Pinnacle Airlines (PNCL) 10-Q 2008 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended June 30, 2008
	or
¨	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the transition period from__________ to__________

Commission File Number 001-31898

PINNACLE AIRLINES CORP.

(Exact name of registrant as specified in its charter)

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

901-348-4100

(Registrant's telephone number, including area code)

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

Yes x No ¨

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

Large accelerated filer [   ]	Accelerated filer [ X ]
Non-accelerated filer [   ]	Smaller reporting company [   ]

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

Yes ¨ No x

As of August 8, 2008, 18,064,690shares of common stock were outstanding.

Table of Contents

Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Income (Unaudited)**************************	3
Condensed Consolidated Balance Sheets (Unaudited)********************************	5
Condensed Consolidated Statements of Cash Flows (Unaudited)***********************	6
Notes to Condensed Consolidated Financial Statements (Unaudited) *******************	7
Item 2.  Management’s Discussion and Analysis of Results of Operations and Financial Condition	22
Item 3.  Quantitative and Qualitative Disclosures about Market Risk************************	42
Item 4.  Controls and Procedures****************************************************	42
Part II.  Other Information
Item 1.  Legal Proceedings*********************************************************	43
Item 1A.  Risk Factors************************************************************	43
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds***********************	43
Item 3.  Defaults Upon Senior Securities**********************************************	43
Item 4.  Submission of Matters to a Vote of Security Holders*****************************	43
Item 5.  Other Information *******************************************************	43
Item 6.  Exhibits*****************************************************************	44

2

Part 1.  Financial Information

Item 1.  Financial Statements

Pinnacle Airlines Corp.

Condensed Consolidated Statements of Income (Unaudited)

(in thousands, except per share data)

	Three Months Ended June 30,
	2008		2007
Operating revenues
Regional airline services	$	219,013	$	198,480
Other		2,141		2,514
Total operating revenues		221,154		200,994
Operating expenses
Salaries, wages and benefits		57,147		50,261
Aircraft fuel		14,899		9,512
Aircraft maintenance, materials and repairs		23,694		23,345
Aircraft rentals		32,507		35,306
Other rentals and landing fees		17,372		15,061
Ground handling services		23,672		23,873
Commissions and passenger related expense		7,427		6,741
Depreciation and amortization		6,604		2,318
Other		22,742		19,755
Impairment of goodwill and other charges		12,619		-
Total operating expenses		218,683		186,172
Operating income		2,471		14,822
Operating income as a percentage of operating revenues		1.1%		7.4%
Nonoperating (expense) income
Interest income		1,724		2,882
Interest expense		(8,821)		(2,907)
Impairment of auction rate securities		(8,675)		-
Loss on sale of unsecured claim		-		(4,144)
Miscellaneous income		148		318
Total nonoperating expense		(15,624)		(3,851)
Income (loss) before income taxes		(13,153)		10,971
Income tax benefit (expense)		1,702		(3,309)
Net income (loss)	$	(11,451)	$	7,662
Basic earnings (loss) per share	$	(0.64)	$	0.35
Diluted earnings (loss) per share	$	(0.64)	$	0.32
Shares used in computing basic (loss) earnings per share		17,869		21,752
Shares used in computing diluted (loss) earnings per share		17,869		24,240

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

3

Pinnacle Airlines Corp.

Condensed Consolidated Statements of Income (Unaudited)

(in thousands, except per share data)

	Six Months Ended June 30,
	2008		2007
Operating revenues
Regional airline services	$	420,172	$	375,425
Other		5,323		5,119
Total operating revenues		425,495		380,544
Operating expenses
Salaries, wages and benefits		112,473		97,562
Aircraft fuel		26,772		15,933
Aircraft maintenance, materials and repairs		45,542		41,439
Aircraft rentals		66,028		69,029
Other rentals and landing fees		32,849		28,971
Ground handling services		51,061		47,965
Commissions and passenger related expense		14,253		11,566
Depreciation and amortization		10,980		4,372
Other		43,667		36,060
Impairment of goodwill and other charges		12,619		-
Total operating expenses		416,244		352,897
Operating income		9,251		27,647
Operating income as a percentage of operating revenues		2.2%		7.3%
Nonoperating (expense) income
Interest income		4,038		5,947
Interest expense		(13,663)		(4,981)
Impairment of auction rate securities		(8,675)		-
Loss on sale of unsecured claim		-		(4,144)
Miscellaneous (expense) income		(26)		336
Total nonoperating expense		(18,326)		(2,842)
Income (loss) before income taxes		(9,075)		24,805
Income tax benefit (expense)		277		(7,778)
Net income (loss)	$	(8,798)	$	17,027
Basic earnings (loss) per share	$	(0.49)	$	0.78
Diluted earnings (loss) per share	$	(0.49)	$	0.70
Shares used in computing basic earnings (loss) per share		17,864		21,869
Shares used in computing diluted earnings (loss) per share		17,864		24,489

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

4

Pinnacle Airlines Corp.

Condensed Consolidated Balance Sheets

(in thousands, except share data)

	June 30, 2008		December 31, 2007
Assets	(Unaudited)
Current assets
Cash and cash equivalents	$	65,228	$	26,785
Restricted cash		4,948		5,327
Short-term investments		-		186,850
Receivables, net		34,683		31,107
Spare parts and supplies, net		20,176		16,030
Prepaid expenses and other assets		11,233		16,535
Deferred income taxes, net of allowance		13,600		12,285
Income taxes receivable		13,758		-
Total current assets		163,626		294,919
Property and equipment
Flight equipment		560,126		162,374
Aircraft pre-delivery payments		23,054		81,425
Other property and equipment		43,124		39,969
Less accumulated depreciation		(39,042)		(28,358)
Net property and equipment		587,262		255,410
Investments		127,425		-
Deferred income taxes, net of allowance		69,698		79,856
Other assets, primarily aircraft lease deposits		33,706		28,528
Debt issuance costs, net		6,229		4,598
Goodwill		18,422		28,206
Intangible assets, net		15,419		17,071
Total assets	$	1,021,787	$	708,588
Liabilities and stockholders’ equity
Current liabilities
Short-term notes payable and current maturities of long-term debt	$	39,036	$	73,513
Bank lines of credit		88,275		8,375
Accounts payable		29,447		33,062
Deferred revenue		23,839		24,099
Accrued expenses and other current liabilities		82,963		104,410
Total current liabilities		263,560		243,459
Senior convertible notes		121,000		121,000
Long-term debt, less current maturities		388,082		71,812
Deferred revenue, net of current portion		200,326		209,752
Other liabilities		4,207		4,743
Commitments and contingencies
Stockholders’ equity
Series A preferred share, stated value $100 per share, one issued share, retired on January 4, 2008		-		-
Common stock, $0.01 par value; 40,000,000 shares authorized; 22,514,782 and 22,402,999 shares issued, respectively		225		224
Treasury stock, at cost, 4,450,092 shares		(68,152)		(68,152)
Additional paid-in capital		92,625		91,165
Accumulated other comprehensive loss		(16,073)		(10,200)
Retained earnings		35,987		44,785
Total stockholders’ equity		44,612		57,822
Total liabilities and stockholders’ equity	$	1,021,787	$	708,588

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

5

Pinnacle Airlines Corp.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

	Six Months Ended June 30,
	2008		2007
Operating activities
Net income (loss)	$	(8,798)	$	17,027
Adjustments to reconcile net income to cash provided by operating activities:
Impairment charges		19,232		-
Depreciation and amortization		12,050		5,632
Deferred income taxes		12,419		(98,589)
Recognition of deferred revenue		(12,500)		(10,794)
Other		4,901		3,052
Changes in operating assets and liabilities:
Receivables		(3,576)		53,443
Increase in deferred revenue		2,742		269,170
Spare parts and supplies		(4,769)		(497)
Prepaid expenses and other assets		(1,074)		(3,325)
Restricted cash		379		-
Accounts payable and accrued expenses		12,924		23,335
Hedge related payments		(20,463)		-
Insurance proceeds		1,606		-
Income taxes receivable		(16,135)		26,559
Other liabilities		-		(4,103)
Cash (used in) provided by operating activities		(1,062)		280,910
Investing activities
Purchases of property and equipment		(19,402)		(8,223)
Proceeds from the sale of property and equipment		142		610
Aircraft pre-delivery payments		-		(57,628)
Purchases of short-term investments		(82,200)		(675,755)
Proceeds from sale of short-term investments		132,950		539,680
Acquisition of Colgan Air, Inc. net of cash acquired		-		(8,366)
Cash provided by (used in) investing activities		31,490		(209,682)
Financing activities
Proceeds from debt		91,810		-
Payments on debt		(61,462)		(12,842)
Payments on capital leases		(596)		(440)
Purchase of Series A Preferred Share		(20,000)		-
Treasury shares repurchased		-		(27,222)
Debt issuance costs		(1,786)		-
Other financing activities		49		3,028
Cash provided by (used in) financing activities		8,015		(37,476)
Net increase in cash and cash equivalents		38,443		33,752
Cash and cash equivalents at beginning of period		26,785		705
Cash and cash equivalents at end of period	$	65,228	$	34,457
Noncash investing and financing activities
Property and equipment acquired through the issuance of debt	$	331,345	$	3,180

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

6

Pinnacle Airlines Corp.

Notes to Condensed Consolidated Financial Statements

(all amounts in thousands, except per share data)

1.  Description of Business and Basis of Presentation

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

Pinnacle operates an all-regional jet fleet providing regional airline capacity to Northwest Airlines, Inc. (“Northwest”) as a Northwest Airlink carrier at its hub airports in Detroit, Minneapolis/St. Paul and Memphis and to Delta Air Lines, Inc. (“Delta”) as a Delta Connection carrier at its hub airport in Atlanta.  At June 30, 2008, Pinnacle operated 126 Canadair Regional Jet (“CRJ”)-200 aircraft as a Northwest Airlink carrier with approximately 710 daily departures to 116 cities in 36 states and five Canadian provinces.  Pinnacle operated a jet fleet of nine CRJ-900 aircraft as a Delta Connection carrier with approximately 45 daily departures to 22 cities in 15 states, the Bahamas, Mexico, U.S. Virgin Islands, and Turks and Caicos Islands.

Colgan operates an all-turboprop fleet under revenue pro-rate agreements with Continental Airlines, Inc. (“Continental”), United Air Lines, Inc. (“United”) and US Airways Group, Inc. (“US Airways”), and also provides regional airline capacity to Continental under a capacity purchase agreement.  Colgan’s operations are focused primarily in the southwestern and northeastern United States and two Canadian provinces.  As of June 30, 2008, Colgan offered 307 daily departures and operated 12 Saab 340 aircraft as Continental Connection from Continental’s hub airport in Houston, 12 Saab 340 aircraft as United Express at Washington/Dulles, and five Beech 1900 aircraft and 16 Saab 340 aircraft a s US Airways Express, with hub locations at New York/LaGuardia and Boston, under revenue pro-rate agreements.  Colgan operated 13 Q400 aircraft under a capacity purchase agreement with Continental at its global hub at Newark/Liberty International Airport, providing 81 daily departures.

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

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

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

7

Pinnacle Airlines Corp.

Notes to Condensed Consolidated Financial Statements

(all amounts in thousands, except per share data)

2.  Code-Share Agreements with Partners

The Company’s operating contracts fall under two categories: capacity purchase agreements and revenue pro-rate agreements.  The following is a summary of the percentage of regional airline services revenue attributable to each contract type and code-share partner for the three and six months ended June 30, 2008.

	Three Months Ended June 30, 2008
	Percentage of Regional Airline Services Revenue
Source of Revenue	Capacity Purchase Agreements	Pro-Rate Agreements	Total
Northwest	66%	-	66%
Continental	5%	8%	13%
US Airways	-	9%	9%
United	-	6%	6%
Delta	4%	-	4%
Essential Air Service	-	2%	2%
Total	75%	25%	100%

	Six Months Ended June 30, 2008
	Percentage of Regional Airline Services Revenue
Source of Revenue	Capacity Purchase Agreements	Pro-Rate Agreements	Total
Northwest	70%	-	70%
Continental	4%	8%	12%
US Airways	-	8%	8%
United	-	5%	5%
Delta	3%	-	3%
Essential Air Service	-	2%	2%
Total	77%	23%	100%

Capacity Purchase Agreements

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

Northwest Airlines

The Company, through its Pinnacle subsidiary, provides regional jet service to Northwest as a Northwest Airlink carrier under an amended and restated airline services agreement (the “ASA”) that became effective January 1, 2007 and expires in December 2017.  At the end of its term in 2017, the ASA automatically extends for an additional five-year periods unless Northwest provides notice to the Company two years prior to the termination date that it does not plan to extend the term.

Pursuant to the terms of the ASA, Northwest is currently transitioning 15 of Pinnacle’s CRJ-200 aircraft to one of its wholly owned subsidiaries. Upon completion of this transition, Pinnacle will operate a fleet of 124 CRJ-200 aircraft under the ASA (subject to further adjustment under certain circumstances as provided for in the ASA). As of June 30, 2008, 13 of the 15 CRJ-200 aircraft had been returned, with the remaining two aircraft expected to be returned in the third quarter 2008.

8

Pinnacle Airlines Corp.

Notes to Condensed Consolidated Financial Statements

(all amounts in thousands, except per share data)

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

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

Delta Air Lines

On April 27, 2007, the Company entered into a ten-year capacity purchase agreement with Delta to operate 16 CRJ-900 aircraft as a Delta Connection Carrier (the “Delta Connection Agreement”, or “DCA”). Scheduled service began on December 1, 2007 and Pinnacle operated nine CRJ-900 aircraft under the DCA as of June 30, 2008.  Two of the remaining seven aircraft were delivered in July 2008 with the remaining five aircraft to continue being delivered through May 2009.  Delta also has the option to add an additional seven CRJ-900 aircraft under the DCA.

On July 17, 2008, the Company and Delta amended the DCA whereby the parties agreed to delay the in-service dates for the remaining seven CRJ-900 aircraft to January through May 2009. The Company and the aircraft manufacturer have also agreed to defer delivery of the five remaining CRJ-900 aircraft to Pinnacle.  

Continental Airlines

On February 5, 2007, the Company entered into a capacity purchase agreement with Continental under which Colgan operates Q400 regional aircraft predominantly out of Continental’s hub at Newark/Liberty International Airport.  As of June 30, 2008, Colgan operated 13 Q400 aircraft and the remaining two aircraft were delivered in July 2008.

Revenue Pro-Rate Agreements

When the Company purchased Colgan in January 2007, its existing agreements with its partners were structured as revenue pro-rate code-share agreements, which allow Colgan to market its operations under its partners’ brands.  Under these agreements, Colgan generally manages its own inventory of unsold capacity and sets fare levels in the local markets that it serves.  Colgan retains all of the revenue for passengers flying within its local markets that do not connect to its partners’ flights.  For connecting passengers, the passenger fare is pro-rated between Colgan and its major airline partner, generally based on the distance traveled by the passenger on each segment of the passenger’s trip.  Under these agreements, Colgan bears the risk associated with fares, passenger demand, and competition within its markets.  Colgan incurs all of the costs associated with operating these flights, including those costs typically reimbursed or paid directly by the major airline under a capacity purchase agreement. In some instances, Colgan has the ability to earn incentive-based revenue should it achieve specified performance metrics.

Colgan’s financial performance is also subject to seasonal fluctuations.  Colgan has historically reported lower unit revenue during the first and fourth quarters each year when demand for air travel declines, and reported higher unit revenue during the second and third quarters each year when air travel demand is higher.

US Airways

As of June 30, 2008, the Company, through its Colgan subsidiary, operated 16 Saab 340 aircraft and five Beech 1900D aircraft under a code-sharing pro-rate agreement with US Airways (the “US Airways Agreement”).  In 1999, Colgan entered into the US Airways Agreement to provide passenger service and cargo service under the name “US Airways Express.” The current US Airways Agreement became effective on October 1, 2005 under terms similar to the 1999 agreement and has a three-year term.  The Company and US Airways are in discussions to extend the term of this code-share agreement.

9

Pinnacle Airlines Corp.

Notes to Condensed Consolidated Financial Statements

(all amounts in thousands, except per share data)

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

Continental Airlines

As of June 30, 2008, the Company, through its Colgan subsidiary, operated 12 Saab 340 aircraft based in Houston, Texas under a code-share, pro-rate agreement with Continental (the “Continental Agreement”).  Colgan entered into the Continental Agreement in January 2005 for a term of five years.  In addition to receiving pro-rated passenger revenue as described above under “Revenue Pro-Rate Agreements,” the Company receives an incentive payment for each passenger connecting onto or from a Continental flight in Houston.  These incentive payments adjust each six months for changes in the cost of fuel and changes in certain station-related costs.

United Air Lines

In October 2003, Colgan entered into a code-share agreement with United Air Lines to include the United Air Lines flight designator code on all United flights operated by Colgan.  In October 2005, Colgan entered into a separate code-share agreement with United to provide services as a United Express carrier (the “United Agreement”).  During the first quarter of 2008, Colgan expanded the number of aircraft and markets operated under this agreement by transitioning nine markets previously operated from Pittsburgh, Pennsylvania under Colgan’s US Airways agreement. As of June 30, 2008, the Company operated 12 Saab 340 aircraft under the name “United Express.”  The United Agreement expires on December 31, 2008.  The Company is currently in discussions with United to extend the term of this agreement and to make certain economic and market adjustments to allow the Company to operate profitably in its United Express markets.

Essential Air Services

In addition to the code-share agreements described above, the Company, through its Colgan subsidiary, operates under nine separate contracts within its pro-rate network with the Department of Transportation (“DOT”) to provide subsidized air service to 15 communities as part of the Essential Air Services (“EAS”) program.  During 2008, Colgan filed notice with the DOT to vacate service in 13 of these communities, and subsequently re-filed to serve these communities at an increased level of subsidy.  The DOT has re-awarded service to seven of these markets to Colgan at an increased subsidy, in some instances, a reduced level of weekly round trips.  The new terms of the EAS agreements in these seven markets go into effect in the second and third quarters of 2008.  The DOT awarded four of the markets to a competitor, and Colgan will cease service in these four markets during the third quarter of 2008.  The DOT has not yet awarded two of the markets that Colgan filed to vacate service, and Colgan continues to operate in these markets under its existing EAS agreements.

3. Impairment of Goodwill and Other Charges

In accordance with Statement of Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets (“SFAS 142”), the Company performs an impairment test of goodwill on an annual basis and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis. The analysis of potential impairment of goodwill requires a two-step process. The first step is the estimation of fair value. If Step One indicates that impairment potentially exists, the second step is performed to measure the amount of impairment, if any. Goodwill impairment exists when the estimated fair value of goodwill is less than its carrying value.

Because such indicators existed for Colgan during the three months ended June 30, 2008, the Company performed impairment testing on Colgan’s goodwill.  Factors deemed by the Company to be collectively an indicator that a goodwill impairment test was required for Colgan include record high fuel prices, continued operating losses, a softening U.S. economy, and the planned removal of ten Saab aircraft from Colgan’s pro-rate operating fleet in 2008. 

10

Pinnacle Airlines Corp.

Notes to Condensed Consolidated Financial Statements

(all amounts in thousands, except per share data)

3. Impairment of Goodwill and Other Charges – (Continued)

For purposes of testing Colgan’s goodwill, the Company estimated Colgan’s fair value using primarily the income approach, a generally accepted fair value measurement technique.  This approach was built using relevant data available through and as of June 30, 2008.  Under the income approach, the fair value was estimated based upon the present value of estimated future cash flows from Colgan. The income approach is dependent on a number of critical management assumptions including estimates of future capacity, passenger yield, traffic, operating costs (including fuel prices), appropriate discount rates and other relevant assumptions. The Company estimated its future fuel-related cash flows for the income approach based on the five-year forward curve for crude oil.

Step One indicated the fair value of Colgan was less than its carrying value.  Consequently, to confirm the existence of and to measure the amount of any impairment, the Company was required to perform Step Two of the SFAS 142 goodwill impairment testing methodology.  In Step Two of the impairment testing, the Company determined the implied fair value of Colgan’s goodwill estimating the current fair value of all of its assets and liabilities, including any recognized and unrecognized intangible assets.  As a result of the Step Two testing, the Company determined that goodwill was fully impaired and therefore recorded a $9,785 impairment charge during the three months ended June 30, 2008 to eliminate the carrying value of Colgan’s goodwill. This impairment charge is classified within "impairment of goodwill and other charges" in the Company's condensed consolidated statements of income.  An adjustment to the impairment charge may be required in the third quarter of 2008 when the Company finalizes its evaluation.

Effective October 2008, Colgan will eliminate 12 unprofitable markets from its US Airways Express and United Express operations.  This action will result in the retirement of ten Saab aircraft from service, the majority of which are leased aircraft, in addition to the previously announced retirement of Colgan’s fleet of five Beech 1900 aircraft.  The return of leased aircraft requires certain maintenance costs necessary to restore the aircraft to a condition suitable for return to the lessor.  During the three months ended June 30, 2008, the Company recorded a $2,062 charge related to these costs, and expects to record an additional amount of approximately $1,300 prior to the removal of the aircraft from service in October 2008.  The Company’s accrued lease return costs as of June 30, 2008 are included in “accrued expenses and other current liabilities” on the Company’s condensed consolidated balance sheets.  The Company also fully impaired certain other long-lived assets valued at $772.

4. Fair Value Measurements

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

SFAS 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement.  Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability.  As a basis for considering market participant assumptions in fair value measurements, SFAS 157 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).  A description of the three-tier fair value hierarchy is as follows:

11

Pinnacle Airlines Corp.

Notes to Condensed Consolidated Financial Statements

(all amounts in thousands, except per share data)

4. Fair Value Measurements – (Continued)

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

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

As of June 30, 2008, the Company held certain assets and liabilities that are required to be measured at fair value on a recurring basis, none of which were classified as Level 1. The table below presents the Company’s assets and liabilities measured at fair value as of June 30, 2008, aggregated by the level in the fair value hierarchy within which those measurements fall.

	Level 1		Level 2		Level 3		Balance at June 30, 2008
Assets
Auction Rate Securities (“ARS”)	$	-	$	-	$	127,425	$	127,425
Liabilities
Derivative financial instruments	$	-	$	(1,409)	$	-	$	(1,409)

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

	Asset
	Auction Rate Securities
Balance at January 1, 2008	$	-
Transfers to Level 3		136,100
Total unrealized gains/(losses)
Included in nonoperating expense		(8,675)
Included in other comprehensive income (“OCI”)		-
Balance at June 30, 2008	$	127,425

Auction Rate Securities

Investments in auction rate securities are classified as available-for-sale and presented at their estimated fair values.  However, due to recent events in credit markets, the auction events for the ARS held by the Company have failed since the first quarter of 2008 (see Note 11 for further discussion).  Therefore, the fair values of these ARS are estimated utilizing a discounted cash flow analysis model as of June 30, 2008.  This analysis considers, among other items, the collateralization underlying the investments, the creditworthiness of the counterparty, the timing of expected future cash flows, and an estimate of when the security is expected to have a successful auction or be called by the issuer.  These securities were also compared, when possible, to other observable market data with similar characteristics to the securities held by the Company.

12

Pinnacle Airlines Corp.

Notes to Condensed Consolidated Financial Statements

(all amounts in thousands, except per share data)

4. Fair Value Measurements – (Continued)

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

Derivative Financial Instruments

At times, the Company utilizes a cash flow hedging program to manage its interest rate risk related to the purchase of aircraft from the time of entering into an aircraft related purchase commitment until the delivery of the aircraft, at which time the Company borrows permanent, fixed-rate financing for each aircraft (see Note 6 for further discussion). As of June 30, 2008, the Company had two remaining outstanding hedge positions, one of which was settled in July 2008.  The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts).  The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.

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

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

5.  Borrowings

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

	As of June 30, 2008		As of December 31, 2007
Lines of credit	$	88,275	$	8,375
Pre-delivery payment facility		16,191		63,603
Other		-		2
Total short-term notes payable	$	16,191	$	66,103
Senior convertible notes	$	121,000	$	121,000
Long-term notes payable		410,927		79,222
Total long-term debt		531,927		200,222
Less current maturities		(22,845)		(7,410)
Long-term debt, net of current maturities	$	509,082	$	192,812

13

Pinnacle Airlines Corp.

Notes to Condensed Consolidated Financial Statements

(all amounts in thousands, except per share data)

5.  Borrowings – (Continued)

The aggregate amounts of principal maturities of long-term debt as of June 30, 2008 were as follows:

Remainder of 2008	$	11,266
2009		24,576
2010		143,908
2011		22,794
2012		23,220
Thereafter		306,163
Total	$	531,927

Lines of Credit

On March 11, 2008, the Company entered into a revolving term loan with Citigroup Global Markets, Inc (the “Credit Facility”).  The Credit Facility provided for advances up to $60,000 and is collateralized by the Company’s $136,100 par value of ARS. On June 18, 2008, the Company amended the Credit Facility with the primary purpose of increasing the eligible amount for borrowing from $60,000 to $80,000. During the second quarter, the Company drew an additional $20,000 increasing total borrowings under the Credit Facility to $80,000.  The proceeds are being used to support the Company’s aircraft purchases and for general working capital purposes.  The Credit Facility is pre-payable at any time prior to maturity on February 28, 2009.  The Credit Facility interest rate is indexed to LIBOR and was 4.5% as of June 30, 2008.  The Credit Facility includes both covenant and margin requirements with which the Company is compliant. As of June 30, 2008, the balance outstanding was $80,000.

The Company maintains an additional revolving line of credit with an institutional lender for a principal amount not to exceed $8,500 or 75% of the net unpaid balance of eligible accounts receivable.  This instrument has an interest rate of Prime plus 0.25%, which was 5.25% as of June 30, 2008.  Amounts outstanding under the line of credit were $8,275 at June 30, 2008 and $8,375 at December 31, 2007. On April 15, 2008, the Company extended the termination date of this facility to April 15, 2009.

Pre-delivery Payment Financing Facilities

In 2007, the Company executed pre-delivery payment financing facilities with Export Development Canada (“EDC”) for up to $80,000 in short-term borrowings.  The outstanding balance was $16,191 at June 30, 2008 and $64,419 at December 31, 2007.  Borrowings under the pre-delivery payment facilities bear interest at the 3-month LIBOR rate plus 1.65%, which was 4.43% as of June 30, 2008, and are collateralized by the pre-delivery payments to Bombardier.  The Company repays the borrowings as each aircraft is delivered.

Senior Convertible Notes

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

Prior to February 15, 2010, the Company cannot redeem the Notes at its option.  Beginning on February 15, 2010, the Company may redeem the Notes for cash, in whole or in part at any time or from time to time.  The Company will give not less than 30 days’ or more than 60 days’ notice of redemption by mail to holders of the Notes.  If the Company elects to redeem the Notes, it will pay a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to the redemption date. The holders of the Notes may require the Company to purchase all or a portion of their Notes for cash on February 15, 2010, February 15, 2015 and February 15, 2020 at a purchase price equal to 100% of their principal amount plus accrued and unpaid interest, if any.  As a result, the entire principal amount is shown with a maturity of 2010 in the above table.

14

Pinnacle Airlines Corp.

Notes to Condensed Consolidated Financial Statements

(all amounts in thousands, except per share data)

5.  Borrowings – (Continued)

New Accounting Standard.  In May 2008, the Financial Accounting Standards Board (“FASB”) issued a FASB Staff Position (“FSP”) addressing convertible instruments that may be settled in cash upon conversion (including partial cash settlement).  This guidance will dramatically affect the accounting for these instruments.  The FSP will require companies to separately account for the liability and equity components of the instrument in a manner that reflects the Company’s economic cost.  The FSP will require bifurcation of a component of the debt to result in classification of that component in equity and the “economic interest cost” being reflected in the statement of income. The Company is evaluating the standard and its potential impact on the Notes and the Company’s financial statements.  Although the Company has not fully evaluated the impact of the proposed standard on the Company’s financial statements, the Company expects that interest expense recorded on the Company’s income statement will increase substantially, and the carrying value of the Notes on the Company’s balance sheet will be reduced under the proposed standard.  This FSP will be effective for the Company’s 2009 fiscal year, and will be applied retrospectively to all periods presented.

Long Term Notes Payable

Included in long-term notes payable are borrowings from EDC for owned aircraft.  As discussed in Note 6, the Company implemented an interest rate swap hedge program to reduce its risk from potentially rising interest rates. The Company hedged its interest rate exposure on the anticipated permanent financing debt for certain aircraft.  The borrowings are collateralized by the Company’s fleet of CRJ-900 and Q400 aircraft, which had a balance of approximately $460,000 at June 30, 2008.  The borrowings bear interest rates, including the effects of the Company’s hedging activities, ranging between 6.3% and 7.3% with maturities through the second quarter of 2023 on terms that are substantially equivalent.  Amounts outstanding were $385,541 and $60,270 at June 30, 2008 and December 31, 2007, respectively.

Since June 30, 2008, the Company has entered into four additional debt agreements with EDC to finance the aircraft delivered thus far in the third quarter of 2008. As of August 8, 2008, the Company has financed an additional $72,753.

6.  Derivatives

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

The term of each cash flow hedge matches the term of the expected financing. As of June 30, 2008, the Company had two remaining outstanding hedge positions, one of which was settled in July 2008. The remaining outstanding hedge position is expected to be outstanding for up to four months.  The related agreements for these outstanding hedge positions require mandatory cash settlement when the permanent financing is obtained at the time of delivery of aircraft. Once the permanent financing is secured, the remaining hedge-related balance included in other comprehensive income will be amortized into interest expense over the life of the aircraft financing.

In March 2008, the FASB issued SFAS 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”).  The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand the use of derivative instruments and their effects on an entity’s financial condition, performance, and cash flows. It is effective for financial statements issued after November 15, 2008. SFAS 161 will affect disclosures only and will not have an impact on the Company’s consolidated balance sheet, statements of income, or cash flows.

15

Pinnacle Airlines Corp.

Notes to Condensed Consolidated Financial Statements

(all amounts in thousands, except per share data)

6.  Derivatives – (Continued)

The following table presents pre-tax gains (losses) on derivative instruments within the condensed consolidated statements of income:

	Three Months Ended June 30,				Six Months Ended June 30,
	2008		2007		2008		2007
Ineffectiveness from interest rate swaps included in interest expense	$	(422)	$	-	$	(581)	$	-
Interest expense recognized in earnings from other comprehensive income		(587)		-		(784)		-

The following table presents the fair values of the Company’s remaining derivative instruments, and the unrealized gain or loss from settled interest rates swaps, net of tax, within the condensed consolidated balance sheets.

	As of June 30, 2008		As of December 31, 2007
Fair value of active swaps – recorded in accrued expenses as a current liability	$	(1,409)	$	(16,777)
Net unrealized losses from interest rate swaps, recorded in other comprehensive            income, net of tax		(16,581)(1)		(10,761)

(1) Included in the net unrealized losses from interest rate swaps are approximately $2,708 in net unrealized losses that are expected to be amortized into interest expense during the 12 months following June 30, 2008.

7.  Comprehensive Income (Loss)

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2008		2007		2008		2007
Net income (loss)	$	(11,451)	$	7,662	$	(8,798)	$	17,027
Adjustments (net of tax):
Retired Pilots’ Insurance Benefit Plan amortization of unrealized actuarial gain		(47)		-		(53)		-
Change in cash flow hedge unrealized loss		4,448		-		(5,820)		-
Change in unrealized loss on investments		6,002		-		-		-
Total other comprehensive income (loss)	$	(1,048)	$	7,662	$	(14,671)	$	17,027

16

Pinnacle Airlines Corp.

Notes to Condensed Consolidated Financial Statements

(all amounts in thousands, except per share data)

8.  Earnings (Loss) Per Share

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2008		2007		2008		2007
Net income (loss)	$	(11,451)	$	7,662	$	(8,798)	$	17,027
Basic earnings (loss) per share	$	(0.64)	$	0.35	$	(0.49)	$	0.78
Diluted earnings (loss) per share	$	(0.64)	$	0.32	$	(0.49)	$	0.70
Share computation:
Weighted average number of shares outstanding for basic earnings (loss) per share  (1)		17,869		21,752		17,864		21,869
Senior convertible notes (2)		-		2,334		-		2,368
Share-based compensation (3)		-		154		-		252
Weighted average number of shares outstanding for diluted earnings (loss) per share		17,869		24,240		17,864		24,489

(1)During 2007, the Board of Directors of the Company authorized a share repurchase program, whereby the Company repurchased an aggregate of 4,450

 shares of its own common stock, which are excluded from basic earnings (loss) per share.  The Company accounted for the repurchase of this treasury

       stock using the cost method.

(2) Dilution is calculated as follows:
		Three MonthsEnded			Six Months Ended
		June 30, 2008			June 30, 2008
	Increase in fully diluted share count=	$121,000  $13.22 (a)	-	$121,000 $6.85 (b)	$121,000  $13.22(a)	-	$121,000 $9.40  (b)
(a) = Conversion price of the Notes
(b) = Average stock price for the three and six month period

                (3) Options to purchase 972 and 203 shares of common stock were excluded from the diluted earnings (loss) per share calculation at June 30, 2008  and

                     2007, respectively, because their effect would be anti-dilutive.

9.  Share-Based Compensation

In January 2008, the Company granted 284 stock options with an exercise price of $14.37 per share to members of its Board of Directors, its officers and certain other employees.  These grants will vest ratably over three years.  The grant date fair value of these options, estimated using the Black-Scholes-Merton multiple-option pricing valuation model, was $6.76 per share.  This fair value was estimated at the date of grant with the following assumptions for 2008: risk-free interest rate of 3.26%, dividend yield of 0.0%, expected volatility of the Company’s common stock of 50.0% and expected life of the options of 5.0 years.  Total expense to be recognized over the vesting period, net of expected annual forfeitures of 4%, is $1,847.

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

During the three and six months ended June 30, 2008, the Company recognized $616 and $1,373, respectively, of share-based compensation expense, and $368 and $726 for the same periods of the prior year.

17

Pinnacle Airlines Corp.

Notes to Condensed Consolidated Financial Statements

(all amounts in thousands, except per share data)

9.  Share-Based Compensation – (Continued)

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

	Stock Options
	Shares	Weighted Average Exercise  Price		Fair  Value		Weighted Average Remaining Life	Aggregate Intrinsic Value
Outstanding at January 1, 2008	884	$	12.69	$	6,470
Granted	284		14.37		1,924
Exercised	(8)		8.05		(38)
Forfeited	(35)		14.62		(285)
Outstanding at June 30, 2008	1,125	$	13.09	$	8,071	7.4 years	$	-
Options exercisable at June 30, 2008	614	$	12.05	$	4,685	6.1 years	$	-

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

	Restricted Stock
	Shares		Fair Value
Unvested at January 1, 2008		163	$	1,827
Granted		109		1,566
Vested		(74)		(753)
Forfeited		(6)		(89)
Unvested at June 30, 2008		192	$	2,551

10. Income Taxes

The Company incurred an income tax benefit for the three and six months ended June 30, 2008 of $1,702 and $277, respectively.  As discussed in Note 11, the Company recorded an impairment loss of $8,675 on its portfolio of ARS during the three months ended June 30, 2008.  This impairment charge represents a capital loss for the Company.  The Company has recorded a full valuation allowance against the tax benefit associated with this loss, as the Company does not expect to generate capital gains in the carryforward period against which the loss could be applied.  The full impact of this non-taxable loss was recorded during the three months ended June 30, 2008.   As a result, the Company’s effective tax rate for the three and six months ended June 30, 2008 significantly decreased to 12.9% and 3.1%, respectively. 

The Company is currently under audit by the Internal Revenue Service (“IRS”) for the tax years 2003 through 2005.  In May 2007, the IRS proposed certain adjustments to the Company’s positions related to various exam matters.  The Company submitted a protest to the IRS with respect to the adjustments and has begun the administrative appeals process.  Should the IRS prevail on these adjustments, the impact on the Company could be significant.  The Company believes the potential tax exposure related to the items the IRS has focused on during its examinations would not exceed $35,000, plus penalties of $9,747.  The Company has reserved for $16,515 of this exposure.  The Company believes that it has provided sufficiently for all audit exposures; however, future earnings, cash flow and liquidity could be materially affected should it receive adverse rulings on the items under review.  Settlement of this audit or the expiration of the statute of limitations on the assessment of income taxes for any tax year may also result in a change in future tax provisions.

18

Pinnacle Airlines Corp.

Notes to Condensed Consolidated Financial Statements

(all amounts in thousands, except per share data)

11. Investments

At June 30, 2008, the Company’s investment portfolio included ARS, with fair values of $127,425, net of recognized losses of $8,675.  As of December 31, 2007, the Company’s investment portfolio was $186,850.

Because of the unprecedented events in the ARS market, the Company cannot predict when liquidity in the ARS market will return.  Although the Company believes its securities continue to represent good investments due to the credit ratings of the underlying investments, for a variety of reasons, including record high fuel prices, uncertainty within the airline industry, and a general softening of the US economy, the Company may choose to sell some of its ARS portfolio before liquidity in the ARS market returns.  As a result, the Company has determined that the decline in value of its ARS portfolio is other-than-temporary, and may not recover before the investment is sold.  Therefore, the Company, on a specific identification basis, recorded an impairment charge of $8,675 during the three and six months ended June 30, 2008 to reflect the decline in value of these securities.  This loss is included in nonoperating expense in the Company’s condensed consolidated statements of income.  The Company will continue to evaluate the value of its ARS portfolio, and may record future additional losses through earnings if the Company determines that the fair value of its ARS portfolio has declined further.

12.  Commitments and Contingencies

Mesaba. As previously disclosed, the Company was entitled to a claim resulting from Mesaba’s bankruptcy filing.  In 2006, the Company entered into an assignment of claim agreement with Goldman Sachs Credit Partners, L.P. (the “Goldman Agreement”).  At that time, the Company received 80% of the purchase price based on the claim amount set forth in the Company’s original proof of claim.  During the three months ended June 30, 2008, the final allowed amount of the claim was determined and the claim was settled with no material effect to the Company’s financial statements.

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

On November 5, 2007, ALPA filed suit in the U.S. District Court in Minneapolis, Minnesota against Pinnacle.  The suit seeks an injunction prohibiting Pinnacle from paying certain bonuses to its pilots, asserting that such an action would violate the Railway Labor Act.  Pinnacle believes that the lawsuit lacks merit, and accordingly, Pinnacle will vigorously defend its position in this case.  Pinnacle does not believe that it will incur any material loss with respect to this lawsuit.  On January 8, 2008, Pinnacle filed suit in the U.S. District Court for the Western District of Tennessee against ALPA, alleging bad faith bargaining.  The primary intent of the lawsuit is to encourage ALPA to negotiate in good faith so that an agreement can be reached for an amended collective bargaining agreement as soon as possible.  Pinnacle’s pilots are currently paid at rates less than the industry average for similarly sized aircraft, and an amended agreement is expected to contain higher rates of pay prospectively for Pinnacle’s pilots.

Purchase Commitments.The Company has contractual obligations and commitments primarily related to future purchases of aircraft, payment on debt and lease obligations.  The Company’s firm orders and options to purchase aircraft as of June 30, 2008 were as follows:

19

Pinnacle Airlines Corp.

Notes to Condensed Consolidated Financial Statements

(all amounts in thousands, except per share data)

12.  Commitments and Contingencies – (Continued)

	Firm	Firm Cancelable	Options	Total
Q400
2008	2	-	-	2
2009	-	-	-	-
2010	-	8	4	12
2011	-	2	16	18
Total Q400	2	10	20	32
CRJ-900
2008	2	-	-	2
2009	5	-	-	5
Total CRJ-900	7	-	-	7
Total	9	10	20	39

Firm cancelable aircraft are aircraft that are on firm order, but for which the Company has the right of cancellation without penalty prior to December 2008.  During July 2008, the Company and Bombardier agreed to defer the decision date related to exercising the Company’s options for Q400 aircraft and the date for canceling firm cancelable aircraft orders.  For further information on CRJ-900 and Q400 aircraft, see Note 2.

The Company makes pre-delivery payments to the aircraft manufacturer in advance of the aircraft’s delivery date.  During the three and six months ended June 30, 2008, the Company paid pre-delivery payments of $3,247 and 4,867, respectively.  In July 2008, the remaining pre-delivery payments of $816 were paid.

The Company’s contractual obligations and commitments, which include future purchases of aircraft and engines, are approximately $94,000 for the remainder of 2008 and $123,000 in 2009.

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

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

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

The Company expects that its levels of insurance coverage (subject to deductibles) would be adequate to cover most tort liabilities and related indemnities described above with respect to real estate it leases and aircraft it operates.  The Company does not expect the potential amount of future payments under the foregoing indemnities and agreements to be material. Colgan is a defendant in a lawsuit related to the September 11, 2001 terrorist attacks.  The Company expects that any adverse outcome from this litigation will be covered by insurance, and therefore, will have no material adverse effect on the Company’s financial statements as a whole.

20

Pinnacle Airlines Corp.

Notes to Condensed Consolidated Financial Statements

(all amounts in thousands, except per share data)

12.  Commitments and Contingencies – (Continued)

The Company is currently engaged in discussions with Northwest involving the interpretation of various components of the ASA.  The Company and Northwest have agreed to resolve these matters through arbitration.  The potential outcome of these disputed matters ranges from an annual increase in the payments received from Northwest of approximately $2,800 to a decrease in payments received from Northwest of as much as $4,800.  The Company and Northwest have not begun the arbitration proceedings, but plan to do so in the near future.  Adverse determinations in these matters could result in a loss to the Company of up to $9,500 for disputed amounts accruing through June 30, 2008.

13.  Segment Reporting

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

Previously, the Company’s two airline reportable segments included Pinnacle Airlines, Inc. and Pinnacle Airlines Corp. (the “Pinnacle Segment”) and Colgan Air, Inc. (the “Colgan Segment”). During the first quarter of 2008, the Company revised its reportable segments to reflect a change in the information used by the CODM, and its two operating segments now consist of the Company’s two subsidiaries, Pinnacle Airlines, Inc. (“Pinnacle”) and Colgan Air, Inc. (“Colgan”).

The following represents the Company’s segment data for the periods indicated:

	Three Months Ended June 30,				Six Months Ended June 30,
	2008		2007		2008		2007
Operating revenues:
Pinnacle	$	155,731	$	149,119	$	310,128	$	292,773
Colgan		65,449		51,729		115,393		87,855
Eliminations		(26)		146		(26)		(84)
Consolidated	$	221,154	$	200,994	$	425,495	$	380,544
Operating income (loss):
Pinnacle	$	15,405	$	14,042	$	27,638	$	27,203
Colgan		(12,934)		780		(18,387)		444
Eliminations		-		-		-		-
Consolidated	$	2,471	$	14,822	$	9,251	$	27,647

The following represents the Company’s segment assets:

	June 30, 2008		December 31, 2007
Total assets:
Pinnacle	$	490,198	$	544,746
Colgan		270,841		144,183
Unallocated		260,748		19,659
Consolidated	$	1,021,787	$	708,588

21

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

General

The following management’s discussion and analysis describes the principal factors affecting the Company’s results of operations, liquidity, capital resources and contractual cash obligations.  This discussion should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and our Annual Report on Form 10-K for the year ended December 31, 2007 (“Annual Report”), which include additional information about our significant accounting policies, risk factors, practices and the transactions that underlie our financial results.

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

Overview

  During the first six months of 2008, we continued to make significant changes to the operating fleets of our subsidiaries.  Pinnacle placed into service six CRJ-900 76-seat aircraft as a Delta Connection carrier, and removed from its Northwest Airlink operations 11 CRJ-200 50-seat aircraft, ending the quarter with 135 regional jets.  In February, Colgan began flying the next-generation Q400 turboprop 74-seat aircraft as a Continental Connection carrier.  As of June 30, 2008, Colgan operated 13 Q400 aircraft under its Continental capacity purchase agreement.  Colgan placed two additional Q400 aircraft into service in July.

For the three months ended June 30, 2008, the Company recorded consolidated operating revenue of $221.2 million, an increase of $20.2 million, or 10%, over the same period in 2007. Operating revenues of $425.5 million for the six months ended June 30, 2008 increased $45.0 million, or 12%, from operating revenues of $380.5 million for the same period in 2007.

Consolidated operating income and operating margin were $2.5 million and 1.1%, respectively, for the three months ended June 30, 2008.  Excluding special charges, consolidated operating income and operating margin  were $15.1 million and 6.8%, respectively, during the second quarter of 2008.  Consolidated operating income and operating margin were approximately $14.8 million and 7.4%, respectively, during the same period in 2007.  Consolidated operating income and operating margin were $9.3 million and 2.2%, respectively, for the six months ended June 30, 2008.  Excluding special charges, consolidated operating income and operating margin were $21.9 million and 5.2%, respectively, for the first six months of 2008.  Consolidated operating income and operating margin were approximately $27.6 million and 7.3%, respectively, during the same period in 2007.

Consolidated net loss and diluted loss per share for the three months ended June 30, 2008 were $(11.5) million and $(0.64), respectively. Consolidated net loss and loss per share for the six months ended June 30, 2008 were $(8.8) million and $(0.49), respectively. Excluding special charges, consolidated net income and EPS for the three months ended June 30, 2008 were $5.4 million and $0.30, respectively.  Excluding special charges, consolidated net income and EPS for the six months ended June 30, 2008 were $8.0 million and $0.45, respectively.

Outlook

General

We will continue to execute on our growth plan for the remainder of 2008 and 2009.  Since June 30, 2008, our Colgan subsidiary has taken delivery of the final two Q400 aircraft to be operated under our capacity purchase agreement (“CPA”) with Continental and placed them into service.  Our Pinnacle subsidiary has taken delivery of 11 of the 16 aircraft to be operated under its Delta Connection Agreement (“DCA”) with Delta, with nine currently placed in service.  Pinnacle and Delta recently agreed to defer the remaining in-service dates, with the remaining seven CRJ-900 entering service under the DCA in the first and second quarters of 2009.

During April 2008, Delta and Northwest announced intentions to merge, forming what would be the world’s largest airline.  The carriers have announced that they expect the merger to receive all necessary regulatory approvals and will be completed during the fourth quarter of 2008.  We do not believe that major airline industry consolidation will materially affect our current or prospective operations, as our capacity purchase agreements are relatively long-term and do not contain early termination provisions that could be triggered by consolidation.  In addition, we strive to maintain strong relationships with all of our partners, and we believe that we will continue to be an important part of our partners’ networks, with or without industry consolidation.

22

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

Outlook – (Continued)

 The airline industry is undergoing a major period of instability as a result of dramatic increases in the cost of fuel.  As of June 30, 2008, the price of crude oil had increased approximately 46% since the beginning of the year and approximately 97% over the past twelve months.  The industry has been unable to increase passenger revenue enough to offset the substantial increase in fuel costs.  Most major U.S. airlines have incurred significant losses during 2008, and several smaller airlines have filed for bankruptcy or liquidated since the beginning of 2008.  This instability has forced the entire industry to undergo a major transformation to develop a business model that can be sustained at high fuel prices.  Most major airlines have announced significant cuts in capacity to take place beginning in the second half of 2008.  Many are planning to cut regional airline capacity as well.  For example, Delta recently announced that it intended to decrease domestic capacity by 13% during the second half of 2008, and it is targeting to remove the equivalent of 100 regional aircraft by the end of 2008.

Regional jets use more fuel per seat than larger jets, which causes the profitability of regional jet markets to be more sensitive to changes in fuel costs.  Many industry experts believe that major airlines within the United States operate more 50-seat regional jets than can be supported by current economic conditions.  As our major airline partners restructure their operations to survive the fuel crisis, we expect them to review the relationships that they have with regional airlines, and we expect this to result in changes to these relationships.

In June, Delta gave notice to Pinnacle that it intended to terminate Pinnacle’s DCA for 16 CRJ-900 aircraft, citing failure to meet on-time performance requirements in the DCA.  Delta had previously given similar notice to terminate a capacity purchase agreement for 34 regional jets with another of its partners, citing failure to meet completion factor requirements.  We disputed Delta’s right to terminate the DCA, and we subsequently agreed with Delta to continue operating under the DCA with a deferral of the in-service dates for the remaining seven CRJ-900 aircraft that are not yet in service.  We expect all of our partners to increase their scrutiny of the operational and cost performance of their regional partners in light of ongoing industry conditions.  Although we were successful in keeping our DCA intact with Delta, a future attempt by Delta or an attempt by another of our partners to terminate one of our capacity purchase agreements would, if successful, have a material negative impact on our financial performance and liquidity.  We closely monitor the minimum required operational standards within all of our operating agreements, and, with the exception of the recently settled dispute with Delta, we believe we are currently in compliance with all of our major operating agreements.

We continue to own approximately $136.1 million par amount of auction rate securities (“ARS”).  Due to recent events in credit markets, these investments have become illiquid and have suffered a decline in fair value.  Because we believe this decline in value to be other-than-temporary, we recorded a loss of $8.7 million in the second quarter, which represents the difference between the par value and the fair value of our ARS.  Due to our belief that the market for these student loan collateralized instruments may take in excess of twelve months to fully recover, we have classified these investments as noncurrent assets on our condensed consolidated balance sheet at June 30, 2008 at their fair market value of $127.4 million.  We continue to earn interest on all of our ARS instruments.  As the market for our ARS portfolio changes, we may record additional losses to reflect their fair value.

While we wait for both the ARS market to rationalize and for investor demand to return, we have arranged for an $80 million margin loan facility (the “Credit Facility”) to be used to support our aircraft purchases and other working capital requirements, which we believe will be sufficient to supplement our cash flows from operations and meet our current liquidity needs.

Outlook for Pinnacle Airlines, Inc.

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

23

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

Outlook – (Continued)

 As part of the agreement with Delta to withdraw its attempted cancellation of Pinnacle’s DCA, we agreed to defer the in-service dates under the DCA for the remaining seven CRJ-900 aircraft to be delivered to Pinnacle.  The aircraft were previously scheduled to go into service between July 2008 and January 2009.  Under the amended DCA, the aircraft will go into service between January 2009 and May 2009.  Concurrently, we reached agreement with the aircraft manufacturer to defer delivery of five of the seven aircraft into 2009 to match the revised in-service dates under our DCA.  Two of the seven aircraft were delivered to Pinnacle in July 2008.  We plan to use these two aircraft to support our operations under the DCA until their in-service dates in January 2009.  However, we will incur approximately $2 million of interest, depreciation, insurance, and related costs until their January 2009 in-service dates that will not be reimbursed by Delta.

Certain elements of Pinnacle’s operating performance under its ASA with Northwest are measured over six month periods beginning each January and July.  Pinnacle must achieve certain goals for its completion factor, on-time performance, mishandled baggage ratio, and customer complaints during each six month period to earn incentive revenue under the ASA.  These metrics include some items outside of Pinnacle’s control, including cancellations and delays caused by weather or air traffic control.  Pinnacle’s performance during the first quarter of 2008 was below the ASA goals in most categories.  Pinnacle experienced severe winter weather in all of its hubs, and Pinnacle experienced an increase in cancellations and delays related to mechanical events during the period.  We estimated and recorded revenue reductions for lost incentive payments of approximately $2.5 million for the first quarter of 2008. Pinnacle’s performance during the second quarter of 2008 improved considerably, and as a result, we reduced the amount that we expect to pay Northwest related to performance goals for the six month period to $1.7 million.  This adjustment improved Pinnacle’s operating income by approximately $0.8 million during the second quarter.  We continue to place major emphasis on high operating and reliability standards at our Pinnacle subsidiary.

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

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

We have agreed to arbitrate these issues with Northwest, and we expect the arbitration process to begin in the near future.  Adverse determinations in these matters could result in a loss to the Company of up to $9.5 million for disputed amounts through June 30, 2008.  We believe that we will prevail in these matters, and therefore, we do not believe a loss is probable at this time.  However, we may not be successful in resolving these disputes without reducing our future income, and/or without paying Northwest for some or all of the amount noted above.  We cannot currently predict the timing of the resolution of these matters.

24

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

Outlook – (Continued)

Outlook for Colgan Air, Inc.

We recently agreed with Bombardier to convert the options and cancelable orders for 30 additional Q400 aircraft into options and cancelable orders for the next-generation cabin configuration version of the Q400 aircraft. The next generation version will contain modifications to enhance passenger comfort, including a new LED lighting system, new ceiling panels, scalloped side walls, and larger overhead bins. This next generation cabin configuration will not be available until 2010, and we have deferred the delivery dates for our 30 options and cancelable orders to take place between May 2010 and November 2011.  The exercise dates for the options and cancelable orders begin in December 2008.  We have received very positive feedback on the operating performance and customer acceptance of the Q400 fleet that we have added at Colgan, and we continue to discuss the possibility of new capacity purchase agreements with our major airline partners.  We believe that in the current high fuel cost environment, the Q400 is a very attractive, cost efficient alternative to regional jets of similar or smaller size.  Currently, however, most major airlines are reviewing their networks and undertaking steps to reduce capacity, including regional aircraft, to remove marginal flights that are not profitable at current fuel costs.  We believe there will be long-term demand for our services with the Q400 aircraft; however, we do not yet know whether we will exercise our options for delivery of any of the 30 Q400 aircraft.

Colgan has been operating Q400 aircraft under its CPA with Continental since February 2008.  Although we have not yet achieved the level of ongoing profitability that we expect under our CPA, our financial performance during this startup period has generally been in line with our expectations.  One key factor affecting Colgan’s Q400 financial performance that was not anticipated were penalties totaling $1.0 million that we paid to Continental related to delays in aircraft deliveries from the manufacturer.  Now that all 15 aircraft have been delivered, we expect Colgan’s financial performance related to the Q400 aircraft to continue to improve.  It is our intention to grow this component of Colgan’s business over time.

A large portion of Colgan’s operations are conducted under revenue pro-rate code-share agreements.  Under this type of agreement, we select our own routes, manage our fares and inventory of unsold seats, and incur all of the costs of operating and marketing our flights.  We market our flights under the brand of our code-share partners, and we pro-rate the revenue from passengers who purchase a connecting ticket between flight segments operated by us and our partners.  Under this type of flying, we bear the risk of changes in the pricing structure and demand for travel in markets we serve, and we bear the risk of changes in fuel prices.  The unprecedented increase in fuel costs over the past 12 months has significantly affected Colgan’s pro-rate operations.  Colgan experienced an operating loss inclusive of goodwill impairment and other special charges of $18.4 million during the first half of 2008.  As a result, we have created a plan to significantly reduce the scope of Colgan’s pro-rate operations, and to create a sustainable route structure at current fuel prices for the remaining pro-rate network.  Some of the key tenets of the turn-around plan are:

§   Retirement of ten Saab 340 aircraft and the remaining five Beech 1900 aircraft from the US Airways and United pro-rate operations.  This fleet reduction will also result in the elimination of 12 markets currently served.   We expect these Saab aircraft to be removed from service during October 2008.  The majority of the ten Saab aircraft are leased and will be returned to lessors at the current expiration of their leases, through January 2009.  We recorded $2.1 million of lease return costs in the second quarter of 2008 and expect to record $1.3 million in lease return costs during the third quarter of 2008 prior to their removal from service during October 2008.  We intend to market for sale two owned Saab aircraft as part of the retirement program.  After completion of the retirement of these ten Saab 340 aircraft, Colgan will operate a fleet of 30 Saab aircraft in its pro-rate operations, a decrease of 15 aircraft from the 40 Saab and five Beech 1900 aircraft currently operated.

§   Increased subsidy under the Federal Essential Air Service (“EAS”) program.  We applied for changes in 13 of the 15 markets that we serve under the EAS program to offset the increase in fuel costs.  We were awarded service in seven of these markets with an increased subsidy total of approximately $4 million annually.  Colgan will also reduce capacity in four of these markets, further reducing Colgan’s operating costs.  The Department of Transportation (“DOT”) accepted competing bids in four of the remaining six markets, and Colgan will exit these markets in October 2008 as part of the planned fleet reduction indicated above.  The DOT has not acted upon applications in the remaining two markets.  Assuming Colgan receives authority to continue operations in these two markets, Colgan will operate in 11 EAS markets after giving effect to these changes.

25

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

Outlook – (Continued)

§   The transition of nine markets from Pittsburgh under Colgan’s US Airways code-share agreement to Washington/Dulles airport under Colgan’s United code-share agreement. Washington/Dulles is a larger hub airport than Pittsburgh with substantially more connecting opportunities for our passengers.  This transition was completed during the first quarter of 2008, and Colgan has seen an improvement in the revenue performance of these markets.

§   Discussions with United Airlines to jointly reduce certain costs that Colgan incurs at Washington/Dulles as a United Express carrier.  Reducing certain distribution and ground handling costs or otherwise supplementing Colgan’s revenue in its United Express markets is a key component of maintaining its operations at Washington/Dulles.  If United and Colgan are unable to reduce these costs, Colgan may exit additional markets currently operated under the United Express brand.

§   The addition of Colgan’s new maintenance base at Washington/Dulles, where Colgan maintains a significant presence operating as United Express.  This location will eliminate ferry flights from Colgan’s existing maintenance facilities, reducing operating costs.  In addition, to both reduce Colgan’s maintenance costs through improved productivity and increase the utilization of its Saab fleet, Colgan has undertaken an effort to streamline its maintenance operations by reducing the number of stations where it maintains line maintenance presence.

These actions could result in additional significant one-time costs.  Such steps could involve removing additional leased aircraft from service and returning them to third party lessors in advance of lease expirations, removing and remarketing owned Saab aircraft, selling or disposing of Colgan’s inventory of Saab parts, and potentially furloughing or retraining employees. We recorded $2.1 million in fleet retirement costs during the second quarter related to expected maintenance costs on leased aircraft that we will perform prior to returning the aircraft to the lessors, and we expect to incur an additional $1.3 million of such costs in the third quarter of 2008. In addition to the goodwill impairment charge, as discussed in Note 3 in Item 1 of this Form 10-Q, additional reductions in the size and scope of our pro-rate code-share operations, could result in future write-downs of the carrying value of Colgan’s pro-rate related tangible and intangible assets.  As of June 30, 2008, Colgan's intangible assets had a balance of approximately $4 million. 

We believe that the significant measures contained within our turn-around plan will eliminate or significantly reduce the annual operating losses that Colgan is experiencing in its pro-rate operations at the current cost of fuel.  However, the initiatives we implement may not improve Colgan’s performance enough to restore profitability.  We may not be able to reduce Colgan’s fixed overhead costs commensurately with the significant reductions in service that we are planning.  In addition, decreases in unit revenue or increases in the price of fuel may further deteriorate Colgan’s financial performance.  We will likely incur a significant loss on Colgan’s pro-rate operations for the full year of 2008.

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

26

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

Results of Operations

The following represents our results of operations, by segment and consolidated, for the three and six months ended June 30, 2008.  A discussion of our results of operations as compared to the same periods in 2007 follows.

	Three Months Ended June 30, 2008
		Pinnacle		Colgan		Overhead/ Eliminations		Consolidated
	(in thousands)
Operating revenues
Regional airline services	$	153,619	$	65,394	$	-	$	219,013
Other		2,112		55		(26)		2,141
Total operating revenues		155,731		65,449		(26)		221,154
Operating expenses
Salaries, wages and benefits		42,957		14,190		-		57,147
Aircraft fuel		-		14,899		-		14,899
Aircraft maintenance, materials and repairs		11,663		12,031		-		23,694
Aircraft rentals		30,567		1,940		-		32,507
Other rentals and landing fees		13,015		4,357		-		17,372
Ground handling services		20,522		3,176		(26)		23,672
Commissions and passenger related expense		1,643		5,784		-		7,427
Depreciation and amortization		3,364		3,240		-		6,604
Other		16,595		6,147		-		22,742
Impairment of goodwill and other charges		-		12,619		-		12,619
Total operating expenses		140,326		78,383		(26)		218,683
Operating income (loss)		15,405		(12,934)		-		2,471
Operating margin		9.9%		(19.8)%		-		1.1%
Nonoperating income (expense)
Interest income								1,724
Interest expense								(8,821)
Impairment of auction rate securities								(8,675)
Miscellaneous income, net								148
Total nonoperating expense								(15,624)
Loss before income taxes								(13,153)
Income tax benefit								1,702
Net loss							$	(11,451)

27

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

Results of Operations – (Continued)

	Six Months Ended June 30, 2008
		Pinnacle		Colgan		Overhead/ Eliminations		Consolidated
	(in thousands)
Operating revenues
Regional airline services	$	304,871	$	115,301	$	-	$	420,172
Other		5,257		92		(26)		5,323
Total operating revenues		310,128		115,393		(26)		425,495
Operating expenses
Salaries, wages and benefits		85,382		27,091		-		112,473
Aircraft fuel		-		26,772		-		26,772
Aircraft maintenance, materials and repairs		23,540		22,002		-		45,542
Aircraft rentals		62,157		3,871		-		66,028
Other rentals and landing fees		25,538		7,311		-		32,849
Ground handling services		44,025		7,062		(26)		51,061
Commissions and passenger related expense		3,575		10,678		-		14,253
Depreciation and amortization		5,744		5,236		-		10,980
Other		32,529		11,138		-		43,667
Impairment of goodwill and other charges		-		12,619		-		12,619
Total operating expenses		282,490		133,780		(26)		416,244
Operating income (loss)		27,638		(18,387)		-		9,251
Operating margin		8.9%		(15.9)%		-		2.2%
Nonoperating income (expense)
Interest income								4,038
Interest expense								(13,663)
Impairment on auction rate securities								(8,675)
Miscellaneous expense, net								(26)
Total nonoperating expense								(18,326)
Loss before income taxes								(9,075)
Income tax benefit								277
Net loss							$	(8,798)

The following reconciles Colgan’s operating income and operating margin and our consolidated operating income, operating margin, net income and diluted earnings (loss) per share (“EPS”) as reported in accordance with generally accepted accounting principles (“GAAP”) for the three and six months ended June 30, 2008 and 2007 to non-GAAP measures excluding special charges related to the impairment of Colgan’s goodwill and intangible assets, Colgan’s lease return costs and the impairment of auction rate securities in 2008, and the loss on the sale of our unsecured claim in the second quarter of 2007. We believe that this information is useful as it indicates more clearly our comparative 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.

28

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

Results of Operations – (Continued)

	Three Months Ended June 30,
	2008		2007		% Increase (Decrease)
	(in thousands, except per share data)
Consolidated operating income:
Operating income in accordance with GAAP	$	2,471	$	14,822	(83)%
Add: Impairment of goodwill and other charges		12,619		-	100%
Non-GAAP operating income	$	15,090	$	14,822	2%
Consolidated operating margin:
Operating margin in accordance with GAAP		1.1%		7.4%	(6.3) pts.
Add: Impairment of goodwill and other charges		5.7%		-	5.7 pts.
Non-GAAP operating margin		6.8%		7.4%	(0.6) pts.
Net (loss) income:
Net (loss) income in accordance with GAAP	$	(11,451)	$	7,662	(249)%
Add: Impairment of goodwill and other charges, net of tax		8,139		-	100%
Add: Impairment of auction rate securities		8,675		-	100%
Add: Loss on sale of unsecured claim, net of tax		-		2,644	(100)%
Non-GAAP net income	$	5,363	$	10,306	(48)%
Diluted earnings (loss) per share:
Diluted earnings (loss) per share in accordance with GAAP	$	(0.64)	$	0.32	(300)%
Add: Impairment of goodwill and other charges, net of tax		0.45		-	100%
Add: Impairment of auction rate securities		0.49		-	100%
Add: Loss on sale of unsecured claim, net of tax		-		0.11	(100)%
Non-GAAP diluted earnings per share	$	0.30	$	0.43	(30)%

	Six Months Ended June 30,
	2008		2007		% Increase (Decrease)
	(in thousands, except per share data)
Consolidated operating income:
Operating income in accordance with GAAP	$	9,251	$	27,647	(67)%
Add: Impairment of goodwill and other charges		12,619		-	100%
Non-GAAP operating income	$	21,870	$	27,647	(21)%
Consolidated operating margin:
Operating margin in accordance with GAAP		2.2%		7.3%	(5.1) pts.
Add: Impairment of goodwill and other charges		3.0%		-	3.0 pts.
Non-GAAP operating margin		5.2%		7.3%	(2.1) pts.
Net income:
Net (loss) income in accordance with GAAP	$	(8,798)	$	17,027	(152)%
Add: Impairment of goodwill and other charges, net of tax		8,139		-	100%
Add: Impairment of auction rate securities		8,675		-	100%
Add: Loss on sale of unsecured claim, net of tax		-		2,635	(100)%
Non-GAAP net income	$	8,016	$	19,662	(59)%
Diluted EPS:
Diluted earnings (loss) per share in accordance with GAAP	$	(0.49)	$	0.70	(170)%
Add: Impairment of goodwill and other charges, net of tax		0.45		-	100%
Add: Impairment of auction rate securities		0.49		-	100%
Add: Loss on sale of unsecured claim, net of tax		-		0.11	(100)%
Non-GAAP diluted earnings per share	$	0.45	$	0.81	(44)%

29

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

Results of Operations – (Continued)

The following discussion provides an analysis of our results of operations and reasons for material changes therein for the three and six months ended June 30, 2008 compared to the same periods in 2007.  The acquisition of Colgan was completed on January 18, 2007.  As such, the data presented for Colgan includes the period from the acquisition date through June 30, 2007, which represents approximately 90% of the six months ended June 30, 2007.

Consolidated and Segmented Results of Operations

Consolidated

Operating Statistics

	Pinnacle Airlines Corp. Consolidated
	Three Months Ended June 30,					Six Months Ended June 30,
	2008		2007		Change	2008		2007		Change
Other Data:
Revenue passengers (in thousands)		3,389		3,058	11%		6,253		5,528	13%
Revenue passenger miles (in thousands)		1,436,388		1,310,470	10%		2,624,389		2,368,071	11%
Available seat miles (in thousands)		1,890,857		1,693,208	12%		3,565,313		3,244,434	10%
Passenger load factor		76.0%		77.4%	(1.4) pts.		73.6%		73.0%	0.6 pts.
Block hours		152,542		140,630	8%		297,737		272,733	9%
Departures		99,794		96,308	4%		192,573		181,161	6%
Number of operating aircraft (end of period)		193		191	1%
Employees		5,680		5,280	8%

Operating Revenues

	Three Months Ended June 30,							Six Months Ended June 30,
		2008		2007		$ Change	% Change	2008		2007		$ Change		% Change
	(in thousands)
Operating revenues
Regional airline services	$	219,013	$	198,480	$	20,533	10%	$	420,172	$	375,425	$	44,747	12%
Other		2,141		2,514		(373)	(15)%		5,323		5,119		204	4%
Total operating revenues	$	221,154	$	200,994	$	20,160	10%	$	425,495	$	380,544	$	44,951	12%

 Operating revenues of $221.2 million for the three months ended June 30, 2008 increased $20.2 million, or 10%, from operating revenues of $201.0 million for the same period in 2007.  Operating revenues of $425.5 million for the six months ended June 30, 2008 increased $45.0 million, or 12%, from operating revenues of $380.5 million for the same period in 2007.  This increase is primarily related to changes in the size and type of aircraft operated.  At our Pinnacle subsidiary, as of June 30, 2008 we operated 13 fewer CRJ-200s under our capacity purchase agreement with Northwest, but added to our fleet nine of the larger CRJ-900s under our capacity purchase agreement with Delta.  At our Colgan subsidiary, we operated two fewer Saab 340s and five fewer Beech 1900s under pro-rate agreements, while adding 13 Q400 aircraft under the capacity purchase agreement with Continental.  Primarily as a result of our fleet growth, available seat miles (“ASMs”) for the three and six months ended June 30, 2008 increased by approximately 12% and 10%, respectively, and block hours increased by approximately 8% and 9%, respectively, compared to the same periods in the previous year.

30

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

Consolidated and Segmented Results of Operations – (Continued)

Operating and Nonoperating Expenses

	Three Months Ended June 30,							Six Months Ended June 30,
		2008		2007		$ Change	% Change		2008		2007		$ Change	% Change
	(in thousands)
Operating expenses
Salaries, wages and benefits	$	57,147	$	50,261	$	6,886	14%	$	112,473	$	97,562	$	14,911	15%
Aircraft fuel		14,899		9,512		5,387	57%		26,772		15,933		10,839	68%
Aircraft maintenance, materials and repairs		23,694		23,345		349	1%		45,542		41,439		4,103	10%
Aircraft rentals		32,507		35,306		(2,799)	(8)%		66,028		69,029		(3,001)	(4)%
Other rentals and landing fees		17,372		15,061		2,311	15%		32,849		28,971		3,878	13%
Ground handling services		23,672		23,873		(201)	(1)%		51,061		47,965		3,096	6%
Commissions and passenger related expense		7,427		6,741		686	10%		14,253		11,566		2,687	23%
Depreciation and amortization		6,604		2,318		4,286	185%		10,980		4,372		6,608	151%
Other		22,742		19,755		2,987	15%		43,667		36,060		7,607	21%
Impairment of goodwill and other charges		12,619		-		12,619	100%		12,619		-		12,619	100%
Total operating expenses		218,683		186,172		32,511	17%		416,244		352,897		63,347	18%
Operating income		2,471		14,822		(12,351)	(83)%		9,251		27,647		(18,396)	(67)%
Operating margin		1.1%		7.4%	(6.3) pts.				2.2%		7.3%	(5.1) pts.
Nonoperating (expense) income
Interest income		1,724		2,882		(1,158)	(40)%		4,038		5,947		(1,909)	(32)%
Interest expense		(8,821)		(2,907)		(5,914)	203%		(13,663)		(4,981)		(8,682)	174%
Impairment of auction rate securities		(8,675)		-		(8,675)	100%		(8,675)		-		(8,675)	100%
Loss on sale of unsecured claim		-		(4,144)		4,144	(100)%		-		(4,144)		4,144	(100)%
Miscellaneous income (expense), net		148		318		(170)	(53)%		(26)		336		(362)	(108)%
Total nonoperating expense		(15,624)		(3,851)		(11,773)	306%		(18,326)		(2,842)		(15,484)	545%
Income (loss) before income taxes		(13,153)		10,971		(24,124)	(220)%		(9,075)		24,805		(33,880)	(137)%
Income tax benefit (expense)		1,702		(3,309)		5,011	(151)%		277		(7,778)		8,055	(104)%
Net (loss) income	$	(11,451)	$	7,662	$	(19,113)	(249)%	$	(8,798)	$	17,027	$	(25,825)	(152)%

Operating Expenses

Operating expenses increased by $32.5 million and 17% during the three months ended June 30, 2008 and by $63.3 million and 18% during the six months ended June 30, 2008, primarily due to increases in block hours and departures.  In addition, operating expenses increased as a result of increased fuel prices related to our pro-rate operations, higher depreciation expense following the addition of the recently purchased CRJ-900 and Q400 aircraft,  impairment of Colgan’s goodwill and intangibles, Colgan’s lease return costs, and increased compensation expense resulting from the 8% increase in headcount related to the growth of our business.

31

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

Consolidated and Segmented Results of Operations – (Continued)

Nonoperating Expense

Net nonoperating expense of $15.6 million for the three months ended June 30, 2008 increased by approximately $11.8 million over net nonoperating expense of $3.9 million during the same period in 2007.  Net nonoperating expense of $18.3 million for the six months ended June 30, 2008 increased by $15.5 million over net nonoperating expense of $2.8 million during the same period in 2007.  This increase is attributable to the $8.7 million impairment charge on our portfolio of auction rate securities.  In addition, interest income decreased $1.2 million and $1.9 million, resulting from a lower average investments balance compared to the same period of 2007.  Interest expense increased by $5.9 million and $8.7 million, primarily attributable to the financing of the new CRJ-900 and Q400 aircraft in our fleet.  The $4.1 million loss on the sale of our unsecured claim in the Northwest bankruptcy incurred in the second quarter of 2007 offsets these increases.

Second quarter 2008 interest expense also includes $0.4 million in current period interest costs related to the ineffectiveness portion of interest rate hedges under our interest rate hedging program.  The remaining two unsettled interest rate hedges are expected to be settled during the third and fourth quarter of 2008.

Income Tax Expense

For the three and six months ended June 30, 2008, our income tax expense decreased by $5.0 million and $8.1 million, respectively, primarily related to the decrease in pre-tax income as compared to the same periods in 2007.  Our effective tax rate for the three and six months ended June 30, 2008 decreased significantly, primarily related to the previously discussed $8.7 million impairment loss on our ARS recorded in the second quarter.  Because this capital loss cannot be used to reduce our ordinary taxable income, and because we expect no capital gains during the carryforward period against which the loss could be applied, we expect to receive no tax benefit related to this charge.  This non-taxable loss was the primarily cause of the decrease in our effective tax rate to 12.9% for the three months ended June 30, 2008.

Pinnacle

Operating Statistics

	Pinnacle Airlines, Inc.
	Three Months Ended June 30,					Six Months Ended June 30,
	2008		2007		Change	2008		2007		Change
Other Data:
Revenue passengers (in thousands)		2,726		2,643	3%		5,151		4,841	6%
Revenue passenger miles (in thousands)		1,287,429		1,233,335	4%		2,386,709		2,240,500	7%
Available seat miles (in thousands)		1,622,264		1,532,510	6%		3,116,125		2,965,558	5%
Passenger load factor		79.4%		80.5%	(1.1) pts.		76.6%		75.6%	1.0 pts.
Operating revenue per available seat mile (in cents)		9.60		9.73	(1)%		9.95		9.87	1%
Operating cost per available seat mile (in cents)		8.65		8.81	(2)%		9.07		8.96	1%
Operating revenue per block hour	$	1,390	$	1,358	2%	$	1,384	$	1,350	3%
Operating cost per block hour	$	1,252	$	1,230	2%	$	1,260	$	1,225	3%
Block hours		112,051		109,810	2%		224,112		216,823	3%
Departures		67,810		67,265	1%		133,789		131,228	2%
Average daily utilization (block hours)		8.97		8.68	3%		8.91		8.81	1%
Average stage length (miles)		468		461	2%		461		459	-%
Number of operating aircraft (end of period)
CRJ-200		126		139	(9)%
CRJ-900		9		-	100%
Employees (end of period)		4,144		4,015	3%

32

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

Pinnacle and Segmented Results of Operations – (Continued)

Operating Revenues

	Three Months Ended June 30,							Six Months Ended June 30,
		2008		2007		$ Change	% Change		2008		2007	$ Change		% Change
	(in thousands)
Operating revenues
Regional airline services
Northwest	$	145,457	$	146,662	$	(1,205)	(1)%	$	292,898	$	287,756	$	5,142		2%
Delta		8,162		-		8,162	100%		11,973		-		11,973		100%
Other		2,112		2,457		(345)	(14)%		5,257		5,017		240		5%
Total operating revenues	$	155,731	$	149,119	$	6,612	4%	$	310,128	$	292,773	$	17,355		6%

Regional Airline Services

Regional airline services revenue increased by 5% and 6%, respectively, during the three and six months ended June 30, 2008 as compared to the same periods in 2007.  These increases were primarily related to the addition of the larger 76-seat CRJ-900 aircraft to our fleet, partially offset by the return of several smaller 50-seat CRJ-200 aircraft to Northwest.  These fleet changes caused ASMs to increase 6% and 5%, respectively, over the same periods in 2007.

During the three and six months ended June 30, 2008, we added three and eight CRJ-900 aircraft, respectively, to our new Delta Connection operations, which began December 1, 2007.  Revenue earned under the DCA was approximately $8.2 million and $12.0 million for the three and six months ended June 30, 2008, respectively.

Revenue earned under our ASA with Northwest was negatively affected by the return of several CRJ-200 aircraft pursuant to the terms of our ASA with Northwest and positively affected by an inflation index adjustment in the ASA rates.  During the three and six months ended June 30, 2008, we operated 9% fewer CRJ-200 aircraft, respectively, than the same periods in 2007.  Revenue also decreased by $3.3 million and $5.7 million for the three and six months as compared to the same periods in 2007 as a result of a change in reimbursable expenses under the ASA.

In addition, Pinnacle’s operating performance for the first six months of 2008 was below incentive levels contained in our ASA with Northwest.  Specifically, to obtain full payment for regional airline services provided under the ASA, Pinnacle is required to maintain certain levels of completed flights, on-time performance, mishandled baggage performance, and customer complaints over six month periods from January 1 to June 30 and July 1 to December 31 of each year.  During the first quarter of 2008, Pinnacle’s operating performance was affected by severe winter weather and by an increase in the number of operational maintenance events.  As a result, we recorded a $2.5 million performance-related reduction of revenue in the first quarter of 2008 as an estimate of the incentive revenue we believed would be unearned during the first quarter of 2008.  However, operating performance greatly improved during the second quarter of 2008 and the amount of the performance-related reduction of revenue to be for the first six months of 2008 was actually $1.7 million.  As a result, we increased regional airline services revenue by $0.8 million in the second quarter of 2008 to adjust the amount owed to Northwest.

Other Revenue

Other revenue for the three months ended June 30, 2008 of $2.1 million decreased $0.4 million, or 14%, from other revenue of $2.5 million for the same period in 2007.  This decrease was primarily related to a decline in revenue earned from providing ground handling services to Northwest at its Memphis hub.

33

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

Pinnacle and Segmented Results of Operations – (Continued)

Operating Expenses

	Three Months Ended June 30,							Six Months Ended June 30,
		2008		2007	$  Change		% Change		2008		2007	$  Change		% Change
	(in thousands)
Operating expenses
Salaries, wages and benefits	$	42,957	$	38,193	$	4,764	12%	$	85,382	$	76,825	$	8,557	11%
Aircraft maintenance materials and repairs		11,663		12,907		(1,244)	(10)%		23,540		24,039		(499)	(2)%
Aircraft rentals		30,567		32,925		(2,358)	(7)%		62,157		64,777		(2,620)	(4)%
Other rentals and landing fees		13,015		12,433		582	5%		25,538		24,403		1,135	5%
Ground handling services		20,522		20,766		(244)	(1)%		44,025		42,137		1,888	4%
Commissions and passenger related expense		1,643		1,361		282	21%		3,575		2,592		983	38%
Depreciation and amortization		3,364		1,115		2,249	202%		5,744		2,196		3,548	162%
Other		16,595		15,377		1,218	8%		32,529		28,601		3,928	14%
Total operating expenses		140,326		135,077		5,249	4%		282,490		265,570		16,920	6%
Operating income	$	15,405	$	14,042	$	1,363	10%	$	27,638	$	27,203	$	435	2%
Operating margin		9.9%		9.4%	0.5 pts.				8.9%		9.3%	(0.4) pts.

Salaries, wages and benefits increased by $4.8 million and 12% for the three months ended June 30, 2008 and $8.6 million and 11% for the six months ended June 30, 2008, as compared to the same periods in 2007.   These increases were due primarily to the increase in the average number of employees of 3%, coupled with wage rate and benefit increases for existing employees.

Aircraft maintenance, materials and repairs expenses decreased by $1.2 million and 10% and $0.5 million and 2% for the three and six months ended June 30, 2008, as compared to the same periods in 2007.  This decrease was primarily related to decreased costs associated with timing differences in the number of heavy airframe maintenance checks performed on our CRJ-200 aircraft.  The remaining variance is attributable to maintenance costs reimbursable under the ASA.

Aircraft rentals expense decreased $2.4 million and $2.6 million during the three and six months ended June 30, 2008 as compared to the same periods in 2007.  These decreases relate to the 7% and 3% fewer average number of leased CRJ-200 aircraft, which are leased from Northwest, during 2008 as compared to 2007.

Depreciation and amortization expense increased by $2.2 million and $3.5 million, respectively, for the three and six months ended June 30, 2008.  This is primarily related to $1.8 million and $2.6 million, respectively, in depreciation expense incurred related to our new CRJ-900 aircraft added during 2008 to Pinnacle’s operating fleet.

34

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

Colgan

Operating Statistics

	Colgan Air, Inc.
	Three Months Ended June 30,					Six Months Ended June 30,
	2008		2007		Change	2008		2007		Change
Other Data:
Revenue passengers (in thousands)		663		415	60%		1,102		687	60%
Revenue passenger miles (in thousands)		148,959		77,135	93%		237,680		127,571	86%
Available seat miles (in thousands)		268,593		160,698	67%		449,188		278,876	61%
Passenger load factor		55.5%		48.0%	7.5 pts.		52.9%		45.7%	7.2 pts.
Operating revenue per available seat mile (in cents)		24.37		32.19	(24)%		25.69		31.50	(18)%
Operating cost per available seat mile (in cents)		29.18		31.70	(8)%		29.78		31.34	(5)%
Operating cost per available seat mile (in cents) (excluding impairment of      goodwill and other charges)		24.48		31.70	(23)%		26.97		31.34	(14)%
Operating revenue per block hour	$	1,616	$	1,678	(4)%	$	1,567	$	1,571	-%
Operating cost per block hour	$	1,936	$	1,653	17%	$	1,817	$	1,563	16%
Operating cost per block hour (in cents) (excluding impairment of goodwill and      other charges)	$	1,624	$	1,653	(2)%	$	1,646	$	1,563	5%
Block hours		40,491		30,820	31%		73,625		55,910	32%
Departures		31,984		29,043	10%		58,784		49,933	18%
Average daily utilization (block hours)		7.76		6.50	19%		7.56		6.65	14%
Average stage length (miles)		211		185	14%		203		184	10%
Fuel consumption (in thousands of gallons)		3,931		4,299	(9)%		7,617		8,124	(6)%
Average price per gallon		3.79		2.25	69%		3.51		2.15	63%
Number of operating aircraft (end of period)
Saab 340		40		42	(5)%
Beech 1900		5		10	(50)%
Q400		13		-	100%
Employees		1,427		1,183	21%

Operating Revenue

	Three Months Ended June 30,							Six Months Ended June 30,
		2008		2007		$ Change	%Change		2008		2007	$ Change	%  Change
	(in thousands)
Operating revenues
Regional airline services:
Pro-rate and EAS	$	53,565	$	51,818	$	1,747	3%	$	100,320	$	87,669	$          12,651	14%
Capacity purchase agreement		11,829		-		11,829	100%		14,981		-	14,981	100%
Other		55		(89)		144	(162)%		92		186	(94)	(51)%
Total operating revenues	$	65,449	$	51,729	$	13,720	27%	$	115,393	$	87,855	$          27,538	31%

Regional Airline Services

Regional airline services revenue for the three months ended June 30, 2008 of $65.4 million increased $13.6 million, or 26%, from regional airline services revenue of $51.8 million for the same period in 2007.  Regional airline services revenue for the six months ended June 30, 2008 of $115.3 million increased $27.6 million, or 32%, from regional airline services revenue of $87.7 million for the same period in 2007.  The primary reason for this increase is the addition of the revenue earned under our new CPA with Continental.  Revenue earned under the CPA was $11.8 million and $15.0 million for the three and six months ended June 30, 2008, respectively.

35

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

Colgan and Segmented Results of Operations – (Continued)

 Revenue earned under our pro-rate and Essential Air Service (“EAS”) agreements increased by $1.7 million and $12.7 million during the three and six months ended June 30, 2008.  Average fares increased by 14% and 8% during the three and six months ended June 30, 2008, as compared to the same periods in 2007.  In addition, revenue under our pro-rate agreements during the six months ended June 30, 2007 excludes revenue prior to our acquisition of Colgan on January 18, 2007. The increase in revenue earned under our pro-rate agreements for the six months ended June 30, 2008 primarily related to recording regional airline service revenue for a full six month period in 2008.

Operating Expenses

	Three Months Ended June 30,							Six Months Ended June 30,
		2008		2007		$ Change	% Change		2008		2007		$ Change	% Change
	(in thousands)
Operating expenses
Salaries, wages and benefits	$	14,190	$	12,068	$	2,122	18%	$	27,091	$	20,737	$	6,354	31%
Aircraft fuel		14,899		9,512		5,387	57%		26,772		15,933		10,839	68%
Aircraft maintenance, materials and repairs		12,031		10,438		1,593	15%		22,002		17,630		4,372	25%
Aircraft rentals		1,940		2,381		(441)	(19)%		3,871		4,252		(381)	(9)%
Other rentals and landing fees		4,357		2,628		1,729	66%		7,311		4,568		2,743	60%
Ground handling services		3,176		3,107		69	2%		7,062		5,828		1,234	21%
Commissions and passenger related expense		5,784		5,380		404	8%		10,678		8,974		1,704	19%
Depreciation and amortization		3,240		1,203		2,037	169%		5,236		2,176		3,060	141%
Other		6,147		4,232		1,915	45%		11,138		7,313		3,825	52%
Impairment of goodwill and other charges		12,619		-		12,619	100%		12,619		-		12,619	100%
Total operating expenses		78,383		50,949		27,434	54%		133,780		87,411		46,369	53%
Operating income	$	(12,934)	$	780	$	(13,714)	(1,758)%	$	(18,387)	$	444	$	(18,831)	(4,241)%
Operating margin		(19.8)%		1.5%	(21.3) pts.				(15.9)%		0.5%	(16.4) pts.

Salaries, wages and benefits increased by $2.1 million and 18% and $6.4 million and 31% during the three and six months ended June 30, 2008.  Excluding the effect of the previously discussed change in time periods presented, this expense increased primarily due to the increase in the average number of employees of 21%, largely attributed to the growth of Colgan’s operating fleet, as well as wage rate and benefit increases for existing employees.

Aircraft fuel expense increased $5.4 million, or 57%.  This expense increased primarily due to the increase in fuel costs.  Colgan’s average price paid per gallon increased 69% and 63%, respectively, during the three and six months ended June 30, 2008 as compared to the same periods in 2007.  Offsetting this increase was a decrease in the amounts of gallons consumed from the retirement of seven of our Saab and Beech aircraft since June 30, 2007.

36

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

Colgan and Segmented Results of Operations – (Continued)

Aircraft maintenance, materials and repairs expense increased by $1.6 million and 15% for the three months ended June 30, 2008 and $4.4 million and 25% for the six months ended June 30, 2008.  Excluding the additional days of expense previously discussed, this expense increased primarily due to increased costs related to our increase in operations.

Other rentals and landing fees increased $1.7 million, or 66% for the three months ended June 30, 2008 and $2.7 million and 60% during the six months ended June 30, 2008.  This was a result of the increase in departures, as well as a change in the mix of cities we serve.  We have increased levels of flying into markets with significantly higher landing fees, such as Newark/Liberty International Airport.

Ground handling services increased $1.2 million or 21% during the six months ended June 30, 2008.  This was primarily attributable to increased deicing expense in Colgan’s pro-rate operations, as the first quarter of 2008 experienced more severe winter weather than the same period in 2007.

Depreciation and amortization expense increased by $2.0 million and $3.1 million, respectively, for the three and six months ended June 30, 2008.  This is primarily related to $1.8 million and $2.3 million, respectively, in depreciation expense incurred related to our new Q400 aircraft.

Other expenses increased by $1.9 million and 45% during the three months ended June 30, 2008, as compared to the same period in 2007.  This primarily relates to increased pilot training expense attributable to the introduction of the Q400 aircraft.  In addition, crew travel expense increased as a result of increased block hours and departures.  Other expenses increased by $3.8 million and 52% during the six months ended June 30, 2008, as compared to the same period in 2007.  This increase relates to the changes in time periods presented, along with increased pilot training expense and crew travel expense. 

Liquidity and Capital Resources

We generate cash primarily by providing regional airline and related services to our code-share partners.  As of June 30, 2008, we had cash and cash equivalents of $65.2 million.  Net cash used from operations was $1.1 million for the six months ended June 30, 2008 and net cash provided by operations was $280.9 million for the six months ended June 30, 2007.  We expect our cash flow from operations and our financing arrangements to be sufficient to meet our ongoing capital requirements and financial commitments.  Additionally, we do not expect to make income tax payments during 2008-2010 due to the accelerated depreciation recognized for tax purposes on the newly acquired CRJ-900 and Q400 aircraft, and we expect to receive a federal income tax refund ranging between $20 million and $25 million in early 2009.

As of June 30, 2008, we had $136 million par amount of Auction Rate Securities instruments (“ARS”).  As discussed further in Note 11 in Item 1 of this Form 10-Q, these securities are not currently liquid.  We had planned to monetize a portion of our ARS portfolio throughout 2008 to fund the non-financed portion of our aircraft deliveries.  While we wait for both the ARS market to rationalize and for investor demand to return, we have arranged for a margin loan facility (the “Credit Facility”) to be used to support our aircraft purchases.  In June, we drew an additional $20 million increasing total borrowings under the Credit Facility to $80 million. The Credit Facility is pre-payable at any time prior to maturity on February 28, 2009.  The Credit Facility interest rate is indexed to LIBOR and was 4.5% at June 30, 2008.  We believe that this short-term financing facility in addition to cash flows from our operations is adequate to meet our aircraft funding requirements and related debt covenants.

In February 2005, we issued $121.0 million principal amount of our 3.25% senior convertible notes due 2025 (the “Notes”).  The Notes bear interest at the rate of 3.25% per year, payable in cash semiannually in arrears on February 15 and August 15 of each year.  The Notes are convertible into a combination of cash and common stock at a conversion price of approximately $13.22.  The Notes are convertible in any quarter subsequent to a quarter in which the closing price of our common stock exceeds $15.86 for 20 of the last 30 trading days.  This condition was not met during the second quarter of 2008, and consequently the Notes are not convertible at this time.  Due to the option value imbedded within each Note, the Notes generally trade at values higher than the fair value of the common stock and cash into which they could be converted.  Although the Notes have been convertible and will possibly be convertible during future periods, we do not expect a significant number of holders to tender the Notes

37

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

Liquidity and Capital Resources – (Continued)

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

On February 17, 2007, we entered into a purchase agreement for up to 25 firm and 20 option Q400 aircraft with Bombardier, Inc.  Under the agreement, we were obligated to purchase a minimum of 15 Q400 regional aircraft.  As of June 30, 2008, Colgan operated 13 Q400 aircraft and the remaining two aircraft delivered in July 2008.  We have a right of cancellation for an additional ten firm aircraft for which notice is required by December 2008.  If we do not exercise these cancellation rights, then we will take delivery of these ten additional aircraft between April 2010 and February 2011.  In addition to the 25 firm aircraft, we have optional rights to acquire 20 Q400 aircraft that would be delivered between October 2010 and November 2011.

On April 27, 2007, Delta Air Lines assigned to us its rights to purchase 16 CRJ-900 aircraft from Bombardier, Inc.  As of June 30, 2008 we had accepted delivery of nine of these aircraft.  We will take delivery of the remaining seven aircraft by May 2009.  Under our capacity purchase agreement with Delta, Delta may also require us to purchase and operate an additional seven CRJ-900 aircraft.

We are required to make pre-delivery payments to Bombardier, which are refunded to us upon the delivery of the aircraft.  During 2007, we executed two pre-delivery payment financing facilities (the “PDP Facilities”) withExport Development Canada (“EDC”) for up to $80 million to provide borrowings to fund our pre-delivery payment commitments to Bombardier.  Borrowings under the pre-delivery payment facilities bear interest at the 3-month LIBOR rate plus 1.65%, which was 4.43% as of June 30, 2008.  The outstanding balance for the borrowings as of June 30, 2008 was $16 million.  As each aircraft is delivered to us, we repay the associated borrowings under the PDP Facilities.

Upon delivery of our CRJ-900 and Q400 aircraft, we obtained long-term financing for the aircraft, the balance of which was $386 million at June 30, 2008.  We expect to finance the purchase of the remaining nine aircraft using a combination of internal capital resources and debt financing.  We have obtained commitments from EDC to finance the aircraft for a term of 15 years from the delivery date of each aircraft.  As of June 30, 2008 the approximate remaining purchase price was $209 million. We expect to debt finance $177 million and fund the balance of $32 million from internal capital resources.

To reduce the financial risk associated with changes in long-term interest rates while we take delivery of CRJ-900 aircraft, we initiated a cash flow hedging program during July 2007.  The program consists of interest rate swaps whereby we agree to pay a fixed interest rate and receive the six-month LIBOR rate.  The swaps have been or will be cash settled when the permanent financing is obtained at the time we take delivery of the aircraft.  Should interest rates change by 100 basis points before we take delivery, and assuming that we do not hedge the anticipated debt on the remaining firm noncancelable aircraft, aggregate interest expense in the first year of financing would change by approximately $1.0 million.  During the three and six months ended June 30, 2008, the Company made interest rate swap settlement payments of $4.4 million and $20.5 million, respectively, in connection with its cash flow hedging program.  As of June 30, 2008, the Company expected to make additional interest rate swap settlement payments of $1.4 million during 2008.

We maintain a revolving line of credit with an institutional lender for a principal amount not to exceed $8.5 million or 75% of the net unpaid balance of eligible accounts receivable.  This instrument has an interest rate of Prime plus 0.25%, which was 5.25% as of June 30, 2008. In April 2008, we extended the termination date of the loan to April 15, 2009.  Amounts outstanding under the line of credit were $8.3 million at June 30, 2008.

As part of our agreement to purchase Colgan, we agreed to purchase from one of its selling shareholders two aircraft hangars located in Manassas, Virginia if the selling shareholder is unable to consummate a sale to a third-party.  The Company agreed to purchase the two hangars for a purchase price of $6.4 million, which approximates their fair value.  We currently expect the current owner of the hangars to sell the hangars to a third party, and that we will continue to lease them on a short-term basis. If the current owner is unable to sell these hangars to a third party, we could still be required to purchase these hangars in the future.

38

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

Liquidity and Capital Resources – (Continued)

The IRS is currently examining our tax records for years 2003 through 2005.  The IRS has proposed adjustments related to certain key transactions that we undertook during those periods.  The adjustments would increase our tax liability for these periods by approximately $33 million (net of offsetting timing differences within these periods) plus penalties.  We have filed a formal protest with respect to these proposed adjustments and have started an administrative appeals review within the IRS.  We do not expect resolution of this matter during 2008.  We continue to believe that the tax positions we have taken are appropriate and in compliance with tax law and regulations.  Although we believe our tax positions are appropriate, we have recorded reserves totaling $16.5 million.  While we believe our reserves are adequate for each identified issue, our liquid assets would be significantly reduced if we are ultimately required to make payments to the IRS for taxes and related interest and penalties associated with these proposed adjustments.

Operating activities. Net cash used in operating activities was $1.1 million during the six months ended June 30, 2008.  This was due primarily to the $20.5 million in hedge related payments made during the first six months.  This decrease in cash was offset by various changes in our operating assets and liabilities.

Net cash provided by operating activities was $280.9 million during the six months ended June 30, 2007.  This was due primarily to the $269.2 million increase in deferred revenue, which was comprised of proceeds received from the assignment of our Northwest claims.

Investing activities.  Net cash provided by investing activities for the six months ended June 30, 2008 was $31.5 million.  This was primarily attributable to net proceeds of investments in ARS of $50.8 million, offset by $19.4 million in cash purchases of property and equipment, primarily consisting of flight equipment.

Cash used for investing activities for the six months ended June 30, 2007 was $209.7 million.  This is primarily attributable to net purchases of short-term investments in marketable debt securities of $136.1 million and $57.6 million in pre-delivery payments for the Q400 and CRJ-900 aircraft.  In addition, the acquisition of Colgan decreased cash by $8.4 million, net of cash acquired.

We expect non-aircraft cash capital expenditures for the remainder of 2008 to be approximately $5 million. We expect to fund the non-aircraft capital expenditures, with existing cash resources and cash flows generated from our operations.

Financing activities. Net cash provided by financing activities for the six months ended June 30, 2008 totaled $8.0 million.  During the six months of 2008, we received $91.8 million in debt proceeds, primarily related to the Credit Facility.  This was offset by $61.5 million of principal payments on debt obligations, primarily related to our pre-delivery payment facilities, and the $20.0 million purchase of our Series A Preferred Share from Northwest on January 4, 2008.

Cash used in financing activities for the six months ended June 30, 2007 totaled $37.5 million, which related to $12.8 million of debt principal payments made and $0.4 million of payments made on capital leases.  In addition, we purchased $27.2 million of treasury shares as part of our share repurchase program.

Deferred tax asset.  We have recorded a deferred tax asset of $83.3 millionrelated to future tax benefits.  This primarily relates to future tax benefits we will receive for our deferred ASA revenue.  As discussed in Note 2 to our condensed consolidated financial statements, the deferred ASA revenue is being recognized over the 11-year term of the ASA.

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

We had $4.9 million and $5.3 million invested in certificates of deposit and in other similar instruments at June 30, 2008 and December 31, 2007, respectively.  These certificates of deposit have various maturities, all less

39

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

Liquidity and Capital Resources – (Continued)

than one year and are used as collateral for standby letter of credit facilities that we maintain for various vendors.  As of June 30, 2008 and December 31, 2007, we had $3.1 million and $2.7 million of standby letters of credit outstanding, respectively.

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

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

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

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

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

Fair Value Measurements

As discussed in Note 4 in Item 1 of this Form 10-Q, the Company adopted the provisions of SFAS 157 effective January 1, 2008.  The Company has determined that it utilizes unobservable (Level 3) inputs in determining the fair value of its ARS and observable (Level 2) inputs in determining the fair value of its cash flow hedges, which totaled $127.4 million and $1.4 million, respectively, at June 30, 2008.

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

Due to these events, the Company reclassified these instruments as Level 3 during first quarter 2008 and recorded an impairment charge of $8.7 million during the second quarter 2008.  The Company currently believes that this decline in fair value is due entirely to liquidity issues, because the underlying assets for the majority of securities are almost entirely backed by the U.S. government.  The Company will continue to re-evaluate each of these factors as market conditions change in subsequent periods.

The Company has determined that all significant inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, although the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its

40

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

Fair Value Measurements – (Continued)

counterparties.  As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

As discussed in Note 4 in Item 1 of this Form 10-Q, any changes in the fair values of the Company’s derivative financial instruments are subject to the requirements of SFAS 133.  Any changes in fair value that are considered to be effective, as defined, are offset within OCI until the period in which the expected cash flow affects earnings.  Any changes in the fair value of its derivatives that are ineffective, as defined, or do not qualify for special hedge accounting, are reflected in earnings within interest expense, in the period of the change.

Forward-Looking Statements

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

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

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Commodity Price Risk

Our pro-rate operations have exposure to certain market risks associated with aircraft fuel, which has recently experienced significant price increases.  Aviation fuel expense is a significant expense for any air carrier and even marginal changes in the cost of fuel greatly affect a carrier’s profitability.  Standard industry contracts do not generally provide protection against fuel price increases, nor do they ensure availability of supply.  However, our capacity purchase agreements require that fuel be provided to us at no cost, thereby reducing our overall exposure to fuel price fluctuations.  However, the Company’s pro-rate code-share agreements with US Airways, Continental, and United Air Lines expose the Company to fuel price risk.  Slightly offsetting our fuel risk, our agreement with Continental provides for an adjustment to the pro-rate revenue we receive from Continental based on projected changes in fuel prices.  For the projected annualized fuel consumption related to these agreements, each ten percent change in the price of jet fuel amounts to an approximate $6.3 million change in annual fuel costs.

Item 4.  Controls and Procedures

The Company, under the supervision and participation of its management, including the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and 15d-15.   Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective.  Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and completely and accurately reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.  Except as discussed below, there has been no change in our internal control over financial reporting during the six months ended June 30, 2008 that has materially affected, or is reasonably likely to materially affect the our internal control over financial reporting.

Change in Internal Controls

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

The Company has remediated a deficiency related to its cash flow hedging activies, as previously discussed in its Form 10-Q/A for the period ended March 31, 2008.

42

Part II.  Other Information

Item 1.  Legal Proceedings

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

Item 1A. Risk Factors

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

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

None.

Item 3.  Defaults Upon Senior Securities

None.

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

The Company’s Annual Meeting of Stockholders was held on May 15, 2008.  The following Class I directors were elected to our Board of Directors:

Nominee	Votes For	Votes Withheld
Ian Massey	12,256,132	158,218
James E. McGehee Jr.	12,160,150	254,200
Philip H. Trenary	12,260,612	153,738

A proposal to ratify the appointment by the Audit Committee of the Board of Directors of Ernst & Young LLP as the principal independent auditors for 2008 was voted on by stockholders as follows:

Votes For	Votes Against	Votes Abstaining
12,377,633	27,109	9,608

A proposal to amend the 2003 Stock Incentive Plan was voted on by stockholders as follows:

Votes For	Votes Against	Votes Abstaining
7,279,973	2,013,315	3,706

     The following directors’ terms of office as a director continued after the Annual Meeting: Donald J. Breeding, Ian Massey, James E. McGehee, Jr., Thomas S. Schreier, Jr., Alfred T. Spain, R. Philip Shannon, Nicholas R. Tomassetti and Philip H. Trenary.

Item 5.  Other Information

None.

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Item 6.  Exhibits

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

Exhibit

Number                 Description

3.1 Amended and Restated Certificate of Incorporation of the registrant (Incorporated by reference to the Company’s Registration Statement Form S-1 (Registration No. 333-83359), as amended (the “S-1”) initially filed on February 25, 2002)

3.1.1 Second Amended and Restated Certificate of Incorporation of the registrant (Incorporated by reference to the S-1)

3.2 Certificate of Designations for Series A preferred stock of the registrant (Incorporated by reference to the S-1)

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

3.3.1 Amended and Restated Bylaws, dated January 14, 2003, of the registrant (Incorporated by reference to the S-1)

4.1 Specimen Stock Certificate (Incorporated by reference to the S-1)

4.2 Rights Agreement between the registrant and EquiServe Trust Company, N.A., as Rights Agent (Incorporated by reference to the S-1)

4.3 Indenture, 3.25% Senior Convertible Notes due 2025, dated as of February 8, 2005, by and between Pinnacle Airlines Corp. and Deutsche Bank Trust Company (Incorporated by reference to Exhibits 99.2 and 99.3 to the Registrant’s Current Report on Form 8-K filed on February 8, 2005)

4.4 Registration Rights Agreement made pursuant to the Purchase Agreement dated February 3, 2005, dated as of February 8, 2005, by and among Pinnacle Airlines Corp., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Raymond James & Associates, Inc. (Incorporated by reference to Exhibits 99.2 and 99.3 to the Registrant’s Current Report on Form 8-K filed on February 8, 2005)

10.1 Loan Agreement dated as of June 16, 2005 between Pinnacle Airlines, Inc. and First Tennessee Bank National Association (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on June 23, 2005)

10.2 Sublease Agreement between Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by reference to the S-1)

10.2.1 First Amendment to Sublease Agreement between Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by reference to the S-1)

10.2# Guaranty Agreement between Pinnacle Airlines, Inc. and First Tennessee Bank National Association (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on June 23, 2005)

10.3 Engine Lease Agreement between Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by reference to the S-1)

10.3.1 First Amendment to Engine Lease Agreement between Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by reference to the S-1)

10.3# Revolving Credit Note dated as of June 16, 2005 between Pinnacle Airlines, Inc. and First Tennessee Bank National Association (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on June 23, 2005)

10.4# Security Agreement dated as of June 16, 2005 between Pinnacle Airlines, Inc. and First Tennessee Bank National Association (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on June 23, 2005)

10.5# Negative Pledge Agreement dated as of June 16, 2005 between Pinnacle Airlines, Inc. and First Tennessee Bank National Association (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on June 23, 2005)

10.6# Negative Pledge Agreement dated as of June 16, 2005 between Pinnacle Airlines Corp. and First Tennessee Bank National Association (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on June 23, 2005)

10.8† Pinnacle Airlines Corp. 2003 Stock Incentive Plan (Incorporated by reference to the S-1)

10.9 Non-Qualified Stock Option Agreement for options granted under the Pinnacle Airlines Corp. 2003 Stock Incentive Plan (Incorporated by reference to the S-1)

44

Exhibit

Number                 Description

10.10† Pinnacle Airlines, Inc. Annual Management Bonus Plan (Incorporated by reference to the S-1)

10.11 Amended and Restated Sublease Agreement dated as of January 14, 2003 between Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (SBN Facilities) (Incorporated by reference to the S-1)

10.12 Sublease Agreement dated as of August 1, 2002 between Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (TYS Facilities) (Incorporated by reference to the S-1)

10.13 Amended and Restated Facilities Use Agreement between Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (DTW Facilities) (Incorporated by reference to the S-1)

10.14 Amended and Restated Facilities Use Agreement between Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (MEM Facilities) (Incorporated by reference to the S-1)

10.15 Amended and Restated Facilities Use Agreement between Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (MSP Facilities) (Incorporated by reference to the S-1)

10.16 Intentionally omitted

10.17 Intentionally omitted

10.18 Lease Guaranty issued by the registrant to Northwest Airlines, Inc. (Incorporated by reference to the S-1)

10.19 Sublease Guaranty issued by the registrant to Northwest Airlines, Inc. (Incorporated by reference to the S-1)

10.20 Airline Services Agreement dated as of March 1, 2002 among the registrant, Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by reference to the S-1)

10.21 Airline Services Agreement dated as of January 14, 2003 among the registrant, Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by reference to the S-1)

10.21.1 Amendment No. 1 dated as of September 11, 2003 to the Airline Services Agreement dated as of January 14, 2003 among the registrant, Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by reference to the S-1)

10.21.2 Amendment No. 2 dated as of November 26, 2003 to the Airline Services Agreement dated as of January 14, 2003 among the registrant, Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by reference to the S-1)

10.22 Amended and Restated Ground Handling Agreement between Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by reference to the S-1)

10.23 Amended and Restated Information Technology Services Agreement between Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by reference to the S-1)

10.24 Amended and Restated Family Assistance Services Agreement between Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by reference to the S-1)

10.25 Amended and Restated Manufacturer Benefits Agreement between Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by reference to the S-1)

10.26 Form of Amended and Restated Preferential Hiring Agreement between Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by reference to the S-1)

10.27 Purchase Agreement, Senior Convertible Notes due 2025, dated as of February 3, 2005, by and among, Pinnacle Airlines Corp., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Raymond James & Associates, Inc. (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on February 8, 2005)

10.28† Amended and Restated Management Compensation Agreement between Pinnacle Airlines, Inc. and Philip H. Trenary (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on August 12, 2005)

10.29† Amended and Restated Management Compensation Agreement between Pinnacle Airlines, Inc. and Peter D. Hunt (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on August 12, 2005)

10.30† Amended and Restated Management Compensation Agreement between Pinnacle Airlines, Inc. and Douglas W. Shockey (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on August 12, 2005)

10.31† Form of Indemnity Agreement between Pinnacle Airlines Corp. and its directors and officers (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on February 1, 2006)

45

Exhibit 

Number                 Description

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

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

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

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

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

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

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

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

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

10.70 Credit Facility Agreement between Citigroup Global Markets, Inc. and Pinnacle Airlines Corp., dated as of March 11, 2008.

10.71 Amendment No. 1, dated as of June 18, 2008, to the Credit Facility Agreement between Pinnacle Airlines Corp. and Citigroup Global Markets, Inc., dated as of March 11, 2008

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

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

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

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

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

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

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

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

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

23.1 Consent of Independent Registered Public Accounting Firm

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

46

SIGNATURES

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

	PINNACLE AIRLINES CORP.
By:	/s/ Philip H. Trenary
	Philip H. Trenary
Date:  August 11, 2008	President and Chief Executive Officer
By:	/s/ Peter D. Hunt
	Peter D. Hunt
Date:  August 11, 2008	Vice President and Chief Financial Officer