Pinnacle Airlines (PNCL) 10-Q 2006 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2006

or

o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                    to                    

Commission File Number 001-31898

PINNACLE AIRLINES CORP.

(Exact name of registrant as specified in its charter)

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

901-348-4100

(Registrant’s telephone number, including area code)

Indicate by check mark whether 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.

Yesþ                      Noo

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

Large Accelerated Filero            Accelerated Filerþ            Non-Accelerated Filero

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

Yeso                      Noþ

As of November 8, 2006, 22,080,585 shares of common stock were outstanding.

Table of Contents

PART I. Financial Information	1
Item 1. Financial Statements	1
Condensed Consolidated Statements of Operations (Unaudited)	1
Condensed Consolidated Balance Sheets (Unaudited)	3
Condensed Consolidated Statements of Cash Flows (Unaudited)	5
Notes to Condensed Consolidated Financial Statements (Unaudited)	6
Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition	21
Item 3. Quantitative and Qualitative Disclosureabout Market Risk	33
Item 4. Controls and Procedures	33
PART II.Other Information	34
Item 1. Legal Proceedings	34
Item 1A. Risk Factors	34
Item 2. Changes in Securities and Use of Proceeds	34
Item 3. Defaults Upon Senior Securities	34
Item 4. Submission of Matters to a Vote of Security Holders	34
Item 5. Other Information	34
Item 6. Exhibits	35
Ex-31.1 Section 302 Certification
Ex-31.2 Section 302 Certification
Ex-32 Section 906 Certification

Part I. Financial Information

Item 1. Financial Statements

Pinnacle Airlines Corp.

Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except per share data)

	Three Months Ended September 30,
	2006			2005
Operating revenues
Regional airline services	$	206,827		$	218,832
Other		1,673			2,111
Total operating revenues		208,500			220,943
Operating expenses
Salaries, wages and benefits		34,567			35,155
Aircraft fuel		28,041			30,555
Aircraft maintenance, materials and repairs		8,691			7,473
Aircraft rentals		66,031			73,737
Other rentals and landing fees		11,480			11,464
Ground handling services		21,663			23,616
Depreciation		1,003			1,041
Other		15,002			16,344
Provision for (decreases) increases in losses associated with bankruptcy filings of Northwest and Mesaba		(3,537	)		53,914
Total operating expenses		182,941			253,299
Operating income (loss)		25,559			(32,356	)
Operating income (loss) as a percentage of operating revenues		12.3	%		(14.6	%)
Nonoperating income (expense)
Interest expense		(1,198	)		(1,109	)
Interest income		640			402
Miscellaneous income (expense), net		18			(2	)
Total nonoperating expense		(540	)		(709	)
Income (loss) before income taxes		25,019			(33,065	)
Income tax expense (benefit)		9,182			(11,673	)
Net income (loss)	$	15,837		$	(21,392	)
Basic and diluted earnings (loss) per share	$	0.72		$	(0.98	)
Shares used in computing basic earnings (loss) per share		21,945			21,908
Shares used in computing diluted earnings (loss) per share		21,990			21,908

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

1

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

	Nine Months Ended September 30,
	2006			2005
Operating revenues
Regional airline services	$	614,643		$	622,541
Other		5,460			6,033
Total operating revenues		620,103			628,574
Operating expenses
Salaries, wages and benefits		104,587			99,664
Aircraft fuel		81,953			84,660
Aircraft maintenance, materials and repairs		26,949			23,546
Aircraft rentals		198,093			206,632
Other rentals and landing fees		33,954			32,668
Ground handling services		65,787			69,405
Depreciation		2,932			3,019
Other		41,437			44,570
Provision for (decreases) increases in losses associated with bankruptcy filings of Northwest and Mesaba		(2,172	)		53,914
Total operating expenses		553,520			618,078
Operating income		66,583			10,496
Operating income as a percentage of operating revenues		10.7	%		1.7	%
Nonoperating income (expense)
Interest expense		(4,150	)		(3,266	)
Interest income		1,789			819
Miscellaneous income (expense), net		69			(2	)
Gain on extinguishment of debt		—			18,000
Total nonoperating (expense) income		(2,292	)		15,551
Income before income taxes		64,291			26,047
Income tax expense		23,267			10,311
Net income	$	41,024		$	15,736
Basic and diluted earnings per share	$	1.87		$	0.72
Shares used in computing basic earnings per share		21,945			21,908
Shares used in computing diluted earnings per share		21,981			21,923

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

2

Pinnacle Airlines Corp.

Condensed Consolidated Balance Sheets
(in thousands, except share data)

	September 30,			December 31,
	2006			2005
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	1,330		$	31,567
Short-term investments		57,375			44,160
Receivables, net of allowance		64,157			30,192
Spare parts and supplies, net		7,571			6,368
Prepaid expenses and other assets		9,915			5,014
Deferred income taxes, net of allowance		7,566			9,146
Total current assets		147,914			126,447
Property and equipment
Aircraft and rotable spares		39,002			39,362
Other property and equipment		21,162			19,209
Office furniture and fixtures		2,031			2,002
		62,195			60,573
Less accumulated depreciation		(20,890	)		(18,038	)
Net property and equipment		41,305			42,535
Other assets, primarily aircraft deposits		24,225			22,765
Debt issuance costs, net		4,033			4,198
Contractual rights under airline services agreement, net		13,533			14,435
Goodwill, net		18,422			18,422
Total assets	$	249,432		$	228,802

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

3

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

	September 30,			December 31,
	2006			2005
	(Unaudited)
Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	15,071		$	12,945
Accrued expenses		27,795			25,161
Line of credit with First Tennessee		—			17,000
Income taxes payable		14,355			17,756
Other current liabilities		1,176			7,161
Total current liabilities		58,397			80,023
Deferred income taxes		7,507			7,426
Other liabilities		2,466			1,735
Senior convertible notes		121,000			121,000
Commitments and contingencies
Stockholders’ equity
Preferred stock, par value $0.01 per share; 1,000,000 shares authorized, no shares issued		—			—
Series A preferred stock, stated value $100 per share; one share authorized and issued		—			—
Series common stock, par value $0.01 per share; 5,000,000 shares authorized; no shares issued		—			—
Common stock, $0.01 par value; 40,000,000 shares authorized; 22,080,585 and 21,945,260 shares issued, respectively		221			219
Additional paid-in capital		85,968			85,550
Accumulated deficit		(26,127	)		(67,151	)
Total stockholders’ equity		60,062			18,618
Total liabilities and stockholders’ equity	$	249,432		$	228,802

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

4

Pinnacle Airlines Corp.

Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)

	Nine Months Ended September 30,
	2006			2005
Operating activities
Net income	$	41,024		$	15,736
Adjustments to reconcile net income to cash provided by operating activities:
Provision for (decreases) increases in losses associated with bankruptcy filings of Northwest and Mesaba		(2,172	)		53,914
Pilot post-retirement liability		1,514			—
Depreciation		2,932			3,019
Deferred income tax (benefit) expense		1,661			(19,008	)
Gain on extinguishment of debt		—			(18,000	)
Stock-based compensation expense		420			436
Amortization of debt issuance costs		165			141
Amortization of contractual rights		902			379
Other		(408	)		672
Changes in operating assets and liabilities:
Receivables		(34,720	)		(50,859	)
Spare parts and supplies		(1,511	)		(1,423	)
Prepaid expenses and other assets		(4,901	)		192
Aircraft and engine deposits		—			(3,734	)
Accounts payable and accrued expenses		4,760			12,313
Other liabilities		(3,675	)		(361	)
Income taxes payable		(3,401	)		19,797
Cash provided by operating activities		2,590			13,214
Investing activities
Purchases of property and equipment		(2,612	)		(7,068	)
Purchase of contractual rights		—			(5,115	)
Purchase of short-term investments		(631,090	)		(45,350	)
Proceeds from sale of short-term investments		617,875			41,350
Cash used in investing activities		(15,827	)		(16,183	)
Financing activities
Payment to extinguish note payable		—			(101,600	)
(Repayment) proceeds under line of credit		(17,000	)		17,000
Repayments of line of credit with Northwest		—			(5,000	)
Gross proceeds from issuance of senior convertible notes		—			121,000
Debt issuance costs		—			(4,393	)
Other costs to retire note payable		—			(400	)
Cash (used in) provided by financing activities		(17,000	)		26,607
Net (decrease) increase in cash and cash equivalents		(30,237	)		23,638
Cash and cash equivalents at beginning of period		31,567			34,912
Cash and cash equivalents at end of period	$	1,330		$	58,550
Supplemental disclosure of cash flow information
Interest paid	$	4,584		$	2,584
Income tax payments	$	25,006		$	9,523

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

5

Pinnacle Airlines Corp.

Notes to Condensed Consolidated Financial Statements (Unaudited)
(all amounts in thousands, except per share data)

     Pinnacle Airlines Corp. (the ‘‘Company’’) operates through its wholly owned subsidiary, Pinnacle Airlines, Inc., as a regional airline that provides airline capacity to Northwest Airlines, Inc. (‘‘Northwest’’), a wholly owned indirect subsidiary of Northwest Airlines Corporation. The Company operates as a Northwest Airlink carrier at Northwest’s domestic hub airports in Detroit, Minneapolis/St. Paul and Memphis, and the regional focus city of Indianapolis. As of September 30, 2006, the Company operated an all-regional jet fleet of 124 Canadair Regional Jet (‘‘CRJ’’) aircraft and offered regional airline services with approximately 696 daily departures to 116 cities in 36 states and six Canadian provinces.

1. Basis of Presentation

     These interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information, the instructions to Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2005. Accordingly, significant accounting policies and other disclosures normally provided have been omitted since such items are disclosed therein.

     In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (including normal recurring adjustments) necessary to present fairly the Company’s financial position, the results of its operations and its cash flows for the periods indicated. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the year ended December 31, 2006.

     The term ‘‘block hours’’ refers to the elapsed time between an aircraft leaving a gate and arriving at a gate, and the term ‘‘cycle’’ refers to an aircraft’s departure and corresponding arrival. ‘‘Available seat miles’’ represents the number of seats available for passengers, multiplied by the number of miles those seats are flown.

2. Northwest Bankruptcy Filing

     On September 14, 2005, Northwest filed for protection under Chapter 11 of the United States Bankruptcy Code.

     The Company receives substantially all of its revenue from Northwest under the airline services agreement (“ASA”) entered into between the two companies. Also under the ASA and related lease agreements, the Company purchases fuel and ground handling services, and leases aircraft and facilities from Northwest.

     Generally, all amounts that Northwest owed to its creditors at the time of its filing were stayed by the bankruptcy filing. The Company’s claims against Northwest are unsecured claims. At any time during Northwest’s bankruptcy proceedings, Northwest may either assume or reject the ASA and related agreements, pending approval of the bankruptcy court. The Company is holding discussions with Northwest to determine the conditions under which Northwest will seek to assume the ASA. Although such discussions are ongoing, the Company expects that the negotiations with Northwest will result in an amended ASA that will substantially reduce the Company’s revenue, certain expenses and earnings. Northwest has also maintained that it will not agree to assume an amended ASA until the Company has reached a tentative agreement for an amended collective bargaining agreement with the Airline Pilots Association (“ALPA”), the union that represents the Company’s pilots.

     As part of its negotiations, the Company and Northwest may stipulate that the Company will receive an unsecured claim in the Northwest bankruptcy proceedings related to the Company’s losses, which will include the pre-petition receivables owed to the Company by Northwest and all other financial damages incurred by the Company. The stipulated claim amount may include an estimate of foregone earnings of the Company under its previous ASA with Northwest.

6

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

2. Northwest Bankruptcy Filing (continued)

     The Company has currently estimated that it will ultimately receive only five percent of the pre-petition amounts owed to it by Northwest. Absent the sale of its claim to a third party, the Company would only receive such amounts after a plan of reorganization had been confirmed by the bankruptcy court and Northwest has emerged from bankruptcy. The Company could recognize a material decrease in its losses associated with the Northwest bankruptcy if it ultimately recovers more than five percent of its unsecured claim.

     Effective November 1, 2005, Northwest removed 15 aircraft from the Company’s total operating CRJ fleet and has subsequently rejected its primary lease agreements with third party lessors on these 15 aircraft, and returned the aircraft to such lessors. Northwest recently announced that it had reached a settlement with the lessors of these rejected aircraft to lease the aircraft on new terms. Northwest is under no obligation to return these aircraft to the Company’s fleet, and may choose to place these aircraft with another operator. Since November 30, 2005, the Company has not made or received any payment related to these 15 aircraft under the ASA. Although the ASA contains no minimum utilization requirements for the Company’s operating fleet, it does provide that the Company is entitled to maintain a minimum fleet of at least 139 aircraft. The Company is evaluating what legal rights and remedies it may have with respect to this breach of the ASA. At a minimum, the Company would expect to take legal action to attempt to prevent Northwest from removing additional CRJ aircraft from the Company’s operating fleet if Northwest sought to reject any additional CRJ aircraft leases prior to assuming or rejecting the ASA. In addition, the Company has requested that Northwest return to it $2,625 in security deposits related to the 15 aircraft, although Northwest has not done so. In the Company’s condensed consolidated balance sheets as of September 30, 2006 and December 31, 2005, aircraft rental deposits of $2,625 attributable to the rejected aircraft have been classified as a pre-petition receivable from Northwest, and an allowance provided as discussed above. The Company currently believes that the $21,700 of aircraft deposits held by Northwest for its current fleet of 124 CRJ aircraft is a recoverable asset as Northwest has given no indication that it intends to reject any of the leases for these aircraft. The Company expects that the resolution of matters related to the 15 aircraft will be determined as part of its negotiations with Northwest for an amended ASA.

     As of December 31, 2005, Northwest owed the Company approximately $53,944 for amounts under the ASA that were outstanding at the time of the Northwest bankruptcy filing. The Company’s pre-petition receivable was reduced for amounts the Company owed Northwest at that time under these agreements. As of December 31, 2005, the Company had a provision of $51,523 for pre-petition amounts that it may not ultimately collect. As previously noted, the Company has established a reserve totaling 95% of its pre-petition receivable. The Company considered the historical recoveries that unsecured creditors have received in other recent major airline bankruptcies. The Company also considered its expectation that Northwest will seek to negotiate the amount of any allowed unsecured claim that the Company may have for all of its damages against Northwest, including this pre-petition receivable. Such negotiation may result in the parties stipulating an allowed unsecured claim that is less than the actual damages that the Company believes it has incurred.

     During the three and nine months ended September 30, 2006, the Company increased its provision for losses associated with the Northwest bankruptcy filing by $23 and decreased its losses by $1,529, respectively. These adjustments were made by the Company following revisions to its original estimates of receivables due from Northwest and revisions in its determination of payables subject to offsetting, primarily landing fees, owed to Northwest at the time of its bankruptcy filing. Northwest pays certain of the Company’s vendors directly and then seeks reimbursement from the Company. These amounts were not treated as offsetting at December 31, 2005 because at the time, the Company believed that third-party vendors would seek payment directly from the Company. With the passage of time and other factors, the Company concluded during the first quarter of 2006 that it would not be invoiced by third-party vendors and that the offsetting of these amounts was appropriate. The additional balances subject to offsetting caused an overall reduction in the pre-petition receivables balance and provision.

7

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

2. Northwest Bankruptcy Filing (continued)

     As of September 30, 2006, pre-petition amounts owed from Northwest and amounts owed to Northwest subject to offsetting were $79,984 and $26,650, respectively. The resulting net pre-petition receivable of $53,334 less a provision of $50,667 for uncollectible amounts were included in accounts receivable in the Company’s condensed consolidated balance sheet as of September 30, 2006 and represents the Company’s best estimate of amounts it will recover through the Northwest bankruptcy proceedings or through future discussions with Northwest regarding the assumption of the ASA. The amount that the Company will ultimately receive for its pre-petition receivable is dependent on its negotiations with Northwest and the actual amounts that unsecured creditors receive as part of Northwest’s reorganization plan. The Company continues to evaluate its provision for pre-petition receivables from Northwest, and may make material adjustments to this provision in future periods.

     The Company’s condensed consolidated balance sheet at September 30, 2006 includes various items related to its relationship with Northwest, including rotable aircraft parts, aircraft and engine lease security deposits, goodwill and contractual rights. As of September 30, 2006 and through the filing date of this Form 10-Q, the Company has concluded that the above items are not impaired. As the Northwest bankruptcy process continues, the Company will continue to evaluate its long-lived assets for any possible impairment.

     The Company’s future operations are substantially dependent on Northwest’s successful emergence from bankruptcy and its success in retaining its current business with Northwest, or on its ability to successfully establish an alternative to the Northwest business and services. Due to the uncertainties arising from the bankruptcy proceedings of Northwest, the Company’s independent registered public accounting firm included an explanatory paragraph discussing going concern uncertainties in their “Report of Independent Registered Public Accounting Firm” related to the audit of the Company’s consolidated financial statements for the year ended December 31, 2005.

3. Mesaba Bankruptcy Filing

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

     In 2005, the Company recorded losses of $10,100 following Mesaba’s rejection of the sublease agreements on the Saab aircraft, which were comprised of $1,254 of rent not paid by Mesaba prior to returning the aircraft and an estimate of $8,846 for future sublease losses. These losses were reduced by $2,025 for future sublease payments the Company reasonably expected to recover through the bankruptcy proceedings of Mesaba and Northwest. Estimates of future sublease losses are based on the difference between the Company’s obligations under its original lease agreements and the net cash flows it expects to receive from future sublease agreements. The Company’s expected net cash flows consider current estimates of market rental rates and costs necessary to restore the aircraft to a condition suitable for sublease, originally estimated to be $3,427. During the three months ended September 30, 2006, the Company began the refurbishment process and reduced its estimate of costs necessary to refurbish the aircraft to $2,326.

     On October 4, 2006, the Company entered into an assignment of claim agreement (the “Agreement”) with Goldman Sachs Credit Partners L.P. (“Goldman Sachs”). In the Agreement, the Company assigned to Goldman Sachs all of its rights with respect to its deficiency claim against Mesaba as set forth in the proof of claim filed in the bankruptcy court. Under the Agreement, Goldman Sachs agreed to pay the Company 42% of the final allowed claim, which ultimately will be determined by a final order in Mesaba’s bankruptcy proceedings. On October 5, 2006, Goldman Sachs advanced to the Company $5,234, which is equal to 80% of the purchase price based on the claim amount set forth in the Company’s proof of claim. The Agreement contains a provision for an additional payment from (or payment to) Goldman Sachs

8

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

3. Mesaba Bankruptcy Filing (continued)

once the final allowed amount of the claim is determined. Should the Company’s ultimate claim against Mesaba be less than that contained in the assignment agreement with Goldman Sachs, the Company will be required to pay Goldman Sachs interest on any difference.

     For the three and nine months ended September 30, 2006, the Company recorded a reduction of expected sublease losses of $3,560 and $644, respectively. During the three months ended September 30, 2006, the Company recorded a reduction of $3,061 to increase to 42% the amount of its total recorded losses that may ultimately be recovered and a $499 reduction, net of expected recovery, in other estimates, primarily its estimate of costs necessary to restore the Saab aircraft. These changes in estimates increased EPS by $0.10 and $0.02 for the three and nine months ended September 30, 2006, respectively.

     The Company’s accrued future sublease losses, net of expected recovery, as of September 30, 2006 and December 31, 2005 are included in other current liabilities in the amount of $98 and $5,396, respectively, and other liabilities in the amounts of $809 and $1,425, respectively, on the Company’s condensed consolidated balance sheets.

     On September 30, 2006, the total amount the Company was obligated to pay over the remaining lease terms of the 11 Saab aircraft was approximately $5,614.

4. Aircraft Security Deposits

     Pursuant to the terms of the airline sublease agreements associated with the ASA, Northwest may request additional security deposits in the amount of $21,700 once the promissory note issued to Northwest, dated January 14, 2003 and with a stated maturity of December 2009, has been paid in full and retired (see Note 7 for further discussion of the note payable to Northwest). Northwest has made such request, and demanded that the Company pay these additional security deposits in March 2006. Northwest has extended the deadline for its demand to November 13, 2006. The Company expects that ultimately the amount of security deposits required by Northwest as part of the future relationship between the companies will be addressed through ongoing discussions concerning assumption of the ASA. If this issue is not resolved by November 13, or if Northwest does not extend its deadline beyond November 13, then the Company may seek legal remedies to avoid payment of these security deposits to Northwest. The Company does not know if it will be successful in avoiding this deposit payment. Any payments the Company would make as a result of this request would be classified as other assets on its condensed consolidated balance sheet.

5. Related Party Transactions

     Northwest is a related party of the Company. As previously noted, the Company generates substantially all of its revenue from its ASA with Northwest. Under this agreement, the Company uses the name “Northwest Airlink” on all of its flights and leases all of its CRJs from Northwest. Northwest is the owner of 2,492 shares of the Company’s common stock and the Company’s Series A preferred stock.

9

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

5. Related Party Transactions (continued)

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2006		2005		2006			2005
Revenue:
Regional airline services revenue	$	206,827	$	218,832	$	614,643		$	622,541
Other revenue		1,107		1,644		3,598			4,436
Expenses:
Aircraft fuel		27,923		30,555		81,573			84,660
Aircraft rentals		66,031		73,737		198,093			206,632
Other rentals and landing fees		5,008		2,813		15,189			8,438
Ground handling services		16,006		17,657		49,287			49,699
Other		1,306		1,186		3,574			1,699
Provision for increases (decreases) in losses associated with bankruptcy filings of Northwest and Mesaba		23		49,030		(1,529	)		49,030
Interest expense		—		—		—			463

     Net amounts due from Northwest as of September 30, 2006 and December 31, 2005 were $61,944 and $28,630, respectively, and are included in accounts receivable in the Company’s condensed consolidated balance sheets. The higher than normal receivable at September 30, 2006 resulted from the receipt of the normal month-end payment from Northwest totaling $31,739 on October 2, 2006, due to the fact that the contractual payment date of September 30 fell on a weekend. These balances also included pre-petition receivables, net of allowances, of $2,667 and $2,421, representing amounts owed to the Company at the time of the Northwest bankruptcy filing, as discussed in Note 2. The remainder of the balance represents post-petition trade receivables, which Northwest has paid in accordance with the terms of the ASA. Therefore, the Company has concluded that an allowance is not necessary for these post-petition receivables. The expense of $23 and the benefit of $1,529 represent changes in the Company’s allowance for uncollectible pre-petition receivables following changes to the Company’s original estimate of pre-petition amounts due from Northwest and amounts subject to offsetting.

     Certain trade amounts, primarily relating to landing fees, ground handling and facilities rentals, due to Northwest as of September 30, 2006 and December 31, 2005 were $7,132, and $4,266, respectively, and are included in accounts payable in the Company’s condensed consolidated balance sheets.

     In accordance with the ASA, aircraft fuel costs are reimbursed in full by Northwest and may not exceed $0.78 per gallon.

     The Company has certain business transactions with Mesaba. Ground handling services obtained from Mesaba for the three months ended September 30, 2006 and 2005 were $3,878 and $4,528, respectively. For the nine months ended September 30, 2006 and 2005, the Company obtained ground handling services from Mesaba totaling $12,522 and $13,343, respectively. Ground handling services provided to Mesaba for the three months ended September 30, 2006 and 2005 totaled $298 and $289, respectively. For the nine months ended September 30, 2006 and 2005, the Company provided ground handling services in the amount of $1,325 and $1,039, respectively, which are included in other operating revenue in the Company’s condensed consolidated statements of operations.

10

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

6. Employee Benefit Plans

     During the nine months ended September 30, 2006, the Company recognized a non-cash charge of $1,300, $830 net of tax and $0.04 per share, which represented the impact on prior years for the accumulated post-retirement benefit obligation (“APBO”) related to the Retired Pilots Insurance Benefit outlined in its Pilots’ Collective Bargaining Agreement dated May 1, 1999. Net periodic benefit cost of this postretirement healthcare plan was as follows:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2006			2005		2006		2005
Service cost	$	26		$	—	$	158	$	—
Interest cost		9			—		56		—
Adjustment related to prior periods		(77	)		—		1,300		—
Periodic (benefit) cost	$	(42	)	$	—	$	1,514	$	—

     The amounts were not material in any individual prior period. In determining its conclusion on materiality, the Company relied on the guidance provided in Staff Accounting Bulletin No. 99,Materiality(“SAB 99”). In following this guidance, the Company thoroughly considered all relevant quantitative and qualitative factors in reaching its conclusion that this adjustment was immaterial. Some of the quantitative factors considered were the fact that the impact of this error on an annual basis never exceeded 2% of the Company’s pre-tax income for any year from 1999 through 2004. The impact of the error on 2005 pre-tax income was 3%; however, 2005 pre-tax income included a charge of $53,914 associated with the bankruptcy filings of Northwest and Mesaba and a $18,000 gain from the repurchase of debt. Some of the qualitative factors considered were the fact that the misstatement did not hide a failure to meet analysts’ expectations, the misstatement did not change a loss to income or vice versa for any of the fiscal years in question, the misstatement did not have a material impact on incentive compensation plans, and the error has not affected the Company’s compliance with regulatory requirements, covenants under debt or similar agreements or contractual requirements of operating and other agreements.

7. Senior Convertible Notes

     In February 2005, the Company completed the private placement of $121,000 principal amount of its 3.25% senior convertible notes due February 15, 2025 (the “Notes”). The Notes pay cash interest semiannually in arrears on February 15 and August 15 of each year, beginning August 15, 2005. The Notes are senior unsecured obligations and rank equally with other future senior unsecured debt, and are junior to any of the Company’s secured debt, to the extent of the collateral pledged, and to any debt and all other liabilities of Pinnacle Airlines, Inc.

     Proceeds from the sale of the Notes were used to purchase the outstanding $120,000 note payable to Northwest at a discounted price of $101,600, to repay the $5,000 of borrowings outstanding under the revolving credit facility with Northwest (the “Northwest Facility”), in each case with accrued and unpaid interest, and for general corporate purposes. As a result, the Company recorded a pre-tax gain of $18,000, net of advisory fees of $400, related to the extinguishment of debt during the first quarter of 2005.

11

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

8. Line of Credit

     On June 16, 2005, the Company entered into a Revolving Credit Facility (the “Revolver”) with First Tennessee Bank (the “Bank”). The Revolver was a one-year commitment that allowed for borrowings up to $17,000. Advances under the facility accrued interest at the Bank’s base rate, or at LIBOR plus 2.50% at the Company’s option. The Revolver was secured by the Company’s inventory of spare parts, ground equipment, and furniture and fixtures.

     On September 16, 2005, the Company drew down the entire amount of the facility. Borrowings under the facility remained at $17,000 until June 16, 2006, the Revolver’s expiration date, when the Company repaid the entire amount.

9. Leases

     The Company leases certain aircraft equipment, buildings and office equipment under noncancelable operating leases that expire in various years through 2017. As previously noted, the Company subleases its CRJ aircraft and engines from Northwest under operating leases that expire December 31, 2017. The lease agreements contain certain requirements of the Company regarding the payment of taxes on the aircraft, acceptable use of the aircraft, the level of insurance to be maintained, the maintenance procedures to be performed and the condition of the aircraft upon its return to Northwest. The monthly lease rates include certain fleet management costs of Northwest and are not representative of the rates paid by Northwest to third-party lessors. Northwest reimburses the Company’s aircraft rental expense in full under the ASA.

     As discussed in Note 3, 11 Saab 340 aircraft were subleased to Mesaba at the time of its bankruptcy filing. In January 2006, Mesaba rejected the subleases of the aircraft and returned them to the Company. Two of the 11 aircraft leases will expire in the fourth quarter of 2006 and seven of the remaining nine aircraft leases will expire in the first quarter of 2007. The aircraft will be returned to the lessor upon expiration of the leases. The Company expects to sublease the two remaining aircraft whose leases don’t expire until the first quarter of 2009.

     The following summarizes approximate minimum future rental payments, by year and in the aggregate, required under noncancelable operating leases with initial or remaining lease terms in excess of one year as of September 30, 2006:

	Operating Leases
	Aircraft		Non-aircraft
Remainder of 2006	$	66,840	$	4,289
2007		262,785		16,807
2008		261,792		16,032
2009		260,458		15,787
2010		260,400		15,835
Thereafter		1,822,800		50,395
Total minimum operating lease payments	$	2,935,075	$	119,145

     The obligations shown above have not been reduced by any amounts the Company expects to receive through the subleasing of the 11 Saab aircraft discussed in Note 3.

12

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

10. Earnings (Loss) Per Share

     The Company accounts for earnings (loss) per share in accordance with Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standard (“SFAS”) No. 128, “Earnings per Share.” Basic earnings (loss) per common share excludes dilution and is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the periods presented.

     Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other obligations to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. The Company has not considered any possible dilution related to the Notes. No increase in the number of shares used in the Company’s diluted earnings per share calculation will result from the Notes during a reporting period unless the Company’s average price of its common stock during such reporting period exceeds the initial conversion price of $13.22, and then only to the extent of that excess.

     The following table sets forth the computation of basic and diluted earnings (loss) per share (in thousands, except per share data):

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2006		2005			2006		2005
Net income (loss)	$	15,837	$	(21,392	)	$	41,024	$	15,736
Basic and diluted earnings (loss) per share	$	0.72	$	(0.98	)	$	1.87	$	0.72
Share computation:
Weighted average number of shares out-standing for basic earnings per share		21,945		21,908			21,945		21,908
Unvested restricted stock		45		—			36		15
Weighted average number of shares out-standing for diluted earnings per share		21,990		21,908			21,981		21,923

     Options to purchase 935 and 699 shares of common stock were excluded from the diluted EPS calculation at September 30, 2006 and 2005, respectively, because their effect would be anti-dilutive.

11. Stock-Based Compensation

     Effective January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), “Share Based Payments” (“SFAS 123R”), which requires all share-based payments to employees, including employee stock options and grants, to be recognized as share-based compensation expense in the income statement based on fair values. As allowed under SFAS 123R, the Company chose the modified prospective adoption method, under which compensation cost is recognized in the financial statements beginning with the effective date, for all share based payments granted after that date, and for all unvested awards granted prior to the effective date of SFAS 123R. Accordingly, prior period amounts have not been restated.

     Prior to January 1, 2006, the Company accounted for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations (“APB 25”) to measure compensation expense for stock-based compensation plans. Under APB 25, if the exercise price of the Company’s employee stock options equaled the market price of the underlying stock on the date of the grant, no compensation expense was recognized. Since the Company’s stock options had all been granted with exercise prices at fair value, no compensation expense has been recognized under APB 25.

13

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

11. Stock-Based Compensation (continued)

     For the three and nine months ended September 30, 2006, the adoption of SFAS 123R’s fair value method has resulted in additional expense in the amount of $78 and $227, respectively, related to stock options, than if the Company had continued to account for stock-based compensation under APB 25. This additional stock-based compensation lowered pre-tax earnings and net income by $78 and $49, respectively, for the three months ended September 30, 2006. This additional stock-based compensation lowered pre-tax earnings and net income by $227 and $145, respectively, for the nine months ended September 30, 2006. The additional expense had less than a $0.01 impact on basic and diluted earnings per share. SFAS 123R also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required prior to SFAS 123R.

     As the Company currently has no excess tax benefits related to SFAS 123R, its adoption has not affected the Company’s condensed consolidated statement of cash flows. The impact of adopting SFAS 123R on future results will depend on, among other things, levels of share-based payments granted in the future, actual forfeiture rates and the timing of option exercises.

     The Company grants stock-based compensation under its 2003 Stock Incentive Plan. As of September 30, 2006, there were 1,028 remaining shares reserved for issuance under this plan.

Stock Options

     Under SFAS 123R, forfeitures are estimated at the time of valuation and reduce expense ratably over the vesting period. This estimate is adjusted periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimate. Under SFAS 123 and APB 25, the Company elected to account for forfeitures when awards were actually forfeited, at which time all previous pro forma expense was reversed to reduce pro forma expense for that period.

     In January 2006, the Company granted 292 stock options to its executive officers, members of its Board of Directors and certain other employees. The option grants vest ratably over a three-year period and expire ten years from the grant date. Under the newly adopted provisions of SFAS 123R, the Company recorded compensation expense in the amount of $78 and $227 related to the grant of these stock options during the three and nine months ended September 30, 2006. Under the previous standards included in APB 25, the Company would not have recorded any stock compensation expense during the three and nine months ended September 30, 2006. Compensation cost yet to be recognized related to this grant was $441, net of tax, as of September 30, 2006. This cost will be recognized over the next 2.3 years.

     A summary of stock option activity since the Company’s most recent year end is as follows:

			Weighted Average
	Stock Options		Exercise Price
Outstanding at December 31, 2005		652	$	13.88
Granted		292	$	6.47
Forfeited		9	$	14.00
Outstanding at September 30, 2006		935	$	11.56
Options exercisable at September 30, 2006		643	$	13.87

     Exercise prices for all options outstanding as of September 30, 2006 ranged from $6.47 to $14.00. The weighted average grant date fair value and weighted-average remaining contractual life of those options was $6.98 per share and 7.8 years, respectively, at September 30, 2006. Exercise prices for the 643 exercisable options outstanding as of September 30, 2006 ranged from $10.23 to $14.00. The weighted average grant date fair value and weighted-average remaining contractual life of these exercisable options were $5.88 per share and 7.2 years, respectively, at September 30, 2006.

14

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

11. Stock-Based Compensation (continued)

     The fair value of each option grant is separately estimated for each vesting date. The fair value of each option is amortized into compensation expense on a straight-line basis between the grant date for the award and each vesting date. The Company has estimated the fair value of all stock option awards as of the date of the grant by applying the Black-Scholes-Merton multiple-option pricing valuation model. The application of this valuation model involves assumptions that are judgmental and highly sensitive in the determination of compensation expense.

     The fair value of the options granted during 2006 was estimated at the date of grant with the following assumptions for 2006: risk-free interest rate of 4.3%, dividend yield of 0.0%, expected volatility of the Company’s common stock of 59.4% and expected life of the option of 5.0 years. The grant date fair value of the stock options granted in 2006 was $3.53 per option. The following is a summary of the methodology applied to develop each assumption:

     Expected Price Volatility —This is a measure of the amount by which a price has fluctuated or is expected to fluctuate. The Company uses actual historical changes in the market value of its stock and the historical volatility of comparable companies to calculate the volatility assumption as it is management’s belief that this is the best indicator of future volatility. The Company calculates daily market value changes from the date of grant over a past period representative of the expected life of the options to determine volatility. An increase in the expected volatility will increase compensation expense.

     Risk-Free Interest Rate —This is the U.S. Treasury rate for the week of the grant having a term equal to the expected life of the option. An increase in the risk-free interest rate will increase compensation expense.

     Expected Lives —This is the period of time over which the options granted are expected to remain outstanding. Options granted have a maximum term of ten years. An increase in the expected life will increase compensation expense.

     Forfeiture Rate —This is the estimated percentage of options granted that are expected to be forfeited or canceled before becoming fully vested. This estimate is based on our expectations of future forfeitures and historical experience and is currently estimated at 10%. An increase in the forfeiture rate will decrease compensation expense.

     Dividend Yield —The Company has not made any dividend payments nor does it have plans to pay dividends in the foreseeable future. An increase in the dividend yield will decrease compensation expense.

     Prior to January 1, 2006, the Company accounted for share-based payments using the intrinsic value method prescribed by APB 25 and SFAS 123. Since the Company’s stock options had all been granted with exercise prices at the market price of the underlying stock on the date of grant, no compensation expense had been recognized under APB 25. The following table illustrates the effect on net income and earnings per share assuming the compensation costs for the Company’s stock option and purchase plan had been recorded in the three and nine months ended September 30, 2005 based on the fair value method under SFAS 123:

15

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

11. Stock-Based Compensation (continued)

	Three Months			Nine Months
	Ended			Ended
	September 30, 2005			September 30, 2005
Net income (loss), as reported	$	(21,392	)	$	15,736
Add: Stock-based compensation expense included in reported net income, net of tax		61			275
Deduct: Total pro forma stock-based compensation expense, net of tax		(259	)		(946	)
Pro forma net income (loss)	$	(21,590	)	$	15,065
Earnings (loss) per common share:
Basic and diluted — as reported	$	(0.98	)	$	0.72
Basic and diluted — pro forma	$	(0.99	)	$	0.69

Restricted Stock

     In January 2006, the Company awarded 135 shares of restricted stock to certain officers and members of the Board of Directors under the Company’s 2003 Stock Incentive Plan. Using the straight-line method, this amount is being expensed ratably over the three-year vesting period. During the three and nine months ended September 30, 2006, the Company recognized $66 and $193, respectively, of compensation expense related to this grant of restricted stock. Compensation cost yet to be recognized related to this restricted stock grant was $380, net of tax, as of September 30, 2006. This cost will be recognized over the next 2.3 years.

     During the vesting periods, grantees have voting rights, but the shares may not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of, alienated or encumbered. Additionally, granted but unvested shares are forfeited upon a grantee’s separation from service.

12. Income Taxes

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

	Three Months Ended September 30,
	2006						2005
	$			%			$			%
Income tax expense at statutory rate	$	8,757			35.0	%	$	(11,573	)		(35.0	)%
State income taxes, net of federal taxes		652			2.6	%		(93	)		(0.3	)%
Valuation allowance		(88	)		(0.3	)%		—			—
Other		(139	)		(0.6	)%		(7	)		(0.0	)%
Income tax expense (benefit)	$	9,182			36.7	%	$	(11,673	)		(35.3	)%

	Nine Months Ended September 30,
	2006						2005
	$			%			$		%
Income tax expense at statutory rate	$	22,502			35.0	%	$	9,116		35.0	%
State income taxes, net of federal taxes		1,451			2.3	%		1,134		4.4	%
Valuation allowance		(288	)		(0.4	)%		—		—
Other		(398	)		(0.7	)%		61		0.2	%
Income tax expense	$	23,267			36.2	%	$	10,311		39.6	%

16

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

12. Income Taxes (continued)

     The Company has assessed its risks regarding various potential tax matters in a number of jurisdictions and provided accruals of approximately $14,666 and $14,296 at September 30, 2006, and December 31, 2005, respectively. The ultimate amount of the liabilities, if any, may vary; however, the Company believes it has adequate reserves for its assessed risks.

     In connection with the $57,426 of cumulative losses from the bankruptcy filings of Northwest and Mesaba, the Company has recorded a deferred tax benefit of $6,474 as of September 30, 2006, which represents the future federal and state income tax deductions provided to the Company from these losses. After conducting an evaluation of the recoverability of these tax benefits as of September 30, 2006, the Company concluded that the valuation allowance established at December 31, 2005 for certain deferred tax assets in states that do not allow for any carryback of taxable losses should be lowered from $288 to $0. This change in estimate reduced the Company’s effective tax rate for the nine months ended September 30, 2006 by approximately 0.4%.

     Should the Company’s ability to realize this future benefit be at risk because of certain federal and state limitations regarding the carry-back of taxable losses, the Company may implement various tax strategies to immediately utilize this tax deduction. Among other things, one potential strategy would be for the Company to sell its claim against Northwest to a third party and thereby make final determination of the amount ultimately recovered, which would allow for an immediate tax benefit.

     The Company is currently under IRS audit for the tax years 2003, 2004 and 2005. The Company believes that it has provided sufficiently for all audit exposures. The Company’s future earnings, cash flow and liquidity could be materially impacted should the IRS propose any adjustments as a result of its audit. Settlement of this audit or the expiration of the statute of limitations on the assessment of income taxes for any tax year may also result in a change in future tax provisions.

     The FASB issued FASB Interpretation No. 48 (“FIN48”), “Accounting for Uncertainty in Income Taxes,” on July 13, 2006. The new rules will be effective for the Company beginning January 1, 2007. FIN 48 requires that a position taken or expected to be taken in a tax return be recognized in the financial statements when it is more likely than not (i.e. a likelihood of more than fifty percent) that the position would be sustained upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. The effective date for the Company is January 1, 2007. Upon adoption, the cumulative effect of applying the recognition and measurement provisions of FIN 48, if any, shall be reflected as an adjustment to the opening balance of retained earnings. At this time, the Company has not completed its review and assessment of the impact of adoption of FIN 48.

13. Contractual Rights under Airline Services Agreement

     Contractual rights were acquired from Northwest under Amendment No. 4 to the ASA. Among other things, Amendment No. 4 granted the Company the right to operate an additional ten CRJs during the remaining term of the ASA. The delivery of the ten additional aircraft, which began in the second quarter of 2005, increased the Company’s fleet to 139 aircraft. In consideration of these contractual rights, the Company agreed to pay $15,115 to Northwest, which is being amortized on a straight-line basis over the remaining term of the ASA. The Company recorded a reduction to regional airline services revenue of $301 and $902, respectively, during the three and nine months ended September 30, 2006 related to the amortization of this intangible asset and expects future amortization to be $301 for the remainder of 2006 and $1,203 annually in years 2007 through 2017.

     As discussed in Note 2, the Company will continue to evaluate these contractual rights for impairment as Northwest proceeds through the bankruptcy process. As of September 30, 2006, the Company has concluded that its contractual rights are not impaired.

17

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

14. Short-Term Investments

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

     At September 30, 2006, the Company had $57,375 invested in auction rate securities (“ARS”), including $12,550 in auction rate preferred stock and $44,825 in auction rate certificates. The auction rate certificates are issued by U.S. states and political subdivisions of the states. The Company classifies investments in ARS as short-term investments on the Company’s condensed consolidated balance sheet. Although ARS typically have long-term or no stated maturities, these investments have characteristics similar to short-term investments because the securities are periodically repriced at predetermined intervals, generally every 7-35 days, through an auction process.

     The contractual maturity for the auction rate certificates was approximately four years for $1,200 of the certificates, and more than ten years for $43,625 of the certificates.

     Proceeds from the sale of available-for-sale securities were $224,965 for the three months ended September 30, 2006 and $617,875 for the nine months ended September 30, 2006. Proceeds from the sale of available-for-sale securities were $41,350 for the three and nine months ended September 30, 2005.

     Unrealized gains and losses, net of tax, are computed on the basis of specific identification and are reported as a separate component of accumulated other comprehensive income in shareholders’ equity until realized. All income generated from these securities in 2006 was from earned interest and there were no unrealized or realized gains or losses for the three and nine months ended September 30, 2006 or 2005.

15. Commitments and Contingencies

     Employees. As of September 30, 2006, approximately 78% of the Company’s workforce were members of unions representing pilots (32%), flight attendants (16%), customer service agents (29%) and dispatchers (1%). The collective bargaining agreement between the Company and ALPA covering the Company’s pilots became amendable on April 30, 2005. Since that time, both parties have worked in earnest to complete a new agreement, but have been unable to do so. On August 22, 2006, Pinnacle filed for mediation between the two parties with the National Mediation Board. Both parties have met several times with the mediator assigned to the case, but have not been able to reach agreement. It is not possible at this time to determine when the mediation process will reach conclusion. The collective bargaining agreement for flight attendants became amendable on July 31, 2006. The Company has held some discussions with the United Steel Workers, the union that represents its flight attendants, and expects to complete negotiations in early 2007. The collective bargaining agreement for customer service agents becomes amendable on March 19, 2010. In August 2005, the Company’s flight dispatchers elected representation by the Transport Workers Union of America AFL-CIO, Air Transport Division (“TWU”). The Company and the TWU began initial discussions in April 2006 and expect to complete negotiations in early 2007. The Railway Labor Act, which governs labor relations for unions representing airline employees, contains detailed provisions that must be exhausted before work stoppage can occur once a collective bargaining agreement becomes amendable.

     Legal Proceedings.The Company is a defendant in various lawsuits arising in the ordinary course of business. While the outcome of these lawsuits and proceedings cannot be predicted with certainty, it is the opinion of the Company’s management based on current information and legal advice that the ultimate disposition of these suits will not have a material adverse effect on the financial statements as a whole.

18

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

15. Commitments and Contingencies (continued)

     Purchase Commitments.The Company has a contractual obligation to purchase cost-per-hour services with an avionics service provider. The contract has approximately four years remaining under the original 10-year term and covers repair and support services for the Company’s avionics equipment on a per flight hour basis, subject to a minimum purchase obligation of approximately $600 per year through the remainder of the term of the contract.

     The Company has contractual obligations of approximately $3,172 under certain software license agreements with various service providers. The contracts vary in term and extend through 2012. Contractual obligations to these service providers are $255 for the remainder of 2006, $959 in 2007, approximately $459 per year in 2008 through 2011, and $122 in 2012.

     The Company has contractual obligations of approximately $600 under agreements with various aircraft parts suppliers and service providers, consisting of approximately $80 for the remainder of 2006 and averaging $130 per year in years 2007 through 2010.

     Self-Insurance.The Company self-insures a portion of its costs from claims related to medical insurance for employees. Losses are accrued based on an estimate of the ultimate aggregate liability for claims incurred, using standard industry practices and actual experience.

     Regulatory Matters. The Company is subject to regulation under various laws and regulation, which are administered by numerous state and federal agencies, including the Federal Aviation Administration, Transportation Security Administration and the Department of Transportation. The Company is involved in various matters with these agencies during the ordinary course of its business. While the outcome of these matters cannot be predicted with certainty, the Company does not expect, based on current information and past experience, that the ultimate disposition of these matters will have a material adverse effect on its financial statements as a whole.

     Guarantees and Indemnifications. The Company is the guarantor of approximately $2,360 aggregate principal amount of tax-exempt special facilities revenue bonds and interest thereon. These bonds were issued by the Memphis-Shelby County Airport Authority (the “Authority”) and are payable solely from rentals paid under a long-term lease agreement with the Authority. The leasing arrangement is accounted for as an operating lease in the condensed consolidated financial statements.

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

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

     The Company expects that its levels of insurance coverage (subject to deductibles) would be adequate to cover most tort liabilities and related indemnities described above with respect to real estate it leases and aircraft it operates.

19

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

     The Company does not expect the potential amount of future payments under the foregoing indemnities and agreements to be material.

20

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

General

     The following management’s discussion and analysis describes the principal factors affecting the results of operations, liquidity, capital resources and contractual cash obligations, as well as the critical accounting policies, of the Company. This discussion should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and our Annual Report on Form 10-K for the year ended December 31, 2005 (“Annual Report”), which include additional information about our significant accounting policies, practices and the transactions that underlie our financial results.

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

Overview

     Total operating revenues for the three and nine months ended September 30, 2006 were $208.5 million and $620.1 million, respectively, which represented decreases of 6% and 1%, respectively, over the same periods in 2005. Regional airline services revenue for the three and nine months ended September 30, 2006 were $206.8 million and $614.6 million, respectively, which represented decreases of 5% and 1%, respectively, over the same periods in 2005.

     Our available seat miles (“ASMs”), block hours and cycles decreased by approximately 6%, 9% and 4%, respectively, during the three months ended September 30, 2006, compared to the same period in 2005. Our ASMs and block hours decreased by approximately 4% and 5%, respectively, and cycles increased by less than 1% during the nine months ended September 30, 2006, compared to the same period in 2005.

     For the three and nine months ended September 30, 2006, we had operating income of $25.6 million and $66.6 million, respectively, which represented increases of $57.9 million and $56.1 million over the same periods in 2005. For the three and nine months ended September 30, 2005, our results included a provision for losses associated with the bankruptcy filings of Northwest and Mesaba in the amount of $53.9 million. For the three and nine months ended September 30, 2006, we recorded benefits of $3.5 million and $2.2 million, respectively, for reductions in our previous loss estimates associated with these bankruptcy filings.

     Our net income for the three months ended September 30, 2006 was $15.8 million and our net loss for the three months ended September 30, 2005 was $21.4 million. Our net income for the nine months ended September 30, 2006 and 2005 was $41.0 million and $15.7 million, respectively. Net income for the nine months ended September 30, 2005 included a nonrecurring pre-tax gain of $18.0 million ($11.3 million net of related income taxes) from the repurchase of the note payable to Northwest that occurred in February 2005, as well as the $53.9 million provision for losses associated with the bankruptcy filings of Northwest and Mesaba discussed above.

     The following reconciles our operating income, net income and diluted earnings per share (“EPS”) as reported in accordance with generally accepted accounting principles (“GAAP”) for the three and nine months ended September 30, 2006 and 2005 to non-GAAP measures excluding the losses (gains) associated with the bankruptcy filings of Northwest and Mesaba, the nonrecurring charge related to the previously unrecorded obligation for pilot post-retirement health care benefits that were recorded during the three months ended June 30, 2006 and the gain associated with our February 2005 repurchase of debt. We believe that this information is useful as it indicates more clearly our comparative year-to-year results. None of this information should be considered a substitute for any measures prepared in accordance with GAAP. We have included this reconciliation of non-GAAP financial measures to our most comparable GAAP financial measures included herein.

21

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

	Three Months Ended September 30,
							% Increase
	2006			2005			(Decrease)
	(in thousands, except per share data)
Operating Income:
Operating income (loss) in accordance with GAAP	$	25,559		$	(32,356	)		179	%
Add: Provision for (decreases) increases in losses associated with bankruptcy filings of Northwest and Mesaba		(3,537	)		53,914			(107	)%
Non-GAAP operating income	$	22,022		$	21,558			2	%
Net Income:
Net income (loss) in accordance with GAAP	$	15,837		$	(21,392	)		174	%
Add: Provision for (decreases) increases in losses associated with bankruptcy filings of Northwest and Mesaba, net of related tax		(2,227	)		34,519			(106	)%
Non-GAAP net income	$	13,610		$	13,127			4	%
Basic and Diluted EPS:
Basic and diluted EPS in accordance with GAAP	$	0.72		$	(0.98	)		173	%
Add: Provision for (decreases) increases in losses associated with bankruptcy filings of Northwest and Mesaba, net of related tax		(0.10	)		1.58			(106	)%
Non-GAAP basic and diluted EPS	$	0.62		$	0.60			3	%

	Nine Months Ended September 30,
							% Increase
	2006			2005			(Decrease)
	(in thousands, except per share data)
Operating Income:
Operating income in accordance with GAAP	$	66,583		$	10,496			534	%
Add: Pilot post-retirement liability		1,300			—			100	%
Add: Provision for (decreases) increases in losses associated with bankruptcy filings of Northwest and Mesaba		(2,172	)		53,914			(104	)%
Non-GAAP operating income	$	65,711		$	64,410			2	%
Net Income:
Net income in accordance with GAAP	$	41,024		$	15,736			161	%
Add: Pilot post-retirement liability, net of related tax		830			—			100	%
Add: Provision for (decreases) increases in losses associated with bankruptcy filings of Northwest and Mesaba, net of related tax		(1,366	)		34,519			(104	)%
Deduct: Gain on repurchase of debt, net of related tax		—			(11,302	)		(100	)%
Non-GAAP net income	$	40,488		$	38,953			4	%
Basic and Diluted EPS:
Basic and diluted EPS in accordance with GAAP	$	1.87		$	0.72			160	%
Add: Pilot post-retirement liability, net of related tax		0.04			—			100	%
Add: Provision for (decreases) increases in losses associated with bankruptcy filings of Northwest and Mesaba, net of related tax		(0.07	)		1.58			(104	)%
Deduct: Gain on repurchase of debt, net of related tax		—			(0.52	)		(100	)%
Non-GAAP basic and diluted EPS	$	1.84		$	1.78			3	%

22

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

Outlook

     We are holding discussions with Northwest to determine the conditions under which Northwest will seek to assume the ASA. Although such discussions are ongoing, we expect that the negotiations with Northwest will result in an amended ASA that will substantially reduce our revenue, certain expenses and earnings. Northwest has also maintained that it will not agree to assume an amended ASA until we have reached a tentative agreement for an amended collective bargaining agreement with the Airline Pilots Association (“ALPA”), the union that represents our pilots. As part of the negotiations, we and Northwest may agree to a stipulated unsecured claim amount related to our losses resulting from Northwest’s bankruptcy proceedings. We cannot predict the timing of concluding negotiations with ALPA or with Northwest. We understand that Northwest has discussed options with other parties to replace our flying, and we cannot predict whether we will successfully reach settlement with Northwest.

     During October 2006, Northwest placed orders for 36 CRJ-900 aircraft and 36 EMB-175 aircraft, both with seating capacities of 76 seats. Northwest announced that the 36 EMB-175 aircraft will be operated by its newly formed subsidiary, Compass Air. Northwest will select another partner to operate the 36 CRJ-900 aircraft in the near future. In addition, Northwest has entered into new lease agreements for 15 CRJ-200 aircraft that were previously rejected during Northwest’s bankruptcy proceedings. We intend to submit a proposal to Northwest to operate both the 36 CRJ-900 and 15 CRJ-200 aircraft, although we also expect a number of our competitors to submit proposals to Northwest. The competition for additional regional jet capacity is intense, and there is no assurance that we will be successful in obtaining a commitment from Northwest for any additional regional aircraft.

     The collective bargaining agreement between our company and ALPA became amendable in April 2005. We have been actively negotiating with ALPA for the past several months. In August 2006, we filed for mediation with the National Mediation Board. Since that time, we have met with the mediator assigned to our case and with ALPA, but we have not reached resolution on an amended collective bargaining agreement. We have informed ALPA that Northwest will require successful resolution of our pilot contract negotiations as a condition to assuming our ASA. It is our intention to conclude negotiations with ALPA shortly.

     Subject to certain restrictions, our ASA with Northwest allows us to establish separate operations to provide regional airline service to other major carriers. We believe that our low cost structure and high operational performance will make us an attractive partner for other major airlines, and we have been actively seeking such opportunities. No assurance can be made that we will be successful in obtaining new business with other major carriers.

     We are in the process of voluntarily adopting the standards of the Air Transportation Oversight System (“ATOS”) prescribed by the Federal Aviation Administration (“FAA”). ATOS is a system developed by the FAA that allows air carriers to standardize their operating methods and procedures, providing for better coordination of the FAA’s role in monitoring and reviewing certificated air carriers. Implementing ATOS requires, among other things, standardizing certain flight operating procedures and policies. We are not required to adopt ATOS but have chosen to do so voluntarily. We completed the conversion of our manuals, policies and procedures to an ATOS compliant format during the fourth quarter of 2005, and we are now assisting the FAA in its review of our modifications. We believe that adopting ATOS standards for our existing operations will also reduce the amount of time within which we could be certified by the Department of Transportation to operate an additional aircraft type.

23

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

Results of Operations

     The following discussion provides an analysis of our results of operations and reasons for material changes therein for the three and nine months ended September 30, 2006 compared to the same periods in 2005.

Comparison of Three Months Ended September 30, 2006 to Three Months Ended September 30, 2005

Revenues

     A significant portion of the payments we receive from Northwest are based on the actual operation of our aircraft. Northwest is solely responsible for scheduling flights, and the ASA does not require Northwest to meet any minimum utilization levels for our aircraft. We receive reimbursement of certain operating expenses necessary to provide regional airline services to Northwest and payments based on pre-set rates for fixed costs, completed block hours and completed cycles. We also receive margin payments on these items which are intended to achieve a target operating margin. Our operating results are not significantly impacted by any seasonality trends historically associated with the airline industry.

     The following schedule summarizes operating revenue, operating expenses, and operating income by type for the periods indicated:

	Three Months Ended September 30,
	(in thousands)
	2006												2005
	Reimbursed			Unreimbursed			Other			Total			Reimbursed			Unreimbursed			Other			Total
Operating revenues:
Regional airline services	$	136,968		$	69,859		$	—		$	206,827		$	148,291		$	70,541		$	—		$	218,832
Other revenue		—			1,673			—			1,673			—			2,111			—			2,111
Total operating revenues		136,968			71,532			—			208,500			148,291			72,652			—			220,943
Operating expenses:
Salaries, wages and benefits		—			34,567			—			34,567			—			35,155			—			35,155
Aircraft fuel		27,923			118			—			28,041			30,338			217			—			30,555
Aircraft maintenance, materials and repairs		3,626			5,065			—			8,691			2,537			4,936			—			7,473
Aircraft rentals		66,031			—			—			66,031			73,737			—			—			73,737
Other rentals and landing fees		4,820			6,660			—			11,480			4,726			6,738			—			11,464
Ground handling services		15,940			5,723			—			21,663			17,637			5,979			—			23,616
Depreciation		—			1,003			—			1,003			—			1,041			—			1,041
Other		4,931			10,071			—			15,002			4,487			11,857			—			16,344
Provision for (decreases) increases in losses associated with bankruptcy filings of Northwest and Mesaba		—			—			(3,537	)		(3,537	)		—			—			53,914			53,914
Total operating expenses		123,271			63,207			(3,537	)		182,941			133,462			65,923			53,914			253,299
Operating income:	$	13,697		$	8,325		$	3,537		$	25,559		$	14,829		$	6,729		$	(53,914	)	$	(32,356	)
Operating income as a percent of operating revenues		10.0	%		11.6	%					12.3	%		10.0	%		9.3	%					(14.6	%)

     Operating revenue of $208.5 million for the three months ended September 30, 2006 decreased $12.4 million, or 6%, from operating revenue of $220.9 million for the same period in 2005. The decrease in revenue was primarily due to a decrease of $11.3 million in revenue associated with expense reimbursements. The most significant decreases in reimbursable expenses, primarily aircraft rent, aircraft fuel and ground handling services provided by Northwest, were caused by a decreased fleet size in 2006. In November 2005, Northwest removed 15 aircraft from our fleet, a decrease of 11% in our fleet size, and subsequently rejected its primary lease agreements with third party lessors. These aircraft have now been returned to such lessors. Our decrease in revenue compared to our decrease in fleet size is offset by an ASA rate increase, resulting in an increase in revenue of $4.0 million for the three months ended September 30, 2006.

     We maintained a fleet size of 124 aircraft during the three months ended September 30, 2006. Our fleet size of 124 aircraft was 11% less than the average daily fleet size in the three months ended September 30, 2005 of 139 aircraft. During the three months ended September 30, 2005, we accepted delivery of two CRJ aircraft and ended the quarter with a fleet of 139 CRJ aircraft.

24

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

     We have not accepted any additional CRJ aircraft in 2006. A smaller 2006 fleet was the primary cause of decreases in completed cycles and block hours of 4% and 9%, respectively.

Operating Expenses

     Total operating expenses for the three months ended September 30, 2006 decreased by $70.4 million and 28%. The decrease in operating expenses was attributable to our decrease in operations following the removal of 15 CRJ aircraft from our fleet in November 2005 and a $57.5 million decrease in bankruptcy related expense.

     Aircraft fuel expense decreased $2.5 million, or 8%, due primarily to the 9% decrease in block hours. In accordance with the ASA, aircraft fuel costs are reimbursed in full by Northwest and may not exceed $0.78 per gallon.

     Aircraft maintenance, materials and repairs expenses increased approximately $1.2 million or 16%. This increase in expense is due primarily to a $2.0 million increase in costs associated with our auxiliary power unit maintenance contracts, which was reduced during the third quarter of 2005 after we finalized the terms of our new contract and recorded an adjustment to previous estimates. This increase was offset by a decrease of $0.8 million in expenses associated with heavy checks. We performed nine heavy checks in the three months ended September 30, 2006 while we performed 15 in the three months ended September 30, 2005.

     Aircraft rental expense decreased $7.7 million, or 10%, due to the 11% reduction in our fleet that occurred in November 2005. As previously noted, we sublease our CRJ aircraft from Northwest under operating leases that expire December 31, 2017. The monthly lease rates include certain fleet management costs of Northwest and are not representative of the rates paid by Northwest to third-party lessors. Northwest reimburses aircraft rental expense in full under the ASA.

     Ground handling services decreased by $2.0 million, or 8%, due primarily to the $1.7 million decrease in ground handling from Northwest as a result in an increase in the number of cities in which ground handling functions are performed by our employees. The remainder of the decrease is due to a 4% decrease in the number of departures performed and a change in the mix of cities served.

     The $1.3 million, or 8%, decrease in other expenses included a decrease of $0.4 million in crew overnight accommodations expense, and a decrease of $0.2 million of simulator training costs for pilots, both of which were attributable to a decrease in operations. There was also a decrease of $0.6 million for professional services associated with the bankruptcy process and ongoing projects.

Income Tax Expense

     For the three months ended September 30, 2006, our income tax expense increased by $20.9 million, mainly due to a $58.1 million increase in pre-tax income as compared to the same period in 2005.

     Our effective tax rate for the three months ended September 30, 2006 was 1.4 points higher than the same period in 2005. Due to the limitations on the carryback of losses in certain states, we were not able to recognize the full tax benefit of our pre-tax loss in 2005.

Comparison of Nine Months Ended September 30, 2006 to Nine Months Ended September 30, 2005

Revenues

     The following schedule summarizes operating revenue, operating expenses, and operating income by type for the periods indicated:

25

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

	Nine Months Ended September 30,
	(in thousands)
	2006												2005
	Reimbursed			Unreimbursed			Other			Total			Reimbursed			Unreimbursed			Other			Total
Operating revenues:
Regional airline services	$	407,816		$	206,827		$	—		$	614,643		$	420,349		$	202,192		$	—		$	622,541
Other revenue		—			5,460			—			5,460			—			6,033			—			6,033
Total operating revenues		407,816			212,287			—			620,103			420,349			208,225			—			628,574
Operating expenses:
Salaries, wages and benefits		—			104,587			—			104,587			—			99,664			—			99,664
Aircraft fuel		81,573			380			—			81,953			84,172			488			—			84,660
Aircraft maintenance, materials and repairs		12,063			14,886			—			26,949			10,030			13,516			—			23,546
Aircraft rentals		198,093			—			—			198,093			206,632			—			—			206,632
Other rentals and landing fees		14,627			19,327			—			33,954			14,068			18,600			—			32,668
Ground handling services		49,141			16,646			—			65,787			51,528			17,877			—			69,405
Depreciation		—			2,932			—			2,932			—			3,019			—			3,019
Other		11,537			29,900			—			41,437			11,884			32,686			—			44,570
Provision for (decreases) increases in losses associated with bankruptcy filings of Northwest and Mesaba		—			—			(2,172	)		(2,172	)		—			—			53,914			53,914
Total operating expenses		367,034			188,658			(2,172	)		553,520			378,314			185,850			53,914			618,078
Operating income:	$	40,782		$	23,629		$	2,172		$	66,583		$	42,035		$	22,375		$	(53,914	)	$	10,496
Operating income as a percent of operating revenues		10.0	%		11.1	%					10.7	%		10.0	%		10.7	%					1.7	%

     Operating revenue of $620.1 million for the nine months ended September 30, 2006 decreased $8.5 million, or 1%, over operating revenue of $628.6 million for the same period in 2005. The decrease in revenue was primarily due to a decrease of $12.5 million in revenue associated with expense reimbursements. The most significant decreases in reimbursable expenses, primarily aircraft rent, aircraft fuel and ground handling services provided by Northwest, were caused by a decreased fleet size in 2006. As previously discussed, in November 2005, Northwest removed 15 aircraft from our fleet, a decrease of 11% in our fleet size, and subsequently rejected its primary lease agreements with third party lessors. Our decrease in revenue compared to our decrease in fleet size is offset by an ASA rate increase, resulting in an increase in revenue of $11.1 million for the nine months ended September 30, 2006.

     The variances in the number of cycles and block hours were impacted by a 6% reduction in our average stage length from 502 miles to 471 miles.

Operating Expenses

     Total operating expenses for the nine months ended September 30, 2006 decreased by $64.6 million and 10%. The decrease in operating expenses was attributable to our decrease in operations following the removal of 15 CRJ aircraft from our fleet in November 2005 and a $56.1 million decrease in bankruptcy related expense.

     Salaries, wages and benefits increased by $4.9 million, or 5%, due to the recording of the $1.5 million post-retirement liability for pilots, of which $1.3 million was related to prior periods, as discussed in Note 6 of Item 1 of this Form 10-Q. The remainder of the increase was attributable to increases in wage rates and benefits, most notably an increase of $2.3 million in pilot and pilot trainer wages and benefits.

     Aircraft maintenance, materials and repairs expenses increased approximately $3.4 million and 14% due to a $1.0 million increase in engine expense related to foreign object damage events that occurred in early 2006, a $0.9 million increase in auxiliary power unit maintenance contracts and a $0.3 million increase in heavy check related expense.

     Ground handling services decreased by $3.6 million, or 5%, due primarily to an increase in the number of cities in which ground handling functions are performed by our employees instead of being outsourced. The remaining decrease is attributable to a change in the mix of cities served and a slight increase in cycles and a one time payment of $0.3 million to Mesaba in 2005 for inflation adjustments to ground handling rates.

26

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

     The $3.1 million, or 7%, decrease in other expenses was primarily attributable to the decrease in operations, most notably a $0.6 million decrease in training expenses, a $0.4 million decrease in food and beverage costs and a $0.4 million decrease in crew overnight accommodations expense.

Nonoperating Income and Expenses

     Miscellaneous income for the nine months ended September 30, 2005 consists of a gain of $18.0 million recorded in connection with the repurchase of our debt with Northwest. There were no such transactions for the same period in 2006.

Income Tax Expense

     For the nine months ended September 30, 2006, our tax expenses were lower than for the same period in 2005, mainly due to the capital gain of $18.0 million we recorded in 2005 in connection with the repurchase of our debt with Northwest.

     The decrease in our effective tax rate for the nine months ended September 30, 2006, was mainly due to a decrease of $0.3 million in valuation allowances established at December 31, 2005 related to deferred tax benefits associated with bankruptcy losses of Northwest and Mesaba. The effective rate also decreased slightly from an increase in non-taxable income earned on short-term investments.

Certain Statistical Information

     Information with respect to our operating expense components as a percentage of revenue, as cents per available seat miles (“ASMs”) and as dollars per block hour is as follows:

	Three Months Ended September 30,
	2006												2005
	Amount			Percent of			Cents per			Cost per			Amount (in		Percent of			Cents per		Cost per
	(in thousands)			Revenue			ASM			Block Hour			thousands)		Revenue			ASM		Block Hour
Operating expenses:
Salaries, wages and benefits	$	34,567			17	%		2.37		$	331		$	35,155		16	%		2.26	$	305
Aircraft fuel		28,041			13	%		1.92			269			30,555		14	%		1.96		265
Aircraft maintenance, materials and repairs		8,691			4	%		0.59			83			7,473		4	%		0.48		65
Aircraft rentals		66,031			32	%		4.52			632			73,737		33	%		4.74		639
Other rentals and landing fees		11,480			6	%		0.79			110			11,464		5	%		0.74		99
Ground handling services		21,663			10	%		1.48			207			23,616		11	%		1.52		205
Depreciation		1,003			1	%		0.07			10			1,041		0	%		0.07		9
Other		15,002			7	%		1.03			144			16,344		7	%		1.05		141
Provision for (decreases) increases in losses associated with bankruptcy filings of Northwest and Mesaba		(3,537	)		(2	)%		(0.24	)		(34	)		53,914		23	%		3.47		467
Total operating expenses	$	182,941			88	%		12.53			1,752		$	253,299		113	%		16.29	$	2,195

	Nine Months Ended September 30,
	2006												2005
	Amount			Percent of			Cents per			Cost per			Amount		Percent of			Cents per		Cost per
	(in thousands)			Revenue			ASM			Block Hour			(in thousands)		Revenue			ASM		Block Hour
Operating expenses:
Salaries, wages and benefits	$	104,587			17	%		2.51		$	337		$	99,664		16	%		2.30	$	306
Aircraft fuel		81,953			13	%		1.96			264			84,660		14	%		1.96		260
Aircraft maintenance, materials and repairs		26,949			4	%		0.64			87			23,546		4	%		0.54		72
Aircraft rentals		198,093			32	%		4.75			638			206,632		33	%		4.78		634
Other rentals and landing fees		33,954			5	%		0.81			109			32,668		5	%		0.76		100
Ground handling services		65,787			11	%		1.58			212			69,405		11	%		1.60		213
Depreciation		2,932			0	%		0.07			9			3,019		0	%		0.07		10
Other		41,437			7	%		0.99			134			44,570		7	%		1.03		136
Provision for (decreases) increases in losses associated with bankruptcy filings of Northwest and Mesaba		(2,172	)		0	%		(0.05	)		(7	)		53,914		8	%		1.18		157
Total operating expenses	$	553,520			89	%		13.26		$	1,783		$	618,078		98	%		14.22	$	1,888

27

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

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

	Three Months Ended September 30,
	2006			2005			Change
Other Data:
Revenue passengers (in thousands)		2,330			2,192			6	%
Revenue passenger miles (in thousands) (1)		1,110,898			1,160,095			(4	)%
Available seat miles (in thousands)		1,459,943			1,555,520			(6	)%
Passenger load factor (2)		76.1	%		74.6	%	1.5pts.
Operating revenue per available seat mile (in cents)		14.28			14.20			1	%
Operating costs per available seat mile (in cents)		12.53			16.29			(23	)%
Operating revenue per block hour	$	1,996		$	1,915			4	%
Operating costs per block hour	$	1,752		$	2,195			(20	)%
Block hours		104,435			115,358			(9	)%
Cycles		63,713			66,094			(4	)%
Average daily utilization (block hours)		9.15			9.04			1	%
Average stage length (miles)		471			510			(8	)%
Number of operating aircraft (end of period)		124			139			(11	)%
Employees (end of period)		3,554			3,605			(1	)%

	Nine Months Ended September 30,
	2006			2005			Change
Other Data:
Revenue passengers (in thousands)		6,685			5,971			12	%
Revenue passenger miles (in thousands) (1)		3,193,715			3,064,647			4	%
Available seat miles (in thousands)		4,173,150			4,326,501			(4	)%
Passenger load factor (2)		76.5	%		70.8	%	5.7pts.
Operating revenue per available seat mile (in cents)		14.86			14.53			2	%
Operating costs per available seat mile (in cents)		13.26			14.22			(7	)%
Operating revenue per block hour	$	1,997		$	1,929			4	%
Operating costs per block hour	$	1,783		$	1,888			(6	)%
Block hours		310,503			325,802			(5	)%
Cycles		188,031			187,188			0	%
Average daily utilization (block hours)		9.17			9.20			(0	)%
Average stage length (miles)		471			502			(6	)%
Number of operating aircraft (end of period)		124			139			(11	)%
Employees (end of period)		3,554			3,605			(1	)%

(1)	Revenue passenger miles represents the number of miles flown by revenue passengers.
(2)	Passenger load factor equals revenue passenger miles divided by available seat miles.

Liquidity and Capital Resources

     As of September 30, 2006, we had $1.3 million in cash and cash equivalents and $57.4 million in short-term investments. Our balance of cash and cash equivalents as of September 30, 2006, was low due to the timing of the September month-end payment from Northwest. Payments are received on the 15^th and 30^th of each month unless those days fall on a weekend, then the payment is received on the next business day. Our September 30^th payment of $31.7 million was received on October 2, 2006, resulting in a lower than normal cash balance and a higher than normal receivable balance for the period ending September 30, 2006.

     Net cash provided by operating activities for the nine months ended September 30, 2006 was $2.6 million. Cash used for investing activities was $15.8 million. Cash used in financing activities was $17.0 million.

28

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

     Due to the timing of payments from Northwest under the ASA, our balance of cash and short-term investments is typically at its highest level at the end of a month. Our balance of cash and short-term investments can decline by as much as $35 million intra-month as we meet regular operating cash flow needs prior to receiving revenue payments from Northwest.

     Our liquidity was significantly impacted by Northwest’s bankruptcy filing on September 14, 2005. Since that time, Northwest has generally complied with the payment terms under the ASA. Unless Northwest seeks to reject the ASA in its entirety, we expect our cash flow from operations to be sufficient to meet our ongoing capital requirements and financial commitments.

     Contractual obligations. The following chart details our debt and lease obligations at September 30, 2006 (in thousands):

	Payments Due by Period
	Total		2006 (1)		2007		2008		2009		2010		Thereafter
Contractual obligations:
Sr. convertible notes	$	121,000	$	—	$	—	$	—	$	—	$	—	$	121,000
Interest payments on long-term debt		72,751		—		3,933		3,933		3,933		3,933		57,019
Operating leases		3,054,220		71,129		279,592		277,824		276,245		276,235		1,873,195
Additional aircraft deposits (2)		21,700		—		21,700		—		—		—		—
Purchase obligations (3)		5,841		493		1,778		1,355		1,219		564		432
Total contractual cash obligations	$	3,275,512	$	71,622	$	307,003	$	283,112	$	281,397	$	280,732	$	2,051,646

(1)	Contractual obligations for the remainder of 2006.
(2)	Disputed additional aircraft deposits that the Company believes are due in November 2007. Northwest has demanded them to be paid by November 13, 2006.
(3)	Amounts represent noncancelable commitments to purchase goods and services, including certain aircraft parts and information technology.

     The amounts noted above for operating leases include $2.9 billion of obligations for leased CRJ aircraft from Northwest. Under the terms of the ASA, we are reimbursed by Northwest in full for aircraft rental expense. For a more detailed discussion of operating leases, refer to Note 9 “Leases,” in Item 1 of this Form 10-Q.

     In February 2005, we completed the private sale of $121.0 million principal amount of our 3.25% senior convertible notes due 2025 (the “Notes”). The net proceeds from the issuance of the Notes were used to repay certain obligations outstanding to Northwest. The Notes bear interest at the rate of 3.25% per year, payable in cash semiannually in arrears on February 15 and August 15 of each year, beginning August 15, 2005. Holders of the Notes may require us to purchase all or a portion of their notes for cash on February 15, 2010, February 15, 2015, and February 15, 2020 at a purchase price equal to 100% of the principal amount of the Notes to be repurchased plus accrued and unpaid interest, if any, to the purchase date. In addition, under certain circumstances, holders of the Notes may convert them into the equivalent value of our common stock at an initial conversion rate of 75.6475 shares per $1,000 principal amount, representing an initial conversion price of $13.22. Upon conversion, we will pay the portion of the conversion value up to the principal amount of each note in cash, and any excess conversion value in cash or our common stock at our election. For a more detailed discussion of the Notes refer to Note 7 in Item 1 of this Form 10-Q.

     The Notes generally trade in secondary markets at a premium to the value into which they could be converted. For instance, at the time the Notes were issued, if any of the conditions for conversion had

29

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

been met, holders of the Notes could have converted each $1,000 principal amount of Notes into cash and stock totaling only $823. Because of this premium associated with the option value imbedded in the Notes, we do not believe that a significant number of holders of the Notes would choose to convert the Notes prior to their maturity if any of the conditions allowing for conversion are met. In the event that a significant number of the Notes were converted prior to their maturity, we would use internally generated cash flow and, to the extent necessary, issue other debt or equity securities to raise additional capital to satisfy the cash requirements of such conversions.

     On June 16, 2005, we entered into a Revolving Credit Facility (the “Revolver”) with First Tennessee Bank (the “Bank”). The Revolver was a one-year commitment that allowed for borrowings up to $17.0 million. Advances under the facility accrued interest at the Bank’s base rate, or at LIBOR plus 2.50% at our option. The Revolver was secured by our inventory of spare parts, ground equipment, and furniture and fixtures. We elected to draw the maximum amount of $17.0 million under the Revolver in September 2005 in anticipation of the financial impact of Northwest’s bankruptcy filing. We repaid this amount on June 16, 2006, the Revolver’s expiration date.

     Amounts noted above in the chart as disputed additional aircraft deposits relate to a demand given by Northwest in September 2005 that we pay $21.7 million in additional aircraft sublease security deposits in March 2006. The terms of our sublease agreements with Northwest provide that Northwest may request additional security deposits in the amount of $21.7 million once the promissory note we issued to Northwest has been paid in full and retired. We have disputed Northwest’s right to seek additional security deposits from us at this time. Northwest has extended the date of its request from its original deadline of March 1, 2006 to November 13, 2006. We expect that ultimately the amount of security deposits required by Northwest will be addressed through our ongoing discussions concerning assumption of the ASA. If this issue is not resolved by November 13, or if Northwest does not extend its deadline beyond November 13, then we may seek legal remedies to prevent payment of these security deposits to Northwest. We do not know if we will be successful in avoiding these additional security deposit payments. Any payments we would make as a result of this request would be classified as other assets on our condensed consolidated balance sheet.

     We are currently under IRS audit for the tax years 2003, 2004 and 2005. Our future earnings, cash flow and liquidity could be materially impacted should the IRS propose any adjustments as a result of its audit. Settlement of this audit or the expiration of the statute of limitations on the assessment of income taxes for any tax year may also result in a change in future tax provisions.

     Operating activities.Net cash provided by operating activities was $2.6 million during the nine months ended September 30, 2006. This was due primarily to cash provided by net income of $41.0 million, offset by changes in operating assets and liabilities, primarily accounts receivable, of $43.4 million. As previously discussed, our accounts receivable balance was higher than normal as of September 30, 2006 due to the timing of the receipt of the month-end payment from Northwest. Net cash provided by operating activities was $13.2 million during the nine months ended September 30, 2005. This was due primarily to cash provided by net income of $15.7 million and changes in operating assets and liabilities of $24.1 million (including an increase in taxes payable of $19.8 million and $3.7 million in aircraft and engine deposits paid to Northwest), offset by the pre-tax gain on extinguishment of debt of $18.0 million, net of advisory fees of $0.4 million.

     Investing activities.Cash used for investing activities for the nine months ended September 30, 2006 and 2005 was $15.8 million and $16.2 million, respectively. The decrease is primarily due to a decrease of $4.5 million in purchases of property and equipment and the $5.1 million purchase of contractual rights that occurred in the nine months ended September 30, 2005 offset by a net increase of $9.2 million in purchases of short-term investments for the nine months ended September 30, 2006.

     We expect capital expenditures for 2006 to be approximately $7.0 million, primarily relating to CRJ aircraft rotable parts and tooling, software application and automation infrastructure projects and maintenance and ground equipment. We are expecting to fund these expenditures with cash flows generated from our operations.

30

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

     Financing activities. Cash used in financing activities for the nine months ended September 30, 2006 totaled $17.0 million, which relates to the repayment of the Revolver. Cash provided by financing activities for the nine months ended September 30, 2005 totaled $26.6 million. We received gross proceeds from the issuance of our senior convertible notes of $121.0 million. We paid a total of $101.6 million to Northwest to retire our long-term debt and repay our borrowings under a revolving credit agreement with Northwest. Additionally, we paid $4.9 million to various third parties related to the issuance of the Notes.

     Deferred tax asset.In connection with the estimated losses for the bankruptcy filings of Northwest and Mesaba of $57.5 million, we recorded a deferred tax benefit of $0.9 million, which represents the future federal and state income tax deductions provided to the Company from these losses. Should our ability to realize this future benefit be at risk because of certain federal and state limitations regarding the carry-back of taxable losses, we may implement various tax strategies to immediately utilize this tax deduction. Among other things, one potential strategy would be for us to sell our claim against Northwest to a third party and thereby make final determination of the amount ultimately recovered, which would allow for an immediate tax benefit.

Critical Accounting Policies and Estimates

     The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to adopt accounting policies and make significant judgments and estimates to develop amounts reflected and disclosed in the financial statements. In many cases, there are alternative policies or estimation techniques that could be used. We maintain a thorough process to review the application of our accounting policies and to evaluate the appropriateness of the many estimates that are required to prepare the financial statements of a corporation. However, even under optimal circumstances, estimates routinely require adjustment based on changing circumstances and the receipt of new or better information.

     Provisions for losses on subleases.In determining losses on subleases, we follow the guidance of Financial Accounting Standards Board Statement No. 146 “Accounting for Costs Associated with Exit or Disposal Activities.” This standard requires that a sublease loss be recognized when the required cash flows under the original lease do not equal or exceed the future cash flows expected under the related sublease. The sublease loss is measured based on the difference between current market lease rates and the lease rates under the original lease.

     As discussed in Note 3 of Item 1 of this Form 10-Q, after entering into an assignment of claim agreement with Goldman Sachs Credit Partners L.P. and revising our estimate of costs necessary to restore the aircraft, we recorded a benefit of $3.6 million and $0.6 million for the three and nine months ended September 30, 2006 related to the 11 Saab Turboprop aircraft and two related engines that we sublease to Mesaba Aviation, Inc. (“Mesaba”), who filed for bankruptcy under Chapter 11 of the United States bankruptcy code on October 13, 2005.

     Future sublease payments that are different than our current estimates, which are based on market rates, will result in adjustments to our loss on sublease. As Mesaba proceeds through its bankruptcy process, we will appropriately revise our estimate of sublease losses as we become aware of new information.

     Post-retirement health plan.In accordance with the Retired Pilots Insurance Benefit outlined in the Pilots’ Collective Bargaining Agreement dated May 1, 1999, we provide certain post-retirement health benefits to our pilots. Our plan is measured using actuarial techniques that reflect management’s assumptions for discount rate, participation rate, expected retirement, mortality, employee turnover and future increases in healthcare costs. We determine the discount rate, which is required to be the rate at which the projected benefit obligation could be effectively settled as of the measurement date, with the assistance of actuaries. See Note 6 of Item 1 of this Form 10-Q for more information.

     Allowance for doubtful accounts.We grant trade credit to certain approved customers and perform a monthly analysis of outstanding trade receivables to assess the likelihood of collection. For balances

31

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

where we do not expect full payment of amounts owed, an allowance is recorded to adjust the trade receivable to our best estimate of the amount we will ultimately collect.

     As discussed in Note 2 of Item 1 of this Form 10-Q, as of September 30, 2006 Northwest owed us approximately $53.3 million for amounts outstanding at the time of its bankruptcy, net of amounts that we owed to Northwest at that time. After analyzing the collectibility of these pre-petition receivables, we concluded that a provision of $50.7 million was necessary for amounts we may not ultimately collect from Northwest. The remaining net balance of $2.7 million represents our best estimate of the recoverable portion of these pre-petition receivables.

     There is a significant amount of uncertainty surrounding the Northwest bankruptcy process, which will include negotiations with Northwest regarding our ASA. As such, it is reasonably likely that the pre-petition amounts we ultimately collect will be different, potentially by a material amount, from our current estimate. In future periods, we will appropriately revise our estimate of recoverable amounts as we become aware of new information.

     Additional information regarding our critical accounting policies can be found in our 2005 Annual Report on page 33. In addition, Note 2 to the condensed consolidated financial statements in our Annual Report contains a summary of our significant accounting policies.

     Recent Accounting Pronouncement. The FASB issued FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes,” on July 13, 2006. The new rules will be effective for the Company beginning January 1, 2007. At this time, we have not completed our review and assessment of the impact of adoption of FIN 48. See Note 12 of Item 1 of this Form 10-Q for more information.

Forward Looking Statements

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

32

Item 3. Quantitative and Qualitative Disclosure about Market Risk

     We are not directly subject to market risks such as commodity price risk (e.g., aircraft fuel prices) and interest rate risk. As discussed in Note 2 in Item 1 of this Form 10-Q regarding our ASA, Northwest is our sole customer.

     Aircraft fuel.Under the ASA, Northwest bears the economic risk of our passenger aircraft fuel price fluctuations as our future passenger fuel costs are reimbursed by Northwest and capped at $0.78 per gallon.

     Interest rates.All of our CRJs are operated under long-term operating leases with Northwest. Our Saab aircraft, which were being subleased to Mesaba, are leased from a third party. Under the ASA, the lease payments associated with aircraft deliveries are fixed. We do not hold long-term interest sensitive assets and, therefore, we are not exposed to interest rate fluctuations for our assets. The 3.25% senior convertible notes discussed below bear interest at a fixed rate. Our earnings are affected by fluctuations in interest rates due to the impact those changes have on our interest income from short-term investments. We do not purchase or hold any derivative financial instruments to protect against the effects of changes in interest rates.

     Senior Convertible Notes.While we pay interest on the Notes at a fixed rate of 3.25%, the fair value of the Notes is sensitive to changes in interest rates and to changes in the market price of our common stock. Interest rate changes may result in increases or decreases in the fair value of the Notes due to differences between market interest rates and rates in effect at the inception of the obligation. The fair value of the Notes may also increase or decrease with differences between the current market price of our common stock and the market price on the original issuance date of the Notes. Unless we elect to repurchase our Notes in the open market, changes in their fair value have no impact on our condensed consolidated financial statements as a whole. The estimated fair value of the Notes on October 25, 2006 was approximately $108.6 million, based on quoted market prices.

Item 4. Controls and Procedures

     As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and 15d-15. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective. Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and completely and accurately reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

     Since the end of the prior quarter, there have been no changes in our internal control over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

33

Part II. Other Information

Item 1. Legal Proceedings

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

Item 1A. Risk Factors.

     There are no material changes to the Risk Factors described under the title “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2005.

Item 2. Unregistered Sales of Equity Securities

None

Item 3. Defaults Upon Senior Securities

None.

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

None.

Item 5. Other Information

None.

34

Item 6. Exhibits

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

Exhibit
Number	Description
3.1	Amended and Restated Certificate of Incorporation of the registrant (Incorporated by reference to the Company’s Registration Statement Form S-1 (Registration No. 333-83359), as amended (the “S-1”) initially filed on February 25, 2002)
3.1.1	Second Amended and Restated Certificate of Incorporation of the registrant (Incorporated by reference to the S-1)
3.2	Certificate of Designations for Series A preferred stock of the registrant (Incorporated by reference to the S-1)
3.3	Bylaws of the registrant (Incorporated by reference to the S-1)
3.3.1	Amended and Restated Bylaws, dated January 14, 2003, of the registrant (Incorporated by reference to the S-1)
4.1	Specimen Stock Certificate (Incorporated by reference to the S-1)
4.2	Rights Agreement between the registrant and EquiServe Trust Company, N.A., as Rights Agent (Incorporated by reference to the S-1)
4.3	Indenture, 3.25% Senior Convertible Notes due 2025, dated as of February 8, 2005, by and between Pinnacle Airlines Corp. and Deutsche Bank Trust Company (Incorporated by reference to Exhibits 99.2 and 99.3 to the Registrant’s Current Report on Form 8-K filed on February 8, 2005)
4.4	Registration Rights Agreement made pursuant to the Purchase Agreement dated February 3, 2005, dated as of February 8, 2005, by and among Pinnacle Airlines Corp., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Raymond James & Associates, Inc. (Incorporated by reference to Exhibits 99.2 and 99.3 to the Registrant’s Current Report on Form 8-K filed on February 8, 2005)
10.1	Loan Agreement dated as of June 16, 2005 between Pinnacle Airlines, Inc. and First Tennessee Bank National Association (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on June 23, 2005)
10.2	Sublease Agreement between Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by reference to the S-1)
10.2.1	First Amendment to Sublease Agreement between Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by reference to the S-1)
10.2#	Guaranty Agreement between Pinnacle Airlines, Inc. and First Tennessee Bank National Association (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on June 23, 2005)
10.3	Engine Lease Agreement between Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by reference to the S-1)
10.3.1	First Amendment to Engine Lease Agreement between Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by reference to the S-1)
10.3#	Revolving Credit Note dated as of June 16, 2005 between Pinnacle Airlines, Inc. and First Tennessee Bank National Association (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on June 23, 2005)
10.4#	Security Agreement dated as of June 16, 2005 between Pinnacle Airlines, Inc. and First Tennessee Bank National Association (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on June 23, 2005)
10.5#	Negative Pledge Agreement dated as of June 16, 2005 between Pinnacle Airlines, Inc. and First Tennessee Bank National Association (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on June 23, 2005)

35

Exhibit
Number	Description
10.6#	Negative Pledge Agreement dated as of June 16, 2005 between Pinnacle Airlines Corp. and First Tennessee Bank National Association (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on June 23, 2005)
10.8†	Pinnacle Airlines Corp. 2003 Stock Incentive Plan
10.9	Non-Qualified Stock Option Agreement for options granted under the Pinnacle Airlines Corp. 2003 Stock Incentive Plan (Incorporated by reference to the S-1)
10.10†	Pinnacle Airlines, Inc. Annual Management Bonus Plan (Incorporated by reference to the S-1)
10.11	Amended and Restated Sublease Agreement dated as of January 14, 2003 between Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (SBN Facilities) (Incorporated by reference to the S-1)
10.12	Sublease Agreement dated as of August 1, 2002 between Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (TYS Facilities) (Incorporated by reference to the S-1)
10.13	Amended and Restated Facilities Use Agreement between Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (DTW Facilities) (Incorporated by reference to the S-1)
10.14	Amended and Restated Facilities Use Agreement between Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (MEM Facilities) (Incorporated by reference to the S-1)
10.15	Amended and Restated Facilities Use Agreement between Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (MSP Facilities) (Incorporated by reference to the S-1)
10.16	Intentionally omitted
10.17	Intentionally omitted
10.18	Lease Guaranty issued by the registrant to Northwest Airlines, Inc. (Incorporated by reference to the S-1)
10.19	Sublease Guaranty issued by the registrant to Northwest Airlines, Inc. (Incorporated by reference to the S-1)
10.20	Airline Services Agreement dated as of March 1, 2002 among the registrant, Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by reference to the S-1)
10.21	Airline Services Agreement dated as of January 14, 2003 among the registrant, Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by reference to the S-1)
10.21.1	Amendment No. 1 dated as of September 11, 2003 to the Airline Services Agreement dated as of January 14, 2003 among the registrant, Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by reference to the S-1)
10.21.2	Amendment No. 2 dated as of November 26, 2003 to the Airline Services Agreement dated as of January 14, 2003 among the registrant, Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by reference to the S-1)
10.22	Amended and Restated Ground Handling Agreement between Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by reference to the S-1)
10.23	Amended and Restated Information Technology Services Agreement between Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by reference to the S-1)
10.24	Amended and Restated Family Assistance Services Agreement between Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by reference to the S-1)
10.25	Amended and Restated Manufacturer Benefits Agreement between Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by reference to the S-1)
10.26	Form of Amended and Restated Preferential Hiring Agreement between Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by reference to the S-1)
10.27	Purchase Agreement, Senior Convertible Notes due 2025, dated as of February 3, 2005, by and among, Pinnacle Airlines Corp., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Raymond James & Associates, Inc. (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on February 8, 2005)
10.28†	Amended and Restated Management Compensation Agreement between Pinnacle Airlines, Inc. and Philip H. Trenary (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on August 12, 2005)

36

Exhibit
Number	Description
10.29†	Amended and Restated Management Compensation Agreement between Pinnacle Airlines, Inc. and Peter D. Hunt (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on August 12, 2005)
10.30†	Amended and Restated Management Compensation Agreement between Pinnacle Airlines, Inc. and Douglas W. Shockey (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on August 12, 2005)
10.31†	Form of Indemnity Agreement between Pinnacle Airlines Corp. and its directors and officers (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on January 26, 2006)
10.99.1#	Promissory Note issued by Pinnacle Airlines, Inc. to Northwest Airlines, Inc. (Incorporated by reference to the S-1)
10.99.2#	Guarantee of Promissory Note issued by registrant to Northwest Airlines, Inc. (Incorporated by reference to the S-1)
10.99.3#	Revolving Credit Facility dated as of January 14, 2003 between Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by reference to the S-1)
10.99.4#	First Amendment dated as of February 5, 2003 to Revolving Credit Facility dated as of January 14, 2003 between Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by reference to the S-1)
10.99.5#	Second Amendment dated as of November 28, 2003 to Revolving Credit Facility dated as of January 14, 2003 between Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by reference to the S-1)
10.99.6#	Third Amendment dated as of December 13, 2004 to Revolving Credit Facility dated as of January 14, 2003 between Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on February 8, 2005)
10.99.7#	Fourth Amendment dated as of February 8, 2005 to Revolving Credit Facility dated as of January 14, 2003 between Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on February 8, 2005)
10.99.8#	Guaranty dated as of January 14, 2003 issued by registrant to Northwest Airlines, Inc. (Incorporated by reference to the S-1)
21.1	List of Subsidiaries (Incorporated by reference to the S-1)
31.1*	Certification of Chief Executive Officer
31.2*	Certification of Chief Financial Officer
32*	Certifications of CEO and CFO

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

37

SIGNATURES

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

	By:	/s/ Philip H. Trenary
		Philip H. Trenary
Date: November 9, 2006		President and Chief Executive Officer
	By:	/s/ Peter D. Hunt
		Peter D. Hunt
Date: November 9, 2006		Vice President and Chief Financial Officer

38