Pinnacle Airlines 10Q 2008 Q3 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 September 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, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” 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 November 6, 2008, 18,064,690 shares 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	23

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

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 September 30,
	2008		2007
Operating revenues
Regional airline services	$	220,242	$	203,271
Other		1,550		2,459
Total operating revenues		221,792		205,730
Operating expenses
Salaries, wages and benefits		57,428		52,830
Aircraft fuel		14,831		10,785
Aircraft maintenance, materials and repairs		20,455		22,468
Aircraft rentals		31,411		35,049
Other rentals and landing fees		19,537		15,307
Ground handling services		21,651		24,520
Commissions and passenger related expense		7,183		7,120
Depreciation and amortization		7,586		2,448
Other		20,631		20,196
Impairment of goodwill and aircraft lease return costs		1,069		-
Total operating expenses		201,782		190,723
Operating income		20,010		15,007
Operating income as a percentage of operating revenues		9.0%		7.3%
Nonoperating (expense) income
Interest income		1,289		2,521
Interest expense		(10,253)		(1,128)
Miscellaneous income (expense)		192		(11)
Total nonoperating (expense) income		(8,772)		1,382
Income before income taxes		11,238		16,389
Income tax expense		(3,521)		(5,485)
Net income	$	7,717	$	10,904

Basic earnings per share	$	0.43	$	0.53

Diluted earnings per share	$	0.43	$	0.48

Shares used in computing basic earnings per share		17,867		20,470
Shares used in computing diluted earnings per share		17,891		22,544

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

Pinnacle Airlines Corp.

Condensed Consolidated Statements of Income (Unaudited)

(in thousands, except per share data)

	Nine Months Ended September 30,
	2008		2007
Operating revenues
Regional airline services	$	640,414	$	578,696
Other		6,873		7,578
Total operating revenues		647,287		586,274
Operating expenses
Salaries, wages and benefits		169,901		150,392
Aircraft fuel		41,603		26,718
Aircraft maintenance, materials and repairs		65,997		62,941
Aircraft rentals		97,439		103,997
Other rentals and landing fees		52,386		44,359
Ground handling services		72,712		73,236
Commissions and passenger related expense		21,436		17,935
Depreciation and amortization		18,566		6,820
Other		64,298		57,222
Impairment of goodwill and aircraft lease return costs		13,688		-
Total operating expenses		618,026		543,620
Operating income		29,261		42,654
Operating income as a percentage of operating revenues		4.5%		7.3%
Nonoperating (expense) income
Interest income		5,326		8,468
Interest expense		(23,915)		(6,109)
Impairment of auction rate securities		(8,675)		-
Loss on sale of unsecured claim		-		(4,144)
Miscellaneous income		166		325
Total nonoperating expense		(27,098)		(1,460)
Income before income taxes		2,163		41,194
Income tax expense		(3,244)		(13,263)
Net income (loss)	$	(1,081)	$	27,931

Basic earnings (loss) per share	$	(0.06)	$	1.31

Diluted earnings (loss) per share	$	(0.06)	$	1.17

Shares used in computing basic earnings (loss) per share		17,864		21,398
Shares used in computing diluted earnings (loss) per share		17,864		23,863

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

Pinnacle Airlines Corp.

Condensed Consolidated Balance Sheets

(in thousands, except share data)


	September 30, 2008		December 31, 2007
Assets	(Unaudited)
Current assets
Cash and cash equivalents	$	63,829	$	26,785
Restricted cash		4,558		5,327
Short-term investments		-		186,850
Receivables, net		33,594		31,107
Spare parts and supplies, net		23,436		16,030
Prepaid expenses and other assets		10,836		16,535
Deferred income taxes, net of allowance		13,677		12,285
Income taxes receivable		26,979		-
Total current assets		176,909		294,919
Property and equipment
Flight equipment		645,069		162,374
Aircraft pre-delivery payments		12,877		81,425
Other property and equipment		44,372		39,969
Less accumulated depreciation		(46,252)		(28,358)
Net property and equipment		656,066		255,410

Investments		126,925		-
Deferred income taxes, net of allowance		53,004		79,856
Other assets, primarily aircraft lease deposits		33,470		28,528
Debt issuance costs, net		6,514		4,598
Goodwill		18,422		28,206
Intangible assets, net		15,002		17,071
Total assets	$	1,086,312	$	708,588

Liabilities and stockholders’ equity
Current liabilities
Short-term notes payable and current maturities of long-term debt	$	37,522	$	73,513
Bank lines of credit		88,275		8,375
Accounts payable		26,838		33,062
Deferred revenue		23,861		24,099
Accrued expenses and other current liabilities		82,498		104,410
Total current liabilities		258,994		243,459

Senior convertible notes		121,000		121,000
Long-term debt, less current maturities		452,691		71,812
Deferred revenue, net of current portion		192,555		209,752
Other liabilities		7,904		4,743
Commitments and contingencies

Stockholders’ equity
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		93,241		91,165
Accumulated other comprehensive loss		(15,850)		(10,200)
Retained earnings		43,704		44,785
Total stockholders’ equity		53,168		57,822
Total liabilities and stockholders’ equity	$	1,086,312	$	708,588

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

Pinnacle Airlines Corp.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)


	Nine Months Ended September 30,
	2008		2007
Operating activities
Net (loss) income	$	(1,081)	$	27,931
Adjustments to reconcile net income to cash provided by operating activities:
Impairment charges		19,232		-
Depreciation and amortization		20,043		8,584
Deferred income taxes		29,312		(98,198)
Recognition of deferred revenue		(18,668)		(16,562)
Other		4,746		4,750
Changes in operating assets and liabilities:
Receivables		(2,487)		51,817
Increase in deferred revenue		1,229		270,670
Spare parts and supplies		(6,249)		(698)
Prepaid expenses and other assets		(1,714)		729
Restricted cash		770		-
Accounts payable and accrued expenses		10,418		25,840
Hedge related payments		(19,530)		-
Insurance proceeds		1,999		-
Income taxes (receivable) payable		(29,336)		8,191
Other liabilities		4,984		(6,032)
Cash provided by operating activities		13,668		277,022
Investing activities
Purchases of property and equipment		(25,695)		(13,177)
Proceeds from the sale of property and equipment		142		610
Aircraft pre-delivery payments		-		(70,400)
Purchases of short-term investments		(82,200)		(826,030)
Proceeds from sale of short-term investments		133,450		659,430
Acquisition of Colgan Air, Inc. net of cash acquired		-		(8,273)
Cash provided by (used in) investing activities		25,697		(257,840)
Financing activities
Proceeds from debt		11,810		-
Proceeds from line of credit		80,000		-
Proceeds from pre-delivery payment facility		-		35,011
Payments on debt and pre-delivery payment facility		(71,122)		(16,418)
Purchase of Series A Preferred Share		(20,000)		-
Treasury shares repurchased		-		(35,207)
Other financing activities		(3,009)		3,554
Cash used in financing activities		(2,321)		(14,020)
Net increase in cash and cash equivalents		37,044		5,162
Cash and cash equivalents at beginning of period		26,785		705
Cash and cash equivalents at end of period	$	63,829	$	5,867
Noncash investing and financing activities
Property and equipment acquired through the issuance of debt	$	404,098	$	3,180

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

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 September 30, 2008, Pinnacle operated 124 Canadair Regional Jet (“CRJ”)-200 aircraft as a Northwest Airlink carrier with approximately 691 daily departures to 114 cities in 37 states and five Canadian provinces. Pinnacle operated a fleet of 11 CRJ-900 aircraft as a Delta Connection carrier with approximately 53 daily departures to 27 cities in 14 states, the Bahamas, Mexico, U.S. Virgin Islands, and Turks and Caicos Islands.

On October 29, 2008, Delta and Northwest completed their previously announced merger, forming the world’s largest airline. Pinnacle is the second largest independent corporate regional partner for the combined Delta/Northwest operation. The Company does not believe that this merger will have a material effect on its operations, as its capacity purchase agreements are relatively long-term and do not contain early termination provisions that could be triggered by consolidation. Under the Company’s capacity purchase agreements, the Company’s partners determine the operating schedules and utilization of aircraft, thus affecting the variable components of payments that the Company receives. However, the Company’s partners also pay fixed amounts, including amounts related to the ownership costs of the Company’s aircraft, irrespective of the level of operations set by its partners. The marginal cost to the Company’s partners in relation to adding flights under the capacity purchase agreements is relatively low compared to the total fixed costs that each partner pays. Therefore, the Company believes that its partners have an economic incentive to maintain reasonable levels of aircraft utilization with respect to the Company’s operations.

Colgan operates an all-turboprop fleet under a regional airline capacity purchase agreement with Continental Airlines, Inc. (“Continental”), and also under revenue pro-rate agreements with Continental, United Air Lines, Inc. (“United”) and US Airways Group, Inc. (“US Airways”). Colgan’s operations are focused primarily in the northeastern United States and in Texas. As of September 30, 2008, Colgan offered within its pro-rate operations 255 daily departures to 64 destinations in 18 states and two Canadian provinces. Colgan operated 14 Saab 340 aircraft as Continental Connection from Continental’s hub airport in Houston, 12 Saab 340 aircraft as United Express at Washington/Dulles, and four Beech 1900 aircraft and 11 Saab 340 aircraft as US Airways Express, with hub locations at New York/LaGuardia and Boston, under revenue pro-rate agreements. Colgan operated 15 Q400 aircraft under a capacity purchase agreement with Continental at its global hub at Newark/Liberty International Airport, providing 98 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.

During the three months ended September 30, 2008, the Company recorded a credit of $1,381 to correct certain maintenance related accruals. Of this amount, $220 related to the first quarter and $1,161 related to the second quarter. The adjustment was made in the third quarter as the amount of the adjustment was not material to prior periods or the trend of earnings in any period.

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

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 nine months ended September 30, 2008.

	Three Months Ended September 30, 2008
	Percentage of Regional Airline Services Revenue
Source of Revenue	Capacity Purchase Agreements	Pro-Rate Agreements	Total
Northwest	62%	-	62%
Continental	9%	8%	17%
US Airways	-	9%	9%
United	-	5%	5%
Delta	5%	-	5%
Essential Air Service	-	2%	2%
Total	76%	24%	100%

	Nine Months Ended September 30, 2008
	Percentage of Regional Airline Services Revenue
Source of Revenue	Capacity Purchase Agreements	Pro-Rate Agreements	Total
Northwest	67%	-	67%
Continental	5%	8%	13%
US Airways	-	9%	9%
United	-	5%	5%
Delta	4%	-	4%
Essential Air Service	-	2%	2%
Total	76%	24%	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, aircraft rent or ownership costs, 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 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.

During the three months ended September 30, 2008, Northwest completed its transition of 15 CRJ-200 aircraft from Pinnacle to one of its wholly owned subsidiaries in accordance with the terms of the ASA. Pinnacle currently operates a fleet of 124 CRJ-200 aircraft under the ASA.

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”). Delta also has the option to add an additional seven CRJ-900 aircraft under the DCA. Scheduled service began on December 1, 2007. Pinnacle operated nine CRJ-900 aircraft under the DCA as of September 30, 2008.

On July 17, 2008, the Company and Delta amended the DCA whereby the parties agreed to delay the in-service dates for the remaining CRJ-900 aircraft to January through May 2009. Pinnacle accepted delivery of two of these aircraft during July 2008, and is using them as spare aircraft to support its DCA operations until the aircraft enter service under the DCA in January 2009. The Company and the aircraft manufacturer have agreed to defer delivery of the five remaining CRJ-900 aircraft to Pinnacle to dates commensurate with the new in-service dates under the DCA.

On October 1, 2008, the Company entered into an agreement with Delta to operate on a short-term basis seven additional CRJ-900 aircraft that were formerly operated by another Delta Connection carrier. The Company will temporarily operate these seven CRJ-900 aircraft until the first half of 2009 when the Company’s seven remaining permanent aircraft enter service under the DCA. As of November 6, 2008, the Company has received and is operating four of the additional seven temporary CRJ-900 aircraft and expects to place the remaining three in service during November 2008. Pinnacle will pay a nominal amount of rent to Delta for these aircraft and Pinnacle will not receive any reimbursement or margin payments related to this aircraft rent. Other than aircraft ownership costs, Pinnacle will receive regular compensation under the DCA related to the operation of these seven temporary aircraft.

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. Colgan took delivery of two Q400 aircraft in July 2008 and operated 15 Q400 aircraft as of September 30, 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 (as measured by revenue per available seat mile) 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.

Pinnacle Airlines Corp.

Notes to Condensed Consolidated Financial Statements

(all amounts in thousands, except per share data)

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

US Airways

As of September 30, 2008, the Company, through its Colgan subsidiary, operated 11 Saab 340 aircraft and four Beech 1900D aircraft under a code-sharing pro-rate agreement with US Airways (the “US Airways Agreement”). In 1999, Colgan entered into the US Airways Agreement to provide passenger service and cargo service under the name “US Airways Express.” The current US Airways Agreement became effective on October 1, 2005 under terms similar to the 1999 agreement and has a three-year term. The term of the agreement automatically extends beyond the September 30, 2008 termination date unless terminated by either party upon 120 days notice. The Company expects to enter into a revised agreement with US Airways on substantially similar terms in the near future.

Continental Airlines

As of September 30, 2008, the Company, through its Colgan subsidiary, operated 14 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 every January 1 and July 1 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 September 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. The Company anticipates that the terms of a new code-share agreement with United will provide for an increased connecting passenger incentive payment in some of its commercial markets and also to provide for a mechanism to review Colgan’s financial performance in these markets at least annually to determine the appropriate level of connecting passenger incentive payments. To the extent that the Company is unsuccessful in modifying the terms of the United Agreement, the Company may reduce or eliminate service in certain unprofitable markets.

Essential Air Services

In addition to the code-share agreements described above, the Company, through its Colgan subsidiary, operates within its pro-rate network with the Department of Transportation (“DOT”) to provide subsidized air service to 13 communities as part of the Essential Air Service (“EAS”) program. Colgan operates in five of these markets under its US Airways Agreement, seven markets under its United Agreement, and one market under its Continental Agreement. During 2008, Colgan filed notice with the DOT to vacate service in most of these communities, and subsequently re-filed to serve these communities for higher subsidies to offset rising fuel and other operating costs. The DOT subsequently re-awarded service in nine of these markets at a higher subsidy and, in some instances, a reduced level of weekly round trips. Upon completion of these changes in its EAS operations during the fourth quarter of 2008, Colgan will operate in 11 markets under the EAS program.

Pinnacle Airlines Corp.

Notes to Condensed Consolidated Financial Statements

(all amounts in thousands, except per share data)

3. Impairment of Goodwill and Aircraft Lease Return Costs

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 second quarter of 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 included record high fuel prices, continued operating losses, the uncertainty of the U.S. economy, and the planned removal of several Saab aircraft from Colgan’s pro-rate operating fleet during the third and fourth quarters of 2008.

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 the second quarter of 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 second quarter of 2008 to eliminate the carrying value of Colgan’s goodwill. This impairment charge is classified within “impairment of goodwill and aircraft lease return costs” in the Company's condensed consolidated statement of income for the nine months ended September 30, 2008.

During the third quarter of 2008, Colgan eliminated six unprofitable markets from its pro-rate operations and will eliminate three additional unprofitable pro-rate markets in the fourth quarter of 2008. This action will result in the retirement of six Saab aircraft from service 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 and nine months ended September 30, 2008, the Company recorded charges of $1,069 and $3,131, respectively, related to these lease returns, and expects to record an additional amount of approximately $269 prior to the removal of the aircraft from service in December 2008. The Company’s accrued lease return costs as of September 30, 2008 are included in “accrued expenses and other current liabilities” on the Company’s condensed consolidated balance sheet.

4. Fair Value Measurements

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

Pinnacle Airlines Corp.

Notes to Condensed Consolidated Financial Statements

(all amounts in thousands, except per share data)

4. Fair Value Measurements - - (Continued)

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:

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 September 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 September 30, 2008, aggregated by the level in the fair value hierarchy within which those measurements fall.

	Level 1		Level 2		Level 3		Balance at September 30, 2008
Assets
Auction Rate Securities (“ARS”)	$	-	$	-	$	126,925	$	126,925

Liabilities
Derivative financial instruments	$	-	$	(949)	$	-	$	(949)

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”)		-
Redemptions (1)		(500)
Balance at September 30, 2008	$	126,925

(1) Partial redemption of securities at par by the issuer

Pinnacle Airlines Corp.

Notes to Condensed Consolidated Financial Statements

(all amounts in thousands, except per share data)

4. Fair Value Measurements - - (Continued)

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

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

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 receives permanent, fixed-rate financing for each aircraft (see Note 6 for further discussion). As of September 30, 2008, the Company had one remaining outstanding hedge position, which is scheduled to be settled in January 2009 when the related aircraft delivers and the related permanent financing is obtained. 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.

Pinnacle Airlines Corp.

Notes to Condensed Consolidated Financial Statements

(all amounts in thousands, except per share data)

5. Borrowings

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

	As of September 30, 2008		As of December 31, 2007

Lines of credit	$	88,275	$	8,375

Pre-delivery payment facilities		11,373		63,603
Other		-		2,500
Total short-term notes payable	$	11,373	$	66,103


Senior convertible notes	$	121,000	$	121,000
Long-term notes payable		478,840		79,222
Total long-term debt		599,840		200,222
Less current maturities		(26,149)		(7,410)
Long-term debt, net of current maturities	$	573,691	$	192,812

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


Remainder of 2008	$	6,420
2009		27,584
2010		147,112
2011		26,207
2012		26,854
Thereafter		365,663
Total	$	599,840

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 $135,600 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 5.9% as of September 30, 2008. The Credit Facility includes both covenant and margin requirements with which the Company is compliant. As of September 30, 2008, the balance outstanding was $80,000. On November 5, 2008, the Company and Citigroup amended the Credit Facility to extend the maturity date to November 2009 and to provide for additional borrowings of up to $10,000, for a total amount available under the Credit Facility of $90,000. The additional $10,000 may only be used to fund purchases or redemptions of other indebtedness of the Company, and carries an interest rate that is indexed to the Federal Funds Rate.

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. On April 15, 2008, the Company extended the termination date of this facility to April 15, 2009. This instrument has an interest rate of Prime plus 0.25%, which was 5.25% as of September 30, 2008. Amounts outstanding under the line of credit were $8,275 at September 30, 2008 and $8,375 at December 31, 2007.

Pinnacle Airlines Corp.

Notes to Condensed Consolidated Financial Statements

(all amounts in thousands, except per share data)

5. Borrowings - (Continued)

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 $11,373 at September 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 5.7% as of September 30, 2008, and are collateralized by the pre-delivery payments to the aircraft manufacturer. 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 per share. The Notes were not convertible in the third quarter of 2008.

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.

New Accounting Standard

FSP APB 14-1. In May 2008, the FASB affirmed Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (the "FSP"), which clarifies the accounting for convertible debt instruments that may be settled in cash (including partial cash settlement) upon conversion. The FSP requires issuers to account separately for the liability and equity components of certain convertible debt instruments in a manner that reflects the issuer's nonconvertible debt (unsecured debt) borrowing rate when interest cost is recognized. The FSP requires bifurcation of a component of the debt, classification of that component in equity and the accretion of the resulting discount on the debt to be recognized as part of interest expense in our consolidated statement of operations. The FSP requires retrospective application to the terms of instruments as they existed for all periods presented. The FSP is effective as of January 1, 2009 and early adoption is not permitted. The adoption of this FSP will affect the accounting for the Company’s Notes and will result in increased interest expense of up to $14,000 in 2009.

Long Term Notes Payable

Included in long-term notes payable are borrowings from EDC for owned aircraft. The borrowings are collateralized by the Company’s fleet of CRJ-900 and Q400 aircraft and bear interest rates ranging between 6.3% and 7.3% with maturities through the third quarter of 2023. Amounts outstanding were $454,998 and $60,270 at September 30, 2008 and December 31, 2007, respectively.

6. Derivatives

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

Pinnacle Airlines Corp.

Notes to Condensed Consolidated Financial Statements

(all amounts in thousands, except per share data)

6. Derivatives - - (Continued)

The term of each cash flow hedge matches the term of the expected financing. As of September 30, 2008, the Company had one remaining outstanding hedge position, which is scheduled to be settled in January 2009 when the related aircraft delivers and the related permanent financing is obtained. The related agreements for these hedge positions require mandatory cash settlement at the settlement date which is intended to coincide with the delivery of the related aircraft and the receipt of permanent, fixed rate financing. Once permanent financing is secured, the remaining hedge-related balance, which is 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. SFAS 161 is effective for financial statements issued after November 15, 2008 and will affect disclosures only and will have no effect on the Company’s consolidated balance sheet, statements of income, or cash flows.

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2008		2007		2008		2007

Ineffectiveness from interest rate swaps included in interest expense	$	-	$	(51)	$	(562)	$	(51)
Interest expense recognized in earnings from other comprehensive income		(734)		-		(1,518)		-

	As of September 30, 2008	As of December 31, 2007

Fair value of active swaps – recorded in accrued expenses and other current liability	$ (949)	$ (16,777)
Amounts from interest rate swaps recorded in other comprehensive income, net of tax and amortization	(16,352)(1)	(10,761)

The following table presents the fair values of the Company’s remaining derivative instruments, and the amounts from settled interest rates swaps recorded in other comprehensive income, net of tax and amortization, within the condensed consolidated balance sheets.

(1)	Included in the net unrealized losses from interest rate swaps are approximately $2,161 in net unrealized losses that are expected to be amortized into interest expense during the 12 months following September 30, 2008.

Pinnacle Airlines Corp.

Notes to Condensed Consolidated Financial Statements

(all amounts in thousands, except per share data)

7. Comprehensive Income (Loss)

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2008		2007		2008		2007

Net income (loss)	$	7,717	$	10,904	$	(1,081)	$	27,931
Adjustments (net of tax):
Retired Pilots’ Insurance Benefit Plan amortization of unrealized actuarial gain		(6)		-		(59)		-
Change in cash flow hedge unrealized loss		230		(1,939)		(5,591)		(1,939)
Total other comprehensive income (loss)	$	7,941	$	8,965	$	(6,731)	$	25,992

8. Earnings (Loss) Per Share

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2008		2007		2008		2007

Net income (loss)	$	7,717	$	10,904	$	(1,081)	$	27,931
Basic earnings (loss) per share	$	0.43	$	0.53	$	(0.06)	$	1.31
Diluted earnings (loss) per share	$	0.43	$	0.48	$	(0.06)	$	1.17

Share computation:
Weighted average number of shares outstanding for basic earnings (loss) per share (1)		17,867		20,470		17,864		21,398
Senior convertible notes (2)		-		1,940		-		2,229
Share-based compensation (3)		24		134		-		236
Weighted average number of shares outstanding for diluted earnings (loss) per share		17,891		22,544		17,864		23,863

(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			Nine Months Ended
		September 30, 2008			September 30, 2008

	Increase in fully diluted share count=	$121,000 $13.22 (a)	-	$121,000 $4.90 (b)	$121,000 $13.22(a)	-	$121,000 $7.88 (b)

(a) = Conversion price of the Notes
(b) = Average stock price for the three and six month period

(3) Options to purchase 1,120 and 653 shares of common stock were excluded from the diluted earnings (loss) per share calculation at September 30, 2008 and 2007, respectively, because their effect would be anti-dilutive.

Pinnacle Airlines Corp.

Notes to Condensed Consolidated Financial Statements

(all amounts in thousands, except per share data)

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 nine months ended September 30, 2008, the Company recognized $616 and $1,989, respectively, of share-based compensation expense, and $369 and $1,095 for the same periods of the prior year.

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	(44)		14.19		(345)
Outstanding at September 30, 2008	1,116	$	13.10	$	8,011	7.1 years	$	-
Options exercisable at September 30, 2008	607	$	12.10	$	4,639	5.8 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		(68)		(700)
Forfeited		(6)		(89)
Unvested at September 30, 2008		198	$	2,604

Pinnacle Airlines Corp.

Notes to Condensed Consolidated Financial Statements

(all amounts in thousands, except per share data)

10. Income Taxes

The Company incurred income tax expense for the three and nine months ended September 30, 2008 of $3,521 and $3,244, respectively. As discussed in Note 11, during the second quarter of 2008 the Company recorded an impairment loss of $8,675 on its portfolio of ARS during the second quarter of 2008. The Company has recorded a full valuation allowance against the tax benefit associated with this capital loss, as the Company does not expect to generate capital gains during the carryforward period against which the loss could be applied. Consequently, this loss reduces net income by the gross amount.

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 potential penalties of $9,747. The Company has reserved for $16,586 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.

11. Investments

At September 30, 2008, the Company’s investment portfolio included ARS with fair values of $126,925, net of recognized losses of $8,675. As of December 31, 2007, the fair value of the Company’s investment portfolio was $186,850, which equaled the Company’s historical cost basis.

Because of the unprecedented events in the ARS market coupled with overall current market conditions, 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 the US economy in general, 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 second quarter to reflect the decline in value of these securities. This loss is included in nonoperating expense in the Company’s condensed consolidated statement of income for the nine months ended September 30, 2008. 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.

Most of the banks that structured and sold ARS to investors have entered into settlement agreements with various state and federal regulatory authorities that provide for the repurchase of ARS at par value from retail investors and small businesses over the next 24 months. In addition, some banks have made offers to larger institutional investors to repurchase ARS at par value in 2009 and 2010 to the extent that institutional investors have been unable to sell their ARS. The Company has not yet received such an offer.

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 sale price based on the claim amount set forth in the Company’s original proof of claim. During the second quarter of 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.

Pinnacle Airlines Corp.

Notes to Condensed Consolidated Financial Statements

(all amounts in thousands, except per share data)

12. Commitments and Contingencies - (Continued)

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.

In October 2008, the Company received notice that ALPA is conducting a campaign to organize Colgan’s pilots under the rules contained in the Railway Labor Act. The Company expects Colgan’s pilots to vote on this matter prior to year-end. The Company does not expect a collective bargaining agreement at Colgan to have a material effect on its future financial results, as Colgan’s pilots are already compensated at industry-standard pay.

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

	Firm	Firm Cancelable	Options	Total
Q400
2010	-	8	4	12
2011	-	2	16	18
Total Q400	-	10	20	30

CRJ-900
2009	5	-	-	5
Total CRJ-900	5	-	-	5

Total	5	10	20	35

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 the aircraft manufacturer 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 additional information on CRJ-900 and Q400 aircraft, see Note 2.

The Company’s contractual obligations and commitments, which include future purchases of aircraft and engines, are approximately $2,077 for the remainder of 2008 and $130,392 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.

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 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.

The Company is currently engaged in discussions with Northwest involving the interpretation of various components of the ASA. If the parties are unable to reach a mutually agreeable resolution related to these matters, the parties may elect to resolve the issues 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. Adverse determinations in these matters could result in a loss to the Company of up to $10,700 for disputed amounts accruing through September 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. combined with 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”). Corporate overhead costs incurred by Pinnacle Airlines Corp. are allocated to the operating costs of each subsidiary.

Pinnacle Airlines Corp.

Notes to Condensed Consolidated Financial Statements

(all amounts in thousands, except per share data)

13. Segment Reporting - (Continued)

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2008		2007		2008		2007
Operating revenues:
Pinnacle	$	148,184	$	150,583	$	458,312	$	443,356
Colgan		73,650		55,147		189,043		143,002
Eliminations		(42)		-		(68)		(84)
Consolidated	$	221,792	$	205,730	$	647,287	$	586,274

Operating income (loss):
Pinnacle	$	12,016	$	15,917	$	39,654	$	42,867
Colgan		7,994		(910)		(10,393)		(213)
Eliminations		-		-		-		-
Consolidated	$	20,010	$	15,007	$	29,261	$	42,654

The following represents the Company’s segment assets:

	September 30, 2008		December 31, 2007
Total assets:
Pinnacle	$	528,412	$	544,746
Colgan		297,223		144,183
Unallocated		260,677		19,659
Consolidated	$	1,086,312	$	708,588

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 business practices, significant accounting policies, risk factors, 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.

Outlook

General

We will continue to execute on our growth plan for the remainder of 2008 and 2009. Our Colgan subsidiary took delivery of the final two of its 15 Q400 aircraft to be operated under our capacity purchase agreement (“CPA”) with Continental and placed them into service during July. 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 in-service dates on the remaining seven CRJ-900 aircraft to be operated under the DCA until the first and second quarters of 2009. In addition, Pinnacle and Delta recently agreed to temporarily add seven CRJ-900 aircraft to Pinnacle’s fleet that were previously operated by another Delta Connection carrier (the “Temporary Aircraft”). Pinnacle will operate the Temporary Aircraft under the terms of its existing DCA until Pinnacle’s remaining permanent aircraft deliver from Bombardier during the first and second quarters of 2009.

On October 29, 2008, Delta and Northwest completed its previously announced merger, forming the world’s largest airline. We are the second largest independent corporate regional partner for the combined Delta/Northwest operation. 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.

The airline industry is undergoing a major period of instability as a result of high volatility in the cost of fuel. As of September 30, 2008, the price of crude oil was approximately 25% higher than the price at September 30, 2007, although the price of fuel has continued to decline since September 30, 2008. Earlier in 2008, fuel prices increased to an all time high. 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 fall of 2008. Many are planning to cut regional airline capacity as well. For example, Delta 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. Although fuel prices have recently declined, providing some relief to major airlines, many economic experts are now predicting that the U.S. economy is in a recession. Historically, demand for air travel has declined during recessions. This economic uncertainty presents another challenge for the airline industry.

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 this period of fuel price volatility and economic uncertainty, we expect them to review the relationships that they have with regional airlines, and we expect this to result in changes to these relationships.

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

Outlook - (Continued)

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 we believe we are currently in compliance with all of our major operating agreements.

We continue to own approximately $135.6 million par amount of auction rate securities (“ARS”). Due to recent events in the credit markets, these investments have become illiquid and have suffered a decline in fair value. We have classified these investments as noncurrent assets on our condensed consolidated balance sheet at September 30, 2008 at their fair value of $126.9 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.

In the mean time, we have arranged for a $90 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. Although the Credit Facility has a maturity date in November 2009, we would expect the Credit Facility to remain outstanding until we receive an offer to repurchase our ARS or otherwise are able to monetize our ARS portfolio.

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 and economic 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.

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 an 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 incurred approximately $0.8 million of interest, depreciation, insurance, and related costs during the third quarter that were not reimbursed by Delta, and we expect to incur up to an additional $1 million of such costs during the fourth quarter that will not be reimbursed by Delta unless we use the aircraft in scheduled service as outlined below.

As of November 6, 2008, we had accepted delivery of four of the Temporary Aircraft, and we expect to receive the remaining three Temporary Aircraft during November 2008. We lease the Temporary Aircraft directly from Delta at a nominal lease rate. We operate the Temporary Aircraft under the DCA and receive payments related to the capacity we provide to Delta at the same rates that we receive on our permanent fleet of CRJ-900 aircraft under the DCA, with the exception that we do not receive any reimbursement or margin for

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

Outlook - (Continued)

the aircraft rental costs associated with the Temporary Aircraft. Additionally, we agreed with Delta to operate one or both of our owned CRJ-900 aircraft that are scheduled to enter service under the DCA in January 2009 from time to time during the fourth quarter to support the transition of the Temporary Aircraft from the previous operator into our fleet. When we operate our two CRJ-900 aircraft, we will receive reimbursement for aircraft ownership costs on a pro-rata basis.

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. Historically, Pinnacle’s performance has declined during winter months due to severe winter weather. Although Pinnacle’s operating performance during the second and third quarters of 2008 has been well above standards contained in the ASA and above most of our competitors, we may incur lost incentive payments in the future to the extent that we experience harsh weather over extended periods.

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 discussed arbitrating these issues with Northwest. To date, we have not resolved these matters, and we recently agreed to move forward with arbitration proceedings on one of the issues. Adverse determinations in these matters could result in a loss to the Company of up to $10.7 million for disputed amounts through September 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.

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 August 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 or expanded 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 or when we will exercise our options for delivery of any of the 30 Q400 aircraft.

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

Outlook - (Continued)

One key to exercising our options for additional aircraft is the availability of financing for these aircraft. We currently do not have the resources to acquire additional Q400 aircraft without obtaining some form of financing. We expect that the lender that has financed our initial purchase of 15 Q400 aircraft will make financing available on similar terms. In addition, we will seek alternative forms of financing that reduce the amount of up-front investment required to obtain the aircraft, such as operating leases.

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 $1.1 million that we paid to Continental related to delays in aircraft deliveries from the manufacturer. With all 15 aircraft now 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 the profitability Colgan’s pro-rate operations. Colgan experienced an operating loss inclusive of goodwill impairment and other special charges of $10.4 million during the nine months ended September 30, 2008.

As a result, we created a plan to reduce the scope of Colgan’s pro-rate operations, and to create for the remaining pro-rate network a sustainable route structure at recent peak fuel prices. Our plan includes the retirement of six additional Saab 340 and the remaining four Beech 1900 aircraft from Colgan’s fleet, the recently received increased subsidies under the Federal Essential Air Service (“EAS”) program, and a renegotiation of our code-share agreement with United related to markets that are not subsidized under the EAS program. We had previously announced the retirement of ten Saab 340 aircraft under our turn-around plan. However, we are negotiating with United to continue operations in four markets that historically have been unprofitable for Colgan by increasing the connecting passenger incentive that United pays to Colgan. With this change, we expect that these United Express markets will be sustainable for Colgan, and thus we have tentatively decided to remain in these markets. Colgan’s profitability improved during the third quarter of 2008, and we expect that the changes we are making, coupled with recent declines in fuel prices and recent increases in average passenger fares, will improve Colgan’s pro-rate financial results in future periods.

Our ongoing actions to improve the profitability of Colgan’s pro-rate operations have resulted in significant one-time costs related to the return of aircraft to our lessors, and could result in additional 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 an additional $1.0 million in fleet retirement costs during the third quarter related to expected maintenance costs on leased aircraft that we will perform prior to returning the aircraft to the lessors. 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 September 30, 2008, Colgan's intangible assets had a balance of approximately $4.0 million.

We believe that the significant measures contained within our turn-around plan will eliminate or significantly reduce the annual operating losses that Colgan experienced in its pro-rate operations during the first half of 2008. 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 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.

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 nine months ended September 30, 2008. A discussion of our results of operations as compared to the same periods in 2007 follows.

	Three Months Ended September 30, 2008
		Pinnacle		Colgan		Eliminations		Consolidated
	(in thousands)
Operating revenues
Regional airline services	$	146,643	$	73,599	$	-	$	220,242
Other		1,541		51		(42)		1,550
Total operating revenues		148,184		73,650		(42)		221,792

Operating expenses
Salaries, wages and benefits		42,526		14,902		-		57,428
Aircraft fuel		-		14,831		-		14,831
Aircraft maintenance, materials and repairs		11,872		8,583		-		20,455
Aircraft rentals		29,517		1,894		-		31,411
Other rentals and landing fees		13,604		5,933		-		19,537
Ground handling services		18,622		3,071		(42)		21,651
Commissions and passenger related expense		1,397		5,786		-		7,183
Depreciation and amortization		3,828		3,758		-		7,586
Other		14,802		5,829		-		20,631
Impairment of goodwill and aircraft lease return costs		-		1,069		-		1,069
Total operating expenses		136,168		65,656		(42)		201,782

Operating income		12,016		7,994		-		20,010

Operating margin		8.1%		10.9%		-		9.0%

Nonoperating income (expense)
Interest income								1,289
Interest expense								(10,253)
Miscellaneous income, net								192
Total nonoperating expense								(8,772)
Income before income taxes								11,238
Income tax expense								(3,521)
Net income							$	7,717

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

Results of Operations - (Continued)

	Nine Months Ended September 30, 2008
		Pinnacle		Colgan		Eliminations		Consolidated
	(in thousands)
Operating revenues
Regional airline services	$	451,514	$	188,900	$	-	$	640,414
Other		6,798		143		(68)		6,873
Total operating revenues		458,312		189,043		(68)		647,287

Operating expenses
Salaries, wages and benefits		127,908		41,993		-		169,901
Aircraft fuel		-		41,603		-		41,603
Aircraft maintenance, materials and repairs		35,412		30,585		-		65,997
Aircraft rentals		91,674		5,765		-		97,439
Other rentals and landing fees		39,142		13,244		-		52,386
Ground handling services		62,647		10,133		(68)		72,712
Commissions and passenger related expense		4,972		16,464		-		21,436
Depreciation and amortization		9,572		8,994		-		18,566
Other		47,331		16,967		-		64,298
Impairment of goodwill and aircraft lease return costs		-		13,688		-		13,688
Total operating expenses		418,658		199,436		(68)		618,026

Operating income (loss)		39,654		(10,393)		-		29,261

Operating margin		8.7%		(5.5)%		-		4.5%

Nonoperating income (expense)
Interest income								5,326
Interest expense								(23,915)
Impairment on auction rate securities								(8,675)
Miscellaneous income, net								166
Total nonoperating expense								(27,098)
Income before income taxes								2,163
Income tax expense								(3,244)
Net loss							$	(1,081)

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 nine months ended September 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 September 30, 2007, which represents approximately 94% of the nine months ended September 30, 2007.

Consolidated and Segmented Results of Operations

Consolidated

	Three Months Ended September 30,				Nine Months Ended September 30,
	2008	2007	$ Change	% Change	2008	2007	$ Change	% Change
	(in thousands)
Total operating revenue	$221,792	$205,730	16,062	8%	$647,287	$586,274	61,013	10%
Total operating expenses	201,782	190,723	11,059	6%	618,026	543,620	74,406	14%
Operating income	20,010	15,007	5,003	33%	29,261	42,654	(13,393)	(31)%
Operating margin	9.0%	7.3%	1.7 pts		4.5%	7.3%	(2.8) pts

Total nonoperating (expense) income	(8,772)	1,382	(10,154)	(735)%	(27,098)	(1,460)	(25,638)	(1756)%

Income before income taxes	11,238	16,389	(5,151)	(31)%	2,163	41,194	(39,031)	(95)%
Income tax expense	(3,521)	(5,485)	(1,964)	(36)%	(3,244)	(13,263)	(10,019)	(76)%
Net income (loss)	7,717	10,904	(3,187)	(29)%	(1,081)	27,931	(29,012)	(104)%

Operating Revenues

Operating revenue of $221.8 million and $647.3 million for the three and nine months ended September 30, 2008 increased $16.1 million, or 8%, and $61.0 million, or 10%, respectively. Changes in our capacity purchase related operating revenue are primarily caused by changes in our operating fleet size and aircraft utilization, and changes in our pro-rate related operating revenue are primarily caused by the average load factor and average fare. These changes are discussed in greater detail within our segmented results of operations.

Operating Expenses

Operating expenses increased by $11.1 million, or 6%, during the three months ended September 30, 2008 and by $74.4 million, or 14%, during the nine months ended September 30, 2008, primarily due to increases in block hours and departures associated with the growth in our capacity purchase related operating fleet. 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 our recently purchased CRJ-900 and Q400 aircraft, impairment of Colgan’s goodwill and certain intangible assets, Colgan’s lease return costs, and increased compensation expense resulting from the increase in employees related to the growth of our business. These changes are discussed in greater detail within our segmented results of operations.

Nonoperating Expense

Net nonoperating expense of $8.8 million for the three months ended September 30, 2008 increased by approximately $10.2 million over net nonoperating income of $1.4 million during the same period in 2007. This increase is attributable to the $9.1 million increase in interest expense, primarily related to the financing of the CRJ-900 and Q400 aircraft, the majority of which were delivered in 2008. In addition, interest income decreased $1.2 million due to a lower average balance compared to the same period of 2007, as investments were sold to fund our equity investment in our owned aircraft.

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

Results of Operations - (Continued)

Net nonoperating expense of $27.1 million for the nine months ended September 30, 2008 increased by $25.6 million over net nonoperating expense of $1.5 million during the same period in 2007. These increases are attributable to the $17.8 million increase in interest expense, primarily attributable to the financing of the CRJ-900 and Q400 aircraft. In addition, these increases are partially attributable to the $8.7 million impairment charge on our portfolio of auction rate securities, offset by a $4.1 million loss incurred in the second quarter of 2007 related to the sale of our remaining Northwest unsecured claim.

Income Tax Expense

For the three and nine months ended September 30, 2008, our income tax expense decreased by $2.0 million and $10.0 million, respectively, primarily related to the decrease in pre-tax income as compared to the same periods in 2007. Partially offsetting the decline of income tax expense is our belief that we will receive no tax benefit related to the previously discussed $8.7 million nonoperating impairment loss recorded in the second quarter of 2008 on our ARS 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.

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

Results of Operations - (Continued)

Pinnacle Operating Statistics

	Three Months Ended September 30,					Nine Months Ended September 30,
	2008		2007		Change	2008		2007		Change
Other Data:
Revenue passengers (in thousands)		2,619		2,636	(1)%		7,770		7,477	4%
Revenue passenger miles “RPMs”(in thousands)		1,236,067		1,230,775	-		3,622,776		3,471,275	4%
Available seat miles “ASMs” (in thousands)		1,598,929		1,562,621	2%		4,715,054		4,528,179	4%
Passenger load factor		77.3%		78.8%	(1.5) pts.		76.8%		76.7%	0.1 pts.
Operating revenue per ASM (in cents)		9.27		9.64	(4)%		9.72		9.79	(1)%
Operating cost per ASM (in cents)		8.52		8.62	(1)%		8.88		8.84	-
Operating revenue per block hour	$	1,377	$	1,340	3%	$	1,382	$	1,347	3%
Operating cost per block hour	$	1,265	$	1,198	6%	$	1,262	$	1,217	4%
Block hours		107,632		112,378	(4)%		331,744		329,201	1%
Departures		66,779		68,370	(2)%		200,568		199,598	-
Average daily utilization (block hours)		8.74		8.77	-		8.91		8.79	1%
Average stage length (miles)		465		461	1%		462		460	-

Number of operating aircraft (end of period)
CRJ-200		124		139	(11)%
CRJ-900		11		-	100%
Employees (end of period)		4,164		4,061	3%

Pinnacle Operating Revenues

	Three Months Ended September 30,							Nine Months Ended September 30,
	2008		2007		$ Change		% Change	2008		2007		$ Change		% Change
	(in thousands)
Operating revenues
Regional airline services
Northwest	$	136,710	$	148,167	$	(11,457)	(8)%	$	429,608	$	435,923	$	(6,315)	(1)%
Delta		9,933		-		9,933	100%		21,906		-		21,906	100%
Other		1,541		2,416		(875)	(36)%		6,798		7,433		(635)	(9)%
Total operating revenues	$	148,184	$	150,583	$	(2,399)	(2)%	$	458,312	$	443,356	$	14,956	3%

Regional Airline Services

For the three and nine months ended September 30, 2008, revenue earned under our ASA with Northwest of $136.7 million and $429.6 million decreased by $11.5 million, or 8%, and $6.3 million, or 1%, respectively, compared to the same periods in 2007. Revenue earned under our ASA with Northwest was negatively affected by the return of 15 CRJ-200 aircraft pursuant to the terms of our ASA. During the three and nine months ended September 30, 2008, we operated 10% and 6% fewer average CRJ-200 aircraft, respectively, than the same periods in 2007. In addition, revenue was negatively affected by a change in our reimbursable costs. Pursuant to the terms of our ASA with Northwest, we are reimbursed with margin for certain operational costs. These costs include certain maintenance costs, aircraft rentals, passenger liability and hull insurance, property taxes, fuel, ground handling at Northwest service cities, and landing fees at Detroit Metropolitan Wayne County Airport (“DTW”). To the extent that these reimbursable costs decline, we experience a corresponding decline in revenue. Our reimbursable expenses for the three and nine months ended September 30, 2008, decreased by 12% and 5%, respectively, causing decreases in revenue of 12% and 5%, respectively. Partially offsetting this decrease is a 2% increase in ASA revenue for the three and nine months ended September 30, 2008 related to the annual inflation index adjustment in our ASA rates.

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

Results of Operations - (Continued)

Revenue earned under the DCA was approximately $9.9 million and $21.9 million for the three and nine months ended September 30, 2008, respectively. As of September 30, 2008, we operated 11 CRJ-900 aircraft under our DCA. We took delivery of two CRJ-900 aircraft during the third quarter of 2008, which will be placed into service in January 2009. Until these aircraft are placed into service, they will be used as spares to support our Delta Connection operations. During this period, we are being reimbursed by Delta for a portion of certain ownership costs related to one of these aircraft, and such reimbursement is included in our operating revenue.

Other Revenue

Other revenue decreased $0.9 million, or 36%, for the three months ended September 30, 2008 and $0.6 million, or 9%, for the nine months ended September 30, 2008, as compared to the same periods in 2007. These decreases were primarily related to a decline in revenue earned from providing certain baggage handling services to Northwest at its Memphis hub.

Pinnacle Operating Expenses


	Three Months Ended September 30,							Nine Months Ended September 30,
	2008		2007		$ Change		% Change	2008		2007		$ Change	% Change
	(in thousands)
Operating expenses
Salaries, wages and benefits	$	42,526	$	40,327	$	2,199	5%	$	127,908	$	117,155	10,753	9%
Aircraft maintenance, materials and repairs		11,872		11,637		235	2%		35,412		35,611	(199)	(1)%
Aircraft rentals		29,517		32,791		(3,274)	(10)%		91,674		97,569	(5,895)	(6)%
Other rentals and landing fees		13,604		12,471		1,133	9%		39,142		36,895	2,247	6%
Ground handling services		18,622		21,176		(2,554)	(12)%		62,647		64,064	(1,417)	(2)%
Commissions and passenger related expense		1,397		1,026		371	36%		4,972		2,867	2,105	73%
Depreciation and amortization		3,828		1,195		2,633	220%		9,572		3,391	6,181	182%
Other		14,802		14,043		759	5%		47,331		42,937	4,394	10%
Total operating expenses		136,168		134,666		1,502	1%		418,658		400,489	18,169	5%

Operating income	$	12,016	$	15,917	$	(3,901)	(25)%	$	39,654	$	42,867	(3,213)	(8)%

Operating margin		8.1%		10.6%	(2.5) pts.				8.7%		9.7%	(1.0) pts.

Salaries, wages and benefits increased by $2.2 million and 5% for the three months ended September 30, 2008 and $10.8 million and 9% for the nine months ended September 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. The increase in the number of employees is related to our planned increases to support our new Delta Connection operations. Additionally, we are experiencing decreased employee productivity temporarily as we transition out of our 15 CRJ-200 aircraft operated on behalf of Northwest and into 11 CRJ-900 aircraft operated on behalf of Delta.

Aircraft maintenance, materials and repairs expenses increased by $0.2 million and 2% for the three months ended September 30, 2008 compared to the same period in 2007 and decreased by $0.2 million and 1% for the nine months ended September 30, 2008. Underlying these slight changes are more significant changes in the mix of reimbursable and non-reimbursable maintenance costs on the CRJ-200 aircraft. To the extent that we experience an increase in non-reimbursable maintenance costs, we receive no additional revenue to offset the increases. For the three and nine months ended September 30, 2008, non-reimbursable maintenance expenses increased by $3.7 million and $4.5 million, respectively. These increases are attributable to additional maintenance due to the aging of our CRJ-200 fleet. As previously discussed, we are reimbursed with margin by Northwest for certain maintenance costs under our ASA. For the three and nine months ended September 30, 2008, the decrease in reimbursable maintenance expenses under our ASA caused a decrease of $3.5 million and $4.4 million, respectively, to our ASA revenue.

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

Results of Operations - (Continued)

Aircraft rentals expense decreased $3.3 million and $5.9 million, or 10% and 6%, during the three and nine months ended September 30, 2008 as compared to the same periods in 2007. This decrease relates to the 10% and 6% fewer average number of CRJ-200 aircraft, which are leased from Northwest, during 2008 as compared to 2007. As previously discussed, aircraft rentals are reimbursable expenses under our ASA, and as a result of the fewer average number of CRJ-200 aircraft in our fleet, revenue under our ASA decreased by $3.6 million and $6.1 million for the three and nine months ended September 30, 2008.

Other rentals and landing fees increased $1.1 million and $2.2 million during the three and nine months ended September 30, 2008 as compared to the same periods in 2007. These increases primarily relate to rate increases for landing fees in certain markets, the most significant increase being at DTW. Pursuant to the terms of our ASA with Northwest, DTW landings fees are reimbursable under our ASA, and thus caused increases of $0.7 million and $1.6 million in revenue under our ASA for the three and nine months ended September 30, 2008.

Ground handling services decreased $2.6 million, or 12%, and $1.4 million, or 2%, during the three and nine months ended September 30, 2008 as compared to the same periods in 2007. The decrease is primarily related to the 9% and 5% decrease in Northwest departures, respectively, attributable to the removal of several CRJ-200 aircraft from our fleet and a decrease in the number of Northwest cities served. Under our ASA, ground handling services at Northwest cities served are reimbursable costs, and as such, decreased our ASA revenue by $1.8 million and $0.6 million, respectively, for the three and nine months ended September 30, 2008. Ground handling services are provided at no cost under the DCA.

Depreciation and amortization expense increased by $2.6 million and $6.2 million for the three and nine months ended September 30, 2008, respectively. This is primarily related to depreciation on the 11 CRJ-900 aircraft.

Other expense increased by $0.8 million and $4.4 million, respectively, for the three and nine months ended September 30, 2008. This increase primarily relates to increased pilot training and crew travel expenses related to our new operations with Delta.

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

Results of Operations - (Continued)

Colgan Operating Statistics


	Three Months Ended September 30,					Nine Months Ended September 30,
	2008		2007		Change	2008		2007		Change

Pro Rate Agreements:
Revenue passengers (in thousands)		356		425	(16)%		1,082		1,112		(3)%
RPMs (in thousands)		65,192		78,475	(17)%		197,977		206,046		(4)%
ASMs (in thousands)		146,997		164,907	(11)%		446,643		443,782		1%
Passenger load factor		44.3%		47.6%	(3.3)pts.		44.3%		46.4%	(2.1) pts.
Passenger yield (in cents)		82.26		70.22	17%		77.76		69.29		12%
Operating revenue per ASM (in cents)		36.48		33.42	9%		34.47		32.17		7%
Operating revenue per block hour	$	1,804	$	1,560	16%	$	1,675	$	1,512		11%
Block hours		29,722		35,329	(16)%		91,888		94,433		(3)%
Departures		25,679		30,049	(15)%		77,147		79,982		(4)%
Fuel consumption (in thousands of gallons)		3,918		4,459	(12)%		11,535		12,583		(8)%
Average price per gallon	$	3.79	$	2.39	59%	$	3.61	$	2.25		60%
Average fare	$	151	$	130	16%	$	142	$	128		11%

Capacity Purchase Agreement:
Revenue passengers (in thousands)		394		-	100%		770		-		100%
Revenue passenger miles (in thousands)		109,687		-	100%		214,582		-		100%
ASMs (in thousands)		175,823		-	100%		325,365		-		100%
Passenger load factor		62.4%		-	62.4 pts.		66.0%		-	66.0 pts.
Operating revenue per ASM (in cents)		11.36		-	100%		10.74		-		100%
Operating revenue per block hour	$	1,504		-	100%	$	1,413		-		100%
Block hours		13,282		-	100%		24,741		-		100%
Departures		8,641		-	100%		15,927		-		100%

Total Colgan:
Block hours		43,004		35,329	22%		116,629		94,433		24%
Departures		34,320		30,049	14%		93,074		79,982		16%
ASMs (in thousands)		322,820		164,907	96%		772,008		443,782		74%
Total operating cost per ASM (in cents)		20.34		33.99	(40)%		25.83		32.27		(20)%
Total operating cost per ASM (in cents) (excluding impairment of goodwill and aircraft lease return costs)		20.01		33.99	(41)%		24.06		32.27		(25)%
Total operating cost per block hour	$	1,527	$	1,587	(4)%	$	1,710	$	1,517		13%
Total operating cost per block hour (excluding impairment of goodwill and aircraft lease return costs)	$	1,502	$	1,587	(5)%	$	1,593	$	1,517		5%

Average daily utilization (block hours)		10.76		7.95	35%		8.63		7.36		17%
Average stage length (miles)		221		185	19%		209		184		14%
Number of operating aircraft (end of period)
Saab 340		37		42	(12)%
Beech 1900		4		7	(43)%
Q400		15		-	100%
Employees		1,389		1,244	12%

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

Results of Operations - (Continued)

Colgan Operating Revenue

	Three Months Ended September 30,								Nine Months Ended September 30,
	2008		2007		$ Change		% Change		2008		2007		$ Change		% Change
	(in thousands)
Operating revenues
Regional airline services:
Pro-rate and EAS	$	53,628	$	55,104	$	(1,476)		(3)%	$	153,949	$	142,773	$	11,176		8%
Capacity purchase agreement		19,971		-		19,971		100%		34,951		-		34,951		100%
Other		51		43		8		19%		143		229		(86)		(38)%
Total operating revenues	$	73,650	$	55,147	$	18,503		34%	$	189,043	$	143,002	$	46,041		32%

Total operating revenue for the three and nine months ended September 30, 2008 of $73.7 million and $189.0 million increased by $18.5 million, or 34%, and $46.0 million, or 32%, from the same periods in 2007. The primary reason for this increase is the addition of revenue earned under our new CPA with Continental.

During the three and nine months ended September 30, 2008, we added two and 15 Q400 aircraft, respectively, to our new Continental Connection operations, which began in February 2008. Revenue earned under our new CPA agreement with Continental was $20.0 million and $35.0 million for the three and nine months ended September 30, 2008.

Revenue earned under our pro-rate and Essential Air Service (“EAS”) agreements decreased by $1.5 million and 3% during the three months ended September 30, 2008. This decrease is related to the retirement of eight of our Saab and Beech aircraft in conjunction with eliminating certain markets under our pro-rate agreements. Offsetting this decrease in revenue is the 16% increase in our average fare and the increase in subsidies from our EAS revenue, as discussed in Note 2. As a result, our average unit revenue (expressed as revenue per available seat mile) increase by 9%. During the nine months ended September 30, 2008, revenue earned under our pro-rate and EAS agreements increased $11.2 million and 8%. The increase is primarily due to the 11% increase in our average fare that resulted in a 7% increase in revenue per available seat mile. In addition, revenue under our pro-rate agreements during the nine months ended September 30, 2007 excludes revenue prior to our acquisition of Colgan on January 18, 2007.

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

Results of Operations - (Continued)

Colgan Operating Expenses

	Three Months Ended September 30,							Nine Months Ended September 30,
	2008		2007		$ Change		% Change	2008		2007		$ Change		% Change
	(in thousands)
Operating expenses
Salaries, wages and benefits	$	14,902	$	12,503	$	2,399	19%	$	41,993	$	33,237	$	8,756	26%
Aircraft fuel		14,831		10,785		4,046	38%		41,603		26,718		14,885	56%
Aircraft maintenance, materials and repairs		8,583		10,831		(2,248)	(21)%		30,585		27,560		3,025	11%
Aircraft rentals		1,894		2,258		(364)	(16)%		5,765		6,428		(663)	(10)%
Other rentals and landing fees		5,933		2,836		3,097	109%		13,244		7,464		5,780	77%
Ground handling services		3,071		3,344		(273)	(8)%		10,133		9,172		961	10%
Commissions and passenger related expense		5,786		6,094		(308)	(5)%		16,464		15,068		1,396	9%
Depreciation and amortization		3,758		1,253		2,505	200%		8,994		3,429		5,565	162%
Other		5,829		6,153		(324)	(5)%		16,967		14,139		2,828	20%
Impairment of goodwill and aircraft lease return costs		1,069		-		1,069	100%		13,688		-		13,688	100%
Total operating expenses		65,656		56,057		9,599	17%		199,436		143,215		56,221	39%

Operating income	$	7,994	$	(910)	$	8,904	978%	$	(10,393)	$	(213)	$	(10,180)	(4779)%

Operating margin		10.9%		(1.7)%	12.6 pts.				(5.5)%		(0.1)%	(5.4) pts.

Salaries, wages and benefits increased by $2.4 million, or 19%, and $8.8 million, or 26%, during the three and nine months ended September 30, 2008. Excluding the effect of the previously discussed year over year difference in time periods presented, this expense increased primarily due to the increase in the average number of employees of 12%, largely attributed to the growth of Colgan’s operating fleet related to its new Q400 operation, as well as wage rate and benefit increases for existing employees.

Aircraft fuel expense increased $4.0 million, or 38%, for the three months ended September 30, 2008 and $14.9 million, or 56%, for the nine months ended September 30, 2008. This increase is primarily related to the increase in the average price of fuel. Colgan’s average price paid per gallon increased 59% and 60%, respectively, during the three and nine months ended September 30, 2008, as compared to the same periods in 2007. Offsetting this increase was a 12% and 8% decrease in gallons consumed for the three and nine months ended September 30, 2008, due to the retirement of several of our Saab and Beech aircraft.

Aircraft maintenance, materials and repairs expense decreased by $2.2 million, or 21%, for the three months ended September 30, 2008 and increased by $3.0 million, or 11%, for the nine months ended September 30, 2008. Maintenance expense during the third quarter of 2008 was reduced by $1.4 million due to the correction of an error related to certain maintenance accruals recorded in the first and second quarters of 2008. The increase in maintenance expense for the nine months ended September 30, 2008 is primarily related to the increase in our operations.

Aircraft rentals decreased by $0.4 million, or 16%, for the three months ended September 30, 2008 and $0.7 million, or 10%, for the nine months ended September 30, 2008. This decrease is attributable to the return of eight leased aircraft.

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

Results of Operations - (Continued)

Other rentals and landing fees increased $3.1 million, or 109%, for the three months ended September 30, 2008, and $5.8 million, or 77%, during the nine months ended September 30, 2008. Landing fees increased as a result of increased departures and operating the larger Q400 aircraft. In addition, we are now flying into markets with significantly higher landing fees, such as Newark/Liberty International Airport.

Ground handling services increased $1.0 million, or 10%, during the nine months ended September 30, 2008 as compared to the same period in 2007. This was primarily attributable to the shift of several markets from our US Air operations to our United operations. Ground handling rates for United are significantly higher than those previously charged by US Air.

Commissions and passenger related expenses increased by $1.4 million, or 9%, for the nine months ended September 30, 2008. This is attributable to the previously mentioned shift of several markets from our US Air operations to our United operations. Passenger fees charged by United are higher than those charged by US Air.

Depreciation and amortization expense increased by $2.5 million and $5.6 million, respectively, for the three and nine months ended September 30, 2008. This is primarily related to depreciation expense related to the new Q400 aircraft.

Other expenses, while relatively flat for the three month period, increased by $2.8 million, or 20%, during the nine months ended September 30, 2008, as compared to the same period in 2007. This increase primarily relates to increased crew travel expense primarily due to our new Continental operations.

Liquidity and Capital Resources

We generate cash primarily by providing regional airline and related services to our code-share partners and revenue from passengers related to our pro-rate operations. As of September 30, 2008, we had cash and cash equivalents of $63.8 million. Net cash provided by operations was $13.7 million for the nine months ended September 30, 2008 and net cash provided by operations was $277.0 million for the nine months ended September 30, 2007. 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 $25 million and $30 million in early 2009.

As of September 30, 2008, we had $135.6 million par amount of Auction Rate Securities instruments (“ARS”), which as discussed further in Note 11 in Item 1 of this Form 10-Q, are currently illiquid. We planned to monetize necessary holdings within our ARS portfolio throughout 2008 to fund the non-financed portion of our aircraft deliveries. While we wait for the ARS market to rationalize and investor demand to return, we have arranged for a $80 million margin loan facility (the “Credit Facility”) to be used to support our aircraft purchases. The Credit Facility is pre-payable at any time prior to maturity in November 2009. The Credit Facility interest rate is indexed to LIBOR and was 5.9% at September 30, 2008. We believe that this short-term financing facility in addition to cash flows from our operations is adequate to meet our operational liquidity needs, aircraft funding requirements and compliance with related debt covenants. On November 5, 2008, the Company and Citigroup amended the Credit Facility to extend the maturity date to November 2009 and to provide for additional borrowings of up to $10 million, for a total amount available under the Credit Facility of $90 million. The additional $10 million may only be used to fund purchases or redemptions of other indebtedness of the Company, and carries an interest rate that is indexed to the Federal Funds Rate.

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 third 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 in the past and will possibly be convertible during future periods, we do not expect a significant number of holders to tender the Notes for conversion prior to the maturity date of the Notes unless we exercise our right to call the Notes after February 2010. 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. Noteholders have the right on February 15, 2010 to require us to repurchase the Notes at the par value of $121.0 million plus accrued and unpaid interest.

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

Liquidity and Capital Resources - (Continued)

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 September 30, 2008, Colgan had acquired 15 Q400 aircraft under this purchase agreement. 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 August 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 September 30, 2008 we had accepted delivery of 11 of these aircraft. We will take delivery of the remaining five aircraft between January and 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 were 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”) with Export 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 5.7% as of September 30, 2008. The outstanding balance for the borrowings as of September 30, 2008 was $11.4 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 approximately $455.0 million at September 30, 2008. We expect to finance the purchase of the remaining five aircraft using a combination of internal capital resources and debt financing. We have obtained commitments from EDC to finance 85% of the purchase price of the aircraft for a term of 15 years from the delivery date of each aircraft. As of September 30, 2008 the approximate remaining purchase price was $123.0 million. We expect to borrow $105 million and fund the balance of $18 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 nine months ended September 30, 2008, the Company made interest rate swap settlement payments of $0.6 million and $21.1 million, net of collateral payments previously paid in 2007, respectively, in connection with its cash flow hedging program. As of September 30, 2008, the Company expects to make additional interest rate swap settlement payments of $0.9 million for one remaining hedge during 2009.

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 September 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 September 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. Using a real estate broker, we are working together with the current owner of the hangars to market the hangars to an independent third party. Until the hangars are sold to a third party, 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. This obligation is included in our purchase obligations for 2009.

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 $35 million (net of offsetting timing differences within

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

Liquidity and Capital Resources - (Continued)

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 $16.6 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 provided by operating activities was $13.7 million during the nine months ended September 30, 2008. This was due primarily to the $21.1 million in hedge related payments made during the first nine months, offset by cash primarily generated from regional airline service operations of $34.8 million.

Net cash provided by operating activities was $277.0 million during the nine months ended September 30, 2007. This was due primarily to the sale of our unsecured Northwest claim for gross proceeds of $311.0 million, offset by tax related payments of $8.2 million and cash used in other regional airline service operations of $25.8 million.

Investing activities. Net cash provided by investing activities for the nine months ended September 30, 2008 was $25.7 million. This was primarily attributable to net proceeds from the sale of investments in ARS of $51.3 million, offset by $25.7 million in cash purchases of property and equipment, primarily consisting of flight equipment.

Cash used in investing activities for the nine months ended September 30, 2007 was $257.8 million. This is primarily attributable to net purchases of short-term investments in marketable debt securities (primarily ARS) of $166.6 million and $70.4 million in pre-delivery payments for the Q400 and CRJ-900 aircraft. In addition, the acquisition of Colgan decreased cash by $8.3 million, net of cash acquired.

We expect non-aircraft cash capital expenditures for the remainder of 2008 to be approximately $3 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 used in financing activities for the nine months ended September 30, 2008 totaled $2.3 million. During the nine months ended September 30, 2008, we received $91.8 million in debt proceeds, primarily related to the Credit Facility. This was offset by $71.1 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 nine months ended September 30, 2007 totaled $14.0 million, which related to $16.4 million of debt principal payments made and $0.7 million of payments made on capital leases. This was offset with proceeds of $35.0 million related to our pre-delivery payment facility. In addition, we purchased $35.2 million of treasury shares as part of our share repurchase program.

Deferred tax asset. We have recorded a deferred tax asset of $66.7 million related 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, we are recognizing the deferred ASA revenue 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 $4.6 million and $5.3 million invested in certificates of deposit and in other similar instruments at September 30, 2008 and December 31, 2007, respectively. These certificates of deposit have various maturities, all less than one year and are used as collateral for standby letter of credit facilities that we maintain for various vendors. As of September 30, 2008 and December 31, 2007, we had $3.1 million and $2.7 million of standby letters of credit outstanding, respectively.

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

Liquidity and Capital Resources - (Continued)

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 $126.9 million and $0.9 million, respectively, at September 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 of 2008 and recorded an impairment charge of $8.7 million during the second quarter of 2008. The Company currently believes that this decline in fair value is due primarily to liquidity issues, because the underlying assets for the majority of securities are substantially guaranteed by the U.S. government. The Company will continue to re-evaluate each of these factors as market conditions change in subsequent periods.

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

Liquidity and Capital Resources - (Continued)

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 by SFAS 133, 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 by SFAS 133, 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.

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 24% 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 nine months ended September 30, 2008 that has materially affected, or is reasonably likely to materially affect 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.

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

None.

Item 5. Other Information

None.

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.	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)

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)

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

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: November 6, 2008	President and Chief Executive Officer



By: :	/s/ Peter D. Hunt
	Peter D. Hunt
Date: November 6, 2008	Vice President and Chief Financial Officer

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Pinnacle Airlines (PNCL) Inactive 10-Q2008 Q3 Quarterly report

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