UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549








FORM
10-Q





x
            Quarterly
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934For
      the quarterly period ended March 31, 2008or ̈
            Transition
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934For
      the transition period from__________
  to__________





Commission
File Number 001-31898


PINNACLE
AIRLINES CORP.


(Exact
name of registrant as specified in its charter)





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








901-348-4100


(Registrant's
telephone number, including area code)











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


Yes
      x
            
            No
       ̈








Indicate
by check mark whether the registrant is a larger accelerated filer, an
accelerated filer 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 xNon-accelerated
      filer  ̈
              
              Smaller
      reporting company  ̈







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


Yes
       ̈
            
            No
      x





As of May
8, 2008, 18,065,995shares of common stock
were outstanding.











Table
of Contents




Part
      I. Financial InformationItem
      1. Financial StatementsCondensed Consolidated Statements of Income
      (Unaudited) 
      ******************************************************
            3Condensed Consolidated Balance Sheets
      (Unaudited) 
      ***********************************************************
            4Condensed Consolidated Statements of Cash Flows
      (Unaudited) 
      **************************************************
            5Notes to Condensed Consolidated Financial Statements
      (Unaudited) 
      ************************************************
            6Item 2.  Management’s Discussion and Analysis of
      Results of Operations and Financial Condition 
      *****************************
            20Item 3.  Quantitative and Qualitative Disclosures
      about Market Risk 
      ****************************************************
            35Item 4.  Controls and Procedures 
      ******************************************************************************
            35Part
      II.  Other InformationItem 1.  Legal
      Proceedings 
      ***********************************************************************************
            36Item 1A.  Risk Factors 
      **************************************************************************************
            36Item 2.  Unregistered Sales
      of Equity Securities and Use of Proceeds 
      ***************************************************
            36Item 3.  Defaults Upon Senior
      Securities 
      ************************************************************************
            36Item 4.  Submission of
      Matters to a Vote of Security Holders 
      *********************************************************
            36Item 5.  Other
      Information 
      ***********************************************************************************
            36Item 6.  Exhibits 
      *******************************************************************************************
            36






































2





Part
1.  Financial Information





Item
1.  Financial Statements





Pinnacle
Airlines Corp.


Condensed Consolidated Statements of Income
(Unaudited)


(in
thousands, except per share data)





Three
      Months Ended March 31,2008
            
            
            2007Operating
      revenuesRegional
      airline services
            
            $
            201,159
            
            
            $
            176,945Other
            
            
            3,182
            
            
            
            2,605Total
      operating revenues
            
            
            204,341
            
            
            
            179,550Operating
      expensesSalaries,
      wages and benefits
            
            
            55,326
            
            
            
            47,301Aircraft
      fuel
            
            
            11,873
            
            
            
            6,437Aircraft
      maintenance, materials and repairs
            
            
            21,760
            
            
            
            17,548Aircraft
      rentals
            
            
            33,521
            
            
            
            33,719Other
      rentals and landing fees
            
            
            15,477
            
            
            
            13,914Ground
      handling services
            
            
            27,389
            
            
            
            24,422Commissions
      and passenger related expense
            
            
            6,826
            
            
            
            4,495Depreciation
      and amortization
            
            
            4,376
            
            
            
            2,054Other
            
            
            21,127
            
            
            
            16,835Total
      operating expenses
            
            
            197,675
            
            
            
            166,725Operating
      income
            
            
            6,666
            
            
            
            12,825Operating
      income as a percentage of operating revenues
            
            
            3.3%
            
            
            
            7.1%Nonoperating
      (expense) incomeInterest
      income
            
            
            2,314
            
            
            
            3,065Interest
      expense
            
            
            (4,842)
            
            
            
            (2,074)Miscellaneous
      (expense) income, net
            
            
            (60)
            
            
            
            18Total
      nonoperating (expense) income
            
            
            (2,588)
            
            
            
            1,009Income
      before income taxes
            
            
            4,078
            
            
            
            13,834Income
      tax expense
            
            
            1,425
            
            
            
            4,469Net
      income
            
            $
            2,653
            
            
            $
            9,365Basic
      earnings per share
            
            $
            0.15
            
            
            $
            0.43Diluted
      earnings per share
            
            $
            0.15
            
            
            $
            0.38Shares
      used in computing basic earnings per share
            
            
            17,859
            
            
            
            21,990Shares
      used in computing diluted earnings per share
            
            
            17,939
            
            
            
            24,672





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





3


Pinnacle
Airlines Corp.


Condensed Consolidated Balance Sheets


(in
thousands, except share data)





March
      31,
            
            December
      31,2008
            
            2007Assets
            (Unaudited)Current
      assetsCash
      and cash equivalents
            $
            76,884
            
            $
            26,785Restricted
      cash
            
            5,032
            
            
            5,327Short-term
      investments
            
            -
            
            
            186,850Receivables,
      net
            
            33,166
            
            
            31,107Spare
      parts and supplies, net
            
            18,235
            
            
            16,030Prepaid
      expenses and other assets
            
            27,321
            
            
            16,535Deferred
      income taxes, net of allowance
            
            12,284
            
            
            12,285Income
      taxes receivable
            
            18,989
            
            
            -Total
      current assets
            
            191,911
            
            
            294,919Property
      and equipmentFlight
      equipment
            
            351,978
            
            
            162,374Aircraft
      pre-delivery payments
            
            56,817
            
            
            81,425Other
      property and equipment
            
            41,576
            
            
            39,969Less
      accumulated depreciation
            
            (32,706)
            
            
            (28,358)Net
      property and equipment
            
            417,665
            
            
            255,410Investments
            
            126,145
            
            
            -Deferred
      income taxes, net of allowance
            
            62,966
            
            
            79,856Other
      assets
            
            40,237
            
            
            28,528Debt
      issuance costs, net
            
            5,410
            
            
            4,598Goodwill
            
            28,206
            
            
            28,206Intangible
      assets, net
            
            17,796
            
            
            17,071Total
      assets
            $
            890,336
            
            $
            708,588Liabilities
      and stockholders’ equityCurrent
      liabilitiesShort-term
      notes payable and current maturities of long-term debt
            $
            121,042
            
            $
            73,513Bank
      line of credit
            
            8,275
            
            
            8,375Accounts
      payable
            
            38,966
            
            
            33,062Accrued
      expenses
            
            85,013
            
            
            80,731Income
      taxes payable
            
            -
            
            
            2,356Deferred
      revenue
            
            24,004
            
            
            24,099Other
      current liabilities
            
            1,224
            
            
            21,323Total
      current liabilities
            
            278,524
            
            
            243,459Senior
      convertible notes
            
            121,000
            
            
            121,000Long-term
      debt, less current maturities
            
            226,511
            
            
            71,812Deferred
      revenue, net of current portion
            
            204,672
            
            
            209,752Other
      liabilities
            
            4,493
            
            
            4,743Commitments
      and contingenciesStockholders’
      equitySeries
      A preferred share, stated value $100 per share, one issued share, retired
      on January 4, 2008
            
            -
            
            
            -Common stock, $0.01 par value; 40,000,000 shares authorized;22,516,087
      and 22,402,999 shares issued,
              respectively
            
            225
            
            
            224Treasury stock, at cost, 4,450,092 shares
            
            (68,152)
            
            
            (68,152)Additional paid-in capital
            
            91,969
            
            
            91,165Accumulated other comprehensive loss
            
            (16,344)
            
            
            (10,200)Retained
      earnings
            
            47,438
            
            
            44,785Total
      stockholders’ equity
            
            55,136
            
            
            57,822Total
      liabilities and stockholders’ equity
            $
            890,336
            
            $
            708,588




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


4




Pinnacle
Airlines Corp.


Condensed Consolidated Statements of Cash Flows
(Unaudited)


(in
thousands)





Three
      Months Ended March 31,2008
            
            
            2007Operating
      activitiesNet
      income
            
            $
            2,653
            
            
            $
            9,365Adjustments
      to reconcile net income to cash provided by operating
      activities:Depreciation
      and amortization
            
            
            4,845
            
            
            
            2,387Deferred
      income tax
            
            
            21,058
            
            
            
            (95,998)Recognition
      of deferred revenue
            
            
            (6,280)
            
            
            
            (5,228)Other
            
            
            1,622
            
            
            
            (625)Changes
      in operating assets and liabilities:Receivables
            
            
            (2,059)
            
            
            
            75,469Increase
      in deferred revenue
            
            
            1,033
            
            
            
            241,439Spare
      parts and supplies
            
            
            (2,479)
            
            
            
            (916)Prepaid
      expenses and other assets
            
            
            (1,491)
            
            
            
            (6,759)Restricted
      cash
            
            
            295
            
            
            
            -Accounts
      payable and accrued expenses
            
            
            7,150
            
            
            
            17,419Derivative
      collateral payments
            
            
            (9,319)
            
            
            
            -Derivative
      prepaid interest
            
            
            (14,559)
            
            
            
            -Insurance
      proceeds
            
            
            1,606
            
            
            
            -Income
      taxes receivable
            
            
            (21,366)
            
            
            
            82,345Other
      liabilities
            
            
            -
            
            
            
            (2,930)Cash
      (used in) provided by operating activities
            
            
            (17,291)
            
            
            
            315,968Investing
      activitiesPurchases
      of property and equipment
            
            
            (8,200)
            
            
            
            (3,358)Proceeds
      from the sale of property and equipment
            
            
            137
            
            
            
            -Aircraft
      pre-delivery payments
            
            
            -
            
            
            
            (27,838)Purchases
      of short-term investments
            
            
            (82,200)
            
            
            
            (521,875)Proceeds
      from sale of short-term investments
            
            
            132,950
            
            
            
            270,425Acquisition
      of Colgan Air, Inc. net of cash acquired
            
            
            -
            
            
            
            (8,366)Cash
      provided by (used in) investing activities
            
            
            42,687
            
            
            
            (291,012)Financing
      activitiesProceeds
      from debt
            
            
            71,810
            
            
            
            (1,388)Payments
      on debt
            
            
            (25,996)
            
            
            
            -Payments
      on capital leases
            
            
            (279)
            
            
            
            (175)Purchase
      of Series A Preferred Share
            
            
            (20,000)
            
            
            
            -Debt
      issuance costs
            
            
            (881)
            
            
            
            -Other
      financing activities
            
            
            49
            
            
            
            -Cash
      provided by (used in) financing activities
            
            
            24,703
            
            
            
            (1,563)Net
      increase in cash and cash equivalents
            
            
            50,099
            
            
            
            23,393Cash
      and cash equivalents at beginning of period
            
            
            26,785
            
            
            
            705Cash
      and cash equivalents at end of period
            
            $
            76,884
            
            
            $
            24,098Noncash
      investing and financing activitiesProperty
      and equipment acquired through the issuance of debt
            
            $
            156,313
            
            
            $
            1,400Unrealized
      loss on auction rate securities
            
            $
            9,955
            
            
            $
            -Mark-to-market
      adjustment on derivative instruments
            
            $
            351
            
            
            $
            -Other
      noncash investing and financing activities
            
            $
            2,590
            
            
            $
            -









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





1.  Description
of Business and Basis of Presentation





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





Pinnacle
operates an all-regional jet fleet providing regional airline capacity to Delta
Air Lines, Inc. (“Delta”) as a Delta Connection carrier at its hub airport in
Atlanta, and to Northwest Airlines, Inc. (“Northwest”) as a Northwest Airlink
carrier at its hub airports in Detroit, Minneapolis/St. Paul and
Memphis.  At March 31, 2008, Pinnacle operated a jet fleet of six
Canadair Regional Jet (“CRJ”)-900 aircraft as a Delta Connection carrier with
approximately 19 daily departures to 12 cities in nine states and the U.S.
Virgin Islands.  Pinnacle operated 132 CRJ-200 aircraft as a Northwest
Airlink carrier with approximately 700 daily departures to 122 cities in 35
states and four Canadian provinces.





Colgan
operates an all-turboprop fleet under revenue pro-rate agreements with
Continental Airlines, Inc. (“Continental”), United Air Lines, Inc. (“United”)
and US Airways Groups, Inc. (“US Airways”), and also provides regional airline
capacity to Continental under a capacity purchase agreement.  Colgan’s
operations are focused primarily in the northeastern United States and in
Texas.  As of March 31, 2008, Colgan offered 344 daily departures and
operated 13 Saab 340 aircraft as Continental Connection from Continental’s hub
airport in Houston, 12 Saab 340 aircraft as United Express at Washington/Dulles,
and four Beech 1900 aircraft and 16 Saab 340 aircraft as US Airways Express,
with hub locations at New York/LaGuardia, Boston and Washington/National under
revenue pro-rate agreements.  Colgan also operated six Q400 aircraft
under a capacity purchase agreement with Continental at its global hub at
Newark/Liberty International Airport, providing 44 daily
departures.





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





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





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.





2.  Code-Share
Agreements with Partners





The
Company’s operating contracts fall under two categories: capacity purchase
agreements and revenue pro-rate agreements.  The following is a
summary of the percentage of regional airline services revenue attributable to
each contract type and code-share partner for the three months ended March 31,
2008.





Percentage
      of Regional Airline Services RevenueSource
      of Revenue
            
            Capacity
              Purchase
              Agreements
            
            Pro-Rate
              Agreements
            
            TotalNorthwest
            
            73%
            
            -
            
            73%US
      Airways
            
            -
            
            8%
            
            8%Continental
            
            2%
            
            8%
            
            10%United
            
            -
            
            5%
            
            5%Delta
            
            2%
            
            -
            
            2%Essential
      Air Services
            
            -
            
            2%
            
            2%Total
            
            77%
            
            23%
            
            100%








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





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





Capacity
Purchase Agreements





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





Northwest
Airlines





The
Company, through its Pinnacle subsidiary, provides regional jet service to
Northwest as a Northwest Airlink carrier under an amended and restated airline
services agreement (the “ASA”) that became effective January 1, 2007 and expires
in December 2017. In accordance with the terms of the ASA, either party may
terminate the agreement for cause and the ASA does not provide a mechanism for
cancellation in the event of a merger between NWA and another airline. 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.





Pursuant to the terms of the ASA,
Northwest is currently transitioning 15 of Pinnacle’s CRJ-200 aircraft to one of
its wholly owned subsidiaries. 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). As of March
31, 2008, seven of the 15 CRJ-200 aircraft had been returned, with the remaining
eight aircraft expected to be returned through the third quarter 2008 at an
average rate of two per month.





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





Delta
Air Lines





On April
27, 2007, the Company entered into a ten-year capacity purchase agreement with
Delta to operate 16 CRJ-900 aircraft as a Delta Connection Carrier (the “Delta
Connection Agreement”, or “DCA”). Scheduled service began on December 1, 2007
and Pinnacle operated six CRJ-900 aircraft under the DCA as of March 31,
2008.  The remaining aircraft will continue to be delivered through
January 2009.  The DCA does not allow for termination of the agreement
in the event that Delta merges with another airline. Delta also has the option
to add an additional seven CRJ-900 aircraft under the DCA.





Continental
Airlines





On
February 5, 2007, the Company entered into a capacity purchase agreement with
Continental under which Colgan operates Q400 regional aircraft predominantly out
of Continental’s hub at Newark/Liberty International Airport.  As of
March 31, 2008, Colgan operated six Q400 aircraft, with the remaining nine
scheduled to be delivered through the third quarter of 2008.





Revenue
Pro-rate Agreements





When the
Company purchased Colgan in January 2007, its existing contracts were structured
as revenue pro-rate code-share agreements, which allowed for Colgan to market
its operations under its partners’ brands.  Under these agreements, Colgan
generally manages its own inventory of unsold capacity and sets fare levels in
the





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





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





local
markets that it serves.  Colgan retains all of the revenue for
passengers flying within its local markets that do not connect to its partners’
flights.  For connecting passengers, the passenger fare is pro-rated
between Colgan and





its major
airline partner, generally based on the distance traveled by the passenger on
each segment of the passenger’s trip.  Under these agreements, Colgan bears
the risk associated with fares, passenger demand, and competition within its
markets.  Colgan incurs all of the costs associated with operating
these flights, including those costs typically reimbursed or paid directly by
the major airline under a capacity purchase agreement. In some instances, Colgan
has the ability to earn incentive-based revenue should it achieve specified
performance metrics.





US
Airways





As of
March 31, 2008, the Company, through its Colgan subsidiary, operated 16 Saab 340
aircraft and four Beech 1900D aircraft under a code-sharing pro-rate agreement
with US Airways (the “US Airways Agreement”).  In 1999, Colgan entered
into the US Airways Agreement to provide passenger service and cargo service
under the name “US Airways Express.” The current US Airways Agreement became
effective on October 1, 2005 under terms similar to the 1999 agreement and has a
three-year term.  The Company expects to begin discussions surrounding
the extension of the US Airways agreement with US Airways during the second
quarter.





Continental
Airlines





As of
March 31, 2008, the Company, through its Colgan subsidiary, operated 13 Saab 340
aircraft based in Houston, Texas under a code-share, pro-rate agreement with
Continental (the “Continental Agreement”).  Colgan entered into the
Continental Agreement in January 2005 for a term of five years.





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
March 31, 2008, the Company operated 12 Saab 340 aircraft under the name “United
Express.”  The United Agreement expires on December 31, 2008 and is
structured as a pro-rate agreement.





Essential
Air Services





In
addition to the code-share agreements described above, the Company, through its
Colgan subsidiary, operates under nine separate contracts with the Department of
Transportation (“DOT”) to provide subsidized air service to 15 communities as
part of the Essential Air Services (“EAS”) program.







3.
Fair Value Measurements





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





SFAS 157
emphasizes that fair value is a market-based measurement, not an entity-specific
measurement.  Therefore, a fair value measurement should be determined
based on the assumptions that market participants would use in pricing the asset
or liability.  As a basis for considering market participant
assumptions in fair value measurements, SFAS 157 establishes a fair value
hierarchy that distinguishes between market





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







3.
Fair Value Measurements – (Continued)





participant
assumptions based on market data obtained from sources independent of the
reporting entity (observable inputs that are classified within Levels 1 and 2 of
the hierarchy) and the reporting entity’s own assumptions about market
participant assumptions (unobservable inputs classified within Level 3 of the
hierarchy).  A description of the three-tier fair value hierarchy is
as follows:





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





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





As of
March 31, 2008, the Company held certain assets and liabilities that are
required to be measured at fair value on a recurring basis, none of which were
classified as Level 1. The table below presents the Company’s assets and
liabilities measured at fair value as of March 31, 2008, aggregated by the level
in the fair value hierarchy within which those measurements fall.




Level
      1
            
            Level 2
            
            Level 3
            
            Balance
      at
              March
      31, 2008AssetsAuction
      Rate Securities (“ARS”)
            
            $
            -
            
            $
            -
            
            $
            126,145
            
            $
            126,145LiabilitiesDerivative
      financial instruments
            
            
            -
            
            
            (17,127)
            
            
            -
            
            
            (17,127)







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




AssetAuction
      Rate
              SecuritiesBalance
      at January 1, 2008
            
            $
            -Transfers
      to Level 3
            
            
            136,100Total
      unrealized gains/(losses)Included
      in earnings
            
            
            -Included
      in other comprehensive income (“OCI”)
            
            
            (9,955)Balance
      at March 31, 2008
            
            $
            126,145





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.  However, due to recent events in credit
markets, the auction events for the ARS held by the Company failed during the
first quarter 2008 (see Note 10 for further discussion).  Therefore,
the fair values of these ARS are estimated utilizing a discounted cash flow
analysis model







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







3.
Fair Value Measurements – (Continued)







as of
March 31, 2008.  This analysis considers, among other items, the
collateralization underlying the investments, the creditworthiness of the
counterparty, the timing of expected future cash flows, and an estimate of when
the security is expected to have a successful auction or be called by the
issuer. These securities were also compared, when possible, to other
observable market data with similar characteristics to the securities held by
the Company.




Based on
market conditions, the Company changed its valuation methodology for ARS to a
discounted cash flow analysis during the three months ended March 31,
2008.  Accordingly, these securities changed from Level 1
to Level 3 within SFAS 157’s hierarchy since the Company’s initial adoption of
SFAS 157 at January 1, 2008.





Derivative
Financial Instruments





Currently, the Company has a cash flow
hedging program to manage its interest rate risk from the time of entering
into a purchase commitment until the delivery of the Q400 and CRJ-900 aircraft,
at which time the Company borrows permanent, fixed-rate financing for each
aircraft (see Note 5 for further discussion). The fair values of interest rate
swaps are determined using the market standard methodology of netting the
discounted future fixed cash receipts (or payments) and the discounted expected
variable cash payments (or receipts).  The variable cash payments (or
receipts) are based on an expectation of future interest rates (forward curves)
derived from observable market interest rate curves.





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





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





4.  Short-term
Notes Payable and Long-term Debt





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


As
      of
              March
      31, 2008
            
            As
      of
              December
      31, 2007Term
      Loan
            $
            60,000
            
            $
            -Pre-delivery
      payment facility
            
            45,123
            
            
            63,603Other
            
            -
            
            
            2,500Total
      short-term notes payable
            $
            105,123
            
            $
            66,103Senior
      convertible notes
            $
            121,000
            
            $
            121,000Long-term
      notes payable
            
            242,430
            
            
            79,222Total
      long-term debt
            
            363,430
            
            
            200,222Less
      current maturities
            
            (15,919)
            
            
            (7,410)Long-term
      debt, net of current maturities
            $
            347,511
            
            $
            192,812








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





4.  Short-term
Notes Payable and Long-term Debt – (Continued)





The
aggregate amounts of principal maturities of long-term debt as of March 31, 2008
were as follows:




Remainder
      of 2008
            
            $
            10,9402009
            
            
            17,0282010
            
            
            135,9012011
            
            
            14,2982012
            
            
            14,205Thereafter
            
            
            171,058Total
            
            $
            363,430





Notes
Payable





On March
11, 2008, the Company entered into a term loan with Citigroup Global Markets,
Inc (the “Term Loan”).  The Term Loan provides for advances up to
$60,000 and is collateralized by the Company’s investments in
ARS.  The proceeds are being used to support the Company’s aircraft
purchases and for general working capital purposes.  The Term Loan is
pre-payable at any time prior to maturity on February 28, 2009.  The
Term Loan interest is payable month and the rate is indexed to LIBOR and was
4.7% as of March 31, 2008.  The Term Loan includes both covenant and
margin requirements with which the Company is presently compliant. As of March
31, 2008, the balance outstanding was $60,000.





Included
in long-term notes payable are borrowings of $214,963 from Export Development
Canada (“EDC”) for six CRJ-900 aircraft and six Q400 aircraft.  As
discussed in Note 5, the Company implemented an interest swap hedge program to
reduce its risk from potentially rising interest rates. The Company hedged its
interest rate exposure on the anticipated permanent financing debt for ten of
the 12 aircraft. The borrowings are collateralized by aircraft and bear interest
rates, including the effects of the Company’s hedging activities, ranging
between 6.8% and 7.3% with maturities through the first quarter
2023.





Since
March 31, 2008, the Company has entered into seven additional debt agreements
with EDC to finance the aircraft delivered thus far in the second quarter of
2008. As of May 1, 2008, the Company has financed an additional
$119,641.





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%, which was 5.50% as of March 31, 2008.  Amounts
outstanding under the line of credit were $8,275 at March 31, 2008. On April 15,
2008, the Company extended the termination date of this facility to April 15,
2009.





Senior
Convertible Notes





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





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 at a purchase price equal to 100%
of their principal amount plus accrued





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





4.  Short-term
Notes Payable and Long-term Debt – (Continued)





and
unpaid interest, if any.  As a result, the entire principal amount is
shown with a maturity of 2010 in the above table.





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).  On March 26, 2008,
following the initial comment period, the FASB reaffirmed the scope of the
proposed FSP.  This proposed guidance, if issued in final form, will
dramatically affect 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, 2008, would
not permit early application, and would be applied retrospectively to all
periods presented.





5.  Derivatives





The
Company is exposed to interest rate risk from the time of entering into purchase
commitments until the delivery of each Q400 and CRJ-900 aircraft, at which time
the Company borrows permanent, fixed-rate financing for each
aircraft.  To mitigate the financial risk associated with changes in
long-term interest rates, the Company initiated a cash flow hedging program
during July 2007.  The program consists of forward-starting interest
rate swaps to hedge the expected interest payments associated with anticipated
future issuances of long-term debt.





The term
of each cash flow hedge matches the term of the expected financing. Each
outstanding hedge position is expected to be outstanding for up to seven months
and requires mandatory cash settlement when the permanent financing is obtained
at the time of delivery of each aircraft. Once the permanent financing is
secured, the remaining hedge-related prepaid interest balance will be amortized
into interest expense over the life of the aircraft financing.





The
following is a summary of the Company’s cash flow hedges:


Three
      Months Ended
              March
      31, 2008Fair
      value of active swaps (see Note 3)(1)
            
            $
            17,127Ineffectiveness
      from hedge settlements, included in interest expense
            
            
            227Amortization
      of prepaid interest expense, included in interest expense
            
            
            198Notional
      amount hedged(2)
            
            
            211,230Percentage
      of anticipated aircraft purchase related debt financing
    hedged
            
            
            77.8%Weighted
      average swap rate %(3)
            
            
            5.27%




(1)The fair value of active
      swaps at Decemeber 31, 2007 was $16,777.(2) Notional
      amount hedged for the quarter ended March 31, 2008 reflects only those
      swaps that were active as of March 31, 2008.(3) The swap
      rate reflects the indexed rate to which the Company hedged, which is set
      on the day of permanent financing and does
              not include the spread
      attributable to the interest rate on the fixed rate
  debt.







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








6.  Comprehensive
Income (Loss)





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





Three
      Months Ended March 31,2008
            
            
            2007Net
      income
            
            $
            2,653
            
            
            $
            9,365Adjustments:Retired
      Pilots’ Insurance Benefit Planunrealized
      actuarial gain
            
            
            7
            
            
            
            -Change
      in cash flow hedge unrealized loss
            
            
            (137)
            
            
            
            -Unrealized
      loss on investments
            
            
            (6,002)
            
            
            
            -Total
      comprehensive (loss) income
            
            $
            (3,479)
            
            
            $
            9,365





7.  Earnings
Per Share





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





Three
      Months Ended March 31,2008
            
            
            2007Net
      income
            
            $
            2,653
            
            
            $
            9,365Basic
      earnings per share
            
            $
            0.15
            
            
            $
            0.43Diluted
      earnings per share
            
            $
            0.15
            
            
            $
            0.38Share
      computation:Weighted
      average number of shares outstanding for basic EPS (1)
            
            
            17,859
            
            
            
            21,990Senior
      convertible notes (2)
            
            
            -
            
            
            
            2,402Share-based
      compensation (3)
            
            
            80
            
            
            
            280Weighted
      average number of shares outstanding for diluted EPS
            
            
            17,939
            
            
            
            24,672





(1)During
      2007, the board of directors of the Company authorized a share repurchase
      program, whereby the Company repurchased an aggregate
              of 4,450 shares of its owncommon
      stock, which 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 March 31,2008
            
            2007Increase
      in fully diluted share count =
            $121,000
              $13.22
      (a)
            -
            $121,000
              $12.071(b)
            
            $121,000
              $13.22(a)
            -
            $121,000
              $17.923
      (b)(a)  Conversion price of the Notes(b)  Average stock price for the three month
  period





(3)      Options
      to purchase 918 and 203 shares of common stock were excluded from the
      diluted EPS calculation at March 31, 2008
              and 2007, respectively, because their effect would be
      anti-dilutive.





8.  Share-Based
Compensation





In
January 2008, the Company granted 284 stock options with an exercise price of
$14.37 per share to members of its board of directors, its officers and certain
other employees.  These grants will vest ratably over three
years.  The grant date fair value of these options, estimated using
the Black-Scholes-Merton multiple-option pricing valuation model, was $6.76 per
share.  This fair value was estimated at the date of grant with the
following





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





8.  Share-Based
Compensation – (Continued)





assumptions
for 2008: risk-free interest rate of 3.26%, dividend yield of 0.0%, expected
volatility of the Company’s common stock of 50.0% and expected life of the
options of 5.0 years.  Total expense to be recognized over the vesting
period, net of expected annual forfeitures of 4%, is $1,847.





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





During
the three months ended March 31, 2008 and 2007, the Company recognized $756 and
$359 of share-based compensation expense, respectively.





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





Stock
      OptionsShares
            
            
            Weighted
              Average
              Exercise
              Price
            
            
            Fair Value
            
            Weighted
              Average
              Remaining
              Life
            
            Aggregate
              Intrinsic
              ValueOutstanding
      at January 1, 2008
            
            
            884
            
            
            $
            12.69
            
            
            $
            6,470Granted
            
            
            285
            
            
            
            14.37
            
            
            
            1,924Exercised
            
            
            (8)
            
            
            
            8.05
            
            
            
            (38)Forfeited
            
            
            (27)
            
            
            
            14.52
            
            
            
            (223)Outstanding
      at March 31, 2008
            
            
            1,134
            
            
            $
            13.11
            
            
            $
            8,133
            
            7.6
      years
            
            $
            -Options
      exercisable at March 31, 2008
            
            
            634
            
            
            $
            11.92
            
            
            $
            4,826
            
            6.4
      years
            
            $
            -





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





Restricted
      StockShares
            
            
            Fair ValueUnvested
      at January 1, 2008
            
            
            163
            
            
            $
            1,827Granted
            
            
            109
            
            
            
            1,566Vested
            
            
            (74)
            
            
            
            (753)Forfeited
            
            
            (5)
            
            
            
            (70)Unvested
      at March  31, 2008
            
            
            193
            
            
            $
            2,570








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








9.
Income Taxes





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




Three
      Months Ended March 31,2008
            
            
            2007Dollars
            
            
            Percent
            
            
            Dollars
            
            
            PercentIncome
      tax expense at statutory rate
            
            $
            1,427
            
            
            
            35.0%
            
            
            $
            4,842
            
            
            
            35.0%State
      income taxes, net of federal taxes
            
            
            121
            
            
            
            3.0%
            
            
            
            214
            
            
            
            1.6%Tax-exempt
      income
            
            
            (198)
            
            
            
            (4.9)%
            
            
            
            (828)
            
            
            
            (6.1)%Meals
      and entertainment
            
            
            62
            
            
            
            1.5%
            
            
            
            215
            
            
            
            1.6%Other
            
            
            13
            
            
            
            0.3%
            
            
            
            26
            
            
            
            0.2%Income
      tax expense
            
            $
            1,425
            
            
            
            34.9%
            
            
            $
            4,469
            
            
            
            32.3%





During
the three months ended March 31, 2008, the Company recorded a valuation
allowance against certain deferred tax assets.  The valuation allowance
relates to state net operating losses.  The realization of future tax
benefits of a deferred tax asset is dependent on future taxable income against
which such tax benefits can be applied.  In assessing the realizability of
deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will be realized.  The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods and in the jurisdictions in which those
temporary differences become deductible.  Based upon the level of
historical taxable income and projections of future taxable income over the
periods which the deferred tax assets are deductible, management believes it is
more likely than not the Company will not realize the portion of these assets
for which a valuation allowance has been recorded.




.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 of March 31, 2008 and January 1, 2008, the Company
had $16,694 of unrecognized tax benefits.





The
Company provides for interest and penalties accrued related to unrecognized tax
benefits in nonoperating expenses.  During the three months ended March 31,
2008, the Company recorded interest and penalties of $339.  As of March 31,
2008, the Company had $2,834 of accrued interest and penalties.





The
amount of unrecognized tax benefits that would affect our effective tax rate if
recognized is $16,347 as of March 31, 2008.  The tax years 2003-2006
remain open to examination by major taxing jurisdictions to which the Company is
subject.





The
Company is currently under audit by the Internal Revenue Service (“IRS”) for the
tax years 2003 through 2005.  In May 2007, the IRS proposed certain
adjustments to the Company’s positions related to various exam matters. 
The Company submitted a protest to the IRS with respect to the adjustments and
has begun the administrative appeals process.  Should the IRS prevail on
these adjustments, the impact on the Company could be significant.  The
Company believes the potential tax exposure related to the items the IRS has
focused on during its examinations would not exceed $35,000, plus penalties of
$9,747.  The Company has reserved for $16,694 of this exposure.  The
Company believes that it has provided sufficiently for all audit exposures;
however, future earnings, cash flow and liquidity could be materially affected
should it receive adverse rulings on the items under review.  Settlement of
this audit or the expiration of the statute of limitations on the assessment of
income taxes for any tax year may also result in a change in future tax
provisions.





10.
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.





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





10.
Investments – (Continued)





At March
31, 2008, the Company’s investment portfolio included ARS, which prior to
February 2008, met the investment criteria cited above, with fair values of
$126,145, net of unrealized losses of $9,955. The Company believes the declines
in value to be temporary in nature and as such, these unrealized losses have
been recorded in OCI.





ARS are
notes that provide for an interest rate reset through a “dutch auction” process
in periods spanning from 7 to 35 days.  The underlying bonds have
long-term maturities, but because of the auction process, have heretofore been
viewed as relatively liquid, short-term investments.  The auction
process resets the interest rate on the securities to current market rates, and
provides a vehicle for investors to buy or sell the securities in what has
historically been a very liquid environment.  All of the Company’s ARS
are currently rated AA or better by major rating agencies, with the vast
majority being rated AAA, and are collateralized by student loan receivables
that are guaranteed under the U.S. government’s Federal Family Education Loan
Program.





Since
February 2008, a number of ARS auctions have failed to generate enough demand to
successfully reset interest rates.  In these circumstances, the
securities generally require the issuer to pay a maximum interest rate until the
next auction is held.  In the interim, an investor must either hold
the securities until the next successful auction or attempt to sell the
securities through a privately-placed secondary market
transaction.  The Company’s ARS holdings are among those ARS that had
failed auctions, and until the next successful auction, the Company is earning a
maximum interest rate on each security.  The maximum rates are
typically calculated based upon a spread to an after tax commercial paper rate
or the Securities Industry and Financial Markets Association, and are capped at
a fixed percentage.




The
Company has historically classified investments in ARS as short-term investments
on the Company’s condensed consolidated balance sheets.  Due to the
current illiquid status of the Company’s holdings, these investments, net of
unrealized losses, have been reclassified from current assets to noncurrent
assets on the Company’s condensed consolidated balance sheet at March 31,
2008.  All income generated from these securities was from earned
interest and dividends.





The
Company is monitoring the ARS market closely.  Because of the
unprecedented events in the ARS market, the Company cannot predict when
liquidity in the ARS market will return.  Although the Company
believes its securities continue to represent good investments due to the credit
ratings of the underlying investments, the Company may be forced to sell some of
its ARS portfolio under distressed, illiquid market conditions, which would
result in the Company recognizing a loss on such sales.  The Company
will continue to re-evaluate the value of its ARS portfolio, and may record any
future additional unrealized losses in OCI or through earnings if the
Company determines that the decline in value of its ARS portfolio is
other-than-temporary or will not recover before the investment is
sold.





11.  Commitments
and Contingencies





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





On
November 5, 2007, ALPA filed suit in the U.S. District Court in Minneapolis,
Minnesota against Pinnacle.  The suit seeks an injunction prohibiting
Pinnacle from paying certain bonuses to its pilots, asserting that such an
action would violate the Railway Labor Act.  Pinnacle believes that
the lawsuit lacks merit, and accordingly, Pinnacle will vigorously defend its
position in this case.  Pinnacle does not believe that it will incur
any material loss with respect to this lawsuit.  On January 8, 2008,
Pinnacle filed suit in the U.S. District Court for the Western District of
Tennessee against ALPA, alleging bad faith bargaining.  The primary
intent of the lawsuit is to encourage ALPA to negotiate in good faith so that an
agreement can be reached for an amended collective





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





11.  Commitments
and Contingencies – (Continued)





bargaining
agreement as soon as possible.  Pinnacle’s pilots are currently paid
at rates less than the industry average for similarly sized aircraft, and an
amended agreement is expected to contain higher rates of pay prospectively for
Pinnacle’s pilots.





Purchase Commitments.The Company has
contractual obligations and commitments primarily related to future purchases of
aircraft, payment of debt and lease obligations.  The Company’s firm
orders and options to purchase aircraft as of March 31, 2008 were as
follows:





Firm
            
            Firm
              Cancelable
            
            Options
            
            TotalQ4002008
            
            9
            
            -
            
            -
            
            92009
            
            -
            
            8
            
            8
            
            162010
            
            -
            
            2
            
            12
            
            14Total
      Q400
            
            9
            
            10
            
            20
            
            39CRJ-9002008
            
            9
            
            -
            
            -
            
            92009
            
            1
            
            -
            
            -
            
            1Total
      CRJ-900
            
            10
            
            -
            
            -
            
            10Total
            
            19
            
            10
            
            20
            
            49





Firm
cancelable aircraft are aircraft that are on firm order, but for which the
Company has the right of cancellation without penalty prior to July 2008. Based
on the above delivery schedule, the aggregate purchase price for the 19 firm
aircraft commitments is approximately $409,000. For further information on
CRJ-900 and Q400 aircraft, see Note 2.





The
Company makes pre-delivery payments to the aircraft manufacturer in advance of
the aircraft’s delivery date.  During the three months ended March 31,
2008, the Company paid pre-delivery payments of $1,620.  Remaining
pre-delivery payments of $4,063 are due during 2008.





During
March 2008, the Company and Bombardier agreed to defer the decision date related
to exercising the Company’s options for Q400 aircraft and the date for canceling
firm cancelable aircraft orders to July 1, 2008.





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





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





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.





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





11.  Commitments
and Contingencies – (Continued)





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





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





The
Company is currently engaged in discussions with Northwest involving the
interpretation of various components of the ASA.  The Company and
Northwest have agreed to resolve these matters through
arbitration.  The potential outcome of these disputed matters ranges
from an annual increase in the payments received from Northwest of approximately
$2,800 to a decrease in payments received from Northwest of as much as
$4,800.  The Company and Northwest have not begun the arbitration
proceedings, but plan to do so in the near future.  Adverse
determinations in these matters could result in a loss to the Company of up to
$8,300 for disputed amounts accruing through March 31, 2008.





12.  Segment
Reporting





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





Previously,
the Company’s two airline reportable segments included Pinnacle Airlines, Inc.
and Pinnacle Airlines Corp. (the “Pinnacle Segment”) and Colgan Air, Inc. (the
“Colgan Segment”). During the first quarter of 2008, the Company revised its
reportable segments to reflect a change in the information used by the CODM, and
its two operating segments now consist of the Company’s two subsidiaries,
Pinnacle Airlines, Inc. (“Pinnacle”) and Colgan Air, Inc. (“Colgan”). Amounts
reported in Pinnacle Airlines Corp. (“PNCL”), which provides a variety of
services to the operating segments and includes overhead costs, will be
allocated to Pinnacle and Colgan to reflect the segments share of the these
services.





The
Company is currently performing a study to determine the appropriate basis upon
which to allocate PNCL’s overhead expenses to Pinnacle and Colgan. 
Consequently, the segment presentation presented below reflects PNCL’s expenses
on an unallocated basis, which are included in the “corporate overhead”
column.  Upon completion of the Company’s internal allocation study, these
amounts will be allocated to the Company’s operating segments.  Prior year
amounts have been revised to conform to the current year segment
presentation.





The
following represents the Company’s segment data for the three months ended March
31, 2008:





Pinnacle
            
            Colgan
            
            Corporate
      Overhead
            
            ConsolidatedOperating
      revenues
            
            $
            154,397
            
            $
            49,944
            
            $
            -
            
            $
            204,341Operating
      income (loss)
            
            
            17,707
            
            
            (4,931)
            
            
            (6,110)
            
            
            6,666Nonoperating
      expense
            
            
            
            
            
            
            
            
            
            
            
            (2,588)Income
      before income tax
            
            
            
            
            
            
            
            
            
            
            
            4,078Total
      assets
            
            
            439,335
            
            
            203,856
            
            
            247,145
            
            
            890,336








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





12.  Segment
Reporting – (Continued)





The
following represents the Company’s segment data for the three months ended March
31, 2007:





Pinnacle
            
            Colgan
            
            Corporate
      Overhead
            
            ConsolidatedOperating
      revenues
            
            $
            143,654
            
            $
            36,126
            
            $
            (230)
            
            $
            179,550Operating
      income (loss)
            
            
            15,377
            
            
            (90)
            
            
            (2,462)
            
            
            12,825Nonoperating
      income
            
            
            
            
            
            
            
            
            
            
            
            1,009Income
      before income tax
            
            
            
            
            
            
            
            
            
            
            
            13,834Total
      assets (at December 31, 2007)
            
            
            544,746
            
            
            144,183
            
            
            19,659
            
            
            708,588






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




General





The
following management’s discussion and analysis describes the principal factors
affecting the Company’s results of operations, liquidity, capital resources and
contractual cash obligations.  This discussion should be read in
conjunction with the accompanying unaudited condensed consolidated financial
statements and our Annual Report on Form 10-K for the year ended December 31,
2007 (“Annual Report”), which include additional information about our
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 three months ended March 31, 2008, we continued to make significant
changes to the operating fleets of our subsidiaries.  Pinnacle placed
six CRJ-900 76-seat aircraft into service as a Delta Connection carrier, and
removed five CRJ-200 44-seat aircraft associated with its Northwest Airlink
operations, ending the quarter with 138 regional jets.  In February,
our Colgan subsidiary began flying the next-generation Q400 turboprop 74-seat
aircraft as a Continental Connection carrier.  Colgan currently
operates six Q400 aircraft, and expects to have 15 aircraft in service under its
Continental capacity purchase agreement by the end of the third quarter of
2008.





For the
three months ended March 31, 2008, the Company recorded consolidated operating
revenue of $204.3 million, an increase of $24.8 million, or 14%, over the same
period in 2007.





Consolidated
operating income and operating margin were $6.7 million and 3.3%, respectively,
for the three months ended March 31, 2008.  Pinnacle achieved an
operating margin of 11.5%, while Colgan recorded a negative operating margin of
(9.9)%.  Consolidated operating income and operating margin were
approximately $12.8 million and 7.1%, respectively, during the same period in
2007.





Consolidated
net income and EPS for the three months ended March 31, 2008 were $2.7 million
and $0.15, respectively.





Outlook





General





The
current year is another year of transition for us as both our operating
subsidiaries undertake their growth plans for providing regional airline
services to Delta Air Lines and Continental Airlines.  During the
remainder of 2008, our Pinnacle subsidiary will continue to add additional
CRJ-900 aircraft to its fleet as a Delta Connection carrier, with four CRJ-900
aircraft scheduled to be placed into service in the second quarter of 2008, one
in the third quarter of 2008, four in the fourth quarter of 2008, and one
aircraft in the first quarter of 2009.  Our Colgan subsidiary will
continue to add additional Q400 aircraft to its fleet as a Continental
Connection carrier, with the remaining planned seven Q400 aircraft scheduled to
enter service during the second quarter of 2008 and two in the third quarter of
2008.





We
believe that a key factor to increase business with our airline partners is to
maintain industry-leading operating performance, measured by the percentage of
scheduled flights that we complete and the percentage of flights that arrive at
their destination on time.  In addition, sustaining a competitive cost
structure with respect to labor costs, overhead costs, and the purchase and
financing costs of regional aircraft, are extremely important in winning and
retaining regional airline services contracts with major carriers.





During
April 2008, Delta and Northwest announced intentions to merge, forming what
would be the world’s largest airline.  There is speculation that
additional consolidation will occur amongst other major airlines, including
Continental, United and US Airways.  We do not believe that major
airline industry consolidation will materially affect our current or prospective
operations, as our capacity purchase agreements are relatively long-term and do
not contain early termination provisions that could be triggered by
consolidation.  In addition, we believe that





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





Outlook –
(Continued)





we have
maintained strong relationships with all of our partners, and that we will
continue to be an important part of our partners’ networks with or without
industry consolidation.





Both
Delta and AMR Corp., parent of American Airlines and American Eagle, have
publicly stated that they intend to sell or spin off their wholly owned regional
airline subsidiaries.  In addition, any consolidation among airlines
with branded flying may spark consolidation within the regional airlines that
support them.  While we have no plans to merge with or acquire another
airline, we will continue to review the competitive landscape and make certain
that we are best positioned to benefit our stakeholders if consolidation were to
occur within the airline industry.





We
continue to own approximately $136 million par
amount of auction rate securities (“ARS”), which are classified as available for
sale securities and reflected in our condensed consolidated balance sheet at
March 31, 2008 at fair value of $126 million.  However, due to recent
events in credit markets, the auction events for these instruments began failing
during first quarter 2008.  Therefore, the fair values of these
securities are estimated utilizing a discounted cash flow analysis as of March
31, 2008.  This analysis considers, among other items, the
collateralization underlying the security investments, the creditworthiness of
the counterparty, the timing of expected future cash flows, and the expectation
of the next time the security is expected to have a successful
auction.




As a
result of the temporary declines in fair value for our auction rate securities,
we have recorded an unrealized loss of $10.0 million to other comprehensive
income (“OCI”).  Our ARS held at March 31, 2008 are securities
collateralized by student loan portfolios, which are guaranteed by the United
States government.  Due to our belief that the market for these
student loan collateralized instruments may take in excess of twelve months to
fully recover, we have classified these investments as noncurrent assets on our
condensed consolidated balance sheet at March 31, 2008.   As of
March 31, 2008, we continue to earn interest on all of our ARS
instruments.  Any future fluctuation in fair value related to these
instruments that the Company deems to be temporary, including any recoveries of
previous write-downs, would be recorded to OCI.  If we determine that
any future valuation adjustment was other than temporary, we would record a
charge to earnings as appropriate.





We are
monitoring the ARS market closely.  While we wait for both the ARS
market to rationalize and for investor demand to return, we have arranged for a
one year, $60 million margin loan facility (the “Term Loan”) to be used to
support our aircraft purchases and other liquidity needs, which we believe will
be sufficient to supplement our cash flows from operations and meet our current
liquidity needs.





Outlook
for Pinnacle Airlines, Inc.





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





Certain
elements of Pinnacle’s operating performance under its ASA with Northwest are
measured over six month periods beginning each January and
July.  Pinnacle must achieve certain goals for its completion factor,
on-time performance, mishandled baggage ratio, and customer complaints during
each six month period to earn incentive revenue under the ASA.  These
metrics include items outside of Pinnacle’s control, including cancellations and
delays caused by weather or air traffic control.  Pinnacle’s
performance during the first three months of 2008 was below the ASA goals in
most categories.  Pinnacle experienced severe winter weather in all of
its hubs, and Pinnacle experienced an increase in cancelations and delays
related to mechanical events during the period.  Revenue reductions
for lost incentive payments were estimated to be approximately $2.5 million for
the first quarter of 2008. Should we fall short of the operational goals for the
full six month period, we will record a similar reduction in the second
quarter.  We are taking steps to improve Pinnacle’s operating
performance, and we have seen improvement during April.  Although
Pinnacle typically enjoys improved performance during the second quarter of each
year due to milder weather, we expect to fall short of certain operating metrics
and record a similar reduction of revenue during the second
quarter.





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





Outlook –
(Continued)





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





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





We have
agreed to arbitrate these issues with Northwest, and we expect the arbitration
process to begin in the near future.  Adverse determinations in these
matters could result in a loss to the Company of up to $8.3 million for disputed
amounts through March 31, 2008.  We believe that we will prevail in
these matters, and therefore, we do not believe a loss is probable at this
time.  However, we may not be successful in resolving these disputes
without reducing our 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.





Outlook
for Colgan Air, Inc.





We retain
options and cancelable orders for 30 additional Q400 aircraft to be delivered
beginning in the summer of 2009 and extending through
2010.  Continental has the option under our capacity purchase
agreement to increase the number of Q400 aircraft under contract with Colgan by
15.  We are actively marketing the remaining 15 option/firm cancelable
aircraft to other carriers.  We believe that in the current high fuel
cost environment, the Q400 is a very attractive, cost efficient alternative to
regional jets of similar or smaller size.  However, most major
airlines are reviewing their networks and undertaking steps to reduce capacity,
including regional aircraft, to remove marginal flights that are not profitable
at current fuel costs.  We believe there will be long-term demand for
our services with the Q400 aircraft; however, we do not yet know whether we will
exercise our options for delivery of any of the 30 Q400 aircraft for which we
have options.





A large
portion of Colgan’s existing operations are conducted under revenue pro-rate
code-share agreements.  Under this type of agreement, we select our
own routes, manage our fares and inventory of unsold seats, and incur all of the
costs of operating and marketing our flights.  We market our flights
under the brand of our code-share partners, and we pro-rate the revenue from
passengers who purchase a connecting ticket between flight segments operated by
us and our partners.  Under this type of flying, we bear the risk of
changes in the pricing structure and demand for travel in markets we serve, and
we bear the risk of changes in fuel prices.  Colgan experienced an
operating loss before corporate overhead allocations of $4.9 million during the
first quarter of 2008 related to its existing base of revenue pro-rate
operations.  Colgan incurred significantly higher fuel costs during
the first quarter, with the average price paid per gallon increasing 54% from
the first quarter of 2007.  Colgan’s pro-rate operations will not be
profitable at current fuel prices without significant changes in its revenue and
cost structure.  We are currently focused on initiatives to increase
Colgan’s revenue and decrease Colgan’s non-fuel costs in an effort to create a
sustainable business model at current or higher fuel prices. These initiatives
include:





§
            Filing
      with the Department of Transportation (“DOT”) to terminate service under
      the majority of Colgan’s Essential Air Services (“EAS”)
      contracts.  The EAS program provides Colgan with a subsidy from
      the DOT to provide air service in very small markets that do not have
      passenger levels to sustain commercial air service.  Although we
      have filed to request termination of Colgan’s EAS contracts, we intend to
      rebid these contracts with an increased EAS subsidy to account for the
      dramatic increase in fuel prices that we have incurred. We expect this
      process to take several months, and we do not yet know whether we will be
      successful in increasing market subsidies under the EAS
      program.





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





Outlook –
(Continued)





§
            Relocating
      nine markets from Pittsburgh under Colgan’s US Airways code-share
      agreement to Washington/Dulles airport under Colgan’s United code-share
      agreement, which we completed during the first quarter. Washington/Dulles
      is a larger hub airport than Pittsburgh with substantially more connecting
      opportunities for our passengers.  We expect this change to
      increase the number of passengers that we carry in these markets, thus
      increasing our passenger revenue with little to no expected increase in
      operating expenses.





§
            Relocating
      Colgan’s maintenance base from Manassas, Virginia to Washington/Dulles
      airport.  Relocating this maintenance base will significantly
      reduce the number of ferry flights in our system, lowering our operating
      costs.  We expect this move to be completed during the second
      quarter.





§
            Implementing
      fuel conservation initiatives, such as tankering fuel at locations where
      we can purchase it at a lower cost, better planning of the amount of fuel
      we carry on our flights, and other measures designed to reduce the amount
      of fuel that we use.





§
            Reducing
      maintenance costs by simplifying our maintenance structure, reducing the
      number of outstations where we maintain a line maintenance presence, and
      reducing the time it takes us to perform routine maintenance
      procedures.  In addition to reducing our maintenance costs,
      these measures will increase the number of aircraft available for
      scheduled service, thus increasing the utilization of our Saab
      fleet.





§
            Eliminating
      our Beech 1900 subfleet, thus reducing the carrying costs associated with
      supporting multiple aircraft types and reducing crew training
      costs.  We plan to retire the last Beech 1900 aircraft during
      the fourth quarter of 2008.





To the
extent that we cannot significantly reduce Colgan’s losses, we will make plans
to reduce or eliminate the pro-rate operations at Colgan.  These actions
could result in significant one-time costs associated with exiting the
fleet.  Such steps would involve removing leased aircraft from service and
returning them to third party lessors in advance of lease expirations, removing
and remarketing owned Saab aircraft, selling or disposing of Colgan’s inventory
of Saab parts, and potentially furloughing employees. These actions could
result in future write-downs of the carrying value of our tangible assets. In
addition, we will continue to evaluate Colgan's intangible assets for
impairment.  As of March 31, 2008, Colgan's intangible assets had a balance
of approximately $16 million.





Colgan’s
financial performance is also subject to seasonal
fluctuations.  Colgan has historically reported lower unit revenue
during the first and fourth quarters each year when demand for air travel
declines, and reported higher unit revenue during the second and third quarters
each year when air travel demand is higher.  We expect this
seasonality to continue to affect Colgan’s pro-rate financial results in future
periods.





While we
expect Colgan’s financial performance to improve during the second and third
quarters of 2008 as compared to the first quarter of 2008, Colgan could still
incur operating losses during these periods.  The initiatives we
implement may not improve Colgan’s performance enough to restore
profitability.  In addition, decreases in unit revenue or increases in
the price of fuel may further deteriorate Colgan’s financial
performance.  We will likely incur a significant loss on Colgan’s
pro-rate operations for the full year of 2008.





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





Results
of Operations





Three
      Months Ended March 31, 2008Pinnacle
            
            
            Colgan
            
            
            Overhead(1)
            
            
            Consolidated(in
      thousands)Operating
      revenuesRegional
      airline services
            $
            151,252
            
            $
            49,907
            
            $
            -
            
            $
            201,159Other
            
            3,145
            
            
            37
            
            
            -
            
            
            3,182Total
      operating revenues
            
            154,397
            
            
            49,944
            
            
            -
            
            
            204,341Operating
      expensesSalaries,
      wages and benefits
            
            39,907
            
            
            12,662
            
            
            2,757
            
            
            55,326Aircraft
      maintenance, materials and repairs
            
            11,787
            
            
            9,973
            
            
            -
            
            
            21,760Aircraft
      rentals
            
            31,590
            
            
            1,931
            
            
            -
            
            
            33,521Aircraft
      fuel
            
            -
            
            
            11,873
            
            
            -
            
            
            11,873Other
      rentals and landing fees
            
            12,470
            
            
            2,954
            
            
            53
            
            
            15,477Ground
      handling services
            
            23,509
            
            
            3,880
            
            
            -
            
            
            27,389Commissions
      and passenger related expense
            
            1,932
            
            
            4,894
            
            
            -
            
            
            6,826Depreciation
      and amortization
            
            2,228
            
            
            1,996
            
            
            152
            
            
            4,376Other
            
            13,267
            
            
            4,712
            
            
            3,148
            
            
            21,127Total
      operating expenses
            
            136,690
            
            
            54,875
            
            
            6,110
            
            
            197,675Operating
      income (loss)
            
            17,707
            
            
            (4,931)
            
            
            (6,110)
            
            
            6,666Operating
      margin
            
            11.5%
            
            
            (9.9)%
            
            
            -
            
            
            3.3%Nonoperating
      income (expense)Interest
      income
            
            
            
            
            
            
            
            
            
            
            2,314Interest
      expense
            
            
            
            
            
            
            
            
            
            
            (4,842)Miscellaneous
      income, net
            
            
            
            
            
            
            
            
            
            
            (60)Total
      nonoperating expense
            
            
            
            
            
            
            
            
            
            
            (2,588)Income
      before income taxes
            
            
            
            
            
            
            
            
            
            
            4,078Income
      tax expense
            
            
            
            
            
            
            
            
            
            
            1,425Net
      income
            
            
            
            
            
            
            
            
            
            $
            2,653





(1)
            The
      Company is currently undergoing a study to determine the most appropriate
      method in which to allocate its corporate overhead expenses.  We
      expect to finalize this study during the second quarter of
      2008.  Our Form 10-Q for that period will present the
      year-to-date information, as well as prior period information, to reflect
      the allocation of corporate overhead expenses in accordance with that
      methodology.





Consolidated





Operating
Revenues





Three
      Months Ended March 31,2008
            
            
            2007
            
            
            $
      Change
            
            
            %
      Change(in
      thousands)Operating
      revenuesRegional airline services
            
            $
            201,159
            
            $
            176,945
            
            $
            24,214
            
            
            14%Other
            
            
            3,182
            
            
            2,605
            
            
            577
            
            
            22%Total
      operating revenues
            
            $
            204,341
            
            $
            179,550
            
            $
            24,791
            
            
            14%








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





Results
of Operations (Continued)





Operating
revenues of $204.3 million increased $24.8 million, or 14%, from operating
revenues of $179.6 million for the same period in 2007.  This is
primarily related to the increase in the average fleet size operated by our
subsidiaries, and by the inclusion of Colgan’s financial results for the entire
quarter in 2008 compared to a partial first quarter in 2007 that excluded
operations prior to the January 18, 2007 acquisition date.  During the
first quarter, we added nine aircraft to our operating fleet related to our new
agreements with Delta and Continental, slightly offset by the return of five
CRJ-200 aircraft to Northwest pursuant to the terms of our
ASA.  Operating revenue for the three months ended March 31, 2008
includes revenue earned under these new capacity purchase agreements with Delta
and Continental.  Additionally, as a result of our fleet growth,
available seat miles (“ASMs”) increased by approximately 8%, and block hours
increased by approximately 10%.





Operating
Expenses





Three
      Months Ended March 31,2008
            
            2007
            
            $
      Change
            
            %
      Change(in
      thousands)Operating
      expensesSalaries,
      wages and benefits
            
            $
            55,326
            
            $
            47,301
            
            $
            8,025
            
            
            17%Aircraft
      maintenance, materials and repairs
            
            
            21,760
            
            
            17,548
            
            
            4,212
            
            
            24%Aircraft
      rentals
            
            
            33,521
            
            
            33,719
            
            
            (198)
            
            
            (1)%Aircraft
      fuel
            
            
            11,873
            
            
            6,437
            
            
            5,436
            
            
            84%Other
      rentals and landing fees
            
            
            15,477
            
            
            13,914
            
            
            1,563
            
            
            11%Ground
      handling services
            
            
            27,389
            
            
            24,422
            
            
            2,967
            
            
            12%Commissions
      and passenger related expense
            
            
            6,826
            
            
            4,495
            
            
            2,331
            
            
            52%Depreciation
      and amortization
            
            
            4,376
            
            
            2,054
            
            
            2,322
            
            
            113%Other
            
            
            21,127
            
            
            16,835
            
            
            4,292
            
            
            25%Total
      operating expenses
            
            
            197,675
            
            
            166,725
            
            
            30,950
            
            
            19%Operating
      income
            
            
            6,666
            
            
            12,825
            
            
            (6,159)
            
            
            (48)%Operating
      margin
            
            
            3.3%
            
            
            7.1%
            
            (3.8)
      pts.Nonoperating
      (expense) incomeInterest
      income
            
            
            2,314
            
            
            3,065
            
            
            (751)
            
            
            (25)%Interest
      expense
            
            
            (4,842)
            
            
            (2,074)
            
            
            (2,768)
            
            
            (133)%Miscellaneous
      (expense) income, net
            
            
            (60)
            
            
            18
            
            
            78
            
            
            433%Total
      nonoperating (expense) income
            
            
            (2,588)
            
            
            1,009
            
            
            (3,597)
            
            
            (357)%Income
      before income taxes
            
            
            4,078
            
            
            13,834
            
            
            (9,756)
            
            
            (71)%Income
      tax expense
            
            
            1,425
            
            
            4,469
            
            
            (3,044)
            
            
            (68)%Net
      income
            
            $
            2,653
            
            $
            9,365
            
            $
            (6,712)
            
            
            (72)%





Operating
Expenses





Operating
expenses increased by $31.0 million and 19% primarily due to increases in block
hours and departures, as well as the inclusion of 17 additional days of Colgan
operating expenses, as previously discussed.  In addition, operating
expenses increased as a result of increased fuel prices, higher depreciation
expense following the addition of the recently purchased CRJ-900 and Q400
aircraft, an increased number of heavy maintenance checks required on our
CRJ-200 fleet and increased maintenance expenses related to larger operating
fleets at both subsidiaries.





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





Results
of Operations (Continued)





Nonoperating
Expense





Net
nonoperating expense of $2.6 million increased by $3.6 million over net
nonoperating income of $1.0 million during the same period in
2007.  This is attributable to a $0.8 million decrease in interest
income, resulting from a 58% decrease in our average investment balance
compared to the average from the same period of 2007.  In addition,
interest expense increased by $2.8 million, attributable to the financing of the
new CRJ-900 and Q400 aircraft in our fleet.





Income
Tax Expense





For the
three months ended March 31, 2008, our income tax expense decreased by $3.0
million, primarily related to the decrease in pre-tax income as compared to the
same period in 2007.





Segmented Results of
Operations





The
following discussion provides an analysis of our results of operations by
segment and reasons for material changes therein for the three months ended
March 31, 2008 compared to the same period in 2007.  The acquisition
of Colgan was completed on January 18, 2007.  As such, the data
presented for Colgan includes the period from the acquisition date through March
31, 2007, which represents approximately 80% of the three months ended March 31,
2007.





Pinnacle





Operating
Revenues





Three
      Months Ended March 31,2008
            
            
            2007
            
            
            $
      Change
            
            
            %
      Change(in
      thousands)Operating
      revenuesRegional
      airline services
            $
            151,252
            
            $
            141,094
            
            $
            10,158
            
            
            7%Other
            
            3,145
            
            
            2,560
            
            
            585
            
            
            23%Total
      operating revenues
            $
            154,397
            
            $
            143,654
            
            $
            10,743
            
            
            7%





Regional
Airline Services





Regional
airline services revenue of $151.3 million increased $10.2 million, or 7%, from
regional airline services revenue of $141.1 million for the same period in
2007.  This increase is primarily related to the
increases  in Pinnacle’s operating fleet size with the addition of six
CRJ-900 aircraft, driving increases in block hours and departures of 5% and 3%,
respectively, over the same period in 2007.  The increase in
Pinnacle’s operating fleet was partially offset by the return of five CRJ-200
aircraft pursuant to the terms of our ASA with Northwest.  Also
contributing to an increase in regional airline service revenue was a 5%
inflation adjustment in the ASA rates.  This increase was offset by a
decrease of $1.2 million related to incentive revenue we failed to earn during
the three months ended March 31, 2008.





Other
Revenue





Other
revenue of $3.1 million increased $0.6 million, or 23%, from other revenue of
$2.6 million for the same period in 2007.  This was primarily related
to an increase in revenue earned from providing ground handling services to a
wholly owned subsidiary of Northwest.





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





Results of
Operations (Continued)





Operating
Expenses





Three
      Months Ended March 31,2008
            
            2007
            
            $
      Change
            
            %
      Change(in
      thousands)Operating
      expensesSalaries,
      wages and benefits
            
            $
            39,907
            
            $
            36,917
            
            $
            2,990
            
            
            8%Aircraft
      maintenance, materials and repairs
            
            
            11,787
            
            
            11,036
            
            
            751
            
            
            7%Aircraft
      rentals
            
            
            31,590
            
            
            31,852
            
            
            (262)
            
            
            (1)%Other
      rentals and landing fees
            
            
            12,470
            
            
            11,977
            
            
            493
            
            
            4%Ground
      handling services
            
            
            23,509
            
            
            21,701
            
            
            1,808
            
            
            8%Commissions
      and passenger related expense
            
            
            1,932
            
            
            901
            
            
            1,031
            
            
            114%Depreciation
      and amortization
            
            
            2,228
            
            
            1,081
            
            
            1,147
            
            
            106%Other
            
            
            13,267
            
            
            12,812
            
            
            455
            
            
            4%Total
      operating expenses
            
            
            136,690
            
            
            128,277
            
            
            8,413
            
            
            7%Operating
      income
            
            $
            17,707
            
            $
            15,377
            
            $
            2,330
            
            
            15%Operating
      margin
            
            
            11.5%
            
            
            10.7%
            
            0.8
      pts.





Salaries,
wages and benefits increased by $3.0 million, or 8%, primarily due to the
increase in the average number of employees of 5%, coupled with wage rate and
benefit increases for existing employees.





Aircraft
maintenance, materials and repairs expenses increased by $0.8 million and
7%.  This increase was primarily related to increased costs associated
with heavy airframe maintenance checks performed on our CRJ-200
aircraft.  As the CRJ-200 fleet ages, we are required to complete more
extensive checks each year.





Ground
handling services increased by $1.8 million, or 8%, due primarily to a $1.2
million increase in deicing expense.  This was a result of more winter
weather in the markets we serve.  The remaining increase is related to
ground handling services for our new Delta CRJ-900 service.





Commissions
and passenger related expense increased $1.0 million and 114%.  This
increase was primarily related to increased interrupted trip expenses, resulting
from lower operating performance during the first quarter of 2008.





Depreciation
and amortization expense increased by $1.1 million and 106%.  This is
primarily related to $0.9 million in depreciation expense incurred during the
three months ended March 31, 2008 related to our new CRJ-900
aircraft.





Colgan





Operating
Revenues





Three
      Months Ended March 31,2008
            
            
            2007
            
            
            $
      Change
            
            
            %
      Change(in
      thousands)Operating
      revenuesRegional
      airline services
            $
            49,907
            
            $
            35,851
            
            $
            14,056
            
            
            39%Other
            
            37
            
            
            275
            
            
            (238)
            
            
            (87)%Total
      operating revenues
            $
            49,944
            
            $
            36,126
            
            $
            13,818
            
            
            38%








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





Results of
Operations (Continued)





Regional
Airline Services





Regional
airline services revenue of $49.9 million increased $14.1 million, or 39%, from
regional airline services revenue of $35.9 million for the same period in 2007,
which as previously discussed excluded the 18 days prior to the January 18, 2007
acquisition date.  Also resulting in an increase in regional airline
service revenue is the addition of $3.8 million related to the new Continental
capacity purchase agreement and an increase of $1.0 million in Essential Air
Services revenue, slightly offset by a decrease of $0.6 million as a result of
incentive revenue that Colgan failed to earn during the first
quarter.





Operating
Expenses


Three
      Months Ended March 31,2008
            
            2007
            
            $
      Change
            
            %
      Change(in
      thousands)Operating
      expensesSalaries,
      wages and benefits
            
            $
            12,662
            
            $
            8,524
            
            $
            4,138
            
            
            49%Aircraft
      maintenance, materials and repairs
            
            
            9,973
            
            
            6,758
            
            
            3,215
            
            
            48%Aircraft
      rentals
            
            
            1,931
            
            
            1,867
            
            
            64
            
            
            3%Aircraft
      fuel
            
            
            11,873
            
            
            6,421
            
            
            5,452
            
            
            85%Other
      rentals and landing fees
            
            
            2,954
            
            
            1,937
            
            
            1,017
            
            
            53%Ground
      handling services
            
            
            3,880
            
            
            2,721
            
            
            1,159
            
            
            43%Commissions
      and passenger related expense
            
            
            4,894
            
            
            3,594
            
            
            1,300
            
            
            36%Depreciation
      and amortization
            
            
            1,996
            
            
            973
            
            
            1,023
            
            
            105%Other
            
            
            4,712
            
            
            3,421
            
            
            1,291
            
            
            38%Total
      operating expenses
            
            
            54,875
            
            
            36,216
            
            
            18,659
            
            
            52%Operating
      loss
            
            $
            (4,931)
            
            $
            (90)
            
            $
            (4,841)
            
            
            (5,379)%Operating
      margin
            
            
            (9.9)%
            
            
            (0.2)%
            
            (9.7)
      pts.





Operating
expenses increased by $18.7 million and 52%.  As previously discussed,
the same period of 2007 excluded operating expenses for the 17 days prior to the
acquisition date, which represents approximately 20% of the full
period.





Salaries,
wages and benefits increased by $4.1 million, or 49%.  Excluding the
additional days of expense previously discussed, this expense increased
primarily due to the increase in the average number of employees of 21%, largely
attributed to the growth of Colgan’s operating fleet, as well as wage rate and
benefit increases for existing employees.





Aircraft
maintenance, materials and repairs expense increased by $3.2 million and
48%.  Excluding the additional days of expense previously discussed,
this expense increased primarily due to increased costs related to Colgan’s
power-by-the-hour contracts, which increases as block hours and departures
increase.  In addition, Colgan incurred increased costs related to
spare parts and supplies as it added Saab 340 and Q400 aircraft to its
fleet.  Colgan also incurred incremental maintenance costs related to
its Beech aircraft, which it is currently transitioning out of its
fleet.





Aircraft
fuel expense increased $5.5 million, or 85%.  Excluding the additional
days of expense previously discussed, this expense increased primarily due to
the increase in block hours flown under Colgan’s pro-rate agreements, as well as
the 54% increase in the average price paid per gallon.





The increases in other rentals and
landing fees, ground handling services, and commissions and passenger related
expense were due primarily to the 28% increase in departures and the previously
discussed difference in time period. Depreciation and amortization expense
increased $1.0 million and 105%.  This was primarily related to the
additional Q400 aircraft and related equipment added to Colgan’s fleet during
the first quarter of 2008.





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




Certain Statistical
Information





Pinnacle
      Airlines Corp. ConsolidatedThree
      Months Ended March 31,Other
      Data:
            
            2008
            
            2007(1)
            
            ChangeRevenue
      passengers (in thousands)
            
            
            2,864
            
            
            2,468
            
            
            16%Revenue
      passenger miles (in thousands) (1)
            
            
            1,188,001
            
            
            1,057,601
            
            
            12%Available
      seat miles (in thousands)
            
            
            1,674,456
            
            
            1,551,226
            
            
            8%Passenger
      load factor (2)
            
            
            70.9%
            
            
            68.2%
            
            2.7
      pts.Operating
      revenue per available seat mile (in cents)
            
            
            12.20
            
            
            11.57
            
            
            5%Operating
      cost per available seat mile (in cents)
            
            
            11.81
            
            
            10.75
            
            
            10%Operating
      revenue per block hour
            
            $
            1,407
            
            $
            1,359
            
            
            4%Operating
      cost per block hour
            
            $
            1,361
            
            $
            1,262
            
            
            8%Block
      hours
            
            
            145,195
            
            
            132,103
            
            
            10%Departures
            
            
            92,779
            
            
            84,853
            
            
            9%Number
      of operating aircraft (end of period)
            
            
            189
            
            
            190
            
            
            (1)%Employees
            
            
            5,505
            
            
            5,045
            
            
            9%





Pinnacle
      Airlines, Inc.Three
      Months Ended March 31,Other
      Data:
            
            2008
            
            2007
            
            ChangeRevenue
      passengers (in thousands)
            
            
            2,425
            
            
            2,197
            
            
            10%Revenue
      passenger miles (in thousands) (1)
            
            
            1,099,280
            
            
            1,007,165
            
            
            9%Available
      seat miles (in thousands)
            
            
            1,493,861
            
            
            1,432,048
            
            
            4%Passenger
      load factor (2)
            
            
            73.6%
            
            
            70.3%
            
            3.3
      pts.Operating
      revenue per available seat mile (in cents)
            
            
            10.34
            
            
            10.02
            
            
            3%Operating
      cost per available seat mile (in cents)
            
            
            9.15
            
            
            8.95
            
            
            2%Operating
      revenue per block hour
            
            $
            1,378
            
            $
            1,342
            
            
            3%Operating
      cost per block hour
            
            $
            1,220
            
            $
            1,199
            
            
            2%Block
      hours
            
            
            112,061
            
            
            107,013
            
            
            5%Departures
            
            
            65,979
            
            
            63,963
            
            
            3%Average
      daily utilization (block hours)
            
            
            8.86
            
            
            8.93
            
            
            (1)%Average
      stage length (miles)
            
            
            453
            
            
            457
            
            
            (1)%Number
      of operating aircraft (end of period)
            
            
            138
            
            
            139
            
            
            (1)%Employees
            
            
            4,061
            
            
            3,940
            
            
            3%








29
 Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations




Certain
Statistical Information (Continued)





Colgan
      Air, Inc.Three
      Months Ended March 31,Other
      Data:
            
            2008
            
            
            2007(1)
            
            ChangeRevenue
      passengers (in thousands)
            
            
            439
            
            
            
            271
            
            
            62%Revenue
      passenger miles (in thousands) (1)
            
            
            88,721
            
            
            
            50,436
            
            
            76%Available
      seat miles (in thousands)
            
            
            180,595
            
            
            
            118,178
            
            
            53%Passenger
      load factor (2)
            
            
            49.1%
            
            
            
            42.7%
            
            6.4
      ptsOperating
      revenue per available seat mile (in cents)
            
            
            27.66
            
            
            
            30.57
            
            
            (10)%Operating
      cost per available seat mile (in cents)
            
            
            30.39
            
            
            
            30.65
            
            
            (1)%Operating
      revenue per block hour
            
            $
            1,507
            
            
            $
            1,440
            
            
            5%Operating
      cost per block hour
            
            $
            1,656
            
            
            $
            1,443
            
            
            15%Block
      hours
            
            
            33,134
            
            
            
            25,090
            
            
            32%Departures
            
            
            26,800
            
            
            
            20,890
            
            
            28%Average
      daily utilization (block hours)
            
            
            7.36
            
            
            
            6.80
            
            
            8%Average
      stage length (miles)
            
            
            195
            
            
            
            183
            
            
            7%Fuel
      Consumption (in thousands of gallons) (3)
            
            
            3,687
            
            
            
            3,825
            
            
            (4)%Average
      price per gallon (3)
            
            
            3.27
            
            
            
            2.13
            
            
            54%Number
      of operating aircraft (end of period)
            
            
            51
            
            
            
            51
            
            
            0%Employees
            
            
            1,333
            
            
            
            1,105
            
            
            21%(1)
      Information for 2007 for Colgan includes the period of time from the
      acquisition date of January 18, 2007 through March 31,
    2007.(2)
      Passenger load factor equals revenue passenger miles divided by available
      seat miles.(3) Pro-rate operations only.





Liquidity
and Capital Resources





We
generate cash by providing regional airline and related services to our
code-share partners.  As of March 31, 2008, we had cash and cash
equivalents of $76.9 million.  Net cash used from operations was $17
million for the three months ended March 31, 2008 and net cash provided by
operations was $316 million for the three months ended March 31,
2007.  We expect our cash flow from operations and our financing
arrangements to be sufficient to meet our ongoing capital requirements and
financial commitments.  Additionally, we do not expect to make income
tax payments during 2008-2010 due to the accelerated depreciation recognized for
tax purposes on the newly acquired CRJ-900 and Q400 aircraft, and we expect to
receive a federal income tax refund ranging between $20 million and $25 million
in early 2009.





As of
March 31, 2008, we had $136 million par amount of Auction Rate Securities
instruments (“ARS”).  As discussed further in Note 10 in Item 1 of
this Form 10-Q, these securities are not currently liquid as fewer investors are
participating in the auction process.  We had planned to monetize a
portion of our ARS portfolio throughout 2008 to fund the non-financed portion of
our aircraft deliveries.  While we wait for both the ARS market to
rationalize and for investor demand to return, we have arranged for a $60
million margin loan facility (the “Term Loan”) to be used to support our
aircraft purchases.  The Term Loan is pre-payable at any time prior to
maturity on February 28, 2009.  The Term Loan interest rate is indexed
to LIBOR and  was 4.70% at March 31, 2008.  We believe that
this short-term financing facility in addition to cash flows from our operations
is adequate to meet our aircraft funding requirements and related debt
covenants.





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 not met during the first
quarter of 2008, and consequently the Notes are not convertible at this
time.  Due to the option value imbedded within each Note, the Notes
generally trade at values higher than the fair value of the common stock and
cash into which they could be converted.  Although the Notes have been
convertible and will possibly be convertible during future periods, we do not
expect a significant number of holders to tender the Notes





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





Liquidity
and Capital Resources (Continued)





for
conversion.  Nonetheless, in any period during which the holders have
the right to exercise the conversion option, the Notes’ $121.0 million par value
will be classified as a current liability on our balance sheet.





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.  As
of March 31, 2008, our Colgan subsidiary had accepted delivery of six of these
aircraft.  The remaining nine are scheduled to be delivered by the
third quarter of 2008.  We have a right of cancellation for an
additional ten firm aircraft for which notice is required by July
2008.  If we do not exercise these cancellation rights, then we will
take delivery of these ten additional aircraft between October 2009 and July
2010.  In addition to the 25 firm aircraft, we have optional rights to
acquire 20 Q400 aircraft that would be delivered between September 2009 and
November 2010.





On April
27, 2007, Delta Air Lines assigned to us its rights to purchase 16 CRJ-900
aircraft from Bombardier, Inc.  As of March 31, 2008 we had accepted
delivery of six of these aircraft.  We will take delivery of the
remaining ten aircraft by January 2009.  Under our capacity purchase
agreement with Delta, Delta may also require us to purchase and operate an
additional seven CRJ-900 aircraft.





Our
aggregate purchase commitment for non-cancelable aircraft orders with Bombardier
for both the remaining Q400 aircraft and CRJ-900 aircraft is approximately $409
million.  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”) withExport
Development Canada (“EDC”) for up to $80 million to provide borrowings to fund
our pre-delivery payment commitments to Bombardier.  Borrowings under
the pre-delivery payment facilities bear interest at the 3-month LIBOR rate plus
1.65%, which was 4.34% as of March 31, 2008.  The outstanding balance
for the borrowings as of March 31, 2008 was $45 million.  As each
aircraft is delivered to us, we repay the associated borrowings under the PDP
Facilities.





Upon
delivery of our CRJ-900 and Q400 aircraft, we obtained long-term financing of
$215 million for the aircraft from EDC.  We expect to finance the
purchase of the remaining 19 aircraft using a combination of internal capital
resources and debt financing.  We have obtained commitments from EDC
to finance the aircraft for a term of 15 years from the delivery date of each
aircraft.  The approximate remaining borrowing commitment is $348
million of the approximate remaining purchase price of $409
million.  We expect to fund the approximate remaining $61 million from
internal capital resources.





To reduce
the financial risk associated with changes in long-term interest rates while we
take delivery of the Q400 and CRJ-900 aircraft, we initiated a cash flow hedging
program during July 2007.  The program consists of interest rate swaps
whereby we agree to pay a fixed interest rate and receive the six-month LIBOR
rate.  The swaps have been or will be cash settled when the permanent
financing is obtained at the time we take delivery of the
aircraft.  As of March 31, 2008, we have hedged approximately $436
million, or 78%, of the $560 million we expect to finance.  Should
interest rates change by 100 basis points before we take delivery, and assuming
that we do not hedge the anticipated debt on the remaining firm noncancelable
aircraft, aggregate interest expense in the first year of financing would change
by approximately $1.0 million.  During the three months ended March
31, 2008, the Company made prepaid interest payments of $14.9 million in
connection with its cash flow hedging program.  As of March 31, 2008,
the Company expected to make additional prepaid interest payments of $17.1
million during 2008.





During
the remainder of 2008, we expect to purchase additional inventory and spare
engines for our new CRJ-900 and Q400 aircraft totaling approximately $7.4
million.  We expect to use internal resources and financing from the
engine manufacturers or third parties to fund these inventory and spare engine
purchases.





We
maintain a revolving line of credit with an institutional lender for a principal
amount not to exceed $8.5 million or 75% of the net unpaid balance of eligible
accounts receivable.  This instrument has an interest rate of Prime
plus 0.25%, which was 5.50% as of March 31, 2008. In April 2008, we extended the
termination date of the loan to April 15, 2009.  Amounts outstanding
under the line of credit were $8.3 million at March 31, 2008.





As part
of our agreement to purchase Colgan, we agreed to purchase from one of its
selling shareholders two aircraft hangars located in Manassas, Virginia if the
selling shareholder is unable to consummate a sale to a





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





Liquidity
and Capital Resources (Continued)





third-party.  The
Company agreed to purchase the two hangars for a purchase price of $6.4 million,
which approximates their fair value.  We currently expect the current
owner of the hangars to sell the hangars to a third party, and that we will
continue to lease them on a short-term basis.





The IRS
is currently examining our tax records for years 2003 through
2005.  The IRS has proposed adjustments related to certain key
transactions that we undertook during those periods.  The adjustments
would increase our tax liability for these periods by approximately $33 million
(net of offsetting timing differences within these periods) plus
penalties.  We have filed a formal protest with respect to these
proposed adjustments and have started of an administrative appeals review within
the IRS.  We do not expect resolution of this matter during
2008.  We continue to believe that the tax positions we have taken are
appropriate and in compliance with tax law and regulations.  Although
we believe our tax positions are appropriate, we have recorded reserves totaling
$16.7 million.  While we believe our reserves are adequate for each
identified issue, our liquid assets would be significantly reduced if we are
ultimately required to make payments to the IRS for taxes and related interest
and penalties associated with these proposed adjustments.





Operating activities. Net
cash used in operating activities was $17.3 million during the three months
ended March 31, 2008.  This was due primarily to the $14.6 million in
prepaid interest payments and $9.3 million in collateral payments, both related
to hedging activities.  This decrease in cash was offset by various
changes in our operating assets and liabilities.





Net cash
provided by operating activities was $316.0 million during the three months
ended March 31, 2007. This was due primarily to proceeds received from the
assignment of our Northwest claim of $241.4 million.  In addition,
receivables decreased by $77.5 million.  Our balance of receivables
was unusually high as of December 31, 2006 due to the fact that the December
30th
payment from Northwest of $31.9 million was not received until January 2, 2007,
as December 30th fell on
a weekend.  In addition, our pre-petition receivables decreased by
$42.9 million during the first quarter with the receipt of our Northwest
claim.





Investing activities. 
Net cash provided by investing activities for the three months ended March 31,
2008 was $42.7 million.  This was primarily attributable to net proceeds of
investments in ARS of $50.8 million, offset by $8.2 million in cash purchases of
property and equipment, primarily consisting of flight equipment.





Cash used
for investing activities for the three months ended March 31, 2007 was $291.0
million.  This is primarily attributable to net purchases of
short-term investments in marketable debt securities of $251.5 million, offset
by $27.8 million paid in pre-delivery payments for the Q400
aircraft.  In addition, the acquisition of Colgan decreased cash by
$8.4 million, net of cash acquired.





We expect
non-aircraft cash capital expenditures for the remainder of 2008 to be
approximately $16 million. As previously discussed, we expect to finance $348
million of the remaining $409 million of aircraft we have commitments to
purchase during the remainder of 2008.  We expect to fund the
remaining $61 million, along with the $16 million of non-aircraft capital
expenditures, with existing cash resources and cash flows generated from our
operations.





Financing activities. Net
cash provided by financing activities for the three months ended March 31, 2008
totaled $24.7 million.  During the quarter, we received $71.8 million in
debt proceeds, primarily related to the Term Loan.  This was offset by
$26.0 million of principal payments on debt obligations, primarily related to
our pre-delivery payment facilities, and the $20.0 million purchase of our
Series A Preferred Share from Northwest on January 4, 2008.





Cash used
in financing activities for the three months ended March 31, 2007 totaled $1.6
million, which related to $1.4 million of debt principal payments made and $0.2
million of payments made on capital leases.





Deferred tax
asset.  We have recorded a deferred tax asset of $75.3
millionrelated to
future tax benefits.  This primarily relates to future tax benefits we
will receive for our deferred ASA revenue.  As discussed in Note 2 to
our condensed consolidated financial statements, the deferred ASA revenue is
being recognized over the 11-year term of the ASA.





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








Liquidity
and Capital Resources (Continued)





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





We had
$5.0 million and $5.3 million invested in certificates of deposit and in other
similar instruments at March 31, 2008 and December 31, 2007,
respectively.  These certificates of deposit have various maturities,
all less than one year and are used as collateral for standby letter of credit
facilities that we maintain for various vendors.  As of March 31, 2008
and December 31, 2007, we had $2.9 million and $2.7 million of standby letters
of credit outstanding, respectively.





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





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





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





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





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





Fair
Value Measurements





As
discussed in Note 3 in Item 1 of this Form 10-Q, the Company adopted the
provisions of SFAS 157 effective January 1, 2008.  The Company has
determined that it utilizes unobservable (Level 3) inputs in determining the
fair value of its ARS and its cash flow hedges, which totaled $126 million and
$17 million, respectively, at March 31, 2008.





The
Company’s ARS instruments are classified as available for sale securities and
reflected at fair value.  In prior periods, due to the auction process
which took place every 30-35 days for most securities, quoted market prices were
readily available, which would qualify as Level 1 under SFAS
157.  However, due to events in credit markets during first quarter
2008, the auction events for most of these instruments failed, and, therefore,
the Company has determined the estimated fair values of these securities
utilizing a discounted cash flow analysis as of March 31, 2008.  This
analysis considers, among other items, the collateralization underlying the
security investments, the creditworthiness of the counterparty, the timing of
expected future cash flows, and an estimate of when the security is expected to
have a successful auction or be called by the issuer.  These
securities were also compared, when possible, to other observable market data
with similar characteristics to the securities held by the
Company.





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





Fair
Value Measurements (Continued)





Due to
these events, the Company reclassified these instruments as Level 3 during first
quarter 2008 and recorded a temporary unrealized decline in fair value of $10
million, with an offsetting entry to other comprehensive income
(“OCI”).  The Company currently believes that this temporary decline
in fair value is due entirely to liquidity issues, because the underlying assets
for the majority of securities are almost entirely backed by the U.S.
government.  Because the Company believes that the current decline in
fair value is temporary and based only on liquidity issues in the credit
markets, any difference between its estimate and an estimate that would be
arrived at by another party would have no impact on the Company’s earnings,
since such difference would also be recorded to OCI.  The Company will
re-evaluate each of these factors as market conditions change in subsequent
periods.





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





As
discussed in Note 3 in Item 1 of this Form 10-Q, any changes in the fair values
of the Company’s derivative financial instruments are subject to the
requirements of SFAS 133.  Any changes in fair value that are
considered to be effective, as defined, are offset within OCI until the period
in which the expected cash flow affects earnings.  Any changes in the
fair value of its derivatives that are ineffective, as defined, or do not
qualify for special hedge accounting, are reflected in earnings within interest
expense, in the period of the change.





Forward-Looking
Statements





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





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





34


Item 3. Quantitative and Qualitative Disclosures About Market
Risk


Because
the majority of our business is under capacity purchase agreements, our exposure
to market risks such as commodity price risk (e.g., aircraft fuel prices) is
primarily limited to our pro-rate operations which comprise approximately 23% of
our consolidated revenues.  With our 2007 acquisition of Colgan and the
subsequent contracts with Delta and Continental regarding the purchase of
aircraft, we are exposed to commodity price and interest rate risks as in our
2007 Form 10-K. There have been no material changes in market risk from the
information provided in Item 7A “Quantitative and Qualitative Disclosure
About Market Risk” in our 2007 Form 10-K except as follows:





Commodity
Price Risk





Our
pro-rate operations have exposure to certain market risks associated with
aircraft fuel, which has recently experienced significant price increases. 
Aviation fuel expense is a significant expense for any air carrier and even
marginal changes in the cost of fuel greatly affect a carrier’s
profitability.  Standard industry contracts do not generally provide
protection against fuel price increases, nor do they ensure availability of
supply.  However, our capacity purchase agreements require that fuel be
provided to us at no cost, thereby reducing our overall exposure to fuel price
fluctuations.  However, the Company’s pro-rate code-share agreements with
US Airways, Continental, and United Air Lines expose the Company to fuel price
risk.  Slightly offsetting our fuel risk, our agreement with Continental
provides for an adjustment to the pro-rate revenue we receive from Continental
based on projected changes in fuel prices.  For the projected annualized
fuel consumption related to these agreements, each ten percent change in the
price of jet fuel amounts to an approximate $5.5 million change in annual fuel
costs.





Item 4.  Controls and Procedures





The
Company, under the supervision and participation of its management, including
the Chief Executive Officer and the Chief Financial Officer, evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rules 13a-15 and
15d-15.   Based upon that evaluation, our Chief Executive Officer
and Chief Financial Officer concluded that our disclosure controls and
procedures are effective.  Disclosure controls and procedures are
controls and procedures that are designed to ensure that information required to
be disclosed in our reports filed or submitted under the Exchange Act is
recorded, processed, summarized and completely and accurately reported within
the time periods specified in the Securities and Exchange Commission’s rules and
forms.  Except as discussed below, there has been no change in our
internal control over financial reporting during the three months ended March
31, 2008, that has materially affected, or is reasonably likely to materially
affect the our internal control over financial reporting.





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











35





Part II.  Other
Information





Item 1.  Legal Proceedings





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





Item 1A. Risk Factors.




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







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





As
provided for in the ASA, on January 4, 2008, the Company purchased its Series A
Preferred Share (the “Preferred Share”) from Northwest at a purchase price of
$20,000. The Preferred Share gave Northwest the right to appoint two directors
to the Company’s Board of Directors, as well as certain other corporate
governance rights.  No dividends were payable to the stockholder of
the Preferred Share.  After this purchase, Northwest no longer owns
any shares of the Company’s preferred stock and, to the Company’s knowledge,
none of the Company’s common stock.





Item 3.  Defaults Upon Senior
Securities





None.





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





None.





Item 5.  Other Information





None.





Item 6.  Exhibits





36





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)





37




Exhibit




Number                 Description




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)





38





Exhibit


Number                  Description





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


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


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


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


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


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


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


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


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


10.70*
            Term
      Loan Agreement between Citigroup Global Markets, Inc. and Pinnacle
      Airlines Corp., dated as of March 11,
2008.


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


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


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


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


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


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


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


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





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


23.1
            Consent
      of Independent Registered Public Accounting Firm31.1*
            Certification
      of Chief Executive Officer31.2*
            Certification
      of Chief Financial Officer32*
            Certifications
      of CEO and CFO





*
            Filed
      herewith


†
            Management
      contract or compensatory plan or arrangement#
            Cancelled
      agreement referenced in this Form 10-Q





39
































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:  May
      8, 2008
            President
      and Chief Executive OfficerBy:
            /s/ Peter D.
      HuntPeter
      D. HuntDate:  May
      8, 2008
            Vice
      President and Chief Financial Officer



































40