LEASE AGREEMENT N___AT


                          dated as of __________, 200_

                                     between



                   FIRST SECURITY BANK, NATIONAL ASSOCIATION,
               NOT IN ITS INDIVIDUAL CAPACITY, EXCEPT AS EXPRESSLY
                  PROVIDED HEREIN, BUT SOLELY AS OWNER TRUSTEE,

                                     Lessor

                                       and

                            AMERICAN TRANS AIR, INC.,

                                     Lessee

            --------------------------------------------------------

     One Boeing model 737-800  aircraft  bearing United States  registration no.
N___AT and  manufacturer's  serial no. _____,  including  two CFM  International
model  CFM56-7  engines  bearing  manufacturer's  serial  nos.  _____  and _____
-------------------------------------------------------------

CERTAIN OF LESSOR'S  RIGHTS UNDER THIS LEASE AND IN THE AIRCRAFT  COVERED HEREBY
HAVE BEEN  ASSIGNED  TO, AND ARE  SUBJECT TO A  SECURITY  INTEREST  IN FAVOR OF,
WILMINGTON  TRUST  COMPANY,  AS  MORTGAGEE  UNDER TRUST  INDENTURE  AND MORTGAGE
N___AT,  DATED AS OF THE DATE OF THIS  LEASE.  THIS LEASE HAS BEEN  EXECUTED  IN
COUNTERPARTS;  SEE SS. 18.5 FOR INFORMATION  CONCERNING THE RIGHTS OF HOLDERS OF
THE VARIOUS COUNTERPARTS.


<PAGE>





                                    CONTENTS



1. DEFINITIONS AND CONSTRUCTION................................................1


2. DELIVERY AND ACCEPTANCE.....................................................1

  2.1 Delivery and Lease of Aircraft...........................................1
  2.2 Acceptance by Lessee.....................................................1

3. TERM AND RENT...............................................................1

  3.1 Term   1
  3.2 Rent   1
  3.3 Payments.................................................................4

4. DISCLAIMER; CERTAIN AGREEMENTS OF LESSOR; SECTION 1110 MATTERS..............5

  4.1 Disclaimer of Warranties.................................................5
  4.2 Certain Agreements of Lessor.............................................6
  4.3 Quiet Enjoyment..........................................................6
  4.4 Investment of Funds Held as Security.....................................6
  4.5 Title Transfers by Lessor................................................7
  4.6 Lessor's Interest in Certain Engines.....................................8
  4.7 Lease For U.S. Federal Income Tax Law Purposes; Section 1110
      of Bankruptcy Code.......................................................8
5. RETURN OF AIRCRAFT..........................................................8

  5.1 Compliance with Annex B..................................................8
  5.2 Parking and Related Matters..............................................9
  5.3 Return of Other Engines..................................................9
  5.4 Fuel   9

6. LIENS     10


7. REGISTRATION; OPERATION; POSSESSION AND SUBLEASING.........................10

  7.1 Registration and Operation..............................................10
  7.2 Possession..............................................................12
  7.3 Certain Limitations on Subleasing or Other Relinquishment of Possession.17

8. MAINTENANCE; REPLACEMENT AND POOLING OF PARTS; ALTERATIONS,
             MODIFICATIONS, AND ADDITIONS; OTHER LESSEE COVENANTS.............18

  8.1 Maintenance; Replacement and Pooling of Parts; Alterations,
      Modifications, and Additions............................................18
  8.2 Information, Certificates, Notices, and Reports.........................18

9. VOLUNTARY TERMINATION UPON OBSOLESCENCE....................................20

  9.1 Right of Termination....................................................20
  9.2 Election by Lessor to Sell..............................................20
  9.3 Retention of Aircraft by Lessor.........................................23

10. LOSS, DESTRUCTION, REQUISITION, ETC.......................................24

  10.1 Event of Loss to the Aircraft..........................................24
  10.2 Event of Loss to an Engine; Engine Exchanges...........................27
  10.3 Conditions to any Replacement..........................................28
  10.4 Conveyance to Lessee...................................................30
  10.5 Application of Payments................................................30
  10.6 Requisition of Aircraft for Use........................................31
  10.7 Requisition of an Engine for Use.......................................32
  10.8 Application of Payments................................................32
  10.9 Application of Payments During Default.................................32

11. INSURANCE.................................................................32

  11.1 Lessee's Obligation to Insure..........................................33
  11.2 Insurance for Own Account..............................................33
  11.3 Indemnification by Government in Lieu of Insurance.....................33
  11.4 Application of Insurance Proceeds......................................33
  11.5 Application of Payments During Default.................................34

12. INSPECTION................................................................34


13. ASSIGNMENT; MERGER; SUCCESSOR OWNER TRUSTEE...............................35

  13.1 In General.............................................................35
  13.2 Merger of Lessee.......................................................35
  13.3 Assignment as Security for Lessor's Obligations........................36
  13.4 Successor Owner Trustee................................................37

14. LEASE EVENTS OF DEFAULT...................................................37

  14.1 Payments...............................................................37
  14.2 Insurance..............................................................38
  14.3 Other Covenants........................................................38
  14.4 Representations and Warranties.........................................38
  14.5 Bankruptcy and Insolvency..............................................38
  14.6 Repudiation or Invalidity of Guarantee.................................39

15. REMEDIES AND WAIVERS......................................................39

  15.1 Remedies...............................................................39
  15.2 Limitations Under CRAF.................................................43
  15.3 Right to Perform for Lessee............................................43
  15.4 Determination of Fair Market Rental Value and Fair Market Sales Value..44
  15.5 Remedies Cumulative....................................................44

16. LESSEE'S OBLIGATIONS; NO SETOFF, COUNTERCLAIM, ETC........................44


17. RENEWAL AND PURCHASE OPTIONS..............................................45

  17.1 Notices Generally......................................................45
  17.2 Renewal Options........................................................45
  17.3 Purchase Option........................................................47
  17.4 Appraisals.............................................................50

18. MISCELLANEOUS.............................................................51

  18.1 Amendments.............................................................51
  18.2 Severability...........................................................51
  18.3 Third-Party Beneficiary................................................51
  18.4 Reproduction of Documents..............................................51
  18.5 Counterparts...........................................................52
  18.6 Notices................................................................52
  18.7 Governing Law..........................................................52
  18.8 No Waiver..............................................................52
  18.9 Entire Agreement.......................................................53


ANNEXES, EXHIBITS, AND SCHEDULES

ANNEX A             Definitions
ANNEX B             Return Conditions
ANNEX C             Maintenance
ANNEX D             Insurance

EXHIBIT A           Aircraft Description
EXHIBIT B           Form of Return Acceptance Supplement

SCHEDULE 1          Certain Terms
SCHEDULE 2          Basic Rent Payments
SCHEDULE 2A         Basic Rent Allocations
SCHEDULE 3          Stipulated Loss Value Schedule
SCHEDULE 4          Termination Value Schedule
SCHEDULE 5          EBO Price Schedule
SCHEDULE 6          Permitted Countries
SCHEDULE 7          Placards



<PAGE>






                             LEASE AGREEMENT N___AT


         This Lease  Agreement  N___AT (this  "LEASE")  dated as of  __________,
200_, between (1) First Security Bank, National Association,  a national banking
association,  not in its  individual  capacity  (except  as  expressly  provided
herein) but solely as Owner Trustee ("LESSOR"), and (2) American Trans Air, Inc.
("LESSEE"), an Indiana corporation.

         Lessor and Lessee agree as follows:

                         1. DEFINITIONS AND CONSTRUCTION

         The terms defined in Annex A, when  capitalized as in Annex A, have the
same meanings when used in this Lease. Annex A also contains rules of usage that
control construction in this Lease.

                           2. DELIVERY AND ACCEPTANCE

         2.1               DELIVERY AND LEASE OF AIRCRAFT

         Lessor  hereby  leases the Aircraft to Lessee for the Term,  and Lessee
hereby leases the Aircraft from Lessor for the Term.

         2.2               ACCEPTANCE BY LESSEE

         Lessee hereby  confirms to Lessor that Lessee has duly and  irrevocably
accepted delivery of the Aircraft for all purposes of this Lease.

                                3. TERM AND RENT

         3.1               TERM

         The Aircraft shall be leased hereunder for the Term,  unless this Lease
or the leasing of the  Aircraft is earlier  terminated  in  accordance  with any
provision of this Lease.

         3.2               RENT

     3.2.1 BASIC RENT; ADJUSTMENTS TO BASIC RENT AND CERTAIN OTHER AMOUNTS

         (a)......During  the Base Term,  Lessee  shall pay to  Lessor,  on each
Payment Date,  Basic Rent in the amount equal to the percentage of Lessor's Cost
specified  in  Schedule 2 for such  Payment  Date.  The  amounts  and periods of
Lessee's  liability  for Basic Rent shall be as  allocated  in  accordance  with
Schedule 2A. Such Basic Rent payments and such allocations shall be (i) adjusted
pursuant to ss.  3.2.1(b),  or (ii) increased in an amounT equal to any increase
in the amount of interest due on the  Equipment  Notes on the  relevant  Payment
Date pursuant to ss. 2(e) of the Registration  Rights Agreement (or,  subsequent
to any such increase,  decreased by the amount oF such increase  pursuant to ss.
2(e) of the  Registration  Rights  Agreement).  During any Renewal Term,  Lessee
shall paY to Lessor,  on each Payment Date, Basic Rent equal to the Renewal Rent
for that Renewal Term, determined pursuant to ss. 17.2.2.

         (b)......Basic  Rent, Basic Rent  allocations,  Stipulated Loss Values,
Termination Values, and EBO Price shall be subject to adjustment as follows:

                  (1) If Transaction Expenses paid by Lessor pursuant to ss. 9.2
         of the ParticipatioN  Agreement are determined to be other than 2.0% of
         Lessor's Cost, then the Basic Rent percentages in Schedule 2, the Basic
         Rent allocations in Schedule 2A, the Stipulated Loss Value  percentages
         in Schedule 3, the Termination Value percentages in Schedule 4, and the
         EBO  Price  shall  be  recalculated  (upwards  or  downwards)  by Owner
         Participant,  on or before the 120th day after the Delivery  Date using
         the same methods and assumptions used to calculate original Basic Rent,
         EBO Price, Stipulated Loss Value, and Termination Value percentages, in
         order (aa) to maintain Owner  Participant's  Net Economic  Return,  and
         (bb) to the extent  possible  consistent  with  clause (aa) of this ss.
         3.2.1(b)(1), to minimizE the Net Present Value of Rents to Lessee.

                  (2) In the event of a refinancing as contemplated by ss. 11 of
         the  ParticipatioN  Agreement,  then  the  Basic  Rent  percentages  in
         Schedule 2, the Basic Rent  allocations  in Schedule 2A, the Stipulated
         Loss Value percentages in Schedule 3, the Termination Value percentages
         in  Schedule  4,  and the EBO  Price  shall  be  adjusted  (upwards  or
         downwards)  by Owner  Participant  as  contemplated  by such ss.  11 to
         reflect  the  change,  if any, in  interest  rate  resulting  from such
         refinancing, in order (aa) to maintain Owner Participant's Net Economic
         Return, and (bb) to the extent possible  consistent with clause (aa) of
         this ss.  3.2.1(b)(2),  to minimize  the Net Present  Value of Rents to
         Lessee.

                  (3)  Notwithstanding  the  foregoing,  in no event  shall  any
         adjustment  to the EBO  Price be made  such  that the EBO Price is less
         than the greatest of (aa) the adjusted  Stipulated Loss Value as of the
         EBO Date,  (bb) the estimated  fair market value of the Aircraft on the
         EBO Date as set forth in the Appraisal  referred to in ss.  5.1.2(m) of
         the Participation  Agreement, and (cc) the sum of the presenT values of
         (i) Basic Rent payable, as adjusted, during the Base Term after the EBO
         Date,  and (ii) the appraised  fair market value of the Aircraft at the
         end of the Base Term as estimated in the  Appraisal  referred to in ss.
         5.1.2(m) of the  Participation  Agreement,  each discounted back to the
         EBO Date (using A discount rate of 16.5%).

         (c) All adjustments  pursuant to ss. 3.2.1(b) shall be made as promptly
as  practicable  after  eitheR Owner  Participant  or Lessee gives notice to the
other that an event has occurred that requires an adjustment.  Owner Participant
and  Lessee  shall give  prompt  notice to the other of any event  requiring  an
adjustment.  Any recalculation of the percentages of Basic Rent payments,  Basic
Rent allocations,  Stipulated Loss Value, Termination Value, and EBO Price shall
be  prepared by Owner  Participant,  subject to  verification  at the request of
Lessee  in  accordance  with  this  ss.  3.2.1(c),  on the  basis  of  the  same
methodology  and  assumptions  used by  OwneR  Participant  in  determining  the
percentages of Basic Rent,  Stipulated Loss Value,  Termination  Value,  and EBO
Price as of the Delivery Date,  except as such assumptions have been modified to
reflect the events giving rise to adjustments  hereunder and taking into account
the law applicable at the time of such adjustment.  Promptly after an adjustment
is made hereunder,  Owner  Participant  shall deliver to Lessee a description of
such adjustment, setting forth in reasonable detail the calculation thereof. All
adjustments (1) shall be made so as to avoid  characterization of the Lease as a
"disqualified  leaseback or long-term  agreement" within the meaning of Code ss.
467 and Treasury Regulations thereunder, and (2) shall be in compliance with the
requirements  of ss.  4(1) And ss.  4(6) of Revenue  Procedure  75-21 and ss.ss.
4.02(5),  4.07(l),  and 4.07(2) of Revenue Procedure 75-28, except tO the extent
that on the Delivery  Date the Lease  constituted a  "disqualified  leaseback or
long-term  agreement"  or was  not in  compliance  with  the  Revenue  Procedure
sections  referred to in clause (2). In connection with any such  adjustments to
payments and allocations of Basic Rent,  appropriate  corresponding  adjustments
shall be made to the  percentages  set forth on Schedules 3 and 4 in the columns
headed "Deferred Basic Rent Amount" and "Prepaid Basic Rent Amount".  All of the
foregoing  adjustments  shall be set forth in an  amendment  to this Lease,  and
promptly after execution thereof by Lessor and Lessee,  Lessee shall give a copy
thereof to Mortgagee.

         (d) If  Lessee  believes  that any  calculations  by Owner  Participant
pursuant to ss. 3.2.1(c) are iN error,  and if, after  consultation,  Lessee and
Owner  Participant do not agree on an adjustment,  then a  nationally-recognized
firm of  accountants  selected by Lessee and  reasonably  satisfactory  to Owner
Participant  shall  verify  such  calculations.   Owner  Participant  will  make
available to such firm (but not to Lessee or any  representative  of Lessee) the
methodology  and assumptions  referred to in ss. 3.2.1(c) and any  modifications
theretO made to reflect the events giving rise to adjustments hereunder (subject
to the  execution  by  such  firm  of a  confidentiality  agreement,  reasonably
acceptable to Owner Participant,  prohibiting disclosure of such methodology and
assumptions to any third party).  The  determination by such firm of accountants
shall be  final.  Lessee  will pay the  reasonable  costs and  expenses  of such
verification by such accountants, except that if it results in (1) a decrease in
Basic Rent which  decreases  the  remaining Net Present Value of Rents by ten or
more basis points from the remaining Net Present Value of Rents as  recalculated
by Owner  Participant,  or (2) a material  reduction in Stipulated  Loss Values,
Termination Values, or the EBO Price, then Owner Participant will pay such costs
and expenses.

         (e)   Notwithstanding   anything  to  the  contrary  in  any  Operative
Agreement,  the  amount of the  payment  of Basic  Rent due and  payable on each
Payment  Date shall be at least  sufficient  to pay in full,  as of such Payment
Date  (assuming  timely  payment of the Equipment  Notes before such Date),  the
aggregate principal amount of scheduled  installments due on the Equipment Notes
outstanding on such Payment Date,  together with the accrued and unpaid interest
thereon,  due on such Payment Date in respect of the Equipment Notes;  PROVIDED,
that no installment of Basic Rent shall be increased to the extent such increase
would be based upon (1) any  attachment or diversion of Basic Rent on account of
Lessor Liens,  (2) any modification of the payment terms of the Equipment Notes,
other than as required or permitted by any  Operative  Agreement  (including  as
permitted  upon  the  occurrence  of a  Lease  Event  of  Default),  or (3)  the
acceleration of any Equipment  Note(s) due solely to the existence of a Mortgage
Event of Default that does not constitute a Lease Event of Default.

                           3.2.2            SUPPLEMENTAL RENT

         Lessee  shall pay to Lessor,  or to whomever is entitled to it, any and
all Supplemental Rent when and as it becomes due and owing. Lessee will also pay
to Lessor, or to whomever is entitled to it, as Supplemental Rent, to the extent
permitted by  applicable  Law,  interest at the Past-Due Rate on any part of any
amount of Rent  (including  Supplemental  Rent) not paid by 11:00 a.m., New York
time, on the date when due (so long as, in the case of any Person not a party to
the Participation Agreement, Lessee had received timely notice of the account to
which such payment was required to be made),  for the period from and  including
the date on which the same was due to (but  excluding)  the date of  payment  in
full.

         3.3               PAYMENTS

         (a)  Payments  of Rent by  Lessee  shall  be paid by wire  transfer  of
immediately available Dollars, not later than 11:00 a.m., New York City time, on
the date when due,  to the  account  of Lessor  specified  in  Schedule 1 to the
Participation Agreement (or to such other account in the United States as Lessor
specifies to Lessee in writing at least 10 Business  Days before such payment of
Rent is due),  or, in the case of any  payment of  Supplemental  Rent  expressly
payable to a Person  other than  Lessor,  to the Person  that shall be  entitled
thereto, to such account in the United States as such Person specifies from time
to time to Lessee at least 10 Business Days before such payment of Rent is due.

         (b) Except as otherwise expressly provided herein, whenever any payment
of Rent shall be due on a day that is not a Business  Day, such payment shall be
made on the next day that is a Business  Day,  and,  if such  payment is made on
such next Business  Day, no interest  shall accrue on the amount of such payment
during such extension.

         (c) So  long as  Lessee  has  not  received  written  notice  from  the
Mortgagee that the Lien of the Mortgage has been discharged, and notwithstanding
ss. 3.3(a),  Lessor hereby directs, and Lessee agrees, that alL payments of Rent
payable by Lessee,  other than  Excluded  Payments,  shall be paid  directly  to
Mortgagee on behalf of Lessor by wire transfer of immediately  available Dollars
to the  account  of  Mortgagee  specified  in  Schedule  1 to the  Participation
Agreement (or to such other account in the United States as Mortgagee  specifies
by written  notice to Lessor and Lessee at least 10  Business  Days  before such
payment of Rent is due).

         (d)  Excluded  Payments  payable  to any  Person  shall be paid by wire
transfer  of  immediately  available  Dollars  to the  account  of  such  Person
specified  in the  Participation  Agreement  or,  if not so  specified,  to such
account in the United States such Person  specifies by written  notice to Lessor
and Lessee  from time to time at least 10 Business  Days before such  payment is
required to be made.

         (e) All  computations of interest under this Lease shall be made on the
basis of a year of 360 days composed of twelve 30-day months.

     4. DISCLAIMER; CERTAIN AGREEMENTS OF LESSOR; SECTION 1110 MATTERS

         4.1               DISCLAIMER OF WARRANTIES

         LESSOR LEASES AND LESSEE TAKES THE AIRCRAFT "AS-IS,  WHERE-IS."  LESSEE
ACKNOWLEDGES  AND AGREES THAT, AS BETWEEN LESSEE AND EACH OF LESSOR,  MORTGAGEE,
AND ANY  PARTICIPANT,  (A) LESSEE HAS SELECTED  THE  AIRCRAFT  AND  MANUFACTURER
THEREOF,  AND (B) NEITHER LESSOR NOR MORTGAGEE NOR ANY  PARTICIPANT  MAKES,  HAS
MADE, OR SHALL BE DEEMED TO HAVE MADE, AND EACH WILL BE DEEMED TO HAVE EXPRESSLY
DISCLAIMED, ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO:

     (1)   THE   AIRWORTHINESS,    VALUE,    CONDITION,    DESIGN,    OPERATION,
MERCHANTABILITY,  OR  FITNESS  FOR  USE OR FOR  ANY  PARTICULAR  PURPOSE  OF THE
AIRFRAME, ANY ENGINE, OR ANY PART THEREOF;

     (2)  THE  QUALITY  OF THE  MATERIAL  OR  WORKMANSHIP  WITH  RESPECT  TO THE
AIRFRAME, ANY ENGINE, OR ANY PART THEREOF;

     (3) THE ABSENCE OF LATENT OR ANY OTHER DEFECT IN THE AIRFRAME,  ANY ENGINE,
OR ANY PART THEREOF, WHETHER OR NOT DISCOVERABLE;

     (4) THE ABSENCE OF ANY INFRINGEMENT OF ANY PATENT, TRADEMARK, OR COPYRIGHT,
OR THE LIKE; OR

     (5) THE ABSENCE OF  OBLIGATIONS  BASED ON STRICT  LIABILITY IN TORT, OR ANY
OTHER  IMPLIED  REPRESENTATION  OR  WARRANTY  WHATSOEVER  WITH  RESPECT  TO  THE
AIRFRAME, ANY ENGINE, OR ANY PART THEREOF.

         4.2               CERTAIN AGREEMENTS OF LESSOR

         Unless a Lease Event of Default exists, Lessor agrees to make available
to Lessee such rights as Lessor may have under any warranty  with respect to the
Aircraft  made,  or  made   available,   by  Airframe   Manufacturer  or  Engine
Manufacturer,  or any of their  subcontractors or suppliers,  pursuant to and in
accordance with the terms of the Purchase Agreement Assignment.

         4.3               QUIET ENJOYMENT

         So long as no Lease Event of Default exists, Lessor shall not interfere
with Lessee's rights hereunder to continued  possession,  use, and operation of,
and quiet enjoyment of, the Aircraft during the Term.

         4.4               INVESTMENT OF FUNDS HELD AS SECURITY

                           4.4.1            INVESTMENT

         Any money required to be paid to or retained by Lessor that is required
to be paid to Lessee or applied as provided  herein shall,  until paid to Lessee
as  provided  herein or applied as provided  herein,  be invested by Lessor from
time to time as directed in writing by Lessee (or, if Lessee does not so direct,
by or as directed  by Lessor in its sole  discretion)  and at Lessee's  risk and
expense in Cash Equivalents so long as such Cash Equivalents specified by Lessee
or Lessor (as  applicable)  can be acquired by Lessor using its reasonable  best
efforts;  PROVIDED,  that so  long as the  Lien  of the  Mortgage  has not  been
discharged,  such money shall be invested and held by Mortgagee,  as assignee of
Lessor,  in  accordance  with  this  Lease,  and upon  discharge  of such  Lien,
Mortgagee  shall pay any such money held by it to Lessor to be held and invested
in accordance with this ss. 4.4.1.

                           4.4.2            PAYMENT OF GAIN OR LOSS

         Any net gain (including  interest  received)  realized as the result of
investments  pursuant  to ss.  4.4.1  (net of any fees,  commissions,  and other
reasonable  expenses  incurred in connection with such investment) shall be held
and applied in the same manner as the principal amount is to be held and applied
hereunder. Lessee will promptly pay to Lessor, on demand, the amount of any loss
realized  as  the  result  of any  such  investment  (together  with  any  fees,
commissions,  and other  reasonable  expenses  incurred in connection  with such
investment),  such  amount  so  paid  to  be  held  and  applied  by  Lessor  as
contemplated in ss. 4.4.1.

                           4.4.3            LIMITATION OF LIABILITY

         All  investments  under  this ss.  4.4  shall be at  Lessee's  risk and
expense,  and Lessor and  Mortgagee  shalL not be liable for any loss  resulting
from any investment  made under this ss. 4.4 other than by reason of itS willful
misconduct or gross negligence.  Any such investment may be sold (without regard
to its maturity) by Lessor without instructions  whenever such sale is necessary
to make a distribution required by this Lease.

         4.5               TITLE TRANSFERS BY LESSOR

         If Lessor  shall be  required to transfer  title to the  Aircraft,  the
Airframe,  or any Engine to Lessee or any other  Person  pursuant to this Lease,
then  (a)  Lessor  shall  (1)  transfer  to  Lessee  or such  other  Person  (as
applicable)  all of Lessor's  right,  title and interest in and to the Aircraft,
the Airframe, or such Engine (as applicable), free and clear of all Lessor Liens
attributable to Lessor,  FSB, or Owner  Participant,  (2) so long as the Lien of
the Mortgage has not been discharged,  comply with the Mortgage  relating to the
release of the Aircraft,  the Airframe,  or such Engine, (3) assign to Lessee or
such other  Person (as  applicable),  if and to the extent  permitted  under the
Purchase  Agreement,   all  warranties  of  Airframe   Manufacturer  and  Engine
Manufacturer with respect to the Aircraft, the Airframe, or such Engine, and (4)
assign to Lessee or such  other  Person  (as  applicable),  if and to the extent
permitted, all claims, if any, for damage to the Aircraft, the Airframe, or such
Engine, in each case free of Lessor Liens attributable to Lessor,  FSB, or Owner
Participant,  and without recourse or warranty of any kind whatsoever (except as
to the  transfer  described  in clause  (1) above and as to the  absence of such
Lessor  Liens),  and (b) Lessor shall  promptly  deliver to Lessee or such other
Person (as applicable), a bill of sale and agreements of assignment,  evidencing
such transfer and  assignment,  and such other  instruments of transfer,  all in
form and substance  reasonably  satisfactory to Lessee (or such other Person, as
applicable),  as Lessee (or such other Person,  as  applicable)  may  reasonably
request and furnish to Lessor.

         4.6               LESSOR'S INTEREST IN CERTAIN ENGINES

         Lessor  hereby  agrees  for the  benefit  of each  lessor,  conditional
seller, or secured party of any engine (other than an Engine) leased, purchased,
or owned by Lessee or any Permitted  Sublessee  subject to a lease,  conditional
sale,  or other  security  agreement  that Lessor will not acquire or claim,  as
against such lessor,  conditional seller, or secured party, any right, title, or
interest in such engine as the result of the  installation of such engine on the
Airframe  at any time while such  engine is subject to such  lease,  conditional
sale, or other security agreement and owned by such lessor or conditional seller
or subject to a security interest in favor of such secured party.

     4.7  LEASE  FOR U.S.  FEDERAL  INCOME  TAX LAW  PURPOSES;  SECTION  1110 OF
BANKRUPTCY CODE

     (a) Lessee and Lessor  agree that this Lease is, and shall be treated as, a
lease for U.S. federal income tax purposes of the Aircraft,  Airframe,  Engines,
and Parts.

         (b) Lessee and Lessor intend that Lessor (and  Mortgagee as assignee of
Lessor  under the  Mortgage)  shall be entitled to the  benefits of Section 1110
with respect to the right to take possession of the Aircraft, Airframe, Engines,
and Parts as provided in this Lease.

                              5. RETURN OF AIRCRAFT

         5.1               COMPLIANCE WITH ANNEX B

         Lessee  shall  comply  with each of the  provisions  of Annex B,  which
provisions  are hereby  incorporated  by this  reference as if set forth in full
herein.

         5.2               PARKING AND RELATED MATTERS

         If Lessor  gives  written  notice to Lessee,  not less than 10 days nor
more  than  120 days  before  the end of the  Term,  requesting  parking  of the
Aircraft upon its return  hereunder,  Lessee will assist Lessor in procuring (or
cause Lessor to be provided  with) outdoor  parking  facilities for the Aircraft
for a storage  period up to 30 days,  starting on the date of such  return,  and
upon  Lessor's  request to Lessee  made at least 10 days  before the end of such
initial  30-day  period,   for  an  additional  90-day  period  commencing  upon
expiration of such initial period, at such storage facility in the 48 contiguous
states of the United States as Lessee selects. Such storage shall be at Lessor's
risk, and Lessor shall pay all applicable storage fees, except that Lessee shall
pay the parking fees for the initial 30-day  storage  period;  PROVIDED  FURTHER
that  Lessee's  obligation  to provide  parking  shall be  subject  to  Lessor's
entering into an agreement with the storage facility,  before the storage period
begins, providing that Lessor shall bear all maintenance charges and other costs
incurred, and that Lessee's obligations hereunder will be solely for the payment
of parking fees for the initial 30-day period  pursuant to the terms of this ss.
5.2. Unless Lessor and Lessee otherwise agree, the location of such parking wilL
also constitute the return location for the Aircraft.

         5.3               RETURN OF OTHER ENGINES

         If any Engine  owned by Lessor is not  installed on the Airframe at the
time of return  hereunder,  Lessee shall return the  Airframe  hereunder  with a
Replacement  Engine meeting the  requirements of, and in accordance with, ss. 10
and Annex B. Thereupon,  Lessor will transfer to Lessee the Engine  constituting
part of such  AircrafT  but not  installed  on such  Airframe at the time of the
return of the Airframe.

         5.4               FUEL

         Upon the return of the  Airframe  upon any  termination  of this Lease,
Lessor shall pay Lessee,  as  compensation  for any fuel or oil contained in the
fuel or oil tanks of such  Airframe,  the value of such fuel or oil at the price
paid by Lessee for such fuel or oil. However,  if the Aircraft is being returned
in  connection  with the exercise of remedies  pursuant to ss. 15,  Lessor shall
have no  obligation  to make such payment to LesseE until Lessor shall have been
paid all amounts due to it pursuant to ss. 15.

                                    6. LIENS

         Lessee shall not,  directly or indirectly,  create,  incur,  assume, or
suffer to exist any Lien on or with respect to the Aircraft,  the Airframe,  any
Engine, or any Part, title to any of the foregoing,  or any interest therein, or
Lessee's rights in and to this Lease or any Permitted  Sublease,  except (a) the
rights of Lessor,  Mortgagee,  the Participants,  and Lessee under the Operative
Agreements,  and of any Permitted  Sublessee under any Permitted  Sublease;  (b)
Lessor Liens;  (c) the rights of others under  agreements or arrangements to the
extent permitted by ss. 7.2, ss. 7.3, or Annex C; (d) Liens for Taxes either not
yet due or being  contested  in good faith by  appropriate  proceedings  if such
Liens and such  proceedings  do not involve  more than a DE MINIMIS  risk of the
sale,  forfeiture,  or loss of the Aircraft,  the Airframe,  any Engine,  or the
interest of any  Participant  therein,  or impair the Lien of the Mortgage;  (e)
materialmen's, mechanics', workers', repairers', employees', or other like Liens
arising in the  ordinary  course of  business  for  amounts the payment of which
either is not yet delinquent for more than 60 days or is being contested in good
faith by  appropriate  proceedings,  if such Liens and such  proceedings  do not
involve any more than a DE MINIMIS risk of the sale, forfeiture,  or loss of the
Aircraft,  the Airframe, any Engine, or the interest of any Participant therein,
or impair the Lien of the  Mortgage;  (f) Liens  arising out of any  judgment or
award against Lessee, if, within 60 days after the entry thereof,  that judgment
or award is discharged or vacated,  or has its execution  stayed pending appeal,
or is discharged,  vacated,  or reversed  within 60 days after the expiration of
such  stay,  and if during  any such  60-day  period  there is not,  or any such
judgment  or award does not  involve,  more than a DE MINIMIS  risk of the sale,
forfeiture,  or loss of the Aircraft,  the Airframe, any Engine, or the interest
of any Participant  therein, or impairment of the Lien of the Mortgage;  and (g)
any other Lien with respect to which Lessee or any Permitted  Sublessee provides
a bond, cash collateral, or other security adequate in the reasonable opinion of
Lessor.  Lessee shall  promptly  take or cause to be taken such action as may be
necessary  duly to  discharge  (by bonding or  otherwise)  any Lien not excepted
above that arises in respect of the Aircraft,  the Airframe,  any Engine, or any
Part during the Term.

              7. REGISTRATION; OPERATION; POSSESSION AND SUBLEASING

         7.1               REGISTRATION AND OPERATION

                           7.1.1            REGISTRATION AND RECORDATION

         Subject  to  Lessor's  and Owner  Participant's  compliance  with their
obligations under ss. 13 of thE Participation Agreement,  Lessee shall cause the
Aircraft to be, and at all times during the Term to remain, duly registered with
the FAA under the Transportation  Code or with such other country of registry as
shall be permitted  under ss. 7.1.2  hereof,  in the name of Lessor as owner and
lessor  (except to the extent that sucH  registration  under the  Transportation
Code is prevented or lost because of Lessor's or Owner Participant's  failure to
comply with the citizenship  requirements for registration of the Aircraft under
the Transportation Code). Lessor shall execute and deliver all such documents as
Lessee  or any  Permitted  Sublessee  reasonably  requests  for the  purpose  of
effecting and continuing such  registration.  Unless  Mortgagee has given Lessee
notice  that the  Mortgage  has been  discharged,  Lessee  shall  also cause the
Mortgage  to be  duly  recorded  and at all  times  maintained  of  record  as a
first-priority  perfected mortgage (subject to Permitted Liens) on the Aircraft,
the Airframe,  and each of the Engines  (except to the extent such perfection or
priority  cannot be  maintained  solely as a result of the  failure by Lessor or
Mortgagee  to  execute  and  deliver  any  necessary  documents).  Each  of  the
registrations and recordations  referenced in this ss. 7.1.1 will be at Lessee's
cost and expense, except aS otherwise provided in this Lease.

                           7.1.2            REREGISTRATION

         After the Tax Attribute  Period (or before such date,  provided  Lessee
pre-pays on a lump-sum basis any liability due under the Tax Indemnity Agreement
as a result of such registration on the assumption that such registration  would
continue for the  remainder of the term of the Permitted  Sublease  described in
ss. 7.6.11(a)(3) of the Participation  Agreement, if no Special Default or Lease
Event of Default exists, Lessee may, by written notice to Lessor (with a copy of
such notice to Owner Participant), request to change the country of registration
of the  Aircraft.  Any such change in  registration  shall be  effected  only in
compliance  with,  and subject to all of the conditions set forth in, ss. 7.6.11
of the Participation Agreement.

                           7.1.3            MARKINGS

         If permitted by  applicable  Law, on or reasonably  promptly  after the
Delivery  Date,  Lessee  will cause to be affixed  to,  and  maintained  in, the
cockpit of the Airframe and on each  Engine,  in each case in a clearly  visible
location,  a placard of a reasonable size and shape bearing the legend set forth
in Schedule 6. Such placards may be removed  temporarily,  if necessary,  in the
course of maintenance of the Airframe or Engines. If any such placard is damaged
or becomes illegible,  Lessee shall promptly replace it with a placard complying
with the requirements of this ss. 7.1.3.

                           7.1.4            COMPLIANCE WITH LAWS

         Lessee  shall not,  and shall not allow any other  Person to,  operate,
use, maintain, service, repair, overhaul, improve, or modify the Aircraft (a) in
violation of any Law binding on or applicable to the Aircraft,  the Airframe, or
any Engine, or (b) in violation of any airworthiness  certificate,  license,  or
registration of any Government Entity relating to the Aircraft, the Airframe, or
any Engine,  except (1) immaterial or  non-recurring  violations with respect to
which corrective  measures are taken promptly by Lessee or a Permitted Sublessee
(as  applicable)  upon  discovery  thereof,  and (2) to the extent Lessee or any
Permitted Sublessee is contesting the validity or application of any such Law or
requirement  relating to any such certificate,  license, or registration in good
faith in any  reasonable  manner  which does not involve  more than a DE MINIMIS
risk of the sale, forfeiture,  or loss of the Aircraft, the Airframe, any Engine
or the interest of any Participant therein, any risk of criminal liability or of
material civil penalty against Lessor,  Mortgagee,  or any Participant or impair
the lien of the Mortgage.

                           7.1.5            OPERATION

         Lessee  agrees  not to  operate,  use,  or  locate  the  Aircraft,  the
Airframe,  or any Engine, or allow the Aircraft,  the Airframe, or any Engine to
be operated,  used,  or located,  (a) in any area  excluded from coverage by any
insurance  required by the terms of ss. 11,  except in the case of a requisition
by the U.S.  Government where thE U.S.  Government provides an indemnity in lieu
of such insurance, or insurance from the U.S. Government, covering such area, in
accordance  with ss. 11.3, or (b) in any recognized  area of hostilities  unless
fully  covered iN accordance  with Annex D by war-risk  insurance as required by
the terms of ss. 11 (including ss. 11.3), unless in Any case referred to in this
ss. 7.1.5 the Aircraft is only  temporarily  operated,  used, or located in such
area as A result of an emergency,  equipment  malfunction,  navigational  error,
hijacking, weather condition, or other similar unforeseen circumstances, so long
as Lessee diligently and in good faith proceeds to remove the Aircraft from such
area.

         7.2               POSSESSION

         Lessee will not,  without the prior written consent of Lessor and Owner
Participant,   sublease  or  otherwise  in  any  manner  deliver,  transfer,  or
relinquish  possession of the Aircraft,  the Airframe, or any Engine, or install
any Engine, or permit any Engine to be installed, on any airframe other than the
Airframe;  PROVIDED,  that,  subject to the  provisions of ss. 7.3,  Lessee may,
without such prior written consent:

                           7.2.1            INTERCHANGE AND POOLING

         Subject or permit any  Permitted  Sublessee to subject (a) the Airframe
         to  normal   interchange   agreements   (provided  that  (1)  any  such
         interchange  agreement does not contemplate that Lessee (or a Permitted
         Sublessee) will be out of possession of the Airframe for more than five
         consecutive  days at a time  (absent  weather,  maintenance,  or  other
         exigencies),  and (2) the  party  to such  interchange  agreement  is a
         Permitted  Air Carrier,  not in  bankruptcy,  organized  and having its
         principal  place of business in a country with which the United  States
         then maintains  normal  diplomatic  relations and which  recognizes and
         gives  effect to the  rights,  title,  and  interests  of Lessor in the
         Airframe), or (b) any Engine (but only if such Engine is then installed
         upon  an  aircraft)  to  normal   interchange   agreements  or  pooling
         agreements or  arrangements,  in each case  customary in the commercial
         airline industry and entered into by Lessee or such Permitted Sublessee
         in the  ordinary  course  of  business;  PROVIDED,  that  (1)  no  such
         agreement or  arrangement  shall require any transfer of Lessor's title
         to the Airframe or such Engine,  and (2) if Lessor's  title to any such
         Engine  is   nevertheless   divested   under  any  such   agreement  or
         arrangement, then such Engine shall be deemed to have suffered an Event
         of  Loss as of the  date  of such  divestiture,  and  Lessee  shall  be
         required to replace such Engine with a Replacement  Engine  meeting the
         requirements of, and in accordance with, ss. 10.

                           7.2.2            TESTING AND SERVICE

         Deliver or permit any Permitted  Sublessee to deliver possession of the
         Aircraft, the Airframe, any Engine, or any Part (a) to the manufacturer
         thereof  or to  any  third-party  maintenance  provider,  for  testing,
         service,  repair,  maintenance,  or  overhaul  work  on  the  Aircraft,
         Airframe,  any  Engine,  or any Part,  or, to the  extent  required  or
         permitted by the terms of Annex C, for alterations or  modifications in
         or additions to the Aircraft,  the Airframe,  or any Engine,  or (b) to
         any Person for the purpose of transport to a Person  referred to in the
         preceding clause (a).

     7.2.3 TRANSFER TO U.S. GOVERNMENT

         Transfer or permit any  Permitted  Sublessee to transfer  possession of
         the  Aircraft,  the  Airframe,  or any  Engine  to the U.S.  Government
         pursuant to CRAF or  otherwise,  in which event Lessee  shall  promptly
         notify  Lessor  and  Mortgagee  in  writing  of any  such  transfer  of
         possession (and, in the case of any transfer  pursuant to CRAF, in such
         notification shall identify by name, address, and telephone numbers the
         Contracting Office  Representative(s)  for the Military Airlift Command
         of the  United  States Air Force to whom  notices  must be given and to
         whom  requests  or claims must be made to the extent  applicable  under
         CRAF).

     7.2.4 INSTALLATION OF ENGINES ON OWNED AIRCRAFT

         Install or permit any  Permitted  Sublessee  to install an Engine on an
         airframe owned by Lessee or such Permitted  Sublessee free and clear of
         all Liens except (a)  Permitted  Liens,  (b) Liens that do not apply to
         the  Engines,  and  (c)  the  rights  of  third  parties  under  normal
         interchange  or  pooling   agreements  and  arrangements  of  the  type
         permitted under ss. 7.2.1.

     7.2.5 INSTALLATION OF ENGINES ON OTHER AIRFRAMES

         Install or permit any  Permitted  Sublessee  to install an Engine on an
         airframe leased to Lessee or such Permitted Sublessee,  or purchased or
         owned by Lessee  or such  Permitted  Sublessee  subject  to a  security
         agreement,  conditional sale, or other secured  financing  arrangement,
         but only if (a) such airframe is free and clear of all Liens except (1)
         the  rights  of  the  parties  to  such  lease  or  secured   financing
         arrangement,  covering  such  airframe,  and  (2)  Liens  of  the  type
         permitted by clauses (a) and (b) of ss.  7.2.4,  and (b) Lessee or such
         Permitted  Sublessee has received from the lessor,  secured  party,  oR
         conditional  seller,  in respect of such airframe,  a written agreement
         (which may be a copy of the lease, security agreement, conditional sale
         agreement,  or other agreement  covering such  airframe),  whereby such
         Person  agrees that it will not acquire or claim any right,  title,  or
         interest in, or Lien on, such Engine by reason of the  installation  of
         such  Engine on such  airframe at any time while such Engine is subject
         to this Lease or is owned by Lessor.

     7.2.6 INSTALLATIONS OF ENGINES ON FINANCED AIRCRAFT

         Install or permit any  Permitted  Sublessee  to install an Engine on an
         airframe owned by Lessee or such Permitted Sublessee,  leased to Lessee
         or such  Permitted  Sublessee,  or purchased or owned by Lessee or such
         Permitted  Sublessee  subject to a conditional  sale or other  security
         agreement  under  circumstances  where  neither ss. 7.2.4 nor ss. 7.2.5
         applies;  PROVIDED, that any such installation shall be deemed an EvEnt
         of Loss with respect to such  Engine,  and Lessee shall comply with ss.
         10.2 in respect  thereof.  UntiL ss. 10.2 has been fully complied with,
         Lessor's  interest  in such  Engine  shall  continue  in full force anD
         effect.

                           7.2.7            SUBLEASING

     With respect to the Aircraft,  the Airframe,  or any Engine,  if no Special
Default  or Lease  Event of  Default  exists,  enter  into a  sublease  with any
Permitted Air Carrier, but only if:

     (a)  Lessee  provides  written  notice  to  Lessor  (with a copy  to  Owner
Participant) and Mortgagee (such notice in the event of a sublease to a U.S. Air
Carrier to be given promptly after entering into any such sublease,  and, in the
case of a sublease to any other  Permitted  Air  Carrier,  10  Business  Days in
advance of entering into such sublease);

     (b) at the time that Lessee enters into such  sublease,  such Permitted Air
Carrier  shall  not be  subject  to  any  bankruptcy,  insolvency,  liquidation,
reorganization,   dissolution,   or  similar  proceeding,  and  shall  not  have
substantially all of its property in the possession of any liquidator,  trustee,
receiver, or similar Person;

     (c) any such  sublease (1) shall not extend  beyond the  expiration  of the
Base Term or any  Renewal  Term then in effect or  irrevocably  committed  to by
Lessee,  or contain a purchase  option,  unless  expressly  subject to  Lessee's
exercise of its renewal or purchase  options in accordance with the terms of ss.
17,  and in any event  subject  to the  requirements  of clause  (4) of this ss.
7.2.7(c),  (2) shall Not  contain  any  purchase  option  exercisable  at a date
earlier than such date permitted  under ss. 17.3, (3) shall  explicitly  require
that  sublessee or sublessor  (or both with  specified  allocations)  will fully
comply with the Lease's  maintenance,  operation,  possession,  inspection,  and
insurance  requirements,  and (4) shall be expressly  subject and subordinate to
all the  terms of this  Lease  and to  Lessor's  rights,  powers,  and  remedies
hereunder,  including Lessor's rights under ss. 15 to repossess the Aircraft and
tO terminate such sublease if a Lease Event of Default exists;

     (d) in connection with a sublease to a Permitted  Foreign Air Carrier,  (1)
the United States maintains diplomatic relations with the country of domicile of
such Permitted  Foreign Air Carrier,  and (2) Lessee furnishes to Lessor,  Owner
Participant   and   Mortgagee  a  favorable   opinion  of  counsel,   reasonably
satisfactory to Lessor and Owner  Participant  (and, so long as the Policy is in
effect,  to  Mortgagee),  located in the country of  domicile of such  Permitted
Foreign Air Carrier,  that (aa) the terms of such sublease are legal, valid, and
binding  obligations of the parties thereto,  enforceable under the laws of such
jurisdiction,  (bb)  it is not  necessary  for  Owner  Participant,  Lessor,  or
Mortgagee  to register or qualify to do  business in such  jurisdiction,  if not
already so registered or qualified,  as a result of the proposed sublease,  (cc)
Lessor's  title to,  and  Mortgagee's  first-priority  Lien in  respect  of, the
Aircraft,  Airframe,  and Engines will be recognized in such jurisdiction,  (dd)
the Laws of such  jurisdiction  of domicile  require  fair  compensation  by the
government of such  jurisdiction,  payable in a currency freely convertible into
Dollars,  for the loss of title to the  Aircraft,  Airframe,  or  Engines in the
event  of the  requisition  by such  government  of such  title  (unless  Lessee
provides  insurance in the amounts required with respect to hull insurance under
ss. 11 covering thE requisition of title to the Aircraft,  Airframe,  or Engines
by the government of such  jurisdiction  so long as the Aircraft,  Airframe,  or
Engines  are  subject  to such  sublease),  (ee) such  Permitted  Air  Carrier's
agreement that its rights under the sublease are subject and  subordinate to all
the terms of this Lease is enforceable  against such Permitted Air Carrier under
applicable Law, and (ff) such sublease will subject Lessor, Mortgagee, and Owner
Participant  to no greater tort  liability than in the United States of America,
OR, if such sublease will subject  Lessor,  Mortgagee,  or Owner  Participant to
greater  tort  liability  than in the  United  States  of  America,  Lessee  (or
Permitted  Sublessee) has provided  insurance to insure against such  additional
liability;

     (e) Lessee furnishes to Lessor,  Mortgagee,  and Owner Participant evidence
reasonably  satisfactory to Lessor that the insurance  required byss. 11 remains
in effect;

     (f) all necessary documents are duly filed, registered, or recorded in such
public  offices as are required  fully to preserve the title of Lessor,  and the
first-priority  security interest (subject to Permitted Liens) of Mortgagee,  in
the Aircraft, Airframe, and Engines;

     (g) Lessee shall reimburse Lessor, Mortgagee, and Owner Participant for all
of their reasonable  out-of-pocket fees and expenses (including  reasonable fees
and disbursements of counsel) incurred in connection with any such sublease;

     (h) no such sublease  shall be made to a "tax exempt  entity" as defined in
ss. 168(h)(2) oF the Code, including a Permitted Foreign Air Carrier, before the
end of the Tax Attribute  Period unless Lessee  prepays on a lump-sum  basis any
liability  due under the Tax  Indemnity  Agreement as a result of such  sublease
based upon the assumption  that such sublease were to continue for the remainder
of the term of such sublease;

     (i)  no  such  sublease  will  adversely  affect  Lessor's  or  Mortgagee's
protection under Section 1110;

     (j) no such  sublease  shall permit the Permitted  Sublessee  thereunder to
sub-sublease  or transfer the Airframe or any Engine,  except for transfers by a
Permitted sublessee  permitted by the foregoing  provisions of this ss. 7.2, and
except that a Permitted  Sublessee who is a manufacturer maY sub-sublease to any
Person to whom a sublease  would be permitted  under this ss.  7.2.7;  PROVIDED,
that (1) such  sub-sublease  shall  not  permit  any  sub-sub-subleasing  of the
Aircraft,  the Airframe,  or any Engine, and (2) such sub-sublease must meet the
requirement of a Permitted Sublease;

                  (k) if the term of such  Sublease  is  greater  than one year,
         Lessee  will assign such  Sublease to Lessor as security  for  Lessee's
         obligations hereunder.

     7.3 CERTAIN LIMITATIONS ON SUBLEASING OR OTHER RELINQUISHMENT OF POSSESSION

         Notwithstanding anything to the contrary in ss. 7.2:

         (a) The rights of any Person who receives possession of the Aircraft in
accordance  with ss. 7.2 shalL be subject  and  subordinate  to all the terms of
this Lease, and to Lessor's rights,  powers, and remedies  hereunder,  including
(1) Lessor's  right to repossess  the Aircraft  pursuant to ss. 15, (2) Lessor's
right  tO  terminate   and  avoid  such   sublease,   delivery,   transfer,   or
relinquishment  of  possession if a Lease Event of Default  exists,  and (3) the
right to require  such Person to deliver  the  Aircraft,  Airframe,  and Engines
forthwith if a Lease Event of Default exists.

         (b) Lessee shall remain  primarily liable hereunder for the performance
of all the terms of this Lease to the same  extent as if such  transfer  had not
occurred,  and no transfer of  possession of the  Aircraft,  the  Airframe,  any
Engine,  or any Part shall in any way  discharge  or  diminish  any of  Lessee's
obligations to Lessor hereunder or under any other Operative Agreement.

         (c) Lessee  shall  ensure  that no  sublease,  delivery,  transfer,  or
relinquishment   permitted   under  ss.  7.2  shall  affect  the  United  States
registration of the Aircraft, unless also made in accordance with thE provisions
of ss. 7.1.2.

         (d) Any event  that  constitutes  or would,  with the  passage of time,
constitute an Event of Loss under clause (3),  (4), or (5) of the  definition of
such  term  (as set  forth  in  Annex A) shall  not be  deemed  to  violate  the
provisions of ss. 7.2.

         (e)  No  Wet  Lease  shall   constitute   a  delivery,   transfer,   or
relinquishment of possession for purposes of ss. 7.2, nor shall it be prohibited
by the terms hereof.

     8.   MAINTENANCE;   REPLACEMENT   AND   POOLING   OF  PARTS;   ALTERATIONS,
MODIFICATIONS, AND ADDITIONS; OTHER LESSEE COVENANTS

     8.1   MAINTENANCE;   REPLACEMENT   AND   POOLING  OF  PARTS;   ALTERATIONS,
MODIFICATIONS, AND ADDITIONS

         At all times during the Term,  Lessee shall comply with (or cause to be
complied  with) each of the  provisions of Annex C, which  provisions are hereby
incorporated by this reference as if set forth in full herein.

         8.2               INFORMATION, CERTIFICATES, NOTICES, AND REPORTS

                           8.2.1            FINANCIAL INFORMATION

         Lessee will furnish to Lessor and Owner Participant:

                  (a)  within 90 days  after the end of each of the first  three
         fiscal quarters in each fiscal year of Lessee,  a consolidated  balance
         sheet  of  Lessee  and  Guarantor  as of the end of such  quarter,  and
         related  statements of income and cash flows for the period  commencing
         at the end of the previous  fiscal year and ending with the end of such
         quarter,   setting  forth  in  each  case  in   comparative   form  the
         corresponding  figures for the  corresponding  period in the  preceding
         fiscal year,  prepared in accordance  with GAAP;  PROVIDED,  that while
         Lessee or Guarantor  is subject to the  reporting  requirements  of the
         Securities  Exchange  Act of 1934,  a copy of Lessee's  or  Guarantor's
         report on Form 10-Q for such fiscal quarter  (excluding  exhibits) will
         satisfy this clause (a).

                  (b)  within  120 days  after  the end of each  fiscal  year of
         Lessee, a consolidated  balance sheet of Lessee and Guarantor as of the
         end of such fiscal year and related statements of income and cash flows
         of Lessee and Guarantor for such fiscal year, in comparative  form with
         the preceding fiscal year,  prepared in accordance with GAAP,  together
         with a report of Lessee's and Guarantor's  independent certified public
         accountants  with respect to their audit of such financial  statements;
         PROVIDED,  that while Lessee or  Guarantor is subject to the  reporting
         requirements of the Securities Exchange Act of 1934, a copy of Lessee's
         or  Guarantor's  report on Form 10-K for such  fiscal  year  (excluding
         exhibits) will satisfy this clause (b).

                           8.2.2            ANNUAL CERTIFICATE

         Within 120 days after the close of each fiscal  year of Lessee,  Lessee
shall  deliver  to  Lessor,  Owner  Participant,   and  Mortgagee  an  Officer's
Certificate  of Lessee to the effect that such  officer is familiar  with or has
reviewed or caused to be reviewed the relevant terms of this Lease and the other
Lessee  Operative  Agreements,  and that such officer does not have knowledge of
the existence as at the date of such  certificate  of any Lease Event of Default
(or, if any Lease Event of Default  exists,  specifying the nature and period of
existence  thereof  and the action  Lessee has taken or is taking or proposes to
take with respect thereto).

                           8.2.3            INFORMATION FOR FILINGS

         Lessee  shall  promptly  furnish to Owner  Participant  or Lessor  such
information (other than with respect to the citizenship of Owner Participant and
Lessor) within Lessee's or any Permitted Sublessee's  possession,  or reasonably
available to or  obtainable  by Lessee or such  Permitted  Sublessee,  as may be
required to enable Lessor to file in a timely manner any reports  required to be
filed by it as lessor under the Lease or to enable Owner  Participant to file in
a timely manner any reports required to be filed by it as the beneficiary of the
Trust  Estate,  in either case,  with any  Government  Entity  because of, or in
connection  with,  the interest of Owner  Participant or Lessor in the Aircraft,
this Lease, or any other part of the Trust Estate;  PROVIDED, that, with respect
to any such information which Lessee reasonably deems commercially  sensitive or
confidential,  Owner Participant or Lessor (as applicable) shall afford Lessee a
reasonable  opportunity (to the extent  reasonably  obtainable) to seek from any
such Government Entity a waiver of the obligation of Owner Participant or Lessor
to file any such information, or shall consent to the filing of such information
directly by Lessee in lieu of filing by Owner Participant or Lessor,  and if any
such waiver or consent is  evidenced  to the  reasonable  satisfaction  of Owner
Participant  or Lessor (as  applicable),  then  Lessee  shall not be required to
furnish such information to Owner Participant or Lessor.

                           8.2.4            OTHER INFORMATION

         Lessee shall provide to Owner  Participant from time to time such other
information  or data as Owner  Participant  reasonably  requests  concerning the
Aircraft,   Lessee's   financial   condition,   or  otherwise  relating  to  the
transactions or matters contemplated in the Operative  Agreements,  in each case
to the extent  within  Lessee's  or any  Permitted  Sublessee's  possession,  or
reasonably available to or obtainable by Lessee or such Permitted Sublessee.

                   9. VOLUNTARY TERMINATION UPON OBSOLESCENCE

         9.1               RIGHT OF TERMINATION

         (a)  Provided  there  is then no  Special  Default  or  Lease  Event of
Default,  Lessee  shall  have the right at its  option to  terminate  this Lease
during the Base Term, effective only on a Termination Date occurring on or after
the seventh anniversary of the Delivery Date, if:

                  (1) Lessee makes a good faith  determination that the Aircraft
         either  has become  economically  obsolete  or is  surplus to  Lessee's
         requirements,  and  Lessee's  Chief  Financial  Officer or Treasurer so
         certifies in writing to Lessor; and

                  (2) Lessee provides Lessor (with a copy to Owner  Participant)
         with written notice of Lessee's exercise of such termination option not
         less than 180 days and not more than 360 days  before  the  Termination
         Date specified in such notice.

         (b) Lessor shall notify Lessee and  Mortgagee of Lessor's  intention to
sell or retain the  Aircraft,  as provided in this ss. 9, not less than 120 days
before the  Termination  Date  specified in the written  noticE  pursuant to ss.
9.1(a)(2).  Any failure by Lessor to give such notice of its  election  shall be
deemed to be aN election to sell the Aircraft, as provided in this ss. 9.

         (c) In the event of any  termination  pursuant  to this ss.  9,  Lessee
shall not acquire  additionaL  737-800  aircraft during the 24 months  following
such  termination,  except to  replace  any lost or  damaged  aircraft  or under
short-term  operating leases, and Lessee shall notify Lessor in the event Lessee
plans to enter into such an operating lease to discuss the possible  re-lease of
the Aircraft from Lessor to Lessee under such short-term operating lease.

         9.2               ELECTION BY LESSOR TO SELL

                           9.2.1            BIDS; CLOSING OF SALE

         Unless  Lessor has notified  Lessee of Lessor's  election to retain the
Aircraft,  Lessee, as agent for Lessor,  shall, until the date ten Business Days
before the Termination Date, use commercially  reasonable efforts to obtain bids
for a cash  purchase  of the  Aircraft,  and Lessor may, if it desires to do so,
also  seek to obtain  such  bids.  If  Lessee  receives  any bid,  Lessee  shall
promptly,  and in any event at least ten  Business  Days before the  Termination
Date,  certify  to Lessor in writing  the amount and terms of such bid,  and the
name and  address of the Person  (who  shall not be Lessee or any  Affiliate  of
Lessee or any Person with whom Lessee or any such  Affiliate has an  arrangement
for the future use of the Aircraft by Lessee or any such  Affiliate)  submitting
such bid. If Lessor  receives  any bid on or before the date ten  Business  Days
before the Termination Date, Lessor shall, at least ten Business Days before the
Termination Date, certify to Lessee in writing the amount and terms of such bid,
and the name and address of the Person submitting such bid.

                           9.2.2            CLOSING OF SALE

         (a) On the  Termination  Date (1) Lessee shall deliver the Airframe and
Engines or engines  constituting part of the Aircraft to the bidder (if any) who
shall have  submitted  the highest  cash bid on or before the date ten  Business
Days before such  Termination  Date, in the same manner as if delivery were made
to Lessor  pursuant to ss. 5 and Annex B and in full  compliance  with the terms
thereof,  and shall duly  transfer tO Lessor title to any such engines not owned
by Lessor, all in accordance with the terms of ss. 5 and Annex B, anD (2) Lessor
shall  simultaneously  therewith transfer the Airframe and Engines or engines to
such bidder,  in the manner described in ss. 4.5, against cash paid to Lessor in
the  amount  of such  highest  bid and in the  manner  and iN  funds of the type
specified in ss. 3.3.

         (b) All proceeds of any sale described in ss. 9.2.2(a) shall be paid to
and  retained  by Lessor  and,  on such  Termination  Date,  and as a  condition
precedent  to such sale and the  delivery of the Aircraft and Engines or engines
to such bidder,  Lessee  shall pay to Lessor,  in the manner and in funds of the
type specified in ss. 3.3:

     (1) all unpaid  Basic Rent due at any time  before such  Termination  Date;
plus

     (2) the excess (if any) of the Termination Value for the Aircraft, computed
as of such Termination Date, over the proceeds of such sale; plus

     (3) as provided in ss.  3.2.2,  interest  on the amounts  specified  in the
foregoing  clausE (1) at the Past-Due  Rate from and including the date on which
any such amount was due to the date of payment of such amount in full.

         As a further  condition  precedent  to such sale and  delivery,  Lessee
shall  pay all  Supplemental  Rent due by Lessee to  Lessor,  Mortgagee,  or the
Participants  under this Lease (including (aa)  Supplemental  Rent in respect of
Make-Whole  Amount (if any) payable  pursuant to ss.  2.11(b) of the Mortgage in
connection  with a prepayment  oF the Equipment  Notes upon such sale,  (bb) all
interest  charges  provided for  hereunder  or under any other Lessee  Operative
Agreement  with respect to the late payment of any amounts so payable,  (cc) all
reasonable and  previously-invoiced  out-of-pocket fees and expenses  (including
reasonable  fees and expenses of counsel,  but excluding  brokerage  commissions
payable to any Person not retained by Lessee) incurred by Lessor, Mortgagee, and
Owner  Participant in connection  with such sale and the related  termination of
this  Lease),  (dd) all  previously-invoiced  commissions  payable to any Person
retained by Lessee in connection  with such sale, and (ee) all sales,  transfer,
or similar Taxes then due with respect to such sale). To the extent not invoiced
or due on the Termination  Date,  Lessee shall pay in due course the obligations
described in the foregoing clauses (cc), (dd), and (ee).

         (c) Upon and  subject  to any such  sale and  receipt  of  proceeds  by
Lessor, and full and final payment of all amounts described in ss. 9.2.2(b), and
compliance by Lessee with all the other provisions of this ss. 9.2,

                  (1) Lessor will  transfer to Lessee,  in  accordance  with ss.
         4.5, any Engines  constitutinG  part of the Aircraft but which were not
         then installed on the Airframe and sold therewith; and

                  (2) the  obligation  of Lessee to pay Basic Rent,  on or after
         the Payment Date with reference to which Termination Value is computed,
         shall  cease,  and the Term shall end  effective as of the date of such
         sale.

         (d) A sale of the Aircraft  pursuant to this ss. 9.2.2 shall take place
only on a Termination  Date.  Subject to ss. 9.3, if no sale shall have occurred
on or as of the proposed  Termination  Date,  this Lease shalL  continue in full
force and effect, and all of Lessee's obligations shall continue,  including its
obligation  to pay Rent,  in each case, as if the notice under ss. 9.1 shall not
have been given and,  subject to ss.  9.2.3(a),  LesSee may give another  notice
pursuant to ss. 9.1.

         (e) Lessor shall be under no duty to solicit  bids, to inquire into the
efforts of Lessee to obtain bids,  or otherwise to take any action in connection
with any such sale other than to transfer to the purchaser  named in the highest
bid  referred  to  above  (or to such  purchaser  and,  in the  case of  Engines
described  in ss.  9.2.2(c),  to Lessee)  the  Airframe  and  Engines or engines
against receipt of the payments described in ss. 9.2.2(B)

                           9.2.3            WITHDRAWAL OF NOTICE OF TERMINATION

         (a) So long as Lessor has not elected to retain the  Aircraft  pursuant
to ss. 9.1, Lessee may withdraW any notice given pursuant to ss. 9.1 at any time
on or before the date five Business Days before the proposeD  Termination  Date,
whereupon this Lease shall continue in full force and effect and all of Lessee's
obligations  shall continue,  including its obligation to pay Rent, in each case
as if the  notice  under ss. 9.1 were not  given,  and  Lessee may give  another
notice pursuant to ss. 9.1; PROVIDED,  that Lessee shall not be entitled to give
morE than three termination notices pursuant to ss. 9.1 during the Term.

         (b)  Lessee  shall  pay,  on  an  after-tax   basis,   all   reasonable
out-of-pocket  fees  and  expenses  of  Lessor  (including  reasonable  fees and
expenses of counsel),  Mortgagee,  and Owner  Participant in connection with any
notice of  termination  withdrawn by Lessee or in connection  with any notice of
termination pursuant to which a sale of the Aircraft fails to occur.

         9.3               RETENTION OF AIRCRAFT BY LESSOR

     (a) If Lessor elects to retain the Aircraft in accordance  withss.  9.1, on
the Termination Date:

                  (1) (aa) Lessor  shall pay or cause to be paid,  in the manner
         and in funds of the type  specified  in ss. 3.3, to the  Mortgagee,  an
         amount sufficient to prepay all outstanding Equipment NoteS pursuant to
         ss.  2.11(b) of the Mortgage,  and (bb) Lessee shall pay any Make-Whole
         Amount then due;

                  (2) subject to Mortgagee's  receipt of the funds  described in
         clause  (1)(aa) of this ss.  9.3(a),  Lessee shall deliver the Airframe
         and  Engines or engines  constituting  part of the  Aircraft  tO Lessor
         pursuant  to ss. 5 and  Annex B and in full  compliance  with the terms
         thereof,  and shall dulY  transfer to Lessor  title to any such engines
         not  owned by  Lessor,  all in  accordance  with the terms of ss. 5 and
         Annex B;

     (3)  Lessee  shall pay to  Lessor,  in the  manner and in funds of the type
specified inss. 3.3:

     (aa) all unpaid  Basic Rent due at any time before such  Termination  Date;
plus

     (bb)  any  Make-Whole  Amount  due as a  result  of the  prepayment  of all
outstanding Equipment Notes pursuant toss. 2.11(b) of the Mortgage; plus

     (cc) as provided in ss.  3.2.2,  interest on the amounts  specified  in the
foregoinG clauses (aa) and (bb) at the Past-Due Rate from and including the date
on which any such  amount was due to the date of payment of such amount in full;
and

                  (4)  Lessee  shall  also  pay all  Supplemental  Rent  due and
         payable by Lessee to Lessor,  Mortgagee,  or any Participant under this
         Lease,  including all interest  charges provided for hereunder or under
         any other Lessee  Operative  Agreement with respect to the late payment
         of any amounts so payable,  and the reasonable  out-of-pocket  fees and
         expenses  incurred  by  Lessor,  Mortgagee,  and Owner  Participant  in
         connection  with such  termination  and  delivery of the  Airframe  and
         Engine or engines (excluding brokerage commissions and similar expenses
         payable to any Person(s) not retained by Lessee).

         (b)  Upon  full  and  final  payment  to  Lessor,  Mortgagee,  and  the
Participants  of the amounts  described in ss.  9.3(a)(1),  and (3) and (4), and
compliance by Lessee with all the applicable provisions of ss. 9.3(a)(2),

                  (1) Lessor will  transfer to Lessee,  in  accordance  with ss.
         4.5, any Engines  constitutinG  part of the Aircraft but which were not
         then installed on the Airframe and sold therewith; and

                  (2) Lessee's  obligation to pay Basic Rent otherwise due on or
         after the Termination  Date shall cease,  and the Term for the Aircraft
         shall end effective as of such Termination Date.

                    10. LOSS, DESTRUCTION, REQUISITION, ETC.

         10.1              EVENT OF LOSS TO THE AIRCRAFT

                           10.1.1           NOTICE AND ELECTION

         (a) If an Event of Loss to the Airframe  (and any  Engine(s)  installed
thereon)  occurs,  Lessee shall  promptly (and in any event within 15 days after
such occurrence) notify Lessor, Owner Participant and Mortgagee of such Event of
Loss. Within 60 days after such occurrence,  Lessee shall give to Lessor (with a
copy to Owner  Participant) and Mortgagee written notice of Lessee's election to
make payment in respect of such Event of Loss, as provided in ss. 10.1.2,  or to
replace the Airframe and any such Engine(s) as provided in ss. 10.1.3.

         (b)  Lessee's  failure to give the notice of election  described in ss.
10.1.1(a)  shall be  deemed to bE an  election  of the  option  set forth in ss.
10.1.2. In addition,  Lessee shall not be entitled to elect the optioN set forth
in ss. 10.1.3 if, at the time Lessor  receives such notice from Lessee or on the
replacement date, A Special Default or a Lease Event of Default exists.

         (c) For purposes of ss. 10.1.2,  an Event of Loss to the Airframe shall
be deemed to constitute  aN Event of Loss to the  Aircraft.  For purposes of ss.
10.1.3, any Engine not actually suffering an Event of LosS shall not be required
to be replaced.

     10.1.2 PAYMENT OF LOSS AND TERMINATION OF LEASE

         (a) If Lessee elects, in accordance with ss. 10.1.1, to make payment in
respect of any such Event oF Loss,  then Lessee  shall pay, in the manner and in
funds of the type specified in ss. 3.3, the following amounts:

                  (1) on the date (the "LOSS PAYMENT  DATE") that is the earlier
         of (x) the  Stipulated  Loss Value Date  first  following  the 75th day
         following the date of the occurrence of such Event of Loss, and (y) the
         Stipulated  Loss Value Date first  following  the fourth  Business  Day
         following  the receipt of the  insurance  proceeds with respect to such
         occurrence  (but in any event  not  earlier  than the date of  Lessee's
         election  under ss.  10.1.1 to make  payment  under  this ss.  10.1.2),
         Lessee shall pay to Lessor:

     (aa) all unpaid  Basic Rent due at any time before the Loss  Payment  Date;
plus

     [(bb) all Basic Rent due on the Loss Payment Date; plus]

     (cc) the Stipulated  Loss Value  computed as of the  Stipulated  Loss Value
Date  immediately  preceding the Loss Payment Date (or, if the Loss Payment Date
is a Stipulated Loss Value Date, the Loss Payment Date), plus

     (dd) if the Loss  Payment  Date is not a  Stipulated  Loss Value  Date,  an
additional  amount  equal to  interest,  at the rate per annum  equal to the SLV
Rate, on the amount of the excess  referred to in clause (cc) above for each day
from and including the  Stipulated  Loss Value Date referred to in clause [(cc)]
to but excluding the Loss Payment Date; plus

     (ee) as provided in ss.  3.2.2,  interest  on the amount  specified  in the
foregoing  clause (aa) at the Past-Due Rate from and including the date on which
any such amount was due to the date of payment of such amount in full; and

                  (2) on or before the date  required for payment of the amounts
         specified  in clause  10.1.2(a)(1),  Lessee  shall  also pay to Lessor,
         Mortgagee,  and the  Participants  all other amounts due and payable by
         Lessee to Lessor, Mortgagee, and the Participants under this Lease, the
         Participation  Agreement,  or any other Lessee Operative Agreement and,
         on an after-tax basis, all out-of-pocket  fees and expenses  (including
         reasonable  fees and  expenses  of counsel)  incurred  by Lessor,  each
         Participant, and Mortgagee in connection with such Event of Loss.

         (b) Upon payment in full of all amounts  described in the foregoing ss.
10.1.2(a)(1),  (1) Lessee'S  liability for use of the Aircraft and obligation to
pay Basic Rent hereunder with respect to the Aircraft shall  terminate,  (2) the
Term for the Aircraft  shall end,  and (3) Lessor will  transfer the Aircraft to
Lessee,  as-is and where-is,  and subject to any insurer's  salvage rights,  but
otherwise in the manner described in ss. 4.5.

                           10.1.3           REPLACEMENT OF AIRFRAME AND ENGINES

         (a) If Lessee elects,  in accordance  with ss.  10.1.1,  to replace the
Airframe and any Engine(s)  suffering the Event of Loss,  then Lessee shall,  as
promptly as possible  and in any event within 120 days after the  occurrence  of
such Event of Loss, convey or cause to be conveyed to Lessor, in compliance with
ss. 10.3 and aS replacement for the Airframe and any such Engine(s),  title to a
Replacement Airframe (which shall comply with ss. 10.1.3(b)),  and for each such
Engine a Replacement Engine, in each case free and clear of all Liens other thaN
Permitted Liens (PROVIDED,  that if such conveyance  occurs after the end of the
Term,  Lessee  shall pay rent for the  Aircraft  from the end of the Term  until
return  thereof  pursuant  to ss. 5 at a daily rate equal to the  averagE  daily
Basic Rent or Renewal Rent, as applicable,  over the Base Term or  then-expiring
Renewal Term, as applicable).  If Lessee makes such election, but for any reason
does not effect such replacement  within such time period and in compliance with
the  requirements  set forth in ss.  10.3,  then Lessee  shall be deemed to have
initiallY  made the election set forth in ss. 10.1.2 with the effect that Lessee
shall pay,  in the manner and in funds of thE type  specified  in ss.  3.3,  the
amounts required under, and in accordance with, ss. 10.1.2 (except that the tIme
period for payment  referenced in ss.  10.1.2(a)(1)  shall,  for the purposes of
this ss.  10.1.3(a),  in all cases be on the  Stipulated  Loss  Value Date first
following the 120th day  following  the date of the  occurrence of such Event of
Loss).

         (b) Any such Replacement Airframe shall be an airframe  manufactured by
the Airframe  Manufacturer that is the same model as the Airframe to be replaced
thereby, or an improved model, and that has a current value,  estimated residual
value,  utility,  and remaining economic useful life (without regard to hours or
cycles remaining until the next regular  maintenance check,  provided no Special
Default or Lease Event of Default then exists) at least equal to the Airframe to
be  replaced  thereby  (assuming  that  such  Airframe  had been  maintained  in
accordance  with this Lease),  immediately  prior to such Event of Loss and that
has a year of  manufacture  no earlier than that of the Airframe to be replaced.
Any such  Replacement  Engine shall meet the requirements of, and be conveyed by
Lessee to Lessor in accordance with, ss. 10.2 (other than the notice requirement
set forth iN ss. 10.2.1).

         10.2              EVENT OF LOSS TO AN ENGINE; ENGINE EXCHANGES

                           10.2.1           NOTICE

         If an Event of Loss to an Engine occurs under circumstances in which no
Event of Loss to the Airframe  occurs,  Lessee shall  promptly (and in any event
within 15 days after such occurrence) notify Lessor of such Event of Loss.

                           10.2.2           REPLACEMENT OF ENGINE

         Lessee  shall,  promptly  and in any  event  within  60 days  after the
occurrence of such Event of Loss,  convey or cause to be conveyed to Lessor,  in
compliance with ss. 10.3 and as replacement for the Engine witH respect to which
any Event of Loss occurred, title to a Replacement Engine, free and clear of all
Liens other than Permitted  Liens.  Such  Replacement  Engine shall be an engine
manufactured by Engine  Manufacturer  that is the same model as the Engine to be
replaced  thereby,  or an improved model,  and that is suitable for installation
and use on the Airframe, and that has a current value, estimated residual value,
utility,  and remaining economic useful life (without regard to hours and cycles
remaining until overhaul,  provided no Special Default or Lease Event of Default
then exists) at least equal to the Engine to be replaced thereby  (assuming that
such Engine had been maintained in accordance with the Lease)  immediately prior
to such Event of Loss.

                           10.2.3           ENGINE EXCHANGE

         Upon not less than five Business  Days' prior written  notice to Lessor
(with a copy to  Owner  Participant),  Lessee  may  replace  any  Engine  leased
hereunder with another engine (the "EXCHANGED  ENGINE") meeting the requirements
of ss.  10.2.2.  Such  Exchanged  Engine  shall be deemed  to be a  "Replacement
Engine", and Lessor anD Lessee shall comply with the provisions of ss. 10.3 with
regard to the Exchanged Engine and the Engine so replaced.

         10.3              CONDITIONS TO ANY REPLACEMENT

                           10.3.1           DOCUMENTS

         Before  or at the  time  of  conveyance  of  title  to any  Replacement
Airframe  or  Replacement  Engine  to  Lessor,  Lessee  shall  take  each of the
following actions:

         (a) furnish Lessor with a full warranty (as to title) bill of sale duly
conveying to Lessor such Replacement Airframe or Replacement Engine, in form and
substance  reasonably  satisfactory to Lessor and Owner  Participant,  and cause
such  Replacement  Airframe to be duly registered in the name of Lessor pursuant
to the Transportation Code (or such other applicable Law of a jurisdiction other
than the United States where the Aircraft is  registered in accordance  with ss.
7.1.2);

         (b) cause (1) a supplement to this Lease,  subjecting such  Replacement
Airframe or  Replacement  Engine to this Lease,  duly executed by Lessee,  to be
delivered to Lessor for  execution,  and, upon such  execution,  to be filed for
recordation  with the FAA  pursuant  to the  Transportation  Code (or such other
applicable Law of a jurisdiction other than the United States where the Aircraft
is registered in accordance  with ss. 7.1.2),  (2) A supplement to the Mortgage,
subjecting such Replacement  Airframe or Replacement Engine to the Mortgage,  to
be delivered  to Lessor for  execution,  and,  upon  execution,  to be filed for
recordation  with the FAA  pursuant  to the  Transportation  Code (or such other
applicable Law of a jurisdiction other than the United States where the Aircraft
is registered in accordance with ss. 7.1.2),  and (3) such Financing  Statements
and other filings, as OwneR Participant or Mortgagee  reasonably  request,  duly
executed  by Lessee and (to the extent  applicable)  Lessor and  Mortgagee  (and
Lessor and Mortgagee  shall  execute and deliver the same),  to be filed in such
locations as any such party reasonably requests;

         (c) furnish such evidence of compliance  with the insurance  provisions
of ss. 11 with respect to sucH  Replacement  Airframe or  Replacement  Engine as
Owner Participant reasonably requests;

         (d) furnish an opinion or opinions  of Lessee's  counsel  (which may be
Lessee's legal  department)  reasonably  satisfactory  to Owner  Participant and
addressed to Lessor,  Owner  Participant,  and  Mortgagee to the effect that (1)
such full  warranty  bill of sale referred to in ss.  10.3.1(a)  constitutes  an
effective  instrumenT for the conveyance of title to the Replacement Airframe or
Replacement  Engine,  and (2) in the  case  of a  Replacement  Airframe  or of a
Replacement  Engine  substituted  under ss. 10.2.3 in the absence of an Event of
Loss, (aa) Lessor and Mortgagee,  as assignee of Lessor, will be entitled to the
benefits of Section 1110 with respect to the Replacement  Airframe,  and (bb) as
to the  U.S.  federal  income  tax  consequences  to  Owner  Participant  of the
replacement;

         (e) furnish an opinion of  Lessee's  aviation  law  counsel  reasonably
satisfactory to Owner  Participant and addressed to Lessor,  Owner  Participant,
and Mortgagee as to the due  registration of any such  Replacement  Airframe and
the due  filing  for  recordation  of each  supplement  to this  Lease  and each
supplement  to the  Mortgage  with  respect  to  such  Replacement  Airframe  or
Replacement Engine under the  Transportation  Code (or such other applicable Law
of a jurisdiction  other than the United States where the Aircraft is registered
in accordance with ss. 7.1.2);

         (f) with respect to the  replacement  of the Airframe and any Engine(s)
installed  thereon  at the  time of the  Event of Loss,  if  requested  by Owner
Participant and at Lessee's  expense,  furnish a certified report of a qualified
independent aircraft appraiser,  such report and such appraiser to be reasonably
satisfactory to Owner Participant, certifying that such Replacement Airframe and
any such Replacement Engine complies with the current value,  estimated residual
value, utility, and remaining economic useful life requirements set forth in ss.
10.1.3(b); and

         (g) take such other  actions and furnish  such other  certificates  and
documents as Lessor or Owner  Participant  may reasonably  request in order that
such Replacement  Airframe or Replacement  Engine be duly and properly titled in
Lessor, leased hereunder and subjected to the Lien of the Trust Indenture to the
same extent as initially required under the Operative Agreements with respect to
the Airframe or Engine so replaced.

         Lessor  and  Lessee  understand  and agree  that if, at the time of any
replacement of the Airframe or any Engine(s) as contemplated in this ss. 10, the
Airframe was registered in a jurisdiction other than the UniteD States, then the
requirements  set forth above in this ss. 10.3.1 relating to compliance with the
requirements oF the  Transportation  Code or the FAA shall be deemed to refer to
the  comparable  applicable  Law of, and the Aviation  Authority  of, such other
jurisdiction.

                           10.3.2           OTHER OBLIGATIONS

         (a)  Lessor  and  Lessee  agree  that,  when and after any  Replacement
Airframe  becomes the  Airframe  hereunder,  and when and after any  Replacement
Engine becomes an Engine  hereunder,  this Lease shall continue to be, and shall
be treated as, a lease for U.S.  federal income tax purposes of such Replacement
Airframe and such Replacement Engine. Without limiting the foregoing, Lessee and
Lessor intend that Lessor shall,  in all events,  be entitled to the benefits of
Section 1110 with respect to any Replacement Airframe or Replacement Engine, and
Lessee  and  Lessor  shall  cooperate  and take  such  action  as the  other may
reasonably  request  so as to  ensure  that  Lessor  shall be  entitled  to such
benefits.

         (b) No Event of Loss to an Engine, or to an Airframe,  shall result in,
or  otherwise  allow or permit  (other than as provided in ss.  10.1.2(b)),  any
reduction,  deferral,  discharge, or other change in the timing oR amount of any
Rent payable by Lessee  hereunder,  and (subject to such ss.  10.1.2(b))  Lessee
shall pay all such RenT and other  amounts as though  such Event of Loss had not
occurred.

         10.4              CONVEYANCE TO LESSEE

         Upon compliance by Lessee with the applicable  terms of ss.ss.  10.1.3,
10.2, and 10.3.1,  Lessor will transFer to Lessee the Airframe or Engine(s),  as
applicable,  with respect to which such Event of Loss  occurred,  in  accordance
with ss. 4.5.

         10.5              APPLICATION OF PAYMENTS

         Any amounts, other than insurance proceeds in respect of damage or loss
not  constituting an Event of Loss (the  application of which is provided for in
ss. 11), received at any time by Lessor, Lessee, or any PermitteD Sublessee from
any  Government  Entity or any other Person in respect of any Event of Loss will
be paid over to Lessor (or to  Mortgagee if  Mortgagee  has not notified  Lessee
that the Lien of the Mortgage has been duly  discharged,  except with respect to
Excluded Payments) to be held in accordance with ss. 4.5 and applied as follows:

                           10.5.1           REPLACEMENT OF AIRFRAME AND ENGINES

         If such  amounts  are  received  with  respect to the  Airframe  or any
Engine(s)  installed  thereon at the time of such Event of Loss,  upon  Lessee's
compliance with the applicable  terms of ss. 10.1.3 with respect to the EvenT of
Loss for which such amounts are  received,  such amounts  shall  (subject to ss.
10.9) be paid over to, or retaineD by, Lessee.

                           10.5.2           LOSS OF ENGINE

         If such amounts are received  with respect to an Engine  (other than an
Engine  installed on the Airframe  when the Airframe  suffers an Event of Loss),
upon Lessee's compliance with the applicable terms of ss. 10.2.2 witH respect to
the Event of Loss for which  such  amounts  are  received,  such  amounts  shall
(subject to ss. 10.9) be paiD over to, or retained by, Lessee.

                           10.5.3           PAYMENT OF LOSS

         If such amounts are received,  in whole or in part, with respect to the
Airframe,  and Lessee makes, has made or is deemed to have made the election set
forth in ss. 10.1.2, such amounts shall be applied as follows:

         (a) FIRST, if the sum described in ss. 10.1.2 has not then been paid in
full by  Lessee,  such  amountS  shall be paid to  Lessor  (or to  Mortgagee  if
Mortgagee  has not  notified  Lessee that the Lien of the Mortgage has been duly
discharged, except with respect to Excluded Payments) to the extent necessary to
pay in full such sum; and

     (b) SECOND,  the remainder,  if any, shall (subject toss.  10.9) be paid to
Lessee.

         10.6              REQUISITION OF AIRCRAFT FOR USE

         If any Government  Entity  requisitions the use of the Airframe and the
Engines or engines installed thereon, and if the requisition does not constitute
an Event of Loss,  Lessee shall  promptly  notify  Lessor and  Mortgagee of such
requisition,  and all of Lessee's obligations under this Lease shall continue to
the same extent as if such requisition had not occurred;  PROVIDED, that, if the
Airframe and Engines or engines  installed thereon are not returned to Lessor by
Lessee at the end of the Term or within 30 days thereafter, then Lessee shall be
deemed to have made the  election  set forth in ss.  10.1.2 with the effect that
Lessee shall be obligated to pay thE Stipulated Loss Value and all other amounts
payable  pursuant to ss.  10.1.2 with  respect to the Aircraft as if aN Event of
Loss  had  occurred  as of the end of the  Term.  If such  requisition  does not
constitute  an Event of Loss,  Lessee  shall be obligated to return the Airframe
and Engine(s) or engine(s) to Lessor  pursuant to, and in all other  respects to
comply  with the  provisions  of,  ss. 5  promptly  upon  their  return  by such
Government  Entity,  anD Lessee  shall pay (or cause to be paid) to Lessor  upon
such return an amount  equal to the average  daily Basic Rent  payable by Lessee
during the Term for each day after the end of the Term to but  excluding the day
of such return,  up to a maximum of 30 days,  which payment may be made from any
payments  received by Lessor or Lessee from any Government Entity for the use of
the Aircraft  (notwithstanding  any  language to the  contrary  contained in ss.
10.8).

         10.7              REQUISITION OF AN ENGINE FOR USE

         If any Government  Entity  requisitions  for use any Engine but not the
Airframe,  Lessee will replace  such Engine by  complying  with ss. 10.2 and ss.
10.3 to the same  extent as if an Event of Loss with  respect to that EngIne had
occurred,  and any  payments  received by Lessor or Lessee from such  Government
Entity with respect to such requisition  shall be paid or retained in accordance
with ss. 10.5.2.

         10.8              APPLICATION OF PAYMENTS

         All payments received by Lessor or Lessee, or any Permitted  Sublessee,
from  any  Government  Entity  for  the use of the  Airframe  and  Engine(s)  or
engine(s)  installed  thereon during the Term shall be paid over to, or retained
by,  Lessee,  and all payments  received by Lessor or Lessee from any Government
Entity for the use of the Airframe and Engine(s) or engine(s)  installed thereon
after the Term shall be paid over to, or retained by, Lessor; PROVIDED, that, if
such  requisition  constitutes an Event of Loss, then all such payments shall be
paid over to Lessor (or to Mortgagee if Mortgagee  has not notified  Lessee that
the Lien of the Mortgage has been discharged), and held as provided in ss. 10.5.

         10.9              APPLICATION OF PAYMENTS DURING DEFAULT

         Any amount  described in this ss. 10 that is payable or creditable  to,
or  retainable  by,  Lessee  shall noT be paid or credited  to, or retained  by,
Lessee if a Special  Default or Lease Event of Default exists when such payment,
credit, or retention would otherwise occur, but shall instead be held by or paid
over to Lessor (or to Mortgagee if  Mortgagee  has not notified  Lessee that the
Mortgage has been  discharged) as security for Lessee's  obligations  under this
Lease and the other Lessee Operative Agreements,  and shall be invested pursuant
to ss. 4.4 hereof,  unless and until such  amount is  applied,  at the option of
Lessor, or upon Lessee's written request to Lessor, from time to time during the
existence of a Lease Event of Default, to Lessee's  obligations under this Lease
as and when due (any such application  shall be made to such Lessee  obligations
as Lessor determines in its sole discretion). If and when no Special Default and
no Lease Event of Default  exists,  such  amount  shall be paid to Lessee to the
extent not previously applied in accordance with this ss. 10.9.

                                  11. INSURANCE

         11.1              LESSEE'S OBLIGATION TO INSURE

         Lessee  shall comply with,  or cause to be complied  with,  each of the
provisions  of  Annex  D,  which  provisions  are  hereby  incorporated  by this
reference as if set forth in full herein.

         11.2              INSURANCE FOR OWN ACCOUNT

         Nothing in ss. 11 shall limit or prohibit  (a) Lessee from  maintaining
the policies of insurance  requireD  under Annex D with higher limits than those
specified  in Annex D, or (b)  Lessor,  Mortgagee,  or  Owner  Participant  from
obtaining  insurance  for its own account (and any proceeds  payable  under such
separate insurance shall be payable as provided in the policy relating thereto);
PROVIDED,  that no insurance may be obtained or  maintained  that would limit or
otherwise adversely affect the coverage of or increase the cost of any insurance
required  to be  obtained or  maintained  by Lessee  pursuant to this ss. 11 and
Annex D.

         11.3              INDEMNIFICATION BY GOVERNMENT IN LIEU OF INSURANCE

         During the period of any Government Entity's requisition for use of the
Aircraft or any Engine, Lessor, Mortgagee, and each Participant shall accept, in
lieu of insurance  against any risk with  respect to the  Aircraft  described in
Annex D, indemnification from, or insurance provided by, the U.S. Government, or
upon Owner Participant's written consent,  other Government Entity, against such
risk in an  amount  that,  when  added to the  amount  of  insurance  (including
permitted  self-insurance),  if any,  against  such  risk  that  Lessee  (or any
Permitted  Sublessee) may continue to maintain,  in accordance with this ss. 11,
during the period of such requisition,  shalL be at least equal to the amount of
insurance against such risk otherwise required by this ss. 11.

         11.4              APPLICATION OF INSURANCE PROCEEDS

         As between  Lessor and Lessee,  all  insurance  proceeds  received as a
result of the occurrence of an Event of Loss to the Aircraft or any Engine under
policies  required to be  maintained  by Lessee  pursuant to this ss. 11 will be
applied in accordance  with ss. 10.5.  All proceeds of insurance  required to be
maintained by Lessee, iN accordance with ss. 11 and ss. B of Annex D, in respect
of any  property  damage  or  loss  not  constituting  an  Event  of Loss to the
Aircraft,  the  Airframe,  or any Engine will be applied to pay (or to reimburse
Lessee) for repairs or for replacement property  incorporated in accordance with
ss. 8.1,  and any  balance  remaining  after such  repairs oR  replacement  with
respect to such damage or loss shall be paid over to, or retained by, Lessee.

         11.5              APPLICATION OF PAYMENTS DURING DEFAULT

         Any amount  described in this ss. 11 that is payable or creditable  to,
or  retainable  by,  Lessee  shall noT be paid or credited  to, or retained  by,
Lessee if a Special  Default or Lease Event of Default exists when such payment,
credit, or retention would otherwise occur, but shall instead be held by or paid
over to Lessor (or to if Mortgagee has not notified  Lessee that the Lien of the
Mortgage has been  discharged) as security for Lessee's  obligations  under this
Lease, and shall be invested pursuant to ss. 4.4 unless and until such amount is
applied,  aT Lessor's option,  or upon Lessee's written request to Lessor,  from
time to time  during the  existence  of a Lease  Event of  Default,  to Lessee's
obligations  under this Lease and the other Lessee  Operative  Agreements as and
when due (any  such  application  to be made to such  obligations  of  Lessee as
Lessor  determines in its sole  discretion).  If and when no Special Default and
Lease Event of Default exists, such amount shall be paid to Lessee to the extent
not previously applied in accordance with this ss. 11.5.

                                 12. INSPECTION

         (a) At all reasonable times Lessor,  Mortgagee,  Owner Participant,  or
their authorized  representatives (the "INSPECTING  PARTIES") may (not more than
once every 12 months by each such Person, unless a Lease Event of Default exists
or during the last 12 months of the Base Term and any  Renewal  Term,  then such
inspection  right shall not be so limited) inspect the Aircraft and the Aircraft
Documents,  and any such  Inspecting  Party  may  make  copies  of the  Aircraft
Documents not reasonably deemed confidential by Lessee or a Permitted Sublessee.

         (b) Any  inspection  of the  Aircraft  hereunder  shall be limited to a
visual,  walk-around inspection that may include going on board the Aircraft and
visually examining the contents of any open panels, bays, or other components of
the  Airframe  or Engines,  but shall not  include  the opening of any  unopened
panels, bays, or other components of the Aircraft,  and no such inspection shall
interfere with Lessee's or any Permitted Sublessee's maintenance or operation of
the Aircraft, the Airframe, or any Engine.

         (c) Lessor,  Owner Participant and Mortgagee shall not have any duty or
liability to make,  or any duty or  liability by reason of not making,  any such
visit, inspection or survey.

         (d) Each  Inspecting  Party shall bear its own  expenses in  connection
with any such  inspection  (including  the cost of any copies made in accordance
with ss. 12(a)), except following a Lease Event of Default, iN which case Lessee
will bear the costs of inspection and pay the same on demand.

         (e) Upon Lessor's  request,  during the last 12 months of the Base Term
and any Renewal Term, Lessee will give 10 Business Days' prior written notice to
Lessor and Owner Participant of any scheduled  maintenance checks,  inspections,
surveys,  or  repair  visits.  During  such  period,  Owner  Participant  or its
representative  may attend  any and all such  maintenance  checks,  inspections,
surveys, or repair visits.

                 13. ASSIGNMENT; MERGER; SUCCESSOR OWNER TRUSTEE

         13.1              IN GENERAL

         This Lease and the other  Lessee  Operative  Agreements  shall bind and
benefit Lessor and Lessee and their successors and permitted assigns.  Except as
otherwise  expressly  permitted  by the terms of the  Lease or any other  Lessee
Operative Agreement, Lessee will not, without the prior written consent of Owner
Participant and Mortgagee, assign any of its rights under this Lease.

         13.2              MERGER OF LESSEE

                           13.2.1           IN GENERAL

         Lessee shall not consolidate  with or merge into any other Person under
circumstances  in which  Lessee is not the  surviving  corporation,  or  convey,
transfer,  or lease in one or more  transactions all or substantially all of its
assets to any other Person, unless:

     (a) such Person is organized, existing, and in good standing under the Laws
of the United States,  any state of the United States, or the District Columbia,
and,  upon  consummation  of such  transaction,  such Person will be a U.S.  Air
Carrier;

     (b) such Person  executes and  delivers to Lessor,  Owner  Participant  and
Mortgagee a duly authorized,  legal, valid, binding, and enforceable  agreement,
reasonably  satisfactory in form and substance to Owner Participant,  containing
an effective  assumption by such Person of the due and punctual  performance and
observance of each covenant,  agreement,  and condition in the Lessee  Operative
Agreements to be performed or observed by Lessee;

     (c) such Person makes such filings and recordings  with the FAA pursuant to
the Transportation  Code as shall be necessary to evidence such consolidation or
merger;

         (d) Lessee furnishes Lessor and Owner Participant an opinion of counsel
reasonably  satisfactory  to Owner  Participant  (and,  while  the  Policy is in
     effect, reasonably satisfactory to Policy Provider) to the effect that such
consolidation  or merger has satisfied at the closing of such  consolidation  or
merger items (a), (b) and (c) above;

     (e) immediately  after giving effect to such  consolidation  or merger,  no
Special Default or Lease Event of Default exists;

     (f) unless Owner Participant  otherwise consents,  immediately after giving
effect to such  consolidation  or merger,  such Person will have a tangible  net
worth  of at least  the  lesser  of (i)  100% of  Lessee's  tangible  net  worth
immediately prior to such  consolidation or merger, and (ii) the greater of (aa)
the tangible net worth of Lessee as of March 31, 2000,  and (bb) 65% of Lessee's
tangible net worth immediately prior to such consolidation or merger; and

     (g) upon such consolidation or merger becoming effective, Lessor will enjoy
the same degree of protection under Section 1110 with respect to the Aircraft as
Lessor enjoyed prior to such merger.

                           13.2.2           EFFECT OF MERGER

         Upon any such  consolidation  or merger of Lessee with or into,  or the
conveyance,  transfer,  or lease by  Lessee of all or  substantially  all of its
assets to, any Person in accordance with this ss. 13.2, such Person wilL succeed
to, and be  substituted  for, and may exercise  every right and power of, Lessee
under the Lessee Operative Agreements with the same effect as if such Person had
been named as  "Lessee"  therein.  No such  consolidation,  merger,  conveyance,
transfer, or lease shall have the effect of releasing Lessee or such Person from
any of Lessee's obligations,  liabilities,  covenants, or undertakings under the
Lessee Operative Agreements.

         13.3              ASSIGNMENT AS SECURITY FOR LESSOR'S OBLIGATIONS

         In order to secure the  indebtedness  evidenced by the Equipment Notes,
Lessor  agrees in the Mortgage to assign this Lease to Mortgagee and to mortgage
the Aircraft to Mortgagee,  subject to the reservations  and conditions  therein
set forth.  Lessee  hereby  accepts and consents to the  assignment  of Lessor's
right,  title,  and  interest in and to this Lease  pursuant to the terms of the
Mortgage.  In  accordance  with ss.  3.3(c),  Lessee  agreeS to pay  directly to
Mortgagee (or, after receipt by Lessee of notice from Mortgagee of the discharge
of the Lien of the  Mortgage,  to  Lessor),  all  amounts  of Rent  (other  than
Excluded Payments) due or to become due hereunder and assigned to Mortgagee, and
Lessee  agrees  that  Mortgagee's  right  to such  payments  hereunder  shall be
absolute  and  unconditional  and shall  not be  affected  by any  circumstance,
including  the  circumstances  set forth in ss. 16 hereof.  Notwithstanding  the
foregoing  assignment of this Lease,  Lessee's  obligations to Lessor to perform
the terms and conditions of this Lease shall remain in full force and effect.

         13.4              SUCCESSOR OWNER TRUSTEE

         If any successor is appointed to serve as Owner Trustee pursuant to the
terms of the  Participation  Agreement and the Trust  Agreement,  such successor
shall,  upon  written  notice by such  successor  to Lessee,  succeed to all the
rights,  powers,  and  title of  Lessor  hereunder,  and  shall be  deemed to be
"Lessor"  and the owner of the Aircraft and the other assets of the Trust Estate
for all purposes hereof,  without the need for any consent or approval by Lessee
and without in any way altering the terms of this Lease or Lessee's  obligations
hereunder.  An appointment and designation of a successor as Owner Trustee shall
not exhaust the right to appoint and designate further  successors or additional
trustees as Owner Trustees pursuant to the Participation Agreement and the Trust
Agreement,  and such  right may be  exercised  repeatedly  as long as this Lease
shall be in effect.

                           14. LEASE EVENTS OF DEFAULT

         The  existence  of any  one or  more  of the  following  circumstances,
conditions,  acts,  or events,  for any reason  whatsoever  and whether any such
circumstance,  condition,  act, or event is  voluntary or  involuntary  or comes
about or is effected by  operation of Law or pursuant to or in  compliance  with
any judgment, decree, order, rule, or regulation of any Government Entity, shall
constitute a Lease Event of Default so long as it shall not have been remedied:

         14.1              PAYMENTS

         Lessee fails to pay any amount of Basic Rent, Stipulated Loss Value, or
Termination  Value  within five  Business  Days after it becomes  due; or Lessee
fails  to pay any  Supplemental  Rent  (other  than  Stipulated  Loss  Value  or
Termination Value) when due and such failure continues for a period in excess of
ten Business  Days from and after the date of any written  notice to Lessee from
Lessor of the failure to make such  payment  when due;  PROVIDED,  that any such
failure  to pay any  Excluded  Payment  shall not  constitute  a Lease  Event of
Default until Owner  Participant  gives  written  notice to Lessee and Mortgagee
that such  failure  constitutes  a Lease Event of Default  and such  failure has
continued for a period in excess of ten Business Days after such notice.

         14.2              INSURANCE

         Lessee  fails to  carry  and  maintain,  or  cause  to be  carried  and
maintained,  insurance on and in respect of the Aircraft in accordance  with the
provisions of ss. 11.

         14.3              OTHER COVENANTS

         Lessee  fails to  observe  or  perform  (or  cause to be  observed  and
performed) in any material respect any other covenant,  agreement, or obligation
of Lessee in any Lessee  Operative  Agreement (other than those contained in the
Tax Indemnity Agreement),  and such failure continues unremedied for a period of
30 days from and after the date of  written  notice  thereof  to Lessee  (or the
Guarantor,  as the case may be) from Lessor,  Owner  Participant,  or Mortgagee,
unless  such  failure  is capable of being  corrected  and Lessee is  diligently
proceeding  to correct  such  failure,  and such  failure  poses no imminent and
material risk of Lessor, Owner Participant, or Mortgagee losing their respective
interests  in the  Aircraft,  in which  case  there  shall be no Lease  Event of
Default unless and until such failure  continues  unremedied for a period of 270
days after  receipt of such  notice;  PROVIDED,  that in all events  Lessee must
remedy  such  failures  within  90  days of  Lessee's  obtaining  access  to the
Aircraft.

         14.4              REPRESENTATIONS AND WARRANTIES

         Any  representation  or warranty made by Lessee in any Lessee Operative
Agreement  (other  than  Lessee's  representations  and  warranties  in the  Tax
Indemnity  Agreement)  (a)  proves to have  been  untrue  or  inaccurate  in any
material  respect as of the date made,  (b) is material at the time in question,
and  (c)  remains  uncured  (to  the  extent  of  the  adverse  impact  of  such
incorrectness  on the  interest of the  Participants  or Lessor) for a period in
excess of 30 days from and after the date of written notice thereof from Lessor,
Owner  Participant,  or Mortgagee to Lessee (or Guarantor,  as the case may be);
provided that clause (c) above will not apply to Lessee's  representations as to
the financial condition of Lessee.

         14.5              BANKRUPTCY AND INSOLVENCY

         (a) Lessee or Guarantor consents to the appointment of or the taking of
possession by a receiver,  trustee,  or liquidator of itself or of substantially
all of its property,  or Lessee or Guarantor  admits in writing its inability to
pay its debts generally as they come due, or does not pay its debts generally as
they become due or makes a general  assignment for the benefit of creditors,  or
Lessee or  Guarantor  files a voluntary  petition in  bankruptcy  or a voluntary
petition or an answer seeking  reorganization,  liquidation or other relief in a
case under any bankruptcy  Laws or other  insolvency  Laws (as in effect at such
time), or Lessee or Guarantor  seeks relief by voluntary  petition,  answer,  or
consent  under the  provisions  of any other  bankruptcy  or other  similar  Law
providing for the  reorganization or winding-up of corporations (as in effect at
such time); or

         (b) an order,  judgment, or decree is entered by any court of competent
jurisdiction  appointing,  without Lessee's or Guarantor's  consent, a receiver,
trustee,  or  liquidator of Lessee or Guarantor or of  substantially  all of the
property of Lessee or Guarantor, or substantially all of Lessee's or Guarantor's
property is sequestered,  and any such order, judgment, or decree of appointment
or sequestration  remains in force  undismissed,  unstayed,  and unvacated for a
period of 90 days after the date of entry thereof; or

         (c) a  petition  against  Lessee  or  Guarantor  in a  case  under  any
bankruptcy  Laws or other  insolvency  Laws (as in effect at such time) is filed
and not  withdrawn  or  dismissed  within 90 days  thereafter,  or if, under the
provisions of any Law providing for reorganization or winding-up of corporations
that applies to Lessee or Guarantor, any court of competent jurisdiction assumes
jurisdiction, custody, or control of Lessee or Guarantor or of substantially all
of its  property,  and such  jurisdiction,  custody or control  remains in force
unrelinquished, unstayed, and unterminated for a period of 90 days.

         14.6     REPUDIATION OR INVALIDITY OF GUARANTEE

         Either (a) Guarantor  repudiates its obligations,  in whole or in part,
under  the  Guarantee;  or (b) the  Guarantee  ceases to be in full  effect,  is
determined to be invalid, or becomes unenforceable for any reason.

                            15. REMEDIES AND WAIVERS

         15.1              REMEDIES

         If any Lease Event of Default exists,  Lessor may, at its option and at
any time  and  from  time to  time,  exercise  any one or more of the  following
remedies as Lessor in its sole discretion shall elect:

                           15.1.1           RETURN AND REPOSSESSION

         Lessor may cause  Lessee,  upon  giving  written  notice to Lessee,  to
return promptly,  and Lessee shall return promptly,  the Airframe and Engines as
Lessor  shall so  demand,  to Lessor or its order in the  manner  and  condition
required by, and otherwise in accordance  with,  all the provisions of ss. 5, as
if the Airframe or EnginE were being  returned at the end of the Term or Lessor,
at its option,  may enter upon the premises where the Airframe or any Engine, or
any Part  thereof,  is located and take  immediate  possession of and remove the
same by summary  proceedings  or otherwise,  all without  liability  accruing to
Lessor for or by reason of such entry or taking of  possession,  whether for the
restoration of damage to property caused by such taking or otherwise.

                           15.1.2           SALE AND USE

         Lessor may sell the  Airframe or any Engine at public or private  sale,
at such time(s) and place(s),  and to such Person(s) (including Mortgagee or any
Participant),  as Lessor  determines;  or Lessor may otherwise dispose of, hold,
use,  operate,  lease to others,  or keep idle the  Airframe or any  Engine,  as
Lessor,  in its sole  discretion,  shall  determine,  all free and  clear of any
rights of Lessee and without any duty to account to Lessee with  respect to such
action  or  inaction  or for  any  proceeds  with  respect  thereto,  except  as
hereinafter  set  forth in this ss.  15,  and  except  to the  extent  that such
proceeds  would  constitute,  under  applicable  Law, a  mitigation  oF Lessor's
damages  suffered or incurred as a result of the subject Lease Event of Default.
Lessor shall give to Lessee at least 15 days' prior  written  notice of the date
fixed for any  public  sale of the  Airframe  or any Engine or of the date on or
after which will occur the  execution of any contract  providing for any private
sale.

                           15.1.3           CERTAIN LIQUIDATED DAMAGES

         Whether or not Lessor shall have exercised,  or shall thereafter at any
time exercise,  any of its rights under ss. 15.1.1 or ss. 15.1.2 with respect to
the Airframe or any Engine,  or any Part thereof,  Lessor,  by writTen notice to
Lessee specifying a payment date (which shall be the first Stipulated Loss Value
Date occurring not less than 10 days after the date of such notice),  may demand
that  Lessee to pay to Lessor,  and Lessee  shall pay to Lessor,  on the payment
date so  specified  and in the manner and in funds of the type  specified in ss.
3.3, aS  liquidated  damages for loss of a bargain and not as a penalty (in lieu
of the Basic Rent (as  applicable)  for the  Aircraft  in respect of all periods
commencing  on or after the date  specified  for  payment in such  notice),  the
following amounts:

     (a) all unpaid Basic Rent due at any time before the Stipulated  Loss Value
Date specified in such notice; plus

     (b)  whichever of the  following  amounts  Lessor,  in its sole  discretion
specifies in such notice:

                  (1) an  amount  equal to the  excess  (if any) of the  present
         value,  computed as of the Stipulated Loss Value Date specified in such
         notice,  discounted  to such  date at a rate  equal to the  Debt  Rate,
         compounded   quarterly,   of  all   unpaid   Basic   Rent   during  the
         then-remaining  portion  of the Base  Term (or,  if a Renewal  Term has
         commenced,  of all unpaid  Basic Rent during the  remaining  portion of
         such  Renewal  Term) over the Fair Market  Rental Value of the Aircraft
         for the  remainder  of the Term,  after  discounting  such Fair  Market
         Rental  Value to present  value (at a rate per annum  equal to the Debt
         Rate,  compounded  quarterly)  as of the  Stipulated  Loss  Value  Date
         specified in such notice, or

                  (2) an amount  equal to the excess (if any) of the  Stipulated
         Loss Value for the Aircraft,  computed as of the Stipulated  Loss Value
         Date specified in such notice,  over the Fair Market Sales Value of the
         Aircraft,  as of the  Stipulated  Loss  Value  Date  specified  in such
         notice; plus

         (c) interest on the amounts  specified in the  foregoing  clause (a) at
the Past-Due  Rate from and  including the date on which any such amount was due
to the date of payment of such amount; plus

         (d) interest on the amount  specified in the foregoing clause (b)(1) or
(b)(2),  according to Lessor's election, at the Past-Due Rate from and including
the  Stipulated  Loss Value Date specified in such notice to the date of payment
of such amount.

                           15.1.4           LIQUIDATED DAMAGES UPON SALE

         If,  pursuant  to ss.  15.1.2 or  applicable  Law,  Lessor has sold the
Airframe or any Engine,  then, in lieu oF exercising its rights under ss. 15.1.3
with  respect to the  Aircraft,  the  Airframe,  or any Engine (as  applicable),
Lessor may, if Lessor so elects,  upon giving written  notice to Lessee,  demand
that  Lessee to pay to Lessor,  and Lessee  shall pay to Lessor,  on the date of
such sale and in the manner and in funds of the type  specified  in ss.  3.3, as
liquidated  damages  for loss of a bargain  and not as a penalty (in lieu of the
Basic Rent for thE Aircraft in respect of all periods commencing on or after the
date of such sale), the following amounts:

     (a) all unpaid Basic Rent due at any time before the Stipulated  Loss Value
Date on or immediately preceding the date of such sale; plus

     (b) an amount equal to the excess, if any, of (1) the Stipulated Loss Value
of the Aircraft,  computed as of the  Stipulated  Loss Value Date referred to in
the foregoing clause (a), over (2) the proceeds of such sale; plus

     (c) if the date of such sale is not a Stipulated Loss Value Date, an amount
equal to interest, at the rate per annum equal to the SLV Rate, on the amount of
Stipulated Loss Value referred to in clause (b)(1) above, from and including the
Stipulated  Loss Value Date referred to in the foregoing  clause (a) to the date
of such sale; plus

     (d) all brokerage  and other  out-of-pocket  fees and expenses  incurred by
Lessor, Mortgagee, and any Participant in connection with such sale; plus

     (e) interest on the amounts  specified in the  foregoing  clause (a) at the
Past-Due  Rate from and  including  the date on which any such amount was due to
the date of payment of such amount; plus

     (f) interest on the sum of the amounts  specified in the foregoing  clauses
(b), (d) and (e) at the Past-Due  Rate from and  including the date of such sale
to the date of payment of such amounts.

                           15.1.5           RESCISSION

         Lessor may (a) at its option, rescind or terminate this Lease as to the
Aircraft,  the Airframe, or any Engine, or any Part thereof, or (b) exercise any
other  right or  remedy  that may be  available  to it under  applicable  Law or
proceed by  appropriate  court  action to enforce the terms hereof or to recover
damages for the breach hereof.

                           15.1.6           OTHER REMEDIES

         In addition to the  foregoing  remedies  (but  without  duplication  of
amounts  otherwise  paid under this ss. 15),  Lessee shall be liable for any and
all unpaid Rent due  hereunder  before,  during,  or after  (except aS otherwise
provided  herein) the  exercise  of any of the  foregoing  remedies  and for all
reasonable  attorneys'  fees and other costs and expenses of Lessor,  Mortgagee,
Owner Participant,  and the Note Holders,  including interest on overdue Rent at
the rate as herein  provided,  incurred by reason of the  existence of any Lease
Event of Default or the  exercise of Lessor's  remedies  with  respect  thereto,
including all  reasonable  costs and expenses  incurred in  connection  with the
return of the Airframe or any Engine in  accordance  with the terms of ss. 5, or
in  placing  thE  Airframe  or any  Engine in the  condition  and  airworthiness
required by ss. 5.

         15.2              LIMITATIONS UNDER CRAF

         Notwithstanding  the provisions of ss. 15.1, during any period that the
Aircraft,  the Airframe, or anY Engine is subject to CRAF in accordance with the
provisions  of ss. 7.2.3 and in the  possession of the U.S.  Government,  Lessor
shall not,  as a result of any Lease  Event of Default,  exercise  its  remedies
hereunder in such manner as to limit  Lessee's  control under this Lease (or any
Permitted Sublessee's control under any Permitted Sublease) of the Aircraft, the
Airframe, or such Engine, unless Lessor or Mortgagee gives at least 30 days' (or
such  other  period as may then  apply  under  CRAF)  written  notice of default
hereunder  by  registered  or  certified  mail  to  Lessee  (and  any  Permitted
Sublessee)  with  a  copy  to  the   Contracting   Officer   Representative   or
Representatives  for the Military Airlift Command of the United States Air Force
to whom  notices  must be given under the  contract  governing  Lessee's (or any
Permitted  Sublessee's)  participation in CRAF with respect to the Aircraft, the
Airframe, or any Engine.

         15.3              RIGHT TO PERFORM FOR LESSEE

         If Lessee (a) fails to make any payment of Rent  required to be made by
it  hereunder  or (b)  fails to  perform  or comply  with any of its  agreements
contained  herein and such failure  under this clause (b) continues for a period
of 30 days after the earlier of Lessor,  Owner Participant,  or Mortgagee giving
written  notice  thereof  to  Lessee,  or (c) fails to  maintain  the  insurance
required  hereunder and such failure under this clause (c) continues for 10 days
after such notice, then Lessor,  Owner Participant,  or Mortgagee may (but shall
not be obligated to) make such payment or perform or comply with such agreement,
and the amount of such payment and the amount of the  expenses of Lessor,  Owner
Participant,  or  Mortgagee  incurred  in  connection  with such  payment or the
performance of or compliance with such agreement (as applicable),  together with
interest  thereon  at the  Past-Due  Rate,  shall be deemed  Supplemental  Rent,
payable  by Lessee  upon  demand by Lessor,  Owner  Participant,  or  Mortgagee,
whichever is entitled thereto. No such payment, performance, or compliance shall
be  deemed  to waive  any  Lease  Default  or  otherwise  relieve  Lessee of its
obligations with respect thereto.

     15.4 DETERMINATION OF FAIR MARKET RENTAL VALUE AND FAIR MARKET SALES VALUE

         For the  purpose of this ss. 15, the Fair  Market  Rental  Value or the
Fair Market Sales Value of thE Aircraft,  the  Airframe,  or any Engine shall be
determined  on an "as is, where is" basis and shall take into account  customary
brokerage and other  out-of-pocket  fees and expenses which  typically  would be
incurred in connection with a re-lease or sale of such an aircraft, airframe, or
engine. Any such determination shall be made by an Appraiser selected by Lessor,
and the  costs  and  expenses  associated  therewith  shall be borne by  Lessee;
PROVIDED, that, if Lessor does not obtain possession of the Aircraft pursuant to
this ss. 15, an AppraiseR  shall not be appointed,  and Fair Market Rental Value
and Fair Market Sales Value for purposes of this ss. 15 shalL be zero.

         15.5              REMEDIES CUMULATIVE

         Nothing  contained in this Lease shall be construed to limit in any way
any right,  power,  remedy,  or privilege of Lessor hereunder or under any other
Operative  Agreement or now or hereafter existing at law or in equity.  Each and
every  right,  power,  remedy,  and  privilege  hereby given to, or retained by,
Lessor in this Lease  shall be in  addition  to and not in  limitation  of every
other right, power,  remedy, and privilege given under the Operative  Agreements
or now or hereafter existing at law or in equity.  Each and every right,  power,
remedy,  and  privilege  of Lessor  under  this  Lease  and any other  Operative
Agreement may be exercised from time to time or simultaneously  and as often and
in such order as may be deemed  expedient by Lessor.  All such  rights,  powers,
remedies, and privileges shall be cumulative and not mutually exclusive, and the
exercise of one shall not be deemed a waiver of the right to exercise any other.
Lessee hereby waives to the extent  permitted by applicable  Law any right which
it may have to require Lessor to choose or elect remedies.

             16. LESSEE'S OBLIGATIONS; NO SETOFF, COUNTERCLAIM, ETC.

         (a)  Lessee's  obligation  to pay all Rent payable  hereunder  shall be
absolute  and  unconditional,  and  shall  not  be  affected  by  any  event  or
circumstance,  including: (1) any setoff, counterclaim,  recoupment, defense, or
other right that Lessee may have against Lessor, Mortgagee, any Participant, any
Note Holder,  or any other Person for any reason  whatsoever;  (2) any defect in
the title, airworthiness,  condition,  design, operation, or fitness for use of,
or any damage to or loss or destruction of, the Aircraft,  the Airframe,  or any
Engine,  or any  interruption  or cessation in the use or possession  thereof by
Lessee   for   any   reason   whatsoever;   (3)  any   insolvency,   bankruptcy,
reorganization, or similar proceedings by or against Lessee or any other Person;
or (4) any other circumstance,  happening,  or event whatsoever,  whether or not
similar to any of the foregoing.

         (b) If for any reason  whatsoever  this Lease  shall be  terminated  in
whole  or in  part by  operation  of law or  otherwise  except  as  specifically
provided herein,  Lessee  nonetheless agrees to pay an amount equal to each Rent
payment at the time such payment would have become due and payable in accordance
with the terms  hereof had this Lease not been  terminated  in whole or in part.
Lessee hereby  waives,  to the extent  permitted by applicable  Law, any and all
rights that it may now have or that at any time  hereafter may be conferred upon
it, by statute or otherwise,  to  terminate,  cancel,  quit,  or surrender  this
Lease, except in accordance with the express terms hereof.

         (c)  Nothing  set forth in this ss. 16 shall be  construed  to prohibit
Lessee  from  separately  pursuinG  any claim that it may have from time to time
against  Lessor or any other Person with  respect to any matter  (other than the
absolute and unconditional nature of Lessee's obligations hereunder to pay Rent,
and other than the matters specified in paragraphs (a) and (b) above).

                        17. RENEWAL AND PURCHASE OPTIONS

         17.1              NOTICES GENERALLY

         (a) Unless otherwise  provided by this ss. 17, at least 270 days and no
more than 365 days  before thE  Scheduled  Expiration  Date for the Base Term or
then-current  Renewal Term,  Lessee may provide  irrevocable  written  notice to
Lessor  (a  "PRELIMINARY  NOTICE"),   with  a  copy  of  such  notice  to  Owner
Participant,  that Lessee  intends to exercise  the option  either to extend the
leasing of the Aircraft  for a Renewal Term  pursuant to ss. 17.2 or tO purchase
the Aircraft on the Scheduled Expiration Date pursuant to ss. 17.3.

         (b) If Lessee gives a Preliminary  Notice,  then Lessee shall provide a
further notice, at least 30 days before the following Scheduled Expiration Date,
specifying  which  option it intends  to elect,  pursuant  to ss.  17.2.1 or ss.
17.3.1 (as applicable).  If Lessee fails to give such further notice at least 30
days before  sUch  Scheduled  Expiration  Date,  Lessee  shall be deemed to have
elected its option to purchase the Aircraft pursuant to ss. 17.3.1.

         17.2              RENEWAL OPTIONS

                           17.2.1           RENEWAL NOTICE

     (a) If Lessee has given a Preliminary Notice, as specified in ss. 17.1, and
subject to the terms anD  conditions  of this ss. 17.2,  Lessee may exercise its
option to extend  the  leasing of the  Aircraft  hereunder  untiL the  following
Scheduled Expiration Date, on the same terms (except as contemplated by this ss.
17) as in the LesseE  Operative  Agreements  with  respect to the Base Term,  by
delivering a notice (a "RENEWAL  NOTICE") to Lessor not less than 30 days before
the Scheduled Expiration Date.

     (b) Notwithstanding anything to the contrary in any Operative Agreement:

                  (1) No  Preliminary  Notice or Renewal Notice shall be binding
         on Lessor  or oblige  Lessor to  extend  the  leasing  of the  Aircraft
         hereunder  for a Renewal Term if any Special  Default or Lease Event of
         Default  exists  on and as of the date  that such  Renewal  Term  would
         otherwise commence.

                  (2) A Renewal  Notice  shall be  revocable  by Lessee until 10
         Business Days after the Renewal Rent is  determined in accordance  with
         ss.  17.2.2,  and unless  revoked by written notice by Lessee to LessoR
         shall   thereafter   become   irrevocable   and  shall   constitute  an
         unconditional  obligation  of  Lessee  to  extend  the  leasing  of the
         Aircraft  hereunder  for the Renewal Term to which such Renewal  Notice
         relates.  If Lessee revokes a Renewal Notice as indicated above, Lessee
         will be deemed to have  irrevocably  elected its option to purchase the
         Aircraft pursuant to ss. 17.3.1.

                  (3) Lessee shall not be entitled to give any Renewal Notice if
         it (aa) has not  delivered  a  Preliminary  Notice to Lessor,  (bb) has
         delivered a Purchase Notice to Lessor, or (cc) has previously delivered
         four Renewal Notices to Lessor.

                           17.2.2           RENEWAL RENT

         (a)  During  each  Renewal  Term,  Lessee  shall  pay to Lessor on each
Payment Date,  in the manner and in the funds of the type  specified in ss. 3.3,
Renewal Rent in arrears.

         (b) The Renewal Rent payable by Lessee on each Payment Date during each
Renewal Term shall be the Fixed Rate (or, if less, the Applicable  Percentage of
the Fair  Market  Rental  Value).  Any such Fair  Market  Rental  Value shall be
determined  not more than 120 days and not less than 100 days  before  the first
day of such Renewal Term by mutual agreement of Lessor and Lessee or, if they do
not agree, by an appraisal in accordance with ss. 17.4.

     17.2.3 STIPULATED LOSS AND TERMINATION VALUES

         (a) For any Renewal Term,  Stipulated  Loss Value Dates and Termination
Value Dates shall be extended  throughout such Renewal Term on the same days and
for the same months as during the Base Term.

         (b)  Stipulated  Loss  Value and  Termination  Value  amounts  that are
payable  during any such Renewal Term shall be  determined at the same time that
the  Renewal  Rent  for  such  Renewal  Term is  determined  under  ss.  17.2.2.
Stipulated Loss Values and  Termination  Values for any such Renewal Term shall,
commencing  on the firsT day of such Renewal  Term,  be equal to the Fair Market
Sales Value of the Aircraft on such day, and shall decline  ratably on a monthly
basis to the salvage  value of the Aircraft as of the last day of its  remaining
useful life.

         (c) For purposes of calculating  Stipulated  Loss Value and Termination
Value  amounts  applicable  during any Renewal  Term,  the  "salvage  value" and
"useful life" shall be determined by mutual agreement of Lessor and Lessee,  or,
if they do not agree, by an appraisal in accordance with ss. 17.4.

         17.3              PURCHASE OPTIONS

                           17.3.1           PURCHASE NOTICE

         (a) Provided  that at the time of such  election no Special  Default or
Lease  Event of Default  exists,  Lessee  may,  subject to ss. 17.1 and this ss.
17.3, elect to purchase the Aircraft: (1) on the EBO Date as shown on Schedule 5
at the price  indicated  thereon;  (2) on any Purchase Date, at a purchase price
equal to the Fair Market Sales Value of the Aircraft computed as of the Purchase
Date; or (3) (aa) on any Payment Date occurring after the Tax Attribute  Period,
if a Burdensome  Indemnity  Payment not waived by Owner Participant shall become
due and  owing,  if  Lessee  did not cause  such  indemnity  with the  intent of
permitting  such purchase and if such purchase would eliminate such indemnity on
a future  basis,  or (bb) on any Payment Date after the EBO Date,  if Lessee has
committed to (but not commenced) a Significant Expenditure,  then (whether as to
clause  (aa) or (bb)) at a purchase  price  equal to the greater of (x) the Fair
Market  Sales  Value of the  Aircraft  computed  as of such  Payment  Date  (not
including   any  portion  of  the  Fair  Market  Sales  Value  of  the  Aircraft
attributable to any Significant  Expenditure) and (y) the Termination  Value for
the Aircraft computed as of such Payment Date.

         (b) Lessee may  exercise  such  option to  purchase  the  Aircraft,  by
delivery of a written  notice (a  "PURCHASE  NOTICE") to Lessor  (with a copy of
such  Purchase  Notice to Owner  Participant)  not less than 60 days and no more
than 365 days before the EBO Date (for a purchase under ss.  17.3.1(a)(1)),  not
less  than 30 days and nO more than 365 days  before  the  Purchase  Date (for a
purchase  under ss.  17.3.1(a)(2)),  and not less than 120 days anD no more than
365 days  before the  Payment  Date  specified  in such  Purchase  Notice (for a
voluntary termination purchase under ss. 17.3.1(a)(3)).

     (c) Notwithstanding anything to the contrary in any Operative Agreement:

                  (1) Any  Purchase  Notice  delivered  or  deemed  to have been
         delivered pursuant to ss.  17.3.1(a)(1) or (2) shall be irrevocable and
         shall constitute an unconditional  obligation of Lessee tO purchase the
         Aircraft  under  this  ss.  17.3;  and any  Purchase  Notice  delivered
         pursuant to ss. 17.3.1(a)(3), shall be revocable until 10 Business Days
         after the  determination  of the Fair Market Sales Value in  accordance
         with ss.  17.3.2,  and unless so revoked by written notice by Lessee to
         Lessor  (with a copy tO  Owner  Participant)  shall  thereafter  become
         irrevocable and shall constitute an unconditional  obligation of Lessee
         to purchase the Aircraft under this ss. 17.3.

     (2) Lessee shall not be entitled to give any Purchase Notice pursuant toss.
17.3.1(a)(2) if it has not delivered a Preliminary Notice.

     17.3.2 DETERMINATION OF FAIR MARKET SALES VALUE

         The Fair Market Sales Value of the  Aircraft  shall be  determined  not
more than 120 days and not less than 100 days  before  the  applicable  Purchase
Date or Payment Date by mutual agreement of Lessor and Lessee, or, if they shall
be unable to agree, by an appraisal in accordance with ss. 17.4.

                           17.3.3   PAYMENTS BY LESSEE

         (a) If Lessee elects to purchase the Aircraft pursuant to clause (1) of
ss.  17.3.1(a),  then on thE EBO Date Lessee shall pay to Lessor in  immediately
available funds:

         (1)      all unpaid Basic Rent due before the EBO Date; plus

         (2)      the EBO Price; plus

         (3)      all  Supplemental  Rent  then due  (including  any  Make-Whole
                  Amount then due),  and any sales or  transfer  tax then due in
                  connection with such purchase.

         (b) If Lessee elects to purchase the Aircraft pursuant to clause (2) of
ss. 17.3.1(a),  then on thE applicable  Purchase Date Lessee shall pay to Lessor
in immediately available funds:

     (1) all unpaid Basic Rent due on or before such Purchase Date; plus

     (2) the applicable purchase price for the Aircraft; plus

     (3) all Supplemental  Rent then due, and any sales or transfer tax then due
in connection with such purchase.

     (c) If Lessee elects to purchase the Aircraft pursuant to clause (3) of ss.
17.3.1(a),  then on thE Payment  Date on which  Lessee  elects to  purchase  the
Aircraft, Lessee shall pay to Lessor in immediately available funds:

     (1) all unpaid Basic Rent due on or before such Payment Date; plus

     (2) the purchase price of the Aircraft pursuant to such clause (3); plus

     (3) all  Supplemental  Rent then due (including any Make-Whole  Amount then
due), and any sales or transfer tax then due in connection with such purchase.

                           17.3.4           TITLE

         Upon full and final  payment  by  Lessee of (a) the  applicable  amount
payable under ss. 17.3.3,  (b) on aN after-tax basis, all out-of-pocket fees and
expenses (including reasonable fees and expenses of counsel) incurred by Lessor,
each Participant, and Mortgagee in connection with such purchase and invoiced to
Lessee prior  thereto,  and (c) all other amounts then due and payable by Lessee
under the  Operative  Agreements,  Lessor will  transfer to Lessee  title to the
Aircraft in accordance with ss. 4.5.

                           17.3.5           INSTALLMENT EBO PURCHASE

         Lessee and Lessor  acknowledge that at Lessee's  election the EBO Price
may be payable in  installments  as  provided  in  Schedule 5. Lessor and Lessee
agree  that  if  Lessee  elects  to  purchase  the  Aircraft   pursuant  to  ss.
17.3.1(a)(1) and elects to pay the EBO Price in  installments,  Lessee agrees to
provide security to Lessor tO secure the unpaid balance of the EBO Price,  which
security  shall  be  required  to be in an  amount  and  otherwise  in form  and
substance  reasonably  satisfactory to Lessor and Owner Participant.  Subject to
the foregoing,  upon payment of the initial  installment of the EBO Price as set
forth in  Schedule 5 [with such  payment  being  sufficient  to pay all  amounts
referenced in ss. 2.10(b) of the Mortgage]  together with all amounts  otherwisE
payable pursuant to ss. 17.3.3(a) and ss. 17.3.4,  Lessor will transfer title to
the Aircraft in accordance with ss. 4.5.

                           17.3.6           ASSUMPTION OF EQUIPMENT NOTES

         Lessor and Lessee agree that, if Lessee elects to purchase the Aircraft
pursuant  to ss.  17.3.1(a)(3)  oF this  Lease,  Lessee  may elect to assume the
Equipment  Notes  pursuant  to ss.  2.14 of the  Mortgage  and  ss.  11.6 of The
Participation Agreement.

         17.4              APPRAISALS

         Whenever  Fair Market  Rental  Value or Fair Market  Sales Value of the
Aircraft is required to be determined by an appraisal  under this ss. 17, Lessee
and Lessor  shall  appoint a  mutually-satisfactory  Appraiser  tO conduct  such
appraisal.  If Lessee and Lessor  fail to agree upon a  satisfactory  Appraiser,
then each shall promptly appoint a separate Appraiser, and such Appraisers shall
jointly determine such amount. If either Lessee or Lessor does not so appoint an
Appraiser,  the determination of the single Appraiser  appointed shall be final.
If two Appraisers  are appointed and within seven days after the  appointment of
the latter of such two Appraisers,  they do not agree upon such amount, such two
Appraisers  shall,  within eight days after such latter  appointment,  appoint a
third Appraiser,  and such amount shall be determined by such three  Appraisers,
who shall  make their  separate  appraisals  within  seven  days  following  the
appointment  of the third  Appraiser,  and any  determination  so made  shall be
conclusive  and binding  upon Lessor and Lessee.  If no such third  Appraiser is
appointed within such eight-day period, either Lessor or Lessee may apply to the
American  Arbitration  Association  to make such  appointment,  and both parties
shall be bound by such appointment.  The foregoing  appraisal procedure shall in
any event be  completed no less than 125 days before the end of the Base Term or
any Renewal Term (unless such procedure is undertaken in connection  with ss. 15
or ss.  17.3.1(a),  in  which  case it shall be  completed  promptlY).  If three
Appraisers are appointed and the difference  between the determination  which is
further from the middle  determination and the middle determination is more than
125%  of  the  difference  between  the  middle   determination  and  the  third
determination,  then such further determination shall be excluded, the remaining
two  determinations  shall be  averaged,  and such  average  shall be final  and
binding   upon  Lessor  and  Lessee.   Otherwise,   the  average  of  all  three
determinations  shall be final and binding upon Lessor and Lessee.  The fees and
expenses of all such  Appraisers  and such  appraisal  procedure  shall be borne
equally by Lessee and Lessor.

                                18. MISCELLANEOUS

         18.1              AMENDMENTS

         No  provision  of this  Lease  may be  amended,  supplemented,  waived,
modified,  discharged,  terminated,  or otherwise varied orally,  but only by an
instrument in writing that  specifically  identifies the provision of this Lease
that it purports to amend, supplement,  waive, modify, discharge,  terminate, or
otherwise  vary and is  signed  by  Lessor  and  Lessee.  Each  such  amendment,
supplement, waiver, modification,  discharge,  termination, or variance shall be
effective only in the specific  instance and for the specific  purpose for which
it is given.  No provision of this Lease shall be varied or contradicted by oral
communication,  course of dealing or performance,  or other manner not set forth
in an  agreement,  document,  or  instrument in writing and signed by Lessor and
Lessee.

         18.2              SEVERABILITY

         If  any   provision   hereof  shall  be  held  invalid,   illegal,   or
unenforceable in any respect in any jurisdiction,  then, to the extent permitted
by Law, (a) all other provisions hereof shall remain in full force and effect in
such  jurisdiction,  and (b) such invalidity,  illegality,  or  unenforceability
shall not affect the validity,  legality, or enforceability of such provision in
any other jurisdiction.  If, however,  any Law pursuant to which such provisions
are held invalid,  illegal,  or unenforceable  may be waived,  Lessor and Lessee
hereby waive such Law to the full extent  permitted,  to the end that this Lease
shall be deemed to be a valid and binding agreement in all respects, enforceable
in accordance with its terms.

         18.3              THIRD-PARTY BENEFICIARY

         This Lease is not  intended  to  provide,  and shall not  provide,  any
Person not a party hereto (other than Mortgagee, the Participants,  the Mortgage
Indemnitees,  and the  Persons  referred  to in ss.  4.6) with any rights oF any
nature  whatsoever  against  either of the parties  hereto,  and no Person not a
party hereto (other than Mortgagee, the Participants,  the Mortgage Indemnitees,
and the  Persons  referred  to in ss.  4.6)  shall  have anY  right,  power,  or
privilege in respect of this Lease, or have any benefit or interest  arising out
of this Lease.

         18.4              REPRODUCTION OF DOCUMENTS

         This Lease (including all annexes,  schedules, and exhibits hereto) and
all  agreements,  instruments,  and  documents  relating  hereto,  including (a)
consents,  waivers,  and modifications  that may hereafter be executed,  and (b)
financial  statements,   certificates,   and  other  information  previously  or
hereafter  furnished to any party hereto, may be reproduced by such party by any
photographic,  photostatic,  microfilm,  micro-card,  miniature photographic, or
other  similar  process,  and such party may destroy any  original  documents so
reproduced.  Any  such  reproduction  shall be  admissible  in  evidence  as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such  reproduction  was made by such
party in the regular course of business),  and any  enlargement,  facsimile,  or
further reproduction of such reproduction likewise is admissible in evidence.

         18.5              COUNTERPARTS

         This Lease and any amendments, waivers, consents, or supplements hereto
may be executed in any number of counterparts (or upon separate  signature pages
bound together into one or more counterparts),  each fully-executed set of which
when  so  executed  shall  be  deemed  to be  an  original,  and  all  of  which
counterparts,  taken together, shall constitute one and the same instrument. The
single fully-executed  original of this Lease marked "Original" on the signature
page  hereof  is  the  original  for  chattel  paper  purposes,  and  all  other
counterparts   are   duplicates  for  chattel  paper  purposes  and  are  marked
"duplicate" on the signature page hereof. No security interest in this Lease may
be perfected by the possession of any counterpart other than the "Original".

         18.6              NOTICES

         Unless otherwise  expressly permitted by the terms hereof, all notices,
requests,  demands,  authorizations,  directions,  consents,  waivers, and other
communications  required or permitted  to be made,  given,  furnished,  or filed
hereunder shall be made, given, furnished, or filed, and shall become effective,
in the manner prescribed in ss. 15.7 of the Participation Agreement.

         18.7              GOVERNING LAW

         THIS LEASE  SHALL IN ALL  RESPECTS  BE GOVERNED  BY, AND  CONSTRUED  IN
ACCORDANCE  WITH,  THE LAWS OF THE STATE OF NEW YORK,  INCLUDING  ALL MATTERS OF
CONSTRUCTION,  VALIDITY,  AND PERFORMANCE.  THIS LEASE IS BEING DELIVERED IN THE
STATE OF NEW YORK.

         18.8              NO WAIVER

         No failure on the part of Lessor to exercise, and no delay by Lessor in
exercising,  any of its rights, powers, remedies, or privileges under this Lease
or  provided  at Law,  in  equity  or  otherwise  shall  impair,  prejudice,  or
constitute  a waiver  of any such  right,  power,  remedy,  or  privilege  or be
construed  as a waiver  of any  breach  hereof  or  default  hereunder  or as an
acquiescence  therein,  nor shall any  single or  partial  exercise  of any such
right,  power,  remedy,  or  privilege  preclude  any other or further  exercise
thereof  by Lessor  or the  exercise  of any  other  right,  power,  remedy,  or
privilege by Lessor. No notice to or demand on Lessee in any case shall,  unless
otherwise  required  under this  Lease,  entitle  Lessee to any other or further
notice or demand in similar or other circumstances or constitute a waiver of the
rights of Lessor to any other or  further  action in any  circumstances  without
notice or demand.

         18.9              ENTIRE AGREEMENT

         This Lease, together with the other Operative Agreements,  on and as of
the date hereof  constitute  the entire  agreement  of the  parties  hereto with
respect to the subject matter hereof and thereof,  and all prior  understandings
or agreements,  whether written or oral, between the parties hereto with respect
to such subject matter are hereby superseded in their entirety.

              [THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]





<PAGE>




         IN  WITNESS  WHEREOF,  Lessor  and  Lessee  have  executed  this  Lease
Agreement N___AT.



                      FIRST SECURITY BANK, NATIONAL
                      ASSOCIATION,   NOT  IN  ITS
INDIVIDUAL CAPACITY,  EXCEPT AS EXPRESSLY PROVIDED HEREIN, BUT SOLELY AS TRUSTEE
UNDER THE TRUST AGREEMENT, as Lessor



                  By:
                      ----------------------------------------------------------
                        Name:
                        Title:



                  AMERICAN TRANS AIR, INC., as Lessee



                  By:
                      ----------------------------------------------------------
                        Name:
                        Title:



     [This is the ORIGINAL  counterpart of the Lease for chattel paper purposes,
and  the  receipt  hereof  is   acknowledged   by  X  ,  --  [print],   [title],
WILMINGTON TRUST COMPANY.

                                                            [or]

              [This                     is a DUPLICATE executed counterpart, and
                                        is NOT the original counterpart,  of the
                                        Lease, for chattel paper purposes.]





<PAGE>






                              AIRCRAFT DESCRIPTION



The Aircraft is a Boeing model 737-800  aircraft,  consisting of (1) an airframe
bearing FAA registration no. N___AT and  manufacturer's  serial no.  __________,
(2) two CFM  International  model CFM56-7 engines (each of which has 750 or more
rated takeoff horsepower or its equivalent),  bearing manufacturer's serial nos.
__________  and  __________,   and  (3)  all  appliances,   parts,  instruments,
appurtenances,   accessories,  furnishings,  and  other  equipment  or  property
incorporated in such airframe and engines.





<PAGE>







                       RETURN ACCEPTANCE SUPPLEMENT N___AT



         This Supplement,  dated __________, ____, is entered into between First
Security Bank, National Association, a national banking association,  not in its
individual  capacity but solely as Owner Trustee under Trust  Agreement  N___AT,
dated as of  __________________,  ____, with the Owner Participant named therein
(such Owner Trustee, in its capacity as trustee, being referred to as "LESSOR"),
and American Trans Air, Inc. ("Lessee"), an Indiana corporation.

         Lessor  and  Lessee  have  entered  into Lease  Agreement  N___AT  (the
"LEASE"),  dated as of  [_____________,  ____],  relating  to the  Boeing  model
737-800  aircraft  described  below.  Terms  defined  in the Lease have the same
meanings when used in this Supplement.

         Lessor and Lessee hereby agree as follows:

         1. Lessor and Lessee are executing this Return Acceptance Supplement to
confirm that,  on the date hereof,  Lessee  returned the following  Airframe and
Engines to Lessor:

     Airframe:   U.S.   registration  no.  N___AT;   manufacturer's  serial  no.
__________; and

     Engines: two CFM International engines,  bearing manufacturer's serial nos.
__________  and  ----------.  2.  This  Return  Acceptance  Supplement  is being
delivered in _____________________.

     3.  Lessor and Lessee  agree that the Lease is  terminated,  except for the
provisions thereof that expressly survive termination.



<PAGE>



         IN WITNESS  WHEREOF,  Lessor  and  Lessee  have  executed  this  Return
Acceptance Supplement N___AT.



                                                   FIRST SECURITY BANK, NATIONAL
                                                    ASSOCIATION,   NOT  IN  ITS
INDIVIDUAL CAPACITY,  EXCEPT AS EXPRESSLY PROVIDED HEREIN, BUT SOLELY AS TRUSTEE
UNDER THE TRUST AGREEMENT, as Lessor



              By:
                  ----------------------------------------------------------
                    Name:
                    Title:



              AMERICAN TRANS AIR, INC., as Lessee



              By:
                  ----------------------------------------------------------
                    Name:
                    Title:







<PAGE>






                                  CERTAIN TERMS



             DEFINED TERM                  DEFINITION

Commencement Date                      __________, 200_

Fixed Rate                             $__________ per quarterly Payment Date
                                       [60% OF AVERAGE BASIC RENT DURING THE
                                       BASE TERM]

Minimum Liability Insurance Amount     (CONFIDENTIAL MATERIAL OMITTED)

Past-Due Rate                          (CONFIDENTIAL MATERIAL OMITTED)

Scheduled                              Expiration Date
                                       (a)   for   the
                                       Base Term,  the
                                       20th
                                       anniversary  of
                                       the    Delivery
                                       Date,  and  (b)
                                       for  a  Renewal
                                       Term,  the  day
                                       before      the
                                       first
                                       anniversary  of
                                       the  first  day
                                       of that Renewal
                                       Term

Similar Aircraft                       Boeing model 737-800 aircraft (other than
                                       the Aircraft)

SLV Rate                               (CONFIDENTIAL MATERIAL OMITTED)

Threshold Amount                       (CONFIDENTIAL MATERIAL OMITTED)



<PAGE>






                               BASIC RENT PAYMENTS



                                                                PERCENTAGE OF
                  PAYMENT DATE                                   LESSOR'S COST




<PAGE>




                             BASIC RENT ALLOCATIONS

          FROM (BUT                                               ALLOCATION OF
       NOT INCLUDING)              THROUGH                          BASIC RENT



--------------------------------------------------------------------------------





<PAGE>






                              STIPULATED LOSS VALUE



     STIPULATED        STIPULATED      PREPAID BASIC          DEFERRED BASIC
   LOSS VALUE DATE     LOSS VALUE       RENT AMOUNT            RENT AMOUNT





<PAGE>



--------------------------------------------------------------------------------



                                TERMINATION VALUE




    TERMINATION       TERMINATION VALUE       PREPAID BASIC       DEFERRED BASIC
    VALUE DATE                                 RENT AMOUNT        RENT AMOUNT





<PAGE>



--------------------------------------------------------------------------------

                               EBO PRICE SCHEDULE





                    Unadjusted                                    Adjusted EBO
                     EBO Price           Rent Adjustment             Amount
                  (Percentage of         (Percentage of          (Percentage of
   EBO Date       Lessor's Cost)         Lessor's Cost)          Lessor's Cost)










<PAGE>






                               PERMITTED COUNTRIES





<PAGE>




Argentina*

Australia

Austria

Bahamas

Belgium

Bermuda

Brazil*

Canada

Chile*

Denmark

Ecuador*

Egypt*

Finland

France

Germany

Greece*

Hungary*

Iceland

India*

Indonesia*

Ireland

Italy**

Jamaica*

Japan

Liechtenstein*

Luxembourg

Malaysia*

Malta*

Mexico**

Monaco

Morocco*

Netherlands

New Zealand

Norway

Paraguay*

Peoples Republic of China*

Philippines*

Portugal

Republic of China (Taiwan)*

Singapore*

South Africa*

South Korea*

Spain

Sweden

Switzerland

Thailand*

United Kingdom

Uruguay*

Venezuela*

United States of America

*SUBLEASING AND  RE-REGISTRATION  PERMITTED ONLY WITH OWNER  PARTICIPANT'S PRIOR
  WRITTEN CONSENT,  WHICH CONSENT OWNER PARTICIPANT MAY WITHHOLD IN ITS SOLE AND
  ABSOLUTE DISCRETION.

**APPROVED  FOR  SUBLEASING  BUT LESSEE MAY NOT  RE-REGISTER IN SUCH COUNTRY
  WITHOUT  OWNER  PARTICIPANT'S  PRIOR  WRITTEN  CONSENT,  WHICH  CONSENT  OWNER
  PARTICIPANT MAY WITHHOLD IN ITS SOLE AND ABSOLUTE DISCRETION..



<PAGE>





                                    PLACARDS



                                   Leased from
                   First Security Bank, National Association,
                                as owner trustee

                                and mortgaged to
                            Wilmington Trust Company,
                                   as trustee



<PAGE>






                                     ANNEX B

                                RETURN CONDITIONS

         This Annex B shall apply to the return of the  Aircraft by or on behalf
of Lessee  under the Lease,  whether at a Scheduled  Expiration  Date,  upon the
exercise  of  Lessee's  rights  under ss. 9 of the Lease,  upon thE  exercise of
Lessor's  remedies  following  the  occurrence  of a Lease Event of Default,  or
otherwise.  However, this Annex B shall not apply (1) if an Event of Loss to the
Aircraft occurs (unless the Aircraft is replaced under ss. 10.1.3 of the Lease),
or (2) if Lessee buys the Aircraft in accordance with ss. 17 of the Lease.

         The  terms  defined  in  Annex  A  to  Lease  Agreement  N___AT,   when
capitalized  as in Annex A, have the same  meanings  when  used in this  "Return
Conditions"   Annex.   Annex  A  also  contains  rules  of  usage  that  control
construction in this "Return Conditions" Annex.

         (CONFIDENTIAL MATERIAL OMITTED)





<PAGE>






                                     ANNEX C

                                   MAINTENANCE

         The  terms  defined  in  Annex  A  to  Lease  Agreement  N___AT,   when
capitalized   as  in  Annex  A,  have  the  same  meanings  when  used  in  this
"Maintenance"  Annex.  Annex  A  also  contains  rules  of  usage  that  control
construction in this "Maintenance" Annex.

         A.       MAINTENANCE.
                  -----------

         Lessee shall maintain,  service,  repair, and overhaul the Aircraft (or
cause the Aircraft to be  maintained,  serviced,  repaired,  and  overhauled) in
accordance  with  (1)  maintenance   standards  required  by,  or  substantially
equivalent to those required by, the FAA or the central civil aviation authority
of Canada, Japan, and the JAA for the Aircraft (the "MAINTENANCE  PROGRAM"),  so
as (aa) to keep  the  Aircraft  in as good  operating  condition  as  originally
delivered  hereunder,  ordinary  wear  and tear  excepted,  and (bb) to keep the
Aircraft  in  such  operating  condition  as  may be  necessary  to  enable  the
applicable airworthiness certificate for the Aircraft to be maintained under the
regulations of the FAA or other Aviation Authority then having jurisdiction over
the  operation  of the  Aircraft,  other than  during (x)  temporary  periods of
storage  in  accordance  with  applicable   regulations,   (y)  maintenance  and
modification  permitted  hereunder,  and (z) periods  when the FAA or such other
Aviation  Authority has revoked or suspended the airworthiness  certificates for
Similar Aircraft;  and (2) except during periods when a Permitted Sublease is in
effect,  the same  standards as Lessee uses with respect to similar  aircraft of
similar  size in its fleet  operated  by Lessee in  similar  circumstances  and,
during any period in which a Permitted Sublease is in effect, the same standards
used by the Permitted Sublessee with respect to similar aircraft of similar size
in its fleet and operated by the Permitted  Sublessee in similar  circumstances.
Lessee  further  agrees that the Aircraft will be  maintained,  used,  serviced,
repaired,  overhauled,  or inspected in  compliance  with  applicable  Laws with
respect  to  the  maintenance  of  the  Aircraft  and in  compliance  with  each
applicable airworthiness certificate,  license, and registration relating to the
Aircraft  issued by the  Aviation  Authority,  other than minor or  nonrecurring
violations  with respect to which  corrective  measures are taken upon discovery
thereof and except to the extent Lessee or Permitted  Sublessee is contesting in
good faith the validity or application  of any such Law or requirement  relating
to any such certificate, license, or registration in any reasonable manner which
does not create a material  risk of sale,  loss,  or forfeiture of the Aircraft,
the  Airframe,  or any Engine or the  interest of any  Participant  therein or a
material risk of criminal  liability or material civil penalty  against  Lessor,
Owner Participant, or Mortgagee. Lessee shall cause the Aircraft Documents to be
maintained in English and promptly  furnish  Lessor and Owner  Participant  with
information   necessary  for  filing  with  applicable   governmental   aviation
authorities.

         B.       REPLACEMENT OF PARTS.
                  --------------------

         Except as otherwise  provided herein,  Lessee will promptly replace (or
cause to be  replaced)  all  Parts  that are from time to time  incorporated  or
installed  in or attached  to the  Aircraft,  and that  become  worn out,  lost,
stolen, destroyed,  seized,  confiscated,  damaged beyond repair, or permanently
rendered unfit for use for any reason whatsoever. In addition, Lessee may remove
(or  permit to be  removed)  any Parts in the  ordinary  course of  maintenance,
service,  repair,  overhaul, or testing, whether or not such Parts are worn out,
lost,  stolen,  destroyed,  seized,  confiscated,   damaged  beyond  repair,  or
permanently rendered unfit for use; PROVIDED, that, except as otherwise provided
herein,  Lessee will replace or cause the  replacement of such Parts as promptly
as  practicable.  All  replacement  Parts  shall be free and clear of all Liens,
except for Permitted Liens and pooling  arrangements to the extent  permitted by
ss. C below and shall be in good operating  condition and (except in thE case of
replacement  property  installed on the basis of operational  exigencies) have a
value and  utility  not less than the value and  utility  of the Parts  replaced
(assuming such replaced Parts were in the condition  required under this Lease).
Except as  otherwise  provided  herein,  all Parts at any time  removed from the
Aircraft  shall remain the property of Lessor,  no matter where  located,  until
they are  replaced  by Parts  that have been  incorporated  or  installed  in or
attached to the Aircraft and that meet the  requirements  for replacement  Parts
specified  above. As soon as a replacement  Part is incorporated or installed in
or attached to the Aircraft as above provided, without further act, (1) title to
the  replaced  Part shall vest in Lessee (or if a Permitted  Sublease is then in
effect,  in the Permitted  Sublessee) free and clear of all Lessor Liens and all
rights  of  Lessor,  and the  replaced  Part  shall no  longer  be deemed a Part
hereunder, (2) title to such replacement Part shall vest in Lessor, subject only
to Permitted  Liens and pooling  arrangements  to the extent  permitted by ss. C
below and except in the case of replacement property temporarily installed on an
emergency  basis,  and (3) such  replacement  Part shall become  subject to this
Lease and the  Mortgage  and be deemed  part of the  Aircraft  for all  purposes
hereof and thereof to the same extent as the Parts  originally  incorporated  or
installed in or attached to such Aircraft.

         C.       POOLING OF PARTS.
                  ----------------

         Any Part  removed  from the  Aircraft  may be  subjected by Lessee or a
Permitted  Sublessee to a normal  pooling  arrangement  customary in the airline
industry and entered  into in the ordinary  course of business of Lessee or such
Permitted  Sublessee,  so long as a Part  replacing  such  removed Part shall be
incorporated  or installed in or attached to the Aircraft in accordance with ss.
B of this Annex C as promptly as  practicable  afteR the removal of such removed
Part. In addition,  any  replacement  Part when  incorporated or installed in or
attached  to the  Aircraft  may be owned by any third  party  subject  to such a
normal  pooling  arrangement,  so long as  Lessee  or  Permitted  Sublessee,  as
promptly  thereafter  as  reasonably  possible,  either (1) causes title to such
replacement  Part to vest in Lessor in  accordance  with ss. B of this  Annex C,
free and clear of all Liens (excepT Permitted Liens), or (2) replaces (or causes
to be replaced)  such  replacement  Part by  incorporating  or  installing in or
attaching  to the  Aircraft  a  further  replacement  Part  owned by Lessee or a
Permitted  Sublessee free and clear of all Liens (except Permitted Liens) and by
causing title to such further  replacement  Part to vest in Lessor in accordance
with ss. B of this Annex C.

         D.       ALTERATIONS, MODIFICATIONS, AND ADDITIONS.
                  -----------------------------------------

         Lessee  shall  make  (or  cause  to  be  made)  such   alterations  and
modifications  in and  additions to the Aircraft as may be required from time to
time to meet the  applicable  standards of the FAA or other  Aviation  Authority
having  jurisdiction  over the  operation  of the  Aircraft,  to the extent made
mandatory in respect of the  Aircraft (a  "MANDATORY  MODIFICATION");  PROVIDED,
that Lessee or any  Permitted  Sublessee  may, in good faith and by  appropriate
procedure,  contest the validity or application of any law, rule, regulation, or
order in any  reasonable  manner which does not have more than a DE MINIMIS risk
of adversely  affecting  Lessor's  interest in the Aircraft (and, so long as any
Equipment Notes are outstanding, the Mortgagee) and does not involve more than a
DE MINIMIS risk of sale, forfeiture,  or loss of the Aircraft or the interest of
any Participant therein,  more than a DE MINIMIS risk of material civil penalty,
or any risk of criminal  liability being imposed on Lessor,  Owner  Participant,
Mortgagee, or the holder of any Equipment Note. In addition,  Lessee may make or
permit to be made such  alterations  and  modifications  in and additions to the
Aircraft (each an "OPTIONAL  MODIFICATION") as Lessee or any Permitted Sublessee
deems  desirable in the proper  conduct of its  business,  including  removal of
Parts which Lessee deems are obsolete or no longer  suitable or appropriate  for
use in the Aircraft (PROVIDED, that Lessee's right to remove obsolete Parts will
be  limited to Parts  having an  aggregate  original  cost not  exceeding  1% of
Lessor's Cost of the Aircraft with Lessor having the right to request such parts
be shipped to Owner Participant upon removal at Lessee's expense; PROVIDED, that
no such  Optional  Modification  shall  (1)  diminish  the  fair  market  value,
estimated  residual value,  utility,  or economic useful life of the Aircraft or
any Engine below its fair market value,  estimated residual value,  utility,  or
economic useful life immediately before such Optional Modification (assuming the
Aircraft or such Engine was in the condition  required by the Lease  immediately
before such Optional Modification),  (2) cause the Aircraft to cease to have the
applicable  standard  airworthiness  certificate,  or (3) cause the  Aircraft to
become "limited use property" within the meaning of Rev. Proc. 79-48.  Except as
otherwise  provided  herein,  title to all Parts (other than Removable Parts (as
defined below))  incorporated or installed in or attached to the Aircraft as the
result of such Optional  Modification shall, without further act, vest in Lessor
and become subject to this Lease and the Mortgage.  Notwithstanding  anything to
the  contrary in this ss. D, Lessee or a  Permitted  Sublessee  may, at any time
during  the Term,  removE any Part  (such  Part  being  referred  to herein as a
"REMOVABLE PART") if (aa) such Part is in addition to, and not in replacement of
or  substitution  for,  any Part  originally  incorporated  or  installed  in or
attached to the  Aircraft at the time of delivery  thereof to Lessee or any Part
in replacement  of, or  substitution  for, any such Part,  (bb) such Part is not
required to be incorporated or installed in or attached to the Aircraft pursuant
to the  terms of ss. A of this  Annex C or the first  sentence  of this ss. D or
pursuant to the terms of any insuraNCE policies required to be carried hereunder
or any  applicable  law,  and (cc) such Part can be removed from the Airframe or
Engine  without in any  material  respect  diminishing  the fair  market  value,
estimated  residual value,  utility,  or remaining economic useful life that the
Airframe or Engine  would have had at the time of removal  had such  removal not
occurred,  assuming that such Airframe or Engine was in the condition and repair
required to be  maintained by the terms hereof and such  Removable  Part had not
been  incorporated or installed in or attached to the Aircraft.  Removable Parts
may be leased from or financed by third parties other than Lessor.  Title to any
Removable  Part  shall  not  vest in  Lessor  or be  subject  to the Lien of the
Mortgage; except that any Part not removed before the return to Lessor hereunder
of the Airframe or Engine on which it is  incorporated,  installed,  or attached
shall become the property of Lessor.

         E.       RECORDS.
                  -------

         Lessee  shall  maintain  (or  cause  to  be  maintained)  all  Aircraft
Documents. All Aircraft Documents that are specific to the Aircraft shall be the
property  of Lessor,  but shall  become the  property  of Lessee  upon  Lessee's
purchase  of the  Aircraft  pursuant  to the  terms  of this  Lease  or upon the
occurrence of an Event of Loss and Lessee's compliance with ss. 10.





<PAGE>






                                     ANNEX D

                                    INSURANCE

         The  terms  defined  in  Annex  A  to  Lease  Agreement  N___AT,   when
capitalized as in Annex A, have the same meanings when used in this  "Insurance"
Annex.  Annex A also contains rules of usage that control  construction  in this
"Insurance" Annex.

A.       LIABILITY INSURANCE

         1. Except as provided in ss. A2 below, Lessee will carry or cause to be
carried at all times, at nO expense to Lessor, Owner Participant,  or Mortgagee,
comprehensive  airline legal liability (including passenger liability,  property
damage, and contractual  liability insurance) with respect to the Aircraft which
is (a) in an amount not less than the greater of (x) the amount of comprehensive
airline legal liability insurance from time to time applicable to aircraft owned
or leased  and  operated  by Lessee of the same type and  operating  on  similar
routes as the  Aircraft,  and (y) the  Minimum  Liability  Insurance  Amount per
occurrence;  (b) of the type and  covering  the same  risks as from time to time
applicable to aircraft,  operated by Lessee and similarly-situated  carriers, of
the same type as the  Aircraft;  and (c)  maintained  in effect with insurers of
internationally recognized responsibility in the international aviation industry
(such insurers being referred to herein as "APPROVED INSURERS").

         2.  During any  period  that the  Aircraft  is on the ground and not in
operation,  Lessee may carry or cause to be  carried,  in lieu of the  insurance
required by ss. A1 above,  insurance otherwise conforming with thE provisions of
ss. A1 except that (a) the  amounts of coverage  shall not be required to exceed
the amounts of publiC  liability and property damage insurance from time to time
applicable  to  aircraft  owned or  operated  by  Lessee of the same type as the
Aircraft which are on the ground and not in operation,  and (b) the scope of the
risks  covered and the type of insurance  shall be the same as from time to time
shall be  applicable  to  aircraft  owned or operated by Lessee of the same type
which are on the ground and not in operation.

B.       HULL INSURANCE

         1. Except as provided in ss. B2 below, Lessee will carry or cause to be
carried at all times, at nO expense to Lessor, Owner Participant,  or Mortgagee,
with Approved  Insurers  "all-risk"  ground and flight  aircraft hull  insurance
covering the  Aircraft  (including  the Engines  when they are  installed on the
Airframe  or any  other  airframe)  which  is of the  type as from  time to time
applicable  to aircraft  operated by Lessee of the same type as the Aircraft for
an amount denominated in United States Dollars not less than the Stipulated Loss
Value of the Aircraft

         Any  policies  of  insurance  carried  in  accordance  with this ss. B1
covering the Aircraft and any policieS taken out in  substitution or replacement
for any such policies (a) shall name  Mortgagee (or, if the Lien of the Mortgage
has been discharged, Lessor) as exclusive loss payee for any proceeds to be paid
under such policies up to an amount equal to the Stipulated Loss Value,  and (b)
shall provide that (aa) in the event of a loss  involving  proceeds in excess of
the Threshold Amount, the proceeds in respect of such loss up to an amount equal
to the Stipulated Loss Value for the Aircraft shall be payable to Mortgagee (or,
if the Lien of the Mortgage has been discharged,  to Lessor), except in the case
of a loss with  respect to an Engine  installed  on an  airframe  other than the
Airframe,  in which case Lessee (or any Permitted  Sublessee)  shall endeavor to
arrange for any payment of insurance proceeds in respect of such loss to be held
for the  account  of  Mortgagee  (or,  if the  Lien  of the  Mortgage  has  been
discharged,  Lessor),  whether such payment is made to Lessee (or any  Permitted
Sublessee)  or any third party [and,  if Mortgagee  (or Lessor)  receives such a
payment  otherwise  than in respect of an Event of Loss,  then,  upon receipt of
evidence reasonably satisfactory to Mortgagee (or Lessor) that the damage giving
rise to such payment has been  repaired or that such payment is then required to
pay for repairs then being made,  Mortgagee  (or Lessor) shall pay the amount of
such  payment to Lessee or its  order],  and (bb) the entire  amount of any loss
involving proceeds of the Threshold Amount or less or the amount of any proceeds
of any loss in excess of the  Stipulated  Loss Value for the  Aircraft  shall be
paid to Lessee or its  order  unless a Lease  Event of  Default  exists  and the
insurers have been notified thereof by Lessor or the Mortgagee. In the case of a
loss with respect to an engine (other than an Engine) installed on the Airframe,
Lessor shall hold any payment to it of any insurance  proceeds for that loss for
the account of Lessee or any other  third party who is entitled to receive  such
proceeds.

         2.  During any  period  that the  Aircraft  is on the ground and not in
operation,  Lessee may carry or cause to be  carried,  in lieu of the  insurance
required by ss. B1 above,  insurance otherwise conforming with thE provisions of
ss. B1,  except that the scope of the risks and the type of  insurance  shall be
the same as from timE to time applicable to aircraft owned by Lessee of the same
type similarly on the ground and not in operation,  PROVIDED,  that Lessee shall
maintain  insurance  against risk of loss or damage to the Aircraft in an amount
equal to the Stipulated  Loss Value of the Aircraft  during such period that the
Aircraft is on the ground and not in operation.

C.       WAR-RISK, HIJACKING, AND ALLIED PERILS INSURANCE

         If Lessee (or any Permitted  Sublessee) operates or proposes to operate
the  Aircraft,  the  Airframe,  or any  Engine  (1) in any  area  of  recognized
hostilities,  or (2) on  international  routes  and  Lessee  (or such  Permitted
Sublessee) maintains war-risk,  hijacking,  or allied perils insurance for other
aircraft that it operates on such routes or in such areas, Lessee shall maintain
or cause to be maintained  war-risk,  hijacking,  and allied perils insurance of
substantially  the same type carried by similar  United  States  commercial  air
carriers  operating the same or comparable  models of aircraft on similar routes
or in such  areas,  and in no event in an amount less than the  Stipulated  Loss
Value.

D.       GENERAL PROVISIONS

         Any policies of insurance  carried in accordance  with ss.ss. A, B, and
C, including any policies  taken out IN  substitution  or  replacement  for such
policies:

     (1) shall name Lessor,  each Participant,  the Liquidity Provider (if any),
and Mortgagee  (and in respect of liability  insurances,  to the extent they are
available  without  unreimbursed  additional  cost  to  Lessee,  each  of  their
respective successors,  assigns, directors,  agents, officers, and employees) as
additional insureds (the "ADDITIONAL INSUREDS"), as their interests may appear;

     (2)  shall  apply  worldwide  and  have  no  territorial   restrictions  or
limitations  (except  only in the  case of war,  hijacking,  and  allied  perils
insurance  required  under  ss.  C,  which  shall  apply to thE  fullest  extent
available in the international insurance market);

     (3) shall  provide  that,  in respect of the  interests  of the  Additional
Insureds in such policies, the insurance shall not be invalidated or impaired by
any act or omission  (including  misrepresentation  and nondisclosure) by Lessee
(or any  Permitted  Sublessee)  or any other Person  (including  use for illegal
purposes  of the  Aircraft  or any  Engine),  and shall  insure  the  Additional
Insureds regardless of any breach or violation of any representation,  warranty,
declaration,  term,  or condition  contained in such  policies by Lessee (or any
Permitted Sublessee);

     (4) shall  provide  that,  if the insurers  cancel such  insurance  for any
reason whatsoever, or if it is allowed to lapse for nonpayment of premium, or if
any  material  change  is made in the  insurance  which  adversely  affects  the
interest of any of the Additional Insureds, such cancellation,  lapse, or change
shall not be effective as to the Additional  Insureds for 30 days (seven days in
the case of war risk,  hijacking,  and allied perils insurance) after receipt by
the Additional Insureds of written notice by such insurers of such cancellation,
lapse or change,  PROVIDED,  that if any notice  period  specified  above is not
reasonably obtainable, such policies shall provide for as long a period of prior
notice as shall then be reasonably obtainable;

     (5) shall waive any rights of recourse,  subrogation, setoff (including for
unpaid  premiums),  recoupment,  counterclaim,  or other  deduction,  whether by
attachment or otherwise, against each Additional Insured;

     (6) shall be primary without right of contribution from any other insurance
that may be available to any Additional Insured;

     (7) shall provide that all of the liability  insurance  provisions thereof,
except the limits of  liability,  shall operate in all respects as if a separate
policy had been issued covering each party insured thereunder;

     (8) shall provide that none of the Additional  Insureds shall be liable for
any insurance premium; and

     (9)  shall  contain  a 50/50  Clause  per  Lloyd's  Aviation  Underwriters'
Association Standard Policy Form AVS 103;

     PROVIDED,  that any such  endorsements may be subject to any limitations on
endorsements  generally  prevailing in the airline insurance  marketplace at the
time (E.G., AVN67B).

E.       REPORTS AND CERTIFICATES; OTHER INFORMATION

         On or before the  Delivery  Date and on or before each  renewal date of
the insurance  policies required  hereunder (and no less often than on an annual
basis),  Lessee  will  furnish  or  cause  to  be  furnished  to  Lessor,  Owner
Participant,  and  Mortgagee  insurance  certificates  describing  in reasonable
detail the insurance maintained hereunder and a report,  signed by Lessee's or a
Permitted  Sublessee's  regular  independent  insurance  broker (the  "INSURANCE
BROKER"), stating the opinion of such Insurance Broker that (1) all premiums for
the insurance then due have been paid, and (2) such insurance  complies with the
terms  of  this  Annex  D. To the  extent  that  such  agreement  is  reasonably
obtainable,  Lessee  will  also  cause the  Insurance  Broker to agree to notify
Lessor,  Owner  Participant,  and  Mortgagee  in writing  of any  default in the
payment of any premium and of any other act or omission on the part of Lessee of
which the Insurance  Broker has  knowledge and which might  invalidate or render
unenforceable,  in whole or in part, any insurance on the Aircraft or Engines or
cause the  cancellation or termination of such insurance,  and to notify Lessor,
Owner  Participant,  and  Mortgagee  in writing at least 30 days (seven days for
war-risk and allied perils  coverage,  or such shorter period therefor as may be
available in the  international  insurance  market,  as  applicable)  before the
cancellation,  lapse, or materially  adverse change of any insurance  maintained
pursuant to this Annex D.

F.       RIGHT TO PAY PREMIUMS

         Each  Additional  Insured shall have the rights but not the obligations
of an additional named insured.  No Additional Insured shall have any obligation
to pay any premium,  commission,  assessment,  or call due on any such insurance
(including  reinsurance).   Notwithstanding  the  foregoing,  in  the  event  of
cancellation of any required insurance due to the nonpayment of premium, each of
Lessor,  Owner  Participant,  and Mortgagee  shall have the option,  in its sole
discretion,  to pay any such premium and to maintain such  coverage,  as Lessor,
Owner Participant,  or Mortgagee may require, until the scheduled expiry date of
such insurance and, in such event, Lessee shall, upon demand,  reimburse Lessor,
Owner Participant, and Mortgagee for amounts that they so pay.

G.       DEDUCTIBLES; SELF-INSURANCE

         Lessee  may  self-insure  by way  of  deductible,  premium  adjustment,
franchise  provisions,  or  otherwise  (including,  with  respect  to  insurance
maintained  pursuant to ss. B, insuring for a maximum  amount which is lesS than
the  Stipulated  Loss Value of the Aircraft)  the  insurance  covering the risks
required  to be  insured  against  pursuant  to ss. 11 and this  Annex D under a
program  applicable to all aircraft in Lessee's fleet,  but in no casE shall the
aggregate  amount of  self-insurance  (including any  applicable  deductible) in
regard to ss. 11 and thiS Annex D during any policy  year,  with  respect to the
Aircraft,  exceed (CONFIDENTIAL MATERIAL OMITTED). In addition,  Lessee (and any
Permitted   Sublessee)  may  self-insure  to  the  extent  that  any  applicable
deductible per aircraft that does not exceed  industry  standards for major U.S.
airlines.