The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of the Company's results of operations and financial condition. The discussion should be read in conjunction with the Consolidated Financial Statements and the related notes thereto, and the Selected Financial Data and Operating Statistics contained elsewhere in this Form 10-K.

Executive Overview

Fiscal 2008 was a year of challenges and modest successes for us. We reached legal settlements with both Hawaiian and Aloha Airlines. In the Hawaiian Airlines settlement, we recovered $37.5 million from a bond being held by the US Bankruptcy Court in Hawaii. Our settlement with Aloha resolved litigation and provided both parties the opportunity to benefit through a licensing agreement which allows Mesa to operate under the Aloha name. We agreed to pay Aloha $2.0 million cash, issue stock equal to 10% of our current outstanding shares and provide inter-island flight benefits to certain former Aloha employees. Mesa agreed to the terms of these settlements without admitting any wrongdoing.

Also during the fiscal year, we expanded capacity in Hawaii; available seat miles increased by 9.2% over the prior year. After only 17 months in operation we congratulated our one millionth passenger. We look forward to the opportunity to grow the Hawaiian segment of our operation.

In the first three quarters of the fiscal year we took strides to grow our fuel efficient CRJ-900 fleet flying for Delta as Freedom Airlines. We placed seven 900's into service in the first three quarters with the intent to fulfill a contract with Delta to increase the CRJ-900 fleet to a total of 14 aircraft. In August 2008, Delta notified Mesa of the termination of the CRJ-900 Delta Connection Agreement, citing an alleged failure to meet certain contractual benchmarks contained in the CRJ-900 Delta Connection Agreement. Mesa denies having violated the Delta Connection Agreement and we intend to challenge Delta's decision.

During the third quarter 2008 Mesa won a preliminary injunction in the Federal Court in Atlanta enjoining Delta Air Lines from terminating Freedom Airline's ERJ-145 contract. This injunction was in response to Delta's notification of its intent to terminate the Delta Connection Agreement as a result of Freedom's alleged failure to maintain a specified completion rate with respect to its Delta Connection flights during three months of the six-month period ended February 2008.

In May 2008 we sold 14 of our 34 Beechcraft 1900D's to Raytheon Aircraft Credit Corporation. The transaction included the elimination of $28 million of long term debt associated with the aircraft and resulted in a net gain on extinguishment of debt of $5.8 million for the Company.

Air Midwest ceased operating in all markets at the end of the third quarter 2008. This was consistent with an announcement made in fiscal 2007 of the Company's intent to do so.

In January 2004, we exercised options to purchase twenty CRJ-900 aircraft. As of the end of the fiscal year we had taken delivery of thirteen CRJ-900 aircraft and five CRJ-700 aircraft. The obligation to purchase the remaining two CRJ-900's was terminated in June 2007 in connection with our agreement to purchase 10 new CRJ-700 NextGen aircraft. In conjunction with this purchase agreement, Mesa has $500,000 on deposit with Bombardier that was included in lease and equipment deposits on September 30, 2008. The deposit amount is expected to be returned upon completion of permanent financing on each of the ten aircraft. On September 26, 2008, the Company and Bombardier amended the purchase agreement to return $6.0 million of the $6.5 million previously held on deposit, delayed deliveries of the 10 CRJ-700 aircraft and advanced rebates related to Bombardier's heavy maintenance service agreement.

In the third quarter of fiscal 2008 we entered into a Letter of Intent to sell our interest in Chinese carrier Kunpeng Airlines to Shenzhen Airlines, the majority shareholder, for $4.8 million. Numerous drafts of a proposed agreement were exchanged in the past two quarters. A valuation of the interest was conducted by both companies, resulting in Mesa recording a loss on its investment in Kunpeng of $1.3 million as of the end of the fiscal year. This loss reflects the expected proceeds from the sale of $4.8 million less the Company's investment of $5.8 million and estimated transaction costs of $300,000.

The Company will continue to sublease five regional jets to Kunpeng. These leases are not affected by the Letter of Intent. Total sublease revenue for fiscal 2008 was $4.4 million. At year end the Company had gross receivables from Kunpeng of approximately $2.9 million.

During the third quarter ended June 30, 2008, the Company recorded an impairment charge of $1.3 million on its investment in Kunpeng which is classified in loss from equity method investment in the consolidated statement of operations. (See Note 8). In addition, the company sold 14 of its 34 Beechcraft 1900D aircraft. In connection with these negotiations and in preparation for marketing the remaining 20 Beechcraft 1900D aircraft the Company concluded that the fair value of the remaining 20 aircraft was less than the carrying value and therefore recorded an impairment charge of $9.1 million during the second quarter ended March 31, 2008. The impairment charge is included within loss from discontinued operations in the consolidated statement of operations. (See Note 2).

While the airline industry in general, and Mesa in particular, face a number of challenges in today's operating environment, we remain resolutely committed to returning the company to sustained profitability and delivering the best service possible to our passengers and airline partners.

Discontinued Operations

In the fourth quarter of fiscal 2007, the Company committed to a plan to sell Air Midwest or certain assets thereof. Air Midwest consists of Beechcraft 1900D turboprop operations, which includes our independent Mesa operations and Midwest Airlines and US Airways code-share operations. In connection with this decision, the Company began soliciting bids for the sale of the twenty Beechcraft 1900D aircraft in operation and exited all of its Essential Air Service ("EAS") markets on or before June 30, 2008. All assets and liabilities, results of operations, and other financial and operational data associated with these assets have been presented in the accompanying consolidated financial statements as discontinued operations separate from continuing operations, unless otherwise noted. For all periods presented, we reclassified operating results of the Air Midwest turboprop operation to loss from discontinued operations.

Fleet

Aircraft at September 30:

                                                   (1)
Type of Aircraft                                  2008          2007          2006
----------------------------------------------- ---------     ---------     ---------
CRJ-200/100 Regional Jet                              49             52            60
CRJ-700 Regional Jet                                  20             20            15
CRJ-900 Regional Jet                                  45             38            38
Embraer 145 Regional Jet                              36             36            36
Beechcraft 1900D See Note 2                           -              20            20
Dash-8                                                16             16            22
                                                ---------     ---------     ---------
   Total                                             166           182           191
                                                ---------     ---------     ---------

(1) Includes Five CRJ-200's currently subleased to Kunpeng Airlines and two ERJ 145 jets subleased to Trans States Airlines.

Rotable Spare Parts Maintenance Agreements

In fiscal 2005, we entered into a ten-year agreement with AAR Corp. (the "AAR Agreement"), for the management and repair of certain of our CRJ-200, -700, -900 and ERJ-145 aircraft rotable spare parts inventory. The agreement was completed in November 2005. Under the AAR agreement, AAR purchased certain of our existing rotable spare parts inventory for $39.5 million in cash and $21.5 million in notes receivable. As of September 2007, $6.5 million remained outstanding and is due by AAR to Mesa at various dates over the next 2 years.

On April 1, 2008, AAR and Mesa entered into an agreement to settle outstanding amounts. Under the agreement Mesa owed AAR an aggregate of $5.4 million and AAR was obligated to pay Mesa $6 million in connection with AAR's acquisition of parts inventory. The amounts were offset and debt extinguished.

Summary of Financial Results - Continuing Operations

Mesa Air Group recorded a consolidated net loss from continuing operations of $5.7 million in fiscal 2008, representing a basic and diluted loss per share of $0.21. This compares to consolidated net loss from continuing operations of $71.5 million or $(2.31) per diluted share in fiscal 2007 and consolidated net income from continuing operations of $37.1 million or $.91 per diluted share in fiscal 2006.

Approximately 96% of our passenger revenue was associated with revenue-guarantee code-share agreements. Under the terms of our revenue-guarantee agreements, our major carrier partner controls the marketing, scheduling, ticketing, pricing and seat inventories. Our role is simply to operate our fleet in the safest and most reliable manner in exchange for fees paid under a generally fixed payment schedule. We receive a guaranteed payment based upon a fixed minimum monthly amount plus amounts related to departures and block hours flown in addition to direct reimbursement of expenses such as fuel, landing fees and insurance. Among other advantages, revenue-guarantee arrangements reduce our exposure to fluctuations in passenger traffic and fare levels, as well as fuel prices. In fiscal 2008, approximately 95.5% of our fuel purchases were reimbursed under revenue-guarantee code-share agreements. The remaining passenger revenues are derived from our go! operations.

Results of Continuing Operations

The following tables set forth selected operating and financial data of the
Company for the years indicated below.

                                                        Operating Data
                                                   Years Ended September 30,
                                            ---------------------------------------
                                               2008          2007          2006
                                            -----------   -----------   -----------
  Passengers                                 13,453,831    15,993,110    14,506,666
  Available seat miles ("ASM") (000's)        8,027,966     8,996,959     8,980,470
  Revenue passenger miles (000's)             6,020,008     6,879,624     6,777,016
  Load factor                                     75.0%         76.5%         75.4%
  Yield per revenue passenger mile (cents)        22.0          18.9          19.0
  Revenue per ASM (cents)                         16.5          14.4          14.3
  Operating cost per ASM (cents)                  16.4          15.2          13.2
  Average stage length (miles)                      403          392            433
  Number of operating aircraft in fleet             159          162            171
  Gallons of fuel consumed                  154,814,813   201,526,868   205,593,333
  Block hours flown                             476,368       564,379       522,884
  Departures                                    310,956       378,291       338,888




                                                              Operating Expense Data
                                                            Years Ended September 30,
                  --------------------------------------------------------------------------------------------------------------

                                2008                                  2007                                   2006
                  ---------------------------------     ---------------------------------      ---------------------------------
                                             Cost                                  Cost                                   Cost
                               % of Total     per                    % of Total     per                     % of Total     per
                    Amount        Net         ASM         Amount        Net         ASM          Amount        Net         ASM
                    (000s)      Revenues    (cents)       (000s)      Revenues    (cents)        (000s)      Revenues    (cents)
                  ----------   ----------   -------     ----------   ----------   -------      ----------   ----------   -------
Flight
operations      $   364,659      27.5 %        4.5    $   382,504      29.5 %        4.3    $    368,023      28.6 %        4.1
Fuel                517,907      39.1 %        6.5        438,010      33.7 %        4.9         446,788      34.8 %        5.0
Maintenance         262,868      19.8 %        3.3        254,626      19.6 %        2.8         213,317      16.6 %        2.4
Aircraft and
traffic
servicing            76,284      5.8 %         1.0         82,248      6.3 %         0.9          72,615      5.7 %         0.8
Promotion and
sales                 4,682      0.4 %         0.1          3,605      0.3 %          -            1,990      0.2 %          -
General and
administrative       83,115      6.3 %         1.0         71,818      5.5 %         0.8          56,940      4.4 %         0.6
Depreciation
and
amortization         37,674      2.8 %         0.5         39,354      3.0 %         0.4          34,939      2.7 %         0.4
Loss
contingency         (31,265)     (2.4)%       (0.4)        86,870      6.7 %         1.0              -        -             -
Bankruptcy and
vendor
settlements             (27)     0.0 %          -             434      (0.0)%         -          (12,098)     (0.9)%       (0.1)
Impairment and
restructuring
   charges              209      0.0 %          -          12,367      1.0 %         0.1              -        -             -
(credits)         ----------   ----------   -------     ----------   ----------   -------      ----------   ----------   -------
Total operating
expenses          1,316,106      99.2 %       16.4      1,371,836     105.7 %       15.2       1,182,514      92.0 %       13.2
Interest
expense             (36,081)     (2.7)%       (0.4)       (39,380)     (3.0)%       (0.4)        (34,209)     (2.7)%       (0.4)
Interest
income                6,511      0.5 %         0.1         14,314      1.1 %         0.2          12,076      0.9 %         0.1
Loss from
equity method
investments          (5,446)     (0.4)%       (0.1)        (3,868)     (0.3)%         -           (2,490)     (0.2)%         -
Gain on
extinguishment
of debt              14,680      1.1 %         0.2              -        -             -               -        -             -
Other income
(expense)       $     8,919      (0.7)%        0.1    $    (6,216)     (0.5)%       (0.1)   $    (15,824)     (1.2)%       (0.2)

                                                   Segment Data
                      -----------------------------------------------------------------------

Year Ended              Mesa/
September 30, 2008     Freedom          go!          Other        Elimination        Total
(000's)               ----------      --------      --------      -----------      ----------
-------------------
Total net operating
revenues            $ 1,283,923    $   43,718    $  207,178    $    (208,708)   $  1,326,111
Total operating       1,261,837        73,681       161,070         (180,482)      1,316,106
expenses              ----------      --------      --------      -----------      ----------
Operating income    $    22,086    $  (29,963)   $   46,108    $     (28,225)   $     10,005
(loss)                ----------      --------      --------      -----------      ----------


Year Ended              Mesa/
September 30, 2007     Freedom          go!          Other        Elimination        Total
(000's)               ----------      --------      --------      -----------      ----------
-------------------
Total net operating
revenues            $ 1,278,239    $   25,654    $  274,320    $    (280,149)   $  1,298,064
Total operating       1,245,422        39,587       328,569         (241,742)      1,371,836
expenses              ----------      --------      --------      -----------      ----------
Operating income    $    32,817    $  (13,933)   $  (54,249)   $     (38,407)   $    (73,772)
(loss)                ----------      --------      --------      -----------      ----------


Year Ended              Mesa/
September 30, 2006     Freedom          go!          Other        Elimination        Total
(000's)               ----------      --------      --------      -----------      ----------
-------------------
Total net operating
revenues            $ 1,272,206    $    9,165    $  247,474    $    (243,942)   $  1,284,903
Total operating       1,168,390        15,010       209,381         (210,267)      1,182,514
expenses              ----------      --------      --------      -----------      ----------
Operating income    $   103,816    $   (5,845)   $   38,093    $     (33,675)   $    102,389
(loss)                ----------      --------      --------      -----------      ----------

FY 2008 Versus FY 2007

Operating Revenues

In the year ended September 30, 2008, net operating revenue increased $28.0 million, or 2.2%, to $1.33 billion from $1.30 billion for the year ended September 30, 2007. Contract revenue decreased $17.1 million, or 1.3%, driven primarily by reduced aircraft in service, including the elimination of our Delta Dash-8 operation at JFK International Airport, which had contributed $32.0 million of revenue in the year ended September 30, 2007. This decrease was partially offset by fuel rates which increased $64.4 million or 15.1%.

Operating revenues for go! increased $18.1 million as a result of a 48.7% increase in average fares and a 10.0% increase in passengers. Freight and other revenue increased by $2.5 million primarily due to sublease income from our Chinese joint venture. Net operating revenue in the year ended September 30, 2007 was negatively impacted by a ($25.3) million charge for impairment of contract incentives.

Operating Expenses

Flight Operations

In the year ended September 30, 2008, flight operations expense decreased $17.8 million, or 4.7%, to $364.7 million from $382.5 million for the year ended September 30, 2007. On an ASM basis, flight operations expense increased 6.8% to 4.5 cents per ASM in the year ended September 30, 2008 from 4.3 cents per ASM in the year ended September 30, 2007. Due to certain fixed components included within flight operations, the Company was not able to reduce expenses at the same rate as ASM's decreased, resulting in the inverse relationship between the expense decrease and the increase on a per ASM basis. The decrease is primarily driven by a $9.3 million decrease in wages and employee related expenses. Additionally, there was a net $8.3 million decrease in aircraft and aircraft related lease expense due to a decrease in the number of aircraft leased year-over-year as well as a shift of aircraft types within our fleet.

Fuel

In the year ended September 30, 2008, fuel expense increased by $79.9 million or 18.2%, to $517.9 million from $438.0 million for the year ended September 30, 2007. On an ASM basis, fuel expense increased 32.5% to 6.5 cents per ASM in the year ended September 30, 2008 from 4.9 cents per ASM in the year ended September 30, 2007. Average fuel cost per gallon increased $1.16, to

In most cases under our code-share arrangements, the Company is contractually responsible for procuring the fuel necessary to conduct its operations, and fuel costs are then passed through to code-share partners via weekly invoicing. The United code-share agreement contains an option that allows United to assume the contractual responsibility for procuring and providing the fuel necessary to operate the flights that Mesa operates for United. United has now exercised this option at fifteen of the stations we operate, and as a result we no longer incur raw fuel expense but do recognize the related fuel pass-through revenue for the into-plane fees for these fifteen United stations..

Maintenance

In the year ended September 30, 2008, maintenance expense increased $8.2 million, or 3.2%, to $262.9 million from $254.6 million for the year ended September 30, 2007. On an ASM basis, maintenance expense increased 15.7% to 3.3 cents per ASM in the year ended September 30, 2008 from 2.8 cents per ASM in the year ended September 30, 2007. The increase in maintenance is primarily due to a $25.5 million increase in engine repair cost associated with the termination of power by the hour programs and lease returns. This increase was partially offset with a decrease in heavy maintenance of $8.9 million due to a new heavy maintenance contract and cancellation of base maintenance contracts, $3.0 million decrease in expendable parts, primarily volume driven, $2.1 million decrease in component repair due to new contracts, and a $1.5 million decrease in freight due to reduced contract rates and the use of two and three day shipping in place of overnight. Wages, overtime, and wage related expenses decreased $2.5 million due to a decrease in headcount and tight controls on overtime.

Aircraft and Traffic Servicing

In the year ended September 30, 2008, aircraft and traffic servicing expense decreased by $6.0 million, or 7.3%, to $76.3 million from $82.2 million for the year ended September 30, 2007. On an ASM basis, aircraft and traffic servicing expense increased 3.9% to 1.0 cent per ASM in the year ended September 30, 2008 from 0.9 cents per ASM in the year ended September 30, 2007. This decrease is related to an $7.9 million decrease from our code-share operations, offset by an increase of $1.9 million related to our go! operations.

Promotion and Sales

In the year ended September 30, 2008, promotion and sales expense increased by $1.1 million, or 29.9%, to $4.7 million from $3.6 million for the year ended September 30, 2007. The increase is primarily due to an increase in credit card and booking fees. This increase was driven by an increase in passengers, due to additional capacity and increased number of passengers. These expenses relate primarily to our go! operations. We do not pay promotion and sales expenses under our revenue-guarantee contracts.

General and Administrative

In the year ended September 30, 2008, general and administrative expense increased $11.3 million, or 15.7%, to $83.1 million from $71.8 million for the year ended September 30, 2007. The increase is primarily due to a $3.9 million increase in flight completion factor penalties involving our code-share partners, a $1.8 million increase in bad debt, and a $0.7 million increase in software expenses. Legal expenses increased by $5.7 million due to litigation involving go!, Freedom, and our Chinese joint venture. Outside services increased by $3.0 million due to professional consulting expenses, auditing fees and other outside services. Offset by, a $3.3 million decrease in wages and benefits due to an overall decrease in bonuses and executive wages in fiscal 2008 versus fiscal 2007.

Loss Contingency and Settlement of Lawsuit

On October 30, 2007, the United States Bankruptcy Court for the District of Hawaii found that the Company had violated the terms of a confidentiality agreement with Hawaiian Airlines and awarded Hawaiian $80.0 million in damages and ordered the Company to pay Hawaiian's cost of litigation, reasonable attorneys' fees and interest. The Company filed a notice of appeal to this ruling in November 2007 and posted a $90.0 million bond pending the outcome of this litigation. As a result, the Company recorded $86.9 million as a charge to the statement of operations in the fourth quarter of fiscal 2007. On April 29, 2008 the Company reached a

On January 9, 2007, Aloha Airlines filed suit against Mesa in the United States District Court for the District of Hawaii. The complaint seeks damages and injunctive relief. Aloha alleges that Mesa's inter-island air fares are below cost and that Mesa is violating specific provisions of the Sherman Act. Aloha also alleges breach of contract and fraud by Mesa in connection with two confidentiality agreements, one entered into in 2005 and the other in 2006. Mesa denies any attempt at monopolization of the inter-island market and further denies any improper use of the data furnished by Aloha while Mesa was considering a bid for Aloha during its bankruptcy proceedings. On November 28, 2008, Mesa Air Group, Inc. entered into a settlement and release agreement, effective as of November 28, 2008, with certain affiliates of The Yucaipa Companies LLC., which purchased Aloha suit in the bankruptcy case. The Settlement Agreement fully and finally settles all issues and disputes that were raised, or could have been raised, by Yucaipa, Mesa, or Aloha Airlines, Inc. and Aloha Air Group Inc. in connection with the Action. Pursuant to the Settlement Agreement, Yucaipa will fully and finally released Mesa and its affiliates, and Mesa will fully and finally released Yucaipa and its affiliates, from all past, present or future claims related to the Action, including all claims unknown at the time of execution of the Settlement Agreement, and/or arising out of certain non-disclosure agreements and Mesa's introduction of flight service into the Hawaiian inter-island market. In consideration for Yucaipa's release, Mesa has agreed to issue approximately 2.7 million shares of its common stock to Yucaipa and make a cash payment of $2.0 million to Yucaipa. In September 2008 $2.8 . . .