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Executives

Philip Trenary – President and Chief Executive Officer

Peter D. Hunt – Chief Financial Officer

Analysts

[Alec Swanson] for Michael Linenberg - BofA Merrill Lynch

Bob McAdoo - Avondale Partners LLC

Duane Pfenningworth - Raymond James

Helane Becker - Jesup & Lamont Securities Corportation

Garrett Wilson - Sirius Advisors

Pinnacle Airlines Corp. (PNCL) Q3 2009 Earnings Call November 3, 2009 10:00 AM ET

Operator

Good day ladies and gentlemen, and welcome to the third quarter 2009 Pinnacle Airline Corp. earnings conference call. My name is Mary and I will be your coordinator today. (Operator Instructions)

I would now like to turn the presentation over to your host for today’s call, Mr. Philip Trenary, President and Chief Executive Officer. Please proceed.

Philip Trenary

Thank you Mary and good morning everyone. Welcome to the third quarter 2009 earnings conference call of Pinnacle Airlines Corp. On behalf of the more than 5,000 employees at Pinnacle I would like to thank you for your interest in our company.

This call is being presented live over the Internet via webcast from our website, www.pncl.com. It will also be available on our site for 30 days after this call.

This presentation contains various forward-looking statements that are based on management’s beliefs, as well as assumptions made by and information currently available to management. Although the company believes that the expectations reflecting such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Such statements are subject to certain risks, uncertainties and assumptions including those set forth in our filings with the Securities and Exchange Commission, which are available to our investors at our website or online from the Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove erroneous, actual results may differ materially from the results that were anticipated or projected. The company does not intend to update these forward-looking statements before its next required filing with the Securities and Exchange Commission.

Again, good morning and thank you for joining the call. I’d like to start off by thanking all of our people for another strong quarter. If you think about the call that we had in fourth quarter last year and first quarter this year, one of the key concerns that we had looking forward was our balance sheet and the February, 2010 bond repayment. I’d especially like to thank Peter and his team for doing a great job this year. We’ve had a remarkable turnaround in the balance sheet and he’ll talk more about that later.

Along with the improved balance sheet and the good job our folks are doing and just basically doing the things you want them to do in running a good airline is position that places us for the bids we expect to be out sometime in 2010 or ’11.

As you know there’s a lot of aircraft retirements in the ’11, ’12, ’13 timeframe. In addition to having the financial capabilities, Pinnacle is operating what we believe to be the two best aircraft to compete in this environment, that being the CRJ900 and the Q400.

We currently have the Colgan move continuing. By the end of the year we should have most of the Colgan team here. That’s going very smoothly. We should have the rest of the people in here early in the first quarter next year. Also on the Colgan front we expect to begin hiring in the first quarter next year for the Q400 deliveries that will start next August.

Rather than wait for the question we’ll go ahead and hit the ALPA question up front. There’s no news on that. We were disappointed that our pilots did not approve the tentative agreement that was placed before them. The ball is now in their court. We’ve asked them to tell us what they need to do to move ahead and they are currently talking with their pilots to determine what they need. They will be doing some survey work over the next few weeks and get back with us and at that point we’ll let the NMB know what we believe the next step should be.

So with that I’ll now turn it over to our Chief Financial Officer, Peter Hunt.

Peter Hunt

Thanks Phil. Welcome everyone. Thanks for joining us this morning. This morning we did report third quarter 2009 net income of $11.4 million and fully diluted earnings per share of $0.62. These results do include a one time gain related to the settlement and sale of our auction rate securities portfolio. And if you remove that one time gain, our net income was $7.3 million and earnings per share was $0.40. That is a 5% increase over earnings per share excluding non-recurring items in the third quarter of ’08, which was $0.38.

Looking at the operations, Pinnacle Airlines flew 1.15 billion ASM’s which was a decrease of 6% over our ASM’s in the third quarter of ’08. And our block hours at Pinnacle were 106,802 which was just down slightly over the third quarter ’08 block hours of 107,000. Our departures in the third quarter for Pinnacle were 71,002 which was actually an increase of 6% year-over-year. And that is a result of our stage length decline and we’re flying smaller routes. Our stage length was 404 miles during the quarter as compared to 465 miles for the same period last year. And that change in stage length and the shorter stage length is driving a decrease in our utilization. The utilization at Pinnacle was just under 8.3 hours for the quarter, which was down 5%.

We ended the quarter with 126 CRJ200 aircraft and that actually is an increase of two aircraft. We added two aircraft during the quarter. They’re about to go into service, but they will only be used as spares. These are two aircraft that Delta had idle that were not in operations and working with Delta it just made a lot of sense to use those as spares to support the operation. So we don’t expect any material impact from those two new aircraft going forward other than they will increase our reliability. We’ll have two additional spares in the fleet.

And on the CRJ900 side, we operated the full 16 aircraft. That’s our permanent fleet during the quarter.

Looking at Colgan’s capacity, Colgan flew 292 million ASM’s which was down 10% over the third quarter of 2008. And Colgan’s block hours were 36,255 which was down 16% over the third quarter of 2008. Departures at Colgan were 29,332 which was down 15%. And the big decreases there at Colgan primarily relate to the adjustments we made last year to our pro rate operations and in addition we are flying one fewer Q400 than we were at the end of the third quarter last year.

Colgan’s stage length was 224 miles during the quarter which was essentially the same as the third quarter of ’08. And Colgan’s utilization was 8.2 hours, which was actually up year-over-year 4%. Colgan’s fleet we ended with 14 Q400 aircraft and we ended with 34 Saab 340 aircraft during the quarter.

Turning to our income statement, our consolidated operating revenue was $217.2 million which was down $4.6 million year-over-year. Pinnacle’s revenue was actually up year-over-year to $155 million. The big changes there essentially are less revenue under our CRJ200 contract but more under the CRJ900 contract and with the increase in the ownership costs on the 900, a little bit more on pasture items as well. That drilled a slight increase in Pinnacle’s revenue.

Colgan had revenue of $62 million in the quarter which was down just under $12 million and again the biggest impact there were the changes in capacity that I mentioned.

Our consolidated operating income for the quarter was $23.8 million and our margin was 11%, which was $2.7 million higher than consolidated operating income in the third quarter of ’08 excluding non-recurring items. Pinnacle’s operating income was $15.7 million, which was up $3.7 million year-over-year. And that’s largely driven by the changes in capacity that we’re flying with the CRJ900’s which are owned aircraft, there is a component of their ownership costs that are excluded from operating expense but we have the increased interest expense associated with those aircraft. And that is a big driver in the increase in operating income on the Pinnacle side of our business.

Colgan’s operating income for the third quarter was $8.1 million, which was down about $1 million year-over-year. Our pro rate [razim] declined 4% but offsetting that was a big decline in our fuel price. Our fuel price during the third quarter of ’09 was $2.11 per gallon, which was down 44% from the same period in ’08. And the impact of that change in price was almost $5 million to the income statement.

The third quarter this year also had the accelerated amortization of some landing slots that we have in LaGuardia at Colgan. That was about $0.5 million. With the announcement of the Delta-U.S. Airways transaction at LaGuardia, the very small operation that we still have there we’re anticipating that we’ll be pulling out of there. And as a result we are accelerating the amortization of the remaining landing slots that we have there at LaGuardia.

Also I want to point out that the third quarter of ’08 had a one time favorable reduction, the maintenance expense of about $1.4 million. So when you isolate those two items Colgan actually had a very good quarter.

Our net non-operating expense for the third quarter was $7.4 million, which was down almost $4 million. But again that includes the $4.2 million gain that I mentioned earlier related to the settlement of our auction rate securities. If you exclude that gain, our net non-op was up 3% to $11.6 million and the increase there largely relates to the increase in owned aircraft that we have and the debt and the interest expense that comes with that.

And with our net income, as I mentioned our net income was $11.4 million, which was up $5.2 million year-over-year but excluding that non-recurring gain our net income was $7.3 million, which was up $400,000 or about 6% from our period in 2008. Looking at cash flow we ended the quarter with just over $81 million of cash and cash equivalents. Our cash provided by operating activities was $21.2 million, so a very strong quarter in terms of our operating cash flow.

Our cash from investing activities was $24.8 million and most of that essentially relates to the settlement that we had and the sale of our auction rate securities portfolio. Our cash use and financing activities was $59 million and that’s made up of $75 million that we used to repurchase, $78 million par amount of our C and convertible notes, another $8.2 million that we used for scheduled principal payments on our amortizing debt. And then that’s offset by a little over $24 million that we received in the quarter for the completion of our spare parts facility.

I do want to comment just on the changes that we’ve had to the balance sheet and with the cash flow statement because we have taken a big step forward in de-leveraging the balance sheet and then preparing for that liquidity date that we have in February, 2010. If you think about it, with the settlement that we had with our auction rate securities, we eliminated a short term credit facility, we netted $27 million in cash from that settlement. In addition we borrowed $25 million related to our spare parts facility. And by paying off the credit facility that we had with Citi Group as well as retiring $78 million of our convertible notes, net of that spare parts deal we removed $135 million of debt obligations from our balance sheet. But our cash balance is just down $11 million from the third quarter. So I think a really great job, what we’re doing on the balance sheet and our treasury team has done a really good job of getting us prepared for that February, 2010 put down on the convertible notes.

As I’ve already mentioned we did have some good significant accomplishments in the third quarter. The settlement with the auction rates securities does include options to repurchase those securities. So during the next three years, if any of the issuers of these securities have a full redemption or if a secondary market somehow forms for auction rate securities and the value of the securities exceeds the settlement price that we had with Citi Bank, then we can exercise those options and receive some of that upside in value. We have valued those options at $4.1 million at September 30 and this will require mark-to-market accounting, these options. So every quarter we will again analyze the fair value of the remaining options and we ill record any change in value through our income statement going forward.

One other thing related to the balance sheet and that is that we are finalizing what we think our tax refund for 2009 will be. We’re now expecting a $40 million refund that we would receive late in the first quarter of 2010 or perhaps early in the sequential of 2010. We’re targeting late in the first quarter where we would receive that. So that will be another big boost to our liquidity when we receive that tax refund.

And then looking forward to the fourth quarter, I do want to remind everyone that in the fourth quarter we will have the seasonal effects of our pro rate operations. Seasonally the fourth quarter is a more challenging one. Demand drops during the fourth quarter on the pro rate operations. And we would expect a similar drop in demand just as we’ve had the last couple of years.

Also we’re right in the midst of the move of Colgan’s headquarters from Manassas, Virginia to Memphis, Tennessee. I think we’ll have somewhere between $1 million and $1.5 million of relocation costs that will hit in the fourth quarter. So that is another item that we’ll have affecting our fourth quarter financial results.

And then lastly I wanted to mention quickly the status of where we are with some contractual disputes that we have with Delta. You know we’ve mentioned before over the last couple of years that our ASA that covers our CRJ200 flying with Delta and previously with Northwest, that there are a couple of items that have been in dispute. One relates to a one time rate adjustment that was to have taken place beginning in 2006. And the second relates to the amount of ground handling revenue and expenses that we would incur in stations where Delta and Northwest or their designee provides ground handling to us. These two items have been disputed for a couple of years now. We’ve got a lot of disclosure about it in our SEC filings and there will be some in our 10-Q today. I think we’re at a point, we’ve been talking with Delta and we’re at a point where we think we will bring these forward to have some kind of resolution in the next few months, which is why I simply wanted to mention them.

Additionally, we’ve got one new item related to our aviation insurance program. Effective July 1, we obtained our own program at Delta’s request. And under the old Delta program, our insurance rates were by far the lowest of any independent regional airline out there in the industry. Now that we have our own program our insurance rates are much more similar to a regional airline of our size. And that does mean a very large increase in the insurance rates that we pay. Now under our contracts with Delta, those insurance costs are pass through costs. They are reimbursable by Delta. But Delta has objected to fully reimbursing us for the increase in our insurance and so that is one more item that we will have that we’ll be working with Delta to resolve over the next few months.

And as I mentioned, there is more information about these items in our 10-Q that we’ll be filing later today. These are contractual items. The operating relationship with Delta still remains strong. I think we still have a good relationship with them. But we will have to move forward one way or the other, either through arbitration or settlement or some other legal route to settle these items. And I think that will be happening sometime in the near future.

And with that I’ll turn it back over to Phil for some closing comments.

Philip Trenary

Thanks Peter and again thank you and thank your team and all of our folks for a really solid quarter. I’ll just close out by recapping on the way we feel about Pinnacle right now. We’re in the best shape we’ve been in a very long time. We’re very well positioned for the future and the growth that we believe is going to come, especially with the aircraft we operate. And the relationship with all of our partners especially our two largest partners, Delta and Continental, remains very strong. We look forward to working with them going forward.

So with that we’ll open it up for any questions you might have.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from [Alec Swanson] for Michael Linenberg - BofA Merrill Lynch.

[Alec Swanson] for Michael Linenberg - BofA Merrill Lynch

I just had a couple of quick questions. Phil, you mentioned earlier about the pilot agreement with ALPA on the Pinnacle side. Could you just give us an update on the ALPA group at Colgan?

Philip Trenary

Yes. Thanks for asking that. They have started negotiations now and they are going very well. They’re moving along and if it continues like this it should be a, you never know, but we’re very pleased with the way it’s moving along. It should come to, we hope, a successful conclusion, certainly much more quickly than Pinnacle has.

[Alec Swanson] for Michael Linenberg - BofA Merrill Lynch

Peter, when you take a look at the fourth quarter you know can you break out if possible any kind of block hours you know for Pinnacle and Colgan that you expect for the fourth quarter? And maybe looking into 2010 as well.

Peter Hunt

Well we’re still putting together our 2010 plan so I can probably give you a little bit more information about that at a later date. But when I look at the fourth quarter of ’09, I don’t really expect any big significant changes to block hours at Pinnacle. Colgan might be down slightly, simply because seasonally we do pull some of the pro rate flying down. But it won’t be much different than the fourth quarter that we had last year with Colgan.

Operator

Your next question comes from Bob McAdoo - Avondale Partners LLC.

Bob McAdoo - Avondale Partners LLC

Just a little follow up on the previous question. Can you remind us what the delivery schedule is for the Q400’s coming in mid-2010?

Peter Hunt

Sure Bob. The aircraft start arriving in August and we’ll put the first one into service in September. We think we’ll have seven of them in service before the end of the year next year. And then the full 15 will be in service by May of 2011.

Bob McAdoo - Avondale Partners LLC

Secondly, could you, obviously you’re winding down the LaGuardia operation. Do you see any chance to pick up any U.S. Airways pro rate business out of DCA? And if not, what’s the status of the airplanes that have been used in the pro rate business? Are they owned, leased, being sold? What’s going on there?

Peter Hunt

Sure. We’ve got four aircraft at LaGuardia, three that operate and one that’s a spare. We have a lot of flexibility with the Saab fleet. We’ve got more than four where we have lease expirations in 2010, so we’re looking at if we were to not use those aircraft in 2010 we might return some. Or we might try to sell some of the owned aircraft and extend leases on some of these. But we do have the flexibility to return them if we need to. However, you know I’m feeling more optimistic that we might find some other opportunities for these aircraft. Perhaps not with U.S. Airways but with other partners.

We’re talking to our partners about their fleet needs in 2010. You know the Saab is a very cost competitive product compared to the smaller regional jets. And so there are some markets where the Saab can work really well. And we’re evaluating some markets now that I think we might look at flying in the late spring, early summer next year where we could put these aircraft. And that’s really our goal is to put them back to work.

Bob McAdoo - Avondale Partners LLC

Would these be pro rate markets?

Peter Hunt

These will be pro rate markets. Yes.

Bob McAdoo - Avondale Partners LLC

But would not necessarily require slots at DCA?

Peter Hunt

Yes. That’s right.

Bob McAdoo - Avondale Partners LLC

People talk about United having put out some RFP requests a few months ago. Are you bidding on any of that kind of stuff?

Philip Trenary

Anything that comes out we look at. And so just rest assured their bid’s up and we did take a look at them.

Bob McAdoo - Avondale Partners LLC

And what can you tell us about, we hear from other guys you know that Delta continues to try to squeeze down utilization levels, especially on 50-seat airplanes. What’s going on there in terms of what’s your understanding, your feeling as to how that’s going in terms of what do you think you’re going to see going forward?

Philip Trenary

Well I think if you look at what Peter reported earlier, we’re not really seeing as far as aircraft being moved out or set down. What we have seen is the stage length dropping down. So that drives some decrease in utilization. But I view that as completely different from having airplanes sitting around doing nothing.

Peter Hunt

That’s right. We don’t really have slack in the schedule. It’s just that with the shorter stage lengths that means more departures during the day, more time on the ground during the day, which does affect our utilization.

Bob McAdoo - Avondale Partners LLC

That would imply that they’re basically finding you a more attractive provider of service maybe than some of their other guys? Is that a reasonable way to think about it? Because other guys say you know they’re just being squeezed.

Philip Trenary

If you want to draw that conclusion, that’d be great, Bob.

Operator

Your next question comes from Duane Pfenningworth - Raymond James.

Duane Pfenningworth - Raymond James

Peter, so when you address the convert or the remaining convert in February, where do you see cash bottoming in the first quarter, sort of what level? I guess whether or not you get that tax refund would be a big swing on that number. And then when do you see the company in a position to start buying back stock again?

Peter Hunt

Okay. Well let me address the first one, the first question because that’s the easier question. You know when we look at the first quarter, one thing I guess I should’ve mentioned is that our spare parts deal does contain a minimum liquidity requirement. It’s a month end test. It’s not an ongoing requirement. It’s a test as to how much cash we have at the end of each month. And that requirement during the first quarter is $30 million. We think we’re probably going to bottom out right around that $30 million and we’re watching very closely where we’re going to be on cash because we want to make certain that we stay above that minimum liquidity requirement.

You know beyond that, I’d love to have the problem of having too much cash.

Philip Trenary

That’s without the tax refund.

Peter Hunt

That’s without the tax refund. That’s correct. That’s before we would, assuming we don’t have a tax refund before February 15, which I think we won’t have one before February 15. You know I would love to start worrying about the problem of having too much cash and figuring out how to return that to shareholders. We’re not quite there yet. You know in addition to solving the liquidity requirement on the convert, we do have aircraft coming next year. You know that was a previous commitment to Continental that was part of the original deal we did with them in ’07, that they have this option to expand the deal. And while those aircraft, we have a commitment to finance them through EDC, you know that commitment just covers 85% of the purchase price. So there still is the equity in the aircraft that we’ll have to fund when I look out into 2010 and early 2011. So I don’t think we’re really in a position where we think we have a lot of excess cash during 2010.

Duane Pfenningworth - Raymond James

And then just on your comments on the Delta side, I guess I don’t recall hearing much about this recently regarding your contractual disputes. So if you’re close to resolution there, can you handicap for us how that would affect the margin profile on the Pinnacle side of the business? Or give us a range of potential impacts there.

Peter Hunt

Well you know I don’t know exactly how it’s going to get resolved yet. Because the only reason that it’s kind of coming to the forefront is because there’s one new issue now and the Delta management team just sort of inherited the two older issues from the Northwest team through the merger. And as we talk about the new issue you know we think it makes a lot of sense to just let’s just get everything cleaned up here and not have any overhang related to these old issues still out there for either side. Both sides think that’s the right way to go.

As far as how we resolve them, you know we’re not that far enough along yet that I can really tell your handicap, where these things will come out. Our previous filings do disclose some ranges as far as how much those disputes are worth and the 10-Q we file later today will have some additional information similar to that. So you can take a look at that, those filings, to see sort of the max and min ranges there on the outcomes. But where we actually end up, I don’t know yet. We still have a little ways to go to go down that path of resolution before I can really handicap that.

Duane Pfenningworth - Raymond James

And then just on the two CRJ200’s are you getting reimbursed for the ownership costs on those?

Peter Hunt

No. The ownership’s just going to be carved out. The whole intent of this was just simply to utilize some assets that were idle at Delta. We can add them to our fleet and support the fleet. Might as well, rather than have them sitting on the ground. But they won’t be scheduled. We did it in a way that would be neutral to both Delta and us in terms of margin. So there will be no ownership cost on these aircraft.

Operator

Your next question comes from Helane Becker - Jesup & Lamont Securities Corportation.

Helane Becker - Jesup & Lamont Securities Corportation

Just on that insurance issue, I guess I don’t understand the whole issue. But Delta wants you to accept this insurance and then they’re giving you a hard time about reimbursing you? So do I kind of [halve] that rate?

Peter Hunt

Yes. You know I think that Delta has a different philosophy about aviation insurance than the Northwest team did. You know Northwest viewed that the more partners in your insurance program meant that the total cost of the program would be lower for everybody. Whereas I think the Delta team looks more at from a risk perspective rather than just simply a cost perspective and they like to only assume risks associated with their individual flying. So they don’t have their regional partners in their programs the way that Northwest did. So they did request that we obtain our own insurance and we complied and we got our own insurance effective July 1. Got a very strong program in place for both Pinnacle and Colgan. But it is a substantially higher cost than the cost that we paid to Delta in our old program.

And Delta has questioned the very large increase in the insurance and so that is an item that we’ll have to work through and resolve with them. We think when we look at our contracts, it’s pretty clear that the total cost of our insurance for Pinnacle is a pass through cost. But that is something that we’ve got to work through and resolve with them because they’re uncomfortable with the rate increase.

Helane Becker - Jesup & Lamont Securities Corportation

So there’s no way then that you could have kept the program the way it was? And there’s no way you can insure all your aircraft? You know, you have to isolate these Delta aircraft.

Peter Hunt

Well it’s not isolated. We have a single program for all Pinnacle and Colgan operations. Whereas prior to July 1, both Pinnacle and Colgan, our entire operation, was part of the Delta program and historically it’s been part of the Northwest program.

Helane Becker - Jesup & Lamont Securities Corportation

So the planes you were flying for Continental would have been insured under the Northwest program.

Peter Hunt

That’s right. That’s correct.

Helane Becker - Jesup & Lamont Securities Corportation

And Continental doesn’t care one way or the other how you insure this planes? Is that it? Only Delta?

Peter Hunt

Well, I mean, to some degree they do. They have minimum requirements. We have to make sure that it’s a strong program that meets their requirements, which it does. And the insurance cost on the Q400 already passed through cost so you know they are obviously just as concerned about costs, but the Q400 aircraft, which is 14 aircraft, is a smaller bill than 142 aircraft that we have with Delta.

Helane Becker - Jesup & Lamont Securities Corportation

I think you said that there are aircraft coming in next year but I didn’t write down how many you’re taking. How many are you getting next year then?

Peter Hunt

Sure. The next order of Q400’s is a total of 15 and we think that we’ll have seven of them in service before year end, with the first one going in service in September, the other six going in service in the fourth quarter.

Helane Becker - Jesup & Lamont Securities Corportation

And then the rest come in 2011 and beyond?

Peter Hunt

Yes. The other eight come from January through May of 2011.

Operator

Your next question comes from Garrett Wilson - Sirius Advisors.

Garrett Wilson - Sirius Advisors

I had a quick question about what specific PPI index is used to adjust your rate based payments in the CRJ200 CPA.

Peter Hunt

It’s the base Producers’ Price Index, finished goods Producers’ Price Index. And the way that the contract works you look at where the index was in December of last year versus December of this year. And the percentage increase is the amount that we would receive as an increase to our rates effective January 1, 2010.

Garrett Wilson - Sirius Advisors

And I know you said previously on your second quarter call I believe that you want a rate adjustment in 2010, but if the index is down again do you have another avenue for getting an increased reimbursement other than the 2012 rate resets?

Peter Hunt

No. It’s a risk that we take in our contract is what happens with inflation. If you look at last year, the Producers’ Price Index was way up for the majority of the year and then there was a sharp tail off in the last four months of the year. And it actually ended up being down December of ’08 versus December of ’07. You know where we are currently, if you look at where PPI was through September versus December of last year, it’s up about 2.5%. You know I don’t know where it’ll be in December of this year, but if you assume, you know fuel prices are actually higher now than they were in September so we believe that there will be an increase. But you know we just have to wait and see how PPI shakes out for December.

Garrett Wilson - Sirius Advisors

Moving on to your maintenance expenses, you know they’ve jumped $2.5 million per quarter from the first three quarters of 2007-2008 to this year and we were just wondering how much of that is due to your flap actuator upgrade and the blade replacements which I think you’ve guided before to be done this month.

Peter Hunt

Yes. Almost all of it. I mean those programs are affecting us about $2.5 million this year. And we had intended for the actuators to all be done earlier in the year. We delayed some of that work and resumed it in the third quarter. So there is an effect of that in the third quarter that when we look out in 2010, those programs will be done. We don’t see those as having a big impact on our cost structure next year. There still likely will be an increase in our maintenance costs at Pinnacle because the fleet is continuing to get older and there just is usually inflation in the repair costs that we have in the fleet.

Garrett Wilson - Sirius Advisors

So you said there was a $2.5 million in the quarter or for the year?

Peter Hunt

For the year.

Garrett Wilson - Sirius Advisors

In March I think you indicated that there’s a slowdown in pilot attrition that was leading to a $5 million annualized drag on your crew overstaffing. Has this completely dissipated or are there still some costs from overstaffing?

Peter Hunt

It’s not completely dissipated. We were able to mitigate it quite a bit over the summer by offering some voluntary leaves of absence and we had a number of crew members take advantage of that, which has been a big help. And then we’ve had some attrition since the beginning of the year. It’s not the levels of attrition we’ve experienced in the past but we’ve had some. I think going into 2010 that we may still have a little bit of a pile up bubble but we’re getting much closer to the appropriate amount of crews for the level of flying that we’re doing.

Garrett Wilson - Sirius Advisors

In the second quarter your CRJ900 revenue per plane was only annualizing at $0.42 million versus your guidance of $6.1 million. Was the third quarter closer to the guidance? And if not, why?

Peter Hunt

That’s a good question and I’ve not really looked at that in the past to see what the difference was between where we were in ’07 versus what’s coming through now. I’ll tell you that in terms of you know the income off of those aircraft, it’s not that far off the mark from where we originally thought. We are a little lower, but a lot of that has to do with the crew utilization that we’ve had with the aircraft. Let me take a look at that and I can follow up with you on what differences there might be on the revenue side.

Operator

Your next question comes from Bob McAdoo - Avondale Partners LLC.

Bob McAdoo - Avondale Partners LLC

Just a question on pre-delivery deposits on the new airplanes that are coming. What obligations do you have? Are they financed? What’s the status of that as we think about cash for the summer?

Peter Hunt

Sure. We have a credit facility in place with EDC that is funding the majority of those pre-delivery payments. There is a piece of the PD piece that we will pay out of pocket, but that doesn’t come until April or May. It’s about $3 million or $4 million that we’ll pay ourselves out of pocket. But we won’t have that obligation until after we’ve received our tax refund.

Operator

There are no other questions at this time. I would like to hand the call to Philip Trenary for closing remarks.

Philip Trenary

Thank you Mary and we’ll close with that. Thank all of you for your interest in Pinnacle Airlines.

Operator

Thank you for your participation in today’s conference. This concludes the presentation and you may now disconnect. Have a great day.

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Source: Pinnacle Airlines Corp. Q3 2009 Earnings Call Transcript
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