##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2006
 or
 o
    
    Transition report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
 For the transition period from __________ to __________
 Commission File Number 001-31898
 PINNACLE AIRLINES CORP.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    03-0376558(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification No.)1689 Nonconnah Blvd, Suite 111Memphis, Tennessee
    
    38132(Address of principal executive offices)
    
    (Zip Code)
 901-348-4100  (Registrants telephone number, including area code)
  x o
  o x o
  o x




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##### Table of Contents



Table of Contents
 PART I. Financial Information
    
    
    1Item 1.Financial Statements
    
    
    1Condensed Consolidated Statements of Operations (Unaudited)
    
    
    1Condensed Consolidated Balance Sheets (Unaudited)
    
    
    2Condensed Consolidated Statements of Cash Flows (Unaudited)
    
    
    4Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    5Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition
    
    
    18Item 3. Quantitative and Qualitative Disclosure about Market Risk
    
    
    27Item 4. Controls and Procedures
    
    
    27PART II. Other Information
    
    
    28Item 1. Legal Proceedings
    
    
    28Item 1A. Risk Factors
    
    
    28Item 2. Changes in Securities and Use of Proceeds
    
    
    28Item 3. Defaults Upon Senior Securities
    
    
    28Item 4. Submission of Matters to a Vote of Security Holders
    
    
    28Item 5. Other Information
    
    
    28Item 6. Exhibits
    
    
    29EX-4.5 SECOND AMENDMENT TO RIGHTS AGREEMENTEX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32 SECTION 906 CERTIFICATION OF THE CEO & CFO




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##### Table of Contents



Part I. Financial Information
 
 Item 1. Financial Statements
 Pinnacle Airlines Corp.
 
 Condensed Consolidated Statements of Operations (Unaudited)
 (in thousands, except per share data)
 Three Months Ended March 31,2006
    
    
    2005Operating revenuesRegional airline services
    
    $
    205,005
    
    
    $
    192,751Other
    
    
    2,084
    
    
    
    1,981Total operating revenues
    
    
    207,089
    
    
    
    194,732Operating expensesSalaries, wages and benefits
    
    
    34,427
    
    
    
    31,482Aircraft fuel
    
    
    26,701
    
    
    
    25,462Aircraft maintenance, materials and repairs
    
    
    10,262
    
    
    
    7,238Aircraft rentals
    
    
    66,031
    
    
    
    63,306Other rentals and landing fees
    
    
    11,251
    
    
    
    10,142Ground handling services
    
    
    22,359
    
    
    
    22,664Depreciation
    
    
    962
    
    
    
    962Other
    
    
    13,567
    
    
    
    13,405Total operating expenses
    
    
    185,560
    
    
    
    174,661Operating income
    
    
    21,529
    
    
    
    20,071Operating income as a percentage of operating revenues
    
    
    10.4
    %
    
    
    10.3
    %Nonoperating income (expense)Interest expense
    
    
    (1,500
    )
    
    
    (1,087
    )Interest income
    
    
    504
    
    
    
    155Miscellaneous income, net
    
    
    28
    
    
    
    Gain on extinguishment of debt
    
    
    
    
    
    
    18,000Total nonoperating income (expense)
    
    
    (968
    )
    
    
    17,068Income before income taxes
    
    
    20,561
    
    
    
    37,139Income tax expense
    
    
    7,265
    
    
    
    13,807Net income
    
    $
    13,296
    
    
    $
    23,332Basic and diluted earnings per share
    
    $
    0.61
    
    
    $
    1.06Shares used in computing basic earnings per share
    
    
    21,945
    
    
    
    21,908Shares used in computing diluted earnings per share
    
    
    21,975
    
    
    
    21,928
  1




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##### Table of Contents



Pinnacle Airlines Corp.
 
 Condensed Consolidated Balance Sheets
 (in thousands, except share data)
 March 31,
    
    
    December 31,2006
    
    
    2005(Unaudited)AssetsCurrent assetsCash and cash equivalents
    
    $
    33,481
    
    
    $
    31,567Short-term investments
    
    
    57,200
    
    
    
    44,160Receivables, net of allowance
    
    
    33,694
    
    
    
    30,190Spare parts and supplies, net
    
    
    6,593
    
    
    
    6,368Prepaid expenses and other assets
    
    
    9,936
    
    
    
    5,623Deferred income taxes, net of allowance
    
    
    9,308
    
    
    
    9,146Total current assets
    
    
    150,212
    
    
    
    127,054Property and equipmentAircraft and rotable spares
    
    
    39,136
    
    
    
    39,362Other property and equipment
    
    
    19,641
    
    
    
    19,209Office furniture and fixtures
    
    
    2,010
    
    
    
    2,00260,787
    
    
    
    60,573Less accumulated depreciation
    
    
    (18,971
    )
    
    
    (18,038
    )Net property and equipment
    
    
    41,816
    
    
    
    42,535Other assets, primarily aircraft deposits
    
    
    22,010
    
    
    
    22,155Debt issuance costs, net
    
    
    4,142
    
    
    
    4,198Contractual rights under airline services agreement, net
    
    
    14,135
    
    
    
    14,435Goodwill, net
    
    
    18,422
    
    
    
    18,422Total assets
    
    $
    250,737
    
    
    $
    228,799
  2




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##### Table of Contents



Pinnacle Airlines Corp.
Condensed Consolidated Balance Sheets
(in thousands, except share data)
 March 31,
    
    
    December 31,2006
    
    
    2005(Unaudited)Liabilities and stockholders equityCurrent liabilitiesAccounts payable
    
    $
    18,957
    
    
    $
    12,945Accrued expenses
    
    
    24,618
    
    
    
    25,158Line of credit with First Tennessee
    
    
    17,000
    
    
    
    17,000Income taxes payable
    
    
    20,789
    
    
    
    17,756Other current liabilities
    
    
    7,488
    
    
    
    7,161Total current liabilities
    
    
    88,852
    
    
    
    80,020Deferred income taxes
    
    
    7,540
    
    
    
    7,426Other liabilities
    
    
    1,298
    
    
    
    1,735Senior convertible notes
    
    
    121,000
    
    
    
    121,000Commitments and contingenciesStockholders equityPreferred stock, par value $0.01 per share; 1,000,000 shares authorized,
no shares issued
    
    
    
    
    
    
    Series A preferred stock, stated value $100 per share; one share
authorized and issued
    
    
    
    
    
    
    Series common stock, par value $0.01 per share; 5,000,000 shares
authorized; no shares issued
    
    
    
    
    
    
    Common stock, $0.01 par value; 40,000,000 shares authorized,
22,080,585 and 21,945,260 shares issued, respectively
    
    
    221
    
    
    
    219Additional paid-in capital
    
    
    85,681
    
    
    
    85,550Accumulated deficit
    
    
    (53,855
    )
    
    
    (67,151
    )Total stockholders equity
    
    
    32,047
    
    
    
    18,618Total liabilities and stockholders equity
    
    $
    250,737
    
    
    $
    228,799
  3




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##### Table of Contents



Pinnacle Airlines Corp.
 
 Condensed Consolidated Statements of Cash Flows (Unaudited)
 (in thousands)
 Three Months Ended March 31,2006
    
    
    2005Operating activitiesNet income
    
    $
    13,296
    
    
    $
    23,332Adjustments to reconcile net income to cash provided by
operating activities:Depreciation
    
    
    962
    
    
    
    962Deferred income tax income expense
    
    
    (48
    )
    
    
    652Other
    
    
    486
    
    
    
    198Gain on extinguishment of debt
    
    
    
    
    
    
    (18,000
    )Stock-based compensation expense
    
    
    133
    
    
    
    241Amortization of debt issuance costs
    
    
    56
    
    
    
    31Amortization of contractual rights
    
    
    300
    
    
    
    Changes in operating assets and liabilities:Receivables
    
    
    (2,131
    )
    
    
    (2,531
    )Spare parts and supplies
    
    
    (319
    )
    
    
    (220
    )Prepaid expenses and other assets
    
    
    (4,313
    )
    
    
    (1,603
    )Accounts payable and accrued expenses
    
    
    5,472
    
    
    
    (1,253
    )Other liabilities
    
    
    (1,461
    )
    
    
    (16
    )Income taxes payable
    
    
    3,033
    
    
    
    5,426Cash provided by operating activities
    
    
    15,466
    
    
    
    7,219Investing activitiesPurchases of property and equipment
    
    
    (512
    )
    
    
    (2,152
    )Purchase of short-term investments
    
    
    (130,600
    )
    
    
    Proceeds from sale of short-term investments
    
    
    117,560
    
    
    
    Cash used in investing activities
    
    
    (13,552
    )
    
    
    (2,152
    )Financing activitiesPayment to extinguish note payable
    
    
    
    
    
    
    (101,600
    )Repayments of line of credit with Northwest
    
    
    
    
    
    
    (5,000
    )Gross proceeds from issuance of senior convertible notes
    
    
    
    
    
    
    121,000Debt issuance costs
    
    
    
    
    
    
    (4,337
    )Other costs to retire note payable
    
    
    
    
    
    
    (400
    )Cash provided by financing activities
    
    
    
    
    
    
    9,663Net increase in cash and cash equivalents
    
    
    1,914
    
    
    
    14,730Cash and cash equivalents at beginning of period
    
    
    31,567
    
    
    
    34,912Cash and cash equivalents at end of period
    
    $
    33,481
    
    
    $
    49,642Supplemental disclosure of cash flow informationInterest paid
    
    $
    2,278
    
    
    $
    493Income tax payments
    
    $
    4,280
    
    
    $
    7,729
  4




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##### Table of Contents



Pinnacle Airlines Corp.
 
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 (all amounts in thousands, except per share data)
  1. Basis of Presentation
    2. Northwest and Mesaba Bankruptcy Filings
     5




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##### Table of Contents



Pinnacle Airlines Corp.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(all amounts in thousands, except per share data)
 2. Northwest and Mesaba Bankruptcy Filings (continued)
       6




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##### Table of Contents



Pinnacle Airlines Corp.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(all amounts in thousands, except per share data)
 2. Northwest and Mesaba Bankruptcy Filings (continued)
       7




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##### Table of Contents



Pinnacle Airlines Corp.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(all amounts in thousands, except per share data)
 3. Airline Services Agreement
    4. Related Party Transactions
   Three Months Ended March 31,2006
    
    
    2005Revenue:Regional airline services revenue
    
    $
    205,005
    
    
    $
    192,751Other revenue
    
    
    1,341
    
    
    
    577Expenses:Aircraft fuel
    
    
    26,538
    
    
    
    25,349Aircraft rentals
    
    
    66,031
    
    
    
    63,306Other rentals and landing fees
    
    
    4,924
    
    
    
    2,813Ground handling services
    
    
    17,046
    
    
    
    15,405Other, including a reduction of
$1,565 for changes in
loss estimates associated with
the Northwest
bankruptcy filing (Note 2)
    
    
    (1,001
    )
    
    
    185Interest expense
    
    
    
    
    
    
    463
 8




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##### Table of Contents



Pinnacle Airlines Corp.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(all amounts in thousands, except per share data)
 4. Related Party Transactions (continued)
      5. Senior Convertible Notes
    9




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##### Table of Contents



Pinnacle Airlines Corp.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(all amounts in thousands, except per share data)
 5. Senior Convertible Notes (continued)
  6. Line of Credit
    7. Leases
   10




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##### Table of Contents



Pinnacle Airlines Corp.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(all amounts in thousands, except per share data)
 7. Leases (continued)
  Operating LeasesAircraft
    
    
    Non-aircraftRemainder of 2006
    
    $
    200,868
    
    
    $
    16,1332007
    
    
    262,785
    
    
    
    16,5492008
    
    
    261,792
    
    
    
    15,7712009
    
    
    260,458
    
    
    
    15,5242010
    
    
    260,400
    
    
    
    15,530Thereafter
    
    
    1,822,800
    
    
    
    48,324Total minimum operating lease payments
    
    $
    3,069,103
    
    
    $
    127,831
  8. Earnings Per Share
   Three Months EndedMarch 31,2006
    
    
    2005Net income
    
    $
    13,296
    
    
    $
    23,332Basic and diluted earnings per share
    
    $
    0.61
    
    
    $
    1.06Share computation:Weighted average number of shares outstanding for basic
earnings per share
    
    
    21,945
    
    
    
    21,908Effect of dilutive stock equivalents
    
    
    30
    
    
    
    20Weighted average number of shares outstanding for diluted
earnings per share
    
    
    21,975
    
    
    
    21,928
  11




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##### Table of Contents



Pinnacle Airlines Corp.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(all amounts in thousands, except per share data)
 9. Stock-Based Compensation
 Share Based
Payments
   Stock Options
    12




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##### Table of Contents



Pinnacle Airlines Corp.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(all amounts in thousands, except per share data)
 9. Stock-Based Compensation (continued)
  Weighted AverageStock Options
    
    
    Exercise PriceOutstanding at December 31, 2005
    
    
    652
    
    
    $
    13.88Granted
    
    
    292
    
    
    $
    6.47Exercised
    
    
    
    
    
    
    Forfeited
    
    
    9
    
    
    $
    14.00Outstanding at March 31, 2006
    
    
    935
    
    
    $
    11.56Options exercisable at March 31, 2006
    
    
    643
    
    
    $
    13.87
    Expected Price Volatility 
 Risk-Free Interest Rate 
 Expected Lives 
 Forfeiture Rate 
 13




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##### Table of Contents



Pinnacle Airlines Corp.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(all amounts in thousands, except per share data)
 9. Stock-Based Compensation (continued)
 Dividend Yield 
  Three Months EndedMarch 31, 2005Net income
    
    $
    23,332Add: Stock-based compensation expense included in reported
net income, net of tax
    
    
    153Deduct: Stock-based compensation expense determined under
the fair value method, net of tax
    
    
    (379
    )Pro forma net income
    
    $
    23,106Net income per common share  basic and diluted, as reported
    
    $
    1.06Pro forma net income per common share  basic and diluted
    
    $
    1.05
 Restricted Stock
   10. Income Taxes
  Three Months Ended March 31,2006
    
    
    2005$
    
    
    %
    
    
    $
    
    
    %Income tax expense at statutory rate
    
    $
    7,196
    
    
    
    35.0
    %
    
    $
    12,999
    
    
    
    35.0
    %State income taxes, net of federal taxes
    
    
    363
    
    
    
    1.8
    %
    
    
    787
    
    
    
    2.1
    %Valuation reserve
    
    
    (193
    )
    
    
    (1.0
    %)
    
    
    
    
    
    
    Other
    
    
    (101
    )
    
    
    (0.5
    %)
    
    
    21
    
    
    
    0.1
    %Income tax expense
    
    $
    7,265
    
    
    
    35.3
    %
    
    $
    13,807
    
    
    
    37.2
    %
 14




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##### Table of Contents



Pinnacle Airlines Corp.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(all amounts in thousands, except per share data)
 10. Income Taxes (continued)
    11. Contractual Rights under Airline Services Agreement
    12. Short-Term Investments
   15




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##### Table of Contents



Pinnacle Airlines Corp.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(all amounts in thousands, except per share data)
 12. Short-Term Investments
   13. Commitments and Contingencies
 Employees.
 Legal Proceedings.
 Purchase Commitments.
   Self-Insurance.
 Regulatory Matters
 16




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##### Table of Contents



Pinnacle Airlines Corp.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(all amounts in thousands, except per share data)
 13. Commitments and Contingencies (continued)
  Guarantees and Indemnifications
     17




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition
 General
   Overview
      Three Months Ended March 31,% Increase2006
    
    
    2005
    
    
    (Decrease)(in thousands, except per share data)Net Income:Net income in accordance with GAAP
    
    $
    13,296
    
    
    $
    23,332
    
    
    
    (43
    )%Deduct: Gain on repurchase of debt, net of
related tax
    
    
    
    
    
    
    (11,302
    )
    
    
    100
    %Pro forma net income
    
    $
    13,296
    
    
    $
    12,030
    
    
    
    11
    %Basic and Diluted EPS:Basic and diluted EPS in accordance with GAAP
    
    $
    0.61
    
    
    $
    1.06
    
    
    
    (42
    )%Deduct: Gain on repurchase of debt, net of
related tax
    
    
    
    
    
    
    (0.51
    )
    
    
    100
    %Pro forma basic and diluted EPS
    
    $
    0.61
    
    
    $
    0.55
    
    
    
    11
    %
 18




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition
 Outlook
        19




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition
   Results of Operations
  Comparison of Three Months Ended March 31, 2006 to Three Months Ended March 31, 2005
 Revenues
   Three Months Ended March 31,(in thousands)2006
    
    
    2005Reimbursed
    
    
    Unreimbursed
    
    
    Total
    
    
    Reimbursed
    
    
    Unreimbursed
    
    
    TotalOperating revenues:Regional airline services
    
    $
    137,089
    
    
    $
    67,916
    
    
    $
    205,005
    
    
    $
    130,917
    
    
    $
    61,834
    
    
    $
    192,751Other revenue
    
    
    
    
    
    
    2,084
    
    
    
    2,084
    
    
    
    
    
    
    
    1,981
    
    
    
    1,981Total operating revenues
    
    
    137,089
    
    
    
    70,000
    
    
    
    207,089
    
    
    
    130,917
    
    
    
    63,815
    
    
    
    194,732Operating expenses:Salaries, wages and benefits
    
    
    
    
    
    
    34,427
    
    
    
    34,427
    
    
    
    
    
    
    
    31,482
    
    
    
    31,482Aircraft fuel
    
    
    26,538
    
    
    
    163
    
    
    
    26,701
    
    
    
    25,349
    
    
    
    113
    
    
    
    25,462Aircraft maintenance, materials and repairs
    
    
    5,329
    
    
    
    4,933
    
    
    
    10,262
    
    
    
    3,871
    
    
    
    3,367
    
    
    
    7,238Aircraft rentals
    
    
    66,031
    
    
    
    
    
    
    
    66,031
    
    
    
    63,306
    
    
    
    
    
    
    
    63,306Other rentals and landing fees
    
    
    4,923
    
    
    
    6,328
    
    
    
    11,251
    
    
    
    4,632
    
    
    
    5,510
    
    
    
    10,142Ground handling services
    
    
    17,046
    
    
    
    5,313
    
    
    
    22,359
    
    
    
    17,121
    
    
    
    5,543
    
    
    
    22,664Depreciation
    
    
    
    
    
    
    962
    
    
    
    962
    
    
    
    
    
    
    
    962
    
    
    
    962Other
    
    
    3,513
    
    
    
    10,054
    
    
    
    13,567
    
    
    
    3,546
    
    
    
    9,859
    
    
    
    13,405Total operating expenses
    
    
    123,380
    
    
    
    62,180
    
    
    
    185,560
    
    
    
    117,825
    
    
    
    56,836
    
    
    
    174,661Operating income:
    
    $
    13,709
    
    
    $
    7,820
    
    
    $
    21,529
    
    
    $
    13,092
    
    
    $
    6,979
    
    
    $
    20,071Operating income as a percent of operating revenues
    
    
    10.0
    %
    
    
    11.2
    %
    
    
    10.4
    %
    
    
    10.0
    %
    
    
    10.9
    %
    
    
    10.3
    %
 20




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition
   Operating Expenses
       Nonoperating Income and Expenses
   21




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition
 Income Tax Expense
   Certain Statistical Information
  Three Months Ended March 31,2006
    
    
    2005Cost per
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cost perAmount
    
    
    Percent of
    
    
    Cents per
    
    
    Block Hour
    
    
    Amount
    
    
    Percent of
    
    
    Cents per
    
    
    Block Hour(in thousands)
    
    
    Revenue
    
    
    ASM
    
    
    (dollars)
    
    
    (in thousands)
    
    
    Revenue
    
    
    ASM
    
    
    (dollars)Operating expenses:Salaries, wages and benefits
    
    $
    34,427
    
    
    
    17
    %
    
    
    2.57
    
    
    $
    335
    
    
    $
    31,482
    
    
    
    16
    %
    
    
    2.44
    
    
    
    315Aircraft fuel
    
    
    26,701
    
    
    
    13
    %
    
    
    1.99
    
    
    
    260
    
    
    
    25,462
    
    
    
    13
    %
    
    
    1.98
    
    
    
    254Aircraft maintenance, materials and repairs
    
    
    10,262
    
    
    
    5
    %
    
    
    0.76
    
    
    
    100
    
    
    
    7,238
    
    
    
    4
    %
    
    
    0.56
    
    
    
    72Aircraft rentals
    
    
    66,031
    
    
    
    32
    %
    
    
    4.92
    
    
    
    644
    
    
    
    63,306
    
    
    
    33
    %
    
    
    4.91
    
    
    
    632Other rentals and landing fees
    
    
    11,251
    
    
    
    5
    %
    
    
    0.84
    
    
    
    110
    
    
    
    10,142
    
    
    
    5
    %
    
    
    0.79
    
    
    
    101Ground handling services
    
    
    22,359
    
    
    
    11
    %
    
    
    1.67
    
    
    
    218
    
    
    
    22,664
    
    
    
    11
    %
    
    
    1.76
    
    
    
    226Depreciation
    
    
    962
    
    
    
    0
    %
    
    
    0.07
    
    
    
    9
    
    
    
    962
    
    
    
    1
    %
    
    
    0.08
    
    
    
    10Other
    
    
    13,567
    
    
    
    7
    %
    
    
    1.01
    
    
    
    132
    
    
    
    13,405
    
    
    
    7
    %
    
    
    1.04
    
    
    
    134Total operating expenses
    
    $
    185,560
    
    
    
    90
    %
    
    
    13.83
    
    
    $
    1,808
    
    
    $
    174,661
    
    
    
    90
    %
    
    
    13.56
    
    
    $
    1,744
  Three Months Ended March 31,2006
    
    
    2005
    
    
    ChangeOther Data:Revenue passengers (in thousands)
    
    
    2,015
    
    
    
    1,669
    
    
    
    21
    %Revenue passenger miles (in thousands) (1)
    
    
    971,806
    
    
    
    817,662
    
    
    
    19
    %Available seat miles (in thousands)
    
    
    1,341,668
    
    
    
    1,288,500
    
    
    
    4
    %Passenger load factor (2)
    
    
    72.4
    %
    
    
    63.5
    %
    
    8.9 pts.Operating revenue per available seat mile (in cents)
    
    
    15.44
    
    
    
    15.11
    
    
    
    2
    %Operating costs per available seat mile (in cents)
    
    
    13.83
    
    
    
    13.56
    
    
    
    2
    %Operating revenue per block hour
    
    $
    2,018
    
    
    $
    1,945
    
    
    
    4
    %Operating costs per block hour
    
    $
    1,808
    
    
    $
    1,744
    
    
    
    4
    %Block hours
    
    
    102,597
    
    
    
    100,143
    
    
    
    2
    %Cycles
    
    
    61,265
    
    
    
    57,096
    
    
    
    7
    %Average daily utilization (block hours)
    
    
    9.19
    
    
    
    9.34
    
    
    
    (2
    %)Average stage length (miles)
    
    
    473
    
    
    
    492
    
    
    
    (4
    %)Number of operating aircraft (end of period)
    
    
    124
    
    
    
    123
    
    
    
    1
    %Employees (end of period)
    
    
    3,548
    
    
    
    3,350
    
    
    
    6
    %
 
 (1)
    
    Revenue passenger miles represents the number of miles flown by revenue passengers.(2)
    
    Passenger load factor equals revenue passenger miles divided by available seat miles. 22




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition
 Liquidity and Capital Resources
    Contractual obligations
 Payments Due by PeriodTotal
    
    
    2006 (1)
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    ThereafterContractual obligations:Sr. convertible notes
    
    $
    121,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    121,000Line of credit (2)
    
    
    17,275
    
    
    
    17,275
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest payments on
long-term debt
    
    
    74,718
    
    
    
    1,967
    
    
    
    3,933
    
    
    
    3,933
    
    
    
    3,933
    
    
    
    3,933
    
    
    
    57,019Operating leases (5)
    
    
    3,196,934
    
    
    
    217,001
    
    
    
    279,334
    
    
    
    277,563
    
    
    
    275,982
    
    
    
    275,930
    
    
    
    1,871,124Additional aircraft
deposits (3)
    
    
    21,700
    
    
    
    
    
    
    
    21,700
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase obligations (4)
    
    
    6,634
    
    
    
    1,418
    
    
    
    1,745
    
    
    
    1,322
    
    
    
    1,186
    
    
    
    531
    
    
    
    432Total contractual cash
obligations
    
    $
    3,438,261
    
    
    $
    237,661
    
    
    $
    306,712
    
    
    $
    282,818
    
    
    $
    281,101
    
    
    $
    280,394
    
    
    $
    2,049,575
 
 (1)
    
    Contractual obligations for the remainder of 2006.(2)
    
    Borrowings, including interest, outstanding as of March 31, 2006 under our revolving credit
facility with First Tennessee Bank, which expires June 16, 2006.(3)
    
    Disputed additional aircraft deposits that the Company believes are due in November 2007.
Northwest has demanded them to be paid by May 15, 2006.(4)
    
    Amounts represent noncancelable commitments to purchase goods and services, including certain
aircraft parts and information technology.(5)
    
    Amounts for 2006 include $2,360 for rentals owed under facility revenue bonds discussed below
in Guarantees and Indemnificationin Note 13 Commitments and Contingencies of Item 1 of this
Form 10-Q.   23




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition
      Operating activities.
 24




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition
  Investing activities.
  Financing activities
 Deferred tax asset.
 Critical Accounting Policies and Estimates
  Provisions for losses on subleases.
  25




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition
   Allowance for doubtful accounts.
    Forward Looking Statements
  26




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosure about Market Risk
  Aircraft fuel.
 Interest rates.
 Senior Convertible Notes.
 
 Item 4. Controls and Procedures
   27




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##### Table of Contents



Part II. Other Information
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors.
  
 Item 2. Changes in Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  28




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##### Table of Contents



Item 6. Exhibits
  4.5
    
    
    Second Amendment to Rights Agreement between the registrant and Equiserve Trust
Company, N.A.31.1
    
    
    Rule 13a-14(a)/15d-14(a) Certification by Chief Executive Officer.31.2
    
    
    Rule 13a-14(a)/15d-14(a) Certification by Chief Financial Officer.32
    
    
    Section 1350 Certification by Chief Executive Officer and Chief Financial Officer.
 29




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##### Table of Contents



SIGNATURES
  By:
    /s/ Philip H. TrenaryPhilip H. TrenaryDate:  April 27, 2006
    
    President and Chief Executive Officer By:
    /s/ Peter D. HuntPeter D. HuntDate:  April 27, 2006
    
    Vice President and Chief Financial Officer 30