##### 









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K/A


|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|  
|   |  | For the fiscal year ended December 31, 2004                                                 
|  
|or
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|  
|   |  | For the transition period
    from           to                                             

Commission File Number 001-31898





PINNACLE AIRLINES CORP.


(Exact name of registrant as specified in its charter)


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

Registrants telephone number, including area code:


901-348-4100


Securities registered pursuant to Section 12(b) of the
Act:


|                             |  |                                           
|---------------------------- |  | ------------------------------------------
|Title of each class:         |  | Name of each exchange on which registered:
|                             |  |                                           
|Common Stock, $.01 par value |  | Nasdaq National Market                    

Securities registered pursuant to Section 12(g) of
the Act:


None


þ o


þ


þ o






Documents Incorporated by Reference














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EXPLANATORY NOTE






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|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data

|                                                                                                                          |  |  |    | 
|------------------------------------------------------------------------------------------------------------------------- |  |  | -- | 
|Report of Independent Registered Public Accounting Firm                                                                   |  |  | 39 | 
|Consolidated Statements of Income for the Years Ended
    December 31, 2004, 2003 and 2002                                |  |  | 40 | 
|Consolidated Balance Sheets as of December 31, 2004 and 2003                                                              |  |  | 41 | 
|Consolidated Statements of Stockholders Equity
    (Deficiency) for the Years Ended December 31, 2004, 2003
    and 2002 |  |  | 42 | 
|Consolidated Statements of Cash Flows for the Years Ended
    December 31, 2004, 2003 and 2002                            |  |  | 43 | 
|Notes to Consolidated Financial Statements                                                                                |  |  | 44 | 

38



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
















| |                      
| | ---------------------
| | /s/ ERNST & YOUNG LLP





39



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PINNACLE AIRLINES CORP.


CONSOLIDATED STATEMENTS OF INCOME


|                                                       |                                             |                                       |         |         |      |   |         |         |   |   |         |         |  
|------------------------------------------------------ | ------------------------------------------- | ------------------------------------- | ------- | ------- | ---- | - | ------- | ------- | - | - | ------- | ------- | -
|                                                       |                                             | Years Ended December 31,              |        
|                                                       |                                             |                                       |        
|                                                       |                                             | 2004                                  |         |         | 2003 |   |         | 2002    |  
|                                                       |                                             |                                       |         |         |      |   |         |         |  
|                                                       |                                             | (In thousands, except per share data) |        
|Operating revenues:                                    |                                             |                                       |         |         |      |   |         |         |   |   |         |        
|                                                       | Regional airline services                   |                                       | $       | 631,504 |      |   | $       | 450,611 |   |   | $       | 325,386 |  
|                                                       | Other                                       |                                       |         | 3,944   |      |   |         | 6,159   |   |   |         | 6,182   |  
|                                                       |                                             |                                       |         |         |      |   |         |         |  
|Total operating revenues                               |                                             |                                       | 635,448 |         |      |   | 456,770 |         |   |   | 331,568 |        
|Operating expenses:                                    |                                             |                                       |         |         |      |   |         |         |   |   |         |        
|                                                       | Salaries, wages and benefits                |                                       |         | 105,143 |      |   |         | 83,316  |   |   |         | 69,086  |  
|                                                       | Aircraft fuel                               |                                       |         | 83,572  |      |   |         | 55,007  |   |   |         | 33,932  |  
|                                                       | Aircraft maintenance, materials and repairs |                                       |         | 23,545  |      |   |         | 14,116  |   |   |         | 13,276  |  
|                                                       | Aircraft rentals                            |                                       |         | 209,047 |      |   |         | 136,273 |   |   |         | 87,016  |  
|                                                       | Other rentals and landing fees              |                                       |         | 37,101  |      |   |         | 29,255  |   |   |         | 22,818  |  
|                                                       | Ground handling services                    |                                       |         | 65,877  |      |   |         | 44,622  |   |   |         | 23,422  |  
|                                                       | Depreciation                                |                                       |         | 3,153   |      |   |         | 2,912   |   |   |         | 6,141   |  
|                                                       | Government reimbursements                   |                                       |         |        |      |   |         | (1,114  | ) |   |         |        |  
|                                                       | Other                                       |                                       |         | 40,707  |      |   |         | 28,214  |   |   |         | 28,221  |  
|                                                       |                                             |                                       |         |         |      |   |         |         |  
|Total operating expenses                               |                                             |                                       | 568,145 |         |      |   | 392,601 |         |   |   | 283,912 |        
|                                                       |                                             |                                       |         |         |      |   |         |         |  
|Operating income                                       |                                             |                                       | 67,303  |         |      |   | 64,169  |         |   |   | 47,656  |        
|Operating income as a percentage of operating revenues |                                             |                                       | 10.6%   |         |      |   | 14.0%   |         |   |   | 14.4%   |        
|Nonoperating (expense) income                          |                                             |                                       |         |         |      |   |         |         |   |   |         |        
|                                                       | Interest income                             |                                       |         | 301     |      |   |         | 230     |   |   |         | 3,001   |  
|                                                       | Interest expense                            |                                       |         | (4,907  | )    |   |         | (7,387  | ) |   |         | (409    | )
|                                                       | Miscellaneous income, net                   |                                       |         | 428     |      |   |         | 387     |   |   |         | 80      |  
|                                                       |                                             |                                       |         |         |      |   |         |         |  
|Total nonoperating (expense) income                    |                                             |                                       | (4,178  | )       |      |   | (6,770  | )       |   |   | 2,672   |        
|                                                       |                                             |                                       |         |         |      |   |         |         |  
|Income before income taxes                             |                                             |                                       | 63,125  |         |      |   | 57,399  |         |   |   | 50,328  |        
|Income tax expense                                     |                                             |                                       | 22,400  |         |      |   | 22,332  |         |   |   | 19,543  |        
|                                                       |                                             |                                       |         |         |      |   |         |         |  
|Net income                                             |                                             | $                                     | 40,725  |         |      | $ | 35,067  |         |   | $ | 30,785  |        
|                                                       |                                             |                                       |         |         |      |   |         |         |  
|Basic earnings per share                               |                                             | $                                     | 1.86    |         |      | $ | 1.60    |         |   | $ | 1.41    |        
|                                                       |                                             |                                       |         |         |      |   |         |         |  
|Diluted earnings per share                             |                                             | $                                     | 1.86    |         |      | $ | 1.60    |         |   | $ | 1.41    |        
|                                                       |                                             |                                       |         |         |      |   |         |         |  
|Shares used in computing basic earnings per share      |                                             |                                       | 21,892  |         |      |   | 21,892  |         |   |   | 21,892  |        
|                                                       |                                             |                                       |         |         |      |   |         |         |  
|Shares used in computing diluted earnings per share    |                                             |                                       | 21,911  |         |      |   | 21,892  |         |   |   | 21,892  |        
|                                                       |                                             |                                       |         |         |      |   |         |         |  



40



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PINNACLE AIRLINES CORP.


CONSOLIDATED BALANCE SHEETS


|                                                                                              |                                                                                                                                             |                             |                                                |         |        |         |         |          |        |         |  
|--------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------- | ---------------------------------------------- | ------- | ------ | ------- | ------- | -------- | ------ | ------- | -
|                                                                                              |                                                                                                                                             | December 31,                |                                               
|                                                                                              |                                                                                                                                             |                             |                                               
|                                                                                              |                                                                                                                                             | 2004                        |                                                |         | 2003   |        
|                                                                                              |                                                                                                                                             |                             |                                                |         |        |        
|                                                                                              |                                                                                                                                             | (In thousands, except share |                                               
|                                                                                              |                                                                                                                                             | data)                       |                                               
|ASSETS                                                                                       
|Current assets:                                                                               |                                                                                                                                             |                             |                                                |         |        |         |         |         
|Cash and cash equivalents                                                                     |                                                                                                                                             | $                           | 34,912                                         |         |        | $       | 31,523  |         
|                                                                                              | Receivables, principally from Northwest, net of allowances of
    $34 in 2004 and $146 in 2003                                              |                             |                                                | 25,139  |        |         |         | 17,524   |       
|                                                                                              | Spare parts and supplies, net of allowances of $352 in 2004 and
    $2,606 in 2003                                                          |                             |                                                | 5,341   |        |         |         | 3,773    |       
|                                                                                              | Prepaid expenses and other assets                                                                                                           |                             |                                                | 5,644   |        |         |         | 6,810    |       
|                                                                                              | Deferred income taxes                                                                                                                       |                             |                                                | 860     |        |         |         | 2,549    |       
|                                                                                              |                                                                                                                                             |                             |                                                |         |        |        
|                                                                                              |                                                                                                                                             | Total current assets        |                                                |         | 71,896 |         |         |          | 62,179 |        
|Property and equipment:                                                                       |                                                                                                                                             |                             |                                                |         |        |         |         |         
|                                                                                              | Aircraft and rotable spares                                                                                                                 |                             |                                                | 35,837  |        |         |         | 32,779   |       
|                                                                                              | Other property and equipment                                                                                                                |                             |                                                | 16,161  |        |         |         | 14,081   |       
|                                                                                              | Office furniture and fixtures                                                                                                               |                             |                                                | 1,863   |        |         |         | 1,258    |       
|                                                                                              |                                                                                                                                             |                             |                                                |         |        |        
|                                                                                              |                                                                                                                                             |                             | 53,861                                         |         |        |         | 48,118  |         
|                                                                                              | Less accumulated depreciation                                                                                                               |                             |                                                | (14,445 | )      |         |         | (13,832  | )     
|                                                                                              |                                                                                                                                             |                             |                                                |         |        |        
|                                                                                              | Net property and equipment                                                                                                                  |                             |                                                | 39,416  |        |         |         | 34,286   |       
|                                                                                              | Other assets, primarily aircraft deposits with Northwest                                                                                    |                             |                                                | 21,111  |        |         |         | 14,019   |       
|                                                                                              | Goodwill, net of amortization of $4,027                                                                                                     |                             |                                                | 18,422  |        |         |         | 18,422   |       
|                                                                                              | Contractual rights acquired from Northwest                                                                                                  |                             |                                                | 15,115  |        |         |         |         |       
|                                                                                              |                                                                                                                                             |                             |                                                |         |        |        
|                                                                                              | Total assets                                                                                                                                |                             | $                                              | 165,960 |        |         | $       | 128,906  |       
|                                                                                              |                                                                                                                                             |                             |                                                |         |        |        
|                                                                                             
|LIABILITIES AND STOCKHOLDERS DEFICIENCY                                                     
|Current liabilities:                                                                          |                                                                                                                                             |                             |                                                |         |        |         |         |         
|                                                                                              | Accounts payable                                                                                                                            |                             | $                                              | 16,983  |        |         | $       | 9,716    |       
|                                                                                              | Accrued expenses                                                                                                                            |                             |                                                | 15,083  |        |         |         | 11,332   |       
|                                                                                              | Line of credit with Northwest                                                                                                               |                             |                                                |        |        |         |         | 10,000   |       
|                                                                                              | Income taxes payable                                                                                                                        |                             |                                                | 1,633   |        |         |         | 5,596    |       
|                                                                                              | Other current liabilities, including $5,115 due Northwest for
    contractual rights at December 31, 2004                                   |                             |                                                | 6,756   |        |         |         | 806      |       
|                                                                                              | Current portion of note payable to Northwest                                                                                                |                             |                                                |        |        |         |         | 12,000   |       
|                                                                                              |                                                                                                                                             |                             |                                                |         |        |        
|                                                                                              |                                                                                                                                             | Total current liabilities   |                                                |         | 40,455 |         |         |          | 49,450 |        
|Deferred income taxes                                                                         |                                                                                                                                             |                             | 7,105                                          |         |        |         | 6,400   |         
|Note payable and line of credit from Northwest refinanced
    subsequent to December 31, 2004 |                                                                                                                                             |                             | 125,000                                        |         |        |         | 120,000 |         
|Other liabilities                                                                             |                                                                                                                                             |                             | 948                                            |         |        |         | 1,438   |         
|Commitments and contingencies                                                                 |                                                                                                                                             |                             |                                                |         |        |         |         |         
|Stockholders deficiency:                                                                     |                                                                                                                                             |                             |                                                |         |        |         |         |         
|                                                                                              | Preferred stock, par value $0.01 per share;
    1,000,000 shares authorized, no shares issued                                               |                             |                                                |        |        |         |         |         |       
|                                                                                              | Series A preferred stock, stated value $100 per share;
    one share authorized and issued                                                  |                             |                                                |        |        |         |         |         |       
|                                                                                              | Series common stock, par value $0.01 per share;
    5,000,000 shares authorized; no shares issued                                           |                             |                                                |        |        |         |         |         |       
|                                                                                              | Common stock, $0.01 par value; 40,000,000 shares
    authorized, 21,950,260 and 21,892,060 shares issued in 2004
    and 2003, respectively |                             |                                                | 220     |        |         |         | 219      |       
|                                                                                              | Additional paid-in capital                                                                                                                  |                             |                                                | 85,603  |        |         |         | 84,973   |       
|                                                                                              | Accumulated deficit                                                                                                                         |                             |                                                | (92,849 | )      |         |         | (133,574 | )     
|                                                                                              | Unearned compensation on restricted stock                                                                                                   |                             |                                                | (522    | )      |         |         |         |       
|                                                                                              |                                                                                                                                             |                             |                                                |         |        |        
|                                                                                              |                                                                                                                                             |                             | Total stockholders deficiency                 |         |        | (7,548  | )       |          |        | (48,382 | )
|                                                                                              |                                                                                                                                             |                             |                                                |         |        |        
|                                                                                              |                                                                                                                                             |                             | Total liabilities and stockholders deficiency |         | $      | 165,960 |         |          | $      | 128,906 |  
|                                                                                              |                                                                                                                                             |                             |                                                |         |        |        



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PINNACLE AIRLINES CORP.


CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(DEFICIENCY)


|                           |                                                                        |                                                 |     |            |         |   |          |              |  |              |               |          |   |       |      |      |   |   |         |          |  
|-------------------------- | ---------------------------------------------------------------------- | ----------------------------------------------- | --- | ---------- | ------- | - | -------- | ------------ |  | ------------ | ------------- | -------- | - | ----- | ---- | ---- | - | - | ------- | -------- | -
|                           |                                                                        |                                                 |     |            |         |   |          | Unearned     |  |              |              
|                           |                                                                        |                                                 |     | Additional |         |   | Retained |              |  | Compensation |               |          |  
|                           |                                                                        | Common                                          |     |            | Paid-In |   |          | Earnings     |  |              | on Restricted |          |   |      
|                           |                                                                        | Stock                                           |     |            | Capital |   |          | (Deficiency) |  |              | Stock         |          |   | Total |     
|                           |                                                                        |                                                 |     |            |         |   |          |              |  |              |               |          |   |       |     
|                           |                                                                        | (In thousands, except share and per share data) |    
|Balance, December 31, 2001 |                                                                        | $                                               | 219 |            |         | $ | 34,973   |              |  | $            | 20,459        |          |   | $     |     |      |   | $ | 55,651  |         
|                           |                                                                        |                                                 |     |            |         |   |          |              |  |              |               |          |   |       |     
|                           | Dividend to Northwest of spare parts and engines ($0.20 per
    share) |                                                 |     |           |         |   |          |             |  |              |               | (4,385   | ) |       |      |     |   |   |         | (4,385   | )
|                           | Net income                                                             |                                                 |     |           |         |   |          |             |  |              |               | 30,785   |   |       |      |     |   |   |         | 30,785   |  
|                           |                                                                        |                                                 |     |            |         |   |          |              |  |              |               |          |   |       |     
|Balance, December 31, 2002 |                                                                        |                                                 | 219 |            |         |   | 34,973   |              |  |              | 46,859        |          |   |       |     |      |   |   | 82,051  |         
|                           |                                                                        |                                                 |     |            |         |   |          |              |  |              |               |          |   |       |     
|                           | Contribution of capital by Northwest                                   |                                                 |     |           |         |   |          | 50,000       |  |              |               |         |   |       |      |     |   |   |         | 50,000   |  
|                           | Dividend to Northwest ($9.84 per share)                                |                                                 |     |           |         |   |          |             |  |              |               | (215,500 | ) |       |      |     |   |   |         | (215,500 | )
|                           | Net income                                                             |                                                 |     |           |         |   |          |             |  |              |               | 35,067   |   |       |      |     |   |   |         | 35,067   |  
|                           |                                                                        |                                                 |     |            |         |   |          |              |  |              |               |          |   |       |     
|Balance, December 31, 2003 |                                                                        |                                                 | 219 |            |         |   | 84,973   |              |  |              | (133,574      | )        |   |       |     |      |   |   | (48,382 | )       
|                           |                                                                        |                                                 |     |            |         |   |          |              |  |              |               |          |   |       |     
|                           | Restricted stock issuance  58,200 shares                              |                                                 |     | 1          |         |   |          | 630          |  |              |               |         |   |       |      | (631 | ) |   |         |         |  
|                           | Amortization of unearned compensation                                  |                                                 |     |           |         |   |          |             |  |              |               |         |   |       |      | 109  |   |   |         | 109      |  
|                           | Net income                                                             |                                                 |     |           |         |   |          |             |  |              |               | 40,725   |   |       |      |     |   |   |         | 40,725   |  
|                           |                                                                        |                                                 |     |            |         |   |          |              |  |              |               |          |   |       |     
|Balance, December 31, 2004 |                                                                        | $                                               | 220 |            |         | $ | 85,603   |              |  | $            | (92,849       | )        |   | $     | (522 | )    |   | $ | (7,548  | )       
|                           |                                                                        |                                                 |     |            |         |   |          |              |  |              |               |          |   |       |     



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PINNACLE AIRLINES CORP.


CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                 |                                                                                             |                                                         |                                           |                                                 |       |        |         |         |       |        |         |        |       |         |        |  
|------------------------------------------------ | ------------------------------------------------------------------------------------------- | ------------------------------------------------------- | ----------------------------------------- | ----------------------------------------------- | ----- | ------ | ------- | ------- | ----- | ------ | ------- | ------ | ----- | ------- | ------ | -
|                                                 |                                                                                             | Years Ended December 31,                                |                                          
|                                                 |                                                                                             |                                                         |                                          
|                                                 |                                                                                             | 2004                                                    |                                           |                                                 | 2003  |        |         | 2002    |      
|                                                 |                                                                                             |                                                         |                                           |                                                 |       |        |         |         |      
|                                                 |                                                                                             | (In thousands)                                          |                                          
|Operating activities                             |                                                                                             |                                                         |                                           |                                                 |       |        |         |         |       |        |         |       
|                                                 | Net income                                                                                  |                                                         | $                                         | 40,725                                          |       |        | $       | 35,067  |       |        | $       | 30,785 |      
|                                                 | Adjustments to reconcile net income to cash provided by (used
    in) operating activities: |                                                         |                                           |                                                 |       |        |         |         |       |        |         |        |      
|                                                 |                                                                                             | Depreciation                                            |                                           |                                                 | 3,153 |        |         |         | 2,912 |        |         |        | 6,141 |        
|                                                 |                                                                                             | (Gain) loss on disposal of equipment and rotable spares |                                           |                                                 | (445  | )      |         |         | 225   |        |         |        | 43    |        
|                                                 |                                                                                             | Deferred income taxes                                   |                                           |                                                 | 2,394 |        |         |         | 1,885 |        |         |        | 1,019 |        
|                                                 |                                                                                             | Provision for spare parts and supplies obsolescence     |                                           |                                                 | 177   |        |         |         | 106   |        |         |        | 623   |        
|                                                 |                                                                                             | Other                                                   |                                           |                                                 | (217  | )      |         |         | (180  | )      |         |        | (145  | )      
|                                                 |                                                                                             | Amortization of unearned compensation                   |                                           |                                                 | 109   |        |         |         |      |        |         |        |      |        
|                                                 |                                                                                             | Changes in operating assets and liabilities:            |                                           |                                                 |       |        |         |         |       |        |         |        |       |        
|                                                 |                                                                                             |                                                         | Receivables, principally from Northwest   |                                                 |       | (7,575 | )       |         |       | 5,168  |         |        |       | (40,622 | )     
|                                                 |                                                                                             |                                                         | Spare parts and supplies                  |                                                 |       | (1,905 | )       |         |       | (954   | )       |        |       | (172    | )     
|                                                 |                                                                                             |                                                         | Prepaid expenses and other current assets |                                                 |       | 1,166  |         |         |       | 7,782  |         |        |       | (9,469  | )     
|                                                 |                                                                                             |                                                         | Aircraft deposits paid to Northwest       |                                                 |       | (7,350 | )       |         |       | (4,375 | )       |        |       | (8,925  | )     
|                                                 |                                                                                             |                                                         | Accounts payable and accrued expenses     |                                                 |       | 10,975 |         |         |       | (2,213 | )       |        |       | 3,676   |       
|                                                 |                                                                                             |                                                         | Other current liabilities                 |                                                 |       | 753    |         |         |       | (121   | )       |        |       | (398    | )     
|                                                 |                                                                                             |                                                         | Income taxes payable                      |                                                 |       | (3,963 | )       |         |       | 4,780  |         |        |       | 17,398  |       
|                                                 |                                                                                             |                                                         |                                           |                                                 |       |        |         |         |      
|                                                 |                                                                                             |                                                         |                                           | Cash provided by (used in) operating activities |       |        | 37,997  |         |       |        | 50,082  |        |       |         | (46    | )
|Investing activities                             |                                                                                             |                                                         |                                           |                                                 |       |        |         |         |       |        |         |       
|                                                 | Purchases of property and equipment                                                         |                                                         |                                           | (8,647                                          | )     |        |         | (10,894 | )     |        |         | (4,415 | )    
|                                                 | Proceeds from the sale of property and equipment                                            |                                                         |                                           | 1,057                                           |       |        |         |        |       |        |         |       |      
|                                                 | Purchase of contractual rights from Northwest                                               |                                                         |                                           | (10,000                                         | )     |        |         |        |       |        |         |       |      
|                                                 |                                                                                             |                                                         |                                           |                                                 |       |        |         |         |      
|                                                 |                                                                                             |                                                         |                                           | Cash used in investing activities               |       |        | (17,590 | )       |       |        | (10,894 | )      |       |         | (4,415 | )
|Financing activities                             |                                                                                             |                                                         |                                           |                                                 |       |        |         |         |       |        |         |       
|                                                 | Payments on long-term debt                                                                  |                                                         |                                           | (12,000                                         | )     |        |         | (18,000 | )     |        |         |       |      
|                                                 | Repayments on line of credit with bank                                                      |                                                         |                                           |                                                |       |        |         | (4,245  | )     |        |         |       |      
|                                                 | (Repayments) borrowings under line of credit with Northwest                                 |                                                         |                                           | (5,000                                          | )     |        |         | 10,000  |       |        |         |       |      
|                                                 | Advances from Northwest for manufacturer credits                                            |                                                         |                                           |                                                |       |        |         |        |       |        |         | 7,150  |      
|                                                 | Other financing activities                                                                  |                                                         |                                           | (18                                             | )     |        |         |        |       |        |         |       |      
|                                                 |                                                                                             |                                                         |                                           |                                                 |       |        |         |         |      
|                                                 |                                                                                             |                                                         |                                           | Cash (used in) provided by financing activities |       |        | (17,018 | )       |       |        | (12,245 | )      |       |         | 7,150  |  
|Net increase in cash and cash equivalents        |                                                                                             |                                                         | 3,389                                     |                                                 |       |        | 26,943  |         |       |        | 2,689   |       
|Cash and cash equivalents at beginning of period |                                                                                             |                                                         | 31,523                                    |                                                 |       |        | 4,580   |         |       |        | 1,891   |       
|                                                 |                                                                                             |                                                         |                                           |                                                 |       |        |         |         |      
|Cash and cash equivalents at end of period       |                                                                                             | $                                                       | 34,912                                    |                                                 |       | $      | 31,523  |         |       | $      | 4,580   |       
|                                                 |                                                                                             |                                                         |                                           |                                                 |       |        |         |         |      
|Supplemental disclosure of cash flow information |                                                                                             |                                                         |                                           |                                                 |       |        |         |         |       |        |         |       
|                                                 | Interest paid                                                                               |                                                         | $                                         | 5,920                                           |       |        | $       | 6,345   |       |        | $       | 357    |      
|                                                 | Income tax payments                                                                         |                                                         | $                                         | 23,970                                          |       |        | $       | 15,553  |       |        | $       | 1,024  |      
|Other non-cash transactions                      |                                                                                             |                                                         |                                           |                                                 |       |        |         |         |       |        |         |       
|                                                 | Dividends issued to Northwest                                                               |                                                         | $                                         |                                                |       |        | $       | 215,500 |       |        | $       | 4,385  |      
|                                                 | Capital contribution from Northwest applied to note payable                                 |                                                         | $                                         |                                                |       |        | $       | 50,000  |       |        | $       |       |      
|                                                 | Payment owed to Northwest for contractual rights                                            |                                                         | $                                         | 5,115                                           |       |        | $       |        |       |        | $       |       |      
|                                                 | Property acquired through a capital lease obligation                                        |                                                         | $                                         | 87                                              |       |        | $       |        |       |        | $       |       |      



43



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(All amounts in thousands, except per share data)


1.     Description of Business






2.     Significant Accounting
Policies




| |                            
| | ---------------------------
| | Principles of Consolidation





| |                          
| | -------------------------
| | Cash and Cash Equivalents





| |                    
| | -------------------
| | Revenue Recognition







44



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(All amounts in thousands, except per share data)




2.     Significant Accounting
Policies  (Continued)




| |                                
| | -------------------------------
| | Allowance for Doubtful Accounts





| |                             
| | ----------------------------
| | Concentration of Credit Risk





| |                       
| | ----------------------
| | Property and Equipment





| |                         
| | ------------------------
| | Spare Parts and Supplies





| |            
| | -----------
| | Maintenance





| |         
| | --------
| | Warranty





| |                     
| | --------------------
| | Manufacturer Credits



45



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(All amounts in thousands, except per share data)




2.     Significant Accounting
Policies  (Continued)








| |                  
| | -----------------
| | Aircraft Deposits





| |             
| | ------------
| | Income Taxes





| |         
| | --------
| | Goodwill







| |                                           
| | ------------------------------------------
| | Contractual Rights Acquired from Northwest





46



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(All amounts in thousands, except per share data)




2.     Significant Accounting
Policies  (Continued)




| |                   
| | ------------------
| | Earnings Per Share



|                                              |                                                                                  |                          |        |        |      |   |        |        |  |   |        |        | 
|--------------------------------------------- | -------------------------------------------------------------------------------- | ------------------------ | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                                              |                                                                                  | Years Ended December 31, |       
|                                              |                                                                                  |                          |       
|                                              |                                                                                  | 2004                     |        |        | 2003 |   |        | 2002   | 
|                                              |                                                                                  |                          |        |        |      |   |        |        | 
|Basic earnings per share:                     |                                                                                  |                          |        |        |      |   |        |        |  |   |        |       
|Net income                                    |                                                                                  | $                        | 40,725 |        |      | $ | 35,067 |        |  | $ | 30,785 |       
|Weighted average number of shares outstanding |                                                                                  |                          | 21,892 |        |      |   | 21,892 |        |  |   | 21,892 |       
|                                              |                                                                                  |                          |        |        |      |   |        |        | 
|Basic earnings per share                      |                                                                                  | $                        | 1.86   |        |      | $ | 1.60   |        |  | $ | 1.41   |       
|                                              |                                                                                  |                          |        |        |      |   |        |        | 
|Diluted earnings per share:                   |                                                                                  |                          |        |        |      |   |        |        |  |   |        |       
|Net income                                    |                                                                                  | $                        | 40,725 |        |      | $ | 35,067 |        |  | $ | 30,785 |       
|Share computation:                            |                                                                                  |                          |        |        |      |   |        |        |  |   |        |       
|                                              | Weighted average number of shares outstanding                                    |                          |        | 21,892 |      |   |        | 21,892 |  |   |        | 21,892 | 
|                                              | Assumed exercises of stock options                                               |                          |        | 19     |      |   |        |       |  |   |        |       | 
|                                              |                                                                                  |                          |        |        |      |   |        |        | 
|                                              | Weighted average number of shares outstanding for diluted
    earnings per share |                          |        | 21,911 |      |   |        | 21,892 |  |   |        | 21,892 | 
|                                              |                                                                                  |                          |        |        |      |   |        |        | 
|Diluted earnings per share                    |                                                                                  | $                        | 1.86   |        |      | $ | 1.60   |        |  | $ | 1.41   |       
|                                              |                                                                                  |                          |        |        |      |   |        |        | 





| |              
| | -------------
| | Stock Options





47



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(All amounts in thousands, except per share data)




2.     Significant Accounting
Policies  (Continued)




|                                                                                                |  |                          |        |  |      |   |        |      |  |   |        | 
|----------------------------------------------------------------------------------------------- |  | ------------------------ | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                                                                                                |  | Years Ended December 31, |       
|                                                                                                |  |                          |       
|                                                                                                |  | 2004                     |        |  | 2003 |   |        | 2002 | 
|                                                                                                |  |                          |        |  |      |   |        |      | 
|Net income                                                                                      |  | $                        | 40,725 |  |      | $ | 35,067 |      |  | $ | 30,785 | 
|Add: Stock-based compensation expense included in reported net
    income, net of tax           |  |                          | 68     |  |      |   |       |      |  |   |       | 
|Deduct: Stock-based compensation expense determined under the
    fair value method, net of tax |  |                          | 991    |  |      |   | 121    |      |  |   |       | 
|                                                                                                |  |                          |        |  |      |   |        |      | 
|Pro forma net income                                                                            |  | $                        | 39,802 |  |      | $ | 34,946 |      |  | $ | 30,785 | 
|                                                                                                |  |                          |        |  |      |   |        |      | 
|Net income per common share  basic and diluted, as
    reported                                |  | $                        | 1.86   |  |      | $ | 1.60   |      |  | $ | 1.41   | 
|                                                                                                |  |                          |        |  |      |   |        |      | 
|Pro forma net income per common share  basic and
    diluted                                   |  | $                        | 1.82   |  |      | $ | 1.60   |      |  | $ | 1.41   | 
|                                                                                                |  |                          |        |  |      |   |        |      | 







| |                                
| | -------------------------------
| | Impairment of Long-Lived Assets



48



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(All amounts in thousands, except per share data)




2.     Significant Accounting
Policies  (Continued)






| |                      
| | ---------------------
| | Financial Instruments









| |                  
| | -----------------
| | Segment Reporting





| |                     
| | --------------------
| | Comprehensive Income





| |                          
| | -------------------------
| | Significant Concentration





| |                 
| | ----------------
| | Reclassification



Use of Estimates




49



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(All amounts in thousands, except per share data)




2.     Significant Accounting
Policies  (Continued)






|   |                           
|-- | --------------------------
|3. | Airline Services Agreement





Reimbursement payments.


Payments based on pre-set rates.


Margin payments.






50



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(All amounts in thousands, except per share data)




|   |                                         
|-- | ----------------------------------------
|3. | Airline Services Agreement  (Continued)







|   |                                
|-- | -------------------------------
|4. | Other Agreements with Northwest



Aircraft and Spare Engine Lease Agreements.


Manufacturer Benefits Agreement.


Sublease and Facilities Use Agreements.


Information Technology Support Agreement.


Family Assistance Services Agreement.


Ground Handling Agreement.


51



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(All amounts in thousands, except per share data)




|   |                                              
|-- | ---------------------------------------------
|4. | Other Agreements with Northwest  (Continued)



Preferential Pilot Hiring Agreement.


Sublease of Saab Aircraft.




|   |                                        
|-- | ---------------------------------------
|5. | Change in Ownership and Public Offering







52



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(All amounts in thousands, except per share data)


6.     Note Payable and
Dividends to Northwest






|                                        |                                         |   |        |        | 
|--------------------------------------- | --------------------------------------- | - | ------ | ------ | 
|Net receivables due from Northwest      |                                         | $ | 59,632 |       
|Less: Income taxes payable to Northwest |                                         |   | 26,843 |       
|                                        | Net deferred taxes payable to Northwest |   |        | 1,843  | 
|                                        | Dividend to Northwest                   |   |        | 15,500 | 
|                                        |                                         |   |       
|Cash payment to the Company             |                                         | $ | 15,446 |       
|                                        |                                         |   |       







7.     Lines of Credit








53



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(All amounts in thousands, except per share data)




7.     Lines of
Credit  (Continued)






8.     Summary of Revenue from
Regional Airline Services






|                                                    |                                             |                          |         |         |              |   |         |         |  |   |            |         |  |              |         |         |       |   |         |        |   |   |         |         |  
|--------------------------------------------------- | ------------------------------------------- | ------------------------ | ------- | ------- | ------------ | - | ------- | ------- |  | - | ---------- | ------- |  | ------------ | ------- | ------- | ----- | - | ------- | ------ | - | - | ------- | ------- | -
|                                                    |                                             | Years Ended December 31, |        
|                                                    |                                             |                          |        
|                                                    |                                             | 2004                     |         |         | 2003         |  
|                                                    |                                             |                          |         |         |              |  
|                                                    |                                             | Reimbursed               |         |         | Unreimbursed |   |         | Total   |  |   | Reimbursed |         |  | Unreimbursed |         |         | Total |  
|                                                    |                                             |                          |         |         |              |   |         |         |  |   |            |         |  |              |         |         |       |  
|                                                    |                                             | (In thousands)           |        
|Operating revenues:                                 |                                             |                          |         |         |              |   |         |         |  |   |            |         |  |              |         |         |       |   |         |        |   |   |         |        
|Regional airline services                           |                                             | $                        | 423,911 |         |              | $ | 207,593 |         |  | $ | 631,504    |         |  | $            | 296,257 |         |       | $ | 154,354 |        |   | $ | 450,611 |        
|Other revenue                                       |                                             |                          |        |         |              |   | 3,944   |         |  |   | 3,944      |         |  |              |        |         |       |   | 6,159   |        |   |   | 6,159   |        
|                                                    |                                             |                          |         |         |              |   |         |         |  |   |            |         |  |              |         |         |       |  
|Total operating revenues                            |                                             |                          | 423,911 |         |              |   | 211,537 |         |  |   | 635,448    |         |  |              | 296,257 |         |       |   | 160,513 |        |   |   | 456,770 |        
|Operating expenses:                                 |                                             |                          |         |         |              |   |         |         |  |   |            |         |  |              |         |         |       |   |         |        |   |   |         |        
|                                                    | Salaries, wages and benefits                |                          |         |        |              |   |         | 105,143 |  |   |            | 105,143 |  |              |         |        |       |   |         | 83,316 |   |   |         | 83,316  |  
|                                                    | Aircraft fuel                               |                          |         | 83,061  |              |   |         | 511     |  |   |            | 83,572  |  |              |         | 54,731  |       |   |         | 276    |   |   |         | 55,007  |  
|                                                    | Aircraft maintenance, materials and repairs |                          |         | 11,842  |              |   |         | 11,703  |  |   |            | 23,545  |  |              |         | 6,548   |       |   |         | 7,568  |   |   |         | 14,116  |  
|                                                    | Aircraft rentals                            |                          |         | 209,047 |              |   |         |        |  |   |            | 209,047 |  |              |         | 136,273 |       |   |         |       |   |   |         | 136,273 |  
|                                                    | Other rentals and landing fees              |                          |         | 18,651  |              |   |         | 18,450  |  |   |            | 37,101  |  |              |         | 16,512  |       |   |         | 12,743 |   |   |         | 29,255  |  
|                                                    | Government reimbursements                   |                          |         |        |              |   |         |        |  |   |            |        |  |              |         | (1,000  | )     |   |         | (114   | ) |   |         | (1,114  | )
|                                                    | Ground handling services                    |                          |         | 47,533  |              |   |         | 18,344  |  |   |            | 65,877  |  |              |         | 33,223  |       |   |         | 11,399 |   |   |         | 44,622  |  
|                                                    | Depreciation                                |                          |         |        |              |   |         | 3,153   |  |   |            | 3,153   |  |              |         |        |       |   |         | 2,912  |   |   |         | 2,912   |  
|                                                    | Other                                       |                          |         | 11,386  |              |   |         | 29,321  |  |   |            | 40,707  |  |              |         | 9,600   |       |   |         | 18,614 |   |   |         | 28,214  |  
|                                                    |                                             |                          |         |         |              |   |         |         |  |   |            |         |  |              |         |         |       |  
|Total operating expenses                            |                                             |                          | 381,520 |         |              |   | 186,625 |         |  |   | 568,145    |         |  |              | 255,887 |         |       |   | 136,714 |        |   |   | 392,601 |        
|                                                    |                                             |                          |         |         |              |   |         |         |  |   |            |         |  |              |         |         |       |  
|Operating income                                    |                                             | $                        | 42,391  |         |              | $ | 24,912  |         |  | $ | 67,303     |         |  | $            | 40,370  |         |       | $ | 23,799  |        |   | $ | 64,169  |        
|                                                    |                                             |                          |         |         |              |   |         |         |  |   |            |         |  |              |         |         |       |  
|Operating income as a percent of operating revenues |                                             |                          | 10.0    | %       |              |   | 11.8    | %       |  |   | 10.6       | %       |  |              | 13.6    | %       |       |   | 14.8    | %      |   |   | 14.0    | %      

54



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(All amounts in thousands, except per share data)




8.     Summary of Revenue from
Regional Airline Services  (Continued)




|                                |  |                          |         |  |      |   |         |      |  |   |         | 
|------------------------------- |  | ------------------------ | ------- |  | ---- | - | ------- | ---- |  | - | ------- | 
|                                |  | Years Ended December 31, |        
|                                |  |                          |        
|                                |  | 2004                     |         |  | 2003 |   |         | 2002 | 
|                                |  |                          |         |  |      |   |         |      | 
|Regional jets (CRJs)            |  | $                        | 631,504 |  |      | $ | 450,611 |      |  | $ | 285,505 | 
|Turboprops                      |  |                          |        |  |      |   |        |      |  |   | 39,881  | 
|                                |  |                          |         |  |      |   |         |      | 
|Total regional airline services |  | $                        | 631,504 |  |      | $ | 450,611 |      |  | $ | 325,386 | 
|                                |  |                          |         |  |      |   |         |      | 

9.     Related Party Transactions






|                               |  |                          |         |  |      |   |         |      |  |   |         |  
|------------------------------ |  | ------------------------ | ------- |  | ---- | - | ------- | ---- |  | - | ------- | -
|                               |  | Years Ended December 31, |        
|                               |  |                          |        
|                               |  | 2004                     |         |  | 2003 |   |         | 2002 | 
|                               |  |                          |         |  |      |   |         |      | 
|Revenue:                       |  |                          |         |  |      |   |         |      |  |   |         |  
|Regional airline services      |  | $                        | 631,504 |  |      | $ | 450,611 |      |  | $ | 325,386 |  
|Other revenue                  |  |                          | 950     |  |      |   | 2,020   |      |  |   | 3,087   |  
|Expenses:                      |  |                          |         |  |      |   |         |      |  |   |         |  
|Aircraft fuel                  |  |                          | 83,061  |  |      |   | 53,909  |      |  |   | 27,247  |  
|Aircraft rentals               |  |                          | 209,047 |  |      |   | 136,283 |      |  |   | 79,260  |  
|Other rentals and landing fees |  |                          | 11,250  |  |      |   | 11,250  |      |  |   | 9,063   |  
|Ground handling services       |  |                          | 46,112  |  |      |   | 32,069  |      |  |   | 14,584  |  
|Other                          |  |                          | 394     |  |      |   | 275     |      |  |   | 344     |  
|Interest expense (income)      |  |                          | 4,765   |  |      |   | 7,176   |      |  |   | (2,937  | )









55



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(All amounts in thousands, except per share data)




9.     Related Party
Transactions  (Continued)




10.     Leases








|         |  |               |    |                  |              |  |     |      |  |  |      |  |  |  |    | 
|-------- |  | ------------- | -- | ---------------- | ------------ |  | --- | ---- |  |  | ---- |  |  |  | -- | 
|         |  |               |    | Fleet Size as of |             
|         |  | Standard      |    |                  | December 31, | 
|         |  | Seating       |    |                  |              | 
|Aircraft |  | Configuration |    |                  | 2004         |  |     | 2003 |  |  | 2002 | 
|         |  |               |    |                  |              |  |     |      |  |  |      | 
|CRJ 200  |  |               | 50 |                  |              |  | 42  |      |  |  | 35   |  |  |  | 33 | 
|CRJ 440  |  |               | 44 |                  |              |  | 75  |      |  |  | 41   |  |  |  | 18 | 
|         |  |               |    |                  |              |  |     |      |  |  |      | 
|         |  |               |    |                  |              |  | 117 |      |  |  | 76   |  |  |  | 51 | 
|         |  |               |    |                  |              |  |     |      |  |  |      | 



|                                            |  |                |    |  |                  |   |           |              |  |   |        |  
|------------------------------------------- |  | -------------- | -- |  | ---------------- | - | --------- | ------------ |  | - | ------ | -
|                                            |  | Capital Leases |    |  | Operating Leases |  
|                                            |  |                |    |  |                  |  
|                                            |  | Non-aircraft   |    |  | Aircraft         |   |           | Non-aircraft | 
|                                            |  |                |    |  |                  |   |           |              | 
|2005                                        |  | $              | 46 |  |                  | $ | 253,356   |              |  | $ | 5,720  |  
|2006                                        |  |                | 27 |  |                  |   | 253,165   |              |  |   | 5,715  |  
|2007                                        |  |                |   |  |                  |   | 248,095   |              |  |   | 5,426  |  
|2008                                        |  |                |   |  |                  |   | 247,092   |              |  |   | 4,744  |  
|2009                                        |  |                |   |  |                  |   | 245,758   |              |  |   | 4,496  |  
|Thereafter                                  |  |                |   |  |                  |   | 1,965,600 |              |  |   | 27,811 |  
|                                            |  |                |    |  |                  |   |           |              | 
|                                            |  |                | 73 |  |                  |   | 3,213,066 |              |  |   | 53,912 |  
|Sublease rental income                      |  |                |   |  |                  |   | (18,966   | )            |  |   | (322   | )
|                                            |  |                |    |  |                  |   |           |              | 
|Total minimum operating lease payments      |  |                | 73 |  |                  | $ | 3,194,100 |              |  | $ | 53,590 |  
|                                            |  |                |    |  |                  |   |           |              | 
|Less amount representing interest           |  |                | 4  |  |                  |   |           |              |  |   |        |  
|                                            |  |                |    |  |                  |   |           |              | 
|Present value of net minimum lease payments |  | $              | 69 |  |                  |   |           |              |  |   |        |  
|                                            |  |                |    |  |                  |   |           |              | 

56



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(All amounts in thousands, except per share data)




10.     Leases  (Continued)




|                       |  |      |         |   |      |   |         |      |  |   |         |  
|---------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                       |  | 2004 |         |   | 2003 |   |         | 2002 | 
|                       |  |      |         |   |      |   |         |      | 
|Gross rental expense   |  | $    | 233,947 |   |      | $ | 160,723 |      |  | $ | 106,548 |  
|Sublease rental income |  |      | (7,811  | ) |      |   | (8,181  | )    |  |   | (5,831  | )
|                       |  |      |         |   |      |   |         |      | 
|Net rental expense     |  | $    | 226,136 |   |      | $ | 152,542 |      |  | $ | 100,717 |  
|                       |  |      |         |   |      |   |         |      | 



11.     Accrued Expenses




|                        |  |      |        |  |      |   |        | 
|----------------------- |  | ---- | ------ |  | ---- | - | ------ | 
|                        |  | 2004 |        |  | 2003 |  
|                        |  |      |        |  |      |  
|Compensation            |  | $    | 6,016  |  |      | $ | 4,397  | 
|Taxes other than income |  |      | 6,605  |  |      |   | 4,678  | 
|Insurance costs         |  |      | 1,795  |  |      |   | 1,848  | 
|Other                   |  |      | 667    |  |      |   | 409    | 
|                        |  |      |        |  |      |  
|                        |  | $    | 15,083 |  |      | $ | 11,332 | 
|                        |  |      |        |  |      |  



|    |               
|--- | --------------
|12. | Other Expenses



|                              |  |      |        |  |      |   |        |      |  |   |        | 
|----------------------------- |  | ---- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                              |  | 2004 |        |  | 2003 |   |        | 2002 | 
|                              |  |      |        |  |      |   |        |      | 
|Passenger liability insurance |  | $    | 2,682  |  |      | $ | 2,427  |      |  | $ | 4,317  | 
|Hull and other insurance      |  |      | 2,785  |  |      |   | 1,664  |      |  |   | 1,479  | 
|Property and other taxes      |  |      | 6,884  |  |      |   | 5,635  |      |  |   | 4,657  | 
|Crew training expense         |  |      | 5,124  |  |      |   | 2,515  |      |  |   | 4,243  | 
|Crew overnight accommodations |  |      | 6,250  |  |      |   | 3,517  |      |  |   | 3,567  | 
|Other                         |  |      | 16,982 |  |      |   | 12,456 |      |  |   | 9,958  | 
|                              |  |      |        |  |      |   |        |      | 
|                              |  | $    | 40,707 |  |      | $ | 28,214 |      |  | $ | 28,221 | 
|                              |  |      |        |  |      |   |        |      | 

13.     Income Taxes






57



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(All amounts in thousands, except per share data)




13.     Income
Taxes  (Continued)








|                           |                                |              |        |        |      |   |        |        |  
|-------------------------- | ------------------------------ | ------------ | ------ | ------ | ---- | - | ------ | ------ | -
|                           |                                | December 31, |       
|                           |                                |              |       
|                           |                                | 2004         |        |        | 2003 |  
|                           |                                |              |        |        |      |  
|Deferred tax assets:       |                                |              |        |        |      |   |        |       
|                           | Asset valuation reserves       |              | $      | 292    |      |   | $      | 1,136  |  
|                           | Vacation pay                   |              |        | 983    |      |   |        | 692    |  
|                           | Other accruals                 |              |        | 133    |      |   |        | 721    |  
|                           |                                |              |        |        |      |  
|                           | Total deferred tax assets      |              |        | 1,408  |      |   |        | 2,549  |  
|                           | Deferred tax liabilities:      |              |        |        |      |   |        |        |  
|                           | Prepaid insurance              |              |        | (408   | )    |   |        |       |  
|                           | Tax over book depreciation     |              |        | (7,245 | )    |   |        | (6,400 | )
|                           |                                |              |        |        |      |  
|                           | Total deferred tax liabilities |              |        | (7,653 | )    |   |        | (6,400 | )
|                           |                                |              |        |        |      |  
|Net deferred tax liability |                                | $            | (6,245 | )      |      | $ | (3,851 | )     
|                           |                                |              |        |        |      |  



|          |         |      |        |        |      |   |        |        |  |   |        |        | 
|--------- | ------- | ---- | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|          |         | 2004 |        |        | 2003 |   |        | 2002   | 
|          |         |      |        |        |      |   |        |        | 
|Current:  |         |      |        |        |      |   |        |        |  |   |        |       
|          | Federal |      | $      | 19,179 |      |   | $      | 17,293 |  |   | $      | 16,107 | 
|          | State   |      |        | 827    |      |   |        | 3,154  |  |   |        | 2,417  | 
|          |         |      |        |        |      |   |        |        | 
|          |         |      | 20,006 |        |      |   | 20,447 |        |  |   | 18,524 |       
|Deferred: |         |      |        |        |      |   |        |        |  |   |        |       
|          | Federal |      |        | 2,511  |      |   |        | 1,454  |  |   |        | 909    | 
|          | State   |      |        | (117   | )    |   |        | 431    |  |   |        | 110    | 
|          |         |      |        |        |      |   |        |        | 
|          |         |      | 2,394  |        |      |   | 1,885  |        |  |   | 1,019  |       
|          |         |      |        |        |      |   |        |        | 
|          |         | $    | 22,400 |        |      | $ | 22,332 |        |  | $ | 19,543 |       
|          |         |      |        |        |      |   |        |        | 

58



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(All amounts in thousands, except per share data)




13.     Income
Taxes  (Continued)




|                                         |  |      |        |   |      |  |      |      |  |   |        |  |  |   |      |   |   |   |        |  |  |  |      |  
|---------------------------------------- |  | ---- | ------ | - | ---- |  | ---- | ---- |  | - | ------ |  |  | - | ---- | - | - | - | ------ |  |  |  | ---- | -
|                                         |  | 2004 |        |   | 2003 |  |      | 2002 | 
|                                         |  |      |        |   |      |  |      |      | 
|                                         |  | $    |        |   | %    |  |      | $    |  |   | %      |  |  | $ |      |   | % |  
|                                         |  |      |        |   |      |  |      |      |  |   |        |  |  |   |      |   |   |  
|Income tax expense at statutory rate     |  | $    | 22,094 |   |      |  | 35.0 | %    |  | $ | 20,090 |  |  |   | 35.0 | % |   | $ | 17,615 |  |  |  | 35.0 | %
|State income taxes, net of federal taxes |  |      | 1,279  |   |      |  | 2.0  | %    |  |   | 2,239  |  |  |   | 3.9  | % |   |   | 1,817  |  |  |  | 3.6  | %
|Decrease in estimate of 2003 taxes       |  |      | (1,063 | ) |      |  | (1.6 | )%   |  |   |       |  |  |   |     |   |   |   |       |  |  |  |     |  
|Other                                    |  |      | 90     |   |      |  | 0.1  | %    |  |   | 3      |  |  |   | 0.0  | % |   |   | 111    |  |  |  | 0.2  | %
|                                         |  |      |        |   |      |  |      |      |  |   |        |  |  |   |      |   |   |  
|Income tax expense                       |  | $    | 22,400 |   |      |  | 35.5 | %    |  | $ | 22,332 |  |  |   | 38.9 | % |   | $ | 19,543 |  |  |  | 38.8 | %
|                                         |  |      |        |   |      |  |      |      |  |   |        |  |  |   |      |   |   |  



|    |                         
|--- | ------------------------
|14. | Stock-Based Compensation





|                                   |  |               |     |                  |                |   |       |               |                  |  |                |  |  |   |       | 
|---------------------------------- |  | ------------- | --- | ---------------- | -------------- | - | ----- | ------------- | ---------------- |  | -------------- |  |  | - | ----- | 
|                                   |  | 2004          |     |                  | 2003           |  
|                                   |  |               |     |                  |                |  
|                                   |  |               |     | Weighted Average |                |   |       |               | Weighted Average | 
|                                   |  | Stock Options |     |                  | Exercise Price |   |       | Stock Options |                  |  | Exercise Price | 
|                                   |  |               |     |                  |                |   |       |               |                  |  |                | 
|Outstanding at beginning of year   |  |               | 858 |                  |                | $ | 14.00 |               |                  |  |               |  |  | $ |      | 
|Granted                            |  |               | 32  |                  |                |   | 10.23 |               |                  |  | 858            |  |  |   | 14.00 | 
|Exercised                          |  |               |    |                  |                |   |      |               |                  |  |               |  |  |   |      | 
|Forfeited                          |  |               | 131 |                  |                |   | 14.00 |               |                  |  |               |  |  |   |      | 
|                                   |  |               |     |                  |                |   |       |               |                  |  |                | 
|Outstanding at end of year         |  |               | 759 |                  |                | $ | 13.84 |               |                  |  | 858            |  |  | $ | 14.00 | 
|                                   |  |               |     |                  |                |   |       |               |                  |  |                | 
|Options exercisable at end of year |  |               | 182 |                  |                | $ | 14.00 |               |                  |  |               |  |  | $ |      | 
|                                   |  |               |     |                  |                |   |       |               |                  |  |                | 





59



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(All amounts in thousands, except per share data)




|    |                                       
|--- | --------------------------------------
|14. | Stock-Based Compensation  (Continued)







|    |                      
|--- | ---------------------
|15. | Employee Benefit Plan







|                   |  |               |                 | 
|------------------ |  | ------------- | --------------- | 
|Years of Service   |  | Company Match |                
|                   |  |               |                
|6 months  5 years |  |               | 25% of first 5% | 
|6  9 years        |  |               | 40% of first 6% | 
|10  12 years      |  |               | 60% of first 7% | 
|13 or more years   |  |               | 70% of first 7% | 



|                      |  |               |                            | 
|--------------------- |  | ------------- | -------------------------- | 
|Employee Contribution |  | Company Match |                           
|                      |  |               |                           
|First 3%              |  |               | Dollar for dollar, or 100% | 
|Next 3%               |  |               | Matched at 67%             | 



60



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(All amounts in thousands, except per share data)




|    |                                    
|--- | -----------------------------------
|15. | Employee Benefit Plan  (Continued)





|    |                              
|--- | -----------------------------
|16. | Commitments and Contingencies

Employees.


Legal Proceedings.


Purchase Commitments.




Self-Insurance.


Financings and Guarantees.


Regulatory Matters.


General Guarantees and Indemnifications.


61



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(All amounts in thousands, except per share data)




|    |                                            
|--- | -------------------------------------------
|16. | Commitments and Contingencies  (Continued)









Other contingencies.




|    |                                     
|--- | ------------------------------------
|17. | Quarterly Financial Data (Unaudited)



|                                                       |  |                     |         |   |         |   |         |              |  |   |             |   |  |   |         |  
|------------------------------------------------------ |  | ------------------- | ------- | - | ------- | - | ------- | ------------ |  | - | ----------- | - |  | - | ------- | -
|                                                       |  | Three Months Ended, |        
|                                                       |  |                     |        
|                                                       |  | March 31            |         |   | June 30 |   |         | September 30 |  |   | December 31 |  
|                                                       |  |                     |         |   |         |   |         |              |  |   |             |  
|2004                                                   |  |                     |         |   |         |   |         |              |  |   |             |   |  |   |         |  
|Operating revenue                                      |  | $                   | 133,879 |   |         | $ | 152,173 |              |  | $ | 168,086     |   |  | $ | 181,310 |  
|Operating income                                       |  |                     | 14,344  |   |         |   | 16,910  |              |  |   | 18,525      |   |  |   | 17,524  |  
|Net income                                             |  |                     | 8,054   |   |         |   | 9,698   |              |  |   | 12,649      |   |  |   | 10,324  |  
|Basic and diluted income per share                     |  | $                   | 0.37    |   |         | $ | 0.44    |              |  | $ | 0.58        |   |  | $ | 0.47    |  
|Operating income as a percentage of operating revenues |  |                     | 10.7    | % |         |   | 11.1    | %            |  |   | 11.0        | % |  |   | 9.7     | %

|                                                       |  |                     |         |   |         |   |         |              |  |   |             |   |  |   |         |  
|------------------------------------------------------ |  | ------------------- | ------- | - | ------- | - | ------- | ------------ |  | - | ----------- | - |  | - | ------- | -
|                                                       |  | Three Months Ended, |        
|                                                       |  |                     |        
|                                                       |  | March 31            |         |   | June 30 |   |         | September 30 |  |   | December 31 |  
|                                                       |  |                     |         |   |         |   |         |              |  |   |             |  
|2003                                                   |  |                     |         |   |         |   |         |              |  |   |             |   |  |   |         |  
|Operating revenue                                      |  | $                   | 100,562 |   |         | $ | 109,449 |              |  | $ | 119,665     |   |  | $ | 127,094 |  
|Operating income                                       |  |                     | 14,339  |   |         |   | 15,697  |              |  |   | 16,571      |   |  |   | 17,562  |  
|Net income                                             |  |                     | 8,024   |   |         |   | 8,499   |              |  |   | 8,738       |   |  |   | 9,806   |  
|Basic and diluted income per share                     |  | $                   | 0.37    |   |         | $ | 0.39    |              |  | $ | 0.40        |   |  | $ | 0.45    |  
|Operating income as a percentage of operating revenues |  |                     | 14.3    | % |         |   | 14.3    | %            |  |   | 13.8        | % |  |   | 13.8    | %



62



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(All amounts in thousands, except per share data)




|    |                                                       
|--- | ------------------------------------------------------
|17. | Quarterly Financial Data
    (Unaudited)  (Continued)







|    |                 
|--- | ----------------
|18. | Subsequent Event











| |   |                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | during a quarter (and only during such quarter) if the closing
    price of the Companys common stock exceeds 120% of the
    conversion price of the Notes (initially $15.86 per share)
    for at least 20 of the last 30 trading days of the preceding
    quarter;
|
| |  | during a five day period after the Notes have traded for a five
    day period at a price that is less than 98% of the equivalent
    value that could be realized upon conversion of the Notes;                                                                       
|
| |  | if the Company calls the Notes for redemption;                                                                                                                                                                                                                         
|
| |  | if a change of control or other specified corporate transactions
    or distributions to holders of the Companys common stock
    occurs (and in some instances, the Company may also owe an
    additional premium upon a change in control); and                    
|
| |  | during the 10 trading days prior to the maturity date of
    February 15, 2025.                                                                                                                                                                                        



63



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(All amounts in thousands, except per share data)




|    |                               
|--- | ------------------------------
|18. | Subsequent Event  (Continued)



64



---



##### 






SIGNATURES






| |                        
| | -----------------------
| | Pinnacle Airlines Corp.
| | (Registrant)           



| |     |                  
| | --- | -----------------
| | By: | /s/ Peter D. Hunt

| |                                                  
| | -------------------------------------------------
| |                                                  
| | Name: Peter D. Hunt                              
| | Title: Vice President and Chief Financial Officer



68



---



##### 



Index of Exhibits




|        |    |             |  |                                                                                                                                                                                                                                                                    
|------- | -- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 3  | .1*         |  | Amended and Restated Certificate of Incorporation of the
    registrant                                                                                                                                                                                            
|        | 3  | .1.1*       |  | Second Amended and Restated Certificate of Incorporation of the
    registrant                                                                                                                                                                                     
|        | 3  | .2*         |  | Certificate of Designations for Series A preferred stock of
    the registrant                                                                                                                                                                                     
|        | 3  | .3*         |  | Bylaws of the registrant                                                                                                                                                                                                                                           
|        | 3  | .3.1*       |  | Amended and Restated Bylaws, dated January 14, 2003, of the
    registrant                                                                                                                                                                                         
|        | 4  | .1*         |  | Specimen Stock Certificate                                                                                                                                                                                                                                         
|        | 4  | .2*         |  | Rights Agreement between the registrant and EquiServe Trust
    Company, N.A., as Rights Agent                                                                                                                                                                     
|        | 4  | .3(a)       |  | 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                                                                                                   
|        | 4  | .4(a)       |  | Registration Rights Agreement made pursuant to the Purchase
    Agreement dated February 3, dated as of February 8,
    2005, by and among Pinnacle Airlines Corp., Merrill Lynch,
    Pierce, Fenner & Smith Incorporated and Raymond
    James & Associates, Inc.
|        | 10 | .2*         |  | Sublease Agreement between Pinnacle Airlines, Inc. and Northwest
    Airlines, Inc.                                                                                                                                                                                
|        | 10 | .2.1*       |  | First Amendment to Sublease Agreement between Pinnacle Airlines,
    Inc. and Northwest Airlines, Inc.                                                                                                                                                             
|        | 10 | .3*         |  | Engine Lease Agreement between Pinnacle Airlines, Inc. and
    Northwest Airlines, Inc.                                                                                                                                                                            
|        | 10 | .3.1*       |  | First Amendment to Engine Lease Agreement between Pinnacle
    Airlines, Inc. and Northwest Airlines, Inc.                                                                                                                                                         
|        | 10 | .4*         |  | Promissory Note issued by Pinnacle Airlines, Inc. to Northwest
    Airlines, Inc.                                                                                                                                                                                  
|        | 10 | .5*         |  | Guarantee of Promissory Note issued by registrant to Northwest
    Airlines, Inc.                                                                                                                                                                                  
|        | 10 | .6*         |  | Revolving Credit Facility dated as of January 14, 2003
    between Pinnacle Airlines, Inc. and Northwest Airlines, Inc.                                                                                                                                            
|        | 10 | .6.1*       |  | 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.                                                                                        
|        | 10 | .6.2*       |  | 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.                                                                                      
|        | 10 | .6.3(b)     |  | 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.                                                                                       
|        | 10 | .6.4(a)     |  | 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.                                                                                       
|        | 10 | .7*         |  | Guaranty dated as of January 14, 2003 issued by registrant
    to Northwest Airlines, Inc.                                                                                                                                                                         
|        | 10 | .8*         |  | Pinnacle Airlines Corp. 2003 Stock Incentive Plan                                                                                                                                                                                                                  
|        | 10 | .9*         |  | Non-Qualified Stock Option Agreement for options granted under
    the Pinnacle Airlines Corp. 2003 Stock Incentive Plan                                                                                                                                           
|        | 10 | .10*        |  | Pinnacle Airlines, Inc. Annual Management Bonus Plan                                                                                                                                                                                                               
|        | 10 | .11*        |  | Amended and Restated Sublease Agreement dated as of
    January 14, 2003 between Pinnacle Airlines, Inc. and
    Northwest Airlines, Inc. (SBN Facilities)                                                                                                         
|        | 10 | .12*        |  | Sublease Agreement dated as of August 1, 2002 between
    Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (TYS
    Facilities)                                                                                                                                
|        | 10 | .13*        |  | Amended and Restated Facilities Use Agreement between Pinnacle
    Airlines, Inc. and Northwest Airlines, Inc. (DTW Facilities)                                                                                                                                    
|        | 10 | .14*        |  | Amended and Restated Facilities Use Agreement between Pinnacle
    Airlines, Inc. and Northwest Airlines, Inc. (MEM Facilities)                                                                                                                                    

69



---



##### 



|        |    |             |  |                                                                                                                                                                                                                                
|------- | -- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .15*        |  | Amended and Restated Facilities Use Agreement between Pinnacle
    Airlines, Inc. and Northwest Airlines, Inc. (MSP Facilities)                                                                                                
|        | 10 | .16        |  | Management Compensation Agreement dated as of January 14,
    2003 between Pinnacle Airlines, Inc. and Philip H. Trenary                                                                                                       
|        | 10 | .17         |  | Intentionally omitted                                                                                                                                                                                                          
|        | 10 | .18*        |  | Lease Guaranty issued by the registrant to Northwest Airlines,
    Inc.                                                                                                                                                        
|        | 10 | .19*        |  | Sublease Guaranty issued by the registrant to Northwest
    Airlines, Inc.                                                                                                                                                     
|        | 10 | .20*        |  | Airline Services Agreement dated as of March 1, 2002 among
    the registrant, Pinnacle Airlines, Inc. and Northwest Airlines,
    Inc.                                                                                        
|        | 10 | .21*        |  | Airline Services Agreement dated as of January 14, 2003
    among the registrant, Pinnacle Airlines, Inc. and Northwest
    Airlines, Inc.                                                                                     
|        | 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.                           
|        | 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.                            
|        | 10 | .21.3(b)    |  | Amendment No. 3 dated as of August 20, 2004 to the
    Airline Services Agreement dated as of January 14, 2003
    among the registrant, Pinnacle Airlines, Inc. and Northwest
    Airlines, Inc.                              
|        | 10 | .21.4(b)    |  | Amendment No. 4 dated as of December 13, 2004 to the
    Airline Services Agreement dated as of January 14, 2003
    among the registrant, Pinnacle Airlines, Inc. and Northwest
    Airlines, Inc.                            
|        | 10 | .22*        |  | Amended and Restated Ground Handling Agreement between Pinnacle
    Airlines, Inc. and Northwest Airlines, Inc.                                                                                                                
|        | 10 | .23*        |  | Amended and Restated Information Technology Services Agreement
    between Pinnacle Airlines, Inc. and Northwest Airlines, Inc.                                                                                                
|        | 10 | .24*        |  | Amended and Restated Family Assistance Services Agreement
    between Pinnacle Airlines, Inc. and Northwest Airlines, Inc.                                                                                                     
|        | 10 | .25*        |  | Amended and Restated Manufacturer Benefits Agreement between
    Pinnacle Airlines, Inc. and Northwest Airlines, Inc.                                                                                                          
|        | 10 | .26*        |  | Form of Amended and Restated Preferential Hiring Agreement
    between Pinnacle Airlines, Inc. and Northwest Airlines, Inc.                                                                                                    
|        | 10 | .27(a)      |  | 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.
|        | 21 | .1*         |  | List of Subsidiaries                                                                                                                                                                                                           
|        | 23 | .1          |  | Consent of Independent Registered Public Accounting Firm                                                                                                                                                                       
|        | 31 | .1          |  | Rule 13a-14(a) Certification of Chief Executive Officer                                                                                                                                                                        
|        | 31 | .2          |  | Rule 13a-14(a) Certification of Chief Financial Officer                                                                                                                                                                        
|        | 32 |             |  | Section 1350 Certifications of Chief Executive Officer and
    Chief Financial Officer                                                                                                                                         






| |   |                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------
| | * | Incorporated by reference to the Companys Registration
    Statement Form S-1 (Registration No. 333-83359), as
    amended



| |   |                                                        
| | - | -------------------------------------------------------
| |  | Management contract or compensatory plan or arrangement



|    |  |                                                                                                        
|--- |  | -------------------------------------------------------------------------------------------------------
|(a) |  | Incorporated by reference to the Companys Current Report
    on Form 8-K, filed on February 8, 2004.  
|   
|(b) |  | Incorporated by reference to the Companys Current Report
    on Form 8-K/A filed on December 16, 2004.

70