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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K



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(Mark One)

|x | 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



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



For the transition period from 
to



Commission File No. 0-23224



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GREAT LAKES AVIATION, LTD.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Iowa                                                           |  | 42-1135319                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



|                                         |  |           
|---------------------------------------- |  | ----------
|1022 Airport Parkway, Cheyenne, WY       |  | 82001     
|(Address of principal executive offices) |  | (Zip Code)



Registrants
telephone number, including area code: (307) 432-7000



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Securities registered pursuant to Section 12(b) of the Act: None



Securities registered pursuant to Section 12(g) of the Act: Common Stock,
par value $.01



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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈



Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x



Indicate by check mark whether
the registrant is an accelerated filer (as defined in Securities Exchange Act Rule 12b-2 of the Act).    Yes ̈No  x



The aggregate market value of common stock held by non-affiliates of the registrant as of June 30, 2004 was approximately $3,961,000.



As of March 15, 2005 there were 14,071,970 shares of Common Stock of the registrant issued and outstanding.



DOCUMENTS INCORPORATED BY REFERENCE



None.



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GREAT LAKES AVIATION, LTD.



FORM 10-K



For the Fiscal Year Ended December 31, 2004



INDEX



|                           |  |                                                                                                |  |   
|-------------------------- |  | ---------------------------------------------------------------------------------------------- |  | --
|FORWARD-LOOKING STATEMENTS |  | 1                                                                                             
|                           |  |                                                                                               
|PART I                     |  |                                                                                                |  | 2 
|Item 1.                    |  | BUSINESS                                                                                       |  | 2 
|Item 2.                    |  | PROPERTIES                                                                                     |  | 15
|Item 3.                    |  | LEGAL PROCEEDINGS                                                                              |  | 15
|Item 4.                    |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                            |  | 15
|                           |  |                                                                                               
|PART II                    |  |                                                                                                |  | 16
|Item 5.                    |  | MARKET FOR REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERS                           |  | 16
|Item 6.                    |  | SELECTED FINANCIAL DATA                                                                        |  | 17
|Item 7.                    |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION           |  | 19
|Item 7A.                   |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                     |  | 32
|Item 8.                    |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                    |  | 35
|Item 9.                    |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE           |  | 63
|Item 9A.                   |  | CONTROLS AND PROCEDURES                                                                        |  | 63
|Item 9B.                   |  | OTHER INFORMATION                                                                              |  | 63
|                           |  |                                                                                               
|PART III                   |  |                                                                                                |  | 64
|Item 10.                   |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                             |  | 64
|Item 11.                   |  | EXECUTIVE COMPENSATION                                                                         |  | 67
|Item 12.                   |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |  | 69
|Item 13.                   |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                 |  | 71
|Item 14.                   |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                         |  | 72
|                           |  |                                                                                               
|PART IV                    |  |                                                                                                |  | 73
|Item 15.                   |  | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                                                     |  | 73
|                           | 
|SIGNATURES                 |  | 73                                                                                            



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Forward-Looking Statements



In accordance with the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995, Great Lakes Aviation, Ltd. (Great Lakes or the Company) notes that certain statements in this Form 10-K and elsewhere are
forward-looking and provide other than historical information. The Companys management may also make oral, forward-looking statements from time to time. These forward-looking statements include, among others, statements concerning the
Companys general business strategies, financing decisions, and expectations for funding expenditures and operations in the future. The words, believe, plan, continue, hope, estimate,
project, intend, expect, and similar expressions reflected in such forward-looking statements are based on reasonable assumptions, and none of the forward-looking statements contained in this Form 10-K or
elsewhere should be relied upon as predictions of future events. Such statements are necessarily dependent on assumptions, data, or methods that may be incorrect or imprecise, and may be incapable of being realized. The risks and uncertainties that
are inherent in these forward-looking statements could cause actual results to differ materially from those expressed in or implied by these statements.



As more fully described in this report, important factors that could cause results to differ materially from the expectations reflected in any forward-looking statements
include:



|1) | the Companys dependence on its code-sharing relationships with United Air Lines, Inc. (United Air Lines or United), which is undergoing reorganization under the United States
Bankruptcy Code, and Frontier Airlines, Inc. (Frontier Airlines or Frontier);
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|2) | the outcome of Uniteds bankruptcy proceedings, including whether United amends or rejects its code share agreement with the Company;
|-- | -------------------------------------------------------------------------------------------------------------------------------------



|3) | the Companys ability to either:
|-- | --------------------------------



| | (i) | regain and maintain compliance with the Companys existing debt and lease obligations, including those debt and lease obligations that were restructured as of December 31,
2002, or
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | re-negotiate the Companys debt and lease obligations to a level that the Company can reasonably service, based upon the Companys current and projected cash flows;
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4) | the effect of general economic conditions on business and leisure travel;
|-- | -------------------------------------------------------------------------



|5) | the incidence of domestic and international terrorism and military actions;
|-- | ---------------------------------------------------------------------------



|6) | the level of passenger confidence in the safety of air travel;
|-- | --------------------------------------------------------------



|7) | the volatility of fuel costs;
|-- | -----------------------------



|8) | seasonality of passenger traffic;
|-- | ---------------------------------



|9) | the continued receipt of Essential Air Service subsidies at currently contemplated rates;
|-- | -----------------------------------------------------------------------------------------



|10) | the uncertainty concerning future insurance and security expenses; and
|--- | ----------------------------------------------------------------------



|11) | the possibility of increased competition from other air carriers (including United) and from ground transportation; and
|--- | -----------------------------------------------------------------------------------------------------------------------



|12) | the acceleration of one or more of the Companys debt obligations that would force the Company to seek legal protection or discontinue operations.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------



Readers are cautioned not to place undue reliance on the forward-looking statements contained
herein, which speak only as of the date hereof. Changes may occur after that date, and the Company does not undertake to update any forward-looking statements except as required by law in the normal course of its public disclosure practices.



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##### Table of Contents



PART I



Item 1. BUSINESS



General



Great Lakes Aviation, Ltd. (Great Lakes or the Company) is a regional airline operating as
an independent carrier and as a code share partner with United Air Lines, Inc. (United Air Lines or United) and Frontier Airlines, Inc. (Frontier Airlines or Frontier). As of February 28, 2005, the Company served 31 communities in nine states to and
from Denver, Colorado and three destinations in three states to and from Phoenix, Arizona.



General information about the Company can be found atwww.greatlakesav.com. The Companys annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, as well as any
amendments and exhibits to those reports, are available free of charge through the Companys web site as soon as reasonably practicable after the Company has filed such reports with, or furnished them to, the United States Securities and
Exchange Commission. Information on the Companys web site is not incorporated into, nor a part of, this Form 10-K or the Companys other securities filings.



Essential Air Service Program



The Company derived approximately 27% of its total revenue from the Essential Air Service program (EAS), which is administered by the United States Department of
Transportation (the DOT). The EAS program was instituted under the Airline Deregulation Act of 1978 (the Deregulation Act), which allowed airlines greater freedom to introduce, increase, and generally reduce or eliminate service to existing markets.
Under the EAS program, certain communities are guaranteed specified levels of essential air service. In order to promote the provision of essential air services, the DOT may authorize the payment of federal subsidies in order to
compensate an air carrier that is providing essential air services in otherwise unprofitable or minimally profitable markets. An airline serving a community that qualifies for essential air services is required to give the DOT advance notice before
the airline may terminate, suspend, or reduce service. Depending on the circumstances, the DOT may require the continuation of existing service until a replacement carrier is found. EAS rates are normally set for two-year contract periods for each
city. Significant fluctuations in passenger revenues, as well as fluctuations in fuel pricing and other costs, may cause EAS routes to become unprofitable during these two-year terms.



At the end of the contract period for EAS service to a particular city, the DOT may request competitive proposals from other airlines.
Proposals, when requested, are evaluated on, among other things, the level of service provided, the amount of subsidy requested, the fitness of the applicant, and comments from the communities served.



For the federal fiscal year ended September 30, 2001, the EAS budgeted subsidy funding level
for the entire program was $50 million. In recognition of the impact of the terrorist attacks of September 11, and the contractual obligation to provide a fixed level of service to EAS communities by carriers receiving subsidies, Congress authorized
the DOT to increase subsidy rates to compensate for reduced passenger revenues and higher level of expenses. Congress set the EAS funding level at $113 million for the fiscal year ended September 30, 2002, at $113 million for the fiscal year ending
September 30, 2003, and at $102 million for the fiscal years ending September 30, 2004 and 2005.



During 2004, the Company discontinued the provision of EAS service to the following communities: Huron, SD; Brookings, SD; Pueblo, CO; Vernal, UT; Moab, UT; and Norfolk, NB. As a result, the Companys EAS
revenues decreased to $20.8 million in 2004, down from $25.1 million in 2003. Public service revenues comprised approximately 27% of the Companys total revenue in 2004, down from approximately 33% of total revenue in 2003. At March 15, 2005,
the Company served 24 EAS communities on a subsidized basis.



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United Air Lines and Frontier Airlines Code Share Relationships



United Air Lines. Prior to May 2001, the Company operated under the
United Air Lines identity as a United Express carrier. Effective May 1, 2001, the Company and United ended the United Express relationship and entered into a code share agreement under which the Company placed the United Air Lines flight designator
code on certain Great Lakes flights that connect with United flights in Chicago, Denver, Minneapolis and Phoenix.



On December 9, 2002, Uniteds parent company, UAL, Inc., and its subsidiaries filed for protection under Chapter 11 of the United States Bankruptcy Code. At the same
time, United obtained an order from the bankruptcy court that allowed, but did not require, United to perform under its executory contracts relating to interline agreements, including Uniteds code share agreement with the Company.



In April 2003, the Company began negotiations with United to modify and extend the code
share agreement beyond its original expiration date of April 30, 2004. During the negotiation process, United filed a preemptive motion in the bankruptcy court to reject the code share agreement. On July 11, 2003, the Company and United signed a
Memorandum of Understanding outlining the terms of a proposed amendment to the code share agreement. On July 18, 2003, United withdrew its bankruptcy court motion to reject the code share agreement. Also effective on that date, the Company and
United executed an amendment to the code share agreement that formalized the on-going relationship between the two companies.



Pursuant to the terms of the amendment to the code share agreement, the Company released its exclusive right to utilize the United Air Lines flight designator for five
markets served by the Company with connecting service at Uniteds Denver hub. In exchange, certain code share restrictions, which had previously limited the Companys ability to enter into code share and frequent flier programs with other
airlines at the Denver hub, were removed. The Company and United also agreed on a payment structure for certain amounts owed by the Company to United. In addition, the amendment extended the term of the code share agreement through December 31, 2005
and, subject to the Companys continued compliance with the code share agreement, United has conditionally agreed to further extend the term of the code share agreement through April 30, 2007. However, United retains the right to assume or
reject the amended code share agreement at any time in connection with Uniteds ongoing bankruptcy proceedings. As of December 31, 2004, the Company was in material compliance with the United code share agreement, as amended.



Frontier Airlines. On May 3, 2001, the Company entered into a code share
agreement with Frontier, which was implemented July 9, 2001. The Frontier agreement provides for the use of Frontiers flight designator code on Great Lakes flights connecting with Frontiers flights in Denver. Accordingly, certain
flights to and from Denver carry both the United Air Lines and Frontier Airlines flight designator codes as well as the Great Lakes flight designator. The Companys code share agreement with Frontier remains in effect until terminated by either
party upon at least 180 days prior written notice to the other party. As of December 31, 2004, the Company was in compliance with the Frontier code share agreement.



Markets



As of December 31, 2004, the Company operated 78 departures daily from Denver, CO and two departures daily from Phoenix, AZ.



In 2004, as a result of EAS contracts expiring and or being awarded to other air carriers,
the Company discontinued service to Minneapolis, MN; Pueblo, CO; Huron and Brookings, SD; and Vernal and Moab, UT. Service to Norfolk, NE was discontinued following termination of its eligibility for subsidy by the Department of Transportation. The
Company also discontinued service to Rapid City, SD; Wichita, KS; and Casper, WY, which are not eligible for EAS subsidies.



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To offset the reduction of service realized in 2004, the Company actively pursued additional EAS markets and expects to
commence service to Clovis and Silver City, NM, Enid and Ponca City, OK, and Kingman, Show Low, and Prescott, AZ in the first and second quarters of 2005. The company commenced service to Sierra Vista, AZ in the first quarter of 2005 under a DOT
Small Community Air Service Development program initiated by the Arizona Department of Transportation.



Marketing



The Companys services
are marketed primarily by means of the Companys internet web site, from listings in other computerized reservation systems, and through direct contact with travel agencies and corporate travel departments. The Companys promotional
programs emphasize the Companys close affiliation with its code share partners and, in particular, the opportunity for the Companys passengers to participate in related customer service benefits such as frequent flyer programs.



Yield Management



The Company closely monitors its inventory and pricing of available seats with yield
management systems. These systems enable the Companys revenue control analysts to examine the Companys past traffic and pricing trends, and to estimate the optimal number of seats made available for sale at various fares. The analysts
then monitor each flight to adjust seat allocations and booking levels, with the objective of maximizing the total revenue for each flight.



Charter and Freight Service



The Company uses its Beechcraft and Embraer Brasilia aircraft to provide charter services to private individuals, corporations, and athletic teams. The Company also
carries freight, mail, and small packages on most of its scheduled flights. Revenues from the Companys charter flights and freight air service were 1.3%, 2.6%, and 4.0% of the Companys total revenues for the years ended December 31,
2004, 2003, and 2002, respectively.



During 2003 and 2002, the Companys
leased Beechcraft 1900C aircraft were dedicated to providing service under a United States Postal Service subcontract for carriage of mail to certain markets. Due to highly competitive bidding by other air carriers at rates that were not
economically feasible for the Company, the Company elected to allow the United States Postal Service subcontract to expire as of July 27, 2003. Revenues from the Companys subcontract with the United States Postal Service were 1.4% and 3.2% of
the Companys total revenues for the years ended December 31, 2003 and 2002, respectively.



Seasonality



Historically, the Company
has experienced lower passenger volumes during the months of November through April (the non-peak season). This seasonality can be attributed primarily to relatively difficult winter weather operating conditions in the Companys principal area
of operations, resulting in fewer vacations and other discretionary trips. The Company also experiences reduced business travel during the non-peak season. These seasonal factors have generally resulted in reduced revenues, increased operating
losses, and reduced cash flow for the Company during the non-peak season.



Competition



The Company competes for passenger traffic
primarily with regional and major air carriers and ground transportation. The Company may also compete with other regional/small air carriers to provide EAS and receive subsidies for providing air service to small communities. The Companys
competition from other air carriers varies from location to location and, in certain areas, comes from regional and major carriers who serve the same



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destinations as the Company, but through different hub and spoke systems. The domestic airline industry has undergone major structural changes since the
enactment of the Deregulation Act. Deregulation has made possible the rapid entry of competitors into the Companys markets, and competitors are able to adjust fares rapidly to improve their competitive position. The Company could experience
increased competition from existing competitors or from new entrants on one or more of the Companys routes.



Almost all markets served by the Company are subject to a high degree of price competition, both from established carriers and low fare jet carriers. However, the Company
believes that its ability to compete in its market areas is strengthened by its code share relationships with United and Frontier. The Company competes with other airlines by offering frequent flights, flexible schedules, and competitive fares.



Aircraft



As of December 31, 2004, the Companys fleet consisted of 30 Beechcraft Model 1900D 19-passenger aircraft and six Embraer Brasilia
Model 120 30-passenger aircraft.



Beechcraft Aircraft. The
Beechcraft 1900D aircraft are pressurized, radar equipped, and offer a 300-mile per hour cruising speed for 19 passengers, plus cargo, with a range of 850 miles. The Beechcraft 1900D aircraft is widely regarded by airlines as an efficient and
reliable aircraft for regional service.



At the beginning of 2001 the Company
operated 37 Beechcraft 1900D aircraft. Because of the reduction in demand for air service following the events of September 11, 2001, the Company decided to retire seven of its Beechcraft 1900D aircraft and began negotiations for returning the
surplus aircraft. The Company returned four of the owned Beechcraft 1900D aircraft to Raytheon Aircraft Credit Corporation during 2003 and the remaining two owned and one leased Beechcraft 1900D aircraft during 2004.



Due to the expiration of the Companys contract with the United States Postal Service to
carry mail for certain markets, the Company terminated the leases for the two Beechcraft 1900C aircraft and returned the aircraft in the second quarter of 2004.



Embraer Brasilia Aircraft. The 30-passenger Embraer Brasilia aircraft are equipped with advanced avionics, have restrooms, are staffed with a flight
attendant, and offer a 330-mile per hour cruising speed with a range of 750 miles. In November 2003, the lease for one Embraer Brasilia aircraft expired. The Embraer Brasilia aircraft under the expired lease was returned to the lessor in January
2004.



At December 31, 2004, four of the Companys six Embraer Brasilia
aircraft were in scheduled service. The Company intends to increase the number of Embraer Brasilia aircraft in scheduled service beginning in July 2005, as warranted by passenger demand. The Company believes that there will be greater opportunities
to deploy these aircraft as the larger airlines reduce service to small cities that are unprofitable for their regional jet aircraft.



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A summary of the Companys operating aircraft as of December 31, 2004 and 2003 is as follows:



|                 |  |                  |  |                  |  |                  |  |                  |  |                  |  |                 
|---------------- |  | ---------------- |  | ---------------- |  | ---------------- |  | ---------------- |  | ---------------- |  | ----------------
|                 |  | 2004             |  | 2003            
|                 |  | Beechcraft 1900C |  | Beechcraft 1900D |  | Embraer Brasilia |  | Beechcraft 1900C |  | Beechcraft 1900D |  | Embraer Brasilia
|Owned            |  |                 |  | 30               |  | 4                |  |                 |  | 32               |  | 4               
|Operating leases |  |                 |  |                 |  | 2                |  | 2                |  | 1                |  | 3               
|                 |  |                  |  |                  |  |                  |  |                  |  |                  |  |                 
|                 |  |                 |  | 30               |  | 6                |  | 2                |  | 33               |  | 7               
|                 |  |                  |  |                  |  |                  |  |                  |  |                  |  |                 



As of December 31, 2004, the average
age of the Companys aircraft was approximately ten years and as of December 31, 2003, the average age of the Companys aircraft was approximately nine years.



Maintenance



The Federal Aviation Administration (the FAA) mandates periodic inspection and maintenance of commercial aircraft. The Company performs most of the maintenance and
inspection of its aircraft and engines (except engine overhaul) using its own personnel. Heavy maintenance bases are located at Cheyenne, Wyoming and Grand Island, Nebraska. Line maintenance is performed in Denver, Colorado. Parts and supplies
inventories are maintained at these locations to promote the mechanical dispatch reliability of the fleet. The Company also maintains an inventory of spare engines and propellers for its fleet to allow for minimal downtime during major overhauls.
The Company internally performs overhaul of selected aircraft components for its fleet.



As part of the Companys Restructuring Agreement with Raytheon Aircraft Credit Corporation, dated as of December 31, 2002 (see Liquidity and Financing below), in April 2004, the Company entered into a five-year Term Cost
PlanTMAgreement (the FMP Contract) with Pratt & Whitney Canada Corp. (P&WC) under which P&WC supplies
the Company with certain engine maintenance services under a Fleet Management Program.TMThe Company entered into
the FMP Contract to comply with certain aircraft maintenance requirements that are set forth in the Restructuring Agreement between the Company and Raytheon Aircraft Credit Corporation. Under the terms of the FMP Contract, the engines for all 30 of
the Companys Beechcraft 1900D aircraft are being overhauled over the first two and one-half years of the FMP Contract and maintained for the five-year term of the FMP Contract. Monthly amounts to be paid by the Company are based on the total
number of Beechcraft 1900D engine operating hours at a fixed contractual rate. Such monthly payments will continue throughout the five-year term of the FMP Contract.



Fuel



The Company has not experienced difficulty with fuel availability and expects to continue to be able to obtain fuel in quantities sufficient to meet its future
requirements. The Company contracts directly with refiners for the purchase of a portion of its aircraft fuel requirements. However, standard industry contracts generally do not provide protection against fuel price increases and do not ensure
availability of supply. Accordingly, an increase in the cost of fuel, if not accompanied by an equivalent increase in passenger revenues or subsidies, could have a material adverse impact on the Companys future operating results. During 2004,
the Companys average price of fuel, including taxes and plane service fees, was $1.54 per gallon, as compared to $1.23 in 2003 and $1.11 in 2002. At current rates of consumption, a one cent increase or decrease in the per gallon price of fuel
will increase or decrease the Companys fuel expense by approximately $92,000 annually.



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Liquidity and Financing



Beginning in 2001, the airline industry suffered substantial declines in revenue as demand for air service fell due to a variety of factors, including terrorism and
general economic trends. As a result, the Company, like most air carriers, incurred substantial losses during 2001 and 2002. As of December 31, 2002, the Company had exhausted its available sources of working capital and was in arrears in payments
to almost all the institutions providing lease or debt financing for the Companys aircraft.



On December 31, 2002, the Company entered into a Restructuring Agreement with Raytheon Aircraft Credit Corporation (Raytheon) which enabled the Company to substantially reduce its outstanding debt and
lease debt obligations to Raytheon, reduce the Companys monthly debt and lease payments, and return surplus aircraft. The Company plans to seek additional permanent capital, when feasible. However, it is unlikely that such additional capital
will be available until the Company and the airline industry appear capable of returning to a continuing level of profitability. If the Company is unable to generate adequate funding through either improved financial performance or a combination of
additional financing and further settlements with creditors, the Company may be required to make further reductions in operating levels and develop other alternatives to provide sufficient operating funds. No assurances can be made that the Company
will be successful in finding financing alternatives or that the Companys creditors will not impose conditions that result in a further corporate restructuring or a cessation of operations.



During 2004, the Company made the scheduled 2004 payments due to Raytheon, its major
creditor, under the December 31, 2002 Restructuring Agreement. The Company has not made payments to Raytheon due during the first quarter of 2005 and did not make certain payments that were due during 2003. The Company anticipates amending its
payment schedule with Raytheon to provide for payment in future periods of missed scheduled payments.



Currently, the Company is in arrears and is negotiating with creditors that have provided financing for the Companys Brasilia aircraft to restructure the Companys remaining debt and lease obligations. The
Company has informal agreements with these aircraft creditors to make reduced payments while negotiating revised payment schedules which will be based on current cash flows. The Company has not made scheduled payments to these aircraft creditors in
the first quarter of 2005.



The Company is in arrears with respect to almost
all of the Companys aircraft debt and lease obligations. Furthermore, the Company cannot determine with a high degree of confidence that it will be able during 2005 to generate sufficient cash flows in order to make the required payments or
regain compliance with its aircraft debt and lease agreements. Therefore, the amount of long-term debt that would otherwise be due after one year is shown on the Companys balance sheet as long-term obligations classified as current.



The Companys financial statements have been prepared under the
assumption that the Company will continue as a going concern. The financial statements do not include any adjustments that might result if the Company were forced to discontinue operations. As discussed in Note 1 to the financial statements, the
Company suffered significant losses in the year ended December 31, 2002 and had liabilities in excess of assets at December 31, 2004, 2003, and 2002.



The independent auditors report dated March 11, 2005 on the Companys financial statements states that these matters raise substantial doubt about the
Companys ability to continue as a going concern.



Restructuring
Agreement with Raytheon



On December 31, 2002, the Company entered into a
Restructuring Agreement with Raytheon regarding lease and debt financing provided by Raytheon for the Companys Beechcraft 1900C and Beechcraft 1900D aircraft fleet. In addition, the Restructuring Agreement provided for the return of certain
aircraft to Raytheon in exchange for the extinguishment of outstanding debt and lease liabilities associated with such aircraft.



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Return of Beechcraft 1900D Aircraft. The Company agreed to return seven Beechcraft 1900D aircraft to
Raytheon during 2003 in exchange for the cancellation and extinguishment of one operating lease and six promissory notes. During 2003, the Company returned four Beechcraft 1900D aircraft, with a net book value of $9.9 million, in exchange for the
cancellation and extinguishment of four promissory notes. As a result, by the end of 2003, the Company had reduced its outstanding aircraft debt and accrued interest by $13.6 million and recorded net gains from extinguishment of debt in the amount
of $3.7 million.



During the first six months of 2004, the Company returned two
owned Beechcraft 1900D aircraft to Raytheon, with a net book value of $4.8 million, in exchange for the cancellation and extinguishment of two promissory notes. As a result, the Company reduced its outstanding aircraft debt and accrued interest by
$7.7 million. The Company also returned the one leased Beechcraft 1900D aircraft during 2004 for the cancellation and extinguishment of outstanding operating lease obligations. The Company was responsible for costs of repair and refurbishment in
order to satisfy the aircraft return conditions that are set forth in the Restructuring Agreement. During the first quarter of 2004, the Company executed an Engine Overhaul Note (the Engine Note), which sets forth the terms for repayment of such
costs of repair and refurbishment. Accordingly, as of December 31, 2004, the Company recognized an expense of $2.1 million for such expenditures. The Company reduced the net book value of its owned aircraft by approximately $5.6 million, further
reduced its outstanding aircraft debt and lease liabilities by $8.7 million, and recorded gains from extinguishment of debt related to the two owned 1900D aircraft of $3.6 million and recorded gains on cancelled lease obligations of $0.7 million for
a total recorded gain of approximately $4.3 million.



Refinancing of
Aircraft Debt. The Company restructured its financing for 30 of the Companys Beechcraft 1900D aircraft by executing new and amended promissory notes that are secured by the aircraft (the Aircraft Debt). In accordance with
Statement of Financial Accounting Standards No. 15, Accounting by Debtors and Creditors for Troubled Debt Restructurings (SFAS 15), the Company has accounted for the restructuring of this Aircraft Debt as a troubled debt restructuring. SFAS
15 states that, in a troubled debt restructuring, the debtor shall not reduce the carrying amount of the existing debt on the debtors books unless the carrying amount of the existing debt exceeds the total future cash payments of the new debt
under the restructured terms. The effects of any changes in the face amount or interest rate must be amortized in future periods by reducing interest expense to an effective interest rate that equates the net present value of the future cash
payments under the terms of the restructured debt to the carrying value on the debtors books.



At December 31, 2002, the outstanding principal of the Aircraft Debt was $75 million, while the total future cash flows for the 30 Aircraft Debt promissory notes was estimated to be $95.7 million. In accordance with
the provisions of SFAS 15, the Company recorded the Aircraft Debt on its books in the amount of $95.7 million. The $20.7 million difference (the Aircraft Debt SFAS 15 Amount) between the $95.7 million carrying value of the Aircraft Debt and the $75
million principal amount of the Aircraft Debt is being amortized as a reduction to the Companys interest expense over the ten-year term of the Aircraft Debt.



During 2004 and 2003, the Company made principal payments of $5.3 million and $2.8 million, respectively, on the Aircraft Debt. In addition,
the Company made payments of interest in the amount of $3.4 million and $1.9 million, respectively. In accordance with procedures set forth in SFAS No. 15, the Company accounted for the payments of interest as a reduction of the Aircraft Debt SFAS
15 Amount. As of December 31, 2004 and 2003, the outstanding principal amount of the Aircraft Debt was $66.9 million and $72.2 million, respectively, while the carrying value of the Aircraft Debt on the Companys books (which includes the
current balance of the Aircraft Debt SFAS 15 Amount) was $ 82.1 million and $91.0 million.



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##### Table of Contents

As of December 31, 2004 and 2003, the Company was in arrears on payments of interest on the Aircraft Debt in the amounts
of $1.9 million and $1.7 million, respectively. When the interest is actually paid, and in accordance with the procedures set forth in SFAS No. 15, the Company will account for the payment of the accrued interest as a reduction of the Aircraft Debt
SFAS 15 Amount.



Modification of Beechcraft 1900C Aircraft Operating
Leases. The Restructuring Agreement reduced the monthly lease payments for the two Beechcraft 1900C aircraft operating leases. In addition, $384,000 of unpaid lease payments on the two leases was contractually extinguished. However, in
accordance with Statement of Financial Accounting Standards No. 13, Accounting for Leases, the Company retained the $384,000 liability on the Companys books and had been amortizing the liability amount over the remaining terms of the
leases with the remaining balance recognized as a gain on the return of the two aircraft in 2004.



The two Beechcraft 1900C aircraft were dedicated to providing service under a United States Postal Service subcontract for carriage of mail to certain markets. Due to highly competitive bidding by other air carriers
at rates that were not economically feasible for the Company, the Company elected to allow the United States Postal Service subcontract to expire as of July 27, 2003. As a result, the Company elected to terminate the leases for the two Beechcraft
1900C aircraft and to return the aircraft to Raytheon. The Company returned the two aircraft during the second quarter of 2004, at which time the leases terminated and the Company wrote off the remaining lease liability.



Other Non-Aircraft Debt. Under the Restructuring Agreement, the outstanding
principal and accrued interest amounts on various non-aircraft debt was restructured into three new promissory notes (the Non-Aircraft Debt) with a combined total principal amount of $11.5 million and a carrying value on the Companys books, in
accordance with SFAS 15, of $12.8 million. During the first quarter of 2004, the Company executed the Engine Note, which sets forth the terms for repayment of $2.3 million liability to satisfy aircraft return conditions as set forth in the
Restructuring Agreement. During 2004, the Company made principal payments of $0.9 million on the Non-Aircraft Debt and increased the outstanding principal balance by deferred interest in the amount of $0.1 million. As of December 31, 2004 and 2003,
the carrying value of the Non-Aircraft Debt on the Companys books was $14.1 and $12.6 million, while the outstanding principal amount of the Non-Aircraft Debt was $13.7 million and $11.5 million.



Equity Interest and Board of Director Observer Rights. As further consideration
for the concessions granted by Raytheon in the Restructuring Agreement, the Company issued 5,371,980 shares of the Companys common stock to Raytheon, representing an approximate 38.2% interest in the Companys then outstanding shares of
common stock. In addition, the Company granted Raytheon observer rights for meetings of the Companys Board of Directors, but without any right to vote or enter into any discussions at any Board of Directors meetings.



Registration Rights. The Restructuring Agreement required the Company to file a
shelf registration statement with the Securities and Exchange Commission in order to permit Raytheon to resell the shares of Company Common Stock issued to Raytheon under the Restructuring Agreement. As of the date of this report, the shelf
registration statement has not yet been filed.



Independent
Directors. The Company was required to appoint two new directors unaffiliated with either the Company or Raytheon by March 31, 2003. As of the date of this report, the second independent director has not been appointed.



Mandatory Prepayments. The Company is required to prepay amounts outstanding
under the Companys notes held by Raytheon in an amount equal to 50% of the excess cash flow for that fiscal year. Excess cash flow means cash flow from the Companys operations, less (a) capital expenditures, (b)
payments of funded indebtedness for or made during such fiscal year, and (c) $250,000. During the fiscal year 2004, the Company did not have excess cash flows and was not required to make mandatory prepayments.



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Ongoing Compliance. The debt payments to be made under the Restructuring Agreement were closely aligned
with the Companys forecasted cash flows at the time the Restructuring Agreement was negotiated. During 2003, shortfalls from forecasted cash flows resulted in the Companys inability to make the scheduled payments. The Company has
informal agreements with Raytheon to make reduced payments while negotiating revised payment schedules which will be based on current cash flows. At December 31, 2004, the Company was current with payments under these informal agreements. In the
first quarter of 2005, the Company suspended payments to Raytheon because of its limited cash availability. In addition, there are significant uncertainties regarding the Companys ability to achieve sufficient cash flows in the future due to a
variety of factors beyond the Companys control. Such factors include, but are not limited to, the outcome of United Air Lines reorganization in bankruptcy, the volatility of fuel prices, reduced passenger demand, continued political and
economic instability in Iraq and the Middle East, continued participation in and potential changes under the EAS program, and general economic conditions.



As of December 31, 2004, the Company was in arrears on payments of principal and interest for the Aircraft Debt in the amount of $4.7 million and was not in compliance
with certain other covenants contained in the Restructuring Agreement.



Other Financing



Boeing Capital Corporation. The
Company leases two of the Companys Embraer Brasilia aircraft under aircraft lease agreements with Boeing Capital Corporation (Boeing). At December 31, 2004, the Company was in arrears on its aircraft rental obligations under these leases in
the amount of $6.0 million. The Company has also recorded a liability to Boeing in the amount of $0.9 million for accrued penalty interest on the missed lease payments. The Company is engaged in ongoing negotiations with Boeing with respect to the
Companys default under the terms of the aircraft lease agreements.



CIT.At December 31, 2002, Great Lakes had three notes payable to CIT Aerospace, formerly The CIT Group/Equipment Financing, Inc. (CIT), for the financing of three of the Companys Embraer Brasilia aircraft. The three
notes, with a combined outstanding principal of $5.0 million, were payable at interest rates ranging from 8.7% to 9.08%. In April 2003, the Company executed an amended note that combined the three notes and modified the terms to provide for reduced
monthly payments at an interest rate of LIBOR plus 275 basis points. The amended note will mature in December 2007. As of December 31, 2004, the Company was in arrears on payments of principal on the amended note in the amount of $0.6 million.



FINOVA. In August 2002, the Company entered into a Settlement
Agreement with FINOVA Capital Corporation (FINOVA), whereby the Company agreed to pay to FINOVA a total of $0.7 million, with interest at 10%, over a period of 48 months in settlement of amounts owed by the Company on the return of one leased
Embraer Brasilia aircraft. During 2004, the Company was current on all payments of principal and interest under that agreement, resulting in an outstanding principal balance of $0.3 million as of December 31, 2004.



In November 2002, the Company entered into a Deferral Agreement with FINOVA with respect to a
second leased Embraer Brasilia aircraft, whereby the Company agreed to pay reduced lease payments through the end of the aircraft lease. The lease terminated on November 1, 2003, and the Company returned the second Embraer Brasilia aircraft to
FINOVA in January 2004. The Company will be responsible for costs of repair and refurbishment in order to satisfy the aircraft return conditions that are set forth in the lease agreement. Accordingly, as of December 31, 2004, the Company has
recognized a liability of $0.2 million for such expenditures. In addition, as of December 31, 2004, the Company had accrued lease payments, together with accrued penalty interest, in the amount of $1.3 million with respect to the second aircraft
lease. FINOVA and the Company have agreed to negotiate a settlement of amounts due under the aircraft lease agreement and for any deficiencies in the operating condition of the second returned aircraft.



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Transportation Security Administration.At June 30, 2004, the Company was obligated to the Transportation
Security Administration for $2.5 million, representing collections from passengers for security fees and amounts due from the Company for aviation security infrastructure fees. On August 11, 2004, the Company restructured this obligation into a note
that requires the Company to pay the amount owed in 36 monthly payments beginning in August 2004. At December 31, 2004, the Company was current on this obligation.



Employees



At February 22, 2005, the Company had 541 full-time and 214 part-time active employees as compared to 626 full-time and 241 part-time active employees at February 29,
2004, as follows:



|                                      |  |                  |  |                 
|------------------------------------- |  | ---------------- |  | ----------------
|                                      |  | February 22,2005 |  | February 29,2004
|Classification                        |  |                  |  |                 
|Pilots                                |  | 172              |  | 218             
|Station personnel                     |  | 361              |  | 411             
|Maintenance personnel                 |  | 127              |  | 142             
|Administrative and clerical personnel |  | 69               |  | 62              
|Flight attendants                     |  | 10               |  | 14              
|Management                            |  | 16               |  | 20              
|                                      |  |                  |  |                 
|Total employees                       |  | 755              |  | 867             
|                                      |  |                  |  |                 



Approximately 41% of the
Companys employees are represented by unions.



The Companys pilots
are represented by the International Brotherhood of Teamsters. The Companys agreement with the pilots became amendable October 30, 2000, and the Company and the union are negotiating to achieve an agreement. The members of the union have
authorized a strike at some future date if an agreement is not reached. However, before any work stoppage can occur, the Federal Mediation Board must release the participants to self-help, followed by a 30-day cooling off period.



The Companys flight attendants are also represented by the International Brotherhood of
Teamsters, and the Companys agreement with the flight attendants became amendable April 1, 2002. Negotiations with the flight attendants are inactive at the present time.



The Companys mechanics and maintenance clerks are represented by the International Association of Machinists. The Companys
agreement with the mechanics becomes amendable November 1, 2005, and the Companys agreement with the maintenance clerks became amendable March 1, 2002. Negotiations with the maintenance clerks are inactive at the present time.



In 2003, the Companys dispatchers voted to be represented by the International
Brotherhood of Teamsters. As of February 28, 2005, the Company and the dispatchers were in active negotiations for an initial labor agreement.



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Regulation



In accordance with the provisions of the Federal Aviation Act of 1958, as amended (the 1958 Act), the Company is an air carrier subject to regulation by the DOT,
primarily with respect to economic matters. As a commuter air carrier, the Company is licensed under Part 298 of the Economic Regulations of the DOT.



The Company holds an air carrier operating certificate issued by the Federal Aviation Administration (FAA) pursuant to Part 121 of the FAAs regulations. To ensure
compliance with its regulations, the FAA requires that an airline obtain an operating certificate and operations specifications for each particular aircraft and type of operations conducted by the carrier, all of which are subject to suspension or
revocation for cause. As a result, the Company is subject to the jurisdiction of the FAA with respect to the Companys operations, aircraft maintenance, and safety related matters, including, but not limited to, equipment, ground facilities,
dispatch, communications, training, weather observation, flight personnel, and other matters affecting air safety.



The Deregulation Act eliminated many regulatory constraints so that airlines became free to set fares and, with limited exceptions, to establish domestic routes without
the necessity of seeking government approval. The DOT is still authorized to establish consumer protection regulations in order to: prohibit certain pricing practices; mandate conditions of carriage; and make ongoing determinations of a
carriers fitness, willingness, and ability to properly and lawfully provide air transportation. The DOT also has the power to bring proceedings to enforce its regulations under the 1958 Act and seek penalties, including the assessment of civil
penalties, the revocation of operating authority, and criminal sanctions.



The
Aviation and Transportation Security Act requires the adoption of certain security measures by airlines and airports, including the screening of passengers and baggage. The security measures are being partially funded by a $2.50 per flight segment
tax on tickets. The Company is responsible for certain security costs above this level.



The Company is subject to the jurisdiction and regulations of the Federal Communications Commission regarding the use of the Companys radio facilities. In addition, local governments and authorities in certain markets have adopted
regulations governing various aspects of aircraft operations, including noise abatement, curfews, and use of airport facilities. The Company believes that it is in compliance with all such regulations.



Insurance



The Company carries the types and amounts of insurance that are required by the DOT and are customary in the regional airline industry,
including coverage for public liability, property damage, aircraft loss or damage, baggage and cargo liability, and workers compensation.



As a result of the September 11 terrorist attacks, aviation insurers have significantly increased premiums for all aviation coverage while dramatically reducing the
amount of coverage available for war-risk occurrences. In response to the reduction in coverage, the Air Transportation Safety and System Stabilization Act (the Stabilization Act) provided U.S. air carriers with the option to purchase certain
war-risk liability insurance from the United States government on an interim basis at rates that are more favorable than those available in the private market. The Company has purchased this coverage and anticipates renewing it for as long as the
coverage is available from the United States government. The airlines and insurance industries, together with the United States and other governments, are continuing to evaluate both the cost and options for providing coverage of aviation insurance.
The Company anticipates that it will follow industry practices with respect to sources of insurance. The Company believes that its insurance is adequate as to amounts and risks covered. There can be no assurance, however, that the limits of the
Companys insurance will be sufficient to cover any catastrophic loss.



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##### Table of Contents

RISK FACTORS RELATING TO THE COMPANY AND THE AIRLINE INDUSTRY



Financial Condition of the Company



As discussed in Note 1 to the financial statements, the Company suffered significant losses
in the year ended December 31, 2002, and had liabilities in excess of assets at December 31, 2004, 2003, and 2002. As a result, continued operating losses in future years could negatively impact the Companys ability to continue as a going
concern.



Defaults Under Financing Agreements



At December 31, 2004, the Company was in arrears with respect to almost all of the
Companys aircraft debt and lease obligations. As a result, a creditor could declare the Company in default and demand immediate payment of all amounts owed by the Company to the creditor, which could cause the Company to go into involuntary
bankruptcy.



Dependence on Relationship with United Air Lines



Currently, the Company estimates that approximately 42% of Great
Lakes passenger traffic connects with United Air Lines flights. As a result of the Companys relationship with United Air Lines, the Companys business is sensitive to events and risks affecting United. If adverse events affect
Uniteds business, the Companys business could also be adversely affected. Such events include the outcome of Uniteds bankruptcy reorganization, changes in Uniteds business plan or model, employee strikes or job actions,
significant curtailment of services, and terrorist events. However, to the extent that the Company is successful in developing both its own identity on its operating system and its code share relationship with Frontier Airlines, the Company seeks to
reduce its dependence on United Air Lines and mitigate the effects of any adverse events that are related solely to United Air Lines.



Terrorist Events



The Company is sensitive to changes in the economy and airline industry that are the result of, or related to, past and future terrorist attacks. Such changes include, but are not limited to, the impact of additional
airline and security charges on Company costs, reduced customer demand for travel, the cost and availability of war-risk and other aviation insurance (including the federal governments provision of third party war-risk coverage), and the
possibility of additional terrorist events that could cause further customer aversion to air travel.



War



War or other military action by
the United States of America or other countries could have a significant effect on passenger traffic. The war in Iraq and other international events that fueled the decline in airline industry revenue in 2003 had ongoing effects throughout 2004.



Dependence on Essential Air Service Revenues



In 2004, 27% of the Companys revenues were received as EAS subsidies. EAS subsidies
are expected to remain a significant portion of the Companys revenues in 2005 and future years. Changes in DOT policies with regard to payment of subsidies and any reduction or loss of subsidies could have a substantial negative impact on the
Company. The DOT awards EAS contracts through competitive bidding and the Company could lose any of its EAS contracts to the Companys competitors. In addition, the DOT has the right to cancel EAS contracts if it determines that the communities
served by such contracts are no longer eligible. At March 15, 2005, the Company served 24 EAS communities on a subsidized basis.



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Effect of General Economic Conditions



The airline industry is significantly affected by general economic conditions. During recent recessions, most airlines reduced fares in an
effort to increase traffic. Economic and competitive conditions in the airline industry have contributed to a number of bankruptcies and liquidations among airlines. A worsening of current economic conditions, or an extended period of recession,
whether nationally or regionally, would have a material adverse effect on the Companys operations. See Forward-Looking Statements at the front of this report.



Fuel Costs



Fuel is a major component of the Companys operating expenses. The Company does not hedge its fuel purchasing costs. The Companys cost of fuel varies directly
with market conditions, and the Company has no guaranteed long-term sources of supply. Generally, the Company intends to follow industry trends by raising fares in response to significant fuel price increases. However, the Companys ability to
pass on increased fuel costs through fare increases may be limited by economic and competitive conditions. Accordingly, a reduction in the availability of, or an increase in, the price of fuel could have a material adverse effect on both the
Companys cash flow from operations and the Companys profitability. In fiscal year ending December 31, 2004, the Companys average price per gallon of fuel consumed increased to an average of $1.54 per gallon compared to the average
price per gallon of $1.23 for the fiscal year ending December 31, 2003. The Company estimates that every $.01 increase in the price of fuel per gallon equates to an annualized increase in fuel expense of approximately $92,000. As of February 28,
2005, the Companys cost for fuel was $1.76 per gallon, a 14% increase from the $1.54 per gallon average for the year ending December 31, 2004.



Control by Principal Stockholders



Raytheon, the Companys principal creditor, owns 5,371,980 shares of the Companys common stock, representing an approximate 38.2% interest in the
Companys outstanding shares of common stock. Raytheon acquired the shares in consideration for concessions granted by Raytheon pursuant to the Restructuring Agreement.



Mr. Douglas G. Voss, Chairman of the Board of the Company, beneficially owns or controls approximately 40.2% of the outstanding shares of
the Companys common stock, including shares owned by Ms. Gayle R. Brandt. Pursuant to a Marital Dissolution Stipulation and Property Settlement, Ms. Brandt granted to Mr. Voss an Irrevocable Proxy to vote her shares of the Companys
common stock. Mr. Voss retains the right to vote Ms. Brandts shares until June 28, 2010.



Accordingly, Mr. Voss and Raytheon are in a position to control the management and affairs of the Company.



Limited Market for Company Securities



The Companys Common Stock was delisted from the Nasdaq SmallCap Market on August 14, 2002. As a result of the delisting, the Companys Common Stock has become
subject to certain rules of the SEC relating to penny stocks. These rules require broker-dealers to make a suitability determination for purchasers and to receive the purchasers prior written consent for a purchase transaction,
thus restricting the ability to purchase or sell the securities in the open market. Trading of the Companys Common Stock is conducted on the Over-the-Counter Bulletin Board, which was established for securities that do not meet NASDAQ listing
requirements. Consequently, trading the Companys Common Stock may be more difficult because of lower trading volumes, transaction delays, and reduced security analyst and news media coverage of the Company. These factors could also contribute
to lower prices and larger spreads in the bid and ask prices for the Companys Common Stock.



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##### Table of Contents

Item 2. PROPERTIES



At December 31, 2004, the
Company leased gate and ramp facilities at 31 airports where ticketing and passenger loading and unloading are handled by Company personnel. Payments to airport authorities for ground facilities are based on a number of factors, including the amount
of space used and flight volume. The Company also leases aircraft hangar space for maintenance operations at two of the locations it serves.



The Company has entered into leases in Cheyenne, Wyoming, for approximately 96,000 square feet of space for maintenance, operations and administrative
requirements.



The Company believes that it has adequate facilities for
the conduct of its current and planned operations.



Item 3. LEGAL PROCEEDINGS



The Company is a
defendant in a lawsuit arising from a gear-up landing of one of the Companys Beechcraft 1900D aircraft at OHare International Airport in Chicago, Illinois. On September 3, 2002, Jamel Thompson, James Williams, Jove R. Ford, Terrence E.
Robinson, Carlton W. Leysath, Arnold Bernard, and Alvin Pierce filed suit against the Company, United Air Lines, Inc., and the flight crew of of the Companys Beechcraft 1900D aircraft, Pascal Illy and Mark G. Vancil, in the Circuit Court of
Cook County, Illinois related to a gear-up landing of that aircraft at OHare International Airport in Chicago, Illinois on February 10, 2001. The complaint alleges that the plaintiffs suffered personal injuries as passengers aboard the
aircraft when the pilots allegedly landed the aircraft without extending the landing gear. The plaintiffs seek damages and costs. The Companys insurance carrier is providing for the Companys defense in the lawsuit, and the Company
believes that any claims that arise from the accident which are not covered by insurance will not have a material adverse effect on the Company.



The Company is a party to several routine pending legal proceedings, none of which management believes are material to the Company.



Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



There were no matters submitted to a vote of the Companys shareholders during the year ended December 31, 2004.



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##### Table of Contents



PART II



Item 5. MARKET FOR REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERS



The Companys Common Stock is traded under the symbol GLUX.OB on the Over-the-Counter Bulletin Board (the OTCBB). The following table sets forth the
range of high and low sale prices for the Companys Common Stock for each of the fiscal quarters for the past two years as reported on the OTCBB. These prices represent inter-dealer prices without adjustments for mark-up, mark-down, or
commission and do not necessarily reflect actual transactions.



|                 |  |      |      |     |   |     
|---------------- |  | ---- | ---- | --- | - | ----
|Stock Quotations |  | High |      | Low
|2004:            |  |      |      |     |   |     
|First quarter    |  | $    | 0.80 |     | $ | 0.30
|Second quarter   |  |      | 1.65 |     |   | 0.70
|Third quarter    |  |      | 1.07 |     |   | 0.56
|Fourth quarter   |  |      | 1.15 |     |   | 0.56
|                 |  |     
|2003:            |  |      |      |     |   |     
|First quarter    |  | $    | 0.47 |     | $ | 0.12
|Second quarter   |  |      | 0.45 |     |   | 0.16
|Third quarter    |  |      | 0.55 |     |   | 0.25
|Fourth quarter   |  |      | 0.60 |     |   | 0.16



As of March 15, 2005 the Company had
approximately 348 record holders of its Common Stock.



The transfer agent for
the Companys Common Stock is Wells Fargo Bank Minnesota, N.A., 161 North Concord Exchange, South St. Paul, Minnesota, 55075-0738, telephone: (651) 450-4064.



The Company has not paid any dividends on its Common Stock since its initial public offering in January 1994. The Company expects that, for
the foreseeable future, it will follow a policy of retaining earnings in order to finance the continued development of its business. Payment of dividends is within the discretion of the Companys Board of Directors and will depend, among other
factors, upon the earnings, capital requirements, operating and financial condition of the Company, and any applicable restrictive debt and lease covenants. Under the Restructuring Agreement, the Company is prohibited from paying dividends until
after December 31, 2005. There were no sales of unregistered securities of the Company during the fiscal year ended December 31, 2004.



See Item 12 with respect to securities authorized for issuance under equity compensation plans.



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##### Table of Contents

Item 6. SELECTED FINANCIAL AND OPERATING DATA



The following statement of operations and balance sheet data as of, and for each of, the years in the five-year period ended December 31, 2004 are derived from the Companys financial statements. The financial statements for the years
ended December 31, 2004, 2003, 2002, 2001, and 2000 have been audited by KPMG LLP. The financial statements as of December 31, 2004 and 2003, and for each of the years in the three-year period ended December 31, 2004, and the report thereon, are
included elsewhere in this Form 10-K. The following selected financial data should be read in conjunction with, and are qualified in their entirety by, the financial statements and the notes thereto included elsewhere in this Form 10-K. The
financial statements and selected data do not include any adjustments that might result from the outcome of the uncertainty over the Companys ability to continue as a going concern.



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|                                                        |  |                                                                   |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |         |  
|------------------------------------------------------- |  | ----------------------------------------------------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | - |  | ---- | -------- | - |  | - | ------- | -
|                                                        |  | Year Ended December 31,                                           |         
|                                                        |  | 2004                                                              |          |   | 2003 |   |          | 2002 |  |   | 2001     |   |  | 2000 |         
|                                                        |  | (in thousands of $, except per share and selected operating data) |         
|Statement of Operations Data:                           |  |                                                                   |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |         |  
|Passenger and public service revenues                   |  | $                                                                 | 75,308   |   |      | $ | 73,770   |      |  | $ | 81,330   |   |  | $    | 97,030   |   |  | $ | 126,914 |  
|Other revenues                                          |  |                                                                   | 1,040    |   |      |   | 1,991    |      |  |   | 3,399    |   |  |      | 4,410    |   |  |   | 6,676   |  
|                                                        |  |                                                                   |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |         |  
|Total operating revenues                                |  |                                                                   | 76,348   |   |      |   | 75,761   |      |  |   | 84,729   |   |  |      | 101,440  |   |  |   | 133,590 |  
|                                                        |  |                                                                   |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |         |  
|Operating expenses:                                     |  |                                                                   |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |         |  
|Salaries, wages and benefits                            |  |                                                                   | 21,684   |   |      |   | 22,668   |      |  |   | 25,856   |   |  |      | 31,124   |   |  |   | 35,162  |  
|Aircraft fuel                                           |  |                                                                   | 14,007   |   |      |   | 12,001   |      |  |   | 12,616   |   |  |      | 17,514   |   |  |   | 21,503  |  
|Aircraft repairs                                        |  |                                                                   | 10,735   |   |      |   | 10,322   |      |  |   | 12,740   |   |  |      | 15,122   |   |  |   | 17,491  |  
|Commissions                                             |  |                                                                   | 255      |   |      |   | 275      |      |  |   | 871      |   |  |      | 2,512    |   |  |   | 4,248   |  
|Depreciation and amortization                           |  |                                                                   | 6,644    |   |      |   | 7,991    |      |  |   | 7,012    |   |  |      | 7,063    |   |  |   | 7,103   |  
|Aircraft rental                                         |  |                                                                   | 1,980    |   |      |   | 3,012    |      |  |   | 7,462    |   |  |      | 8,682    |   |  |   | 9,226   |  
|Other rentals and landing fees                          |  |                                                                   | 4,323    |   |      |   | 4,349    |      |  |   | 5,780    |   |  |      | 6,363    |   |  |   | 7,808   |  
|Other operating expense                                 |  |                                                                   | 14,567   |   |      |   | 14,784   |      |  |   | 18,101   |   |  |      | 23,689   |   |  |   | 30,113  |  
|Impairment of assets and other property                 |  |                                                                   |         |   |      |   |         |      |  |   | 5,470    |   |  |      |         |   |  |   |        |  
|                                                        |  |                                                                   |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |         |  
|Total operating expenses                                |  |                                                                   | 74,195   |   |      |   | 75,402   |      |  |   | 95,908   |   |  |      | 112,069  |   |  |   | 132,654 |  
|                                                        |  |                                                                   |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |         |  
|Operating income (loss)                                 |  | $                                                                 | 2,153    |   |      | $ | 359      |      |  | $ | (11,179  | ) |  | $    | (10,629  | ) |  | $ | 936     |  
|                                                        |  |                                                                   |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |         |  
|Interest expense, net                                   |  |                                                                   | (1,295   | ) |      |   | (2,390   | )    |  |   | (6,643   | ) |  |      | (9,932   | ) |  |   | (9,169  | )
|Federal grant                                           |  |                                                                   |         |   |      |   |         |      |  |   |         |   |  |      | 1,927    |   |  |   |        |  
|Insurance recovery                                      |  |                                                                   | 650      |   |      |   |         |      |  |   | 1,438    |   |  |      |         |   |  |   |        |  
|Gain (loss) on disposal of assets                       |  |                                                                   | (197     | ) |      |   | 152      |      |  |   |         |   |  |      |         |   |  |   |        |  
|Gain on extinguishment of debt                          |  |                                                                   | 4,317    |   |      |   | 3,669    |      |  |   | 5,573    |   |  |      |         |   |  |   |        |  
|                                                        |  |                                                                   |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |         |  
|Income (loss) before income tax expense                 |  |                                                                   | 5,628    |   |      |   | 1,790    |      |  |   | (10,811  | ) |  |      | (18,634  | ) |  |   | (8,233  | )
|Income tax expense (benefit)                            |  |                                                                   |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   | (6      | )
|Net income (loss)                                       |  | $                                                                 | 5,628    |   |      | $ | 1,790    |      |  | $ | (10,811  | ) |  | $    | (18,634  | ) |  | $ | (8,239  | )
|                                                        |  |                                                                   |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |         |  
|Net income (loss) per share: Basic and Diluted          |  |                                                                   |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |         |  
|Basic                                                   |  | $                                                                 | 0.40     |   |      | $ | 0.13     |      |  | $ | (1.24    | ) |  | $    | (2.15    | ) |  | $ | (0.95   | )
|Diluted                                                 |  | $                                                                 | 0.39     |   |      | $ | 0.13     |      |  | $ | (1.24    | ) |  | $    | (2.15    | ) |  | $ | (0.95   | )
|                                                        |  |                                                                   |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |         |  
|Average number of common shares outstanding:            |  |                                                                   |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |         |  
|Basic                                                   |  |                                                                   | 14,072   |   |      |   | 14,061   |      |  |   | 8,698    |   |  |      | 8,658    |   |  |   | 8,646   |  
|Diluted                                                 |  |                                                                   | 14,302   |   |      |   | 14,061   |      |  |   | 8,698    |   |  |      | 8,658    |   |  |   | 8,646   |  
|                                                        |  |                                                                   |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |         |  
|Balance Sheet Data:                                     |  |                                                                   |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |         |  
|Working capital (deficit)                               |  | $                                                                 | (112,914 | ) |      | $ | (128,614 | )    |  | $ | (147,246 | ) |  | $    | (121,820 | ) |  | $ | (10,366 | )
|Total assets                                            |  |                                                                   | 102,467  |   |      |   | 117,778  |      |  |   | 136,182  |   |  |      | 132,111  |   |  |   | 143,179 |  
|Long-term debt and long-term debt classified as current |  |                                                                   | 85,588   |   |      |   | 98,894   |      |  |   | 120,531  |   |  |      | 4,727    |   |  |   | 96,054  |  
|Stockholders equity (deficit)                          |  |                                                                   | (19,732  | ) |      |   | (25,361  | )    |  |   | (27,158  | ) |  |      | (18,496  | ) |  |   | 130     |  



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|                                             |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |           |  
|-------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | --------- | -
|                                             |  | Year Ended December 31, |        
|                                             |  | 2004                    |         |   | 2003 |   |         | 2002 |  |   | 2001    |   |  | 2000 |        
|Selected Operating Data:                     |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |           |  
|Available seat miles (in thousands) (1)      |  |                         | 318,904 |   |      |   | 328,904 |      |  |   | 358,541 |   |  |      | 428,707 |   |  |   | 525,872   |  
|Revenue passenger miles (in thousands) (2)   |  |                         | 133,948 |   |      |   | 126,064 |      |  |   | 134,236 |   |  |      | 200,536 |   |  |   | 265,589   |  
|Revenue passengers carried                   |  |                         | 484,395 |   |      |   | 453,396 |      |  |   | 505,176 |   |  |      | 811,217 |   |  |   | 1,117,576 |  
|Departures flown                             |  |                         | 66,019  |   |      |   | 70,928  |      |  |   | 84,933  |   |  |      | 102,379 |   |  |   | 126,770   |  
|Passenger load factor (3)                    |  |                         | 42.0    | % |      |   | 38.3    | %    |  |   | 37.4    | % |  |      | 46.8    | % |  |   | 50.5      | %
|Break-even passenger load factor (4)         |  |                         | 36.9    | % |      |   | 36.7    | %    |  |   | 45.3    | % |  |      | 58.0    | % |  |   | 52.9      | %
|Average yield per revenue passenger mile (5) |  |                         | 40.7    | ¢ |      |   | 38.6    | ¢    |  |   | 37.8    | ¢ |  |      | 38.8    | ¢ |  |   | 42.2      | ¢
|Operating cost per available seat mile (6)   |  |                         | 23.3    | ¢ |      |   | 22.9    | ¢    |  |   | 25.2    | ¢ |  |      | 26.1    | ¢ |  |   | 25.2      | ¢
|Average passenger fare (7)                   |  | $                       | 112.58  |   |      | $ | 107.39  |      |  | $ | 100.39  |   |  | $    | 95.87   |   |  | $ | 100.25    |  
|Average passenger trip length (miles) (8)    |  |                         | 277     |   |      |   | 278     |      |  |   | 266     |   |  |      | 247     |   |  |   | 238       |  
|Aircraft in service (end of period)          |  |                         | 36      |   |      |   | 42      |      |  |   | 46      |   |  |      | 52      |   |  |   | 52        |  
|Destinations served (end of period)          |  |                         | 31      |   |      |   | 40      |      |  |   | 44      |   |  |      | 48      |   |  |   | 57        |  

---

|(1) | Available seat miles or ASMs represent the number of seats available for passengers in scheduled flights multiplied by the number of scheduled miles those
seats are flown.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Revenue passenger miles or RPMs represent the number of miles flown by revenue passengers.
|--- | ----------------------------------------------------------------------------------------------

|(3) | Passenger load factor represents the percentage of seats filled by revenue passengers and is calculated by dividing revenue passenger miles by available seat miles.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Break-even passenger load factor represents the percentage of available seat miles which must be flown by revenue passengers at the average yield (net of commissions and
fees) for airline operations to break even.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Average yield per revenue passenger mile represents the average passenger revenue received for each mile a revenue passenger is carried.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Operating cost per available seat mile represents operating expenses divided by available seat miles.
|--- | -------------------------------------------------------------------------------------------------------

|(7) | Average passenger fare represents passenger revenue divided by the number of revenue passengers carried.
|--- | ----------------------------------------------------------------------------------------------------------

|(8) | Average passenger trip length represents revenue passenger miles divided by the number of revenue passengers carried.
|--- | -----------------------------------------------------------------------------------------------------------------------



Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Overview



The discussion and analysis throughout this report contains certain forward-looking terminology such as believes, anticipates, will, and intends or comparable
terminology. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Potential purchasers of the Companys securities are cautioned not to place undue reliance on
such forward-looking statements which are qualified in their entirety by the cautions and risks described herein. See Forward-Looking Statements at the front of this report.



19



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The Company began providing air charter service in 1979, and has provided scheduled passenger service in the Upper
Midwest since 1981. Beginning in April 1992, the Company operated as a United Express carrier under a cooperative marketing agreement with United Air Lines, which was transitioned to a code share relationship on May 1, 2001. The Company now operates
under its own name and as a code sharing partner with United Air Lines and Frontier Airlines. As of February 28, 2005, the Company provided passenger service to 31 airports in nine states with 1,095 scheduled departures each week.



Results of Operations



(dollars in thousands)



|                                                     |  |                                 |        |   |               |      |   |                                |        |    |        |   |        |               |  |      |                                |  |        |        |  |   |             |   |  |      |   
|---------------------------------------------------- |  | ------------------------------- | ------ | - | ------------- | ---- | - | ------------------------------ | ------ | -- | ------ | - | ------ | ------------- |  | ---- | ------------------------------ |  | ------ | ------ |  | - | ----------- | - |  | ---- | --
|                                                     |  | For the Years Ended December 31 |       
|                                                     |  | 2004                            |        |   | 2003          |      |   | 2002                           |       
|                                                     |  | Amount                          |        |   | Cents per ASM |      |   | %Increase (decrease) from 2002 |        |    | Amount |   |        | Cents per ASM |  |      | %Increase (decrease) from 2001 |  |        | Amount |  |   | CentsperASM |  
|Operating revenues                                   |  |                                 |        |   |               |      |   |                                |        |    |        |   |        |               |  |      |                                |  |        |        |  |   |             |   |  |      |   
|Passenger                                            |  | $                               | 54,532 |   |               |      |   |                                | 12.0   | %  |        | $ | 48,691 |               |  |      |                                |  | (4.0   | )%     |  | $ | 50,716      |   |  |      |   
|Public service                                       |  |                                 | 20,776 |   |               |      |   |                                | (17.2  | )  |        |   | 25,079 |               |  |      |                                |  | (18.1  | )      |  |   | 30,614      |   |  |      |   
|Other                                                |  |                                 | 1,040  |   |               |      |   |                                | (47.8  | )  |        |   | 1,991  |               |  |      |                                |  | (41.4  | )      |  |   | 3,399       |   |  |      |   
|                                                     |  |                                 |        |   |               |      |   |                                |        |    |        |   |        |               |  |      |                                |  |        |        |  |   |             |   |  |      |   
|Total operating revenues                             |  | $                               | 76,348 |   |               |      |   |                                | 0.8    | %  |        | $ | 75,761 |               |  |      |                                |  | (10.6  | )%     |  | $ | 84,729      |   |  |      |   
|                                                     |  |                                 |        |   |               |      |   |                                |        |    |        |   |        |               |  |      |                                |  |        |        |  |   |             |   |  |      |   
|Salaries, wages, and benefits                        |  | $                               | 21,684 |   |               | 6.8  | ¢ |                                | (4.3   | )% |        | $ | 22,668 |               |  | 6.9  | ¢                              |  | (12.3  | )%     |  | $ | 25,856      |   |  | 7.2  | ¢ 
|Aircraft fuel                                        |  |                                 | 14,007 |   |               | 4.4  |   |                                | 16.7   |    |        |   | 12,001 |               |  | 3.6  |                                |  | (4.9   | )      |  |   | 12,616      |   |  | 3.5  |   
|Aircraft maintenance materials and component repairs |  |                                 | 10,735 |   |               | 3.4  |   |                                | 4.0    |    |        |   | 10,322 |               |  | 3.1  |                                |  | (19.0  | )      |  |   | 12,740      |   |  | 3.6  |   
|Commissions                                          |  |                                 | 255    |   |               | 0.1  |   |                                | (7.3   | )  |        |   | 275    |               |  | 0.1  |                                |  | (68.5  | )      |  |   | 871         |   |  | 0.2  |   
|Depreciation and amortization                        |  |                                 | 6,644  |   |               | 2.1  |   |                                | (16.9  | )  |        |   | 7,991  |               |  | 2.4  |                                |  | 14.0   |        |  |   | 7,012       |   |  | 2.0  |   
|Aircraft rental                                      |  |                                 | 1,980  |   |               | 0.6  |   |                                | (34.3  | )  |        |   | 3,012  |               |  | 0.9  |                                |  | (59.6  | )      |  |   | 7,462       |   |  | 2.1  |   
|Other rentals and landing fees                       |  |                                 | 4,323  |   |               | 1.4  |   |                                | (0.6   | )  |        |   | 4,349  |               |  | 1.3  |                                |  | (24.8  | )      |  |   | 5,780       |   |  | 1.6  |   
|Other operating expense                              |  |                                 | 14,567 |   |               | 4.6  |   |                                | (1.5   | )  |        |   | 14,784 |               |  | 4.4  |                                |  | (18.3  | )      |  |   | 18,101      |   |  | 5.0  |   
|Impairment of assets and other property              |  |                                 |       |   |               | 0    |   |                                | (100.0 | )  |        |   |       |               |  | 0    |                                |  | (100.0 | )      |  |   | 5,470       |   |  | 1.5  |   
|                                                     |  |                                 |        |   |               |      |   |                                |        |    |        |   |        |               |  |      |                                |  |        |        |  |   |             |   |  |      |   
|Total operating expenses                             |  | $                               | 74,195 |   |               | 23.3 | ¢ |                                | (1.6   | )% |        | $ | 75,402 |               |  | 22.9 | ¢                              |  | (21.4  | )%     |  | $ | 95,908      |   |  | 26.7 | ¢ 
|                                                     |  |                                 |        |   |               |      |   |                                |        |    |        |   |        |               |  |      |                                |  |        |        |  |   |             |   |  |      |   
|Operating income (loss)                              |  | $                               | 2,153  |   |               |      |   |                                |        |    |        | $ | 359    |               |  |      |                                |  |        |        |  | $ | (11,179     | ) |  |      |   
|                                                     |  |                                 |        |   |               |      |   |                                |        |    |        |   |        |               |  |      |                                |  |        |        |  |   |             |   |  |      |   
|Interest expense, net                                |  | $                               | (1,294 | ) |               | 0.4  | ¢ |                                | (45.9  | )% |        | $ | (2,390 | )             |  | 0.7  | ¢                              |  | (64.0  | )%     |  | $ | (6,643      | ) |  | (1.9 | )¢
|                                                     |  |                                 |        |   |               |      |   |                                |        |    |        |   |        |               |  |      |                                |  |        |        |  |   |             |   |  |      |   
|Insurance recovery                                   |  | $                               | 650    |   |               |      |   |                                |        |    |        | $ |       |               |  |      |                                |  |        |        |  | $ | 1,438       |   |  |      |   
|                                                     |  |                                 |        |   |               |      |   |                                |        |    |        |   |        |               |  |      |                                |  |        |        |  |   |             |   |  |      |   
|Gain (loss) on disposal of assets                    |  | $                               | (197   | ) |               |      |   |                                |        |    |        | $ | 152    |               |  |      |                                |  |        |        |  | $ |            |   |  |      |   
|                                                     |  |                                 |        |   |               |      |   |                                |        |    |        |   |        |               |  |      |                                |  |        |        |  |   |             |   |  |      |   
|Gain on extinguishment of debt                       |  | $                               | 4,317  |   |               |      |   |                                |        |    |        | $ | 3,669  |               |  |      |                                |  |        |        |  | $ | 5,573       |   |  |      |   
|                                                     |  |                                 |        |   |               |      |   |                                |        |    |        |   |        |               |  |      |                                |  |        |        |  |   |             |   |  |      |   





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##### Table of Contents

|                                         |  |         |   |  |                              |    |  |         |   |  |                              |    |  |         |  
|---------------------------------------- |  | ------- | - |  | ---------------------------- | -- |  | ------- | - |  | ---------------------------- | -- |  | ------- | -
|                                         |  | 2004    |   |  | Increase/(decrease)from 2003 |    |  | 2003    |   |  | Increase/(decrease)from 2002 |    |  | 2002    |  
|Available Seat Miles (thousands)         |  | 318,904 |   |  | (3.0                         | )% |  | 328,904 |   |  | (8.3                         | )% |  | 358,541 |  
|Revenue Passenger Miles (thousands)      |  | 133,948 |   |  | 6.3                          | %  |  | 126,064 |   |  | (6.1                         | )% |  | 134,236 |  
|Passenger Load Factor                    |  | 42.0    | % |  | 9.7                          | %  |  | 38.3    | % |  | 2.4                          | %  |  | 37.4    | %
|Average Yield per Revenue Passenger Mile |  | 40.7    | ¢ |  | 5.4                          | %  |  | 38.6    | ¢ |  | 2.1                          | %  |  | 37.8    | ¢
|Cost per Available Seat Mile             |  | 23.3    | ¢ |  | 1.7                          | %  |  | 22.9    | ¢ |  | (9.1                         | )% |  | 25.2    | ¢



Comparison of 2004 to 2003



Passenger Revenues.Passenger revenues and revenue
passenger miles increased 12.0% and 6.3%, respectively, from 2003. Even though the Company discontinued service to ten cities during the year, the increase in passenger revenues was largely due to the industry-wide increase in passenger traffic
following the September 11 terrorist attacks declines. Revenue passengers carried increased 6.8% for the year and the average passenger fare increased 4.8%.



Public Service Revenues. Public service revenues earned through the Essential Air Service program decreased 17.2% to $20.8 million in 2004, as compared to
$25.1 million in 2003. The decrease in public service revenues attributable to a reduction in the number of EAS communities served by the Company was partially offset by a subsidy increase from the City of Dickinson, ND of $0.5 million and a $0.9
million increase in revenues attributable primarily to changes in estimates relating to prior periods and rate increases on existing routes.



Other Revenues. Other revenues declined 47.8% to $1.0 million in 2004. During the first half of 2003, the Company provided service to the United States
Postal Service, utilizing two Beechcraft 1900C aircraft for carrying mail to certain markets. Due to highly competitive bidding by other air carriers at rates that were not economically viable for the Company, the Company elected to discontinue the
service in July 2003.



Operating Expenses. Total operating
expenses decreased 1.6%, or $1.2 million, from the previous year. Operating expenses increased from 22.9 cents per ASM in 2003 to 23.3 cents per ASM in 2004.



Salaries, wages, and benefits decreased 4.3% to $21.7 million, which was primarily attributable to Company-wide reductions in staffing levels and hours worked and the
closing of service to and from some cities.



Aircraft fuel expense increased
16.7% in 2004, even though fuel consumption was down 5.7% in 2004 due to a reduction in scheduled flights. The increase in fuel expense was a result of rising fuel costs in 2004. The Companys average fuel cost per gallon increased 25.2% to
$1.54 in 2004. This increase was reduced by continued reduction in scheduled flights.



Aircraft maintenance, materials, and component repair expense increased 4.0% to $10.7 million. The increase in aircraft maintenance expense was primarily attributable to the introduction of the Pratt & Whitney FMP
program on April 1, 2004, the timing of propeller overhauls and the cost of returning aircraft in accordance with contractual requirements. As a result, the cost per ASM for aircraft maintenance increased to 3.4 cents in 2004 as compared 3.1 cents
in 2003.



Depreciation expense decreased 16.9% to $6.6 million in 2004, from
$8.0 million in 2003. The decrease in depreciation expense was primarily attributable to (i) the return of four surplus Beechcraft 1900D aircraft to Raytheon during 2003 and the return of two surplus Beechcraft 1900D aircraft to Raytheon during the
first half of 2004, in accordance with the Companys 2002 Restructuring Agreement with Raytheon, and (ii) a reduction in depreciation rates related to rotable parts inventory.



21



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##### Table of Contents

Aircraft lease expense decreased 34.3% to $2.0 million in 2004, from $3.0 million in 2003. The decrease in aircraft lease
expense was primarily attributable to the expiration of an aircraft lease for one Embraer Brasilia Model 120 on November 1, 2003 and the subsequent return of the aircraft to the lessor, FINOVA Capital Corporation, in January 2004, along with the
return of one surplus Beechcraft 1900D aircraft and two surplus Beechcraft 1900C aircraft to Raytheon during the first half of 2004.



Other rentals and landing fees decreased 0.6% in 2004. As of March 1, 2003, the Company discontinued operations at the Companys former Chicago hub and the five
cities that were served from that hub, resulting in a reduction of associated costs for airport rentals and landing fees for those cities. As of August 31, 2004 the Company discontinued operations at the Companys former Minneapolis hub and the
two cities that were served from that hub, resulting in a reduction of associated costs for airport rentals and landing fees for those cities. Offsetting this, airport rentals and landing fees increased as a result of the commencement of operations
by the Company during the second half of 2003 in the following markets: Rapid City, SD; Grand Junction, CO; and Wichita, KS. Operations in Rapid City were discontinued in the third quarter of 2004 and operations in Wichita were discontinued during
the second quarter of 2004.



Other operating expenses decreased 1.5% in 2004 to
$14.6 million, from $14.8 million in 2003, representing a increase in cost per ASM from 4.4 cents in 2003 to 4.6 cents in 2004. The decrease in other operating expense was primarily due to the lower levels of operations and other actions that were
taken to reduce costs. This decrease in other operating expenses was partially offset by an increase of approximately $0.3 million in security expense primarily due to the Aviation Security Infrastructure waving fees for the third quarter of 2003.



Interest Expense. Interest expense decreased 45.9% to $1.3
million in 2004, from $2.4 million in 2003. The decrease was primarily the result of (i) a $0.9 million expense reduction attributable to the extinguishment of $18.7 million in debt for six debt-financed aircraft that were returned to Raytheon
during 2003 and 2004 and (ii) decreases in variable interest rates, along with a reduction of Embraer interest accruals for penalty interest of $0.2 million. The interest expense decrease was partially offset by $0.2 million for additional expense
for the conversion of accounts payable to notes payable for United and Raytheon.



Income Tax Expense (benefit).The realization of any income tax benefits remains substantially in doubt as the Company continues in its loss carry forward position.



Insurance Recovery. In 2004, the Company received a settlement payment for a claim associated with the May 14, 2002 hangar
fire at Grand Island, NE.



Gain on Disposal of Assets and Gain on
Extinguishment of Debt. In 2004, the Company recognized gains on extinguishment of debt in the amount of $2.8 million, as a result of the return of two debt-financed Beechcraft 1900D aircraft, and $1.5 million of past due lease installments
for the return of one leased Beechcraft 1900D aircraft and two leased Beechcraft 1900C aircraft. In 2003, the Company recognized gains on disposal of assets in the amount of $0.2 million, and gains on extinguishment of debt in the amount of $3.7
million, as a result of the return of four debt-financed Beechcraft 1900D aircraft to Raytheon during 2003. See Restructuring Agreement with Raytheon Aircraft Credit Corporation below.



22



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##### Table of Contents

Comparison of 2003 to 2002



Passenger Revenues.Passenger revenues and revenue passenger miles decreased 4.0% and 6.1%, respectively, from 2002.
Although the Company discontinued service to six cities during the year, the decrease was largely due to the continued industry-wide decline in passenger traffic following the September 11 terrorist attacks. Decreases in passenger revenues were
partially offset by $0.6 million refund received by the Company for interline billings owed by United to the Company for the period June 1, 2001 through June 30, 2002.



Public Service Revenues. Public service revenues collected through the Essential Air Service program decreased 18.1% to $25.1
million in 2003, as compared to $30.6 million in 2002. The reduction was due primarily to the discontinuance of essential air services to six communities during the year, as partially offset by the addition of three new EAS communities. The decrease
in public service revenues attributable to a net decrease in the number of EAS communities served by the Company was partially offset by a $0.9 million increase in revenues attributable primarily to changes in estimates relating to prior periods and
rate increases on existing routes.



Other Revenues. Other
revenues declined 41.4% to $2.0 million in 2003. The decrease in freight revenue was due primarily to the expiration of the United States Postal Service subcontract in July 2003, reduced capacity, and increased security requirements governing the
acceptance of air freight following the September 11 terrorist attacks. Charter revenues were down as a result of the non-renewal of various university charter contracts.



Operating Expenses. Total operating expenses decreased 21.4%, or $20.5 million, from the previous year. Operating expenses
decreased from 26.7 cents per ASM in 2002 to 22.9 cents per ASM in 2003. The suspension of air service following the September 11 terrorist attacks and the subsequent reduction in scheduled flights had a significant impact upon the Companys
direct operating costs.



Salaries, wages, and benefits decreased 12.3% to $22.7
million as a result of reductions in staffing levels, pay rates, hours worked, and the closing of service to and from some cities.



Aircraft fuel expense was down 4.9% in 2003, and fuel consumption was down 14.5% in 2003. The decrease in fuel expense and fuel consumption was attributable to the
continued reduction in scheduled flights following the September 11 terrorist attacks. However, as a result of rising fuel costs in 2003, the Companys average fuel cost per gallon increased 10.8% to $1.23 in 2003.



Aircraft maintenance, materials, and component repair expense decreased 19.0% to $10.3
million. As a result, the cost per ASM for aircraft maintenance decreased to 3.1 cents per ASM in 2003 as compared 3.6 cents per ASM in 2002.



Commissions decreased 68.5% to $0.3 million in 2003, from $0.9 million in 2002, primarily as a result of the industry-wide decision to terminate payment of commissions to
travel agents, effective as of June 12, 2002.



Depreciation expense increased
14.0% to $8.0 million in 2003, from $7.0 million in 2002, due to the conversion on December 31, 2002 of nine Beechcraft 1900D aircraft from leased aircraft to owned aircraft.



Aircraft lease expense decreased 59.6% to $3.0 million in 2003, from $7.5 million in 2002, due to (i) the conversion on December 31, 2002 of
nine Beechcraft 1900D aircraft leases to financed asset purchases and (ii) the termination of leases for one Embraer Brasilia aircraft and two Beechcraft 1900D aircraft in 2002.



Other rentals and landing fees decreased 24.8% in 2003. The reduction in landing fees was primarily attributable to a decrease in the total
number of landings. As of March 1, 2003, the Company had discontinued operations at the Companys former Chicago hub and the cities served from that hub, resulting in a reduction of associated costs for airport rentals and landing fees for
those cities. In addition, $0.4 million of the decrease was attributable to a credit received by the Company for annual rent adjustments at Denver International Airport.



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Other operating expenses decreased 18.3% in 2003 to $14.8 million, from $18.1 million in 2002, representing a reduction
in cost of 0.6 cent per ASM. The decrease is primarily due to lower levels of operations and other actions that were taken to reduce costs. In addition, $0.6 million of the decrease in attributable to a credit received by the Company for previously
paid war-risk insurance, as covered by the FAA insurance program.



Interest Expense. Interest expense decreased 64.0% to $2.4 million in 2003, from $6.6 million in 2002. The decrease was primarily due to a $4.3 million reduction of interest expense attributable to the amortization of the SFAS
15 amounts and a $1.0 million reduction attributable to net decreases in the principal balances of outstanding debt and decreases in variable interest rates. The interest expense reductions were partially offset by a $1.1 million increase in
interest expense attributable to the conversion of nine aircraft leases to aircraft debt at the end of 2002.



Income Tax Expense (benefit).The realization of any income tax benefits remains substantially in doubt as the Company continues in its loss carry forward position.



Gain on Disposal of Assets and Gain on Extinguishment of Debt. In 2003, the
Company recognized gains on disposal of assets in the amount of $0.2 million, and gains on extinguishment of debt in the amount of $3.7 million, as a result of the return of four debt-financed Beechcraft 1900D aircraft to Raytheon during 2003. See
Restructuring Agreement with Raytheon Aircraft Credit Corporation below.



Liquidity and Capital Resources



The Companys cash and
cash equivalents balance at December 31, 2004 was $1.1 million, down from $3.7 million at December 31, 2003. The Company had negative working capital of $112.9 million at December 31, 2004. The amount of negative working capital primarily
attributable to long-term debt that would otherwise be due after one year was reclassified on the Companys balance sheet as long-term obligations classified as current.



The Company recognized net income of $5.6 million for the year 2004. Cash of $9.3 million was generated from operating activities and was
the primary source of funds used to reduce notes payable and long-term debt by $10.0 million.



At December 31, 2002, the Company had exhausted its outside sources of working capital and funds, and was in arrears on payments with respect to almost all of the Companys aircraft debt and lease obligations. In
the last quarter of 2002 and the first quarter of 2003, the Company restructured its financing agreements with Raytheon and CIT. The effect of these restructurings was to reduce the Companys total debt and lease obligations to these creditors,
and to reduce the amount of the Companys scheduled monthly debt and lease payments.



During 2004, the Company realized increased levels of traffic on fewer available seat miles which increased load factors from 37.8% in 2003 to 42% in 2004. In 2003 and 2004, the Company was unable to generate
sufficient cash to fully service all of the Companys debt and lease payment obligations to its creditors.



As of December 31, 2004, the Company was approximately $11.7 million in arrears with respect to aircraft debt and lease obligations. The arrearage of $11.7 million is
comprised of $3.3 million of debt principal payments, $1.2 million of accrued interest, and $7.2 million of deferred lease payments. In addition, during the first quarter of 2005, the Company did not make scheduled payments to its three aircraft
creditors totaling $2.8 million.



Restructuring Agreement with Raytheon
Aircraft Credit Corporation. On December 31, 2002, the Company entered into a Restructuring Agreement with Raytheon regarding lease and debt financing provided by Raytheon for the Companys Beechcraft 1900C and Beechcraft 1900D aircraft
fleet. The complex nature of the Restructuring



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Agreement included separate provisions for (i) the termination or modification of aircraft operating leases, (ii) the return of aircraft in satisfaction of
indebtedness obligations, (iii) the modification of principal and interest rates for various aircraft financing promissory notes, and (iv) a restructuring of other indebtedness by means of an issuance of new debt instruments and equity. For purposes
of accounting for the Restructuring Agreement, the Company identified the major types of transactions contained within the Restructuring Agreement in order to more accurately apply the appropriate accounting treatment to each type of transaction.
Transactions involving the termination or modification of aircraft operating leases have been accounted for pursuant to the provisions of Statement of Financial Accounting Standards No. 13, Accounting for Leases, while the restructuring of
indebtedness owed by the Company to Raytheon has been accounted for in accordance with the provisions of Statement of Financial Accounting Standards No. 15, Accounting for Debtors and Creditors for Troubled Debt Restructurings. The
Companys continued accounting treatment of those transactions are as follows:



(a) Return of Beechcraft 1900D Aircraft. During 2003, the Company returned four Beechcraft 1900D aircraft to Raytheon, with a net book value of $9.9 million, in exchange for the cancellation and
extinguishment of four promissory notes. As a result, during 2003, the Company reduced its outstanding aircraft debt and accrued interest by $13.6 million and recorded net gains from extinguishment of debt in the amount of $3.7 million.



The Company returned two additional owned and one leased Beechcraft 1900D
aircraft during 2004. The Company was responsible for costs of repair and refurbishment in order to satisfy the aircraft return conditions that are set forth in the Restructuring Agreement. Accordingly, as of December 31, 2003, the Company had
recognized a liability of $2.3 million for such expenditures. As a result, during 2004, the Company reduced its outstanding aircraft debt and accrued interest by $7.6 million and recorded net gains from extinguishment of debt in the amount of $3.7
million.



(b) Refinancing of Aircraft
Debt. The Company obtained restructured financing for 30 of the Companys Beechcraft 1900D aircraft by executing new and amended promissory notes that are secured by the aircraft (the Aircraft Debt). The terms for each of the 30
Aircraft Debt promissory notes provide for an initial principal balance of $2.5 million, with interest to accrue on the unpaid principal balance at the rate of LIBOR plus 375 basis points per annum. Payments of principal and accrued interest are to
be made in 120 monthly installments, with the amount of monthly payment to be adjusted quarterly to reflect any change in the LIBOR rate.



In accordance with Statement of Financial Accounting Standards No. 15, Accounting by Debtors and Creditors for Troubled Debt Restructurings (SFAS
15), the Company has accounted for the restructuring of this Aircraft Debt as a troubled debt restructuring. SFAS 15 states that, in a troubled debt restructuring, the debtor shall not reduce the carrying amount of the existing debt on the
debtors books unless the carrying amount of the existing debt exceeds the total future cash payments of the new debt under the restructured terms. The effects of any changes in the face amount or interest rate must be amortized in future
periods by reducing interest expense to an effective interest rate that equates the net present value of the future cash payments under the terms of the restructured debt to the carrying value on the debtors books.



At December 31, 2002, the outstanding principal of the Aircraft Debt was $75
million, while the total future cash flows for the 30 Aircraft Debt promissory notes was estimated to be $95.7 million. In accordance with the provisions of SFAS 15, the Company recorded the Aircraft Debt on its books in the amount of $95.7 million.
The $20.7 million difference (the Aircraft Debt SFAS 15 Amount) between the $95.7 million carrying value of the Aircraft Debt and the $75 million principal amount of the Aircraft Debt is being amortized as a reduction to the Companys interest
expense over the ten-year term of the Aircraft Debt.



During
2003, the Company made principal payments of $2.8 million on the Aircraft Debt. In addition, the Company made payments of interest in the amount of $1.9 million. In accordance with procedures set forth



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in SFAS No. 15, the Company accounted for the payments of interest as a reduction of the Aircraft Debt SFAS 15 Amount. As of December 31, 2003, the
outstanding principal amount of the Aircraft Debt was $72.2 million, while the carrying value of the Aircraft Debt on the Companys books (which includes the current balance of the Aircraft Debt SFAS 15 Amount) was $91.0 million.



During 2004, the Company made principal payments of $5.3 million on the
Aircraft Debt. In addition, the Company made payments of interest in the amount of $3.4 million. In accordance with procedures set forth in SFAS No. 15, the Company accounted for the payments of interest as a reduction of the Aircraft Debt SFAS 15
Amount. As of December 31, 2004, the outstanding principal amount of the Aircraft Debt was $66.9 million, while the carrying value of the Aircraft Debt on the Companys books (which includes the current balance of the Aircraft Debt SFAS 15
Amount) was $82.1 million.



As of December 31, 2004 and 2003,
the Company was in arrears on payments of interest on the Aircraft Debt in the amount of $1.9 million and $1.7 million, respectively. When the interest is actually paid, and in accordance with the procedures set forth in SFAS No. 15, the Company
will account for the payment of interest as a reduction of the Aircraft Debt SFAS 15 Amount.



(c)Modification of Beechcraft 1900C Aircraft Operating Leases. The Restructuring Agreement reduced the monthly lease payments for the two Beechcraft 1900C aircraft operating leases. In
addition, $384,000 of unpaid lease payments on the two leases was contractually extinguished. However, as of December 31, 2003, in accordance with Statement of Financial Accounting Standards No. 13, Accounting for Leases, the Company had
retained the $384,000 liability on the Companys books and has been amortizing the liability amount over the remaining terms of the leases.



The two Beechcraft 1900C aircraft were dedicated to providing service under a United States Postal Services subcontract for carriage of mail to certain
markets. Due to highly competitive bidding by other air carriers at rates that were not economically viable for the Company, the Company elected to allow the United States Postal Service subcontract to expire as of July 27, 2003. As a result, the
Company elected to terminate the leases for the two Beechcraft 1900C aircraft and to return the aircraft to Raytheon. The Company returned the two aircraft in the second quarter of 2004, at which time the leases terminated and the Company wrote off
the remaining lease liability. As a result, during 2004, the Company reduced its outstanding accrued leases by $0.6 million and recorded net gains from extinguishment of debt in the amount of $0.6 million.



(d) Other Debt Restructuring. Under the
Restructuring Agreement, the outstanding principal and accrued interest amounts on various non-aircraft debt was restructured into three new promissory notes (the Non-Aircraft Debt) with a combined total principal amount of $11.5 million and a
carrying value on the Companys books, in accordance with SFAS 15, of $12.8 million. Interest rates on the Non-Aircraft Debt range from LIBOR plus 375 basis points to 8.25%. During 2003, the Company made principal payments of $0.4 million on
the Non-Aircraft Debt and increased the outstanding principal by deferred interest in the amount of $0.2 million. As of December 31, 2003, the carrying value of the Non-Aircraft Debt on the Companys books was $12.6 million, while the
outstanding principal amount of the Non-Aircraft Debt was $11.5 million. During 2004, the Company made principal payments of $0.5 million on the Non-Aircraft Debt and increased the outstanding principal by deferred interest in the amount of $0.2
million. As of December 31, 2004, the carrying value of the Non-Aircraft Debt on the Companys books was $14.1 million, while the outstanding principal amount of the Non-Aircraft Debt was $13.7 million.



As of December 31, 2004, the Company was in arrears on payments of principal and interest for
the Aircraft Debt in the amount of $4.7 million and was not in compliance with certain other financial covenants contained in the Restructuring Agreement.



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A summary of the Companys outstanding obligations to Raytheon as of December 31, 2004 and 2003 is set forth below.



NOTES PAYABLE TO RAYTHEON AIRCRAFT CREDIT CORPORATION



|                                                                                           |  |                     |  |                   |            |              |   |                     |  |                   |  |              |            |  |   |           
|------------------------------------------------------------------------------------------ |  | ------------------- |  | ----------------- | ---------- | ------------ | - | ------------------- |  | ----------------- |  | ------------ | ---------- |  | - | ----------
|                                                                                           |  | December 31, 2004   |  | December 31, 2003
|                                                                                           |  | Collateral Aircraft |  | Principal Balance |            | Book Balance |   | Collateral Aircraft |  | Principal Balance |  | Book Balance
|Group A Beechcraft 1900DAircraft to be returned                                          |  | 0                   |  | $                 | 0          |              | $ | 0                   |  | 2                 |  | $            | 6,604,040  |  | $ | 6,604,040 
|Group B Beechcraft 1900DAircraft in Company fleetInterest Rate: LIBOR + 375 basis points |  | 30                  |  | $                 | 66,919,059 |              | $ | 82,172,904          |  | 30                |  | $            | 72,191,354 |  | $ | 90,979,062
|Deferral NoteInterest Rate: LIBOR + 375 basis points                                       |  |                     |  | $                 | 295,898    |              | $ | 295,898             |  |                   |  | $            | 798,726    |  | $ | 798,726   
|Senior NoteInterest Rate: 8.25%                                                            |  |                     |  | $                 | 5,887,076  |              | $ | 6,087,713           |  |                   |  | $            | 5,425,438  |  | $ | 6,087,713 
|Subordinated NoteInterest Rate: 6.0%                                                       |  |                     |  | $                 | 5,832,276  |              | $ | 5,832,276           |  |                   |  | $            | 5,306,818  |  | $ | 5,690,018 
|Settlement NoteInterest Rate: LIBOR + 400 basis points                                     |  |                     |  | $                 | 1,911,186  |              | $ | 1,911,186           |  |                   |  | $            | 0          |  | $ | 0         



Because a substantial amount of the
Companys debt obligations to Raytheon is financed under variable interest rates, a one percent increase in interest rates with respect to such debt obligations would increase the Companys annual interest cost by approximately $670,000,
based on December 31, 2004 balances.



Other Financing



Boeing Capital Corporation. The Company leases two Embraer Brasilia aircraft
under aircraft lease agreements with Boeing Capital Corporation (Boeing). At December 31, 2004, the Company was in arrears on its aircraft rental obligations under these leases in the amount of $6.0 million. The Company has also recorded a liability
to Boeing in the amount of $0.9 million for accrued penalty interest on the missed lease payments. The Company is engaged in ongoing negotiations with Boeing with respect to the Companys default under the terms of the aircraft lease
agreements.



CIT.At December 31, 2002, Great Lakes had three
notes payable to CIT Aerospace, formerly The CIT Group/Equipment Financing, Inc. (CIT), for the financing of three of the Companys Embraer Brasilia aircraft. The three notes, with a combined outstanding principal of $5.0 million, were payable
at interest rates ranging from 8.7% to 9.08%. In April 2003, the Company executed an amended note that combined the three notes and modified the terms to provide for reduced monthly payments at an interest rate of LIBOR plus 275 basis points. The
amended note will mature in December 2007. As of December 31, 2004, the Company was in arrears on payments of principal on the amended note in the amount of $0.5 million.



FINOVA. In August 2002, the Company entered into a Settlement Agreement with FINOVA Capital Corporation (FINOVA), whereby the
Company agreed to pay to FINOVA a total of $0.7 million, with interest at 10%, over a



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period of 48 months in settlement of amounts owed by the Company on the return of one leased Embraer Brasilia aircraft.
During 2004, the Company was current on all payments of principal and interest under that agreement, resulting in an outstanding principal balance of $0.3 million as of December 31, 2004.



In November 2002, the Company entered into a Deferral Agreement with FINOVA with respect to a second leased Embraer Brasilia aircraft,
whereby the Company agreed to pay reduced lease payments through the end of the aircraft lease. The lease terminated on November 1, 2003, and the Company returned the second Embraer Brasilia aircraft to FINOVA in January 2004. The Company will be
responsible for costs of repair and refurbishment in order to satisfy the aircraft return conditions that are set forth in the lease agreement. Accordingly, as of December 31, 2004, the Company has recognized a liability of $0.2 million for such
expenditures. In addition, as of December 31, 2004, the Company has accrued lease payments, together with accrued penalty interest, in the amount of $1.3 million with respect to the second aircraft lease. FINOVA and the Company have agreed to
negotiate a settlement of amounts due under the aircraft lease agreement and for any deficiencies in the operating condition of the second returned aircraft.



Long-Term Debt Classified as Current



At December 31, 2004, the Company was in arrears with respect to almost all of the Companys aircraft debt and lease obligations and has failed to make scheduled
payments in the first quarter of 2005. Furthermore, the Company cannot determine with a high degree of confidence that it will be able during 2005 to generate sufficient cash flows in order to make the required payments or remain in compliance with
its aircraft debt and lease agreements. Therefore, the amounts of long-term debt that would otherwise be due after one year are shown on the Companys balance sheet as long-term obligations classified as current.



The Companys financial statements have been prepared under the assumption that the
Company will continue as a going concern. The financial statements do not include any adjustments that might result if the Company were forced to discontinue operations. As discussed in Note 1 to the financial statements, the Company suffered
significant losses in the year ended December 31, 2002, and had liabilities in excess of assets at December 31, 2004, 2003 and 2002.



The independent registered public accounting firms report dated March 11, 2005 on the Companys financial statements states that these matters raise
substantial doubt about the Companys ability to continue as a going concern.



Cautionary Statement



The Company, or
persons acting on its behalf, or outside reviewers retained by the Company making statements on its behalf, or underwriters of the Companys securities, from time to time, may make, in writing or orally, forward-looking statements
as defined under the Private Securities Litigation Reform Act of 1995. This Cautionary Statement, when used in conjunction with an identified forward-looking statement, is for the purpose of qualifying for the safe harbor provisions of
the Litigation Reform Act and is intended to be a readily available written document that contains factors that could cause results to differ materially from such forward-looking statements. These factors are in addition to any other cautionary
statements, written or oral, that may be made, or referred to, in connection with any such forward-looking statement.



The following matters, among others, may have a material adverse effect on the Companys business, financial condition, liquidity, results of
operations, or prospects, financial or otherwise. Reference to this Cautionary Statement in the context of a forward-looking statement or statements shall be deemed to be a statement that any one or more of the following factors may cause actual
results to differ materially from those in such forward-looking statement or statements.



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Debt Service. The restructured financing agreements with the Companys creditors were based on
forecasts of the Companys expected revenues, expenses, and cash flows. During 2004, the Company made reduced payments while negotiating revised payment schedules which will be based on current cash flows. As of December 31, 2004, the Company
was current with payments under these informal agreements. However, the Company has failed to make scheduled payments in the first quarter of 2005. Due to a variety of factors beyond the Companys control, there are significant uncertainties
regarding the Companys ability to generate future cash flows in order to service the Companys financing agreements. Such factors include: the outcome of United Air Lines attempt to reorganize under bankruptcy; the evolution of
Uniteds continuing code share relationship with the Company; reduced passenger demand as a result of general economic conditions; public health concerns; security concerns over foreign conflicts; the volatility of fuel prices; and the amount
of Essential Air Service funding and financial support available from the United States government.



The Company must generate sufficient revenue and cash flow to meet the Companys obligations as currently structured, obtain additional outside financing, or renegotiate the Companys restructured agreements
with its existing creditors. The Company is engaged in ongoing negotiations with Raytheon and its other creditors with respect to the Companys various aircraft debt and lease obligations. However, there can be no assurance that the
Companys creditors will be willing to renegotiate the terms of the Companys existing debt and lease obligations.



Dependence on Relationship with United Air Lines. The Company believes that approximately 42% of Great Lakes passenger traffic currently connects with
United Air Lines flights. As a result of the Companys relationship with United Air Lines, the Companys business is sensitive to adverse events and risks affecting United. In particular, Great Lakes may be impacted in the future by the
outcome of United Air Lines reorganization or liquidation in bankruptcy. Successful reorganization by United may include changes in, or rejection of, the amended code share agreement between United and the Company.



As part of Uniteds plan of reorganization, United may be required to grant further
concessions to its pilots, and any such concessions may have a negative impact on the scope of the Companys code share relationship with United. Currently, United Air Lines has agreed with its pilots to specific limits on the number of
aircraft that may be operated by United affiliates, including Uniteds code-sharing partners, in relation to the number of jet aircraft that are flown by United Air Lines pilots. The Company cannot predict what limitations, if any, may be
included in any agreement that United may negotiate with its pilots as part of Uniteds reorganization.



A liquidation of United would have a significant impact on the Companys connecting traffic at Denver until either Frontier increases its level of service or a replacement carrier increases its operations in the
Denver market and the Company is able to enter into a marketing agreement with that carrier. To the extent that the Company is successful in developing its own identity on its operating system and expanding its code share relationship with Frontier
and other air carriers, the Company seeks to reduce its dependence on United Air Lines and mitigate the effects of any adverse events which are related solely to United Air Lines.



Terrorist Events. The Companys operations are sensitive to changes in the economy and airline industry that are the
caused by, or related to, past and future terrorist attacks. Such changes include, but are not limited to, the impact of additional airline and security charges on Company costs, reduced customer demand for travel, the cost and availability of
war-risk and other aviation insurance (including the federal governments provision of third party war-risk coverage), and the possibility of additional terrorist events which could cause further customer aversion to air travel. The terrorist
attacks of September 11 brought about an immediate reduction of passenger traffic as well as additional operating costs. During 2003 and 2004, the Company responded by taking measures to increase the efficiency of its scheduled flight operations and
to reduce its operating costs.



Since September 11, 2001, the Company has
aggressively reduced its level of operations in order to more closely align its scheduled flights with both available traffic and United Air Lines reduced level of capacity in Denver. However, the Company has concentrated on maintaining and
expanding its service in markets that are eligible for government subsidy. In conjunction with the implementation of the Companys strategies to maximize the amount of revenue per flight, the Company has also instituted an aggressive cost
control program.



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War. War or other military action by the United States of America or other countries could have a
significant effect on passenger traffic. The war in Iraq and other international events that fueled the decline in airline industry revenue in 2003 had ongoing effects throughout 2004.



Dependence on Essential Air Services Revenue. After the September 11 terrorist attacks, the DOT recognized the change in
economics for carriers providing service to Essential Air Service cities and ordered the renegotiation of all subsidy contracts retroactive to October 1, 2001. Order Number 2002-2-13 issued by the DOT provided for the adjustment of subsidy payments
to recognize lower levels of passenger revenues and to compensate carriers for higher levels of costs such as insurance and security.



While nominally permitting a 5% margin on costs, contracts with the DOT for providing Essential Air Service have usually been negotiated against an overall program
funding limitation by Congress, which has resulted in carriers accepting a subsidy rate that historically was not fully compensatory. With the enactment of the Air Transportation Safety and System Stabilization Act and associated increased funding,
Congress appropriated a total of $113 million to compensate EAS carriers for their total increased costs, including costs resulting from the September 11 terrorist attacks. In comparison, the EAS subsidy level for the federal fiscal year ended
September 30, 2001 was only $50 million. The total amount of EAS subsidy ultimately received by the Company over an extended period is determined by, among other things, overall funding levels to the DOT by Congress, competitive bids by other
carriers, schedule modifications at the request of the DOT, and the Companys optimization of its schedules.



In 2004, the Company received approximately $20.8 million of EAS subsidies as compensation for essential air services provided by the Company to small cities, as compared
to $25.1 million in 2003. EAS subsidies are expected to remain a significant portion of the Companys revenues in 2005 and future years. Changes in DOT policies with regard to payment of subsidies and any reduction or loss of subsidies as a
result of competitive bidding may have a substantial impact on the Company.



Fuel Costs.Aircraft fuel represented approximately 18.9% of the Companys operating expenses in 2004. The Company does not hedge its fuel purchasing costs. The Companys cost of fuel varies directly with
market conditions, and the Company has no guaranteed long-term sources of supply. The Company intends generally to follow industry trends by raising fares in response to significant fuel price increases. However, the Companys ability to pass
on increased fuel costs through fare increases may be limited by economic and competitive conditions. Accordingly, a reduction in the availability of, or an increase in, the price of fuel could have material adverse effects on both the
Companys cash flow from operations and the Companys profitability. A one-cent change in the average cost per gallon of aircraft fuel would impact the Companys operating expense by approximately $92,000 annually, based upon fuel
consumption during 2004. As of February 29, 2005, the Companys cost for fuel was $1.72 per gallon, a 10.3% increase from the $1.56 per gallon average price for the year ended December 31, 2004.



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Contractual Obligations



The following table summarizes the Companys major contractual obligations as of December 31, 2004:



|                                  |  |      |            |           |   |            |  |            |            |       |   |            |  |   |            
|--------------------------------- |  | ---- | ---------- | --------- | - | ---------- |  | ---------- | ---------- | ----- | - | ---------- |  | - | -----------
|                                  |  | 2005 |            | 2006-2007 |   | 2008-2009  |  | After 2009 |            | Total
|Long-term debt - Contractual      |  | $    | 10,157,937 |           | $ | 25,703,810 |  | $          | 18,933,125 |       | $ | 30,237,186 |  | $ | 85,032,058 
|Additional SFAS 15 Carrying Value |  |      | 5,208,862  |           |   | 5,029,749  |  |            | 3,519,188  |       |   | 1,696,684  |  |   | 15,454,483 
|                                  |  |      |            |           |   |            |  |            |            |       |   |            |  |   |            
|Total debt                        |  |      | 15,366,799 |           |   | 30,733,559 |  |            | 22,452,313 |       |   | 31,933,870 |  |   | 100,486,541
|Aircraft lease obligations        |  |      | 1,741,488  |           |   | 3,482,976  |  |            | 3,482,976  |       |   | 5,442,150  |  |   | 14,149,590 
|                                  |  |      |            |           |   |            |  |            |            |       |   |            |  |   |            
|Total Obligations                 |  | $    | 17,108,287 |           | $ | 34,216,535 |  | $          | 25,935,289 |       | $ | 37,376,020 |  | $ | 114,636,131
|                                  |  |      |            |           |   |            |  |            |            |       |   |            |  |   |            



See Notes 3 and 4 to the financial
statements and Item 7A for interest obligations.



Critical Accounting
Policies and Estimates



The preparation of the Companys financial
statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates, judgments, and assumptions that affect: the reported amounts of assets and liabilities as of the date of the
financial statements; revenues, and expenses during the reporting period; and related disclosures of contingent assets and liabilities in the financial statements and the accompanying notes. Actual results could differ from those estimates.



The United States Securities and Exchange Commission (the SEC) has defined a
companys most critical accounting policies as the ones that are most important to the portrayal of the Companys financial condition and results and that require the company to make its most difficult and subjective judgments, often as a
result of the need to make estimates of matters that are inherently uncertain. Based on this definition, the Company has identified its critical accounting policies as including those addressed below. The Company also has other key accounting
policies, which involve the use of estimates, judgments, and assumptions. See Note 3, Summary of Significant Accounting Policies and Procedures, in the Notes to the Financial Statements for additional discussion of these items.
Management believes that its estimates and assumptions are reasonable, based on information presently available; however, changes in these estimates, judgments, and assumptions will occur as a result of future events. Accordingly, actual results
could differ from amounts estimated.



Passenger Revenues. The
Company recognizes revenues from ticket sales when the service is provided, and records as a liability amounts received for services to be provided in the future. To the extent that a passenger travels using a joint fare that provides for a portion
of the service to be provided by another airline, the total amount of the ticket that is apportioned to the carrying airline is based upon contractual formulas that approximate usual industry standard formulas for sharing of ticket revenues.



Essential Air Service Subsidy Rates. With respect to executed
EAS contracts currently in place, revenues are recognized when service is provided to the individual communities. With respect to open EAS contracts that are being negotiated, estimated revenues are recognized based upon the contract negotiations
that are in process, and such estimates could change once the agreements are finalized.



Estimated Lives Used To Record Depreciation On Aircraft And Obsolescence Reserves For Aircraft Parts Inventories. The estimated lives used to record depreciation on the Companys aircraft may be affected by the volume of
passenger traffic, fare levels, technology, policies regarding EAS subsidies promulgated by the DOT, and



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changes in strategy by the Company. Allowances for the obsolescence of aircraft parts are provided over the estimated useful life of the aircraft and engines
for spare parts that are expected to be on hand at the date the aircraft are retired from service.The foregoing may impact depreciation rates, impairment, or both.



Maintenance Expense. The Company records maintenance expense as it is incurred and does not provide for any maintenance
expense in advance. As required under the Restructuring Agreement, the Company entered into the FMP Contract for all 30 of the Companys Beechcraft 1900D aircraft with monthly expense based on the total number of Beechcraft 1900D engine
operating hours at a fixed contractual rate.



Aircraft Valuation and
Impairments. The Company has evaluated its long-lived assets for possible impairments in compliance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The Company
records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than their carrying
amounts. Impairment losses are measured by comparing the fair value of the assets to their carrying amounts. In determining the need to record impairment charges, the Company is required to make certain estimates regarding such things as the current
fair market value of the asset and future net cash flows to be generated by the asset. The current fair market value of the asset is determined by independent appraisal. Estimates of future net cash flows are based on assumptions such as asset
utilization, expected remaining useful lives, future market trends, and projected salvage values.



Liability Accruals and Reserves.The company is obligated under various agreements relating to employee health and welfare, injuries, tax and fee remittances and other contractual matters, some of which
involve estimates of the ultimate amounts due and impacts of insurance coverages. Changes in the estimates and assumptions could occur and would result in actual results being different than those estimated.



Effects of Inflation



The Company is subject to inflationary pressures from labor agreements, fuel price escalations, and increased operating costs at airports
served by the Company. The Company attempts to counteract the effects of inflation through fare and schedule adjustments. Except for the price of fuel, inflation has not had a material effect on the Companys operations in the past five years.



Air Carrier Security Fees



Included in the Companys current liabilities at December 31, 2004 and 2003 is $2.2
million and $2.5 million, respectively, of funds collected or assessed for security matters in fiscal years 2001 through 2003. The Company is seeking a reduction in the amount payable for such matters.



Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Market Risks



The Company is
susceptible to certain risks related to changes in the cost of aircraft fuel and changes in interest rates. As of December 31, 2004, the Company did not have any derivative financial instruments.



Aircraft Fuel



Due to the airline industrys dependency upon aircraft fuel for operations, airline operators are substantially impacted by changes in
aircraft fuel prices. The Companys earnings are affected by changes in the price and



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availability of aircraft fuel. Aircraft fuel represented approximately 18.9% of the Companys operating expenses in 2004. A one-cent change in the
average cost of aircraft fuel would impact the Companys aircraft fuel expense by approximately $92,000 annually, based upon fuel consumption in 2004.



Interest Rates



The Companys operations are very capital intensive because the vast majority of the Companys assets consist of flight equipment, which is long-lived. As a result, the degree of the Companys exposure
to the market risk that is associated with changes in interest rates is directly related to the Companys outstanding debt obligations. The Companys cash flow is negatively impacted by increases in interest rates because a significant
portion of the Companys long-term debt is financed with variable interest rates. Increases in interest rates also negatively impact the fair value of the Companys debt obligations that carry fixed rates of interest. See Note 5 to the
Consolidated Financial Statements. A 1% increase in interest rates with respect to the Companys variable rate debt obligations would increase annual interest cost by approximately $670,000 annually based on December 31, 2004 balances.



Due to the amortization of the SFAS 15 amounts on the Companys
restructured debt obligations to Raytheon, the Companys interest expense will be significantly less than the contractual interest expense throughout the terms of the Raytheon notes. During 2004, the Companys contractual interest expense
for all long-term debt obligations was $5.5 million. In accordance with procedures set forth in SFAS No. 15, the Company accounted for the payments of $1.1 million of interest and accruals of $4.3 million of interest as reductions of the SFAS 15
book carrying value for the Companys debt. As a result, the Companys net interest expense on long-term debt obligations, as reflected on the financial statements, was $1.3 million on December 31, 2004.



The projected contractual interest expense on the Companys long-term obligations (based
upon the interest rate stated in the debt instruments and December 31, 2004 rate for variable rate debt) for the next five years and thereafter is as follows:



|           |  |                               |         |                          |       |   |                                 |   |                             |  |       |  
|---------- |  | ----------------------------- | ------- | ------------------------ | ----- | - | ------------------------------- | - | --------------------------- |  | ----- | -
|Maturity   |  | Fixed RateContractualInterest |         | AverageFixedInterestRate |       |   | VariableRateContractualInterest |   | AverageVariableInterestRate | 
|2005       |  | $                             | 825,938 |                          | 7.164 | % |                                 | $ | 3,709,836                   |  | 5.764 | %
|2006       |  |                               | 734,982 |                          | 6.981 | % |                                 |   | 3,272,990                   |  | 5.768 | %
|2007       |  |                               | 548,251 |                          | 6.968 | % |                                 |   | 2,823,493                   |  | 5.774 | %
|2008       |  |                               | 179,718 |                          | 8.250 | % |                                 |   | 2,379,426                   |  | 5.778 | %
|2009       |  |                               | 71,732  |                          | 8.250 | % |                                 |   | 1,944,859                   |  | 5.778 | %
|Thereafter |  |                               | 0       |                          |       |   |                                 |   | 2,961,607                   |  | 5.778 | %



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In comparison, after applying the amortization of the SFAS 15 amounts against the Companys contractual interest
expense, the Companys reportable interest expense using SFAS 15 for long-term obligation that is due in the five subsequent years and thereafter is estimated to be as follows:



|           |  |                                       |         |                                            |       |   |                                          |   |                                                  |  |       |  
|---------- |  | ------------------------------------- | ------- | ------------------------------------------ | ----- | - | ---------------------------------------- | - | ------------------------------------------------ |  | ----- | -
|Maturity   |  | Fixed RateInterestadjusted forSFAS 15 |         | Avg. FixedInterest Rateadjusted forSFAS 15 |       |   | Variable RateInterestadjusted forSFAS 15 |   | Avg. Variable Interest Rate adjusted for SFAS 15 | 
|2005       |  | $                                     | 561,870 |                                            | 4.873 | % |                                          | $ | 642,896                                          |  | 1.002 | %
|2006       |  |                                       | 680,726 |                                            | 6.466 | % |                                          |   | 524,516                                          |  | 0.924 | %
|2007       |  |                                       | 505,935 |                                            | 6.430 | % |                                          |   | 412,380                                          |  | 0.843 | %
|2008       |  |                                       | 151,526 |                                            | 6.956 | % |                                          |   | 325,688                                          |  | 0.791 | %
|2009       |  |                                       | 60,113  |                                            | 6.914 | % |                                          |   | 269,700                                          |  | 0.801 | %
|Thereafter |  |                                       | 0       |                                            |       |   |                                          |   | 907,430                                          |  | 0.883 | %





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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



The financial statements of the Company as of December 31, 2004, 2003 and 2002, together with the Report of the Independent Registered Public Accounting Firm, are included in this Form 10-K on the pages indicated below.



|                                                                                                  |  |   
|------------------------------------------------------------------------------------------------- |  | --
|Report of Independent Registered Public Accounting Firm                                           |  | 36
|                                                                                                  | 
|Balance Sheets as of December 31, 2004 and 2003                                                   |  | 37
|                                                                                                  | 
|Statements of Operations for the Years Ended December 31, 2004, 2003 and 2002                     |  | 38
|                                                                                                  | 
|Statements of Stockholders Equity (Deficit) for the Years Ended December 31, 2004, 2003 and 2002 |  | 39
|                                                                                                  | 
|Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002                     |  | 40
|                                                                                                  | 
|Notes to Financial Statements                                                                     |  | 41
|                                                                                                  | 
|Supplemental Schedule to Financial Statements                                                     |  |   
|                                                                                                  | 
|Schedule II - Valuation and Qualifying Accounts                                                   |  | 63



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



The Board of Directors

Great Lakes Aviation, Ltd.:



We have audited the accompanying balance sheets of Great Lakes Aviation, Ltd. as of December 31, 2004 and 2003, and the related statements of operations,
stockholders equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 2004. In connection with our audits of the financial statements, we have also audited the financial statement Schedule II 
Valuation and Qualifying Accounts for the years ended December 31, 2004, 2003, and 2002. These financial statements and financial statement schedule are the responsibility of the Companys management. Our responsibility is to express an opinion
on these financial statements based on our audits.



We conducted our audits in
accordance with the auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Great Lakes Aviation, Ltd. as of December
31, 2004 and 2003, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2004, in conformity with U.S generally accepted accounting principles. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.



The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1
to the financial statements, the Company suffered a significant loss in the year ended December 31, 2002, and has liabilities in excess of assets at December 31, 2004 that raise substantial doubt about its ability to continue as a going concern.
Managements plans in regard to these matters are also described in note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.



/s/ KPMG LLP



Denver, Colorado

March 11, 2005



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##### Table of Contents

GREAT LAKES AVIATION, LTD.



Balance
Sheets



|                                                                                                                                                       |  |                  |             |   |                  |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                                                                                                                       |  | December 31 2004 |             |   | December 31 2003 |  
|Assets                                                                                                                                                 |  |                  |             |   |                  |   |             |  
|Current assets:                                                                                                                                        |  |                  |             |   |                  |   |             |  
|Cash                                                                                                                                                   |  | $                | 1,111,375   |   |                  | $ | 3,700,511   |  
|Accounts receivable, net of allowance of $160,000, at December 31, 2004 and 2003                                                                       |  |                  | 5,109,726   |   |                  |   | 6,148,793   |  
|Inventories, net                                                                                                                                       |  |                  | 1,849,386   |   |                  |   | 2,863,514   |  
|Prepaid expenses and other current assets                                                                                                              |  |                  | 757,380     |   |                  |   | 964,160     |  
|                                                                                                                                                       |  |                  |             |   |                  |   |             |  
|Total current assets                                                                                                                                   |  |                  | 8,827,867   |   |                  |   | 13,676,978  |  
|                                                                                                                                                       |  |                  |             |   |                  |   |             |  
|Property and equipment:                                                                                                                                |  |                  |             |   |                  |   |             |  
|Flight equipment, including aircraft to be returned                                                                                                    |  |                  | 128,463,314 |   |                  |   | 135,079,588 |  
|Other property and equipment                                                                                                                           |  |                  | 8,387,242   |   |                  |   | 7,608,767   |  
|Less accumulated depreciation and amortization                                                                                                         |  |                  | (44,009,485 | ) |                  |   | (39,715,272 | )
|                                                                                                                                                       |  |                  |             |   |                  |   |             |  
|Total property and equipment                                                                                                                           |  |                  | 92,841,071  |   |                  |   | 102,973,083 |  
|                                                                                                                                                       |  |                  |             |   |                  |   |             |  
|Other assets                                                                                                                                           |  |                  | 798,004     |   |                  |   | 1,127,708   |  
|                                                                                                                                                       |  |                  |             |   |                  |   |             |  
|Total assets                                                                                                                                           |  | $                | 102,466,942 |   |                  | $ | 117,777,769 |  
|                                                                                                                                                       |  |                  |             |   |                  |   |             |  
|Liabilities and Stockholders Equity (Deficit)                                                                                                         |  |                  |             |   |                  |   |             |  
|Current liabilities:                                                                                                                                   |  |                  |             |   |                  |   |             |  
|Notes payable and current maturities of long-term debt                                                                                                 |  | $                | 15,366,799  |   |                  | $ | 16,369,997  |  
|Long-term debt classified as current                                                                                                                   |  |                  | 84,978,573  |   |                  |   | 98,557,635  |  
|Accounts payable                                                                                                                                       |  |                  | 9,031,091   |   |                  |   | 10,968,984  |  
|Accrued liabilities and unearned revenue                                                                                                               |  |                  | 5,154,919   |   |                  |   | 8,673,103   |  
|Deferred lease payments                                                                                                                                |  |                  | 7,210,126   |   |                  |   | 7,721,004   |  
|                                                                                                                                                       |  |                  |             |   |                  |   |             |  
|Total current liabilities                                                                                                                              |  |                  | 121,741,508 |   |                  |   | 142,290,723 |  
|                                                                                                                                                       |  |                  |             |   |                  |   |             |  
|Long-term debt, net of current maturities                                                                                                              |  |                  | 141,168     |   |                  |   | 336,100     |  
|Deferred credits                                                                                                                                       |  |                  | 316,460     |   |                  |   | 512,070     |  
|                                                                                                                                                       |  |                 
|Stockholders equity (deficit):                                                                                                                        |  |                  |             |   |                  |   |             |  
|Common stock, $0.01 par value.Authorized: 50,000,000 sharesIssued and outstanding: 14,071,970 at December 31, 2004 and 14,071,970 at
December 31, 2003 |  |                  | 140,720     |   |                  |   | 140,720     |  
|Paid-in capital                                                                                                                                        |  |                  | 33,468,644  |   |                  |   | 33,468,644  |  
|Accumulated deficit                                                                                                                                    |  |                  | (53,341,558 | ) |                  |   | (58,970,488 | )
|                                                                                                                                                       |  |                  |             |   |                  |   |             |  
|Total stockholders equity (deficit)                                                                                                                   |  |                  | (19,732,194 | ) |                  |   | (25,361,124 | )
|                                                                                                                                                       |  |                 
|Commitments and contingencies                                                                                                                          |  |                  |             |   |                  |   |             |  
|                                                                                                                                                       |  |                  |             |   |                  |   |             |  
|Total liabilities and stockholders equity (deficit)                                                                                                   |  | $                | 102,466,942 |   |                  | $ | 117,777,769 |  
|                                                                                                                                                       |  |                  |             |   |                  |   |             |  



See
accompanying notes to financial statements.



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GREAT LAKES AVIATION, LTD.



Statements of Operations



Years Ended December 31,
2004, 2003, and 2002



|                                                   |  |      |            |   |      |   |            |      |  |   |             |  
|-------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ----------- | -
|                                                   |  | 2004 |            |   | 2003 |   |            | 2002 | 
|Operating Revenues:                                |  |      |            |   |      |   |            |      |  |   |             |  
|Passenger                                          |  | $    | 54,532,344 |   |      | $ | 48,691,275 |      |  | $ | 50,716,126  |  
|Public service                                     |  |      | 20,776,363 |   |      |   | 25,079,312 |      |  |   | 30,614,182  |  
|Freight, charter, and other                        |  |      | 1,039,660  |   |      |   | 1,990,805  |      |  |   | 3,398,833   |  
|                                                   |  |      |            |   |      |   |            |      |  |   |             |  
|Total operating revenues                           |  |      | 76,348,367 |   |      |   | 75,761,392 |      |  |   | 84,729,141  |  
|                                                   |  |      |            |   |      |   |            |      |  |   |             |  
|Operating expenses:                                |  |      |            |   |      |   |            |      |  |   |             |  
|Salaries, wages, and benefits                      |  |      | 21,683,996 |   |      |   | 22,667,871 |      |  |   | 25,856,164  |  
|Aircraft fuel                                      |  |      | 14,007,462 |   |      |   | 12,001,306 |      |  |   | 12,616,230  |  
|Aircraft maintenance, materials, and repairs       |  |      | 10,735,153 |   |      |   | 10,321,765 |      |  |   | 12,739,503  |  
|Commissions                                        |  |      | 254,689    |   |      |   | 274,835    |      |  |   | 871,297     |  
|Depreciation and amortization                      |  |      | 6,643,613  |   |      |   | 7,991,387  |      |  |   | 7,011,996   |  
|Aircraft rental                                    |  |      | 1,980,077  |   |      |   | 3,012,402  |      |  |   | 7,461,549   |  
|Other rentals and landing fees                     |  |      | 4,323,539  |   |      |   | 4,348,573  |      |  |   | 5,779,890   |  
|Other operating expense                            |  |      | 14,566,517 |   |      |   | 14,783,429 |      |  |   | 18,101,460  |  
|Impairment of assets and other property            |  |      |           |   |      |   |           |      |  |   | 5,469,539   |  
|                                                   |  |      |            |   |      |   |            |      |  |   |             |  
|Total operating expenses                           |  |      | 74,195,046 |   |      |   | 75,401,568 |      |  |   | 95,907,628  |  
|                                                   |  |      |            |   |      |   |            |      |  |   |             |  
|Operating income (loss)                            |  |      | 2,153,321  |   |      |   | 359,824    |      |  |   | (11,178,487 | )
|                                                   |  |      |           
|Other income (expense):                            |  |      |            |   |      |   |            |      |  |   |             |  
|Interest expense, net                              |  |      | (1,294,487 | ) |      |   | (2,390,280 | )    |  |   | (6,643,176  | )
|Federal grant                                      |  |      |           |   |      |   |           |      |  |   |            |  
|Insurance recovery                                 |  |      | 650,000    |   |      |   |           |      |  |   | 1,437,905   |  
|Gain (loss) on disposal of assets                  |  |      | (196,544   | ) |      |   | 151,703    |      |  |   |            |  
|Gain on extinguishment of debt and deferred leases |  |      | 4,316,640  |   |      |   | 3,668,952  |      |  |   | 5,572,621   |  
|                                                   |  |      |            |   |      |   |            |      |  |   |             |  
|Income (loss) before income taxes                  |  |      | 5,628,930  |   |      |   | 1,790,199  |      |  |   | (10,811,137 | )
|                                                   |  |      |           
|Income tax expense                                 |  |      |           |   |      |   |           |      |  |   |            |  
|                                                   |  |      |            |   |      |   |            |      |  |   |             |  
|Net income (loss)                                  |  | $    | 5,628,930  |   |      | $ | 1,790,199  |      |  | $ | (10,811,137 | )
|                                                   |  |      |            |   |      |   |            |      |  |   |             |  
|Net income (loss) per share:                       |  |      |            |   |      |   |            |      |  |   |             |  
|Basic                                              |  | $    | 0.40       |   |      | $ | 0.13       |      |  | $ | (1.24       | )
|Diluted                                            |  |      | 0.39       |   |      |   | 0.13       |      |  |   | (1.24       | )
|                                                   |  |      |           
|Average shares outstanding:                        |  |      |            |   |      |   |            |      |  |   |             |  
|Basic                                              |  |      | 14,071,970 |   |      |   | 14,061,238 |      |  |   | 8,698,093   |  
|Diluted                                            |  |      | 14,302,268 |   |      |   | 14,061,238 |      |  |   | 8,698,093   |  



See accompanying notes
to financial statements.



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GREAT LAKES AVIATION, LTD.



Statements of Stockholders Equity (Deficit)



Years Ended December 31, 2004, 2003, and 2002



|                                    |  |                                  |  |                     |         |                 |       |            |  |   |             |   |  |   |             |  
|----------------------------------- |  | -------------------------------- |  | ------------------- | ------- | --------------- | ----- | ---------- |  | - | ----------- | - |  | - | ----------- | -
|                                    |  | Common stock and Paid-in capital |  | Accumulated deficit |         |                 | Total |           
|                                    |  | Shares                           |  | Amount              |         | Paid-in capital |       |           
|Balance at December 31, 2001        |  | 8,680,186                        |  | $                   | 86,802  |                 | $     | 31,367,185 |  | $ | (49,949,550 | ) |  | $ | (18,495,563 | )
|                                    |  |                                  |  |                     |        
|Issuance of common stock            |  | 5,371,980                        |  |                     | 53,720  |                 |       | 2,095,072  |  |   |            |   |  |   | 2,148,792   |  
|Net loss and comprehensive loss     |  |                                 |  |                     |        |                 |       |           |  |   | (10,811,137 | ) |  |   | (10,811,137 | )
|                                    |  |                                  |  |                     |         |                 |       |            |  |   |             |   |  |   |             |  
|Balance at December 31, 2002        |  | 14,052,166                       |  |                     | 140,522 |                 |       | 33,462,257 |  |   | (60,760,687 | ) |  |   | (27,157,908 | )
|                                    |  |                                  |  |                     |        
|Issuance of common stock            |  | 19,804                           |  |                     | 198     |                 |       | 6,387      |  |   |            |   |  |   | 6,585       |  
|Net income and comprehensive income |  |                                 |  |                     |        |                 |       |           |  |   | 1,790,199   |   |  |   | 1,790,199   |  
|                                    |  |                                  |  |                     |         |                 |       |            |  |   |             |   |  |   |             |  
|Balance at December 31, 2003        |  | 14,071,970                       |  |                     | 140,720 |                 |       | 33,468,644 |  |   | (58,970,488 | ) |  |   | (25,361,124 | )
|                                    |  |                                  |  |                     |        
|Net income and comprehensive income |  |                                 |  |                     |        |                 |       |           |  |   | 5,628,930   |   |  |   | 5,628,930   |  
|                                    |  |                                  |  |                     |         |                 |       |            |  |   |             |   |  |   |             |  
|Balance at December 31, 2004        |  | 14,071,970                       |  |                     | 140,720 |                 |       | 33,468,644 |  |   | (53,341,558 | ) |  |   | (19,732,194 | )
|                                    |  |                                  |  |                     |         |                 |       |            |  |   |             |   |  |   |             |  



See accompanying notes to financial
statements.



39



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##### Table of Contents

GREAT LAKES AVIATION, LTD.



Statements of Cash Flows



Years Ended December 31,
2004, 2003, and 2002



|                                                                                        |  |      |             |   |      |   |            |      |  |   |             |  
|--------------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ---------- | ---- |  | - | ----------- | -
|                                                                                        |  | 2004 |             |   | 2003 |   |            | 2002 | 
|OPERATING ACTIVITIES:                                                                   |  |      |             |   |      |   |            |      |  |   |             |  
|Net income (loss)                                                                       |  | $    | 5,628,930   |   |      | $ | 1,790,199  |      |  | $ | (10,811,137 | )
|Adjustments to reconcile net income (loss) to net cash provided by operating activities |  |      |             |   |      |   |            |      |  |   |             |  
|Depreciation, amortization, and provision for obsolescence                              |  |      | 6,643,611   |   |      |   | 7,991,387  |      |  |   | 7,011,996   |  
|Non-cash loss on write-off of obsolete aircraft components and other assets             |  |      | 416,491     |   |      |   |           |      |  |   |            |  
|Non-cash gain on terminaton of lease                                                    |  |      | (1,367,576  | ) |      |   |           |      |  |   |            |  
|Impairment of assets and other property                                                 |  |      |            |   |      |   |           |      |  |   | 5,469,539   |  
|(Gain) on disposition of asset                                                          |  |      |            |   |      |   | (151,703   | )    |  |   |            |  
|Non-cash gain on extinguishment of debt                                                 |  |      | (2,647,069  | ) |      |   | (3,668,951 | )    |  |   | (5,572,621  | )
|Non-cash gain on insurance recovery                                                     |  |      |            |   |      |   |           |      |  |   | (1,437,905  | )
|Change in current operating items:                                                      |  |      |             |   |      |   |            |      |  |   |             |  
|(Increase)/Decrease in Accounts Receivable                                              |  |      | 1,039,067   |   |      |   | 2,653,251  |      |  |   | 1,034,880   |  
|(Increase)/Decrease in Inventories                                                      |  |      | 1,014,128   |   |      |   | 2,461,777  |      |  |   | 1,009,213   |  
|(Increase)/Decrease in Prepaid Expenses and Other Current Assets                        |  |      | 437,428     |   |      |   | (741,530   | )    |  |   | 1,141,274   |  
|Increase/(Decrease) in Accounts Payable and Accrued Liabilities                         |  |      | (2,271,589  | ) |      |   | (3,077,741 | )    |  |   | 2,641,106   |  
|Increase/(Decrease) in Deferred Lease Payments                                          |  |      | 869,320     |   |      |   | 2,055,262  |      |  |   | 5,632,119   |  
|                                                                                        |  |      |             |   |      |   |            |      |  |   |             |  
|Net cash provided by operating activities                                               |  |      | 9,762,741   |   |      |   | 9,311,951  |      |  |   | 6,118,464   |  
|                                                                                        |  |      |             |   |      |   |            |      |  |   |             |  
|CASH FLOW FROM INVESTING ACTIVITIES:                                                    |  |      |             |   |      |   |            |      |  |   |             |  
|Purchase of flight equipment and other property and equipment                           |  |      | (1,828,816  | ) |      |   | (459,465   | )    |  |   | (547,294    | )
|Proceeds from insurance recovery                                                        |  |      |            |   |      |   |           |      |  |   | 2,187,808   |  
|Decrease (increase) in other assets                                                     |  |      | (944        | ) |      |   | (6,664     | )    |  |   | 65,533      |  
|                                                                                        |  |      |             |   |      |   |            |      |  |   |             |  
|Net cash flows used in investing activities                                             |  |      | (1,829,760  | ) |      |   | (466,129   | )    |  |   | 1,706,047   |  
|                                                                                        |  |      |             |   |      |   |            |      |  |   |             |  
|CASH FLOW FROM FINANCING ACTIVITIES:                                                    |  |      |             |   |      |   |            |      |  |   |             |  
|                                                                                        |  |      |            
|Repayment of notes payable and long-term debt                                           |  |      | (10,522,117 | ) |      |   | (5,509,820 | )    |  |   | (4,371,344  | )
|Payments on line of credit                                                              |  |      |            |   |      |   |           |      |  |   | (4,609,808  | )
|Proceeds from sale of common stock                                                      |  |      |            |   |      |   | 6,585      |      |  |   |            |  
|                                                                                        |  |      |             |   |      |   |            |      |  |   |             |  
|Net cash used in financing activities                                                   |  |      | (10,522,117 | ) |      |   | (5,503,235 | )    |  |   | (8,981,152  | )
|                                                                                        |  |      |             |   |      |   |            |      |  |   |             |  
|NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS                                    |  |      | (2,589,136  | ) |      |   | 3,342,587  |      |  |   | (1,156,641  | )
|                                                                                        |  |      |            
|Cash and Cash Equivalents:                                                              |  |      |             |   |      |   |            |      |  |   |             |  
|Beginning of year                                                                       |  |      | 3,700,511   |   |      |   | 357,924    |      |  |   | 1,514,565   |  
|                                                                                        |  |      |             |   |      |   |            |      |  |   |             |  
|End of year                                                                             |  | $    | 1,111,375   |   |      | $ | 3,700,511  |      |  | $ | 357,924     |  
|                                                                                        |  |      |             |   |      |   |            |      |  |   |             |  
|Supplementary cash flow information:                                                    |  |      |             |   |      |   |            |      |  |   |             |  
|Cash paid during the year for interest (contractual)                                    |  | $    | 3,948,785   |   |      | $ | 2,431,256  |      |  | $ | 955,770     |  
|                                                                                        |  |      |            
|Non-cash transactions:                                                                  |  |      |             |   |      |   |            |      |  |   |             |  
|Debt issued in acquisition of Beechcraft 1900D aircraft (see note 2)                    |  | $    |            |   |      | $ |           |      |  | $ | 22,500,000  |  
|Extinguishment of outstanding debt principal on aircraft returned to Raytheon           |  | $    | 6,604,040   |   |      | $ | 12,110,300 |      |  | $ |            |  



See accompanying notes to financial
statements.



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GREAT LAKES AVIATION, LTD.



Notes
to Financial Statements

Years Ending on December 31, 2004, 2003, and 2002



|(1) | Business, Liquidity, and Going-Concern Matters
|--- | ----------------------------------------------



(a) Business. Great Lakes Aviation, Ltd. (Great Lakes or the Company) is a regional airline operating as an independent carrier and as a
code share partner with United Air Lines, Inc. (United Air Lines or United) and Frontier Airlines, Inc. (Frontier Airlines or Frontier). Prior to May 2001, the Company operated under the United Air Lines identity as a United Express carrier.
Effective May 1, 2001, the Company and United terminated the United Express relationship, and the Company entered into code share agreement with United. On May 3, 2001, the Company entered into a similar code share agreement with Frontier.



Approximately 42%, 55%, and 71% of the Companys
revenues during 2004, 2003, and 2002, respectively, were generated from Great Lakes passenger traffic that connected with United Air Lines flights.



In December 2002, United filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. There can be no assurance that United will
successfully emerge from bankruptcy protection or that United will continue to utilize the services of the Company as a code share partner at levels for the Company.



In 2004, the Company derived approximately 27% of its total revenue from services provided under the Essential Air Service
program administered by the United States Department of Transportation. The Company provides charter air services to private individuals, corporations, and athletic teams. The Company also carries freight, mail, and cargo on most of the
Companys scheduled flights. On July 27, 2003, the Companys United States Postal Service subcontract for the carriage of mail to certain markets expired.



As of February 28, 2005, the Company served 31 destinations in nine states to and from Denver, CO and three destinations in
three states to and from Phoenix, AZ.



During 2004, the
Company discontinued service to its Minneapolis hub and to two communities previously served by the Company under the EAS program.



(b) Liquidity and Going-Concern Matters. The Company suffered a substantial loss during 2002 reducing the Companys liquidity. As a
result, during 2002, the Company was in arrears in payments to almost all of the institutions providing lease or debt financing for the Company. On December 31, 2002 and during the second quarter of 2003, the Company was able to negotiate
restructured financing agreements with two of the Companys creditors, as discussed in Note 2.



During 2003, the Company was unable to generate sufficient cash flows to service the Companys outstanding debt and lease payment obligations,
including the restructured financing agreements. In addition, the Company was in arrears with respect to almost all of the Companys debt and lease obligations.



During 2004, the Company made the scheduled 2004 payments due its major creditor, Raytheon Aircraft Credit Corporation,
under the December 31, 2002 Restructuring Agreement. The Company has not made payments to Raytheon due during the first quarter of 2005 and did not make certain payments that were due during 2003. The Company anticipates amending its payment
schedule with Raytheon to provide for payment in future periods of missed scheduled payments.



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GREAT LAKES AVIATION, LTD.



Notes to Financial Statements

Years Ending on December 31, 2004, 2003, and 2002



At December 31, 2004, the Company was in arrears with respect to almost all of the Companys
aircraft debt and lease obligations. Therefore, the amount of long-term debt that would otherwise be due after one year is reflected on the Companys balance sheets as long-term obligations classified as current. In addition, the Company cannot
determine with a high degree of confidence that it will be able to generate sufficient cash flows during 2005 in order to make the required payments or remain in compliance with its aircraft debt and leases agreements.



The Companys liquidity problems, in addition to the Companys
dependence on United (which was still in bankruptcy at the end of 2004), raise significant doubts about the Companys ability to continue as a going concern. Because the Company currently has no financing agreements in place that would allow
the Company to secure additional funds, the Companys ability to continue as a going concern will ultimately depend upon the Companys ability to: (i) increase profitability and cash flow or obtain new sources of financing to pay the
Companys obligations as such obligations come due; (ii) maintain adequate liquidity; and (iii) achieve sustained profitability. The accompanying financial statements have been prepared on a going concern basis that assumes a continuity of
operations and the realization of assets and liabilities in the ordinary course of business. The financial statements do not include any adjustments that might result if the Company were forced to discontinue operations.



|(2) | Restructuring Agreement with Raytheon Aircraft Credit Corporation
|--- | -----------------------------------------------------------------



On December 31, 2002, the Company entered into a Restructuring Agreement with Raytheon Aircraft Credit Corporation (Raytheon) regarding lease and debt financing provided
by Raytheon for the Companys Beechcraft 1900C and 1900D aircraft fleet. The complex nature of the Restructuring Agreement included separate provisions for: i) the termination or modification of aircraft operating leases, ii) the return of
seven aircraft in satisfaction of indebtedness obligations, iii) the modification of principal and interest rates for various aircraft financing promissory notes, and iv) a restructuring of other indebtedness by means of an issuance of new debt
instruments and equity. For purposes of accounting for the Restructuring Agreement, the Company has identified the major types of transactions contained within the Restructuring Agreement in order to more accurately apply the appropriate accounting
treatment to each type of transaction. Transactions involving the termination or modification of aircraft operating leases have been accounted for pursuant to the provisions of Statement of Financial Accounting Standards No. 13, Accounting for
Leases, while the restructuring of indebtedness owed by the Company to Raytheon has been accounted for in accordance with the provisions of Statement of Financial Accounting Standards No. 15, Accounting for Debtors and Creditors for Troubled
Debt Restructurings. The Companys continued accounting treatment of those transactions is as follows:



(a) Return of Aircraft. During 2003, the Company returned four Beechcraft 1900D aircraft to Raytheon, with a net book value of $9.9 million,
in exchange for the cancellation and extinguishment of four promissory notes. As a result, during 2003, the Company reduced its outstanding aircraft debt and accrued interest by $13.6 million and recorded net gains from extinguishment of debt in the
amount of $3.7 million.



During the first six months of 2004, the Company
returned two owned Beechcraft 1900D aircraft to Raytheon, with a net book value of $4.9 million, in exchange for the cancellation and extinguishment of two promissory



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GREAT LAKES AVIATION, LTD.



Notes to Financial Statements

Years Ending on December 31, 2004, 2003, and 2002



notes. As a result, the Company reduced its outstanding aircraft debt and accrued interest by $7.6 million. The Company also returned one leased Beechcraft
1900D aircraft during 2004 for the cancellation and extinguishment of outstanding operating lease obligations. The Company is responsible for costs of repair and refurbishment in order to satisfy the aircraft return conditions that are set forth in
the Restructuring Agreement. Accordingly, as of December 31, 2004, the Company has recognized a liability of $2.1 million for such expenditures. The Company reduced the net book value of its owned aircraft by approximately $5.6 million, further
reducing its outstanding aircraft debt and lease liabilities by $8.7 million, and recorded gains from extinguishment of debt related to the two owned 1900D aircraft of $3.6 million and recorded gains on cancelled lease obligations of $0.7 million
for a total recorded gain of approximately $4.3 million.



(b) Refinancing of Aircraft Debt. On December 31, 2002, the Company obtained restructured financing for 30 of the Companys Beechcraft 1900D aircraft by executing new and amended promissory notes that are secured by the
aircraft (the Aircraft Debt). The terms for each of the 30 Aircraft Debt promissory notes provide for an initial principal balance of $2.5 million, with interest to accrue on the unpaid principal balance at the rate of LIBOR plus 375 basis points
per annum. Payments of principal and accrued interest are to be made in 120 monthly installments, with the amount of monthly payment to be adjusted quarterly to reflect any change in the LIBOR rate.



In accordance with Statement of Financial Accounting Standards No. 15,
Accounting by Debtors and Creditors for Troubled Debt Restructurings (SFAS 15), the Company has accounted for the restructuring of the Aircraft Debt as a troubled debt restructuring. SFAS 15 states that, in a troubled debt restructuring, the
debtor shall not reduce the carrying amount of the existing debt on the debtors books unless the carrying amount of the existing debt exceeds the total future cash payments of the new debt under the restructured terms. The effects of any
changes in the face amount or interest rate must be amortized in future periods by reducing interest expense to an effective interest rate which equates the net present value of the future cash payments under the terms of the restructured debt to
the carrying value on the debtors books.



At December
31, 2002, the outstanding principal of the Aircraft Debt was $75 million, while the total future cash flows for the 30 Aircraft Debt promissory notes was estimated to be $95.7 million. In accordance with the provisions of SFAS 15, the Company
recorded the Aircraft Debt on its books in the amount of $95.7 million. The $20.7 million difference (the Aircraft Debt SFAS 15 Amount) between the $95.7 million carrying value of the Aircraft Debt and the $75 million principal amount of the
Aircraft Debt is being amortized as a reduction to the Companys interest expense over the ten-year term of the Aircraft Debt.



During 2004 and 2003, the Company made principal payments of $5.3 million and $2.8 million respectively on the Aircraft Debt. In addition, the Company
made payments of interest in the amount of $3.4 million and $1.9 million. In accordance with procedures set forth in SFAS No. 15, the Company accounted for the payments of interest as a reduction of the Aircraft Debt SFAS 15 Amount. As of December
31, 2004 and 2003, the outstanding principal amount of the Aircraft Debt was $66.9 million and $72.2 million, while the carrying value of the Aircraft Debt on the Companys books (which includes the current balance of the Aircraft Debt SFAS 15
Amount) was $82.1 million and $91.0 million.



As of December
31, 2004, and 2003 the Company was in arrears on payments of interest on the Aircraft Debt in the amount of $1.9 million and $1.7 million, respectively. When the interest is



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GREAT LAKES AVIATION, LTD.



Notes to Financial Statements

Years Ending on December 31, 2004, 2003, and 2002



actually paid, and in accordance with the procedures set forth in SFAS No. 15, the Company will account for the payment of the accrued interest as a
reduction of the Aircraft Debt SFAS 15 Amount.



(c)
Modification of Aircraft Operating Leases. The Restructuring Agreement reduced the monthly lease payments for two Beechcraft 1900C aircraft operating leases. In addition, $384,000 of unpaid lease payments on the two leases was contractually
extinguished. However, in accordance with Statement of Financial Accounting Standards No. 13 Accounting for Leases, the Company has retained the $384,000 liability on the Companys books and has been amortizing the liability amount over
the remaining terms of the leases.



The two Beechcraft
1900C aircraft were dedicated to providing service under a United States Postal Service subcontract for carriage of mail to certain markets. Due to highly competitive bidding by other air carriers at rates that were not economically feasible for the
Company, the Company elected to allow the United States Postal Service subcontract to expire as of July 27, 2003. As a result, the Company elected to terminate the leases for the two Beechcraft 1900C aircraft and to return the aircraft to Raytheon.
The Company returned the two aircraft during the second quarter of 2004, at which time the leases terminated and the Company wrote off the remaining lease liability.



(d) Other Debt Restructuring. Under the Restructuring Agreement, the outstanding principal and accrued
interest amounts on various non-aircraft debt was restructured into three new promissory notes (the Non-Aircraft Debt) with a combined total principal amount of $11.5 million and a carrying value on the Companys books, in accordance with SFAS
15, of $12.8 million. Interest rates on the Non-Aircraft Debt range from LIBOR plus 375 basis points to 8.25%. During the first quarter of 2004, the Company executed an Engine Overhaul Note (the Engine Note), which sets forth the terms for repayment
of $2.3 million liability to satisfy certain aircraft return conditions as set forth in the Restructuring Agreement that was executed by and between the Company and Raytheon on December 31, 2002. During 2004, the Company made principal payments of
$0.9 million on the Non-Aircraft Debt and increased the outstanding principal balance by deferred interest in the amount of $0.1 million. As of December 31, 2004 and 2003, the carrying value of the Non-Aircraft Debt on the Companys books was
$14.1 and $12.6 million, respectively, while the outstanding principal amount of the Non-Aircraft Debt was $13.7 million and $11.5 million, respectively.



(e) Equity Interest and Board of Directors Observer Rights Granted to Raytheon. As further consideration for the concessions granted by
Raytheon in the Restructuring Agreement, on December 31, 2002, the Company issued 5,371,980 shares of the Companys common stock to Raytheon, representing an approximate 38.2% interest in the Companys outstanding shares of common stock.
In addition, the Company granted Raytheon unlimited observer rights for the Companys Board of Directors, but without any right to vote or enter into any discussions at any Board of Directors meetings.



(f) Ongoing Compliance. The debt payments to be made under the
Restructuring Agreement were aligned with the Companys forecasted cash flows at the time the Restructuring Agreement was negotiated. During 2003, shortfalls from actual cash flows resulted in the Companys inability to make the scheduled
payments. As of December 31, 2004, the Company was in arrears on payments of principal and interest for the Aircraft Debt in the amount of $4.7 million and was not in compliance with certain other financial covenants contained in the Restructuring
Agreement.



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GREAT LAKES AVIATION, LTD.



Notes to Financial Statements

Years Ending on December 31, 2004, 2003, and 2002



At December 31, 2004, the Company was in arrears with respect to almost all of the Companys aircraft debt and
lease obligations. Therefore, the amounts of long-term debt that would otherwise be due after one year are reflected on the Companys balance sheets as long-term obligations classified as current. In addition to the contractual amounts due the
lenders, the amount of long-term debt classified as current includes $15.5 million of additional carrying amounts under SFAS 15. The company has not been granted a waiver of the foregoing defaults.



The Company cannot determine with a high degree of confidence that it will be able to
generate sufficient cash flows during 2005 in order to make the required payments or become in compliance with its aircraft debt and lease agreements.



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GREAT LAKES AVIATION, LTD.



Notes to Financial Statements

Years Ending on December 31, 2004, 2003, and 2002



A table summarizing the Companys outstanding obligations to Raytheon Aircraft Credit Corporation as of December
31, 2004 and 2003 is set forth below.



NOTES PAYABLE
TO RAYTHEON AIRCRAFT CREDIT CORPORATION



|                                                                                            |  |                     |  |                   |            |              |   |                     |  |                   |  |              |            |  |   |           
|------------------------------------------------------------------------------------------- |  | ------------------- |  | ----------------- | ---------- | ------------ | - | ------------------- |  | ----------------- |  | ------------ | ---------- |  | - | ----------
|                                                                                            |  | December 31, 2004   |  | December 31, 2003
|                                                                                            |  | Collateral Aircraft |  | Principal Balance |            | Book Balance |   | Collateral Aircraft |  | Principal Balance |  | Book Balance
|Group A Beechcraft 1900DAircraft to be returned                                           |  | 0                   |  | $                 | 0          |              | $ | 0                   |  | 2                 |  | $            | 6,604,040  |  | $ | 6,604,040 
|                                                                                            |  |                     |  |                   |            |             
|Group B Beechcraft 1900DAircraft in Company fleetInterest Rate:  LIBOR + 375 basis points |  | 30                  |  | $                 | 66,919,059 |              | $ | 82,172,904          |  | 30                |  | $            | 72,191,354 |  | $ | 90,979,062
|                                                                                            |  |                     |  |                   |            |             
|Deferral NoteInterest Rate:  LIBOR + 375 basis points                                       |  |                     |  | $                 | 295,898    |              | $ | 295,898             |  |                   |  | $            | 798,726    |  | $ | 798,726   
|                                                                                            |  |                     |  |                   |            |             
|Senior NoteInterest Rate: 8.25%                                                             |  |                     |  | $                 | 5,887,076  |              | $ | 6,087,713           |  |                   |  | $            | 5,425,438  |  | $ | 6,087,713 
|                                                                                            |  |                     |  |                   |            |             
|Subordinated NoteInterest Rate: 6.0%                                                        |  |                     |  | $                 | 5,832,276  |              | $ | 5,832,276           |  |                   |  | $            | 5,306,818  |  | $ | 5,690,018 
|                                                                                            |  |                     |  |                   |            |             
|Settlement Note  LIBOR + 375 basis points                                                   |  |                     |  | $                 | 1,911,186  |              | $ | 1,911,186           |  |                   |  | $            |           |  | $ |          



(3) Summary of Significant
Accounting Policies and Procedures



(a) Use of
Estimates.The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Companys management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates utilized by
the Company include ticket revenue, government air service subsidies, depreciable lives, impairment and obsolescence, and lease termination costs. Actual results could differ from those estimates.



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GREAT LAKES AVIATION, LTD.



Notes to Financial Statements

Years Ending on December 31, 2004, 2003, and 2002



(b) Liability Accruals and Reserves.The company is obligated under various agreements
relating to employee health and welfare, injuries, tax and fee remittances and other contractual matters, some of which involve estimates of the ultimate amounts due and impacts of insurance coverages. Changes in the estimates and assumptions could
occur and would result in actual results being different than those estimated.



(c) Accounts Receivable. Substantially all accounts receivable balances are due from various airlines, credit card companies and the United States government. Approximately 12%, 22% and 36% of the
December 31, 2004 receivable balances, and 10%, 27% and 27% of the December 31, 2003 receivable balances, are due from various airlines, credit card companies, and the United States government, respectively. All receivables are pledged as collateral
securing the Companys debt agreements.



(d)
Inventories. Inventories consist of spare parts, fuel, materials, and supplies relating to flight equipment. Inventories are stated at the lower of average cost or market. Allowances for obsolescence are provided over the estimated useful
life of the related aircraft and engines for spare parts expected to be on hand at the date aircraft are retired from service. Expendable parts are charged to maintenance expense as used. Inventories consisting of spare parts and equipment are
pledged as collateral securing the Raytheon notes.



(e)
Property and Equipment. Property and equipment includes aircraft and major parts relating to such aircraft. Property is stated at cost and depreciated on a straight-line basis for financial reporting purposes over estimated useful lives of
14 to 20 years for flight equipment and three to ten years for other property and equipment. Leasehold improvements are amortized over the shorter of the life of the lease or the life of the asset. Accelerated methods of depreciation are used for
tax reporting purposes. All owned aircraft are pledged as collateral for outstanding obligations.



Maintenance and repairs, including periodic aircraft overhauls, are expensed as incurred or when the component is placed in service.



(f) Impairment of Assets. In 2001, the Company
adopted Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,which superceded Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When factors indicate that
the carrying amount of an asset may not be recoverable, the Company recognizes the impairment based on the fair value of such asset. The amount of any impairment is included in income from continuing operations and the method or methods
of determining fair value are disclosed.



(g) Other
Assets. Other assets consist primarily of deposits with financial institutions, bonding companies, facilities lessors, and others to secure the payment of fixed obligations. Deposits related to long-term leases were $0.8 million and $1.1
million at December 31, 2004 and 2003, respectively.



(h) Long-term Obligations Classified As Current. At December 31, 2004, the Company was in arrears with respect to almost all of the Companys aircraft debt and lease obligations. Therefore, in



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GREAT LAKES AVIATION, LTD.



Notes to Financial Statements

Years Ending on December 31, 2004, 2003, and 2002



accordance with generally accepted accounting principles, the amounts of long-term debt that would
otherwise be due after one year are reflected on the Companys balance sheets as long-term obligations classified as current. In addition to the contractual amounts due the lenders, the amount of long-term debt classified as current includes
$11.2 million of additional carrying amounts under SFAS 15.



(i) Accrued Liabilities. Accrued liabilities consisted of the following balances at December 31, 2004 and 2003:



|                               |  |      |           |      |   |          
|------------------------------ |  | ---- | --------- | ---- | - | ---------
|                               |  | 2004 |           | 2003
|Accrued expenses               |  | $    | 553,735   |      | $ | 528,842  
|Unearned revenue               |  |      | 1,681,538 |      |   | 2,265,228
|Accrued property taxes         |  |      | 53,382    |      |   | 16,000   
|Accrued payroll                |  |      | 1,454,781 |      |   | 1,584,025
|Accrued aircraft refurbishment |  |      | 209,346   |      |   | 2,517,391
|Accrued interest               |  |      | 1,202,137 |      |   | 1,761,617
|                               |  |      |           |      |   |          
|Total accrued liabilities      |  | $    | 5,154,919 |      | $ | 8,673,103
|                               |  |      |           |      |   |          



(j) Deferred
Lease Payments. Due to shortfalls from forecasted cash flows during 2003 and 2004, the Company was in arrears on substantially all of its aircraft lease obligations. As a result, the balances of outstanding deferred lease payments owed by
the Company to its aircraft lessors as $7.2 million at December 31, 2004 and $7.7 million at December 31, 2003.



(k) Deferred Credits. The Company has received various incentives in the form of interest rate subsidies and spare parts in connection with
the acquisition of new aircraft. Incentives are being amortized as a reduction of rent expense or interest expense over the term of the related agreement. The amount of deferred credits have been further reduced by the write-off of incentives that
were associated with aircraft returned to Raytheon during 2003 and 2004.



(l) Revenue Recognition. Passenger revenues are recorded as income either when the respective services are rendered or when the time for use of the ticket has expired. Liability for unused tickets issued
by the Company is recorded as unearned revenue. The Company also receives public service subsidy revenues for providing air service to certain communities that do not generate sufficient traffic to fully support profitable air service. Public
service subsidy revenues are recorded by the Company during the period in which the agreed upon air service is furnished by the Company. Revenues are recorded net of fees and excise taxes which are remitted to government agencies based on reported
collections.



With respect to closed EAS contracts, the
Company records revenues based upon rates that were approved by the Department of Transportation in the closed EAS contracts.



In the case of EAS contracts currently under negotiation, the Company records revenues based upon the assumption that the contracts will be renewed at
rates that are not less than the rates



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GREAT LAKES AVIATION, LTD.



Notes to Financial Statements

Years Ending on December 31, 2004, 2003, and 2002



currently in use. Any adjustments in revenue for differences between the assumed rates currently
utilized by the Company and the rates approved by the Department of Transportation in the closed EAS contracts are recorded by the Company when such EAS contracts are finalized and closed.



(m) Code Share Relationships. The Company operates under code
share agreements with United Air Lines and Frontier Airlines. The Company also participates in Uniteds Mileage Plus frequent flyer program.



(n) Income Taxes. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and
liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and
liabilities is recognized as income or expense in the period that includes the enactment date.



(o) Income and Loss Per Share. Basic income and loss per share has been computed by dividing the net income or loss for a particular year by
the weighted average number of shares of common stock outstanding during such year. Diluted income and loss per share is calculated by including the dilutive impact of the issuance of common stock pursuant to the exercise of outstanding warrants and
stock options. Since the Company suffered a net loss in the year ended December 31, 2002, the effects of potential common stock issuances were not included in the calculation for that year, as their effects would be anti-dilutive. In addition,
because the average price of the Companys stock during 2003 was less than the exercise prices of all outstanding warrants and stock options, the effects of potential common stock issuances were not included in the calculation for 2003, as
their effects would be anti-dilutive. For the year ending December 31, 2004, the dilutive effect on income per share attributable to stock options outstanding that were granted at an exercise price below the average market value of common stock for
the period ending December 31, 2004, was $.01 per share.



(p) Comprehensive Income. For the years ended December 31, 2004, 2003, and 2002, comprehensive income (loss) equals net income (loss).



(q) Stock Option Plans. The Company has elected the pro forma disclosure option of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123). The Company will continue applying the accounting treatment prescribed by the provisions of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees and Related Interpretations (APB Opinion No. 25). Pro forma net loss and pro forma net loss per share have been provided as if SFAS No. 123 were adopted for all stock-based compensation plans.



The Company applies APB Opinion No. 25 and related
interpretations in accounting for the Companys stock option plans (the Plans), both of which are fixed stock option plans. Accordingly, no compensation cost has been recognized for the Plans because the option exercise prices are at least
equal to the fair market value of the Companys common stock on the dates of the option grants.



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GREAT LAKES AVIATION, LTD.



Notes to Financial Statements

Years Ending on December 31, 2004, 2003, and 2002



If the compensation cost for the Companys fixed stock option plans had been determined
consistent with SFAS No. 123, the Companys net loss and loss per share would have been impacted as follows:



|                                             |  |                         |           |      |   |           |  |   |             |  
|-------------------------------------------- |  | ----------------------- | --------- | ---- | - | --------- |  | - | ----------- | -
|                                             |  | Year Ended December 31, |          
|                                             |  | 2004                    |           | 2003 |   | 2002      | 
|Net income (loss) as reported                |  | $                       | 5,628,930 |      | $ | 1,790,199 |  | $ | (10,811,137 | )
|Pro forma net income (loss)                  |  |                         | 5,559,439 |      |   | 1,676,637 |  |   | (10,902,124 | )
|Basic income (loss) per share, as reported   |  |                         | 0.40      |      |   | 0.13      |  |   | (1.24       | )
|Pro forma basic income (loss) per share      |  |                         | 0.40      |      |   | 0.12      |  |   | (1.25       | )
|Diluted income (loss) per share, as reported |  |                         | 0.39      |      |   | 0.13      |  |   | (1.24       | )
|Pro forma diluted income (loss) per share    |  |                         | 0.39      |      |   | 0.12      |  |   | (1.25       | )



As required, the pro
forma disclosures above include options granted since January 1, 1995. Consequently, the effects of applying SFAS No. 123 for providing pro forma disclosures may not be representative of the effects on reported net income for future years until all
options outstanding are included in the pro forma disclosures. For purposes of pro forma disclosures, the estimated fair value of stock-based compensation plans and other options is amortized to expense primarily over the vesting period. See Note 7
for further discussion of the assumptions relating to the Companys stock-based employee compensation.



(r) Fair Value of Financial Instruments. Fair value estimates, methods, and assumptions of financial instruments are set forth below:



Cash, accounts receivable, accounts payable, and accrued
liabilities. The carrying amount approximates fair value because of the short-term nature of these instruments.



Long-term debt. Based upon the Companys concentration of long-term debt with only two aircraft creditors, the fair value of long-term debt
was not reasonably determinable.



(s) Supplemental
Disclosure of Non-cash Investing and Financing Activities. Amounts on the statement of cash flows for fiscal year 2002 exclude the effect of recording the insured loss of one owned and one leased Beechcraft 1900D and parts inventory in a
hangar fire on May 14, 2002. The net book values of the Companys inventory and flight equipment lost were $794,000 and $3,821,000, respectively, and the Company had a debt obligation for the aircraft of $3,184,000. In addition, the Company
incurred a liability to Raytheon Aircraft Credit Corporation for the stipulated loss value of the leased aircraft. Insurance proceeds on the assets totaled $9,988,000, of which $7,800,000 was paid to Raytheon on the foregoing obligations including
past due interest and deferred lease payments on these aircraft. A gain on insurance recovery of $1,438,000 was recognized representing the excess of the total insurance over the net book value of the Companys assets that were destroyed and
liability incurred on the leased aircraft.



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GREAT LAKES AVIATION, LTD.



Notes to Financial Statements

Years Ending on December 31, 2004, 2003, and 2002



(4) Flight Equipment



The Companys passenger airline fleet consists of Beechcraft Model 1900D 19-passenger aircraft and Embraer Brasilia Model 120 30-passenger aircraft.



A summary of the Companys operating aircraft as of December 31,
2004 and 2003 is as follows:



|                 |  |                 |  |                 |  |                 |  |                 |  |                 |  |                
|---------------- |  | --------------- |  | --------------- |  | --------------- |  | --------------- |  | --------------- |  | ---------------
|                 |  | 2004            |  | 2003           
|                 |  | Beechcraft1900C |  | Beechcraft1900D |  | EmbraerBrasilia |  | Beechcraft1900C |  | Beechcraft1900D |  | EmbraerBrasilia
|Owned            |  |                |  | 30              |  | 4               |  |                |  | 32              |  | 4              
|Operating leases |  |                |  | 0               |  | 2               |  | 2               |  | 1               |  | 3              
|                 |  |                 |  |                 |  |                 |  |                 |  |                 |  |                
|                 |  |                |  | 30              |  | 6               |  | 2               |  | 33              |  | 7              
|                 |  |                 |  |                 |  |                 |  |                 |  |                 |  |                



The following table sets forth the
future lease commitments for aircraft under the Companys current lease agreements, as of December 31, 2004:



|           |  |                |           
|---------- |  | -------------- | ----------
|           |  | Total per year
|2005       |  | $              | 1,741,488 
|2006       |  |                | 1,741,488 
|2007       |  |                | 1,741,488 
|2008       |  |                | 1,741,488 
|2009       |  |                | 1,741,488 
|Thereafter |  |                | 5,587,274 
|           |  |                |           
|           |  | $              | 14,294,714
|           |  |                |           



The Company leases two Embraer
Brasilia Model 120 aircraft from Boeing Capital Corporation (Boeing). At December 31, 2004, the Company was in arrears on its aircraft rental obligations under these leases in the amount of $6.0 million. The Company has also recorded a liability to
Boeing in the amount of $0.9 million for accrued penalty interest on the missed lease payments. The Company is engaged in ongoing negotiations with Boeing with respect to the Companys default under the terms of the aircraft lease agreements.



During 2003, the Company leased one Embraer Brasilia Model 120 aircraft from
FINOVA Capital Corporation (FINOVA). The lease terminated on November 1, 2003, and the Company returned the aircraft to FINOVA in January 2004. The Company is responsible for costs of repair and refurbishment in order to satisfy the aircraft return
conditions that are set forth in the FINOVA lease agreement. Accordingly, as of December 31, 2004, the Company recognized a liability of $0.2 million for such expenditures. In addition, as of December 31, 2004, the Company had accrued lease
payments, together with accrued penalty interest, in the amount of $1.3 million with respect to the aircraft lease. FINOVA and the Company have agreed to negotiate a settlement of amounts due under the aircraft lease agreement and for any
deficiencies in the operating condition of the returned aircraft.



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GREAT LAKES AVIATION, LTD.



Notes to Financial Statements

Years Ending on December 31, 2004, 2003, and 2002



Non-aircraft lease commitments are set forth in Note 10.



(5) Notes Payable and Long-Term Debt



Current notes payable and current maturities of long-term debt consisted of the following
balances at December 31, 2004 and 2003:



|                                                           |  |      |            |      |   |           
|---------------------------------------------------------- |  | ---- | ---------- | ---- | - | ----------
|                                                           |  | 2004 |            | 2003
|Amounts due Raytheon Aircraft Credit Corporation:          |  |      |            |      |   |           
|Current maturities of Raytheon long-term debt - principal  |  | $    | 8,372,542  |      | $ | 10,561,275
|Current portion of additional carrying value under SFAS 15 |  |      | 5,208,861  |      |   | 5,133,541 
|                                                           |  |      |            |      |   |           
|Current maturities of Raytheon long-term debt              |  |      | 13,581,403 |      |   | 15,694,816
|Other current maturities of long-term debt                 |  |      | 1,785,395  |      |   | 675,181   
|                                                           |  |      |            |      |   |           
|Total current maturities of long-term debt                 |  | $    | 15,366,798 |      | $ | 16,369,997
|                                                           |  |      |            |      |   |           



Long-term debt and long-term debt
classified as current consist of the following at December 31, 2004 and 2003:



|                                                                                                                        |  |      |             |   |      |   |             |  
|----------------------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | -
|                                                                                                                        |  | 2004 |             |   | 2003 |  
|Long-Term Debt:                                                                                                         |  |      |             |   |      |   |             |  
|Raytheon Aircraft Credit Corporation - principal (A)                                                                    |  | $    | 80,845,495  |   |      | $ | 90,326,376  |  
|Additional carrying value under SFAS 15                                                                                 |  |      | 15,454,482  |   |      |   | 19,833,183  |  
|Other long-term notes (B)                                                                                               |  |      | 4,186,563   |   |      |   | 5,104,173   |  
|                                                                                                                        |  |      |             |   |      |   |             |  
|Total long-term debt                                                                                                    |  |      | 100,486,540 |   |      |   | 115,263,732 |  
|                                                                                                                        |  |     
|Less:                                                                                                                   |  |      |             |   |      |   |             |  
|Raytheon Aircraft Credit Corporation current maturities of long-term debt and additional carrying value under SFAS 15   |  |      | (13,581,404 | ) |      |   | (14,921,925 | )
|Other current maturities of long-term debt                                                                              |  |      | (1,785,395  | ) |      |   | (1,448,072  | )
|                                                                                                                        |  |      |             |   |      |   |             |  
|Long-term debt net of current maturities                                                                                |  |      | 85,119,741  |   |      |   | 98,893,735  |  
|                                                                                                                        |  |      |             |   |      |   |             |  
|                                                                                                                        |  |     
|Less:                                                                                                                   |  |      |             |   |      |   |             |  
|Raytheon Aircraft Credit Corporation long-term debt reclassified as current and additional carrying value under SFAS 15 |  |      | (82,718,574 | ) |      |   | (95,237,634 | )
|Other long-term debt reclassified as current                                                                            |  |      | (2,259,999  | ) |      |   | (3,320,001  | )
|                                                                                                                        |  |      |             |   |      |   |             |  
|Long-term debt classified as current (C)                                                                                |  |      | (84,978,573 | ) |      |   | (98,557,635 | )
|                                                                                                                        |  |      |             |   |      |   |             |  
|Net long-term debt                                                                                                      |  | $    | 141,168     |   |      | $ | 336,100     |  
|                                                                                                                        |  |      |             |   |      |   |             |  

---

|(A) | At December 31, 2004, the Raytheon notes consisted of 30 aircraft promissory notes and four long-term notes payable. Thirty of the promissory notes require payments of approximately
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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GREAT LAKES AVIATION, LTD.



Notes to Financial Statements

Years Ending on December 31, 2004, 2003, and 2002



$26,500 per month, with interest accruing on unpaid balances at the rate of LIBOR plus 375 basis
points per annum. Each of these 30 promissory notes matures on December 31, 2012. Of the four long-term notes payable, the first note payable requires quarterly payments of principal and interest during 2004 in the amount of $125,000 per quarter,
with interest accruing on the unpaid balances at the rate of LIBOR plus 375 basis points per annum. The first note payable will mature on December 31, 2005. The second note payable requires no payments until 2005, at which time payments of principal
and interest in the amount of $362,000 will be due and payable quarterly. Interest will accrue on the unpaid balances of the second note payable at the rate of 8.25% per annum, and the note will mature on December 31, 2009. The third note payable
requires no payments until 2005, at which time payments of interest ranging in amounts from $41,000 to $44,000 will be due and payable quarterly. Interest will accrue on the unpaid balances of the third note payable at the rate of 6% per annum. The
third note payable will mature on September 30, 2007, at which time all outstanding amounts under the note will be due and payable. The fourth note payable requires monthly payments of principal in the amount of $37,500 plus interest beginning
January 31, 2004 at which time payments of principal and interest will be due and payable monthly. Interest will accrue on the unpaid balances of the fourth note payable at the rate of LIBOR plus 400 basis points per annum.



All of the Raytheon notes are secured by the Beechcraft 1900D aircraft and
other assets of the Company.



Until such time as all
obligations due and payable under the Restructuring Agreement are paid in full, and as partial consideration for the concessions and agreements of Raytheon in the Restructuring Agreement, the Company agreed to meet certain financial and
non-financial covenants. In addition to other convenants that may be found in the Restructuring Agreement, the primary financial covenants are as follows:



(1) The Company agreed (i) that the Company would not create or assume any additional indebtedness, other than indebtedness incurred in the ordinary
course of business, and (ii) that, at any time, the total amount of the Companys indebtedness would not exceed a pre-determined permitted amount of indebtedness. The pre-determined permitted amount of indebtedness is calculated as a certain
dollar amount over an allowed debt ratio.

(2) The Company is required to meet a pre-determined net debt to EBITDA threshold for each fiscal
quarter period.



As of December 31, 2004, the Company was in
default of almost all of the financial covenants contained in the Restructuring Agreement.

|(B) | Other long-term notes consist of one note payable to CIT Aerospace (CIT) and one note payable to FINOVA. The note payable to CIT requires payments ranging from $95,000 to $102,000
per month, with interest at the rate of LIBOR plus 275 basis points per annum. The note payable to CIT is secured by three Embraer Brasilia Model 120 aircraft. The note payable to FINOVA requires monthly payments of approximately $18,314, with
interest at the rate of 10% per annum.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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GREAT LAKES AVIATION, LTD.



Notes to Financial Statements

Years Ending on December 31, 2004, 2003, and 2002



|(C) | At December 31, 2004, the Company was in arrears with respect to almost all of the Companys aircraft debt and lease obligations. Therefore, in accordance with generally
accepted accounting principles, the amounts of long-term debt that would otherwise be due after one year are reflected on the Companys balance sheets as long-term obligations classified as current. In addition to $69.5 million of outstanding
debt principal, the amount of long-term debt classified as current includes $15.5 million of additional carrying amounts under SFAS No. 15 (see Note 2).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



At December 31, 2003, the Company was in arrears with respect to almost all of the Companys aircraft debt and lease
obligations. Therefore, in accordance with generally accepted accounting principles, the amounts of long-term debt that would otherwise be due after one year are reflected on the Companys balance sheets as long term obligations classified as
current. In addition to $78.7 million of outstanding debt principal, the amount of long-term debt classified as current includes $19.8 million of additional carrying amounts under SFAS No. 15 (see Note 2).



As of December 31, 2004, the long-term debt obligations due in the five subsequent years and
thereafter under their contractual terms were as follows:



|                                        |  |                   |            |                   |   |           |  |       |            |  |   |            
|--------------------------------------- |  | ----------------- | ---------- | ----------------- | - | --------- |  | ----- | ---------- |  | - | -----------
|                                        |  | Beechcraft 1900Ds |            | Embraer Brasilias |   | Other     |  | Total
|2005                                    |  | $                 | 6,633,281  |                   | $ | 1,785,395 |  | $     | 1,739,261  |  | $ | 10,157,937 
|2006                                    |  |                   | 6,962,937  |                   |   | 1,261,168 |  |       | 1,578,848  |  |   | 9,802,953  
|2007                                    |  |                   | 7,308,979  |                   |   | 1,140,000 |  |       | 7,451,877  |  |   | 15,900,856 
|2008                                    |  |                   | 7,672,213  |                   |   |          |  |       | 1,719,119  |  |   | 9,391,332  
|2009                                    |  |                   | 8,053,501  |                   |   |          |  |       | 1,488,292  |  |   | 9,541,793  
|Thereafter                              |  |                   | 30,237,187 |                   |   |          |  |       |           |  |   | 30,237,187 
|                                        |  |                   |            |                   |   |           |  |       |            |  |   |            
|                                        |  |                   | 66,868,098 |                   |   | 4,186,563 |  |       | 13,977,397 |  |   | 85,032,058 
|                                        |  |                   |            |                  
|Additional carrying value under SFAS 15 |  |                   | 15,253,845 |                   |   | -        |  |       | 200,637    |  |   | 15,454,482 
|                                        |  |                   |            |                   |   |           |  |       |            |  |   |            
|                                        |  | $                 | 82,121,943 |                   | $ | 4,186,563 |  | $     | 14,178,034 |  | $ | 100,486,540
|                                        |  |                   |            |                   |   |           |  |       |            |  |   |            



(6) Income Taxes



Due to taxable losses during fiscal years 2004, 2003, and 2002, the Company did not accrue
any federal or state income tax liabilities for the years ended December 31, 2004, 2003, and 2002.



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GREAT LAKES AVIATION, LTD.



Notes to Financial Statements

Years Ending on December 31, 2004, 2003, and 2002



The federal statutory tax rate differs from the Companys effective income tax rate for the years ended December
31, 2004, 2003, and 2002 as follows:



|                                         |  |       |    |  |       |    |  |       |  
|---------------------------------------- |  | ----- | -- |  | ----- | -- |  | ----- | -
|                                         |  | 2004  |    |  | 2003  |    |  | 2002  |  
|Federal statutory (expense)/benefit rate |  | (35.0 | )% |  | (35.0 | )% |  | 35.0  | %
|State income taxes, of federal benefit   |  |      |    |  |      |    |  |      |  
|Change in valuation allowance and other  |  | 35.0  |    |  | 35.0  |    |  | (35.0 | )
|                                         |  |       |    |  |       |    |  |       |  
|Net effective income tax rate            |  | 0.0   | %  |  | 0.0   | %  |  | 0.0   | %
|                                         |  |       |    |  |       |    |  |       |  



Deferred tax assets (liabilities) as
of December 31, 2004 and 2003 were as follows (in thousands):



|                                     |  |      |         |   |      |   |         |  
|------------------------------------ |  | ---- | ------- | - | ---- | - | ------- | -
|                                     |  | 2004 |         |   | 2003 |  
|Deferred tax assets:                 |  |      |         |   |      |   |         |  
|Net operating loss carryforwards     |  | $    | 28,373  |   |      | $ | 29,531  |  
|Accrued liabilities and other        |  |      | 12,650  |   |      |   | 14,424  |  
|                                     |  |      |         |   |      |   |         |  
|Total gross deferred tax assets      |  |      | 41,023  |   |      |   | 43,955  |  
|                                     |  |     
|Less: valuation allowance            |  |      | (21,530 | ) |      |   | (26,162 | )
|                                     |  |      |         |   |      |   |         |  
|                                     |  |      | 19,493  |   |      |   | 17,793  |  
|Deferred tax liabilities:            |  |      |         |   |      |   |         |  
|Property and equipment               |  |      | (19,493 | ) |      |   | (17,793 | )
|                                     |  |     
|Total deferred tax asset (liability) |  | $    | 0       |   |      | $ | 0       |  
|                                     |  |      |         |   |      |   |         |  



The Company has reviewed its deferred
tax assets and has not recognized the potential tax benefits arising therefrom because at this time management believes it is more likely than not that the benefits will not be realized in future years.



The Company has estimated net operating loss carry forwards for federal income tax purposes
in a total amount of approximately $81.1 million at December 31, 2004, expiring in years from 2007 through 2024. The net change in the total valuation allowance for the fiscal year ended December 31, 2004 was a decrease of $4.6 million, which
includes the effects of adjustments relating to filed tax returns.



The Company
believes that over the three-year period from January 1, 2002 through December 31, 2004, the stock ownership percentages (by value) of 5-percent shareholders (as such term is defined in Internal Revenue Code Section 382) have not
increased, in the aggregate, by more than 50 percentage points over such shareholders lowest ownership percentages within such three-year period. Accordingly, the Company believes that the Companys ability to use its estimated net
operating loss carry forwards is not subject to any annual limitations set forth in Internal Revenue Code Section 382. Any future changes in stock ownership by one or more 5-percent shareholders could potentially subject the Company to such annual
limitations.



(7) Employee Benefit Plans



(a) 401(k). The Company maintains a qualified 401(k) employee
savings plan for the benefit of substantially all of the Companys employees. The Company matches up to 4% of participating employees contributions. Company contributions totaled $226,870 in 2004, $205,120 in 2003, and $242,578 in 2002.



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##### Table of Contents

(b) Stock Option Plans. In 1993, the Company adopted the Great Lakes Aviation, Ltd. 1993
Stock Option Plan and the Great Lakes Aviation, Ltd. 1993 Director Stock Option Plan (collectively, the Plans). The Plans permitted the grant of stock options in the aggregate of 1,300,000 shares of the Companys common stock to key employees,
officers, and directors of the Company. Pursuant to their terms, both Plans expired on October 31, 2003 and no options may be granted after October 31, 2003. However, all outstanding options shall remain in effect until such outstanding options have
either expired or been cancelled.



Options granted under the
Plans become 20% vested upon the completion of 12 continuous months of employment from the date of grant, with additional 20% vesting in each subsequent 12-month period of employment over a continuous five year period. The options expire after 10
years from the date of grant. Options are forfeited upon termination from employment for reasons other than retirement, death, or disability.



A summary of the status of the Companys fixed option plans as of December 31, 2004, 2003, and 2002 and changes during the years ended on those dates
is presented below:



|                                                               |  |         |         |      |                                |      |         |  |   |                                |   |         |   |      |                                 |   |          |   |  |   |     
|-------------------------------------------------------------- |  | ------- | ------- | ---- | ------------------------------ | ---- | ------- |  | - | ------------------------------ | - | ------- | - | ---- | ------------------------------- | - | -------- | - |  | - | ----
|                                                               |  | 2004    |         | 2003 |                                | 2002
|                                                               |  | Options |         |      | Weighted averageexercise price |      | Options |  |   | Weighted averageexercise price |   | Options |   |      | Weighted average exercise price
|Outstanding at beginning of year                               |  |         | 650,000 |      |                                | $    | 1.10    |  |   | 670,000                        |   |         | $ | 1.28 |                                 |   | 360,000  |   |  | $ | 2.71
|Granted                                                        |  |         |        |      |                                |      |         |  |   |                               |   |         | $ |      |                                 |   | 420,000  |   |  | $ | 0.40
|Forfeited                                                      |  |         | (60,000 | )    |                                | $    | 6.96    |  |   | (20,000                        | ) |         | $ | 7.27 |                                 |   | (110,000 | ) |  | $ | 2.60
|                                                               |  |         |         |      |                                |      |         |  |   |                                |   |         |   |      |                                 |   |          |   |  |   |     
|Outstanding at end of year                                     |  |         | 590,000 |      |                                | $    | 0.88    |  |   | 650,000                        |   |         | $ | 1.10 |                                 |   | 670,000  |   |  | $ | 1.28
|                                                               |  |         |         |      |                                |      |         |  |   |                                |   |         |   |      |                                 |   |          |   |  |   |     
|Options exercisable at year end                                |  |         | 580,000 |      |                                | $    | 0.98    |  |   | 422,000                        |   |         | $ | 1.42 |                                 |   | 192,800  |   |  | $ | 2.98
|Weighted average fair value of options granted during the year |  | $       | 0.00    |      |                                |      |         |  | $ | 0.00                           |   |         |   |      |                                 | $ | 0.48     |   |  |   |     



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GREAT LAKES AVIATION, LTD.



Notes to Financial Statements

Years Ending on December 31, 2004, 2003, and 2002



A summary of stock options outstanding and exercisable as of December 31, 2004 are as
follows:



|                        |  |                     |  |                                        |  |                                 |      |                    |         |                                 |   |     
|----------------------- |  | ------------------- |  | -------------------------------------- |  | ------------------------------- | ---- | ------------------ | ------- | ------------------------------- | - | ----
|                        |  | Options outstanding |  | Options exercisable                   
|Range of exercise price |  | Number outstanding  |  | Weighted averageremaining life (years) |  | Weighted average exercise price |      | Number exercisable |         | Weighted average exercise price
|$ 0.31 - $ 0.40         |  | 420,000             |  | 8.0                                    |  | $                               | 0.40 |                    | 414,000 |                                 | $ | 0.40
|$ 1.06 - $ 1.41         |  | 40,000              |  | 5.2                                    |  |                                 | 1.21 |                    | 36,000  |                                 |   | 1.23
|$2.75                   |  | 130,000             |  | 3.6                                    |  |                                 | 2.75 |                    | 130,000 |                                 |   | 2.75
|                        |  |                     |  |                                        |  |                                 |      |                    |         |                                 |   |     
|                        |  | 590,000             |  |                                        |  |                                 |      |                    | 580,000 |                                 |   |     



Pro forma information regarding net
income and net income per share, as disclosed in Note 3, has been determined as if the Company had accounted for its employee stock-based compensation plans and other stock options under the fair value method of SFAS No. 123. The fair value of each
option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants under the fixed option plans:



For Options Issued in Year Ending December 31,



|                                |  |      |  |      |  |       |  
|------------------------------- |  | ---- |  | ---- |  | ----- | -
|                                |  | 2004 |  | 2003 |  | 2002  |  
|Risk-free interest rate         |  | *    |  | *    |  | 5.04  | %
|Expected dividend yield         |  | *    |  | *    |  | 0     | %
|Expected option life            |  | *    |  | *    |  | 5     |  
|Expected stock price volatility |  | *    |  | *    |  | 67.76 | %

---

|* | No options were issued during the years ending December 31, 2004 and December 31, 2003.
|- | ---------------------------------------------------------------------------------------



|(c) | Employee Stock Purchase Plan. In 1993, the Company established an employee stock purchase plan. Under the plan, certain employees were eligible to purchase an
aggregate of not more than 125,000 shares of the Companys common stock at 95% of the lower of the fair market value at the beginning or the end of the calendar year in which the shares are purchased.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In June 2003, 19,804 shares of common stock were purchased through the
employee stock purchase plan. After the sale of shares in 2003, all stock authorized for the employee stock purchase plan was fully issued. Therefore, after June 2003, no additional shares of common stock were available for sale under the employee
stock purchase plan.



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GREAT LAKES AVIATION, LTD.



Notes to Financial Statements

Years Ending on December 31, 2004, 2003, and 2002



On November 30, 2003, the employee stock purchase plan expired by its own terms.



(8) Income/(Loss) Per Share



The following table provides a reconciliation of the numerators and denominators of the
basic and diluted income and loss per share computations for the periods presented:



|                                                                           |  |                   |           |                     |            |                |      |       |                   |  |                     |           |                |            |                   |   |      |                     |   |                |   |  |           |  |   |       |  
|-------------------------------------------------------------------------- |  | ----------------- | --------- | ------------------- | ---------- | -------------- | ---- | ----- | ----------------- |  | ------------------- | --------- | -------------- | ---------- | ----------------- | - | ---- | ------------------- | - | -------------- | - |  | --------- |  | - | ----- | -
|                                                                           |  | 2004              |           |                     | 2003       |                | 2002 |      
|                                                                           |  | Income(numerator) |           | Shares(denominator) |            | Pershareamount |      |       | Income(numerator) |  | Shares(denominator) |           | Pershareamount |            | Income(numerator) |   |      | Shares(denominator) |   | Pershareamount |  
|Basic income (loss) per share attributable to common shareholders          |  | $                 | 5,638,930 |                     | 14,071,970 |                | $    | 0.40  |                   |  | $                   | 1,790,199 |                | 14,061,238 |                   | $ | 0.13 |                     | $ | (10,811,137    | ) |  | 8,698,093 |  | $ | (1.24 | )
|                                                                           |  |                   |           |                     |            |                |      |       |                  
|Effect of dilutive securities:                                             |  |                   |           |                     |            |                |      |       |                   |  |                     |           |                |            |                   |   |      |                     |   |                |   |  |           |  |   |       |  
|Stock options                                                              |  |                   |           |                     | 230,298    |                |      | (0.01 | )                 |  |                     |          |                |           |                   |   |     |                     |   |               |   |  |          |  |   |      |  
|                                                                           |  |                   |           |                     |            |                |      |       |                   |  |                     |           |                |            |                   |   |      |                     |   |                |   |  |           |  |   |       |  
|Diluted income (loss) (loss) per share attributable to common shareholders |  | $                 | 5,638,930 |                     | 14,302,268 |                | $    | 0.39  |                   |  | $                   | 1,790,199 |                | 14,061,238 |                   | $ | 0.13 |                     | $ | (10,811,137    | ) |  | 8,698,093 |  | $ | (1.24 | )
|                                                                           |  |                   |           |                     |            |                |      |       |                   |  |                     |           |                |            |                   |   |      |                     |   |                |   |  |           |  |   |       |  



For the years ended
December 31, 2004, 2003, and 2002, the number of stock options that were excluded from the calculation of diluted earnings per share, because the exercise of such options would have been anti-dilutive, totaled approximately 170,000, 650,000, and
670,000, respectively.



Under the Restructuring Agreement, the
Company is prohibited from paying dividends until after December 31, 2005.



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GREAT LAKES AVIATION, LTD.



Notes to Financial Statements

Years Ending on December 31, 2004, 2003, and 2002



|(10) | Commitments and Contingencies
|---- | -----------------------------



(a) Transactions with Affiliates. The Company leases four-passenger and six-passenger aircraft and a fleet of rental cars from Iowa Great
Lakes Flyers, Inc. (Flyers), a corporation solely owned by Douglas G. Voss, the Companys Chairman and major stockholder. Until April 2002, the Company also leased a Beechcraft 1900D aircraft from Flyers. The Company believes that its leases
with Flyers are on terms no less favorable to the Company than would be similar transactions with unaffiliated third parties. Total payments for the various leases were $35,400 in 2004, $42,143 in 2003, and $10,000 in 2002. As of December 31, 2003,
the Company had an outstanding liability in the amount of $260,000 for amounts due and payable under the various leases with Flyers. This amount was paid in 2004 with a payment of $160,000 and aircraft deposit credit to Flyers. The Companys
leases with Flyers do not require payment or accrual of interest on any outstanding amounts.



As of February 29, 2004, Raytheon Aircraft Credit Corporation (Raytheon) owned 5,371,980 shares of common stock of the Company, representing an approximate 38.2% interest in the Companys outstanding common
stock. The Company acquires various aircraft parts from Raytheon for maintenance. Total payments for the various aircraft parts were $0.9 million in 2004, $1.1 million in 2003, and $1.6 million in 2002. See Note 2 to the financial statements,
Restructuring Agreement with Raytheon Aircraft Credit Corporation, for further information regarding the Companys ongoing transactions with Raytheon.



(b) Non-aircraft Lease Commitments. The Company leases certain maintenance and terminal facilities under
operating leases, which provide for approximate future non-cancelable minimum lease payments, as follows:



|           |  |   |           
|---------- |  | - | ----------
|2005       |  | $ | 1,992,874 
|2006       |  |   | 1,889,940 
|2007       |  |   | 1,824,549 
|2008       |  |   | 1,779,183 
|2009       |  |   | 1,779,183 
|Thereafter |  |   | 1,779,183 
|           |  |   |           
|           |  | $ | 11,044,912



(c)
Litigation. The Company is a defendant in a lawsuit arising from a gear-up landing of one of the Companys Beechcraft 1900D aircraft at OHare International Airport in Chicago, Illinois on February 10, 2001. Seven plaintiffs filed
suit against the Company, United Air Lines, Inc., and the flight crew of the aircraft. The complaint alleges that the plaintiffs suffered personal injuries as passengers aboard the aircraft when the pilots allegedly landed the aircraft without
extending the landing gear. The Companys insurance carrier is providing for the Companys defense in the lawsuit, and the Company believes that any claims that arise from the accident that are not covered by insurance will not have a
material adverse effect on the Companys financial position, result of operations, or cash flows.



The Company is a party to other ongoing legal claims and assertions arising in the ordinary course of business. Management believes that the resolution of
these matters will not have a material adverse effect on the Companys financial position, results of operations, or cash flows.



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GREAT LAKES AVIATION, LTD.



Notes to Financial Statements

Years Ending on December 31, 2004, 2003, and 2002



(d) Union Agreements. Approximately 41% of the Companys employees are represented
by unions. The Companys pilots are represented by the International Brotherhood of Teamsters. The Companys labor agreement with the pilots became amendable October 30, 2000, and negotiations are continuing. In March 2002, the
Companys pilots voted to authorize a strike in the event that negotiations did not result in an amended contract. The Companys flight attendants are represented by the International Brotherhood of Teamsters, and the agreement with the
flight attendants became amendable April 2002. In 2003, the Companys dispatchers voted to be represented by the International Brotherhood of Teamsters. As of February 28, 2005, the Company and the dispatchers were in active negotiations for an
initial labor agreement.



(e) Air Carrier Security
Fees. Included in the Companys current liabilities is $2.2 million of funds collected or assessed for security matters in fiscal years 2001 through 2003. The Company is seeking a reduction in the amount payable for such matters.



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GREAT LAKES AVIATION, LTD.



Notes to Financial Statements

Years Ending on December 31, 2004, 2003, and 2002



|(11) | Selected Quarterly Financial Data (Unaudited)
|---- | ---------------------------------------------



The following table presents selected quarterly unaudited financial data for each of the years ended December 31, 2004 and 2003 (in thousands, except for
per share information):



|                                    |  |              |        |   |               |   |        |              |  |               |        |  |           |        |   |  |   |       
|----------------------------------- |  | ------------ | ------ | - | ------------- | - | ------ | ------------ |  | ------------- | ------ |  | --------- | ------ | - |  | - | ------
|2004                                |  | FirstQuarter |        |   | SecondQuarter |   |        | ThirdQuarter |  | FourthQuarter |        |  | TotalYear
|Operating revenues                  |  | $            | 18,087 |   |               | $ | 19,551 |              |  | $             | 20,200 |  | $         | 18,510 |   |  | $ | 76,348
|Operating income (loss)             |  |              | (1,247 | ) |               |   | 837    |              |  |               | 1,576  |  |           | 987    |   |  |   | 2,153 
|Net income (loss)                   |  |              | 436    |   |               |   | 2,421  |              |  |               | 1,278  |  |           | 1,494  |   |  |   | 5,629 
|Net income (loss) per share         |  |              |        |   |               |   |        |              |  |               |        |  |           |        |   |  |   |       
|Basic                               |  | $            | 0.03   |   |               | $ | 0.17   |              |  | $             | 0.09   |  | $         | 0.11   |   |  | $ | 0.40  
|Diluted                             |  |              | 0.03   |   |               |   | 0.17   |              |  |               | 0.09   |  |           | 0.10   |   |  |   | 0.39  
|Weighted average shares outstanding |  |              |        |   |               |   |        |              |  |               |        |  |           |        |   |  |   |       
|Basic                               |  |              | 14,072 |   |               |   | 14,072 |              |  |               | 14,072 |  |           | 14,072 |   |  |   | 14,072
|Diluted                             |  |              | 14,079 |   |               |   | 14,205 |              |  |               | 14,189 |  |           | 14,302 |   |  |   | 14,302
|                                    |  |              |        |   |              
|2003                                |  | FirstQuarter |        |   | SecondQuarter |   |        | ThirdQuarter |  | FourthQuarter |        |  | TotalYear
|Operating revenues                  |  | $            | 16,726 |   |               | $ | 18,218 |              |  | $             | 21,273 |  | $         | 19,544 |   |  | $ | 75,761
|Operating income (loss)             |  |              | (3,335 | ) |               |   | 478    |              |  |               | 3,504  |  |           | (287   | ) |  |   | 360   
|Net income (loss)                   |  |              | (3,918 | ) |               |   | (513   | )            |  |               | 4,489  |  |           | 1,732  |   |  |   | 1,790 
|Net income (loss) per share         |  |              |        |   |               |   |        |              |  |               |        |  |           |        |   |  |   |       
|Basic and Diluted                   |  | $            | (0.28  | ) |               | $ | (0.04  | )            |  | $             | 0.32   |  | $         | 0.12   |   |  | $ | 0.13  
|Weighted average shares outstanding |  |              |        |   |               |   |        |              |  |               |        |  |           |        |   |  |   |       
|Basic and Diluted                   |  |              | 14,052 |   |               |   | 14,052 |              |  |               | 14,059 |  |           | 14,061 |   |  |   | 14,061



In the second and
third quarters of 2003, the Company recognized increased revenues due to receipt of additional EAS subsidy revenues for (i) adjustments relating to prior periods and (ii) rate increases on existing routes. In addition, the Company recognized
decreased operating expenses primarily attributable to a credit received by the Company for previously paid war-risk insurance, as covered by the FAA insurance program.



In the first and second quarters of 2004, the Company recognized gains from extinguishment of debt, and in the third and
fourth quarters of 2003, the Company recognized gains from extinguishment of debt as discussed in Note 2.



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GREAT LAKES AVIATION, LTD.



Notes to Financial Statements

Years Ending on December 31, 2004, 2003, and 2002



The above financial data includes normal recurring adjustments and reflects all adjustments that are,
in the opinion of management, necessary for a fair presentation of such financial data. The Companys business is seasonal and, accordingly, interim results are not indicative of results for a full year.



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GREAT LAKES AVIATION, LTD.



Schedule II - Valuation and Qualifying Accounts



The following
represents the additions and deletions to the Companys inventory and equipment reserves during 2004, 2003, and 2002.



|                                      |  |                                |           |                             |   |                                 |  |   |                       |   |  |   |          
|------------------------------------- |  | ------------------------------ | --------- | --------------------------- | - | ------------------------------- |  | - | --------------------- | - |  | - | ---------
|                                      |  | Balance atbeginning ofyear (1) |           | Charged tocosts andexpenses |   | Write-off of obsoletecomponents |  |   | Balance atend of year
|2004 Inventory and equipment reserves |  | $                              | 6,980,291 |                             | $ | 36,000                          |  | $ | (139,975              | ) |  | $ | 6,876,316
|2003 Inventory and equipment reserves |  |                                | 7,017,137 |                             |   | 172,500                         |  |   | (209,346              | ) |  |   | 6,980,291
|2002 Inventory and equipment reserves |  |                                | 6,565,809 |                             |   | 451,328                         |  |   |                      |   |  |   | 7,017,137



All other schedules for which
provision is made in the applicable accounting regulations of the Securities and Exchange Commission have been omitted as not required or not applicable or the information required has been included elsewhere in the financial statements and related
Notes.



Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE



There were no changes in or disagreements on any matters of accounting principles or financial statement disclosure between the Company and its independent auditors
during the Companys two most recent fiscal years or any subsequent interim period.



Item 9A. CONTROLS AND PROCEDURES



The Company
maintains a system of disclosure controls and procedures (as defined in Securities Exchange Act Rule 13a-15(f)) that is designed to provide reasonable assurance that information that is required to be disclosed is accumulated and communicated to
management timely. At the end of the period covered by this report, the Company carried out an evaluation under the supervision and with the participation of its management, including its Chief Executive Officer and interim Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based on that evaluation, the Companys Chief Executive Officer and interim Chief Financial Officer
concluded that the Companys disclosure controls and procedures are effective in timely alerting them to material information relating to the Company required to be disclosed in the Companys periodic filings with the SEC.



During the Companys most recent fiscal quarter, there has been no change in our
internal control over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f) under the Securities Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial
reporting.



Item 9B. OTHER INFORMATION



Not applicable.



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PART III



Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT



Directors and Executive Officers of the Registrant



The following table provides information with respect to the Companys directors and executive officers as of March 28, 2005. Each director has been appointed to serve until his or her successor has been duly
elected and qualified. Each executive officer has been appointed to serve until his successor is duly appointed by the Board of Directors or his earlier removal or resignation from office.



|                     |  |     |  |                                           
|-------------------- |  | --- |  | ------------------------------------------
|Name                 |  | Age |  | Title                                     
|Douglas G. Voss      |  | 50  |  | Chairman of the Board of Directors        
|Charles R. Howell IV |  | 47  |  | Chief Executive Officer                   
|Michael O. Matthews  |  | 48  |  | Vice President and Chief Financial Officer
|Michael L. Tuinstra  |  | 51  |  | Treasurer                                 
|Gayle R. Brandt      |  | 45  |  | Director                                  
|Vernon A. Mickelson  |  | 78  |  | Director                                  
|John Reardon         |  | 59  |  | Director                                  
|Ivan L. Simpson      |  | 54  |  | Director                                  



Douglas G. Voss. Mr. Voss
co-founded the Company in 1979 and served in the position of Chief Executive Officer from the Companys inception until December 31, 2002. Mr. Voss has served as a director of the Company since the Companys inception and became Chairman
of the Board of Directors on December 31, 2002. Mr. Voss became a pilot in 1974 and holds both an Airline Transport Pilot Certificate and an Airframe and Powerplant Mechanic Certificate. Mr. Voss is a graduate of Colorado Aero Tech. In 1977 and
1978, Mr. Voss was employed as a mechanic for a subsidiary of Executive Beechcraft, Inc. Mr. Voss has also served the Company in a number of operational positions, including Director of Maintenance and Director of Operations.



Charles R. Howell IV. Mr. Howell became the Chief Executive Officer of the Company on
December 31, 2002. Mr. Howell served as Chief Operating Officer from August 2002 until December 31, 2002. Prior to joining the Company, Mr. Howell was the President and Chief Executive Officer of Corporate Airlines, Inc., a Nashville-based airline
that he co-founded in 1996.



Michael O. Matthews.Mr. Matthews became
the Vice President and Chief Financial Officer of the Company on March 28, 2005.Mr. Matthews joined the Company in November 2004 as Vice President of Finance. Prior to joining the Company, Mr. Matthews was employed as Director of Treasury
for Budget Group, Inc. Prior to joining Budget Group, Inc. in 2000, Mr. Matthews has held management positions in the financial services industry including Newcourt Financial, MetLife Capital, Sanwa Business Credit and Societe Generale Financial
Corporation.



Michael L. Tuinstra. Mr. Tuinstra became the
Companys Treasurer in January 2002. From August 1998 to January 2002, Mr. Tuinstra served as the Companys Director of Purchasing and Inventory Control. From August 1998 until April 1999, Mr. Tuinstra was the Companys budget and
financial analyst.



Gayle R. Brandt. Ms. Brandt has been a director of
the Company since December 1996. Ms. Brandt has held various positions with the Company since its inception including assisting in the management of the Spirit Lake



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##### Table of Contents

Airport from 1978 through 1992, Station Agent and Station Manager responsible for all airline reservations from 1982 through 1985, Airline Accounts
Receivable and Revenue Accounting Manager from 1985 through 1989, Airline Executive Office Receptionist from 1989 through 1996, and Director of Airport Services and Airport Manager from June 1996 through 2001. Ms. Brandt is currently the Director of
Aviation for Leading Edge Aviation, Inc.



Vernon A. Mickelson. Mr.
Mickelson became a director of the Company in January 1994. For more than the past seventeen years, Mr. Mickelson has been self-employed as a consultant. He provided services to the Company concerning matters involving FAA regulatory compliance and
maintenance quality control from 1988 to 1994. Mr. Mickelson has worked in the aviation industry since 1949, primarily in the field of aircraft manufacturing and maintenance. From 1969 to 1988, Mr. Mickelson was employed by the FAA in flight
standards as principal inspector and supervisor of FAA maintenance and avionics inspectors assigned in the States of Indiana and Iowa. In his career, he has held or holds several FAA maintenance certificates and FAA designations in aircraft
maintenance in addition to holding a commercial pilots certificate. Mr. Mickelson is a graduate of Spartan School of Aeronautics in 1948-49, specializing in airline service maintenance.



John Reardon. Mr. Reardon has been a director of the Company since May 2002. Mr.
Reardon has over 30 years of business consulting experience, addressing operational and financial issues and governmental and business-to-business relations. Since March 2001, Mr. Reardon has been the Director Executive Education Services and
Executive MBA Programs at Colorado State University, College of Business. Mr. Reardon served as Chief Executive Officer of the Wyoming State Business Council from October 1998 to July 2000. From April 1994 to October 1998, Mr. Reardon was the Chief
Operating Officer, Director of Global Operations for the International Development Research Council, a global trade and learning association for Fortune 500 and Global 1000 senior level executives.



Ivan L. Simpson. Mr. Simpson became a director of the Company in 1997. Mr. Simpson
co-founded the Company in 1979, and served in various operational roles through 1987, including: Chief Pilot, Director of Security, and most recently, Vice President and Director of Operations. He has been employed as an Airline Transport Pilot for
American Airlines since 1987. Mr. Simpson holds an Airline Transport Pilot Certificate and is Type rated in the Boeing 757/767 aircraft.



Certain Significant Employees



The following table provides information with respect to certain significant employees who make or are expected to make significant contributions to the business of the
Company.



|                  |  |     |  |                                              
|----------------- |  | --- |  | ---------------------------------------------
|Name              |  | Age |  | Title                                        
|Norma K. Courtney |  | 58  |  | Vice President of Customer Service           
|Kurt Franklin     |  | 39  |  | Vice President of Maintenance                
|James Fohl        |  | 44  |  | Director of Quality Control/Quality Assurance
|Tory A. Meisel    |  | 34  |  | Director of Flight Operations                
|Christine Smith   |  | 29  |  | Human Resources Manager                      



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Norma K. Courtney. Ms. Courtney joined the Company in May 1987 as Customer Service Manager and served as Director
of Security, Manager of Customer Service Training and Director of Stations. She was promoted to her current position as Vice President of Customer Service in May 2004.



Kurt Franklin. Mr. Franklin joined the Company in July 1991 as Grand Island Maintenance Base Manager. He also held positions of
Regional Maintenance Base Manager, Interim Director of Maintenance, Certified Repair Station Manager and was promoted to Vice President of Maintenance in January 2005.



James Fohl. Mr. Fohl joined the Company as Maintenance Controller in March 2000. He became the Certified Repair Station Manager in
November 2003. He was promoted to Director of Maintenance in January 2005 and was promoted to his current position as Director of Quality Control/Quality Assurance in March 2005.



Tory A. Meisel. Mr. Meisel joined the Company in the Flight Operations Department in 1992. Mr. Meisel served as a Flight Control
Supervisor until 2000 when he accepted the position of Assistant Director of Operations. In 2002, he assumed the role of Director of Safety and then accepted the Director of Operations position in 2004. Mr. Meisel has served as a pilot for the
Company since 1993.



Christine Smith. Ms. Smith joined the Company in
September 2000 and was promoted to her current position as Human Resources Manager in September 2003. Prior to joining the Company, Ms. Smith was employed from 1998 to 2000 by The Ford Agency in Washington, D.C. as a Human Resources Associate.



Audit Committee Financial Expert



The Companys Board of Directors has determined that the Company does not have an audit
committee financial expert serving on the audit committee. The Board of Directors believes that the collective financial and business expertise of the members of the audit committee is sufficient to satisfy the functions of the audit committee under
the terms of the audit committee charter.



Section 16(a) Beneficial
Ownership Reporting Compliance



Section 16(a) of the Securities Exchange
Act of 1934, as amended, requires the Companys executive officers and directors, and persons who own more than 10% of a registered class of the Companys equity securities, to file reports of ownership and changes in ownership with the
SEC and provide the Company with copies of such reports. Based solely on its review of the copies of such forms received by it, or written representations from certain reporting persons, the Company believes that, during the last fiscal year, its
directors and executive officers filed all reports on a timely basis.



Code
of Ethics



The Company has adopted a code of ethics that applies to the
Companys principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. A copy of the Companys code of ethics is attached to this report as an exhibit. In
addition, the text of the Companys code of ethics is posted on the Companys web site at www.greatlakesav.com.



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Item 11. EXECUTIVE COMPENSATION



The following
table discloses the annual and long-term compensation received in each of the last three fiscal years by (i) all persons serving in the capacity of Chief Executive Officer of the Company during the last fiscal year, (ii) the Companys four most
highly compensated executive officers, in addition to the Chief Executive Officer, serving at the end of the last fiscal year whose salary and incentive compensation exceeded $100,000 in the last fiscal year, and (iii) any executive officer of the
Company who resigned during the last fiscal year whose salary and incentive compensation exceeded $100,000 in the last fiscal year. Such persons are referred to as the Named Executive Officers.



Summary Compensation Table



|                            |  |      |  |                     |         |       |                       |                          |  |   |                             |     |  |        
|--------------------------- |  | ---- |  | ------------------- | ------- | ----- | --------------------- | ------------------------ |  | - | --------------------------- | --- |  | -------
|                            |  |      |  | Annual Compensation |         |       | Long-TermCompensation
|Name and Principal Position |  | Year |  | Salary              |         | Bonus |                       | Other AnnualCompensation |  |   | SecutitiesUnderlyingOptions
|Charles R. Howell IV (1)    |  |      |  |                     |         |       |                       |                          |  |   |                             |     |  |        
|Chief Executive Officer     |  | 2004 |  | $                   | 120,000 |       | $                     | 15,000                   |  |   |                            |     |  |       
|                            |  | 2003 |  | $                   | 120,000 |       |                       |                         |  |   |                            |     |  |       
|                            |  | 2002 |  | $                   | 37,042  |       |                       |                         |  |   |                            |     |  | 200,000
|                            |  |      |  |                     |        
|Douglas G. Voss (2)         |  | 2004 |  | $                   | 120,000 |       |                       |                         |  |   |                            |     |  |       
|Chairman of the Board       |  | 2003 |  | $                   | 120,000 |       |                       |                         |  |   |                            |     |  |       
|                            |  | 2002 |  | $                   | 69,895  |       |                       |                         |  |   |                            |     |  | 200,000
|                            |  |      |  |                     |        
|Michael L. Tuinstra (3)     |  | 2004 |  | $                   | 95,818  |       | $                     | 9,000                    |  | $ | 4,193                       | (4) |  |       
|Treasurer                   |  | 2003 |  | $                   | 80,729  |       |                       |                         |  | $ | 3,229                       | (4) |  |       
|                            |  | 2002 |  | $                   | 69,895  |       |                       |                         |  | $ | 2,796                       | (4) |  |       

---

|(1) | Mr. Howell joined the Company as Chief Operating Officer in August 2002 and served in that capacity until December 31, 2002. On December 31, 2002, Mr. Howell was elected Chief
Executive Officer.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Mr. Voss served as Chief Executive Officer of the Company until December 31, 2002. On December 31, 2002, Mr. Voss was elected Chairman of the Board of Directors.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Mr. Tuinstra became the Companys Treasurer in January 2002.
|--- | ------------------------------------------------------------

|(4) | The amounts shown are matching contributions made by the Company on behalf of Mr. Tuinstra under the Companys 401(k) retirement savings plan.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------



During the fiscal year ended December 31, 2004, the Company did not grant any stock options
to any Named Executive Officers.



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The following table sets forth information concerning the unexercised options held by the Named Executive Officers as of
December 31, 2004. No options were exercised by the Named Executive Officers during fiscal year 2004.



Fiscal Year-End Option Values



|                     |  |                                                                     |  |                                                                 |  |             |         |               |   |  
|-------------------- |  | ------------------------------------------------------------------- |  | --------------------------------------------------------------- |  | ----------- | ------- | ------------- | - | -
|                     |  | Number of SecuritiesUnderlying UnexercisedOptionsat Fiscal Year End |  | Value of Unexercised In-the MoneyOptions at Fiscal Year End (1)
|                     |  | Exercisable                                                         |  | Unexercisable                                                   |  | Exercisable |         | Unexercisable
|Douglas G. Voss      |  | 300,000                                                             |  |                                                                |  | $           | 120,000 |               | $ | 
|Charles R. Howell IV |  | 200,000                                                             |  |                                                                |  | $           | 120,000 |               | $ | 

---

|(1) | Market value of underlying securities at fiscal year end minus the exercise price.
|--- | ----------------------------------------------------------------------------------



Employment Agreements



On December 31, 2002, the Company entered into employment agreements with Mr. Voss and Mr. Howell, under which they serve as Chairman of the Board of Directors and Chief
Executive Officer, respectively. The agreements entitle each executive to receive a base salary of $120,000 annually and to participate in the Companys compensation and benefit plans. The agreements expired on December 30, 2004. The agreements
are extendable for up to two consecutive one year terms. As partial consideration for entering into these employment agreements, Messrs. Voss and Howell each received stock options to purchase 200,000 shares of the Companys common stock at an
exercise price of $0.40 per share. The options vested ratably on the first and second anniversary date of the employment agreements.



Compensation Committee Interlocks and Insider Participation



Messrs. Mickelson, Simpson, and Reardon comprised the Compensation Committee for purposes of setting compensation levels for 2004. No member of the Compensation Committee
was an officer or employee of the Company or its subsidiary during the fiscal year ended December 31, 2004. Mr. Simpson was an officer and employee of the Company from 1979 through 1987. No executive officer of the Company served as a member of the
compensation committee or the board of directors of another entity, one of whose executive officers served on the Companys Compensation Committee or Board during the fiscal year ended December 31, 2004.



Compensation of Directors



Directors of the Company who are not employees of the Company participate in the
Companys 1993 Director Stock Option Plan, receive $1,000 for each meeting of the Board or a meeting of a committee of the Board attended (not to exceed $1,000 per day), and are reimbursed for out-of-pocket expenses incurred on behalf of the
Company.



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Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS



The following table contains certain information as of February 28, 2005 regarding the beneficial ownership of the Common Stock by (i) each person known to the Company to
own beneficially 5% or more of the Common Stock, (ii) each director of the Company, (iii) each executive officer of the Company named in the summary compensation table, and (iv) all directors and executive officers of the Company as a group. Any
shares that are subject to an option or a warrant exercisable within 60 days are reflected in the following table and are deemed to be outstanding for the purpose of computing the percentage of Common Stock owned by the option or warrant holder but
are not deemed to be outstanding for the purpose of computing the percentage of Common Stock owned by any other person. Unless otherwise indicated, each person in the table has sole voting and investment power as to the shares shown. Unless
otherwise indicated, the address for each listed shareholder is c/o Great Lakes Aviation, Ltd., 1022 Airport Parkway, Cheyenne, Wyoming 82001.



|                                                            |  |                                              |        |  |                               
|----------------------------------------------------------- |  | -------------------------------------------- | ------ |  | ------------------------------
|                                                            |  | Amount and Nature ofBeneficial Ownership (1) |        |  | Percentage ofOutstanding Stock
|Douglas G. Voss                                             |  | 5,889,245                                    | (2)(3) |  | 40.2%                         
|Raytheon Aircraft Credit Corporation                        |  | 5,371,980                                    |        |  | 38.2%                         
|10511 E. Central Avenue                                     |  |                                              |        |  |                               
|Wichita, Kansas 67206                                       |  |                                              |        |  |                               
|                                                            |  |                                             
|Gayle R. Brandt                                             |  | 1,989,342                                    | (2)(3) |  | 13.6%                         
|1218 Summer Circle Drive                                    |  |                                              |        |  |                               
|Okoboji, Iowa 51355                                         |  |                                              |        |  |                               
|                                                            |  |                                             
|Iowa Great Lakes Flyers, Inc.                               |  | 1,051,658                                    | (4)    |  | 7.2%                          
|1965 330th Street                                           |  |                                              |        |  |                               
|Spencer, Iowa 51301                                         |  |                                              |        |  |                               
|                                                            |  |                                             
|Tennenbaum & Co., LLC                                       |  | 858,400                                      | (5)    |  | 5.9%                          
|1999 Avenue of the Stars, 32nd Floor                        |  |                                              |        |  |                               
|Los Angeles, California 90067                               |  |                                              |        |  |                               
|                                                            |  |                                             
|Michael E. Tennenbaum                                       |  | 858,400                                      | (6)    |  | 5.9%                          
|1999 Avenue of the Stars, 32nd Floor                        |  |                                              |        |  |                               
|Los Angeles, California 90067                               |  |                                              |        |  |                               
|                                                            |  |                                             
|Charles R. Howell IV                                        |  | 200,000                                      | (7)    |  | 1.4%                          
|                                                            |  |                                             
|Vernon A. Mickelson                                         |  | 37,000                                       | (8)    |  | *                             
|1209 3rd Avenue West                                        |  |                                              |        |  |                               
|Spencer, Iowa 51301                                         |  |                                              |        |  |                               
|                                                            |  |                                             
|Ivan L. Simpson                                             |  | 20,450                                       | (9)    |  | *                             
|21261 North Bay Drive                                       |  |                                              |        |  |                               
|Spirit Lake, Iowa 51360                                     |  |                                              |        |  |                               
|                                                            |  |                                             
|John Reardon                                                |  | 4,000                                        | (10)   |  | *                             
|                                                            |  |                                             
|Michael L. Tuinstra                                         |  | 14,430                                       | (11)   |  | *                             
|                                                            |  |                                             
|All directors and executive officers as a group (8 persons) |  | 6,189,125                                    | (12)   |  | 42.1%                         

---

|* | Indicates ownership of less than 1% of the outstanding shares of Common Stock.
|- | ------------------------------------------------------------------------------



69



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##### Table of Contents

|(1) | The securities beneficially owned by a person are determined in accordance with the definition of beneficial ownership as set forth in the regulations of the
SEC and accordingly, may include securities owned by or for, among others, the spouse, children, or certain other relatives of such person, as well as other securities as to which the person has or shares voting or investment power or has the right
to acquire within 60 days of February 28, 2005. The same shares may be beneficially owned by more than one person.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Mr. Voss is the beneficial owner of 2,848,245 shares of Common Stock, which includes 300,000 shares of Common Stock subject to currently exercisable options. Ms. Brandt is the
record owner of 1,979,342 shares of Common Stock and 10,000 shares of Common Stock subject to currently exercisable options. The 1,979,342 shares of Common Stock owned by Ms. Brandt and the 1,051,658 shares of Common Stock owned by Iowa Great Lakes
Flyers, Inc. are included in the 5,889,245 shares of Common Stock reported by Mr. Voss.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Ms. Brandt has granted to Mr. Voss an irrevocable proxy to vote her shares of Common Stock (the Shares) until June 28, 2010. Mr. Voss and Ms. Brandt have also entered into a
Shareholder Buy-Sell Agreement (the Agreement) with respect to the Shares. The term of the Agreement (the Term) is until June 28, 2010 or until such time as Ms. Brandt does not own any Shares or the Company is dissolved or liquidated. Pursuant to
the Agreement, Ms. Brandt could not sell any Shares until June 28, 1999, at which time she was able to sell 470,000 Shares and an additional 235,000 Shares in each year thereafter. Mr. Voss, however, has been granted a right of first refusal to
purchase for the market price any Shares that Ms. Brandt desires to sell. The Agreement also provides Mr. Voss the option to purchase any Shares at any time during the Term for the market price of shares of Common Stock. The Agreement provides that
in any transaction in which Mr. Voss sells greater than 5% of his shares of Common Stock, Mr. Voss has the right to compel Ms. Brandt to include the Shares held by her in such transaction on the same terms as the shares of Common Stock of Mr. Voss.
In turn, Ms. Brandt has the right to have her Shares included by Mr. Voss in any such transaction on a pro rata basis. The Agreement also provides Mr. Voss with the right to purchase the Shares at the market price upon the death of Ms. Brandt or
upon an involuntary disposition of the Shares held by Ms. Brandt. Pursuant to the Agreement, Mr. Voss will vote all shares of Common Stock beneficially owned by him (including the Shares) for the election of Ms. Brandt to the Board.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Beneficial ownership of all 1,051,658 shares of Common Stock is shared with Douglas G. Voss.
|--- | --------------------------------------------------------------------------------------------

|(5) | Beneficial ownership of all 858,400 shares of Common Stock is shared with Michael E. Tennenbaum.
|--- | ------------------------------------------------------------------------------------------------

|(6) | Beneficial ownership of all 858,400 shares of Common Stock is shared with Tennenbaum & Co., LLC.
|--- | ------------------------------------------------------------------------------------------------

|(7) | Includes 200,000 shares of Common Stock subject to currently exercisable options.
|--- | ---------------------------------------------------------------------------------

|(8) | Includes 30,000 shares of Common Stock subject to currently exercisable options.
|--- | --------------------------------------------------------------------------------

|(9) | Includes 20,000 shares of Common Stock subject to currently exercisable options.
|--- | --------------------------------------------------------------------------------

|(10) | Includes 4,000 shares of Common Stock subject to currently exercisable options.
|---- | -------------------------------------------------------------------------------

|(11) | Includes 12,000 shares of Common Stock subject to currently exercisable options.
|---- | --------------------------------------------------------------------------------

|(12) | Includes an aggregate of 580,000 shares of Common Stock subject to currently exercisable options.
|---- | -------------------------------------------------------------------------------------------------



70



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Equity Compensation Plan Information



The following table provides information as of the end of the most recently completed fiscal year with respect to compensation plans under
which the Companys equity securities are authorized for issuance.



|                                                       |  |                                                                                               |  |                                                                                |      |                                                                                                                                          |   |    
|------------------------------------------------------ |  | --------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------ | ---- | ---------------------------------------------------------------------------------------------------------------------------------------- | - | ---
|Plan category                                          |  | Number of securities tobe issued upon exerciseof outstanding options,warrants, and rights (A) |  | Weighted-average exerciseprice of outstanding options,warrants, and rights (B) |      | Number of securitiesremaining available forfuture issuance under equitycompensation plans (excludingsecurities reflected in column (A,C) |  
|Equity compensation plans approved by security holders |  | 590,000                                                                                       |  | $                                                                              | 0.88 |                                                                                                                                          | 0 | (1)

---

|(1) | As of October 31, 2003, no additional options may be granted under either the Companys Employee Stock Purchase Plan or the Companys 1993 Director Stock Option Plan. In
addition, as of November 30, 2003, all shares authorized under the Companys Employee Stock Purchase Plan had been issued and sold, and the Employee Stock Purchase Plan expired by its terms.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



Raytheon Aircraft Credit Corporation. As of February 28, 2005, Raytheon Aircraft Credit Corporation (Raytheon) owned 5,371,980 shares of common stock of the Company, representing an approximate 38.2% interest in the
Companys outstanding common stock. The Company issued the shares to Raytheon as partial consideration for a series of transactions that included restructured financing terms for aircraft promissory notes, termination of aircraft operating
leases, aircraft purchases, aircraft returns, modified aircraft operating leases and other debt restructuring. See Business for a description of the Restructuring Agreement, including certain continuing rights and obligations of the
parties.



Iowa Great Lakes Flyers, Inc. Douglas G. Voss is the
sole owner of Iowa Great Lakes Flyers, Inc. (Flyers), a corporation that owns and operates four-passenger and six-passenger aircraft and a fleet of rental cars that are leased to the Company. Until April 2002, the Company also leased a Beechcraft
1900D aircraft from Flyers. The Company believes that its leases with Flyers are on terms no less favorable to the Company than would be similar transactions with unaffiliated third parties. In conjunction with these leases, the Company made a
payment of $35,400 during 2004 to Flyers. Additionally, from time to time Flyers loans funds to the Company on a short term basis. As of December 31, 2003, the Company had an outstanding liability in the amount of $260,000 for amounts due and
payable under the various leases with Flyers. This amount was paid in 2004 with a payment of $160,000 and aircraft deposit credit to Flyers.



71



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##### Table of Contents

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES



The firm of KPMG LLP has been the independent auditors for the Company since 1998. Fees paid to KPMG LLP during the last two fiscal years were as follows:



Audit Fees. Fees for audit services provided during the years ended December 31, 2004 and 2003 were $173,500 and $164,500
respectively. Audit services consisted primarily of the audit and quarterly reviews of the Companys financial statements, statutory audits required by governmental or regulatory bodies, attestation services required by statute or regulation,
comfort letters, consents, assistance with and review of documents filed with the SEC, work performed by tax professionals in connection with the audit and quarterly reviews, and accounting and financial reporting consultations and research work
necessary to comply with generally accepted audited standards.



Audit-Related Fees. Fees for audit-related services provided during the years ended December 31, 2004 and 2003 were $12,000 and $20,465, respectively. Audit-related services consisted primarily of professional services provided with
respect to yearly audits of the Companys 401(k) employee savings plan .



Tax Fees. Fees for tax services provided during the years ended December 31, 2004 and 2003 were $18,400 and $149,553, respectively. Tax services included professional services provided for preparation of federal and state tax
returns, review of tax returns prepared by the Company, assistance in assembling date to respond to governmental review of past tax filings, and tax advice, exclusive of tax services rendered in connection with the audit.



All Other Fees. During the fiscal year 2004 and fiscal year 2003, no other types of
professional services were provided by KPMG to the Company. Accordingly, fees for other types of professional services for the years ended December 31, 2004 and 2003 were $0 and $0, respectively.



Audit Committee Pre-Approval Policies and Procedures



The amended charter of the audit committee provides that the audit committee is responsible
for the pre-approval of all auditing services and permitted non-audit services to be performed for the Company by the independent auditors, subject to the requirements of applicable law. The procedures for pre-approving all audit and non-audit
services provided by the independent auditors include the committee reviewing a budget for audit services, audit-related services, tax services, and other services. The budget includes a description of, and a budgeted amount for, particular
categories of non-audit services that are anticipated at the time the budget is submitted. Committee approval would be required to exceed the budgeted amount for a particular category of services or to engage the independent auditors for any
services not included in the budget. The audit committee periodically monitors the services rendered by, and actual fees paid to, the independent auditors to ensure that such services are within the parameters approved by the committee. The text of
the audit committee charter is posted on the Companys web site at www.greatlakesav.com. The Audit Committee has pre-approved all of the services the Company received KPMG LLP during fiscal year 2004.



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##### Table of Contents

PART IV



Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES



|(a) | The following documents are filed as a part of this report:
|--- | -----------------------------------------------------------



| | (1) | Financial statements of the Company included in Item 8, Financial Statements and Supplementary Data:
| | --- | ------------------------------------------------------------------------------------------------------

|      |  |                                                                                                  
|----- |  | -------------------------------------------------------------------------------------------------
|      | 
|(i)   |  | Report of Independent Registered Public Accounting Firm                                          
|      | 
|(ii)  |  | Balance Sheets as of December 31, 2004 and 2003                                                  
|      | 
|(iii) |  | Statements of Operations for the Years Ended December 31, 2004, 2003 and 2002                    
|      | 
|(iv)  |  | Statements of Stockholders Equity (Deficit) for the Years Ended December 31, 2004, 2003 and 2002
|      | 
|(v)   |  | Statements of Cash Flows for the Years Ended December 31, 2004, 2003, and 2002                   
|      | 
|(vi)  |  | Notes to Financial Statements                                                                    



| | (2) | Financial statement schedule included in Item 8, Financial Statements and Supplementary Data:
| | --- | -----------------------------------------------------------------------------------------------



| | (i) | Schedule II - Valuation and Qualifying Accounts
| | --- | -----------------------------------------------



| | (3) | The exhibits filed as part of this report and exhibits incorporated herein by reference to other documents are listed in the Exhibit Index to this Annual Report on Form 10-K (pages
E-1 through E-3).
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | An Exhibit Index is contained on page E-1.
|--- | ------------------------------------------



|(c) | Not Applicable.
|--- | ---------------



SIGNATURES



Pursuant to the requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                      |  |                            |  |                                             
|--------------------- |  | -------------------------- |  | --------------------------------------------
|                      |  | GREAT LAKES AVIATION, LTD.
|                      |  |                           
|Dated: March 31, 2005 |  | By:                        |  | /s/ Charles R. Howell IV                    
|                      |  |                            |  | Charles R. Howell IV,                       
|                      |  |                            |  | Chief Executive Officer                     
|                      |  |                            |  | (Principal Executive Officer)               
|                      |  |                           
|                      |  | By:                        |  | /s/ Michael O. Matthews                     
|                      |  |                            |  | Michael O. Matthews                         
|                      |  |                            |  | Vice President and Chief Financial Officer  
|                      |  |                            |  | (Principal Accounting and Financial Officer)



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Power of Attorney



KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears below hereby constitutes and appoints Douglas G. Voss, Charles
R. Howell IV, and Michael O. Matthews, and each of them individually, as his or her true and lawful agent, proxy, and attorney-in-fact, with full power of substitution and resubstitution for such individual and in such individuals name, place,
and stead, in any and all capacities, to act on, sign, and file with the Securities and Exchange Commission any and all amendments to this report together with all schedules and exhibits thereto and to take any and all actions that may be necessary
or appropriate in connection therewith, and each such individual hereby approves, ratifies, and confirms all that such agents, proxies, and attorneys-in-fact, any of them, or any of his or their substitute or substitutes may lawfully do or cause to
be done by virtue hereof.



Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



|                         |  |                                                                                         |  |               
|------------------------ |  | --------------------------------------------------------------------------------------- |  | --------------
|Signature                |  | Title                                                                                   |  | Date          
|/s/ Douglas G. Voss      |  | Chairman of the Board and Director                                                      |  | March 31, 2005
|Douglas G. Voss          |  |                                                                                         |  |               
|                         |  |                                                                                        
|/s/ Charles R. Howell IV |  | Chief Executive Officer (Principal
Executive Officer)                                   |  | March 31, 2005
|Charles R. Howell IV     |  |                                                                                         | 
|                         |  |                                                                                        
|/s/ Michael O. Matthews  |  | Vice President and Chief Financial
Officer (Principal Accounting and Financial Officer) |  | March 31, 2005
|Michael O. Matthews      |  |                                                                                         | 
|                         |  |                                                                                         | 
|                         |  |                                                                                        
|/s/ Gayle R. Brandt      |  | Director                                                                                |  | March 31, 2005
|Gayle R. Brandt          |  |                                                                                         |  |               
|                         |  |                                                                                        
|/s/ Vernon A. Mickelson  |  | Director                                                                                |  | March 31, 2005
|Vernon A. Mickelson      |  |                                                                                         |  |               
|                         |  |                                                                                        
|/s/ John Reardon         |  | Director                                                                                |  | March 31, 2005
|John Reardon             |  |                                                                                         |  |               
|                         |  |                                                                                        
|/s/ Ivan L. Simpson      |  | Director                                                                                |  | March 31, 2005
|Ivan L. Simpson          |  |                                                                                         |  |               



74



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EXHIBIT INDEX



|      |  |                                                                                                                                              
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|3.1   |  | Amended and Restated Articles of Incorporation. (1)                                                                                          
|      | 
|3.2   |  | Amended and Restated Bylaws. (1)                                                                                                             
|      | 
|4.1   |  | Specimen Common Stock Certificate. (1)                                                                                                       
|      | 
|10.1  |  | Great Lakes Aviation, Ltd. 1993 Stock Option Plan. (1)                                                                                       
|      | 
|10.2  |  | 1993 Director Stock Option Plan. (1)                                                                                                         
|      | 
|10.3  |  | Great Lakes Aviation, Ltd. Employee Stock Purchase Plan. (1)                                                                                 
|      | 
|10.4  |  | Restructuring Agreement, dated December 31, 2002, by and between Raytheon Aircraft Credit Corporation and the Company. (2)                   
|      | 
|10.5  |  | Group A Return Conditions Note, dated December 31, 2002, issued by the Company to Raytheon Aircraft Credit Corporation. (2)                  
|      | 
|10.6  |  | Form of Promissory Note, dated December 31, 2002, issued by the Company to Raytheon Aircraft Credit Corporation. (2)                         
|      | 
|10.7  |  | Form of Security Agreement, dated December 31, 2002, by and between Raytheon Aircraft Credit Corporation and the Company. (2)                
|      | 
|10.8  |  | Form of First Amendment to Lease Agreement, dated December 31, 2002, by and between Raytheon Aircraft Credit Corporation and the Company. (2)
|      | 
|10.9  |  | Deferral Note, dated December 31, 2002, issued by the Company to Raytheon Aircraft Credit Corporation. (2)                                   
|      | 
|10.10 |  | Senior Note, dated December 31, 2002, issued by the Company to Raytheon Aircraft Credit Corporation. (2)                                     
|      | 
|10.11 |  | Subordinated Note, dated December 31, 2002, issued by the Company to Raytheon Aircraft Credit Corporation. (2)                               
|      | 
|10.12 |  | Security Agreement, dated December 31, 2002, by and between Raytheon Aircraft Credit Corporation and the Company. (2)                        
|      | 
|10.13 |  | Fourth Amendment to Security Agreement, dated December 31, 2002, by and between Raytheon Aircraft Credit Corporation and the Company. (2)    
|      | 
|10.14 |  | Amended and Restated Security Agreement, dated December 31, 2002 by and between Raytheon Credit Corporation and the Company. (2)             
|      | 
|10.15 |  | Form of Lockup Agreement, dated December 31, 2002. (2)                                                                                       

|
|

|
|



E-1



---

##### Table of Contents

|      |  |                                                                                                                                                                                                                                                                                                                                                       
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.16 |  | Settlement Agreement and Covenant Not to Execute, dated August 1, 2002, by and between FINOVA Capital Corporation and the Company. (2)                                                                                                                                                                                                                
|      | 
|10.17 |  | Deferral Agreement, dated November 1, 2002, by and between FINOVA Capital Corporation and the Company. (2)                                                                                                                                                                                                                                            
|      | 
|10.19 |  | Employment Agreement, dated December 31, 2002, by and between Douglas G. Voss and the Company. (2)                                                                                                                                                                                                                                                    
|      | 
|10.20 |  | Employment Agreement, dated December 31, 2002, by and between Charles R. Howell IV and the Company. (2)                                                                                                                                                                                                                                               
|      | 
|10.21 |  | Letter Agreement, dated April 11, 2003, by and between Boeing Capital Corporation and the Company. Portions of this Exhibit have been excluded from the publicly available document, and the
SEC has granted the Companys application for confidential treatment of the excluded material. (2)                                                       
|      | 
|10.22 |  | Code Share and Regulatory Cooperation and Marketing Agreement, dated February 1, 2001, by and between United Air Lines, Inc. and the Company. (3)                                                                                                                                                                                                     
|      | 
|10.23 |  | Code Share Agreement, dated May 3, 2001, by and between Frontier Airlines, Inc. and the Company, as amended on February 8, 2002. Portions of this Exhibit have been excluded from the publicly
available document, and the SEC has granted the Companys application for confidential treatment of the excluded material. (3)                         
|      | 
|10.24 |  | Amendment to Code Share and Regulatory Cooperation and Marketing Agreement by and between United Air Lines, Inc. and the Company effective July 18, 2003. Portions of this Exhibit have been
excluded from the publicly available document, and the SEC has granted the Companys application for confidential treatment of the excluded material. (4)
|      | 
|10.25 |  | Term Cost PlanTMAgreement dated April 1, 2004 executed by
and between Pratt & Whitney Canada Corp. and the Company. Portions of this Exhibit have been excluded from the publicly available document, and an application requesting confidential treatment of the excluded material has been filed with the
SEC. (6)                                  
|      | 
|10.26 |  | Group A Engine Overhaul Note executed on December 31, 2003 by the Company and delivered to Raytheon Aircraft Credit Corporation. (6)                                                                                                                                                                                                                  
|      | 
|10.27 |  | Installment Payment Agreement between the Company and the United States Department of Homeland Security Transportation Security Administration dated August 11, 2004. (7)                                                                                                                                                                             
|      | 
|14    |  | Code of Ethics. Filed herewith.                                                                                                                                                                                                                                                                                                                       
|      | 
|23    |  | Consent of KPMG LLP. Filed herewith.                                                                                                                                                                                                                                                                                                                  
|      | 
|24    |  | Powers of Attorney. Included on signature page to Form 10-K.                                                                                                                                                                                                                                                                                          
|      | 
|31.1  |  | Certification pursuant to Rule 13a-14(a) of Chief Executive Officer. Filed herewith.                                                                                                                                                                                                                                                                  
|      | 
|31.2  |  | Certification pursuant to Rule 13a-14(a) of Chief Financial Officer (Principal Accounting and Financial Officer). Filed herewith.                                                                                                                                                                                                                     



E-2



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##### Table of Contents

|     |  |                                                                                                                                                                    
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | 
|32.1 |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Chief Executive Officer. Filed herewith.
|     | 
|32.2 |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Chief Financial Officer. Filed herewith.

---

|(1) | Incorporated by reference to the Companys Registration Statement on Form S-1, Registration No. 33-71180.
|--- | ---------------------------------------------------------------------------------------------------------

|(2) | Incorporated by reference to the Companys Annual Report on Form 10-K for the year ended December 31, 2002. (File No. 0-23224)
|--- | ------------------------------------------------------------------------------------------------------------------------------

|(3) | Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2003. (File No. 0-23224)
|--- | ---------------------------------------------------------------------------------------------------------------------------------

|(4) | Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2003. (File No. 0-23224)
|--- | --------------------------------------------------------------------------------------------------------------------------------

|(5) | Incorporated by reference to the Companys Annual Report on Form 10-K for the year ended December 31, 2003. (File No. 0-23224)
|--- | ------------------------------------------------------------------------------------------------------------------------------

|(6) | Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2003. (File No. 0-23224)
|--- | ---------------------------------------------------------------------------------------------------------------------------------

|(7) | Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2003. (File No. 0-23224)
|--- | --------------------------------------------------------------------------------------------------------------------------------

|
|



E-3