolutionary noise and vibration suppression system.

Strategic Base of Operations – Downtown Toronto at BBTCA

Porter has a long-term lease, together with operating rights, at BBTCA until 2033. Porter’s primary hub in Toronto is strategically located to serve some of the busiest routes in Canada. Porter’s new approximately $49 million terminal facility at BBTCA provides travelers with reduced travel time, convenience and an enhanced overall customer experience. BBTCA is located approximately three kilometres from the Toronto downtown core and Canada’s primary financial district, compared to Pearson Airport which is approximately 28 kilometres away. With quick check-in and security clearance and a short taxi to the runway, passengers traveling with Porter in or out of downtown Toronto may save up to two hours on a round trip when compared to flying out of Pearson Airport.

Proven Management Team

Porter is led by Robert J. Deluce, an experienced and respected Canadian airline owner and operator who has served in senior management roles in a number of Canadian airlines, including White River Air Services Limited, norOntair, Austin Airways Limited, Air Creebec, Air Ontario Inc., Air Manitoba and Canada 3000 Airlines Limited (which he exited six years prior to it ceasing operations in 2001). Mr. Deluce’s highly experienced team includes James Morrison (Senior Vice President and Chief Operating Officer), Robert Michael Deluce (Executive Vice President and Chief Commercial Officer) and Robert Payne (Chief Financial Officer). The Board of Directors of Porter brings together significant airline, public company and corporate governance experience. The Chairman of the Board, Donald J. Carty, is the Chairman of Virgin America, Inc., the former Chairman and CEO of American Airlines and the former President and CEO of CP Air (a predecessor to Canadian Airlines). Primary investors include REGCO Capital Corp. (an entity controlled by Robert J. Deluce), OSI Transportation Corporation (an indirect wholly-owned subsidiary of OMERS Administration Corporation), EdgeStone and GEAM International Private Equity Fund, L.P.

Growth Strategy

Since its inception in 2006, Porter has been successful in gaining significant market share, especially in its longest serving routes, Toronto – Ottawa and Toronto – Montreal, which are also two of the busiest domestic routes in Canada. As illustrated in the chart below, Porter’s capacity share (by number of seats) grew to 23% on the Toronto – Ottawa route and 17% on the Toronto – Montreal route, respectively, by 2009.

8

Toronto - Ottawa (1)

13% 17% 23%

76% 65% 61% 58%

21% 22% 22% 19%

3%0%

20%

40%

60%

80%

100%

2006 2007 2008 2009

% o

f Sea

t Cap

acity

Porter Air Canada WestJet Other

Toronto - Montreal (1)

9% 11% 17%

82% 73% 70% 66%

18% 18% 19% 17%

0%0%

20%

40%

60%

80%

100%

2006 2007 2008 2009

% o

f Sea

t Cap

acity


(1) Source: Official Airline Guide.

Management believes that opportunities for continued growth will come from the following elements:

• Grow existing network by increasing passenger load factors on existing flights and number of round trips on existing or announced routes on which sales have commenced;

• Expand short-haul network to include new destinations and additional point-to-point markets in Eastern Canada and the U.S.;

• Capitalize on potential U.S. customs preclearance at BBTCA, if approved; and

• Capitalize on potential code-sharing arrangements.

Management also believes there are opportunities to grow ancillary revenue through infrastructure and other non-air revenue sources.

Grow Existing Network

Management believes it is well-positioned to grow passenger traffic and increase revenue through its existing network. In 2009, Porter expanded its seat capacity in its core markets of Toronto – Ottawa, Toronto – Montreal, Toronto – New York, Toronto – Chicago and Ottawa – Halifax. All other markets, including Toronto – Thunder Bay, Toronto – Boston, Halifax-St. John’s and Toronto – Quebec City were launched in 2009, representing an increase in Available Seat Miles of 113% over calendar year 2008. Based on its experience with other routes, management believes that passenger traffic has the potential to increase on these routes as they mature.

Expand Short-Haul Network

Management believes there are significant growth opportunities in the short-haul market, both by capitalizing on BBTCA, as Porter’s primary hub, and by expanding Porter’s point-to-point travel from other airports. Significant incremental market potential exists within the range of the Q400 (800 miles) from Porter’s focus cities of Toronto, Ottawa, Montreal and Halifax. In 2009, Porter’s flights represented only 9.4% of total Available Seat Miles within 800 miles of Toronto and only 7.0% of total Available Seat Miles within 800 miles of Toronto, Ottawa, Montreal and Halifax, combined.

Capitalize on Potential U.S. Customs Preclearance

The TPA submitted an application for U.S. customs preclearance at BBTCA in November 2009 pursuant to the 2001 Canada-U.S. Air Transport Preclearance Agreement. Management views the proposed U.S. customs preclearance at BBTCA as a significant opportunity for growth. In addition to opening up routes to destinations in the U.S. that do not have inbound customs facilities, U.S. customs preclearance will allow for more convenient travel and easier connections for Porter’s passengers. Space required for U.S. customs preclearance at BBTCA has already been built within the new terminal facilities and will be available if customs preclearance is approved by the U.S. government. Certain airport authorities and trade associations have opposed the TPA’s application for U.S. customs preclearance at BBTCA. Although management believes that the TPA will be successful in obtaining such preclearance, there can

9

be no assurance that U.S. customs preclearance will be obtained at BBTCA or, if obtained, when such preclearance will become effective.

Code-Share Arrangements

Management believes Porter will likely be attractive to U.S. carriers with respect to potential code-share arrangements. Code-share refers to the practice of multiple airlines selling seats on the same flight where a passenger may purchase a seat on one airline although the flight is operated by a cooperating airline under a different flight number or code. Porter, with its existing and new suppliers, is currently examining the computer system upgrades, operational procedures and back-office processes necessary to enable Porter to have the technical capability to enter into code-share arrangements by 2011.

Grow Ancillary Revenue

As is customary at many airports, all new commercial operators will be required to enter into a commercial operating agreement with the TPA before they commence operations out of BBTCA. Presently, Porter is the only commercial airline operating from BBTCA. Any additional commercial operators at BBTCA would lease terminal space and gates from Porter’s wholly-owned subsidiary, CCTC. As a substantial portion of the costs to build the new terminal at BBTCA have been incurred, Porter will not need to incur significant incremental costs prior to leasing terminal space. Management expects Porter to earn revenue from selling advertising space at the new terminal and expects that Porter may also earn rental income from concessions, retail shopping and other services provided in the terminal. Other potential revenue sources for Porter at BBTCA include leasing hangar and administrative space and selling fuel to other air carriers.

While Porter’s approach to travel partnerships has been predominantly informal during its start-up phase, management believes that Porter’s growing brand recognition and service offering may provide Porter with an opportunity to enter into retail and entertainment partnerships to package its flights with non-air travel products or services including hotels, rental cars and insurance. Porter is currently examining the upgrade of its technology with existing and new suppliers to enable it to capitalize on this opportunity by 2011.

First Quarter 2010 Operating Metrics

Certain of Porter’s key operating metrics for the first quarter of 2010 demonstrated significant improvement over the first quarter of 2009. Load factor was 47.0% in the first quarter of 2010, a 5.7 point increase over the same period in 2009. Revenue passenger miles (RPMs) for the first quarter of 2010 increased 148% year over year, and capacity, measured in Available Seat Miles, grew 118% over the same quarter in 2009. Porter also flew an additional 148,274 passengers in the first quarter of 2010 compared to the same period in 2009. At the end of March 2010, Porter operated 18 aircraft, compared to eight aircraft at the end of March 2009. CASM for the first quarter of 2010 was $0.242 compared to $0.295, an 18% improvement over the same period in 2009.

The strong improvement in load factor, ASMs and RPMs during the first quarter of 2010 compared to the first quarter of 2009, as described below, is primarily a result of rapid expansion of Porter’s aircraft fleet in 2009, increase in passenger traffic on existing routes of Porter as well as a general recovery in domestic and transborder passenger traffic. The improvement in CASM, as described below, was due primarily to cost efficiencies achieved as a result of growth in Porter’s network.

RASM for the first quarter of 2010 was $0.222 compared to $0.234, a decrease of 5% over the same period in 2009. This decline in RASM was due primarily to the rapid expansion of the Porter network, in which Porter increased its fleet from eight aircraft in the first quarter of 2009 to 18 aircraft in the first quarter of 2010. This decrease in RASM was consistent with management’s expectations for the quarter.

Operating Metrics

First Quarter 2010 First Quarter 2009 Change

Load Factor 47.0% 41.3% 5.7 points

ASMs (in millions) 220.9 101.3 118%

RPMs (in millions) 103.9 41.9 148%

RASM $0.222 $0.234 (5%)

CASM $0.242 $0.295 (18%)

10

SELECTED CONSOLIDATED FINANCIAL AND OPERATIONAL INFORMATION

The following tables set forth selected consolidated financial and operational information for the periods indicated. The selected consolidated financial and operational information should be read in conjunction with “Management Discussion and Analysis”, “Business of the Corporation – Key Measures of Operating and Financial Performance” and the audited consolidated financial statements, the unaudited interim consolidated financial statements and accompanying notes contained elsewhere in this prospectus.

The selected consolidated financial and operational information set out below as at December 31, 2009 and 2008 and August 31, 2008 and 2007 and for the year ended December 31, 2009, the four-month period ended December 31, 2008 and the years ended August 31, 2008 and 2007 has been derived from our audited consolidated financial statements and accompanying notes contained elsewhere in this prospectus. Our audited consolidated financial statements contained elsewhere in this prospectus have been audited by our auditors, Ernst & Young LLP. Ernst & Young LLP’s report on the audited consolidated financial statements is included elsewhere in this prospectus.

The selected unaudited consolidated financial and operational information as at March 31, 2010 and for the three-month periods ended March 31, 2010 and 2009 presented below has been derived from our unaudited interim consolidated financial statements and accompanying notes contained elsewhere in this prospectus. The selected unaudited consolidated financial and operational information as at March 31, 2010 and March 31, 2009 and for the three-month periods ended March 31, 2010 and 2009 and December 31, 2009 presented below has been prepared on a basis consistent with our audited consolidated financial statements.

Certain of the financial and operational information are non-GAAP measures. See “Management Discussion and Analysis – Non-GAAP Financial Measures”. The selected consolidated financial and operational information set out below may not be indicative of Porter’s future performance.

As at and for the

Three-month period ended

December 31, 2009Fiscal year ended

December 31, 2009

Four-month period ended December 31,

2008(1) Fiscal year ended August 31, 2008

Fiscal year ended August 31, 2007

Consolidated Financial Information: (in thousands, except where noted)

Revenues $53,370 $151,203 $38,159 $81,707 $36,672 Operating expenses $51,144 $155,687 $38,254 $80,906 $50,824 Operating income (loss) $2,226 ($4,484) ($95) $801 ($14,152) Net income (loss) $455 ($4,609) ($11,212) ($3,317) ($11,486) EBITDA(2) $6,214 $7,901 $2,502 $6,916 ($10,019) Total assets $471,307 $471,307 $250,503 $209,977 $118,089 Total long-term liabilities $306,274 $306,274 $128,972 $86,639 $6,489 Shareholders’ equity $106,578 $106,578 $86,002 $97,146 $100,032 Operational Information: RPMs(3) 118,277,892 314,209,691 66,129,324 133,877,037 61,456,419 ASMs(4) 235,421,620 655,641,350 116,009,460 257,502,840 151,954,040 Load factor(5) 50.2% 47.9% 57.0% 52.0% 40.4% Yield(6) $0.451 $0.481 $0.577 $0.610 $0.597 RASM(7) $0.227 $0.231 $0.329 $0.317 $0.241 CASM(8) $0.217 $0.238 $0.329 $0.314 $0.334 CASM (excluding fuel)(9) $0.172 $0.194 $0.262 $0.243 $0.280 CASM (excluding depreciation)(10) $0.200 $0.219 $0.307 $0.290 $0.307 Passengers 315,781 912,613 215,115 448,783 208,735 Flights 9,000 26,895 5,388 12,692 7,892 Average flight length (miles)(11) 374 348 308 290 275 Average daily aircraft utilization (hours)(12) 8.8 8.7 8.5 8.5 7.8 Number of operating aircraft at period end 18 18 8 6 4 Number of full-time equivalent employees at period end 847 847 465 388 252

11

As at and for the

Three-month period

ended March 31, 2010 Three-month period ended

March 31, 2009 Consolidated Financial Information: (in thousands, except where noted)

Revenues $49,070 $23,711 Operating expenses $53,308 $29,837 Operating income (loss) ($4,238) ($6,126) Net income (loss) ($5,972) ($9,350) EBITDA(2) $171 ($3,849) Total assets $473,753 $261,141 Total long-term liabilities $294,406 $128,535 Shareholders’ equity $100,680 $101,702 Operational Information: RPMs(3) 103,897,802 41,881,165 ASMs(4) 220,868,900 101,336,760 Load factor(5) 47.0% 41.3% Yield(6) $0.472 $0.566 RASM(7) $0.222 $0.234 CASM(8) $0.242 $0.295 CASM (excluding fuel)(9) $0.195 $0.252 CASM (excluding depreciation)(10) $0.221 $0.272 Passengers 286,097 137,823 Flights 8,519 4,547 Average flight length (miles)(11) 370 318 Average daily aircraft utilization (hours)(12) 7.6 8.4 Number of operating aircraft at period end 18 8 Number of full-time equivalent employees at period end 933 532

(1) In 2008, Porter changed its fiscal year end from August 31 to December 31. (2) EBITDA is defined as earnings before interest, taxes, depreciation and foreign exchange gains or losses. See “Management Discussion and

Analysis - Non-GAAP Financial Measures”. (3) RPMs or revenue passenger miles is a measure of passenger traffic, calculated by multiplying the total number of passengers by their

distances flown. (4) ASMs or Available Seat Miles is a measure of capacity, calculated by multiplying the total number of seats available for passengers by

miles flown. (5) Load factor is a measure of capacity utilization, calculated by dividing RPMs by ASMs. (6) Yield is a measure of unit revenue, calculated as total revenue generated per RPM. (7) RASM or Revenue per Available Seat Mile is a measure of revenue per unit of capacity, calculated by dividing total revenue by ASMs. (8) CASM or Cost Per Available Seat Mile is a measure of cost per unit of capacity, calculated by dividing total operating costs by ASMs. (9) CASM (excluding fuel) is a measure of cost per unit of capacity, calculated by dividing total operating costs (excluding fuel) by ASMs. See

“Management Discussion and Analysis - Non-GAAP Financial Measures”. (10) CASM (excluding depreciation) is a measure of cost per unit of capacity calculated by dividing total operating costs (excluding

depreciation) by ASMs. See “Management Discussion and Analysis - Non-GAAP Financial Measures”. (11) Average flight length is the average distance in miles of a non-stop leg between take-off and landing. (12) Average daily aircraft utilization (hours) is the average operating hours per day per operating aircraft.

12

THE OFFERING

Issuer: Porter Aviation Holdings Inc.

The Offering: An aggregate of Offered Shares from the treasury of the Corporation.

If the Over-Allotment Option is exercised in full, the Corporation will issue up to an additional Offered Shares. See “Plan of Distribution”.

Amount: $120,000,000 or $138,000,000 if the Over-Allotment Option is exercised in full.

Offering Price: $ per Common Voting Share and Variable Voting Share.

Shares Outstanding:2 Prior to the Offering: An aggregate of Common Voting Shares and Variable Voting Shares.

Immediately after the Offering: An aggregate of Common Voting Shares and Variable Voting Shares.

Use of Proceeds: The Corporation expects to receive $ in net proceeds from the Offering, after deducting fees payable by the Corporation to the Underwriters and the estimated expenses of the Offering. If the Over-Allotment Option is exercised in full, the Corporation will receive estimated net proceeds of $ in respect of the Offered Shares sold thereunder.

The Corporation intends to use a portion of the net proceeds of the Offering as follows:

(i) approximately $10.7 million to repay in full its U.S.$10.0 million non-revolving term loan, and

(ii) approximately $11.0 million to fund completion of the new terminal at BBTCA.

The Corporation intends to use the balance of the net proceeds from the Offering for working capital and for other general corporate purposes, which may include potential acquisitions of aircraft. See “Use of Proceeds”.

Qualified Canadians/ Non-Qualified Canadians:

Purchasers of Offered Shares who are Qualified Canadians will receive Common Voting Shares and purchasers of Offered Shares who are not Qualified Canadians will receive Variable Voting Shares.

Common Voting Shares: The Common Voting Shares will rank equally with the Variable Voting Shares with respect to dividends and the distribution of assets in the case of liquidation, dissolution or winding-up of the Corporation. The Common Voting Shares will carry one vote per share held.

Variable Voting Shares: The Variable Voting Shares will rank equally with the Common Voting Shares with respect to dividends and the distribution of assets in the case of liquidation, dissolution or winding-up of the Corporation.

The Variable Voting Shares will carry one vote per share held, except where (i) the number of issued and outstanding Variable Voting Shares exceeds 25% of the total number of all issued and outstanding voting shares of the Corporation (or any greater percentage the Governor in Council may specify pursuant to the CTA), or (ii) the total number of votes cast by or on behalf of the holders of Variable Voting Shares at any meeting on any matter on which a vote is to be taken exceeds 25% (or any greater percentage that the Governor in Council may specify pursuant to the CTA) of the total number of votes that may be cast at such meeting.

If either of the above noted thresholds is surpassed at any time, the vote attached to each Variable Voting Share will decrease automatically without further act or formality to

2 The number of Shares outstanding after completion of the Offering gives effect to the Pre-Closing Reorganization, the Offering and is based on an aggregate of Shares outstanding immediately prior to Closing (including restricted Shares awarded under the Restricted Share Plan). It does not include an aggregate of Shares reserved for issuance under the Option Plan or an aggregate of Offered Shares that may be issued upon exercise of the Over-Allotment Option.

13

equal the maximum permitted vote per Variable Voting Share such that (i) the Variable Voting Shares as a class shall not carry more than 25% (or any greater percentage that the Governor in Council may specify pursuant to the CTA) of the total voting rights attached to the aggregate number of the Corporation’s issued and outstanding voting shares; and (ii) the Variable Voting Shares as a class shall not, for a given shareholders’ meeting, carry more than 25% (or any greater percentage that the Governor in Council may specify pursuant to the CTA) of the total number of votes that may be cast at the meeting. See “Description of Securities”.

Conversion of Shares: Each issued and outstanding Variable Voting Share shall be automatically converted into one Common Voting Share if (i) such Variable Voting Share becomes beneficially owned and controlled, directly or indirectly, by a Qualified Canadian, or (ii) the provisions contained in the CTA relating to foreign ownership restrictions are repealed and not replaced with other similar provisions in applicable legislation. Each issued and outstanding Common Voting Share shall be automatically converted into one Variable Voting Share if such Common Voting Share becomes beneficially owned or controlled, directly or indirectly, by a holder who is not a Qualified Canadian. See “Description of Securities”.

Over-Allotment Option: The Corporation has granted the Underwriters an Over-Allotment Option to cover over-allotments, if any, and for market stabilization purposes. The Over-Allotment Option may be exercised by the Underwriters, in whole or in part, at their sole discretion, for a 30-day period following Closing and entitles the Underwriters to purchase up to an additional Offered Shares at the Offering Price. The Corporation will pay the Underwriters’ fee in respect of Offered Shares sold under the Over-Allotment Option if the Over-Allotment Option is exercised. If the Over-Allotment Option is exercised in full, the total price to the public will be $138,000,000, the Underwriters’ fee will be $ and the net proceeds to the Corporation will be $ . See “Plan of Distribution”.

Risk Factors: An investment in the Offered Shares is subject to a number of risks, including risks related to: our dependence on Billy Bishop Toronto City Airport, a failure to achieve our growth strategy, price and availability of jet fuel, our ability to obtain financing for additional aircraft, dependence on relations with third parties, dependence on our ability to hire and retain qualified personnel, litigation risks, foreign currency and interest rate fluctuations, our use of a single type of aircraft, limited fleet size, maintenance costs increase as our fleet ages, dependence on technology, significant changes in corporate culture or customer experience, unionization or increased labour costs, limitations due to restrictive covenants, lack of operational history, ability to obtain additional capital, economic conditions, terrorist attacks and security measures, a localized epidemic or global pandemic, major safety incidents, environmental requirements, insurable and uninsurable risks, seasonal nature of the business, competition, government intervention, regulations, rulings and decisions, airport user fees and air navigation fees, external factors such as weather conditions or special events, Shares have no prior public market and the share price may decline after the Offering, volatile market price for Offered Shares, we have no plans to pay dividends, future sale of Shares, influence by existing shareholders, future sales of shares by our existing shareholders, and discretion in use of proceeds.

Dividend Policy: The Corporation does not currently anticipate paying any dividends on its Offered Shares. The Corporation currently intends to use its earnings to finance the expansion of its business and to reduce indebtedness. See “Dividend Policy”.

Registration Rights Agreement:

On Closing, REGCO Capital Corp. (an entity controlled by Robert J. Deluce, President and Chief Executive Officer of Porter) OSI Transportation Corporation, GEAM International Private Equity Fund, L.P. and EdgeStone will enter into a registration rights agreement with Porter which will provide these holders with certain demand and “piggy-back” registration rights in accordance with and subject to the terms and restrictions set forth in such agreement. These holders of Shares will own % of the outstanding Shares immediately after giving effect to the Offering. See “Registration Rights Agreement”.

14

CORPORATE STRUCTURE

Name, Address and Incorporation

The Corporation was incorporated under the Business Corporations Act (Ontario) (the “OBCA”) on December 16, 2004 as REGCO Holdings Inc. The Corporation’s name was changed to Porter Aviation Holdings Inc. pursuant to articles of amendment dated June 7, 2006. Porter’s registered and head office is located at Billy Bishop Toronto City Airport (“BBTCA”), Toronto, Ontario, M5V 1A1.

Immediately prior to Closing, the Corporation will effect a reorganization of its share capital (which will include filing articles of amendment) to facilitate the Offering (the “Pre-Closing Reorganization”), including amending its existing share capital such that the only outstanding shares of Porter on Closing will be Common Voting Shares and Variable Voting Shares. See “Pre-Closing Reorganization” and “Description of Securities”.

Intercorporate Relationships

Porter Aviation Holdings Inc. is a holding company that operates its business through a number of wholly-owned subsidiaries. Porter’s core airline business is operated through Porter Airlines Inc. (“Porter Airlines”). The following organizational chart illustrates the intercorporate relationships among Porter, its principal shareholders and its subsidiaries after giving effect to the Pre-Closing Reorganization and the Offering, together with the jurisdiction of incorporation of its subsidiaries.

%(1)

Porter Aviation Holdings Inc. (Formerly REGCO Holdings Inc.)

%(2)

100%

Public EdgeStone

Porter Airlines Inc.

(Ontario)

Remaining Pre-Offering Shareholders as a Group

%(7)

%(6)

REGCO Capital Corp.(5)

%(4)

OSI Transportation Corporation(3)

City Centre Terminal Corp.

(Ontario)

City Centre Hangar Corp.

(Ontario)

Porter FBO Limited

(Ontario)

City Centre Fuel Corp. (Ontario)

Porter AircraftLeasing Corp.

(Alberta)

City Centre Service Corp.

(Ontario)

(1) % if the Over-Allotment is exercised in full. (2) % if the Over-Allotment is exercised in full. (3) An indirect wholly-owned subsidiary of OMERS Administration Corporation. (4) % if the Over-Allotment is exercised in full. (5) An entity controlled by Robert J. Deluce, the President and Chief Executive Officer of Porter. After completion of the Offering, REGCO Capital Corp. will effect a reorganization in which shareholders of REGCO Capital Corp. (including Robert J. Deluce and entities controlled by him) will be distributed the Shares held by REGCO Capital Corp. This reorganization of REGCO Capital Corp. will not occur earlier than 180 days from Closing. See “Principal Shareholders”.

100% 100% 100% 100% 100% 100%

15

BUSINESS OF THE CORPORATION

Industry Overview

General

The airline industry plays an important role in both the Canadian and global economy. The airline industry is particularly important in Canada given the country’s large territory and widely dispersed population. In 2008, Canadian airlines carried over 75 million business and leisure passengers, with over 86 million daily seat-miles across the country. Canadian carriers also play an important role in the transport of goods within the country and in the import/export market. In 2008, over $100 billion of goods were imported to and exported from Canada by air, representing 19% of imports and 26% of exports for the year. Based on Transport Canada data, the airline industry contributed over $16 billion of revenue to the Canadian economy in 2007 and employed over 86,000 people in 2008.

Historically, the North American airline industry has been dominated by large, well-established network carriers. Over the past three decades though, governments have gradually reduced economic regulation of commercial aviation, which has resulted in a more open and competitive environment for domestic and transborder airline services. This deregulation has transformed the airline industry, allowing new market entrants, including low-cost carriers, to emerge and compete successfully with full-service airlines.

Relying on a simplified operational model and product offering, many low-cost carriers in North America have been able to operate profitably with lower fares than full-service carriers. However, a number of low-cost Canadian carriers such as Jetsgo Corporation, Zoom Airlines Inc., Canada 3000 Inc., Roots Air and CanJet Airlines have been unable to effectively compete on a long-term basis due to a variety of factors including limited distribution strategies, inability to sustain pricing, economic downturns and poor execution of operating plans.

As a result of the competitive pressure from low-cost carriers and a succession of challenging factors faced by all industry participants, including the events of September 11, 2001, the SARS crisis, high fuel prices and a global economic recession, some full-service airlines have been forced to restructure their operations through both court-supervised and voluntary processes and implement substantial changes including labour concessions, the renegotiation of significant contracts and a focus on long-haul premium business routes. In addition, there has been an increased emphasis on producing ancillary revenue through the introduction of baggage fees, in-flight food and beverage charges and fuel surcharges.

Carriers must also address low levels of customer satisfaction. In recent years, airline passengers have become increasingly dissatisfied with airline travel. In particular, airport security has become progressively more time-consuming for travelers, especially in large, international airports that accommodate many different airlines. As a result, many passengers find that air travel can be a frustrating experience.

In response to reduced service levels and heightened passenger frustration with full-service carriers, the industry has seen many low-cost carriers moving towards a “hybrid” airline model - a strategy that blends low-cost carrier traits with some full-service carrier business practices to help grow their passenger base and expand market share. Some of the full-service carrier attributes being introduced by these hybrid low-cost carriers include use of global distribution system services, code-share arrangements, multiple fare options, advanced ticketing procedures, multiple aircraft types, multiple classes of service, and long-haul (including international) destinations.

Partially in response to this trend, a number of business models focusing on smaller, secondary city centre airports have emerged. Over the span of a few decades, secondary airports have gained passenger share in New York, Chicago, Houston, Dallas, Paris, London and other large urban centres. Some, like London City Airport, six miles from the downtown financial district, have emerged as convenient alternatives for passengers. Some of these secondary airports distinguish themselves from their larger international competitors by offering a faster and more efficient travel experience.

In an effort to manage operating costs, airlines have increasingly focused on the fuel efficiency of their aircraft and are continually looking at cost effective opportunities to refurbish their fleet with more economical aircraft. Manufacturers have responded to this demand by developing more fuel efficient aircraft such as the Bombardier Q400 turboprop aircraft (the “Q400”). Optimized for short-haul airline operations, the Q400 offers lower costs relative to similarly sized mainline jets through reduced fuel burns (attributed to the new Pratt & Whitney PW150A turboprop engine), lower maintenance costs for high-cycle utilization and crew cost savings.

16

Over the course of 2008 and 2009, North American airlines also responded to the challenges of a deteriorating market, in part, by temporarily reducing capacity. A recovery in the North American and global economies, combined with this reduced capacity, has the potential to improve carriers’ pricing power and support improved profitability. As shown in the table below, many investors have begun to recognize the potential of the airline industry and, as a result, there has been recent improvement in the AMEX Airline Index, which is up over 195% from lows reached in March 2009 and up over 55% since the beginning of November 2009. Notwithstanding this renewed investor confidence in the airline industry, it is generally recognized that the industry exhibits volatility as a result of its susceptibility to a number of both global and domestic factors. See “Risk Factors - Risks Relating to the Industry”.

AMEX Airline Index(1)

10

20

30

40

50

60

70

Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10

Inde

x Le

vel .

Renewed investor confidence

(1) Source: Bloomberg.

Domestic Market

The Canadian domestic airline market is characterized by a large geographic territory with a limited number of high density centres accounting for the majority of passenger traffic and revenue. This leads to a concentration of routes in Western and Central Canada around four major hubs: Toronto, Montreal, Vancouver and Calgary. Despite gradual deregulation of the Canadian airline industry over the past two decades, the Canadian market continues to be dominated by two large carriers, Air Canada and WestJet Airlines Ltd. (“WestJet”). Air Canada and WestJet, collectively, offer short-haul and long-haul domestic flights, as well as transborder and international flights. Air Canada’s short-haul domestic and transborder service is, in part, offered through its contract carrier, Jazz Air LP (“Jazz”).

The Canadian airline industry has evolved as a product of the country’s unique geography and the type of aircraft available for commercial passenger and cargo operations. Historically, airlines were limited to small piston and turboprop aircraft for short flights in smaller markets or jets for larger short-haul markets and longer domestic, transborder and international flights. With the introduction of longer-range regional aircraft, smaller markets have been opened with increased service levels. Aircraft like the Q400, the largest aircraft of the successful Dash-8 family of turboprop aircraft, are particularly suited to serving these markets due to the aircraft’s capacity, range, speed, take-off and landing performance, and low operating costs.

The Canadian airline industry is cyclical by nature and susceptible to both global and domestic influences. In September 2009, Transport Canada projected that domestic passenger demand would be weaker in 2009 due to a deterioration of the economic climate and ailing consumer confidence. Domestic passenger growth was forecasted at negative 6.0% compared to 2008 levels. A partial recovery is anticipated late in 2010 when traffic in this sector is expected to show modestly positive growth. Transport Canada is forecasting more robust domestic passenger growth of 4.9% and 4.8% in 2011 and 2012, respectively. An annual average growth rate of 2.3% is expected in the domestic market between 2008 and 2022.

17

The chart below shows the number of historical and projected revenue passengers in the domestic airline market from 1993 to 2012.

Historical and Projected Domestic Revenue Passengers (1)

39 40 42 47 50 52 53 52 50 48 4955 58

64 67 68 64 64 68 71

0

20

40

60

8019

93

1994

1995

1996

1997

1998

1999

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2001

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2004

2005

2006

2007

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2009

E

2010

E

2011

E

2012

E

Pass

enge

rs (i

n m

illio

ns)

(1) Source: Transport Canada, Aviation Forecasts 2008-2022, September 2009.

Domestic passenger market share has changed significantly over the past couple of years. Traditionally, the domestic market has been dominated by two large carriers: Air Canada (together with its contract carrier, Jazz) and WestJet, serving nearly the entire market. The chart below illustrates capacity share (by number of seats) of the 20 highest capacity domestic routes in 2009 that are 800 miles or less.

Capacity - Top 20 Domestic Routes - 800 Miles or Less (2009) (1)

0%

20%

40%

60%

80%

100%

Mon

treal

- To

ront

o

Otta

wa

- Tor

onto

Hal

ifax

- Tor

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Thun

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ay -

Toro

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- St.

John

s

Hal

ifax

- Otta

wa

Mon

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- Q

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- V

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Prin

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anco

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% o

f Sea

t Cap

acity


Eastern Routes Western Routes


Transborder Market

In 2009, there were approximately 445,000 scheduled transborder flights between Canada and the U.S., or an average of 1,219 per day. Air Canada (together with its contract carrier, Jazz) has the largest market share of transborder flights at 33% with the remainder of the market primarily serviced by WestJet and U.S.-based airlines and their regional affiliates. The chart below illustrates capacity market share (by number of seats) in 2009 of the 20 highest capacity transborder routes that are 800 miles or less.

18

Capacity - Top 20 Transborder Routes - 800 Miles or Less (2009) (1)

0%

20%

40%

60%

80%

100%

New

Yor

k - T

oron

to

Chi

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- To

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New

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Seat

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% o

f Sea

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acity

Porter Air Canada Other


In September 2009, Transport Canada anticipated a steeper decline in transborder passenger traffic in 2009 compared to the domestic market. Transborder passenger growth in 2009 was anticipated to be negative 7.9%. Continued softening of passenger demand is also predicted in this market in 2010 with negative growth of 1.2% as a result of a much deeper recession in the U.S. resulting in a slower recovery and decreasing traffic from the U.S. to Canada. The transborder sector is forecast by Transport Canada to return to positive passenger growth in 2011 and 2012 with projected growth of 6.5% and 5.6%, respectively. An average annual growth rate of 3.3% is forecast by Transport Canada in the transborder market between 2008 and 2022.

The chart below shows the number of historical and projected revenue passengers in the Canada-U.S. transborder airline market from 1993 to 2012.

Historical and Projected Transborder Revenue Passengers (1)

14 14 1517 18 19 20 21

19 18 17 18 20 21 21 21 20 19 21 22

0

5

10

15

20

25

1993

1994

1995

1996

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E

2010

E

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E

2012

E

Pass

enge

rs (i

n m

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ns)

(1) Source: Transport Canada, Aviation Forecasts 2008-2022, September 2009.

Passenger Traffic Through Toronto

Passenger traffic through Toronto is served by Toronto Pearson International Airport (“Pearson Airport”) and BBTCA. Prior to Porter starting operations in 2006 at BBTCA, passenger traffic at BBTCA had steadily declined

19

from a peak of approximately 400,000 passengers in 1987 to approximately 21,000 passengers in 2006. During this period, Air Canada (through a wholly-owned subsidiary) gained access to BBTCA and then subsequently decreased its presence as it consolidated its operations to Pearson Airport. Since Porter commenced commercial operations in October 2006, passenger traffic at BBTCA has rapidly increased and was approximately 800,000 passengers in 2009, with over 315,000 passengers in the fourth quarter of 2009 alone.

The chart below illustrates BBTCA passenger traffic over the previous 22 years.

BBTCA Passenger Traffic (1)

400 360280 280

155 160 160 150 140 140 90 130 130 120 90 80 40 30 27 21

269

519

800

0

200

400

600

800

1,000

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Pass

enge

rs (t

hous

ands

)

(1) Source: Toronto Port Authority (until 2006) and Porter (including and after 2006).

Company Overview

Porter is Canada’s third largest scheduled airline with an expanding flight network that includes a number of short-haul routes throughout Eastern and Central Canada and the U.S. Porter is focused on quality-conscious passengers who travel during the week primarily for business and on the weekend for leisure.

Porter Growth - Since its inception, Porter has experienced significant growth. Porter launched its airline on October 23, 2006 with a fleet of two Q400s offering round-trip flights between Toronto and Ottawa. As of April 30, 2010, Porter operates a fleet of 20 Q400s with service to 12 North American destinations: Ottawa, Montreal, Halifax, Thunder Bay, St. John’s, Quebec City, Sudbury and Mont Tremblant in Canada and New York City, Chicago, Boston and Myrtle Beach in the U.S.

Porter’s growth in capacity, as measured in Available Seat Miles, has been accompanied by significant passenger traffic growth. As illustrated in the table below, Porter flew over 900,000 passengers in calendar 2009, up from approximately 300,000 in calendar 2007. This number includes approximately 800,000 passengers flying through BBTCA and the balance flying through Porter’s point-to-point airports. A significant portion of Porter’s increase in Available Seat Miles occurred in the fourth quarter of 2009, which management believes has laid a foundation for potential future growth in passenger traffic.

Porter Total Passenger Traffic

298

555

913

0

200

400

600

800

1,000

2007 2008 2009

Calendar Year

Pass

enge

rs (i

n th

ousa

nds)

Porter begins service in October 2006

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BBTCA - Porter’s hub airport, BBTCA, is located approximately three kilometres from Toronto’s downtown core and Canada’s primary financial district. Porter’s wholly-owned subsidiary, City Centre Terminal Corp. (“CCTC”), has exclusive rights to develop and operate terminal space at BBTCA. In February 2010, CCTC completed the first phase of construction, comprising approximately 75% of the total $49 million new terminal. The terminal, which measures approximately 150,000 square feet, is designed to accommodate more than two million passengers annually. The remainder of the new facility is scheduled to be completed by the end of 2010. The new terminal will feature both domestic and transborder lounges, as well as check-in and baggage claim areas. Space has been allocated for future concession opportunities, including duty-free shopping, car rental, ATM and food, beverage and convenience outlets.

Management Team, Board of Directors and Significant Shareholders - Porter is led by President and CEO Robert J. Deluce, an experienced and respected Canadian airline owner and operator, who has served in senior management roles in a number of Canadian airlines, including White River Air Services Limited, norOntair, Austin Airways Limited, Air Creebec Inc., Air Ontario Inc., Air Manitoba and Canada 3000 Airlines Limited (which he exited six years prior to it ceasing operations in 2001). In 2009, Robert J. Deluce won the Ontario Entrepreneur of the Year award for emerging entrepreneur. Porter’s management also includes James Morrison, Senior Vice President and Chief Operating Officer, Robert Michael Deluce, Executive Vice President and Chief Commercial Officer, and Robert Payne, Chief Financial Officer and Corporate Secretary, who along with Robert Deluce, have an average of 31 years of experience in the North American airline industry.

The Board of Directors has nine members, bringing together significant airline, public company and corporate governance experience. The Chairman of the Board of Directors is Donald J. Carty, the Chairman of Virgin America, Inc., the former Chairman and CEO of American Airlines and the former President and CEO of CP Air (predecessor of Canadian Airlines).

See “Directors and Executive Officers - Biographies”.

Upon completion of the Offering, (i) OSI Transportation Corporation, an indirect wholly-owned subsidiary of OMERS Administration Corporation will own approximately % of the Shares, (ii) EdgeStone will own approximately % of the Shares, and (iii) REGCO Capital Corp. (an entity controlled by Mr. Robert J. Deluce) will own approximately % of the Shares. After Closing, REGCO Capital Corp. will effect a reorganization in which shareholders of REGCO Capital Corp. (including Robert J. Deluce and entities controlled by him) will be distributed Shares directly. Upon completion of the reorganization of REGCO Capital Corp., which will not occur earlier than 180 days from Closing, Robert J. Deluce and entities controlled by him are expected to own Shares (which is equal to approximately % of the Shares as of Closing). See “Corporate Structure – Intercorporate Relationships” and “Principal Shareholders” for a description of the ownership of Shares following Closing.

First Quarter 2010 Operating Metrics

Certain of Porter’s key operating metrics for the first quarter of 2010 demonstrated significant improvement over the first quarter of 2009. Load factor was 47.0% in the first quarter of 2010, a 5.7 point increase over the same period in 2009. Revenue passenger miles (RPMs) for the first quarter of 2010 increased 148% year over year, and capacity, measured in Available Seat Miles, grew 118% over the same quarter in 2009. Porter also flew an additional 148,274 passengers in the first quarter of 2010 compared to the same period in 2009. At the end of March 2010, Porter operated 18 aircraft, compared to eight aircraft at the end of March 2009. CASM for the first quarter of 2010 was $0.242 compared to $0.295, an 18% improvement over the same period in 2009.

The strong improvement in load factor, ASMs and RPMs during the first quarter of 2010 compared to the first quarter of 2009, as described below, is primarily a result of rapid expansion of Porter’s aircraft fleet in 2009, increase in passenger traffic on existing routes of Porter as well as a general recovery in domestic and transborder passenger traffic. The improvement in CASM, as described below, was due primarily to cost efficiencies achieved as a result of growth in Porter’s network.

RASM for the first quarter of 2010 was $0.222 compared to $0.234, a decrease of 5% over the same period in 2009. This decline in RASM was due primarily to the rapid expansion of the Porter network, in which Porter increased its fleet from eight aircraft in the first quarter of 2009 to 18 aircraft in the first quarter of 2010. This decrease in RASM was consistent with management’s expectations for the quarter.

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Operating Metrics

First Quarter 2010 First Quarter 2009 Change

Load Factor 47.0% 41.3% 5.7 points

ASMs (in millions) 220.9 101.3 118%

RPMs (in millions) 103.9 41.9 148%

RASM $0.222 $0.234 (5%)

CASM $0.242 $0.295 (18%)

Key Measures of Operating and Financial Performance

The key measures of operating and financial performance customarily used in the airline industry are (i) passenger capacity, measured by Available Seat Miles (or ASMs), (ii) revenue generation, measured by Revenue per Available Seat Mile (or RASM) and (iii) cost performance, measured by operating Cost per Available Seat Mile (or CASM). Another measure of operating and financial performance used in the airline industry is EBITDAR (earnings before interest, taxes, depreciation, foreign exchange gains or losses and aircraft rent). Because Porter currently owns its aircraft and has no aircraft lease expense, it uses EBITDA (earnings before interest, taxes, depreciation and foreign exchange gains or losses) as a key measure of its operating performance. Management believes that in these circumstances EBITDA is a comparable measure to EBITDAR. Certain of the operating and financial performance measures discussed below are non-GAAP measures and they are provided to enhance an investor’s overall understanding of Porter’s operating and financial performance. See “Selected Consolidated Financial and Operational Information” and “Management Discussion and Analysis - Non-GAAP Financial Measures”. For a description of the risk factors relating to management’s expectations of operating and financial performance discussed below see “Forward-Looking Statements” and “Risk Factors”.

Available Seat Miles (ASMs)

ASMs are a measure of capacity calculated by multiplying the total number of seats available for passengers by the miles flown. As illustrated in the chart below, Porter’s ASMs have expanded rapidly since the airline’s inception, more than doubling between the fiscal year ended August 31, 2008 (“Fiscal 2008”) and the fiscal year ended December 31, 2009 (“Fiscal 2009”). Based on the current schedule of flights and expected completion rate3 for the fiscal year ended December 31, 2010 (“Fiscal 2010”), Porter’s ASMs are expected to reach approximately 1.1 billion in Fiscal 2010. The near doubling of capacity from Fiscal 2009 to Fiscal 2010 is primarily the result of (i) the rapid expansion of Porter’s aircraft fleet during 2009, from eight aircraft at the end of 2008 to 18 aircraft at the end of 2009, and (ii) Porter’s delivery of two new Q400s in April 2010. Porter may acquire additional aircraft during 2010. The additional ASMs from the aircraft that may be acquired are not reflected in the expected Fiscal 2010 ASMs of 1.1 billion.

3 Completion rate refers to the number of completed scheduled flights, excluding flights cancelled due to adverse weather conditions, maintenance or other unforeseen factors.

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Porter Available Seat Miles (1)

152258

656

1,100

0

250

500

750

1,000

1,250

Fiscal 2007 Fiscal 2008 Fiscal 2009 Fiscal 2010

ASM

s (in

mill

ions

)

(1) Graph shows ASMs for Porter’s 12-month fiscal periods, including estimated ASMs for Fiscal 2010, and does not

show ASMs for the four-month period ended December 31, 2008.

Revenue per Available Seat Mile (RASM)

RASM is a measure of revenue per unit of capacity and is calculated by dividing total revenue by ASMs for the applicable period. Porter’s RASM in Fiscal 2009 was $0.231, down from $0.317 in Fiscal 2008 and $0.241 in the fiscal year ended August 31, 2007 (“Fiscal 2007”). Porter’s 2009 RASM levels were lower than previous fiscal years primarily as a result of Porter’s rapid expansion of capacity and the downturn in the general economy resulting in a decline in overall industry passenger traffic and yield.

In 2009, Porter more than doubled its number of aircraft in operation from eight to 18 and increased the number of flights by 84% from the previous calendar year. The increase in flights is a result of both the launching of new routes and the adding of capacity on existing routes. Porter’s general experience with newly launched routes is that they initially reduce the Corporation’s RASM as it takes time for routes to mature and generate stabilized revenue and market share.

Based on Porter’s operating experience to date, management believes that there are opportunities to increase RASM if passenger traffic increases on existing routes and domestic and transborder passenger traffic recovers as Transport Canada has forecasted. A recovery in domestic and transborder passenger traffic has the potential to increase passenger loads and average fares for Porter’s routes, which could result in higher RASM.

The graph below illustrates Porter’s RASM and ASMs on a trailing 12-month basis from launch of Porter’s longest serving route, Toronto – Ottawa, to December 31, 2009.

Toronto - Ottawa(trailing 12-months)

$0.00

$0.10

$0.20

$0.30

$0.40

$0.50

Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09

RA

SM ($

)

50

70

90

110

130

150

ASM

s (in

mill

ions

)

ASMs RASM

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Cost per Available Seat Mile (CASM)

CASM is a measure of cost per unit of capacity and is calculated by dividing total operating costs by ASMs for the period. Key components of Porter’s CASM are fuel, salaries, sales and marketing, and airport operations. As shown in the graph below, CASM consistently decreased on a year over year basis as Porter achieved cost efficiencies associated with its increased scale of operations. These cost efficiencies resulted in CASM decreasing from approximately $0.30 in the first quarter of 2009 to approximately $0.24 in the first quarter of 2010, an 18% improvement.

CASM increased in the first quarter of 2010 compared to the fourth quarter of 2009 as a result of operating costs increasing and ASMs decreasing. The first quarter is typically Porter’s slowest quarter and the Corporation takes advantage of this seasonality by reducing scheduled flights (ASMs) and performing regularly scheduled aircraft maintenance. The increase in operating costs in the first quarter of 2010 was the result of periodic expenses that did not occur in the fourth quarter of 2009, including Porter’s first C-checks or heavy maintenance (typically performed every three years) on the Corporation’s four initial aircraft ($1.1 million), legal fees associated with litigation with Air Canada and legal fees related to entering into new credit facilities ($1.0 million) and pilot training for new aircraft and aircraft de-icing costs ($1.0 million). The increase in CASM from the fourth quarter of 2009 to the first quarter of 2010 was consistent with management’s expectations for the quarter.

Porter Cost per Available Seat Mile (1)

152258

656

235

101221

$0.33$0.31 $0.30

$0.24$0.22

$0.24

$0.20

$0.25

$0.30

$0.35

$0.40

FY 2007 FY 2008 FY 2009 Q4 2009 Q1 2009 Q1 2010

CA

SM ($

)

0

200

400

600

800

ASM

s (in

mill

ions

)

ASM CASM

(1) Graph shows CASM for Porter’s 12-month fiscal periods and the three-month periods ended December 31, 2009, March 31, 2009 and March 31, 2010 and does not show the CASM for the four-month period ended December 31, 2008.

In Fiscal 2009, approximately 70% of Porter’s operating costs consisted of salaries, fuel, airport operations and sales and marketing. The chart below details the breakdown of Porter’s major costs as a percentage of total operating expenses for Fiscal 2009.

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Fiscal 2009 Operating Costs

Salaries21%

Fuel18%

Sales and marketing16%

Airport operations16%

Flight operations and navigation charges

8%

Depreciation8%

General and administration

6%

Food, beverages and supplies

4%

Aircraft maintenance, materials and supplies

3%

As Porter’s network has grown, Porter has achieved cost efficiencies resulting in a direct decrease in CASM on a year over year basis. Although the majority of the costs efficiencies achieved in Fiscal 2009 can be attributed to a reduction in the relative contribution from salaries and airport operations, CASM was reduced in every major expense category in Fiscal 2009. The graph below illustrates the trailing three-month CASM for all categories of operating costs during Fiscal 2009.

Contribution to CASM (trailing 3-months)

$0.00

$0.05

$0.10

$0.15

$0.20

$0.25

$0.30

$0.35

Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09

Con

tribu

tion

to C

ASM

($)

Salaries FuelSales and marketing Airport operationsFlight operations and navigation charges DepreciationGeneral and administration Food, beverages and suppliesAircraft maintenance, materials and supplies

Porter’s CASM (excluding depreciation) in Fiscal 2009 was $0.219, compared to $0.290 in Fiscal 2008 and $0.307 in Fiscal 2007. In the fourth quarter of 2009, Porter’s CASM (excluding depreciation) was $0.200. In the first quarter of 2010, Porter’s CASM (excluding depreciation) was $0.221. On a year over year basis, Porter’s CASM declined significantly over the past several years as its fleet size grew. If fuel prices rise, Porter would explore the implementation of fuel surcharges, consistent with its practice in the first half of 2008, in an effort to off-set higher

Consistent pattern of cost improvement over Fiscal 2009

Consistent pattern of cost improvement over Fiscal 2009

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costs. There can be no assurance that fuel surcharges would be effective in off-setting all or some of the effects of rising fuel prices.

Earnings before Interest, Taxes, Depreciation and Foreign Exchange Gains or Losses (EBITDA)

Management believes that opportunities exist to increase EBITDA as a result of growing Available Seat Miles and potential for improvement in RASM due to a higher percentage of new routes reaching maturity and a recovery in domestic and transborder passenger traffic as forecasted by Transport Canada. However, any increase in EBITDA is subject to numerous risks including the economic environment, fuel costs, and the occurrence of unforeseen or unusual events. See “Risk Factors”.

The chart below plots, on a monthly basis, Porter’s 12-month trailing ASMs and RASM, and three-month trailing CASM (excluding depreciation) from September 2007 to December 31, 2009. From July 2009 to December 2009, the spread between 12-month trailing RASM and three-month trailing CASM (excluding depreciation) ranged between 0.0275 and 0.0541 with a six-month average of 0.0401. This equated to an EBITDA margin ranging between 11.6% and 21.2% with a six-month average of 16.2%.

Overall ASM, RASM and CASM (Excluding Depreciation)

$0.15

$0.20

$0.25

$0.30

$0.35

$0.40

Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09

RA

SM, C

ASM

($)

0

150

300

450

600

750

ASM

s (in

mill

ions

)

ASM (trailing 12-months) RASM (trailing 12-months) CASM (Ex. Depreciation) (trailing three-months)

Economics of Fleet Expansion

Porter started Fiscal 2009 with eight aircraft and ended the year with 18 aircraft. The weighted average number of aircraft in operation in Fiscal 2009 was 11.5. This translates to a contribution of approximately $13.2 million of total revenue per aircraft in Fiscal 2009. This was achieved during rapid fleet expansion, when a number of routes were newly launched, and a challenging economic environment. In Fiscal 2008, the weighted average number of aircraft in operation was 4.9, which translates to a contribution of approximately $16.7 million of total revenue per aircraft in Fiscal 2008.

As of April 30, 2010, Porter has a fleet of 20 aircraft. Over the next 12 months, management expects to acquire up to seven additional aircraft. There is no assurance that Porter will acquire any additional aircraft and any acquisition will be dependent on a number of factors including Porter’s financial condition, aircraft pricing and availability of financing and other factors disclosed under “Risk Factors”.

Business Strategy

Porter’s primary goal is to establish itself as the short-haul carrier of choice by providing superior customer service and convenient and high-frequency flights to key North American business and leisure destinations.

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The key elements of Porter’s business strategy are as follows:

Provide a Superior Customer Experience

Porter believes that a critical factor in its initial and long term success is its ability to offer passengers a superior airline travel experience. The following independent survey conducted by Ipsos, measuring customer satisfaction for business travelers with flights taken in 2008 and 2009, indicates that Porter is a Canadian airline industry leader in customer satisfaction.

Ipsos 2009 Canadian Business Travel Study(1)

54%

45%

19%

20%

8%

7%

5%

4% 32%

40%

39%

48%

70%

73%

87%

93%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

2009

2008

2009

2008

2009

2008

2009

2008

Extremely Satisfied Very Satisfied

Porter

WestJet

Air Canada

Jazz

(1) Source: Ipsos – 2009 Canadian Business Travel Study.

Porter believes that the following factors contribute to its record of superior customer satisfaction:

• Premium Service Offering – All of Porter’s passengers are offered the same standard of premium in-flight service, including an assortment of complimentary premium beverages and snacks, including wine and beer. Each Porter passenger enjoys leather seating with two to three inches more legroom than a typical economy class seat on other airlines in Canada. Another distinguishing feature of Porter’s service offering is the complimentary terminal lounge which is accessible to all Porter passengers. The lounge, which was first incorporated into BBTCA, has since been introduced to Ottawa International Airport. Each lounge features comfortable leather seating and complimentary espresso bar, beverages, snacks and wireless Internet access with computer workstations. Porter is currently planning to incorporate lounges into certain other high frequency airports where it flies.

• Convenience – A hallmark of the Porter experience is convenience. Porter offers frequent daily flights to a number of key business and popular leisure centres in Eastern and Central Canada and the U.S. For example, starting in May of 2010, Porter will have more weekday flights on its Toronto - Ottawa and Toronto - Montreal routes, combined, than either of its main Canadian competitors. Porter’s variety of flight times and strategic destinations provides convenient travel options for both same day weekday travelers and weekend leisure passengers.

Maintain a Low Breakeven Load Factor

Breakeven load factor is the load factor necessary for an airline to break even financially. It is calculated by multiplying the airline’s load factor by total operating expenses divided by total revenue. Porter has an industry leading breakeven load factor at approximately 49% which is significantly lower than its main competitors, Air Canada and WestJet, who operated at breakeven load factors of approximately 83% and 71%, respectively, in 2009.

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The following chart illustrates the breakeven load factors in 2009 of Porter and certain North American publicly traded airlines.

Breakeven Load Factor (1,2,3)

49%

68%71% 72% 73% 74% 74% 76%

82% 82% 83% 83% 84%

40%

50%

60%

70%

80%

90%Po

rter

Alle

gian

t

Wes

tJet

Ala

ska

JetB

lue

AirT

ran

Sout

hwes

t

Haw

aiia

n

Uni

ted

Con

tinen

tal

Del

ta

Air

Can

ada

Am

eric

an

(1) Breakeven load factor is calculated as load factor multiplied by total operating expenses divided by total revenue. Total operating expenses and total revenue are as reported on company’s consolidated financial statements.

(2) Load factor used in calculation includes total operations, including regional affiliates where applicable. (3) Source: Publicly available airline reports and filings and Porter 2009 year end statistics.

Porter’s low breakeven load factor is achieved in part through the combination of Porter’s low cost operating structure and its focus on higher yield passengers who value premium service. As shown in the table below, WestJet, for example, flies a significantly longer average flight at a slightly lower revenue per passenger.

Revenue per Passenger and Flight Length Comparison (1,2)

$166

348 mi

923 mi$162

$0

$50

$100

$150

$200

Revenue per Passenger Average Flight Length

Rev

enue

per

Pas

seng

er

0

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500

750

1,000

Ave

rage

Flig

ht L

engt

h (m

iles)

Porter WestJet

(1) Revenue per passenger is defined as total revenue divided by total passengers. (2) Source: WestJet publicly-available reports and filings and Porter 2009 year end statistics.

Porter’s low-cost operating structure is achieved through adherence to the following principles:

• Focus on a Single Type of Aircraft – A single type of aircraft fleet enables Porter to minimize training and staffing costs, increase purchasing power for spare parts, as well as allow for better aircraft and crew utilization.

• Q400 - Of particular importance in management’s selection of the 70-seat Q400 was the aircraft’s low operating costs when compared to regional and mainline jets for short-haul flights. The Q400 uses as much as 23% less fuel than 70-seat jet competitors currently in operation. In addition, the Q400 has lower maintenance costs for high-cycle utilization and crew costs savings as compared to mainline jets. Porter is also able to take advantage of lower take-off and landing fees because the Q400 is lighter than most other aircraft used by its competitors on similar routes.

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• Maximization of Aircraft Utilization - Porter maximizes aircraft utilization through a high frequency flight schedule and by using BBTCA, a less congested secondary airport, as its primary hub. During the fourth quarter of 2009, Porter’s aircraft operated an average of 8.8 hours per day.

• Low Labour Costs and Employee Efficiency – Porter endeavours to control its costs by maintaining a high level of efficiency in respect of its employment and labour resources. As at December 31, 2009, Porter had a non-unionized workforce made up of 847 full-time equivalent employees (“FTE”), with an FTE-to-aircraft ratio of approximately 47 versus WestJet with a ratio of approximately 73. Relative to workforces at other airlines, which are often unionized, Porter is not restricted by fixed-cost labour agreements.

• Leverage BBTCA Infrastructure – At BBTCA, Porter operates the new terminal as well as a number of other aviation-related facilities and infrastructure, including four hangars, a corporate flight centre, office space, ramp handling and fuel facilities. Vertical integration of its operational infrastructure enables Porter to maximize efficiency and streamline costs.

• Single Class of Service - All 70 seats on each Q400 in Porter’s fleet are the same size and of a single class designation. A single class of service simplifies operations, enhances operational productivity and offers an operating cost advantage.

Capitalize on BBTCA and Vertical Integration

BBTCA, Porter’s primary hub, offers an alternative to Pearson Airport. BBTCA is the most centrally located airport in Toronto, just minutes from downtown, which enables Porter to draw passengers from throughout the Greater Toronto Area and beyond. Presently, Porter is the only commercial airline operating from BBTCA. A free Porter shuttle leaving every 15 minutes from the heart of Toronto’s financial district to BBTCA is easily accessible from a number of public transit options, including subway, train and bus connections. See “BBTCA”.

The travel distance from the corner of King Street and Bay Street in the heart of the financial district of Toronto to Pearson Airport is approximately 28 kilometres compared to approximately three kilometres to BBTCA. Easy access to BBTCA, quick check-in and security clearance, short taxi to the runway and a fast cruise speed aircraft can reduce travel time by up to two hours on a round-trip flight when compared to flying out of Pearson Airport.

BBTCA, located on the Toronto Islands, just 122 metres offshore, is accessible year-round by ferry service operated by the Toronto Port Authority (the “TPA”). In response to growing demand, the TPA recently deployed a new high-capacity ferry to access BBTCA, increasing passenger capacity from 150 to 200. As well, the TPA recently announced that it is initiating a process for proposals to build, operate and maintain a pedestrian-only tunnel walkway to BBTCA from the Toronto harbour. The TPA, on March 12, 2010, initiated an environmental assessment with respect to the proposed tunnel and its preliminary report with respect to such assessment is expected to be made available in June of this year. If this project is completed, the walkway will provide increased access to BBTCA for both passengers and airport-based employees.

Vertical integration of Porter’s operational infrastructure at BBTCA provides not only cost advantages and control over expansion of operations, but also potential sources of recurring revenue. With approximately 75% of the new terminal completed at BBTCA and a significant portion of the development costs incurred, the new terminal offers Porter a scalable platform from which to expand its operations from BBTCA. See “BBTCA – Infrastructure and Facilities”.

Growth Strategy

Since its inception in 2006, Porter has been successful in gaining significant market share, especially in its longest serving routes, Toronto – Ottawa and Toronto – Montreal, which are also two of the busiest domestic routes in Canada. As illustrated in the chart below, Porter’s capacity share (by number of seats) grew to 23% on the Toronto - Ottawa route and 17% on the Toronto – Montreal route, respectively, by 2009.

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Toronto - Ottawa (1)

13% 17% 23%

76% 65% 61% 58%

21% 22% 22% 19%

3%0%

20%

40%

60%

80%

100%

2006 2007 2008 2009

% o

f Sea

t Cap

acity


Toronto - Montreal (1)

9% 11% 17%

82% 73% 70% 66%

18% 18% 19% 17%

0%0%

20%

40%

60%

80%

100%

2006 2007 2008 2009

% o

f Sea

t Cap

acity



Management believes that opportunities for continued growth will come from the following elements:

• Grow existing network by increasing passenger load factors on existing flights and number of round trips on existing or announced routes on which sales have commenced;

• Expand short-haul network to include new destinations and additional point-to-point markets in Eastern Canada and the U.S.;

• Capitalize on potential U.S. customs preclearance at BBTCA, if approved; and

• Capitalize on potential code-sharing arrangements.

Management also believes there are opportunities to grow ancillary revenue through infrastructure and other non-air revenue sources.

Grow Existing Network

Management believes it is well-positioned to grow passenger traffic and increase revenue through its existing network. In 2009, Porter expanded its capacity in its core markets of Toronto - Ottawa, Toronto - Montreal, Toronto - New York, Toronto - Chicago and Ottawa - Halifax. All other markets, including Toronto - Thunder Bay, Toronto - Boston, Halifax - St. John’s and Toronto - Quebec City were launched in 2009, representing an increase in Available Seat Miles of 113% over calendar year 2008. Based on its experience with other routes, management believes that passenger traffic has the potential to increase on these routes as they mature.

The following table shows Porter’s growth in its existing network since 2007 and Porter’s planned growth in 2010 of existing routes and all new routes in which sales have commenced.

Year Round Markets

Date Round-trips per weekday (maximum)

Commenced Route 2007 2008 2009 2010

October 2006 Toronto - Ottawa 10 10 17 19

December 2006 Toronto - Montreal 9 9 14 23

March 2008 Toronto - New York - 7 8 9

November 2008 Toronto - Chicago - 3 6 6

May 2009 Ottawa - Halifax (1) - - 5 5

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Year Round Markets

Date Round-trips per weekday (maximum)


June 2009 Toronto - Thunder Bay - - 3 3

September 2009 Toronto - Boston - - 4 5

October 2009 Halifax - St. John’s - - 4 4

November 2009 Toronto - Quebec City (2) - - 3 3

March 2010 Toronto - Sudbury - - - 1

June 2010 (3) Montreal - Halifax - - - 2

June 2010 (3) Ottawa - Moncton - - - 2

(1) Beginning June 2007, Ottawa-Halifax was flown twice daily in summer and during Christmas holidays, and twice weekly in other periods.

(2) Beginning June 2008, Toronto-Quebec City was flown once daily in summer and during Christmas holidays, and twice weekly in other periods.

(3) Planned launch dates

Seasonal Markets

Date Round-trips per week (maximum)


December 2007 Toronto - Mont Tremblant (1) 2 5 8 8

December 2007 Toronto - Halifax (2) 14 14 28 28

February 2010 Toronto - Myrtle Beach (3) - - - 2

(1) Christmas and winter season

(2) Christmas only

(3) Winter and spring season

Expand Short-Haul Network

Management believes there are significant growth opportunities in the short-haul market, both by capitalizing on BBTCA, as Porter’s primary hub, and by expanding Porter’s point-to-point travel from other airports. The map below highlights some of the markets which the Q400 can serve within an 800 mile range of Porter’s focus cities of Toronto, Ottawa, Montreal and Halifax. There is significant incremental market potential still available for access by Porter – in 2009, Porter’s flights represented only 9.4% of total Available Seat Miles within 800 miles of Toronto and only 7.0% total Available Seat Miles within 800 miles of Toronto, Ottawa, Montreal and Halifax, combined. Potential destinations highlighted in the map below include Washington, D.C., Philadelphia, Pennsylvania, Atlanta, Georgia, and Fredericton, New Brunswick.

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As of April 30, 2010, Porter has a fleet of 20 aircraft. Over the next 12 months, management expects to acquire up to seven additional aircraft. There is no assurance that Porter will acquire any additional aircraft and any acquisition will be dependent on a number of factors, including Porter’s financial condition, aircraft pricing and availability of financing and other factors disclosed under “Risk Factors”.

Porter believes that successfully expanding its network will provide further opportunities for growth across Canada and into the U.S., including the possibility of new hubs and focus cities, code-share arrangements with other carriers, additional turboprop aircraft and diversifying the fleet with larger aircraft to support network connections and long-haul, point-to-point flights across the continent.

Capitalize on Potential U.S. Customs Preclearance

The TPA submitted an application for U.S. customs preclearance at BBTCA in November 2009 pursuant to the 2001 Canada-U.S. Air Transport Preclearance Agreement. Porter views the proposed U.S. customs preclearance at BBTCA as a significant opportunity for growth. In addition to opening up routes to destinations in the U.S. that do not have inbound customs facilities, U.S. customs preclearance will allow for more convenient travel and easier connections for Porter’s passengers. Space required for U.S. customs preclearance at BBTCA has already been built within the new terminal facilities and will be available if customs preclearance is approved by the U.S. government. Certain airport authorities and trade associations have opposed the TPA’s application for U.S. customs preclearance at BBTCA. Although management believes that the TPA will be successful in obtaining such preclearance, there can be no assurance that U.S. customs preclearance will be obtained at BBTCA or, if obtained, when such preclearance will become effective. See “Risk Factors – Risks Relating to Porter – Failure to Achieve Growth Strategy”.

Code-Share Arrangements

Management believes Porter will likely be attractive to U.S. carriers with respect to potential code-share arrangements. Code-share refers to the practice of multiple airlines selling seats on the same flight where a

32

passenger may purchase a seat on one airline although the flight is operated by a cooperating airline under a different flight number or code. Porter, with its existing and new suppliers, is currently examining the computer system upgrades, operational procedures and back-office processes necessary to enable Porter to have the technical capability to enter into code-share arrangements by 2011.

Grow Ancillary Revenue

Potential Infrastructure-Related Revenue - As is customary at many airports, all new commercial operators will be required to enter into a commercial operating agreement with the TPA before they commence operations out of BBTCA. Presently, Porter is the only commercial airline operating from BBTCA. Any additional commercial operators would lease terminal space and gates from Porter’s wholly-owned subsidiary, CCTC. As a substantial portion of the costs to build the new terminal at BBTCA have been incurred, Porter will not need to incur significant incremental costs prior to leasing terminal space. Management expects Porter will earn revenue from selling advertising space at the new terminal and expects that Porter may also earn rental income from concessions, retail shopping and other services provided in the terminal. Other potential revenue sources for Porter at BBTCA include leasing hangar and administrative space and selling fuel to other air carriers.

Other Non-Air Revenue Sources – While Porter’s approach to travel partnerships has been predominantly informal during its start-up phase, management believes that its growing brand recognition and service offering may provide an opportunity to enter into retail and entertainment partnerships to package its flights with non-air travel products or services including hotels, rental cars and insurance. Porter is currently examining the upgrade of its technology, including related costs, with existing and new suppliers to enable it to capitalize on this opportunity by 2011.

Current and Planned Aircraft Fleet

Over the past 19 months, Porter expanded its fleet significantly, growing from eight aircraft in November 2008 to 20 aircraft in April 2010. Management is continually assessing the market for additional aircraft. Over the next 12 months, management expects to acquire up to seven additional aircraft. There is no assurance that Porter will acquire any additional aircraft and any acquisition will be dependent on a number of factors, including Porter’s financial condition, aircraft pricing and availability of financing and other factors disclosed under “Risk Factors”.

Porter’s wholly-owned subsidiary, Porter Aircraft Leasing Corp., owns all of the fleet which is, in turn, leased to Porter Airlines. For a description of capital expenditure requirements and financing arrangements relating to Porter’s fleet, see “Management Discussion and Analysis”.

The Q400 is becoming an increasingly common aircraft used by commercial operators in the short-haul market. Designed to compete with higher-capacity jet aircraft, the Q400’s record-breaking climb rate and 360 knot (Mach 0.58) cruise speed enables the aircraft to match scheduled flight times of mainline jets on routes up to 400 miles.

Management selected the Q400 based on an analysis of capacity, range, operating costs, reliability and availability with a view to achieving the lowest possible CASM. The Q400 has one of the lowest operating costs of any regional and mainline jets for short-haul flights. The Q400 uses as much as 23% less fuel than 70-seat jet competitors currently in operation. The Q400 is also lighter than most other aircraft used by its competitors on similar routes which results in lower take-off and landing fees.

Designed and assembled in Toronto, the Q400 features state-of-the-art avionics including a centralized diagnostic system for quick troubleshooting by flight crews and maintenance personnel, and is powered by the Canadian-made Pratt & Whitney PW150A engine. Based on the PW4000, this engine is built with a blend of state-of-the-art technology and low complexity, offering a new standard in reliability, durability and operating economics. The Q400 features a revolutionary noise and vibration suppression system and an active computerized dampening system deployed to make the aircraft the quietest, most vibration-free turboprop in the industry.

Aircraft manufacturers and airlines have recognized the impact that the aviation industry has had on the global climate and aircraft like the Q400 have been designed and are being operated to minimize their environmental effects. The Q400 produces 30-40% less emissions than a jet with similar capacity.

BBTCA

BBTCA is Porter’s primary hub and base for its operations. The real estate on which BBTCA is operated is owned in part by each of the Government of Canada, the City of Toronto and the TPA. A tripartite agreement dated

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June 30, 1983 (and amended July 19, 1985 and further amended June 26, 2003) among the City of Toronto, the TPA and the Government of Canada (the “Tripartite Agreement”), which is in force until 2033, governs BBTCA and its operation and provides for the lease by the City of Toronto and the Government of Canada to the TPA of some of the lands for the airport. The balance of the airport lands are owned by the TPA. The Tripartite Agreement provides for, among other things, a restricted list of aircraft permitted to use BBTCA due to noise levels and a prohibition on jet traffic. The Tripartite Agreement does not specify a maximum number of flights out of BBTCA, but does provide that flights are to operate within certain noise threshold parameters which, together with other factors, effectively limit the number of flights at BBTCA.

Pursuant to the terms of the Tripartite Agreement, BBTCA can be closed in the event that TPA defaults under the leases to the real property upon which BBTCA operates or the TPA decides that it wishes to cease operating BBTCA and the Government of Canada chooses not to exercise its right in such circumstances to continue to operate BBTCA. The Government of Canada has the right under the Tripartite Agreement to take over the operation of BBTCA upon notice to the other parties to that agreement. Further, if there is a change in the federal government’s policy relating to BBTCA, the Government of Canada has the legislative ability to close BBTCA, notwithstanding the terms of the Tripartite Agreement. The closure of BBTCA by the Government of Canada would prevent Porter from operating commercial air service from BBTCA. Furthermore, Porter’s ability to operate commercial air service may be prevented or negatively impeded by the Government of Canada taking over operations of BBTCA. See “Risk Factors - Dependence on BBTCA”.

Recent History - In 1987, BBTCA served approximately 400,000 passengers through City Express, a regional airline carrier operating in Eastern Canada and the Northeastern United States. In 1990, Air Canada (through its regional affiliate, Air Ontario Inc., a predecessor of Jazz) started commercial flights from BBTCA and City Express ceased service shortly thereafter. Subsequently, Air Canada (through Air Ontario Inc.) reduced its air service from BBTCA, consolidating its operations out of Pearson Airport. By 2005, service at the BBTCA had fallen to approximately 27,000 passengers, with Jazz (at that time an affiliate of Air Canada) operating as the only commercial air service at BBTCA.

Prior to entering into arrangements with Porter, the TPA approached Air Canada/Jazz to significantly expand its operations at BBTCA. Air Canada declined.

In 2005, following negotiations to develop and revitalize BBTCA, Porter entered into a commercial carrier operating agreement with TPA.

In 2006, the TPA offered slots at BBTCA to Air Canada/Jazz and a major U.S. carrier. A slot is either a take off or landing and two slots are required for a round trip flight. Air Canada/Jazz was offered 10 daily slots at BBTCA (in the prior two years Air Canada/Jazz had utilized an average of approximately six daily slots). Neither Air Canada/Jazz nor the U.S. carrier responded to the TPA’s offer of slots.

In October 2006, Porter commenced operation of its air service at BBTCA and by April 2010, Porter had grown its fleet to 18 aircraft utilizing up to 120 daily slots at BBTCA.

Slot Distribution - The TPA is required by the Tripartite Agreement to maintain noise levels within the parameters of noise exposure forecast (“NEF”) limits. The number of slots available for use at the BBTCA is limited by the NEF contours that govern noise levels in the vicinity of the airport as well by other factors, including ferry capacity limits, terminal capacity and gate limits, runway restrictions and curfew restrictions.

In late 2009, the TPA requested expressions of interest from airlines other than Porter to provide air service from BBTCA and received clear expressions of interest from at least two airlines that evidenced demand for slots in excess of capacity at BBTCA. On December 24, 2009, the TPA announced that it would undertake a formal process to allocate additional available slots at BBTCA.

Under the terms of its commercial carrier operating agreement with the TPA, Porter was initially entitled to not less than 95 of the then available 120 slots at BBTCA. The remaining 25 available slots were never utilized by other carriers, and Porter was subsequently granted these remaining slots. On April 9, 2010, Porter’s commercial carrier operating agreement with the TPA was subsequently amended and restated (the “CCOA”). The CCOA expires on the earlier of (i) June 30, 2033, (ii) the date of the closure of the BBTCA pursuant to the Tripartite Agreement, and (iii) the date of any earlier termination of the CCOA in accordance with its terms. The CCOA does not contemplate a right of renewal and any amendment must be first agreed to by TPA and Porter in writing. Under the terms of the

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CCOA, until April 20, 2010, TPA has allocated Porter 120 slots and from April 21, 2010 to the opening of the second phase of the terminal, Porter is allocated 140 slots.

Based on the expressions of interest for slots received by the TPA in late 2009, BBTCA could be considered a “slot constrained airport” (an airport where demand for slots exceeds the supply of available slots). Under internationally recognized rules, new slots are typically allocated at slot constrained airports in a manner that allocates up to 50% of new slots to new carriers, with the balance of the new slots allocated to incumbent carriers.

On April 9, 2010, TPA announced the results of a third party NEF study and capacity assessment of BBTCA prepared by Jacobs Consultancy. As a result of this study and capacity assessment, TPA has determined that the maximum slot availability at BBTCA will be 202 slots upon completion of the terminal (scheduled to be completed by the end of 2010).

Under the CCOA, Porter, as the sole incumbent carrier at BBTCA and based on Porter’s historical utilization of slots at BBTCA, has a right to be allocated 112 of the 202 slots. The TPA has announced that the remaining 90 unallocated slots will be allocated in accordance with internationally recognized procedures and methodology for slot constrained airports. Other carriers will be accustomed to this procedure and methodology as the same rules are applied at most slot constrained airports (such as Pearson Airport and LaGuardia airport) and it is consistent with International Air Transport Association (IATA) scheduling guidelines. The slot allocation methodology provides that up to 50% of any additional slots will be made available to new entrants and the remaining slots will be made available to Porter as the sole incumbent carrier at BBTCA. Under the terms of the CCOA, Porter is entitled to be allocated at least 50% of the 90 unallocated slots. Accordingly, once the TPA has completed its slot allocation process, Porter expects to be allocated a total of at least 157 slots at BBTCA, with the remaining 45 slots allocated to new entrants. Any new entrants would lease terminal space and gates from Porter’s wholly-owned subsidiary, CCTC, which would provide incremental revenue. As a substantial portion of the costs to build the new terminal at BBTCA have been incurred, such potential terminal fees will not require Porter to incur significant incremental costs.

The TPA has announced that the slot allocation process, including daily time slot scheduling, will be coordinated by an internationally recognized slot coordinator, Airport Coordination Limited. Airport Coordination Limited is the appointed coordinator for London City Airport, Dublin Airport and four other major United Kingdom coordinated airports (Heathrow, Gatwick, Manchester and Stansted). It also provides services to airports in Africa and the Middle East. The slot coordinator will act as a neutral party during commercial carrier negotiations and will be responsible for awarding slots. All commercial air service operators will be required to enter into a commercial carrier operating agreement with TPA (on terms similar to Porter’s CCOA in all material respects) before they are awarded slots and can commence commercial operations at BBTCA.

If in the future the present noise and infrastructure constraints are modified and the total number of slots that are available increases, Porter’s CCOA provides that the TPA will award up to 50% of any additional slots to new entrants (which are those classified as having less than five slots prior to such allocation) with the remaining slots allocated to existing carriers (such as Porter) taking into consideration the proportion of slots held by such existing carriers and other factors, including the objective of increasing and diversifying the number and choice of destinations.

One of the factors that contributes to current infrastructure constraints at BBTCA is ferry capacity which limits the traffic of passengers to and from BBTCA. The TPA recently announced that it is initiating a process for proposals to build, operate and maintain a pedestrian-only tunnel walkway to BBTCA from the Toronto harbour. If this project is completed, the walkway will provide consistent access for both passengers and airport-based employees which may decrease the current infrastructure limitations, resulting in a potential increase in the number of slots available at BBTCA.

Porter has been the target of aggressive litigation brought by Jazz and/or Air Canada in respect of the use of BBTCA and the slot allocation process announced by the TPA. See “Risk Factors - Risks Relating to Porter - Litigation Risks” and “Legal Proceedings and Regulatory Actions”.

Infrastructure and Facilities – At BBTCA, Porter operates the newly constructed terminal, as well as operating a number of other facilities including four hangars, office space, ramp handling and fuel facilities, through long-term subleases with the TPA (expiring in 2033) to the underlying real estate. Porter’s ongoing facility needs are assessed

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through consideration of numerous factors including projected fleet growth, additional routes and destinations, maintenance requirements, planned expansion of operations and opportunities for alternative revenue sources.

Porter’s wholly-owned subsidiary, Porter FBO Limited (“Porter FBO”) is the only fuel distributor at BBTCA. The fuel is branded under the Imperial Oil banner and Porter’s wholly-owned subsidiary, City Centre Fuel Corp., has the right to operate the fuel farm at BBTCA until 2033.

Fare Offering

Porter applies a straightforward structure of three fare classes with differing levels of flexibility – Freedom, Flexible and Firm. Differences between the fares do not indicate a tiered approach to customer service and there is no boarding, in-flight service, lounge access seating or baggage check differentiation by fare class. These fares differ only in the terms and conditions of booking, including change and cancellation fees through the call centre and at the airport, advanced seat selection and VIPorter point accumulation. Porter’s planning team and revenue management system analyze past booking history and trends in order to optimize pricing within each fare class in response to market demand. By monitoring seat availability and advanced purchase restrictions, Porter aims to ensure that it optimizes revenue from seats sold.

To reward its regular travelers, Porter launched its frequent flyer program, VIPorter, in June 2008. Featuring an uncomplicated approach to point accumulation based on segments flown by class of fare, the program allows travelers to redeem points for complimentary tickets in as few as five one-way flights.

Porter’s offering has also been supplemented by the introduction of a flight pass program (the “Porter Pass”). This product includes a pre-paid package of one-way flights for travel between Toronto, Ottawa and Montreal. The transferable Porter Pass reduces administration costs for Porter and provides added travel flexibility options for its high-frequency passengers. Porter is currently expanding the Porter Pass to additional markets as well as expanding the variation of flight credit options.

Operations

Flight operations

Porter has been successful in attracting experienced crews for its Q400s. As of April 1, 2010, Porter employs 88 Captains and 75 First Officers. The average number of flight hours for Captains is 7,000 and 3,500 for First Officers. New pilots undergo three months of training before they are line-qualified and 12 months of line-duty before full qualification is achieved. Under the supervision of Porter’s training department, initial ground school and simulator training is performed by FlightSafety and the pilots are trained using FlightSafety International Level D simulator equipment, the highest qualification level available.

A number of Porter’s management team were involved in the development of the Q400 with both the manufacturer and training providers. As a result, flight crews have received simulator time utilizing scripts specifically designed by the Porter team showing its own standard operating procedures and enhanced local operational situations and information.

Crews receive simulator training every six months in accordance with Transport Canada’s air regulations for a Canadian Aviation Regulations 705 Commercial operation. This six hour syllabus includes four hours of simulator instruction plus a two hour flight check. Porter utilizes a newly designed FlightSafety on-line computer-based training module for its technical ground school training.

System Operations Control Centre

The System Operations Control Centre is a Type ‘A’ dispatch facility inspected and certified by Transport Canada. Operations are coordinated using Sabre FliteTrac, the primary system for maintenance of flight schedules, aircraft assignments and gate management in the airline industry. Interfaced with Porter’s operations technology, FliteTrac’s user interface displays real-time flight information to facilitate movement of aircraft, crew and station personnel during normal and irregular operations. Porter’s computerized planning and scheduling software called PrefBid from Sabre Solutions assists with crew allocation. Porter’s CrewTrac software tracks daily crew operations and monitors flight time restrictions of crew members.

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Maintenance

Porter utilizes Remote Access Aviation System (RAAS), an inventory management and maintenance system to support its maintenance programs. As at February 28, 2010, Porter had approximately 35 aircraft maintenance engineers (AME) and apprentices.

Line maintenance and scheduled checks are performed in-house, primarily during the reduced weekend schedule and each night at Porter’s facilities at BBTCA. With the growth of the airline network, AMEs are also employed in outstations to support unscheduled maintenance.

Heavy maintenance checks on Porter’s fleet are done in compliance with industry standards, with the first four aircraft of the fleet being completed by JD Aero Technical, a maintenance, repair and overhaul company located in Sault Ste. Marie, Ontario.

Fuel

Porter purchases its fuel at market rates. Porter has membership in airport fuel committees in two of its larger markets of Ottawa and Montreal, allowing for savings in distribution and plane fuelling costs. Porter continues to evaluate the costs and benefits of expansion into other fuel purchasing consortia.

At BBTCA, Porter FBO is the only fuel distributor and purchases fuel from Imperial Oil at market rates. See “BBTCA – Infrastructure and Facilities” for a description of Porter’s fuel distribution facilities at BBTCA.

Porter has not historically used fuel hedges, and the significant change in the price of jet fuel since 2008 has allowed the airline to take full advantage of the decline. Porter continues to evaluate the option of fuel hedges.

Insurance

Porter and its subsidiaries have comprehensive insurance in all airline and non-airline operations, at levels determined by management to be adequate and reasonable given the nature of our operations.

Sales and Distribution

Porter has invested in a broad sales and distribution strategy. These strategies include direct sales via its website www.flyPorter.com, telephone reservations through its call centre, travel agencies, corporate accounts and access through the Navitaire system. Direct bookings via the website and our call centre account for more than 70% of Porter’s bookings.

Porter’s website plays an important role in minimizing booking costs, but also serves as a gateway for customer service and access to information.

Porter’s call centre has the dual role of taking flight reservations and providing customer service, and its approximately 40 agents are all located at BBTCA office headquarters which enhances coordination with Porter’s airline operations. Calls, including new reservations, are not subject to a service fee. The call centre also assumes responsibility for coordination of group sales and flight charter requests.

Porter’s open distribution relationship with its travel partners has been well received in the industry. Travel partners typically receive commission from Porter based on a proportion of the revenue generated from such bookings. Porter aims to provide full availability of its entire fare structure to travel agents, whether they book directly on Porter’s site, through its call centre, global distribution systems or a number of corporate booking tools. This approach has resulted in approximately 30% of total passenger revenue being derived from Porter’s travel partners, which now includes over 2000 individual agencies.

Porter now manages over 250 corporate accounts. From small companies to some of Canada’s largest commercial enterprises and government agencies, these corporate clients play a fundamental role in evolving Porter’s offering, from feedback on routes and scheduling to improving the customer service model.

Porter’s primary partner for processing customer credit card transactions is a global provider of merchant acquiring and integrated payment processing. Card processing is also handled directly through a credit card provider and cash generated from sales through this credit card provider are recorded as accounts receivables for accounting purposes.

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Marketing and Communications

Porter’s marketing and communication strategy builds and maintains awareness of its innovative customer service offering. Porter continues to produce innovative advertising across a broad array of media including regional and local newspapers, radio, outdoor and digital media.

Porter has been a frequent contributor to cultural events, charities and sponsorships in all of its markets, with a focus on the downtown Toronto community.

Trademarks

Management believes that its trademarks are important to its competitive position. This prospectus includes trademarks, such as Porter® and VIPorter®, which are protected under applicable intellectual property laws and are the property of Porter. Porter protects its proprietary information, including its trademarks and database, through trademark laws, contractual provisions and confidentiality procedures. Employees, service providers and partners are contractually bound to protect Porter’s proprietary information in order to control access to and the distribution of any such information.

Employee and Labour Relations

Management believes that one of the differentiating factors between Porter and other airlines in Canada is the quality and professionalism of the customer service provided by Porter’s employees. Management places a high priority on its staff to ensure that they continue to focus on its customers.

During the 2008/2009 economic downturn, Porter continued to successfully expand its offering and employee base and currently has approximately 850 FTE. This growth includes an increase of approximately 385 FTE or 80% in 2009 alone. All of Porter’s employees are non-unionized.

Management believes that it selects and trains a highly productive workforce of skilled, enthusiastic and professional employees. Porter has an excellent reputation within the industry and community, and expects to maintain a motivated workforce through its hiring process, a professional and friendly working environment and a competitive compensation package, including company-wide profit sharing through the Profit Sharing Plan, RRSP/DPSP plan, a comprehensive leisure staff travel program and competitive health and dental benefits. Porter also provides incentive-based compensation through the Option Plan. In addition, prior to Closing, Porter will award an aggregate of Shares on a restricted basis to all eligible employees and officers of Porter and its subsidiaries pursuant to the Restricted Share Plan. See “Statement of Executive Compensation – Restricted Share Plan”. Porter conducts annual performance reviews to facilitate a cycle of positive feedback, to understand individual interests and aspirations, and to provide opportunity for growth and advancement across departments within the Corporation.

Safety Management System

Safety, achieved through open communication with staff and enhanced learning techniques, is one of Porter’s fundamental goals.

In 2006, Porter became the first new commercial operator in Canada to have a fully-implemented Safety Management System (“SMS”) approved by Transport Canada. An SMS is an organized set of programs, principles, processes and procedures to manage operational risks. The management of the SMS is led by Porter’s Director, Flight Operations, and the Director, Maintenance and Engineering, as mandated through the Canadian Aviation Regulations.

Porter also employs a full-time Manager, Safety Management Systems. Reporting directly to the President and Chief Executive Officer, this position maintains and manages all reported company safety infractions. This manager is tasked to ensure that each incident, accident or hazard is investigated, mitigated, communicated to all staff and audited before closing the incident. This ongoing collection of safety data also allows Porter to uncover negative trends which can then be corrected, thus reducing risk and decreasing the likelihood of future incidents and accidents at Porter. Transport Canada is given internet access to Porter’s database in order to provide visibility of the airline’s safety efforts and achievements.

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Corporate Social Responsibility

Porter is committed to the industry’s highest standards of corporate and social responsibility (“CSR”). Porter has completed a CSR assessment with external consultants Deloitte & Touche LLP. The study included a full diagnostic analysis, the development of a corporate responsibility vision and strategy, and an action plan for 2010 and beyond. The CSR action plan goes beyond focusing on Porter’s environmental footprint, and includes specific opportunities and objectives in the areas of customer care, responsible sourcing, partnerships, community relations, and governance and transparency.

The CSR action plan is Porter-wide, and includes on-going and future projects in the areas of a customer bill of rights, employee health, safety and wellness, training and development, fuel efficiency via fleet technology and take-off and approach procedures, green information technology, environment impact tracking tools and community engagement.

REGULATORY ENVIRONMENT

Domestic

The Aeronautics Act and the Canada Transportation Act

In Canada, civil air transportation, including the establishment of aviation policy, the establishment of maintenance and operations standards, safety, and the provision of ground and airways infrastructure, rests wholly within federal government jurisdiction and is the responsibility of the Minister of Transport (the “Minister”). The Aeronautics Act (Canada) is the principle legislation through which the Government of Canada regulates safety matters of the aviation industry. It gives the Minister the authority to certify air carriers as being adequately equipped and capable of conducting a safe operation. Pursuant to the Aeronautics Act (Canada), our wholly-owned subsidiary, Porter Airlines obtained its air operator certificate on September 25, 2006, which allows us to operate a commercial air service.

The Canada Transportation Act (Canada) (“CTA”) is the legislation pursuant to which the Canadian Transportation Agency regulates transportation industries in Canada, including the licensing of air carriers and related matters.

Commencing in January 1988, the deregulation of the airline industry in Canada allowed carriers to establish airfares and conditions of carriage without government regulation, making it easier for new airlines to start up and for existing ones to expand. The principle of free market entry under the CTA is presently limited only by the requirements that the carrier be Canadian, as defined in the CTA, that it hold an air operator certificate and that it is suitably insured and financially fit.

The CTA requires that holders of licenses be “Canadian” as defined in the CTA, controlled in fact by Canadians, and that at least 75% of their voting interests be owned and controlled by Canadians. In order to comply with these legislated ownership restrictions, in connection with the Offering, Common Voting Shares will only be sold to Qualified Canadians and Variable Voting Shares will only be sold to persons that are not Qualified Canadians. Porter has applied for and obtained a decision from the CTA that Porter, upon completion of the Pre-Closing Reorganization and the Offering will continue to satisfy these legislated ownership restrictions. See “Pre-Closing Reorganization” and “Description of Securities”.

In February 2009, legislation was introduced in Parliament to amend the CTA, to allow for different categories of foreign investors to own up to 49% of the total issued common shares of a Canadian air carrier licensee and or its controlling holding company. The legislation was passed by Parliament and received Royal Assent in March 2009 and will enter into force by order of the Governor in Council on the recommendation of the Minister. At this time, Porter is not in a position to determine if or when it will be brought into force.

Canadian Air Transport Security Act

The Canadian Air Transport Security Act (Canada) was brought into force in April 2002 and established the Canadian Air Transport Security Authority (“CATSA”). CATSA is mandated to take action, either directly or through screening contractors, for the screening of persons accessing aircraft or restricted airport areas, including their carry-on possessions and baggage. CATSA is also responsible for such other air transport security functions as the Minister might assign to it from time to time. In connection with providing security functions, CATSA is entitled to enter into agreements with the Royal Canadian Mounted Police for the provision of services, including services

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on aircraft. Airport authorities are required to maintain, free of charge, such space as CATSA may require in the airport facility to conduct its security operations.

Aeronautics Act

The Aeronautics Act (Canada) establishes the framework under which aviation security regulations and security measures are developed and adopted. Under the Canadian Aviation Security Regulations, the Minister is entitled to make rules in the form of “orders” and “measures” prescribing security measures applicable to CATSA and air carriers, among others. Extensive security and screening measures for airlines and airports have been enacted and updated under the Security Screening Order, Air Carrier Security Measures and Aerodrome Security Measures. These constitute the minimum security standards to be implemented by CATSA, air carriers and airport operators.

The Security Charge Act

The Air Traveler’s Security Charge Act (the “Security Charge Act”) was brought into force in March 2002 following the September 11, 2001 terrorist attacks in the U.S. The Security Charge Act stipulates that issuers of tickets are obligated to collect, as agent and trustee for the Government of Canada, a security charge (“Security Charge”). We are required to file monthly returns with respect to each preceding month detailing prescribed information with respect to Security Charge collections and to pay that amount to the Government of Canada.

As of January 2010 the level of security charge for air travel within Canada is $4.90 for one-way travel, and $9.80 for round-trip travel. The level of security charge for transborder air travel is $8.34. Where applicable, these figures include GST. Porter is not in a position to determine whether these charges will remain static in the future.

Consumer Legislation

From time to time legislation is introduced in Parliament dealing with consumer issues impacting the travelling public. Such legislation can seek to impose financial penalties on carriers for such things as flight delays, tarmac delays, overbooking, and advertising practices. Porter is not in a position to determine if or when any such legislation will become law, whether material changes would be proposed to such legislation, or if and when any necessary enabling regulations would be passed and brought into force.

Transborder

Under the Air Transportation Agreement between Canada and the U.S., originally signed in February 1995 (the “1995 Open Skies Agreement”), the Canadian government may designate as many carriers as it wishes to service U.S. destinations. Prior to commencing service, a designated airline must make an application to U.S. government authorities. The appropriate authorizations and permissions are required to be granted by such authorities with minimal procedural delay, provided Canadian ownership requirements, qualifications under laws normally applicable to international air transportation, and safety and aviation security requirements under the 1995 Open Skies Agreement are met by the airline. No restrictions as to capacity, frequency or aircraft size are imposed under the 1995 Open Skies Agreement. Designated airlines may, at their option, combine two or more points in the U.S. in a through service. However, the ability of foreign domiciled airlines to carry new passengers between domestic points in another country is prohibited in Canada and the U.S.

As a result of negotiations between Canadian and U.S. officials in 2005, the Canadian government entered into a new agreement with the U.S. on May 12, 2007 (the “2007 Open Skies Agreement”) which replaces the 1995 Open Skies Agreement. While the 1995 Open Skies Agreement created an open system for air services between the two countries, certain restrictions remained in place. The 2007 Open Skies Agreement removes these restrictions, increasing international market access and allowing greater flexibility for carriers to offer more flights at lower prices than their competitors. As we continue to look at new destinations, this new agreement will provide us with expanded marketing opportunities to broaden our network and expand our reach.

In accordance with the requirements of the U.S. Department of Transportation, commercial foreign air carriers flying to U.S. destinations require either a foreign air carrier permit or an exemption issued by the U.S. Department of Transportation (the “U.S. Department”). On June 20, 2007, the U.S. Department granted an exemption to Porter Airlines authorizing it to fly between Canada and the U.S. This exemption was renewed by the U.S. Department on July 10, 2009, and such authorization is valid until July 2011. Porter Airlines will make a further timely application

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to renew this exemption until July 2013. Porter Airlines believes that it satisfies the financial, operational and other requirements in order to obtain a renewal from the U.S. Department and it expects such renewal will be issued.

On February 27, 2007, Porter made an application to the U.S. Department for a foreign air carrier permit. Although the U.S. Department issued an order tentatively determining to grant the permit, it has not yet issued a final order granting the permit. Certain U.S. carriers have opposed the granting of such permit. Porter believes it will be successful in obtaining such a permit or obtaining a renewal of its exemption which, in either case, is sufficient for it to carry on its transborder service. However, there is a risk that such an application for a foreign carrier permit and a renewal of its exemption will be denied. See “Risk Factors - Risks Relating to the Industry - Government Intervention, Regulations, Rulings or Decisions”.

USE OF PROCEEDS

The Corporation expects to receive $ in net proceeds from the Offering, after deducting fees payable by the Corporation to the Underwriters and the estimated expenses of the Offering. If the Over-Allotment Option is exercised in full, the Corporation will receive estimated net proceeds of $ in respect of the Offered Shares sold thereunder.

The Corporation intends to use a portion of the net proceeds of the Offering as follows:

(i) approximately $10.7 million to repay in full its U.S.$10.0 million non-revolving term loan, and

(ii) approximately $11.0 million to fund completion of the new terminal at BBTCA.

The Corporation intends to use the balance of the net proceeds from the Offering for working capital and for other general corporate purposes, which may include potential acquisitions of aircraft.

While Porter intends to use the net proceeds as stated above, there may be circumstances where for sound business reasons, a re-allocation of such proceeds may be necessary or advisable. See “Risk Factors – Risks Relating to the Offering – Discretion in Use of Proceeds”.

SELECTED CONSOLIDATED FINANCIAL AND OPERATIONAL INFORMATION

The following tables set forth selected consolidated financial and operational information for the periods indicated. The selected consolidated financial and operational information should be read in conjunction with “Management Discussion and Analysis”, “Business of the Corporation – Key Measures of Operating and Financial Performance” and the audited consolidated financial statements, the unaudited interim consolidated financial statements and accompanying notes contained elsewhere in this prospectus.

The selected consolidated financial and operational information set out below as at December 31, 2009 and 2008 and August 31, 2008 and 2007 and for the year ended December 31, 2009, the four-month period ended December 31, 2008 and the years ended August 31, 2008 and 2007 has been derived from our audited consolidated financial statements and accompanying notes contained elsewhere in this prospectus. Our audited consolidated financial statements contained elsewhere in this prospectus have been audited by our auditors, Ernst & Young LLP. Ernst & Young LLP’s report on the audited consolidated financial statements is included elsewhere in this prospectus.

The selected unaudited consolidated financial and operational information as at March 31, 2010 and for the three-month periods ended March 31, 2010 and 2009 presented below has been derived from our unaudited interim consolidated financial statements and accompanying notes contained elsewhere in this prospectus. The selected unaudited consolidated financial and operational information as at March 31, 2010 and March 31, 2009 and for the three-month periods ended March 31, 2010 and 2009 and December 31, 2009 presented below has been prepared on a basis consistent with our audited consolidated financial statements.

Certain of the financial and operational information are non-GAAP measures. See “Management Discussion and Analysis – Non-GAAP Financial Measures”. The selected consolidated financial and operational information set out below may not be indicative of Porter’s future performance.

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As at and for the


December 31, 2009Fiscal year ended

December 31, 2009


2008(1) Fiscal year ended August 31, 2008

Fiscal year ended August 31, 2007


Revenues $53,370 $151,203 $38,159 $81,707 $36,672 Operating expenses $51,144 $155,687 $38,254 $80,906 $50,824 Operating income (loss) $2,226 ($4,484) ($95) $801 ($14,152) Net income (loss) $455 ($4,609) ($11,212) ($3,317) ($11,486) EBITDA(2) $6,214 $7,901 $2,502 $6,916 ($10,019) Total assets $471,307 $471,307 $250,503 $209,977 $118,089 Total long-term liabilities $306,274 $306,274 $128,972 $86,639 $6,489 Shareholders’ equity $106,578 $106,578 $86,002 $97,146 $100,032 Operational Information: RPMs(3) 118,277,892 314,209,691 66,129,324 133,877,037 61,456,419 ASMs(4) 235,421,620 655,641,350 116,009,460 257,502,840 151,954,040 Load factor(5) 50.2% 47.9% 57.0% 52.0% 40.4% Yield(6) $0.451 $0.481 $0.577 $0.610 $0.597 RASM(7) $0.227 $0.231 $0.329 $0.317 $0.241 CASM(8) $0.217 $0.238 $0.329 $0.314 $0.334 CASM (excluding fuel)(9) $0.172 $0.194 $0.262 $0.243 $0.280 CASM (excluding depreciation)(10) $0.200 $0.219 $0.307 $0.290 $0.307 Passengers 315,781 912,613 215,115 448,783 208,735 Flights 9,000 26,895 5,388 12,692 7,892 Average flight length (miles)(11) 374 348 308 290 275 Average daily aircraft utilization (hours)(12) 8.8 8.7 8.5 8.5 7.8 Number of operating aircraft at period end 18 18 8 6 4 Number of full-time equivalent employees at period end 847 847 465 388 252

As at and for the

Three-month period

ended March 31, 2010 Three-month period ended

March 31, 2009 Consolidated Financial Information: (in thousands, except where noted)

Revenues $49,070 $23,711 Operating expenses $53,308 $29,837 Operating income (loss) ($4,238) ($6,126) Net income (loss) ($5,972) ($9,350) EBITDA(2) $171 ($3,849) Total assets $473,753 $261,141 Total long-term liabilities $294,406 $128,535 Shareholders’ equity $100,680 $101,702 Operational Information: RPMs(3) 103,897,802 41,881,165 ASMs(4) 220,868,900 101,336,760 Load factor(5) 47.0% 41.3% Yield(6) $0.472 $0.566 RASM(7) $0.222 $0.234 CASM(8) $0.242 $0.295 CASM (excluding fuel)(9) $0.195 $0.252 CASM (excluding depreciation)(10) $0.221 $0.272 Passengers 286,097 137,823 Flights 8,519 4,547 Average flight length (miles)(11) 370 318 Average daily aircraft utilization (hours)(12) 7.6 8.4 Number of operating aircraft at period end 18 8 Number of full-time equivalent employees at period end 933 532

(1) In 2008, Porter changed its fiscal year end from August 31 to December 31. (2) EBITDA is defined as earnings before interest, taxes, depreciation and foreign exchange gains or losses. See “Management Discussion and

Analysis - Non-GAAP Financial Measures”. (3) RPMs or revenue passenger miles is a measure of passenger traffic, calculated by multiplying the total number of passengers by their

distances flown.

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(4) ASMs or Available Seat Miles is a measure of capacity, calculated by multiplying the total number of seats available for passengers by miles flown.

(5) Load factor is a measure of capacity utilization, calculated by dividing RPMs by ASMs. (6) Yield is a measure of unit revenue, calculated as total revenue generated per RPM. (7) RASM or Revenue per Available Seat Mile is a measure of revenue per unit of capacity, calculated by dividing total revenue by ASMs. (8) CASM or Cost Per Available Seat Mile is a measure of cost per unit of capacity, calculated by dividing total operating costs by ASMs. (9) CASM (excluding fuel) is a measure of cost per unit of capacity, calculated by dividing total operating costs (excluding fuel) by ASMs. See


depreciation) by ASMs. See “Management Discussion and Analysis - Non-GAAP Financial Measures”. (11) Average flight length is the average distance in miles of a non-stop leg between take-off and landing. (12) Average daily aircraft utilization (hours) is the average operating hours per day per operating aircraft.

MANAGEMENT DISCUSSION AND ANALYSIS

The following management discussion and analysis of Porter’s financial condition and results of operations should be read in conjunction with sections entitled “Selected Consolidated Financial and Operational Information” and “Risk Factors” and the unaudited interim consolidated financial statements and audited consolidated financial statements and accompanying notes contained elsewhere in this prospectus.

Forward-looking statements are included in this discussion and analysis. See “Forward-Looking Statements”.

The Corporation’s functional and reporting currency is the Canadian dollar. Certain measures used in this discussion and analysis do not have any standardized meaning under GAAP. See “Non-GAAP Financial Measures” below. Information contained herein includes any significant developments to May 20, 2010.

Basis of Presentation

The audited consolidated financial statements and unaudited interim consolidated financial statements of Porter contained elsewhere in this prospectus were prepared in accordance with GAAP.

Accounting Periods

In 2008, Porter changed its fiscal year end from August 31 to December 31. This management discussion and analysis, the unaudited interim consolidated financial statements, the audited consolidated financial statements and accompanying notes thereto includes financial information for the quarters ended March 31, 2010 and 2009, the year ended December 31, 2009, the four-month period ended December 31, 2008, and the years ended August 31, 2008 and August 31, 2007.

Overview

Porter is Canada’s third largest scheduled airline with an expanding flight network that includes a number of short-haul routes throughout Eastern and Central Canada and the U.S. Porter is focused on quality-conscious passengers who travel during the week primarily for business and on the weekend for leisure.

Porter launched its airline operations on October 23, 2006 with a fleet of two Q400s offering round-trip flights between Toronto and Ottawa. As of April 30, 2010, Porter operates a fleet of 20 Q400s with service to 12 North American destinations: Ottawa, Montreal, Halifax, Thunder Bay, St. John’s, Quebec City, Mont Tremblant, and Sudbury in Canada and New York City, Chicago, Boston and Myrtle Beach in the U.S.

Porter’s growth in capacity, as measured in Available Seat Miles, has been accompanied by significant passenger traffic growth. Porter flew over 900,000 passengers in calendar 2009, up from less than 300,000 in calendar 2007. This number consists of approximately 800,000 passengers flying through BBTCA and the balance flying through Porter’s point-to-point airports. A significant portion of the increase in Porter’s Available Seat Miles occurred during the fourth quarter of 2009.

Seasonality

The Corporation does not earn revenues evenly throughout the year, with the first quarter (January to March) typically being the weakest quarter for RASM. Porter manages the impact of this seasonality by reducing its operating schedule in the first quarter and taking advantage of the opportunity to perform scheduled maintenance on

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its aircraft. The second quarter of the year (April to June) is the time when Porter has historically experienced its highest RASM of the year due to the generally higher load factors and higher average fares than other quarters of the year. This is influenced in part by the higher demand for business travel during the second quarter. During the third quarter (July to September) and the fourth quarter (October to December) of the year, Porter has historically earned lower RASM than the second quarter, but often much higher than the first quarter. Passenger traffic in the third quarter is typically made up of a higher component of leisure travel, whereas the fourth quarter has a higher component of business travel.

Market Conditions

The economic recession that started in late 2008 and continued in 2009 resulted in a decline in air travel demand globally. As a result, airlines in North America and around the world reduced capacity and pricing. Despite the economic downturn, Porter has been able to accomplish significant growth in seat capacity and revenues. Although Porter experienced lower load factor and RASM in 2009 compared to 2008, management believes that opportunities exist to improve RASM. A higher percentage of routes reaching maturity and a recovery in domestic and transborder passenger traffic as forecasted by Transport Canada may contribute to RASM improvements. See “Business of the Corporation - Industry Overview.”

Certain Financial and Operational Highlights

Highlights of the most recently completed quarter, being the three-month period ended March 31, 2010:

• Porter launched new destinations including Myrtle Beach and Sudbury;

• Porter carried a total of 286,097 passengers;

• Total revenues were $49.1 million;

• Airport operations expense includes $0.5 million, which is the effect of an increase in the landing fee rate at BBTCA as a result of an increase in the TPA’s operating expenses due to the Air Canada litigation; and

• General and administration expense includes legal fees of $0.5 million related to entering into new credit facilities and terminating old credit facilities, $0.3 million related to legal fees associated with the Air Canada litigation and $1.1 million as a result of performing heavy maintenance on four aircraft.

Highlights of Fiscal 2009:

• Porter launched new destinations including Thunder Bay, Boston, and St John’s;


• Porter’s fleet of Q400s increased from eight to 18; and

• Total revenues were $151.2 million.

Highlights of the four-month period ended December 31, 2008:

• Porter launched service to Chicago;


• Porter’s fleet of Q400s increased from six to eight; and



• Porter launched new destinations including Mont Tremblant, New York and Quebec City;

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• Porter flew a total of 448,783 passengers;

• Porter’s fleet of Q400s increased from four to six; and

• Total revenues increased 123% year-over-year as a result of capacity growth, improved load factor and a higher realized yield.


• Porter launched operations with flights from BBTCA (then known as Toronto City Centre Airport) to Ottawa on October 23, 2006;

• Porter flew a total of 208,735 passengers;

• Porter’s fleet of Q400s increased from one to four; and


Results of Operations

The following table sets forth selected consolidated financial and operational information.

Selected Consolidated Financial and Operational Information As at and for the


March 31, 2010


March 31, 2009

Year ended December 31,

2009


2008(1) Year ended

August 31, 2008 Year ended

August 31, 2007


Revenues $49,070 $23,711 $151,203 $38,159 $81,707 $36,672 Operating expenses $53,308 $29,837 $155,687 $38,254 $80,906 $50,824 Operating income (loss) ($4,238) ($6,126) ($4,484) ($95) $801 ($14,152) Net income (loss) ($5,972) ($9,350) ($4,609) ($11,212) ($3,317) ($11,486) EBITDA (2) $171 ($3,849) $7,901 $2,502 $6,916 ($10,019) Loss per share, basic and diluted ($0.74) ($1.15) ($0.57) ($1.38) ($0.41) ($1.42) Total assets $473,753 $261,141 $471,307 $250,503 $209,977 $118,089 Total long-term liabilities $294,406 $128,535 $306,274 $128,972 $86,639 $6,489 Shareholders' equity $100,680 $101,702 $106,578 $86,002 $97,146 $100,032 Operational Information: RPMs(3) 103,897,802 41,881,165 314,209,691 66,129,324 133,877,037 61,456,419 ASMs(4) 220,868,900 101,336,760 655,641,350 116,009,460 257,502,840 151,954,040 Load factor(5) 47.0% 41.3% 47.9% 57.0% 52.0% 40.4% Yield(6) $0.472 $0.566 $0.481 $0.577 $0.610 $0.597 RASM(7) $0.222 $0.234 $0.231 $0.329 $0.317 $0.241 CASM(8) $0.242 $0.295 $0.238 $0.329 $0.314 $0.334 CASM, (excluding fuel)(9) $0.195 $0.252 $0.194 $0.262 $0.243 $0.280 CASM (excluding depreciation)(10) $0.221 $0.272 $0.219 $0.307 $0.290 $0.307 Passengers 286,097 137,823 912,613 215,115 448,783 208,735 Flights 8,519 4,547 26,895 5,388 12,692 7,892 Average flight length (miles)(11) 370 318 348 308 290 275 Average daily aircraft utilization (hours)(12) 7.6 8.4 8.7 8.5 8.5 7.8 Number of operating aircraft at period end 18 8 18 8 6 4 Number of full-time equivalent employees at period end 933 532 847 465 388 252

(1) In 2008, Porter changed its fiscal year end from August 31 to December 31.

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(2) EBITDA is defined as earnings before interest, taxes, depreciation and foreign exchange gains or losses. See “Management Discussion and Analysis - Non-GAAP Financial Measures”.

(3) RPMs or revenue passenger miles is a measure of passenger traffic, calculated by multiplying the total number of passengers by their distances flown.

(4) ASMs or Available Seat Miles is a measure of capacity, calculated by multiplying the total number of seats available for passengers by miles flown.

(5) Load factor is a measure of capacity utilization, calculated by dividing RPMs by ASMs. (6) Yield is a measure of unit revenue, calculated as total revenue generated per RPM. (7) RASM or Revenue per Available Seat Mile is a measure of revenue per unit of capacity, calculated by dividing total revenue by ASMs. (8) CASM or Cost Per Available Seat Mile is a measure of cost per unit of capacity, calculated by dividing total operating costs by ASMs. (9) CASM (excluding fuel) is a measure of cost per unit of capacity, calculated by dividing total operating costs (excluding fuel) by ASMs. See


depreciation) by ASMs. See “Management Discussion and Analysis - Non-GAAP Financial Measures”. (11) Average flight length is the average distance in miles of a non-stop leg between take-off and landing. (12) Average daily aircraft utilization (hours) is the average operating hours per day per operating aircraft. The following table sets forth CASM by expense item.

For the

CASM by expense item

Three Months ended

March 31, 2010

Three Months ended

March 31, 2009


2009 Four Months endedDecember 31, 2008

Year ended August 31, 2008


Salaries 0.048 0.061 0.049 0.062 0.063 0.074 Sales and marketing 0.033 0.044 0.039 0.053 0.051 0.063 Airport operations 0.042 0.061 0.038 0.055 0.046 0.036 Flight operations and navigation charges 0.019 0.022 0.019 0.022 0.020 0.025 Depreciation 0.020 0.022 0.019 0.022 0.023 0.027 General and administration 0.016 0.016 0.014 0.021 0.024 0.041 Food, beverages and supplies 0.007 0.010 0.009 0.012 0.011 0.009 Aircraft maintenance, materials and supplies 0.010 0.016 0.007 0.015 0.005 0.005 CASM, excluding fuel 0.195 0.252 0.194 0.262 0.243 0.280 Fuel 0.047 0.043 0.044 0.067 0.071 0.054 CASM 0.242 0.295 0.238 0.329 0.314 0.334

The following table sets forth the U.S. dollar exchange rates used in each period discussed in this management discussion and analysis of financial condition and results of operation.

As at and For the

Three Months ended

March 31, 2010

Three Months ended

March 31, 2009 Year ended

December 31, 2009 Four Months ended December 31, 2008



U.S. dollar exchange rate, average of period 1.0409 1.2453 1.1423 1.1739 1.0067 1.1210

U.S. dollar exchange rate, end of period 1.0156 1.2602 1.0466 1.2246 1.0626 1.0564

The following table sets forth the litres of fuel consumed in operations, the average cost per litre of fuel consumed in operations and the breakdown of fuel expense between fuel consumed in airline operations and cost of fuel sales for the periods indicated.

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For the Three Months

Ended March 31, 2010

Three Months Ended March

31, 2009

Year Ended December 31,

2009

Four Months Ended

December 31, 2008

Year Ended August 31,

2008

Year Ended August 31,

2007

Fuel consumed in operations (millions of litres)

13.3 6.7 41.0 7.7 16.9 9.8

Average cost per litre of fuel consumed in operations

$0.75 $0.60 $0.66 $0.94 $1.01 $0.77

Fuel consumed in operations (millions)

$10.0 $4.0 $27.2 $7.2 $17.0 $7.5

Cost of fuel sales (millions) $0.3 $0.3 $1.5 $0.6 $1.3 $0.8 Consolidated fuel expense (millions)

$10.3 $4.3 $28.7 $7.8 $18.3 $8.3

Three-Month Period ended March 31, 2010 Compared to Three-Month Period Ended March 31, 2009

Overview

During the first quarter of Fiscal 2010, Porter carried a total of 286,097 passengers, compared to 137,823 passengers during the first quarter of Fiscal 2009. The increased passenger traffic was the result of having 10 more aircraft in service and increasing the frequency of flights between certain destinations. During the first quarters of Fiscal 2010 and Fiscal 2009, respectively, no aircraft were added to Porter’s fleet. Porter operated 18 Q400s during the first quarter of Fiscal 2010 as compared to eight Q400s during the first quarter of Fiscal 2009.

Revenues

Passenger revenue includes ticket sales, change fees, cancellation fees and other passenger-related revenue. Other revenue is comprised of fuel sales, property rental, advertising, and charter revenue.

The Corporation does not earn revenues evenly throughout the year, with the first quarter (January to March) typically being the weakest quarter for RASM. Porter manages the impact of this seasonality by reducing its operating schedule in the first quarter and taking advantage of the opportunity to perform scheduled maintenance on its aircraft.

Revenues increased 107% to $49.1 million in the first quarter of Fiscal 2010, from $23.7 million in the first quarter of Fiscal 2009. This was mainly the result of increased passenger traffic. ASMs in the first quarter of Fiscal 2010 were 220.9 million, compared to 101.3 million in the same period in Fiscal 2009, an increase of 118%.

For the three-month period ended March 31, 2010, RASM was $0.222 with a load factor of 47.0%, compared to RASM of $0.234 with a load factor of 41.3% for the three-month period ended March 31, 2009. The rapid expansion of the Porter network resulted in a decline in RASM. The increase in load factor was due to increasing passenger demand resulting from greater market awareness of Porter’s business and the beginning of the economic recovery.

Expenses

In the first quarter of Fiscal 2010, total operating expenses of $53.3 million and ASMs of 220.9 million resulted in CASM of $0.242. The reduction in CASM of $0.053 from first quarter of Fiscal 2009 CASM of $0.295, is a result of cost efficiencies achieved as a result of expansion of Porter’s network.

Salaries

Salaries, wages, benefits, payroll taxes, stock-based compensation expense and employee profit sharing are included in salaries expense. Salaries expense was $10.5 million in the first quarter of Fiscal 2010, compared to $6.2 million in the first quarter of Fiscal 2009. The increase in salaries expense quarter over quarter was due to the increase in FTEs. The number of FTEs increased to 933 as at March 31, 2010 from 532 as at March 31, 2009. The number of FTEs per aircraft decreased from 66.5 at March 31, 2009 to 51.8 at March 31, 2010, due to efficiencies gained as a result of growth of the business.

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Salaries expense per ASM decreased by 21% from $0.061 in the first quarter of Fiscal 2009 to $0.048 in the first quarter of Fiscal 2010. The decrease is a result of cost efficiencies achieved through the growth of operations.

Fuel

In the first quarter of Fiscal 2010, fuel costs were $10.3 million, compared to $4.3 million in the first quarter of Fiscal 2009. The average cost per litre of fuel consumed in operations was $0.75 in the first quarter of Fiscal 2010, compared to $0.60 in the first quarter of Fiscal 2009. Porter actively manages fuel costs, but does not currently engage in fuel hedging, although it may do so in the future.

Sales and Marketing

Sales and marketing expenses include costs related to advertising, distribution, merchant fees, in-flight magazine production and loyalty program. Sales and marketing expenses were $7.4 million, $0.33 per ASM, in the first quarter of Fiscal 2010, compared to $4.4 million, $0.044 per ASM, in the first quarter of Fiscal 2009. Distribution costs and merchant fees increased as a result of increased revenues and advertising expenses were higher due to marketing of a greater number of destinations. The reduction of $0.011 per ASM, or 25%, was achieved primarily as a result of cost efficiencies due to growth of the business.

Airport Operations

Airport operations expense includes landing and terminal fees, station costs, and customer service costs. Customer service costs encompass some of the premium service offerings of Porter including a shuttle from downtown Toronto to the BBTCA and passenger lounges. The increase in flights contributed to airport operations expense of $9.3 million in the first quarter of Fiscal 2010, compared to $6.1 million in the first quarter of Fiscal 2009. The airport operations cost per ASM decreased by 31%.

Flight Operations and Navigation Charges

The primary costs that make up flight operations and navigation charges are fees paid to Nav Canada (which provides air traffic control, flight information, weather briefings, aeronautical information services, airport advisory services and electronic aids to navigation), pilot training and crew lodging. In the first quarter of Fiscal 2010, flight operations and navigation charges of $4.3 million were 92% higher than the first quarter of Fiscal 2009 amount of $2.2 million due primarily to higher Nav Canada fees and higher pilot training costs. In the first quarter of Fiscal 2010, the flight operations and navigation charges per ASM decreased by 14% from the first quarter of Fiscal 2009 as a result of cost efficiencies obtained from network growth.

Depreciation

The increase in depreciation expense of $2.1 million from the first quarter of Fiscal 2009 amount of $2.3 million to $4.4 million is primarily due to the addition of 10 aircraft between March 31, 2009 and March 31, 2010.

General and Administration

The major components of general and administration expenses are insurance costs, professional fees, and other administrative expenses. In the first quarter of Fiscal 2010, general and administration costs were $3.4 million, compared to $1.6 million in the first quarter of Fiscal 2009. The increase in general and administration costs was primarily due to higher insurance costs as a result of the increase in the size of Porter’s fleet, one-time costs associated with the implementation of a new credit facilities agreement and banking services with a new financial institution and the corresponding termination agreement with the existing financial institution, and higher legal costs as a result of litigation with Air Canada. See “Legal Proceedings and Regulatory Actions”.

Food, Beverages and Supplies

Food, beverage and supplies expenses increased as a result of a significant increase in the number of passengers, from $1.0 million in the first quarter of Fiscal 2009 to $1.5 million in the first quarter of Fiscal 2010. Volume discounts and supplier negotiations reduced the per passenger cost from $7.60 in the first quarter of Fiscal 2009 to $5.39 in the first quarter of Fiscal 2010.

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Aircraft Maintenance, Materials and Supplies

In the first quarter of Fiscal 2010, aircraft maintenance, materials and supplies expense was $2.3 million, compared to $1.6 million in the first quarter of Fiscal 2009. Maintenance costs incurred during the first quarter of Fiscal 2010 increased due to heavy maintenance performed on the Corporation’s initial four aircraft, as well as regular maintenance. The first quarter of Fiscal 2009 included two engine overhauls and regular maintenance.

Aircraft maintenance and repairs, including major overhauls, are charged to operating expenses as incurred. The Corporation entered into an engine maintenance contract with a fixed price per hour flown. The contractual obligation under this agreement arises when the engine is delivered to the maintenance provider for service. As the fleet ages and aircraft warranties expire, Porter expects maintenance costs to increase.

Interest Income

In the first quarter of Fiscal 2010, interest income was less than $0.1 million, compared to $0.2 million in the first quarter of Fiscal 2009. The decrease in interest income quarter over quarter was primarily due to a lower average cash balance and lower interest rates.

Interest Expense

Interest expense was $3.7 million in the first quarter of Fiscal 2010, compared to $1.5 million in the first quarter of Fiscal 2009. Interest expense was higher primarily due to the interest on 10 new aircraft loans added between April 1, 2009 and March 31, 2010.

Gain (loss) on Foreign Exchange

Gain on foreign exchange was $1.9 million in the first quarter of Fiscal 2010, compared to a loss on foreign exchange of $1.9 million in the first quarter of Fiscal 2009. The gain on foreign exchange in the first quarter of Fiscal 2010 was due primarily to the revaluation of the U.S. dollar debt as a result of the higher Canadian dollar at the end of the period as compared to the value of the Canadian dollar versus the U.S. dollar as at December 31, 2009.

Income Tax Expense

With losses being generated in the quarters ended March 31, 2010 and March 31, 2009, the Corporation has incurred minimal income tax expense. The difference in the Corporation’s income taxes for accounting purposes as compared to its income taxes computed at the statutory rates is affected by non-capital losses carried forward, gains and losses on foreign exchange, deductible share issuance costs and valuation allowances taken on cumulative tax assets.

Net Loss

Net loss was $6.0 million, $0.74 per share, in the first quarter of Fiscal 2010, compared to a net loss of $9.4 million, $1.15 per share, in the first quarter of Fiscal 2009.

Fiscal 2009 Compared to Four-Month Period Ended December 31, 2008 and Fiscal 2008

Overview

During Fiscal 2009, Porter carried a total of 912,613 passengers (four-month period ended December 31, 2008 - 215,115), compared to 448,783 passengers during Fiscal 2008. The Corporation added 10 Q400s to the fleet during Fiscal 2009 (four-month period ended December 31, 2008 – two Q400s added), bringing the total to 18.

Revenues

Revenues increased to $151.2 million in Fiscal 2009 (four-month period ended December 31, 2008 - $38.2 million) from $81.7 million in Fiscal 2008, an increase of 85%. Passenger revenue includes ticket sales, change fees, cancellation fees and other passenger-related revenue. Other revenue is comprised of fuel sales, property rental, advertising, and charter revenue.

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The growth in revenues from Fiscal 2008 to Fiscal 2009 was achieved due to growth in capacity and the addition of new destinations including Thunder Bay, Boston, and St John’s (four-month period ended December 31, 2008 - new destination was Chicago). ASMs in Fiscal 2009 were 655.6 million (four-month period ended December 31, 2008 – 116 million), compared to ASMs of 257.5 million in Fiscal 2008. The change in ASMs from Fiscal 2008 to Fiscal 2009 represents an increase of 155%. Porter’s fleet grew from eight to 18 aircraft during Fiscal 2009.

RASM and load factor declined in Fiscal 2009 from Fiscal 2008, due primarily to the rapid addition of capacity and the launching of new markets, which take time to mature. In Fiscal 2009, RASM was $0.231 and load factor was 47.9% (four-month period ended December 31, 2008 RASM - $0.329 and load factor - 57.0%), compared to Fiscal 2008 RASM of $0.317 and load factor of 52.0%.

The downturn in the economy that started in late 2008 and continued in 2009 resulted in a decrease in air travel demand and pricing. This contributed to a lower load factor and lower RASM in Fiscal 2009 compared to Fiscal 2008. It is difficult to determine the impact of the recession on Porter’s load factor and RASM, although management believes the rapid growth of capacity was the primary factor contributing to the decreases. Despite the economic downturn, Porter has been able to accomplish significant growth in seat capacity and revenues over the period.

Expenses

In Fiscal 2009, total operating expenses of $155.7 million (four-month period ending December 31, 2008 - $38.3 million) and ASMs of 655.6 million (four-month period ending December 31, 2008 – 116 million) resulted in CASM of $0.238 (four-month period ending December 31, 2008 – $0.329). CASM decreased by 24% from $0.314 in Fiscal 2008. CASM reduction is a result of lower fuel prices and cost efficiencies achieved as a result of growth in Porter’s network.

Salaries

Salaries, wages, benefits, payroll taxes, stock-based compensation expense and employee profit sharing are included in salaries expense. Salaries expense was $32.0 million in Fiscal 2009 (four-month period ending December 31, 2008 – $7.3 million), compared to $16.2 million in Fiscal 2008. The increase in salaries expense from Fiscal 2009 to Fiscal 2008 was due to the increase in FTEs. The number of FTEs more than doubled from 388 as at August 31, 2008 to 847 as at December 31, 2009. The number of FTEs per aircraft decreased from 65 at August 31, 2008 to 47 at December 31, 2009 (as at December 31, 2008 – 58), due to efficiencies gained through growth of the business.

Salaries expense per ASM decreased by 22% from $0.063 in Fiscal 2008 to $0.049 in Fiscal 2009 (four-month period ending December 31, 2008 – $0.062). The decrease is a result of cost efficiencies achieved through the growth of operations.

There was no expense in Fiscal 2009 related to the employee profit sharing plan (the “Old EPSP”) (four-month period end December 31, 2008 - $10,000), which was introduced as part of the compensation package for Fiscal 2007, compared to $0.4 million included in Fiscal 2008. On Closing, the Old EPSP will be replaced by the Profit Sharing Plan. See “Statement of Executive Compensation”.

Fuel

In Fiscal 2009, fuel costs were $28.7 million (four-month period ended December 31, 2008 - $7.8 million), compared to $18.3 million in Fiscal 2008. The average cost per litre of fuel consumed in operations was $0.66 in Fiscal 2009, compared to $1.01 in Fiscal 2008 (four-month period ending December 31, 2008 – $0.94). Porter actively manages fuel costs, but does not currently engage in fuel hedging, although it may do so in the future.

Sales and Marketing

Sales and marketing expenses include costs related to advertising, distribution, merchant fee, in-flight magazine production and loyalty program. Sales and marketing expenses of $25.3 million in Fiscal 2009 (four-month period ending December 31, 2008 – $6.2 million) resulted in sales and marketing expenses per ASM of $0.039 (four-month period ending December 31, 2008 – $0.053). In Fiscal 2008, sales and marketing expenses of $13.2 million resulted in sales and marketing expenses per ASM of $0.051. In Fiscal 2009, a reduction of $0.013 per ASM, or 25%, was achieved from Fiscal 2008. A portion of the marketing expenses in Fiscal 2009 were due to the market launches of Thunder Bay, Boston and St. John’s.

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Airport Operations

Airport operations expense includes landing and terminal fees, station costs, and customer service costs. Customer service costs encompass some of the premium service offerings of Porter including a shuttle from downtown Toronto to the BBTCA and passenger lounges. Airport operations expense was $24.8 million in Fiscal 2009 (four-month period end December 31, 2008 - $6.4 million), compared to $11.8 million in Fiscal 2008. Airport operations expense per ASM decrease of 17% from Fiscal 2008 to Fiscal 2009 was due to cost efficiencies as a result of network growth.


The primary costs that make up flight operations and navigation charges are fees paid to Nav Canada (which provides air traffic control, flight information, weather briefings, aeronautical information services, airport advisory services and electronic aids to navigation), pilot training and crew lodging. In Fiscal 2009, flight operations and navigation charges of $12.7 million (four-month period ending December 31, 2008 – $2.5 million) were 144% higher than the Fiscal 2008 amount of $5.2 million. In Fiscal 2009, the flight operations and navigation charges per ASM decreased by 5% from Fiscal 2008 as a result of cost efficiencies obtained from network growth. The increase in average flight lengths, higher frequencies to certain markets and an increase in flights to U.S. destinations resulted in lower Nav Canada charges per ASM and thus contributed to the decrease in flight operations and navigation charges per ASM.

Depreciation

The increase in depreciation expense of $6.3 million from Fiscal 2008 amount of $6.1 million to $12.4 million (four-month period ending December 31, 2008 – $2.6 million) is primarily due to the addition of 12 aircraft between September 2008 and December 2009.


The major components of general and administration expenses are insurance costs, professional fees, and other administrative expenses. In Fiscal 2009, general and administration costs were $9.4 million (four-month period ended December 31, 2008 - $2.4 million), compared to $6.1 million in Fiscal 2008. General and administration costs per ASM decreased by 42% from Fiscal 2008 to Fiscal 2009 due to cost efficiencies achieved as a result of growth of operations.


Food, beverage and supplies expenses increased from $2.8 million in Fiscal 2008 to $5.6 million in Fiscal 2009 (four-month period ended December 31, 2008 - $1.4 million) as a result of a significant increase in the number of passengers. When expressed in dollars per passenger, this figure increased slightly from $6.13 in Fiscal 2008 to $6.18 in Fiscal 2009, (four-month period ended December 31, 2008 - $6.31) due primarily to the opening of the Ottawa Lounge in Fiscal 2009.


In Fiscal 2009, Porter incurred higher maintenance costs on the Corporation’s initial four aircraft, as they moved into the third year of operation. The Fiscal 2009 cost of $4.8 million (four-month period ended December 31, 2008 - $1.8 million) represented an increase of 300% over the Fiscal 2008 amount of $1.2 million, primarily due to an increase in flight hours and engine overhauls. During Fiscal 2009, aircraft maintenance, materials and supplies included two engine overhauls, compared to three engine overhauls expensed in the four-month period ended December 31, 2008 and none in Fiscal 2008. Aircraft maintenance, material and supplies expense per ASM increased from $0.005 in Fiscal 2008 to $0.007 in Fiscal 2009 (four-month period ended December 31, 2008 - $0.015).

Aircraft maintenance and repairs, including major overhauls, are charged to operating expenses as they are incurred. The Corporation has entered into an engine maintenance contract with a fixed price per hour flown. The contractual obligation under this agreement arises when the engine is delivered to the maintenance provider for service. As the fleet ages and aircraft warranties expire, Porter expects maintenance costs to increase.

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Interest Income

In Fiscal 2009, interest income was $0.3 million (four-month period ended December 31, 2008 - $0.4 million), compared to $0.7 million in Fiscal 2008. Interest income in Fiscal 2009 was lower than in Fiscal 2008 due to a lower average cash balance and lower interest rates.

Interest Expense

Interest expense was $9.3 million in Fiscal 2009 (four-month period December 31, 2008 - $1.9 million), compared to $2.2 million in Fiscal 2008. In Fiscal 2009, interest expense increased due primarily to the interest on 10 new aircraft loans added during the fiscal year and the full-year impact of the interest on the six new aircraft loans added during Fiscal 2008 and the two new aircraft loans added during the four-month period ended December 31, 2008.


Gain on foreign exchange was $8.8 million in Fiscal 2009 (four-month period December 31, 2008 – loss on foreign exchange of $9.6 million), compared to a loss on foreign exchange of $2.6 million in Fiscal 2008. The gain on foreign exchange in Fiscal 2009 was due primarily to the revaluation of the U.S. dollar debt as a result of the higher Canadian dollar at the end of the period as compared to the value of the Canadian dollar versus the U.S. dollar as at December 31, 2008.

Income Tax Expense

With losses being generated in Fiscal 2009, the four-month period ended December 31, 2008 and Fiscal 2008, the Corporation has incurred minimal income tax expense. The difference in the Corporation’s income taxes for accounting purposes as compared to its income taxes computed at the statutory rates is affected by non-capital losses carried forward, gains and losses on foreign exchange, deductible share issuance costs and valuation allowances taken on cumulative tax assets. A reconciliation of this difference is included in note 11 of the audited consolidated financial statements included elsewhere in this prospectus.

Net Loss

Net loss was $4.6 million, $0.57 per share, in Fiscal 2009 (four-month period ended December 31, 2008 – net loss of $11.2 million, net loss per share of $1.38), compared to a net loss of $3.3 million, $0.41 per share, in Fiscal 2008.

Fiscal 2008 Compared to Fiscal 2007

Overview

During Fiscal 2008, Porter carried a total of 448,783 passengers, representing an increase of 115% over the prior fiscal year amount of 208,735. This growth was attributable to increased capacity and higher load factor in Fiscal 2008. Porter acquired two additional Q400s in Fiscal 2008, bringing the total to six.

Revenues

Revenues increased to $81.7 million in Fiscal 2008 from $36.7 million in the fiscal year ended Fiscal 2007, an increase of 123%. Passenger revenue includes ticket sales, change fee, cancellation fee and other passenger-related revenue. Other revenue is comprised of fuel sales, property rental, advertising, and charter revenue.

The increase in revenues in Fiscal 2008 resulted primarily from a combination of capacity growth and improved load factor. Fiscal 2008 revenues were also higher due to the impact of the full-year of operations. Fiscal 2007 included approximately ten months of operations, as service commenced on October 23, 2006.

During Fiscal 2008, Porter grew its fleet from four to six aircraft, increasing its service offering to include more frequency to existing destinations, new destinations including New York and Quebec City, and new seasonal destinations including Halifax and Mont Tremblant. The increased service offering during Fiscal 2008 and full-year impact of aircraft added during Fiscal 2007 drove a 69% growth in capacity as measured in Available Seat Miles, which increased from 152 million in Fiscal 2007 to 257.5 million in Fiscal 2008.

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Load factor grew to 52.0% in Fiscal 2008, up from 40.4% in Fiscal 2007, as Porter continued to gain market share on its routes. RASM increased from $0.241 in Fiscal 2007 to $0.317 in Fiscal 2008.

Expenses

Total operating expenses increased from $50.8 million in Fiscal 2007 to $80.9 million in Fiscal 2008. During Fiscal 2008, the Corporation was able to mitigate the impact of higher fuel costs through the fuel efficiency of the Q400, Porter’s low-cost operating structure and ability to implement fuel surcharges. During Fiscal 2008, cost efficiencies were achieved due to capacity growth, resulting in Fiscal 2008 CASM of $0.314 compared to $0.334 in Fiscal 2007.

Salaries

Salaries, wages, benefits, payroll taxes, stock-based compensation expense and employee profit sharing are included in salaries expense. Salaries expenses rose from $11.2 million in Fiscal 2007 to $16.2 million in Fiscal 2008. The number of FTEs increased from 252 as at August 31, 2007 to 388 as at August 31, 2008. The number of FTEs per aircraft increased slightly from 63 at August 31, 2007 to 65 at August 31, 2008 as the Corporation prepared to accept additional aircraft after year end.

The salary cost per ASM decreased by 15% from $0.074 in Fiscal 2007 to $0.063 in Fiscal 2008, as a result cost efficiencies achieved through the growth of operations.

An Old EPSP payout of $0.4 million is included in Fiscal 2008 salaries expense compared to nil in Fiscal 2007.

Fuel

Fuel expense was $18.3 million for Fiscal 2008, up $9.9 million from Fiscal 2007. The average cost per litre of fuel consumed in operations was $1.01 in Fiscal 2008, compared to $0.77 in Fiscal 2007.

Sales and Marketing

Sales and marketing expenses include costs related to distribution, advertising, in-flight magazine production, loyalty program, and merchant fees. Sales and marketing expenses increased from $9.5 million in Fiscal 2007 to $13.2 million in Fiscal 2008. Marketing expenses to support the launch of a service to New York contributed to the increase in sales and marketing costs. In Fiscal 2008, sales and marketing costs per ASM declined by 19%, from $0.063 in Fiscal 2007 to $0.051 in Fiscal 2008.

Sales and marketing expenses were reduced as a percentage of total revenue from 26% in Fiscal 2007 to 16% in Fiscal 2008.

Airport Operations

Airport operations expenses include landing and terminal fees, station costs, and customer service costs. Customer service costs encompass some of the premium service offerings of Porter including passenger lounges and a shuttle from downtown Toronto to the BBTCA. Airport operations were up more than twofold from $5.5 million in Fiscal 2007 to $11.8 million in Fiscal 2008 driven by landing and terminal fee increases combined with the increase in frequency to existing and new destinations. The addition of service to New York resulted in a higher airport cost per landing, due to the higher landing costs at Newark International Airport, as compared to Porter’s existing Canadian destinations.


The primary costs that make up flight operations and navigation charges are fees paid to Nav Canada (who provides air traffic control, flight information, weather briefings, aeronautical information services, airport advisory services and electronic aids to navigation), pilot training and crew lodging. Flight operations and navigation charges grew to $5.2 million in Fiscal 2008, up $1.4 million from Fiscal 2007 levels, primarily as a result of a 61% increase in aircraft departures. Additional pilot training costs in advance of receiving new aircraft also contributed to the increase.

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Depreciation

Fiscal 2008 depreciation expense was $6.1 million, up $2.0 million from Fiscal 2007, as a result of the addition of two new aircraft to the fleet during the year and the full year impact of aircraft added during Fiscal 2007.


The major components of general and administration expenses are insurance costs, professional fees, and other administrative expenses. In Fiscal 2008, general and administration costs were $6.1 million, compared to $6.2 million in Fiscal 2007. Cost efficiencies were achieved in general and administration expenses in Fiscal 2008, and as a result general and administration costs per ASM decreased by 41%, from $0.041 in Fiscal 2007 to $0.024 in Fiscal 2008.


Food, beverage and supplies expenses increased from $1.3 million in Fiscal 2007 to $2.8 million in Fiscal 2008 as a result of a significant increase in the number of passengers. When expressed in dollars per passenger, this figure declined from $6.35 in Fiscal 2007 to $6.13 in Fiscal 2008.


Aircraft maintenance, materials and supplies expense was $1.2 million in Fiscal 2008, up 54% from Fiscal 2007 level of $0.8 million. The aircraft maintenance, materials and supplies expense per ASM remained steady at $0.005 in Fiscal 2008 and Fiscal 2007.

Aircraft maintenance and repairs, including major overhauls, are charged to operating expenses as they are incurred. The Corporation has entered into an engine maintenance contract with a fixed price per hour flown. The contractual obligation under this agreement arises when the engine is delivered to the maintenance provider for service. As the fleet ages and aircraft warranties expire, Porter expects maintenance costs to increase.

Interest Income

In Fiscal 2008, interest income was $0.7 million, compared to $1.1 million in Fiscal 2007. Interest income was lower in Fiscal 2008 due primarily to lower average cash balances during the year.

Interest Expense

Interest expense was $2.2 million in Fiscal 2008, compared to $0.4 million in Fiscal 2007. In Fiscal 2008, interest expense increased due primarily to the interest on new aircraft loans added during the fiscal year. There were no aircraft loans outstanding during Fiscal 2007.


Loss on foreign exchange was $2.6 million in Fiscal 2008, compared to a gain on foreign exchange of $1.9 million in Fiscal 2007. The loss on foreign exchange in Fiscal 2008 was due primarily to the revaluation of the U.S. dollar debt as a result of the lower Canadian dollar at the end of the period as compared to the value of the Canadian dollar versus the U.S. dollar at the end of Fiscal 2007.

Income Tax Expense

With losses being generated in Fiscal 2008 and Fiscal 2007, the Corporation did not incur any income tax expense. The difference in the Corporation’s income taxes for accounting purposes as compared to its income taxes computed at the statutory rates is affected by non-capital losses carried forward, gains and losses on foreign exchange, deductible share issuance costs and valuation allowances taken on cumulative tax assets. A reconciliation of this difference is included in note 11 of the audited consolidated financial statements included elsewhere in this prospectus.

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Net Loss

Net loss was $3.3 million, $0.41 per share, for Fiscal 2008, a significant improvement from Fiscal 2007 net loss of $11.5 million, $1.42 per share.

Liquidity and Capital Resources

The Corporation has incurred net losses of $6.0 million for the first quarter of Fiscal 2010, and has an accumulated deficit of $44.5 million and a working capital deficiency of $33.5 million at March 31, 2010. At March 31, 2010, the Corporation had $25.1 million of debt that requires the maintenance of a minimum working capital ratio of 1:1 and a long-term debt/tangible equity ratio not exceeding 3.2:1, both beginning in December 2010. Porter expects that proceeds from the Offering will be sufficient to remedy its current working capital deficiency and will bring Porter in line with its working capital ratio covenant.

The Corporation incurred net losses of $4.6 million and $11.2 million for Fiscal 2009 and the four-month period ended December 31, 2008, respectively, and had an accumulated deficit of $38.5 million and a working capital deficiency of $11.8 million at December 31, 2009. At December 31, 2009, the Corporation had $20.1 million of debt that requires, beginning in December 2010, the maintenance of a minimum working capital ratio of 1:1 and a long-term debt/tangible equity ratio not exceeding 3.2:1.

The Corporation’s ability to continue to make scheduled payments of principal, or to pay the interest on, or to refinance indebtedness, or to fund planned capital expenditures is dependent upon its ability to fund its working capital and achieve profitable operations or raise sufficient debt or equity.

Based on the current level of operations, management believes that cash provided by operations, borrowings available under credit facilities, expected proceeds from the Offering, future term loans secured against future aircraft purchases and additional cash generated from additional debt or equity raises will be adequate to meet Porter’s future liquidity needs including cash flows required to support its aircraft fleet maintenance and growth in the foreseeable future. The assumptions with respect to future liquidity needs may not be correct and funds available from the sources described above may not be sufficient to enable the Corporation to serve its indebtedness, or cover any shortfall in funding from any unanticipated expenses.

The following table provides an overview of cash flows of Porter (in thousands of dollars):

For the

Three Months ended

March 31, 2010

Three Months ended

March 31, 2009


2009 Four Months ended December 31, 2008



Cash provided by (used in) operating activities (9,074) (2,542) 8,114 (2,290) 8,868 (8,444) Cash used in investing activities (2,280) (3,111) (236,045) (52,911) (52,919) (44,101) Cash provided by (used in) financing activities (335) 22,302 224,006 37,880 81,383 (2,126) Effect of foreign exchange on cash (43) (16) 28 3 2 (19) Net increase (decrease) in cash during the period (11,732) 16,633 (3,897) (17,318) 37,334 (54,690) Cash, beginning of period 20,911 24,808 24,808 42,126 4,792 59,482 Cash, end of period 9,179 41,441 20,911 24,808 42,126 4,792

Cash Flows for the Three-Month Period Ended March 31, 2010 Compared to Three-Month Period Ended March 31, 2009

Cash Used In Operating Activities

Cash used in operating activities for the first quarter of Fiscal 2010 was $9.1 million, compared to $2.5 million in the first quarter of Fiscal 2009. In the first quarter of Fiscal 2010, the change in cash due to operating activities was primarily due to a net loss of $6.0 million and an increase in restricted cash of $5.4 million. The net loss, partially offset by changes in non-cash working capital, contributed to the cash used in operations in the first quarter of Fiscal 2009.

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Cash Used in Investing Activities

Property and equipment of $2.3 million was purchased with cash in the first quarter of Fiscal 2010, compared to $3.1 million in the first quarter of Fiscal 2009. The increases in property and equipment in both quarters is primarily due to new terminal construction at BBTCA.

Cash Provided by (Used In) Financing Activities

In the first quarter of Fiscal 2010, cash used in financing activities was $0.3 million, compared to cash provided by financing activities of $22.3 million in the first quarter of Fiscal 2009. There was no additional aircraft financing obtained during either quarter. Decreases in bank indebtedness and repayments of long-term debt and capital lease obligations more than offset the increases in terminal construction financing in the first quarter of Fiscal 2010. The cash provided by financing activities in the first quarter of Fiscal 2009 included an equity raise of $25.0 million offset by repayments of long-term debt, capital lease obligation and long-term liabilities in the quarter of $2.7 million.

Cash Flows for Fiscal 2009 Compared to Four-Month Period Ended December 31, 2008 and Fiscal 2008

Cash Provided by (Used In) Operating Activities

Cash provided by operating activities for Fiscal 2009 was $8.1 million (four-month period ended December 31, 2008 cash used in operating activities - $2.3 million), compared to $8.9 million in Fiscal 2008. The cash provided by operating activities in Fiscal 2009 and in Fiscal 2008 was primarily due to changes in non-cash working capital.


Property and equipment of $233.8 million was purchased with cash in Fiscal 2009 (four-month period ending December 31, 2008 – $49.5 million), compared to $43.3 million in Fiscal 2008. In Fiscal 2009, ten aircraft were added to Porter’s fleet of Q400s to end the year with 18. Other additions to property and equipment include aircraft rotables and ground and maintenance equipment to support the additional aircraft and the new terminal at BBTCA, which was under construction as of December 31, 2009.

In Fiscal 2009, long-term deposits of $2.3 million were made on aircraft (four-month period ending December 31, 2008 – $3.4 million), compared to $9.7 million in Fiscal 2008.

Cash Provided by Financing Activities

In Fiscal 2009, total financing activities increased cash by $224.0 million (four-month period ended December 31, 2008 - $37.9 million), compared to $81.4 million in Fiscal 2008. Porter increased its long-term debt by $209.8 million in Fiscal 2009 (four-month period ended December 31, 2008 - $39.6 million), compared to $84.8 million in Fiscal 2008. In Fiscal 2009, the increase in long-term debt was a result of aircraft financing secured on all 10 aircraft deliveries during the year and construction financing obtained to facilitate the building of the new terminal at BBTCA. In the four-month period ended December 31, 2008 and in Fiscal 2008, the increase in long-term debt was due to aircraft financing.

In Fiscal 2009, cash provided by financing activities increased by $25.0 million due to the issuance of additional equity. There were no share issuances in the four-month period ended December 31, 2008 or in Fiscal 2008. Scheduled and other debt and capital lease payments amounted to $11.6 million and $3.4 million in Fiscal 2009 and Fiscal 2008, respectively (four-month period ended December 31, 2008 - $2.0 million).

Cash Flows for Fiscal 2008 Compared to Fiscal 2007

Cash Provided by (Used In) Operating Activities

Cash provided by operating activities for Fiscal 2008 was $8.9 million, compared to cash used by operating activities of $8.4 million in the prior fiscal year. Cash provided by (used in) operating activities improved in Fiscal 2008 from Fiscal 2007 primarily due to the business beginning to mature. The use of cash in Fiscal 2007 is explained by the significant growth experienced by the business and the commensurate requirement for more working capital.

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Additions to property and equipment totalled $43.3 million in Fiscal 2008, the majority representing the addition of two Q400s. Other additions to property and equipment include aircraft rotables, and ground and maintenance equipment to support the additional aircraft. Ground and maintenance equipment was added for the Toronto operations, as well as for the New York operations, which commenced in Fiscal 2008. In Fiscal 2007, the increase in property and equipment was $41.9 million, as Porter increased its fleet by three aircraft.

Cash Provided by Financing Activities

Our principal sources of liquidity have been cash flows generated from operations, borrowing under aircraft financing term loans, the construction loans, other non-revolving term loans, the credit facilities and equity. Our principal cash requirements have been for working capital, capital expenditures and debt service.

Total financing activities in Fiscal 2008 increased cash by $81.4 million, compared to a $2.1 million reduction in cash in Fiscal 2007 from financing activities. In Fiscal 2008, Porter increased its long-term debt by $84.8 million. During Fiscal 2008, Porter secured financing to purchase two additional Q400s in addition to financing obtained during Fiscal 2008 on four aircraft that were purchased with cash in prior periods. No new financing was obtained during Fiscal 2007.

Scheduled and other debt and capital lease payments amounted to $3.4 million and $2.1 million in Fiscal 2008 and Fiscal 2007, respectively.

Contractual Obligations and Off-Balance Sheet Arrangements

The following tables summarize our material contractual obligations and off-balance arrangements (in thousands of dollars) as of March 31, 2010, including off-balance sheet arrangements and our commitments:

2010 2011 2012 2013 2014 Thereafter Total

Accounts payable and accrued liabilities 27,965 — — — — — 27,965

Long-term debt 13,237 29,541 20,241 21,111 22,133 220,041 326,304

Capital lease obligations 1,776 400 353 — — — 2,529

Operating leases 1,074 1,081 986 726 669 12,379 16,915

Interest obligations 11,668 13,744 12,763 11,781 10,801 46,689 107,446 Terminal construction

commitments 10,906 — — — — — 10,906

Commitments for new aircraft 37,201 — — — — — 37,201 Commitments for new aircraft

equipment 1,554 — — — — — 1,554

Total 105,381 44,766 34,343 33,618 33,603 279,109 530,820 Principal repayments in the table above exclude transaction costs of $4.5 million, which are off-set against long-term debt in the consolidated balance sheet.

The commitments for new aircraft shown in the table above represent two new aircraft that were delivered in April 2010. Committed financing for these two aircraft as at March 31, 2010 was equal to approximately U.S.$32.8 million (85% of the aggregate purchase price, U.S.$38.6 million). As at March 31, 2010, the deposits made to the aircraft manufacturer for future aircraft deliveries amounted to U.S.$2.0 million. The remaining amount due to the aircraft manufacturer on delivery after taking into account the deposits was U.S.$36.6 million, of which U.S.$32.8 million was financed and the remainder of which was funded by cash from the Corporation.

The Corporation signed an agreement with a contractor to build the new terminal at BBTCA for total consideration of approximately $49 million. The project consists of two phases with phase one completed in March 2010 and phase two expected to be completed by the end of 2010. As at March 31, 2010, the Corporation has commitments for new terminal construction in the amount of $10.9 million. During the first quarter of Fiscal 2010, the terminal

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loan increased by $4.9 million for an aggregate amount of $25.1 million. Committed construction financing as of March 31, 2010 was $4.9 million. Porter does not intend to utilize this financing to fund completion of the terminal. Instead, the Corporation expects to use a portion of the net proceeds of the Offering in the amount of approximately $11.0 million to fund the remaining amount to complete construction of the terminal. See “Use of Proceeds”.

The Corporation signed a purchase commitment for U.S.$1.7 million and paid a U.S.$170,000 deposit to an aircraft supplier for additional equipment to be delivered later this year.

As at March 31, 2010, the Corporation has the following lease agreements with the TPA:

(a) to rent 629,000 square feet of land to build the new terminal at BBTCA. The terminal project began in October 2008. From the commencement date forward, a basic rent becomes payable as a fifty cent fee per passenger when the 500,000 annual passenger threshold is exceeded, increasing to a one dollar fee per passenger when the 1,000,000 annual passenger threshold is exceeded. This agreement is valid until June 29, 2033. In the first quarter of Fiscal 2010 nil was expensed (in 2009, $91,000 was expensed and in prior periods nil was expensed);

(b) to rent 23,010 square feet of land for the purpose of a fuel storage farm at $12,000 per year for five years ending in 2010. The lease has been renewed for a further five year period expiring in 2015 (subject to extension if further renewed to June 29, 2033) at rent to be determined based on market rates; and

(c) to rent 395,240 square feet of land to build a new hangar. Lease payments of $49,000 need to be paid annually from the commencement date until June 29, 2013. The Corporation has two extension rights of 10 years each at the same terms and conditions except that basic rent shall be adjusted.

Debt Financing

As at March 31, 2010, long-term debt was $321.8 million ($322.7 million as at December 31, 2009 and $131.8 million as at December 31, 2008). Debt maturity ranges from 2011 to 2025.

As at March 31, 2010, future principal repayments on long-term debt are as follows (in thousands):

$ 2010 13,2372011 29,5412012 20,2412013 21,1112014 22,1332015 and thereafter 220,041 326,304

Principal repayments in the table above exclude transaction costs of $4.5 million which are off-set against long-term debt in the consolidated balance sheet.

Aircraft Financing

The Corporation has 14 individual fixed-rate term loans denominated in Canadian dollars, each secured by one Q400, and one fixed-rate term loan denominated in Canadian dollars, secured by an engine. In addition, Porter has four floating-rate term loans in U.S. dollars, each secured by one Q400. As described above, the Corporation incurred additional financing obligations in relation to the two new aircraft delivered in April 2010. See “Contractual Obligations and Off-Balance Sheet Arrangements” above.

Beginning for the fiscal year ending December 31, 2010, the lender of the above noted fixed-rate term loans will require the Corporation to meet a debt service coverage of 1.00 times, increasing to 1.25 times for the fiscal year ending December 31, 2011 and 1.35 times for the fiscal year ending December 31, 2012 and beyond. Debt service

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coverage is defined as EBITDA (as such term is defined in the financing agreement) divided by the sum of current portion of long-term debt and interest expense.

Construction Loans

On August 19, 2009, Porter and its wholly-owned subsidiaries, Porter Airlines and CCTC, entered into two loan agreements (the “Construction Loan Agreements”) in which the lender agreed to loan an aggregate principal amount of $30 million (the “Construction Loans”) to assist with the financing of the construction of the new terminal at BBTCA.

The Construction Loans mature on March 15, 2025. Specific annual prepayments may be made under the Construction Loan Agreements by Porter, Porter Airlines and CCTC without any penalty and the Construction Loans may be repaid in full subject to payment of certain bank management fees.

The Construction Loans are the joint and several obligations of Porter, Porter Airlines and CCTC and are secured by a security interest over all of the present and after-acquired personal property of such entities, subject to permitted liens and by a first ranking charge/mortgage granted by CCTC and Porter Airlines on leased realty for the new terminal at BBTCA, subject to permitted liens.

The Construction Loan Agreements contain customary representations and warranties and are subject to customary terms and conditions (including general covenants, negative covenants, financial covenants and events of default) for borrowings of this nature, including limitations on paying dividends and other distributions in an event of default or material adverse change or if such a distribution would likely result in an event of default or a material adverse change to each of Porter, Porter Airlines or CCTC.

Starting at the first measurement date of December 31, 2010, the lender will require the Corporation to maintain a minimum working capital ratio of 1:1, improving to 1.1:1 for the year ending December 31, 2011 and maintained for the duration of the loan, and a long-term debt/tangible equity ratio not exceeding 3.2:1 and improving to 3.0:1 for the year ending December 31, 2011 and maintained for the duration of the loan. See “Liquidity and Capital Resources” above.

The Construction Loans amounted to $25.1 million at March 31, 2010 (December 31, 2009 - $20.1 million) and as of May 20, 2010, approximately $25.3 million was outstanding under the Construction Loan Agreements. To date, the Corporation has been successful in meeting its financing requirements and anticipates being able to continue to do so, however there can be no assurance that this will be the case. A default under any other loans or mortgage could trigger a default under the cross default provisions of this loan.

Other Non-Revolving Term Loans

In October 2009, the Corporation obtained a U.S.$10.0 million operating loan secured by unencumbered assets including aircraft rotables and ground equipment. The facility matures in 2011 and provides the Corporation with additional liquidity. As of May 20, 2010, U.S.$10.0 million was outstanding under the non-revolving term loan.

The lender requires that the borrower, Porter Airlines, within five business days of any sale or issuance of any debt or equity by Porter Airlines, to prepay an aggregate principal amount of the loan equal to 100% of the net cash proceeds of any such sale or issuance of debt or equity.

The Corporation intends to use a portion of the proceeds of the Offering to repay in full this non-revolving term loan. See “Use of Proceeds”.

Credit Facilities

The Corporation has credit facility agreements with two different Canadian chartered banks and these facilities are described below.

On March 29, 2010, Porter Airlines, together with another subsidiary of Porter, entered into a facilities agreement with the parent of TD Securities Inc. which provided for the continuation of certain pre-existing facilities with such bank. The facilities (collectively, the “Interim Credit Facilities”) are comprised of (a) cash secured stand-by letters of guarantee in Canadian and U.S. funds, respectively, (b) a credit card facility, and (c) a merchant services facility. The aggregate maximum liability under the Interim Credit Facilities is approximately $14.6 million and U.S. $1.5

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million. As of May 20, 2010, approximately $8.5 million and U.S.$1.2 million was outstanding under the Interim Credit Facilities.

The Interim Credit Facilities are each fully cash collateralized in either a restricted Canadian dollar account or restricted U.S. dollar account, as applicable, and the bank has taken security over the cash collateral accounts for the continuing obligations of Porter.

On March 29, 2010, Porter entered into a credit facilities agreement with the parent of RBC Dominion Securities Inc. (the “Credit Facilities”). The Credit Facilities provide Porter with a $7.5 million senior 364 day revolving committed term facility for working capital purposes, a $7.5 million cash secured revolving uncommitted demand facility, by way of letters of credit and a $20.0 million cash secured revolving uncommitted demand facility, by way of letters of credit to support merchant credit card services requirements. At Porter’s request, the lender under the Credit Facilities may also enter into certain hedge contracts with Porter to hedge fuel and foreign exchange exposures for periods up to 12 months.

The $7.5 million senior revolving committed term facility is revolving and borrowings thereunder are repayable in full 364 days from the date of such credit facility, unless otherwise extended in accordance with the terms thereof. Drawings under the other facilities that make up the Credit Facilities are payable by Porter on demand.

As of May 20, 2010, $3.0 million was outstanding under the term facility and no amount was outstanding under either of the two demand facilities.

The obligations of Porter under the Credit Facilities are guaranteed by Porter’s current subsidiaries and any other subsidiary from time-to-time created.

The Credit Facilities are secured (a) by a first ranking security interest in all personal property of Porter together with a pledge of 100% of the issued and outstanding shares of all direct subsidiaries of Porter, subject to permitted liens including, among other things, the security taken by the lender over the collateralized cash pursuant to the Interim Credit Facilities, and (b) a guarantee and postponement of claim from each Porter subsidiary supported by (i) a general security agreement constituting a first ranking security interest in all personal property of such subsidiary together with a pledge of 100% of the issued and outstanding shares of all direct subsidiaries of such subsidiary, and (ii) a first fixed mortgage and charge over certain leasehold real property or interest therein of such subsidiary, in each case, subject only to permitted liens. Except as provided below, the Credit Facilities will rank ahead of security granted under the Construction Loan Agreements and the lender to the Construction Loans has entered into an acknowledgement with respect to this priority. The only priority of the lender under the Construction Loans is with respect to its charge on the leased realty and related assets for the new terminal at BBTCA.

The Credit Facilities contain customary representations and warranties and are subject to customary terms and conditions (including general covenants, negative covenants, financial covenants, events of default and limitations on distributions).

The Credit Facilities will require the Corporation to maintain a fixed charge coverage ratio not less than 1.0 times calculated as at each month end throughout the period ending December 31, 2010 and then 1.1 times thereafter. fixed charge coverage is equal to EBITDAR, as defined in the agreement, subject to agreed upon one-time exclusions and adjustments required for implementation of International Financial Reporting Standards (“IFRS”), if applicable, less cash taxes, less unfunded capital expenditures (which does not include expenditures related to the new terminal at BBTCA and Porter’s 20 aircraft), less cash distributions, divided by principal plus interest plus rents. The fixed charge coverage ratio is to be tested and certified at the end of each month on a rolling 12 months basis. If required, for the calculation of this ratio for any 12-month period ending prior to January 1, 2011, 100% of any shareholders’ equity contributions made by existing and future shareholders at any time in fiscal 2009 and fiscal 2010 and retained in the Corporation up to a maximum amount of $40,000 (inclusive of the $25,000 contributed in March 2009), may be added to the numerator in the calculation of this ratio.

The Credit Facilities will also require the Corporation to maintain a minimum shareholders’ equity of $90 million at all times.

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Related Party Transactions

Three-Month Period ended March 31, 2010 Compared to Three-Month Period Ended March 31, 2009

General and administration expenses include $15,000 (three-month period ended March 31, 2009 - $12,000) for software licenses paid to a vendor controlled by a senior executive of the Corporation. As at March 31, 2010, accounts payable and accrued liabilities includes $5,000 (December 31, 2009 – nil) related to this firm.

General and administration expenses include $62,000 (three-month period ended March 31, 2009 – nil) for business consulting and advisory services paid to a professional firm related to a director of the Corporation.

General and administration expenses include $70,000 (three-month period ended March 31, 2009 – nil) for financial services paid to a financial institution in respect of which a director of the Corporation is a senior executive.

Other revenue includes $7,000 (three-month period ended March 31, 2009 - $7,000) for advertising in the Corporation’s inflight magazine paid by a customer controlled by a person related to a director of the Corporation. As at March 31, 2010, accounts receivable includes $7,000 (December 31, 2009 - $7,000) relating to this customer.

These transactions occurred in the normal course of business and are recorded at their exchange amounts.

Fiscal 2009 Compared to Four-Month Period Ended December 31, 2008 and Fiscal 2008

General and administration expenses for Fiscal 2009 include $54,000 for software licenses (four-month period ended December 31, 2008 - $15,000, Fiscal 2008 - $39,000, Fiscal 2007 - $36,000) paid to a vendor controlled by a senior executive of the Corporation.

General and administration expenses also include nil in Fiscal 2009 for business consulting and advisory services (four-month period ended December 31, 2008 - $174,000, Fiscal 2008 - $929,000, Fiscal 2007 - $914,000) paid to a professional firm related to a director of the Corporation. At December 31, 2009, accounts payable and accrued liabilities includes nil (December 31, 2008 - $174,000 Fiscal 2008 - $409,000 Fiscal 2007 - $103,000) related to this firm.

General and administration expenses for Fiscal 2009 include $82,000 (four-month period ended December 31, 2008 – nil, Fiscal 2008 – nil, Fiscal 2007 – nil) paid to a professional firm related to a director of the Corporation.

Other revenues for Fiscal 2009 include $27,000 (four-month period ended December 31, 2008 - $13,000, Fiscal 2008 – nil, Fiscal 2007 – nil) for advertising paid by a customer controlled by a person related to a director of the Corporation. At December 31, 2009, accounts receivable include $7,000 (December 31, 2008 – nil, Fiscal 2008 – nil, Fiscal 2007 – nil) relating to this customer.


Financial Instruments and Risk Management

The fair values of the Corporation’s cash and cash equivalents, restricted cash, accounts receivable, bank indebtedness and accounts payable and accrued liabilities approximate their carrying values due to their short-term maturity. The fair values of variable-rate long-term debt and capital lease obligations approximate their carrying values based on market rates available to the Corporation for financial instruments with similar risks, terms and maturities.

At March 31, 2010, the fair value of the fixed-rate loans is $246.5 million and the carrying value is $252.5 million.

At December 31, 2009, the fair value of the fixed-rate loans is $249.5 million and the carrying value is $256.0 million (December 31, 2008 - $77.2 million; carrying value: $70.3 million, August 31, 2008 - $30.7 million; carrying value: $30.6 million). These fair values have been calculated by discounting the future cash flow of the respective long-term debt at the estimated yield to maturity of similar debt instruments.

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Credit and Counterparty Risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. As at March 31, 2010 and December 31, 2009, the Corporation’s credit exposure consists primarily of the carrying amounts of cash and cash equivalents, restricted cash, accounts receivable and U.S. dollar deposits.

The maximum credit risk as at March 31, 2010 and December 31, 2009 related to cash and cash equivalents and restricted cash is the carrying value. These assets are held with a limited number of financial institutions and other counterparties. The Corporation is exposed to the risk that the financial institutions and other counterparties with which it holds assets or enters into agreements could be unable to honour their obligations. The Corporation minimizes risk by entering into agreements with financial institutions and other counterparties with appropriate credit ratings. Exposure to these risks is closely monitored and maintained within the limits set out in the Corporation’s various policies. The Corporation revises these policies on a regular basis.

Approximately 84% of receivables as at March 31, 2010 and 63% of receivables as at December 31, 2009 are from major credit card institutions and were current at year end. These receivables are generally the result of sales of tickets to individuals. The remaining balance as at March 31, 2010, is comprised mainly of GST input tax credits receivable 3% (December 31, 2009 - 18%), government assistance 2% (December 31, 2009 - 9%), advertising sales 4% (December 31, 2009 - 6%) and other 7% (December 31, 2009 – 4%). All receivables are current. In order to manage its exposure to credit risk and assess credit quality, the Corporation reviews counterparty credit ratings on a regular basis and sets credit limits when deemed necessary. Historically, the Corporation has not incurred any significant losses in respect of its trade accounts receivable. The allowance for doubtful accounts was nil as at March 31, 2010 and December 31, 2009 (four-month period ended December 31, 2008 - $23,000 Fiscal 2008 – $23,000).

Derivative financial instruments are not utilized by the Corporation at this time in the management of its foreign currency, interest rate or fuel price exposures. The Corporation’s policy is not to utilize derivative financial instruments for trading or speculative purposes.

Interest Rate Volatility Risk

Interest rate volatility risk is the risk that the value of financial assets and liabilities or future cash flows will fluctuate as a result of changes in market interest rates.

The Corporation is exposed to interest rate fluctuations on its cash balance. A change in the interest rate of +/- 1% would increase/decrease the net loss for the three month period ended March 31, 2010 by $84,000 (Fiscal 2009 - $0.3 million).

A portion of the Corporation’s long-term debt bears fixed interest rates. Therefore, this debt faces zero risk posed by interest rate volatility. The Corporation accounts for its long-term fixed-rate debt at amortized cost, and therefore, a change in interest rates as at March 31, 2010 would not impact net earnings.

The Corporation is exposed to interest rate fluctuations on variable interest rate debt, which at March 31, 2010 made up 15% (December 31, 2009 - 22%, December 31, 2008 - 48%) of the Corporation’s total debt. A change of 1% in the variable interest rate charged on the debt would result in a $0.1 million increase/decrease in the net loss for the three month period ended March 31, 2010 (Fiscal 2009 - $0.5 million).

Liquidity Risk

Liquidity risk is the risk that the Corporation will encounter difficulties in meeting its financial obligations. The Corporation monitors and manages liquidity risk by preparing rolling cash flow forecasts, monitoring the condition and value of assets available to be used as well as those assets being used as security in financing arrangements, seeking flexibility in financing arrangements, and establishing programs to monitor and maintain compliance with terms of financing agreements. The Corporation’s objectives in minimizing liquidity risk are to maintain appropriate levels of unrestricted cash, leverage on its assets, and to stagger its debt maturity profile. As at March 31, 2010, the Corporation was holding cash and cash equivalents of $9.2 million. As at December 31, 2009, the unrestricted cash balance was $20.9 million (four-month period ended December 31, 2008 - $24.8 million, Fiscal 2008 - $42.1 million).

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Foreign Currency Exchange Rate Volatility Risk

Foreign currency exchange rate volatility risk is the risk that the fair value of recognized assets and liabilities or future cash flows would fluctuate as a result of fluctuations in foreign currency exchange rates. The Corporation is exposed to foreign currency exchange risks arising from fluctuations in exchange rates mainly on its U.S. dollar denominated liabilities, aircraft purchases, U.S. dollar denominated sales and its operating expenditures, mainly aircraft fuel, certain maintenance costs and a portion of airport operations costs. During the three months ended March 31, 2010, the average U.S.-dollar exchange rate was 1.0409 (the three months ended March 31, 2009 – 1.2453), with the March 31, 2010 exchange rate was 1.0156. During the year ended December 31, 2009, the average U.S. dollar exchange rate was 1.1423 (December 31, 2008 – 1.1739, August 31, 2008 - 1.0067, August 31, 2007 - 1.1210), the year-end exchange rate was 1.0466 (December 31, 2008 – 1.2246, August 31, 2008 - 1.0626). The gain on foreign exchange included on the Corporation’s consolidated statement of loss and comprehensive loss and deficit is mainly attributable to the effect of the translation of the value of the Corporation’s U.S.-dollar denominated liabilities. As at March 31, 2010, U.S.-dollar denominated net liabilities were approximately U.S.$59.1 million. During the three months ended March 31, 2010, the Corporation estimates that a one cent change in the value of the U.S. dollar versus the Canadian dollar would have increased or decreased net loss for the quarter by $0.6 million. As at December 31, 2009, U.S.-dollar denominated net liabilities totalled approximately U.S.$57.2 million (December 31, 2008 – U.S.$60.5 million, August 31, 2008 – U.S.$55.3 million). During the year ended December 31, 2009, the Corporation estimates that a one cent change in the value of the U.S. dollar versus the Canadian dollar would have increased or decreased net earnings for the year by $0.6 million.

Critical Accounting Estimates

The preparation of consolidated financial statements in accordance with GAAP 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 these consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual amounts may differ from these estimates.

Depreciation and Impairment of Long-Lived Assets

The Corporation makes estimates about the expected useful lives, depreciation and amortization methods, and expected residual values of assets. We have developed these estimates based on information obtained from the manufacturers and other Canadian operators of similar equipment. In the case of our buildings, they are depreciated over the life of the land lease or useful life, whichever is shorter.

We review long-lived assets such as property and equipment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. When indicators of impairment of the carrying value of the asset exist, and the carrying value is greater than the net recoverable value, an impairment loss is recognized to the extent that the fair value is below the carrying value.

Income Taxes

The Corporation uses the liability method of accounting for future income taxes. Under this method, current income taxes are recognized for the estimated income taxes payable for the current year. Future income tax assets and liabilities are recognized for temporary differences between the tax and accounting bases of assets and liabilities, calculated using the currently enacted or substantively enacted tax rates and laws to apply in the period that the temporary differences are expected to reverse.

The valuation of future income tax assets is reviewed annually. A valuation allowance is recognized to the extent that recoverability of future income tax assets is not considered more likely than not.

Frequent Flyer Program

The Corporation uses the incremental cost method for accounting for obligations arising under its frequent flyer program. Under the incremental cost method, a liability is recorded for the incremental cost associated with rewarding frequent flyer points expected to be redeemed in the future.

To arrive at the estimated liability, management calculates the average incremental variable costs of carrying an additional passenger on a flight, including the additional cost of fuel, catering and terminal fees, if applicable. This amount is translated into a cost per point based on the number of points required to redeem a free flight. The

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estimated cost per point is then multiplied over the total points outstanding at the end of the period to arrive at the necessary accrual. The cost per point calculation is updated quarterly to compensate for changes in prices.

Stock-based Compensation

The Corporation accounts for stock options using the fair value method. Under the fair value method, compensation expense for options is measured at fair value at the grant date and expensed on a straight-line basis over the applicable vesting period with an off-setting entry to contributed surplus. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. This pricing model requires management to make assumptions regarding share price volatility, share price on date of grant, dividend yield, expected life, and risk free interest rate. As Porter was a non-public company during this period, expected volatilities have been estimated based on a review of a peer group of publicly traded companies. Further, as a non-public company, Porter was required to estimate its share price at date of grant. Dividend yield is estimated at 0%. Expected life is estimated as the vesting period of the stock options which is four years. The risk free interest rate is based on Government of Canada zero-rated coupon bond yields for the period of the expected life of the options. These variables are then input into the Black-Scholes option pricing model to calculate the fair value of each option grant.

Upon the exercise of stock options, consideration received together with amounts previously recorded in contributed surplus is recorded as an increase in share capital.

Changes in Accounting Policies

Effective January 1, 2009 the Corporation adopted the new Canadian Institute of Chartered Accountants (“CICA”) section 3064, “Goodwill and Intangible Assets” which provides guidance on the recognition, measurement, presentation and disclosure for goodwill and intangible assets, other than the initial recognition of goodwill or intangible assets acquired in a business combination. No adjustment was recorded on transition.

Effective January 1, 2009, the Corporation adopted the recommendations of the Emerging Issues Committee (“EIC”) of the CICA relating to Abstract EIC-173 “Credit Risk and the Fair Value of Financial Assets and Financial Liabilities”. This Abstract confirms that an entity’s own credit risk and the credit risk of the counterparty should be taken into consideration in determining the fair value of financial assets and liabilities, including derivative instruments. The adoption of this guidance had no significant effect on the Corporation’s consolidated financial statements.

Future Changes in Accounting Policies

The CICA issued the following new accounting standards. These new standards apply to consolidated financial statements relating to the Corporation’s fiscal years beginning on or after January 1, 2010.

Business Combinations

In January 2009, the CICA issued Section 1582, “Business Combinations”. This section is effective January 1, 2011 and applies prospectively to business combinations for which the acquisition date is on or after the first annual reporting period of the Corporation beginning on or after January 1, 2011. Early adoption is permitted. This section replaces Section 1581, “Business Combinations” and harmonizes the Canadian standards with IFRS.

Consolidated Financial Statements and Non-Controlling Interests

Sections 1601 and 1602 supersede former Section 1600, “Consolidated Financial Statements”. Section 1601 sets out standards for the preparation of consolidated financial statements and it is effective for interim and annual consolidated financial statements related to fiscal years beginning on or after January 1, 2011. Section 1602 establishes standards for accounting for a non-controlling interest in a subsidiary in consolidated financial statements subsequent to a business combination. This Section, constituting the equivalent of International Accounting Standard IAS 27, Consolidated and Separate Financial Statements, is effective for interim and annual consolidated financial statements beginning on or after January 1, 2011.

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Multiple Deliverable Revenue Arrangements (EIC-175)

In December 2009, the CICA issued EIC-175 “Multiple Deliverable Revenue Arrangements” which replaces EIC-142 “Revenue Arrangements with Multiple Deliverables” and may be applied prospectively and will apply to the Corporation effective January 1, 2011. The abstract includes updated guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated, and the consideration allocated. The Corporation is reviewing the guidance to assess the potential impact on its consolidated financial statements.

The Corporation does not anticipate that the adoption of the standards mentioned above will impact its financial results.

Conversion to International Financial Reporting Standards

IFRS will replace GAAP in 2011 for publicly accountable profit-oriented enterprises for interim and annual financial statements effective for fiscal years beginning on or after January 1, 2011, including comparatives for 2010. The Corporation commenced an IFRS conversion project during 2009 and established an IFRS Conversion Committee to monitor the progress and critical decisions in the transition to IFRS. The Conversion Committee is overseen by the Corporation’s Chief Financial Officer. The Conversion Committee reports on the status of the project to senior management and the Audit Committee on a quarterly basis.

The IFRS conversion project consists of three phases: Diagnostic, Solution Development, and Implementation and Execution. The IFRS transition plan includes a timetable for assessing the impact on financial reporting, internal controls over financial reporting (ICFR) and disclosure controls and procedures (DC&P), information systems, business activities and financial reporting expertise. The target is to complete the Solution Development phase in the third quarter of 2010. The Implementation and Execution phase will take place during the remainder of 2010.

The Diagnostic phase has been completed. An external advisor was engaged to provide a diagnostic assessment. The Diagnostic phase involved an assessment of the differences between GAAP and IFRS and the choices that exist. This assessment provided insight into the impact of the various accounting differences and choices on financial reporting and external disclosures. The assessment also highlighted the most significant areas of difference between GAAP and IFRS applicable to the Corporation and the required effort involved in implementing the required changes.

The Solution Development Phase is in progress. It involves a detailed analysis and evaluation of the financial reporting, internal control, information system and business impact of the IFRS accounting policies and various alternatives under IFRS. The evaluations involve identifying and recommending implementation solutions for the mandatory changes under IFRS and recommending IFRS policies where choices exist. All recommended implementation solutions and policies will be approved by senior management and presented to the Audit Committee.

The Implementation and Execution phase has begun. It involves the detailed design, implementation and testing of the changes to financial reporting policies, internal controls, information systems and business processes. This phase also involves the collection of the information required for the preparation of IFRS comparative financial statements.

The following table contains certain elements of our IFRS transition plan, the key milestones set to ensure completion of these elements and an assessment of the Corporation’s progress towards achieving these milestones.

Key activities Key milestones Status Financial statement preparation

Identify differences in GAAP / IFRS accounting policies (Diagnostic Phase). Select IFRS 1 First-time Adoption of International Financial Reporting Standards (IFRS 1) choices. Select ongoing IFRS policies.

Complete the Diagnostic Phase in the first quarter of 2010. Senior management and Conversion Committee approve all key IFRS accounting policy choices to occur within the second quarter of 2010. Development of draft financial statement format to occur within the third quarter of

The IFRS Diagnostic phase is complete. It involved a high-level review of the major differences between GAAP and IFRS. Key financial statement preparation activities are underway and the Corporation is working

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Develop financial statement format. Quantify effects of the transition in initial IFRS disclosure and 2010 comparative financial statements.

2010. Quantification of the effects of transition in initial IFRS disclosure and 2010 comparative financial statements will occur within the third quarter of 2010.

towards the key milestones.

Control Environment For all accounting policy changes identified, assess implications and implement changes if required to ensure the design and effectiveness of the following: • Internal Controls over

Financial Reporting (ICFR); • Disclosure Controls and

Procedures (DC&P).

Analysis of control issues will be completed in conjunction with review of accounting issues and policies within the second quarter of 2010. Implementation and testing of controls over the new procedures has begun and will continue throughout 2010.

Both key milestones are underway and on target.

Information systems Assessment, development and testing of systems solutions for the transition and post-transition reporting.

Determination of systems implications and solutions for the transition and ongoing reporting within the third quarter of 2010. Fully implement system solutions within the fourth quarter of 2010.

Assessment and implementation of system implications and solutions is ongoing and in progress towards the milestones set.

Business Activities Determine the impact of IFRS on business activities and implement changes if required in the following areas: • financial covenants; • compensation arrangements.

Identification of impacts of IFRS on financial covenants, business practices and compensation arrangements is planned to be completed within the second quarter of 2010 and implementation of any required solutions and renegotiations are planned to be completed within the third quarter of 2010.

Work towards both of these milestones is in progress and fully embedded in Phases 2 and 3 of the transition project.

Financial reporting expertise Define and introduce appropriate level of IFRS expertise for each of the following: • Finance Group • Audit Committee.

Finance Group and Audit Committee training to occur in mid-2010. Additional training will occur throughout the project and afterwards as needed.

Training is expected to occur as planned and supplemented as needed.

Given the progress of the project and outcomes identified, the Corporation could change its intentions between the time of communicating these key milestones above and the changeover date. Further, changes in regulation or economic conditions at the date of the changeover or throughout the project could result in changes to the transition plan being different from those described in this prospectus.

The changeover from current GAAP to IFRS is a major undertaking that may materially affect the reported financial position and results of operations. The Corporation continues to monitor standards development as issued by the International Accounting Standards Board and the Accounting Standards Board (AcSB), as well as regulatory developments as issued by the Canadian Securities Administrators (CSA), which may affect the timing, nature or disclosure of our adoption of IFRS.

Through completion of the Diagnostic Phase and commencement of the Solution Development and Implementation and Execution phases the Corporation has identified the following areas having the most significant potential impact on our consolidated financial statements. The items below are the areas deemed to be most significant by the

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Corporation. The list is subject to change based on developments in the Solution Development and Implementation and Execution phases and new information and circumstances. The quantification of the potential impact has not been completed at this stage of the transition.

First time adoption choices

Under IFRS 1 - First time adoption of financial reporting standards, the Corporation is permitted to use fair value of property, plant and equipment as the new cost basis on the transition date. The Corporation expects to choose to continue to measure property, plant and equipment at historical cost.

Revenue

Frequent Flyer Program

Under International Financial Reporting Interpretations Committee standard 13 (IFRIC 13), Customer Loyalty Programs, points granted under a customer loyalty program are considered a separately identifiable part of the sales transaction.

The fair value of the points granted under the VIPorter frequent flyer program will be allocated for each applicable revenue transaction and deferred until the points expire or are redeemed. Currently the Corporation accrues a liability for the outstanding rewards points on a cost per point basis. Cost is allocated based on the actual estimated economic cost of providing the reward. The net impact of the change is expected to result in an increase to the frequent flyer program liability and corresponding reduction in opening retained earnings on transition. No change to net income is expected over the life of the points awarded.

Property Plant and Equipment

Componentization

Under International Accounting Standard 16, Property, Plant and Equipment, (IAS 16), when an item of property, plant and equipment comprises individual components for which different depreciation rates are appropriate, each component is accounted for separately. Currently, the Corporation depreciates each aircraft as one component over its estimated useful life.

Capitalization of major overhaul

Under IAS 16, costs incurred for major overhauls that restore the service potential of the significant components of the aircraft, such as the engine, are considered separate components of the aircraft. The cost of the overhaul is capitalized and depreciated over the period until the next overhaul. Currently major overhauls are expensed as incurred and classified as maintenance expense.

The combined impact of componentization and the capitalization of major overhaul is currently being determined by the Corporation.

Non-GAAP Financial Measures

Unless otherwise indicated and as hereinafter provided, all financial statement data in this prospectus has been prepared using GAAP. Porter’s audited consolidated financial statements included in this prospectus have been prepared in accordance with GAAP. This prospectus makes reference to certain non-GAAP measures. These non-GAAP measures are not recognized measures under GAAP, do not have a standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those GAAP measures by providing a further understanding of the Corporation’s results of operations from management’s perspective. Accordingly, they should not be considered in isolation or as a substitute for analysis of our financial information reported under GAAP.

Our management also uses non-GAAP measures in order to facilitate comparisons of operating performance from period to period, prepare annual operating budgets and assess our ability to meet our future debt service, capital expenditure and working capital requirements.

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The following non-GAAP measures are used to monitor our financial performance:

EBITDA: One measure of operating and financial performance commonly used in the airline industry is EBITDAR (earnings before interest, taxes, depreciation, foreign exchange gains or losses and aircraft rent). Because Porter currently owns its aircraft and has no aircraft lease expense, it uses EBITDA (earnings before interest, taxes, depreciation and foreign exchange gains or losses) as a key measure of its operating performance. Management believes that in these circumstances, EBITDA is a comparable measure to EBITDAR.

CASM, excluding fuel: CASM, excluding fuel, is a measure of cost per unit of capacity, calculated by dividing total operating costs (excluding fuel) by ASMs. Excluding fuel expense allows us to analyze our controllable operating costs on a comparable basis. Fuel expense is excluded from this metric due to the fact that fuel prices are impacted by many of factors outside our control, such as market speculation, refinery capacity, government taxes and levies, global supply and demand, significant weather events and geopolitical tensions.

CASM, excluding depreciation: CASM, excluding depreciation, is a measure of cost per unit of capacity, calculated by dividing total operating costs (excluding depreciation) by ASMs. Excluding depreciation expense allows us to analyze our operating costs excluding the cost of asset ownership.

The following table reconciles EBITDA to net income (loss) from operations, the most directly comparable GAAP measure, and illustrates the calculation of CASM, excluding fuel and CASM, excluding depreciation.

Reconciliation of Non-GAAP measures to GAAP

Three Months ended

March 31, 2010

Three Months ended

March 31, 2009


2009

Four Months ended December

31, 2008 Year ended

August 31, 2008Year ended

August 31, 2007 EBITDA ($ thousands) Net loss (5,972) (9,350) (4,609) (11,212) (3,317) (11,486) Adjusted for: Interest income (42) (158) (311) (416) (718) (1,137) Interest expense 3,667 1,522 9,276 1,887 2,187 375 Loss (gain) from foreign exchange (1,895) 1,860 -8,846 9,640 2,649 (1,904) Taxes 4 - 6 6 - - Depreciation 4,409 2,277 12,385 2,597 6,115 4,133 EBITDA 171 (3,849) 7,901 2,502 6,916 (10,019) CASM - excluding fuel Operating expenses ($ thousands) 53,308 29,837 155,687 38,254 80,906 50,824 Adjusted for: Fuel expense ($ thousands) 10,280 4,346 28,732 7,812 18,250 8,335 Operating expenses, excluding fuel ($ thousands) 43,028 25,491 126,955 30,442 62,656 42,489 ASMs (in thousands) 220,869 101,337 655,641 116,009 257,503 151,954 CASM, excluding fuel $0.195 $0.252 $0.194 $0.262 $0.243 $0.280 CASM - excluding depreciation Operating expenses ($ thousands) 53,308 29,837 155,687 38,254 80,906 50,824 Adjusted for: Depreciation ($ thousands) 4,409 2,277 12,385 2,597 6,115 4,133 Operating expenses, excluding depreciation ($ thousands)

48,899 27,560 143,302 35,657 74,791 46,691

ASMs (in thousands) 220,869 101,337 655,641 116,009 257,503 151,954 CASM, excluding depreciation $0.221 $0.272 $0.219 $0.307 $0.290 $0.307

Outstanding Share Data

As at May 20, 2010 there are 8,112,292 common shares, 21,612,766 Class A preferred shares, 4,263,861 Class A-1 preferred shares, 5,131,915 Class X variable voting shares, and 736,139 Class X-1 variable voting shares issued and outstanding.

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DIVIDEND POLICY

The Corporation has never declared or paid any cash dividends on its securities and does not currently anticipate paying any cash dividends on its Shares. The Corporation currently intends to use its future earnings and other cash resources for the operation and development of its business and to reduce indebtedness but may declare and pay dividends in the future as operational circumstances permit. In addition, the Corporation’s ability to pay dividends is limited by the terms of the Credit Facilities and the Construction Loan Agreements. Any future determination to pay dividends on the Shares will be at the discretion of the Board of Directors and will depend on, among other things, Porter’s results of operations, current and anticipated cash requirements and surplus, financial condition, contractual restrictions and financing agreement covenants, solvency tests imposed by corporate law and other factors that the Board of Directors may deem relevant. See also “Management Discussion and Analysis” and “Risk Factors - Risks Relating to the Offering – No Plans to Pay Dividends”.

PRE-CLOSING REORGANIZATION

In connection with the Offering, Porter will proceed with the Pre-Closing Reorganization which will include the following:

• the authorized share capital of Porter will be amended to include an unlimited number of Common Voting Shares, an unlimited number of Variable Voting Shares and an unlimited number of Preferred Shares, issuable in series;

• each issued and outstanding common share of the Corporation will convert into Common Voting Shares or Variable Voting Shares depending on whether the holder of such share is a Qualified Canadian or not (as determined on the business day prior to Closing);

• each issued and outstanding Class A preferred share and Class X variable voting share will convert into Common Voting Shares or Variable Voting Shares depending on whether the holder of such share is a Qualified Canadian or not (as determined on the business day prior to Closing);

• each issued and outstanding Class A-1 preferred share and Class X-1 variable voting share will convert into Common Voting Shares or Variable Voting Shares depending on whether the holder of such share is a

Qualified Canadian or not (as determined on the business day prior to Closing); and

• the “private company” provisions of the Corporation will be removed from Porter’s articles.

In connection with the Pre-Closing Reorganization, the Corporation will exchange all of its outstanding options previously granted under the Old Option Plan for options to acquire Shares issued under the Option Plan. Each optionholder will receive one new option under the Option Plan in exchange for an existing option under the Old Option Plan (subject to adjustments, if any, that the Board of Directors may make to such exchanged options necessary to ensure that the fair market value of the new options is no greater than the fair market value of the options exchanged). See “Options to Purchase Securities” and “Statement of Executive Compensation – Option Plan”.

Immediately prior to Closing, there will be an aggregate of Shares outstanding and no Preferred Shares outstanding. See “Principal Shareholders” for the names of our principal shareholders and the number of securities owned by them immediately before and after Closing.

Except as otherwise indicated, and except for “Selected Consolidated Financial and Operational Information”, “Consolidated Capitalization” and “Management Discussion and Analysis” and the audited consolidated financial statements, the information contained in this prospectus assumes the completion of the Pre-Closing Reorganization.

DESCRIPTION OF SECURITIES

Prior to the Closing, the share capital of Porter will be amended to comprise an unlimited number of Common Voting Shares, an unlimited number of Variable Voting Shares and an unlimited number of Preferred Shares, issuable in series. The following summary describes the rights, privileges, restrictions and conditions attaching to the Common Voting Shares, the Variable Voting Shares and the Preferred Shares. This summary does not purport to

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be complete and is subject to, and is qualified in its entirety by, reference to the terms of Porter’s articles of amendment, which will be available for review after Closing under Porter’s SEDAR profile at www.sedar.com.

Common Voting Shares

Voting Rights

The holders of Common Voting Shares will be entitled to receive notice of, and to attend, speak and vote at all meetings of the Corporation’s shareholders, except those at which holders of a specific class are entitled to vote separately as a class under the OBCA. Each Common Voting Share shall confer the right to one vote in person or by proxy at all shareholder meetings of Porter.

Dividends

Subject to the rights, privileges, restrictions and conditions attached to any other classes of the Corporation’s shares ranking prior to the Common Voting Shares, holders of Common Voting Shares are entitled to receive any dividends declared by the Corporation’s directors at the time and for the amounts that the Board of Directors may, from time to time, determine. The Common Voting Shares shall rank equally as to dividends on a share-for-share basis with the Variable Voting Shares and all dividends declared shall be declared in equal or equivalent amounts per share on all Common Voting Shares and Variable Voting Shares, without preference or distinction.

Rights in the Case of Liquidation, Winding-Up or Dissolution

Subject to the rights, privileges, restrictions and conditions attached to the other classes of the Corporation’s shares ranking prior to the Common Voting Shares, in the case of liquidation, dissolution or winding-up of the Corporation or other distribution of Porter’s assets among its shareholders for the purpose of winding up its affairs, the holders of Common Voting Shares shall be entitled to receive the Corporation’s remaining property and shall be entitled to share equally with the holders of Variable Voting Shares, share-for-share, in all distributions of such assets.

Subdivision or Consolidation

No subdivision or consolidation of the Common Voting Shares or the Variable Voting Shares shall occur unless, simultaneously, the shares of the other class are subdivided or consolidated in the same manner, so as to maintain and preserve the relative rights of the holders of the shares of each of the said classes.

Conversion

Unless the foreign ownership restrictions of the CTA are repealed and not replaced with other similar restrictions in applicable legislation, each issued and outstanding Common Voting Share shall be converted into one Variable Voting Share, automatically and without any further act of Porter or the holder, if such Common Voting Share is or becomes owned or controlled by a person who is not a Qualified Canadian.

In the event that an offer is made to purchase Variable Voting Shares and the offer is one which is required, pursuant to applicable securities legislation or the rules of a stock exchange on which the Variable Voting Shares are then listed, to be made to all or substantially all of the holders of Variable Voting Shares, each Common Voting Share shall become convertible at the option of the holder into one Variable Voting Share at any time while the offer is in effect until one day after the time prescribed by applicable securities legislation for the offeror to take up and pay for such shares as are to be acquired pursuant to the offer. The conversion right may only be exercised in respect of Common Voting Shares for the purpose of depositing the resulting Variable Voting Shares pursuant to the offer and for no other reason, including with respect to voting rights attached thereto, which are deemed to remain subject to the provisions concerning the voting rights for Common Voting Shares notwithstanding their conversion. The Corporation’s registrar and transfer agent shall deposit the resulting Variable Voting Shares on behalf of the holder.

Should the Variable Voting Shares issued upon conversion and tendered in response to the offer be withdrawn by the shareholders or not taken up by the offeror, or should the offer be abandoned or withdrawn, the Variable Voting Shares resulting from the conversion shall be automatically reconverted, without further act on the part of Porter or the holder, into Common Voting Shares.

The Common Voting Shares may not be converted into Variable Voting Shares, or vice versa, other than in accordance with the conversion procedure set out in the Corporation’s articles of amendment.

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Constraints on Share Ownership

Common Voting Shares may only be beneficially owned and controlled, directly or indirectly, by Qualified Canadians and any Common Voting Shares owned or controlled by a person who is not a Qualified Canadian is, or must be, converted to a Variable Voting Share. Variable Voting Shares may only be owned or controlled by persons who are not Qualified Canadians and any Variable Voting Share beneficially owned and controlled, directly or indirectly, by a person who is a Qualified Canadian, is, or must be, converted to a Common Voting Share.

Porter will adopt certain by-laws and procedures to address monitoring and enforcement of ownership requirements established by the CTA and its articles of amendment. In particular, By-Law No. Two, which will be effective as of Closing, sets out general powers of the Board of Directors to enact procedures regarding the issuance, transfer and holding of Shares, power to require declarations regarding ownership status of persons holding Shares and various enforcement provisions regarding ownership by Qualified Canadians. In addition, Porter will adopt certain monitoring procedures to ensure compliance with its articles of amendment and the Corporation’s by-laws and the maintenance of ownership levels required under the CTA.

Variable Voting Shares

Voting Rights

Each Variable Voting Share entitles the holder to receive notice of, to attend, speak and vote at all meetings of the Corporation’s shareholders, except those at which holders of a specific class are entitled to vote separately as a class under the OBCA.

Variable Voting Shares will carry one vote per share held, except where (i) the number of outstanding Variable Voting Shares exceeds 25% of the total number of all issued and outstanding voting shares of the Corporation (or any greater percentage the Governor in Council may specify pursuant to the CTA), or (ii) the total number of votes cast by or on behalf of the holders of Variable Voting Shares at any meeting on any matter on which a vote is to be taken exceeds 25% (or any greater percentage that the Governor in Council may specify pursuant to the CTA) of the total number of votes that may be cast at such meeting.

If either of the above noted thresholds is surpassed at any time, the vote attached to each Variable Voting Share will decrease automatically without further act or formality to equal the maximum permitted vote per Variable Voting Share such that (i) the Variable Voting Shares as a class shall not carry more than 25% (or any greater percentage that the Governor in Council may specify pursuant to the CTA) of the total voting rights attached to the aggregate number of the Corporation’s issued and outstanding voting shares; and (ii) the Variable Voting Shares as a class shall not, for a given shareholders’ meeting, carry more than 25% (or any greater percentage that the Governor in Council may specify pursuant to the CTA) of the total number of votes that may be cast at the meeting.

Dividends

Subject to the rights, privileges, restrictions and conditions attached to any other class of the Corporation’s shares ranking prior to the Variable Voting Shares, the holders of Variable Voting Shares are entitled to receive any dividends that are declared by the Board of Directors at the times and for the amounts that the Board of Directors may, from time to time, determine. The Variable Voting Shares shall rank equally with the Common Voting Shares as to dividends on a share-for-share basis and all dividends shall be declared in equal or equivalent amounts per share on all Common Voting Shares and Variable Voting Shares without preference or distinction.

Rights in the Case of Liquidation, Winding-Up or Dissolution

Subject to the rights, privileges, restrictions and conditions attached to the other classes of the Corporation’s shares ranking prior to the Variable Voting Shares, in the case of liquidation, dissolution or winding-up of the Corporation or other distribution of Porter’s assets among its shareholders for the purpose of winding up its affairs, the holders of Variable Voting Shares shall be entitled to receive the Corporation’s remaining property and shall be entitled to share equally with the holders of Common Voting Shares, share-for-share, in all distributions of such assets.

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Subdivision or Consolidation

No subdivision or consolidation of the Variable Voting Shares or the Common Voting Shares shall occur unless, simultaneously, the shares of the other class are subdivided or consolidated in the same manner, so as to maintain and preserve the relative rights of the holders of the shares of each of the said classes.

Conversion

Each issued and outstanding Variable Voting Share shall be automatically converted into one Common Voting Share, without any further act of Porter or the holder, if (i) the Variable Voting Share is or becomes beneficially owned and controlled, directly or indirectly, by a Qualified Canadian; or (ii) the provisions contained in the CTA relating to foreign ownership restrictions are repealed and not replaced with other similar provisions in applicable legislation.

In the event that an offer is made to purchase Common Voting Shares and the offer is one which is required, pursuant to applicable securities legislation or the rules of a stock exchange on which the Common Voting Shares are then listed, to be made to all or substantially all of the holders of Common Voting Shares in a given province of Canada to which these requirements apply, each Variable Voting Share shall become convertible at the option of the holder into one Common Voting Share at any time while the offer is in effect until one day after the time prescribed by applicable securities legislation for the offeror to take up and pay for such shares as are to be acquired pursuant to the offer. The conversion right may only be exercised in respect of Variable Voting Shares for the purpose of depositing the resulting Common Voting Shares pursuant to the offer and for no other reason, including notably with respect to voting rights attached thereto, which are deemed to remain subject to the provisions concerning the voting rights for Variable Voting Shares notwithstanding their conversion. The Corporation’s registrar and transfer agent shall deposit the resulting Common Voting Shares on behalf of the holder.

Should the Common Voting Shares issued upon conversion and tendered in response to the offer be withdrawn by the shareholders or not taken up by the offeror, or should the offer be abandoned or withdrawn, the Common Voting Shares resulting from the conversion shall be automatically reconverted, without further intervention on the part of Porter or on the part of the holder, to Variable Voting Shares.

The Variable Voting Shares may not be converted into Common Voting Shares, or vice versa, other than in accordance with the conversion procedure set out in the Articles of Amendment.

Constraints on Share Ownership

Variable Voting Shares may only be owned or controlled by persons who are not Qualified Canadians. See “Description of Securities – Common Voting Shares – Constraints on Share Ownership” above.

Preferred Shares

Porter may issue Preferred Shares from time to time in any series as the Board of Directors may determine. The Board of Directors may also fix the designations, rights, privileges and conditions attaching to the Preferred Shares of each series. The holders of the Preferred Shares are not entitled to vote, except as provided for in the OBCA.

CONSOLIDATED CAPITALIZATION

The following table sets forth the consolidated capitalization of the Corporation before and after giving effect to the Pre-Closing Reorganization, the Offering (including the repayment of the non-revolving term loan as contemplated under “Use of Proceeds”) and the award of restricted Shares under the Restricted Share Plan, as at March 31, 2010 as described below. This table is presented and should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this prospectus and with the information under “Management Discussion and Analysis”.

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Description

As at March 31, 2010(in thousands) (Unaudited)

$

As at March 31, 2010 after giving effect to the Pre-Closing Reorganization,

the Offering and award of restricted Shares(in thousands) (Unaudited)

$ Debt: Long-term debt (including current portion) 321,815 311,156 Capital lease obligations (including current portion) 2,560 2,560 Total debt 324,375 313,716 Shareholders’ equity: Share capital 144,427 Contributed surplus 758 758 Deficit (44,505) (44,505) Total shareholders’ equity 100,680 Total capitalization 425,055

OPTIONS TO PURCHASE SECURITIES

The Corporation has previously granted to directors, employees and certain executive officers options to purchase Class B special shares of the Corporation under the Corporation’s Employee Equity Incentive Plan (the “Old Option Plan”) dated April 25, 2006. The options granted under the Old Option Plan vest in equal annual instalments over a four-year period, commencing on the first anniversary of the date of grant. All options are exercisable from the date of grant up to November 1, 2015. All options expire on November 1, 2015. Options granted under the Old Option Plan are non-assignable and non-transferable and are exercisable at a minimum of 100 Class B special shares at any one time.

The following table shows the aggregate number of options to purchase Class B special shares of the Corporation outstanding as at May 20, 2010:

Category Number of Class B Special Shares

Exercise Price(1) ($)

Expiration Date

All directors, as a group (three in total) 60,000 $5.00 November 1, 2015

All executive officers and past executive officers, as a group (five in total)

519,500 $5.36(2) November 1, 2015

All other employees and past employees, as a group (51 in total)

2,416,675 $4.95(3) November 1, 2015

(1) Represents the adjusted weighted average exercise price of all outstanding options to purchase Class B special shares of the Corporation, whether vested or unvested.

(2) Includes 175,000 options for which the exercise price is subject to adjustment based on the initial public offering share price. (3) Includes 100,000 options for which the exercise price is subject to adjustment based on the initial public offering share price.

In connection with the Pre-Closing Reorganization, the Corporation will exchange all of the outstanding options previously granted under the Old Option Plan for options to purchase Shares issued under the Option Plan and the Old Option Plan will be terminated. Each optionee will receive one new option under the Option Plan in exchange for an existing option under the Old Option Plan (subject to such adjustment, if any, that the Board of Directors may make to such exchanged options necessary to ensure that the fair market value of the new options is no greater than the fair market value of the options exchanged).

PRIOR SALES

We have not issued any Shares, or any securities convertible into or exchangeable for such shares in the 12 months preceding the date of this prospectus, other than:

• on May 26, 2009, an aggregate of 25,000 options to purchase Class B special shares were granted under the Old Option Plan with an exercise price of $5.00 per Class B special share;

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• on July 20, 2009, an aggregate of 75,000 options to purchase Class B special shares were granted under the Old Option Plan with an exercise price of $5.00 per Class B special share;

• on August 6, 2009, an aggregate of 150,000 options to purchase Class B special shares were granted under the Old Option Plan with an exercise price of $5.00 per Class B special share;

• on October 26, 2009, an aggregate of 125,000 options to purchase Class B special shares were granted under the Old Option Plan with an exercise price of $5.00 per Class B special share;

• on December 15, 2009, an aggregate of 75,000 options to purchase Class B special shares were granted under the Old Option Plan with an exercise price of $5.00 per Class B special share;

• on February 22, 2010, an aggregate of 100,000 options to purchase Class B special shares were granted under the Old Option Plan with an exercise price of $5.00 per Class B special share;

• on March 29, 2010, an aggregate of 250,000 options to purchase Class B special shares were granted under the Old Option Plan with an exercise price of $6.50, subject to adjustment based on the initial public offering share price, per Class B special share; and

• on May 17, 2010, an aggregate of 25,000 options to purchase Class B special shares were granted under the Old Option Plan with an exercise price of $6.50, subject to adjustment based on the initial public offering share price, per Class B special share.

See “Pre-Closing Reorganization” for a description of the shares of Porter to be converted and/or issued prior to Closing pursuant to the Pre-Closing Reorganization.

TRADING PRICE AND VOLUME

No securities of the Corporation are, or have been, publicly traded on any stock exchange.

PRINCIPAL SHAREHOLDERS

To our knowledge, the following table shows the names of persons or companies who, as at the date of Closing, will beneficially own, or control or direct, directly or indirectly, after giving effect to the Offering, more than 10% of any class or series of our voting securities:

Name Type of ownership

Number and Percentage of

Securities owned before the Offering

Number of Securities owned after the Offering

Percentage of outstanding Securities

after the Offering

REGCO Capital Corp. (1) (3)

OSI Transportation Corporation(2) (3)

EdgeStone (3)

(1) An entity controlled by Mr. Robert J. Deluce, the President and Chief Executive Officer of Porter. After completion of the Offering, which

will not occur earlier than 180 days from Closing, REGCO Capital Corp. will effect a reorganization in which shareholders of REGCO Capital Corp. (including Robert J. Deluce and entities controlled by him) will be distributed the Shares directly. Of the Shares currently owned by REGCO Capital Corp., it is expected that Shares (or approximately % of the outstanding Shares as of Closing) will be distributed to Robert J. Deluce or entities controlled by him.

(2) OSI Transportation Corporation is an indirect wholly-owned subsidiary of OMERS Administration Corporation. (3) If the Over-Allotment is exercised in full, Robert J. Deluce, OSI Transportation Corporation and EdgeStone will own or control %, %

and %, respectively.

Porter entered into a shareholders’ agreement on November 2, 2005 with its initial shareholders, REGCO Capital Corp., EdgeStone and OSI Transportation Corporation (formerly known as BPC Transportation Corporation) (the “Shareholders’ Agreement”). The Shareholders’ Agreement was subsequently amended and restated on several occasions, up to and including the last amendment and restatement on March 31, 2009. In connection with the Offering, the Shareholders’ Agreement will be terminated immediately prior to the Pre-Closing Reorganization.

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REGISTRATION RIGHTS AGREEMENT

On Closing, REGCO Capital Corp. (an entity controlled by Robert J. Deluce, President and Chief Executive Officer of Porter), OSI Transportation Corporation, EdgeStone and GEAM International Private Equity Fund, L.P. will enter into a registration rights agreement with Porter (the “Registration Rights Agreement”) which will provide these holders with demand and “piggy-back” registration rights to require Porter to qualify by prospectus Common Voting Shares and Variable Voting Shares owned by such holders or their permitted assignees for distribution to the public in Canada. These holders of Shares will own approximately % of the outstanding Shares immediately after giving effect to the Offering.

After completion of the Offering, REGCO Capital Corp. will effect a reorganization in which shareholders of REGCO Capital Corp. (including Robert J. Deluce and entities controlled by him) will be distributed Shares directly. The Registration Rights Agreement provides that only Robert J. Deluce and entities controlled by him will obtain the benefit of the rights under this agreement after the reorganization of REGCO Capital Corp. Upon completion of the reorganization of REGCO Capital Corp., which will not occur earlier than 180 days from Closing, it is expected that Robert J. Deluce and entities controlled by him will own Shares (representing approximately

% of the outstanding Shares as of completion of the Offering). See “Principal Shareholders”.

In accordance with the terms of the Registration Rights Agreement, these holders of Shares will be permitted to participate on an aggregate basis in two demand registrations in any 12-month period, commencing 180 days after Closing. Each demand registration must be for anticipated gross proceeds of not less than $10 million. A holder shall not be entitled to demand registration within 120 days immediately following the date of a receipt of a prospectus of Porter. A holder’s right to demand registration will cease to apply in the event such holder owns less than Shares (which is equal to 8% of the Shares outstanding immediately upon completion of the Offering). However, such holders will be permitted, in accordance with the terms of the Registration Rights Agreement, to participate in any further offering of Shares as a “piggy back” registration for as long as they own any Shares.

In connection with any demand or “piggy back” registration, the persons selling Shares under such offering will bear the expenses having regard to the proportion of the number of Shares sold by each, including Porter, if Porter is selling Shares under such offering, relative to the total number of Shares sold pursuant to such offering.

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets out, for each of our directors and executive officers, the person’s name, province or state and country of residence, positions with us, principal occupation during the five preceding years and, if a director, the date on which the person became a director. Our directors are expected to hold office until our next meeting of shareholders. As a group, the directors and executive officers will beneficially own, or control or direct, directly or indirectly, an aggregate of Shares (which reflects the Shares held by REGCO Capital Corp., an entity controlled by Robert J. Deluce), representing % of the total issued and outstanding Shares outstanding immediately following the Offering. After completion of the Offering, REGCO Capital Corp. will effect a reorganization in which shareholders of REGCO Capital Corp. (including Robert J. Deluce and entities controlled by him) will be distributed Shares directly. See “Principal Shareholders”.

We note that certain directors are nominees of certain principal shareholders of the Corporation (OSI Transportation Corporation and EdgeStone) that hold, in the aggregate, Shares (approximately %). See “Principal Shareholders”.

Directors and Executive Officers

Name and Province or State and Country of Residence Position(s) / Title Director Since

Principal Occupation for Past 5 Years

Robert J. Deluce Ontario, Canada

President, Chief Executive Officer and Director

December 16, 2004 President and Chief Executive Officer of Porter and certain of its subsidiaries

Donald J. Carty(1)(2) Texas, U.S.

Director and Chairman of the Board

November 29, 2005 Vice Chairman and Chief Financial Officer of Dell, Inc. (from 2007 until mid-2008) and Chairman and Chief Executive Officer of AMR Corp. and American Airlines (from 1998 to 2003)

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Name and Province or State and Country of Residence Position(s) / Title Director Since

Principal Occupation for Past 5 Years

Blair Cowper-Smith(3) Ontario, Canada

Director February 23, 2010 Executive Vice-President, Corporate Affairs and Chief Legal Officer at OMERS Administration Corporation (August 2008) and a partner at McCarthy Tétrault LLP (until August 2008)

Samuel Duboc(3) Ontario, Canada

Director November 29, 2005 President and Managing Partner of EdgeStone Capital Partners, L.P.

Stephen Marshall(1)(5)(6) Ontario, Canada

Director November 29, 2005 Executive Vice-President of EdgeStone Capital Partners, L.P.

Jacques Demers(1) (5) Ontario, Canada

Director November 29, 2005 President and Chief Executive Officer of OMERS Strategic Investments (January 2009) and partner at Ogilvy Renault LLP (until December 2008)

Pamela Wallin(3)(4) Ontario, Canada

Director October 28, 2008 Appointed to the Senate of Canada in 2008, Chancellor of the University of Guelph (since 2007), and Canada’s Consul General in New York (2002-2006)

James Little(3)(5) Ontario, Canada

Director October 28, 2008 Chief Brand and Communications Officer of a major Canadian bank (since March 2007) and prior to joining such bank, Senior Vice President, Corporate Marketing at BCE Inc.

David Wilkins(5) South Carolina, U.S.

Director April 7, 2009 U.S. Ambassador to Canada from June 29, 2005 until January 20, 2009 and partner of Nelson Mullins Riley & Scarborough LLP

Robert Payne Ontario, Canada

Vice President, Chief Financial Officer and Corporate Secretary

N/A Vice President, Chief Financial Officer and Corporate Secretary of Porter and certain of its subsidiaries.

Robert Michael Deluce Ontario, Canada

Executive Vice President and Chief Commercial Officer

N/A Executive Vice President and Chief Commercial Officer of Porter and certain of its subsidiaries.

James Morrison Ontario, Canada

Senior Vice President and Chief Operating Officer

N/A Senior Vice President and Chief Operating Officer of Porter and certain of its subsidiaries.

________________________ (1) Member of the Audit Committee. (2) Chair of the Audit Committee. (3) Member of the Compensation Committee. (4) Chair of the Compensation Committee. (5) Member of the Corporate Governance and Nominating Committee. (6) Chair of the Corporate Governance and Nominating Committee. Biographies

The following are brief profiles of the executive officers and directors of the Corporation, including a description of each individual’s principal occupation within the past five years.

Non-Executive Directors

Donald J. Carty – Mr. Carty is currently Chairman of the Board of both Porter and Porter Airlines and has served in these positions since 2005. He served as Vice Chairman and Chief Financial Officer of Dell, Inc., a computer manufacturer, from early 2007 until mid 2008. From 1998 to 2003, he was the Chairman and Chief Executive Officer of AMR Corp. and American Airlines, a commercial airline company. He is also Chairman of Virgin America, Inc., another commercial airline company, and a director of Hawaiian Holdings, Inc. (member of audit committee), Gluskin Sheff & Associates Inc., Talisman Energy Inc. (member of audit committee), Barrick Gold Corporation (member of audit committee) and Dell, Inc. He holds an undergraduate degree and an honorary doctor

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of laws from Queen’s University and an M.B.A. from Harvard University. Mr. Carty is an Officer of the Order of Canada.

Blair Cowper-Smith – Mr. Cowper-Smith joined OMERS Administration Corporation in August 2008 as Executive Vice-President, Corporate Affairs and Chief Legal Officer. Previously he was with McCarthy Tétrault LLP where he co-headed the private equity group and had an active mergers and acquisitions and corporate governance practice. At OMERS Administration Corporation, Mr. Cowper-Smith is a member of the executive team with his time being devoted to strategic initiatives and law. Mr. Cowper-Smith holds a Bachelors degree and a Masters degree in Law from Osgoode Hall Law School. Mr. Cowper-Smith served for a number of years on the Faculty of the Directors College and previously co-founded the Canadian Council for Public-Private Partnerships bringing together public and private sector participants in infrastructure projects.

Samuel Duboc – Mr. Duboc founded EdgeStone in 1999 and is currently serving as its President and Managing Partner. From 1994 to 1999, Mr. Duboc served as Managing Director and member of the Deals Review Committee at CIBC Capital Partners, the merchant banking division of CIBC. Mr. Duboc also serves on the Board of Directors of Custom Direct, New Food Classics, Aurigen Capital Limited, Stephenson’s Rental Services and Bryker Technology Partners LP. In 2000, Mr. Duboc was recognized as one of Canada’s Top 40 Under 40 and in 2005 was chosen as one of the “most influential” alumni of the program. He is a Co-Founder and Chairman of the Board of Directors of Pathways to Education Canada, a member of the CAMH Foundation and the Toronto City Summit Alliance Steering Committee. Mr. Duboc holds a Bachelor of Science degree in Chemical Engineering from Tufts University magna cum laude and Tau Beta Pi and an M.B.A. from Harvard Business School.

Stephen Marshall – Mr. Marshall has been an Executive Vice-President of EdgeStone since June 2002. From 1999 until 2002, he served as Executive Vice President, Corporate Development of MDC Corporation (now MDC Partners Inc.), a diversified business services corporation listed on the Toronto Stock Exchange and NASDAQ. From 1982 to 1999, Mr. Marshall practiced law at Torys LLP becoming a partner of that firm in 1990, and from 1995 to 1998 was Managing Partner of Torys’ European office based in London, England. Mr. Marshall also serves as Chairman of the Board of Custom Direct and serves on the Board of Directors of Eurospec Manufacturing. Mr. Marshall is a member of the Board of Directors of the Sunnybrook Foundation and the Canadian Opera Company. Mr. Marshall holds a L.L.B from the University of Western Ontario (1982) and a M.B.A. from the MIT Sloan School of Management (1990).

Jacques Demers – Mr. Demers serves as President and Chief Executive Officer of OMERS Strategic Investments, which position he began on January 1, 2009. Prior to 2009, Mr. Demers was a senior partner of the law firm Ogilvy Renault LLP, practicing law in the areas of corporate law and finance. Mr. Demers serves on the boards of directors of CEDA International Corporation, MMM Group Limited, OMERS Energy Inc. and OMERS Energy Services Management Inc. and a number of other business corporations. Mr. Demers holds an LL.B. from Université Laval (1976) and is a member of both the Ontario and Quebec Bars.

Pamela D. Wallin – The Honourable Pamela Wallin, O.S., S.O.M., was appointed to the Senate of Canada on December 22, 2008 and is an Officer of the Order of Canada, Canada’s highest civilian honour. Ms. Wallin sits on the Senate’s Foreign Affairs & International Trade Committee and is Deputy Chair of the Defence & National Security Committee. At the request of Prime Minister Harper, in 2008 Ms. Wallin served on the special independent panel on Canada’s future role in Afghanistan. Ms. Wallin was Consul General of Canada in New York from 2002 – 2006. Ms. Wallin continues her work as the Senior Advisor on Canada-U.S. relations at the Americas Society and the Council of the Americas in New York. Ms. Wallin serves on the Boards of Directors of CTV Globemedia, Oilsands Quest, and Gluskin Sheff & Associates, Inc. and is a member of a special Advisory Board for BMO Harris Private Banking. Ms. Wallin is Chancellor of the University of Guelph.

James Little – Mr. Little was appointed Chief Brand and Communications Officer of a major Canadian bank in March 2007. Prior to joining to such bank, Mr. Little served as Senior Vice President, Corporate Marketing at BCE Inc. Mr. Little has held a number of senior executive positions, including, Vice President of Communications and Marketing at Bombardier Aerospace, Vice President of Marketing and Communications at Alcan Aluminium and Vice-President and General Manager at GPC (an Omnicom company). Mr. Little holds a B.A. in History and Political Science from McGill University and attended Harvard/Babson College as part of the Omnicom Executive Management Program.

David H. Wilkins – Ambassador David Wilkins served as the United States Ambassador to Canada from June 29, 2005 until January 20, 2009. Prior to his appointment as Ambassador, Mr. Wilkins practiced law for 34 years in

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South Carolina, and served for 25 years in the South Carolina House of Representatives. Ambassador Wilkins is a partner at Nelson Mullins Riley & Scarborough LLP and chairs the Public Policy and International Law practice group. He currently serves as chairman of the Clemson University Board of Trustees, as well as on the board of directors of a North American financial institution and the Greenville Area Development Corporation.

Executive Officers Who Also Serve as Directors

Robert J. Deluce – Mr. Deluce founded Porter in 2005. Previously, he served in senior management roles in a number of Canadian airlines, including White River Air Services Limited, norOntair, Austin Airways Limited, Air Creebec, Air Ontario Inc., Air Manitoba and Canada 3000 Airlines Limited (which he exited six years prior to it ceasing operations in 2001). He has been President of Deluce Capital Corp. since 1987, and is currently also President and CEO of both Porter and Porter Airlines.

Executive Officers Who Do Not Serve as Directors

Robert Payne – Mr. Payne has over 30 years of aviation experience with Austin Airways Limited, Air Ontario Inc., AirBC and Air Canada, holding senior positions in finance, administration and e-commerce.

Robert Michael Deluce – Mr. Deluce has been instrumental in the strategic development of the Porter business plan. He holds an MBA from University of Western Ontario’s Ivey School of Business and has previously worked with Scotia Capital, Travel Unlimited and Newcourt Credit Group.

James Morrison – Mr. Morrison has over 20 years experience as a captain in the commercial aviation environment as well as senior positions with Execaire, Skyservice, Air Creebec and Air Ontario Inc.

Cease Trade Orders or Bankruptcies

None of our directors or executive officers:

(a) is, as at the date of this prospectus, or has been, within 10 years before the date of this prospectus, a director, CEO or CFO of any company (including us) that,

(i) was subject to an order that was issued while the director or executive officer was acting in the capacity as director, CEO or CFO; or

(ii) was subject to an order that was issued after the director or executive officer ceased to be a director, CEO or CFO and which resulted from an event that occurred while that person was acting in the capacity as a director, CEO or CFO, or

(b) and no shareholder holding a sufficient number of securities to affect materially the control of our Corporation is, as at the date of this prospectus, or has been within 10 years before the date of this prospectus, a director or executive officer of any company (including us) that, while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets; or

(c) and no shareholder holding a sufficient number of securities to affect materially the control of our Corporation has, within the 10 years before the date of this prospectus, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the director, executive officer or shareholder.

For the purposes of the paragraphs above, “order” means: (x) a cease trade order; (y) an order similar to a cease trade order; or (z) an order that denied the relevant company access to any exemption under securities legislation that was in effect for a period of more than 30 consecutive days.

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Penalties or Sanctions

No director or executive officer of the Corporation or shareholder holding sufficient securities of the Corporation to affect materially the control of the Corporation has:

(a) been subject to any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority; or

(b) been subject to any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor making an investment decision.

Conflicts of Interest

To the best of Porter’s knowledge, there are no known existing or potential material conflicts of interest among us and our directors, officers or other members of management as a result of their outside business interests except that certain of our directors and officers serve as directors and officers of other companies, and therefore it is possible that a conflict may arise between their duties to us and their duties as a director or officer of such other companies.

Indemnification and Insurance

The Corporation has entered into indemnification agreements with each of its directors and officers. The indemnification agreements generally require that the Corporation indemnify and hold the indemnitees harmless to the fullest extent permitted by law for liabilities arising out of the indemnitees’ service to the Corporation as directors and officers, provided that the indemnitees acted honestly and in good faith and in a manner the indemnitees reasonably believed to be in or not opposed to the Corporation’s best interests and, with respect to criminal and administrative actions or proceedings that are enforced by monetary penalty, the indemnitees had no reasonable grounds to believe that his or her conduct was unlawful. The indemnification agreements also provide for the advancement of defence expenses to the indemnitees by the Corporation.

The Corporation has purchased insurance for the benefit of the Corporation’s directors and officers against any liability incurred by them in their capacity as directors and officers, subject to certain limitations contained in the OBCA. Subject to the terms of such insurance, it is expected that as of Closing, the policy will provide for coverage to directors and officers in the aggregate amount of $30,000,000 per claim and $30,000,000 for all claims in any policy year.

STATEMENT OF EXECUTIVE COMPENSATION

Compensation Policy and Objectives

The Compensation Committee is responsible for developing the approach of, and making recommendations to the Board of Directors with respect to, matters of compensation for executive officers of the Corporation. The objective of executive compensation is to retain, motivate and reward our executive officers for their performance and contribution to Porter’s long term success, and align the interests of its executive officers with those of its shareholders.

In establishing appropriate compensation levels, the Compensation Committee may in the future request and receive advice from independent consultants, who have expertise in executive compensation, as well as input from other members of the Board of Directors who have experience with the compensation of other commercial airlines and Canadian public companies.

Elements of Compensation

Compensation for the executive officers of Porter is comprised primarily of short term compensation (in the form of base salary and the Profit Sharing Plan) and long term compensation (in the form of a one-time award of restricted Shares pursuant to the terms of the Restricted Share Plan and participation in the Option Plan). Executive officers can also participate in the RRSP/DPSP Plan. These elements are described in more detail below.

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Base Salary

Base salary for Porter’s executive officers is established based on their scope of responsibilities and prior relevant experience. Base salary is reviewed annually taking into account, among other things, third party comparative data, responsibilities and time commitments.

Profit Sharing Plan

On Closing, the Old EPSP will be replaced by Porter’s profit sharing plan (the “Profit Sharing Plan”). The Profit Sharing Plan, which is based on Porter’s financial results, is offered to all eligible employees and officers of Porter and its subsidiaries to ensure that they participate in Porter’s success and work together to achieve corporate goals. Under this plan, there is an annual pool of funds equal to 10% of Porter’s earnings before taxes adjusted for certain items, including any non-realized gains or losses for the year. The pool of funds is then distributed to such eligible participants pro rata based on the participant’s gross salary for the year subject to a maximum amount of 15% of such gross salary.

Option Plan

On Closing, a stock option plan (the “Option Plan”) will be established by Porter. A maximum of of the issued and outstanding Shares are available for issuance upon exercise of options granted under the Option Plan. Directors, consultants, officers and certain employees are eligible for grants under the Option Plan. The Option Plan is a means of aligning the interests of shareholders with those of the participants under the Option Plan and provides a long term performance related incentive for eligible participants. Grants of options are subject to the following limitations: (i) the number of Shares reserved for issuance to any one optionee will not exceed 5% of the issued and outstanding Shares at any time; (ii) the number of Shares reserved for issuance to insiders shall not exceed 10% of the issued and outstanding Shares at any time; and (iii) the number of Shares issuable under the Option Plan to insiders, which may be issued within a one year period, shall not exceed 10% of the issued and outstanding Shares.

The Option Plan will be administered by the Board of Directors. The Board of Directors does not award options according to a prescribed formula or target. Instead, the Board of Directors will consider, among other things, the executive officer’s position, time commitments and responsibility. The Board of Directors may also take into consideration previous grants of options (including those granted under the Old Option Plan) made to executive officers when determining new grants to be issued under the Option Plan.

The exercise price of options granted pursuant to the Option Plan is determined by the Board of Directors of the Corporation at the time of grant and will be no less than the then market price of the Shares as determined by taking the volume weighted average trading price of the Shares on the TSX (or if not listed on the TSX, then such other stock exchange as the Shares may then be listed and as designated by the Board of Directors) for the five trading days immediately prior to the date of grant.

Options granted pursuant to the Option Plan have a term not to exceed five years or such shorter period as may be determined by the Board of Directors and vest in such manner as determined by the Board of Directors of the Corporation. Notwithstanding the above, options granted in exchange for options previously granted under the Old Option Plan will expire no later than November 1, 2015.

Subject to the terms of the Option Plan, in the event of death or retirement in accordance with the Corporation’s policies, all outstanding options that are exercisable at the date of such death or retirement will expire on the earlier of their expiry date or 90 days from the date of death or retirement.

Options granted under the Option Plan are not transferable or assignable other than in certain limited circumstances.

In connection with the Pre-Closing Reorganization, the Corporation will exchange all of its outstanding options previously granted under the Old Plan for options to purchase Shares issued under the Option Plan, such that immediately following Closing an aggregate of options will be outstanding, which upon exercise would represent

% of the issued and outstanding Shares of the Corporation. As at Closing, a total of options will remain issuable under the Option Plan, which upon exercise, would represent % of the issued and outstanding Shares.

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Restricted Share Plan

Prior to Closing, Porter will award an aggregate of Shares on a restricted basis to all eligible employees and officers of Porter and its subsidiaries in consideration of past services. The number of awards to be granted is determined based on each eligible participant’s position and time of service with Porter.

In accordance with the terms of the restricted share plan (the “Restricted Share Plan”), the Shares awarded to an eligible participant will fully vest after a period of four years (1/3 will vest on the second anniversary of grant, 1/3 will vest on the third anniversary and 1/3 will vest on the fourth anniversary). If an eligible participant ceases to be employed or shall resign as an officer of Porter (subject to certain permitted exceptions) any unvested restricted Shares shall be forfeited by such participant.

RRSP/DPSP Plan

All eligible Porter employees and officers can elect to participate in Porter’s RRSP/DPSP plan which allows for employees and officers to pay up to 2% of their gross income per year into the Corporation’s RRSP plan with an equal matching by the Corporation into the DPSP, which DPSP amount vests after two years of plan membership.

Summary Compensation Table for Named Executive Officers

To the extent determinable on the date hereof, the following table provides a summary of compensation expected to be earned by the “Named Executive Officers” of the Corporation in respect of 2010 (pro rated for the balance of 2010 from June 1, 2010), as determined in accordance with applicable securities laws.

Non-Equity Incentive Plan Compensation

($)

Name and Principal Position

Year Salary

($)

Share-Based

Award(1)

Option-Based

Awards($)(2)

Annual Incentive Plans(3)

Long-Term Incentive

Plans

All Other Compensation

($)

Total Compensation

($)(2)

Robert J. Deluce President and Chief Executive Officer

2010 (pro rated)

204,167 ND ND N/A N/A ND

Robert Michael Deluce Executive Vice President and Chief Commercial Officer

2010 (pro rated)


James Morrison Senior Vice President and Chief Operating Officer

2010 (pro rated)


Robert Payne Vice President, Chief Financial Officer and Corporate Secretary

2010 (pro rated)


(1) Granted pursuant to the Restricted Share Plan of the Corporation. Each of Robert J. Deluce, Robert Michael Deluce and James Morrison is to be granted 4,200 Shares each. Robert Payne is to be granted 3,900 Shares. These Shares have been granted to the NEOs in consideration for past service and the value per Share has been determined to be $ (which is equal to the Offering Price).

(2) “ND” means “non-determinable”. These amounts are “non-determinable” as neither the Board of Directors nor the Compensation Committee has, at the date hereof, approved or considered any such elements of executive compensation.

(3) This remains non-determinable, as the amount payable, if any, under the Profit Sharing Plan cannot be determined until after completion of Fiscal 2010. See “Statement of Executive Compensation – Profit Sharing Plan”.

Director Compensation

Porter’s independent directors will receive an annual retainer of $30,000 and Porter’s Chairman of the Board of Directors receives an annual fee of $45,000. The chair of the Audit Committee will receive a $10,000 annual retainer, and the chairs of the Compensation Committee and the Corporate Governance and Nominating Committee will each receive a $5,000 annual retainer. In addition, directors are eligible to receive options under the Option Plan. No determination has been made as to how options will be allocated to directors under the Option Plan. Directors are also reimbursed for out-of-pocket expenses incurred in connection with serving as directors.

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Compensation payable to directors who are nominees of certain shareholders may be for the account of such shareholders.

To the extent determinable on the date hereof, the compensation of independent directors for 2010 (pro rated for the balance of 2010 from June 1, 2010) is summarized in the table below.

Name Fees to be Earned

($)(1)

Share-Based Awards

($)

Option-Based Awards

($)(2)

Non-Equity Incentive Plan Compensation

($)

All Other Compensation

($)

Total

($)(2)

Donald J. Carty 26,250(3) N/A ND N/A N/A ND

Blair Cowper-Smith 17,500 N/A ND N/A N/A ND

Samuel Duboc 17,500 N/A ND N/A N/A ND

Stephen Marshall 20,417 N/A ND N/A N/A ND

Jacques Demers 17,500 N/A ND N/A N/A ND

Pamela Wallin 20,417 N/A ND N/A N/A ND

James Little 17,500 N/A ND N/A N/A ND

David Wilkins 17,500 N/A ND N/A N/A ND

(1) Includes annual retainer and amounts to serve as Chairman of the Board of Directors, and chair of the Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee.

(2) “ND” means “non-determinable”. These amounts are “non-determinable” as neither the Corporation’s Board of Directors nor the Compensation Committee has, at the date hereof, approved or considered any such elements of director compensation.

(3) As Mr. Carty is also the Chairman of the Board of Directors, the additional fee for serving as chair of the Audit Committee does not apply and is therefore not payable.

INDEBTEDNESS OF DIRECTORS AND OFFICERS

None of the directors, executive officers, employees, former directors, former executive officers or former employees of the Corporation, and none of their associates, is or has within 30 days before the date of this prospectus or at any time since the beginning of the most recently completed financial year been indebted to the Corporation or any of its subsidiaries or another entity whose indebtedness is the subject of a guarantee, support agreement, letter of credit or other similar agreement or understanding provided by the Corporation or any of its subsidiaries, except for routine indebtedness.

CORPORATE GOVERNANCE

Board of Directors

The Board consists of nine directors: Robert J. Deluce, Donald J. Carty, Blair Cowper-Smith, Samuel Duboc, Stephen Marshall, Jacques Demers, Pamela Wallin, James Little and David Wilkins.

The mandate of the Board of Directors, which it discharges directly or through one of its three board committees, is to be responsible for the stewardship of the Corporation, and includes responsibility for the Corporation’s strategic plan, communication policies, oversight of financial and other internal controls, corporate governance, director orientation and education, executive officer compensation and oversight, and director compensation and assessment.

The primary mandate of the audit committee of the Corporation (the “Audit Committee”) is to review the financial statements of the Corporation and public disclosure documents containing financial information and to report on such review to the Board of Directors, to be satisfied that adequate procedures are in place for the review of the Corporation’s public disclosure documents that contain financial information, to oversee the work and review the independence of the external auditors and to review, evaluate and approve the internal control procedures that are implemented and maintained by management.

The primary mandate of the compensation committee of the Corporation (the “Compensation Committee”) is to approve compensation policies and guidelines for executive officers of the Corporation, to recommend to the Board of Directors compensation arrangements for the directors and for the Chief Executive Officer, to manage incentive compensation plans and equity compensation plans, and to review succession plans for senior management.

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The primary mandate of the corporate governance and nominating committee of the Corporation (the “Corporate Governance and Nominating Committee”) is to develop the approach of the Corporation to matters of corporate governance which includes assessing the effectiveness of the Board of Directors and of committees of the Board of Directors, and recommending to the Board of Directors candidates for election as directors and candidates for appointment to board committees.

Independence of Directors

All directors, other than Robert J. Deluce, are independent as that term is defined in National Instrument 58-101- Disclosure Of Corporate Governance Practices (“NI 58-101”). Essentially, a director is independent for the purposes of NI 58-101 if he or she has no direct or indirect material relationship with the Corporation. A “material relationship” is a relationship which could, in the view of the Board of Directors, be reasonably expected to interfere with the exercise of a director’s independent judgment. Certain relationships are deemed to be material relationships for these purposes.

Robert J. Deluce is not independent for the purposes of NI 58-101 because he is an executive officer of the Corporation and certain of its subsidiaries. The independent directors comprise the Audit Committee, the Compensation Committee and the Corporate Governance and Nominating Committee, which provides them with an opportunity to review and discuss important matters that arise.

Members of Porter’s Board of Directors are also members of boards of other public companies. See “Directors and Executive Officers – Biographies”.

Board Mandate

The Board of Directors will operate under the board mandate attached to this prospectus as Appendix “A” upon completion of the Offering. The mandate of each of the Audit Committee (which is attached to this prospectus as Appendix ”B”), the Compensation Committee and the Corporate Governance and Nominating Committee which will be in effect upon completion of the Offering are described below.

Position Descriptions

The Board of Directors will develop and implement written position descriptions for the Chairman, the Chief Executive Officer and the chair of each committee of the Board upon completion of the Offering.

Orientation and Continuing Education

The Corporate Governance and Nominating Committee is responsible for director orientation and education. All newly elected directors are provided with a comprehensive orientation as to the nature and operation of the business and affairs of the Corporation and as to the role of the Board of Directors and its committees. Existing directors are periodically updated in respect of these matters.

In order to orient new directors as to the nature and operation of the Corporation’s business, they are also given the opportunity to meet with members of the Corporation’s executive management team to discuss the Corporation’s business and activities.

The orientation program is designed to assist the directors in fully understanding the nature and operation of the Corporation’s business, the role of the Board of Directors and its committees, and the contributions that individual directors are expected to make.

Ethical Business Conduct

The Board has adopted a Code of Business Conduct (the “Code of Business Conduct”) as it relates to the Corporation to govern the conduct of the Corporation’s directors, officers and employees. A copy of the Code of Business Conduct may be obtained by contacting the Corporation.

The Board will, in conjunction with recommendations of the Corporate Governance and Nominating Committee, review the Code of Business Conduct annually. Directors, officers and employees are expected and encouraged to report known and suspected breaches of the Code of Business Conduct.

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Nomination and Assessment of Directors

The Board of Directors has established a Corporate Governance and Nominating Committee which is responsible for identifying new candidates for board nomination and for recommending to the Board of Directors qualifications for directors including, among other things, the competencies, skills, business and financial experience, leadership roles and level of commitment required to fulfill Board of Director responsibilities. The Corporate Governance and Nominating Committee is comprised of four directors, all of whom are considered to be independent. In order to encourage an objective nomination process for new directors, the Corporate Governance and Nominating Committee considers potential candidates from a variety of sources and evaluates the suitability of such candidates using pre-determined, objective criteria.

After considering the qualifications that existing directors possess and that each new nominee will bring to the Board of Directors, the Corporate Governance and Nominating Committee will be responsible for identifying candidates qualified for board membership, and recommending to the Board of Directors nominees to be placed before the shareholders at each annual meeting. The Corporate Governance and Nominating Committee is responsible for annually reviewing the performance of the Board of Directors and its committees against the objectives of their respective charters and mandates. In addition, it shall annually evaluate the contribution of the individual directors.

Compensation Committee

The Board or Directors has established a Compensation Committee which is comprised of four directors, all of whom are considered to be independent.

The Compensation Committee has a variety of responsibilities relating to compensation, including establishing and administering policies with respect to compensation of executive officers of the Corporation, establishing compensation levels annually for the executive officers of the Corporation, reviewing and overseeing the administration by management of the Corporation’s general compensation and benefit programs and reviewing annually the long term goals and objectives of the Chief Executive Officer. The Compensation Committee also reviews all disclosure of the Corporation related to executive compensation prior to its public release. Finally, the Compensation Committee monitors and reports to the Board of Directors on the organizational structure of the Corporation’s management and any organizational changes proposed by the CEO. More information on the process by which compensation for the Corporation’s directors and officers is determined is set forth under the heading “Statement of Executive Compensation”.

Audit Committee

Audit Committee Mandate

The Corporation’s Audit Committee Mandate is attached as Appendix “B” to this prospectus.

Composition of the Audit Committee

The Corporation’s Audit Committee consists of Messrs. Carty (Chair), Demers and Marshall. Each member of the Audit Committee is considered “independent” and “financially literate” within the meaning of National Instrument 52-110 – Audit Committees.

Relevant Education and Experience

Each of the Audit Committee members has an understanding of the accounting principles used to prepare financial statements and varied experience as to the general application of such accounting principles, as well as an understanding of the internal controls and procedures necessary for financial reporting. See “Directors and Executive Officers - Biographies” for a brief summary of the education and experience of each Audit Committee member that is relevant to his performance as a member of the Audit Committee.

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Audit Fees

For the fiscal year ended December 31, 2009, the four-month period ended December 31, 2008 and the year ended August 31, 2008, the Corporation was billed the following fees by its external auditor, Ernst & Young LLP:

Fiscal year ended

December 31, 2009

Four month period ended

December 31, 2008 Fiscal year ended August 31, 2008

Audit Fees(1) $150,000 $72,500 $97,700 Audit-Related Fees(2) $81,211 $44,600 $38,500 Tax Fees (3) $4,718 Nil $18,765 All Other Fees(4) Nil Nil Nil Total Fees Paid $235,929 $117,100 $154,965 (1) “Audit Fees” include fees necessary to perform the annual audit of the consolidated financial statements. (2) “Audit-Related Fees” include fees for assurance and related services by the external auditor that are reasonably related to the performance of

the audit or review of the Corporation’s financial statements other than those included in “Audit Fees”. (3) “Tax Fees” include fees for all tax services other than those included in “Audit Fees”. This category includes fees for tax compliance, tax

advice and tax planning. (4) “All Other Fees” include fees for products and services provided by the auditor other than those included above.

PLAN OF DISTRIBUTION

Pursuant to an underwriting agreement dated , 2010 between the Corporation and the Underwriters (the “Underwriting Agreement”), the Corporation has agreed to sell and each of the Underwriters has severally agreed to purchase the Offered Shares on or about , 2010 or such later date as the Corporation and the Underwriters may agree, but in any event not later than , 2010, at a price of $ per Offered Share payable in cash to the Corporation against delivery of the Offered Shares. RBC Dominion Securities Inc. is lead manager and sole book runner of the Offering.

The TSX has conditionally approved the listing of the Offered Shares to be issued pursuant to the Offering and that may be sold pursuant to the exercise of the Over-Allotment Option under the symbol “FLY”, subject to the Corporation fulfilling all the listing requirements of the TSX on or before August 9, 2010, including distribution of the Offered Shares to a minimum number of public holders.

The obligations of the Underwriters are several and neither joint nor joint and several and may be terminated at their discretion on the basis of their assessment of the state of the financial markets and may also be terminated upon the occurrence of certain stated events.

The Underwriting Agreement provides that the Underwriters must buy all of the Offered Shares if they buy any of them. However, the Underwriters are not required to take or pay for the Offered Shares covered by the Over-Allotment Option described below. The Underwriters are entitled under the Underwriting Agreement to indemnification by the Corporation against certain liabilities and expenses.

In connection with the Offering, certain of the Underwriters or securities dealers may distribute prospectuses electronically.

The Offering is being made in each of the provinces and territories of Canada and in the U.S. in an offering to qualified institutional buyers in transactions exempt from the registration requirement of the U.S. Securities Act, pursuant to Rule 144A thereunder. The Offered Shares will be offered in each of the provinces and territories of Canada through those Underwriters or their affiliates who are registered to offer the Offered Shares for sale in such provinces and territories and such other registered dealers as may be designated by the Underwriters. Subject to applicable law, the Underwriters may offer the Offered Shares outside of Canada.

The Offered Shares offered hereby have not been and will not be registered under the U.S. Securities Act, or any state securities laws, and may not be offered or sold within the U.S. or to, or for the account or benefit of, U.S. persons (as defined in Regulation S under the U.S. Securities Act) except in transactions exempt from the registration requirements of the U.S. Securities Act and applicable state securities laws. Accordingly, except to the extent permitted by the Underwriting Agreement, the Offered Shares may not be offered or sold within the U.S. or to, or for the account or benefit of, U.S. persons. The Underwriting Agreement provides that Underwriters may re-

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offer and re-sell the Offered Shares that they have acquired pursuant to the Underwriting Agreement to “qualified institutional buyers” (as defined in Rule 144A under the U.S. Securities Act) in the U.S. in accordance with Rule 144A under the U.S. Securities Act. The Underwriting Agreement also provides that the Underwriters will offer and sell the Offered Shares outside the U.S. in accordance with Regulation S under the U.S. Securities Act. In addition, until 40 days after the commencement of the Offering, an offer or sale of the Offered Shares within the U.S. by any dealer (whether or not participating in the Offering) may violate the registration requirements of the U.S. Securities Act if such offer or sale is made otherwise than in reliance on an exemption from the registration requirements of the U.S. Securities Act.

Prior to the Offering, there has been no public market for the Shares. The sale of a substantial number of Shares in the public market after the Offering, or the perception that such sales may occur, could adversely affect the prevailing market price of the Offered Shares. Furthermore, because some of the Shares will not be available for sale after the Offering due to the contractual restrictions on resale described under “– Lock-Up”, the sale of a substantial number of Shares in the public market after these restrictions lapse could adversely affect the prevailing market price of the Offered Shares and the Corporation’s ability to raise equity capital in the future.

Upon the completion of the Offering, the Corporation expects to have an aggregate of outstanding Shares.

Over-Allotment Option

Porter has granted to the Underwriters the Over-Allotment Option, exercisable at the Underwriters’ sole discretion, in whole or in part, for a period of 30 days after the closing of the Offering, to purchase up to an additional Offered Shares from Porter on the same terms as set forth above, for the purpose of covering over-allotments, if any, and for market stabilization purposes. This prospectus also qualifies the distribution of the Over-Allotment Option and the Offered Shares to be sold by the Corporation upon the exercise of the Over-Allotment Option. If the Over-Allotment Option is exercised in full, the total price to the public will be $138,000,000, the Underwriters’ fee will be $ and the net proceeds to the Corporation will be $ .

A purchaser who acquires Offered Shares forming part of the Underwriters’ over-allocation position acquires such Offered Shares under this prospectus, regardless of whether the over-allocation position is ultimately filled through the exercise of the Over-Allotment Option or secondary market purchases.

Price Stabilization, Short Positions and Passive Market Making

In connection with the Offering, the Underwriters may over-allocate or effect transactions which stabilize or maintain the market price of the Offered Shares at levels other than those which otherwise might prevail on the open market, including:

• stabilizing transactions;

• short sales;

• purchases to cover positions created by short sales;

• imposition of penalty bids; and

• syndicate covering transactions.

Stabilizing transactions consist of bids or purchases made for the purpose of preventing or retarding a decline in the market price of the Shares while the Offering is in progress. These transactions may also include making short sales of such shares, which involve the sale by the Underwriters of a greater number of Shares than they are required to purchase in the Offering. Short sales may be “covered short sales”, which are short positions in an amount not greater than the Over-Allotment Option, or may be “naked short sales”, which are short positions in excess of that amount.

The Underwriters may close out any covered short position either by exercising the Over-Allotment Option, in whole or in part, or by purchasing Shares in the open market. In making this determination, the Underwriters will consider, among other things, the price of Shares available for purchase in the open market compared with the price at which they may purchase Shares through the Over-Allotment Option.

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The Underwriters must close out any naked short position by purchasing Shares in the open market. A naked short position is more likely to be created if the Underwriters are concerned that there may be downward pressure on the price of the Shares in the open market that could adversely affect investors who purchase in the Offering. Any naked short sales will form part of the Underwriters’ over-allocation position.

In addition, in accordance with rules and policy statements of certain Canadian securities regulators, the Underwriters may not, at any time during the period of distribution, bid for or purchase Shares. The foregoing restriction is, however, subject to exceptions where the bid or purchase is not made for the purpose of creating actual or apparent active trading in, or raising the price of, the Shares. These exceptions include a bid or purchase permitted under the by-laws and rules of applicable regulatory authorities and the applicable stock exchange, including the Universal Market Integrity Rules for Canadian Marketplaces, relating to market stabilization and passive market making activities and a bid or purchase made for and on behalf of a customer where the order was not solicited during the period of distribution.

As a result of these activities, the price of the Offered Shares may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued by the Underwriters at any time. The Underwriters may carry out these transactions on any stock exchange on which the Shares are listed, in the over-the-counter market, or otherwise.

Pricing of the Offering

Prior to the Offering, there was no public market for the Shares. The Offering Price has been determined by negotiation among the Corporation and the Underwriters.

Lock-Up

In connection with completion of the Offering, the Corporation, REGCO Capital Corp., OSI Transportation Corporation, EdgeStone, GEAM International Private Equity Fund, L.P. and other holders of Shares, including the Corporation’s directors and officers (representing, in aggregate, Shares, or % of the Shares outstanding immediately before giving effect to the Offering), have agreed not to, directly or indirectly, without the prior written consent of the Underwriters (such consent not to be unreasonably withheld), issue, sell, grant any option for the sale of or otherwise dispose or monetize, or offer to announce any intention to do so, in a public offering or by way of private placement or otherwise, any Shares or any securities convertible or exchangeable into such shares for a period of 180 days following Closing. Notwithstanding the foregoing, Porter may, subject to any trading blackouts in effect from time to time, grant options in the normal course pursuant to the Option Plan. Directors, officers and employees of Porter will be permitted to exercise any existing options granted under the Option Plan, but not to sell the underlying Shares during such period. The remaining Shares (approximately % of the outstanding Shares immediately before giving effect to the Offering) will be awarded to employees prior to Closing on a restricted basis and none of these awards will vest prior to the second anniversary of the grant date in accordance with the terms of the Restricted Share Plan. See “Statement of Executive Compensation – Elements of Compensation – Restricted Share Plan”.

Fees and Expenses

The following table shows the per Offered Share and total Underwriters’ fee the Corporation will pay to the Underwriters, assuming both no exercise and full exercise of the Over-Allotment Option:

Over-Allotment Not Exercised

Over-Allotment Fully Exercised

Per Offered Share .........................................................................

Total........................................................................................

It is estimated that the total expenses of the Offering, not including the Underwriters’ fee, will be approximately $ .

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Book Entry System

Subscriptions for the Offered Shares will be received subject to rejection or allotment in whole or in part and the right is reserved to close the subscription books at any time without notice. Certificates representing the Offered Shares sold under the Offering in Canada will be issued in registered form to CDS or its nominee on the closing date of the Offering. Transfers of ownership of Offered Shares in Canada will be effected through records maintained by participants in the CDS depository service (“CDS Participants”), which include securities brokers and dealers, banks and trust companies. Indirect access to the CDS book entry system is also available to other institutions that maintain custodial relationships with a CDS Participant, either directly or indirectly. Each purchaser of Offered Shares in Canada will receive a customer confirmation of purchase from the CDS Participant from or through which such Offered Shares are purchased in accordance with the practices and procedures of such CDS Participant.

QUALIFIED CANADIAN DECLARATION

The articles of amendment of the Corporation provide that: (i) the Common Voting Shares may only be beneficially owned and controlled, directly or indirectly, by Qualified Canadians; and (ii) the Variable Voting Shares may only be beneficially owned or controlled, directly or indirectly, by non-Qualified Canadians.

In accordance with the articles of amendment of the Corporation, purchasers of Offered Shares who are Qualified Canadians will receive Common Voting Shares and purchasers of Offered Shares who are not Qualified Canadians will receive Variable Voting Shares. Upon Closing, RBC Dominion Securities Inc., on behalf of the Underwriters, will provide Porter with a residency declaration, in a form acceptable to Porter, specifying the number of Common Voting Shares to be purchased by Qualified Canadians and the number of Variable Voting Shares to be purchased by non-Qualified Canadians.

RELATIONSHIP BETWEEN THE CORPORATION AND CERTAIN UNDERWRITERS

RBC Dominion Securities Inc. and TD Securities Inc., Underwriters with respect to the Offering, are subsidiaries of Canadian chartered banks that have made credit available to Porter pursuant to the Credit Facilities and the Interim Credit Facilities, respectively. Accordingly, Porter may be considered to be a “connected issuer” of RBC Dominion Securities Inc. and TD Securities Inc. within the meaning of applicable securities legislation. Neither RBC Dominion Securities Inc. nor TD Securities Inc. will receive any direct benefit from the Offering other than their respective portion of the Underwriters’ fee payable by the Corporation pursuant to the Underwriting Agreement. The decision to distribute the Offered Shares hereunder and the determination of the terms of the Offering were made through negotiation between the Corporation and the Underwriters.

As of May 20, 2010, $3.0 million was outstanding under the Credit Facilities and approximately $8.5 million and U.S.$1.2 million was outstanding under the Interim Credit Facilities. As of the date of this prospectus, Porter is in compliance in all material respects with the terms of the Credit Facilities and the Interim Credit Facilities and no breach thereunder has been waived by the banks party thereto. No material change in Porter’s consolidated financial position has occurred since the execution of the Credit Facilities and the Interim Credit Facilities. See “Management Discussion and Analysis – Debt Financing”.

RISK FACTORS

You should carefully consider the risks described below, which are qualified in their entirety by reference to, and must be read in conjunction with, the detailed information appearing elsewhere in this prospectus, and all other information contained in this prospectus before purchasing Offered Shares, including the consolidated financial statements and accompanying notes. The risks and uncertainties described below are those we currently believe to be material, but they are not the only ones we face. If any of the following risks, or any other risks and uncertainties that we have not yet identified or that we currently consider not to be material, actually occur or become material risks, our business, prospects, financial condition, results of operations and cash flows and consequently the price of the Offered Shares could be materially and adversely affected. In all these cases, the trading price of the Offered Shares could decline, and you could lose all or part of your investment.

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Risks Relating to Porter

Dependence on BBTCA

Our growth has focused and, at least in the near term, will continue to focus on adding flights to and from our primary base of operations at BBTCA. In Fiscal 2009, approximately 90% of our passenger revenue was derived from our operations at BBTCA. As a result we remain highly dependent on BBTCA.

BBTCA is a slot constrained airport. Management believes that its rights to existing and additional slots under its CCOA will be sufficient for its current operations and near term growth strategy at BBTCA. However, if Porter’s growth exceeds its near or mid-term growth strategy, its existing slots and any additional slots awarded may not be sufficient. In addition, if there are any changes to Porter’s existing slot allocation at BBTCA or Porter’s rights to be awarded additional slots, Porter’s future cash flows, results of operations, financial condition and growth strategy may be adversely effected.

Pursuant to the terms of the Tripartite Agreement, BBTCA can be closed in the event that TPA defaults under the leases to the real property upon which BBTCA operates or the TPA decides that it wishes to cease operating BBTCA and the Government of Canada chooses not to exercise its right in such circumstances to continue to operate BBTCA. The Government of Canada has the right under the Tripartite Agreement to take over the operation of BBTCA upon notice to the other parties to that agreement. Further, if there is a change in the federal government’s policy relating to BBTCA, the Government of Canada has the legislative ability to close BBTCA, notwithstanding the terms of the Tripartite Agreement. The closure of BBTCA by the Government of Canada would prevent Porter from operating commercial air service from BBTCA which would have a material adverse effect on Porter’s future cash flows, results of operations and financial condition. Furthermore, Porter’s ability to operate a commercial air service may be prevented or negatively impeded by the Government of Canada taking over operations of BBTCA which would also have a material adverse effect on Porter’s future cash flows, results of operations and financial conditions.

BBTCA is an airport that has traditionally attracted less attention than Pearson Airport for both Canadian domestic and transborder flight activity. Porter has significantly grown passenger traffic at BBTCA and gained significant market share on routes such as Toronto – Ottawa and Toronto – Montreal. As a result of our positive experience at BBTCA, other commercial carriers may wish to follow our strategy. On May 19, 2010, TPA announced that two prospective commercial carriers had submitted proposals for slots at BBTCA. In order to commence operations from BBTCA, a commercial airline carrier will be required to enter into a commercial carrier operating agreement with the TPA on terms similar to Porter’s CCOA in all material respects. Additional commercial carriers operating at BBTCA may negatively affect Porter’s growth strategy, result in an increase in the amount of traffic at BBTCA and associated congestion or delays, a reduction in Porter’s customer traffic and downward pressure on Porter’s fares and passenger levels, all of which could harm Porter’s future cash flows, results of operations and financial condition.

Access to BBTCA from Toronto harbour is currently limited by ferry service operated by TPA. Weather conditions, maintenance problems and accidents involving ferries could reduce or limit passenger traffic to and from BBTCA, which could have a material adverse effect on Porter’s future cash flows, results of operations and financial conditions. See “Risks Relating to the Industry – External Factors Such as Weather Conditions or Special Events.” Proposals to build a pedestrian-only tunnel from BBTCA to Toronto harbour may not occur which would require Porter to continue to depend solely on ferry service to and from BBTCA and which may negatively affect Porter’s growth strategy.

Failure to Achieve Growth Strategy

Our growth strategy as described in this prospectus includes increasing the number of new markets we serve and increasing scheduled flights and passenger load factors on our existing routes. There can be no assurance that we will be able to identify and successfully establish new markets or increase our scheduled flights and increase or maintain passenger load factors on existing routes. Expansion of our markets and services may also strain our existing management resources and operational, financial and management information systems to the point that they may no longer be adequate to support our operations, requiring us to make significant expenditures in these areas. We expect that we will need to develop further financial, operational and management controls, reporting systems and procedures to accommodate future growth. There can be no assurance that we will be able to develop these controls, systems or procedures on a timely basis, and the failure to do so could harm Porter’s business.

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Our growth strategy also includes capitalizing on potential code-sharing arrangements. In order to capitalize on such arrangements, Porter will need to develop the necessary computer system upgrades, operational procedures and back-office processes. There is no assurance that Porter will be able to develop such upgrades, procedures and processes by 2011 or thereafter. Even if such upgrades, procedures or processes are developed, there is no assurance that revenue will be generated or that any such arrangements will be entered into.

Part of our growth strategy includes obtaining U.S. customs preclearance at BBTCA which will potentially open up routes to additional destinations in the U.S. Under the 2001 Canada-U.S. Air Transport Preclearance Agreement, Toronto is an eligible site for U.S. preclearance. However, certain airport authorities and trade associations have opposed the TPA’s application for U.S. customs preclearance at BBTCA and there can be no assurance that BBTCA will obtain U.S. customs preclearance or, if obtained by BBTCA, when such preclearance will become effective. A denial of the TPA’s application for U.S. preclearance at BBTCA could have a material adverse effect on our business.

Price and Availability of Jet Fuel

Our business is inherently dependent on jet fuel to operate, and therefore, we are exposed to the risk of volatile fuel prices. Fuel prices are impacted by a host of factors outside of our control, such as significant weather events, market speculation, geopolitical tensions, refinery capacity, government taxes and levies, and global demand and supply. Our fuel costs constitute one of our largest expense categories, representing approximately 18.5% of our operating costs in Fiscal 2009 and approximately 22.6% in Fiscal 2008. A significant change in the price of jet fuel will materially affect our operating results and growth strategy.

Although our fleet is composed solely of Q400 aircraft which are highly fuel efficient compared to other similarly sized commercial airplanes, a fuel supply shortage or significantly higher fuel prices could result in a curtailment of our scheduled service. There can be no assurance that increases in the price of fuel can be off-set by higher fares or fuel surcharges. The higher costs to travelers may discourage air travel.

Porter has not implemented a fuel hedging program, although it may do so in the future. There can be no assurance that any fuel hedging program implemented by Porter will be sufficient to protect us against increases in the price of fuel due to inadequate fuel supplies or otherwise. Hedging programs also have inherent risks, including counterparty failure risk, which may deprive Porter of the benefit of “in the money” hedges and the financial exposure to post security for “out of the money” hedges.

Ability to Obtain Financing for Additional Aircraft

Porter accepted delivery of two Q400s in April 2010. Porter is considering purchasing further aircraft to support its growth strategy. Although management believes that debt financing should be available for these aircraft, there can be no assurance that it will be able to secure such financing on terms attractive to it or at all. To the extent Porter cannot secure such financing on acceptable terms or at all, it may be required to modify its acquisition or growth plans or incur higher than anticipated financing costs. See “Ability to Obtain Additional Capital” below.

Dependence on Relations with Third Parties

We secure goods and services from a number of third party suppliers. Any significant interruption in the provision of goods and services from such suppliers, some of which would be beyond our control, or any significant increase in price of such goods and services, could have a material adverse effect on our business, operating results and financial condition.

Our reliance on Bombardier Aerospace and Pratt & Whitney Canada makes us susceptible to any problems connected with aircraft or engines or components, including defective materials, mechanical problems or negative perceptions in the traveling community. In addition, labour action at such companies or key suppliers could delay delivery of new aircraft or parts, impacting negatively our operating and expansion plans.

The delay or inability of Bombardier Aerospace and/or Pratt & Whitney Canada to deliver aircraft or engines or components as Porter requires could negatively impact our growth strategy and could adversely affect our business, operating results and financial condition.

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Dependence on Ability to Hire and Retain Qualified Personnel

Our success will depend, in part, on members of our management and key personnel, who have extensive experience in the airline industry. Since we are managed by a small group of senior executives, the loss of management expertise and knowledge of our operations held by one or more members of our senior management team, including Robert J. Deluce, President and Chief Executive Officer, Robert Michael Deluce, Executive Vice President and Chief Commercial Officer, James Morrison, Senior Vice President and Chief Operating Officer, and Robert Payne, Vice President, Chief Financial Officer and Corporate Secretary, could result in a diversion of management resources, as the remaining members of management would need to cover the duties of any senior executive who leaves us and would need to spend time usually reserved for managing our business to search for, hire and train new members of management. The loss of some or all of our senior executives could negatively affect our ability to develop and pursue our business strategy, which could adversely affect our business and financial results. The loss of our Chairman, Donald J. Carty, who has significant experience in the airline industry, could also negatively affect our ability to pursue and execute our business strategy.

Litigation Risks

Porter, together with two of its subsidiaries, Porter Airlines and Porter FBO, have been the target of aggressive litigation brought by Jazz and/or Air Canada in respect of the use of BBTCA. See “Legal Proceedings and Regulatory Actions”. Jazz has discontinued all three of the proceedings it has brought against the Porter entities. Air Canada has brought an application for judicial review of a decision of the TPA with respect to the proposed slot allocation process and access to BBTCA, which is scheduled to be heard by the court in July 2010. Air Canada is not seeking monetary damages in this proceeding.

Although management believes it will be successful in the Air Canada proceeding, an adverse ruling could have a material adverse effect on Porter’s future cash flows, results of operations and financial condition. A negative ruling in the litigation could result in, among other things, the TPA being compelled to reallocate slots or revise its announced process for allocating aircraft slots at BBTCA, which, in either case, could negatively impact slot availability for Porter at BBTCA. A reduction in slots allocated to Porter at the BBTCA could result in, among other things, a reduction in passenger traffic. In addition, the allocation of slots to new commercial carriers operating at BBTCA may negatively affect Porter’s growth strategy, result in an increase in the amount of traffic at BBTCA and associated congestion or delays, and downward pressure on Porter’s fares and passenger levels.

Following the TPA’s announcement on April 9, 2010 that it will be formally accepting requests for proposals from carriers for the additional slots to be made available at BBTCA, Porter was advised that Air Canada may seek an injunction to suspend the TPA’s slot allocation process pending judicial review of this process scheduled to be heard in July 2010. At this time, Air Canada has not sought an injunction. Management believes that if Air Canada were to seek an injunction, it would not be successful in obtaining one. In addition, Porter was advised that Air Canada may also seek orders at the July 2010 hearing to set aside Porter’s entitlement to slots under its CCOA. On May 4, 2010, Air Canada brought forth an application in Federal Court for judicial review of TPA’s announcement on April 9, 2010 that it will be formally accepting requests for proposals from carriers for additional slots made available at BBTCA. Air Canada has requested that this matter be heard in July 2010 at the same time as the other application for judicial review is heard. Management believes that for the reasons discussed above, we will be successful in any such application. Although management believes that we will be successful, an adverse ruling could have a material adverse effect on Porter’s cash flows, results of operations and financial conditions as discussed above.

Porter may also from time to time be involved in other legal proceedings. Porter is susceptible to various claims, including class action claims, in the course of operating its business or with respect to the interpretation of existing agreements. Any future claims or litigation could have a material adverse effect on Porter or its business and results of operations.

Foreign Currency and Interest Rate Fluctuations

Porter is susceptible to U.S. dollar currency fluctuations arising from fluctuations in exchange rates on our U.S. dollar denominated net monetary assets, U.S. dollar denominated liabilities, aircraft purchases, U.S. dollar denominated sales and our operating expenditures, mainly aircraft fuel, certain maintenance costs and a portion of airport operating costs. Since our revenues are received primarily in Canadian dollars, we are affected by fluctuations in the U.S. dollar exchange with respect to these payment obligations.

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Porter is also exposed to general market fluctuations of interest rates, as a portion of our indebtedness is variable interest rate debt and future aircraft purchases will be financed at prevailing market rates. This exposure can be mitigated by fixing rates.

Single Aircraft Fleet

All of our aircraft are Q400s equipped with Pratt & Whitney PW150A turboprop engines. Our dependence on this single type of aircraft and engine for all of our flights makes us particularly vulnerable to any problems that might be associated with the Q400 or the PW150A engine. Our business would be significantly harmed if a design defect or mechanical problem with the Q400 or the PW150A engine were discovered causing our aircraft to be grounded while any such defect or problem is being corrected, assuming it could be corrected at all. Transport Canada could also suspend or restrict the use of our aircraft in the event of any actual or perceived mechanical or design problems while it conducts its own investigation. Our business would also be significantly harmed if the public avoids flying our aircraft due to an adverse perception of the Q400 or the PW150A engine because of safety concerns or other problems, whether real or perceived, or in the event of an accident involving a Q400.

Limited Fleet Size

As of the date of this prospectus, we operate a fleet of 20 aircraft. Given the limited number of aircraft we operate, if an aircraft becomes unavailable due to unscheduled maintenance, repairs or other reasons, we could suffer greater adverse financial and reputational impacts than other larger airlines if flights are delayed or cancelled due to the absence of replacement aircraft.

Maintenance Costs Increase as Fleet Ages

The average age of our fleet is less than two years. These aircraft require less maintenance now than they will in the future. We have incurred lower maintenance expenses on these aircraft because most of the parts on these aircraft are under multi-year warranties. Our maintenance costs will increase as our fleet ages and warranties expire. Four of Porter’s owned aircraft will come off warranty in 2010.

Dependence on Technology

Porter relies heavily on technology, including computer and telecommunications equipment and software and Internet-based systems, to operate its business, increase its revenues and reduce its costs. These systems include those relating to Porter’s telecommunications, websites, computerized airline reservations and airport customer services and flight operations. Unlike most other airlines, which issue traditional paper tickets to some or all of their passengers, we issue only electronic tickets. Our website and reservation system must be able to accommodate a high volume of traffic and deliver important flight information. Furthermore, our growth strategy includes capitalizing on potential code-sharing arrangements and non-air revenue sources which are dependent on us implementing certain technology systems. See “Failure to Achieve Growth Strategy” above.

These technology systems may be vulnerable to a variety of sources of failure, interruption or misuse, including by reason of third party suppliers’ acts or omissions, natural disasters, terrorist attacks, telecommunications failures, power failures, computer viruses, unauthorized or fraudulent users, and other operational and security issues. While Porter continues to invest in initiatives, including security initiatives and disaster recovery plans, these measures may not be adequate or implemented properly. Any substantial or repeated technology systems failure, interruption or misuse could reduce the attractiveness of our services or could materially and adversely affect Porter’s operations and could have a material adverse effect on Porter’s business, results of operations and financial condition.

Significant Changes in Corporate Culture or Customer Experience

Our strong corporate culture is one of our fundamental competitive advantages. We strive to maintain an innovative culture where all employees are committed to, and passionately pursue, our values, mission and vision. We also foster a culture of caring and compassion for our passengers and fellow employees that sets us apart from our competitors.

We aim to ensure our people are satisfied, skilled, committed and motivated. This, in turn, creates a more favourable working environment and contributes to a superior customer experience. This is accomplished, in part, through the implementation of compensation policies intended to align the interests of our employees with our interests and

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those of our shareholders. The failure to maintain our corporate culture or superior customer experience could adversely affect our business and financial results.

Unionization or Increased Labour Costs

Unlike most airlines, we have a non-union workforce. If our employees unionize, it could result in demands that may increase our operating expenses and adversely affect our profitability. Each of our different employee groups could unionize at any time and require separate collective bargaining agreements. If any group of our employees were to unionize and we were unable to reach agreement on the terms of their collective bargaining agreement or we were to experience widespread employee dissatisfaction, we could be subject to work slowdowns or stoppages. In addition, we may be subject to disruptions by organized labour groups protesting our non-union status. Any of theses events would be disruptive to our operations and could harm our business.

Limitations Due to Restrictive Covenants

Some of the financing and other major agreements to which Porter is a party contain restrictive, financial and other covenants which affect and, in some cases, significantly limit or prohibit, among other things, the manner in which Porter may structure or operate its business, including by reducing Porter’s liquidity, limiting Porter’s ability to incur indebtedness, create liens, sell assets, pay dividends, make capital expenditures, be subject to a change of control, and engage in acquisitions, mergers or restructurings. Future financings and other major agreements may also be subject to similar covenants which limit Porter’s operating and financial flexibility, which could materially and adversely affect Porter’s ability to operate its business and its profitability.

A failure by Porter to comply with its contractual obligations (including restrictive, financial and other covenants), or to pay its indebtedness and fixed costs could result in a variety of material adverse consequences, including the acceleration of its indebtedness, the withholding of credit card proceeds by the credit card service providers and the exercise of remedies by its creditors and lessors, and such defaults could trigger additional defaults under other indebtedness or agreements. In such a situation, it is unlikely that Porter would be able to repay the accelerated indebtedness or fulfill its obligations under certain contracts, or otherwise cover its fixed costs. Also, the lenders under the financing arrangements could foreclose upon all or substantially all of the assets of Porter which secure Porter’s obligations. See “Management Discussion and Analysis – Debt Financing”.

Lack of Operational History

We began flight operations in late 2006. It is difficult to evaluate our future prospects and an investment in our Shares because of our limited operating history. Our prospects are uncertain and must be considered in light of the risks, uncertainties and difficulties frequently encountered by companies in the early stage of operations. Historically, there has been a high failure rate among start-up airlines. Our future performance will depend upon a number of factors, including our ability to:

• capitalize on our business strategy;

• implement our growth strategy;

• provide superior customer service at reasonable prices;

• choose new markets successfully;

• maintain adequate control of our expenses;

• attract, retain and motivate qualified personnel;

• react to customer and market demands; and

• maintain the safety and security of our operations.

Ability to Obtain Additional Capital

The ability of the Corporation to execute its growth strategy may require substantial additional financing through debt financing, equity financing or other means. Failure to obtain such financing may result in the delay or indefinite postponement of such growth strategy or even impact the ability of the Corporation to continue as a going concern. There can be no assurance that additional capital or other types of financing will be available if needed or that, if available, the terms of such financing will be favourable to the Corporation. If additional financing is raised by the

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Corporation through the issuance of securities from treasury, control of the Corporation may change and shareholders may suffer dilution. See “Ability to Obtain Financing for Additional Aircraft” above.

Risks Relating to the Industry

Economic Conditions

Airline operating results are sensitive to economic conditions which can have a significant impact on Porter. For example, economic conditions may impact demand for air transportation in general or to or from certain destinations, as well as Porter’s operating costs and availability of capital and supplies required by Porter. Any prolonged weakness of the Canadian or U.S. economies could have a material adverse effect on Porter’s business, results from operations and financial condition.

Airline fares and passenger demand have fluctuated significantly in the past and are likely to fluctuate significantly in the future. Porter is not able to predict with certainty market conditions and the fares that Porter may be able to charge. Customer expectations can change rapidly and the demand for lower fares may limit revenue opportunities. Travel, especially leisure travel, is a discretionary consumer expense. Depressed economic conditions in North America, concerns about the environmental impacts of air travel and tendencies towards green travel initiatives where consumers reduce their travel activities, could have the effect of reducing demand for air travel in Canada and the U.S. and could materially adversely impact Porter’s business, results of operations and financial condition.

Terrorist Attacks and Security Measures

The September 11, 2001 terrorist attacks and subsequent terrorist activity caused uncertainty in the minds of the traveling public. The occurrence of a major terrorist attack or attempted terrorist attack (whether domestic or international and whether involving the Corporation or another carrier or no carrier at all) and increasingly restrictive security measures, could have a material adverse effect on passenger demand for air travel and on the number of passengers traveling on the Corporation’s flights. It could also lead to a substantial increase in insurance, airport security and other costs. Any resulting reduction in passenger revenues and/or increases in insurance, security or other costs could have a material adverse effect on the Corporation’s business, results of operations and financial condition.

A Localized Epidemic or Global Pandemic

A widespread outbreak of H1N1 or a similar illness, occurring in the U.S. or Canada, or a World Health Organization travel advisory primarily relating to North American cities or regions could affect Porter’s ability to continue full operations and could materially adversely affect Porter customer demand for air travel. Porter can not predict the likelihood of such a public health emergency nor the effect it may have on Porter’s business or the market price of the Offered Shares. However, any significant reduction in passenger traffic on Porter flights could have a material adverse effect on Porter’s business, results of operations and financial condition.

Major Safety Incidents

A major safety incident involving our aircraft during operations (including bird strikes and runway overruns) would require us to incur substantial repair or replacement costs to the damaged aircraft and a disruption in service. We could also incur potentially significant claims relating to injured passengers and others, along with a negative impact on our reputation for safety, adversely affecting our ability to attract and retain passengers.

On November 4, 2003, the Montreal Convention came into force in Canada, modernizing the Warsaw Convention of 1929, a set of international rules governing liability of an air carrier. The Montreal Convention has expanded an air carrier’s liability exposure with the establishment of a two-tier system for determining an air carrier’s liability for the death or injury of passengers in the event of an accident. Under the first tier of the system, an air carrier is strictly liable for death or injury to passengers up to approximately U.S. $150,000, but may be subject to additional damages unless the air carrier can show it did not act negligently or that the damage was solely due to the negligence of a third party. Under the second tier, a carrier can defend against any claim above that amount.

Environmental Requirements

Porter is subject to a number of laws, rules, regulations, ordinances and other requirements relating to pollution and protection of the environment, including those relating to emissions to the air (including noise and greenhouse gas

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emissions), discharges to waters, the use, storage and disposal of petroleum and other environmentally regulated materials and the remediation of contamination.

Porter’s operations involve the use, handling and storage of materials that are classified as environmentally damaging. Laws protecting the environment have become more stringent in Canada and certain other countries (such as the United States) in recent years and may, in certain circumstances, impose liability for cleanup of releases of regulated materials and related environmental damage without regard to negligence or fault. As a result, these laws also may expose Porter to liability for the conduct of, or conditions caused by others (such as historic spills of regulated materials at Porter’s facilities) or for Porter’s acts that were in compliance with all applicable laws at the time these acts were performed. Management believes that Porter is in substantial compliance with applicable environmental requirements and that ensuring compliance has not, to date, had a material adverse effect on our financial condition. We cannot, however, predict the likelihood of change to these laws or in their enforcement or the impact of any such change, or the discovery of previously unknown conditions, each of which may require unanticipated costs and adversely affect our financial condition.

Insurable and Uninsurable Risks

We carry insurance similar to other scheduled airlines operating in the North America market. While we believe our insurance is adequate, there can be no assurance that such coverage will fully protect us against all losses that we might sustain. There is no assurance that we will be able to obtain insurance on the same terms as we have in the past.

There is a risk that the Government of Canada may not continue to provide indemnity for third party war risk coverage, which it currently provides to certain scheduled carriers, including Porter. In the event that the Government of Canada does not continue to provide such coverage, such coverage may or may not be available to us in the commercial markets, and the costs and impacts of such costs are, as yet, undetermined.

Seasonal Nature of the Business

Porter does not earn revenues evenly throughout the year, with the first quarter being the weakest quarter for RASM. The second quarter is the quarter in which Porter historically experiences its highest RASM of the year due to higher load factors and higher average fares compared to other quarters of the year. This is influenced by the higher demand for business travel during the second quarter. During the third quarter and the fourth quarter of the year, Porter historically earns lower RASM than the second quarter, but often higher than the first quarter. Porter’s costs are to a substantial degree fixed and do not significantly fluctuate with passenger demand over the short term. Aircraft deliveries and market launches during a fiscal year may impact the historical seasonal pattern that Porter has experienced.

Competition

Airline profits are sensitive to the general level of economic activity, taxes, interest rates, demographic changes, price levels, telecommunications usage, special circumstances or events occurring in the locations served, and to external factors such as foreign exchange rates and international political events. A portion of an airline’s costs, such as labour, aircraft ownership and facilities charges, can not be easily adjusted in the short-term to respond to market changes.

The airline industry is highly competitive and particularly susceptible to price discounting, because airlines incur only nominal costs to provide services to passengers occupying otherwise unsold seats. We primarily compete with Air Canada (together with its contract carrier, Jazz) and WestJet in the domestic market and with Air Canada (together with its contract carrier, Jazz), United Airlines, American Airlines, Continental Airlines, US Airways and Delta Airlines, as well as their regional affiliates, in the transborder markets. Many of our competitors are larger and have more available resources. Many of our competitors also have marketing alliances and/or code-share arrangements in place which may give them a competitive advantage. We face significant competition from other airlines that are serving most of our existing and potential markets. For example, in the Greater Toronto Area, Porter competes with Air Canada (together with its contract carrier, Jazz) and WestJet who currently operate from Pearson Airport. Pearson Airport has certain advantages to the BBTCA including the ability to operate jet aircraft, its reputation as Toronto’s main airport, its ease of access for passengers located in the north and west of Toronto and from its wider array of airlines, destinations, connections and services. The proposed rail link between Union Station and Pearson Airport will increase passenger accessibility to Pearson Airport, which could result in a decrease in

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Porter passenger traffic at BBTCA and have a material adverse effect on Porter’s future cash flows, results of operations and financial condition.

Other airlines may decide to fly through BBTCA. On May 19, 2010, TPA announced that two prospective commercial carriers had submitted proposals for slots at BBTCA. See “Dependence on BBTCA” above. Other airlines regularly price their fares equal to or below our fares, potentially preventing us from attaining a share of the passenger traffic necessary to maintain profitable operations. Our ability to meet price competition depends on our ability to operate at costs lower than that of our competitors or potential competitors over the medium to long term.

Furthermore, our competitors have recognized and long-standing frequent flyer/loyalty programs. Many airline travellers make flying decisions based on their ability to accumulate or utilize frequent flyer awards. As such, travellers who participate in frequent flyer/loyalty programs of our competitors may decide not to fly Porter for such reason. In addition, if a competitor should revise their programs to offer additional benefits, which may be perceived to be better than the rewards granted under Porter’s VIP program, Porter’s share of passenger traffic may decline, or not expand.

Government Intervention, Regulations, Rulings or Decisions

The airline industry is subject to extensive laws relating to, among other things, airline safety and security, provision of services, competition, environment and labour concerns. Government entities such as Transport Canada, the Competition Bureau, the Canadian Transportation Agency, and other domestic or foreign government entities may implement new laws or regulatory schemes, or render decisions, rulings or changes in tax policy that could have an adverse impact on the airline industry in general by significantly increasing the cost of airline operations, imposing additional requirements or operations, or reducing the demand for air travel, and could have material adverse effect on our business, operational results and financial condition.

Porter is dependent on maintaining its operation certificates, permits or exemptions therefrom with the applicable Canadian and U.S. regulatory authorities in order to operate its commercial air service. Our authorization to fly to U.S. destinations expires in July 2011. Porter believes it will be successful in obtaining a further renewal from the U.S. Department or obtaining a foreign air carrier permit. Our inability to obtain a permit or an exemption therefrom from the U.S. Department could have a material adverse effect on our business.

Laws relating to data collection on passengers and employees for security purposes and counterbalancing privacy legislation have increased costs of operations. Any material changes that add additional requirements to collecting, processing and filing data with, or otherwise reporting to, government agencies may materially impact our business as to time and costs, and therefore, our operating results.

The increase in security measures and clearance times required for passenger travel could have a material adverse effect on passenger travel demand and the number of passengers we carry. Reduction in passenger numbers will impact negatively on our revenues and results of operations.

Airport User Fees and Air Navigation Fees

Increases in air navigation fees in Canada could have a negative impact on our business and our financial results.

Airport authorities continue to implement or increase various user fees that impact travel costs for passengers, including landing fees for airlines and airport improvement fees. Airport authorities generally have the unilateral discretion to implement and adjust such fees. The combined increased fees, and increases in rents under various lease agreements between airport authorities and the Government of Canada, which in many instances are passed through to air carriers and air travelers, may negatively impact travel, in particular, discretionary travel.

External Factors Such as Weather Conditions or Special Events

Delays or cancellations due to weather conditions and work stoppages or strikes by airport workers, baggage handlers, air traffic controllers and other workers not employed by us, including employees of the TPA who operate the ferry service to and from BBTCA, could have a material adverse impact on our financial condition and operating results. Delays contribute to increased costs and decreased aircraft utilization, which negatively affect operating results.

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Our business is dependent on our ability to operate without interruption at a number of key airports, including BBTCA, Ottawa International Airport, Montréal-Pierre Elliott Trudeau International Airport, Newark Liberty International Airport, Midway International Airport in Chicago and Halifax Stanfield International Airport. An interruption or stoppage in service at a key airport could have a material adverse impact on our business, results of operations and financial condition.

Risks Relating to the Offering

Shares have no Prior Public Market and the Share Price may Decline after the Offering

Before this Offering, there has been no public market for shares of Porter and an active public market for the Offered Shares may not develop or be sustained after the Offering. If an active public market does not develop, the liquidity of your investment may be limited, and our share price may decline below the Offering Price. The Offering Price has been determined by negotiation between us and the Underwriters and may bear no relationship to the price that will prevail in the public market.

Volatile Market Price for Offered Shares

The market price for Offered Shares may be volatile and subject to wide fluctuations in response to numerous factors, many of which are beyond the Corporation’s control, including the following:

• actual or anticipated fluctuations in the Corporation’s quarterly results of operations;

• changes in estimates or opinions of our future results of operations by securities research analysts;

• changes in the economic performance or market valuations of other airline companies;

• terrorist acts or wars;

• weather or Acts of God;

• departure of the Corporation’s executive officers and other key personnel;

• actual or anticipated sales of Shares by existing shareholders of the Corporation;

• actual or anticipated sales of additional Shares by the Corporation;

• significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving the Corporation or its competitors; and

• news reports relating to trends, concerns or competitive developments, regulatory changes and other related issues in the airline industry or Porter’s target markets.

Financial markets have recently experienced significant price and volume fluctuations that have particularly affected the market prices of equity securities of companies and that have, in many cases, been unrelated to the operating performance, underlying asset values or prospects of such companies. Accordingly, the market price of the Offered Shares may decline even if the Corporation’s operating results, underlying asset values or prospects have not changed. Additionally, these factors, as well as other related factors, may cause decreases in asset values that are deemed to be other than temporary, which may result in impairment losses. As well, certain institutional investors may base their investment decisions on consideration of the Corporation’s environmental, governance and social practices and performance against such institutions’ respective investment guidelines and criteria, and failure to meet any such criteria may result in a limited or no investment in the Shares by those institutions, which could adversely affect the trading price of the Shares. There can be no assurance that fluctuations in price and volume will not occur. If such increase levels of volatility and market turmoil continue, the Corporation’s operations could be adversely impacted and the trading price of the Shares may be adversely affected.

No Plans to Pay Dividends

We currently intend to retain future earnings, if any, for future operation, expansion and debt repayment and have no current plans to pay any cash dividends. Any decision to declare and pay dividends in the future will be made at the

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discretion of our Board of Directors and will depend on, among other things, our financial results, cash requirements, contractual restrictions and other factors that our Board of Directors may deem relevant. In addition, our ability to pay dividends is limited by covenants in the Credit Facilities and the Construction Loan Agreements and may be further restricted by future outstanding indebtedness we or our subsidiaries incur. As a result, you may not receive any return on an investment in the Offered Shares unless you sell the Offered Shares for a price greater than that which you paid for it.

Future Sale of Shares

Pursuant to Porter’s articles of amendment, Porter is authorized to issue an unlimited number of Common Voting Shares, Variable Voting Shares and Preferred Shares. In order to finance future operations, Porter may raise funds through the issuance of shares or debt instruments or other securities convertible into shares. Porter can not predict the size of future issuances of shares or the issuance of debt instruments or other securities convertible into Shares or the effect, if any, the future issuances and sales of Porter’s securities will have on the market price of the Shares.

Influence by Existing Shareholders

Immediately upon completion of the Offering, it is anticipated that, REGCO Capital Corp. (an entity controlled by Robert J. Deluce), OSI Transportation Corporation, GEAM International Private Equity Fund, L.P. and EdgeStone will beneficially own or control, directly or indirectly, Shares, which in the aggregate will represent approximately % of our issued and outstanding Shares on completion of this Offering (or % if the Over-Allotment Option is exercised in full). See “Principal Shareholders”. As a result, if some of these persons or entities act together, they will have the ability to influence or control certain matters submitted to our shareholders for approval. This may delay or prevent an acquisition of the Corporation or cause the market price of our shares to decline. See “Principal Shareholders”.

Future sales of Shares by our Existing Shareholders

Immediately upon completion of the Offering, it is anticipated that, REGCO Capital Corp. (an entity controlled by Robert J. Deluce), OSI Transportation Corporation, GEAM International Private Equity Fund, L.P. and EdgeStone will beneficially own or control, directly or indirectly, the Shares, which in the aggregate will represent approximately % of our issued and outstanding Shares on completion of this Offering (or % if the Over-Allotment Option is exercised in full). See “Principal Shareholders”. Subject to compliance with applicable securities laws and the terms of the lock-up agreements entered into by such shareholders in connection with the Offering, our principal shareholders and our directors and officers may sell some or all of their Shares in the future. No prediction can be made as to the effect, if any, such future sales of Shares will have on the market price of the Shares prevailing from time to time. However, the future sale of a substantial number of Shares by our officers, directors, the shareholders referred to above and their affiliates, or the perception that such sales could occur, could adversely affect prevailing market prices for the Shares.

After Closing, REGCO Capital Corp. will effect a reorganization in which shareholders of REGCO Capital Corp. (including Robert J. Deluce and entities controlled by him) will be distributed Shares directly. This reorganization will not occur earlier than 180 days from Closing. See “Principal Shareholders”.

Pursuant to a Registration Rights Agreement, the shareholders referred to above are granted certain demand and “piggy-back” registration rights. See “Registration Rights Agreement”.

Discretion in Use of Proceeds

Management will have discretion concerning the use of proceeds in the Offering as well as the timing of their expenditures. As a result, an investor will be relying on the judgement of management for the application of the proceeds of the Offering. Management may use the net proceeds of the Offering in ways that an investor may not consider desirable. The results and the effectiveness of the application of the proceeds are uncertain. If the proceeds are not applied effectively, the Corporation’s results of operations may suffer.

MATERIAL CONTRACTS

The following are the only material contracts, other than those contracts entered into in the ordinary course of business, which the Corporation has (a) entered into since the beginning of the last financial year before the date of

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this prospectus, (b) entered into prior to such date but which contract is still in effect, or (c) to which the Corporation is or will become a party on or prior to the Closing:

• the Underwriting Agreement;

• the Registration Rights Agreement; and

• Porter’s CCOA.

CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS

In the opinion of Ogilvy Renault LLP, counsel to the Corporation, and Torys LLP, counsel to the Underwriters, the following is a general summary, as of the date hereof, of the principal Canadian federal income tax considerations under the Tax Act generally applicable to a holder who acquires Offered Shares pursuant to this Offering and who, for the purposes of the Tax Act and at all relevant times, holds Offered Shares as capital property, deals at arm’s length with the Corporation, and is not affiliated with, the Corporation (a “Holder”). The Offered Shares will generally be considered to be capital property of a Holder unless the Holder holds such Offered Shares in the course of carrying on a business, or the Holder has acquired such Offered Shares in a transaction or transactions considered to be an adventure or concern in the nature of trade.

This summary is not applicable to: (a) a Holder that is a “financial institution”, as defined in the Tax Act for purposes of the mark-to-market rules; (b) a Holder, an interest in which would be a “tax shelter investment” as defined in the Tax Act; (c) a Holder that is a “specified financial institution” as defined in the Tax Act; or (d) a Holder that has elected to use functional currency tax reporting as permitted under the Tax Act. Holders to which this summary does not apply should consult their own tax advisors.

This summary is based upon the current provisions of the Tax Act, the regulations thereto (the “Regulations”) and counsel’s understanding of the current published administrative practices and assessing policies of the Canada Revenue Agency. This summary also takes into account all specific proposals to amend the Tax Act and the Regulations that have been publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (the “Tax Proposals”), and assumes that all such Tax Proposals will be enacted in the form proposed. No assurance can be given that the Tax Proposals will be enacted in the form proposed or at all. This summary does not otherwise take into account or anticipate any changes in law, whether by way of legislative, judicial or administrative action or interpretation, nor does it address any provincial, territorial or foreign tax considerations.

This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular Holder. Accordingly, Holders are urged to consult their own tax advisors about the specific tax consequences to them of acquiring, holding and disposing of Offered Shares.

Residents of Canada

The following discussion applies to a Holder who, for the purposes of the Tax Act and any applicable income tax treaty or convention, and at all relevant times, is resident in Canada (a “Resident Holder”). A Resident Holder whose Offered Shares might not otherwise qualify as capital property may, in certain circumstances, treat such Offered Shares as capital property by making an irrevocable election pursuant to subsection 39(4) of the Tax Act.

Dividends on Shares

Dividends received or deemed to be received on Offered Shares by a Resident Holder who is an individual (other than certain trusts) will be included in income and will be subject to the gross-up and dividend tax credit rules normally applicable under the Tax Act to taxable dividends received from taxable Canadian corporations. The Corporation will, to the extent possible, designate all or a portion of such dividends as “eligible dividends” for purposes of the enhanced dividend tax credit. The Corporation will notify its shareholders of any such designations at the appropriate times. The amount of the dividend received by an individual (including certain trusts), but not the amount of the gross-up, may be subject to alternative minimum tax.

Dividends received or deemed to be received on Offered Shares by a Resident Holder that is a corporation will be included in its income and will generally also be deductible in computing its taxable income. A Resident Holder that is a “private corporation” or a “subject corporation”, each as defined in the Tax Act, may be liable under Part IV of

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the Tax Act to pay a refundable tax at a rate of 33⅓% on dividends received or deemed to be received on Offered Shares to the extent such dividends are deductible in computing the Resident Holder’s taxable income.

Dispositions of Shares

A Resident Holder who disposes of (or is deemed to dispose of) an Offered Share (other than to the Corporation, unless purchased by the Corporation in the open market in the manner in which shares are normally purchased by any member of the public in the open market) will generally realize a capital gain (or a capital loss) equal to the amount by which the proceeds of disposition of the Offered Share, net of any reasonable costs of disposition, exceed (or are less than) the adjusted cost base of the Offered Share to the Holder. For this purpose, the adjusted cost base to a Resident Holder of Offered Shares will be determined at any time by averaging the cost of such Offered Shares with the adjusted cost base of any other identical Offered Shares owned by the holder at that time. Such capital gain (or capital loss) will be subject to the treatment described below under “Taxation of Capital Gains and Capital Losses”.

The conversion of a Variable Voting Share into a Common Voting Share (or vice versa) will not be a disposition for purposes of the Tax Act and, accordingly, a Resident Holder will not realize a capital gain or a capital loss on the conversion.

Taxation of Capital Gains and Capital Losses

Generally, one-half of any capital gain realized by a Resident Holder for a taxation year will be included in the Resident Holder’s income in the year and one-half of any capital loss realized in the year may be deducted from taxable capital gains realized in that year, carried back and deducted in any of the three preceding taxation years, or carried forward to any subsequent taxation year, to the extent and under the circumstances permitted under the Tax Act. If the Resident Holder is a corporation, any capital loss realized on the sale of an Offered Share may in certain circumstances be reduced by the amount of any dividends which have been received or which are deemed to have been received on the Offered Share. Similar rules may apply where a corporation is a member of a partnership or a beneficiary of a trust that owns shares, directly or indirectly through a partnership or a trust. A Resident Holder that is throughout the year a “Canadian-controlled private corporation” (as defined in the Tax Act) may be liable to pay a refundable tax at a rate of 6⅔% on taxable capital gains. Taxable capital gains realized by a Resident Holder who is an individual may give rise to alternative minimum tax depending on the Resident Holder’s circumstances.

Non-Resident Holders

The following discussion applies to a Holder who, for the purposes of the Tax Act and any applicable income tax treaty or convention, and at all relevant times, is not (and is not deemed to be) resident in Canada and will not use or hold (and will not be deemed to use or hold) the Offered Shares in, or in the course of, carrying on a business or part of a business in Canada (a “Non-Resident Holder”). In addition, this discussion does not apply to a Non-Resident Holder that is an insurer that carries on an insurance business in Canada and elsewhere.

Dividends on Shares

Canadian withholding tax at a rate of 25% (subject to reduction under the provisions of any applicable income tax treaty or convention) will be payable on dividends on Offered Shares paid or credited, or deemed to be paid or credited, to a Non-Resident Holder. The rate of withholding tax applicable to a dividend paid on Offered Shares to a Non-Resident Holder who is resident in the U.S. for purposes of the Canada-U.S. Income Tax Convention (the “Convention”), beneficially owns the dividend and qualifies for the benefits of the Convention will generally be reduced to 15% or, if the Non-Resident Holder is a corporation that owns at least 10% of the voting stock of the Corporation, to 5%. A person who is resident in the U.S. for purposes of the Convention may not necessarily qualify for the benefits of the Convention. A Non-Resident Holder who is resident in the U.S. is advised to consult its own tax advisor in this regard.

Dispositions of Shares

A Non-Resident Holder will not be subject to tax under the Tax Act in respect of any capital gain realized by such Non-Resident Holder on a disposition of Offered Shares unless the Offered Shares constitute “taxable Canadian property” (as defined in the Tax Act) of the Non-Resident Holder at the time of disposition and the holder is not entitled to relief under an applicable income tax treaty or convention. If at the time of such disposition the Offered

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Shares are listed on a “designated stock exchange”, the Offered Shares generally will not constitute taxable Canadian property of a Non-Resident Holder, unless at any time during the 60-month period immediately preceding the disposition the Non-Resident Holder, persons with whom the Non-Resident Holder did not deal at arm’s length, or the Non-Resident Holder together with all such persons, owned 25% or more of the issued shares of any class or series of shares of the capital stock of the Corporation. Under Tax Proposals announced by the Minister of Finance on March 4, 2010, Offered Shares listed on a “designated stock exchange” will generally not constitute “taxable Canadian property” of a Non-Resident Holder unless, during the 60-month period that ends at the time the Offered Shares are disposed of, both (i) 25% or more of the issued shares of any class of the capital stock of the Corporation were owned by or belonged to one or any combination of the Non-Resident Holder and persons with whom the Non-Resident Holder did not deal at arm’s length, and (ii) more than 50% of the fair market value of the Offered Shares was derived directly or indirectly from one or any combination of real or immovable property situated in Canada, Canadian resource properties, timber resource properties and options in respect of, interests in, or civil law rights in, any such properties.

As long as the Offered Shares are listed on a “recognized stock exchange”, as defined in the Tax Act, a Non-Resident Holder who disposes of Offered Shares that are taxable Canadian property will not be required to satisfy the obligations imposed under section 116 of the Tax Act.

ELIGIBILITY FOR INVESTMENT

On the basis of the applicable legislation in effect on the date hereof, in the opinion of Ogilvy Renault LLP, counsel to the Corporation, and Torys LLP, counsel to the Underwriters, subject to the provisions of any particular plan and provided that the Common Voting Shares are listed on a designated stock exchange, the Common Voting Shares will on the Closing be qualified investments under the Tax Act and the Regulations for trusts governed by registered retirement savings plans, registered retirement income funds, registered disability savings plans, deferred profit sharing plans, registered education savings plans and tax-free savings accounts (“TFSA”).

Notwithstanding that the Common Voting Shares will be a qualified investment for a trust governed by a TFSA, the holder of a Common Voting Share will be subject to a penalty tax if such Common Voting Shares are “prohibited investments” for purposes of section 207.01 of the Tax Act. A Common Voting Share will not be a prohibited investment for a trust governed by a TFSA provided that the holder deals at arm’s length with the Corporation for purposes of the Tax Act, and provided that the holder does not have a “significant interest” (as defined in the Tax Act) in the Corporation or a person or partnership that does not deal at arm’s length with the Corporation for purposes of the Tax Act.

INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS

Other than as set out below or described elsewhere in this prospectus, none of (i) the directors or executive officers of Porter, (ii) the shareholders who beneficially own or control or direct, directly or indirectly, more than 10% of the voting shares of the Corporation, or (iii) any associate or affiliate of the persons referred to in (i) and (ii), has or has had any material interest, direct or indirect, in any transaction within the three years before the date of this prospectus or in any proposed transaction that has materially affected or is reasonably expected to materially affect Porter or any of its subsidiaries.

EXPERTS

No person or company whose profession or business who is named as having prepared or certified a report, valuation, statement or opinion described or included in the prospectus, or whose profession or business gives authority to a report, valuation, statement or opinion described or included in the prospectus, holds any registered or beneficial interest, direct or indirect, in any of our securities or other property of our Corporation or one of our associates or affiliates and no such person or company, or a director, officer or employee of such person or company, is expected to be elected, appointed or employed as one of our directors, officers or employees or as a director, officer or employee of any of our associates or affiliates and no such person is one of our promoters or the promoter of one of our associates or affiliates.

Certain legal matters relating to the Offering will be passed upon on our behalf by Ogilvy Renault LLP, and on behalf of the Underwriters by Torys LLP. As of the date of this prospectus, the partners and associates of these firms, each as a group, beneficially own, directly and indirectly, less than 1% of the issued and outstanding securities of the Corporation.

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LEGAL PROCEEDINGS AND REGULATORY ACTIONS

Porter, together with two of its subsidiaries, Porter Airlines and Porter FBO, have been the target of aggressive litigation brought by Jazz and/or Air Canada in respect of the use of BBTCA.

Porter, Porter Airlines and Porter FBO were parties, along with the TPA, in actions commenced by Jazz in the Ontario Superior Court of Justice and the Federal Court of Canada in 2006. Jazz has discontinued all three of the proceedings it has brought against the Porter entities and the TPA.

Porter advanced claims in the Federal Court of Canada and the Ontario Superior Court against Air Canada and Jazz seeking substantial monetary damages, as well as certain declaratory relief relating to an allegation of an anti-competitive conspiracy between Air Canada and Jazz. On May 14, 2010, Porter discontinued its claim in the Federal Court. These claims remain before the Ontario Superior Court.

In 2010, Air Canada initiated a proceeding in Federal Court for judicial review of the process for allocating aircraft slots at BBTCA announced by the TPA on December 24, 2009. In this proceeding, Air Canada has alleged that the TPA’s slot allocation process is anti–competitive in that it favours Porter over other carriers seeking slots at BBTCA, and that the process is contrary to law, including the Canada Marine Act. Air Canada is seeking orders that would require the TPA to revisit its announced slot allocation process and to follow a process that complies with what Air Canada alleges are the legal rules that govern the TPA’s operations of BBTCA. Air Canada’s application is scheduled to be heard by the Federal Court in early July 2010. See “Business of the Corporation - BBTCA – Slot Distribution”. Air Canada is not seeking monetary damages in these proceedings.

Management believes that it will be successful in this proceeding for a number of reasons. Air Canada is seeking to challenge commercial arrangements which management believes are fair and reasonable. Management believes that the slot allocation process announced by the TPA will be implemented in accordance with internationally recognized procedures in the airline industry. As a result of these procedures, Porter will be entitled to be allocated slots in recognition that it is an incumbent carrier and new entrants will be invited to make requests for new slots.

Although management believes it will be successful in the Air Canada proceeding, an adverse ruling could have a material adverse effect on Porter’s future cash flows, results of operations and financial condition. A negative ruling in the litigation could result in, among other things, the TPA being compelled to reallocate slots or revise its announced process for allocating aircraft slots at BBTCA, which, in either case, could negatively impact slot availability for Porter at BBTCA. A reduction in slots allocated to Porter at the BBTCA could result in, among other things, a reduction in passenger traffic. In addition, the allocation of slots to new commercial carriers operating at BBTCA may negatively affect Porter’s growth strategy, result in an increase in the amount of traffic at BBTCA and associated congestion or delays, and a downward pressure on Porter’s fares and passenger levels. This reduction in revenue could be offset, in part, by revenue generated by CCTC from terminal fees paid by new entrants at the BBTCA. In these circumstances, Porter would also examine redeploying its aircraft to other markets. See “Business of the Corporation – BBTCA – Slot Distribution”.

Following the TPA’s announcement on April 9, 2010 that it will be formally accepting requests for proposals from carriers for the additional slots to be made available at BBTCA, Porter was advised that Air Canada may seek an injunction to suspend the TPA’s slot allocation process pending judicial review of this process scheduled to be heard in July 2010. At this time, Air Canada has not sought an injunction. Management believes that if Air Canada were to seek an injunction, it would not be successful in obtaining one. In addition, Porter was advised that Air Canada may also seek orders at the July 2010 hearing to set aside Porter’s entitlement to slots under its CCOA. On May 4, 2010, Air Canada brought forth an application in Federal Court for judicial review of TPA’s announcement on April 9, 2010 that it will be formally accepting requests for proposals from carriers for additional slots made available at BBTCA. Air Canada has requested that this matter be heard in July 2010 at the same time as the other application for judicial review is heard. Management believes that for the reasons discussed above, we will be successful in any such application. Although management believes that we will be successful, an adverse ruling could have a material adverse effect on Porter’s cash flows, results of operations and financial conditions as discussed above.

Except as disclosed above, Porter is not the subject to any material legal proceedings, nor are we or any of our properties a party to or the subject of any such proceedings and no such proceedings are known to be contemplated. We are, from time to time, involved in routine, non-material litigation arising in the ordinary course of our business.

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AUDITORS, TRANSFER AGENT AND REGISTRAR

The auditor of the Corporation is Ernst & Young LLP, Chartered Accountants, 222 Bay Street, Toronto, Ontario, M5K 1J7.

The transfer agent and registrar for the Offered Shares is Computershare Investor Services Inc. at its principal offices in Toronto, Ontario.

PURCHASERS’ STATUTORY RIGHTS OF WITHDRAWAL AND RESCISSION

Securities legislation in certain of the provinces and territories of Canada provides purchasers with the right to withdraw from an agreement to purchase securities. This right may be exercised within two business days after receipt or deemed receipt of a prospectus and any amendment. In several of the provinces and territories of Canada, the securities legislation further provides a purchaser with remedies for rescission or, in some jurisdictions, revisions of the price or damages if the prospectus and any amendment contains a misrepresentation or is not delivered to the purchaser, provided that the remedies for rescission, revisions of the price or damages are exercised by the purchaser within the time limits prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for the particulars of these rights or consult with a legal advisor.

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GLOSSARY OF TERMS

ASMs or Available Seat Miles is a measure of capacity, calculated by multiplying the total number of seats available for passengers by miles flown.

Audit Committee has the meaning set out under the heading “Corporate Governance − Board of Directors”.

Average daily aircraft utilization (hours) is the average operating hours per day per operating aircraft.

Average flight length is the average distance in miles of a non-stop leg between take-off and landing.

BBTCA means the Billy Bishop Toronto City Airport.

Board of Directors means the board of directors of the Corporation.

breakeven load factor means the airline’s load factor multiplied by total operating expenses divided by total revenue.

CASM or Cost Per Available Seat Mile is a measure of cost per unit of capacity, calculated by dividing total operating costs by ASMs.

CATSA means the Canadian Air Transport Security Authority.

CCOA has the meaning set out under the heading “Business of the Corporation – BBTCA”.

CCTC means City Centre Terminal Corp., a wholly-owned subsidiary of Porter.

CDS means CDS Clearing and Depository Services Inc.

CDS Participants has the meaning set out under the heading “Plan of Distribution”.

CEO means chief executive officer.

CFO means chief financial officer.

CTA means the Canada Transportation Act (Canada), as amended.

Closing means the closing of the Offering.

Code of Business Conduct has the meaning set out under the heading “Corporate Governance – Ethical Business Conduct”.

Common Voting Shares means the common voting shares in the capital of the Corporation to be created upon the filing of articles of amendment of the Corporation.

Compensation Committee has the meaning set out under the heading “Corporate Governance − Board of Directors”.

Construction Loans has the meaning under the heading “Management Discussion and Analysis – Debt Financing - Construction Loans”.

Construction Loan Agreements has the meaning set out under the heading “Management Discussion and Analysis – Debt Financing – Construction Loans”.

Convention has the meaning set out under the heading “Certain Canadian Federal Income Tax Considerations – Non-Resident Holders – Dividends on Shares”.

Corporate Governance and Nominating Committee has the meaning set out under the heading “Corporate Governance − Board of Directors”.

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Corporation or Porter means Porter Aviation Holdings Inc.

EdgeStone means certain private equity funds managed by EdgeStone Capital Partners, L.P.

Fiscal 2007 means the year ended August 31, 2007.

Fiscal 2008 means the year ended August 31, 2008.

Fiscal 2009 means the year ended December 31, 2009.

Fiscal 2010 means the year ended December 31, 2010.

GAAP means Canadian generally accepted accounting principles.

Holder has the meaning set out under the heading “Certain Canadian Federal Income Tax Considerations”.

IFRS means International Financial Reporting Standards.

Interim Credit Facilities has the meaning set out under the heading “Management Discussion and Analysis – Debt Financing – Credit Facilities”.

Jazz has the meaning set out under the heading “Business of the Corporation - Industry Overview”.

load factor is a measure of capacity utilization, calculated by dividing RPMs by ASMs.

Minister means the Minister of Transport.

NI 58-101 has the meaning set out under the heading “Corporate Governance – Independence of Directors”.

Non-Resident Holder has the meaning set out under the heading “Certain Canadian Federal Income Tax Considerations – Non-Resident Holders”.

OBCA means the Business Corporations Act (Ontario).

Offered Shares means the Common Voting Shares and Variable Voting Shares being offered under this prospectus.

Offering means this initial public offering of Offered Shares.

Offering Price means the price of each Offered Share that will be issued pursuant to the Offering.

Old Option Plan has the meaning set out under the heading “Options to Purchase Securities”.

Option Plan has the meaning set out under “Statement of Executive Compensation”.

Over-Allotment Option means the option granted by the Corporation to the Underwriter to purchase up to an additional Offered Shares at the Offering Price, exercisable, in whole or in part, at the discretion of the Underwriters for a period of 30 days from the Closing.

Pearson Airport means the Toronto Pearson International Airport.

Porter FBO means Porter FBO Limited, a wholly-owned subsidiary of Porter.

Porter Pass means a flight pass offered by the Corporation.

Pre-Closing Reorganization has the meaning set out under the heading “Corporate Structure - Name, Address and Incorporation”.

Preferred Shares means the preferred shares of the Corporation, issuable in series, to be created upon the filing of the articles of amendment of the Corporation.

Profit Sharing Plan has the meaning set out under “Statement of Executive Compensation”.

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Qualified Canadian means a Canadian as defined in subsection 55(1) of the CTA as a Canadian citizen or a permanent resident within the meaning of subsection 2(1) of the Immigration and Refugee Protection Act (Canada), a government in Canada or an agent of such a government or a corporation or other entity that is incorporated or formed under the laws of Canada or a province, that is controlled in fact by Canadians and of which at least 75%, or such lesser percentage as the Governor in Council may by regulation specify, of the voting interests are owned and controlled by Canadians.

RASM or Revenue per Available Seat Mile is a measure of revenue per unit of capacity, calculated by dividing total revenue by ASMs.

Registration Rights Agreement has the meaning set out under the heading “Registration Rights Agreement”.

Regulations means the regulations promulgated under the Income Tax Act (Canada).

Resident Holder has the meaning set out under the heading “Certain Canadian Federal Income Tax Considerations – Residents of Canada”.

Restricted Share Plan has the meaning set out under “Statement of Executive Compensation”.

Revenue passenger mile or RPM is a measure of passenger traffic, calculated by multiplying the number of total flight lengths (miles) by the total number of passengers.

Security Charge Act means the Air Traveler’s Security Charge Act (Canada), as amended.

Shareholders’ Agreement has the meaning set out under the heading “Principal Shareholders”.

Shares means the Common Voting Shares and Variable Voting Shares.

TPA means the Toronto Port Authority.

Tax Act means the Income Tax Act (Canada), as amended.

Tax Proposals has the meaning set out under the heading “Certain Canadian Federal Income Tax Considerations”.

Tripartite Agreement has the meaning set out under the heading “Business of the Corporation – BBTCA”.

U.S. means the United States of America.

U.S. Department means the U.S. Department of Transportation.

U.S. Securities Act means the United States Securities Act of 1933, as amended.

Underwriters means, collectively, RBC Dominion Securities Inc., National Bank Financial Inc., BMO Nesbitt Burns Inc., CIBC World Markets Inc., TD Securities Inc., GMP Securities L.P., Credit Suisse Securities (Canada) Inc., Raymond James Ltd. and Versant Partners Inc.

Underwriting Agreement has the meaning set out under the heading “Plan of Distribution”.

Variable Voting Shares means the variable voting shares in the capital of the Corporation to be created upon the filing of articles of amendment of the Corporation.

Yield is a measure of unit revenue, calculated as total revenue generated per RPM.

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INDEX TO FINANCIAL STATEMENTS Page

Audited consolidated financial statements of Porter Aviation Holdings Inc. as at December 31, 2009 and 2008 and August 31, 2008 and for the year ended December 31, 2009, the four month period ended December 31, 2008 and the years ended August 31, 2008 and 2007 .................................................................. F-4

Unaudited interim consolidated financial statements of Porter Aviation Holdings Inc. as at March 31, 2010 and for the three month periods ended March 31, 2010 and 2009............................................................. F-34

Auditors’ Consent ............................................................................................................................................... F-51

F-2

Consolidated Financial Statements Porter Aviation Holdings Inc. December 31, 2009

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AUDITORS’ REPORT

To the Directors of Porter Aviation Holdings Inc.

We have audited the consolidated balance sheets of Porter Aviation Holdings Inc. (the “Company”) as at December 31, 2009 and 2008 and August 31, 2008 and the consolidated statements of loss and comprehensive loss and deficit and cash flows for the year ended December 31, 2009, the four month period ended December 31, 2008 and the years ended August 31, 2008 and 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2009 and 2008 and August 31, 2008 and the results of its operations and its cash flows for the year ended December 31, 2009, the four month period ended December 31, 2008, and the years ended August 31, 2008 and 2007 in accordance with Canadian generally accepted accounting principles.

Toronto, Canada February 17, 2010 [except as to Note 26 which is as of May 17, 2010]

(signed) Ernst & Young LLP Chartered Accountants

Licensed Public Accountants

F-4

Porter Aviation Holdings Inc. Incorporated under the laws of Ontario

CONSOLIDATED BALANCE SHEETS [in thousands of Canadian dollars] [See Basis of Presentation - note 1]

As at December 31, December 31, August 31,

2009 2008 2008 $ $ $

ASSETS Current Cash and cash equivalents 20,911 24,808 42,126 Restricted cash 12,256 9,570 9,384 Accounts receivable, net [note 4] 9,944 14,514 5,057 Inventory [note 5] 1,832 1,086 966 Prepaid expenses and deposits 1,666 1,429 960 Total current assets 46,609 51,407 58,493 Property and equipment, net [note 6] 420,734 186,778 138,473 Goodwill 652 652 652 Long-term deposits and other assets [note 7] 3,312 11,666 12,359 471,307 250,503 209,977 LIABILITIES AND SHAREHOLDERS’ EQUITY Current Bank indebtedness [note 19] 998 — — Accounts payable and accrued liabilities [note 10] 24,080 21,087 13,008 Advance ticket sales 14,005 6,931 8,134 Current portion of long-term debt [note 8] 17,269 7,139 4,685 Current portion of capital lease obligations [note 9] 2,103 372 365 Total current liabilities 58,455 35,529 26,192 Long-term debt [note 8] 305,453 124,674 82,437 Capital lease obligations [note 9] 753 4,031 4,202 Other long-term liabilities 68 267 — Total liabilities 364,729 164,501 112,831 Commitments and contingencies [notes 17 and 18] Shareholders’ equity Share capital [note 12] 144,427 119,427 119,427 Contributed surplus [note 13] 684 499 431 Deficit (38,533) (33,924) (22,712) Total shareholders’ equity 106,578 86,002 97,146 471,307 250,503 209,977 See accompanying notes On behalf of the Board:

(signed) Robert J. Deluce (signed) Donald J. Carty

Director Chairman

F-5

Porter Aviation Holdings Inc.

CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS AND DEFICIT

[in thousands of Canadian dollars]

Four-month Year ended period ended Year ended Year ended

December

31, December

31, August 31, August 31, 2009 2008 2008 2007 $ $ $ $

REVENUE Passenger 145,343 36,470 77,755 33,869 Other [note 16] 5,860 1,689 3,952 2,803 151,203 38,159 81,707 36,672 EXPENSES Salaries [note 20] 32,002 7,256 16,249 11,197 Fuel 28,732 7,812 18,250 8,335 Sales and marketing 25,276 6,185 13,163 9,497 Airport operations 24,844 6,376 11,823 5,508 Flight operations and navigation charges 12,690 2,513 5,207 3,830 Depreciation 12,385 2,597 6,115 4,133 General and administration [note 16] 9,355 2,392 6,146 6,219 Food, beverages and supplies 5,638 1,357 2,753 1,325 Aircraft maintenance, materials and supplies 4,765 1,766 1,200 780 155,687 38,254 80,906 50,824 Loss from operations (4,484) (95) 801 (14,152) Non-operating income (expense):

Interest income 311 416 718 1,137 Interest expense - short-term (59) — (55) (6) Interest expense - long-term (9,217) (1,887) (2,132) (369) Gain (loss) on foreign exchange 8,846 (9,640) (2,649) 1,904

(119) (11,111) (4,118) 2,666 Loss before income taxes (4,603) (11,206) (3,317) (11,486) Income tax expense [note 11] (6) (6) — — Net loss and comprehensive loss for the period (4,609) (11,212) (3,317) (11,486) Deficit, beginning of period (33,924) (22,712) (19,395) (7,909) Deficit, end of period (38,533) (33,924) (22,712) (19,395) Basic and fully diluted loss per share [note 14] ($0.57) ($1.38) ($0.41) ($1.42) See accompanying notes

F-6


CONSOLIDATED STATEMENTS OF CASH FLOWS [in thousands of Canadian dollars]

Four-month

Year ended period ended

Year ended

Year ended

December

31, December

31, August

31, August

31, 2009 2008 2008 2007 $ $ $ $

OPERATING ACTIVITIES Net loss for the period (4,609) (11,212) (3,317) (11,486) Add (deduct) items not involving cash:

Depreciation 12,385 2,597 6,115 4,133 Amortization of transaction costs 160 73 56 — Foreign exchange loss (gain) (8,084) 8,566 3,197 131 Stock-based compensation expense 185 68 431 — Net change in non-cash working capital [note 24] 10,997 (2,196) 5,564 3,034

Increase in restricted cash (2,920) (186) (3,178) (4,256) Cash provided by (used in) operating activities 8,114 (2,290) 8,868 (8,444) INVESTING ACTIVITIES Additions to property and equipment (233,786) (49,522) (43,261) (41,864) Increase in long-term deposits (2,259) (3,389) (9,658) (2,237) Cash used in investing activities (236,045) (52,911) (52,919) (44,101) FINANCING ACTIVITIES Issuance of stock 25,000 — — — Increase in bank indebtedness 998 — — — Increase in long-term debt 209,805 39,565 84,829 — Repayment of long-term debt (10,563) (1,795) (1,882) (75) Repayment of capital lease obligations (1,035) (157) (1,564) (2,051) Increase (decrease) in long-term liabilities (199) 267 — — Cash provided by (used in) financing activities 224,006 37,880 81,383 (2,126) Effect of foreign exchange on cash 28 3 2 (19) Net increase (decrease) in cash during the period (3,897) (17,318) 37,334 (54,690) Cash, beginning of period 24,808 42,126 4,792 59,482 Cash, end of period 20,911 24,808 42,126 4,792 See accompanying notes


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [in thousands of Canadian dollars]

December 31, 2009

F-7

1. BASIS OF PRESENTATION

The accompanying consolidated financial statements are of Porter Aviation Holdings Inc. [the “Company” or “PAHI”]. The Company’s main wholly owned subsidiary, Porter Airlines Inc. [“PAI”], is a Canadian regional airline based in Toronto. It operates domestic and trans-border services from Billy Bishop Toronto City Airport [“BBTCA”] to several destinations in Canada and the United States. The Company also wholly owns Porter FBO Limited [“PFBO”], a full-service, fixed base operator at BBTCA. Another wholly owned subsidiary, Porter Aircraft Leasing Corp. [“PALC”], based in Alberta, owns and leases commercial aircraft. Currently, it leases eighteen aircraft to PAI. The Company also wholly owns City Centre Terminal Corp. [“CCTC”], the operator of an airport terminal currently being constructed at BBTCA. The Company’s consolidated financial statements include the accounts of its wholly owned subsidiaries including PAI, PFBO, PALC and CCTC. All intercompany balances and transactions have been eliminated.

These consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future. The Company has incurred net losses of $4,609 and $11,212 for the year ended December 31, 2009 and the four-month period ended December 31, 2008, and has an accumulated deficit of $38,533 and a working capital deficiency of $11,846 at December 31, 2009. At December 31, 2009, the Company had $20,127 of debt that requires, beginning in December 2010, the maintenance of a minimum working capital ratio of 1:1 and a long-term debt/tangible equity ratio not exceeding 3.2:1.

The Company’s ability to continue as a going concern is dependent upon its ability to fund its working capital and achieve profitable operations or raise sufficient debt or equity. The consolidated financial statements do not give effect to any adjustments to recorded amounts and their classification which could be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different than those reflected in the consolidated financial statements.

The Company changed its year end from August 31 to December 31 in 2008.

2. SIGNIFICANT ACCOUNTING POLICIES

These consolidated financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles. The significant accounting policies adopted are as follows:

Use of estimates

The preparation of these consolidated financial statements in accordance with Canadian 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 these consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual amounts may differ from these estimates.



December 31, 2009

F-8

Cash and cash equivalents

Cash and cash equivalents are comprised of cash and highly liquid short-term investments which have maturity dates of up to three months from the date of purchase. The Company did not hold any short-term investments as at December 31, 2009.

Restricted cash

Restricted cash represents cash held by financial institutions as collateral to secure letters of credit and credit card advance ticket sales. The amount of cash held for the purposes of credit card advance ticket sales is based on credit card processing agreements in place with the respective credit card processors. These agreements are subject to renewal and renegotiation from time to time.

Inventory

Inventory consists of consumable aircraft spare parts, maintenance materials, supplies and fuel. These items are stated at the lower of cost and net realizable value using the specific identification method for consumable aircraft spare parts, maintenance materials and supplies, the first-in, first-out method [“FIFO”] for catering inventory, and the weighted average cost method for fuel. These items are charged to expense when used. Allowances for obsolescence are provided over the estimated useful life of the related aircraft and engines for consumable spare parts expected to be on hand at the date aircraft are retired from service.

Property and equipment

Property and equipment are recorded at cost and depreciated to their estimated residual values where applicable, using the straight-line method as follows:

Aircraft and rotables 20 years [20% residual value] Buildings over the term of the related land lease Ground property and equipment 10 years Vehicles 5 years Furniture and office equipment 10 years Computer hardware 3 years Computer software 3 years Leasehold improvements over the term of the lease

Government assistance received towards the acquisition of property and equipment is deducted from the related asset with any depreciation calculated on the net amount.

Capitalized costs

Interest attributable to funds used to finance property and equipment is capitalized to the related asset until the point of being ready for commercial use [note 6].

Costs of new route development are expensed as incurred.



December 31, 2009

F-9

Goodwill

Effective January 1, 2009 the Company adopted the new Canadian Institute of Chartered Accountants (“CICA”) accounting standard Section 3064, Goodwill and Intangible Assets which provides guidance on the recognition, measurement, presentation and disclosure for goodwill and intangible assets, other than the initial recognition of goodwill or intangible assets acquired in a business combination. No adjustment was recorded on transition.

Goodwill is not amortized and is tested annually for impairment in value. Due to the change in year end from August 31 to December 31, 2008, the Company performs annual impairment testing as of October 1 each year. In addition to the annual impairment test, the Company will perform an impairment test if an event occurs or circumstances change that more likely than not reduces the fair value of a reporting unit below its carrying value.

To conduct impairment testing, the Company compares the fair value of the reporting unit to its carrying amount. If the carrying value of the reporting unit exceeds its fair value, the Company would perform the second step of the impairment test. In the second step, the Company compares the implied fair value of the reporting unit’s goodwill to its carrying amount, and any excess is recognized as an impairment charge.

Impairment of long-lived assets

The Company reviews long-lived assets such as property and equipment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. When indicators of impairment of the carrying value of the asset exist, and the carrying value is greater than the net recoverable value, an impairment loss is recognized to the extent that the fair value is below the carrying value.

Income taxes

The Company uses the liability method of accounting for future income taxes. Under this method, current income taxes are recognized for the estimated income taxes payable for the current year. Future income tax assets and liabilities are recognized for temporary differences between the tax and accounting bases of assets and liabilities, calculated using the currently enacted or substantively enacted tax rates and laws expected to apply in the period that the temporary differences are expected to reverse.

Financial instruments

Effective January 1, 2009, the Company adopted the recommendations of the Emerging Issues Committee (“EIC”) of the CICA relating to Abstract EIC-173, Credit Risk and the Fair Value of Financial Assets and Financial Liabilities. This Abstract confirms that an entity’s own credit risk and the credit risk of the counterparty should be taken into consideration in determining the fair value of financial assets and liabilities, including derivative instruments. The adoption of this guidance had no significant effect on the Company’s consolidated financial statements.

In accordance with CICA Section 3855, Financial Instruments – Recognition and Measurement, financial assets and financial liabilities, including derivatives, are recognized on the consolidated balance sheet when the Company becomes a party to the contractual provisions of the financial instrument or non-financial derivative contract. All financial instruments are required to be measured at fair value on initial recognition unless fair value cannot be measured reliably. Measurement in subsequent periods is dependent upon the classification of the financial instrument as held-for-trading, held-to-maturity, available-for-sale, loans and receivables, or other financial liabilities.

The held-for-trading classification is applied when an entity is trading in an instrument or alternatively the standard permits that any financial instrument be irrevocably designated as held-for-trading. Financial assets and financial



December 31, 2009

F-10

liabilities classified as held-for-trading are measured at fair value with changes in those fair values recognized in net income. The held-to-maturity classification is applied only if the asset has specified characteristics and the entity has the ability and intent to hold the asset until maturity. Financial assets classified as held-to-maturity, loans and receivables, or other financial liabilities are measured at amortized cost using the effective interest method of amortization.

The available-for-sale classification is applied to non-derivative assets that are designated as available-for-sale and therefore not classified as loans and receivables, held-to-maturity or held-for-trading. Assets designated as available-for-sale are carried at fair value, with unrealized gains and losses included in Other Comprehensive Income [“OCI”]. Once these gains or losses are realized or losses are determined to be other than temporary impairments these gains or losses are included in net income. Available-for-sale assets are measured at fair value, with the exception of assets that do not have a readily determinable fair value which are recorded at cost. As at December 31, 2009, the Company does not have any financial assets classified as available-for-sale.

For financial instruments measured at amortized cost, transaction costs or fees, premiums or discounts earned or incurred are recorded, at inception, net against the fair value of the financial instrument. Interest expense is recorded using the effective interest method.

The Company has elected the following balance sheet classifications:

• Cash and cash equivalents and restricted cash are classified as held-for-trading and any change in fair value is recorded through the consolidated statement of loss.

• Accounts receivable are classified as loans and receivables and are measured at amortized cost. Upon initial recognition, cost is considered equivalent to fair value. Subsequent measurements are recorded at amortized cost using the effective interest rate method. Interest income is recorded in the consolidated statement of loss, as applicable.

• Accounts payable, accrued liabilities, bank indebtedness, long-term debt and capital lease obligations are classified as other financial liabilities and are measured at amortized cost using the effective interest rate method. Interest expense is recorded in the consolidated statement of loss.

The Company categorizes its financial assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs used in the measurement.

Level 1: This level includes assets and liabilities measured at fair value based on unadjusted quoted prices for identical assets and liabilities in active markets that are accessible at the measurement date.

Level 2: This level includes valuations determined using directly or indirectly observable inputs other than quoted prices included within Level 1. Derivative instruments in this category are valued using models or other industry standard valuation techniques derived from observable market inputs.

Level 3: This level includes valuations based on inputs which are less observable, unavailable or where the observable data does not support a significant portion of the instruments’ fair value.

In June 2009, the CICA issued amendments to Section 3862, Financial Instruments – Disclosures, that are effective for the Company’s financial statements for the year ended December 31, 2009. The amendments are intended to enhance disclosure regarding fair value measurement and liquidity risk exposures.



December 31, 2009

F-11

Comprehensive income

Comprehensive income is composed of the Company’s net income and OCI. OCI includes unrealized gains and losses on available-for-sale securities and changes in the fair market value of derivative instruments designated as cash flow hedges, all net of income taxes.

Financing charges and other transaction costs

Financing charges and other transaction costs incurred by the Company relating to the issuance of debt are capitalized against the carrying value of the related debt and amortized using the effective interest rate method over the term of the debt [note 8].

Revenue recognition

Passenger revenues include ticket sales and related revenues such as change and cancellation fees. Ticket sales are recognized when the air transportation is provided. Change and cancellation fee revenues are recognized when the booking is completed. Tickets sold, but not yet traveled, are reported in the consolidated balance sheet as advance ticket sales. Other revenues include rental, fuel, advertising, charter and other miscellaneous revenues. Rental revenues, fuel sales, and advertising sales are recognized when services are rendered or goods are delivered. Charter revenues are recognized when the air transportation is provided.

Maintenance costs

Aircraft maintenance and repairs, including major overhauls, are charged to operating expenses as they are incurred. The Company has entered into an engine maintenance contract with a fixed price per hour flown. The contractual obligation under this agreement arises when the engine is delivered to the maintenance provider for service.

Foreign currency translation

Monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars at the rates of exchange in effect at the consolidated balance sheet date. Non-monetary assets, liabilities and revenue and expense items are translated at rates prevailing when they were acquired or incurred. Foreign exchange gains and losses are included in net loss for the period.

Stock-based compensation

The Company accounts for stock options using the fair value method. Under the fair value method, compensation expense for options is measured at fair value at the grant date and expensed on a straight-line basis over the applicable vesting period with an off-setting entry to contributed surplus. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. Upon the exercise of stock options, consideration received together with amounts previously recorded in contributed surplus is recorded as an increase in share capital.

Frequent flyer program

The Company uses the incremental cost method for accounting for obligations arising under its frequent flyer program. Under the incremental cost method, a liability is recorded for the incremental cost associated with rewarding frequent flyer points expected to be redeemed in the future.



December 31, 2009

F-12

3. FUTURE CHANGES IN ACCOUNTING POLICIES

The CICA issued the following new accounting standards. These new standards apply to consolidated financial statements relating to the Company’s fiscal years beginning on or after January 1, 2010.

Business Combinations [CICA 1582] In January 2009, the CICA issued Section 1582, Business Combinations. This section is effective January 1, 2011 and applies prospectively to business combinations for which the acquisition date is on or after the first annual reporting period of the Company beginning on or after January 1, 2011. Early adoption is permitted. This section replaces Section 1581, Business Combinations and harmonizes the Canadian standards with International Financial Reporting Standards [“IFRS”].

Consolidated financial statements and non-controlling interests [CICA 1601 and 1602] Sections 1601 and 1602 supersede former Section 1600, Consolidated Financial Statements. Section 1601, which sets out standards for the preparation of consolidated financial statements, is effective for interim and annual consolidated financial statements related to fiscal years beginning on or after January 1, 2011. Section 1602 establishes standards for accounting for a non-controlling interest in a subsidiary in consolidated financial statements subsequent to a business combination. This Section, constituting the equivalent of International Accounting Standard IAS 27, Consolidated and Separate Financial Statements, is effective for interim and annual consolidated financial statements beginning on or after January 1, 2011.

Multiple deliverable revenue arrangements [EIC-175] In December 2009, the CICA issued EIC-175 “Multiple Deliverable Revenue Arrangements” which replaces EIC-142 “Revenue Arrangements with Multiple Deliverables” and may be applied prospectively and will apply to the Company effective January 2011. The abstract includes updated guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated, and the consideration allocated. The Company is reviewing the guidance to assess the potential impact on its consolidated financial statements.

The Company does not anticipate that the adoption of these standards will impact its financial results.

4. ACCOUNTS RECEIVABLE

Included in accounts receivable is $1,772 [December 31, 2008 - $2,050, August 31, 2008 - $1,286] relating to cash amounts held back by a credit card processor as collateral for advance ticket sales. Upon issuance of a letter of credit by the Company, this amount would be immediately collected.

5. INVENTORY

Inventory consists of the following:

December 31, December 31, August 31, 2009 2008 2008 $ $ $ Consumable aircraft spare parts,

maintenance materials and supplies 1,286 623 403 Fuel inventory 352 298 398 Catering inventory 190 160 160 Other 4 5 5 1,832 1,086 966



December 31, 2009

F-13

There were no write-downs or reversals of write-downs made during the year ended December 31, 2009, the period ended December 31, 2008 or the year ended August 31, 2008 or 2007. Included in aircraft maintenance, materials and supplies expense is $2,530 [December 31, 2008 - $455, August 31, 2008 - $753, August 31, 2007 - $485] related to spare parts and supplies consumed during the period.

6. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

December 31, 2009 Net Accumulated book Cost depreciation value $ $ $ Aircraft and rotables 378,343 18,632 359,711 Buildings 54,715 2,142 52,573 Ground property and equipment 6,429 1,459 4,970 Vehicles 1,260 818 442 Furniture and office equipment 1,416 361 1,055 Computer hardware 810 537 273 Computer software 1,759 1,609 150 Leasehold improvements 1,695 135 1,560 446,427 25,693 420,734

December 31, 2008 Net Accumulated book Cost depreciation value $ $ $ Aircraft and rotables 168,936 8,467 160,469 Buildings 21,084 1,541 19,543 Ground property and equipment 4,708 870 3,838 Vehicles 1,251 570 681 Furniture and office equipment 1,084 227 857 Computer hardware 582 338 244 Computer software 1,614 1,097 517 Leasehold improvements 828 199 629 200,087 13,309 186,778



December 31, 2009

F-14

August 31, 2008 Net Accumulated book Cost depreciation value $ $ $ Aircraft and rotables 121,739 6,619 115,120 Buildings 17,836 1,340 16,496 Ground property and equipment 4,348 716 3,632 Vehicles 1,251 487 764 Furniture and office equipment 1,073 190 883 Computer hardware 512 276 236 Computer software 1,598 913 685 Leasehold improvements 828 171 657 149,185 10,712 138,473

Property and equipment of $38,388 not in use was not depreciated during the year ended December 31, 2009 [December 31, 2008 - $6,158, August 31, 2008 - $1,592].

Property and equipment accounted for as capital leases have an aggregate cost of $9,156 [December 31, 2008 - $8,774, August 31, 2008 - $8,774] and an accumulated depreciation of $1,424 [December 31, 2008 - $937, August 31, 2008 - $783]. The Company depreciated $487 in respect of capital lease assets during the year [December 31, 2008 - $154 during the period, August 31, 2008 - $476 during the year, August 31, 2007 - $307 during the year].

Included in property and equipment is capitalized interest of $284 [December 31, 2008 - nil, August 31, 2008 - nil].

7. LONG-TERM DEPOSITS AND OTHER ASSETS

Included in long-term deposits and other assets are deposits of $2,312 [December 31, 2008 - $10,666, August 31, 2008 – $10,736] to an airplane manufacturer for aircraft deliveries. Also included in other assets as at December 31, 2009 and 2008 is an up-front land lease payment in the amount of $1,000 made at commencement of the construction of a new airport terminal at BBTCA. The benefits of this payment are expected to be realized over the life of the lease and accordingly, the lease payment will be amortized over the term of the land lease once the building is put into use.



December 31, 2009

F-15

8. LONG-TERM DEBT

Long-term debt consists of the following:

December 31,

2009 $

December 31,

2008 $

August 31,

2008 $

$250,828 in 14 individual term loans, repayable in monthly

installments ranging from $133 to $165, including fixed interest at a weighted average rate of 4.92%, maturing between September 2021 and December 2024, each secured by one Dash 8 402 [“Q400”] aircraft [i] 243,175 69,924 30,563

US$29,000 in two individual term loans, repayable in monthly

installments ranging from US$141 to US$288, including floating interest at the one-month U.S. dollar LIBOR rate plus 2.15%, with an effective interest rate of 2.33% as at December 31, 2009 [December 31, 2008 - 2.62%, August 31, 2008 – 4.62%], maturing February 2020, each secured by one Q400 aircraft 27,097 33,844 29,959

US$25,400 in two individual term loans, repayable in monthly

installments ranging from US$104 to US$198, with a balloon payment at the end of the term of US$4,599, including floating interest at the one-month U.S. dollar LIBOR rate plus 1.90% plus a 0.25% liquidity premium, with an effective interest rate of 2.33% as at December 31, 2009 [December 31, 2008 - 2.62%, August 31, 2008 – 4.37%], maturing January 2020. These facilities are each secured by one Q400 aircraft and have a covenant requiring the Loan to Value Margin to be maintained below 85% 23,941 29,674 26,212

$30,000 in two individual term loans of $25,000 and $5,000

respectively. The first loan is not yet fully drawn, repayable commencing on September 15, 2010 in monthly principal installments ranging from $118 to $143, plus floating interest at the lender’s floating base rate plus 2.00%. Until then, interest is being paid monthly, with an effective interest rate of 6.25% as at December 31, 2009. The second loan has not yet been drawn on. If utilized, its interest rate will be the lender’s floating base rate plus 5.00%. Both loans mature in March 2025 and are secured by the airport terminal currently under construction [note 17] [ii] 20,127 — —

US$10,000 non-revolving term loan, repayable in full on January 2,

2011, with interest at 10.00% payable in arrears monthly until then, secured by the rotables, ground equipment and vehicles of the Company [iii] 10,466 — —

$2,144 term loan, repayable in monthly installments of $20, including

interest at 4.94%, maturing August 2021, secured by one Pratt & Whitney model PW150 series engine 2,100 — —

Toronto Port Authority – mortgage payable secured by chattel

mortgage on Hangars 3 and 4 with a net book value of $1,262 [December 31, 2008 - $1,316, August 31, 2008 - $1,334], repayable in blended monthly installments of $10 including interest at a rate of 9.00% per annum, maturing July 1, 2012 270 359 388

327,176 133,801 87,122Less net book value of transaction costs being amortized over life of

the loans 4,454 1,988 — 322,722 131,813 87,122Less current portion 17,269 7,139 4,685 305,453 124,674 82,437



December 31, 2009

F-16

Future principal repayments on long-term debt are as follows:

$ 2010 17,269 2011 29,959 2012 20,357 2013 2014

21,231 22,261

2015 and thereafter 216,099 327,176

Principal repayments in the table above exclude transaction costs of $4,454 which are off-set against long-term debt in the consolidated balance sheet.

[i] Beginning in the fiscal year ending December 31, 2010, the lender will require the Company to meet a debt service coverage of 1.00x, increasing to 1.25x for fiscal year 2011 and 1.35x for fiscal year 2012 and beyond. Debt service coverage is defined as EBITDA divided by the sum of current portion of long-term debt and interest expense. The lender will also require that the aircraft and engine it finances be used at least 60% on cross border routes and that at least 80% of their departures originate from or are destined to BBTCA.

[ii] Beginning in December 2010, the lender will require the Company to maintain a minimum working capital ratio of 1:1, improving to 1.1:1 by fiscal 2011 and maintained for the duration of the loan, and a long-term debt/tangible equity ratio not exceeding 3.2:1 and improving to 3.0:1 by fiscal 2011 and maintained for the duration of the loan.

[iii] With respect to the US$10,000 non-revolving term loan, the lender requires that the borrower, PAI, within five business days of any sale or issuance of any debt or equity by PAI, prepay an aggregate principal amount of the loan equal to 100% of the net cash proceeds of any such sale or issuance of debt or equity.

9. CAPITAL LEASE OBLIGATIONS

Under a letter of agreement with an airplane manufacturer, PAHI has available aircraft spare parts on site. The value of the consumable spares included in inventory at year end is $11 [December 31, 2008 - $18, August 31, 2008 - $16] and the rotables included in property and equipment is $6,118 [December 31, 2008 - $6,388, August 31, 2008 - $6,480] and the related capital lease obligation of $1,726 [December 31, 2008 - $3,287, August 31, 2008 - $3,332] has been recorded. PAHI has the obligation to purchase the aircraft spare parts as used monthly and pays a fee of 0.5% on the balance of unused parts. PAHI repaid $674 in the current period [December 31, 2008 - $38, August 31, 2008 - $1,548] in obligations. PAHI has the obligation to purchase the remaining inventory from the airplane manufacturer on July 31, 2010.

The Company signed an agreement with a vendor to provide and install an Instrument Landing System [“ILS”] and the required associated equipment for $1,850. The ILS was accepted and put into use in October 2006. In May 2009, an amendment to the agreement was signed to include newly installed line-of-sight marine radar equipment for an additional obligation of $375. The additional amount, including the existing ILS equipment, will be payable in 42 blended monthly instalments of $36 including interest at a rate of 6% per annum commencing in May 2009 and ending in October 2012. The value of the ILS and marine radar equipment included in ground property and equipment is $1,614 [December 31, 2008 - $1,449, August 31, 2008 - $1,511] and a total capital lease obligation of $1,130 [December 31, 2008 - $1,116, August 31, 2008 - $1,235] has been recorded.



December 31, 2009

F-17

Future capital lease obligations are as follows:

$ 2010 2,161 2011 435 2012 362 2,958 Less interest (102)Minimum lease payments 2,856 Less current portion of capital lease obligations (2,103)Obligations under capital lease 753

Interest amounting to $272 [December 31, 2008 - $107, August 31, 2008 - $280, August 31, 2007 - $332] in respect of capital lease obligations was expensed during the period.

10. DEFERRED CREDITS

Deferred credits relate to credits granted to the Company from an airplane manufacturer on the future purchase of aircraft. Deferred credits of nil [December 31, 2008 - $1,011, August 31, 2008 - $1,700] are included in accounts payable and accrued liabilities.

11. INCOME TAXES

The components of future tax assets (liabilities) are as follows:

December 31, December 31, August 31, 2009 2008 2008 $ $ $ Future income tax assets (liabilities) Non-capital losses carried forward 6,500 6,447 6,775 Property and equipment 2,844 (102) (386) Unrealized foreign exchange losses 314 3,075 — Financing costs (72) 490 673 9,586 9,910 7,062 Valuation allowance (9,586) (9,910) (7,062) Net future income tax assets — — —

The non-capital losses carried forward for Canadian income tax purposes of $25,999 will begin to expire in 2014.

At December 31, 2009, management has determined that the “more likely than not” criteria has not been met regarding whether these losses will be utilized and accordingly a full valuation allowance has been recognized against the tax assets.



December 31, 2009

F-18

A reconciliation of income taxes computed at the statutory rates with the reported income taxes is as follows:


2009


2008

Year ended August 31,

2008

Year ended August 31,

2007

$ $ $ $ Statutory tax rate 33.00% 33.50% 33.50% 36.12%Loss before income taxes ($4,603) ($11,206) (3,317) (11,486)Expected income tax recovery (1,519) (3,754) (1,111) (4,149) Add (deduct): Permanent differences and other (1,426) 1,015 196 (115)Tax assets not benefited 2,951 2,745 915 4,264 Actual income tax expense 6 6 — —

12. SHARE CAPITAL

Authorized

Unlimited Class A preference shares

The Class A preference shares are voting and entitled to dividends at the discretion of the Board of Directors. The Class A preference shares shall have priority over the other classes of shares of the Company with respect to the payment of dividends and distribution of assets on the liquidation, dissolution or wind-up of the Company. They automatically convert into Class B special shares of the Company immediately prior to the completion of an initial public offering [“IPO”].

If an IPO is not completed on or before March 31, 2010, certain Class A preference shareholders have the right to mandate the Board of Directors to cause a sale of the Company or other transaction that would result in all shareholders obtaining liquidity in respect of their shares.

Unlimited Class A-1 preference shares

The Class A-1 preference shares are entitled to the same rights, privileges, restrictions and conditions attached to the Class A preference shares except that subject to preference rights on the declaration of dividends and on liquidation, the Class A-1 preference shares rank ahead of the Class A preference shares and the common shares.

Unlimited common shares [formerly Class B common shares]

The common shares are voting and, subject to the rights of the Class A preference shares, are entitled to dividends at the discretion of the Board of Directors. They automatically convert into Class B special shares of the Company immediately prior to the completion of an IPO.



December 31, 2009

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Unlimited Class B special shares

The Class B special shares are voting and, subject to the rights of the Class A preference shares, are entitled to dividends at the discretion of the Board of Directors.

Unlimited Class X shares

The Class X shares are entitled to the same rights, privileges, restrictions and conditions attached to the Class A preference shares except that they are entitled to variable voting rights and that each Class X share will be automatically converted into one Class A preference share based on meeting certain foreign ownership provisions.

Unlimited Class X-1 shares

The Class X-1 shares are entitled to the same rights, privileges, restrictions and conditions attached to the Class A-1 preference shares except that they are entitled to variable voting rights.

Issued and outstanding

The changes in issued and outstanding share capital are as follows:

December 31, December 31, August 31,

2009 2008 2008

# $ # $ # $ Class A Preference Shares Balance, beginning and end of period 21,612,766 95,307 21,612,766 95,307 21,612,766 95,307 Class A-1 Preference Shares Balance, beginning of period — — — — — —Issued for cash [iii] 4,263,861 21,319 — — — —Balance, end of year 4,263,861 21,319 — — — — Common Shares Balance, beginning and end of period 8,112,292 — 8,112,292 — 8,112,292 — Class X Shares Balance, beginning and end of period 5,131,915 24,120 5,131,915 24,120 5,131,915 24,120 Class X-1 Shares Balance, beginning of period — — — — — —Issued for cash [iii] 736,139 3,681 — — — —Balance, end of year 736,139 3,681 — — — —Total share capital 144,427 119,427 119,427

[i] On September 25, 2007, the Company amended its articles of incorporation to create an unlimited number of Class B special shares. The amendment also affected other classes of shares as the Class A preference shares and the common shares now both convert to Class B special shares immediately prior to the completion of an



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IPO. In addition, the Company’s Employee Equity Incentive Plan [the “Plan”] [note 13] grants options for Class B special shares.

[ii] The Canada Transportation Act limits to 25% the proportion of the voting interest in the Company that can be held by non-residents.

[iii] On March 31, 2009, the Company issued 4,263,861 Class A-1 preference shares and 736,139 Class X-1 variable shares at $5.00 per share for net proceeds of $25,000. The Class A-1 preference shares rank ahead of the Class A shares on the declaration of dividends and on liquidation. The Class A-1 preference shares mirror in all other respects the Class A preference shares. The Class X-1 shares carry the same rights, privileges, restrictions and conditions attached to the Class A-1 preference shares except that the Class X-1 shares also carry variable voting rights.

13. EMPLOYEE EQUITY INCENTIVE PLAN

On April 25, 2006, the Company established the Plan for the employees and consultants of the Company, as designated and administered by the Board of Directors of the Company. On September 25, 2007, the Company amended its articles of incorporation to create the Class B special shares exercisable under the Plan.

The maximum number of Class B special shares which may be reserved for issuance under the Plan shall not exceed 2,789,998 Class B special shares. Options issued vest over the four-year period commencing on the one-year anniversary from the date of grant and are exercisable from the date of grant up to November 1, 2015. All options expire on November 1, 2015. Options granted under the Plan are non-assignable and non-transferable and are exercisable at a minimum of 100 shares at any one time.

The Company has granted eligible employees 2,621,175 [December 31, 2008 - 2,026,175, August 31, 2008 – 1,876,175] options at an exercise price ranging from $4.70 to $5.00, with an expiry date of November 1, 2015. The Company recognized stock-based compensation expense of $185 associated with the Plan during the period [December 31, 2008 - $68, August 31, 2008 - $431, August 31, 2007 - nil].



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Changes in the number of options, with their weighted average exercise prices, are summarized below:

As new options are granted, the fair value of these options will be expensed over the vesting period, with an off-setting entry to contributed surplus. Upon the exercise of stock options, consideration received, together with amounts previously recorded in contributed surplus, is recorded as an increase in share capital.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. The assumptions used to determine the fair value of options granted are as follows:

December 31, December 31, August 31, 2009 2008 2008 Average risk-free interest rate 2.2% 3.9% 4.1% Average volatility 45.9% 40.3% 34.7% Expected life [years] 4 4 4 Expected dividends per share Nil Nil Nil

As a newly public company, expected volatility has been estimated based on a peer group of publicly traded companies.

The weighted average fair value of options granted during the period is $1.87 [December 31, 2008 - $1.55, August 31, 2008 - $1.28].

For the year ended December 31, 2009, the weighted average remaining contractual life of the options is 5.8 years.

December 31, December 31, August 31, 2009 2008 2008

Number of options

#

Weighted average

exercise price $

Number of

options #

Weighted average exercise

price $

Number of

options #


price $

Stock options outstanding,

beginning of period 2,026,175 4.83 1,876,175 4.80 1,650,000 4.79 Granted 720,000 5.00 200,000 5.00 325,000 4.88 Forfeited (125,000) 4.98 (50,000) 4.88 (98,825) 4.86 Stock options outstanding, end

of period 2,621,175 4.87 2,026,175 4.83 1,876,175 4.80 Stock options exercisable, end

of period 1,113,381 4.79 585,712 4.78 598,212 4.78



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14. EARNINGS PER SHARE

The following table outlines the calculation of basic and diluted earnings per share:

Four-month Year ended period

ended Year ended Year ended

December 31,

December 31,

August 31, August 31,

(in thousands, except per share amounts) 2009 2008 2008 2007 Numerator: Net loss for the period ($4,609) ($11,212) ($3,317) ($11,486) Denominator: Weighted number of average shares outstanding

8,112,292 8,112,292 8,112,292 8,112,292

Basic and diluted loss per share ($0.57) ($1.38) ($0.41) ($1.42)

Excluded from the calculation of 2009 diluted loss per share were 2,621,175 [December 31, 2008 - 2,026,175, August 31, 2008 - 1,876,175, August 31, 2007 – 1,650,000] employee stock options, and 30,494,681 [December 31, 2008 – 26,744,681, August 31, 2008 – 26,744,681, August 31, 2007 – 26,744,681] participating securities as the result would be anti-dilutive.

15. SEGMENT INFORMATION

PAHI is managed as one reportable segment. Segment information has been prepared on a basis consistent with the manner in which financial information is produced internally for the purposes of making operating decisions. A reconciliation of the total amounts by geographic region to the applicable amounts in the consolidated statements is as follows:

Four-month Year ended period ended Year ended Year ended December 31, December 31, August 31, August 31, 2009 2008 2008 2007 $ $ $ $ Passenger revenues Canada domestic 100,596 26,117 62,259 31,755 Canada-U.S. trans-border 36,833 7,982 11,140 — Other passenger related 7,914 2,371 4,356 2,114 145,343 36,470 77,755 33,869

Passenger revenues are based on the actual flown revenue for flights with an origin and destination in one of the specific geographic regions listed above. “Canada domestic” refers to flights with origins and destinations within Canada. “Canada-U.S. trans-border” refers to flights with either an origin or destination in the United States. Other revenues are principally derived from customers located in Canada.

The vast majority of the Company’s property and equipment is located in Canada.



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16. RELATED PARTY TRANSACTIONS

General and administration expenses include $54 [December 31, 2008 - $15, August 31, 2008 - $39, August 31, 2007 - $36] paid to a vendor controlled by a senior executive of the Company.

General and administration expenses include nil [December 31, 2008 - $174, August 31, 2008 - $929, August 31, 2007 - $914] paid to a professional firm related to a director of the Company. At December 31, 2009, accounts payable and accrued liabilities includes nil (December 31, 2008 - $174, Fiscal 2008 - $409, Fiscal 2007 - $103) related to this firm.

General and administration expenses include $82 [December 31, 2008 –nil, August 31, 2008 – nil, August 31, 2007 – nil] paid to a professional firm related to a director of the Company.

Other revenue includes $27 [December 31, 2008 - $13, August 31, 2008 – nil, August 31, 2007 - nil] paid by a customer controlled by a person related to a director of the Company. At December 31, 2009, accounts receivable includes $7 [December 31, 2008 - nil, August 31, 2008 - nil] relating to this customer.

These amounts are recorded at their exchange amounts.

17. COMMITMENTS

The Company signed a definitive purchase agreement with an airplane manufacturer covering firm orders for 10 Q400 aircraft and options for 10 more. The first ten aircraft were delivered from August 2006 to April 2009. In addition, the Company has exercised all of the 10 options and received delivery of eight of these aircraft as at December 31, 2009. As at December 31, 2009, the deposits made to the airplane manufacturer for future aircraft deliveries amounted to $2,312 [December 31, 2008 - $12,311, August 31, 2008 - $10,736]. The remaining commitment for the purchase of these two Q400 aircraft is approximately $39,826 in 2010. In case of termination of the agreement, the airplane manufacturer is entitled to recover all costs, expenses, losses and damages incurred to that date.

The Company has signed the following lease agreements with the Toronto Port Authority [“TPA”]:

[a] To rent 629,000 square feet of land to build a new terminal. The terminal project began in October 2008. From the commencement date forward, a basic rent becomes payable as a fifty cent fee per passenger when the 500,000 annual passenger threshold is exceeded, increasing to a one dollar fee per passenger when the 1,000,000 annual passenger threshold is exceeded. This agreement is valid until June 29, 2033 [see note 26]. In 2009, $91 was expensed [December 31, 2008 – nil during the period, August 31, 2008 – nil during the year].

[b] To rent 23,010 square feet of land for the purpose of a fuel storage farm at $12 per year for five years ending in 2010. The lease has been renewed for a further five year period expiring in 2015 (subject to extension if further renewed to June 29, 2033) at rent to be determined based on market rates.

[c] To rent 395,240 square feet of land to build a new hangar. The project is not expected to be executed in the short term. Lease payments of $49 need to be paid annually from the commencement date until June 29, 2013. The Company has two extension rights of 10 years each at the same terms and conditions except that basic rent shall be adjusted.

The Company has signed an agreement with a contractor to build a new terminal for a total consideration of approximately $49,000. The project consists of two phases with phase one to be delivered in March 2010 and phase two to be delivered by the end of 2010. As at December 31, 2009, $38,388 [December 31, 2008 - $4,756, August 31, 2008 - $1,530] had been capitalized relating to the project.



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F-24

The Company’s commitments under existing operating leases for property and equipment, maturing at different dates until 2033, amounted to approximately $17,100. Minimum payments and an estimate of contingent terminal lease payments [a], over the next five years and thereafter are as follows:

$ 2010 1,245 2011 1,088 2012 993 2013 2014

726 669

Thereafter 12,379 17,100

18. CONTINGENCIES

PAHI, together with two of its subsidiaries, PAI and PFBO, were parties, along with the TPA, to a claim commenced by Jazz Air LP in the Federal Court of Canada on August 8, 2006. The claim concerned access to the BBTCA and did not seek monetary damages [see note 26]. An earlier related action by Jazz Air LP in the Ontario Court involving the same parties was discontinued in October 2009.

In connection with the above claim, PAHI commenced a counterclaim against Air Canada and Jazz Air LP seeking damages in the amount of $850 million, in addition to certain declaratory relief relating to an allegation of an anti-competitive conspiracy between the defendants to the counterclaim.

On February 9, 2010, Air Canada initiated a proceeding in Federal Court seeking leave to commence a judicial review application against the TPA with respect to the proposed aircraft slot allocation process and access to the BBTCA. Porter is a party to this proceeding. Air Canada is not seeking monetary damages in this proceeding [see note 26].

Although Porter believes it will be successful in these proceedings, an adverse ruling could have a material adverse effect on Porter’s future cash flows, results of operations and financial condition.

Except as disclosed above, PAHI is not subject to any material legal proceedings, nor is PAHI or any of its properties a party to or the subject of any such proceedings and no such proceedings are known to be contemplated. PAHI is from time to time involved in routine, non-material litigation arising in the ordinary course of business.

19. CREDIT FACILITIES

The Company has available credit facilities with a Canadian chartered bank for a total of $19,000 for letters of guarantee and advance Visa ticket sales, due on demand. As at December 31, 2009, $12,256 [December 31, 2008 - $9,570, August 31, 2008 - $9,348] of the facilities have been used. The facilities are secured by a general security agreement and 100% cash security in the form of restricted cash. The Company also has available a credit facility with the same Canadian chartered bank in the form of an operating interim demand loan for a total of $7,000 to bridge the receipt of goods and services tax [“GST”] input tax credits arising on the purchase of aircraft. As at December 31, 2009, $998 [December 31, 2008 - nil, August 31, 2008 - nil] was drawn against this facility. Under the terms of the GST facility agreement the Company is required to maintain a minimum unrestricted cash balance of $20,000 at all times. The facility is secured by the GST input tax credit receivable from the Canada Revenue Agency [see note 26].



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20. EMPLOYEE PROFIT SHARING PLAN

On July 31, 2007, the Board of Directors of the Company approved the establishment of an employee profit sharing plan [“EPSP”]. The EPSP calls for 12% of the Company’s net income before taxes, excluding foreign exchange gains or losses, to be paid to employees. The Company recorded nil of employee profit share expense in the current period [December 31, 2008 - $10, August 31, 2008 - $400, August 31, 2007 - nil].

21. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

The fair values of the Company’s cash and cash equivalents, restricted cash, accounts receivable, bank indebtedness and accounts payable and accrued liabilities approximate their carrying values due to their short-term maturity. The fair values of variable-rate long-term debt and capital lease obligations approximate their carrying values based on market rates available to the Company for financial instruments with similar risks, terms and maturities.

The fair value of the fixed-rate loans is $249,540; the carrying value is: $256,011 [December 31, 2008 - $77,176; carrying value: $70,283, August 31, 2008 - $30,747; carrying value: $30,563]. These fair values have been calculated by discounting the future cash flow of the respective long-term debt at the estimated yield to maturity of similar debt instruments [note 8].

Credit and counterparty risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. As at December 31, 2009, the Company’s credit exposure consists primarily of the carrying amounts of cash and cash equivalents, restricted cash, accounts receivable and US-dollar deposits.

The maximum credit risk as at December 31, 2009 related to cash and cash equivalents and restricted cash is the carrying value. These assets are held with a limited number of financial institutions and other counterparties. The Company is exposed to the risk that the financial institutions and other counterparties with which it holds assets or enters into agreements could be unable to honour their obligations. The Company minimizes risk by entering into agreements with financial institutions and other counterparties with appropriate credit ratings. Exposure to these risks is closely monitored and maintained within the limits set out in the Company’s various policies. The Company revises these policies on a regular basis.

Approximately 63% [December 31, 2008 - 29%, August 31, 2008 – 87%] of receivables are from three major credit card institutions and were current at year end. These receivables are generally the result of sales of tickets to individuals. The remaining balance is comprised mainly of GST input tax credits receivable [18%], government assistance [9%] [note 23] and advertising sales [6%]. All receivables are current. In order to manage its exposure to credit risk and assess credit quality, the Company reviews counterparty credit ratings on a regular basis and sets credit limits when deemed necessary. Historically, the Company has not incurred any significant losses in respect of its trade accounts receivable. The allowance for doubtful accounts as at December 31, 2009 was nil [December 31, 2008 - $23, August 31, 2008 - $23].

Derivative financial instruments are not utilized by the Company at this time in the management of its foreign currency, interest rate or fuel price exposures. The Company’s policy is not to utilize derivative financial instruments for trading or speculative purposes.

Interest rate volatility risk




December 31, 2009

F-26

The Company is exposed to interest rate fluctuations on its cash balance. A change in the interest rate of +/- 1% would increase/decrease the net loss for the period by $338.

A portion of the Company’s long-term debt bears fixed interest rates. Therefore, this debt faces zero risk posed by interest rate volatility. The Company accounts for its long-term fixed-rate debt at amortized cost, and therefore, a change in interest rates as at December 31, 2009 would not impact net loss for the period.

The Company is exposed to interest rate fluctuations on variable interest rate debt, which at December 31, 2009 made up 21.8% of the Company’s total debt. A change of 1% in the variable interest rate charged on the debt would result in a $504 increase/decrease in net loss for the period.

Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulties in meeting its financial obligations. The Company monitors and manages liquidity risk by preparing rolling cash flow forecasts, monitoring the condition and value of assets available to be used as well as those assets being used as security in financing arrangements, seeking flexibility in financing arrangements, and establishing programs to monitor and maintain compliance with terms of financing agreements. The Company’s objectives in minimizing liquidity risk are to maintain appropriate levels of unrestricted cash and leverage on its assets and to stagger its debt maturity profile. As at December 31, 2009 the Company was holding cash of $20,911 [December 31, 2008 - $24,808, August 31, 2008 - $42,126].

The Company’s contractual obligations as at December 31, 2009 are as follows:

2010 2011 2012 2013 2014 Thereafter Total$ $ $ $ $ $ $

Accounts payable and accrued liabilities 24,080 — — — —

— 24,080

Bank indebtedness 998 — — — — — 998

Long-term debt 17,269 29,959 20,357 21,231 22,261 216,099 327,176

Capital lease obligations 2,103 400 353 — —

— 2,856

Operating leases 1,245 1,088 993 726 669 12,379 17,100

Interest obligations 15,479 13,773 12,787 11,803 10,821 63,662 128,325

Terminal construction commitments 10,612 — — — —

— 10,612

Commitments for new aircraft 39,826 — — — — — 39,826

Total 111,612 45,220 34,490 33,760 33,751 292,140 550,973

Principal repayments in the table above exclude transaction costs of $4,454 which are off-set against long-term debt in the consolidated balance sheet.

Debt maturity ranges from 2011 to 2025. The Company has secured low-interest-rate fixed debt commitments on many of its aircraft acquisitions. This represents approximately 78% of the Company’s total long-term debt [note 8].

The Company has committed financing of $9,873 related to additional airport terminal construction in 2010 and of approximately $35,817 [85% of the purchase price] related to aircraft deliveries in 2010. The Company also has a credit facility with undrawn availability of $6,744 [note 19]. This facility is due on demand.



December 31, 2009

F-27

The term loan related to the airport terminal construction requires the maintenance of a minimum working capital ratio [defined as current assets to current liabilities each as presented in the Company’s consolidated financial statements] of 1:1 and a long-term debt to tangible equity ratio not exceeding 3.2:1 each commencing December 2010. This term loan amounted to $20,127 at December 31, 2009 and is expected to grow to $30,000 by December 31, 2010. The Company expects that it will require additional liquidity prior to December 2010 in order to satisfy these covenants. To date, the Company has been successful in meeting its financing requirements and anticipates being able to continue to do so, however, there can be no assurance that this will be the case. A default under any other loans or mortgage could trigger a default under the cross-default provisions of this loan.

The Company anticipates being able to meet its other obligations through cash on hand, cash generated from operations and availability under its existing credit facilities.

Commitments for aircraft deliveries beyond 2010 will not be made until the necessary financing is committed. The Company anticipates requiring substantial additional debt and equity financing to meet its growth objectives.

Foreign currency exchange rate volatility risk

Foreign currency exchange rate volatility risk is the risk that the fair value of recognized assets and liabilities or future cash flows would fluctuate as a result of fluctuations in foreign currency exchange rates. The Company is exposed to foreign currency exchange risks arising from fluctuations in exchange rates mainly on its US-dollar denominated liabilities, aircraft purchases, US-dollar denominated sales and its operating expenditures, mainly aircraft fuel, certain maintenance costs and a portion of airport operations costs. During the year ended December 31, 2009, the average US-dollar exchange rate was 1.1423 [December 31, 2008 – 1.1739, August 31, 2008 - $1.0067, August 31, 2007 - $1.1210], with the year end exchange rate at 1.0466 [December 31, 2008 - 1.2246, August 31, 2008 - $1.0626]. The gain on foreign exchange included on the Company’s consolidated statement of loss and comprehensive loss and deficit is mainly attributable to the effect of the translation of the value of the Company’s US-dollar denominated net liabilities. As at December 31, 2009, US-dollar denominated net liabilities totalled approximately US $57,246 [December 31, 2008 - US $60,466, August 31, 2008 – US $55,311]. During the year ended December 31, 2009, the Company estimates that a one cent change in the value of the US dollar versus the Canadian dollar would have increased or decreased net loss by $583.

22. CAPITAL DISCLOSURES

The Company views capital as the sum of bank indebtedness, long-term debt, capital lease obligations and shareholders’ equity. As at December 31, 2009, the Company had secured a pre-delivery financing commitment, which was related to future aircraft deliveries, and, as the aircraft had not yet been delivered, this debt was excluded from the capital base. This definition of capital is used by management and may not be comparable to measures presented by other companies.

The Company also monitors its ratio of net debt to net debt plus shareholders’ equity. Net debt is calculated as the sum of long-term debt and capital lease obligations less cash and cash equivalents.

The Company’s main objectives when managing capital are:

• To structure repayment obligations in line with the expected cash flows generated by the Company’s principal revenue generating assets;

• To ensure the Company has access to capital to fund contractual obligations as they become due and to ensure adequate cash reserves to withstand changing economic conditions;

• To maintain an appropriate balance between debt supplied capital versus investor supplied capital as measured by the net debt to net debt plus equity ratio; and



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• To monitor the Company’s credit ratings to facilitate access to capital markets at competitive interest rates. In order to maintain or adjust the capital structure, the Company may adjust the type of capital utilized, including purchase versus lease decisions, deferring or cancelling planned aircraft expenditures, and issuing debt or equity securities, all subject to market conditions and the terms of the underlying agreements.

As at December 31, 2009 the Company was in compliance with all externally imposed capital requirements.

The Company’s total capital is calculated as follows:

December 31, December 31, August 31, 2009 2008 2008 $ $ $ Long-term debt and capital lease obligations 306,206 128,705 86,639 Current portion of long-term debt and capital lease obligations 19,372 7,511 5,050 Debt 325,578 136,216 91,689 Shareholders’ equity 106,578 86,002 97,146 Total capital 432,156 222,218 188,835 Debt 325,578 136,216 91,689 Less cash and cash equivalents and bank indebtedness (19,913) (24,808) (42,126) Net debt 305,665 111,408 49,563 Net debt to net debt plus shareholders’ equity ratio 74.1% 56.4% 33.8%

The net debt amount has increased by $194,257 in 2009 largely attributable to the acquisition of ten aircraft during the year [note 17]. The net debt amount has increased by $61,845 from August 31, 2008 to December 31, 2008 largely attributable to the acquisition of two aircraft during the period.

23. GOVERNMENT ASSISTANCE

Included in accounts receivable is $898 [December 31, 2008 - nil, August 31, 2008 - nil] relating to an approved reimbursement from a Canadian federal government authority for the deployment of security equipment in the new airport terminal currently being constructed [note 17].



December 31, 2009

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24. SUPPLEMENTARY CASH FLOW INFORMATION

Four-month Year ended period ended Year ended Year ended December 31, December 31, August 31, August 31, 2009 2008 2008 2007 $ $ $ $ Decrease (increase) in accounts receivable 4,205 (9,457) (3,029) (1,079) Increase in inventory (746) (120) (446) (314) Increase (decrease) in prepaid expenses and

deposits (237) (469) 413 (395)

Increase (decrease) in accounts payable and accrued liabilities

657 8,825 4,118 1,671

Increase (decrease) in advance ticket sales 7,074 (1,203) 4,648 3,486 Other non-cash items 44 228 (140) (335) Net change in non-cash working capital 10,997 (2,196) 5,564 3,034

Cash interest paid during the period was $8,663 [December 31, 2008 - $415, August 31, 2008 - $1,850, August 31, 2007 - $186].

As at December 31, 2009, $4,094 of property and equipment additions remain in accounts payable and accrued liabilities [December 31, 2008 - $242, August 31, 2008 - $41] and nil remain in capital lease obligations [December 31, 2008 – nil, August 31, 2008 - $153].

25. COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS

The comparative consolidated financial statements have been reclassified from statements previously presented to conform to the presentation of the December 31, 2009 consolidated financial statements.

26. SUBSEQUENT EVENTS

Employee equity incentive plan [note 13]

On February 22, 2010, the Company granted an additional 100,000 options to employees at an exercise price of $5.00, with an expiry date of November 1, 2015.

On March 29, 2010, the Company granted an additional 250,000 options to employees at an exercise price of $6.50, subject to adjustment based on the initial public offering share price, with an expiry date of November 1, 2015.

On May 17, 2010, the Company granted an additional 25,000 options to employees at an exercise price of $6.50, subject to adjustment based on the initial public offering share price, with an expiry date of November 1, 2015.

BBTCA Operations [note 17]

In 2005, PAHI entered into a commercial carrier operating agreement [“CCOA”] with TPA. Under the terms of the CCOA, PAHI was initially entitled to not less than 95 of the then available 120 slots at BBTCA. The remaining 25 available slots were never utilized by other carriers, and Porter was subsequently granted these remaining slots. On



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F-30

April 9, 2010, the CCOA was amended and restated and, under the current terms of the CCOA, until April 20, 2010. TPA has allocated PAHI 120 slots and from April 21, 2010 to the opening of phase two of the new terminal currently being constructed at BBTCA, PAHI is allocated 140 slots.

On April 9, 2010, the TPA announced the results of a third party NEF study and capacity assessment of BBTCA. As a result of this study and capacity assessment, TPA has determined that the maximum slot availability at BBTCA will be 202 slots upon completion of the new terminal.

Contingencies [note 18]

The Federal Court, on March 27, 2010, determined that Air Canada can proceed with its application to seek orders enjoining the TPA from continuing the process of allocating aircraft slots at BBTCA announced by the TPA on December 24, 2009, and requiring the TPA to institute a different aircraft slot allocation process. The Federal Court has set aside two and a half days in July 2010 to hear the Air Canada application.

On March 29, 2010, Jazz discontinued its action filed in the Federal Court of Canada on August 8, 2006.

On May 4, 2010, Air Canada brought forth an application in Federal Court for judicial review of the TPA’s announcement on April 9, 2010 that it will be formally accepting requests for proposals from carriers for additional slots made available at BBTCA. Air Canada has requested that the matter be heard in July 2010 at the same time the other application for judicial review is heard.

On May 14, 2010, PAHI discontinued its counterclaim against Air Canada and Jazz in the Federal Court of Canada.

PAHI’s claims against Air Canada and Jazz for $850 million and certain declaratory relief remain before the Ontario Court.

Although PAHI believes it will be successful in these proceedings, an adverse ruling could have a material adverse effect on PAHI’s future cash flows, results of operations and financial condition.

Credit facilities [note 19]

On March 29, 2010, the Company signed an agreement with another Canadian chartered bank for credit facilities totalling $35,000 for letters of guarantee and a revolving facility. The facilities are secured by a general security agreement. In addition, the letters of guarantee facility would be 100% cash secured in the form of restricted cash.

This credit facilities agreement will require the Company to maintain a fixed charge coverage ratio not less than 1.0 times calculated as at each month end throughout the period ending December 31, 2010 and then 1.1 times thereafter (Fixed Charge Coverage to be defined as EBITDAR, as defined in the agreement, subject to agreed upon one-time exclusions and adjustments required for implementation of IFRS, if applicable) less cash taxes less unfunded capital expenditures (does not include expenditures related to the new terminal at BBTCA and in relation to the 20 aircraft, the last of which is scheduled to be delivered in April 2010) less cash distributions divided by Principal plus interest plus Rents), to be tested and certified at the end of each month on a rolling 12 months basis. If required, for the calculation of this ratio for any 12 month period ending prior to January 1, 2011, 100% of any shareholders’ equity contributions made by existing and future shareholders at any time in Fiscal 2009 and Fiscal 2010 and retained in the Borrower up to a maximum amount of $40,000 (inclusive of the $25,000 contributed in March 2009), may be added to the numerator in the calculation of this ratio.

This credit facilities agreement will also require the Company to maintain a minimum shareholders’ equity of $90,000 at all times (subject to agreed upon one-time adjustments required for implementation of IFRS, if applicable).



December 31, 2009

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The Company entered a termination agreement with respect to the credit facilities referred to in note 19, reducing the available credit facilities to $3,826 for letters of guarantee previously issued, $12,000 for advance credit card sales and $250 for corporate credit cards. Concurrent with the termination agreement, the facilities agreement was amended, in part to eliminate the minimum unrestricted cash requirement.

Initial Public Offering

On April 16, 2010 the Company filed a preliminary prospectus to qualify for distribution common voting shares and variable voting shares with the securities regulatory authorities in each of the provinces and territories of Canada.

Reorganization

In connection with the initial public offering [“IPO”], the Company will proceed with a pre-closing reorganization which will include the following:

• the authorized share capital of the Company will be amended to include an unlimited number of common voting shares, an unlimited number of variable voting shares and an unlimited number of preferred shares, issuable in series;

• each issued and outstanding common share of the Company will convert into common voting shares or variable voting shares depending on whether the holder of such share is a qualified Canadian or not (as determined on the business day prior to IPO closing). The number of shares issued on conversion will depend upon the offered share price;

• each issued and outstanding Class A preferred share and Class X variable voting share will convert into common voting shares or variable voting shares depending on whether the holder of such share is a qualified Canadian or not (as determined on the business day prior to IPO closing). The number of shares issued on conversion will depend upon the offered share price;

• each issued and outstanding Class A-1 preferred share and Class X-1 variable voting share will convert into common voting shares or variable voting shares depending on whether the holder of such share is a qualified Canadian or not (as determined on the business day prior to IPO closing). The number of shares issued on conversion will depend upon the offered share price; and



In connection with the pre-closing reorganization, the Company will exchange all of its outstanding stock options previously granted under the Employee Equity Incentive Plan ["Old Plan"] [note 4] for options to purchase shares issued under a new stock option plan ["Option Plan"]. Each option holder will receive one new option under the Option Plan in exchange for an existing option under the Old Plan (subject to adjustments, if any, that the Board of Directors may make to such exchanged options necessary to ensure that the fair market value of the new options is no greater than the fair market value of the options exchanged). The Option Plan mirrors in all material respects the Old Plan.

Prior to IPO closing, the Company will award shares on a restricted basis to all eligible employees and officers of the Company and its subsidiaries in consideration of past services. The number of awards to be granted is determined based on each eligible participant’s position and time of service with the Company. In accordance with the terms of the restricted share plan, the shares awarded to an eligible participant will fully vest after a period of four years (1/3 will vest on the second anniversary of grant, 1/3 will vest on the third anniversary and 1/3 will vest on the fourth anniversary). If an eligible participant ceases to be employed or shall resign as an employee of the



December 31, 2009

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Company (subject to certain permitted exceptions) any unvested restricted shares shall be forfeited by such participant.

F-33

Interim Consolidated Financial Statements Porter Aviation Holdings Inc. For the three months ended March 31, 2010 and 2009

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Porter Aviation Holdings Inc. Incorporated under the laws of Ontario

INTERIM CONSOLIDATED BALANCE SHEETS [in thousands of Canadian dollars]

[unaudited] [See Basis of Presentation - note 1]

As at March 31, 2010

$

As at December 31, 2009

$ ASSETS Current Cash and cash equivalents 9,179 20,911 Restricted cash 17,581 12,256 Accounts receivable, net [notes 7, 11 and 13] 14,123 9,944 Inventory 2,259 1,832 Prepaid expenses and deposits 2,058 1,666 Total current assets 45,200 46,609 Property and equipment, net [note 2] 423,893 420,734 Goodwill 652 652 Long-term deposits and other assets 4,008 3,312 473,753 471,307 LIABILITIES AND SHAREHOLDERS' EQUITY Current Bank indebtedness — 998 Accounts payable and accrued liabilities [note 7] 27,965 24,080 Advance ticket sales 20,667 14,005 Current portion of long-term debt [note 3] 28,130 17,269 Current portion of capital lease obligations 1,905 2,103 Total current liabilities 78,667 58,455 Long-term debt [note 3] 293,685 305,453 Capital lease obligations 655 753 Long-term liabilities 66 68 Total liabilities 373,073 364,729 Commitments and contingencies [notes 8 and 9] Shareholders' equity Share capital 144,427 144,427 Contributed surplus [note 4] 758 684 Deficit (44,505) (38,533) Total shareholders' equity 100,680 106,578 473,753 471,307 See accompanying notes On behalf of the Board:

(signed) Robert J. Deluce (signed) Donald J. Carty Director Chairman

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INTERIM CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS AND DEFICIT

[in thousands of Canadian dollars, except per share amounts] [unaudited]

Three months Three months ended ended March 31, March 31,

2010 2009 $ $

REVENUE Passenger 47,673 22,334 Other [note 7] 1,397 1,377 49,070 23,711 EXPENSES Salaries 10,539 6,170 Fuel 10,280 4,346 Airport operations 9,251 6,139 Sales and marketing 7,375 4,438 Depreciation 4,409 2,277 Flight operations and navigation charges 4,257 2,219 General and administration [note 7] 3,390 1,610 Aircraft maintenance, materials and supplies 2,265 1,591 Food, beverages and supplies 1,542 1,047 53,308 29,837 Loss from operations (4,238) (6,126) Non-operating income (expense):

Interest income 42 158 Interest expense - short-term (1) (8) Interest expense - long-term (3,666) (1,514) Gain (loss) on foreign exchange 1,895 (1,860)

(1,730) (3,224) Loss before income taxes (5,968) (9,350) Income tax expense (4) — Net loss and comprehensive loss for the period (5,972) (9,350) Deficit, beginning of period (38,533) (33,924) Deficit, end of period (44,505) (43,274) Basic and fully diluted loss per share [note 5] ($0.74) ($1.15) See accompanying notes

F-36


INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS [in thousands of Canadian dollars]

[unaudited]

Three months Three months ended ended March 31, March 31,

2010 2009 $ $

OPERATING ACTIVITIES Net loss for the period (5,972) (9,350) Add (deduct) items not involving cash:

Depreciation 4,409 2,277 Amortization of transaction costs 65 32 Foreign exchange loss (gain) (1,965) 1,911 Stock-based compensation expense 74 51 Net change in non-cash working capital [note 14] (313) 3,028 Increase in restricted cash (5,372) (491)

Cash used in operating activities (9,074) (2,542) INVESTING ACTIVITIES Additions to property and equipment (2,280) (3,111) Cash used in investing activities (2,280) (3,111) FINANCING ACTIVITIES Issuance of stock — 25,000 Decrease in bank indebtedness (998) — Increase in long-term debt 4,945 — Repayment of long-term debt (4,031) (1,939) Repayment of capital lease obligations (249) (492) Decrease in long-term liabilities (2) (267) Cash provided by (used in) financing activities (335) 22,302 Effect of foreign exchange on cash (43) (16) Net increase (decrease) in cash and cash equivalents during the period (11,732) 16,633 Cash and cash equivalents, beginning of period 20,911 24,808 Cash and cash equivalents, end of period 9,179 41,441 See accompanying notes


NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS [in thousands of Canadian dollars, unless otherwise noted]

[unaudited] March 31, 2010

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1. BASIS OF PRESENTATION

The accompanying interim consolidated financial statements of Porter Aviation Holdings Inc. [the “Company”] include the accounts of the Company and its subsidiaries as at the financial statement date. These interim consolidated financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles with respect to the preparation of interim financial information. Accordingly, they do not include all the information and footnotes of annual financial statements and therefore should be read in conjunction with the December 31, 2009 audited consolidated financial statements and notes included in the Company’s prospectus. The interim consolidated financial statements have been prepared following the same accounting policies and methods of computation as the annual consolidated financial statements for the year ended December 31, 2009.

The Company operates domestic and trans-border flight services from Billy Bishop Toronto City Airport [“BBTCA”] to several destinations in Canada and the United States.

The Company’s business is seasonal in nature with varying levels of activity throughout the year. The Company experiences lower levels of activity during the first quarter than any of the other three quarters.

These interim consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future. The Company has incurred net losses of $5,972 for the three months ended March 31, 2010 [year ended December 31, 2009 - $4,609], and has an accumulated deficit of $44,505 as at March 31, 2010 [December 31, 2009 - $38,533] and a working capital deficiency of $33,467 [December 31, 2009 - $11,846]. As at March 31, 2010, the Company had $25,072 of debt that requires, beginning in December 2010, the maintenance of a minimum working capital ratio of 1:1 and a long-term debt to tangible equity ratio not exceeding 3.2:1. For other financial covenants see note 3 and note 10.

The Company’s ability to continue as a going concern is dependent upon its ability to fund its working capital and achieve profitable operations or raise sufficient debt or equity. The interim consolidated financial statements do not give effect to any adjustments to recorded amounts and their classification which could be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different than those reflected in the interim consolidated financial statements.

Certain prior period balances have been reclassified to conform to the current period’s basis of presentation.




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2. PROPERTY AND EQUIPMENT

March 31, 2010

Cost $

Accumulated depreciation

$

Net book value

$ Aircraft and rotables 379,991 22,419 357,572 Buildings 59,782 2,392 57,390 Ground property and equipment 6,864 1,628 5,236 Vehicles 1,260 881 379 Furniture and office equipment 1,584 400 1,184 Computer hardware 1,034 587 447 Computer software 1,774 1,643 131 Leasehold improvements 1,708 154 1,554 453,997 30,104 423,893

December 31, 2009 Net Accumulated book Cost depreciation value $ $ $ Aircraft and rotables 378,343 18,632 359,711 Buildings 54,715 2,142 52,573 Ground property and equipment 6,429 1,459 4,970 Vehicles 1,260 818 442 Furniture and office equipment 1,416 361 1,055 Computer hardware 810 537 273 Computer software 1,759 1,609 150 Leasehold improvements 1,695 135 1,560 446,427 25,693 420,734

Property and equipment of $6,518 not in use as at March 31, 2010 was not depreciated during the three months ended March 31, 2010 [December 31, 2009 - $38,388].

Property and equipment accounted for as capital leases have an aggregate cost of $9,168 [December 31, 2009 - $9,156] and an accumulated depreciation of $1,550 [December 31, 2009 - $1,424]. The Company depreciated $125 in respect of capital lease assets during the three months ended March 31, 2010 [$116 for the three months ended March 31, 2009].

The amount of interest capitalized during the three months ended March 31, 2010 is $282 [March 31, 2009 - nil].




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3. LONG-TERM DEBT

Long-term debt consists of the following:

March 31, 2010

$

December 31, 2009

$ Term loans – purchased aircraft [i] 240,056 243,175 Term loans – purchased aircraft [ii] 25,828 27,097 Term loans – purchased aircraft [iii] 22,875 23,941 Term loans – BBTCA Terminal [iv] 25,072 20,127 Term loan – rotables and equipment [v] 10,160 10,466 Term loan – spare engine [vi] 2,067 2,100 Mortgage – BBTCA Hangars [vii] 246 270 326,304 327,176 Less net book value of transaction costs being

amortized over life of the loans 4,489 4,454 321,815 322,722 Less current portion 28,130 17,269 293,685 305,453

[i] $250,828 in 14 individual term loans, repayable in monthly installments ranging from $133 to $165, including fixed interest at a weighted average rate of 4.92%, maturing between September 2021 and December 2024, each secured by one Dash 8 402 [“Q400”] aircraft. Beginning in the fiscal year ending December 31, 2010, the lender will require the Company to meet a debt service coverage of 1.00x, increasing to 1.25x for fiscal year 2011 and 1.35x for fiscal year 2012 and beyond. Debt service coverage is defined as EBITDA divided by the sum of the current portion of long-term debt and interest expense. The lender will also require that the aircraft and engine it finances be used at least 60% on cross border routes and that at least 80% of their departures originate from or are destined to BBTCA.

[ii] US$29,000 in two individual term loans, repayable in monthly installments ranging from US$141 to US$288, including floating interest at the one-month U.S. dollar LIBOR rate plus 2.15%, with an effective interest rate of 2.40% as at March 31, 2010 [December 31, 2009 - 2.33%], maturing February 2020, each secured by one Q400 aircraft.

[iii] US$25,400 in two individual term loans, repayable in monthly installments ranging from US$104 to US$198, with a balloon payment at the end of the term of US$4,599, including floating interest at the one-month U.S. dollar LIBOR rate plus 1.90% plus a 0.25% liquidity premium, with an effective interest rate of 2.28% as at March 31, 2010 [December 31, 2009 - 2.33%], maturing January 2020. These facilities are each secured by one Q400 aircraft and have a covenant requiring the Loan to Value Margin to be maintained below 85%.

[iv] $30,000 in two individual term loans of $25,000 and $5,000. The Company has fully drawn on the $25,000 loan. The loan is repayable starting September 15, 2010 with a principal installment of $118 and subsequent principal installments of $143, plus accumulated interest. Interest is determined on the lender’s floating base rate plus 2.00%. Until the start of principal repayments, interest is paid monthly, with an effective interest rate of 6.25% as at March 31, 2010. During the quarter, the Company drew $72 on the $5,000 loan. The loan is repayable starting September 4, 2010 with a principal installment of $24 and subsequent installments of $26. Interest is determined on the lender’s floating base rate plus 5.00%. Until the start of principal repayments, interest is paid monthly, with an effective interest rate of 9.25% as at March 31, 2010. Both loans mature in March 2025 and are secured by the




F-40

airport terminal currently under construction. Beginning in December 2010, the lender will require the Company to maintain a minimum working capital ratio of 1:1, improving to 1.1:1 by fiscal 2011 and maintained for the duration of the loan, and a long-term debt/tangible equity ratio not exceeding 3.2:1 and improving to 3.0:1 by fiscal 2011 and maintained for the duration of the loan.

[v] US$10,000 non-revolving term loan, repayable in full on January 2, 2011, with interest at 10.00% payable in arrears monthly until then, secured by the rotables, ground equipment and vehicles of the Company. With respect to the US$10,000 non-revolving term loan, the lender requires that the borrower, Porter Airlines Inc. [“PAI”], within five business days of any sale or issuance of any debt or equity by PAI, prepay an aggregate principal amount of the loan equal to 100% of the net cash proceeds of any such sale or issuance of debt or equity.

[vi] $2,144 term loan, repayable in monthly installments of $20, including interest at 4.94%, maturing August 2021, secured by one Pratt & Whitney model PW150 series engine.

[vii] Toronto Port Authority – mortgage payable secured by chattel mortgage on Hangars 3 and 4 with a net book value of $1,249 [December 31, 2009 - $1,262], repayable in blended monthly installments of $10 including interest at a rate of 9.00% per annum, maturing July 1, 2012.

Future scheduled repayments of long-term debt are as follows:

$ Remainder of 2010 13,237 2011 29,541 2012 20,241 2013 21,111 2014 22,133 2015 and thereafter 220,041 326,304

Principal repayments in the table above exclude transaction costs of $4,489 [December 31, 2009 - $4,454] which are offset against long-term debt in the interim consolidated balance sheet.




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4. EMPLOYEE EQUITY INCENTIVE PLAN

Changes in the number of options, with their weighted average exercise prices, are summarized below:

2010 2009

Number of options

#


price $

Number of options

#


price $

Stock options outstanding, beginning

of period 2,621,175 4.87 2,026,175 4.83 Granted 350,000 6.07 150,000 5.00 Forfeited - - (125,000) 4.98 Stock options outstanding, March 31 2,971,175 5.01 2,051,175 4.87 Stock options exercisable, March 31 1,175,881 4.79 656,838 4.76

Included in the options granted during the three-month period ended March 31, 2010 are 250,000 options for which the exercise price is subject to adjustment based on the initial public offering share price. As such, the final measure of compensation cost will be the fair market value based on the stock price and other pertinent factors on the date of filing the Supplemented PREP Prospectus. An estimate of compensation cost of nil for the three-month period ended March 31, 2010 has been determined based on the excess of the current stock price over the exercise price.

As new options are granted, the fair value of these options will be expensed over the vesting period, with an offsetting entry to contributed surplus. Upon the exercise of stock options, consideration received, together with amounts previously recorded in contributed surplus, is recorded as an increase in share capital.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. The assumptions used to determine the fair value of options granted are as follows:

Three months ended

Three months ended

March 31, 2010 March 31, 2009 Average risk-free interest rate 2.4% 1.9% Average volatility 46.9% 43.2% Expected life [years] 4 4 Expected dividends per share Nil Nil

As a newly public company, expected volatility has been estimated based on a peer group of publicly traded companies.

The weighted average fair value of options granted during the three months ended March 31, 2010 is $3.11 [three months ended March 31, 2009 - $1.59].

For the three months ended March 31, 2010, the weighted average remaining contractual life of the options is 5.6 years.




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For the three months ended March 31, 2010, the Company expensed $74 [three months ended March 31, 2009 - $51] in equity compensation expense, with a corresponding increase to contributed surplus

5. EARNINGS PER SHARE

The following table outlines the calculation of basic and diluted loss per share:

Three months Three months ended ended March 31, March 31, [in thousands, except per share amounts] 2010 2009 Numerator: Net loss for the period ($5,972) ($9,350) Denominator: Weighted number of average shares outstanding 8,112,292 8,112,292 Basic and diluted loss per share ($0.74) ($1.15)

Excluded from the calculation of the March 31, 2010 interim diluted loss per share were 2,971,175 [March 31, 2009 - 2,621,175] employee stock options, and 31,744,681 [March 31, 2009 - 26,800,237] participating securities as the result would be anti-dilutive.

6. SEGMENT INFORMATION

The Company is managed as one reportable segment. Segment information has been prepared on a basis consistent with the manner in which financial information is produced internally for the purposes of making operating decisions. A reconciliation of the total amounts by geographic region to the applicable amounts in the interim consolidated financial statements is as follows:

Three months ended Three months ended March 31, 2010 March 31, 2009 $ $ Passenger revenue Canada domestic 34,620 16,401 Canada-US trans-border 10,812 4,395 Other passenger related 2,241 1,538 47,673 22,334

Passenger revenue is based on the actual flown revenue for flights with an origin and destination in one of the specific geographic regions listed above. “Canada domestic” refers to flights with origins and destinations within Canada. “Canada-US trans-border” refers to flights with either an origin or destination in the United States. Other revenue is principally derived from customers located in Canada.




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The vast majority of the Company’s property and equipment is located in Canada.

7. RELATED PARTY TRANSACTIONS

General and administration expenses for the three months ended March 31, 2010 include $15 [three months ended March 31, 2009 - $12] for software licenses paid to a vendor controlled by a senior executive of the Company. As at March 31, 2010, accounts payable and accrued liabilities include $5 [December 31, 2009 - nil] related to this firm.

General and administration expenses for the three months ended March 31, 2010 include $62 [three months ended March 31, 2009 - nil] for business consulting and advisory services paid to a professional firm related to a director of the Company.

General and administration expenses for the three months ended March 31, 2010 include $70 [three months ended March 31, 2009 - nil] for financial services paid to a financial institution that is related to a director of the Company who is also a senior executive of the financial institution.

Other revenue for the three months ended March 31, 2010 includes $7 [three months ended March 31, 2009 - $7] for advertising in the Company’s inflight magazine paid by a customer controlled by a person related to a director of the Company. As at March 31, 2010, accounts receivable include $7 [December 31, 2009 - $7] relating to this customer.


8. COMMITMENTS

As at March 31, 2010, the deposits made to an aircraft manufacturer for future aircraft deliveries amounted to $2,312 [December 31, 2009 - $2,312] and the Company’s commitment for the purchase of two Q400 aircraft is approximately US$36,630. During April 2010, the Company took delivery of the two aircraft, financed by $33,096 of new long-term debt under the terms described in note 3(i).

The Company signed a purchase commitment for US$1,700 and paid a deposit of US$170 to an aircraft supplier for additional equipment to be delivered later this year.

9. CONTINGENCIES

The Company together with the Toronto Port Authority [“TPA”] is party to a claim commenced by Jazz Air LP in the Federal Court of Canada on August 8, 2006. The claim concerned access to BBTCA and did not seek monetary damages.

In connection with the above claim, the Company commenced a counterclaim against Air Canada and Jazz Air LP seeking damages in the amount of $850 million, in addition to certain declaratory relief relating to an allegation of an anti-competitive conspiracy between the defendants to the counterclaim. On March 29, 2010, Jazz Air LP discontinued its action. On May 14, 2010, the Company discontinued its counterclaim against Air Canada and Jazz Air LP in the Federal Court of Canada. The Company’s claims against Air Canada and Jazz Air LP for $850 million and certain declaratory relief remain before the Ontario Court.

On February 9, 2010, Air Canada initiated a proceeding in Federal Court seeking leave to commence a judicial review application against the TPA with respect to the proposed aircraft slot allocation process and access to BBTCA. The Company is a party to this proceeding. Air Canada is not seeking monetary damages in this proceeding.




F-44

The Federal Court, on March 27, 2010, determined that Air Canada can proceed with its application to seek orders enjoining the TPA from continuing the process for allocating new aircraft slots at BBTCA announced by the TPA on December 24, 2009, and requiring the TPA to institute a different aircraft slot allocation process. The Federal Court has set aside two and a half days in July 2010 to hear the Air Canada application.

On May 4, 2010, Air Canada brought forth an application in Federal Court for judicial review of the TPA’s announcement on April 9, 2010 that it will be formally accepting requests for proposals from carriers for additional slots made available at BBTCA. Air Canada has requested that the matter be heard in July 2010 at the same time the other application for judicial review is heard.

Although the Company believes it will be successful in these proceedings, an adverse ruling could have a material adverse effect on the Company’s future cash flows, results of operations and financial condition.

Except as disclosed above, the Company is not subject to any material legal proceedings, nor is the Company or any of its properties a party to or the subject of any such proceedings and no such proceedings are known to be contemplated. The Company is from time to time involved in routine, non-material litigation arising in the ordinary course of business.

10. CREDIT FACILITIES

On March 29, 2010, the Company signed an agreement with a Canadian chartered bank for credit facilities totaling $35,000 for letters of guarantee, a revolving credit facility and an uncommitted derivatives facility. The facilities are secured by a general security agreement. In addition, the letters of guarantee facility would be 100% cash secured in the form of restricted cash. As at March 31, 2010, the Company had not drawn on any of these credit facilities.

This credit facilities agreement will require the Company to maintain a fixed charge coverage ratio not less than 1.0 times calculated as at each month end throughout the period ending December 31, 2010 and then 1.1 times thereafter. Fixed Charge Coverage is to be defined as EBITDAR, as defined in the agreement, subject to agreed upon one-time exclusions and adjustments required for implementation of International Financial Reporting Standards [“IFRS”], if applicable, less cash taxes, less unfunded capital expenditures (does not include expenditures related to the new terminal at BBTCA and in relation to the 20 aircraft, the last of which is scheduled to be delivered in April 2010), less cash distributions, divided by principal plus interest plus rents. Ratio is to be tested and certified at the end of each month on a rolling 12 months basis. If required, for the calculation of this ratio for any 12-month period ending prior to January 1, 2011, 100% of any shareholders’ equity contributions made by existing and future shareholders at any time in fiscal 2009 and fiscal 2010 and retained in the Borrower up to a maximum amount of $40,000 (inclusive of the $25,000 contributed in March 2009), may be added to the numerator in the calculation of this ratio.

This credit facilities agreement will also require the Company to maintain a minimum shareholders’ equity of $90,000 at all times (subject to agreed upon one-time adjustments required for implementation of IFRS, if applicable).

The Company entered a termination agreement with respect to the credit facilities with a Canadian Chartered Bank, reducing the available credit facilities to $3,826 for letters of guarantee previously issued, $12,000 for advance credit card sales and $250 for corporate credit cards. Concurrent with the termination agreement, the facilities agreement was amended, in part to eliminate the minimum unrestricted cash requirement. As at March 31, 2010, $15,044 [December 31, 2009 - $12,256] of the facilities have been used and are fully collateralized by restricted cash.




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11. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

The fair values of the Company's cash and cash equivalents, restricted cash, accounts receivable, bank indebtedness and accounts payable and accrued liabilities approximate their carrying values due to their short-term maturity. The fair values of variable-rate long-term debt and capital lease obligations approximate their carrying values based on market rates available to the Company for financial instruments with similar risks, terms and maturities.

The fair value of the fixed-rate loans is $246,510; the carrying value is $252,529 [December 31, 2009 - $249,540, carrying value: $256,011]. These fair values have been calculated by discounting the future cash flow of the respective long-term debt at the estimated yield to maturity of similar debt instruments.

Credit and counterparty risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. As at March 31, 2010, the Company's credit exposure consists primarily of the carrying amounts of cash and cash equivalents, restricted cash, accounts receivable and US-dollar deposits.

The maximum credit risk as at March 31, 2010 related to cash and cash equivalents and restricted cash is the carrying value. These assets are held with a limited number of financial institutions and other counterparties. The Company is exposed to the risk that the financial institutions and other counterparties with which it holds assets or enters into agreements could be unable to honour their obligations. The Company minimizes risk by entering into agreements with financial institutions and other counterparties with appropriate credit ratings. Exposure to these risks is closely monitored and maintained within the limits set out in the Company’s various policies. The Company revises these policies on a regular basis.

Approximately 84% [December 31, 2009 - 63%] of receivables are from three major credit card institutions and were current at period end. These receivables are the result of ticket sales to individuals. The remaining balance is comprised of GST input tax credits receivable 3% [December 31, 2009 - 18%], government assistance 2% [December 31, 2009 - 9%] advertising sales 4% [December 31, 2009 - 6%] and other 7% [December 31, 2009 - 4%]. All receivables are current. In order to manage its exposure to credit risk and assess credit quality, the Company reviews counterparty credit ratings on a regular basis and sets credit limits when deemed necessary. Historically, the Company has not incurred any significant losses in respect of its trade accounts receivable. The allowance for doubtful accounts as at March 31, 2010 was nil [December 31, 2009 - nil].

Derivative financial instruments are not utilized by the Company at this time in the management of its foreign currency, interest rate or fuel price exposures. The Company's policy is not to utilize derivative financial instruments for trading or speculative purposes.

Interest rate volatility risk


The Company is exposed to interest rate fluctuations on its cash balance. A change in the interest rate of +/- 1% would increase/decrease the net loss for the period by $84.

A portion of the Company's long-term debt bears fixed interest rates. Therefore, this debt faces zero risk posed by interest rate volatility. The Company accounts for its long-term fixed-rate debt at amortized cost, and therefore, a change in interest rates as at March 31, 2010 would not impact net loss for the period.




F-46

The Company is exposed to interest rate fluctuations on variable interest rate debt, which at March 31, 2010 made up 15% of the Company's total debt. A change of 1% in the variable interest rate charged on the debt would result in a $121 increase/decrease in the net loss for the period.

Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulties in meeting its financial obligations. The Company monitors and manages liquidity risk by preparing rolling cash flow forecasts, monitoring the condition and value of assets available to be used as well as those assets being used as security in financing arrangements, seeking flexibility in financing arrangements, and establishing programs to monitor and maintain compliance with terms of financing agreements. The Company's objectives in minimizing liquidity risk are to maintain appropriate levels of unrestricted cash and leverage on its assets and to stagger its debt maturity profile. As at March 31, 2010, the Company was holding cash and cash equivalents of $9,179 [December 31, 2009 - $20,911].

The Company’s contractual obligations as at March 31, 2010 are as follows:

2010 2011 2012 2013 2014 Thereafter Total

$ $ $ $ $ $ $

Accounts payable and accrued liabilities

27,965 —

— —

—

—

27,965

Long-term debt 13,237 29,541 20,241 21,111 22,133 220,041 326,304Capital lease

obligations

1,776 400

353 —

—

—

2,529Operating leases 1,074 1,081 986 726 669 12,379 16,915Interest obligations 11,668 13,744 12,763 11,781 10,801 46,689 107,446Terminal construction

commitments

10,906 — — — — — 10,906

Commitments for new aircraft

37,201 — — — — —

37,201Commitments for

aircraft equipment 1,554 — — — — — 1,554

Total 105,381 44,766 34,343 33,618 33,603 279,109 530,820

Principal repayments in the table above exclude transaction costs of $4,489 which are offset against long-term debt in the interim consolidated balance sheet.

Debt maturity ranges from 2011 to 2025. The Company has secured fixed-rate debt commitments on many of its aircraft acquisitions [note 3]. This represents approximately 74% of the Company’s total long-term debt. The Company has committed financing of $4,928 related to additional airport terminal construction in 2010 and approximately $33,096 [85% of the purchase price] related to aircraft deliveries in 2010 [note 8]. The Company also has a credit facility with undrawn availability of $7,500. This facility is due on demand [note 10].

The term loan related to the airport terminal construction requires the maintenance of a minimum working capital ratio [defined as current assets to current liabilities each as presented in the Company’s consolidated financial statements] of 1:1 and a long-term debt to tangible equity ratio not exceeding 3.2:1 each commencing December




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2010. This term loan amounted to $25,072 at March 31, 2010. The Company expects that it will require additional liquidity prior to December 2010 in order to satisfy these covenants. To date, the Company has been successful in meeting its financing requirements and anticipates being able to continue to do so, however, there can be no assurance that this will be the case. A default under any other loans or mortgage could trigger a default under the cross-default provisions of this loan [note 3].

The Company anticipates being able to meet its other obligations through cash on hand, cash generated from operations and availability under its existing credit facilities.

Commitments for aircraft deliveries beyond 2010 will not be made until the necessary financing is committed. The Company anticipates requiring substantial additional debt and equity financing to meet its growth objectives.

Foreign currency exchange rate volatility risk

Foreign currency exchange rate volatility risk is the risk that the fair value of recognized assets and liabilities or future cash flows would fluctuate as a result of fluctuations in foreign currency exchange rates. The Company is exposed to foreign currency exchange risks arising from fluctuations in exchange rates mainly on its US-dollar denominated liabilities, aircraft purchases, US-dollar denominated sales and its operating expenditures, mainly aircraft fuel, certain maintenance costs and a portion of airport operations costs. During the three months ended March 31, 2010, the average US-dollar exchange rate was 1.0409 [three months ended March 31, 2009 - 1.2453], the March 31, 2010 exchange rate was 1.0156 [December 31, 2009 - 1.0466]. The gain on foreign exchange included in the Company's interim consolidated statement of loss and comprehensive loss and deficit is mainly attributable to the effect of the translation of the value of the Company’s US-dollar denominated net liabilities. As at March 31, 2010, US-dollar denominated net liabilities totalled approximately US $59,089 [December 31, 2009 - US $57,246]. During the three months ended March 31, 2010, the Company estimates that a one cent change in the value of the US dollar versus the Canadian dollar would have increased or decreased net loss by $591.

12. CAPITAL DISCLOSURES

The Company views capital as the sum of bank indebtedness, long-term debt, capital lease obligations and shareholders’ equity. As at March 31, 2010, the Company had secured a pre-delivery financing commitment, which was related to future aircraft deliveries, and as the aircraft had not yet been delivered, this debt was excluded from the capital base. This definition of capital is used by management and may not be comparable to measures presented by other companies.

The Company also monitors its ratio of net debt to net debt plus shareholders’ equity. Net debt is calculated as the sum of long-term debt and capital lease obligations less cash and cash equivalents.

The Company’s main objectives when managing capital are:

• To structure repayment obligations in line with the expected cash flows generated by the Company’s principal revenue generating assets;

• To ensure the Company has access to capital to fund contractual obligations as they become due and to ensure adequate cash reserves to withstand changing economic conditions;

• To maintain an appropriate balance between debt supplied capital versus investor supplied capital as measured by the net debt to net debt plus equity ratio; and

• To monitor the Company’s credit ratings to facilitate access to capital markets at competitive interest rates.




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In order to maintain or adjust the capital structure, the Company may adjust the type of capital utilized, including purchase versus lease decisions, deferring or cancelling planned aircraft expenditures, and issuing debt or equity securities, all subject to market conditions and the terms of the underlying agreements.

As at March 31, 2010, the Company was in compliance with all externally imposed capital requirements.

The Company’s total capital is calculated as follows:

March 31, December 31, 2010 2009 $ $ Long-term debt and capital lease obligations 294,340 306,206 Current portion of long-term debt and capital lease obligations 30,035 19,372 Debt 324,375 325,578 Shareholders’ equity 100,680 106,578 Total capital 425,055 432,156 Debt 324,375 325,578 Less cash and cash equivalents and bank indebtedness (9,179) (19,913) Net debt 315,196 305,665 Net debt to net debt plus shareholders’ equity ratio 75.8% 74.1%

The increase in net debt of $9,531 in the three months ended March 31, 2010 is attributable to the additions to property and equipment and increase in restricted cash, offset by the repayment of bank indebtedness, repayment of capital lease obligations, and an unrealized gain on US-dollar denominated long-term debt.

13. GOVERNMENT ASSISTANCE

Included in accounts receivable is $302 [December 31, 2009 - $898] relating to an approved reimbursement from a Canadian federal government authority for the deployment of security equipment in the new airport terminal currently being constructed.

14. SUPPLEMENTARY CASH FLOW INFORMATION

Three months ended Three months ended March 31, March 31, 2010 2009 $ $ (Increase) decrease in accounts receivable (4,239) 7,862 (Increase) in inventory (427) (27) (Increase) decrease in prepaid expenses and deposits (392) 60 Decrease in accounts payable and accrued liabilities (1,978) (6,479) Increase in advance ticket sales 6,679 1,597 Other non-cash items 44 15 Net change in non-cash working capital (313) 3,028




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Cash interest paid during the three months ended March 31, 2010 was $3,531 [three months ended March 31, 2009 - $1,515].

As at March 31, 2010, $5,288 of property and equipment additions remain in accounts payable and accrued liabilities [March 31, 2009 - $514].

15. SUBSEQUENT EVENTS

Employee equity incentive plan

On May 17, 2010 the Company granted an additional 25,000 options to employees at an exercise price of $6.50, subject to adjustment based on the initial public offering share price, with an expiry date of November 1, 2015.

Initial Public Offering

On April 16, 2010 the Company filed a preliminary prospectus to qualify for distribution common voting shares and variable voting shares with the securities regulatory authorities in each of the provinces and territories of Canada.

Reorganization

In connection with the initial public offering [“IPO”], the Company will proceed with a pre-closing reorganization which will include the following:

• the authorized share capital of the Company will be amended to include an unlimited number of common voting shares, an unlimited number of variable voting shares and an unlimited number of preferred shares, issuable in series;

• each issued and outstanding common share of the Company will convert into common voting shares or variable voting shares depending on whether the holder of such share is a qualified Canadian or not (as determined on the business day prior to IPO closing). The number of shares issued on conversion will depend upon the offered share price;

• each issued and outstanding Class A preferred share and Class X variable voting share will convert into common voting shares or variable voting shares depending on whether the holder of such share is a qualified Canadian or not (as determined on the business day prior to IPO closing). The number of shares issued on conversion will depend upon the offered share price;

• each issued and outstanding Class A-1 preferred share and Class X-1 variable voting share will convert into common voting shares or variable voting shares depending on whether the holder of such share is a qualified Canadian or not (as determined on the business day prior to IPO closing). The number of shares issued on conversion will depend upon the offered share price; and



In connection with the pre-closing reorganization, the Company will exchange all of its outstanding stock options previously granted under the Employee Equity Incentive Plan ["Old Plan"] [note 4] for options to purchase shares issued under a new stock option plan ["Option Plan"]. Each option holder will receive one new option under the Option Plan in exchange for an existing option under the Old Plan (subject to adjustments, if any, that the Board of




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Directors may make to such exchanged options necessary to ensure that the fair market value of the new options is no greater than the fair market value of the options exchanged). The Option Plan mirrors in all material respects the Old Plan.

Prior to IPO closing, the Company will award shares on a restricted basis to all eligible employees and officers of the Company and its subsidiaries in consideration of past services. The number of awards to be granted is determined based on each eligible participant’s position and time of service with the Company. In accordance with the terms of the restricted share plan, the shares awarded to an eligible participant will fully vest after a period of four years (1/3 will vest on the second anniversary of grant, 1/3 will vest on the third anniversary and 1/3 will vest on the fourth anniversary). If an eligible participant ceases to be employed or shall resign as an employee of the Company (subject to certain permitted exceptions) any unvested restricted shares shall be forfeited by such participant.

BBTCA Operations

In 2005, the Company entered into a commercial carrier operating agreement [“CCOA”] with the TPA. Under the terms of the CCOA, the Company was initially entitled to not less than 95 of the then available 120 slots at BBTCA. The remaining 25 available slots were never utilized by other carriers, and the Company was subsequently granted these remaining slots. On April 9, 2010, the CCOA was amended and restated and, under the current terms of the CCOA, until April 20, 2010, the TPA has allocated the Company 120 slots and from April 21, 2010 to the opening of phase two of the new terminal currently being constructed at BBTCA, the Company is allocated 140 slots.

On April 9, 2010, the TPA announced the results of a third party Noise Exposure Forecast study and capacity assessment of BBTCA. As a result of this study and capacity assessment, the TPA has determined that the maximum slot availability at BBTCA will be 202 slots upon completion of the new terminal.

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AUDITORS’ CONSENT

We have read the base PREP prospectus of Porter Aviation Holdings Inc. (the “Company”) dated May 21, 2010 relating to the qualification for distribution of common voting shares and variable voting shares of the Company. We have complied with Canadian generally accepted standards for auditors’ involvement with offering documents.

We consent to the inclusion in the above-mentioned prospectus of our report to the directors of the Company on the consolidated balance sheets as at December 31, 2009, December 31, 2008 and August 31, 2008 and the related consolidated statements of loss and comprehensive loss and deficit and cash flows for the year ended December 31, 2009, the four-month period ended December 31, 2008 and the years ended August 31, 2008 and August 31, 2007. Our report is dated February 17, 2010 [except as to Note 26 which is as of May 17, 2010].

Toronto, Canada May 21, 2010

(signed) Ernst & Young LLP Chartered Accountants

Licensed Public Accountants

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APPENDIX “A” – BOARD MANDATE

PORTER AVIATION HOLDINGS INC.

Introduction

The Board of Directors (the “Board”) of Porter Aviation Holdings Inc. (the “Corporation”) is responsible for the stewardship of the Corporation and management is responsible for the day-to-day operation of the Corporation. This Charter sets out the Board’s responsibilities.

Composition of the Board

(a) Subject to the articles of the Corporation and compliance with the Business Corporations Act (Ontario), the Board shall have that number of directors as the Board may determine from time to time. The directors of the Corporation (the “Directors”) shall be nominated by the Board, having regard to the recommendations of the Corporate Governance and Nominating Committee, for the election by the Shareholders.

(b) The majority of the Directors shall at all times be “Canadian” as such term is defined in subsection 55(1) of the Canada Transportation Act.

(c) The majority of the Directors shall be independent as such term is defined in National Instrument 58-101 – Disclosure of Corporate Governance Practices, as determined by the Board.

(d) The Board will designate from among its members a Chairman of the Board, who will be an independent Director, at the first meeting of the Board following an annual election of Board members. The Chairman of the Board shall have responsibility for overseeing that the Board fulfils its role and its duties effectively.

(e) Whenever a vacancy arises on the Board between annual elections of Board members, the Board may appoint a person to fill such vacancy having regard to the recommendation of the Corporate Governance and Nominating Committee to the extent permitted by the Business Corporations Act (Ontario).

Committees of the Board of Directors

The Board shall have at all times an Audit Committee, a Corporate Governance and Nominating Committee and a Compensation Committee. Each of these Committees shall operate under a written charter outlining its duties and responsibilities.

The Board may, from time to time, establish or maintain additional committees as it views necessary or appropriate. The Board may also appoint special committees from time to time to assist it in carrying out particular responsibilities.

Responsibilities

1. Strategic Plan and Principal Risks

(a) The Board shall review and approve, on at least an annual basis, the strategic plan of the Corporation prepared by management. The strategic plan shall set out the material corporate and financial objectives, plans and actions of the Corporation and shall set out and take into account the opportunities and risks of the Corporation’s business. The Board must be kept current on the Corporation’s progress towards achieving these objectives, plans and actions and must be part of and approve any major policy and strategic decisions.

(b) The Board and the Audit Committee shall identify the principal risks of the Corporation’s business and shall oversee the systems developed by management to manage such risks.

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2. Code of Business Conduct and Ethics

(c) The Board will adopt a Code of Business Conduct and Ethics for the Corporation having regard to the recommendations of the Corporate Governance and Nominating Committee.

(d) The Board will direct the Corporate Governance and Nominating Committee to monitor compliance with the Code of Business Conduct and Ethics and recommend disclosures with respect thereto. The Board will consider any report of the Corporate Governance and Nominating Committee concerning these matters, and will approve, if determined appropriate, such disclosures.

(e) The Board will consider any report of the Corporate Governance and Nominating Committee with respect to any waiver requested to be granted to a director or officer of the Corporation from complying with the Code of Business Conduct and Ethics and will approve or reject such request as it deems appropriate.

(f) On an annual basis, the Board will review the recommendations of the Corporate Governance and Nominating Committee with respect to the Corporation’s Code of Business Conduct and Ethics and make such changes to the Code of Business Conduct and Ethics as it determines are appropriate.

3. Internal Controls

The Board shall review the Audit Committee’s report on internal control systems, disclosure control and procedures and management information systems on an annual basis.

4. Management Evaluation and Succession Planning

(a) The Compensation Committee shall review and assess, in conjunction with the Chairman of the Board, the performance of the Chief Executive Officer and, with the Chief Executive Officer, the performance of senior management who report to the Chief Executive Officer and shall establish and recommend for approval to the Board the compensation packages of the Chief Executive Officer and other executive officers or senior management of the Corporation. The Board shall satisfy itself, to the extent feasible, as to the integrity of the Chief Executive Officer and other executive officers and that the Chief Executive Officer and other executive officers create a culture of integrity throughout the organization. This review and assessment of management’s performance shall take place at least once in every 12 month period.

(b) The Corporate Governance and Nominating Committee shall be responsible for succession planning, including appointing, training and monitoring senior management and shall periodically report to the Board on such succession planning.

5. Management Responsibilities

Senior management, led by the Chief Executive Officer, if one has been appointed, is responsible for the day-to-day operations of the Corporation and for providing the Board, directly or through the appropriate committee, and the Chairman of the Board with timely, complete and accurate information on such operations. The Board expects management to propose and, after Board approval, implement the Corporation’s strategic plan and to be accountable for the Corporation’s financial and competitive performance. The Board expects the Corporation’s resources to be managed in a manner consistent with enhancing the value of the Corporation and with consideration for ethics and corporate social responsibility.

6. Board Effectiveness

The Corporate Governance and Nominating Committee shall be responsible for conducting an annual evaluation of the effectiveness and contribution of the Board, its committees and individual Directors. The Corporate Governance and Nominating Committee shall report the results of the evaluation to the Board. The purpose of the evaluation shall be to increase the effectiveness and contribution of the Board, its committees and individual Directors.

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7. Corporate Governance

The Corporate Governance and Nominating Committee shall be responsible for making recommendations to the Board on the Corporation’s approach to corporate governance, including developing a set of corporate governance principles and guidelines (the “Governance Principles”). On an annual basis, the Board will review the recommendations of the Corporate Governance and Nominating Committee with respect to the Governance Principles and make such changes to the Governance Principles as it determines are appropriate.

8. Communication Policy

The Board shall develop and adopt a communications policy for the Corporation (the “Communication Policy”). On an annual basis, the Board will review the Communication Policy and make such changes to the Communication Policy as it determines are appropriate.

9. Board Approval

In addition to those matters required by law, the Board shall review and approve:

(a) the strategic plan, financial plans and operating budget of the Corporation on at least an annual basis;

(b) the quarterly and annual financial statements of the Corporation;

(c) all material capital expenditures not part of the approved operating budget, all mergers and acquisitions, and all material investments and dispositions of the Corporation;

(d) all material borrowings and banking arrangements of the Corporation;

(e) any changes to the by-laws of the Corporation;

(f) the hiring and, if necessary, the termination of the Chief Executive, Chief Financial and the Chief Operating Officers of the Corporation;

(g) as set out in paragraph 4(a) above, the compensation paid to senior management;

(h) any other material matters outside the ordinary course of the Corporation’s business including all major strategic and policy decisions; and

(i) any other matter specified by the Board as requiring its approval.

10. Position Descriptions

The Board will develop position descriptions for the Chair of the Board and the Chair of each Board committee having regard to the recommendations of the Corporate Governance and Nominating Committee. In addition, the Board, together with the Chief Executive Officer, will develop a clear position description for the Chief Executive Officer, which includes delineating management’s responsibilities, having regard to the recommendations of the Corporate Governance and Nominating Committee. The Board will also develop or approve the corporate goals and objectives that the Chief Executive Officer is responsible for meeting, having regard to the recommendations of the Corporate Governance and Nominating Committee.

Directors’ Compensation

The Compensation Committee shall determine the form and amount of compensation for Directors. The Compensation Committee shall periodically review the compensation for Directors in relation to other comparable corporations, to the extent such information is available, to ensure such compensation is reasonable and competitive.

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Operating Procedures

1. Frequency of Meetings

The Chairman of the Board, in consultation with the Board members shall determine the schedule and frequency of the Board meetings provided that the Board will meet at least four times per year, and more frequently as circumstances dictate. A fifth meeting of the Board will be scheduled each year principally to focus on the review and approval of the Corporation’s operating budget and strategic plan. Meetings will be conducted in accordance with the Corporation’s by-laws.

2. Meeting Agenda

The agendas for Board meetings shall be set by the Chairman and other Board members.

3. In Camera Meetings

The members of the Board shall meet without management present following each Board meeting. To the extent that non-management Directors include Directors who are not independent Directors, the independent Directors shall meet with only independent Directors present following each Board meeting.

4. Background Material

Directors and Committee members should be provided, four business days in advance of any forthcoming meeting (if feasible in the circumstances), with notice of the meeting, an agenda and sufficient background material prepared in a clear and concise manner relating to a forthcoming meeting as will allow them to understand the items to be discussed at the meeting. The material should contain sufficient information, to the extent such information is reasonably available to management, to enable the Directors or Committee members to make an informed decision if one is required.

5. Minutes

Minutes of each meeting of the Board will be prepared by the Secretary of the meeting and provided to each member of the Board for review prior to approval at a subsequent Board meeting.

6. Directors’ Education

The Corporate Governance and Nominating Committee is responsible for ensuring that new Directors are provided with sufficient background materials and education, as appropriate, relating to the Corporation and its industry as will allow them to understand the Corporation’s business, assets, capitalization, personnel, policies and procedures. The Corporate Governance and Nominating Committee is also responsible for ensuring that the Board is provided with appropriate continuing education.

Operating Principles

7. External Resources

To assist the Board in discharging its responsibilities, the Board may, at the expense of the Corporation, retain one or more persons having special expertise. In addition, individual directors may engage outside advisors and consultants, at the expense of the Corporation, with the prior approval of the Corporate Governance and Nominating Committee.

8. Time Commitment

Directors are expected to commit the time required to fulfil their duty to oversee the Corporation’s business and affairs. Directors should prepare for Board meetings by reviewing the materials sent to them by management for discussion at the meeting, as well as any other material they feel is necessary. Directors are expected to attend (in person or by telephone) all Board meetings and to participate in those meetings through the asking of relevant questions and the expression of opinions on items being discussed.

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9. Reliance

The Board is entitled to rely in good faith on the information and advice provided to it by the Corporation’s management and the Board’s advisors, consultants and such other persons as the Board considers appropriate.

10. Independence

To enhance independence, the Board has implemented the following:

(a) the Compensation Committee, the Corporate Governance and Nominating Committee and the Audit Committee are solely comprised of independent Directors;

(b) the Board and its Committees meet independently of management on a regular basis;

(c) the Board and its Committees can hire independent advisors; and

(d) the provision of information to Directors on a timely basis, including Board and Committee presentations, orientation materials and tours, third party reports on the Corporation and its industry, and access to members of senior management.

Stakeholder Feedback

The Board encourages stakeholders to communicate with the Board (as a whole or, in particular, with the independent Directors) in writing in care of the Corporate Secretary as follows: Porter Aviation Holdings Inc., Billy Bishop Toronto City Airport, Toronto, Ontario, Canada M5V 1A1.

Review of Charter

This Charter will be reviewed by the Board at least once per year and modified if necessary.

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APPENDIX “B” – AUDIT COMMITTEE MANDATE


Name

There shall be a committee of the Board of Directors (the “Board”) of Porter Aviation Holdings Inc. (the “Corporation”) known as the Audit Committee (the “Committee”).

General Purpose

The Committee has been established to assist the Board in fulfilling its oversight responsibilities with respect to the following areas: the Corporation’s internal and external audit functions; internal control and management information systems; the Corporation’s accounting and financial reporting requirements; the Corporation’s compliance with law and regulatory requirements; the Corporation’s risks and risk management policies and such other functions as are delegated to it by the Board. Specifically, with respect to the Corporation’s external audit function, the Audit Committee assists the Board in fulfilling its oversight responsibilities relating to: the quality and integrity of the Corporation’s financial statements; the external auditors’ qualifications and independence; and the performance of the Corporation’s internal audit function and external auditors.

The Committee is intended to facilitate and provide a means of open communication between management, the external auditors and the Board. The Committee has the authority to access all of the Corporation’s books, records, facilities and employees and the authority to communicate directly with internal and external auditors.

Composition and Qualifications

The Committee shall consist of as many members as the Board shall determine, but in any event not fewer than three members who are appointed by the Board (and in so doing shall consider the recommendations of the Corporate Governance and Nominating Committee). Each member of the Committee shall be a director of the Corporation (a “Director”) who is independent and financially literate, in accordance with the terms of National Instrument 52-110 - Audit Committees.

The Board shall designate the Chairman of the Committee and in so doing shall consider the recommendations of the Corporate Governance and Nominating Committee. The Chairman shall have responsibility for overseeing that the Committee fulfils its mandate and duties effectively.

Each member of the Committee shall continue to be a member until a successor is appointed, unless the member resigns, is removed from the Committee by the Board or ceases to be a Director. The Board, following consideration of the recommendations of the Corporate Governance and Nominating Committee, may fill a vacancy which occurs in the Committee at any time.

Meetings

The Chairman of the Committee, in consultation with the Committee members, shall determine the schedule and frequency of the Committee meetings provided that the Committee will meet at least four times in each fiscal year and at least once in every fiscal quarter. The Committee shall have the authority to convene additional meetings as circumstances require. A schedule for each of the meetings will be disseminated to Committee members prior to the start of each fiscal year. A detailed agenda for each meeting will be disseminated to Committee members as far in advance of each meeting as is practicable.

A majority of the members of the Committee shall constitute a quorum and all actions of the Committee shall be taken by a majority of the members present at the meeting.

The Committee shall meet separately, periodically, with management, counsel and the external auditors. The Committee shall meet separately with the external auditors at every meeting of the Committee at which the external auditors are present.

The Secretary of the Corporation shall advise the Corporation’s external auditors of the names of the members of the Committee and its Chairman promptly after their election and the external auditors shall have the right to receive notice of any meetings of the Committee and, at the expense of the Corporation, to appear before and be heard

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thereat. If so requested by a member of the Committee, the external auditors shall attend every meeting of the Committee held during the term of the office of the auditors. Upon the request of the external auditors, the Chairman of the Committee shall convene a meeting of the Committee to consider the matters which the external auditors believe should be brought to its attention.

Responsibilities

The Committee is mandated to carry out the following responsibilities:

1. External Auditors

(a) Subject to applicable law, the Committee shall be directly responsible for recommending to the Board the nomination, compensation and termination of the external auditors. The Committee shall oversee the work of the external auditors, including the resolution of disagreements between management and the external auditors regarding financial reporting. The external auditors shall report directly to the Committee and shall be accountable to the Board and Committee as representatives of the shareholders.

(b) The Committee shall review with the external auditors the scope of the audit to be carried out.

(c) Immediately after the appointment of the external auditors, the Committee shall discuss with the external auditors and recommend to the Board the fees to be charged for auditing services for the ensuing year.

(d) The Committee shall pre-approve all non-audit mandates for services the external auditors shall undertake. The Committee may delegate to one or more independent members the authority to pre-approve non-audit services, subject to the requirement that the pre-approval of non-audit services by any member to whom the authority has been delegated must be presented to the Committee at its first scheduled meeting following such pre-approval.

(e) The Committee shall establish procedures for:

(i) the receipt, retention and treatment of complaints received by the Corporation regarding accounting, internal accounting controls, or auditing matters; and

(ii) the confidential, anonymous submission by employees of the Corporation of concerns regarding questionable accounting or auditing matters.

(f) The Committee must review and approve the Corporation’s hiring policies regarding partners, employees and former partners and employees of the present and former external auditors of the Corporation.

(g) The Committee shall satisfy itself, on behalf of the Board, that the external auditors are independent of management. In assessing such independence, the Committee shall discuss with the external auditors, and may require a letter from the external auditors outlining, any relationships between the external auditors and the Corporation, its affiliates or management.

(h) The Committee shall review the audit plan of the external auditors, the integration of the external audit with the internal control program, and the results of the audit, which shall include reviewing the external auditors’ letter to management and management’s response thereto and other material written communications between management and the external auditors.

(i) The Committee shall satisfy itself, annually or more frequently as the Committee considers appropriate, as to the external auditors’ internal quality control procedures and any material issues raised by the most recent internal quality control review, or peer review, of the external auditors, or by any public enquiry, review, or investigation by governmental, professional or other regulatory authorities.

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(j) The Committee shall periodically review and discuss with management and the external auditors the quality and acceptability of the Corporation’s accounting policies and practices, the materiality levels which the external auditors propose to employ, any significant changes in the accounting policies and any proposed changes in accounting or financial reporting that may have a significant impact on the Corporation.

(k) The Committee shall discuss with management and the external auditors all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management by the external auditors, the ramifications of these alternative treatments and the treatment preferred by the external auditors.

2. Financial Information

(a) The Committee shall discuss with management and the external auditors whether the audited annual financial statements present fairly (in accordance with applicable accounting principles) in all material respects the financial condition, results of operations and cash flows of the Corporation as of and for the periods presented and, where appropriate, recommend for approval to the Board, the annual audited financial statements of the Corporation.

(b) The Committee shall discuss with management and the external auditors whether the unaudited quarterly financial statements present fairly (in accordance with applicable accounting principles) in all material respects the financial condition, results of operations and cash flows of the Corporation as of and for the periods presented and, where appropriate, recommend for approval to the Board, the unaudited quarterly financial statements of the Corporation.

(c) The Committee shall discuss with management and the external auditors important trends and developments in financial reporting practices and requirements and their effect on the Corporation’s financial statements.

3. Disclosure

(a) The Committee shall review, prior to public disclosure, all financial statements, including without limitation, quarterly financial statements, annual financial statements, financial statements in prospectuses and other offering memoranda, financial statements required by regulatory authorities, MD&A and earnings press releases. The Committee shall review any report of management which accompanies published financial statements (to the extent such a report discusses the financial position or operating results of the Corporation).

(b) The Committee shall satisfy itself that adequate procedures are in place for the review of the Corporation’s public disclosure of financial information extracted or derived from the Corporation’s financial statements, other than public disclosure referred to in paragraph 3(a) above, and shall periodically assess the adequacy of such procedures.

4. Internal Control

The Committee shall oversee the adequacy and effectiveness of the Corporation’s internal control systems, disclosure control and procedures and management information systems, through discussions with the Corporation’s external auditors and management and shall report to the Board on an annual basis.

5. Risk Management

The Committee shall review with management the principal risks facing the Corporation, and the policies, processes and procedures for management’s monitoring and managing of such risks or exposures. If necessary, the Committee will mandate, monitor and evaluate the steps management has taken to monitor and manage such exposures, including insuring against such risks, where appropriate.

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6. Compliance with Legal and Regulatory Requirements

(a) The Committee shall review with management, and any internal or external counsel as the Committee considers appropriate, any legal matters (including the status of pending litigation) that may have a material impact on the Corporation and any material reports or inquiries from regulatory or governmental agencies.

(b) The Committee shall review with counsel the adequacy and effectiveness of the Corporation’s procedures to ensure compliance with the legal and regulatory responsibilities.

7. Delegation of Authority

The Committee may delegate its authority and duties to subcommittees or individual members of the Committee as it deems appropriate.

8. Other

(a) The Committee shall perform such other activities related to this Charter as requested by the Board.

(b) The Committee shall review and assess the adequacy of this Charter annually and shall submit any proposed changes to the Board for approval.

Reporting

The Committee shall report its deliberations and discussions regularly to the Board and shall submit to the Board the minutes of its meetings.

Resources

The Committee shall have the authority, in its sole discretion, to retain independent legal, accounting and other advisors to assist the Committee as it considers necessary in fulfilling its responsibilities, at the expense of the Corporation, and the Committee has sole authority to set and pay such advisors’ fees and other retention items. The Committee shall be provided with the necessary funding to compensate the external auditors and any other advisors it engages.

The Committee may request any officer or employee of the Corporation or the Corporation’s external counsel or external auditors to attend a meeting of the Committee or to meet with any member of, or consultants to, the Committee.

Complaints Procedure

Any Director, officer or employee who has any concern or complaints regarding accounting, internal control or auditing matters or any potential violations of law or regulatory provisions may, in accordance with the Code of Business Conduct and Ethics, make an anonymous and confidential submission to any member of the Committee. The Committee shall establish procedures for the review and resolution of such complaints.

Review of Charter

This Charter will be reviewed by the Board at least once per year and modified if necessary.

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CERTIFICATE OF THE CORPORATION

Dated May 21, 2010

This prospectus, together with the documents and information incorporated by reference, will, as of the date of the supplemented prospectus providing the information permitted to be omitted from this prospectus, constitute, full, true and plain disclosure of all material facts relating to the securities offered by this prospectus as required under the securities legislation of each of the provinces and territories of Canada.


(signed) Robert J. Deluce President and Chief Executive

Officer

(signed) Robert Payne Chief Financial Officer and

Corporate Secretary

On behalf of the Board of Directors

(signed) Donald J. Carty Chairman

(signed) Jacques Demers Director

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CERTIFICATE OF THE UNDERWRITERS

Dated May 21, 2010

To the best of our knowledge, information and belief, this prospectus, together with the documents and information incorporated by reference, will, as of the date of the supplemented prospectus providing the information permitted to be omitted from this prospectus, constitute full, true and plain disclosure of all material facts relating to the securities offered by this prospectus as required under the securities legislation of each of the provinces and territories of Canada.

RBC DOMINION SECURITIES INC.

By: (signed) Steve Michell

NATIONAL BANK FINANCIAL INC.

By: (signed) William Tebbutt

BMO NESBITT BURNS INC.

By: (signed) Stephen Shapiro

CIBC WORLD MARKETS INC. TD SECURITIES INC.

By: (signed) Bruce Moore By: (signed) Joe Tassone

GMP SECURITIES L.P.

By: (signed) Jason J. Robertson

CREDIT SUISSE SECURITIES (CANADA) INC. RAYMOND JAMES LTD.

By: (signed) Ronald S. Lloyd By: (signed) Jamie Coulter

VERSANT PARTNERS INC.

By: (signed) Paul Rajchgod

MYRTLE BEACH

BOSTON

HALIFAX

ST. JOHN’S

MONTRÉAL MONCTON

SUDBURY

THUNDER BAY

CHICAGO

QUÉBEC CITYMONT TREMBLANT

OTTAWA

TORONTO

NEW YORK

USA

CANADA

Seasonal routesItinéraires saisonniers

Announced routesItinéraires annoncés

Current routesItinéraires actuels

Documents

PORTER AVIATION HOLDINGS INC