UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549








FORM
10-Q





x
            Quarterly
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934For
      the quarterly period ended September 30, 2008or ̈
            Transition
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934For
      the transition period from__________
  to__________





Commission
File Number 001-31898


PINNACLE
AIRLINES CORP.


(Exact
name of registrant as specified in its charter)





Delaware
              (State or other
      jurisdiction
              of
      incorporation or organization)
            03-0376558
              (I.R.S.
      Employer
              Identification
      No.)1689
      Nonconnah Blvd, Suite 111
              Memphis,
      Tennessee
              (Address
      of principal executive offices)
            38132
              (Zip
      Code)








901-348-4100


(Registrant's
telephone number, including area code)





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


Yes
      x
            
            No
       ̈








Indicate
by check mark whether the registrant is a larger accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company.  See definition of “accelerated filer”, “large accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):





Large
      accelerated filer  ̈
            
            Accelerated
      filer xNon-accelerated
      filer  ̈
            
            Smaller
      reporting company  ̈





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes
       ̈
            
            No
      x





As of
November 6, 2008, 18,064,690shares of common stock
were outstanding.





Table
of Contents


Part
      I. Financial InformationItem
      1. Financial StatementsCondensed Consolidated Statements of Income
      (Unaudited)**************************
            3Condensed Consolidated Balance Sheets
      (Unaudited)********************************
            5Condensed Consolidated Statements of Cash Flows
      (Unaudited)***********************
            6Notes to Condensed Consolidated Financial Statements
      (Unaudited) *******************
            7Item
      2.  Management’s Discussion
      and Analysis of Results of Operations and Financial
      Condition
            23Item
      3.  Quantitative and Qualitative Disclosures
      about Market Risk************************
            42Item
      4.  Controls and
      Procedures****************************************************
            42Part
      II.  Other InformationItem
      1.  Legal
      Proceedings*********************************************************
            43Item
      1A.  Risk
      Factors************************************************************
            43Item
      2.  Unregistered Sales of Equity
      Securities and Use of Proceeds***********************
            43Item
      3.  Defaults Upon Senior
      Securities**********************************************
            43Item
      4.  Submission of Matters to a Vote of
      Security Holders*****************************
            43Item
      5.  Other
      Information*********************************************************
            43Item
      6.  Exhibits*****************************************************************
            44



































2


Part
1.  Financial Information





Item
1.  Financial Statements





Pinnacle
Airlines Corp.


Condensed Consolidated Statements of Income(Unaudited)


(in
thousands, except per share data)





Three
      Months Ended September 30,2008
                                                        
                                                        
                                                        2007Operating
      revenuesRegional
      airline services
                                                        
                                                        $
                                                        220,242
                                                        
                                                        
                                                        $
                                                        203,271Other
                                                        
                                                        
                                                        1,550
                                                        
                                                        
                                                        
                                                        2,459Total
      operating revenues
                                                        
                                                        
                                                        221,792
                                                        
                                                        
                                                        
                                                        205,730Operating
      expensesSalaries,
      wages and benefits
                                                        
                                                        
                                                        57,428
                                                        
                                                        
                                                        
                                                        52,830Aircraft
      fuel
                                                        
                                                        
                                                        14,831
                                                        
                                                        
                                                        
                                                        10,785Aircraft
      maintenance, materials and repairs
                                                        
                                                        
                                                        20,455
                                                        
                                                        
                                                        
                                                        22,468Aircraft
      rentals
                                                        
                                                        
                                                        31,411
                                                        
                                                        
                                                        
                                                        35,049Other
      rentals and landing fees
                                                        
                                                        
                                                        19,537
                                                        
                                                        
                                                        
                                                        15,307Ground
      handling services
                                                        
                                                        
                                                        21,651
                                                        
                                                        
                                                        
                                                        24,520Commissions
      and passenger related expense
                                                        
                                                        
                                                        7,183
                                                        
                                                        
                                                        
                                                        7,120Depreciation
      and amortization
                                                        
                                                        
                                                        7,586
                                                        
                                                        
                                                        
                                                        2,448Other
                                                        
                                                        
                                                        20,631
                                                        
                                                        
                                                        
                                                        20,196Impairment
      of goodwill and aircraft lease return costs
                                                        
                                                        
                                                        1,069
                                                        
                                                        
                                                        
                                                        -Total
      operating expenses
                                                        
                                                        
                                                        201,782
                                                        
                                                        
                                                        
                                                        190,723Operating
      income
                                                        
                                                        
                                                        20,010
                                                        
                                                        
                                                        
                                                        15,007Operating
      income as a percentage of operating revenues
                                                        
                                                        
                                                        9.0%
                                                        
                                                        
                                                        
                                                        7.3%Nonoperating
      (expense) incomeInterest
      income
                                                        
                                                        
                                                        1,289
                                                        
                                                        
                                                        
                                                        2,521Interest
      expense
                                                        
                                                        
                                                        (10,253)
                                                        
                                                        
                                                        
                                                        (1,128)Miscellaneous
      income (expense)
                                                        
                                                        
                                                        192
                                                        
                                                        
                                                        
                                                        (11)Total
      nonoperating (expense) income
                                                        
                                                        
                                                        (8,772)
                                                        
                                                        
                                                        
                                                        1,382Income
      before income taxes
                                                        
                                                        
                                                        11,238
                                                        
                                                        
                                                        
                                                        16,389Income
      tax expense
                                                        
                                                        
                                                        (3,521)
                                                        
                                                        
                                                        
                                                        (5,485)Net
      income
                                                        
                                                        $
                                                        7,717
                                                        
                                                        
                                                        $
                                                        10,904Basic
      earnings per share
                                                        
                                                        $
                                                        0.43
                                                        
                                                        
                                                        $
                                                        0.53Diluted
      earnings per share
                                                        
                                                        $
                                                        0.43
                                                        
                                                        
                                                        $
                                                        0.48Shares
      used in computing basic earnings per share
                                                        
                                                        
                                                        17,867
                                                        
                                                        
                                                        
                                                        20,470Shares
      used in computing diluted earnings per share
                                                        
                                                        
                                                        17,891
                                                        
                                                        
                                                        
                                                        22,544








The
accompanying notes are an integral part of these condensed consolidated
financial statements.


3


Pinnacle
Airlines Corp.


Condensed
Consolidated Statements of Income (Unaudited)


(in
thousands, except per share data)





Nine
      Months Ended September 30,2008
                                                            
                                                            
                                                            2007Operating
      revenuesRegional
      airline services
                                                            
                                                            $
                                                            640,414
                                                            
                                                            
                                                            $
                                                            578,696Other
                                                            
                                                            
                                                            6,873
                                                            
                                                            
                                                            
                                                            7,578Total
      operating revenues
                                                            
                                                            
                                                            647,287
                                                            
                                                            
                                                            
                                                            586,274Operating
      expensesSalaries,
      wages and benefits
                                                            
                                                            
                                                            169,901
                                                            
                                                            
                                                            
                                                            150,392Aircraft
      fuel
                                                            
                                                            
                                                            41,603
                                                            
                                                            
                                                            
                                                            26,718Aircraft
      maintenance, materials and repairs
                                                            
                                                            
                                                            65,997
                                                            
                                                            
                                                            
                                                            62,941Aircraft
      rentals
                                                            
                                                            
                                                            97,439
                                                            
                                                            
                                                            
                                                            103,997Other
      rentals and landing fees
                                                            
                                                            
                                                            52,386
                                                            
                                                            
                                                            
                                                            44,359Ground
      handling services
                                                            
                                                            
                                                            72,712
                                                            
                                                            
                                                            
                                                            73,236Commissions
      and passenger related expense
                                                            
                                                            
                                                            21,436
                                                            
                                                            
                                                            
                                                            17,935Depreciation
      and amortization
                                                            
                                                            
                                                            18,566
                                                            
                                                            
                                                            
                                                            6,820Other
                                                            
                                                            
                                                            64,298
                                                            
                                                            
                                                            
                                                            57,222Impairment
      of goodwill and aircraft lease return costs
                                                            
                                                            
                                                            13,688
                                                            
                                                            
                                                            
                                                            -Total
      operating expenses
                                                            
                                                            
                                                            618,026
                                                            
                                                            
                                                            
                                                            543,620Operating
      income
                                                            
                                                            
                                                            29,261
                                                            
                                                            
                                                            
                                                            42,654Operating
      income as a percentage of operating revenues
                                                            
                                                            
                                                            4.5%
                                                            
                                                            
                                                            
                                                            7.3%Nonoperating
      (expense) incomeInterest
      income
                                                            
                                                            
                                                            5,326
                                                            
                                                            
                                                            
                                                            8,468Interest
      expense
                                                            
                                                            
                                                            (23,915)
                                                            
                                                            
                                                            
                                                            (6,109)Impairment
      of auction rate securities
                                                            
                                                            
                                                            (8,675)
                                                            
                                                            
                                                            
                                                            -Loss
      on sale of unsecured claim
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (4,144)Miscellaneous
      income
                                                            
                                                            
                                                            166
                                                            
                                                            
                                                            
                                                            325Total
      nonoperating expense
                                                            
                                                            
                                                            (27,098)
                                                            
                                                            
                                                            
                                                            (1,460)Income
      before income taxes
                                                            
                                                            
                                                            2,163
                                                            
                                                            
                                                            
                                                            41,194Income
      tax expense
                                                            
                                                            
                                                            (3,244)
                                                            
                                                            
                                                            
                                                            (13,263)Net
      income (loss)
                                                            
                                                            $
                                                            (1,081)
                                                            
                                                            
                                                            $
                                                            27,931Basic
      earnings (loss) per share
                                                            
                                                            $
                                                            (0.06)
                                                            
                                                            
                                                            $
                                                            1.31Diluted
      earnings (loss) per share
                                                            
                                                            $
                                                            (0.06)
                                                            
                                                            
                                                            $
                                                            1.17Shares
      used in computing basic earnings (loss) per share
                                                            
                                                            
                                                            17,864
                                                            
                                                            
                                                            
                                                            21,398Shares
      used in computing diluted earnings (loss) per share
                                                            
                                                            
                                                            17,864
                                                            
                                                            
                                                            
                                                            23,863





The
accompanying notes are an integral part of these condensed consolidated
financial statements.


4


Pinnacle
Airlines Corp.


Condensed Consolidated Balance Sheets


(in
thousands, except share data)





September
      30, 2008
                                                                
                                                                
                                                                December
      31, 2007Assets
                                                                
                                                                (Unaudited)Current
      assetsCash
      and cash equivalents
                                                                
                                                                $
                                                                63,829
                                                                
                                                                
                                                                $
                                                                26,785Restricted
      cash
                                                                
                                                                
                                                                4,558
                                                                
                                                                
                                                                
                                                                5,327Short-term
      investments
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                186,850Receivables,
      net
                                                                
                                                                
                                                                33,594
                                                                
                                                                
                                                                
                                                                31,107Spare
      parts and supplies, net
                                                                
                                                                
                                                                23,436
                                                                
                                                                
                                                                
                                                                16,030Prepaid
      expenses and other assets
                                                                
                                                                
                                                                10,836
                                                                
                                                                
                                                                
                                                                16,535Deferred
      income taxes, net of allowance
                                                                
                                                                
                                                                13,677
                                                                
                                                                
                                                                
                                                                12,285Income
      taxes receivable
                                                                
                                                                
                                                                26,979
                                                                
                                                                
                                                                
                                                                -Total
      current assets
                                                                
                                                                
                                                                176,909
                                                                
                                                                
                                                                
                                                                294,919Property
      and equipmentFlight
      equipment
                                                                
                                                                
                                                                645,069
                                                                
                                                                
                                                                
                                                                162,374Aircraft
      pre-delivery payments
                                                                
                                                                
                                                                12,877
                                                                
                                                                
                                                                
                                                                81,425Other
      property and equipment
                                                                
                                                                
                                                                44,372
                                                                
                                                                
                                                                
                                                                39,969Less
      accumulated depreciation
                                                                
                                                                
                                                                (46,252)
                                                                
                                                                
                                                                
                                                                (28,358)Net
      property and equipment
                                                                
                                                                
                                                                656,066
                                                                
                                                                
                                                                
                                                                255,410Investments
                                                                
                                                                
                                                                126,925
                                                                
                                                                
                                                                
                                                                -Deferred
      income taxes, net of allowance
                                                                
                                                                
                                                                53,004
                                                                
                                                                
                                                                
                                                                79,856Other
      assets, primarily aircraft lease deposits
                                                                
                                                                
                                                                33,470
                                                                
                                                                
                                                                
                                                                28,528Debt
      issuance costs, net
                                                                
                                                                
                                                                6,514
                                                                
                                                                
                                                                
                                                                4,598Goodwill
                                                                
                                                                
                                                                18,422
                                                                
                                                                
                                                                
                                                                28,206Intangible
      assets, net
                                                                
                                                                
                                                                15,002
                                                                
                                                                
                                                                
                                                                17,071Total
      assets
                                                                
                                                                $
                                                                1,086,312
                                                                
                                                                
                                                                $
                                                                708,588Liabilities
      and stockholders’ equityCurrent
      liabilitiesShort-term
      notes payable and current maturities of long-term debt
                                                                
                                                                $
                                                                37,522
                                                                
                                                                
                                                                $
                                                                73,513Bank
      lines of credit
                                                                
                                                                
                                                                88,275
                                                                
                                                                
                                                                
                                                                8,375Accounts
      payable
                                                                
                                                                
                                                                26,838
                                                                
                                                                
                                                                
                                                                33,062Deferred
      revenue
                                                                
                                                                
                                                                23,861
                                                                
                                                                
                                                                
                                                                24,099Accrued
      expenses and other current liabilities
                                                                
                                                                
                                                                82,498
                                                                
                                                                
                                                                
                                                                104,410Total
      current liabilities
                                                                
                                                                
                                                                258,994
                                                                
                                                                
                                                                
                                                                243,459Senior
      convertible notes
                                                                
                                                                
                                                                121,000
                                                                
                                                                
                                                                
                                                                121,000Long-term
      debt, less current maturities
                                                                
                                                                
                                                                452,691
                                                                
                                                                
                                                                
                                                                71,812Deferred
      revenue, net of current portion
                                                                
                                                                
                                                                192,555
                                                                
                                                                
                                                                
                                                                209,752Other
      liabilities
                                                                
                                                                
                                                                7,904
                                                                
                                                                
                                                                
                                                                4,743Commitments
      and contingenciesStockholders’
      equityCommon
      stock, $0.01 par value; 40,000,000 shares authorized;
                                                                  22,514,782
      and 22,402,999 shares issued, respectively
                                                                
                                                                
                                                                225
                                                                
                                                                
                                                                
                                                                224Treasury
      stock, at cost, 4,450,092 shares
                                                                
                                                                
                                                                (68,152)
                                                                
                                                                
                                                                
                                                                (68,152)Additional
      paid-in capital
                                                                
                                                                
                                                                93,241
                                                                
                                                                
                                                                
                                                                91,165Accumulated
      other comprehensive loss
                                                                
                                                                
                                                                (15,850)
                                                                
                                                                
                                                                
                                                                (10,200)Retained
      earnings
                                                                
                                                                
                                                                43,704
                                                                
                                                                
                                                                
                                                                44,785Total
      stockholders’ equity
                                                                
                                                                
                                                                53,168
                                                                
                                                                
                                                                
                                                                57,822Total
      liabilities and stockholders’ equity
                                                                
                                                                $
                                                                1,086,312
                                                                
                                                                
                                                                $
                                                                708,588




The
accompanying notes are an integral part of these condensed consolidated
financial statements.


5





Pinnacle
Airlines Corp.


Condensed Consolidated Statements of Cash Flows
(Unaudited)


(in
thousands)





Nine
      Months Ended September 30,2008
                                                
                                                
                                                2007Operating
      activitiesNet
      (loss) income
                                                $
                                                (1,081)
                                                
                                                
                                                $
                                                27,931Adjustments
      to reconcile net income to cash provided by operating
      activities:Impairment
      charges
                                                
                                                19,232
                                                
                                                
                                                
                                                -Depreciation
      and amortization
                                                
                                                20,043
                                                
                                                
                                                
                                                8,584Deferred
      income taxes
                                                
                                                29,312
                                                
                                                
                                                
                                                (98,198)Recognition
      of deferred revenue
                                                
                                                (18,668)
                                                
                                                
                                                
                                                (16,562)Other
                                                
                                                4,746
                                                
                                                
                                                
                                                4,750Changes
      in operating assets and liabilities:Receivables
                                                
                                                (2,487)
                                                
                                                
                                                
                                                51,817Increase
      in deferred revenue
                                                
                                                1,229
                                                
                                                
                                                
                                                270,670Spare
      parts and supplies
                                                
                                                (6,249)
                                                
                                                
                                                
                                                (698)Prepaid
      expenses and other assets
                                                
                                                (1,714)
                                                
                                                
                                                
                                                729Restricted
      cash
                                                
                                                770
                                                
                                                
                                                
                                                -Accounts
      payable and accrued expenses
                                                
                                                10,418
                                                
                                                
                                                
                                                25,840Hedge
      related payments
                                                
                                                (19,530)
                                                
                                                
                                                
                                                -Insurance
      proceeds
                                                
                                                1,999
                                                
                                                
                                                
                                                -Income
      taxes (receivable) payable
                                                
                                                (29,336)
                                                
                                                
                                                
                                                8,191Other
      liabilities
                                                
                                                4,984
                                                
                                                
                                                
                                                (6,032)Cash
      provided by operating activities
                                                
                                                13,668
                                                
                                                
                                                
                                                277,022Investing
      activitiesPurchases
      of property and equipment
                                                
                                                (25,695)
                                                
                                                
                                                
                                                (13,177)Proceeds
      from the sale of property and equipment
                                                
                                                142
                                                
                                                
                                                
                                                610Aircraft
      pre-delivery payments
                                                
                                                -
                                                
                                                
                                                
                                                (70,400)Purchases
      of short-term investments
                                                
                                                (82,200)
                                                
                                                
                                                
                                                (826,030)Proceeds
      from sale of short-term investments
                                                
                                                133,450
                                                
                                                
                                                
                                                659,430Acquisition
      of Colgan Air, Inc. net of cash acquired
                                                
                                                -
                                                
                                                
                                                
                                                (8,273)Cash
      provided by (used in) investing activities
                                                
                                                25,697
                                                
                                                
                                                
                                                (257,840)Financing
      activitiesProceeds
      from debt
                                                
                                                11,810
                                                
                                                
                                                
                                                -Proceeds
      from line of credit
                                                
                                                80,000
                                                
                                                
                                                
                                                -Proceeds
      from pre-delivery payment facility
                                                
                                                -
                                                
                                                
                                                
                                                35,011Payments
      on debt and pre-delivery payment facility
                                                
                                                (71,122)
                                                
                                                
                                                
                                                (16,418)Purchase
      of Series A Preferred Share
                                                
                                                (20,000)
                                                
                                                
                                                
                                                -Treasury
      shares repurchased
                                                
                                                -
                                                
                                                
                                                
                                                (35,207)Other
      financing activities
                                                
                                                (3,009)
                                                
                                                
                                                
                                                3,554Cash
      used in financing activities
                                                
                                                (2,321)
                                                
                                                
                                                
                                                (14,020)Net
      increase in cash and cash equivalents
                                                
                                                37,044
                                                
                                                
                                                
                                                5,162Cash
      and cash equivalents at beginning of period
                                                
                                                26,785
                                                
                                                
                                                
                                                705Cash
      and cash equivalents at end of period
                                                $
                                                63,829
                                                
                                                
                                                $
                                                5,867Noncash
      investing and financing activitiesProperty
      and equipment acquired through the issuance of debt
                                                $
                                                404,098
                                                
                                                
                                                $
                                                3,180




The
accompanying notes are an integral part of these condensed consolidated
financial statements.


6
 Pinnacle
Airlines Corp.
 Notes
to Condensed Consolidated Financial Statements
 (all
amounts in thousands, except per share data)


1.  Description of Business and Basis of
Presentation





Pinnacle
Airlines Corp. and its wholly owned subsidiaries, Pinnacle Airlines, Inc. and
Colgan Air, Inc., are collectively referred to in this report as the “Company,”
except as otherwise noted.  The Company’s subsidiaries will be
referred to as “Pinnacle” for Pinnacle Airlines, Inc. and “Colgan” for Colgan
Air, Inc.





Pinnacle
operates an all-regional jet fleet providing regional airline capacity to
Northwest Airlines, Inc. (“Northwest”) as a Northwest Airlink carrier at its hub
airports in Detroit, Minneapolis/St. Paul and Memphis and to Delta Air Lines,
Inc. (“Delta”) as a Delta Connection carrier at its hub airport in
Atlanta.  At September 30, 2008, Pinnacle operated 124 Canadair
Regional Jet (“CRJ”)-200 aircraft as a Northwest Airlink carrier with
approximately 691 daily departures to 114 cities in 37 states and five Canadian
provinces.  Pinnacle operated a fleet of 11 CRJ-900 aircraft as a
Delta Connection carrier with approximately 53 daily departures to 27 cities in
14 states, the Bahamas, Mexico, U.S. Virgin Islands, and Turks and Caicos
Islands.




On
October 29, 2008, Delta and Northwest completed their previously announced
merger, forming the world’s largest airline.  Pinnacle is the second
largest independent corporate regional partner for the combined Delta/Northwest
operation.  The Company does not believe that this merger will have a
material effect on its operations, as its capacity purchase agreements are
relatively long-term and do not contain early termination provisions that could
be triggered by consolidation.Under the Company’s
capacity purchase agreements, the Company’s partners determine the operating
schedules and utilization of aircraft, thus affecting the variable components of
payments that the Company receives.  However, the Company’s partners also
pay fixed amounts, including amounts related to the ownership costs of the
Company’s aircraft, irrespective of the level of operations set by its partners.
 The marginal cost to the Company’s partners in relation to adding flights
under the capacity purchase agreements is relatively low compared to the total
fixed costs that each partner pays.  Therefore, the Company believes that
its partners have an economic incentive to maintain reasonable levels of
aircraft utilization with respect to the Company’s operations.


Colgan
operates an all-turboprop fleet under a regional airline capacity purchase
agreement with Continental Airlines, Inc. (“Continental”), and also under
revenue pro-rate agreements with Continental, United Air Lines, Inc. (“United”)
and US Airways Group, Inc. (“US Airways”).  Colgan’s operations are
focused primarily in the northeastern United States and in Texas.  As
of September 30, 2008, Colgan offered within its pro-rate operations 255 daily
departures to 64 destinations in 18 states and two Canadian
provinces.  Colgan operated 14 Saab 340 aircraft as Continental
Connection from Continental’s hub airport in Houston, 12 Saab 340 aircraft as
United Express at Washington/Dulles, and four Beech 1900 aircraft and 11 Saab
340 aircraft as US Airways Express, with hub locations at New York/LaGuardia and
Boston, under revenue pro-rate agreements.  Colgan operated 15 Q400
aircraft under a capacity purchase agreement with Continental at its global hub
at Newark/Liberty International Airport, providing 98 daily
departures.





These
interim financial statements of the Company have been prepared in accordance
with accounting principles generally accepted in the United States, the
instructions to Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X,
and should be read in conjunction with the Company’s Annual Report on Form 10-K
for the year ended December 31, 2007.





In the
opinion of management, the accompanying unaudited condensed consolidated
financial statements reflect all adjustments (including normal recurring
adjustments) necessary to present fairly the Company's financial position, the
results of its operations and its cash flows for the periods
indicated.  Operating results for the periods presented are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2008.





During
the three months ended September 30, 2008, the Company recorded a credit of
$1,381 to correct certain maintenance related accruals.  Of this
amount, $220 related to the first quarter and $1,161 related to the second
quarter.  The adjustment was made in the third quarter as the amount
of the adjustment was not material to prior periods or the trend of earnings in
any period.





All
amounts contained in the notes to the condensed consolidated financial
statements are presented in thousands, with the exception of years, per share
amounts and number of aircraft.





7
 Pinnacle
Airlines Corp.
 Notes
to Condensed Consolidated Financial Statements
 (all
amounts in thousands, except per share data)


2.  Code-Share
Agreements with Partners





The
Company’s operating contracts fall under two categories: capacity purchase
agreements and revenue pro-rate agreements.  The following is a
summary of the percentage of regional airline services revenue attributable to
each contract type and code-share partner for the three and nine months ended
September 30, 2008.





Three
      Months Ended September 30, 2008Percentage
      of Regional Airline Services RevenueSource
      of Revenue
              
              Capacity
                Purchase
                Agreements
              
              Pro-Rate
                Agreements
              
              TotalNorthwest
              
              62%
              
              -
              
              62%Continental
              
              9%
              
              8%
              
              17%US
      Airways
              
              -
              
              9%
              
              9%United
              
              -
              
              5%
              
              5%Delta
              
              5%
              
              -
              
              5%Essential
      Air Service
              
              -
              
              2%
              
              2%Total
              
              76%
              
              24%
              
              100%





Nine
      Months Ended September 30, 2008Percentage
      of Regional Airline Services RevenueSource
      of Revenue
              
              Capacity
                Purchase
                Agreements
              
              Pro-Rate
                Agreements
              
              TotalNorthwest
              
              67%
              
              -
              
              67%Continental
              
              5%
              
              8%
              
              13%US
      Airways
              
              -
              
              9%
              
              9%United
              
              -
              
              5%
              
              5%Delta
              
              4%
              
              -
              
              4%Essential
      Air Service
              
              -
              
              2%
              
              2%Total
              
              76%
              
              24%
              
              100%





Capacity
Purchase Agreements





The
Company’s preferred contractual relationships with major airlines are structured
as capacity purchase arrangements.  Under capacity purchase
agreements, major airline partners purchase the Company’s flying capacity by
paying pre-determined rates for specified flying, regardless of the number of
passengers on board or the amount of revenue collected from
passengers.  These arrangements typically include incentive payments
that are paid if the Company meets certain operational performance
measures.  Additionally, certain operating costs such as fuel,
aircraft rent or ownership costs, aviation insurance premiums, certain ground
handling and airport related costs, and property taxes are reimbursed or paid
for directly by the partner, which eliminates the Company’s risk associated with
a change in the price of these goods or services.





Northwest
Airlines





The
Company, through its Pinnacle subsidiary, provides regional jet service to
Northwest as a Northwest Airlink carrier under an amended and restated airline
services agreement (the “ASA”) that became effective January 1, 2007 and expires
in December 2017.  At the end of its term in 2017, the ASA
automatically extends for additional five-year periods unless Northwest provides
notice to the Company two years prior to the termination date that it does not
plan to extend the term.





During the three months ended September
30, 2008, Northwest completed its transition of 15 CRJ-200 aircraft from
Pinnacle to one of its wholly owned subsidiaries in accordance with the terms of
the ASA. Pinnacle currently operates a fleet of 124 CRJ-200 aircraft under the
ASA.


8
 Pinnacle
Airlines Corp.
 Notes
to Condensed Consolidated Financial Statements
 (all
amounts in thousands, except per share data)


2.  Code-Share
Agreements with Partners - (Continued)




As
provided for in the ASA, on January 4, 2008, the Company purchased its Series A
Preferred Share (the “Preferred Share”) from Northwest. The Preferred Share gave
Northwest the right to appoint two directors to the Company’s Board of
Directors, as well as certain other corporate governance rights.  No
dividends were payable to the stockholder of the Preferred
Share.  After this purchase, Northwest no longer owns any shares of
the Company’s stock and is no longer a related party of the
Company.





Delta
Air Lines





On April
27, 2007, the Company entered into a ten-year capacity purchase agreement with
Delta to operate 16 CRJ-900 aircraft as a Delta Connection Carrier (the “Delta
Connection Agreement”, or “DCA”). Delta also has the option to add an additional
seven CRJ-900 aircraft under the DCA.  Scheduled service began on
December 1, 2007.  Pinnacle operated nine CRJ-900 aircraft under the
DCA as of September 30, 2008.





On July
17, 2008, the Company and Delta amended the DCA whereby the parties agreed to
delay the in-service dates for the remaining CRJ-900 aircraft to January through
May 2009. Pinnacle accepted delivery of two of these aircraft during July
2008, and is using them as spare aircraft to support its DCA operations until
the aircraft enter service under the DCA in January 2009.  The Company
and the aircraft manufacturer have agreed to defer delivery of the five
remaining CRJ-900 aircraft to Pinnacle to dates commensurate with the new
in-service dates under the DCA.





On October 1, 2008, the Company entered
into an agreement with Delta to operate on a short-term basis seven additional
CRJ-900 aircraft that were formerly operated by another Delta Connection
carrier. The Company will temporarily operate these seven CRJ-900 aircraft until
the first half of 2009 when the Company’s seven remaining permanent aircraft
enter service under the DCA.  As of November 6, 2008, the Company has
received and is operating four of the additional seven temporary CRJ-900
aircraft and expects to place the remaining three in service during November
2008.  Pinnacle will pay a nominal amount of rent to Delta for these
aircraft and Pinnacle will not receive any reimbursement or margin payments
related to this aircraft rent.  Other than aircraft ownership costs,
Pinnacle will receive regular compensation under the DCA related to the
operation of these seven temporary aircraft.





Continental
Airlines





On
February 5, 2007, the Company entered into a capacity purchase agreement with
Continental under which Colgan operates Q400 regional aircraft predominantly out
of Continental’s hub at Newark/Liberty International Airport.  Colgan
took delivery of two Q400 aircraft in July 2008 and operated 15 Q400 aircraft as
of September 30, 2008.





Revenue
Pro-Rate Agreements





When the
Company purchased Colgan in January 2007, its existing agreements with its
partners were structured as revenue pro-rate code-share agreements, which allow
Colgan to market its operations under its partners’ brands.  Under these
agreements, Colgan generally manages its own inventory of unsold capacity and
sets fare levels in the local markets that it serves.  Colgan retains
all of the revenue for passengers flying within its local markets that do not
connect to its partners’ flights.  For connecting passengers, the
passenger fare is pro-rated between Colgan and its major airline partner,
generally based on the distance traveled by the passenger on each segment of the
passenger’s trip.  Under these agreements, Colgan bears the risk associated
with fares, passenger demand, and competition within its
markets.  Colgan incurs all of the costs associated with operating
these flights, including those costs typically reimbursed or paid directly by
the major airline under a capacity purchase agreement. In some instances, Colgan
has the ability to earn incentive-based revenue should it achieve specified
performance metrics.





Colgan’s
financial performance is also subject to seasonal
fluctuations.  Colgan has historically reported lower unit revenue (as
measured by revenue per available seat mile) during the first and fourth
quarters each year when demand for air travel declines, and reported higher unit
revenue during the second and third quarters each year when air travel demand is
higher.


9
 Pinnacle
Airlines Corp.
 Notes
to Condensed Consolidated Financial Statements
 (all
amounts in thousands, except per share data)


2.  Code-Share
Agreements with Partners - (Continued)




US
Airways





As of
September 30, 2008, the Company, through its Colgan subsidiary, operated 11 Saab
340 aircraft and four Beech 1900D aircraft under a code-sharing pro-rate
agreement with US Airways (the “US Airways Agreement”).  In 1999,
Colgan entered into the US Airways Agreement to provide passenger service and
cargo service under the name “US Airways Express.” The current US Airways
Agreement became effective on October 1, 2005 under terms similar to the 1999
agreement and has a three-year term.  The term of the agreement
automatically extends beyond the September 30, 2008 termination date unless
terminated by either party upon 120 days notice.  The Company expects
to enter into a revised agreement with US Airways on substantially similar terms
in the near future.





Continental
Airlines





As of
September 30, 2008, the Company, through its Colgan subsidiary, operated 14 Saab
340 aircraft based in Houston, Texas under a code-share, pro-rate agreement with
Continental (the “Continental Agreement”).  Colgan entered into the
Continental Agreement in January 2005 for a term of five years.  In
addition to receiving pro-rated passenger revenue as described above under
“Revenue Pro-Rate Agreements,” the Company receives an incentive payment for
each passenger connecting onto or from a Continental flight in
Houston.  These incentive payments adjust every January 1 and July 1
for changes in the cost of fuel and changes in certain station-related
costs.





United
Air Lines





In
October 2003, Colgan entered into a code-share agreement with United Air Lines
to include the United Air Lines flight designator code on all United flights
operated by Colgan.  In October 2005, Colgan entered into a separate
code-share agreement with United to provide services as a United Express carrier
(the “United Agreement”).  During the first quarter of 2008, Colgan
expanded the number of aircraft and markets operated under this agreement by
transitioning nine markets previously operated from Pittsburgh, Pennsylvania
under Colgan’s US Airways agreement. As of September 30, 2008, the Company
operated 12 Saab 340 aircraft under the name “United Express.”  The
United Agreement expires on December 31, 2008.  The Company is
currently in discussions with United to extend the term of this agreement and to
make certain economic and market adjustments to allow the Company to operate
profitably in its United Express markets.  The Company anticipates
that the terms of a new code-share agreement with United will provide for an
increased connecting passenger incentive payment in some of its commercial
markets and also to provide for a mechanism to review Colgan’s financial
performance in these markets at least annually to determine the appropriate
level of connecting passenger incentive payments.  To the extent that
the Company is unsuccessful in modifying the terms of the United Agreement, the
Company may reduce or eliminate service in certain unprofitable
markets.





Essential
Air Services





In
addition to the code-share agreements described above, the Company, through its
Colgan subsidiary, operates within its pro-rate network with the Department of
Transportation (“DOT”) to provide subsidized air service to 13 communities as
part of the Essential Air Service (“EAS”) program.  Colgan operates in
five of these markets under its US Airways Agreement, seven markets under its
United Agreement, and one market under its Continental
Agreement.  During 2008, Colgan filed notice with the DOT to vacate
service in most of these communities, and subsequently re-filed to serve these
communities for higher subsidies to offset rising fuel and other operating
costs. The DOT subsequently re-awarded service in nine of these markets at a
higher subsidy and, in some instances, a reduced level of weekly round
trips.  Upon completion of these changes in its EAS operations during
the fourth quarter of 2008, Colgan will operate in 11 markets under the EAS
program.


10
 Pinnacle
Airlines Corp.
 Notes
to Condensed Consolidated Financial Statements
 (all
amounts in thousands, except per share data)


3. Impairment of Goodwill and Aircraft Lease Return
Costs





In
accordance with Statement of Financial Accounting Standard No. 142, Goodwill and Other Intangible
Assets (“SFAS 142”), the Company performs an impairment test of goodwill
on an annual basis and, if certain events or circumstances indicate that an
impairment loss may have been incurred, on an interim basis. The analysis of
potential impairment of goodwill requires a two-step process. The first step is
the estimation of fair value. If step one indicates that impairment potentially
exists, the second step is performed to measure the amount of impairment, if
any. Goodwill impairment exists when the estimated fair value of goodwill is
less than its carrying value.





Because
such indicators existed for Colgan during the second quarter of 2008, the
Company performed impairment testing on Colgan’s goodwill.  Factors deemed
by the Company to be collectively an indicator that a goodwill impairment test
was required for Colgan included record high fuel prices, continued operating
losses, the uncertainty of the U.S. economy, and the planned removal of several
Saab aircraft from Colgan’s pro-rate operating fleet during the third and fourth
quarters of 2008.





For
purposes of testing Colgan’s goodwill, the Company estimated Colgan’s fair value
using primarily the income approach, a generally accepted fair value measurement
technique.  This approach was built using relevant data available through
and as of the second quarter of 2008.  Under the income approach, the fair
value was estimated based upon the present value of estimated future cash flows
from Colgan. The income approach is dependent on a number of critical management
assumptions including estimates of future capacity, passenger yield, traffic,
operating costs (including fuel prices), appropriate discount rates and other
relevant assumptions. The Company estimated its future fuel-related cash flows
for the income approach based on the five-year forward curve for crude
oil.





Step one
indicated the fair value of Colgan was less than its carrying value. 
Consequently, to confirm the existence of and to measure the amount of any
impairment, the Company was required to perform step two of the SFAS 142
goodwill impairment testing methodology.  In step two of the impairment
testing, the Company determined the implied fair value of Colgan’s goodwill
estimating the current fair value of all of its assets and liabilities,
including any recognized and unrecognized intangible assets.  As a result
of the step two testing, the Company determined that goodwill was fully impaired
and therefore recorded a $9,785 impairment charge during the second quarter of
2008 to eliminate the carrying value of Colgan’s goodwill. This impairment
charge is classified within “impairment of goodwill and aircraft lease return
costs” in the Company's condensed consolidated statement of income for the nine
months ended September 30, 2008.





During
the third quarter of 2008, Colgan eliminated six unprofitable markets from its
pro-rate operations and will eliminate three additional unprofitable pro-rate
markets in the fourth quarter of 2008.  This action will result in the
retirement of six Saab aircraft from service in addition to the previously
announced retirement of Colgan’s fleet of five Beech 1900 aircraft.  The
return of leased aircraft requires certain maintenance costs necessary to
restore the aircraft to a condition suitable for return to the lessor. 
During the three and nine months ended September 30, 2008, the Company recorded
charges of $1,069 and $3,131, respectively, related to these lease returns, and
expects to record an additional amount of approximately $269 prior to the
removal of the aircraft from service in December 2008.  The Company’s
accrued lease return costs as of September 30, 2008 are included in “accrued
expenses and other current liabilities” on the Company’s condensed consolidated
balance sheet.







4.
Fair Value Measurements





On
January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements(“SFAS
157”).  SFAS 157 defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value
measurements.  SFAS 157 applies to reported balances that are required
or permitted to be measured at fair value under existing accounting
pronouncements; accordingly, the standard does not require any new fair value
measurements of reported balances.  Although the adoption of SFAS 157
did not materially affect its financial condition, results of operations, or
cash flow, the Company is now required to provide additional disclosures as part
of its financial statements.


11
 Pinnacle
Airlines Corp.
 Notes
to Condensed Consolidated Financial Statements
 (all
amounts in thousands, except per share data)


4. Fair Value Measurements
- (Continued)




SFAS 157
emphasizes that fair value is a market-based measurement, not an entity-specific
measurement.  Therefore, a fair value measurement should be determined
based on the assumptions that market participants would use in pricing the asset
or liability.  As a basis for considering market participant
assumptions in fair value measurements, SFAS 157 establishes a fair value
hierarchy that distinguishes between market participant assumptions based on
market data obtained from sources independent of the reporting entity
(observable inputs that are classified within Levels 1 and 2 of the hierarchy)
and the reporting entity’s own assumptions about market participant assumptions
(unobservable inputs classified within Level 3 of the hierarchy).  A
description of the three-tier fair value hierarchy is as follows:





Level
      1
            Observable
      inputs such as quoted prices (unadjusted) in active markets for identical
      assets or liabilities that the Company has the ability to
      access.Level
      2
            Inputs,
      other than the quoted prices in active markets, that are observable for
      the asset or liability either directly or indirectly, and may include
      quoted prices for similar assets and liabilities in active markets,
      as well as inputs that are observable for the asset or liability (other
      than quoted prices), such as interest rates, foreign exchange rates, and
      yield curves that are observable at commonly quoted
intervals.Level
      3
            Unobservable
      inputs in which there is little or no market data, which require the
      reporting entity to develop its own
assumptions.





In
instances where the determination of the fair value measurement is based on
inputs from different levels of the fair value hierarchy, the level in the fair
value hierarchy within which the entire fair value measurement falls is based on
the lowest level input that is significant to the fair value measurement in its
entirety. The Company’s assessment of the significance of a particular input to
the fair value measurement in its entirety requires judgment and considers
factors specific to the asset or liability.





As of
September 30, 2008, the Company held certain assets and liabilities that are
required to be measured at fair value on a recurring basis, none of which were
classified as Level 1. The table below presents the Company’s assets and
liabilities measured at fair value as of September 30, 2008, aggregated by
the level in the fair value hierarchy within which those measurements
fall.




Level
      1
                          
                          Level 2
                          
                          Level 3
                          
                          Balance
      at September 30, 2008AssetsAuction
      Rate Securities (“ARS”)
                          $
                          -
                          
                          $
                          -
                          
                          $
                          126,925
                          
                          $
                          126,925LiabilitiesDerivative
      financial instruments
                          $
                          -
                          
                          $
                          (949)
                          
                          $
                          -
                          
                          $
                          (949)







The
following table presents the Company’s assets and liabilities at fair value on a
recurring basis using significant unobservable inputs (Level 3):




AssetAuction
      Rate SecuritiesBalance
      at January 1, 2008
                            $
                            -Transfers
      to Level 3
                            
                            136,100Total
      unrealized gains/(losses)Included
      in nonoperating expense
                            
                            (8,675)Included
      in other comprehensive income (“OCI”)
                            
                            -Redemptions
      (1)
                            
                            (500)Balance
      at September 30, 2008
                            $
                            126,925(1)Partial redemption of securities
      at par by the issuer







12
 Pinnacle
Airlines Corp.
 Notes
to Condensed Consolidated Financial Statements
 (all
amounts in thousands, except per share data)


4. Fair Value Measurements
- (Continued)




Auction
Rate Securities





Investments in auction rate securities
are classified as available-for-sale and presented at their estimated fair
values.  However, due to recent events in credit markets, the auction
events for the ARS held by the Company have failed since the first quarter of
2008 (see Note 11 for further discussion).  Therefore, the fair values
of these ARS are estimated utilizing a discounted cash flow analysis
model.  This analysis considers, among other items, the
collateralization underlying the investments, the creditworthiness of the
counterparty, the timing of expected future cash flows, and an estimate of when
the security is expected to have a successful auction or be called by the
issuer.  These securities were also compared, when possible, to other
observable market data with similar characteristics to the securities held by
the Company.




Based on
market conditions beginning in the first quarter of 2008, the Company changed
its valuation methodology for ARS to a discounted cash flow
analysis.  Accordingly, since the Company’s initial adoption of
SFAS 157 at January 1, 2008, these securities changed from Level 1 to Level 3
within SFAS 157’s hierarchy.





Derivative
Financial Instruments





At times, the Company utilizes a cash
flow hedging program to manage its interest rate risk related to the purchase of
aircraft from the time of entering into an aircraft related purchase commitment
until the delivery of the aircraft, at which time the Company receives
permanent, fixed-rate financing for each aircraft (see Note 6 for further
discussion).As of
September 30, 2008, the Company had one remaining outstanding hedge position,
which is scheduled to be settled in January 2009 when the related aircraft
delivers and the related permanent financing is obtained.  The fair
values of interest rate swaps are determined using the market standard
methodology of netting the discounted future fixed cash receipts (or payments)
and the discounted expected variable cash payments (or receipts).  The
variable cash payments (or receipts) are based on an expectation of future
interest rates (forward curves) derived from observable market interest rate
curves.





To comply
with the provisions of SFAS 157, the Company incorporates credit valuation
adjustments to appropriately reflect both its own nonperformance risk and the
respective counterparty’s nonperformance risk in the fair value
measurements.  In adjusting the fair value of its derivative contracts
for the effect of nonperformance risk, the Company has considered the impact of
netting and any applicable credit enhancements, such as collateral postings,
thresholds, mutual puts, and guarantees.





The
Company has determined that all significant inputs used to value its derivatives
fall within Level 2 of the fair value hierarchy, although the credit valuation
adjustments associated with its derivatives utilize Level 3 inputs, such as
estimates of current credit spreads to evaluate the likelihood of default by
itself and its counterparties.  As a result, the Company has
determined that its derivative valuations in their entirety are classified in
Level 2 of the fair value hierarchy.


13
 Pinnacle
Airlines Corp.
 Notes
to Condensed Consolidated Financial Statements
 (all
amounts in thousands, except per share data)


5.  Borrowings





The
following table summarizes the Company’s lines of credit, short-term notes
payable, and long-term debt:




As
      of September 30, 2008
                        
                        
                        As
      of December 31, 2007Lines
      of credit
                        
                        $
                        88,275
                        
                        
                        $
                        8,375Pre-delivery
      payment facilities
                        
                        
                        11,373
                        
                        
                        
                        63,603Other
                        
                        
                        -
                        
                        
                        
                        2,500Total
      short-term notes payable
                        
                        $
                        11,373
                        
                        
                        $
                        66,103Senior
      convertible notes
                        
                        $
                        121,000
                        
                        
                        $
                        121,000Long-term
      notes payable
                        
                        
                        478,840
                        
                        
                        
                        79,222Total
      long-term debt
                        
                        
                        599,840
                        
                        
                        
                        200,222Less
      current maturities
                        
                        
                        (26,149)
                        
                        
                        
                        (7,410)Long-term
      debt, net of current maturities
                        
                        $
                        573,691
                        
                        
                        $
                        192,812





The
aggregate amounts of principal maturities of long-term debt as of September 30,
2008 were as follows:


Remainder
      of 2008
                    
                    $
                    6,4202009
                    
                    
                    27,5842010
                    
                    
                    147,1122011
                    
                    
                    26,2072012
                    
                    
                    26,854Thereafter
                    
                    
                    365,663Total
                    
                    $
                    599,840





Lines
of Credit





On March
11, 2008, the Company entered into a revolving term loan with Citigroup Global
Markets, Inc. (the “Credit Facility”).  The Credit Facility provided
for advances up to $60,000 and is collateralized by the Company’s $135,600 par
value of ARS. On June 18, 2008, the Company amended the Credit Facility with the
primary purpose of increasing the eligible amount for borrowing from $60,000 to
$80,000. During the second quarter, the Company drew an additional $20,000
increasing total borrowings under the Credit Facility to $80,000.  The
proceeds are being used to support the Company’s aircraft purchases and for
general working capital purposes.  The Credit Facility is pre-payable
at any time prior to maturity on February 28, 2009.  The Credit
Facility interest rate is indexed to LIBOR and was 5.9% as of September 30,
2008.  The Credit Facility includes both covenant and margin
requirements with which the Company is compliant. As of September 30, 2008, the
balance outstanding was $80,000.  On November 5, 2008, the Company and
Citigroup amended the Credit Facility to extend the maturity date to November
2009 and to provide for additional borrowings of up to $10,000, for a total
amount available under the Credit Facility of $90,000.  The additional
$10,000 may only be used to fund purchases or redemptions of other indebtedness
of the Company, and carries an interest rate that is indexed to the Federal
Funds Rate.





The
Company maintains an additional revolving line of credit with an institutional
lender for a principal amount not to exceed $8,500 or 75% of the net unpaid
balance of eligible accounts receivable.  On April 15, 2008, the
Company extended the termination date of this facility to April 15,
2009.  This instrument has an interest rate of Prime plus 0.25%, which
was 5.25% as of September 30, 2008.  Amounts outstanding under the
line of credit were $8,275 at September 30, 2008 and $8,375 at December 31,
2007.


14
 Pinnacle
Airlines Corp.
 Notes
to Condensed Consolidated Financial Statements
 (all
amounts in thousands, except per share data)


5.  Borrowings -
(Continued)




Pre-delivery
Payment Financing Facilities





In 2007,
the Company executed pre-delivery payment financing facilities with Export
Development Canada (“EDC”) for up to $80,000 in short-term borrowings.  The
outstanding balance was $11,373 at September 30, 2008 and $64,419 at December
31, 2007.  Borrowings under the pre-delivery payment facilities bear
interest at the 3-month LIBOR rate plus 1.65%, which was 5.7% as of September
30, 2008, and are collateralized by the pre-delivery payments to the aircraft
manufacturer.  The Company repays the borrowings as each aircraft is
delivered.





Senior
Convertible Notes





In
February 2005, the Company completed the private placement of $121,000 principal
amount of 3.25% senior convertible notes due February 15, 2025 (the
"Notes").  If certain conditions are met, the Notes are convertible
into a combination of cash and common stock equivalent to the value of 75.6475
shares of the Company’s common stock per $1 par amount of Notes, or a conversion
price of $13.22 per share.   The Notes were not convertible in
the third quarter of 2008.





Beginning
on February 15, 2010, the Company may redeem the Notes for cash, in whole or in
part at any time or from time to time.  The Company will give not less
than 30 days’ or more than 60 days’ notice of redemption by mail to holders of
the Notes.  If the Company elects to redeem the Notes, it will pay a
redemption price equal to 100% of the principal amount of the Notes to be
redeemed, plus accrued and unpaid interest to the redemption date. The holders
of the Notes may require the Company to purchase all or a portion of their Notes
for cash on February 15, 2010, February 15, 2015 and February 15, 2020 at a
purchase price equal to 100% of their principal amount plus accrued and unpaid
interest, if any.  As a result, the entire principal amount is shown
with a maturity of 2010 in the above table.





New
Accounting Standard





FSP APB
14-1. In May 2008, the FASB affirmed Staff Position No. APB 14-1, Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement) (the "FSP"), which clarifies the accounting for convertible
debt instruments that may be settled in cash (including partial cash settlement)
upon conversion.  The FSP requires issuers to account separately for
the liability and equity components of certain convertible debt instruments in a
manner that reflects the issuer's nonconvertible debt (unsecured debt) borrowing
rate when interest cost is recognized.  The FSP requires bifurcation
of a component of the debt, classification of that component in equity and the
accretion of the resulting discount on the debt to be recognized as part of
interest expense in our consolidated statement of operations.  The FSP
requires retrospective application to the terms of instruments as they existed
for all periods presented.  The FSP is effective as of January 1, 2009
and early adoption is not permitted.  The adoption of this FSP will
affect the accounting for the Company’s Notes and will result in increased
interest expense of up to$14,000 in 2009.





Long
Term Notes Payable





Included
in long-term notes payable are borrowings from EDC for owned aircraft.  The
borrowings are collateralized by the Company’s fleet of CRJ-900 and Q400
aircraft and bear interest rates ranging between 6.3% and 7.3% with maturities
through the third quarter of 2023.  Amounts outstanding were $454,998
and $60,270 at September 30, 2008 and December 31, 2007,
respectively.





6.  Derivatives





The
Company is exposed to interest rate risk from the time of entering into purchase
commitments until the delivery of aircraft, at which time the Company receives
permanent, fixed-rate financing for each aircraft.  To mitigate the
financial risk associated with changes in long-term interest rates, the Company
during July 2007 initiated a cash flow hedging program.  The program
consists of forward-starting interest rate swaps intended to hedge the expected
interest payments associated with anticipated future issuances of long-term
debt.


15
 Pinnacle
Airlines Corp.
 Notes
to Condensed Consolidated Financial Statements
 (all
amounts in thousands, except per share data)


6.  Derivatives
- (Continued)




The term
of each cash flow hedge matches the term of the expected
financing.  As of September 30, 2008, the Company had one remaining
outstanding hedge position, which is scheduled to be settled in January 2009
when the related aircraft delivers and the related permanent financing is
obtained. The related agreements for these hedge positions require mandatory
cash settlement at the settlement date which is intended to coincide with the
delivery of the related aircraft and the receipt of permanent, fixed rate
financing. Once permanent financing is secured, the remaining hedge-related
balance, which is included in other comprehensive income, will be amortized into
interest expense over the life of the aircraft financing.





In March
2008, the FASB issued SFAS 161, Disclosures about Derivative
Instruments and Hedging Activities (“SFAS 161”).  The new
standard is intended to improve financial reporting about derivative instruments
and hedging activities by requiring enhanced disclosures to enable investors to
better understand the use of derivative instruments and their effects on an
entity’s financial condition, performance, and cash flows. SFAS 161 is effective
for financial statements issued after November 15, 2008 and will affect
disclosures only and will have no effect on the Company’s consolidated balance
sheet, statements of income, or cash flows.





The
following table presents pre-tax gains (losses) on derivative instruments within
the condensed consolidated statements of income:





Three
      Months Ended September 30,
                        
                        Nine
      Months Ended September 30,2008
                        
                        2007
                        
                        2008
                        
                        2007Ineffectiveness
      from interest rate swapsincluded
      in interest expense
                        
                        $
                        -
                        
                        $
                        (51)
                        
                        $
                        (562)
                        
                        $
                        (51)Interest
      expense recognized in earnings fromother
      comprehensive income
                        
                        
                        (734)
                        
                        
                        -
                        
                        
                        (1,518)
                        
                        
                        -





As
      of September 30, 2008
              
              As
      of December 31, 2007Fair
      value of active swaps – recorded in accruedexpenses
                and other current liability
              
              $           (949)
              
              $   (16,777)Amounts
      from interest rate swaps recorded in other comprehensive
                income,net
      of tax andamortization
              
              (16,352)(1)
              
              (10,761)




The following
table presents the fair values of the Company’s remaining derivative
instruments, and the amounts from settled interest rates swaps recorded in other
comprehensive income, net of tax and amortization, within the condensed
consolidated balance sheets.





(1)
            Included
      in the net unrealized losses from interest rate swaps are approximately
      $2,161 in net unrealized losses that are expected to be amortized into
      interest expense during the 12 months following September 30,
      2008.





16
 Pinnacle
Airlines Corp.
 Notes
to Condensed Consolidated Financial Statements
 (all
amounts in thousands, except per share data)


7.  Comprehensive
Income (Loss)





The
following table summarizes the Company’s comprehensive income
(loss):





Three
      Months Ended September 30,
                                                
                                                Nine
      Months Ended September 30,2008
                                                
                                                2007
                                                
                                                2008
                                                
                                                2007Net
      income (loss)
                                                $
                                                7,717
                                                
                                                $
                                                10,904
                                                
                                                $
                                                (1,081)
                                                
                                                $
                                                27,931Adjustments
      (net of tax):Retired
      Pilots’ Insurance Benefit Plan
                                                  amortization
      of unrealized actuarial gain
                                                
                                                (6)
                                                
                                                
                                                -
                                                
                                                
                                                (59)
                                                
                                                
                                                -Change
      in cash flow hedge unrealized loss
                                                
                                                230
                                                
                                                
                                                (1,939)
                                                
                                                
                                                (5,591)
                                                
                                                
                                                (1,939)Total
      other comprehensive income (loss)
                                                $
                                                7,941
                                                
                                                $
                                                8,965
                                                
                                                $
                                                (6,731)
                                                
                                                $
                                                25,992





8.  Earnings
(Loss) Per Share





The
following table sets forth the computation of basic and diluted earnings (loss)
per share:





Three
      Months Ended September 30,
                              
                              Nine
      Months Ended September 30,2008
                              
                              2007
                              
                              2008
                              
                              2007Net
      income (loss)
                              $
                              7,717
                              
                              $
                              10,904
                              
                              $
                              (1,081)
                              
                              $
                              27,931Basic
      earnings (loss) per share
                              $
                              0.43
                              
                              $
                              0.53
                              
                              $
                              (0.06)
                              
                              $
                              1.31Diluted
      earnings (loss) per share
                              $
                              0.43
                              
                              $
                              0.48
                              
                              $
                              (0.06)
                              
                              $
                              1.17Share
      computation:Weighted
      average number of shares outstanding
                                for
      basic earnings (loss) per share  (1)
                              
                              17,867
                              
                              
                              20,470
                              
                              
                              17,864
                              
                              
                              21,398Senior
      convertible notes (2)
                              
                              -
                              
                              
                              1,940
                              
                              
                              -
                              
                              
                              2,229Share-based
      compensation (3)
                              
                              24
                              
                              
                              134
                              
                              
                              -
                              
                              
                              236Weighted
      average number of shares outstanding
                                for diluted earnings (loss) per share
                              
                              17,891
                              
                              
                              22,544
                              
                              
                              17,864
                              
                              
                              23,863








(1)During
      2007, the Board of Directors of the Company authorized a share repurchase
      program, whereby the Company repurchased an aggregate of 4,450 shares of
      its owncommon
      stock, which areexcluded
      from basic earnings (loss) per share. The Company accounted for the
      repurchase of this treasury stock using the cost
      method.




(2) Dilution is calculated as
      follows:Three
      MonthsEnded
                                
                                Nine
      Months EndedSeptember
      30, 2008
                                
                                September 30, 2008Increase
      in fully
                                  diluted share count=
                                $121,000
                                  $13.22
      (a)
                                -
                                $121,000
                                  $4.90
      (b)
                                
                                $121,000
                                  $13.22(a)
                                -
                                $121,000
                                  $7.88
      (b)(a) = Conversion price of the
    Notes(b) = Average stock price for the
      three and six month
period


(3)Options
      to purchase 1,120 and 653 shares of common stock were excluded from the
      diluted earnings (loss) per sharecalculation at September 30, 2008 and 2007,
      respectively, because their effect would be
      anti-dilutive.





17
 Pinnacle
Airlines Corp.
 Notes
to Condensed Consolidated Financial Statements
 (all
amounts in thousands, except per share data)


9.  Share-Based
Compensation





In
January 2008, the Company granted 284 stock options with an exercise price of
$14.37 per share to members of its Board of Directors, its officers and certain
other employees.  These grants will vest ratably over three
years.  The grant date fair value of these options, estimated using
the Black-Scholes-Merton multiple-option pricing valuation model, was $6.76 per
share.  This fair value was estimated at the date of grant with the
following assumptions for 2008: risk-free interest rate of 3.26%, dividend yield
of 0.0%, expected volatility of the Company’s common stock of 50.0% and expected
life of the options of 5.0 years.  Total expense to be recognized over
the vesting period, net of expected annual forfeitures of 4%, is
$1,847.





In
January 2008, the Company awarded 109 shares of restricted stock to certain
officers and members of the Board of Directors.  Using the
straight-line method, the fair value of $1,566 is being expensed ratably over
the three-year vesting period.  The grant date fair value of these
shares was $14.37 per share, which was the closing stock price on the date of
grant.





During
the three and nine months ended September 30, 2008, the Company recognized $616
and $1,989, respectively, of share-based compensation expense, and $369 and
$1,095 for the same periods of the prior year.





The
following table provides certain information with respect to the Company’s stock
options:





Stock
      OptionsShares
                                                                          
                                                                          Weighted
      Average
                                                                            Exercise
                                                                            Price
                                                                          
                                                                          Fair
                                                                            Value
                                                                          
                                                                          Weighted
                                                                            Average
                                                                            Remaining
                                                                            Life
                                                                          
                                                                          Aggregate
      Intrinsic
                                                                            ValueOutstanding
      at January 1, 2008
                                                                          
                                                                          884
                                                                          
                                                                          $
                                                                          12.69
                                                                          
                                                                          $
                                                                          6,470Granted
                                                                          
                                                                          284
                                                                          
                                                                          
                                                                          14.37
                                                                          
                                                                          
                                                                          1,924Exercised
                                                                          
                                                                          (8)
                                                                          
                                                                          
                                                                          8.05
                                                                          
                                                                          
                                                                          (38)Forfeited
                                                                          
                                                                          (44)
                                                                          
                                                                          
                                                                          14.19
                                                                          
                                                                          
                                                                          (345)Outstanding
      at September 30, 2008
                                                                          
                                                                          1,116
                                                                          
                                                                          $
                                                                          13.10
                                                                          
                                                                          $
                                                                          8,011
                                                                          
                                                                          7.1
      years
                                                                          
                                                                          $
                                                                          -Options
      exercisable at September 30, 2008
                                                                          
                                                                          607
                                                                          
                                                                          $
                                                                          12.10
                                                                          
                                                                          $
                                                                          4,639
                                                                          
                                                                          5.8
      years
                                                                          
                                                                          $
                                                                          -





The
following table provides certain information with respect to the Company’s
restricted stock:





Restricted
      StockShares
                  
                  
                  Fair ValueUnvested
      at January 1, 2008
                  
                  
                  163
                  
                  
                  $
                  1,827Granted
                  
                  
                  109
                  
                  
                  
                  1,566Vested
                  
                  
                  (68)
                  
                  
                  
                  (700)Forfeited
                  
                  
                  (6)
                  
                  
                  
                  (89)Unvested
      at September 30, 2008
                  
                  
                  198
                  
                  
                  $
                  2,604





18
 Pinnacle
Airlines Corp.
 Notes
to Condensed Consolidated Financial Statements
 (all
amounts in thousands, except per share data)


10.
Income Taxes





The
Company incurred income tax expense for the three and nine months ended
September 30, 2008 of $3,521 and $3,244, respectively.  As discussed in
Note 11, during the second quarter of 2008 the Company recorded an impairment
loss of $8,675 on its portfolio of ARS during the second quarter of 2008. 
The Company has recorded a full valuation allowance against the tax benefit
associated with this capital loss, as the Company does not expect to generate
capital gains during the carryforward period against which the loss could be
applied.  Consequently, this loss reduces net income by the gross
amount.





The
Company is currently under audit by the Internal Revenue Service (“IRS”) for the
tax years 2003 through 2005.  In May 2007, the IRS proposed certain
adjustments to the Company’s positions related to various exam matters. 
The Company submitted a protest to the IRS with respect to the adjustments and
has begun the administrative appeals process.  Should the IRS prevail on
these adjustments, the impact on the Company could be significant.  The
Company believes the potential tax exposure related to the items the IRS has
focused on during its examinations would not exceed $35,000, plus potential
penalties of $9,747.  The Company has reserved for $16,586 of this
exposure.  The Company believes that it has provided sufficiently for all
audit exposures; however, future earnings, cash flow and liquidity could be
materially affected should it receive adverse rulings on the items under
review.  Settlement of this audit or the expiration of the statute of
limitations on the assessment of income taxes for any tax year may also result
in a change in future tax provisions.





11.
Investments





At
September 30, 2008, the Company’s investment portfolio included ARS with fair
values of $126,925, net of recognized losses of $8,675.  As of December 31,
2007, the fair value of the Company’s investment portfolio was $186,850, which
equaled the Company’s historical cost basis.





Because
of the unprecedented events in the ARS market coupled with overall current
market conditions, the Company cannot predict when liquidity in the ARS market
will return.  Although the Company believes its securities continue to
represent good investments due to the credit ratings of the underlying
investments, for a variety of reasons, including record high fuel prices,
uncertainty within the airline industry and the US economy in general, the
Company may choose to sell some of its ARS portfolio before liquidity in the ARS
market returns.  As a result, the Company has determined that the decline
in value of its ARS portfolio is other-than-temporary, and may not recover
before the investment is sold.  Therefore, the Company, on a specific
identification basis, recorded an impairment charge of $8,675 during the second
quarter to reflect the decline in value of these securities.  This loss is
included in nonoperating expense in the Company’s condensed consolidated
statement of income for the nine months ended September 30, 2008.  The
Company will continue to evaluate the value of its ARS portfolio, and may record
future additional losses through earnings if the Company determines that the
fair value of its ARS portfolio has declined further.





Most of
the banks that structured and sold ARS to investors have entered into settlement
agreements with various state and federal regulatory authorities that provide
for the repurchase of ARS at par value from retail investors and small
businesses over the next 24 months.  In addition, some banks have made
offers to larger institutional investors to repurchase ARS at par value in 2009
and 2010 to the extent that institutional investors have been unable to sell
their ARS.  The Company has not yet received such an
offer.





12.
Commitments and Contingencies





Mesaba.As previously
disclosed, the Company was entitled to a claim resulting from Mesaba’s
bankruptcy filing.  In 2006, the Company entered into an assignment of
claim agreement with Goldman Sachs Credit Partners, L.P. (the “Goldman
Agreement”).  At that time, the Company received 80% of the sale price
based on the claim amount set forth in the Company’s original proof of
claim.  During the second quarter of 2008, the final allowed amount of the
claim was determined, and the claim was settled with no material effect to the
Company’s financial statements.





Employees. The Company
operates under several collective bargaining agreements with a portion of its
employees. The collective bargaining agreement between Pinnacle and the Air Line
Pilots Association (“ALPA”) became amendable in April 2005. Pinnacle has been
actively negotiating with ALPA since that time.  In August 2006,
Pinnacle filed for mediation with the National Mediation Board.  Since
then, Pinnacle has met with the mediator assigned to its case and with ALPA, but
Pinnacle has not reached resolution on an amended collective bargaining
agreement.


19
 Pinnacle
Airlines Corp.
 Notes
to Condensed Consolidated Financial Statements
 (all
amounts in thousands, except per share data)


12. Commitments and
Contingencies - (Continued)




On
November 5, 2007, ALPA filed suit in the U.S. District Court in Minneapolis,
Minnesota against Pinnacle.  The suit seeks an injunction prohibiting
Pinnacle from paying certain bonuses to its pilots, asserting that such an
action would violate the Railway Labor Act.  Pinnacle believes that
the lawsuit lacks merit, and accordingly, Pinnacle will vigorously defend its
position in this case.  Pinnacle does not believe that it will incur
any material loss with respect to this lawsuit.  On January 8, 2008,
Pinnacle filed suit in the U.S. District Court for the Western District of
Tennessee against ALPA, alleging bad faith bargaining.  The primary
intent of the lawsuit is to encourage ALPA to negotiate in good faith so that an
agreement can be reached for an amended collective bargaining agreement as soon
as possible.  Pinnacle’s pilots are currently paid at rates less than
the industry average for similarly sized aircraft, and an amended agreement is
expected to contain higher rates of pay prospectively for Pinnacle’s
pilots.





In
October 2008, the Company received notice that ALPA is conducting a campaign to
organize Colgan’s pilots under the rules contained in the Railway Labor Act.
 The Company expects Colgan’s pilots to vote on this matter prior to
year-end.  The Company does not expect a collective bargaining
agreement at Colgan to have a material effect on its future financial results,
as Colgan’s pilots are already compensated at industry-standard
pay.





Purchase Commitments.The Company has
contractual obligations and commitments primarily related to future purchases of
aircraft.  The Company’s firm orders and options to purchase aircraft
as of September 30, 2008 were as follows:





Firm
                      
                      Firm
                        Cancelable
                      
                      Options
                      
                      TotalQ4002010
                      
                      -
                      
                      8
                      
                      4
                      
                      122011
                      
                      -
                      
                      2
                      
                      16
                      
                      18Total
      Q400
                      
                      -
                      
                      10
                      
                      20
                      
                      30CRJ-9002009
                      
                      5
                      
                      -
                      
                      -
                      
                      5Total
      CRJ-900
                      
                      5
                      
                      -
                      
                      -
                      
                      5Total
                      
                      5
                      
                      10
                      
                      20
                      
                      35





Firm
cancelable aircraft are aircraft that are on firm order, but for which the
Company has the right of cancellation without penalty prior to December
2008.  During July 2008, the Company and the aircraft manufacturer
agreed to defer the decision date related to exercising the Company’s options
for Q400 aircraft and the date for canceling firm cancelable aircraft
orders.  For additional information on CRJ-900 and Q400 aircraft, see
Note 2.





The
Company’s contractual obligations and commitments, which include future
purchases of aircraft and engines, are approximately $2,077 for the remainder of
2008 and $130,392 in 2009.





Guarantees and
Indemnifications.  The Company is the guarantor of
approximately $2,140 aggregate principal amount of tax-exempt special facilities
revenue bonds and interest thereon. These bonds were issued by the
Memphis-Shelby County Airport Authority (the “Authority”) and are payable solely
from rentals paid under a long-term lease agreement with the
Authority.  The leasing arrangement is accounted for as an operating
lease in the consolidated financial statements.





In the
Company’s aircraft lease agreements with Northwest, the Company typically
indemnifies the prime lessor, financing parties, trustees acting on their behalf
and other related parties against liabilities that arise from the manufacture,
design, ownership, financing, use, operation and maintenance of the aircraft and
for tort liability, whether or not these liabilities arise out of or relate to
the negligence of these indemnified parties, except for their gross negligence
or willful misconduct.


20
 Pinnacle
Airlines Corp.
 Notes
to Condensed Consolidated Financial Statements
 (all
amounts in thousands, except per share data)


12. Commitments and
Contingencies - (Continued)




The
Company is party to numerous contracts and real estate leases in which it is
common for it to agree to indemnify third parties for tort liabilities that
arise out of or relate to the subject matter of the contract or occupancy of the
leased premises. In some cases, this indemnity extends to related liabilities
arising from the negligence of the indemnified parties, but usually excludes any
liabilities caused by their gross negligence or willful misconduct.
Additionally, the Company typically indemnifies the lessors and related third
parties for any environmental liability that arises out of or relates to its use
of the leased premises.





The
Company expects that its levels of insurance coverage (subject to deductibles)
would be adequate to cover most tort liabilities and related indemnities
described above with respect to real estate it leases and aircraft it
operates.  The Company does not expect the potential amount of future
payments under the foregoing indemnities and agreements to be
material.





Colgan is
a defendant in a lawsuit related to the September 11, 2001 terrorist
attacks.  The Company expects that any adverse outcome from this
litigation will be covered by insurance, and therefore, will have no material
adverse effect on the Company’s financial statements as a whole.





The
Company is currently engaged in discussions with Northwest involving the
interpretation of various components of the ASA.  If the parties are
unable to reach a mutually agreeable resolution related to these matters, the
parties may elect to resolve the issues through arbitration.  The
potential outcome of these disputed matters ranges from an annual increase in
the payments received from Northwest of approximately $2,800 to a decrease in
payments received from Northwest of as much as $4,800.  Adverse
determinations in these matters could result in a loss to the Company of up to
$10,700 for disputed amounts accruing through September 30, 2008.





13.  Segment
Reporting





SFAS No.
131, Disclosures about
Segments of an Enterprise and Related Information, requires disclosures
related to components of a company for which separate financial information is
available to and regularly evaluated by the company’s chief operating decision
maker (“CODM”) when deciding how to allocate resources and in assessing
performance.





Previously,
the Company’s two airline reportable segments included Pinnacle Airlines, Inc.
combined with Pinnacle Airlines Corp. (the “Pinnacle Segment”) and Colgan Air,
Inc. (the “Colgan Segment”). During the first quarter of 2008, the Company
revised its reportable segments to reflect a change in the information used by
the CODM, and its two operating segments now consist of the Company’s two
subsidiaries, Pinnacle Airlines, Inc. (“Pinnacle”) and Colgan Air, Inc.
(“Colgan”).   Corporate overhead costs incurred by Pinnacle
Airlines Corp. are allocated to the operating costs of each
subsidiary.


21
 Pinnacle
Airlines Corp.
 Notes
to Condensed Consolidated Financial Statements
 (all
amounts in thousands, except per share data)


13.  Segment
Reporting - (Continued)




The
following represents the Company’s segment data for the periods
indicated:





Three
      Months Ended September 30,
                            
                            Nine
      Months Ended September 30,2008
                            
                            2007
                            
                            2008
                            
                            2007Operating
      revenues:Pinnacle
                            
                            $
                            148,184
                            
                            $
                            150,583
                            
                            $
                            458,312
                            
                            $
                            443,356Colgan
                            
                            
                            73,650
                            
                            
                            55,147
                            
                            
                            189,043
                            
                            
                            143,002Eliminations
                            
                            
                            (42)
                            
                            
                            -
                            
                            
                            (68)
                            
                            
                            (84)Consolidated
                            
                            $
                            221,792
                            
                            $
                            205,730
                            
                            $
                            647,287
                            
                            $
                            586,274Operating
      income (loss):Pinnacle
                            
                            $
                            12,016
                            
                            $
                            15,917
                            
                            $
                            39,654
                            
                            $
                            42,867Colgan
                            
                            
                            7,994
                            
                            
                            (910)
                            
                            
                            (10,393)
                            
                            
                            (213)Eliminations
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -Consolidated
                            
                            $
                            20,010
                            
                            $
                            15,007
                            
                            $
                            29,261
                            
                            $
                            42,654





The
following represents the Company’s segment assets:





September
      30, 2008
                    
                    December
      31, 2007Total
      assets:Pinnacle
                    
                    $
                    528,412
                    
                    $
                    544,746Colgan
                    
                    
                    297,223
                    
                    
                    144,183Unallocated
                    
                    
                    260,677
                    
                    
                    19,659Consolidated
                    
                    $
                    1,086,312
                    
                    $
                    708,588





22
 Item
2.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations




General





The
following management’s discussion and analysis describes the principal factors
affecting the Company’s results of operations, liquidity, capital resources and
contractual cash obligations.  This discussion should be read in
conjunction with the accompanying unaudited condensed consolidated financial
statements and our Annual Report on Form 10-K for the year ended December 31,
2007 (“Annual Report”), which include additional information about our business
practices, significant accounting policies, risk factors, and the transactions
that underlie our financial results.





Our
website address is www.pncl.com. 
All of our filings with the SEC are available free of charge through our website
as soon as reasonably practicable after we file them with, or furnish them to,
the SEC.





Outlook





General





We will
continue to execute on our growth plan for the remainder of 2008 and
2009.  Our Colgan subsidiary took delivery of the final two of its 15
Q400 aircraft to be operated under our capacity purchase agreement (“CPA”) with
Continental and placed them into service during July.  Our Pinnacle
subsidiary has taken delivery of 11 of the 16 aircraft to be operated under its
Delta Connection Agreement (“DCA”) with Delta, with nine currently placed in
service.  Pinnacle and Delta recently agreed to defer the in-service
dates on the remaining seven CRJ-900 aircraft to be operated under the DCA until
the first and second quarters of 2009.  In addition, Pinnacle and
Delta recently agreed to temporarily add seven CRJ-900 aircraft to Pinnacle’s
fleet that were previously operated by another Delta Connection carrier (the
“Temporary Aircraft”).  Pinnacle will operate the Temporary Aircraft
under the terms of its existing DCA until Pinnacle’s remaining permanent
aircraft deliver from Bombardier during the first and second quarters of
2009.





On
October 29, 2008, Delta and Northwest completed its previously announced
merger, forming the world’s largest airline.  We are the second
largest independent corporate regional partner for the combined Delta/Northwest
operation.  We do not believe that major airline industry
consolidation will materially affect our current or prospective operations, as
our capacity purchase agreements are relatively long-term and do not contain
early termination provisions that could be triggered by
consolidation.  In addition, we strive to maintain strong
relationships with all of our partners, and we believe that we will continue to
be an important part of our partners’ networks, with or without industry
consolidation.





The
airline industry is undergoing a major period of instability as a result of high
volatility in the cost of fuel.  As of September 30, 2008, the price
of crude oil was approximately 25% higher than the price at September 30, 2007,
although the price of fuel has continued to decline since September 30,
2008.  Earlier in 2008, fuel prices increased to an all time
high.  Most major U.S. airlines have incurred significant losses
during 2008, and several smaller airlines have filed for bankruptcy or
liquidated since the beginning of 2008.  This instability has forced
the entire industry to undergo a major transformation to develop a business
model that can be sustained at high fuel prices.  Most major airlines
have announced significant cuts in capacity to take place beginning in the fall
of 2008.  Many are planning to cut regional airline capacity as
well.  For example, Delta announced that it intended to decrease
domestic capacity by 13% during the second half of 2008, and it is targeting to
remove the equivalent of 100 regional aircraft by the end of
2008.  Although fuel prices have recently declined, providing some
relief to major airlines, many economic experts are now predicting that the U.S.
economy is in a recession.  Historically, demand for air travel has
declined during recessions.  This economic uncertainty presents
another challenge for the airline industry.





Regional
jets use more fuel per seat than larger jets, which causes the profitability of
regional jet markets to be more sensitive to changes in fuel
costs.  Many industry experts believe that major airlines within the
United States operate more 50-seat regional jets than can be supported by
current economic conditions.  As our major airline partners
restructure their operations to survive this period of fuel price volatility and
economic uncertainty, we expect them to review the relationships that they have
with regional airlines, and we expect this to result in changes to these
relationships.


23
 Item
2.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations


Outlook - (Continued)




In June,
Delta gave notice to Pinnacle that it intended to terminate Pinnacle’s DCA for
16 CRJ-900 aircraft, citing failure to meet on-time performance requirements in
the DCA.  Delta had previously given similar notice to terminate a
capacity purchase agreement for 34 regional jets with another of its partners,
citing failure to meet completion factor requirements.  We disputed
Delta’s right to terminate the DCA, and we subsequently agreed with Delta to
continue operating under the DCA with a deferral of the in-service dates for the
remaining seven CRJ-900 aircraft that are not yet in service.  We
expect all of our partners to increase their scrutiny of the operational and
cost performance of their regional partners in light of ongoing industry
conditions.  Although we were successful in keeping our DCA intact
with Delta, a future attempt by Delta or an attempt by another of our partners
to terminate one of our capacity purchase agreements would, if successful, have
a material negative impact on our financial performance and
liquidity.  We closely monitor the minimum required operational
standards within all of our operating agreements, and we believe we are
currently in compliance with all of our major operating agreements.





We
continue to own approximately $135.6 million par amount of auction rate
securities (“ARS”).  Due to recent events in the credit markets, these
investments have become illiquid and have suffered a decline in fair
value.  We have classified these investments as noncurrent assets on
our condensed consolidated balance sheet at September 30, 2008 at their fair
value of $126.9 million.  We continue to earn interest on all of our
ARS instruments.  As the market for our ARS portfolio changes, we may
record additional losses to reflect their fair value.





Most of
the banks that structured and sold ARS to investors have entered into settlement
agreements with various state and federal regulatory authorities that provide
for the repurchase of ARS at par value from retail investors and small
businesses over the next 24 months.  In addition, some banks have made
offers to larger institutional investors to repurchase ARS at par value in 2009
and 2010 to the extent that institutional investors have been unable to sell
their ARS. We have not yet received such an offer.  However, we expect
that to the extent that offers are generally made to institutional investors by
the major banks that structured and sold ARS, we would likewise be made a
similar offer for settlement related to our ARS holdings.





In the
mean time, we have arranged for a $90 million margin loan facility (the “Credit
Facility”) to be used to support our aircraft purchases and other working
capital requirements, which we believe will be sufficient to supplement our cash
flows from operations and meet our current liquidity needs.  Although
the Credit Facility has a maturity date in November 2009, we would expect the
Credit Facility to remain outstanding until we receive an offer to repurchase
our ARS or otherwise are able to monetize our ARS portfolio.





Outlook
for Pinnacle Airlines, Inc.





With the
addition of the CRJ-900 aircraft, we believe Pinnacle is well positioned for
additional growth opportunities as they materialize within the airline
industry.  The CRJ-900 aircraft is the most cost efficient regional
jet in its class, and the next-generation cabin interior provides a new level of
customer comfort.  Although we expect our major airline customers to
focus more on the current fuel and economic crisis and associated capacity
reductions during 2008, we do expect additional opportunities for 70-90 seat
aircraft beyond 2008 as major airlines continue to rationalize their domestic
networks.





As part
of the agreement with Delta to withdraw its attempted cancellation of Pinnacle’s
DCA, we agreed to defer the in-service dates under the DCA for the remaining
seven CRJ-900 aircraft to be delivered to Pinnacle.  The aircraft were
previously scheduled to go into service between July 2008 and January
2009.  Under the amended DCA, the aircraft will go into service
between January 2009 and May 2009.  Concurrently, we reached an
agreement with the aircraft manufacturer to defer delivery of five of the seven
aircraft into 2009 to match the revised in-service dates under our
DCA.  Two of the seven aircraft were delivered to Pinnacle in July
2008.  We plan to use these two aircraft to support our operations
under the DCA until their in-service dates in January 2009.  However,
we incurred approximately $0.8 million of interest, depreciation, insurance, and
related costs during the third quarter that were not reimbursed by Delta, and we
expect to incur up to an additional $1 million of such costs during the fourth
quarter that will not be reimbursed by Delta unless we use the aircraft in
scheduled service as outlined below.





As of
November 6, 2008, we had accepted delivery of four of the Temporary Aircraft,
and we expect to receive the remaining three Temporary Aircraft during November
2008.  We lease the Temporary Aircraft directly from Delta at a
nominal lease rate.  We operate the Temporary Aircraft under the DCA
and receive payments related to the capacity we provide to Delta at the same
rates that we receive on our permanent fleet of CRJ-900 aircraft under the DCA,
with the exception that we do not receive any reimbursement or margin for


24
 Item
2.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations


Outlook -(Continued)


the
aircraft rental costs associated with the Temporary
Aircraft.  Additionally, we agreed with Delta to operate one or both
of our owned CRJ-900 aircraft that are scheduled to enter service under the DCA
in January 2009 from time to time during the fourth quarter to support the
transition of the Temporary Aircraft from the previous operator into our
fleet.  When we operate our two CRJ-900 aircraft, we will receive
reimbursement for aircraft ownership costs on a pro-rata basis.





Certain
elements of Pinnacle’s operating performance under its ASA with Northwest are
measured over six month periods beginning each January and
July.  Pinnacle must achieve certain goals for its completion factor,
on-time performance, mishandled baggage ratio, and customer complaints during
each six month period to earn incentive revenue under the ASA.  These
metrics include some items outside of Pinnacle’s control, including
cancellations and delays caused by weather or air traffic
control.  Historically, Pinnacle’s performance has declined during
winter months due to severe winter weather.  Although Pinnacle’s
operating performance during the second and third quarters of 2008 has been well
above standards contained in the ASA and above most of our competitors, we may
incur lost incentive payments in the future to the extent that we experience
harsh weather over extended periods.





The
collective bargaining agreement between Pinnacle and the Air Line Pilots
Association (“ALPA”), the union representing Pinnacle’s pilots, has been
amendable since April 2005.  We have met with ALPA, both with and
without a mediator, many times since April 2005, but we have not reached an
agreement for a new contract.  It is of utmost importance to us to
reach an agreement with ALPA that is consistent with our company-wide philosophy
of industry-average pay and benefits with enhanced employee
productivity.  Wage rates for Pinnacle’s pilot group are currently
approximately four to five percent below industry average, and a new collective
bargaining agreement is expected to contain an increase in pay for Pinnacle’s
pilots.  Such increase could be substantial, and may also include a
substantial one-time signing bonus.  The increase in pay for
Pinnacle’s pilots will likely reduce our profitability in future
periods.  While Pinnacle intends to vigorously pursue obtaining a fair
contract with ALPA, the timing of resolving this matter cannot be
predicted.





We are
currently engaged in discussions with Northwest involving various disputed
payments under Pinnacle’s ASA, including items that relate to the period prior
to commencement of the amended ASA in January 2007 and items that could affect
our operating income in future periods.  The first item relates to a
2006 contractual adjustment to our block hour, departure, and fixed cost
rates.  Our annual operating income could increase or decrease by
approximately $2.8 million per year based upon differing interpretations of the
relevant ASA terms.  The second issue involves the reclassification of
certain airport and ground handling costs and related ASA revenue in a manner
that could reduce the Company’s operating income in future periods by up to
approximately $2.0 million per year.





We have
discussed arbitrating these issues with Northwest.  To date, we have
not resolved these matters, and we recently agreed to move forward with
arbitration proceedings on one of the issues.  Adverse determinations
in these matters could result in a loss to the Company of up to $10.7 million
for disputed amounts through September 30, 2008.  We believe that we
will prevail in these matters, and therefore, we do not believe a loss is
probable at this time.  However, we may not be successful in resolving
these disputes without reducing our future income, and/or without paying
Northwest for some or all of the amount noted above.  We cannot
currently predict the timing of the resolution of these matters.





Outlook
for Colgan Air, Inc.





We
recently agreed with Bombardier to convert the options and cancelable orders for
30 additional Q400 aircraft into options and cancelable orders for the
next-generation cabin configuration version of the Q400 aircraft. The next
generation version will contain modifications to enhance passenger comfort,
including a new LED lighting system, new ceiling panels, scalloped side walls,
and larger overhead bins. This next generation cabin configuration will not be
available until 2010, and we have deferred the delivery dates for our 30 options
and cancelable orders to take place between August 2010 and November
2011.  The exercise dates for the options and cancelable orders begin
in December 2008.  We have received very positive feedback on the
operating performance and customer acceptance of the Q400 fleet that we have
added at Colgan, and we continue to discuss the possibility of new or expanded
capacity purchase agreements with our major airline partners.  We
believe that in the current high fuel cost environment, the Q400 is a very
attractive, cost efficient alternative to regional jets of similar or smaller
size.  Currently, however, most major airlines are reviewing their
networks and undertaking steps to reduce capacity, including regional aircraft,
to remove marginal flights that are not profitable at current fuel
costs.  We believe there will be long-term demand for our services
with the Q400 aircraft; however, we do not yet know whether or when we will
exercise our options for delivery of any of the 30 Q400
aircraft.


25
 Item
2.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations


Outlook -(Continued)




One key
to exercising our options for additional aircraft is the availability of
financing for these aircraft.  We currently do not have the resources
to acquire additional Q400 aircraft without obtaining some form of
financing.  We expect that the lender that has financed our initial
purchase of 15 Q400 aircraft will make financing available on similar
terms.  In addition, we will seek alternative forms of financing that
reduce the amount of up-front investment required to obtain the aircraft, such
as operating leases.





Colgan
has been operating Q400 aircraft under its CPA with Continental since February
2008.  Although we have not yet achieved the level of ongoing
profitability that we expect under our CPA, our financial performance during
this startup period has generally been in line with our
expectations.  One key factor affecting Colgan’s Q400 financial
performance that was not anticipated were penalties totaling $1.1 million that
we paid to Continental related to delays in aircraft deliveries from the
manufacturer.  With all 15 aircraft now delivered, we expect Colgan’s
financial performance related to the Q400 aircraft to continue to
improve.  It is our intention to grow this component of Colgan’s
business over time.





A large
portion of Colgan’s operations are conducted under revenue pro-rate code-share
agreements.  Under this type of agreement, we select our own routes,
manage our fares and inventory of unsold seats, and incur all of the costs of
operating and marketing our flights.  We market our flights under the
brand of our code-share partners, and we pro-rate the revenue from passengers
who purchase a connecting ticket between flight segments operated by us and our
partners.  Under this type of flying, we bear the risk of changes in
the pricing structure and demand for travel in markets we serve, and we bear the
risk of changes in fuel prices.  The unprecedented increase in fuel
costs over the past 12 months has significantly affected the profitability
Colgan’s pro-rate operations.  Colgan experienced an operating loss
inclusive of goodwill impairment and other special charges of $10.4 million
during the nine months ended September 30, 2008.





As a
result, we created a plan to reduce the scope of Colgan’s pro-rate operations,
and to create for the remaining pro-rate network a sustainable route structure
at recent peak fuel prices.  Our plan includes the retirement of six
additional Saab 340 and the remaining four Beech 1900 aircraft from Colgan’s
fleet, the recently received increased subsidies under the Federal Essential Air
Service (“EAS”) program, and a renegotiation of our code-share agreement with
United related to markets that are not subsidized under the EAS
program.  We had previously announced the retirement of ten Saab 340
aircraft under our turn-around plan.  However, we are negotiating with
United to continue operations in four markets that historically have been
unprofitable for Colgan by increasing the connecting passenger incentive that
United pays to Colgan.  With this change, we expect that these United
Express markets will be sustainable for Colgan, and thus we have tentatively
decided to remain in these markets.  Colgan’s profitability improved
during the third quarter of 2008, and we expect that the changes we are making,
coupled with recent declines in fuel prices and recent increases in average
passenger fares, will improve Colgan’s pro-rate financial results in future
periods.





Our
ongoing actions to improve the profitability of Colgan’s pro-rate operations
have resulted in significant one-time costs related to the return of aircraft to
our lessors, and could result in additional one-time costs.  Such steps
could involve removing additional leased aircraft from service and returning
them to third party lessors in advance of lease expirations, removing and
remarketing owned Saab aircraft, selling or disposing of Colgan’s inventory of
Saab parts, and potentially furloughing or retraining employees. We
recorded an additional $1.0 million in fleet retirement costs during the third
quarter related to expected maintenance costs on leased aircraft that we will
perform prior to returning the aircraft to the lessors. In addition to the
goodwill impairment charge, as discussed in Note 3 in Item 1 of this Form 10-Q,
additional reductions in the size and scope of our pro-rate code-share
operations, could result in future write-downs of the carrying value of Colgan’s
pro-rate related tangible and intangible assets.  As of September 30,
2008, Colgan's intangible assets had a balance of approximately $4.0
million.





We
believe that the significant measures contained within our turn-around plan will
eliminate or significantly reduce the annual operating losses that Colgan
experienced in its pro-rate operations during the first half of
2008.  However, the initiatives we implement may not improve Colgan’s
performance enough to restore profitability.  We may not be able to
reduce Colgan’s fixed overhead costs commensurately with the reductions in
service that we are planning.  In addition, decreases in unit revenue
or increases in the price of fuel may further deteriorate Colgan’s financial
performance.  We will likely incur a significant loss on Colgan’s
pro-rate operations for the full year of 2008.






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




Results
of Operations





The following represents our results of
operations, by segment and consolidated, for the three and nine months ended
September 30, 2008.  A discussion of our results of operations as
compared to the same periods in 2007 follows.


Three
      Months Ended September 30, 2008Pinnacle
                                                            
                                                            
                                                            Colgan
                                                            
                                                            
                                                            Eliminations
                                                            
                                                            
                                                            Consolidated(in
      thousands)Operating
      revenuesRegional
      airline services
                                                            
                                                            $
                                                            146,643
                                                            
                                                            $
                                                            73,599
                                                            
                                                            $
                                                            -
                                                            
                                                            $
                                                            220,242Other
                                                            
                                                            
                                                            1,541
                                                            
                                                            
                                                            51
                                                            
                                                            
                                                            (42)
                                                            
                                                            
                                                            1,550Total
      operating revenues
                                                            
                                                            
                                                            148,184
                                                            
                                                            
                                                            73,650
                                                            
                                                            
                                                            (42)
                                                            
                                                            
                                                            221,792Operating
      expensesSalaries,
      wages and benefits
                                                            
                                                            
                                                            42,526
                                                            
                                                            
                                                            14,902
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            57,428Aircraft
      fuel
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            14,831
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            14,831Aircraft
      maintenance, materials and repairs
                                                            
                                                            
                                                            11,872
                                                            
                                                            
                                                            8,583
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            20,455Aircraft
      rentals
                                                            
                                                            
                                                            29,517
                                                            
                                                            
                                                            1,894
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            31,411Other
      rentals and landing fees
                                                            
                                                            
                                                            13,604
                                                            
                                                            
                                                            5,933
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            19,537Ground
      handling services
                                                            
                                                            
                                                            18,622
                                                            
                                                            
                                                            3,071
                                                            
                                                            
                                                            (42)
                                                            
                                                            
                                                            21,651Commissions
      and passenger related expense
                                                            
                                                            
                                                            1,397
                                                            
                                                            
                                                            5,786
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            7,183Depreciation
      and amortization
                                                            
                                                            
                                                            3,828
                                                            
                                                            
                                                            3,758
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            7,586Other
                                                            
                                                            
                                                            14,802
                                                            
                                                            
                                                            5,829
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            20,631Impairment
      of goodwill and aircraft leasereturn
      costs
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            1,069
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            1,069Total
      operating expenses
                                                            
                                                            
                                                            136,168
                                                            
                                                            
                                                            65,656
                                                            
                                                            
                                                            (42)
                                                            
                                                            
                                                            201,782Operating
      income
                                                            
                                                            
                                                            12,016
                                                            
                                                            
                                                            7,994
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            20,010Operating
      margin
                                                            
                                                            
                                                            8.1%
                                                            
                                                            
                                                            10.9%
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            9.0%Nonoperating
      income (expense)Interest
      income
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            1,289Interest
      expense
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            (10,253)Miscellaneous
      income, net
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            192Total
      nonoperating expense
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            (8,772)Income
      before income taxes
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            11,238Income
      tax expense
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            (3,521)Net
      income
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            $
                                                            7,717


27
 Item
2.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations





Nine
      Months Ended September 30, 2008Pinnacle
                                                      
                                                      
                                                      Colgan
                                                      
                                                      
                                                      Eliminations
                                                      
                                                      
                                                      Consolidated(in
      thousands)Operating
      revenuesRegional
      airline services
                                                      $
                                                      451,514
                                                      
                                                      $
                                                      188,900
                                                      
                                                      $
                                                      -
                                                      
                                                      $
                                                      640,414Other
                                                      
                                                      6,798
                                                      
                                                      
                                                      143
                                                      
                                                      
                                                      (68)
                                                      
                                                      
                                                      6,873Total
      operating revenues
                                                      
                                                      458,312
                                                      
                                                      
                                                      189,043
                                                      
                                                      
                                                      (68)
                                                      
                                                      
                                                      647,287Operating
      expensesSalaries,
      wages and benefits
                                                      
                                                      127,908
                                                      
                                                      
                                                      41,993
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      169,901Aircraft
      fuel
                                                      
                                                      -
                                                      
                                                      
                                                      41,603
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      41,603Aircraft
      maintenance, materials and repairs
                                                      
                                                      35,412
                                                      
                                                      
                                                      30,585
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      65,997Aircraft
      rentals
                                                      
                                                      91,674
                                                      
                                                      
                                                      5,765
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      97,439Other
      rentals and landing fees
                                                      
                                                      39,142
                                                      
                                                      
                                                      13,244
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      52,386Ground
      handling services
                                                      
                                                      62,647
                                                      
                                                      
                                                      10,133
                                                      
                                                      
                                                      (68)
                                                      
                                                      
                                                      72,712Commissions
      and passenger related expense
                                                      
                                                      4,972
                                                      
                                                      
                                                      16,464
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      21,436Depreciation
      and amortization
                                                      
                                                      9,572
                                                      
                                                      
                                                      8,994
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      18,566Other
                                                      
                                                      47,331
                                                      
                                                      
                                                      16,967
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      64,298Impairment
      of goodwill and aircraft leasereturn  costs
                                                      
                                                      -
                                                      
                                                      
                                                      13,688
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      13,688Total
      operating expenses
                                                      
                                                      418,658
                                                      
                                                      
                                                      199,436
                                                      
                                                      
                                                      (68)
                                                      
                                                      
                                                      618,026Operating
      income (loss)
                                                      
                                                      39,654
                                                      
                                                      
                                                      (10,393)
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      29,261Operating
      margin
                                                      
                                                      8.7%
                                                      
                                                      
                                                      (5.5)%
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      4.5%Nonoperating
      income (expense)Interest
      income
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      5,326Interest
      expense
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      (23,915)Impairment
      on auction rate securities
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      (8,675)Miscellaneous
      income, net
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      166Total
      nonoperating expense
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      (27,098)Income
      before income taxes
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      2,163Income
      tax expense
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      (3,244)Net
      loss
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      $
                                                      (1,081)





28
 Item
2.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations


Results of Operations -
(Continued)




The
following discussion provides an analysis of our results of operations and
reasons for material changes therein for the three and nine months ended
September 30, 2008 compared to the same periods in 2007.  The
acquisition of Colgan was completed on January 18, 2007.  As such, the
data presented for Colgan includes the period from the acquisition date through
September 30, 2007, which represents approximately 94% of the nine months ended
September 30, 2007.





Consolidated and Segmented
Results of Operations





Consolidated


Three
      Months Ended September 30,
                            
                            Nine
      Months Ended September 30,2008
                            
                            2007
                            
                            $
      Change
                            
                            %
      Change
                            
                            2008
                            
                            2007
                            
                            $
      Change
                            
                            %
      Change(in
      thousands)Total
      operating revenue
                            $221,792
                            
                            $205,730
                            
                            16,062
                            
                            8%
                            
                            $647,287
                            
                            $586,274
                            
                            61,013
                            
                            10%Total
      operating expenses
                            201,782
                            
                            190,723
                            
                            11,059
                            
                            6%
                            
                            618,026
                            
                            543,620
                            
                            74,406
                            
                            14%Operating
      income
                            20,010
                            
                            15,007
                            
                            5,003
                            
                            33%
                            
                            29,261
                            
                            42,654
                            
                            (13,393)
                            
                            (31)%Operating
      margin
                            9.0%
                            
                            7.3%
                            
                            1.7
      pts
                            
                            
                            
                            4.5%
                            
                            7.3%
                            
                            (2.8)
      ptsTotal
      nonoperating (expense)income
                            (8,772)
                            
                            1,382
                            
                            (10,154)
                            
                            (735)%
                            
                            (27,098)
                            
                            (1,460)
                            
                            (25,638)
                            
                            (1756)%Income
      before incometaxes
                            11,238
                            
                            16,389
                            
                            (5,151)
                            
                            (31)%
                            
                            2,163
                            
                            41,194
                            
                            (39,031)
                            
                            (95)%Income
      tax expense
                            (3,521)
                            
                            (5,485)
                            
                            (1,964)
                            
                            (36)%
                            
                            (3,244)
                            
                            (13,263)
                            
                            (10,019)
                            
                            (76)%Net
      income (loss)
                            7,717
                            
                            10,904
                            
                            (3,187)
                            
                            (29)%
                            
                            (1,081)
                            
                            27,931
                            
                            (29,012)
                            
                            (104)%
  Operating Revenues





Operating
revenue of $221.8 million and $647.3 million for the three and nine months ended
September 30, 2008 increased $16.1 million, or 8%, and $61.0 million, or 10%,
respectively.  Changes in our capacity purchase related operating
revenue are primarily caused by changes in our operating fleet size and aircraft
utilization, and changes in our pro-rate related operating revenue are primarily
caused by the average load factor and average fare.  These changes are
discussed in greater detail within our segmented results of
operations.





Operating
Expenses





Operating
expenses increased by $11.1 million, or 6%, during the three months ended
September 30, 2008 and by $74.4 million, or 14%, during the nine months ended
September 30, 2008, primarily due to increases in block hours and departures
associated with the growth in our capacity purchase related operating
fleet.  In addition, operating expenses increased as a result of
increased fuel prices related to our pro-rate operations, higher depreciation
expense following the addition of our recently purchased CRJ-900 and Q400
aircraft, impairment of Colgan’s goodwill and certain intangible assets,
Colgan’s lease return costs, and increased compensation expense resulting from
the increase in employees related to the growth of our
business.  These changes are discussed in greater detail within our
segmented results of operations.





Nonoperating
Expense





Net
nonoperating expense of $8.8 million for the three months ended September 30,
2008 increased by approximately $10.2 million over net nonoperating income of
$1.4 million during the same period in 2007.  This increase is
attributable to the $9.1 million increase in interest expense, primarily related
to the financing of the CRJ-900 and Q400 aircraft, the majority of which were
delivered in 2008.  In addition, interest income decreased $1.2 million
due to a lower average balance compared to the same period of 2007, as
investments were sold to fund our equity investment in our owned
aircraft.  29
 Item
2.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations


Results of Operations -
(Continued)




Net
nonoperating expense of $27.1 million for the nine months ended September 30,
2008 increased by $25.6 million over net nonoperating expense of $1.5 million
during the same period in 2007.  These increases are attributable to
the $17.8 million increase in interest expense, primarily attributable to the
financing of the CRJ-900 and Q400 aircraft.  In addition, these
increases are partially attributable to the $8.7 million impairment charge on
our portfolio of auction rate securities, offset by a $4.1 million loss incurred
in the second quarter of 2007 related to the sale of our remaining Northwest
unsecured claim.





Income
Tax Expense





For the
three and nine months ended September 30, 2008, our income tax expense decreased
by $2.0 million and $10.0 million, respectively, primarily related to the
decrease in pre-tax income as compared to the same periods in
2007.  Partially offsetting the decline of income tax expense is our
belief that we will receive no tax benefit related to the previously discussed
$8.7 million nonoperating impairment loss recorded in the second quarter of 2008
on our ARS because this capital loss cannot be used to reduce our ordinary
taxable income, and because we expect no capital gains during the carryforward
period against which the loss could be applied.


30
 Item
2.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations





Pinnacle
Operating Statistics





Three
      Months Ended September 30,
                                                            
                                                            Nine
      Months Ended September 30,2008
                                                            
                                                            2007
                                                            
                                                            Change
                                                            
                                                            2008
                                                            
                                                            2007
                                                            
                                                            ChangeOther
      Data:Revenue
      passengers (in thousands)
                                                            
                                                            2,619
                                                            
                                                            
                                                            2,636
                                                            
                                                            (1)%
                                                            
                                                            
                                                            7,770
                                                            
                                                            
                                                            7,477
                                                            
                                                            4%Revenue
      passenger miles “RPMs”(in thousands)
                                                            
                                                            1,236,067
                                                            
                                                            
                                                            1,230,775
                                                            
                                                            -
                                                            
                                                            
                                                            3,622,776
                                                            
                                                            
                                                            3,471,275
                                                            
                                                            4%Available
      seat miles “ASMs” (in thousands)
                                                            
                                                            1,598,929
                                                            
                                                            
                                                            1,562,621
                                                            
                                                            2%
                                                            
                                                            
                                                            4,715,054
                                                            
                                                            
                                                            4,528,179
                                                            
                                                            4%Passenger
      load factor
                                                            
                                                            77.3%
                                                            
                                                            
                                                            78.8%
                                                            
                                                            (1.5)
      pts.
                                                            
                                                            
                                                            76.8%
                                                            
                                                            
                                                            76.7%
                                                            
                                                            0.1
      pts.Operating
      revenue per ASM (in cents)
                                                            
                                                            9.27
                                                            
                                                            
                                                            9.64
                                                            
                                                            (4)%
                                                            
                                                            
                                                            9.72
                                                            
                                                            
                                                            9.79
                                                            
                                                            (1)%Operating
      cost per ASM (in cents)
                                                            
                                                            8.52
                                                            
                                                            
                                                            8.62
                                                            
                                                            (1)%
                                                            
                                                            
                                                            8.88
                                                            
                                                            
                                                            8.84
                                                            
                                                            -Operating
      revenue per block hour
                                                            $
                                                            1,377
                                                            
                                                            $
                                                            1,340
                                                            
                                                            3%
                                                            
                                                            $
                                                            1,382
                                                            
                                                            $
                                                            1,347
                                                            
                                                            3%Operating
      cost per block hour
                                                            $
                                                            1,265
                                                            
                                                            $
                                                            1,198
                                                            
                                                            6%
                                                            
                                                            $
                                                            1,262
                                                            
                                                            $
                                                            1,217
                                                            
                                                            4%Block
      hours
                                                            
                                                            107,632
                                                            
                                                            
                                                            112,378
                                                            
                                                            (4)%
                                                            
                                                            
                                                            331,744
                                                            
                                                            
                                                            329,201
                                                            
                                                            1%Departures
                                                            
                                                            66,779
                                                            
                                                            
                                                            68,370
                                                            
                                                            (2)%
                                                            
                                                            
                                                            200,568
                                                            
                                                            
                                                            199,598
                                                            
                                                            -Average
      daily utilization (block hours)
                                                            
                                                            8.74
                                                            
                                                            
                                                            8.77
                                                            
                                                            -
                                                            
                                                            
                                                            8.91
                                                            
                                                            
                                                            8.79
                                                            
                                                            1%Average
      stage length (miles)
                                                            
                                                            465
                                                            
                                                            
                                                            461
                                                            
                                                            1%
                                                            
                                                            
                                                            462
                                                            
                                                            
                                                            460
                                                            
                                                            -Number
      of operating aircraft (end of period)CRJ-200
                                                            
                                                            124
                                                            
                                                            
                                                            139
                                                            
                                                            (11)%CRJ-900
                                                            
                                                            11
                                                            
                                                            
                                                            -
                                                            
                                                            100%Employees
      (end of period)
                                                            
                                                            4,164
                                                            
                                                            
                                                            4,061
                                                            
                                                            3%





Pinnacle
Operating Revenues





Three
      Months Ended September 30,
                                                      
                                                      Nine
      Months Ended September 30,2008
                                                      
                                                      2007
                                                      
                                                      $
      Change
                                                      
                                                      %
      Change
                                                      
                                                      2008
                                                      
                                                      2007
                                                      
                                                      $
      Change
                                                      
                                                      %
      Change(in
      thousands)Operating
      revenuesRegional airline servicesNorthwest
                                                      $
                                                      136,710
                                                      
                                                      $
                                                      148,167
                                                      
                                                      $
                                                      (11,457)
                                                      
                                                      (8)%
                                                      
                                                      $
                                                      429,608
                                                      
                                                      $
                                                      435,923
                                                      
                                                      $
                                                      (6,315)
                                                      
                                                      (1)%Delta
                                                      
                                                      9,933
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      9,933
                                                      
                                                      100%
                                                      
                                                      
                                                      21,906
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      21,906
                                                      
                                                      100%Other
                                                      
                                                      1,541
                                                      
                                                      
                                                      2,416
                                                      
                                                      
                                                      (875)
                                                      
                                                      (36)%
                                                      
                                                      
                                                      6,798
                                                      
                                                      
                                                      7,433
                                                      
                                                      
                                                      (635)
                                                      
                                                      (9)%Total
      operating revenues
                                                      $
                                                      148,184
                                                      
                                                      $
                                                      150,583
                                                      
                                                      $
                                                      (2,399)
                                                      
                                                      (2)%
                                                      
                                                      $
                                                      458,312
                                                      
                                                      $
                                                      443,356
                                                      
                                                      $
                                                      14,956
                                                      
                                                      3%





Regional
Airline Services





For the
three and nine months ended September 30, 2008, revenue earned under our ASA
with Northwest of $136.7 million and $429.6 million decreased by $11.5 million,
or 8%, and $6.3 million, or 1%, respectively, compared to the same periods in
2007.  Revenue earned under our ASA with Northwest was negatively
affected by the return of 15 CRJ-200 aircraft pursuant to the terms of our
ASA.  During the three and nine months ended September 30, 2008, we
operated 10% and 6% fewer average CRJ-200 aircraft, respectively, than the same
periods in 2007.  In addition, revenue was negatively affected by a
change in our reimbursable costs.  Pursuant to the terms of our ASA
with Northwest, we are reimbursed with margin for certain operational
costs.  These costs include certain maintenance costs, aircraft
rentals, passenger liability and hull insurance, property taxes, fuel, ground
handling at Northwest service cities, and landing fees at Detroit Metropolitan
Wayne County Airport (“DTW”).  To the extent that these reimbursable
costs decline, we experience a corresponding decline in revenue.  Our
reimbursable expenses for the three and nine months ended September 30, 2008,
decreased by 12% and 5%, respectively, causing decreases in revenue of 12% and
5%, respectively.  Partially offsetting this decrease is a 2% increase
in ASA revenue for the three and nine months ended September 30, 2008 related to
the annual inflation index adjustment in our ASA rates.


31
 Item
2.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations





Revenue
earned under the DCA was approximately $9.9 million and $21.9 million for the
three and nine months ended September 30, 2008, respectively.  As of
September 30, 2008, we operated 11 CRJ-900 aircraft under our DCA.  We
took delivery of two CRJ-900 aircraft during the third quarter of 2008, which
will be placed into service in January 2009.  Until these aircraft are
placed into service, they will be used as spares to support our Delta Connection
operations.  During this period, we are being reimbursed by Delta for
a portion of certain ownership costs related to one of these aircraft, and such
reimbursement is included in our operating revenue.





Other
Revenue





Other
revenue decreased $0.9 million, or 36%, for the three months ended September 30,
2008 and $0.6 million, or 9%, for the nine months ended September 30, 2008, as
compared to the same periods in 2007.  These decreases were primarily
related to a decline in revenue earned from providing certain baggage handling
services to Northwest at its Memphis hub.





Pinnacle
Operating Expenses





Three
      Months Ended September 30,
                                                      
                                                      Nine
      Months Ended September 30,2008
                                                      
                                                      2007
                                                      
                                                      $
      Change
                                                      
                                                      %
      Change
                                                      
                                                      2008
                                                      
                                                      2007
                                                      
                                                      $
      Change
                                                      
                                                      %
      Change(in
      thousands)Operating
      expensesSalaries,
      wages and benefits
                                                      $
                                                      42,526
                                                      
                                                      $
                                                      40,327
                                                      
                                                      $
                                                      2,199
                                                      
                                                      5%
                                                      
                                                      $
                                                      127,908
                                                      
                                                      $
                                                      117,155
                                                      
                                                      10,753
                                                      
                                                      9%Aircraft
      maintenance,materials
                                                        and repairs
                                                      
                                                      11,872
                                                      
                                                      
                                                      11,637
                                                      
                                                      
                                                      235
                                                      
                                                      2%
                                                      
                                                      
                                                      35,412
                                                      
                                                      
                                                      35,611
                                                      
                                                      (199)
                                                      
                                                      (1)%Aircraft
      rentals
                                                      
                                                      29,517
                                                      
                                                      
                                                      32,791
                                                      
                                                      
                                                      (3,274)
                                                      
                                                      (10)%
                                                      
                                                      
                                                      91,674
                                                      
                                                      
                                                      97,569
                                                      
                                                      (5,895)
                                                      
                                                      (6)%Other
      rentals and landing fees
                                                      
                                                      13,604
                                                      
                                                      
                                                      12,471
                                                      
                                                      
                                                      1,133
                                                      
                                                      9%
                                                      
                                                      
                                                      39,142
                                                      
                                                      
                                                      36,895
                                                      
                                                      2,247
                                                      
                                                      6%Ground
      handling services
                                                      
                                                      18,622
                                                      
                                                      
                                                      21,176
                                                      
                                                      
                                                      (2,554)
                                                      
                                                      (12)%
                                                      
                                                      
                                                      62,647
                                                      
                                                      
                                                      64,064
                                                      
                                                      (1,417)
                                                      
                                                      (2)%Commissions
      and passenger
                                                        related expense
                                                      
                                                      1,397
                                                      
                                                      
                                                      1,026
                                                      
                                                      
                                                      371
                                                      
                                                      36%
                                                      
                                                      
                                                      4,972
                                                      
                                                      
                                                      2,867
                                                      
                                                      2,105
                                                      
                                                      73%Depreciation
      and amortization
                                                      
                                                      3,828
                                                      
                                                      
                                                      1,195
                                                      
                                                      
                                                      2,633
                                                      
                                                      220%
                                                      
                                                      
                                                      9,572
                                                      
                                                      
                                                      3,391
                                                      
                                                      6,181
                                                      
                                                      182%Other
                                                      
                                                      14,802
                                                      
                                                      
                                                      14,043
                                                      
                                                      
                                                      759
                                                      
                                                      5%
                                                      
                                                      
                                                      47,331
                                                      
                                                      
                                                      42,937
                                                      
                                                      4,394
                                                      
                                                      10%Total
      operating expenses
                                                      
                                                      136,168
                                                      
                                                      
                                                      134,666
                                                      
                                                      
                                                      1,502
                                                      
                                                      1%
                                                      
                                                      
                                                      418,658
                                                      
                                                      
                                                      400,489
                                                      
                                                      18,169
                                                      
                                                      5%Operating
      income
                                                      $
                                                      12,016
                                                      
                                                      $
                                                      15,917
                                                      
                                                      $
                                                      (3,901)
                                                      
                                                      (25)%
                                                      
                                                      $
                                                      39,654
                                                      
                                                      $
                                                      42,867
                                                      
                                                      (3,213)
                                                      
                                                      (8)%Operating
      margin
                                                      
                                                      8.1%
                                                      
                                                      
                                                      10.6%
                                                      
                                                      (2.5)
      pts.
                                                      
                                                      
                                                      
                                                      
                                                      8.7%
                                                      
                                                      
                                                      9.7%
                                                      
                                                      (1.0)
      pts.





Salaries,
wages and benefits increased by $2.2 million and 5% for the three months ended
September 30, 2008 and $10.8 million and 9% for the nine months ended September
30, 2008, as compared to the same periods in 2007.  These increases
were due primarily to the increase in the average number of employees of 3%,
coupled with wage rate and benefit increases for existing employees. The
increase in the number of employees is related to our planned increases to
support our new Delta Connection operations.  Additionally, we are
experiencing decreased employee productivity temporarily as we transition out of
our 15 CRJ-200 aircraft operated on behalf of Northwest and into 11 CRJ-900
aircraft operated on behalf of Delta.





Aircraft
maintenance, materials and repairs expenses increased by $0.2 million and 2% for
the three months ended September 30, 2008 compared to the same period in 2007
and decreased by $0.2 million and 1% for the nine months ended September 30,
2008.  Underlying these slight changes are more significant changes in
the mix of reimbursable and non-reimbursable maintenance costs on the CRJ-200
aircraft.  To the extent that we experience an increase in
non-reimbursable maintenance costs, we receive no additional revenue to offset
the increases.  For the three and nine months ended September 30,
2008, non-reimbursable maintenance expenses increased by $3.7 million and $4.5
million, respectively.  These increases are attributable to additional
maintenance due to the aging of our CRJ-200 fleet.  As previously
discussed, we are reimbursed with margin by Northwest for certain maintenance
costs under our ASA.  For the three and nine months ended September
30, 2008, the decrease in reimbursable maintenance expenses under our ASA caused
a decrease of $3.5 million and $4.4 million, respectively, to our ASA
revenue.


32
 Item
2.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations


Results of
Operations - (Continued)




Aircraft
rentals expense decreased $3.3 million and $5.9 million, or 10% and 6%, during
the three and nine months ended September 30, 2008 as compared to the same
periods in 2007.  This decrease relates to the 10% and 6% fewer
average number of CRJ-200 aircraft, which are leased from Northwest, during 2008
as compared to 2007.  As previously discussed, aircraft rentals are
reimbursable expenses under our ASA, and as a result of the fewer average number
of CRJ-200 aircraft in our fleet, revenue under our ASA decreased by $3.6
million and $6.1 million for the three and nine months ended September 30,
2008.





Other
rentals and landing fees increased $1.1 million and $2.2 million during the
three and nine months ended September 30, 2008 as compared to the same periods
in 2007.  These increases primarily relate to rate increases for
landing fees in certain markets, the most significant increase being at
DTW.  Pursuant to the terms of our ASA with Northwest, DTW landings
fees are reimbursable under our ASA, and thus caused increases of $0.7 million
and $1.6 million in revenue under our ASA for the three and nine months ended
September 30, 2008.





Ground
handling services decreased $2.6 million, or 12%, and $1.4 million, or 2%,
during the three and nine months ended September 30, 2008 as compared to the
same periods in 2007.  The decrease is primarily related to the 9% and
5% decrease in Northwest departures, respectively, attributable to the removal
of several CRJ-200 aircraft from our fleet and a decrease in the number of
Northwest cities served.  Under our ASA, ground handling services at
Northwest cities served are reimbursable costs, and as such, decreased our ASA
revenue by $1.8 million and $0.6 million, respectively, for the three and nine
months ended September 30, 2008.  Ground handling services are
provided at no cost under the DCA.





Depreciation
and amortization expense increased by $2.6 million and $6.2 million for the
three and nine months ended September 30, 2008, respectively.  This is
primarily related to depreciation on the 11 CRJ-900 aircraft.





Other
expense increased by $0.8 million and $4.4 million, respectively, for the three
and nine months ended September 30, 2008.  This increase primarily
relates to increased pilot training and crew travel expenses related to our new
operations with Delta.


33
 Item
2.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations


Results of Operations -
(Continued)




Colgan
Operating Statistics





Three
      Months Ended September 30,
                                                  
                                                  Nine
      Months Ended September 30,2008
                                                  
                                                  2007
                                                  
                                                  
                                                  Change
                                                  
                                                  2008
                                                  
                                                  2007
                                                  
                                                  ChangePro
      Rate Agreements:Revenue
      passengers (in thousands)
                                                  
                                                  
                                                  356
                                                  
                                                  
                                                  425
                                                  
                                                  
                                                  (16)%
                                                  
                                                  
                                                  1,082
                                                  
                                                  
                                                  1,112
                                                  
                                                  
                                                  (3)%RPMs
      (in thousands)
                                                  
                                                  
                                                  65,192
                                                  
                                                  
                                                  78,475
                                                  
                                                  
                                                  (17)%
                                                  
                                                  
                                                  197,977
                                                  
                                                  
                                                  206,046
                                                  
                                                  
                                                  (4)%ASMs
      (in thousands)
                                                  
                                                  
                                                  146,997
                                                  
                                                  
                                                  164,907
                                                  
                                                  
                                                  (11)%
                                                  
                                                  
                                                  446,643
                                                  
                                                  
                                                  443,782
                                                  
                                                  
                                                  1%Passenger
      load factor
                                                  
                                                  
                                                  44.3%
                                                  
                                                  
                                                  47.6%
                                                  
                                                  
                                                  (3.3)pts.
                                                  
                                                  
                                                  44.3%
                                                  
                                                  
                                                  46.4%
                                                  
                                                  (2.1)
      pts.Passenger
      yield (in cents)
                                                  
                                                  
                                                  82.26
                                                  
                                                  
                                                  70.22
                                                  
                                                  
                                                  17%
                                                  
                                                  
                                                  77.76
                                                  
                                                  
                                                  69.29
                                                  
                                                  
                                                  12%Operating
      revenue per ASM (in cents)
                                                  
                                                  
                                                  36.48
                                                  
                                                  
                                                  33.42
                                                  
                                                  
                                                  9%
                                                  
                                                  
                                                  34.47
                                                  
                                                  
                                                  32.17
                                                  
                                                  
                                                  7%Operating
      revenue per block hour
                                                  
                                                  $
                                                  1,804
                                                  
                                                  $
                                                  1,560
                                                  
                                                  
                                                  16%
                                                  
                                                  $
                                                  1,675
                                                  
                                                  $
                                                  1,512
                                                  
                                                  
                                                  11%Block
      hours
                                                  
                                                  
                                                  29,722
                                                  
                                                  
                                                  35,329
                                                  
                                                  
                                                  (16)%
                                                  
                                                  
                                                  91,888
                                                  
                                                  
                                                  94,433
                                                  
                                                  
                                                  (3)%Departures
                                                  
                                                  
                                                  25,679
                                                  
                                                  
                                                  30,049
                                                  
                                                  
                                                  (15)%
                                                  
                                                  
                                                  77,147
                                                  
                                                  
                                                  79,982
                                                  
                                                  
                                                  (4)%Fuel
      consumption (in thousands of gallons)
                                                  
                                                  
                                                  3,918
                                                  
                                                  
                                                  4,459
                                                  
                                                  
                                                  (12)%
                                                  
                                                  
                                                  11,535
                                                  
                                                  
                                                  12,583
                                                  
                                                  
                                                  (8)%Average
      price per gallon
                                                  
                                                  $
                                                  3.79
                                                  
                                                  $
                                                  2.39
                                                  
                                                  
                                                  59%
                                                  
                                                  $
                                                  3.61
                                                  
                                                  $
                                                  2.25
                                                  
                                                  
                                                  60%Average
      fare
                                                  
                                                  $
                                                  151
                                                  
                                                  $
                                                  130
                                                  
                                                  
                                                  16%
                                                  
                                                  $
                                                  142
                                                  
                                                  $
                                                  128
                                                  
                                                  
                                                  11%Capacity
      Purchase Agreement:Revenue
      passengers (in thousands)
                                                  
                                                  
                                                  394
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  100%
                                                  
                                                  
                                                  770
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  100%Revenue
      passenger miles (in thousands)
                                                  
                                                  
                                                  109,687
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  100%
                                                  
                                                  
                                                  214,582
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  100%ASMs
      (in thousands)
                                                  
                                                  
                                                  175,823
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  100%
                                                  
                                                  
                                                  325,365
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  100%Passenger
      load factor
                                                  
                                                  
                                                  62.4%
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  62.4
      pts.
                                                  
                                                  
                                                  66.0%
                                                  
                                                  
                                                  -
                                                  
                                                  66.0
      pts.Operating
      revenue per ASM (in cents)
                                                  
                                                  
                                                  11.36
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  100%
                                                  
                                                  
                                                  10.74
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  100%Operating
      revenue per block hour
                                                  
                                                  $
                                                  1,504
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  100%
                                                  
                                                  $
                                                  1,413
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  100%Block
      hours
                                                  
                                                  
                                                  13,282
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  100%
                                                  
                                                  
                                                  24,741
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  100%Departures
                                                  
                                                  
                                                  8,641
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  100%
                                                  
                                                  
                                                  15,927
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  100%Total
      Colgan:Block
      hours
                                                  
                                                  
                                                  43,004
                                                  
                                                  
                                                  35,329
                                                  
                                                  
                                                  22%
                                                  
                                                  
                                                  116,629
                                                  
                                                  
                                                  94,433
                                                  
                                                  
                                                  24%Departures
                                                  
                                                  
                                                  34,320
                                                  
                                                  
                                                  30,049
                                                  
                                                  
                                                  14%
                                                  
                                                  
                                                  93,074
                                                  
                                                  
                                                  79,982
                                                  
                                                  
                                                  16%ASMs
      (in thousands)
                                                  
                                                  
                                                  322,820
                                                  
                                                  
                                                  164,907
                                                  
                                                  
                                                  96%
                                                  
                                                  
                                                  772,008
                                                  
                                                  
                                                  443,782
                                                  
                                                  
                                                  74%Total
      operating cost per ASM (in cents)
                                                  
                                                  
                                                  20.34
                                                  
                                                  
                                                  33.99
                                                  
                                                  
                                                  (40)%
                                                  
                                                  
                                                  25.83
                                                  
                                                  
                                                  32.27
                                                  
                                                  
                                                  (20)%Total
      operating cost per ASM (in cents)
                                                    (excluding impairment of goodwill
                                                    and aircraft leasereturn
      costs)
                                                  
                                                  
                                                  20.01
                                                  
                                                  
                                                  33.99
                                                  
                                                  
                                                  (41)%
                                                  
                                                  
                                                  24.06
                                                  
                                                  
                                                  32.27
                                                  
                                                  
                                                  (25)%Total
      operating cost per block hour
                                                  
                                                  $
                                                  1,527
                                                  
                                                  $
                                                  1,587
                                                  
                                                  
                                                  (4)%
                                                  
                                                  $
                                                  1,710
                                                  
                                                  $
                                                  1,517
                                                  
                                                  
                                                  13%Total
      operating cost per block hour
                                                    (excluding
      impairment of goodwill
                                                    and
      aircraft leasereturn
      costs)
                                                  
                                                  $
                                                  1,502
                                                  
                                                  $
                                                  1,587
                                                  
                                                  
                                                  (5)%
                                                  
                                                  $
                                                  1,593
                                                  
                                                  $
                                                  1,517
                                                  
                                                  
                                                  5%Average
      daily utilization (block hours)
                                                  
                                                  
                                                  10.76
                                                  
                                                  
                                                  7.95
                                                  
                                                  
                                                  35%
                                                  
                                                  
                                                  8.63
                                                  
                                                  
                                                  7.36
                                                  
                                                  
                                                  17%Average
      stage length (miles)
                                                  
                                                  
                                                  221
                                                  
                                                  
                                                  185
                                                  
                                                  
                                                  19%
                                                  
                                                  
                                                  209
                                                  
                                                  
                                                  184
                                                  
                                                  
                                                  14%Number
      of operating aircraft (end of period)Saab
      340
                                                  
                                                  
                                                  37
                                                  
                                                  
                                                  42
                                                  
                                                  
                                                  (12)%Beech
      1900
                                                  
                                                  
                                                  4
                                                  
                                                  
                                                  7
                                                  
                                                  
                                                  (43)%Q400
                                                  
                                                  
                                                  15
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  100%Employees
                                                  
                                                  
                                                  1,389
                                                  
                                                  
                                                  1,244
                                                  
                                                  
                                                  12%





34
 Item
2.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations


Results of Operations -
(Continued)




Colgan
Operating Revenue


Three
      Months Ended September 30,
                                        
                                        Nine
      Months Ended September 30,2008
                                        
                                        2007
                                        
                                        $
      Change
                                        
                                        %
      Change
                                        
                                        2008
                                        
                                        2007
                                        
                                        $
      Change
                                        
                                        %
      Change(in
      thousands)Operating
      revenuesRegional
      airline services:Pro-rate
      and EAS
                                        
                                        $
                                        53,628
                                        
                                        $
                                        55,104
                                        
                                        $
                                        (1,476)
                                        
                                        
                                        (3)%
                                        
                                        $
                                        153,949
                                        
                                        $
                                        142,773
                                        
                                        $
                                        11,176
                                        
                                        
                                        8%Capacity
      purchase agreement
                                        
                                        
                                        19,971
                                        
                                        
                                        -
                                        
                                        
                                        19,971
                                        
                                        
                                        100%
                                        
                                        
                                        34,951
                                        
                                        
                                        -
                                        
                                        
                                        34,951
                                        
                                        
                                        100%Other
                                        
                                        
                                        51
                                        
                                        
                                        43
                                        
                                        
                                        8
                                        
                                        
                                        19%
                                        
                                        
                                        143
                                        
                                        
                                        229
                                        
                                        
                                        (86)
                                        
                                        
                                        (38)%Total
      operating revenues
                                        
                                        $
                                        73,650
                                        
                                        $
                                        55,147
                                        
                                        $
                                        18,503
                                        
                                        
                                        34%
                                        
                                        $
                                        189,043
                                        
                                        $
                                        143,002
                                        
                                        $
                                        46,041
                                        
                                        
                                        32%





Total
operating revenue for the three and nine months ended September 30, 2008 of
$73.7 million and $189.0 million increased by $18.5 million, or 34%, and $46.0
million, or 32%, from the same periods in 2007.  The primary reason
for this increase is the addition of revenue earned under our new CPA with
Continental.





During
the three and nine months ended September 30, 2008, we added two and 15 Q400
aircraft, respectively, to our new Continental Connection operations, which
began in February 2008.  Revenue earned under our new CPA agreement
with Continental was $20.0 million and $35.0 million for the three and nine
months ended September 30, 2008.





Revenue
earned under our pro-rate and Essential Air Service (“EAS”) agreements decreased
by $1.5 million and 3% during the three months ended September 30,
2008.  This decrease is related to the retirement of eight of our Saab
and Beech aircraft in conjunction with eliminating certain markets under our
pro-rate agreements.  Offsetting this decrease in revenue is the 16%
increase in our average fare and the increase in subsidies from our EAS revenue,
as discussed in Note 2.  As a result, our average unit revenue
(expressed as revenue per available seat mile) increase by 9%.  During
the nine months ended September 30, 2008, revenue earned under our pro-rate and
EAS agreements increased $11.2 million and 8%.  The increase is
primarily due to the 11% increase in our average fare that resulted in a 7%
increase in revenue per available seat mile.  In addition, revenue
under our pro-rate agreements during the nine months ended September 30, 2007
excludes revenue prior to our acquisition of Colgan on January 18,
2007.


35
 Item
2.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations





Colgan
Operating Expenses





Three
      Months Ended September 30,
                                                    
                                                    Nine
      Months Ended September 30,2008
                                                    
                                                    2007
                                                    
                                                    $
      Change
                                                    
                                                    %
      Change
                                                    
                                                    2008
                                                    
                                                    2007
                                                    
                                                    $
      Change
                                                    
                                                    %
      Change(in
      thousands)Operating
      expensesSalaries, wages and benefits
                                                    $
                                                    14,902
                                                    
                                                    $
                                                    12,503
                                                    
                                                    $
                                                    2,399
                                                    
                                                    19%
                                                    
                                                    $
                                                    41,993
                                                    
                                                    $
                                                    33,237
                                                    
                                                    $
                                                    8,756
                                                    
                                                    26%Aircraft fuel
                                                    
                                                    14,831
                                                    
                                                    
                                                    10,785
                                                    
                                                    
                                                    4,046
                                                    
                                                    38%
                                                    
                                                    
                                                    41,603
                                                    
                                                    
                                                    26,718
                                                    
                                                    
                                                    14,885
                                                    
                                                    56%Aircraft maintenance,materials
      and repairs
                                                    
                                                    8,583
                                                    
                                                    
                                                    10,831
                                                    
                                                    
                                                    (2,248)
                                                    
                                                    (21)%
                                                    
                                                    
                                                    30,585
                                                    
                                                    
                                                    27,560
                                                    
                                                    
                                                    3,025
                                                    
                                                    11%Aircraft rentals
                                                    
                                                    1,894
                                                    
                                                    
                                                    2,258
                                                    
                                                    
                                                    (364)
                                                    
                                                    (16)%
                                                    
                                                    
                                                    5,765
                                                    
                                                    
                                                    6,428
                                                    
                                                    
                                                    (663)
                                                    
                                                    (10)%Other rentals and landing fees
                                                    
                                                    5,933
                                                    
                                                    
                                                    2,836
                                                    
                                                    
                                                    3,097
                                                    
                                                    109%
                                                    
                                                    
                                                    13,244
                                                    
                                                    
                                                    7,464
                                                    
                                                    
                                                    5,780
                                                    
                                                    77%Ground handling services
                                                    
                                                    3,071
                                                    
                                                    
                                                    3,344
                                                    
                                                    
                                                    (273)
                                                    
                                                    (8)%
                                                    
                                                    
                                                    10,133
                                                    
                                                    
                                                    9,172
                                                    
                                                    
                                                    961
                                                    
                                                    10%Commissions and passengerrelated
      expense
                                                    
                                                    5,786
                                                    
                                                    
                                                    6,094
                                                    
                                                    
                                                    (308)
                                                    
                                                    (5)%
                                                    
                                                    
                                                    16,464
                                                    
                                                    
                                                    15,068
                                                    
                                                    
                                                    1,396
                                                    
                                                    9%Depreciation and amortization
                                                    
                                                    3,758
                                                    
                                                    
                                                    1,253
                                                    
                                                    
                                                    2,505
                                                    
                                                    200%
                                                    
                                                    
                                                    8,994
                                                    
                                                    
                                                    3,429
                                                    
                                                    
                                                    5,565
                                                    
                                                    162%Other
                                                    
                                                    5,829
                                                    
                                                    
                                                    6,153
                                                    
                                                    
                                                    (324)
                                                    
                                                    (5)%
                                                    
                                                    
                                                    16,967
                                                    
                                                    
                                                    14,139
                                                    
                                                    
                                                    2,828
                                                    
                                                    20%Impairment of goodwill and
                                                      aircraft
      lease return costs
                                                    
                                                    1,069
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    1,069
                                                    
                                                    100%
                                                    
                                                    
                                                    13,688
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    13,688
                                                    
                                                    100%Total
      operating expenses
                                                    
                                                    65,656
                                                    
                                                    
                                                    56,057
                                                    
                                                    
                                                    9,599
                                                    
                                                    17%
                                                    
                                                    
                                                    199,436
                                                    
                                                    
                                                    143,215
                                                    
                                                    
                                                    56,221
                                                    
                                                    39%Operating
      income
                                                    $
                                                    7,994
                                                    
                                                    $
                                                    (910)
                                                    
                                                    $
                                                    8,904
                                                    
                                                    978%
                                                    
                                                    $
                                                    (10,393)
                                                    
                                                    $
                                                    (213)
                                                    
                                                    $
                                                    (10,180)
                                                    
                                                    (4779)%Operating
      margin
                                                    
                                                    10.9%
                                                    
                                                    
                                                    (1.7)%
                                                    
                                                    12.6
      pts.
                                                    
                                                    
                                                    
                                                    
                                                    (5.5)%
                                                    
                                                    
                                                    (0.1)%
                                                    
                                                    (5.4)
      pts.





Salaries,
wages and benefits increased by $2.4 million, or 19%, and $8.8 million, or 26%,
during the three and nine months ended September 30, 2008.  Excluding
the effect of the previously discussed year over year difference in time periods
presented, this expense increased primarily due to the increase in the average
number of employees of 12%, largely attributed to the growth of Colgan’s
operating fleet related to its new Q400 operation, as well as wage rate and
benefit increases for existing employees.





Aircraft
fuel expense increased $4.0 million, or 38%, for the three months ended
September 30, 2008 and $14.9 million, or 56%, for the nine months ended
September 30, 2008.  This increase is primarily related to the
increase in the average price of fuel.  Colgan’s average price paid
per gallon increased 59% and 60%, respectively, during the three and nine months
ended September 30, 2008, as compared to the same periods in
2007.  Offsetting this increase was a 12% and 8% decrease in gallons
consumed for the three and nine months ended September 30, 2008, due to the
retirement of several of our Saab and Beech aircraft.





Aircraft
maintenance, materials and repairs expense decreased by $2.2 million, or 21%,
for the three months ended September 30, 2008 and increased by $3.0 million, or
11%, for the nine months ended September 30, 2008.  Maintenance
expense during the third quarter of 2008 was reduced by $1.4 million due to the
correction of an error related to certain maintenance accruals recorded in the
first and second quarters of 2008.  The increase in maintenance
expense for the nine months ended September 30, 2008 is primarily related to the
increase in our operations.





Aircraft
rentals decreased by $0.4 million, or 16%, for the three months ended September
30, 2008 and $0.7 million, or 10%, for the nine months ended September 30,
2008.  This decrease is attributable to the return of eight leased
aircraft.


36
 Item
2.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations


Results of Operations -
(Continued)




Other
rentals and landing fees increased $3.1 million, or 109%, for the three months
ended September 30, 2008, and $5.8 million, or 77%, during the nine months ended
September 30, 2008.  Landing fees increased as a result of increased
departures and operating the larger Q400 aircraft.  In addition, we
are now flying into markets with significantly higher landing fees, such as
Newark/Liberty International Airport.





Ground
handling services increased $1.0 million, or 10%, during the nine months ended
September 30, 2008 as compared to the same period in 2007.  This was
primarily attributable to the shift of several markets from our US Air
operations to our United operations.  Ground handling rates for United
are significantly higher than those previously charged by US Air.





Commissions
and passenger related expenses increased by $1.4 million, or 9%, for the nine
months ended September 30, 2008.  This is attributable to the
previously mentioned shift of several markets from our US Air operations to our
United operations.  Passenger fees charged by United are higher than
those charged by US Air.





Depreciation
and amortization expense increased by $2.5 million and $5.6 million,
respectively, for the three and nine months ended September 30,
2008.  This is primarily related to depreciation expense related to
the new Q400 aircraft.





Other
expenses, while relatively flat for the three month period, increased by $2.8
million, or 20%, during the nine months ended September 30, 2008, as compared to
the same period in 2007.  This increase primarily relates to increased crew
travel expense primarily due to our new Continental operations.





Liquidity
and Capital Resources





We
generate cash primarily by providing regional airline and related services to
our code-share partners and revenue from passengers related to our pro-rate
operations.  As of September 30, 2008, we had cash and cash
equivalents of $63.8 million.  Net cash provided by operations was
$13.7 million for the nine months ended September 30, 2008 and net cash provided
by operations was $277.0 million for the nine months ended September 30,
2007.  Additionally, we do not expect to make income tax payments
during 2008-2010 due to the accelerated depreciation recognized for tax purposes
on the newly acquired CRJ-900 and Q400 aircraft, and we expect to receive a
federal income tax refund ranging between $25 million and $30 million in early
2009.


As of
September 30, 2008, we had $135.6 million par amount of Auction Rate Securities
instruments (“ARS”), which as discussed further in Note 11 in Item 1 of this
Form 10-Q, are currently illiquid. We planned to monetize necessary holdings
within our ARS portfolio throughout 2008 to fund the non-financed portion of our
aircraft deliveries. While we wait for the ARS market to rationalize and
investor demand to return, we have arranged for a $80 million margin loan
facility (the “Credit Facility”) to be used to support our aircraft purchases.
The Credit Facility is pre-payable at any time prior to maturity in November
2009. The Credit Facility interest rate is indexed to LIBOR and was 5.9% at
September 30, 2008. We believe that this short-term financing facility in
addition to cash flows from our operations is adequate to meet our operational
liquidity needs, aircraft funding requirements and compliance with related debt
covenants. On November 5, 2008, the Company and Citigroup amended the Credit
Facility to extend the maturity date to November 2009 and to provide for
additional borrowings of up to $10 million, for a total amount available under
the Credit Facility of $90 million. The additional $10 million may only be used
to fund purchases or redemptions of other indebtedness of the Company, and
carries an interest rate that is indexed to the Federal Funds
Rate.





In
February 2005, we issued $121.0 million principal amount of our 3.25% senior
convertible notes due 2025 (the “Notes”).  The Notes bear interest at
the rate of 3.25% per year, payable in cash semiannually in arrears on February
15 and August 15 of each year.  The Notes are convertible into a
combination of cash and common stock at a conversion price of approximately
$13.22.  The Notes are convertible in any quarter subsequent to a
quarter in which the closing price of our common stock exceeds $15.86 for 20 of
the last 30 trading days.  This condition was not met during the third
quarter of 2008, and consequently the Notes are not convertible at this
time.  Due to the option value imbedded within each Note, the Notes
generally trade at values higher than the fair value of the common stock and
cash into which they could be converted.  Although the Notes have been
convertible in the past and will possibly be convertible during future periods,
we do not expect a significant number of holders to tender the Notes for
conversion prior to the maturity date of the Notes unless we exercise our right
to call the Notes after February 2010.  Nonetheless, in any period
during which the holders have the right to exercise the conversion option, the
Notes’ $121.0 million par value will be classified as a current liability on our
balance sheet.  Noteholders have the right on February 15, 2010 to
require us to repurchase the Notes at the par value of $121.0 million plus
accrued and unpaid interest.


37
 Item
2.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations


Liquidity and Capital
Resources - (Continued)




On
February 17, 2007, we entered into a purchase agreement for up to 25 firm and 20
option Q400 aircraft with Bombardier, Inc.  Under the agreement, we
were obligated to purchase a minimum of 15 Q400 regional aircraft.  As
of September 30, 2008, Colgan had acquired 15 Q400 aircraft under this purchase
agreement.  We have a right of cancellation for an additional ten firm
aircraft for which notice is required by December 2008.  If we do not
exercise these cancellation rights, then we will take delivery of these ten
additional aircraft between August 2010 and February 2011.  In
addition to the 25 firm aircraft, we have optional rights to acquire 20 Q400
aircraft that would be delivered between October 2010 and November
2011.





On April
27, 2007, Delta Air Lines assigned to us its rights to purchase 16 CRJ-900
aircraft from Bombardier, Inc.  As of September 30, 2008 we had
accepted delivery of 11 of these aircraft.  We will take delivery of
the remaining five aircraft between January and May 2009.  Under our
capacity purchase agreement with Delta, Delta may also require us to purchase
and operate an additional seven CRJ-900 aircraft.





We were
required to make pre-delivery payments to Bombardier, which are refunded to us
upon the delivery of the aircraft.  During 2007, we executed two
pre-delivery payment financing facilities (the “PDP Facilities”) withExport
Development Canada (“EDC”) for up to $80 million to provide borrowings to fund
our pre-delivery payment commitments to Bombardier.  Borrowings under
the pre-delivery payment facilities bear interest at the 3-month LIBOR rate plus
1.65%, which was 5.7% as of September 30, 2008.  The outstanding
balance for the borrowings as of September 30, 2008 was $11.4
million.  As each aircraft is delivered to us, we repay the associated
borrowings under the PDP Facilities.





Upon
delivery of our CRJ-900 and Q400 aircraft, we obtained long-term financing for
the aircraft, the balance of which was approximately $455.0 million at September
30, 2008.  We expect to finance the purchase of the remaining five
aircraft using a combination of internal capital resources and debt
financing.  We have obtained commitments from EDC to finance 85% of
the purchase price of the aircraft for a term of 15 years from the delivery date
of each aircraft.  As of September 30, 2008 the approximate remaining
purchase price was $123.0 million. We expect to borrow $105 million and fund the
balance of $18 million from internal capital resources.





To reduce
the financial risk associated with changes in long-term interest rates while we
take delivery of CRJ-900 aircraft, we initiated a cash flow hedging program
during July 2007.  The program consists of interest rate swaps whereby
we agree to pay a fixed interest rate and receive the six-month LIBOR
rate.  The swaps have been or will be cash settled when the permanent
financing is obtained at the time we take delivery of the
aircraft.  Should interest rates change by 100 basis points before we
take delivery, and assuming that we do not hedge the anticipated debt on the
remaining firm noncancelable aircraft, aggregate interest expense in the first
year of financing would change by approximately $1.0 million.  During
the three and nine months ended September 30, 2008, the Company made interest
rate swap settlement payments of $0.6 million and $21.1 million, net of
collateral payments previously paid in 2007, respectively, in connection with
its cash flow hedging program.  As of September 30, 2008, the Company
expects to make additional interest rate swap settlement payments of $0.9
million for one remaining hedge during 2009.





We
maintain a revolving line of credit with an institutional lender for a principal
amount not to exceed $8.5 million or 75% of the net unpaid balance of eligible
accounts receivable.  This instrument has an interest rate of Prime
plus 0.25%, which was 5.25% as of September 30, 2008. In April 2008, we extended
the termination date of the loan to April 15, 2009.  Amounts
outstanding under the line of credit were $8.3 million at September 30,
2008.





As part
of our agreement to purchase Colgan, we agreed to purchase from one of its
selling shareholders two aircraft hangars located in Manassas, Virginia if the
selling shareholder is unable to consummate a sale to a
third-party.  The Company agreed to purchase the two hangars for a
purchase price of $6.4 million, which approximates their fair
value.  Using a real estate broker, we are working together with the
current owner of the hangars to market the hangars to an independent third
party.  Until the hangars are sold to a third party, we will continue
to lease them on a short-term basis. If the current owner is unable to sell
these hangars to a third party, we could still be required to purchase these
hangars in the future.  This obligation is included in our purchase
obligations for 2009.





The IRS
is currently examining our tax records for years 2003 through
2005.  The IRS has proposed adjustments related to certain key
transactions that we undertook during those periods.  The adjustments
would increase our tax liability for these periods by approximately $35 million
(net of offsetting timing differences within


38
 Item
2.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations


Liquidity and Capital
Resources - (Continued)


these
periods) plus penalties.  We have filed a formal protest with respect
to these proposed adjustments and have started an administrative appeals review
within the IRS.  We do not expect resolution of this matter during
2008.  We continue to believe that the tax positions we have taken are
appropriate and in compliance with tax law and regulations.  Although
we believe our tax positions are appropriate, we have recorded reserves totaling
$16.6 million.  While we believe our reserves are adequate for each
identified issue, our liquid assets would be significantly reduced if we are
ultimately required to make payments to the IRS for taxes and related interest
and penalties associated with these proposed adjustments.





Operating activities. Net
cash provided by operating activities was $13.7 million during the nine months
ended September 30, 2008.  This was due primarily to the $21.1 million
in hedge related payments made during the first nine months, offset by cash
primarily generated from regional airline service operations of $34.8
million.





Net cash
provided by operating activities was $277.0 million during the nine months ended
September 30, 2007.  This was due primarily to the sale of our
unsecured Northwest claim for gross proceeds of $311.0 million, offset by tax
related payments of $8.2 million and cash used in other regional airline service
operations of $25.8 million.





Investing activities. 
Net cash provided by investing activities for the nine months ended September
30, 2008 was $25.7 million.  This was primarily attributable to net
proceeds from the sale of investments in ARS of $51.3 million, offset by $25.7
million in cash purchases of property and equipment, primarily consisting of
flight equipment.





Cash used
in investing activities for the nine months ended September 30, 2007 was $257.8
million.  This is primarily attributable to net purchases of
short-term investments in marketable debt securities (primarily ARS) of $166.6
million and $70.4 million in pre-delivery payments for the Q400 and CRJ-900
aircraft.  In addition, the acquisition of Colgan decreased cash by
$8.3 million, net of cash acquired.





We expect
non-aircraft cash capital expenditures for the remainder of 2008 to be
approximately $3 million. We expect to fund the non-aircraft capital
expenditures with existing cash resources and cash flows generated from our
operations.





Financing activities. Net
cash used in financing activities for the nine months ended September 30, 2008
totaled $2.3 million.  During the nine months ended September 30, 2008, we
received $91.8 million in debt proceeds, primarily related to the Credit
Facility.  This was offset by $71.1 million of principal payments on debt
obligations, primarily related to our pre-delivery payment facilities, and the
$20.0 million purchase of our Series A Preferred Share from Northwest on January
4, 2008.





Cash used
in financing activities for the nine months ended September 30, 2007 totaled
$14.0 million, which related to $16.4 million of debt principal payments made
and $0.7 million of payments made on capital leases.  This was offset
with proceeds of $35.0 million related to our pre-delivery payment facility. In
addition, we purchased $35.2 million of treasury shares as part of our share
repurchase program.





Deferred tax
asset.  We have recorded a deferred tax asset of $66.7
millionrelated to
future tax benefits.  This primarily relates to future tax benefits we
will receive for our deferred ASA revenue.  As discussed in Note 2 to
our condensed consolidated financial statements, we are recognizing the deferred
ASA revenue over the 11-year term of the ASA.





Guarantees and
indemnifications. We are the guarantor of approximately $2.1 million
aggregate principal amount of tax-exempt special facilities revenue bonds and
interest thereon. These bonds were issued by the Memphis-Shelby County Airport
Authority (the “Authority”) and are payable solely from our rentals paid under a
long-term lease agreement with the Authority. The leasing arrangement is
accounted for as an operating lease in the consolidated financial
statements.





We had
$4.6 million and $5.3 million invested in certificates of deposit and in other
similar instruments at September 30, 2008 and December 31, 2007,
respectively.  These certificates of deposit have various maturities,
all less than one year and are used as collateral for standby letter of credit
facilities that we maintain for various vendors.  As of September 30,
2008 and December 31, 2007, we had $3.1 million and $2.7 million of standby
letters of credit outstanding, respectively.


39
 Item
2.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations




We are
party to numerous contracts and real estate leases in which it is common for us
to agree to indemnify third parties for tort liabilities that arise out of or
relate to the subject matter of the contract or occupancy of the leased
premises. In some cases, this indemnity extends to related liabilities arising
from the negligence of the indemnified parties, but usually excludes any
liabilities caused by their gross negligence or willful misconduct.
Additionally, we typically indemnify the lessors and related third parties for
any environmental liability that arises out of or relates to our leased
premises.





In our
aircraft lease agreements, we typically indemnify the prime lessor, financing
parties, trustees acting on their behalf and other related parties against
liabilities that arise from the manufacture, design, ownership, financing, use,
operation and maintenance of the aircraft and for tort liability, whether or not
these liabilities arise out of or relate to the negligence of these indemnified
parties, except for their gross negligence or willful misconduct.





We expect
that we would be covered by insurance (subject to deductibles) for most tort
liabilities and related indemnities described above with respect to real estate
we lease and aircraft we operate.





We do not
expect the potential amount of future payments under the foregoing indemnities
and agreements to be material.





Off-Balance Sheet
Arrangements.  None of our operating lease obligations are
reflected on our consolidated balance sheets. We are responsible for all
maintenance, insurance and other costs associated with these leased assets;
however, the lease agreements do not include a residual value guarantee, fixed
price purchase option or other similar guarantees.  We have no other
off-balance sheet arrangements.





Fair
Value Measurements





As
discussed in Note 4 in Item 1 of this Form 10-Q, the Company adopted the
provisions of SFAS 157 effective January 1, 2008.  The Company has
determined that it utilizes unobservable (Level 3) inputs in determining the
fair value of its ARS and observable (Level 2) inputs in determining the fair
value of its cash flow hedges, which totaled $126.9 million and $0.9 million,
respectively, at September 30, 2008.





The
Company’s ARS instruments are classified as available for sale securities and
reflected at fair value.  In prior periods, due to the auction process
which took place every 30-35 days for most securities, quoted market prices were
readily available, which would qualify as Level 1 under SFAS
157.  However, due to events in credit markets during first quarter
2008, the auction events for most of these instruments failed, and, therefore,
the Company has determined the estimated fair values of these securities
utilizing a discounted cash flow analysis.  This analysis considers,
among other items, the collateralization underlying the security investments,
the creditworthiness of the counterparty, the timing of expected future cash
flows, and an estimate of when the security is expected to have a successful
auction or be called by the issuer.  These securities were also
compared, when possible, to other observable market data with similar
characteristics to the securities held by the Company.





Due to
these events, the Company reclassified these instruments as Level 3 during first
quarter of 2008 and recorded an impairment charge of $8.7 million during the
second quarter of 2008.  The Company currently believes that this
decline in fair value is due primarily to liquidity issues, because the
underlying assets for the majority of securities are substantially guaranteed by
the U.S. government.  The Company will continue to re-evaluate each of
these factors as market conditions change in subsequent periods.





The
Company has determined that all significant inputs used to value its derivatives
fall within Level 2 of the fair value hierarchy, although the credit valuation
adjustments associated with its derivatives utilize Level 3 inputs, such as
estimates of current credit spreads to evaluate the likelihood of default by
itself and its counterparties.  As a result, the Company has
determined that its derivative valuations in their entirety are classified in
Level 2 of the fair value hierarchy.


40
 Item
2.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations


Liquidity and Capital
Resources - (Continued)




As
discussed in Note 4 in Item 1 of this Form 10-Q, any changes in the fair
values of the Company’s derivative financial instruments are subject to the
requirements of SFAS 133.  Any changes in fair value that are
considered to be effective, as defined by SFAS 133, are offset within OCI until
the period in which the expected cash flow affects earnings.  Any
changes in the fair value of its derivatives that are ineffective, as defined by
SFAS 133, or do not qualify for special hedge accounting, are reflected in
earnings within interest expense in the period of the change.





Forward-Looking
Statements





Statements
in this Quarterly Report on Form 10-Q (or otherwise made by or on the behalf of
Pinnacle Airlines Corp.) contain various forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Act of 1934, as amended (the “Exchange Act”), which
represent our management's beliefs and assumptions concerning future events.
When used in this document and in documents incorporated by reference,
forward-looking statements include, without limitation, statements regarding
financial forecasts or projections, our expectations, beliefs, intentions or
future strategies that are signified by the words "expects", "anticipates",
"intends", "believes" or similar language. These forward-looking statements are
subject to risks, uncertainties and assumptions that could cause our actual
results and the timing of certain events to differ materially from those
expressed in the forward-looking statements. All forward-looking statements
included in this report are based on information available to us on the date of
this report. It is routine for our internal projections and expectations to
change as the year or each quarter in the year progress, and therefore it should
be clearly understood that the internal projections, beliefs and assumptions
upon which we base our expectations may change prior to the end of each quarter
or the year. Although these expectations may change, we may not inform you if
they do. Our policy is generally to provide our expectations only once per
quarter, and not to update that information until the next quarter.





You
should understand that many important factors, in addition to those discussed in
this report, could cause our results to differ materially from those expressed
in the forward-looking statements. Some of the potential factors that could
affect our results are described in Item 1A Risk Factorsof our annual
report and in this item under “Outlook.”  In light of these risks and
uncertainties, and others not described in this report, the forward-looking
events discussed in this report might not occur, might occur at a different
time, or might cause effects of a different magnitude or direction than
presently anticipated.


41


Item
3. Quantitative and Qualitative Disclosures About Market
Risk





Because
the majority of our business is under capacity purchase agreements, our exposure
to market risks such as commodity price risk (e.g., aircraft fuel prices) is
primarily limited to our pro-rate operations which comprise approximately 24% of
our consolidated revenues.  With our 2007 acquisition of Colgan and the
subsequent contracts with Delta and Continental regarding the purchase of
aircraft, we are exposed to commodity price and interest rate risks as discussed
in our 2007 Form 10-K. There have been no material changes in market risk from
the information provided in Item 7A “Quantitative and Qualitative
Disclosure About Market Risk” in our 2007 Form 10-K except as
follows:





Commodity
Price Risk





Our
pro-rate operations have exposure to certain market risks associated with
aircraft fuel, which has recently experienced significant price increases. 
Aviation fuel expense is a significant expense for any air carrier and even
marginal changes in the cost of fuel greatly affect a carrier’s
profitability.  Standard industry contracts do not generally provide
protection against fuel price increases, nor do they ensure availability of
supply.  However, our capacity purchase agreements require that fuel be
provided to us at no cost, thereby reducing our overall exposure to fuel price
fluctuations.  However, the Company’s pro-rate code-share agreements with
US Airways, Continental, and United Air Lines expose the Company to fuel price
risk.  Slightly offsetting our fuel risk, our agreement with Continental
provides for an adjustment to the pro-rate revenue we receive from Continental
based on projected changes in fuel prices.  For the projected annualized
fuel consumption related to these agreements, each ten percent change in the
price of jet fuel amounts to an approximate $6.3 million change in annual fuel
costs.





Item
4. Controls and Procedures





The
Company, under the supervision and participation of its management, including
the Chief Executive Officer and the Chief Financial Officer, evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rules 13a-15 and 15d-15.   Based
upon that evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures are effective. 
Disclosure controls and procedures are controls and procedures that are designed
to ensure that information required to be disclosed in our reports filed or
submitted under the Exchange Act is recorded, processed, summarized and
completely and accurately reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms.  Except as discussed
below, there has been no change in our internal control over financial reporting
during the nine months ended September 30, 2008 that has materially affected, or
is reasonably likely to materially affect our internal control over financial
reporting.





Change
in Internal Controls





During
the first quarter of 2008, the Company implemented a new financial system that
encompasses financial reporting, the general ledger, inventory control, and
other similar and related processes.  The new financial system was
implemented to enhance the Company’s business processes.





42


Part
II.  Other Information





Item
1.  Legal Proceedings





We are a
defendant in various lawsuits and other proceedings arising in the ordinary
course of our business.  While the outcome of these lawsuits and
proceedings cannot be predicted with certainty, it is the opinion of management,
based on current information and legal advice, that the ultimate disposition of
these actions will not have a material adverse effect on our financial position,
results of operations or cash flows.





Item 1A.
Risk Factors.







There are
no material changes to the risk factors described under the title “Risk Factors”
in our Annual Report on Form 10-K for the fiscal year ended December 31,
2007.





Item
2. Unregistered Sales of Equity Securities and Use
of Proceeds





None.





Item
3.  Defaults Upon Senior
Securities





None.





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





None.





Item
5.  Other Information





None.


43





Item 6.  Exhibits





The
following exhibits are filed as part of this Form 10-Q.





Exhibit


Number                 Description


3.1
            Amended
      and Restated Certificate of Incorporation of the registrant (Incorporated
      by reference to the Company’s Registration Statement Form S-1
      (Registration No. 333-83359), as amended (the “S-1”) initially filed on
      February 25, 2002)


3.1.1
            Second
      Amended and Restated Certificate of Incorporation of the registrant
      (Incorporated by reference to the
S-1)


3.2
            Certificate
      of Designations for Series A preferred stock of the registrant
      (Incorporated by reference to the
S-1)


3.3.
            Amended
      and Restated Bylaws, dated January 14, 2003, of the registrant
      (Incorporated by reference to the
S-1)


4.1
            Specimen
      Stock Certificate (Incorporated by reference to the
  S-1)


4.2
            Rights
      Agreement between the registrant and EquiServe Trust Company, N.A., as
      Rights Agent (Incorporated by reference to the
  S-1)


4.3
            Indenture,
      3.25% Senior Convertible Notes due 2025, dated as of February 8, 2005, by
      and between Pinnacle Airlines Corp. and Deutsche Bank Trust Company
      (Incorporated by reference to Exhibits 99.2 and 99.3 to the
      Registrant’s Current Report on Form 8-K filed on February 8,
      2005)


4.4
            Registration
      Rights Agreement made pursuant to the Purchase Agreement dated February 3,
      2005, dated as of February 8, 2005, by and among Pinnacle Airlines Corp.,
      Merrill Lynch, Pierce, Fenner & Smith Incorporated and Raymond James
      & Associates, Inc. (Incorporated by reference to Exhibits 99.2
      and 99.3 to the Registrant’s Current Report on Form 8-K filed on
      February 8, 2005)


10.1
            Loan
      Agreement dated as of June 16, 2005 between Pinnacle Airlines, Inc. and
      First Tennessee Bank National Association (Incorporated by reference to
      the Registrant’s Current Report on Form 8-K filed on June 23,
      2005)


10.2
            Sublease
      Agreement between Pinnacle Airlines, Inc. and Northwest Airlines, Inc.
      (Incorporated by reference to the
S-1)


10.2.1
            First
      Amendment to Sublease Agreement between Pinnacle Airlines, Inc. and
      Northwest Airlines, Inc. (Incorporated by reference to the
      S-1)


10.2#
            Guaranty
      Agreement between Pinnacle Airlines, Inc. and First Tennessee Bank
      National Association (Incorporated by reference to the Registrant’s
      Current Report on Form 8-K filed on June 23,
  2005)


10.3
            Engine
      Lease Agreement between Pinnacle Airlines, Inc. and Northwest Airlines,
      Inc. (Incorporated by reference to the
S-1)


10.3.1
            First
      Amendment to Engine Lease Agreement between Pinnacle Airlines, Inc. and
      Northwest Airlines, Inc. (Incorporated by reference to the
      S-1)


10.3#
            Revolving
      Credit Note dated as of June 16, 2005 between Pinnacle Airlines, Inc. and
      First Tennessee Bank National Association (Incorporated by reference to
      the Registrant’s Current Report on Form 8-K filed on June 23,
      2005)


10.4#
            Security
      Agreement dated as of June 16, 2005 between Pinnacle Airlines, Inc. and
      First Tennessee Bank National Association (Incorporated by reference to
      the Registrant’s Current Report on Form 8-K filed on June 23,
      2005)


10.5#
            Negative
      Pledge Agreement dated as of June 16, 2005 between Pinnacle Airlines, Inc.
      and First Tennessee Bank National Association (Incorporated by reference
      to the Registrant’s Current Report on Form 8-K filed on June 23,
      2005)


10.6#
            Negative
      Pledge Agreement dated as of June 16, 2005 between Pinnacle Airlines Corp.
      and First Tennessee Bank National Association (Incorporated by reference
      to the Registrant’s Current Report on Form 8-K filed on June 23,
      2005)


10.8†
            Pinnacle
      Airlines Corp. 2003 Stock Incentive Plan (Incorporated by reference to the
      S-1)


10.9
            Non-Qualified
      Stock Option Agreement for options granted under the Pinnacle Airlines
      Corp. 2003 Stock Incentive Plan (Incorporated by reference to the
      S-1)


44


Exhibit


Number                 Description


10.10†
            Pinnacle
      Airlines, Inc. Annual Management Bonus Plan (Incorporated by reference to
      the S-1)


10.11
            Amended
      and Restated Sublease Agreement dated as of January 14, 2003 between
      Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (SBN Facilities)
      (Incorporated by reference to the
S-1)


10.12
            Sublease
      Agreement dated as of August 1, 2002 between Pinnacle Airlines, Inc. and
      Northwest Airlines, Inc. (TYS Facilities) (Incorporated by reference to
      the S-1)


10.13
            Amended
      and Restated Facilities Use Agreement between Pinnacle Airlines, Inc. and
      Northwest Airlines, Inc. (DTW Facilities) (Incorporated by reference to
      the S-1)


10.14
            Amended
      and Restated Facilities Use Agreement between Pinnacle Airlines, Inc. and
      Northwest Airlines, Inc. (MEM Facilities) (Incorporated by reference to
      the S-1)


10.15
            Amended
      and Restated Facilities Use Agreement between Pinnacle Airlines, Inc. and
      Northwest Airlines, Inc. (MSP Facilities) (Incorporated by reference to
      the S-1)


10.16
            Intentionally
      omitted


10.17
            Intentionally
      omitted


10.18
            Lease
      Guaranty issued by the registrant to Northwest Airlines, Inc.
      (Incorporated by reference to the
S-1)


10.19
            Sublease
      Guaranty issued by the registrant to Northwest Airlines, Inc.
      (Incorporated by reference to the
S-1)


10.20
            Airline
      Services Agreement dated as of March 1, 2002 among the registrant,
      Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by
      reference to the S-1)


10.21
            Airline
      Services Agreement dated as of January 14, 2003 among the registrant,
      Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by
      reference to the S-1)


10.21.1
            Amendment
      No. 1 dated as of September 11, 2003 to the Airline Services Agreement
      dated as of January 14, 2003 among the registrant, Pinnacle Airlines, Inc.
      and Northwest Airlines, Inc. (Incorporated by reference to the
      S-1)


10.21.2
            Amendment
      No. 2 dated as of November 26, 2003 to the Airline Services Agreement
      dated as of January 14, 2003 among the registrant, Pinnacle Airlines, Inc.
      and Northwest Airlines, Inc. (Incorporated by reference to the
      S-1)


10.22
            Amended
      and Restated Ground Handling Agreement between Pinnacle Airlines, Inc. and
      Northwest Airlines, Inc. (Incorporated by reference to the
      S-1)


10.23
            Amended
      and Restated Information Technology Services Agreement between Pinnacle
      Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by reference to
      the S-1)


10.24
            Amended
      and Restated Family Assistance Services Agreement between Pinnacle
      Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by reference to
      the S-1)


10.25
            Amended
      and Restated Manufacturer Benefits Agreement between Pinnacle Airlines,
      Inc. and Northwest Airlines, Inc. (Incorporated by reference to the
      S-1)


10.26
            Form
      of Amended and Restated Preferential Hiring Agreement between Pinnacle
      Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by reference to
      the S-1)


10.27
            Purchase
      Agreement, Senior Convertible Notes due 2025, dated as of February 3,
      2005, by and among, Pinnacle Airlines Corp., Merrill Lynch, Pierce, Fenner
      & Smith Incorporated and Raymond James & Associates, Inc.
      (Incorporated by reference to the Registrant’s Current Report on Form 8-K
      filed on February 8, 2005)


10.28†
            Amended
      and Restated Management Compensation Agreement between Pinnacle Airlines,
      Inc. and Philip H. Trenary (Incorporated by reference to the Registrant’s
      Current Report on Form 8-K filed on August 12,
  2005)


10.29†
            Amended
      and Restated Management Compensation Agreement between Pinnacle Airlines,
      Inc. and Peter D. Hunt (Incorporated by reference to the Registrant’s
      Current Report on Form 8-K filed on August 12,
  2005)


10.30†
            Amended
      and Restated Management Compensation Agreement between Pinnacle Airlines,
      Inc. and Douglas W. Shockey (Incorporated by reference to the Registrant’s
      Current Report on Form 8-K filed on August 12,
  2005)


10.31†
            Form
      of Indemnity Agreement between Pinnacle Airlines Corp. and its directors
      and officers (Incorporated by reference to the Registrant’s Current Report
      on Form 8-K filed on February 1,
2006)


45


Exhibit


Number                 Description


10.32
            Assignment
      of Claim Agreement between Pinnacle Airlines, Inc. and Goldman Sachs
      Credit Partners, L.P., dated as of October 5,
  2006


10.40
            Assumption
      and Claim Resolution Agreement between Pinnacle Airlines Corp. and
      Northwest Airlines, Inc., dated as of December 20, 2006 (Incorporated
      by reference to the Registrant’s Current Report on Form 8-K filed on
      January 3, 2007)


10.41
            Amended
      and Restated Airline Services Agreement by and among Pinnacle Airlines,
      Inc., Pinnacle Airlines Corp. and Northwest Airlines, Inc., dated December
      15, 2006, effective as of January 1,
2007


10.50
            Stock
      Purchase Agreement, dated as of January 18, 2007, by and among Colgan Air,
      Inc. and Pinnacle Airlines Corp.  (Incorporated by reference to
      the Registrant’s Current Report on Form 8-K filed on January 24,
      2007)


10.60
            Capacity
      Purchase Agreement between Continental Airlines, Inc., Pinnacle Airlines
      Corp. and Colgan Air, Inc., dated as of February 2,
  2007


10.61
            Purchase
      Agreement between Bombardier Inc. and Pinnacle Airlines Corp., relating to
      the purchase of twenty-five (25) Bombardier Q400 series aircraft, dated as
      of February 17, 2007


10.65
            Delta
      Connection Agreement among Delta Air Lines, Inc., Pinnacle Airlines Corp.
      and Pinnacle Airlines, Inc., dated as of April 27,
  2007


10.66
            Assignment
      and Assumption Agreement by and among Delta Air Lines, Inc., Pinnacle
      Airlines, Inc., Pinnacle Airlines Corp., and Bombardier Inc., dated as of
      April 26, 2007


10.67
            Purchase
      Agreement between Bombardier Inc. and Pinnacle Airlines, Inc, relating to
      the purchase of sixteen (16) Bombardier CRJ-900 series aircraft, dated as
      of April 26, 2007


10.70
            Credit
      Facility Agreement between Citigroup Global Markets, Inc. and Pinnacle
      Airlines Corp., dated as of March 11,
2008.


10.71
            Amendment
      No. 1, dated as of June 18, 2008, to the Credit Facility Agreement between
      Pinnacle Airlines Corp. and Citigroup Global Markets, Inc., dated as of
      March 11, 2008


10.99.1#
            Promissory
      Note issued by Pinnacle Airlines, Inc. to Northwest Airlines, Inc.
      (Incorporated by reference to the
S-1)


10.99.2#
            Guarantee
      of Promissory Note issued by registrant to Northwest Airlines, Inc.
      (Incorporated by reference to the
S-1)


10.99.3#
            Revolving
      Credit Facility dated as of January 14, 2003 between Pinnacle Airlines,
      Inc. and Northwest Airlines, Inc. (Incorporated by reference to the
      S-1)


10.99.4#
            First
      Amendment dated as of February 5, 2003 to Revolving Credit Facility dated
      as of January 14, 2003 between Pinnacle Airlines, Inc. and Northwest
      Airlines, Inc. (Incorporated by reference to the
  S-1)


10.99.5#
            Second
      Amendment dated as of November 28, 2003 to Revolving Credit Facility dated
      as of January 14, 2003 between Pinnacle Airlines, Inc. and Northwest
      Airlines, Inc. (Incorporated by reference to the
  S-1)


10.99.6#
            Third
      Amendment dated as of December 13, 2004 to Revolving Credit Facility dated
      as of January 14, 2003 between Pinnacle Airlines, Inc. and Northwest
      Airlines, Inc. (Incorporated by reference to the Registrant’s Current
      Report on Form 8-K filed on February 8,
  2005)


10.99.7#
            Fourth
      Amendment dated as of February 8, 2005 to Revolving Credit Facility dated
      as of January 14, 2003 between Pinnacle Airlines, Inc. and Northwest
      Airlines, Inc. (Incorporated by reference to the Registrant’s Current
      Report on Form 8-K filed on February 8,
  2005)


10.99.8#
            Guaranty
      dated as of January 14, 2003 issued by registrant to Northwest Airlines,
      Inc. (Incorporated by reference to the
S-1)


21.1
            List
      of Subsidiaries (Incorporated by reference to the
  S-1)


23.1
            Consent
      of Independent Registered Public Accounting
Firm


31.1*                      Certification
of Chief Executive Officer


31.2*                      Certification
of Chief Financial Officer


32*                        
Certifications of CEO and CFO





*
            Filed
      herewith


†
            Management
      contract or compensatory plan or
arrangement


#                             Cancelled
agreement referenced in this Form 10-Q


46


SIGNATURES











Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.




















PINNACLE
      AIRLINES CORP.By:
            /s/
      Philip H. TrenaryPhilip
      H. TrenaryDate:  November
      6, 2008
            President
      and Chief Executive OfficerBy:
        :
            /s/
      Peter D. HuntPeter
      D. HuntDate:  November
      6, 2008
            Vice
      President and Chief Financial Officer