Edgar Filing: GREAT LAKES AVIATION LTD

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2007

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

For the transition period from to

Commission File No. 0-23224

GREAT LAKES AVIATION, LTD.

(Exact name of registrant as specified in its charter)


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

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

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

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 large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x

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 October 31, 2007, 14,081,970 shares of Common Stock of the registrant were issued and outstanding.

GREAT LAKES AVIATION, LTD.

FORM 10-Q

For the Quarterly Period Ended September 30, 2007

INDEX


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

PART I - FINANCIAL INFORMATION		2
Item 1.	FINANCIAL STATEMENTS	2
Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	9
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	18
Item 4.	CONTROLS AND PROCEDURES	19

PART II - OTHER INFORMATION		19
Item 1.	LEGAL PROCEEDINGS	19
Item 3.	DEFAULTS UPON SENIOR SECURITIES	19
Item 6.	EXHIBITS	20

SIGNATURES		21

Cautionary Statement Regarding Forward-Looking Statements

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

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

1)	the Company’s dependence on its code-sharing relationships with United Air Lines, Inc. (United Air Lines or United), which completed its reorganization under the United States Bankruptcy Code on February 1, 2006, and Frontier Airlines, Inc. (Frontier Airlines or Frontier);

2)	the Company’s ability to maintain compliance with the Company’s restructured debt and lease obligations;

3)	the effect of general economic conditions on business and leisure travel;

4)	the incidence of domestic and international terrorism and military actions;

5)	the incidence of pandemic diseases, storms, and other natural disasters;

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

7)	the volatility and level of fuel costs;

8)	seasonality of passenger traffic;

9)	the receipt of economically sufficient Essential Air Service subsidies;

10)	increases in insurance and security expenses;

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

12)	the level of regulatory and environmental costs.

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

Item 1.

FINANCIAL STATEMENTS

GREAT LAKES AVIATION, LTD.

Balance Sheets

(unaudited)


	September 30, 2007			December 31, 2006
Assets
Current assets:
Cash	$	4,555,804		$	2,664,057
Accounts receivable		6,596,129			5,189,290
Inventories		3,073,633			2,133,430
Prepaid expenses and other current assets		1,180,731			2,282,978

Total current assets		15,406,297			12,269,755

Property and equipment:
Flight equipment		110,980,348			110,671,748
Other property and equipment		8,413,719			8,767,842
Less accumulated depreciation and amortization		(53,919,953	)		(50,383,206	)

Total property and equipment		65,474,114			69,056,384

Other assets		1,042,602			985,461

Total assets	$	81,923,013		$	82,311,600


Liabilities and Stockholders’ Equity (deficit)
Current liabilities:
Notes payable and current maturities of long-term debt	$	7,644,176		$	7,642,876
Accounts payable		4,168,555			4,789,977
Accrued interest and other liabilities		5,717,043			4,647,846

Total current liabilities		17,529,774			17,080,699

Long-term debt, net of current maturities		61,667,910			67,880,438
Deferred credits		187,657			222,785

Stockholders’ equity (deficit):
Common stock, $0.01 par value.		140,820			140,720
Authorized: 50,000,000 shares
Issued and outstanding: 14,081,970 at September 30, 2007 and 14,071,970 at December 31, 2006
Paid-in capital		33,482,644			33,468,644
Accumulated deficit		(31,085,792	)		(36,481,686	)

Total stockholders’ equity (deficit)		2,537,672			(2,872,322	)

Commitments and Contingencies (Note 9)
Total liabilities and stockholders’ equity (deficit)	$	81,923,013		$	82,311,600

See accompanying notes to financial statements.

GREAT LAKES AVIATION, LTD.

Statements of Operations

(Unaudited)


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2007			2006			2007			2006
Operating Revenues:
Passenger	$	20,575,054		$	17,050,707		$	54,390,905		$	46,265,957
Public service		5,905,023			6,058,574			16,448,147			18,190,762
Freight, charter, and other		193,378			388,730			573,642			1,066,814

Total operating revenues		26,673,455			23,498,011			71,412,694			65,523,533

Operating expenses:
Salaries, wages, and benefits		5,901,828			5,458,933			16,732,452			15,505,824
Aircraft fuel		6,623,915			5,356,672			17,499,434			15,010,556
Aircraft maintenance, materials, and repairs		3,757,406			2,114,511			10,750,677			9,393,595
Depreciation and amortization		1,407,208			1,430,619			4,217,184			4,330,230
Aircraft rental		155,025			440,397			465,075			1,321,191
Other rentals and landing fees		821,009			788,083			2,950,142			3,111,805
Other operating expenses		3,673,709			3,416,031			11,990,680			10,955,365

Total operating expenses		22,340,100			19,005,246			64,605,644			59,628,566

Operating income		4,333,355			4,492,765			6,807,050			5,894,967
Other income (expense):
Interest expense, net		(469,913	)		(823,844	)		(1,723,242	)		(2,622,209	)
Gain on extinguishment of debt		412,086			1,155,685			412,086			1,155,685

Income before income taxes		4,275,528			4,824,606			5,495,894			4,428,443
Income tax expense		(100,000	)		—			(100,000	)		—

Net income	$	4,175,528		$	4,824,606		$	5,395,894		$	4,428,443

Net income per share:
Basic	$	0.30		$	0.34		$	0.38		$	0.31
Diluted	$	0.29		$	0.34		$	0.37		$	0.31

See accompanying notes to financial statements.

GREAT LAKES AVIATION, LTD.

Statements of Cash Flows

(Unaudited)


	For the Nine Months Ended September 30,
	2007			2006
OPERATING ACTIVITIES:
Net income	$	5,395,894		$	4,428,443
Adjustments to reconcile net income to net cash from operating activities
Depreciation and amortization		4,217,184			4,330,230
Amortization of SFAS No. 15		(1,439,193	)		(1,682,250	)
Loss on disposition of assets		128,394			43,854
Gain on extinguishment of debt		(412,086	)		(1,155,685	)
Change in current operating items:
Increase in accounts receivable		(1,406,839	)		(855,152	)
(Increase)/Decrease in inventories		(940,203	)		396,948
Decrease in prepaid expenses and other current assets		1,045,106			598,426
Increase in unearned revenue		995,422			1,169,050
Decrease in accounts payable		(621,422	)		(3,544,456	)
Increase in other current liabilities		38,641			339,636
Increase in deferred lease payments		—			748,116

Net cash provided by operating activities		7,000,898			4,817,160


CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of flight equipment and other property and equipment		(763,306	)		(401,613	)

Net cash flows used in investing activities		(763,306	)		(401,613	)


CASH FLOW FROM FINANCING ACTIVITIES:
Repayment of notes payable and long-term debt		(4,359,945	)		(4,435,605	)
Proceeds from sale of common stock		14,100			—

Net cash used in financing activities		(4,345,845	)		(4,435,605	)

NET INCREASE (DECREASE) IN CASH		1,891,747			(20,058	)
Cash
Beginning of period		2,664,057			1,907,357

End of period	$	4,555,804		$	1,887,299


Supplementary cash flow information:
Cash paid during the period for interest	$	3,889,795		$	3,782,784

See accompanying notes to financial statements.

Great Lakes Aviation, Ltd.

Notes to Financial Statements

September 30, 2007

(unaudited)

NOTE 1. Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Regulation S-X. Accordingly, the accompanying unaudited financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial statements for the respective periods. Interim results are not necessarily indicative of results for a full year. The financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended December 31, 2006.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Great Lakes Aviation, Ltd. (Great Lakes or the Company) considers its critical accounting policies involving more significant judgments and estimates to be those related to impairment of long-lived assets, deferred income taxes, and depreciation and residual values. Actual results could differ from those estimates. Certain prior year balances were reclassified to conform to the current year presentation. Commissions previously presented in other operating expenses line item on the Statement of Operations is now netted with passenger revenue. Unearned revenue and amortization of the balance relating to the Statement of Financial Accounting Standards No. 15, Accounting by Debtors and Creditors for Troubled Debt Restructuring (SFAS No. 15) previously combined with accrued liabilities on the Statements of Cash Flows is now presented as separate line items. Those reclassifications had no impact on net income or stockholders’ deficit as previously reported.

Our financial statements have been prepared assuming that Great Lakes will continue as a going concern. The Company’s prior liquidity problems and negative working capital raised doubts about the Company’s ability to continue as a going concern. The Company had current and total liabilities in excess of current and total assets at December 31, 2006, 2005, and 2004. The Company’s ability to continue as a going concern will ultimately depend on the Company’s ability to: (i) maintain adequate liquidity and (ii) continue to generate cash flows from operations to sustain operations and fund debt service requirements. The accompanying financial statements have been prepared on a going concern basis that assumes a continuity of operations and the realization of assets and liabilities in the ordinary course of business. The financial statements do not include any adjustments that might result if the Company were forced to discontinue operations.

NOTE 2. Stock Based Compensation

For the nine month period ended September 30, 2007, there were no options granted, cancelled or forfeited; and 10,000 options outstanding were exercised at a purchase price of $1.41 per share. For the nine month period ended September 30, 2006, there were no options granted, cancelled, exercised or forfeited. The Company did not realize any tax deductions related to the exercise of stock options during the first nine months. The Company will record such deductions to additional paid in capital when realized. There are no shares available for grant under the Plans as of September 30, 2007 and 2006. The aggregate intrinsic value for options outstanding and exercisable at September 30, 2007 and 2006 was $1,029,290 and $357,415 respectively.

Note 3. Earnings per share

The following table shows the computation of basic and diluted earnings per common share:


	Three months ended September 30,				Nine months ended September 30,
	2007		2006		2007		2006
Numerator:
Net income	$	4,175,528	$	4,824,606	$	5,395,894	$	4,428,443
Denominator:
Weighted average shares outstanding, basic		14,078,818		14,071,970		14,074,278		14,071,970
Dilutive effect of employee stock options		364,326		306,048		370,248		283,663

Weighted average shares outstanding, diluted	$	14,443,144	$	14,378,018	$	14,444,526	$	14,355,633
Net income per share, basic	$	0.30	$	0.34	$	0.38	$	0.31
Net income per share, diluted	$	0.29	$	0.34	$	0.37	$	0.31

For the three month period ending September 30, 2007 and September 30 2006, there were 120,000 outstanding options excluded in the calculation of net income per diluted common share because the effect would have been anti-dilutive.

For the nine months ended September 30, 2007, there were no options excluded in the calculation of net income per diluted common share. For the nine months ended September 30, 2006, outstanding options of 140,000 were excluded from the calculation of net income per diluted common share because the effect would have been anti-dilutive.

NOTE 4. Income Taxes

The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109, or FIN 48, on January 1, 2007. The Company did not have any unrecognized tax benefits and there was no effect on our financial condition or results of operations as a result of implementing FIN 48.

The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company is no longer subject to U.S. federal tax examinations for years before 2002. State jurisdictions that remain subject to examination range from 2002 to 2006. The Company does not believe there will be any material changes in its unrecognized tax positions over the next 12 months.

The Company policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of the date of adoption of FIN 48, the Company did not have any accrued interest or penalties associated with any unrecognized tax benefits, nor has the Company recognized any related interest expense during 2007.

NOTE 5. Accrued Liabilities.

Accrued liabilities consisted of the following balances at September 30, 2007 and December 31, 2006:


	September 30, 2007		December 31, 2006
Accrued expenses	$	437,345	$	380,401
Unearned Revenue		3,633,522		2,638,099
Accrued property taxes		220,665		350,013
Accrued payroll		1,425,511		1,272,642
Accrued interest		—		6,691

Total accrued liabilities	$	5,717,043	$	4,647,846

NOTE 6. Notes Payable and Long-Term Debt

At September 30, 2007, the Company was current with respect to all of the Company’s aircraft debt, senior debt and lease obligations.

On March 9, 2007, the Company and Raytheon Aircraft Credit Corporation (Raytheon) entered into an Amended and Restated Restructuring Agreement (the Amended Agreement), which amends and restates in its entirety the Restructuring Agreement between the Company and Raytheon dated as of December 31, 2002, (the 2002 Restructuring Agreement). Pursuant to the Amended Agreement, the Company issued to Raytheon 25 amended and restated promissory notes (the Aircraft Notes), each secured by an amended security agreement in the related aircraft. The Aircraft Notes replace the existing notes issued by the Company to Raytheon on December 31, 2002. Each of the Aircraft Notes has an original principal amount of $2.2 million, for a total amount of $52.9 million, bears interest at a fixed rate of 6.75% per annum, and provides for monthly payments in arrears starting on March 30, 2007. The Aircraft Notes mature on June 30, 2011 to coincide with the expiration of the Term Cost Plan^TM Agreement (the FMP contract), at which time a final payment of $1.3 million will be due for each aircraft. The fixed rate of 6.75% on the Aircraft Notes represents a significant reduction in interest expense and eliminates variable interest rate risk on all of the Company’s aircraft debt.

Under the Amended Agreement, the Company issued to Raytheon a promissory note (the Senior Note) that replaced both the existing senior note and subordinated note issued by the Company to Raytheon on December 31, 2002. The Senior Note has an original principal amount of $13.2 million and bears interest at a rate of 7.00% per annum. Interest on the Senior Note is payable monthly in arrears on the last day of each month, commencing on March 30, 2007. Beginning with the calendar quarter ending June 30, 2007, the Senior Note provides for quarterly payments of principal on June 30, September 30, and December 30 each year until the note matures on December 30, 2015.

The Amended Agreement restated the terms of the notes; therefore, at December 31, 2006, the carrying amounts of the Raytheon notes consisted of 25 aircraft promissory notes and two long-term notes payable.

At December 31, 2006, the Company was in arrears on payments of principal and interest in the amount of $12.5 million, which included interest on the Aircraft Debt in the amount of $2.8 million. In accordance with FASB Statement of Financial Accounting Standards No. 6 (FAS 6), Classification of Short Term Obligations Expected to be Refinanced, the amount of long-term debt that would otherwise be due after one year would have been reflected on the Company’s balance sheet as long-term obligations classified as current. Since the Company had entered into the Amended Agreement on March 9, 2007, with Raytheon Aircraft Credit Corporation (Raytheon), before the financial statements were issued, the amounts had been reclassified to non-current at December 31, 2006.

On April 27, 2007, the Company and FINOVA amended the September 30, 2006 promissory note payable to FINOVA which had originally provided for 45 consecutive monthly payments of $22,342 ending June 30, 2010. The amended note provided for continued scheduled monthly payments of $22,342 through June 30, 2007 followed by three consecutive monthly payments of $130,747 commencing July 30, 2007 through September 30, 2007. The note has been paid in full and all debt owing under the note forgiven. The Company recorded a gain of approximately $412,000 as a result of this forgiveness of debt in the third quarter when the debt was extinguished.

The amount of long-term debt also includes additional amounts of debt recorded pursuant to the provisions of the SFAS No. 15. This additional debt is being amortized as a reduction of interest expense over the remaining term of the debt.

The following table sets forth, as of September 30, 2007 and December 31, 2006, the amounts of the Company’s long-term debt, the amounts of current maturities of long-term debt and the additional amounts of debt recorded by the Company pursuant to SFAS No. 15:


	September 30, 2007			December 31, 2006
Long-Term Debt:
Raytheon Aircraft Credit Corporation	$	63,723,630		$	67,602,232
Additional carrying value under SFAS No. 15		5,588,456			7,118,672
FINOVA promissory note		—			802,410

Total long-term debt		69,312,086			75,523,314

Less:
Raytheon Aircraft Credit Corporation current maturities of long term debt and additional carrying value under SFAS No. 15		(7,644,176	)		(7,374,767	)
Other current maturities of long-term debt		—			(268,109	)

Long-term debt net of current maturities	$	61,667,910		$	67,880,438

Reduction of Debt Balances. During the first nine months of 2007, the Company made principal payments in the aggregate amount of $4.4 million against the Company’s outstanding debt balances and recognized a gain of $0.4 million on forgiveness of debt. The Company also reduced the additional carrying value under SFAS No. 15 by $1.4 million due to the amortization of the additional carrying value which was $5.6 million and $7.1 million as of September 30, 2007 and December 31, 2006 respectively.

NOTE 7. Recently Issued Accounting Standards

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This standard defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America, and expands disclosure about fair value measurements. This pronouncement applies to other accounting standards that require or permit fair value measurements. Accordingly, this statement does not require any new fair value measurement. This statement is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company will be required to adopt SFAS No. 157 in the first quarter of fiscal year 2008. Management is currently evaluating the requirements of SFAS No. 157 and has not yet determined the impact, if any, on the Company’s consolidated financial statements.

In February 2007, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS No. 159 allows entities the option to measure eligible financial instruments at fair value as of specified dates. Such election, which may be applied on an instrument by instrument basis, is typically irrevocable once elected. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, and early adoption is allowed under certain circumstances. Management is currently evaluating the requirements of SFAS No. 159 and has not yet determined the impact, if any, on the Company’s financial statements.

NOTE 8. Related Parties

As of September 30, 2007, Raytheon owned 5,371,980 shares of Common Stock of the Company, representing an approximate 38.2% interest in the Company’s outstanding Common Stock.

As of September 30, 2007, Douglas G. Voss, the Company’s Chairman and major shareholder, is the beneficial owner of 5,681,000 shares of Common Stock, which includes 300,000 shares of Common Stock subject to currently exercisable options and represents 40.4% of the outstanding Common Stock of the Company. Accordingly, Mr. Voss and Raytheon are in a position to control the management and affairs of the Company.

NOTE 9. Commitments and Contingencies

Debt and Lease Payment Obligations. The following table summarizes the Company’s major debt and lease payment obligations for periods beginning as of October 1 and ending as of September 30 for each of the designated time periods:


	2008		2009-2010		2011-2012		After 2012		Total
Long-term debt	$	5,920,153	$	12,370,581	$	39,674,771	$	5,758,125	$	63,723,630
SFAS 15 amounts		1,724,023		2,945,660		918,773		—		5,588,456

Total debt		7,644,176		15,316,241		40,593,544		5,758,125		69,312,086
Aircraft lease obligations		600,000		1,200,000		1,200,000		300,000		3,300,000
Non-aircraft lease commitments		1,817,735		4,030,567		—		—		5,848,302

Total Obligations	$	10,061,911	$	20,546,808	$	41,793,544	$	5,758,125	$	78,460,388

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company

The Company is a regional airline operating as an independent carrier and as a code share partner with United Airlines, Inc. (United Airlines or United) and Frontier Airlines, Inc. (Frontier Airlines or Frontier). As of November 9, 2007, the Company provides scheduled passenger service at 43 airports in eleven states with a fleet of Embraer EMB-120 Brasilias and Raytheon/Beech 1900D regional airliners. A total of 228 weekday flights are scheduled daily, including 142 flights at Denver, ten flights at Albuquerque, 20 flights at St. Louis, 12 flights at Kansas City and 12 flights at Phoenix. All scheduled flights are operated under the Great Lakes Airlines marketing identity in conjunction with code-share agreements with United and Frontier at the Denver International Airport and Phoenix International Airport hubs. See Note 1 to the Financial Statements for a discussion of liquidity and the Company’s ability to continue as a going concern.

General information about the Company can be found at www.flygreatlakes.com. The Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, as well as any amendments and exhibits to those reports, are available free of charge through the Company’s web site as soon as reasonably practicable after the Company has filed such reports with, or furnished them to, the United States Securities and Exchange Commission (the SEC). Information on the Company’s web site is not incorporated into, nor a part of, this Quarterly Report on Form 10-Q or any of the Company’s other filings with the SEC.

Air Service Markets

Essential Air Service Contracts. As of September 30, 2007, the Company provided essential air service to 23 communities that maintain eligibility in the U.S. Department of Transportation Essential Air Service Program.

On October 7, 2007, the Company initiated scheduled air service from Burlington, IA to both St. Louis, MO and Kansas City, MO. On the same day the Company began servicing Fort Leonard Wood, MO. to St. Louis, MO. On November 4, 2007, the Company initiated scheduled air service to Quincy, Decatur and Marion, IL to St. Louis, MO.

The Company discontinued scheduled air service to Brookings, SD on October 1, 2007 as a result of the U.S. Department of Transportation terminating Essential Air Service subsidy eligibility. On October 4, 2007, the Company was awarded Essential Air Service contracts to provide scheduled air service to Merced and Visalia, CA and Ely, NV from Las Vegas, NV, as well as, Vernal and Moab, UT from Denver, CO.

Other Service. In July 2007, the Company commenced scheduled air service to Gallup, NM with the assistance of a grant awarded to the New Mexico Department of Transportation provided by the DOT Small Community Air Service Development Program. The Company discontinued service to Aberdeen, SD on November 5, 2007.

United Airlines Code Share Agreement. Effective November 1, 2007, the Company and United Air Lines amended the terms of their code share agreement to be extended until November 1, 2010. Other terms of the amendment provide for the Company to implement United Air Lines code sharing for destinations the Company currently services to and from Albuquerque, NM, Denver, Co, Kansas City, MO and Phoenix, AZ hubs, as well as, Las Vegas, NV hub when it should become operational.

Results of Operations for the Three Months Ended September 30, 2007 and 2006.

The following table sets forth certain financial information regarding the Company’s results of operations for the three months ended September 30, 2007 and 2006.

Statement of Operations Data

(dollars in thousands)


	For the Three Months Ended September 30,
	2007							2006
	Amount (in thousands)			Cents per ASM		% Increase (decrease) from 2006		Amount (in thousands)			Cents per ASM
Operating revenues
Passenger	$	20,575		24.2	¢	20.7	%	$	17,051		23.2	¢
Public service		5,905		7.0		(2.5	)		6,059		8.3
Other		193		0.2		(50.4	)		389		0.5

Total operating revenues		26,673		31.4		13.5			23,498		32.0

Salaries, wages, and benefits		5,902		7.0		8.1			5,459		7.4
Aircraft fuel		6,624		7.8		23.7			5,357		7.3
Aircraft maintenance, materials and repairs		3,757		4.4		77.7			2,114		2.9
Depreciation and amortization		1,407		1.7		(1.7	)		1,431		1.9
Aircraft rental		155		0.2		(64.8	)		440		0.6
Other rentals and landing fees		821		1.0		4.2			788		1.1
Other operating expenses		3,674		4.3		7.6			3,416		4.7

Total operating expenses		22,340		26.3		17.5			19,005		25.9

Operating income		4,333		5.1		(3.6	)		4,493		6.1
Interest expense, net		(470	)	(0.6	)	(43.0	)		(824	)	(1.1	)
Gain on extinguishment of debt		412		0.5		(64.4	)		1,156		1.6

Income before income taxes		4,275		4.9		(11.4	)		4,825		6.6

Income tax expense		(100	)						—

Net income	$	4,175		4.9	¢	(13.5	)%	$	4,825		6.6	¢

Selected Operating Data

The following table sets forth certain selected operating data regarding the Company’s operations for the three months ended September 30, 2007 and 2006.


	September 30, 2007			Increase/ (decrease) from 2006		September 30, 2006
Selected Operating Data:
Available seat miles (in thousands) (1)		84,909		15.6	%		73,424
Revenue passenger miles (in thousands) (2)		43,530		21.8	%		35,734
Revenue passengers carried		159,736		15.6	%		138,236
Departures flown		17,835		11.8	%		15,955
Passenger load factor (3)		51.3	%	5.3	%		48.7	%
Average yield per revenue passenger mile (4)		47.3	¢	-1.0	%		47.8	¢
Revenue per available seat miles (5)		31.4	¢	-2.2	%		32.1	¢
Cost per available seat mile (6)		26.3	¢	1.5	%		25.9	¢
Average passenger fare (7)	$	128.80		4.1	%	$	123.67
Average passenger trip length (miles) (8)		273		5.4	%		259
Average cost per gallon of fuel	$	2.81		10.2	%	$	2.55

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

(2)	“Revenue passenger miles” or “RPMs” represent the number of miles flown by revenue passengers.

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

(4)	“Average yield per revenue passenger mile” represents the average passenger revenue received for each mile a revenue passenger is carried.

(5)	“Revenue per available seat mile” represents the average total operating revenue received for each available seat mile.

(6)	“Cost per available seat mile” represents operating expenses divided by available seat miles.

(7)	“Average passenger fare” represents passenger revenue divided by the number of revenue passengers carried.

(8)	“Average passenger trip length” represents revenue passenger miles divided by the number of revenue passengers carried.

Comparison of Third Quarter 2007 to Third Quarter 2006

Passenger Revenues. Passenger revenues were $20.6 million in the third quarter of 2007, an increase of 20.7% from $17.1 million in the third quarter of 2006. The $3.5 million increase in passenger revenues is primarily attributable to a 21.8% increase in revenue passenger miles and increase in average passenger fare during the third quarter of 2007. The Company’s available seat mile (ASM) capacity for the third quarter of 2007 increased 15.6% from the ASM capacity for the third quarter of 2006 as a result of an increase in the number of the Company’s regularly scheduled flights.

Public Service Revenues. At September 30, 2007, the Company served 23 communities on a subsidized basis under the U.S. Department of Transportation Essential Air Service Program and scheduled air service to Gallup, New Mexico with the assistance of a grant awarded to the New Mexico Department of Transportation provided by the DOT Small Community Air Service Development Program. Public service revenues collected through the Essential Air Service Program decreased 2.5% to $5.9 million during the third quarter of 2007, as compared to $6.1 million during the third quarter of 2006. The decrease in public service revenue was due primarily to a net decrease of two communities served by the Company under the Essential Air Service Program.

Other Revenues. Other revenues were $0.2 million during the third quarter of 2007, a decrease of 50.4% from the third quarter of 2006. The 50.4% decrease was primarily due to termination of rental income from the lease of two Beechcraft 1900D aircraft in 2006 which have been returned to scheduled service.

Operating Expenses. Total operating expenses were $22.3 million, or 26.3 cents per ASM, in the third quarter of 2007, as compared to $19.0 million, or 25.9 cents per ASM in the third quarter of 2006.

Salaries, Wages, and Benefits. Salaries, wages, and benefits were $5.9 million in the third quarter of 2007, an increase of 8.1% from $5.5 million in the third quarter of 2006. The increase in salaries, wages, and benefits is primarily attributable to increases resulting from increased staffing and pay rate increases offset by a decrease in the cost of employee related insurance.

Aircraft Fuel Expense. Aircraft fuel and into-plane expense was $6.6 million, or 7.8 cents per ASM, in the third quarter of 2007, an increase of $1.3 million. In comparison, the Company’s aircraft fuel and into-plane expense for the third quarter of 2006 was $5.4 million, or 7.3 cents per ASM. The average cost of fuel increased from $2.55 per gallon in the third quarter of 2006 to $2.81 per gallon in the third quarter of 2007. The effect of the $0.26 increase in cost per gallon was an increase in total cost of $0.5 million in 2007. The 23.7% increase in the Company’s aircraft fuel expense is attributable to a 15.3% increase in consumption as the result of a 15.6% increase in Company’s available seat miles, along with a 10.2% increase in the average cost of fuel per gallon.

At current rates of consumption, a one cent increase or decrease in the per gallon price of fuel will increase or decrease the Company’s fuel expense by approximately $92,000 annually.

Aircraft Maintenance, Materials and Repairs. Aircraft maintenance, materials and repairs expense was $3.8 million during the third quarter of 2007, which was a 77.7% increase from $2.1 million during the third quarter of 2006. The 2007 increase is attributable to increased overhauled engines which are not covered under the Term Cost Plan^TM Agreement (the FMP contract) contract and 2006 had an adjustment reducing expenses related to the restructuring of the FMP contract.

Depreciation and amortization. Depreciation and amortization expense was $1.4 million during the third quarter of 2007, which was at approximately the same level as the third quarter of 2006.

Aircraft Rental. Aircraft lease expense was $0.2 million during the third quarter of 2007, a decrease of 64.8% from $0.4 million in the third quarter of 2006. The reduction was primarily attributable to the reduced monthly rental payments for the two aircraft leased from Boeing Capital Corporation (Boeing). On December 20, 2006, the Company and Boeing entered into a settlement agreement which reduced the monthly rental payments for each aircraft.

Other Rentals and Landing Fees Expense. Other rentals and landing fees expense was $0.8 million during the third quarter of 2007, which was at the same level as the third quarter of 2006.

Other Operating Expenses. Other operating expenses were $3.7 million, or 4.3 cents per ASM, during the third quarter of 2007, an increase of 7.6% from $3.4 million, or 4.7 cents per ASM, during the third quarter of 2006. The increase in other operating expenses is primarily due to an increase of approximately $64,000 in pilot training and associated lodging expenses, $72,000 for passenger booking fees, $50,000 for de-icing expenses in Denver and $72,000 for other expenses resulting from increased operations.

Interest Expense. Interest expense was $0.5 million during the third quarter of 2007, a decrease of 43.0% from $0.8 million during the third quarter of 2006. The decrease was primarily the result of non-recurring penalty interest in 2007 and lower fixed interest rates on reduced principal balances. These decreases were partially offset by a reduction in the SFAS No. 15 credits in interest expense related to the restructured Raytheon debt.

Gain on Extinguishment of Debt. During the third quarter of 2007, the Company recognized a $0.4 million gain on the settlement and extinguishment of debt on previously leased Embraer Brasilia aircraft from FINOVA. During the third quarter of 2006, the Company recognized a $1.1 million gain on the settlement and extinguishment of debt on three Embraer Brasilia aircraft financed by CIT.

Income Tax Expense (Benefit). The realization of any income tax benefits from the Company’s loss carry forward position remains substantially in doubt. The $100,000 of expense was the result of 2007 estimated alternative minimum tax. At September 30, 2007, the Company has fully reserved the deferred tax asset which is approximately $11.8 million.

As of September 30, 2007, the Company has reviewed its net deferred tax assets and has not recognized the potential tax benefits arising therefrom because at this time management believes it is more likely than not that the benefits will not be realized in future years. In making this assessment, management considered the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. Management has fully reserved the net deferred tax asset at September 30, 2007. The assessment of recognition of potential tax benefits is under continuing review and may change at a later date.

Results of Operations for the Nine Months Ended September 30, 2007 and 2006.

The following table sets forth certain financial information regarding the Company’s results of operations for the nine months ended September 30, 2007 and 2006.

Statement of Operations Data

(dollars in thousands)


	For the Nine Months Ended September 30,
	2007							2006
	Amount (in thousands)			Cents per ASM		% Increase (decrease) from 2006		Amount (in thousands)			Cents per ASM
Operating revenues
Passenger	$	54,391		23.1	¢	17.6	%	$	46,266		21.5	¢
Public service		16,448		7.0		(9.6	)		18,191		8.4
Other		574		0.2		(46.2	)		1,067		0.5

Total operating revenues		71,413		30.3		9.0			65,523		30.4

Salaries, wages, and benefits		16,733		7.1		7.9			15,506		7.2
Aircraft fuel		17,499		7.4		16.6			15,011		7.0
Aircraft maintenance materials and repairs		10,751		4.6		14.4			9,394		4.4
Depreciation and amortization		4,217		1.8		(2.6	)		4,330		2.0
Aircraft rental		465		0.2		(64.8	)		1,321		0.6
Other rentals and landing fees		2,950		1.3		(5.2	)		3,112		1.4
Other operating expenses		11,991		5.1		9.5			10,955		5.1

Total operating expenses		64,606		27.4		8.3			59,629		27.7

Operating income		6,807		2.9		15.5			5,895		2.7
Interest expense, net		(1,723	)	(0.7	)	(34.3	)		(2,622	)	(1.2	)
Gain on extinguishment of debt		412		0.2		(64.4	)		1,156		0.5

Income before income taxes		5,496		2.3		24.1			4,428		2.1

Income tax expense		(100	)						—

Net income	$	5,396		2.3	¢	21.9	%	$	4,428		2.1	¢

Selected Operating Data

The following table sets forth certain selected operating data regarding the Company’s operations for the nine months ended September 30, 2007 and 2006.


	September 30, 2007			Increase/ (decrease) from 2006		September 30, 2006
Selected Operating Data:
Available seat miles (in thousands) (1)		235,736		9.5	%		215,378
Revenue passenger miles (in thousands) (2)		117,139		18.6	%		98,808
Revenue passengers carried		430,704		13.7	%		378,803
Departures flown		50,196		6.8	%		47,008
Passenger load factor (3)		49.7	%	8.3	%		45.9	%
Average yield per revenue passenger mile (4)		46.4	¢	-0.9	%		46.8	¢
Revenue per available seat miles (5)		30.3	¢	-0.3	%		30.4	¢
Cost per available seat mile (6)		27.4	¢	-1.1	%		27.7	¢
Average passenger fare (7)	$	126.28		3.4	%	$	122.14
Average passenger trip length (miles) (8)		272		4.2	%		261
Average cost per gallon of fuel	$	2.62		6.9	%	$	2.45

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

(2)	“Revenue passenger miles” or “RPMs” represent the number of miles flown by revenue passengers.

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

(4)	“Average yield per revenue passenger mile” represents the average passenger revenue received for each mile a revenue passenger is carried.

(5)	“Revenue per available seat mile” represents the average total operating revenue received for each available seat mile.

(6)	“Cost per available seat mile” represents operating expenses divided by available seat miles.

(7)	“Average passenger fare” represents passenger revenue divided by the number of revenue passengers carried.

(8)	“Average passenger trip length” represents revenue passenger miles divided by the number of revenue passengers carried.

Comparison of First Nine Months 2007 to First Nine Months 2006

Passenger Revenues. Passenger revenues were $54.4 million in the first nine months of 2007, an increase of 17.6% from $46.3 million in the first nine months of 2006. The $8.1 million increase in passenger revenues is primarily attributable to an 18.6% increase in revenue passenger miles and increase in average passenger fare during the first nine months of 2007 offset by a 0.9% decrease in average yield. The Company’s available seat mile (ASM) capacity for the first nine months of 2007 increased 9.5% from the ASM capacity for the first nine months of 2006 as a result of an increase in the number of the Company’s regularly scheduled flights.

Public Service Revenues. At September 30, 2007, the Company served 23 communities on a subsidized basis under the U.S. Department of Transportation Essential Air Service Program and scheduled air service to Gallup, New Mexico with the assistance of a grant awarded to the New Mexico Department of Transportation provided by the DOT Small Community Air Service Development Program. Public service revenues collected through the Essential Air Service Program decreased 9.6% to $16.4 million during the first nine months of 2007, as compared to $18.2 million during the first nine months of 2006. The decrease in public service revenue was due primarily to a net decrease of two communities served by the Company under the Essential Air Service Program.

Other Revenues. Other revenues were $0.6 million during the first nine months of 2007, a decrease of 46.2% from the first nine months of 2006. The 46.2% decrease was primarily due to termination of rental income from the lease of two Beechcraft 1900D aircraft in 2006 which have been returned to scheduled service. This decrease was partially offset by an increase in cargo and charter income.

Operating Expenses. Total operating expenses were $64.6 million, or 27.4 cents per ASM, in the first nine months of 2007, as compared to $59.7 million, or 27.7 cents per ASM in the first nine months of 2006.

Salaries, Wages, and Benefits. Salaries, wages, and benefits were $16.7 million in the first nine months of 2007, an increase of 7.9% from $15.5 million in the first nine months of 2006. The increase in salaries, wages, and benefits is primarily attributable to increases resulting from increased staffing and pay rate increases.

Aircraft Fuel Expense. Aircraft fuel and into-plane expense was $17.5 million, or 7.4 cents per ASM, in the first nine months of 2007, an increase of $2.5 million. In comparison, the Company’s aircraft fuel and into-plane expense for the first nine months of 2006 was $15.0 million, or 7.0 cents per ASM. The average cost of fuel increased from $2.45 per gallon in the first nine months of 2006 to $2.62 per gallon in the nine months of 2007. The effect of the $0.17 increase in cost per gallon was an increase in total cost of $1.0 million in 2007. The 16.6% increase in the Company’s aircraft fuel expense is attributable to a 9.9% increase in consumption as the result of a 9.5% increase in Company’s available seat miles, along with a 6.9% increase in the average cost of fuel per gallon.

At current rates of consumption, a one cent increase or decrease in the per gallon price of fuel will increase or decrease the Company’s fuel expense by approximately $92,000 annually.

Aircraft Maintenance, Materials, and Component Repairs. Aircraft maintenance, materials, and component repairs expense was $10.8 million during the first nine months of 2007, which was an 14.4% increase from $9.4 million during the first nine months of 2006. The 2007 increase is attributable to increased overhauled engines which are not covered under the FMP contract and 2006 had adjustment reducing expenses related to the restructuring of the FMP contract and increase number of scheduled airframe inspections during the 2007 period.

Depreciation and amortization. Depreciation and amortization expense was $4.2 million during the first nine months of 2007, which was at approximately the same level as the first nine months of 2006.

Aircraft Rental. Aircraft lease expense was $0.5 million during the first nine months of 2007, a decrease of 64.8% from $1.3 million in the first nine months of 2006. The reduction was primarily attributable to the reduced monthly rental payments for the two aircraft leased from Boeing Capital Corporation (Boeing). On December 20, 2006, the Company and Boeing entered into a settlement agreement which reduced the monthly rental payments for each aircraft.

Other Rentals and Landing Fees Expense. Other rentals and landing fees expense was $2.9 million during the first nine months of 2007, which was a 5.2% decrease from $3.1 million during the first nine months of 2006. The decrease in other rentals and landing fees expenses for the first nine months of 2007 occurred primarily because of reduced landing rate at Denver International Airport.

Other Operating Expenses. Other operating expenses were $12.0 million, or 5.1 cents per ASM, during the first nine months of 2007, an increase of 9.4% from $11.0 million, or 5.1 cents per ASM, during the first nine months of 2006. The increase in other operating expenses is primarily due to an increase of approximately $413,000 for de-icing expenses in Denver, $290,000 for passenger booking fees, $172,000 in pilot training and associated lodging expenses and $123,000 for legal and professional fees.

Interest Expense. Interest expense was $1.7 million during the first nine months of 2007, a decrease of 34.3% from $2.6 million during the first nine months of 2006. The decrease was primarily the result of non-recurring penalty interest in 2007 and lower fixed interest rates on reduced principal balances. These decreases were partially offset by a reduction in the SFAS No. 15 credits in interest expense related to the restructured Raytheon debt.

Liquidity and Capital Resources


	2008		2009-2010		2011-2012		After 2012		Total
Long-term debt	$	5,920,153	$	12,370,581	$	39,674,771	$	5,758,125	$	63,723,630
SFAS 15 amounts		1,724,023		2,945,660		918,773		—		5,588,456

Total debt		7,644,176		15,316,241		40,593,544		5,758,125		69,312,086
Aircraft lease obligations		600,000		1,200,000		1,200,000		300,000		3,300,000
Non-aircraft lease commitments		1,817,735		4,030,567		—		—		5,848,302

Total Obligations	$	10,061,911	$	20,546,808	$	41,793,544	$	5,758,125	$	78,460,388

Sources and Uses of Cash. As of September 30, 2007, the Company’s cash balance was $4.6 million, a $1.6 million increase from the cash balance of $2.7 million as of December 31, 2006.

Cash Provided by Operating Activities. During the first nine months of 2007, the Company had positive cash flow from operating activities in the amount of $7.0 million. During the first nine months the Company generated $5.4 million of net income, and non-cash depreciation and amortization of $4.2 million. Non-cash amortization of SFAS No. 15 was $1.4 million along with the non-cash gain on extinguishment of debt $0.4 million and disposition of assets provide $0.1 million. Changes in current operating items used $0.9 million.

Cash Flows from Investing Activities. The Company paid $0.8 million primarily to replace aircraft rotable components.

Cash Flows from Financing Activities. The Company utilized $4.4 million of cash to reduce the Company’s outstanding notes payable and long-term debt balances. At September 30, 2007, the Company was current on all payments due to its lenders and lessors.

As of September 30, 2007, the Company had negative working capital of $2.1 million, as compared to negative working capital of $4.8 million as of December 31, 2006.

At September 30, 2007, total assets were in excess of total liabilities by $2.5 million. The accounting treatment under SFAS No. 15 for recording of gains from the restructuring of debt obligations at December 31, 2002 required

that $22.3 million of such gain be deferred and amortized over the term of the restructured debt obligations thus extending the period over which this amount will be recognized. At September 30, 2007, the remaining unamortized amount of deferred gain was $5.6 million, which will be amortized as a reduction of interest expense during the years 2007 through 2011.

On March 9, 2007, the Company and Raytheon entered into an Amended and Restated Restructuring Agreement (the Amended Agreement), which amends and restates in its entirety the Restructuring Agreement between the Company and Raytheon dated as of December 31, 2002, (the 2002 Restructuring Agreement). Pursuant to the Amended Agreement, the Company issued to Raytheon 25 amended and restated promissory notes (the Aircraft Notes), each secured by an amended security agreement in the related aircraft. The Aircraft Notes replace the existing notes issued by the Company to Raytheon on December 31, 2002. Each of the Aircraft Notes has an original principal amount of $2.2 million, for a total amount of $52.9 million, bears interest at a fixed rate of 6.75% per annum, and provides for monthly payments in arrears starting on March 30, 2007. The Aircraft Notes mature on June 30, 2011 to coincide with the expiration of the FMP contract, at which time a final payment of $1.3 million will be due for each aircraft. The fixed rate of 6.75% on the Aircraft Notes represents a significant reduction in interest expense and eliminates variable interest rate risk on all of the Company’s aircraft debt.

In accordance with FASB Statement of Financial Accounting Standards No. 6 (FAS 6), Classification of Short Term Obligations Expected to be Refinanced, the amount of long-term debt that would otherwise be due after one year would have been reflected on the Company’s balance sheet as long-term obligations classified as current. Since the Company had entered into the Amended Agreement before the financial statements were issued, the long term amounts had been reclassified to non-current at December 31, 2006.

On April 27, 2007, the Company and FINOVA amended the September 30, 2006 promissory note payable to FINOVA Capital Corporation which had originally provided for 45 consecutive monthly payments of $22,342 ending June 30, 2010. The amended note provided for monthly payments of $22,342 through June 30, 2007 followed by three consecutive monthly payments of $130,747 commencing July 30, 2007 through September 30, 2007, at which time the note was considered paid in full. The Company recorded a gain of approximately $412,000 as a result of this forgiveness of debt in the third quarter when the debt was extinguished.

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risks

The Company is susceptible to certain risks related to changes in the cost of aircraft fuel. As of September 30, 2007, the Company did not have any derivative financial instruments.

Aircraft Fuel

Due to the airline industry’s dependency upon aircraft fuel for operations, airline operators are substantially impacted by changes in aircraft fuel prices. The Company’s earnings are affected by changes in the price and availability of aircraft fuel. Aircraft fuel represented approximately 27.1% of the Company’s operating expenses in the first nine months of 2007. A one cent change in the average cost of aircraft fuel would impact the Company’s aircraft fuel expense by approximately $92,000 annually, based upon fuel consumption in the first nine months of 2007.

Interest Rates

Prior to the March 9, 2007 Amended Agreement with Raytheon, the Company’s cash flow had been negatively impacted by increases in interest rates because a significant portion of the Company’s long-term debt was financed with variable interest rates. Increases in interest rates also negatively impacts the fair value of the Company’s debt obligations that carried fixed rates of interest. The new notes, as part of the Amended Agreement bear interest at fixed rates of 6.75% and 7.0%. Therefore, all but $0.7 million of the Company’s long-term debt is financed with fixed interest rates. The Amended Agreement has significantly mitigated the prior exposure the Company had to variable interest rate risk.

Due to the amortization of the SFAS No. 15 amounts, the interest expense recorded by the Company will be significantly less than the contractual interest actually paid throughout the term of the Raytheon notes. During the first nine months of 2007, the Company’s contractual interest paid for all long-term debt obligations was $3.4 million. In accordance with procedures set forth in SFAS No. 15, the Company amortized $1.4 million of the SFAS No. 15 balances during the period resulting in net interest expense of $2.0 million for the first nine months.

Item 4.

CONTROLS AND PROCEDURES

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

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

PART II - OTHER INFORMATION

Item 1.

LEGAL PROCEEDINGS

On October 19, 2007, International Association of Machinists and Aerospace Workers (“the IAM”), the designated collective bargaining representative of the class and craft of Mechanics and Related and Clerical employees, sued the Company in Colorado federal court. The following Monday, October 22, 2007, the Company sued the IAM in Minnesota.

These lawsuits arise out of a dispute regarding whether the Company has been relieved of its Railway Labor Act obligations to bargain collectively with the IAM and to maintain the status quo until the bargaining process is exhausted. The union lawsuit seeks to require the Company to engage in mediated bargaining and to refrain from changing the terms, conditions and wages of aircraft maintenance employees. The Company lawsuit seeks to free the parties from further bargaining and to authorize unilateral action regarding maintenance employee employment.

On October 31, 2007 the Colorado federal court entered a temporary restraining order preventing the Company from increasing mechanic pay. Later on November 7, that court entered a preliminary injunction the prohibits unilateral action and compels the Company to participate in bargaining under the auspices of the National Mediation Board. In the meantime the federal court in Minnesota denied the Company’s motion for an injunction against mediated bargaining. An appeal of the Minnesota denial has been filed.

Item 3.

DEFAULTS UPON SENIOR SECURITIES

At September 30, 2007, and as of October 31, 2007, the Company was current with respect to all of the Company’s aircraft debt and lease obligations.

Item 6.

EXHIBITS

3.1	Amended and Restated Articles of Incorporation. (1)

3.2	Amended and Restated Bylaws. (1)

4.1	Specimen Common Stock Certificate. (1)

10.1	Amended and Restated Restructuring Agreement, dated March 9, 2007, by and between Raytheon Aircraft Credit Corporation and the Company (2)

10.2	Senior Note, dated as of March 9, 2007, issued by the Company to Raytheon Aircraft Credit Corporation. (2)

10.3	First Amendment to Security Agreement dated as of March 9, 2007, by and between the Company and Raytheon Aircraft Credit Corporation. (2)

10.4	Form of Amended and Restated Promissory Note relating to 1900D aircraft, dated as of March 9, 2007, issued by the Company to Raytheon Aircraft Credit Corporation. (2)

10.5	Fifth Amendment to Security Agreement, dated as of March 9, 2007 by and between Raytheon Aircraft Credit Corporation and the Company. (2)

10.6	Form of First Amendment to Amended and Restated Security Agreement relating to 1900D aircraft, date as of March 9, 2007, by and between the Company and Raytheon Aircraft Credit Corporation. (2)

10.7	Form of Second Amendment to Amended and Restated Security Agreement relating to 1900D aircraft, date as of March 9, 2007, by and between the Company and Raytheon Aircraft Credit Corporation.

10.8	Form of Third Amendment to Amended and Restated Security Agreement relating to 1900D aircraft, date as of March 9, 2007, by and between the Company and Raytheon Aircraft Credit Corporation.

31.1	Certification pursuant to Rule 13a-14(a) of Chief Executive Officer. Filed herewith.

31.2	Certification pursuant to Rule 13a-14(a) of Chief Financial Officer (Principal Accounting and Financial Officer). Filed herewith.

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

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

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

(2)	Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006. (File No. 0-23224)

SIGNATURES

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


	GREAT LAKES AVIATION, LTD.

Dated: November 13, 2007	By:	/s/ Charles R. Howell IV
		Charles R. Howell IV
		Chief Executive Officer

	By:	/s/ Michael O. Matthews
		Michael O. Matthews
		Chief Financial Officer

EXHIBIT INDEX

31.1	Certification pursuant to Rule 13a-14(a) of Chief Executive Officer (Principal Executive Officer). Filed herewith.

31.2	Certification pursuant to Rule 13a-14(a) of Chief Financial Officer (Principal Accounting and Financial Officer). Filed herewith.

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

32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Chief Financial Officer (Principal Accounting and Financial Officer). Filed herewith.

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