**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**








**FORM
      10-Q**





**x**
            **Quarterly
                report pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934****For
                the quarterly period ended September 30, 2007****or**** ̈**
            **Transition
                report pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934****For
                the transition period from__________
                to__________**







**Commission
      File Number 001-31898**




**PINNACLE
      AIRLINES CORP.**


*(Exact
      name of registrant as specified in its charter)*







**Delaware**
              (*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 or a non-accelerated filer.  See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
      Act. (Check one):





Large
                Accelerated Filer ** ̈**
            Accelerated
                Filer **x**
            Non-Accelerated
                Filer ** ̈**








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
      October 31, 2007, 20,444,301shares of common stock
      were outstanding.



































**Table
      of Contents**








**Part
                I. Financial Information****Item
                1. Financial Statements**Condensed
                Consolidated Statements of Income
                (Unaudited)
            1Condensed
                Consolidated Balance Sheets
                (Unaudited)
            3Condensed
                Consolidated Statements of Cash Flows
                (Unaudited)
            4Notes
                to Condensed Consolidated Financial Statements
                (Unaudited)
            5Item
                2.  Management’s Discussion and Analysis of
                Results of Operations and Financial Condition
            17Item
                3.  Quantitative and Qualitative Disclosures
                about Market Risk
            25Item
                4.  Controls and
                Procedures
            25**Part
                II.  Other Information**Item
                1.  Legal Proceedings
            26Item
                1A.  Risk Factors
            26Item
                2.  Unregistered Sales of Equity Securities
                and Use of Proceeds
            26Item
                3.  Defaults Upon Senior
                Securities
            26Item
                4.  Submission of Matters to a Vote of
                Security Holders
            26Item
                5.  Other Information
            26Item
                6.  Exhibits
            27








Pinnacle
              Airlines
              Corp.
 Condensed
            Consolidated Statements of Income
            (Unaudited) (in
              thousands, except share
              data)





**Part I.                   Financial
      Information**





**Item
      1.                     Financial
      Statements**








**Three
                Months Ended September 30,****2007**
            
            
            **2006**Operating
                revenuesRegional
                airline services
            
            $
            199,023
            
            
            $
            206,827Other
            
            
            6,707
            
            
            
            1,673Total
                operating revenues
            
            
            205,730
            
            
            
            208,500Operating
                expensesSalaries,
                wages and benefits
            
            
            52,830
            
            
            
            34,567Aircraft
                maintenance, materials and repairs
            
            
            22,396
            
            
            
            8,691Aircraft
                rentals
            
            
            35,049
            
            
            
            66,031Aircraft
                fuel
            
            
            10,856
            
            
            
            28,041Other
                rentals and landing fees
            
            
            15,307
            
            
            
            11,480Ground
                handling services
            
            
            24,520
            
            
            
            21,663Commissions
                and passenger related expense
            
            
            7,120
            
            
            
            900Depreciation
                and amortization
            
            
            2,449
            
            
            
            1,003Other
            
            
            20,196
            
            
            
            14,102Provision
                for decreases in losses associated with bankruptcy filings of Northwest
                and Mesaba
            
            
            -
            
            
            
            (3,537
            )Total
                operating expenses
            
            
            190,723
            
            
            
            182,941Operating
                income
            
            
            15,007
            
            
            
            25,559Operating
                income as a percentage of operating revenues
            
            
            7.3
            %
            
            
            12.3
            %Nonoperating
                income (expense)Interest
                income
            
            
            2,521
            
            
            
            640Interest
                expense
            
            
            (1,128
            )
            
            
            (1,198
            )Miscellaneous
                (expense) income, net
            
            
            (11
            )
            
            
            18Total
                nonoperating income (expense)
            
            
            1,382
            
            
            
            (540
            )Income
                before income taxes
            
            
            16,389
            
            
            
            25,019Income
                tax expense
            
            
            5,485
            
            
            
            9,182Net
                income
            
            $
            10,904
            
            
            $
            15,837Basic
                earnings per share
            
            $
            0.53
            
            
            $
            0.72Diluted
                earnings per share
            
            $
            0.48
            
            
            $
            0.72Shares
                used in computing basic earnings per share
            
            
            20,470
            
            
            
            21,945Shares
                used in computing diluted earnings per share
            
            
            22,544
            
            
            
            21,990





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





1
 **Pinnacle
              Airlines
              Corp.**
 **Condensed
              Consolidated Statements of Income
              (Unaudited)**
 **(in
              thousands, except share
              data)**








**Nine
                Months Ended September 30,****2007**
            
            
            **2006**Operating
                revenuesRegional
                airline services
            
            $
            568,278
            
            
            $
            614,643Other
            
            
            17,996
            
            
            
            5,460Total
                operating revenues
            
            
            586,274
            
            
            
            620,103Operating
                expensesSalaries,
                wages and benefits
            
            
            150,392
            
            
            
            104,587Aircraft
                maintenance, materials and repairs
            
            
            62,719
            
            
            
            26,949Aircraft
                rentals
            
            
            103,997
            
            
            
            198,093Aircraft
                fuel
            
            
            26,939
            
            
            
            81,953Other
                rentals and landing fees
            
            
            44,359
            
            
            
            33,954Ground
                handling services
            
            
            73,236
            
            
            
            65,787Commissions
                and passenger related expense
            
            
            17,935
            
            
            
            2,688Depreciation
                and amortization
            
            
            6,821
            
            
            
            2,932Other
            
            
            58,270
            
            
            
            38,749Provision
                for decreases in losses associated with bankruptcy filings of Northwest
                and Mesaba
            
            
            (1,048
            )
            
            
            (2,172
            )Total
                operating expenses
            
            
            543,620
            
            
            
            553,520Operating
                income
            
            
            42,654
            
            
            
            66,583Operating
                income as a percentage of operating revenues
            
            
            7.3
            %
            
            
            10.7
            %Nonoperating
                income (expense)Interest
                income
            
            
            8,468
            
            
            
            1,789Interest
                expense
            
            
            (6,109
            )
            
            
            (4,150
            )Loss
                on sale of unsecured claim
            
            
            (4,144
            )
            
            
            -Miscellaneous
                income, net
            
            
            325
            
            
            
            69Total
                nonoperating expense
            
            
            (1,460
            )
            
            
            (2,292
            )Income
                before income taxes
            
            
            41,194
            
            
            
            64,291Income
                tax expense
            
            
            13,263
            
            
            
            23,267Net
                income
            
            $
            27,931
            
            
            $
            41,024Basic
                earnings per share
            
            $
            1.31
            
            
            $
            1.87Diluted
                earnings per share
            
            $
            1.17
            
            
            $
            1.87Shares
                used in computing basic earnings per share
            
            
            21,398
            
            
            
            21,945Shares
                used in computing diluted earnings per share
            
            
            23,863
            
            
            
            21,981





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











2
 Pinnacle
              Airlines
              Corp.
 Condensed
            Consolidated Balance
            Sheets (in
              thousands, except share
              data)








**September
                30,**
            
            
            **December
                31,****2007**
            
            
            **2006****Assets**
            
            **(Unaudited)**Current
                assetsCash
                and cash equivalents
            
            $
            5,867
            
            
            $
            705Short-term
                investments
            
            
            239,300
            
            
            
            72,700Receivables
            
            
            58,383
            
            
            
            100,925Spare
                parts and supplies, net
            
            
            14,976
            
            
            
            8,061Prepaid
                expenses and other assets
            
            
            16,229
            
            
            
            15,003Deferred
                income taxes
            
            
            12,006
            
            
            
            -Total
                current assets
            
            
            346,761
            
            
            
            197,394Property
                and equipmentFlight
                equipment
            
            
            88,696
            
            
            
            38,436Aircraft
                pre-delivery payments
            
            
            70,400
            
            
            
            -Other
                property and equipment
            
            
            37,037
            
            
            
            24,470196,133
            
            
            
            62,906Less
                accumulated depreciation
            
            
            (26,151
            )
            
            
            (21,921
            )Net
                property and equipment
            
            
            169,982
            
            
            
            40,985Deferred
                income taxes
            
            
            72,265
            
            
            
            -Other
                assets, primarily aircraft deposits
            
            
            32,028
            
            
            
            31,240Goodwill,
                net
            
            
            28,027
            
            
            
            18,422Intangible
                assets, net
            
            
            17,510
            
            
            
            13,232Total
                assets
            
            $
            666,573
            
            
            $
            301,273





**Liabilities
                and stockholders’ equity**Current
                liabilitiesCurrent
                maturities of debt and capital leases
            
            $
            11,874
            
            
            $
            -Pre-delivery
                payment facility
            
            
            35,011
            
            
            
            -Bank
                line of credit
            
            
            8,375
            
            
            
            -Accounts
                payable
            
            
            30,638
            
            
            
            18,201Accrued
                expenses
            
            
            67,265
            
            
            
            26,190Income
                taxes payable
            
            
            24,187
            
            
            
            16,658Deferred
                income taxes
            
            
            -
            
            
            
            6,815Deferred
                revenue
            
            
            24,549
            
            
            
            -Other
                current liabilities
            
            
            20,303
            
            
            
            5,980Total
                current liabilities
            
            
            222,202
            
            
            
            73,844Senior
                convertible notes
            
            
            121,000
            
            
            
            121,000Long-term
                debt, net of current maturities
            
            
            11,068
            
            
            
            -Capital
                leases, net of current maturities
            
            
            3,941
            
            
            
            -Deferred
                income taxes
            
            
            -
            
            
            
            7,112Deferred
                revenue, net of current portion
            
            
            214,594
            
            
            
            -Other
                liabilities
            
            
            1,813
            
            
            
            2,296Commitments
                and contingenciesStockholders’
                equityPreferred
                stock, par value $0.01 per share; 1,000,000 shares
                authorized,
              no
                shares issued
            
            
            -
            
            
            
            -Series
                A preferred share, stated value $100 per share; one share
              authorized
                and issued
            
            
            -
            
            
            
            -Series
                common stock, par value $0.01 per share; 5,000,000 shares
              authorized;
                no shares issued
            
            
            -
            
            
            
            -Common
                stock, $0.01 par value; 40,000,000 shares authorized;
              22,402,333
                and 22,080,585 shares issued
            
            
            224
            
            
            
            221Treasury
                stock, at cost, 1,958,032 shares
            
            
            (35,207
            )
            
            
            -Additional
                paid-in capital
            
            
            88,859
            
            
            
            86,152Retained
                earnings
            
            
            38,079
            
            
            
            10,648Total
                stockholders’ equity
            
            
            91,955
            
            
            
            97,021Total
                liabilities and stockholders’ equity
            
            $
            666,573
            
            
            $
            301,273




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





3
 **Pinnacle
            Airlines Corp.** Condensed
              Consolidated Statements of Cash Flows
              (Unaudited)
 (in
              thousands)








**Nine
                Months Ended September 30,****2007**
            
            
            **2006****Operating
                activities**Net
                income
            
            $
            27,931
            
            
            $
            41,024Adjustments
                to reconcile net income to cash provided by operating
                activities:Provision
                for decreases in losses associated with bankruptcy filings of Northwest
                and Mesaba
            
            
            (1,048
            )
            
            
            (2,172
            )Loss
                on sale of unsecured claim
            
            
            4,144
            
            
            
            -Depreciation
                and amortization
            
            
            8,584
            
            
            
            3,998Deferred
                income tax benefit
            
            
            (98,198
            )
            
            
            1,662Recognition
                of deferred revenue
            
            
            (16,562
            )
            
            
            -Excess
                tax benefits on the exercise of stock options
            
            
            (662
            )
            
            
            -Other
            
            
            2,316
            
            
            
            11Changes
                in operating assets and liabilities:Receivables
            
            
            51,817
            
            
            
            (34,720
            )Increase
                in deferred revenue, primarily from assignment of Northwest
              claim
            
            
            270,670
            
            
            
            -Spare
                parts and supplies
            
            
            (698
            )
            
            
            (1,511
            )Prepaid
                expenses and other assets
            
            
            729
            
            
            
            (4,902
            )Accounts
                payable and accrued expenses
            
            
            25,840
            
            
            
            4,761Income
                taxes payable
            
            
            8,191
            
            
            
            (3,401
            )Other
                liabilities
            
            
            (6,032
            )
            
            
            (2,160
            )Cash
                provided by operating activities
            
            
            277,022
            
            
            
            2,590**Investing
                activities**Purchases
                of property and equipment
            
            
            (13,177
            )
            
            
            (2,612
            )Proceeds
                from sale of property and equipment
            
            
            610
            
            
            
            -Aircraft
                pre-delivery payments
            
            
            (70,400
            )
            
            
            -Acquisition
                of Colgan Air, Inc., net of cash acquired
            
            
            (8,273
            )
            
            
            -Purchases
                of short-term investments
            
            
            (826,030
            )
            
            
            (631,090
            )Proceeds
                from sales of short-term investments
            
            
            659,430
            
            
            
            617,875Cash
                used in investing activities
            
            
            (257,840
            )
            
            
            (15,827
            )**Financing
                activities**Payments
                on capital leases
            
            
            (697
            )
            
            
            -Proceeds
                from pre-delivery payment facility
            
            
            35,011Payments
                on debt
            
            
            (16,418
            )
            
            
            -Payment
                on line of credit
            
            
            -
            
            
            
            (17,000
            )Debt
                issuance costs
            
            
            (263
            )Treasury
                shares repurchased
            
            
            (35,207
            )
            
            
            -Proceeds
                from exercise of stock options
            
            
            2,892
            
            
            
            -Excess
                tax benefits from exercise of stock options
            
            
            662
            
            
            
            -Cash
                used in financing activities
            
            
            (14,020
            )
            
            
            (17,000
            )Net
                increase (decrease) in cash and cash equivalents
            
            
            5,162
            
            
            
            (30,237
            )Cash
                and cash equivalents at beginning of period
            
            
            705
            
            
            
            31,567Cash
                and cash equivalents at end of period
            
            $
            5,867
            
            
            $
            1,330





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














4
 **Pinnacle
              Airlines Corp.**
 **Notes
              to Condensed Consolidated Financial Statements
              (Unaudited)**
 **(all
              amounts in thousands, except per share
              data)**





**1.  Description
      of Business and Basis of
      Presentation**





Pinnacle
      Airlines Corp. operates through its wholly owned subsidiaries, Pinnacle
      Airlines, Inc. (“Pinnacle”) and Colgan Air, Inc. (“Colgan”) (collectively, the
‘‘Company”).  The Company purchased Colgan on January 18, 2007, as
      discussed below in Note 2.  Where noted, the “nine months ended” for
      Colgan implies the period from the purchase date through September 30,
      2007.





Pinnacle
      is a regional airline that provides airline capacity to Northwest Airlines,
      Inc.
      (‘‘Northwest’’).  Pinnacle operates as a Northwest Airlink carrier at
      Northwest’s domestic hub airports in Detroit, Minneapolis/St. Paul and Memphis,
      and the regional focus city of Indianapolis.  As of September 30,
      2007, Pinnacle offered regional airline services with approximately 744 daily
      departures to 119 cities in 36 states and six Canadian
      provinces.  Effective December 1, 2007, Pinnacle will also begin
      operations as a Delta Connection carrier, providing airline capacity to Delta
      Air Lines, Inc. (“Delta”) at its Atlanta hub.





Colgan
      is
      a regional airline that operates under partnership agreements with Continental
      Airlines, Inc. (“Continental”), United Air Lines, Inc. (“United”), and US
      Airways Group, Inc. (“US Airways”).  Colgan operates as a Continental
      Connection Carrier out of Houston/George Bush Intercontinental Airport, a United
      Express carrier out of Washington Dulles Airport and as a US Airways Express
      carrier with significant operations at Pittsburgh, Boston and New York/LaGuardia
      airports.  As of September 30, 2007, Colgan offered approximately 377
      daily departures to 40 cities in 12 states.   Effective January
      2008, Colgan will also provide regional airline service under a capacity
      purchase agreement with Continental at its Newark Liberty International Airport
      hub.





As
      shown
      in the following table, the Company’s operating aircraft fleet consisted of 139
      Canadair regional jets (“CRJs”) and 49 turboprop aircraft at September 30,
      2007.





**Aircraft
                Type**
            
            **Number
                of Aircraft**
            
            
            **Standard
                Seating Configuration**CRJ-200
            
            
            139
            
            
            
            50Total
                Pinnacle aircraft
            
            
            139Saab
                340
            
            
            42
            
            
            
            34Beech
                1900D
            
            
            7
            
            
            
            19Total
                Colgan aircraft
            
            
            49Total
                aircraft
            
            
            188





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, 2006.





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, 2007.  Certain prior year amounts were reclassified to
      allow for consistent presentation subsequent to the acquisition of
      Colgan. Specifically, the reclassification of commissions and passenger
      related expense for the three and nine months ended September 30, 2006 was
      $900
      and $2,688, respectively, which is reflected in the condensed consolidated
      statements of income as a decrease in other expense and an increase in
      commissions and passenger related expense.


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





**Accounting
      Policies**





The
      following are additions to the Company’s significant accounting policies
      included in its Annual Report on Form 10-K for the year ended December 31,
      2006.





**Revenue
      Recognition**





Substantially
      all of Colgan’s operating revenue is obtained under its pro-rate operating
      agreements with US Airways, Continental, United and under essential air service
      (“EAS”) contracts with the Department of Transportation
      (“DOT”).  Regional airline service revenues are recognized when
      flights are completed.  Tickets are sold and processed by the partner
      airlines and amounts due to the Company are settled on a monthly basis.
      Passenger tickets typically include segments flown by Colgan and segments flown
      by the partner airlines. Passenger revenues are based on a pro-rated share
      of
      ticket prices earned by Colgan for the passengers transported.  Colgan
      earns additional compensation or is subject to penalties based on the
      achievement of certain performance metrics.





The
      public service revenue earned by the Company under its EAS contracts with the
      DOT is recognized based on actual flights completed to and from selected smaller
      cities and communities and is based on pre-determined contractual
      rates.





**Derivative
      Instruments**





The
      Company accounts for derivative financial instruments in accordance with the
      provisions of Statement of Financial Accounting Standards No. 133,
*Accounting for Derivative Instruments and Hedging Activities* (“SFAS
      133”), as amended and interpreted. SFAS 133 requires the Company to measure all
      derivatives at fair value and to recognize them in the balance sheet as an
      asset
      or liability with the offset to accumulated other comprehensive income/loss
      (“OCI”), net of taxes and hedge ineffectiveness.





The
      Company expects its cash flow hedges will be highly effective during their
      terms
      in offsetting changes in cash flow attributable to the hedged
      risk.  The Company performs both prospective and retrospective
      assessment at least quarterly, including assessing the possibility of
      counterparty default.  To assess effectiveness, the Company performs a
      regression analysis at the inception of each hedge and will perform a similar
      analysis in each reporting period during the term of the hedge.   The
      Company’s assessment considers the various risks that could cause
      ineffectiveness and considers scenarios where the hypothetical derivative does
      not equal the actual derivative.  If the Company determines that a
      derivative is no longer expected to be highly effective, the Company will
      discontinue hedge accounting prospectively and recognize subsequent changes
      in
      the fair market value of the hedge in the condensed consolidated statements
      of
      income as interest expense/income rather than deferring the amount in
      OCI.





For
      derivatives designated as cash flow hedges, changes in fair value of the
      derivative are generally reported in OCI.  These gains or losses are
      recognized in the Company’s condensed consolidated statements of income as
      interest expense/income over the life of the underlying permanent aircraft
      financing.  To the extent that the change in the fair value of the
      hedge does not perfectly offset the change in cash flows resulting from a change
      in interest rates, the ineffective portion is immediately recognized as interest
      expense/income in the Company’s condensed consolidated statements of
      income.  The ineffective portion of the hedge is determined by comparing
      changes in the actual hedge to similar changes in a hypothetical perfect
      hedge.








5
 **Pinnacle
              Airlines Corp.**
 **Notes
              to Condensed Consolidated Financial Statements
              (Unaudited)**
 **(all
              amounts in thousands, except per share
              data)**





**1.  Description
      of Business and Basis of Presentation (continued)**





**Capitalized
      Interest**





The
      Company accounts for capitalized interest in accordance with the provision
      of
      SFAS No. 34, *Capitalization of Interest Cost,* which requires the
      Company to capitalize interest on assets that require a period of time to
      prepare them for their intended use.  The Company is capitalizing
      interest, as part of the asset’s cost, on its aircraft pre-delivery payments and
      on costs associated with its system implementation project.  For the
      three and nine months ended September 30, 2007, the Company recorded $1,536
      of
      capitalized interest.





**2.  Acquisition
      of Colgan Air, Inc.**





On
      January 18, 2007, the Company completed the acquisition of all of the issued
      and
      outstanding stock of Colgan.  Colgan is a regional airline with
      operations primarily in the Northeast and hub operations in Houston,
      Texas.  The condensed consolidated statements of income reported
      herein contain Colgan’s operating results since the date of
      purchase.





The
      acquisition of Colgan was accounted for using the purchase method of
      accounting.  Accordingly, the aggregate purchase price was assigned to
      the acquired assets and liabilities based on their fair market values on the
      purchase date.





Pursuant
      to the terms of the stock purchase agreement between the Company and the selling
      shareholders of Colgan, the purchase price was $20,000 payable through a $10,000
      cash payment and a $10,000 promissory note, bearing interest at 6.0%, secured
      by
      the stock of Colgan.  The purchase price is subject to an adjustment
      related to the income tax treatment of Colgan’s final ordinary income to the
      sellers.  The sellers have asserted that additional amounts of
      approximately $2,000 are owed.  The Company disagrees with their
      calculation and believes that no material additional amounts are
      owed.  The Company does not expect that this dispute will result in a
      material adjustment to its financial statements.  Any resulting
      settlement would be an adjustment to goodwill.





The
      following table reflects the preliminary allocation of the aggregate purchase
      price of the acquisition to the assets acquired and liabilities
      assumed.  Final valuations of the fair value of certain assets and
      liabilities are in process, and the Company will complete the allocation of
      the
      purchase price by the end of 2007.


**Purchase
                Price Allocation**Current
                assets
            
            $
            18,639Property
                and equipment
            
            
            50,299Other
                assets
            
            
            2,326Intangibles
            
            
            5,550Goodwill
            
            
            9,605Total
                assets acquired
            
            
            86,419Less:
                Accounts payable
            
            
            (13,221
            )Accrued
                expenses
            
            
            (12,869
            )Bank
                line of credit
            
            
            (8,375
            )Long-term
                debt and capital leases
            
            
            (30,460
            )Other
                liabilities
            
            
            (10
            )Purchase
                price, including $1,484 of transaction costs
            
            
            21,484Less:  Note
                payable issued
            
            
            (10,000
            )Less:  Cash
                acquired
            
            
            (1,181
            )Cash
                paid for acquisition
            
            $
            10,303





During
      2006, the Company paid $1,000 in escrow payments and $1,030 of transaction
      costs.  The remaining $8,273 was paid during the three months ended
      March 31, 2007.  The difference between the purchase price and the
      fair value of Colgan’s assets acquired and liabilities assumed is recorded as
      goodwill.  The Company attributes this goodwill to the opportunity to
      diversify its operations to include the three major airlines for which Colgan
      currently operates.  For tax purposes, goodwill is deductible over 15
      years.





The
      following is a summary of the Company’s intangible assets acquired through the
      Colgan purchase:





**Gross
                Carrying Amount**
            
            
            **Accumulated
                Amortization At**
              **September
                30, 2007**
            
            
            **Weighted
                Average Amortization Period**
              **(in
                years)**
            
            
            **Amortization
                Expense Through September 30, 2007**
            
            
            **Estimated
                Annual Amortization Expense for 2007 - 2011**Code-share
                andEAS
                agreements
            
            $
            3,900
            
            
            $
            260
            
            
            
            10
            
            
            $
            260
            
            
            $
            390Airport
                slots
            
            
            1,650
            
            
            
            110
            
            
            
            10
            
            
            
            110
            
            
            
            165Goodwill
            
            
            9,605
            
            
            
            -
            
            
            N/A
            
            
            
            -
            
            
            
            -Total
            
            $
            15,155
            
            
            $
            370
            
            
            
            
            
            
            $
            370
            
            
            $
            555





The
      Company also agreed to purchase from one of the selling shareholders two
      aircraft hangars located in Manassas, Virginia for a purchase price of $6,358,
      which approximates their fair value.  The Company presently leases the
      hangars and related property from the selling shareholder for approximately
      $59
      per month.  The Company expects the purchase transaction to close
      during 2007.





Colgan’s
      existing operations are subject to seasonal fluctuations.  Colgan has
      historically recorded losses during the first and fourth quarter each year,
      when
      demand for air travel declines, and recorded income or smaller losses during
      the
      second and third quarter each year, when air travel demand is
      higher.  The Company expects this seasonality to continue to impact
      Colgan’s financial results in future periods.





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





**2.  Acquisition
      of Colgan Air, Inc. (continued)**





The
      following unauditedpro forma information
      presents the results of operations of the Company for the three and nine months
      ended September 30, 2006 as if the acquisition of Colgan had taken place at
      the
      beginning of that period.  Because the acquisition of Colgan occurred
      early in the nine months ended September 30, 2007, pro forma information for
      that period is not presented.





**Three
                Months Ended September 30, 2006**
            
            
            **Nine
                Months Ended September 30, 2006**Operating
                revenues
            
            $
            260,527
            
            
            $
            765,112Operating
                income
            
            
            29,334
            
            
            
            71,574Net
                income
            
            
            17,660
            
            
            
            42,293Basic
                earnings per share
            
            $
            0.80
            
            
            $
            1.93Diluted
                earnings per share
            
            $
            0.80
            
            
            $
            1.92





**3.  Code-Share
      Agreements with Partners**





The
      following is a summary of the percentage of regional airline services revenue
      attributable to each code-share partner for the nine months ended September
      30,
      2007.





**Code-Share
                Partner**
            
            **Percentage
                of Regional Airline Services Revenue**Northwest
                Airlines
            
            
            77
            %US
                Airways
            
            
            13
            %Continental
                Airlines
            
            
            6
            %United
                Air Lines
            
            
            4
            %Delta
                Air Lines
            
            
            -Total
            
            
            100
            %





**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 as of 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.





The
      ASA
      provides for the Company to take delivery of 17 additional CRJ-200 aircraft
      during 2007.  The Company took delivery of 15 CRJ-200 aircraft during
      the three months ended March 31, 2007, increasing Pinnacle’s fleet to 139
      aircraft as of March 31, 2007.  Two additional CRJ-200s were scheduled
      to be delivered to the Company by the end of 2007.  The retention of
      these aircraft as permanent additions to the Company’s fleet was contingent upon
      the Company reaching an agreement with the Air Line Pilots Association (“ALPA”),
      the union representing Pinnacle’s pilots, for an amended collective bargaining
      agreement by March 31, 2007.  The Company did not reach agreement with
      ALPA, and, as a result, Northwest has given the Company notice that it will
      transition these 15 aircraft to one of its wholly owned subsidiaries beginning
      in November 2007 at a rate of two aircraft per month.  Further, the
      Company will not receive the two remaining aircraft originally scheduled to
      be
      delivered in 2007.





During
      the three months ended September 30, 2007, the Company and Northwest agreed
      to
      defer the transition of these 15 aircraft, originally scheduled to begin in
      September 2007, to allow Northwest to more efficiently introduce the aircraft
      into service at its wholly owned subsidiary.  In exchange, Northwest
      has agreed to pay the Company $1,500 to compensate it for the costs associated
      with the delay.  The Company recorded this payment as deferred
      revenue, which is being recognized ratably into operating revenue during the
      transition period, which is currently expected to extend through the second
      quarter of 2008.  Upon completion of this transition, Pinnacle will
      operate a fleet of 124 CRJ-200 aircraft under the ASA (subject to further
      adjustment under certain circumstances as provided for in the ASA).





Under
      the
      ASA, the Company receives the following payments from Northwest:





*Reimbursement
      payments*:  The Company receives monthly reimbursements for all
      expenses associated with its operations under the ASA and relating to: basic
      aircraft and engine rentals; aviation liability, war risk and hull insurance;
      third-party deicing services; CRJ-200 third-party engine and airframe
      maintenance; hub and maintenance facility rentals; passenger security costs;
      ground handling in cities where Northwest has ground handling operations;
      Detroit landing fees and property taxes.





The
      Company has no financial risk associated with cost fluctuations for these items
      because the Company is reimbursed by Northwest for the actual expenses
      incurred.  The ASA provides that Northwest will supply jet fuel to
      Pinnacle at no charge beginning January 1, 2007, although Pinnacle is still
      required to meet certain fuel usage targets.  As a result, fuel
      expense attributable to Northwest Airlink operations is no longer recorded
      in
      the Company’s condensed consolidated statements of income.  The
      Company purchased fuel from Northwest in previous periods and fuel expense
      was
      reimbursed by Northwest.  The Company subleases its CRJ-200 aircraft
      from Northwest and Northwest reimburses CRJ-200 aircraft rental expense in
      full.  Also effective January 1, 2007, Pinnacle’s aircraft lease rates
      were reduced to rates that approximated market conditions at that
      time.





*Payments
      based on pre-set rates*:  Under the ASA, the Company is entitled
      to receive semi-monthly payments for each block hour and departure it completes
      and a monthly fixed cost payment based on the size of its
      fleet.  These payments are designed to cover all of the Company’s
      expenses incurred with respect to the ASA that are not covered by the
      reimbursement payments.  The substantial majority of these expenses
      relate to labor costs, ground handling costs in cities where Northwest does
      not
      have ground handling operations, landing fees in cities other than Detroit,
      overhead and depreciation.  These rates will be in effect (subject to
      indexed annual inflation adjustments) until 2013, when the rates will be
      reset.





*Margin
      payments*:  The Company receives a monthly margin payment based on
      the revenues described above calculated to achieve a target operating
      margin.  The target operating margin for the year ended December 31,
      2006 was 10%.  Under the ASA, effective January 1, 2007, Pinnacle’s
      Northwest Airlink target operating margin was reduced to 8%.  The
      portion of any margin payments attributable to the reimbursement payments will
      always be equal to the targeted operating margin for the relevant
      period.  However, since the margin pre-set rate payments are not based
      on the actual expenses incurred, if the Company’s actual expenses differ from
      these payments, its actual operating margin could differ from its target
      operating margin.





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





**3.  Code-Share
      Agreements with Partners (continued)**





Through
      2007, if the Company’s actual costs that are intended to be covered by the
      revenues it receives based on pre-set rates deviate from the expected costs
      used
      in developing those pre-set rates causing Pinnacle’s Northwest Airlink annual
      operating margin to be below the 6% floor or above the 10% ceiling, a year-end
      adjustment in the form of a payment to or from Northwest will be made to adjust
      the Company’s operating margin to the floor or ceiling.  Specified
      amounts are excluded when determining whether the annual operating margin is
      below the floor or above the ceiling, such as the deferred ASA revenue described
      in Note 4.  Beginning in 2008, Northwest will not guarantee Pinnacle’s
      minimum operating margin, although Pinnacle will be subject to a margin ceiling
      above the revised target operating margin.  If the actual operating
      margin associated with Northwest Airlink operations for any year beginning
      with
      2008 exceeds the 8% target operating margin but is less than 13%, the Company
      will make a year-end adjustment payment to Northwest in an amount equal to
      half
      of the excess above 8%.  If the actual operating margin associated
      with Northwest Airlink operations for any year beginning with 2008 exceeds
      13%,
      the Company will pay Northwest all of the excess above 13% and half of the
      excess between 8% and 13%.  The ASA contains a provision requiring the
      Company to allocate its overhead costs after adding 24 regional aircraft with
      other partners, thereby providing for a rate reduction to
      Northwest.





The
      Company has the obligation to purchase from Northwest certain manufacturer
      credits that are used by the Company to acquire flight equipment, spare parts
      and supplies and maintenance services.  Under the ASA, the Company
      could decline to purchase credits that it does not plan to utilize within 180
      days.  During the nine months ended September 30, 2007, the Company
      obtained manufacturer credits from Northwest in the amount of
      $6,448.  Available manufacturer credits of $855 are included in
      prepaid expenses and other assets on the Company’s condensed consolidated
      balance sheet as of September 30, 2007.





The
      Company is currently engaged in discussions with Northwest involving various
      disputed payments under the ASA, including items that relate to the period
      prior
      to execution of the ASA in January 2007.  Two of these items could affect
      the Company’s operating income in future periods.  The first item relates
      to a 2006 adjustment to the Company’s block hour, cycle, and fixed cost
      rates.  The Company’s annual operating income could increase or decrease by
      approximately $2,800 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 $2,000 per year.





If
      the
      Company is unable to resolve these issues directly with Northwest, the parties
      may enter into an arbitration process or other form of legal dispute
      resolution.  Adverse determinations in these matters could result in a loss
      to the Company of up to $8,400 for disputed amounts through September 30,
      2007.  The Company believes that we will prevail in these matters, and
      therefore it does not believe a loss is probable at this time.  However,
      the Company may not be successful in resolving these disputes without reducing
      its income going forward, or without paying Northwest for some or all of the
      amount noted above.  The Company cannot currently predict the timing of the
      resolution of these matters.





**US
      Airways**





As
      of
      September 30, 2007, the Company, through its Colgan subsidiary, operated 20
      Saab
      340 aircraft and seven Beech 1900D aircraft under a code-share agreement with
      US
      Airways (the “US Airways Agreement”).  Colgan entered into the US
      Airways Agreement in 1999 to provide passenger service and cargo service under
      the name “US Airways Express.”  The US Airways Agreement provides the
      Company with the use of the US Airways flight designator code to identify
      flights and fares in computer reservations systems, permits use of logos,
      service marks, aircraft paint schemes, and uniforms similar to US Airways and
      coordinated scheduling and joint advertising.  The US Airways
      Agreement is structured as a pro-rate agreement for which the Company receives
      all of the fares associated with its local passengers and an allocated portion
      of connecting passengers’ fares.  The Company pays all of the costs of
      operating the flights, including sales and distribution costs.  The
      Company controls all scheduling, inventory and pricing for each local market
      it
      serves.  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
      US
      Airways Agreement provides US Airways first right of initial refusal should
      the
      Company receive an offer to purchase or lease slots at Ronald Reagan National
      Airport in Washington, D.C. or LaGuardia International Airport in New York,
      New
      York or an offer to purchase any portion of an equity interest in Colgan, except
      for stock sale or transfer between former Colgan shareholders and their
      families.  US Airways waived its right of first refusal to purchase
      Colgan prior to the Company’s acquisition of Colgan.





**Continental
      Airlines**





As
      of
      September 30, 2007, the Company, through its Colgan subsidiary, operated 11
      Saab
      340 aircraft based in Houston, Texas under a code-share agreement with
      Continental (the “Continental Agreement”).  Colgan entered into the
      Continental Agreement in January 2005 for a term of five years.  The
      Continental Agreement is structured as a pro-rate agreement for which the
      Company receives all of the fares associated with local passengers and an
      allocated portion of the connecting passengers’ fares.  The Company
      pays all of the costs of operating the flights, including sales and distribution
      costs.  However, the Company also receives a connect incentive payment
      from Continental for passengers connecting from Colgan operated flights to
      any
      flights operated by Continental or its other code-share partners at
      Houston/George Bush Intercontinental Airport.  The connect incentive
      is modified every six months to adjust for prospective modifications in fuel
      price and certain station expenses.





On
      February 5, 2007, the Company entered into a capacity purchase agreement (the
      “CPA”) with Continental under which Colgan will operate 15 Q400 regional
      aircraft predominantly out of Continental’s hub at Newark Liberty International
      Airport beginning in January 2008.  The CPA provides that the Company
      will be compensated at pre-set rates for the capacity that it provides to
      Continental.  The Company is responsible for its own expenses
      associated with flight crews, maintenance, dispatch, aircraft ownership and
      general and administrative costs.  In addition, Continental will
      reimburse the Company without margin for certain reconciled costs, such as
      landing fees, most other station-related costs, aircraft hull and passenger
      liability insurance (provided that the Company’s insurance rates do not exceed
      those typically found at other Continental regional airline partners) and
      passenger related costs.  Continental will also provide fuel and
      ground handling services at its stations to the Company at no
      charge.  The CPA also provides for certain incentive payments from or
      penalty payments to Continental based upon operational performance
      targets.  The term of the CPA is ten years.





The
      CPA
      provides for a rate reduction to Continental to the extent that the Company
      begins operating Q400 aircraft for another major airline.  The rate
      reduction is designed to share the overhead burden associated with the Q400
      aircraft across all of the Company’s potential Q400 operations and is only
      applicable for the first 15 aircraft that the Company adds with another
      airline.





**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 and the US Airways 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”).  As of
      September 30, 2007, the Company operated six Saab 340 aircraft under the name
      “United Express.”  The United Agreement expires on December 31, 2008
      and is structured as a pro-rate agreement for which the Company receives all
      of
      the fares associated with local passengers and an allocated portion of the
      connecting passengers’ fares.  The Company pays all of the costs of
      operating the flights, including sales and distribution costs.  The
      Company controls all scheduling, inventory and pricing for each local market
      it
      serves.





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





**3.  Code-Share
      Agreements with Partners (continued)**





**Delta
      Air Lines**





On
      April
      27, 2007, the Company entered into an agreement with Delta Air Lines to operate
      16 CRJ-900 aircraft as a Delta Connection Carrier (the “Delta Connection
      Agreement”, or “DCA”).   The aircraft will be delivered between
      October 2007 and February 2009, with scheduled service expected to begin in
      December 2007.  The term of the DCA is ten years.  Pursuant
      to the DCA, Delta will assign 16 delivery positions to the Company under Delta’s
      purchase agreement with the aircraft manufacturer.  Delta also has the
      option to add an additional seven CRJ-900 aircraft under the DCA.  The
      Company’s Pinnacle subsidiary will operate the CRJ-900 aircraft under the
      DCA.





The
      DCA
      provides for Delta to pay pre-set rates to the Company based on the capacity
      provided to Delta.  The Company will be responsible for the costs of
      flight crews, maintenance, dispatch, aircraft ownership and general and
      administrative costs.  In addition, Delta will reimburse the Company
      for certain pass-through costs, including landing fees, most station-related
      costs and aircraft hull and general liability insurance.  In most
      instances, Delta will provide fuel and ground handling services free of
      charge.  The Company will earn incentive payments (calculated as a
      percentage of the payments received from Delta) if it meets certain performance
      targets.  The DCA also provides for reimbursements to Delta annually
      to the extent that the Company’s actual pre-tax margin on its Delta Connection
      operations exceeds certain thresholds.





**Other**





The
      Company’s Colgan subsidiary has five Saab 340 aircraft that are not painted for
      any code-share partner.  These aircraft are operated as spare aircraft
      and used on an as needed basis, with two being reserved for US Airways flights,
      two reserved for Continental flights, and one reserved for United
      flights.





In
      addition to the code-share agreements described above, the Company operates
      under eight separate contracts with the DOT to provide subsidized air service
      to
      15 communities as part of the EAS program.  The DOT, under the EAS
      contracts, provides subsidy revenue to the carrier to supplement passenger
      revenue in small markets that could otherwise not be served
      profitably.  Revenue related to the EAS program is included in other
      revenue in the Company’s condensed consolidated statements of
      income.





**4.  Northwest
      Bankruptcy Filing**





On
      September 14, 2005, Northwest filed for protection under Chapter 11 of the
      United States Bankruptcy Code. Throughout 2006, the Company continued to operate
      under its 2002 ASA while Northwest continued with its bankruptcy
      proceedings.  On December 15, 2006, the Company and Northwest agreed
      to the terms of an amended ASA that became effective as of January 1, 2007,
      and
      entered into an Assumption and Claims Resolution Agreement (the “Assumption
      Agreement”).  In addition, the Company entered into a Stock Purchase
      Agreement pursuant to which it will purchase its Series A Preferred Share (the
      “Preferred Share”) currently held by Northwest on January 2, 2008 for a purchase
      price of $20,000.  The Preferred Share has a stated value and
      liquidation preference of $100 per share and gives Northwest the right to
      appoint two directors to the Company’s board of directors, as well as certain
      other rights.  No dividends are payable to the shareholder of the
      Preferred Share.





Under
      the
      Assumption Agreement, Northwest and the Company agreed that the Company would
      receive an allowed unsecured claim of $377,500 against Northwest in its
      bankruptcy proceedings as settlement of all amounts that Northwest may owe
      to
      the Company for pre-petition claims and the economic adjustments provided for
      in
      the ASA. **The claim would have been reduced by up to $42,500 if
      the Company had reached an agreement with ALPA for an amended collective
      bargaining agreement by March 31, 2007 and Northwest had committed to maintain
      17 additional CRJ-200 aircraft in the Company’s fleet for up to ten
      years.  On January 3, 2007, the Company agreed to assign an aggregate
      of
      $335,000 of its $377,500 stipulated unsecured claim to several third parties
      for
      aggregate proceeds of approximately $282,900, net of expenses.  At
      March 31, 2007, the Company estimated the fair value of its remaining $42,500
      claim to be approximately $31,900, for a total expected value for the entire
      stipulated unsecured claim of approximately $314,800.





The
      unsecured claim of $377,500 was intended to compensate the Company for foregone
      future earnings under the 2002 ASA, and amounts owed at the time of Northwest’s
      bankruptcy.  As such, the Company has deferred the fair value of its
      stipulated unsecured claim in excess of the pre-petition receivables over the
      11-year term of the ASA.  The Company applied approximately $42,900 of
      the total claim value to its pre-petition receivables from Northwest, and
      deferred the remaining $271,900 over the remaining 11-year term of the
      ASA.





Additionally,
      as the Preferred Share was only determined to have a nominal fair value, the
      Company has determined its agreement to pay $20,000 to purchase this share
      should be treated as a payment in respect of entering into the amended
      ASA.  Consequently, the Company reduced the deferred ASA revenue by
      the present value of this obligation.  During the three and nine
      months ended September 30, 2007, the Company recognized $5,768 and $16,562
      of
      deferred ASA revenue, respectively, as regional airline services
      revenue.  The Company expects to recognize additional revenue of
      $5,768 during the remainder of 2007 and approximately $23,000 per year in 2008
      through 2017.  The balance of unrecognized deferred revenue is
      $236,480 as of September 30, 2007.





On
      June
      29, 2007, the Company sold the final $42,500 of its unsecured claim against
      Northwest to Goldman Sachs Credit Partners L.P. (“Goldman Sachs”) for a net
      purchase price of $27,731.  Under the agreement, Goldman Sachs
      received the 941 shares of new Northwest common stock that the Company had
      previously received in respect of the assigned portion of the stipulated claim,
      and will receive all future distributions made in respect of the assigned
      portion of the stipulated claim pursuant to Northwest’s plan of
      reorganization.  During the three months ended June 30, 2007, the
      Company recognized a nonoperating loss on the sale of this claim of $4,144,
      which represents the difference between the $31,875 fair value of the claim
      as
      of March 31, 2007 and the sale proceeds of $27,731.





**5.  Mesaba
      Bankruptcy Filing**





Mesaba
      Aviation, Inc. (“Mesaba”) filed for bankruptcy protection under Chapter 11 of
      the United States Bankruptcy Code on October 13, 2005.  At that time,
      the Company subleased 11 Saab turboprop aircraft and two related engines to
      Mesaba under agreements that were to expire at various times between 2006 and
      2009.  In January 2006, Mesaba rejected the subleases of the aircraft
      and returned the aircraft to the Company.





In
      2005
      and 2006, the Company recorded losses of approximately $15,250, (or
      approximately $8,840 net of recoveries from the assignment of the claim, as
      discussed below), following Mesaba’s rejection of the sublease agreements on the
      Saab aircraft. These provisions for sublease losses considered estimates of
      market rental rates, costs necessary to restore the aircraft to a condition
      suitable for sublease and recoveries expected through the Mesaba
      bankruptcy.





On
      October 4, 2006, the Company entered into an assignment of claim agreement
      with
      Goldman Sachs (the “Goldman Agreement").  In the Goldman Agreement,
      the Company assigned to Goldman Sachs all of its rights with respect to its
      deficiency claim against Mesaba as set forth in the proof of claim filed in
      bankruptcy court.  Goldman Sachs agreed to pay the Company 42% of the
      final allowed claim, which ultimately will be determined by a final order in
      Mesaba's bankruptcy proceedings.  On October 5, 2006, Goldman Sachs
      advanced to the Company $5,234, which is equal to 80% of the purchase price
      based on the claim amount set forth in the Company’s original proof of
      claim.  The Goldman Agreement contains a provision for an additional
      payment from (or payment to) Goldman Sachs once the final allowed amount of
      the
      claim is determined.  Should the Company’s ultimate claim against
      Mesaba be less than the estimate contained in the Goldman Agreement, it will
      be
      required to pay Goldman Sachs the difference plus interest.





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


5.  Mesaba Bankruptcy Filing
      (continued)





On
      February 7, 2007, Mesaba filed an objection to the Company’s proof of claim,
      alleging that, among other things, the Company failed to mitigate its damages
      by
      subleasing the aircraft to a third party or returning the aircraft to the
      Company’s lessor, and that the Company may have received a portion of its
      damages through its claim settlement with Northwest.  The Company
      subsequently filed an amended proof of claim in the Mesaba bankruptcy
      proceedings, increasing its damages for actual realized return condition costs
      and for stipulated damages as provided for in each aircraft
      sublease.  The Company, Goldman Sachs and Mesaba have had informal
      settlement discussions, but have not reached a settlement.  A hearing
      to consider the merits of whether the Company is entitled to a claim for
      stipulated loss damages was held in September 2007, but the bankruptcy court
      considering the issue has not yet rendered a ruling.  The final
      disposition of the claim amount will be determined through the bankruptcy court,
      and the Company does not expect the matter to be resolved until early
      2008.





The
      Company believes that its claim against Mesaba has been properly asserted and
      does not expect the resolution of this matter to result in a material adjustment
      to the Company’s financial statements.





During
      the three months ended June 30, 2007, the Company incurred expenses higher
      than
      previous estimates to refurbish the six Saab aircraft that were recently
      returned to their lessor.  After acquiring Colgan, the Company
      determined that it would place the two Saab aircraft that have leases extending
      through 2009 into service at Colgan.  Because the Company will
      continue to operate these aircraft, the provision for future sublease losses
      on
      these two aircraft was reduced to $0 during the first quarter of
      2007.  This adjustment, combined with the above described changes in
      the second quarter, increased the Company’s operating income, net income and
      diluted EPS by $1,048, $660 and $0.03, respectively, for the nine months ended
      September 30, 2007.





Additionally,
      the Company incurred maintenance expense of $30 and $1,196 for the three and
      nine months ended September 30, 2007, respectively, related to the refurbishment
      of the two aircraft that will now be operated by Colgan.  Pinnacle
      also incurred aircraft rental expense, prior to placing these aircraft into
      service at Colgan, of $530 for the nine months ended September 30,
      2007.





The
      Company does not expect to incur any future sublease losses as of September
      30,
      2007.  The Company’s expected recovery from the Mesaba bankruptcy of
      $1,167 is included in prepaid expenses and other assets on the Company’s
      condensed consolidated balance sheet as of September 30, 2007.  The
      Company’s accrued future sublease losses, net of expected recoveries, at
      December 31, 2006 are included in other current liabilities in the amount of
      $6,282 and other liabilities in the amounts of $657 on the Company’s condensed
      consolidated balance sheet.





**6.  Related
      Party Transactions**





**Northwest**





As
      discussed in Note 3, Northwest is a related party of the Company.  The
      Company generated 72% and 75%, respectively, of its consolidated operating
      revenue from Pinnacle’s ASA with Northwest for the three and nine months ended
      September 30, 2007.  Under the ASA, Pinnacle uses the name "Northwest
      Airlink" on its flights, and leases all of its CRJ-200s from
      Northwest.  Northwest is the owner of 2,492 shares, or 11%, of the
      Company’s issued common stock and is the holder of the Preferred
      Share.





Amounts
      recorded in the Company’s condensed consolidated statements of income for
      transactions with Northwest for the periods indicated are as
      follows:





**Three
                Months Ended**
              **September
                30,**
            
            
            **Nine
                Months Ended**
              **September
                30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006****Revenue:**Regional
                airline services revenue
            
            $
            148,167
            
            
            $
            206,827
            
            
            $
            435,923
            
            
            $
            614,643Other
                revenue
            
            
            1,749
            
            
            
            1,107
            
            
            
            5,434
            
            
            
            3,598**Expenses:**Aircraft
                fuel
            
            
            -
            
            
            
            27,923
            
            
            
            -
            
            
            
            81,573Aircraft
                rentals
            
            
            32,623
            
            
            
            66,031
            
            
            
            96,814
            
            
            
            198,093Other
                rentals and landing fees
            
            
            2,813
            
            
            
            2,813
            
            
            
            8,439
            
            
            
            8,439Ground
                handling services
            
            
            14,727
            
            
            
            16,008
            
            
            
            44,004
            
            
            
            47,677Commissions
                and passenger related expenses
            
            
            31
            
            
            
            66
            
            
            
            145
            
            
            
            256Other
            
            
            22
            
            
            
            7
            
            
            
            92
            
            
            
            248Provision
                for increases (decreases) in losses associated with bankruptcy filings
                of  Northwest and Mesaba
            
            
            -
            
            
            
            23
            
            
            
            33
            
            
            
            (1,529
            )





Net
      amounts due from Northwest as of September 30, 2007 and December 31, 2006 were
      $45,267 and $100,062, respectively, and are included in receivables in the
      Company’s condensed consolidated balance sheets.





The
      higher than normal receivable balances at both December 31, 2006 and September
      30, 2007 resulted from the receipt of the normal month-end payments from
      Northwest totaling $31,927 on January 2, 2007, and $21,393 on October 1, 2007,
      due to the fact that the contractual payment dates of both months fell on a
      weekend.  The balance at December 31, 2006 also included pre-petition
      receivables, net of allowances, of $42,849, which were settled upon the
      assignment of the Northwest claim in January 2007.





Certain
      trade amounts, primarily relating to landing fees, ground handling and
      facilities rentals, due to Northwest as of September 30, 2007 and December
      31,
      2006 were $3,420, and $3,170, respectively, and are included in accounts payable
      in the Company’s condensed consolidated balance sheets.





The
      Company also has certain business transactions with Mesaba, which as of April
      24, 2007, became a wholly owned subsidiary of Northwest.  Ground
      handling services obtained from Mesaba for the three and nine months ended
      September 30, 2007 were $4,725 and $13,732, respectively, and $3,878 and $12,522
      for the respective periods of the prior year.  Ground handling and
      deicing services provided to Mesaba for the three and nine months ended
      September 30, 2007 totaled $253 and $1,009, respectively, and $298 and $1,325
      for the respective periods of the prior year.  These amounts are
      included in other operating revenue in the Company’s condensed consolidated
      statements of income.





**Other**





The
      Company obtains certain avionics services from a business owned by one of
      Colgan’s selling shareholders.  For the three and nine months ended
      September 30, 2007, this related business provided avionics services to the
      Company in the amount of $333 and $1,015, respectively, and the balance owed
      by
      the Company for these services at September 30, 2007 was $28.





The
      Company has entered into arrangements with certain selling shareholders of
      Colgan for leases of real property, primarily office and hangar
      space.  The amounts paid to these selling shareholders under these
      leases totaled $276 and $783, respectively, for the three and nine months ended
      September 30, 2007.  As discussed in Note 2, the Company has agreed to
      purchase a portion of this property during 2007 for a purchase price of
      $6,358.





In
      February 2006, Colgan entered into a sale-leaseback transaction with a related
      party of Colgan for two of its Saab 340 aircraft.  The monthly payments on
      each of the leases are $29 and expire in February 2013.





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





**7.  Debt**





The
      following table summarizes the Company’s debt as of September 30,
      2007:


**Debt**Short-term
                notes payable
            
            $
            5,010Line
                of credit
            
            
            8,375Pre-delivery
                payment facility
            
            
            35,011Total
                short-term debt
            
            $
            48,396Senior
                convertible notes
            
            $
            121,000Secured
            
            
            15,350Unsecured
            
            
            1,470Total
                long-term debt
            
            
            137,820Less
                current maturities
            
            
            (5,752
            )Long-term
                debt, net of current maturities
            
            $
            132,068





**Notes
      Payable**





Short-term
      notes payable consists primarily of the current balance of $5,000 of the $10,000
      one-year promissory note issued by the Company in connection with its
      acquisition of Colgan, as discussed in Note 2.  Long-term notes
      payable consists of secured and unsecured debt and includes current maturities
      of $5,752.  The secured debt is collateralized by aircraft, aircraft
      parts and other assets, with interest rates ranging from 7.7% to 8.6% and
      maturities through 2014.  The unsecured debt has interest rates
      ranging from 3.1% to 4.2% with maturities through 2008.





On
      April
      25, 2007, the Company repaid in full outstanding notes with a third party
      secured by nine of the Company’s Saab 340 aircraft, which had a balance of
      $7,251 as of March 31, 2007.  The notes were payable in various
      installments through 2009 and had interest rates of 12.5% to 13.0%.





**Line
      of Credit**





The
      Company maintains a 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.  This instrument has an interest rate of
      Prime plus 0.25%.  In June 2007, the Company extended the termination
      date of the loan to April 15, 2008.  Amounts outstanding under the
      line of credit were $8,375 at September 30, 2007.





**Pre-delivery
      Payment Financing Facility**





In
      September 2007, the Company executed a pre-delivery payment financing facility
      with Export Development Canada (“EDC”) for up to $41,500 in short term
      borrowings.  The outstanding balance as of September 30, 2007 was
      $35,011, which related to pre-delivery payments that the Company previously
      made.  Borrowings under the pre-delivery payment facility will bear
      interest at the 3-month LIBOR rate plus 1.65%, which was 7.35% as of September
      30, 2007.  The Company will repay the borrowings as each aircraft is
      delivered and as the aircraft manufacturer refunds the pre-delivery payments
      to
      the Company.





**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").  The Notes are convertible into a combination of cash and
      common stock at a conversion price of $13.22.  The Notes become
      convertible in any quarter subsequent to a quarter in which the closing price
      of
      the Company’s common stock exceeds the trigger price of $15.86, which is
      calculated as 120% of the conversion price, for 20 of the last 30 trading
      days.





The
      conditions described above were met during the first and second quarters of
      2007, thereby causing the Notes to become convertible at the option of each
      Note
      holder during the second and third quarters of 2007.  The conditions
      were not met during the third quarter of 2007; therefore, the Notes will not
      be
      convertible in the fourth quarter of 2007.  As a result, the Notes are
      classified as a noncurrent liability on the Company’s condensed consolidated
      balance sheet at September 30, 2007.  The excess of the Company's
      average common stock price for the period over the conversion price of $13.22
      increases the weighted average number of shares outstanding for diluted earnings
      per share.  See Note 11 for additional information regarding the
      dilutive effect of the Notes’ conversion rights.  No Notes were
      tendered for conversion during the periods in which they were
      convertible.





Prior
      to
      February 15, 2010, the Company cannot redeem the Notes at its
      option.  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 (“Redemption Dates”) at a purchase price equal to 100% of their principal
      amount plus accrued and unpaid interest, if any, to the purchase date. The
      Notes
      are structured such that, upon the occurrence of certain events, holders may
      convert the Notes into the equivalent value of the Company's common stock at
      an
      initial conversion rate of 75.6475 shares per $1,000 principal amount of Notes,
      representing an initial conversion price of $13.22 per share.





Upon
      conversion, the Company will pay the holder all or a portion of a conversion
      value in cash up to the $1,000 principal amount.  To the extent that
      the conversion value exceeds the $1,000 principal amount, the excess will be
      settled in cash, common stock or a combination of both, at the Company's
      option.





*Proposed
      Accounting Standard.*On July 25, 2007, the Financial Accounting
      Standards Board (“FASB”) agreed to issue for comment a proposed FASB Staff
      Position (“FSP”) addressing convertible instruments that may be settled in cash
      upon conversion (including partial cash settlement).  This proposed
      guidance, if issued in final form, will dramatically impact the accounting
      for
      these instruments.  The proposed FSP would require companies to
      separately account for the liability and equity components of the instrument
      in
      a manner that reflects the company’s economic cost.  The proposed FSP
      would require bifurcation of a component of the debt to result in classification
      of that component in equity and the “economic interest cost” being reflected in
      the statement of income. The Company is evaluating the proposed standard and
      its
      potential impact on the Notes and the Company’s financial
      statements.  If passed, this FSP would become effective for fiscal
      years beginning after December 15, 2007, would not permit early application,
      and
      would be applied retrospectively to all periods presented.





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





**8.  Leases**





**Capital
      Leases**





The
      Company leases certain aircraft equipment, buildings and office equipment under
      noncancelable capital leases that expire on various dates through
      2013.  Under these capital leases, an obligation is shown on the
      Company’s condensed consolidated balance sheets for the present value of the
      future minimum payments.  At September 30, 2007, the weighted average
      interest rate implied in these leases was approximately 9.6%, and the net book
      value of the assets associated with the capital leases was $5,522.





The
      following table summarizes approximate minimum future rental payments for the
      Company, by year and in the aggregate, together with the present value of net
      minimum lease payments as of September 30, 2007:


**Capital****Leases**Remainder
                of 2007
            
            $
            3852008
            
            
            1,5112009
            
            
            1,3052010
            
            
            1,3092011
            
            
            776Thereafter
            
            
            877Total
                future rental payments
            
            
            6,163Amount
                representing interest
            
            
            (1,110
            )Present
                value of future lease payment
            
            
            5,053Less:  current
                maturities
            
            
            (1,112
            )Capital
                leases, net of current maturities
            
            $
            3,941





**Operating
      Leases**





As
      discussed in Note 3, the Company subleases its CRJ-200 aircraft and related
      engines from Northwest under operating leases that expire December 31,
      2017.  The lease agreements contain certain requirements of the
      Company regarding the payment of taxes on the aircraft, acceptable use of the
      aircraft, the level of insurance to be maintained, the maintenance procedures
      to
      be performed and the condition of the aircraft upon its return to
      Northwest.  Pursuant to the ASA, Northwest reimburses Pinnacle’s
      aircraft rental expense in full.





As
      discussed in Note 5, 11 Saab 340 aircraft were previously subleased to
      Mesaba.  In January 2006, Mesaba rejected the subleases of the
      aircraft and returned them to Pinnacle.  Two of the 11 aircraft leases
      expired in the fourth quarter of 2006 and seven of the aircraft leases expired
      in the first quarter of 2007.  The Company’s Colgan subsidiary will
      operate the two remaining aircraft until the expiration of their related
      subleases in January 2009.





The
      Company currently leases seven Beech 1900D aircraft, two of which are being
      prepared to return to the lessor.  The aircraft are subject to
      60-month leases ending in 2007 and 2010, but allow the Company the option to
      early terminate these leases.  The Company has begun returning these
      aircraft, with the last aircraft expected to be returned by the end of
      2008.  The Company also leases 17 of its 42 Saab 340 aircraft under
      operating leases.  Ten of the lease agreements allow the Company to
      terminate the agreements at various points from 2007 through
      2011.  These aircraft lease agreements generally provide that the
      Company pay taxes, maintenance, insurance and other operating expenses
      applicable to leased assets.  The leases require aircraft to be in a
      specified maintenance condition at lease termination or upon return of the
      aircraft.





The
      Company’s non-aircraft operating leases primarily related to facilities and
      office equipment.





The
      following summarizes approximate minimum future rental payments, by year and
      in
      the aggregate, required under noncancelable operating leases with initial or
      remaining lease terms in excess of one year as of September 30,
      2007.





**Operating
                Leases****Aircraft**
            
            
            **Non-aircraft**
            
            
            **Total**Remainder
                of 2007
            
            $
            33,464
            
            
            $
            4,542
            
            
            $
            38,0062008
            
            
            120,835
            
            
            
            17,281
            
            
            
            138,1162009
            
            
            115,297
            
            
            
            16,634
            
            
            
            131,9312010
            
            
            113,323
            
            
            
            16,299
            
            
            
            129,6222011
            
            
            113,088
            
            
            
            15,894
            
            
            
            128,982Thereafter
            
            
            678,528
            
            
            
            34,765
            
            
            
            713,293Total
                future rental payments
            
            $
            1,174,535
            
            
            $
            105,415
            
            
            $
            1,279,950





**9.  Derivatives**





The
      Company is exposed to interest rate risk over the next 15 months while it is
      taking delivery of the Q400 and CRJ-900 aircraft.  To mitigate the
      financial risk associated with changes in long-term interest rates, the Company
      initiated a cash flow hedging program on July 30, 2007.  The program
      consists of interest rate swaps whereby the Company agrees to pay a fixed
      interest rate and receive the six month LIBOR rate.  The Company
      recorded these instruments at fair market value, and recognized changes in
      the
      fair value as a loss in OCI, net of taxes.  Each hedge will be cash
      settled when the permanent financing is obtained at the time of delivery of
      each
      aircraft, at which time the remaining hedge-related OCI balance will be
      amortized into interest expense over the life of the aircraft
      financing.  The term of each cash flow hedge varies between four
      months and nine months.





As
      of
      November 1, 2007, the Company has hedged a notional amount of approximately
      $315,000 or 56% of the $560,000 it expects to finance, at an average interest
      rate of approximately 7.07%.





The
      table
      below is a summary of the Company’s cash flow hedges as of September 30,
      2007:


**Three
                and Nine Months Ended September 30, 2007**Hedge
                effectiveness net losses recognized in interest expense
            
            $
            -Hedge
                ineffectiveness net losses recognized in interest expense
            
            $
            51Other
                hedge net losses recognized in OCI, net of tax
            
            $
            1,939Notional
                amount hedged
            
            $
            234,119Percentage
                of anticipated debt financing for firm noncancelable
                aircraft
            
            
            42
            %Average
                interest rate
            
            
            7.12
            %





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





**10.  Comprehensive
      Income**





The
      following table summarizes the Company’s OCI for the three and nine months ended
      September 30, 2007:


**Three
                Months Ended September 30, 2007**
            
            
            **Nine
                Months Ended September 30, 2007**Net
                income
            
            $
            10,904
            
            
            $
            27,931Adjustments:Less:
                Cash flow hedge
            
            
            (1,939
            )
            
            
            (1,939
            )Total
                comprehensive income
            
            $
            8,965
            
            
            $
            25,992





**11.  Earnings
      Per Share**





Basic
      earnings per share (“EPS”) is computed by dividing net income available to
      common stockholders by the weighted average number of common shares outstanding
      during the periods presented.  Diluted EPS reflects the potential
      dilution that could occur if securities or other obligations to issue common
      stock were exercised or converted into common stock or resulted in the issuance
      of common stock that then shared in the earnings of the Company.





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





**Three
                Months Ended**
              **September
                30,**
            
            
            **Nine
                Months Ended**
              **September
                30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Net
                income
            
            $
            10,904
            
            
            $
            15,837
            
            
            $
            27,931
            
            
            $
            41,024Basic
                earnings per share
            
            $
            0.53
            
            
            $
            0.72
            
            
            $
            1.31
            
            
            $
            1.87Diluted
                earnings per share
            
            $
            0.48
            
            
            $
            0.72
            
            
            $
            1.17
            
            
            $
            1.87Share
                computation:Weighted
                average number of shares outstanding for basic EPS  (1)
            
            
            20,470
            
            
            
            21,945
            
            
            
            21,398
            
            
            
            21,945Senior
                convertible notes (2)
            
            
            1,940
            
            
            
            -
            
            
            
            2,229
            
            
            
            -Share-based
                compensation (3)
            
            
            134
            
            
            
            45
            
            
            
            236
            
            
            
            36Weighted
                average number of shares outstanding for diluted EPS
            
            
            22,544
            
            
            
            21,990
            
            
            
            23,863
            
            
            
            21,981





(1)
            On
                May 14, 2007, the board of directors of the Company authorized a
                share
                repurchase program, whereby the Company repurchased an aggregate
                of
                $30,000 of its outstanding shares.  On August 8, 2007, the board
                of directors authorized an additional $30,000.  During the three
                and nine months ended September 30, 2007, the Company repurchased
                474 and
                1,958 shares, respectively, of its own common stock, of which the
                weighted
                average number of shares repurchased during the current period are
                excluded from basic EPS.  The Company accounted for the
                repurchase of this treasury stock using the cost
                method.





(2)
            Dilution
                is calculated as follows:


Three
                Months Ended
              September
                30, 2007
            
            Nine
                Months Ended
              September
                30, 2007Increase
                in fully diluted share count=
            
            $121,000
              $13.22
                (a)
            -
            $121,000
              $16.774(b)
            
            $121,000
              $13.22(a)
            -
            $121,000
              $17.476(c)(a)$13.22
                = Conversion price of the Notes(b)$16.774
                = Average stock price for the three months ended September 30,
                2007(c)$17.476
                = Average stock price for the nine months ended September 30,
                2007


(3)
            Options
                to purchase 653 and 935 shares of common stock were excluded from
                the
                diluted EPS calculation at September 30, 2007 and 2006, respectively,
                because their effect would be
                anti-dilutive.





**12.  Share-Based
      Compensation**





In
      January 2007, the Company granted 203 stock options with an exercise price
      of
      $16.76 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 $8.57
      per
      share.  This fair value was estimated at the date of grant with the
      following assumptions for 2007: risk-free interest rate of 4.6%, dividend yield
      of 0.0%, expected volatility of the Company’s common stock of 53.5% and expected
      life of the options of 5.0 years.  Total expense to be recognized over
      the vesting period, net of expected forfeitures of 10%, is $1,566.





In
      January 2007, the Company awarded 76 shares of restricted stock to certain
      officers and members of the board of directors.  Using the
      straight-line method, the fair value of $1,279 is being expensed ratably over
      the three-year vesting period.  The grant date fair value of these
      shares was $16.76 per share, which was the closing stock price on the date
      of
      grant.





During
      the three and nine months ended September 30, 2007, the Company recognized
      $369
      and $1,095 of share-based compensation expense, and $78 and $227 for the same
      respective periods of the prior year.





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





**12.  Share-Based
      Compensation (continued)**





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





**Stock
                Options****Shares**
            
            
            **Weighted
                Average Exercise Price**
            
            
            **Fair Value**
            
            **Weighted
                Average**
              **Remaining
                Life**
            
            **Aggregate
                Intrinsic Value**Outstanding
                at January 1, 2007
            
            
            934
            
            
            $
            11.57
            
            
            $
            6,530Granted
            
            
            203
            
            
            $
            16.76
            
            
            $
            1,740Exercised
            
            
            (245)
            
            
            $
            11.78
            
            
            $
            (1,752
            )Forfeited
            
            
            -
            
            
            
            -
            
            
            
            -Outstanding
                at September 30, 2007
            
            
            892
            
            
            $
            12.69
            
            
            $
            6,518
            
            7.4
                years
            
            $
            2,970Options
                exercisable at September 30, 2007
            
            
            495
            
            
            $
            13.45
            
            
            $
            4,094
            
            6.3
                years
            
            $
            1,271





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





**Restricted
                Stock****Shares**
            
            
            **Fair Value**Outstanding
                at January 1,2007
            
            
            135
            
            
            $
            875Granted
            
            
            76
            
            
            $
            1,279Vested
            
            
            (45)
            
            
            $
            (292
            )Forfeited
            
            
            -
            
            
            
            -Outstanding
                at September30,
                2007
            
            
            166
            
            
            $
            1,862





**13.
      Income Taxes**





The
      following summarizes the significant components of the Company’s income tax
      expense for the periods indicated:


**Three
                Months Ended September 30,****2007**
            
            
            **2006****Dollars**
            
            
            **Percent**
            
            
            **Dollars**
            
            
            **Percent**Income
                tax expense at statutory rate
            
            $
            5,736
            
            
            
            35.0
            %
            
            $
            8,757
            
            
            
            35.0
            %State
                income taxes, net of federal taxes
            
            
            292
            
            
            
            1.8
            %
            
            
            844
            
            
            
            3.4
            %Tax-exempt
                income
            
            
            (832
            )
            
            
            (5.1
            )%
            
            
            (192
            )
            
            
            (0.8
            )%Valuation
                allowance
            
            
            --
            
            
            
            --
            
            
            
            (88
            )
            
            
            (0.3
            )%Other
            
            
            289
            
            
            
            1.8
            %
            
            
            (139
            )
            
            
            (0.6
            )%Income
                tax expense
            
            $
            5,485
            
            
            
            33.5
            %
            
            $
            9,182
            
            
            
            36.7
            %





**Nine
                Months Ended September 30,****2007**
            
            
            **2006****Dollars**
            
            
            **Percent**
            
            
            **Dollars**
            
            
            **Percent**Income
                tax expense at statutory rate
            
            $
            14,417
            
            
            
            35.0
            %
            
            $
            22,502
            
            
            
            35.0
            %State
                income taxes, net of federal taxes
            
            
            640
            
            
            
            1.6
            %
            
            
            1,987
            
            
            
            3.1
            %Tax-exempt
                income
            
            
            (2,591
            )
            
            
            (6.3
            )%
            
            
            (536
            )
            
            
            (0.8
            )%Valuation
                allowance
            
            
            --
            
            
            
            --
            
            
            
            (288
            )
            
            
            (0.4
            )%Other
            
            
            797
            
            
            
            1.9
            %
            
            
            (398
            )
            
            
            (0.7
            )%Income
                tax expense
            
            $
            13,263
            
            
            
            32.2
            %
            
            $
            23,267
            
            
            
            36.2
            %





As
      discussed in Note 4, the Company assigned its Northwest bankruptcy claim during
      the first quarter of 2007.  A majority of the proceeds received were
      invested in short-term investments earning tax-exempt interest
      income.  As a result, the Company’s taxable income excluded these
      earnings, thereby lowering the Company’s effective tax rate for the three and
      nine months ended September 30, 2007.





In
      July
      2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”), *Accounting for
      Uncertainty in Income Taxes*, which became effective for and was adopted by
      the Company beginning January 1, 2007.  As a result of the
      implementation of FIN 48, the Company recognized a $500 increase in its
      liability for unrecognized tax benefits, which was accounted for as a reduction
      to the January 1, 2007 balance of retained earnings.  At the adoption
      date of January 1, 2007, the Company had $16,692 of unrecognized tax benefits,
      of which $16,346 would affect the Company’s effective tax rate if
      recognized.  As of September 30, 2007, the Company had $16,771 of
      unrecognized tax benefits.





The
      Company provides for interest and penalties accrued related to unrecognized
      tax
      benefits in nonoperating expenses.  During the three and nine months
      ended September 30, 2007, the Company recorded interest and penalties of $389
      and $1,072, respectively.  As of September 30, 2007, the Company had
      $2,135 of accrued interest and penalties, $220 of which was included in the
      FIN
      48 adjustment to the opening balance of retained earnings.





The
      Company is currently under audit by the Internal Revenue Service (“IRS”) for the
      tax years 2003 through 2006.  In May 2007, the IRS proposed certain
      adjustments to the Company’s positions related to various exam
      matters.  The Company has submitted a protest to the IRS with respect
      to these adjustments, and is awaiting the start of an 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.  The Company has reserved for $16,771 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 impacted 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.





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





**14.
      Short-Term Investments**





The
      Company invests excess cash balances primarily in short-term money market
      instruments, short-term marketable debt securities and highly liquid equity
      securities.  Investments in marketable securities are classified as
      available-for-sale and presented at their estimated fair values based on quoted
      market prices for those securities, in accordance with SFAS No. 115,
*Accounting for Certain Investments in Debt and Equity
      Securities*.





At
      September 30, 2007, the Company had $239,300 invested in auction rate securities
      (“ARS”), which was comprised of $12,175 in preferred ARS and $227,125 in debt
      ARS.  The debt ARS are issued by U.S. states and political
      subdivisions of the states and typically have contractual maturities of more
      then ten years.  Although ARS typically have long-term or no stated
      maturities, these investments have characteristics similar to short-term
      investments because the securities are periodically repriced at predetermined
      intervals, generally every 7 to 35 days, through an auction
      process.





The
      Company classifies investments in ARS as short-term investments on the Company’s
      condensed consolidated balance sheets.  All income generated from
      these securities was from earned interest and dividends and there were no
      unrealized or realized gains or losses for the three and nine months ended
      September 30, 2007 and 2006.





**15.  Commitments
      and Contingencies**





*Employees*.  The
      Company operates under several collective bargaining agreements with a portion
      of its employees.  The following table reflects the Company’s
      collective bargaining agreements and their respective amendable
      dates:





**Employee
                Group**
            
            **Number
                of Employees Represented by Union**
            
            **Representing
                Union**
            **Contract
                Amendable Date**Pinnacle’s
                Pilots
            
            
            1,189
            
            Air
                Line Pilots Association
            April
                30, 2005Pinnacle’s
                Flight Attendants
            
            
            688
            
            United
                Steel Workers of America
            February
                1, 2011Pinnacle’s
                Ground Operations Agents
            
            
            1,340
            
            United
                Steel Workers of America
            March
                19, 2010Pinnacle’s
                Flight Dispatchers
            
            
            40
            
            Transport
                Workers Union of America
            Initial
                contract currently being negotiatedColgan’s
                Flight Attendants
            
            
            190
            
            United
                Steel Workers of America
            Initial
                contract currently being negotiated





The
      collective bargaining agreement between Pinnacle and ALPA became amendable
      on
      April 30, 2005.  Pinnacle has been actively negotiating with ALPA
      since that time.  In August 2006, Pinnacle filed for mediation with
      the National Mediation Board.  Since that time, Pinnacle and ALPA have
      met with and without the mediator assigned to its case, but the parties have
      not
      reached resolution on an amended collective bargaining agreement. Pinnacle
      and ALPA continue to meet periodically under the direction of the mediator
      assigned to the negotiation.  No time table has been set to definitively
      conclude negotiations.





ALPA
      recently filed suit in U.S. District Court against Pinnacle asserting that
      Pinnacle violated the Railway Labor Act, in connection with a pilot bonus
      program.  The Company believes that the lawsuit lacks merit, and
      accordingly will vigorously defend its position with this case.  The
      Company does not believe that it will incur any material loss with respect
      to
      this lawsuit.





On
      March
      1, 2007, Pinnacle’s flight attendants ratified an amended collective bargaining
      agreement with a new amendable date of February 1, 2011.  The previous
      collective bargaining agreement became amendable on July 31, 2006.





In
      August
      2005, Pinnacle’s flight dispatchers elected representation by the Transport
      Workers Union of America AFL-CIO, Air Transport Division (“TWU”).  In
      early 2007, a tentative agreement was negotiated for a collective bargaining
      agreement between Pinnacle and TWU, but the agreement was subsequently not
      ratified by Pinnacle’s dispatchers.  The Company expects to re-enter
      negotiations with the TWU in the near future.





In
      September 2007, the Company recognized the United Steel Workers of America
      (“USW”) to represent Colgan’s flight attendants.  Negotiations will
      begin shortly for a flight attendant collective bargaining agreement with the
      United Steel Workers.  The Company does not expect this new collective
      bargaining agreement to have a material impact on its financial results, as
      Colgan’s flight attendants are currently compensated at rates approximating
      industry average.





*Purchase
      Commitments.*  The Company has contractual obligations and
      commitments primarily related to future purchases of aircraft, payment of debt
      and lease arrangements.  The Company’s firm orders and options to
      purchase aircraft as of October 31, 2007 are as follows:





**Firm**
              **Noncancelable**
            
            
            **Firm
                Cancelable**
            
            
            **Options**
            
            
            **Total**Q4002007
            
            
            2
            
            
            
            -
            
            
            
            -
            
            
            
            22008
            
            
            13
            
            
            
            -
            
            
            
            -
            
            
            
            132009
            
            
            -
            
            
            
            8
            
            
            
            8
            
            
            
            162010
            
            
            -
            
            
            
            2
            
            
            
            12
            
            
            
            14Total
                Q400
            
            
            15
            
            
            
            10
            
            
            
            20
            
            
            
            45CRJ-9002007
            
            
            3
            
            
            
            -
            
            
            
            -
            
            
            
            32008
            
            
            12
            
            
            
            -
            
            
            
            -
            
            
            
            122009
            
            
            1
            
            
            
            -
            
            
            
            -
            
            
            
            1Total
                CRJ-900
            
            
            16
            
            
            
            -
            
            
            
            -
            
            
            
            16Total
            
            
            31
            
            
            
            10
            
            
            
            20
            
            
            
            61





Firm
      cancelable aircraft are aircraft that are on firm order, but for which the
      Company has the right of cancellation without penalty prior to February
      2008.





The
      Company makes pre-delivery payments to the aircraft manufacturer in advance
      of
      the aircraft’s delivery date.  During the three and nine months ended
      September 30, 2007, the Company paid pre-delivery payments of $11,000 and
      $62,000, respectively.  Remaining pre-delivery payments are due as
      follows:  $12,000 for 2007, $6,000 for 2008.  These
      pre-delivery payments will be refunded to the Company upon the delivery of
      each
      aircraft.





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





**15.  Commitments
      and Contingencies (continued)**





Based
      on
      the above delivery schedule, the aggregate purchase price for the 31 firm
      noncancelable aircraft commitments is approximately $663,000, and is due as
      follows:  $108,000 for the remainder of 2007, $531,000 for 2008, and
      $24,000 for 2009.  The Company has obtained commitments from a third
      party to borrow approximately $560,000 of the $663,000 for a term of 15 years
      from the delivery date of each aircraft.  The Company expects to fund
      the approximately $103,000 remaining from internal capital
      resources.  For further information on CRJ-900 and Q400 aircraft, see
      Note 3.





*Guarantees
      and Indemnifications.*  The Company is the guarantor of
      approximately $2,260 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 condensed 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.





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.





*Other
      Contingencies.*  On May 16, 2007, an employee of the Company’s
      Pinnacle subsidiary was involved in a fatal accident at the Dayton International
      Airport in Dayton, Ohio.  At this time, the Company cannot predict
      what, if any, civil claims will be brought against it regarding this
      incident.  However, the Company has resolved all OSHA citations
      regarding the incident, and believes that the ultimate outcome of this incident
      will not have a material impact on the Company’s financial
      statements.





In
      addition, the Company and Northwest are currently in discussions related to
      disputed items under the ASA.  Should the Company be unsuccessful in
      resolving these disputes, its operating income could be significantly reduced
      in
      future periods.  See Note 3 for more information regarding these
      disputes.











16
 **Item
            2. Management's Discussion and Analysis of Results of Operations and
            Financial
            Condition**




*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,
      2006 (“Annual Report”), which include additional information about our
      significant accounting policies, risk factors, practices 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.





*Overview*





During
      the third quarter of 2007, we continued to make progress in what we have
      identified as a significant year of transition for the Company.  We have
      continued to prepare for our new operations with Continental Airlines and Delta
      Air Lines by entering into agreements to obtain financing for the Q400 and
      CRJ-900 aircraft pre-delivery payments.  We further increased shareholder
      value through our recently expanded share repurchase program, and through
      continued use of our hedging program, designed to reduce our exposure to
      interest rate risk related to financing our aircraft
      purchases.





*Pre-delivery
      Payment Financing Facilities*





We
      successfully executed a pre-delivery payment financing facility in September
      2007 with Export Development Canada (“EDC”) for up to $41.5 million in short
      term borrowings, and in early October, we completed a supplemental pre-delivery
      payment financing facility for up to $38.5 million in short term borrowings
      (together, the “ PDP Facilities”).  Under the PDP Facilities, we will
      draw advances as we are required to make pre-delivery payments to Bombardier,
      Inc. under our purchase agreements for the Q400 next-generation turboprop
      aircraft and the CRJ-900 regional jet aircraft that we have on firm
      order.  We will repay the borrowings under the PDP Facilities as each
      aircraft is delivered to us and as Bombardier refunds to us our pre-delivery
      payments.  Borrowings under the PDP Facilities bear interest at the
      3-month LIBOR rate plus 1.65%.





Upon
      completing the first of the PDP Facilities, we immediately borrowed $35.0
      million for previously paid pre-delivery payments, and such borrowings increased
      our balances of cash and short-term investments as of September 30,
      2007.  We borrowed an additional $32.3 million in early October upon
      the completion of the second of the PDP Facilities.  We will draw the
      remaining $12.7 million as we are required to make pre-delivery payments to
      Bombardier over the next several quarters.  We anticipate repaying the
      PDP Facilities through January 2009 as each aircraft we have on firm order
      is
      delivered to us.





*Share
      Repurchase Program*





We
      completed the previously announced $30 million share repurchase program in
      July
      2007, repurchasing approximately 1.6 million shares of our outstanding common
      stock.  In August 2007, our Board of Directors approved an additional
      $30 million repurchase program, with $20 million subject to the successful
      execution of the PDP Facilities.  Prior to executing our PDP
      Facilities, we repurchased 0.5 million shares for $8.0 million.  We
      plan to continue opportunistically repurchasing shares under our program in
      the
      open market.  Based on our stock’s average share price for the third
      quarter, we could repurchase an additional 1.5 million shares with the $24.8
      million remaining authorization under our share repurchase program.





*Extension
      of 15 CRJ-200 Aircraft Return Date*





We
      recently agreed with Northwest to delay the return of 15 CRJ-200 aircraft that
      are to be transitioned to one of Northwest’s wholly owned regional airline
      subsidiaries.  The transition was originally scheduled to begin in
      September 2007 at the rate of two aircraft per month.  The transition
      will now begin in late November and continue through June
      2008.  Delaying the transition will benefit Northwest by minimizing
      the amount of time each aircraft will not be in service in the Northwest
      network.  In addition to regular payments under the ASA associated
      with the operating the aircraft for Northwest, Northwest will also pay us $1.5
      million to compensate us for the incremental carrying costs of additional crews
      and the risk associated with maintaining an increased operational
      schedule.  We have recorded this $1.5 million payment as deferred
      revenue and will amortize it evenly into Regional Airline Services Revenue
      over
      the transition period, which extends through June 2008.





*Third
      Quarter Operations*





During
      the third quarter of 2007, our Pinnacle subsidiary achieved increases in
      passenger count, available seat miles (“ASMs”), revenue passenger miles
      (“RPMs”), departures, and block hours compared to the same period of
      2006.  Passenger counts increased by 13% to 2.6 million passengers
      compared to 2.3 million during the corresponding period of last
      year.  ASMs and RPMs increased during the third quarter of 2007
      compared to the same quarter of 2006 by 7% and 11%, respectively, climbing
      to
      1.6 billion and 1.2 billion, respectively.  Departures and block hours
      increased during the current period by 7% and 8%, respectively compared to
      the
      same period of 2006, increasing to 68,370 and 112,378,
      respectively.  These increases were primarily related to the addition
      of 15 CRJ-200 aircraft to Pinnacle’s fleet during the first quarter of 2007,
      which were converted during the second quarter from 44-seat configurations
      to
      50-seat configurations.





*Outlook*





We
      plan
      to grow the business of both our Pinnacle and Colgan subsidiaries by entering
      into new contracts with major airline partners and by investing in new regional
      aircraft to support these contracts.  We recently have experienced
      this type of growth with our new regional airline services contracts with both
      Continental and Delta through a ten-year capacity purchase agreement with each
      carrier.  Under these new contracts, our two operating subsidiaries
      will add 31 new regional aircraft between November 2007 and February
      2009.  We believe that the investments we are making at Pinnacle and
      at Colgan will result in long-term, profitable growth for our
      stakeholders.  These investments include $22 million in inventory and
      spare parts to support our new aircraft.  However, such investments
      will require significant resources throughout 2007 and 2008, and will likely
      negatively impact our 2007 financial results.





As
      part
      of our purchase of Q400 aircraft from Bombardier, Inc., we negotiated options
      and cancelable orders to acquire up to 30 additional Q400
      aircraft.  Our capacity purchase agreement (“CPA”) with Continental
      can be expanded at Continental’s option with the operation of up to 15
      additional Q400 aircraft.  In addition, our contract with Delta
      contains a provision that could increase our CRJ-900 operations as a Delta
      Connection carrier by an additional seven aircraft at Delta’s
      option.  We plan to pursue these potential opportunities with
      Continental and Delta, as well as other Q400 and regional jet opportunities
      with
      other major airlines.





Colgan
      incurred an operating loss of $585 for the three months ending September 30,
      2007.  Since the date of acquisition, Colgan has generated an
      operating income of $577.  During the third quarter Colgan’s fuel
      costs have increased by approximately 6%.  Because of new competition
      in certain of Colgan’s markets and a decrease in the average pro-rated fare it
      receives from US Airways, Colgan does not expect an increase in its unit revenue
      during the remainder of 2007 that would significantly offset this increase
      in
      costs.  As a result of these trends, we expect Colgan to incur a loss
      for the year. We are planning certain initiatives to reduce Colgan’s operating
      costs and streamline its operations.  Once implemented, we expect
      these enhancements will improve the profitability of Colgan’s existing
      operations in 2008 and future years.





Colgan’s
      existing operations are also subject to seasonal fluctuations.  Colgan
      has historically incurred losses during the first and fourth quarter each year
      when demand for air travel declines, and incurred income or smaller losses
      during the second and third quarter each year when air travel demand is
      higher.  We expect this seasonality to continue to impact Colgan’s
      financial results in future periods.





In
      October 2007, US Airways announced that it would significantly reduce capacity
      in Pittsburgh.  Our Colgan subsidiary operates a number of flights
      from Pittsburgh to smaller markets under the US Airways designator code that
      are
      designed to connect with US Airways’ Pittsburgh operations.  As a
      result of US Airways’ announcement, we are analyzing alternatives to move our
      operations to other airline hubs within the region.  Such movement
      would require obtaining facilities and code share agreements with another
      airline partner.  We do not expect this movement to materially impact
      Colgan’s revenue.




17


**Item
          2. Management's Discussion and Analysis of Results of Operations and Financial
          Condition**




During
      October 2007, we began implementation of a plan to remove the Beech 1900 fleet
      from operation at our Colgan subsidiary.  We will retire three Beech
      1900 aircraft during the fourth quarter of 2007, and continue to operate the
      remaining four aircraft until the second half of 2008.  We expect to
      continue to operate in all of our Beech 1900 markets with Saab 340 aircraft
      by
      realigning our Saab 340 network and reducing frequency in certain
      markets.  All but one of our Beech 1900 aircraft are leased from the
      aircraft manufacturer, and we have made arrangements to return these aircraft
      under the related operating leases as they are removed from operating
      service.  We recorded a charge of $0.2 million during the third
      quarter of 2007 to accrue maintenance return condition costs associated with
      the
      retirement of these aircraft.  We do not expect this fleet
      modification to materially impact Colgan’s revenue.




Our
      Pinnacle subsidiary has been in negotiations with the Air Line Pilots
      Association (“ALPA”) since April 2005.  In August 2006, we filed for
      mediation with the National Mediation Board.  Since that time, we have
      met periodically, with and without the mediator assigned to our
      negotiations.  While both parties have negotiated in earnest, we have
      been unable to reach agreement.  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 for enhanced employee
      productivity.  Pinnacle’s pilot group is currently paid below industry
      average, and we expect a new collective bargaining agreement to contain an
      increase in pay for Pinnacle’s pilots.





In
      September 2007, we recognized the United Steel Workers to represent Colgan’s
      flight attendants.  We will begin negotiation for a flight attendant
      collective bargaining agreement with the United Steel Workers
      shortly.  We do not expect this new collective bargaining agreement to
      have a material impact on our financial results.





As
      noted
      above, we recently agreed with Northwest to defer the transition of 15 of our
      CRJ-200 aircraft to one of Northwest’s subsidiaries.  Northwest
      requested this delay to minimize the transition time and the impact to
      Northwest’s operating schedule.  The transition delay is beneficial to
      both parties, as we will earn additional income operating the aircraft, and
      we
      will receive a $1.5 million payment to compensate us for the increased carrying
      costs of additional crews and the operational risk associated with flying an
      increased schedule through the new transition period.  We believe that
      we will have adequate resources to operate the aircraft in accordance with
      the
      delayed transition schedule.





We
      are
      currently engaged in discussions with Northwest involving various disputed
      payments under our ASA, including items that relate to the period prior to
      execution of our current ASA in January 2007.  Two of these items could
      affect our operating income in future periods.  The first item relates to a
      2006 adjustment to our block hour, cycle, 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 going forward.





If
      we are
      unable to resolve these issues directly with Northwest, the parties may enter
      into an arbitration process or other form of legal dispute resolution. 
Adverse determinations in these matters could result in a loss to the Company
      of
      up to $8.4 million for disputed amounts through September 30, 2007.  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 income going forward, 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.





The
      airline industry in general is experiencing a shortage of qualified pilots
      to
      absorb the recent growth in industry capacity.  This shortage has
      particularly affected regional airlines such as Pinnacle, as major airlines
      typically recruit new pilots from within the ranks of regional
      airlines.  During the first quarter of 2007, we began experiencing
      higher than normal attrition, primarily due to pilots leaving for positions
      at
      major carriers.  Both of our operating subsidiaries have enacted
      programs to increase pilot recruiting and training efforts.  Assuming
      pilot attrition remains at current levels, we believe that we will have adequate
      flight crews to maintain our commitments to all of our operating partners for
      the foreseeable future.  While we expect staffing levels at our
      subsidiaries to be adequate going forward, we also expect higher than normal
      training costs in the fourth quarter of 2007 and first half of 2008 as we
      recruit pilots, flight attendants and mechanics for our new Q400 and CRJ-900
      operations.




18
 **Item
          2. Management's Discussion and Analysis of Results of Operations and Financial
          Condition**




*Results
      of Operations*





**Three
                Months Ended September 30,****2007**
            
            
            **2006****Pinnacle
                Airlines, Inc./Corp.**
            
            
            **Colgan
                Air, Inc.**
            
            
            **Pinnacle
                Corp. Consolidated**
            
            
            **Pinnacle
                Corp. Consolidated****(in
                thousands)**Operating
                revenuesRegional
                airline services
            
            $
            148,167
            
            
            $
            50,856
            
            
            $
            199,023
            
            
            $
            206,827Other
            
            
            2,416
            
            
            
            4,291
            
            
            
            6,707
            
            
            
            1,673Total
                operating revenues
            
            
            150,583
            
            
            
            55,147
            
            
            
            205,730
            
            
            
            208,500Operating
                expensesSalaries,
                wages and benefits
            
            
            40,557
            
            
            
            12,273
            
            
            
            52,830
            
            
            
            34,567Aircraft
                maintenance, materials and repairs
            
            
            11,565
            
            
            
            10,831
            
            
            
            22,396
            
            
            
            8,691Aircraft
                rentals
            
            
            32,792
            
            
            
            2,257
            
            
            
            35,049
            
            
            
            66,031Aircraft
                fuel
            
            
            71
            
            
            
            10,785
            
            
            
            10,856
            
            
            
            28,041Other
                rentals and landing fees
            
            
            12,471
            
            
            
            2,836
            
            
            
            15,307
            
            
            
            11,480Ground
                handling services
            
            
            21,176
            
            
            
            3,344
            
            
            
            24,520
            
            
            
            21,663Commissions
                and passenger related expense
            
            
            1,026
            
            
            
            6,094
            
            
            
            7,120
            
            
            
            900Depreciation
                and amortization
            
            
            1,195
            
            
            
            1,254
            
            
            
            2,449
            
            
            
            1,003Other
            
            
            14,138
            
            
            
            6,058
            
            
            
            20,196
            
            
            
            14,102Provision
                for decreases in losses associated with bankruptcy filings of Northwest
                and Mesaba
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (3,537
            )Total
                operating expenses
            
            
            134,991
            
            
            
            55,732
            
            
            
            190,723
            
            
            
            182,941Operating
                income (loss)
            
            $
            15,592
            
            
            $
            (585
            )
            
            $
            15,007
            
            
            $
            25,559








**Nine
                Months Ended September 30,****2007**
            
            
            **2006****Pinnacle
                Airlines, Inc./Corp.**
            
            
            **Colgan
                Air, Inc.**
            
            
            **Pinnacle
                Corp. Consolidated**
            
            
            **Pinnacle
                Corp. Consolidated****(in
                thousands)**Operating
                revenuesRegional
                airline services
            
            $
            435,923
            
            
            $
            132,355
            
            
            $
            568,278
            
            
            $
            614,643Other
            
            
            7,433
            
            
            
            10,563
            
            
            
            17,996
            
            
            
            5,460Total
                operating revenues
            
            
            443,356
            
            
            
            142,918
            
            
            
            586,274
            
            
            
            620,103Operating
                expensesSalaries,
                wages and benefits
            
            
            117,691
            
            
            
            32,701
            
            
            
            150,392
            
            
            
            104,587Aircraft
                maintenance, materials and repairs
            
            
            35,389
            
            
            
            27,330
            
            
            
            62,719
            
            
            
            26,949Aircraft
                rentals
            
            
            97,569
            
            
            
            6,428
            
            
            
            103,997
            
            
            
            198,093Aircraft
                fuel
            
            
            222
            
            
            
            26,717
            
            
            
            26,939
            
            
            
            81,953Other
                rentals and landing fees
            
            
            36,895
            
            
            
            7,464
            
            
            
            44,359
            
            
            
            33,954Ground
                handling services
            
            
            64,064
            
            
            
            9,172
            
            
            
            73,236
            
            
            
            65,787Commissions
                and passenger related expense
            
            
            2,867
            
            
            
            15,068
            
            
            
            17,935
            
            
            
            2,688Depreciation
                and amortization
            
            
            3,391
            
            
            
            3,430
            
            
            
            6,821
            
            
            
            2,932Other
            
            
            44,239
            
            
            
            14,031
            
            
            
            58,270
            
            
            
            38,749Provision
                for decreases in losses associated with bankruptcy filings of Northwest
                and Mesaba
            
            
            (1,048
            )
            
            
            -
            
            
            
            (1,048
            )
            
            
            (2,172
            )Total
                operating expenses
            
            
            401,279
            
            
            
            142,341
            
            
            
            543,620
            
            
            
            553,520Operating
                income
            
            $
            42,077
            
            
            $
            577
            
            
            $
            42,654
            
            
            $
            66,583




19
 **Item
          2. Management's Discussion and Analysis of Results of Operations and Financial
          Condition**


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, 2007 compared to the same periods in 2006.





*Comparison
      of Three Months Ended September 30, 2007 to Three Months Ended September 30,
      2006*





**Revenues**





**Three
                Months Ended September 30,****2007**
            
            
            **2006**
            
            
            **$
                Variance**
            
            
            **%
                Variance****(in thousands)**Operating
                revenuesRegional
                airline services
            
            $
            199,023
            
            
            $
            206,827
            
            
            $
            (7,804
            )
            
            
            (4
            )%Other
            
            
            6,707
            
            
            
            1,673
            
            
            
            5,034
            
            
            
            301
            %Total
                operating revenues
            
            $
            205,730
            
            
            $
            208,500
            
            
            $
            (2,770
            )
            
            
            (1
            )%





**Regional
      Airline Services**





Regional
      airline services revenue of $199.0 million decreased $7.8 million, or 4%, from
      regional airline services revenue of $206.8 million for the same period in
      2006.  The decrease in revenue was primarily due to the decrease in
      revenue associated with expense reimbursements from Northwest and a reduction
      in
      the target operating margin from 10% in 2006 to 8% effective January 1,
      2007.  The most significant decreases in reimbursable expenses were
      aircraft fuel and aircraft rent.  Under the ASA, Northwest now
      provides jet fuel to Pinnacle at no cost, whereas in 2006, jet fuel was a
      reimbursable expense.  This change resulted in a decrease in revenue
      of $33.1 million over 2006.  Also under the ASA, our aircraft rental
      expense has been lowered to a rate that approximated market rates at that
      time.  Revenue related to aircraft rent reimbursed by Northwest
      decreased $46.6 million over the same period in 2006 as a result of this
      change.  These decreases in revenue are offset by the increase in
      revenue related to Colgan of $55.1 million, increases in deferred ASA revenue
      of
      $5.8 million, and the increases in Pinnacle’s block hours and departures of 8%
      and 7%, respectively, resulting from the increase in its fleet
      size.





**Other
      Revenue**





Other
      revenue of $6.7 million increased $5.0 million, or 301%, from other revenue
      of
      $1.7 million for the same period in 2006.  The increase in revenue is
      primarily attributable to the inclusion of $4.3 million of revenue from Colgan,
      of which $4.2 million is attributable to essential air services (“EAS”), as
      discussed in Note 3 to our condensed consolidated financial
      statements.  The remaining increase is due to a $0.6 million increase
      in ground handling services provided to Northwest.





**Operating
      Expenses**


**Three
                Months Ended September 30,****2007**
            
            
            **2006**
            
            
            **$
                Variance**
            
            
            **%
                Variance****(in
                thousands)**Operating
                expenses:Salaries,
                wages and benefits
            
            $
            52,830
            
            
            $
            34,567
            
            
            $
            18,263
            
            
            
            53
            %Aircraft maintenance, materials and repairs
            
            
            22,396
            
            
            
            8,691
            
            
            
            13,705
            
            
            
            158
            %Aircraft
                rentals
            
            
            35,049
            
            
            
            66,031
            
            
            
            (30,982
            )
            
            
            (47
            )%Aircraft
                fuel
            
            
            10,856
            
            
            
            28,041
            
            
            
            (17,185
            )
            
            
            (61
            )%Other
                rentals and landing fees
            
            
            15,307
            
            
            
            11,480
            
            
            
            3,827
            
            
            
            33
            %Ground
                handling services
            
            
            24,520
            
            
            
            21,663
            
            
            
            2,857
            
            
            
            13
            %Commissions and passenger related expense
            
            
            7,120
            
            
            
            900
            
            
            
            6,220
            
            
            
            691
            %Depreciation
                and amortization
            
            
            2,449
            
            
            
            1,003
            
            
            
            1,446
            
            
            
            144
            %Other
            
            
            20,196
            
            
            
            14,102
            
            
            
            6,094
            
            
            
            43
            %Provision for decreases in losses associated with bankruptcy filings
                of
                Northwest and Mesaba
            
            
            -
            
            
            
            (3,537
            )
            
            
            3,537
            
            
            
            100
            %Total
                operating expenses
            
            $
            190,723
            
            
            $
            182,941
            
            
            $
            7,782
            
            
            
            4
            %





Total
      operating expenses for the three months ended September 30, 2007 increased
      by
      $7.8 million and 4%.  The increase relates to the addition of Colgan’s
      operating expenses and increases in salaries, wages, benefits and other expenses
      offset by the decrease in operating expenses attributable to the previously
      discussed decreases in aircraft fuel and aircraft rentals.





Salaries,
      wages and benefits increased by $18.3 million, or 53%.  The increase
      is primarily due to $12.3 million in additional salaries, wages and benefits
      from the acquisition of Colgan.  The remaining increase is due to a
      17% increase in Pinnacle’s employees over the same period in
      2006.  The increase in Pinnacle’s employees is primarily due to an
      agreement we entered into with Northwest during the fourth quarter of 2006,
      under which we provide our own ground handling services at seven additional
      cities under the ASA, which had previously been handled by
      Northwest.  In addition, under a separate agreement we agreed to
      provide ground handling services to Northwest for its flights at six additional
      cities.





Aircraft
      maintenance, materials and repairs expense increased approximately $13.7 million
      or 158%.  Maintenance expense incurred by Colgan accounted for $10.8
      million of this increase.  Additionally, Pinnacle incurred $2.0
      million of additional heavy check expense during the three months ended
      September 30, 2007, which was caused by an increase in the number of heavy
      checks performed as its fleet ages.  The remaining increase is
      attributable to the increase in Pinnacle’s fleet of CRJ-200 aircraft, which
      increased 12% year over year.





Aircraft
      rental expense decreased $31.0 million, or 47%, due to the terms of the amended
      ASA with Northwest.  Effective January 1, 2007, our monthly lease
      rates were reduced to rates that approximated market conditions at that
      time.  As previously noted, we sublease our CRJ-200 aircraft from
      Northwest under operating leases for aircraft that expire December 31,
      2017.  Northwest reimburses in full all rental expense for the CRJ-200
      aircraft operated under the ASA.  Aircraft rent reimbursed by
      Northwest decreased $33.4 million over the same period in 2006.  The
      decrease in rent reimbursed by Northwest is offset by the rent expense of $2.3
      million attributable to Colgan.





Aircraft
      fuel expense decreased by $17.2 million, or 61%.  Of this decrease,
      $28.0 million is due to the terms under the ASA with Northwest which provides
      for Northwest to provide jet fuel to Pinnacle at no cost beginning January
      1,
      2007.  This decrease is offset by $10.8 million of fuel expense
      attributable to Colgan.





Other
      rentals and landing fees increased by $3.8 million, or 33%, primary attributable
      to the addition of $2.8 million of fees incurred by Colgan.  In
      addition, Pinnacle’s facilities rent expense increased $0.9 million due to the
      increase in the number of stations that Pinnacle operates.





Ground
      handling services increased by $2.9 million, or 13%, due to an increase of
      $3.3
      million attributable to the addition of ground handling expenses incurred by
      Colgan.  Also contributing to the increase is a 7% increase in the
      number of departures Pinnacle performed.  These increases were offset
      by a $1.4 million decrease in ground handling payments to Northwest as a result
      of the transition of ground handling functions in a number of cities to
      Pinnacle.





Commissions
      and passenger related expense increased $6.2 million, primarily due to the
      addition of Colgan expenses.  This caption is being presented for the
      first time in 2007, as it represents a material portion of Colgan’s operating
      expenses.  Colgan has the responsibility of selling its own tickets
      and incurs costs related to these transactions.  We have not incurred
      these costs in the past because Northwest handles Pinnacle’s ticket
      sales.  Also included in this amount are passenger related expenses
      such as catering expense and interrupted trip expense.





Depreciation
      increased $1.4 million, or 144%, primarily due to the addition of expense
      incurred by Colgan.





The
      $6.1
      million, or 43%, increase in other expenses is primarily attributable to $6.1
      million in other operating expenses incurred by Colgan and the increase in
      Pinnacle’s fleet size.





20
 **Item
          2. Management's Discussion and Analysis of Results of Operations and Financial
          Condition**




**Nonoperating
      Expense**





Net
      nonoperating income increased by $1.9 million compared to the same period in
      2006.  This is primarily attributable to a $1.9 million increase in
      interest income from our significantly larger short-term investment
      portfolio.  In addition, interest expense increased by $1.5 million,
      primarily due to the addition of Colgan’s interest expense.  This
      increase was offset by the $1.5 million of capitalized interest, primarily
      related to the acquisition of our Q400 and CRJ-900 aircraft, as discussed in
      Note 1 to our condensed consolidated financial statements.





**Income
      Tax Expense**





For
      the
      three months ended September 30, 2007, our income tax expense decreased by
      $3.7
      million, primarily related to the decrease in pre-tax income as compared to
      the
      same period in 2006.  In addition, the Company’s effective tax rate
      decreased 3.2 points primarily due to tax-exempt interest income on our
      short-term investment portfolio.





*Comparison
      of Nine Months Ended September 30, 2007 to Nine Months Ended September 30,
      2006*





**Revenues**





**Nine
                Months Ended September 30,****2007**
            
            
            **2006**
            
            
            **$
                Variance**
            
            
            **%
                Variance****(in thousands)**Operating
                revenuesRegional
                airline services
            
            $
            568,278
            
            
            $
            614,643
            
            
            $
            (46,365
            )
            
            
            (8
            )%Other
            
            
            17,996
            
            
            
            5,460
            
            
            
            12,536
            
            
            
            230
            %Total
                operating revenues
            
            $
            586,274
            
            
            $
            620,103
            
            
            $
            (33,829
            )
            
            
            (5
            )%





**Regional
      Airline Services**





Regional
      airline service revenue of $568.3 million decreased $46.4 million, or 8%, from
      regional airline services revenue of $614.6 million for the same period in
      2006. The decrease in revenue was primarily due to the decrease in revenue
      associated with expense reimbursements from Northwest and a reduction in the
      target operating margin from 10% in 2006 to 8% effective January 1,
      2007.  The most significant decreases in reimbursable expenses were
      aircraft fuel and aircraft rent.  Under the ASA, Northwest now
      provides jet fuel to Pinnacle at no cost, whereas in 2006, jet fuel was a
      reimbursable expense.  This change resulted in a decrease in revenue
      of $96.5 million over 2006.  Also under the ASA, our aircraft rental
      expense has been lowered to a rate that approximates current market
      rates.  Revenue related to aircraft rent reimbursed by Northwest
      decreased by $138.3 million over the same period in 2006 as a result of this
      change.  The decrease in revenue is also attributable to penalties
      incurred resulting from our first quarter operations, as previously
      discussed.  As a result of reducing capacity below planned levels,
      Pinnacle did not meet the required completion factor goal for the six months
      ended June 30, 2007 under the ASA.  We recorded a performance penalty
      payable to Northwest of approximately $2.4 million for the six months ended
      June
      30, 2007.  Our decrease in revenue is offset by our increase in
      revenue related to Colgan of $142.9 million, the increases in our deferred
      ASA
      revenue of $16.6 million, and the increases in Pinnacle’s block hours and
      departures of 6%, resulting from its increase in fleet size.





**Other
      Revenue**





Other
      revenue of $18.0 million increased $12.5 million, or 230%, from other revenue
      of
      $5.5 million for the same period in 2006.  The increase in revenue is
      primarily attributable to the $10.6 million of revenue from Colgan, of which
      $10.4 million is attributable to EAS, as discussed in Note 3 to our condensed
      consolidated financial statements.  The remaining increase is due to
      $2.3 million increase in ground handling services provided to Northwest offset
      by a decrease of $0.6 million in ARJ ground handling revenue.  The
      ARJs were removed from Mesaba’s fleet in 2006.




**Operating
      Expenses**


**Nine
                Months Ended September 30,****2007**
            
            
            **2006**
            
            
            **$
                Variance**
            
            
            **%
                Variance****(in thousands)**Operating
              expenses:Salaries, wages and benefits
            
            $
            150,392
            
            
            $
            104,587
            
            
            $
            45,805
            
            
            
            44
            %Aircraft maintenance, materials and repairs
            
            
            62,719
            
            
            
            26,949
            
            
            
            35,770
            
            
            
            133
            %Aircraft rentals
            
            
            103,997
            
            
            
            198,093
            
            
            
            (94,096
            )
            
            
            (48
            )%Aircraft fuel
            
            
            26,939
            
            
            
            81,953
            
            
            
            (55,014
            )
            
            
            (67
            )%Other rentals and landing fees
            
            
            44,359
            
            
            
            33,954
            
            
            
            10,405
            
            
            
            31
            %Ground handling services
            
            
            73,236
            
            
            
            65,787
            
            
            
            7,449
            
            
            
            11
            %Commissions and passenger related expense
            
            
            17,935
            
            
            
            2,688
            
            
            
            15,247
            
            
            
            567
            %Depreciation and amortization
            
            
            6,821
            
            
            
            2,932
            
            
            
            3,889
            
            
            
            133
            %Other
            
            
            58,270
            
            
            
            38,749
            
            
            
            19,521
            
            
            
            50
            %Provision for decreases increases in losses associated with bankruptcy
                filings of Northwest and Mesaba
            
            
            (1,048
            )
            
            
            (2,172
            )
            
            
            1,124
            
            
            
            52
            %Total
                operating expenses
            
            $
            543,620
            
            
            $
            553,520
            
            
            $
            (9,900
            )
            
            
            (2
            )%





Total
      operating expenses for the nine months ended September 30, 2007 decreased by
      $9.9 million and 2%.  The decrease in operating expenses was primarily
      attributable to the previously discussed decreases in aircraft fuel and aircraft
      rentals offset by the impact of the Colgan acquisition and by slight increases
      in Pinnacle’s salaries, wages and benefits.





Salaries,
      wages and benefits increased by $45.8 million, or 44%.  The increase
      is primarily due to $32.7 million in additional salaries, wages and benefits
      from the acquisition of Colgan. The remaining increase is due to a 17%
      increase in Pinnacle employees over the same period in 2006.  The
      increase in Pinnacle’s employees is primarily due to an agreement we entered
      into with Northwest during the fourth quarter of 2006, under which we will
      provide our own ground handling services at seven additional cities under the
      ASA, which had previously been handled by Northwest.  In addition,
      under a separate agreement we agreed to provide ground handling services to
      Northwest for its own flights at six additional cities.





Aircraft
      maintenance, materials and repairs expense increased approximately $35.8 million
      or 133%.  Maintenance expense incurred by Colgan accounted for $27.3
      million of this increase.  Additionally, $1.2 million of maintenance
      expense related to the refurbishment of the two Saab aircraft previously
      subleased to Mesaba that will be transitioned into Colgan’s fleet.  As
      discussed in Note 5 to our condensed consolidated financial statements, this
      refurbishment expense was previously accounted for as a bankruptcy-related
      expense.  Additionally, Pinnacle incurred $3.8 million of additional
      heavy check expense during the nine months ended September 30, 2007, which
      was
      caused by an increase in the number of heavy checks performed as its fleet
      ages.  The remaining increase is attributable to the 12% year over
      year increase in Pinnacle’s fleet of CRJ-200 aircraft.





Aircraft
      rental expense decreased $94.1 million, or 48%, due to the terms of the amended
      ASA with Northwest.  Effective January 1, 2007, our monthly lease
      rates were reduced to rates that approximated market conditions at that
      time.  As previously noted, we sublease our CRJ-200 aircraft from
      Northwest under operating leases for aircraft that expire December 31,
      2017.  Northwest reimburses in full all rental expense for the CRJ-200
      aircraft operated under the ASA.  Aircraft rent reimbursed by
      Northwest decreased $101.3 million over the same period in 2006.  The
      decrease in rent reimbursed by Northwest is offset by the rent expense of $6.4
      million attributable to Colgan.




21
 **Item
            2. Management's Discussion and Analysis of Results of Operations and
            Financial
            Condition**




Aircraft
        fuel expense decreased by $55.0 million, or 67%.  Of this decrease,
        $81.6 million is due to the terms under the ASA with Northwest which provides
        for Northwest to provide jet fuel to us at no cost beginning January 1,
        2007.  This decrease is offset by $26.7 million of fuel expense
        attributable to Colgan.
 
 Other
        rentals and landing fees increased by $10.4 million, or 31%, mainly attributable
        to the $7.5 million of additional fees incurred by Colgan.  In
        addition, Pinnacle’s facilities rent expense increased $2.4 million due to the
        increase in the number of stations that Pinnacle operates.


Ground
      handling services increased by $7.4 million, or 11%, due to an increase of
      $9.2
      million attributable to the addition of ground handling expenses incurred by
      Colgan.  The remainder of the increase is due to a 6% increase in the
      number of departures Pinnacle performed and a change in the mix of cities
      Pinnacle served.  These increases were offset by a $3.9 million
      decrease in ground handling payments to Northwest as a result of the transition
      of ground handling functions in a number of cities to Pinnacle.




Commissions
      and passenger related expense increased $15.2 million primarily due to the
      addition of Colgan expenses.  As discussed in Note 1 to our condensed
      consolidated financial statements, this caption is being presented for the
      first
      time in 2007, as it is a material portion of Colgan’s operating
      expenses.  Because Colgan has the responsibility of selling its own
      tickets, it incurs costs related to these transactions.  We have not
      incurred these costs in the past as Northwest handles Pinnacle’s ticket
      sales.  Also included in this amount are passenger related expenses
      such as catering expense and interrupted trip expense.





Depreciation
        increased $3.9 million, or 133% primarily due to the addition of expense
        incurred by Colgan.





The
      $19.5
      million, or 50%, increase in other expenses is primarily attributable to $14.0
      million in other operating expenses incurred by Colgan and the increase in
      Pinnacle’s fleet size.





**Nonoperating
      Expense**





Net
      nonoperating expense increased by $0.8 million compared to the same period
      in
      2006.  The increase was caused by a $3.5 million increase in interest
      expense, largely attributable to Colgan’s operations offset by $1.5 million of
      capitalized interest, primarily related to the acquisition of our Q400 and
      CRJ-900 aircraft, as discussed in Note 1 to our condensed consolidated financial
      statements.  In addition, we recorded a $4.1 million loss on the sale
      of our $42.5 million bankruptcy claim against Northwest during the second
      quarter of 2007.  Offsetting this increase in nonoperating expense is
      a $6.7 million increase in interest income from our significantly larger
      short-term investment portfolio.  The increase in our portfolio
      relates to the investment of proceeds received from the assignment of our
      Northwest and Mesaba claims.  In addition, miscellaneous income
      increased by $0.2 million related to gain on sale of fixed assets





**Income
      Tax Expense**





For
      the
      nine months ended September 30, 2007, our income tax expense decreased by $10.0
      million, primarily related to the decrease in pre-tax income as compared to
      the
      same period in 2006.  In addition, the Company’s effective tax rate
      decreased 4.0 points primarily due to tax-exempt interest income on our
      short-term investment portfolio.




**Certain
      Statistical Information**





The
      following table summarizes certain operational statistics for the periods
      indicated:


**CRJ**
            
            
            **Turboprop****Three
                Months Ended September 30,**
            
            
            **Three
                Months Ended**
              **September
                30,****2007**
            
            
            **2006**
            
            
            **Change**
            
            
            **2007****Other
                Data:**Revenue
                passengers (in thousands)
            
            
            2,636
            
            
            
            2,330
            
            
            
            13
            %
            
            
            425Revenue
                passenger miles (in thousands) (1)
            
            
            1,230,775
            
            
            
            1,110,898
            
            
            
            11
            %
            
            
            78,475Available
                seat miles (in thousands)
            
            
            1,562,621
            
            
            
            1,459,943
            
            
            
            7
            %
            
            
            164,907Passenger
                load factor (2)
            
            
            78.8
            %
            
            
            76.1
            %
            
            2.7
                pts
            
            
            
            47.6
            %Operating
                revenue per available seat mile (in cents)
            
            
            9.64
            
            
            
            14.28
            
            
            
            (32
            )%
            
            
            33.44Operating
                cost per available seat mile (in cents)
            
            
            8.64
            
            
            
            12.53
            
            
            
            (31
            )%
            
            
            33.80Operating
                revenue per block hour
            
            $
            1,340
            
            
            $
            1,996
            
            
            
            (33
            )%
            
            $
            1,561Operating
                cost per block hour
            
            $
            1,201
            
            
            $
            1,752
            
            
            
            (31
            )%
            
            $
            1,578Block
                hours
            
            
            112,378
            
            
            
            104,435
            
            
            
            8
            %
            
            
            35,329Departures
            
            
            68,370
            
            
            
            63,713
            
            
            
            7
            %
            
            
            30,049Average
                daily utilization (block hours)
            
            
            8.77
            
            
            
            9.15
            
            
            
            (4
            )%
            
            
            7.95Average
                stage length (miles)
            
            
            461
            
            
            
            471
            
            
            
            (2
            )%
            
            
            185Number
                of operating aircraft (end of period)
            
            
            139
            
            
            
            124
            
            
            
            12
            %
            
            
            49**CRJ**
            
            
            **Turboprop****Nine
                Months Ended September 30,**
            
            
            **Nine
                Months Ended   September 30,****2007**
            
            
            **2006**
            
            
            **Change**
            
            
            **2007****Other
                Data:**Revenue
                passengers (in thousands)
            
            
            7,477
            
            
            
            6,685
            
            
            
            12
            %
            
            
            1,112Revenue
                passenger miles (in thousands) (1)
            
            
            3,471,275
            
            
            
            3,193,715
            
            
            
            9
            %
            
            
            206,046Available
                seat miles (in thousands)
            
            
            4,528,179
            
            
            
            4,173,150
            
            
            
            9
            %
            
            
            443,782Passenger
                load factor (2)
            
            
            76.7
            %
            
            
            76.5
            %
            
            0.2
                pts
            
            
            
            46.4
            %Operating
                revenue per available seat mile (in cents)
            
            
            9.79
            
            
            
            14.86
            
            
            
            (34
            )%
            
            
            32.20Operating
                cost per available seat mile (in cents)
            
            
            8.86
            
            
            
            13.26
            
            
            
            (33
            )%
            
            
            32.07Operating
                revenue per block hour
            
            $
            1,347
            
            
            $
            1,997
            
            
            
            (33
            )%
            
            $
            1,513Operating
                cost per block hour
            
            $
            1,219
            
            
            $
            1,783
            
            
            
            (32
            )%
            
            $
            1,507Block
                hours
            
            
            329,201
            
            
            
            310,503
            
            
            
            6
            %
            
            
            94,433Departures
            
            
            199,598
            
            
            
            188,031
            
            
            
            6
            %
            
            
            79,982Average
                daily utilization (block hours)
            
            
            8.79
            
            
            
            9.17
            
            
            
            (4
            )%
            
            
            7.36Average
                stage length (miles)
            
            
            460
            
            
            
            471
            
            
            
            (2
            )%
            
            
            184Number
                of operating aircraft (end of period)
            
            
            139
            
            
            
            124
            
            
            
            12
            %
            
            
            49(1)
                Revenue passenger miles represents the number of miles flown by revenue
                passengers.(2)
                Passenger load factor equals revenue passenger miles divided by available
                seat miles.(3)
                The Company purchased Colgan on January 18, 2007, as discussed in
                Note 2
                to our condensed consolidated
              financial
                statements. The “nine months ended” for turboprops implies the period
                from the date of purchase of
              Colgan
                through September 30, 2007. We did not operate turboprops during
                2006.





The
      Company had 5,402 employees as of September 30, 2007, an increase of 52% over
      the 3,554 employees as of September 30, 2006.





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




**Liquidity
      and Capital Resources**





As
      of
      September 30, 2007, we had $245.2 million of cash and short-term investments,
      comprised of $5.9 million in cash and cash equivalents and $239.3 million in
      short-term investments.   Our balance of cash and short-term
      investments was impacted by the timing of our September month-end payment from
      Northwest.  Our September 30th payment
      of $21.4
      million was received on October 1 as a result of September 30falling
      on a
      weekend.





On
      January 3, 2007, we assigned an aggregate of $335 million of our $377.5 million
      stipulated unsecured claim against Northwest to several third parties for
      aggregate proceeds of approximately $283 million, net of expenses.  We
      received the proceeds from this sale on January 23, 2007.  On June 29,
      2007 we assigned the remaining $42.5 million of our claim for proceeds of $27.7
      million. The sale of our claim is subject to federal and state income taxation,
      and we expect to make estimated tax payments of approximately $101 million
      on
      this sale in 2007.  We have paid $74 million of these estimated tax
      payments through the third quarter of 2007.





*Contractual
      obligations*. The following chart details our debt and lease obligations at
      September 30, 2007 (in thousands):





**Payments
                Due by Period****2007(1)**
            
            
            **2008**
            
            
            **2009**
            
            
            **2010**
            
            
            **2011**
            
            
            **Thereafter**
            
            
            **Total**Contractual
                obligations:Debt
                (2)
            
            $
            5,071
            
            
            $
            6,748
            
            
            $
            5,415
            
            
            $
            2,574
            
            
            $
            1,234
            
            
            $
            121,788
            
            
            $
            142,830Interest
                payments on debt
            
            
            1,031
            
            
            
            5,791
            
            
            
            4,580
            
            
            
            4,190
            
            
            
            4,047
            
            
            
            53,175
            
            
            
            72,814Pre-delivery
                payment financing facilities
            
            
            5,486
            
            
            
            29,525
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            35,011Aircraft
                purchase commitments
            
            
            107,175
            
            
            
            471,243
            
            
            
            22,037
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            600,455Bank
                line of credit
            
            
            -
            
            
            
            8,375
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            8,375Capital
                leases
            
            
            385
            
            
            
            1,511
            
            
            
            1,305
            
            
            
            1,309
            
            
            
            776
            
            
            
            877
            
            
            
            6,163Operating
                leases
            
            
            38,006
            
            
            
            138,116
            
            
            
            131,931
            
            
            
            129,622
            
            
            
            128,982
            
            
            
            713,293
            
            
            
            1,279,950Purchase
                obligations (3)
            
            
            6,641
            
            
            
            20,939
            
            
            
            675
            
            
            
            134
            
            
            
            -
            
            
            
            -
            
            
            
            28,389Total
                contractual cash
              obligations
            
            $
            163,795
            
            
            $
            682,248
            
            
            $
            165,943
            
            
            $
            137,829
            
            
            $
            135,039
            
            
            $
            889,133
            
            
            $
            2,173,987





(1)
            Contractual
                obligations for the remainder of
                2007.


(2)
            The
                Company’s $121 million 3.25% senior convertible notes due 2025 (the
                “Notes”) did not meet the requirements in the third quarter 2007 to be
                convertible in the fourth quarter 2007.  As a result, the Notes
                are classified as a noncurrent liability on the Company’s condensed
                consolidated balance sheet at September 30, 2007, and are included
                above
                in the thereafter column.  Amounts for 2007 and 2008 include
                $2.5 million and $2.5 million, respectively, for short-term notes
                payable
                for the purchase of Colgan (see Note 2 and Note 7 to our condensed
                consolidated financial statements for further
                discussion).


(3)
            Amounts
                represent $6.4 million for the purchase of two aircraft hangars in
                2007
                (as discussed in Note 2 to our condensed consolidated financial
                statements) in 2007, the $20.0 million purchase of our Preferred
                Share in
                2008, and noncancelable commitments to purchase goods and services,
                including certain aircraft parts and information technology software
                and
                equipment.





The
      table
      above excludes $16.8 million related to the reserves for uncertain tax positions
      because we are unable to make reasonably reliable estimates of the timing of
      any
      potential settlement or resolution with the respective taxing
      authority.  The amounts noted above for operating leases include $1.2
      billion of obligations for leased CRJ-200 aircraft from Northwest.  We
      are reimbursed by Northwest in full for CRJ-200 aircraft rental expense under
      the ASA.  For a more detailed discussion of operating leases, refer to
      Note 8 to our condensed consolidated financial statements.





In
      February 2005, we issued $121.0 million principal amount of our 3.25% senior
      convertible notes due 2025.  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 met during the first and
      second quarters of 2007, causing the Notes to become convertible at the option
      of each Note holder during the second and third quarters of
      2007.  This condition was not met during the third quarter of 2007,
      and subsequently the Notes are not convertible at this time.  No
      holders of the Notes tendered their notes for conversion during the second
      and
      third quarters of 2007.  Although the Notes have been convertible and
      will possibly be convertible during future periods, we do not expect a
      significant number of holders of the Notes to tender for conversion because
      the
      Notes generally trade at values higher than the fair value of the common stock
      and cash they can be converted into due to the option value imbedded in each
      Note.  Nonetheless, in any period the holders have the right to
      exercise the conversion option, the Notes’ $121.0 million par value will be
      classified as a current liability in our balance sheet.





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
      are obligated to purchase a minimum of 15 Q400 regional
      aircraft.  These firm aircraft will be delivered to our Colgan
      subsidiary between December 2007 and June 2008.  We have a right of
      cancellation for an additional ten firm aircraft prior to February
      2008.  If we do not exercise this right, then we will take delivery of
      these ten additional aircraft between May 2009 and February 2010.  In
      addition to the 25 firm aircraft, we have optional rights to acquire 20 Q400
      aircraft that would deliver between May 2009 and July 2010.





On
      April
      27, 2007, Delta Air Lines assigned to us its rights to purchase 16 CRJ-900
      aircraft from Bombardier, Inc.  We will take delivery of these
      aircraft between October 2007 and February 2009.  Under the related
      capacity purchase agreement that we entered into with Delta, Delta may also
      require us to purchase an additional seven CRJ-900 aircraft to operate in the
      Delta system.





Our
      aggregate purchase commitment for non-cancelable aircraft orders with Bombardier
      for both the Q400 aircraft and the CRJ-900 aircraft is approximately $663
      million.  In addition to our purchase commitments, we are required to
      make pre-delivery payments to Bombardier, which are refunded to us upon the
      delivery of the aircraft.  During September and October 2007, we
      executed two pre-delivery payment financing facilities (the “PDP Facilities”) to
      provide borrowings to fund our pre-delivery payment commitments to
      Bombardier.  As each aircraft is delivered to us (and the associated
      pre-delivery payments are refunded by Bombardier), we will repay the associated
      borrowings under the PDP Facilities.





We
      currently expect to finance the purchase of all 31 aircraft using a combination
      of internal capital resources and debt financing.  We have obtained
      commitments from a third party to borrow approximately $560 million of the
      aggregate $663 million aircraft purchase price for a term of 15 years from
      the
      delivery date of each aircraft.  We expect to fund the remaining
      approximately $103 million from internal capital resources.





To
      reduce
      the financial risk associated with changes in long-term interest rates over
      the
      next 15 months while we take delivery of the Q400 and CRJ-900 aircraft, we
      initiated a cash flow hedging program on July 30, 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 will be cash settled
      when the permanent financing is obtained at the time we take delivery of the
      aircraft.  As of November 1, 2007, we have hedged approximately $315
      million or 56% of the $560 million we expect to finance.  The average
      hedged interest rate is approximately 7.12%.  Should interest rates
      change by 50 basis points before we take delivery, and assuming that we do
      not
      hedge the anticipated debt on the remaining firm noncanceable aircraft,
      aggregate interest expense in the first year of financing would change by
      approximately $1.4 million.





We
      also
      expect to purchase inventory and spare engines for our new CRJ-900 and Q400
      aircraft totaling approximately $22 million.  We expect to use
      internal resources and financing from the engine manufacturers or third parties
      to fund these inventory and spare engine purchases.





As
      part
      of the Colgan acquisition, we agreed to purchase two aircraft hangars for a
      purchase price of $6.4 million from one of Colgan’s selling
      shareholders.  We expect to close this purchase during 2007, and
      further expect to finance the majority of the purchase price with a mortgage
      from a commercial bank.





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





The
      IRS
      is currently examining our tax records for years 2003 through
      2006.  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 $33 million
      (net of offsetting timing differences within these periods).  We have
      filed a formal protest with respect to these proposed adjustments and are
      awaiting the start of an administrative appeal process within the
      IRS.  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
      $16.8 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 the taxes and related
      interest and penalties associated with these proposed adjustments.





*Operating
      activities.* Net cash provided by operating activities was $277.0 million
      during the nine months ended September 30, 2007. This was due primarily to
      the
      $270.7 million increase in deferred revenue, which was primarily comprised
      of
      the approximately $311 million of proceeds received from the assignment of
      our
      Northwest claims, offset by the elimination of our pre-petition receivables
      balance of approximately $42 million.





Net
      cash
      provided by operating activities was $2.6 million during the nine months ended
      September 30, 2006. This was due primarily to cash provided by net income of
      $41.0 million, offset by changes in operating assets and liabilities, primarily
      accounts receivable, of $41.9 million.





*Investing
      activities*.  Cash used for investing activities for the nine
      months ended September 30, 2007 was $257.8 million.  This was
      primarily attributable to net purchases of short-term investments in marketable
      debt securities of $166.6 million, $70.4 million in pre-delivery payments for
      the Q400 and CRJ-900 aircraft and purchases of property and equipment of $13.2
      million.  In addition, the acquisition of Colgan decreased cash by
      $8.3 million, net of cash acquired.





Cash
      used
      for investing activities for the nine months ended September 30, 2006 was $15.8
      million, primarily related to the net purchase of $13.2 million of short-term
      investments in marketable debt securities and purchases of property and
      equipment of $2.6 million.





We
      have
      undertaken a project to replace our maintenance, financial reporting, enterprise
      resource planning and human resource information systems during
      2007.  This system implementation will require a significant
      expenditure for new software, implementation consultants, and internal
      resources.  We will invest approximately $4.4 million to complete this
      project during the fourth quarter of 2007 and the first half of
      2008.  Inclusive of this software implementation project and the
      previously discussed investments in inventory and spare engines for our new
      aircraft fleets, we expect total capital expenditures for the fourth quarter
      of
      2007 to be approximately $17 to $18 million.  We are expecting to fund
      these expenditures with cash flows generated from our operations.





*Financing
      activities*. Cash used in financing activities for the nine months ended
      September 30, 2007 totaled $14.0 million, which relates to the receipt of the
      proceeds from the pre-delivery payment facility of $35.0 million and proceeds
      from the exercise of stock options of $2.9 million, offset by $16.4 million
      of
      principal payments on debt obligations and $0.7 million of payments made on
      capital leases.  In addition, we purchased $35.2 million of treasury
      shares as part of our share repurchase program.





Cash
      used
      in financing activities for the nine months ended September 30, 2006 totaled
      $17.0 million, which related to the repayment of the line of credit with First
      Tennessee Bank.  That line of credit expired in June
      2006.





*Deferred
      tax asset.*  We have recorded a deferred tax asset of $90.3
      million****related to future tax benefits we will receive for
      our deferred ASA revenue.  As discussed in Note 4 to our condensed
      consolidated financial statements, the deferred ASA revenue is being recognized
      over the 11-year term of the ASA.




**Forward
      Looking Statements**





Statements
      in this Form 10-Q report contain various forward-looking statements within
      the
      meaning of Section 27A of the Securities Act of 1933, as amended, or the
      Securities Act, and Section 21E of the Securities Act of 1934, as amended,
      or
      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 not more than once per quarter, and not to update that
      information until we deem it appropriate.





24
 **Item
              3.  Quantitative and Qualitative Disclosure about Market
              Risk**


Becausethe
      majority of our business is under a capacity
      purchase agreement, we have limited exposure to market risks such as commodity
      price risk (e.g., aircraft fuel prices).  With the recent acquisition
      of Colgan and the subsequent contract with Continental regarding the purchase
      of
      Q400s, we are exposed to increased commodity price and interest rate risk as
      discussed below.





**Commodity
      Price Risk**





We
      have
      exposure to certain market risks associated with our aircraft
      fuel.  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 ASA with Northwest requires that Northwest
      provide fuel at no charge to our Pinnacle subsidiary, thereby reducing our
      overall exposure to fuel price fluctuations.  For the year ended
      December 31, 2006, we bore no fuel price risk because 100% of our fuel
      requirements were associated with this contract.  However, with the
      acquisition of Colgan in January 2007, the Company’s code share agreements with
      US Airways, Continental, and United Airlines expose the Company to fuel price
      increases.  Our agreement with Continental provides for an adjustment
      to the pro-rated revenue we received from Continental based on projected changes
      in fuel prices.  For the projected annualized fuel consumption related
      to these agreements, each one percent change in the price of jet fuel amounts
      to
      an approximate $0.4 million change in annual fuel costs.





**Interest
      Rate Risk**





*Aircraft
      financing.* As discussed in Note 15 to our condensed consolidated financial
      statements, we currently intend to finance approximately $560 million of the
      approximately $663 million purchase price for the 15 Q400 and 16 CRJ-900
      aircraft we are acquiring.  The aircraft financing commitment provides
      that we elect either a fixed or floating interest rate option prior to each
      drawdown to occur upon delivery of each aircraft.  The floating rate
      option is based upon a spread over the six month LIBOR.  The fixed
      rate option would be computed by converting the floating rate to a fixed rate
      equivalent based upon published “swap” rates for debt with a maturity closest to
      the weighted average life of the debt.





To
      reduce
      the financial risk associated with changes in long-term interest rates over
      the
      next 15 months while we take delivery of the Q400 and CRJ-900 aircraft, we
      initiated a cash flow hedging program on July 30, 2007.  The program
      consists of interest rate swaps whereby the Company agrees to pay a fixed
      interest rate and receives the six month LIBOR rate.  The swaps will
      be cash settled when the permanent financing is obtained at the time we take
      delivery of the aircraft.  As of November 1, 2007, we have hedged
      approximately $315 million or 56% of the $560 million we expect to
      finance.  Should interest rates change by 50 basis points before we
      take delivery, and assuming that we do not hedge the anticipated debt on the
      remaining firm noncanceable aircraft, aggregate interest expense in the first
      year of financing would change by approximately $1.4 million.  See
      Note 9 to our condensed consolidated financial statements for additional
      information about our cash flow hedging program.





*Investment
      income.*  Our earnings are affected by fluctuations in interest
      rates due to the impact those changes have on our interest income from
      short-term investments.  We do not purchase or hold any derivative
      financial instruments to protect against the effects of changes in interest
      rates.  Based on our current balance of short-term investments, a 50
      basis point change in interest would result in an increase or decrease in annual
      investment income of approximately $1.2 million.  See Note 14 to our
      condensed consolidated financial statements for additional information about
      short-term investments.





*Senior
      convertible notes.* While we pay interest on the Notes at a fixed rate of
      3.25%, the fair value of the Notes is sensitive to changes in interest rates
      and
      to changes in the market price of our common stock.  Interest rate
      changes may result in increases or decreases in the fair value of the Notes
      due
      to differences between market interest rates and rates in effect at the
      inception of the obligation.  The fair value of the Notes may also
      increase or decrease with differences between the current market price of our
      common stock and the market price on the original issuance date of the
      Notes.  Unless we elect to repurchase our Notes in the open market,
      changes in their fair value have no impact on our condensed consolidated
      financial statements as a whole. The estimated fair value of the Notes on
      October 26, 2007 was approximately $158.8 million, based on quoted market
      prices.





**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, 2007, that has materially affected, or is reasonably likely to materially
      affect the our internal control over financial reporting.





As
      previously discussed, on January 18, 2007, the Company acquired
      Colgan.  Refer to Note 2 in our condensed consolidated financial
      statements for more information of this event.  The acquisition of
      Colgan had a material effect on the Company’s internal control over financial
      reporting.  The revenue attributable to Colgan’s operations for the
      three and nine months ended September 30, 2007 was 27% and 24%, respectively,
      of
      our total revenues.  The assets attributed as of September 30, 2007
      are 21% of our total assets.  However, this business will be excluded
      from management’s annual assessment of the effectiveness of our internal control
      over financial reporting as of December 31, 2007.





25


**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,
      2006.







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


**Period**
            
            **Total
                Number of Shares Purchased**
            
            
            **Average
                Price Paid per Share (a)**
            
            
            **Total
                Number of Shares Purchased as Part of Publicly Announced Plans or
                Programs
                (b)**
            
            
            **Maximum
                Number**
              **(or
                Approximate Dollar Value) that May Yet Be Purchased Under the Plans
                or
                Programs (b)**Balance
                at July 1, 2007
            
            
            1,483,900
            
            
            $
            18.32
            
            
            
            1,483,900
            
            
            $
            2,777,745July
                1, 2007-July 31, 2007
            
            
            146,632
            
            
            
            18.91
            
            
            
            146,632
            
            
            
            10,000,006
            (c)August
                1, 2007 – August 31, 2007
            
            
            245,500
            
            
            
            15.95
            
            
            
            245,500
            
            
            
            6,077,010September
                1, 2007 – September 30, 2007
            
            
            82,000
            
            
            
            15.63
            
            
            
            82,000
            
            
            
            4,793,287Total
            
            
            1,958,032
            
            
            $
            17.95
            
            
            
            1,958,032
            
            
            $
            4,793,287
            (c)a
                -
                Average price paid per share excludes commissions.b
                -
                On May 14, 2007, the Board of Directors authorized a share repurchase
                program, whereby the Company may repurchase up to an aggregate of
                $30
                million of its outstanding shares. The Company purchased over
                1.6
              million
                of its outstanding shares through July 3, 2007, thereby exhausting
                the
                allocated funds.c
                -
                On August 8, 2007, the Board of Directors authorized a $30 million
                increase in the Company’s existing share repurchase program, $20 million
                of which was contingent upon obtaining certain financings. The
                Company met these requirements on October 3, 2007, thereby increasing
                the
                maximum approximate dollar value that may yet be purchased under
                the plan
                to $24.8 million.





**Item
      3.  Defaults Upon Senior
      Securities**





None.





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





None.





**Item
      5. Other Information**





None.










Part
        II.  Other Information




**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
            Bylaws
                of the registrant (Incorporated by reference to the
                S-1)


3.3.1
            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)


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 January 26,
                2006)


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












27
 Part
            II.  Other
            Information
  **Exhibit**
 **Number                  Description**
 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


**                          
      To be filed by amendment


†
            Management
                contract or compensatory plan or
                arrangement


#                            
      Cancelled agreement referenced in this Form 10-Q











28

















**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
                2, 2007
            President
                and Chief Executive OfficerBy:
            /s/
                Peter D. HuntPeter
                D. HuntDate:  November
                2, 2007
            Vice
                President and Chief Financial Officer






































29