AIRCRAFT LEASE AGREEMENT

                            Dated as of May 25, 2000


                                     BETWEEN

                             FRONTIER AIRLINES, INC.

                                    as LESSEE


                                       and

                     INTERNATIONAL LEASE FINANCE CORPORATION

                                    as LESSOR



Aircraft Make and Model:                              New Airbus A318-100
Aircraft Manufacturer's Serial Number:                Per Exhibit E
Aircraft Registration Mark:                           Per Exhibit E
Make and Model of Engines:                            PW 6124
Serial Numbers of Engines:                            Per Exhibit E
                               NEW AIRCRAFT NO. 1


<PAGE>







                                TABLE OF CONTENTS


ARTICLE 1       SUMMARY OF TRANSACTION.........................................2
      1.1       Description of Aircraft........................................2
      1.2       Scheduled Delivery Date and Location...........................2
      1.3       Initial Lease Term.............................................2
      1.4       Lease Extension Options........................................2
      1.5       Security Deposit...............................................2
      1.6       Transaction Fee................................................3
      1.7       Rent During Initial Lease Term.................................3
      1.8       Rent During Lease Extension Term...............................3
      1.9       Reserves.......................................................4
      1.10      Country of Aircraft Registration...............................5
      1.11      Maintenance Program............................................5
      1.12      Agreed Value of Aircraft.......................................5
      1.13      LESSOR's Bank Account..........................................5

ARTICLE 2       DEFINITIONS....................................................7
      2.1       General Definitions............................................7
      2.2       Specific Definitions..........................................12

ARTICLE 3       PLACE AND DATE OF DELIVERY....................................14
      3.1       Place of Delivery.............................................14
      3.2       Scheduled Delivery Date.......................................14
      3.3       Delivery subject to Manufacturer Delivery.....................14
      3.4       No LESSOR Liability...........................................14
      3.5       Total Loss of Aircraft prior to Delivery......................14
      3.6       Cancellation for Delay........................................14
      3.7       Delay.........................................................15

ARTICLE 4       LEASE TERM AND EXTENSION OPTION...............................16
      4.1       Initial Lease Term............................................16
      4.2       Lease Extension Options.......................................16
      4.3       "Lease Term" and "Expiration Date"............................16
      4.4       "Termination Date"............................................16

ARTICLE 5       SECURITY DEPOSIT, TRANSACTION FEE, RENT,
                RESERVES AND OTHER PAYMENTS...................................18
      5.1       Security Deposit..............................................18
      5.2       Transaction Fee...............................................19
      5.3       Rent..........................................................19
      5.4       Reserves......................................................21
      5.5       LESSOR's Bank Account.........................................22
      5.6       Default Interest..............................................23
      5.7       No Deductions or Withholdings.................................23
      5.8       Value Added Taxes.............................................23
      5.9       Wire Transfer Disbursement Report.............................24
      5.10      Net Lease.....................................................24
      5.11      LESSOR Performance of LESSEE Obligation.......................25
      5.12      Consideration for Rent and other Amounts......................25

ARTICLE 6       INVOLVEMENT WITH AIRCRAFT MANUFACTURER........................26
      6.1       LESSEE Selection of Aircraft..................................26
      6.2       Participation Agreement.......................................26
      6.3       Procurement of BFE............................................26
      6.4       LESSEE Inspection of Aircraft.................................26
      6.5       Aircraft at Delivery..........................................26
      6.6       Delivery of the Aircraft to LESSEE............................27
      6.7       LESSEE Acceptance of Aircraft.................................27

ARTICLE 7       PRE-DELIVERY, DELIVERY AND POST-DELIVERY DOCUMENTARY
                AND OTHER REQUIREMENTS........................................28
      7.1       Pre-Delivery Requirements.....................................28
      7.2       LESSOR's Pre-Delivery Requirements............................29
      7.3       Delivery Requirements.........................................29
      7.4       Post-Delivery Requirements....................................30

ARTICLE 8       DISCLAIMERS...................................................31
      8.1       "As Is, Where Is".............................................31
      8.2       Waiver of Warranty of Description.............................31
      8.3       LESSEE Waiver.................................................32
      8.4       Conclusive Proof..............................................32
      8.5       No LESSOR Liability for Losses................................32
      8.6       No Liability to Repair or Replace.............................33
      8.7       No Waiver.....................................................33

ARTICLE 9       MANUFACTURERS' AND VENDORS' WARRANTIES........................34
      9.1       Warranties....................................................34
      9.2       Non-Assignable Warranties.....................................34
      9.3       Reassignment..................................................34
      9.4       Warranty Claims...............................................34

ARTICLE 10      OPERATION OF AIRCRAFT.........................................35
      10.1      Costs of Operation............................................35
      10.2      Compliance with Laws..........................................35
      10.3      Training......................................................35
      10.4      No Violation of Insurance Policies............................35
      10.5      Flight Charges................................................35

ARTICLE 11      SUBLEASES.....................................................37
      11.1      No Sublease without LESSOR Consent............................37
      11.2      LESSOR Costs..................................................37
      11.3      Any Approved Sublease.........................................37
      11.4      Assignment of Sublease........................................38
      11.5      Continued Responsibility of LESSEE............................38

ARTICLE 12      MAINTENANCE OF AIRCRAFT.......................................39
      12.1      General Obligation............................................39
      12.2      Specific Obligations..........................................39
      12.3      Replacement of Parts..........................................41
      12.4      Removal of Engines............................................42
      12.5      Pooling of Engines and Parts..................................42
      12.6      Installation of Engines on other aircraft.....................42
      12.7      Engine Thrust Rating..........................................43
      12.8      Modifications.................................................43
      12.9      Performance of Work by Third Parties..........................45
      12.10     Reporting Requirements........................................45
      12.11     Information Regarding Maintenance Program.....................45
      12.12     LESSOR Rights to Inspect Aircraft.............................45

ARTICLE 13      USE OF RESERVES...............................................46
      13.1      Airframe Reserves.............................................46
      13.2      Engine Performance Restoration Reserves.......................46
      13.3      Engine LLP Reserves...........................................47
      13.4      Landing Gear Reserves.........................................47
      13.5      Reimbursement.................................................47
      13.6      Reimbursement Adjustment......................................48
      13.7      Costs in Excess of Reserves...................................48
      13.8      Reimbursement after Termination Date..........................48

ARTICLE 14      TITLE AND REGISTRATION........................................49
      14.1      Title to the Aircraft During Lease Term.......................49
      14.2      Registration of Aircraft......................................49
      14.3      Filing of this Lease..........................................49
      14.4      Evidence of Registration and Filings..........................49

ARTICLE 15      IDENTIFICATION PLATES.........................................50
      15.1      Airframe Identification Plates................................50
      15.2      Engine Identification Plates..................................50

ARTICLE 16      TAXES.........................................................51
      16.1      General Obligation of LESSEE..................................51
      16.2      Exceptions to Indemnity.......................................51
      16.3      After-Tax Basis...............................................52
      16.4      Timing of Payment.............................................52
      16.5      Contests......................................................53
      16.6      Refunds.......................................................53
      16.7      Cooperation in Filing Tax Returns.............................53
      16.8      Survival of Obligations.......................................53

ARTICLE 17      INDEMNITIES...................................................54
      17.1      General Indemnity.............................................54
      17.2      Exceptions to General Indemnities.............................55
      17.3      After-Tax Basis...............................................56
      17.4      Timing of Payment.............................................56
      17.5      Subrogation...................................................56
      17.6      Notice........................................................56
      17.7      Refunds.......................................................56
      17.8      Defense of Claims.............................................56
      17.9      Survival of Obligation........................................57

ARTICLE 18      INSURANCE.....................................................58
      18.1      Categories of Insurance.......................................58
      18.2      Write-back of any Date Recognition Exclusion..................58
      18.3      Insurance for Indemnities.....................................58
      18.4      Insurance required by Manufacturer............................58
      18.5      Renewal.......................................................58
      18.6      Assignment of Rights by LESSOR................................58
      18.7      Other Insurance...............................................59
      18.8      Information...................................................59
      18.9      Currency......................................................59
      18.10     Grounding of Aircraft.........................................59
      18.11     Failure to Insure.............................................59
      18.12     Reinsurance...................................................59
      18.13     Limit on Hull in favor of LESSEE..............................60

ARTICLE 19      LOSS, DAMAGE AND REQUISITION..................................61
      19.1      Definitions...................................................61
      19.2      Notice of Total Loss..........................................62
      19.3      Total Loss of Aircraft or Airframe............................62
      19.4      Surviving Engine(s)...........................................63
      19.5      Total Loss of Engine and not Airframe.........................63
      19.6      Other Loss or Damage..........................................64
      19.7      Copy of Insurance Policy......................................65
      19.8      Government Requisition........................................65
      19.9      LESSOR Retention of Reserves; Return of Security
                Deposit and Prepaid Rent................65

ARTICLE 20      REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSEE...........67
      20.1      Representations and Warranties................................67
      20.2      Covenants.....................................................68

ARTICLE 21      REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSOR...........71
      21.1      Representations and Warranties................................71
      21.2      Covenant of Quiet Enjoyment...................................72

ARTICLE 22      FINANCIAL AND RELATED INFORMATION.............................73

ARTICLE 23      RETURN OF AIRCRAFT............................................74
      23.1      Date of Return................................................74
      23.2      Technical Report..............................................74
      23.3      Return Location...............................................74
      23.4      Full Aircraft Documentation Review............................74
      23.5      Aircraft Inspection...........................................74
      23.6      Certificate of Airworthiness Matters..........................75
      23.7      General Condition of Aircraft at Return.......................76
      23.8      Checks Prior to Return........................................79
      23.9      Part Lives....................................................81
      23.10     Export and Deregistration of Aircraft.........................83
      23.11     LESSEE's Continuing Obligations...............................83
      23.12     Airport and Navigation Charges................................84
      23.13     Return Acceptance Certificate.................................84
      23.14     Indemnities and Insurance.....................................85
      23.15     Civil Reserve Air Fleet.......................................85

ARTICLE 24      ASSIGNMENT....................................................87
      24.1      No Assignment by LESSEE.......................................87
      24.2      Sale or Assignment by LESSOR..................................87
      24.3      LESSOR's Lender...............................................87
      24.4      LESSEE Cooperation............................................87
      24.5      Protections...................................................88

ARTICLE 25      DEFAULT OF LESSEE.............................................89
      25.1      LESSEE Notice to LESSOR.......................................89
      25.2      Events of Default.............................................89
      25.3      LESSOR's General Rights.......................................91
      25.4      Deregistration and Export of Aircraft.........................91
      25.5      LESSEE Liability for Damages..................................91
      25.6      Waiver of Default.............................................92
      25.7      Present Value of Payments.....................................92
      25.8      Use of "Termination Date".....................................93
      25.9      LESSEE's Remedies.............................................93
      25.10     Waiver of Consequential Damages...............................93

ARTICLE 26      NOTICES.......................................................94
      26.1      Manner of Sending Notices.....................................94
      26.2      Notice Information............................................94

ARTICLE 27      GOVERNING LAW AND JURISDICTION................................95
      27.1      California Law................................................95
      27.2      Non-Exclusive Jurisdiction in California......................95
      27.3      Service of Process............................................95
      27.4      Prevailing Party in Dispute...................................95
      27.5      Waiver........................................................95

ARTICLE 28      MISCELLANEOUS.................................................96
      28.1      Transportation of Personnel...................................96
      28.2      Press Releases................................................96
      28.3      Power of Attorney.............................................96
      28.4      LESSOR Performance for LESSEE.................................96
      28.5      LESSOR's Payment Obligations..................................96
      28.6      Application of Payments.......................................96
      28.7      Usury Laws....................................................96
      28.8      Delegation by LESSOR..........................................97
      28.9      Confidentiality...............................................97
      28.10     Rights of Parties.............................................97
      28.11     Further Assurances............................................97
      28.12     Use of Word "including".......................................98
      28.13     Headings......................................................98
      28.14     Invalidity of any Provision...................................98
      28.15     Time is of the Essence........................................98
      28.16     Amendments in Writing.........................................98
      28.17     Counterparts..................................................98
      28.18     Delivery of Documents by Fax..................................98
      28.19     Entire Agreement..............................................98
      28.20     Expenses......................................................99

EXHIBIT A       AIRCRAFT DESCRIPTION.........................................101
EXHIBIT B       PARTICIPATION AGREEMENT......................................102
EXHIBIT C       CERTIFICATE OF INSURANCE.....................................112
EXHIBIT D       BROKERS' LETTER OF UNDERTAKING...............................119
EXHIBIT E       ESTOPPEL AND ACCEPTANCE CERTIFICATE..........................121
EXHIBIT F       OPINION OF COUNSEL...........................................123
EXHIBIT G       FORM OF POWER OF ATTORNEY....................................124
EXHIBIT H       ASSIGNMENT OF RIGHTS (AIRFRAME)..............................126
EXHIBIT I       ASSIGNMENT OF RIGHTS (ENGINES)...............................133
EXHIBIT J       RETURN ACCEPTANCE RECEIPT....................................135
EXHIBIT K       MONTHLY REPORT...............................................145
EXHIBIT L       AIRCRAFT DOCUMENTATION.......................................148
EXHIBIT M       TECHNICAL EVALUATION REPORT..................................150



<PAGE>










                            AIRCRAFT LEASE AGREEMENT


     THIS AIRCRAFT LEASE AGREEMENT is made and entered into as of May 25, 2000.

         BETWEEN:

     FRONTIER AIRLINES, INC., a Colorado corporation whose address and principal
place of  business is at 12015 East 46th  Avenue,  Suite 200,  Denver,  Colorado
80239 ("LESSEE") and ------

     INTERNATIONAL  LEASE FINANCE  CORPORATION,  a California  corporation whose
address and  principal  place of  business is at 1999 Avenue of the Stars,  39th
Floor, Los Angeles, California 90067, United States of America ("LESSOR").

     The subject matter of this Lease is one (1) new Airbus A318-100 aircraft as
more  particularly  described on Exhibit A attached hereto.  In consideration of
and subject to the mutual  covenants,  terms and  conditions  contained  in this
Lease, LESSOR hereby agrees to lease to LESSEE and LESSEE hereby agrees to lease
from LESSOR the aircraft and the parties further agree as follows:


<PAGE>


         ARTICLE 1             SUMMARY OF TRANSACTION

         The following is a summary of the lease transaction  between LESSEE and
LESSOR.  It is set forth for the convenience of the parties only and will not be
deemed in any way to amend,  detract  from or simplify the other  provisions  of
this Lease.

1.1             Description of Aircraft

                       One new Airbus  A318-100  aircraft with two (2) installed
                       PW 6124 engines,  all as more  particularly  described on
                       Exhibit A hereto

1.2             Scheduled Delivery Date and Location

                       In the month of February 2003 at Hamburg, Germany

1.3             Initial Lease Term

                       145 months

1.4             Lease Extension Options

                       Six (6) Lease extension options of one (1) year each

1.5             Security Deposit

                       *



1.6             Transaction Fee

                *



1.7             Rent During Initial Lease Term

                *



1.8             Rent During Lease Extension Term

                *


1.9             Reserves

                *


1.10            Country of Aircraft Registration

                       United States

1.11            Maintenance Program

                       LESSEE's Maintenance Program

1.12            Agreed Value of Aircraft

                *

1.13            LESSOR's Bank Account

                 *

<PAGE>




         ARTICLE 2             DEFINITIONS

         Except where the context otherwise  requires,  the following words have
the  following  meanings for all  purposes of this Lease.  The  definitions  are
equally  applicable to the singular and plural forms of the words. Any agreement
defined  below  includes each  amendment,  modification,  supplement  and waiver
thereto in effect from time to time.

2.1             General Definitions.


                "Aircraft"  means the  Aircraft  described  on Exhibit A hereto,
including  the  Airframe,  two (2) Engines,  Parts and  Aircraft  Documentation,
collectively.  As the context  requires,  "Aircraft" may also mean the Airframe,
any  Engine,   any  Part,  the  Aircraft   Documentation  or  any  part  thereof
individually.  For  example,  in the  context  of  return  to  LESSOR  the  term
"Aircraft"  means  the  Airframe,  Engines,  Parts  and  Aircraft  Documentation
collectively,  yet in the context of LESSEE not creating any Security  Interests
other than Permitted Liens on the Aircraft, the term "Aircraft" means any of the
Airframe, any Engine, any Part or the Aircraft Documentation individually.

                "Aircraft  Documentation"  means  all  (a) log  books,  Aircraft
records,  manuals and other documents  provided to LESSEE in connection with the
Aircraft,  (b) documents  listed in Exhibits E and L and (c) any other documents
required  to be  maintained  during  the Lease Term by the  Aviation  Authority,
LESSEE's Maintenance Program and this Lease.

                "Airframe"  means  the  airframe  listed  in  the  Estoppel  and
Acceptance  Certificate  executed at Delivery  together with all Parts  relating
thereto (except Engines or engines).

                "Airframe  Warranty  Assignment"  means the Assignment of Rights
(Airframe)  to be entered into between  LESSOR and LESSEE in the form of Exhibit
H.

                "Airworthiness  Directives"  or "ADs"  means  all  airworthiness
directives (or equivalent) of the FAA and the Aviation  Authority  applicable to
the Aircraft.

                "APU" means the auxiliary power unit of the Aircraft.


<PAGE>


                "Aviation  Authority"  means  the FAA or any  Government  Entity
which under the Laws of U.S.  from time to time has control over civil  aviation
or the  registration,  airworthiness  or  operation  of  aircraft in U.S. If the
Aircraft is registered in a country  other than the U.S.,  "Aviation  Authority"
means the agency which regulates civil aviation in such other country.

                "Aviation  Documents" means any or all of the following which at
any time may be  obtainable  from the Aviation  Authority:  (a) if  required,  a
temporary  certificate of airworthiness from the Aviation Authority allowing the
Aircraft  to be  flown  after  Delivery  to the  State of  Registration,  (b) an
application for  registration of the Aircraft with the appropriate  authority in
the State of Registration,  (c) the certificate of registration for the Aircraft
issued by the State of Registration, (d) a full certificate of airworthiness for
the Aircraft  specifying  transport category  (passenger),  (e) an air transport
license,  (f) an air operator's  certificate,  (g) such  recordation of LESSOR's
title to the  Aircraft  and  interest in this Lease as may be  available  in the
State of Registration and (h) all such other authorizations, approvals, consents
and  certificates  in the State of  Registration  as may be  required  to enable
LESSEE lawfully to operate the Aircraft.

                "AVSA" means AVSA S.A.R.L.,  a societe a responsabilite  limitee
organized and existing under the laws of the Republic of France.

                "Basic  Engine"  means those units and  components of the Engine
which are used to induce and convert  fuel/air  mixture  into  thrust/power;  to
transmit  power to the fan and accessory  drives;  to supplement the function of
other defined systems external to the Engine; and to control and direct the flow
of internal  lubrication,  plus all essential  accessories as supplied by Engine
manufacturer. The nacelle, installed components related to the Aircraft systems,
thrust reversers, QEC and the primary flight nozzle are excluded.

                "BFE"  means  any  equipment  which  is to be  provided  by  the
purchaser   of  the   Aircraft   (whether   actually   provided   by  LESSOR  as
buyer-furnished equipment or Manufacturer as seller-purchased equipment).

                "Business  Day" means a day other  than a Saturday  or Sunday on
which the banks in New York City are open for the transaction of business of the
type required by this Lease.


<PAGE>


                "Certificated  Air  Carrier"  means any Person  (except the U.S.
Government)  that is a "citizen of the United  States of America" (as defined in
Section  40102 of Title 49 of  U.S.C.)  and  holding  a  Certificate  of  Public
Convenience  and Necessity  issued under Section 41102 of Title 49 of U.S.C.  by
the Department of Transportation or any predecessor or successor agency thereto,
or, in the event such  certificates  shall no longer be  applicable,  any Person
(except  the U.S.  Government)  that is a citizen  of the U.S.  (as  defined  in
Section 40102 of Title 49 of the U.S.C.) and legally  engaged in the business of
transporting  for hire  passengers  or cargo by air  predominantly  to,  from or
between points within the U.S., and, in either event,  operating  commercial jet
aircraft  capable of carrying ten or more individuals or 6,000 pounds or more of
cargo, which also is certificated.

                "Creditor" means any lessor,  owner, bank, lender,  mortgagee or
other Person which is the owner of or has any interest in an aircraft  engine or
aircraft operated by LESSEE.

                "Creditor  Agreement" means the applicable  agreement  between a
Creditor and LESSEE or between  Creditors  pursuant to which such Creditor owns,
leases or has an interest  in either an aircraft  operated by LESSEE on which an
Engine may be installed  or in an aircraft  engine which may be installed on the
Airframe.

                "Default"  means any event  which,  upon the giving of notice or
the lapse of time would constitute an Event of Default.

                "Delivery"  means the  delivery of the  Aircraft  from LESSOR to
LESSEE pursuant to Article 6.6.

                "Delivery Date" means the date on which Delivery takes place.

                "DGAC" means the French Direction  Generale a l'Aviation  Civile
or any successor thereto.

                "Dollars" and "$" means the lawful currency of the U.S.

                "Engine"  means (a) each of the engines  listed on the  Estoppel
and Acceptance  Certificate;  (b) any replacement  engine acquired by LESSOR and
leased to LESSEE  pursuant to Article 19.5  following a Total Loss of an Engine;
and  (c) all  Parts  installed  in or on any of such  engines  at  Delivery  (or
substituted, renewed or replacement Parts in accordance with this Lease) so long
as title thereto is or remains vested in LESSOR in accordance  with the terms of
Article 12.3.

                "Engine  Warranty  Assignment"  means the  Assignment  of Rights
(Engines) to be entered into between LESSOR and LESSEE in the form of Exhibit I.

                "Estoppel  and  Acceptance   Certificate"   means  that  certain
estoppel and  acceptance  certificate in the form of Exhibit E pursuant to which
LESSEE accepts Delivery of the Aircraft.


<PAGE>


                "Event  of  Default"  means  any of the  events  referred  to in
Article 25.2.

                "FAA"  means  the  Federal   Aviation   Administration   of  the
Department of Transportation or any successor thereto under the Laws of the U.S.

                "FARs" means the U.S. Federal Aviation  Regulations  embodied in
Title 14 of the U.S. Code of Federal Regulations,  as amended from time to time,
or any successor regulations thereto.

                "Geneva  Convention"  means the Convention on the  International
Recognition  of Rights in  Aircraft  signed in Geneva,  Switzerland  on June 19,
1948.

                "Government  Entity"  means  any (a)  national,  state  or local
government, (b) board, commission, department, division, instrumentality, court,
agency or political  subdivision  thereof and (c)  association,  organization or
institution of which any of the entities  listed in (a) or (b) is a member or to
whose jurisdiction any such entity is subject.

                "Landing  Gear" means the installed  main and nose landing gear,
components and their associated actuators, side braces and parts.

                "Law" means any (a) statute, decree,  constitution,  regulation,
order or any directive of any Government  Entity,  (b) treaty,  pact, compact or
other  agreement to which any Government  Entity is a signatory or party and (c)
judicial  or  administrative   interpretation  or  application  of  any  of  the
foregoing.

                "Lease" means this Aircraft Lease  Agreement,  together with all
Exhibits hereto.

                "LESSOR's Lien" means any Security Interest created by LESSOR or
otherwise  arising  solely as a result of any act or  omission  of LESSOR or any
Person claiming by or through LESSOR.

                "LESSOR's Taxes" means any Taxes referred to in Article 16.2.

                "Maintenance  Program"  means  LESSEE's  maintenance  program as
approved by the Aviation  Authority or such other maintenance  program as LESSOR
may, in its reasonable discretion, accept in writing.


<PAGE>


                "Manufacturer" means Airbus Industrie, G.I.E.


                "MPD"  means the  Maintenance  Planning  Document  published  by
Manufacturer   and   applicable   to  the   Aircraft.   With   respect   to  the
hour/cycle/calendar time limitation of Parts and inspections,  references to the
MPD mean the most restrictive limitation set forth therein.

                "Operative   Documents"  means  this  Lease,  the  Participation
Agreement, the Airframe Warranty Assignment, the Engine Warranty Assignment, the
Estoppel and  Acceptance  Certificate  and any Side Letter or other  document or
agreement  entered  into on or after the date hereof  between  LESSEE and LESSOR
relating  to  the  leasing  of  the  Aircraft   hereunder  or  the  transactions
contemplated hereby.

                "Overhaul"  means the full  reconditioning  of the Aircraft,  an
Engine,  APU,  Landing  Gear,  module or Part, as the case may be, in which such
equipment  has been  fully  disassembled;  cleaned;  thoroughly  inspected;  and
returned to the highest  standard  specified  by the  applicable  manufacturer's
manual.

                "Part"  means any part,  component,  appliance,  system  module,
engine  module,  accessory,  material,  instrument,   communications  equipment,
furnishing,  LESSEE-furnished or LESSOR-purchased  equipment,  the APU, or other
item of equipment  (other than  complete  Engines or engines) for the time being
installed  in or attached to the Airframe or any Engine,  or which,  having been
removed from the Airframe or any Engine, remains the property of LESSOR.

                "Participation  Agreement" means the Participation  Agreement to
be entered into by LESSEE,  LESSOR and AVSA and the  Manufacturer in the form of
Exhibit B.

                "Permitted   Lien"  means  (a)  LESSOR's  Liens;   (b)  Security
Interests  arising in the ordinary course of LESSEE's  business for Taxes either
not yet assessed or, if assessed,  not yet due or being  contested in good faith
in accordance  with Article 16.5 or (c)  materialmen's,  mechanics',  workmen's,
repairmen's, employees' liens or similar Security Interests arising by operation
of Law after the Delivery Date in the ordinary  course of LESSEE's  business for
amounts  which are  either not yet due or are being  contested  in good faith by
appropriate proceedings (and for which adequate reserves have been made or, when
required  in  order  to  pursue  such  proceedings,  an  adequate  bond has been
provided)  so long as such  proceedings  do not  involve  any  danger  of  sale,
forfeiture or loss of the Aircraft.

                "Permitted  Sublessee"  has  the  meaning  ascribed  thereto  in
Article 11.1.1.


<PAGE>


                "Permitted Transferee" means any Person who:

               (a)  is a "citizen  of the  United  States" as defined in Section
                    40102 of Title 49 of the U.S.C. with the requisite power and
                    authority  to enter  into  and  carry  out the  transactions
                    contemplated by this Lease;

               (b)  is not,  and is not  affiliated  with,  a  Certificated  Air
                    Carrier;

               (c)  enters  into a binding  agreement  with  LESSEE  pursuant to
                    which it agrees  to be bound by the terms of this  Lease and
                    agrees  to  perform  all  of  the   obligations   of  LESSOR
                    hereunder; and

               (d)  is  either  (i) a U.S.  bank,  insurance  company  or  other
                    financial  institution  with a consolidated  net worth of at
                    least  $25,000,000,  (ii)  a  corporation  which  has  (or a
                    general   partnership   whose  general   partners   have)  a
                    consolidated net worth of at least  $25,000,000 and which is
                    a sophisticated  entity,  experienced in participating as an
                    equity  investor in commercial  aircraft  leases,  (iii) the
                    trustee  or agent of an  aircraft  income or  similar  fund;
                    provided that such trustee or agent has a  consolidated  net
                    worth of at least $25,000,000,  or (iv) such other Person as
                    LESSEE  shall  approve in writing,  such  approval not to be
                    unreasonably withheld or delayed.

                "Person" means any individual, firm, partnership, joint venture,
trust, corporation,  Government Entity, committee,  department, authority or any
body, incorporated or unincorporated,  whether having distinct legal personality
or not.

                "Prime  Rate"  means  the  rate of  interest  from  time to time
announced by Chase  Manhattan Bank in New York as its prime  commercial  lending
rate.

                "Security  Interest" means any encumbrance or security interest,
however and  wherever  created or arising  including  (without  prejudice to the
generality of the foregoing) any right of ownership, security, mortgage, pledge,
charge,   encumbrance,   lease,   lien,   statutory   or  other  right  in  rem,
hypothecation,  title retention,  attachment, levy, claim or right of possession
or detention.

                "State of  Registration"  means U.S.  or such  other  country or
state of registration of the Aircraft as LESSOR may, in its absolute discretion,
approve in writing.


<PAGE>


                "U.S." means the United States of America.


2.2  Specific  Definitions.  The  following  terms are  defined in the  Articles
referenced below:

                                   Terms                           Article


           Agreed Value                                            19.1
           Airframe Reserves                                       5.4.1
           CRAF                                                    23.15.1
           CRAF Program Requisition Period                         23.15.1
           Default Interest                                        5.6
           Delivery Location                                       3.1
           Engine LLP Reserves                                     5.4.1
           Engine Performance Restoration Reserves                 5.4.1
           Expenses                                                17.1
           Expiration Date                                         4.3
           Extension Lease Term                                    4.2.1
           Indemnitees                                             17.1
           Initial Lease Term                                      4.1
           Landing Gear Reserves                                   5.4.1
           Lease Term                                              4.3
           LESSEE Customization Costs                              5.3.1
           LESSOR's Assignee                                       24.2.1
           LESSOR's Bank                                           5.5
           LESSOR's Lender                                         24.3
           Manufacturer's Escalation Rate                          5.3.1
           Modification                                            12.8.1
           Net Total Loss Proceeds                                 19.1
           Outside Delivery Date                                   3.6
           Passenger Service Equipment                             12.8.1
           Rent                                                    5.3.1
           Reserves                                                5.4.1
           Scheduled Delivery Date                                 3.2
           Security Deposit                                        5.1.1
           Taxes                                                   16.1
           Termination Date                                        4.4
           Total Loss                                              19.1
           Total Loss Date                                         19.1
           Total Loss Proceeds                                     19.1
           Transaction Fee                                         5.2


<PAGE>





         ARTICLE 3            PLACE AND DATE OF DELIVERY




3.1  Place  of  Delivery.   LESSOR  will  deliver  the  Aircraft  to  LESSEE  at
Manufacturer's facility at Hamburg, Germany or such other place as may be agreed
in writing between the parties (the "Delivery Location").

3.2  Scheduled  Delivery  Date.  As of the date of this  Lease,  Delivery of the
Aircraft  from  Manufacturer  to  LESSOR is  scheduled  to occur in the month of
February  2003.  LESSOR  will  notify  LESSEE  from time to time and in a timely
manner  but no later  than  ninety  (90) days  prior to the  scheduled  month of
delivery of the  scheduled  week of delivery and no later than ten (10) Business
Days prior to the exact date on which LESSOR expects Delivery to take place (the
"Scheduled Delivery Date").

3.3 Delivery subject to Manufacturer Delivery. Subject to the provisions of this
Article 3, LESSOR and LESSEE expressly acknowledge that Delivery of the Aircraft
to LESSEE is  subject  to and  conditioned  upon  delivery  of the  Aircraft  by
Manufacturer to LESSOR.

3.4 No LESSOR Liability.  LESSOR will not be liable for any loss or expense,  or
any loss of profit,  arising  from any delay or failure  in  Delivery  to LESSEE
unless  such  delay or failure  arises as a direct  consequence  of the  willful
misconduct  of LESSOR or the  breach  by  LESSOR  of its  obligations  under the
purchase agreement with respect to the Aircraft,  and in no event will LESSOR be
liable  for any delay or  failure  which is caused by any breach or delay on the
part of Manufacturer or any BFE supplier.

3.5 Total Loss of Aircraft  prior to  Delivery.  If a Total Loss of the Aircraft
occurs prior to Delivery,  neither party will have any further  liability to the
other  except  that  LESSOR  will  return  to LESSEE  the  Security  Deposit  in
accordance  with Article 5.1.3 and any prepaid Rent,  whereupon this Lease shall
terminate.


<PAGE>


3.6  Cancellation  for  Delay.  Promptly  after  LESSOR  becomes  aware  that in
Manufacturer's opinion a delay will cause Delivery to be delayed beyond February
29, 2004 (the "Outside  Delivery Date"),  LESSOR will notify LESSEE.  By written
notice  given  within  thirty (30) days after the first to occur of (i) LESSEE's
receipt of such LESSOR notice or (ii) the Outside  Delivery  Date,  either party
may by written  notice to the other  party  terminate  this Lease and this Lease
will  terminate  on the date of  receipt  of such  notice.  In the event of such
termination,  neither  party will have any further  liability to the other party
except that LESSOR will return to LESSEE the Security Deposit in accordance with
Article 5.1.3 and any prepaid Rent. If neither party gives notice of termination
within such thirty (30) day  period,  then the period for  termination  shall be
deemed to be extended for an additional  one hundred and eighty (180) days after
the  expiration of such thirty (30) day period.  In the event that neither party
gives a notice of  termination  within  such one  hundred  and eighty  (180) day
period,  the Lease will  automatically  terminate  upon the  expiration  of such
period,  and LESSOR will return to LESSEE the  Security  Deposit and any prepaid
Rent as provided above.

3.7 Delay.  In the event that the Delivery of the Aircraft is delayed beyond the
Scheduled  Delivery Date, then LESSEE and LESSOR will meet to discuss the action
that they will take against Manufacturer or any vendor as a result of such delay
and what  compensation  they desire from the Manufacturer or such vendor. In the
event that LESSOR  receives  compensation  from  Manufacturer as a result of any
delay,  LESSOR after deducting its costs and expenses  resulting from such delay
will  provide  to  LESSEE  the  balance  of  such  compensation   received  from
Manufacturer. In the event that LESSOR receives an abatement or other concession
by Manufacturer in respect of Manufacturer's  Escalation Rate as a result of any
delay, LESSOR will pass through such abatement or concession to LESSEE.


<PAGE>



         ARTICLE 4            LEASE TERM AND EXTENSION OPTION




4.1 Initial Lease Term. The term of leasing of the Aircraft will commence on the
Delivery Date and continue for an initial  lease term of One Hundred  Forty-Five
(145) months (the "Initial Lease Term").

4.2  Lease Extension Options.


4.2.1So  long as no  payment  Default or Event of Default  has  occurred  and is
continuing  hereunder  on  the  date  of  exercise  of  the  option  or  on  the
commencement  date of the lease term with  respect to such  option,  LESSEE will
have six (6)  options  to  extend  the term of the Lease for a period of one (1)
year each (the "Extension Lease Term").

4.2.2 In order to exercise an option,  LESSEE must give written notice to LESSOR
not less than nine (9) months prior to the then-existing Expiration Date of this
Lease.  Any notice given by LESSEE in accordance  herewith will be  irrevocable.
LESSEE may not  exercise  its option to extend the lease of the Aircraft for any
year unless it has also  exercised  its option to extend the lease for all prior
lease years.

4.3 "Lease Term" and "Expiration  Date".  "Lease Term" means the term of leasing
commencing  on  the  Delivery  Date  and  terminating  on the  Expiration  Date.
"Expiration  Date" means the date on which LESSEE is required to  redeliver  the
Aircraft  to LESSOR in the  condition  required by this Lease on the last day of
the Initial Lease Term or Extension Lease Term, if and as applicable.

4.4  "Termination Date".    This Lease may in fact terminate on any of the dates
set forth below:


               (a)  the Expiration Date, provided LESSEE returns the Aircraft to
                    LESSOR on the Expiration  Date in the condition  required by
                    Article 23; or

               (b)  a date earlier than the Expiration Date, if:

                    (i)  there is a Total Loss of the Aircraft prior to Delivery
                         pursuant to Article 3.5;

                    (ii) cancellation  of this Lease occurs  pursuant to Article
                         3.6;


                    (iii)there is a Total Loss of the  Aircraft  and  payment is
                         made to LESSOR in accordance with Article 19.3; or ----

                    (iv) an Event of Default occurs and LESSOR  repossesses  the
                         Aircraft or otherwise terminates this Lease pursuant to
                         Article 25.3.

               (c)    a date later than the Expiration Date, if:

                    (i)  LESSEE  fails to return the  Aircraft in the  condition
                         required  by  this  Lease  on the  Expiration  Date  in
                         accordance with Article 23; or

                    (ii) an Event of Default occurs and LESSOR  repossesses  the
                         Aircraft or otherwise terminates this Lease pursuant to
                         Article 25.3.

         The  "Termination  Date"  is the date on which  this  Lease  terminates
because one of the above has occurred.


<PAGE>




         ARTICLE 5            SECURITY DEPOSIT, TRANSACTION FEE, RENT, RESERVES
                             AND OTHER PAYMENTS




5.1             Security Deposit.

5.1.1           *

5.1.2           The Security  Deposit may be commingled  with  LESSOR's  general
                funds and any interest  earned on such Security  Deposit will be
                for LESSOR's  account.  If the Security Deposit is reduced below
                the required amount by application to meet LESSEE's  unperformed
                obligations under this Lease, LESSEE will replenish the Security
                Deposit within ten (10) days after LESSOR's demand therefor. The
                Security  Deposit will serve as security for the  performance by
                LESSEE  of its  obligations  under  this  Lease  and  any  other
                agreements  between  LESSEE and  LESSOR  relating  to  aircraft,
                engines,  aircraft  equipment or the extension of credit and may
                be applied by LESSOR upon the  occurrence of an Event of Default
                hereunder  or of an event of  default  by LESSEE  under any such
                other agreements.

5.1.3           Upon  termination  of this Lease in accordance  with Article 4.4
                other  than  if  an  Event  of  Default  has   occurred  and  is
                continuing,  LESSOR  will  return  to LESSEE  the  amount of the
                Security  Deposit  then held by LESSOR (so long as no default by
                LESSEE  exists  under any other  agreement  between  LESSEE  and
                LESSOR  relating to aircraft,  engines or aircraft  equipment or
                the extension of credit by LESSOR to LESSEE in which case LESSOR
                will  be  entitled  to set off  amounts  owing  to it),  without
                interest,  less an amount determined to be a reasonable estimate
                of the  costs,  if any,  which  LESSOR  will incur to remedy any
                unperformed  obligations  of LESSEE under this Lease,  including
                the correction of any discrepancies  from the required condition
                of the Aircraft on return of the Aircraft.

5.2             Transaction Fee.

                *

5.3             Rent.

5.3.1           *

                *** All  extension  term rent  amounts are  expressed in January
2000 U.S.  Dollars and subject to  escalation  for the period from and including
the 1st of January 2000 through and  including  the Delivery  Date in accordance
with the Manufacturer's Escalation Rate.


<PAGE>


5.3.2           The first  payment of Rent during the Lease Term will be paid no
                later than the Delivery Date.  Each  subsequent  payment of Rent
                will be due monthly thereafter no later than the same day of the
                month as the Delivery Date of the Aircraft  except that, if such
                day  is  not a  Business  Day,  the  Rent  will  be  due  on the
                immediately  preceding Business Day. If Delivery occurred on the
                29th,  30th or 31st of the month and in any given  month  during
                the Lease Term there is no such corresponding date, Rent will be
                payable on the last Business Day of such month.

5.4             Reserves.

5.4.1           *

5.4.2           The amount of the Engine  Performance  Restoration  Reserves set
                forth in Article  5.4.1 may be  increased by LESSOR in the event
                of an increase in the thrust  rating of an Engine in  accordance
                with Article 12.7.

5.4.3           Such  Reserves  will be paid on or  before  the  10th day of the
                calendar  month next  following  the month in which the Delivery
                Date  occurs  and on or before  the 10th day of each  succeeding
                calendar  month for flying  performed  during the calendar month
                prior to payment.  All Reserves for flying  performed during the
                month in which the  Termination  Date occurs will be paid on the
                Termination Date, unless otherwise agreed by the parties.

5.4.4           No interest will accrue or be paid at any time to LESSEE on such
                Reserves and, subject to LESSOR's  obligations under Article 13,
                LESSOR may commingle the Reserves with LESSOR's general funds.

5.5             LESSOR's  Bank  Account. The  Security Deposit, Transaction Fee,
                Rent,Reserves and any other payment due under this Lease will be
                paid by wire transfer of immediately available U.S. Dollar funds
                to LESSOR's bank account at:

                       *




<PAGE>


or to such other  bank  account  as LESSOR  may from time to time  designate  by
written  notice  ("LESSOR's  Bank").  When it is  stated in this  Lease  that an
installment  of the Security  Deposit,  the monthly Rent,  Reserves or any other
payment is due or must be paid or made by LESSEE by a specific  date,  then such
payment  actually  must be received by LESSOR's  Bank on or before such specific
date, even if, in order for such payment to be received by LESSOR's Bank by such
specific  date,  LESSEE must initiate the wire  transfer  prior to such specific
date.

5.6             Default Interest.

                *


5.7 No  Deductions  or  Withholdings.  All  payments by LESSEE under this Lease,
including  the  Security  Deposit,  Transaction  Fee,  Rent,  Reserves,  Default
Interest,  fees, indemnities or any other item, will be made in full without any
deduction or withholding whether in respect of set-off, counterclaim, duties, or
Taxes (as  defined in Article 16)  imposed in the State of  Registration  or any
jurisdiction  from which such  payments are made except to the extent  otherwise
required by Law, in which event LESSEE will pay any additional  amount such that
the net payment  received by LESSOR after any required  deduction or withholding
equals the amount that LESSOR would have  received if such  withholding  had not
been required; provided, however, that if LESSEE pays any such additional amount
to  compensate  for the  withholding  of any LESSOR  Taxes,  LESSOR shall pay to
LESSEE  promptly  after  receipt of LESSEE's  written  request  therefor  (which
request  shall include a  description  in reasonable  detail of the LESSOR Taxes
involved  and the  calculation  of the  amounts to be paid) such  amounts as are
necessary  so that the net  additional  amounts  received  by LESSOR  under this
Article 5.7 do not exceed the  amounts  that  LESSOR  would have  received if no
amounts in respect of LESSOR Taxes had been  required to be withheld or deducted
by LESSEE.

5.8 Value Added Taxes.  The Rent and other amounts  payable by LESSEE under this
Lease are exclusive of any value added tax, turnover tax or similar tax or duty.



<PAGE>


5.9  Wire  Transfer  Disbursement  Report.  At the  time of each  Rent or  other
payment, LESSEE will advise LESSOR in writing of the amount of the payment being
made by LESSEE and the allocation of such payment to the Security Deposit, Rent,
Reserves, Default Interest and other charges. Notwithstanding the allocation set
forth in LESSEE's  report,  in the event an Event of Default has occurred and is
continuing  under this Lease,  LESSOR will have complete  discretion to allocate
LESSEE's payments as LESSOR determines.

5.10  Net Lease.


5.10.1 This Lease is a net lease and  LESSEE's  obligation  to pay Rent and make
other payments in accordance with this Lease will be absolute and  unconditional
under any and all  circumstances  and regardless of other events,  including the
following:

               (a)  any right of set-off,  counterclaim,  recoupment, defense or
                    other right  (including  any right of  reimbursement)  which
                    LESSEE may have  against  LESSOR,  Manufacturer,  the Engine
                    manufacturer  or any other person for any reason,  including
                    any claim LESSEE may have for the foregoing;

               (b)  unavailability  or  interruption  in use of the Aircraft for
                    any  reason,   including  a   requisition   thereof  or  any
                    prohibition  or  interference   with  or  other  restriction
                    against  LESSEE's  use,   operation  or  possession  of  the
                    Aircraft (whether by Law or otherwise), any defect in title,
                    airworthiness,  merchantability,  fitness  for any  purpose,
                    condition, design, specification or operation of any kind or
                    nature of the Aircraft,  the  ineligibility  of the Aircraft
                    for any  particular use or trade or for  registration  under
                    the Laws of any jurisdiction or Total Loss of the Aircraft;

               (c)  insolvency,   bankruptcy,    reorganization,    arrangement,
                    readjustment    of    debt,    dissolution,     liquidation,
                    receivership,  administration  or similar  proceedings by or
                    against   LESSOR,   LESSEE,    Manufacturer,    the   Engine
                    manufacturer or any other Person;

               (d)  invalidity or  unenforceability or lack of due authorization
                    of or other defect in this Lease;

               (e)  failure  or delay on the part of any  party to  perform  its
                    obligations under this Lease; or



<PAGE>


               (f)  any other circumstance which but for this provision would or
                    might  have the  effect of  terminating  or in any other way
                    affecting any obligation of LESSEE hereunder.

5.10.2  Nothing in Article 5.10 will be construed to limit  LESSEE's  rights and
remedies in the event of LESSOR's  breach of its warranty of quiet enjoyment set
forth in Article  21.2 or to limit  LESSEE's  rights and remedies to pursue in a
court of law any claim it may have against LESSOR or any other Person; provided,
however, that LESSEE will have no obligation to pay Rent as aforesaid, except in
respect  of Rent  accrued  at the time,  for the  number of days that  LESSEE is
deprived of the  possession  and use of the Aircraft as the result of the breach
by LESSOR of its warranty of quiet enjoyment obligations set forth Article 21.2.

5.11  LESSOR  Performance  of LESSEE  Obligation.  If  LESSEE  fails to make any
payment due under this Lease to a third party in connection with the Aircraft or
fails to perform any other obligation required under this Lease, LESSOR may (but
is not required to) at its  election  and without  waiver of its rights  perform
such  obligation  and/or pay such amount.  Within five (5)  Business  Days after
written  notice  to  LESSEE of the  amount  paid by LESSOR on behalf of  LESSEE,
LESSEE will repay such amount to LESSOR  together  with Default  Interest.  Such
payment to LESSOR will  constitute  additional  Rent payable by LESSEE to LESSOR
hereunder.  Any  payment,  performance  or  compliance  by  LESSOR  of a  LESSEE
obligation  hereunder will not affect the occurrence or continuance of a Default
or Event of Default, as the case may be.

5.12 Consideration for Rent and other Amounts.  The amount of the Rent and other
payments  contained herein are in consideration of LESSEE's waiver of warranties
and  indemnities  set forth in  Articles 8 and 17,  respectively,  and the other
provisions of this Lease.


<PAGE>


         ARTICLE 6            INVOLVEMENT WITH AIRCRAFT MANUFACTURER

6.1 LESSEE Selection of Aircraft.  LESSEE  ACKNOWLEDGES  THAT THE DESCRIPTION OF
THE  AIRCRAFT  SET FORTH IN THIS LEASE IS BASED  UPON  INFORMATION  SUPPLIED  BY
MANUFACTURER.  LESSEE  COVENANTS TO LESSOR THAT LESSEE HAS USED ITS OWN JUDGMENT
IN SELECTING  THE  AIRCRAFT AND HAS DONE SO BASED ON ITS SIZE,  DESIGN AND TYPE.
LESSEE  ACKNOWLEDGES  THAT LESSOR IS NOT A  MANUFACTURER,  REPAIRER OR SERVICING
AGENT OF THE AIRCRAFT.

6.2 Participation Agreement. LESSEE shall have the right to inspect the Aircraft
during the manufacture process and to attend and observe the acceptance tests of
the Aircraft  pursuant to the terms of a  Participation  Agreement to be entered
into between LESSEE and LESSOR in the form set forth in Exhibit B.

6.3 Procurement of BFE.  LESSEE's and LESSOR's  technical  representatives  will
meet and determine which of LESSEE or LESSOR will provide specific items of BFE.
Such BFE  will  then be  provided  to  Manufacturer  by  LESSEE  or  LESSOR,  as
applicable, within the time frames required by Manufacturer.

6.4 LESSEE  Inspection of Aircraft.  During the course of final  assembly of the
Aircraft,  and at Delivery,  LESSEE may have its own  representative  present to
inspect the Aircraft and to ensure its  conformity  with LESSEE's  needs and the
terms of this Lease.  LESSEE will have ground  inspection and acceptance  flight
rights with respect to the  Aircraft.  If LESSEE's  inspection  reveals that the
Aircraft  does not comply in any material  respect with the terms of this Lease,
LESSOR will promptly cause the Manufacturer to correct any such defects and make
the Aircraft  available for reinspection to LESSEE,  and to conduct such further
demonstration  flights  as  may be  necessary  to  verify  compliance  with  the
requirements  of this  Lease,  including  but not  limited to Exhibit A attached
hereto. LESSEE acknowledges that, as between LESSEE and LESSOR, in accepting the
Aircraft  LESSEE is relying on its own  inspection and knowledge of the Aircraft
in determining whether the Aircraft meets the requirements of this Lease.

6.5 Aircraft at  Delivery.  At  Delivery,  the Aircraft  will be as set forth in
Exhibit A, as such  description may be modified by any change requests agreed to
among LESSEE,  LESSOR and Manufacturer  (which will be reflected in amendment(s)
to this  Lease).  In the event of any  discrepancies,  LESSEE  and  LESSOR  will
cooperate  in good  faith  with one  another  and with  Manufacturer  and Engine
manufacturer,  as  applicable,  in  order to  arrive  at a  mutually  acceptable
resolution of any such discrepancies.

6.6 Delivery of the Aircraft to LESSEE.  Subject to LESSEE having  performed all
of the conditions precedent to Delivery set forth herein,  immediately following
delivery of the Aircraft  from  Manufacturer  to LESSOR,  LESSOR will tender the
Aircraft to LESSEE at the Delivery  Location.  Provided  that the Aircraft is in
the  condition  required by Article  6.5 and  provided  that  LESSOR  shall have
performed all conditions precedent noted in Article 7.2 and 7.3 hereof, upon the
tender of the  Aircraft by LESSOR to LESSEE,  LESSEE will accept the Aircraft by
executing  and  delivering  to LESSOR the Estoppel and  Acceptance  Certificate,
whereupon  Delivery will be deemed to have occurred for all purposes  under this
Lease, including, but not limited to, the commencement of LESSEE's obligation to
pay Rent hereunder.

6.7 LESSEE  Acceptance  of  Aircraft.  If LESSEE  fails to (a)  comply  with the
conditions  contained  in Articles  7.1 and 7.3 so as to allow  Delivery to take
place immediately  following  delivery of the Aircraft by Manufacturer to LESSOR
or (b) take  delivery of the  Aircraft  when  properly  tendered for delivery by
LESSOR in the condition required hereunder, LESSEE will indemnify LESSOR for all
costs and expenses incurred by LESSOR as a result thereof including (but without
limitation)  any  payments  other than the purchase  price which LESSOR  becomes
obliged to make to Manufacturer.


<PAGE>



         ARTICLE 7            PRE-DELIVERY, DELIVERY AND POST-DELIVERY
                             DOCUMENTARY AND OTHER REQUIREMENTS




7.1 Pre-Delivery Requirements. LESSEE will do each of the following prior to the
Scheduled Delivery Date of the Aircraft within the time frames set forth below:

7.1.1 Within one (1) month after execution of this Lease, LESSEE will deliver to
LESSOR each of the following:

               (a)  copies of resolutions of the Board of Directors of LESSEE or
                    other written evidence of appropriate corporate action, duly
                    certifying  and   authorizing  the  lease  of  the  Aircraft
                    hereunder and the  execution,  delivery and  performance  of
                    this Lease,  together with an incumbency  certificate  as to
                    the person or persons  authorized  to  execute  and  deliver
                    documents on behalf of LESSEE hereunder; and

               (b)  an opinion of counsel in the form and  substance  of Exhibit
                    F.

7.1.2 At least fourteen (14) days prior to the Scheduled  Delivery Date,  LESSEE
will have delivered to LESSOR a Certificate of Insurance and Brokers'  Letter of
Undertaking  in the form and substance of Exhibits C and D,  respectively,  from
LESSEE's  insurance brokers  evidencing  insurance of the Aircraft in accordance
with this Lease from the Delivery Date.

7.1.3 At least three (3) Business  Days prior to the  Scheduled  Delivery  Date,
LESSEE will do each of the following:

               (a)  provide  LESSOR with  documents  evidencing  that LESSEE has
                    obtained  any  necessary  permits or  approvals to ferry and
                    import  the  Aircraft  to the U.S.  and that all  applicable
                    customs  duties and sales  taxes in respect of the  Aircraft
                    have been discharged by LESSEE (or arrangements satisfactory
                    to LESSOR  have been made for  obtaining  or paying  for the
                    same);

               (b)  provide  LESSOR  with  a copy  of  LESSEE's  Air  Operator's
                    Certificate;

               (c)  provide LESSOR with a power of attorney  empowering LESSEE's
                    representative, who may be an officer or employee of LESSEE,
                    to accept the Aircraft on behalf of LESSEE;

               d)   provide  LESSOR  with a power  of  attorney  in the  form of
                    Exhibit G; and -

               (e)  provide  LESSOR  with such  other  documents  as LESSOR  may
                    reasonably request.

7.2 LESSOR's Pre-Delivery  Requirements.  LESSEE's obligation to accept delivery
of and lease the Aircraft  hereunder is subject to satisfaction of the following
conditions precedent:

               (a)  LESSOR  shall  tender the  Aircraft  including  the Aircraft
                    Documentation   to  LESSEE  at  the  Delivery   Location  in
                    accordance with Article 6.6;

               (b)  LESSOR  shall be  prepared  to  advise  its FAA  counsel  to
                    register  the Aircraft in the U.S. in the name of LESSOR and
                    the Aircraft shall have a valid Certificate of Airworthiness
                    and shall be in the condition  required in order to meet the
                    operating requirements of FAR Part 121;

               (c)  All  Airworthiness  Directives which are issued prior to the
                    Delivery Date and which require  compliance (either by means
                    of  repetitive  inspections,  modifications  or  terminating
                    action)  prior to  Delivery  or  within  one (1) year  after
                    Delivery will be complied with on a terminating action basis
                    at LESSOR's cost; Airworthiness Directives which do not have
                    a  terminating  action will be  accomplished  at the highest
                    level of inspection or modification possible; and

               (d)  LESSOR  shall  have  executed  and  delivered  to LESSEE the
                    Airframe   Warranty   Assignment  and  the  Engine  Warranty
                    Assignment,  together  with the  consents  of Seller and the
                    Engine manufacturer,  respectively, in the form set forth as
                    Schedule 1 to each agreement,  and a consent of Manufacturer
                    to the Airframe  Warranty  Assignment  in form and substance
                    reasonably satisfactory to LESSEE.

7.3 Delivery  Requirements.  On the Delivery Date of the  Aircraft,  each of the
following will occur:


7.3.1 If not  previously  done,  LESSEE  will pay to LESSOR  the  first  monthly
installment of Rent in accordance with Article 5.3.2;

7.3.2  LESSEE will  execute and deliver to LESSOR the  Estoppel  and  Acceptance
Certificate covering the Aircraft and dated the Delivery Date.

7.3.3 If not  previously  done,  LESSEE and  LESSOR  will sign an  amendment  or
supplement to Exhibit A evidencing all agreed-to changes to the specification of
the Aircraft.

7.3.4 LESSEE will deliver a certificate  signed by an officer of LESSEE  stating
all of the following:

               (a)  the representations  and warranties  contained in Article 20
                    are  true and  accurate  on and as of the  Delivery  Date as
                    though  made on and as of such date  (except  to the  extent
                    that such representations and warranties relate solely to an
                    earlier date); and

               (b)  no Default has  occurred  and is  continuing  or will result
                    from LESSEE's lease of the Aircraft hereunder.

7.3.5 LESSEE's counsel will deliver an opinion  confirming the matters set forth
in the opinion of counsel  described in Article 7.1 and advising that all filing
and other  requirements  described  in the earlier  opinion of counsel have been
met.

7.3.6 If any Creditor Agreement provides or contemplates that such Creditor will
obtain any right,  title or interest  in an Engine  which is  installed  on such
Creditor's  aircraft,  prior to placing the Engine on such  Creditor's  aircraft
LESSEE  will  deliver to LESSOR an  engines  cooperation  agreement  in form and
substance  acceptable  to  LESSOR  which is  executed  by  LESSEE  and  LESSEE's
Creditors (as defined therein).

7.4 Post-Delivery Requirements.


7.4.1 Within seven (7) days after Delivery,  if not previously provided,  LESSEE
will provide  LESSOR with a follow-up  opinion of FAA counsel  advising that the
Aircraft has been registered in the State of Registration and that all necessary
filings have been made with the FAA.


<PAGE>

         ARTICLE 8            DISCLAIMERS

                LESSOR HAS  COMMITTED  TO LESSEE THAT ON THE  DELIVERY  DATE THE
AIRCRAFT  WILL BE IN THE  CONDITION  REQUIRED BY ARTICLE 6. SUCH  COMMITMENT  OR
COVENANT  ON THE PART OF LESSOR  EXPIRES AND THE  DISCLAIMERS  SET FORTH IN THIS
ARTICLE 8 APPLY UPON  LESSEE'S  ACCEPTANCE  OF THE AIRCRAFT AND EXECUTION OF THE
ESTOPPEL AND ACCEPTANCE CERTIFICATE. AFTER SUCH TIME, THEN AS BETWEEN LESSOR AND
LESSEE:

8.1 "As Is,  Where Is".  LESSEE  AGREES THAT IT IS LEASING THE  AIRCRAFT "AS IS,
WHERE IS". LESSEE  UNCONDITIONALLY  ACKNOWLEDGES  AND AGREES THAT NEITHER LESSOR
NOR ANY OF ITS OFFICERS,  DIRECTORS,  EMPLOYEES OR REPRESENTATIVES  HAVE MADE OR
WILL BE DEEMED TO HAVE MADE ANY TERM,  CONDITION,  REPRESENTATION,  WARRANTY  OR
COVENANT  EXPRESS OR IMPLIED  (WHETHER  STATUTORY  OR  OTHERWISE)  AS TO (a) THE
CAPACITY,  AGE,  AIRWORTHINESS,  VALUE, QUALITY,  DURABILITY,  CONFORMITY TO THE
PROVISIONS OF THIS LEASE,  DESCRIPTION,  CONDITION (WHETHER OF THE AIRCRAFT, ANY
ENGINE, ANY PART THEREOF OR THE AIRCRAFT  DOCUMENTATION),  DESIGN,  WORKMANSHIP,
MATERIALS,   MANUFACTURE,    CONSTRUCTION,    OPERATION,   DESCRIPTION,   STATE,
MERCHANTABILITY,   PERFORMANCE,  FITNESS  FOR  ANY  PARTICULAR  USE  OR  PURPOSE
(INCLUDING  THE ABILITY TO OPERATE OR REGISTER  THE AIRCRAFT OR USE THE AIRCRAFT
DOCUMENTATION IN ANY OR ALL JURISDICTIONS) OR SUITABILITY OF THE AIRCRAFT OR ANY
PART  THEREOF,  OR THE  ABSENCE  OF  LATENT  OR OTHER  DEFECTS,  WHETHER  OR NOT
DISCOVERABLE, KNOWN OR UNKNOWN, APPARENT OR CONCEALED, EXTERIOR OR INTERIOR, (b)
THE ABSENCE OF ANY  INFRINGEMENT  OF ANY PATENT,  TRADEMARK,  COPYRIGHT OR OTHER
INTELLECTUAL  PROPERTY  RIGHTS,  (c) ANY IMPLIED WARRANTY ARISING FROM COURSE OF
PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE OR (d) ANY OTHER REPRESENTATION
OR  WARRANTY,  EXPRESS OR  IMPLIED,  WITH  RESPECT TO THE  AIRCRAFT  OR ANY PART
THEREOF,  ALL OF WHICH ARE HEREBY EXPRESSLY EXCLUDED AND EXTINGUISHED  EXCEPT AS
EXPRESSLY PROVIDED IN ARTICLE 21 HEREOF.

8.2 Waiver of Warranty of Description.  IN  CONSIDERATION OF (a) LESSEE'S RIGHTS
HEREUNDER TO INSPECT THE AIRCRAFT AND (b) LESSOR'S  ASSIGNMENT  TO LESSEE OF ANY
EXISTING AND ASSIGNABLE  WARRANTIES OF MANUFACTURER AND THE ENGINE MANUFACTURER,
LESSEE  HEREBY  AGREES THAT ITS  ACCEPTANCE  OF THE AIRCRAFT AT DELIVERY AND ITS
EXECUTION  AND DELIVERY OF THE ESTOPPEL AND  ACCEPTANCE  CERTIFICATE  CONSTITUTE
LESSEE'S  WAIVER OF THE  WARRANTY  OF  DESCRIPTION,  ANY CLAIMS  LESSEE MAY HAVE
AGAINST  LESSOR  BASED UPON THE  FAILURE OF THE  AIRCRAFT  TO CONFORM  WITH SUCH
DESCRIPTION  AND ANY AND ALL  RIGHTS  IT MAY HAVE TO THE  REMEDIES  SET FORTH IN
SECTIONS 10508 THROUGH 10522 OF THE CALIFORNIA  COMMERCIAL  CODE. EVEN IF AT ANY
TIME THE FAILURE OF THE  AIRCRAFT TO CONFORM TO SUCH  DESCRIPTION  SUBSTANTIALLY
IMPAIRS THE VALUE AND UTILITY OF THE AIRCRAFT AND EITHER (i) LESSEE ACCEPTED THE
AIRCRAFT BASED ON A REASONABLE  ASSUMPTION THAT THE NONCONFORMITY WOULD BE CURED
AND IT WAS NOT  SEASONABLY  CURED OR (ii) LESSEE  ACCEPTED THE AIRCRAFT  WITHOUT
DISCOVERING  THE  NONCONFORMITY  BUT  LESSEE'S  ACCEPTANCE  OF THE  AIRCRAFT WAS
REASONABLY  INDUCED  EITHER  BY  LESSOR'S  ASSURANCES  OR BY THE  DIFFICULTY  OF
DISCOVERING ANY DEFECT PRIOR TO ACCEPTANCE,  LESSEE AGREES NOT TO LOOK TO LESSOR
FOR DAMAGES OR RELIEF  ARISING OUT OF THE FAILURE OF THE  AIRCRAFT TO CONFORM TO
SUCH DESCRIPTION.

8.3 LESSEE Waiver.  LESSEE hereby waives as between itself and LESSOR and agrees
not to seek to establish or enforce any rights and remedies,  express or implied
(whether  statutory or otherwise) against LESSOR or the Aircraft relating to any
of the  matters  mentioned  in Articles  8.1 or 8.2 and the  leasing  thereof by
LESSOR to LESSEE.

8.4  Conclusive  Proof.  DELIVERY  BY  LESSEE  TO  LESSOR  OF THE  ESTOPPEL  AND
ACCEPTANCE  CERTIFICATE  WILL BE CONCLUSIVE  PROOF AS BETWEEN  LESSOR AND LESSEE
THAT LESSEE'S  TECHNICAL  EXPERTS HAVE EXAMINED AND  INVESTIGATED  THE AIRCRAFT,
INCLUDING  THE ENGINES AND THE  AIRCRAFT  DOCUMENTATION  AND THAT EACH IS IN THE
CONDITION  REQUIRED  HEREUNDER AND WITHOUT DEFECT,  EXCEPT AS  SPECIFICALLY  SET
FORTH  IN SUCH  CERTIFICATE,  (WHETHER  OR NOT  DISCOVERABLE  AT  DELIVERY)  AND
OTHERWISE IN EVERY WAY SATISFACTORY TO LESSEE.

8.5 No LESSOR Liability for Losses. LESSEE agrees that LESSOR will not be liable
to LESSEE, any sublessee or any Person,  whether in contract or tort and however
arising,  for any cost, loss or damage  (consequential or otherwise) arising out
of the condition of the  Aircraft,  whether or not due in whole or in part to an
act or omission or the active or passive negligence of LESSOR.

8.6 No Liability to Repair or Replace. LESSOR will not be liable for any expense
in  repairing  or  replacing  any item of the  Aircraft  or be  liable to supply
another  aircraft or any item in lieu of the Aircraft or any Part thereof if the
same is lost,  confiscated,  damaged,  destroyed or otherwise rendered unfit for
use.

8.7 No Waiver.  Nothing  in this  Article 8 or  elsewhere  in this Lease will be
deemed to be a waiver by LESSEE of any rights it may have against  Manufacturer,
the Engine manufacturer or any other Person.


<PAGE>




         ARTICLE 9            MANUFACTURERS' AND VENDORS' WARRANTIES

9.1  Warranties.  Effective  upon Delivery  LESSOR will assign to LESSEE for the
duration of the Lease Term the benefit of all warranties and  indemnities  given
to LESSOR by Manufacturer and the Engine  manufacturer  pursuant to the Airframe
Warranty Assignment and the Engine Warranty Assignment,  respectively. Effective
on the Delivery Date, all other assignable vendor warranties with respect to the
Aircraft are hereby assigned by LESSOR to LESSEE.

9.2  Non-Assignable  Warranties.  To the extent that any  warranty or  indemnity
given to LESSOR by  Manufacturer  and others with respect to the Aircraft cannot
be  assigned,  LESSEE  will be  entitled  to take such  action to  enforce  such
warranty or indemnity in the name of LESSOR against  Manufacturer and such other
parties as LESSEE sees fit, but subject to LESSEE first  ensuring that LESSOR is
indemnified  and secured to LESSOR's  satisfaction  against all losses,  damage,
costs,  expenses and  liabilities  thereby  incurred or reasonably  likely to be
incurred.

9.3 Reassignment.  On the Termination Date, the benefit of any warranty assigned
by LESSOR to LESSEE will be reassigned  automatically to LESSOR or its designee.
LESSEE's rights under such warranties  (including  LESSEE's claims and rights to
payment thereunder) will revert to LESSOR during any period in which an Event of
Default  is  continuing.  LESSEE  at its own cost and  expense  will do all such
things  and  execute  such  documents  as may be  reasonably  required  for this
purpose.

9.4 Warranty Claims. LESSEE will diligently and promptly pursue any valid claims
it may have against  Manufacturer  and others under such warranties with respect
to the Aircraft and will provide notice of the same to LESSOR.


<PAGE>




         ARTICLE 10           OPERATION OF AIRCRAFT

10.1 Costs of Operation.  LESSEE will pay all costs incurred in the operation of
the Aircraft during the Lease Term, for profit or otherwise, including the costs
of flight crews, cabin personnel, fuel, oil, lubricants, maintenance, insurance,
storage, landing and navigation fees, airport charges, passenger service and any
and all  other  expenses  of any kind or  nature,  directly  or  indirectly,  in
connection  with or related to the use,  movement and operation of the Aircraft.
The  obligations,  covenants  and  liabilities  of LESSEE  under this  paragraph
arising  prior to return of the  Aircraft to LESSOR will  continue in full force
and effect,  notwithstanding  the termination of this Lease or expiration of the
Lease Term.

10.2 Compliance with Laws.  Except as expressly  provided in this Lease,  LESSEE
agrees throughout the Lease Term to maintain operational control of the Aircraft
and use the  Aircraft  in  accordance  with  applicable  Laws  of the  State  of
Registration and of any country,  state,  territory or municipality into or over
which LESSEE may operate.  LESSEE will not employ,  suffer or cause the Aircraft
to be used in any business  which is forbidden by Law or in any manner which may
render it liable to condemnation,  destruction,  seizure, or confiscation by any
authority.  LESSEE will not permit the Aircraft to fly to any airport or country
if so doing would  cause  LESSEE to be in  violation  of any Law  applicable  to
LESSEE or the Aircraft.

10.3  Training.  LESSEE will not use the Aircraft for testing or for training of
flight crew members  other than LESSEE crew members and, from and after the date
on which it  obtains  other  A318  aircraft,  it will not use the  Aircraft  for
training any more than it utilizes  for training the other A318  aircraft in its
fleet.

10.4 No  Violation  of  Insurance  Policies.  LESSEE  will not use or permit the
Aircraft to be used in any manner or for any purpose which is not covered by the
insurance policies LESSEE is required to carry and maintain as set forth in this
Lease.  LESSEE will not carry any goods of any description  excepted or exempted
from such policies or do any other act or permit to be done anything which could
reasonably be expected to invalidate or limit any such insurance policy.

10.5 Flight  Charges.  LESSEE will pay promptly when due all enroute  navigation
charges,  navigation service charges and all other charges payable by LESSEE for
the use of or for services  provided at any  airport,  whether in respect of the
Aircraft or any other  aircraft of LESSEE,  and will  indemnify  and hold LESSOR
harmless in respect of the same.  This indemnity will continue in full force and
effect  notwithstanding  the termination or expiration of the Lease Term for any
reason or the return of the Aircraft.


<PAGE>


         ARTICLE 11           SUBLEASES

11.1 No Sublease  without LESSOR Consent.  LESSEE WILL NOT SUBLEASE OR PART WITH
POSSESSION  OF THE  AIRCRAFT  (EXCEPT  FOR  MAINTENANCE  AND REPAIR) AT ANY TIME
WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR (NOT TO BE UNREASONABLY  WITHHELD OR
DELAYED) EXCEPT FOR A SUBLEASE TO A PERMITTED SUBLESSEE  PRE-APPROVED IN ARTICLE
11.1.1 BELOW, AND IN ACCORDANCE WITH SUCH  REQUIREMENTS AS MAY FROM TIME TO TIME
BE AGREED IN WRITING BETWEEN LESSOR AND LESSEE.  The wet leasing of the Aircraft
during the Lease Term (in which LESSEE and its crews retain operational  control
of the Aircraft) will not be considered a sublease of the Aircraft.

11.1.1  LESSEE may sublease the Aircraft  without  LESSOR's  prior consent to an
operator based in the U.S. which is then currently a lessee of LESSOR,  provided
such operator is not then in default under the aircraft lease agreement  between
such  operator and LESSOR  ("Permitted  Sublessee").  Any such  sublease will be
subject to the  provisions  of this  Article 11,  including  the  provisions  of
Article 11.2 below.

11.2 LESSOR Costs. LESSEE will indemnify LESSOR on demand for all reasonable and
actual out-of-pocket expenses (including legal fees) incurred in connection with
LESSOR's  assessment of the subleasing proposal (whether or not LESSOR's consent
to such sublease is ultimately given), review of the sublease  documentation and
implementation of the sublease.

11.3 Any Approved Sublease. Any sublease to a Permitted Sublessee, and any other
sublease  approved  by LESSOR will be for a term no greater  than the  remaining
Lease Term and contain provisions consistent with this Lease protecting LESSOR's
title to the Aircraft,  providing appropriate LESSOR indemnities,  regarding the
maintenance  and repair  standards for the Aircraft,  concerning  the insurances
which will be carried by the sublessee and the circumstances  which constitute a
Total Loss of the Aircraft. Any such sublease will be subject and subordinate to
this Lease. In its sole discretion,  LESSOR may require an opinion of counsel in
connection  with  such  sublease,  including  LESSOR's  right to  repossess  the
Aircraft in the event of an Event of Default  hereunder  or under the  sublease.
LESSEE  will not amend  the terms of any  approved  sublease  without  the prior
written   consent  of  LESSOR,   which  will  not  be   unreasonably   withheld.
Notwithstanding  the  foregoing,  LESSOR agrees that even if an Event of Default
has  occurred and is  continuing  hereunder,  so long as the approved  sublessee
fully performs all of the obligations of LESSEE hereunder and agrees to do so on
a going  forward  basis  and  there is no risk to  LESSOR  of an  impairment  to
LESSOR's unencumbered title to the Aircraft, LESSOR will not interfere with such
sublessee's quiet use and enjoyment of the Aircraft.

11.4 Assignment of Sublease. Any approved sublease will be assigned to LESSOR as
security. LESSEE will deliver the original counterpart of the sublease to LESSOR
and make any filings necessary to protect LESSOR's security interest.

11.5 Continued  Responsibility of LESSEE. LESSEE will continue to be responsible
for  performance  of its  obligations  under  this  Lease  during  any period of
sublease.

<PAGE>




         ARTICLE 12           MAINTENANCE OF AIRCRAFT

12.1 General Obligation.


12.1.1 During the Lease Term and until the Aircraft is returned to LESSOR in the
condition  required  by this  Lease,  LESSEE  alone has the  obligation,  at its
expense, to maintain and repair the Aircraft,  Engines, and all of the Parts (a)
in accordance with the Maintenance Program, (b) in accordance with the rules and
regulations of the Aviation  Authority,  (c) in accordance  with  Manufacturer's
type  design,  (d) in  accordance  with any other  regulations  or  requirements
necessary  in order to maintain a valid  Certificate  of  Airworthiness  for the
Aircraft and meet the  requirements  at all times during the Lease Term and upon
return of the  Aircraft  to LESSOR for  issuance  of a Standard  Certificate  of
Airworthiness  for transport  category  aircraft issued by the FAA in accordance
with FAR Part 21 (except  during those  periods when the Aircraft is  undergoing
maintenance  or repairs as required or permitted by this Lease and to the extent
in conflict with the requirements of the Aviation Authority) and (e) in the same
manner and with the same care as used by LESSEE with respect to similar aircraft
and engines operated by LESSEE and without in any way discriminating against the
Aircraft.

12.1.2 No Engine will remain in an  unserviceable  condition for more than three
(3) months.

12.1.3 LESSEE will not enter into any Engine  maintenance  cost per flight hour,
power-by-the-hour  or similar  agreement with Engine  manufacturer  or any other
Engine  maintenance  facility or  organization  without  LESSOR's  prior written
consent, which consent shall not be unreasonably withheld or delayed.

12.2 Specific  Obligations.  Without limiting  Article 12.1,  LESSEE agrees that
such maintenance and repairs will include but will not be limited to each of the
following specific items:

               (a)  performance in accordance  with the  Maintenance  Program of
                    all routine and non-routine maintenance work;

               (b)  incorporation   in  the   Aircraft   of  all   Airworthiness
                    Directives,  all alert  service  bulletins of  Manufacturer,
                    Engine  manufacturer  and other vendors or  manufacturers of
                    Parts incorporated on the Aircraft and any service bulletins
                    which must be performed in order to maintain the  warranties
                    on the Aircraft, Engines, and Parts;

               (c)  incorporation in the Aircraft of all other service bulletins
                    of Manufacturer,  the Engine  manufacturer and other vendors
                    which  LESSEE  schedules  to adopt within the Lease Term for
                    the rest of its A318 aircraft fleet. It is the intent of the
                    parties that the Aircraft will not be discriminated  against
                    in  service  bulletin   compliance   (including   method  of
                    compliance) or other  maintenance  matters compared with the
                    rest of  LESSEE's  A318  aircraft  fleet.  LESSEE  will  not
                    discriminate  against the Engines  with  respect to Overhaul
                    build standards and life-limited part replacements;

               (d)  incorporation in the Maintenance Program for the Aircraft of
                    a corrosion prevention and control program as recommended by
                    Manufacturer,  the  Aviation  Authority  and the FAA and the
                    correction  of any  discrepancies  in  accordance  with  the
                    recommendations  of Manufacturer  and the Structural  Repair
                    Manual.  In addition,  all inspected  areas will be properly
                    treated  with   corrosion   inhibitor  as   recommended   by
                    Manufacturer;

               (e)  maintaining  in English and keeping in an up-to-date  status
                    the records and historical documents set forth in Exhibit L;


               (f)  maintaining   historical   records,   in  English,   for  on
                    condition,  condition-monitored,  hard time and life-limited
                    Parts  (including tags from the manufacturer of such Part or
                    a repair  facility  which  evidence that such Part is new or
                    overhauled and establish authenticity, total time in service
                    and time since overhaul for such Part), the hours and cycles
                    the Aircraft  and Engines  operate and all  maintenance  and
                    repairs performed on the Aircraft; and

               (g)  properly   documenting   all  repairs,   Modifications   and
                    alterations  and the  addition,  removal or  replacement  of
                    equipment,  systems or  components  in  accordance  with the
                    rules  and   regulations  of  the  Aviation   Authority  and
                    reflecting  such  items in the  Aircraft  Documentation.  In
                    addition,  all repairs to the Aircraft will be  accomplished
                    in  accordance  with  either (i)  Manufacturer's  Structural
                    Repair Manual (or  DGAC-approved  Repair Approval Sheets) or
                    (ii)   FAA-approved   data   (such  as  FAA  Form   8110  or
                    equivalent).  All  Modifications  and  alterations  will  be
                    accomplished in accordance with  FAA-approved  data (such as
                    FAA Form 8110 or equivalent).


<PAGE>


12.3 Replacement of Parts.


12.3.1  LESSEE,  at its own cost and expense,  will  promptly  replace all Parts
which may from time to time become worn out, lost,  stolen,  destroyed,  seized,
confiscated, damaged beyond repair or rendered unfit or beyond economical repair
(BER) for use for any reason.  In the ordinary course of  maintenance,  service,
repair,  overhaul or testing,  LESSEE may remove any Part  provided  that LESSEE
replaces such Part as promptly as practicable. All replacement Parts will (a) be
free and clear of all Security Interests (except Permitted Liens) of any kind or
description,  (b) be in airworthy  condition and of at least  equivalent  model,
service bulletin and  modification  status and have a value and utility at least
equal to the Parts replaced,  assuming such replaced Parts were in the condition
and repair  required to be maintained by the terms hereof and (c) have a current
"serviceable  tag" of the  manufacturer or maintenance  facility  providing such
items to LESSEE,  indicating that such Parts are new, serviceable or Overhauled.
So long as a substitution meets the requirements of the Maintenance  Program and
the Aviation Authority,  LESSEE may substitute for any Part a part that does not
meet the  requirements  of the foregoing  sentence if a complying Part cannot be
procured or installed  within the  available  groundtime  of the Aircraft and as
soon as practicable the noncomplying part is removed and replaced by a complying
Part.  With respect to  replacement  modules in an Engine,  LESSEE will use best
reasonable  efforts to ensure  that any  replacement  module  will not have been
previously  operated at a higher thrust rating than the replaced module provided
that in all  circumstances  life-limited  Parts in such replacement  module will
have no less life remaining than the life-limited Parts in the replaced module.


12.3.2  All Parts  removed  from the  Airframe  or any  Engine  will  remain the
property of LESSOR and subject to this Lease no matter where located, until such
time as such Parts have been replaced by Parts (which have been  incorporated or
installed  in or  attached  to the  Airframe  or such  Engine)  which  meet  the
requirements for replacement Parts specified above and title to such replacement
Parts has passed to LESSOR under the Laws of the State of  Registration  and lex
situs. To the extent  permitted by the Laws of the State of Registration and the
lex situs it is the intent of LESSOR and LESSEE  that  without  further  act and
immediately  upon any  replacement  Part  becoming  incorporated,  installed  or
attached  to the  Airframe  or an  Engine  as above  provided,  (a) title to the
removed  Part will  thereupon  vest in  LESSEE,  free and clear of all rights of
LESSOR, (b) title to the replacement Part will thereupon vest in LESSOR free and
clear of all rights of LESSEE (other than LESSEE's  rights under this Lease) and
(c) such  replacement Part will become subject to this Lease and be deemed to be
a Part  hereunder  to the same extent as the Parts  originally  incorporated  or
installed in or attached to the Airframe or such Engine.

12.4 Removal of Engines.

12.4.1  If an Engine is  removed  for  testing,  service,  repair,  maintenance,
Overhaul work,  alterations or  modifications,  title to such Engine will at all
times remain vested in LESSOR.

12.4.2  LESSEE will be entitled to remove any of the Engines  from the  Aircraft
and install  another  engine or engines on the  Aircraft,  provided  that LESSEE
complies with each of the following obligations:

               (a)  the  insurance  requirements  set  forth in  Article  18 and
                    Exhibit C are in place;

               (b)  LESSEE ensures that the identification plates referred to in
                    Article 15 are not removed  from any Engine upon such Engine
                    being detached from the Aircraft; and

               (c)  title  to the  Engine  remains  with  LESSOR  free  from all
                    Security  Interests  (except  Permitted Liens) regardless of
                    the  location  of  the  Engine  or  its   attachment  to  or
                    detachment from the Aircraft.

12.5  Pooling of Engines and Parts.  LESSEE may subject the Engines and Parts to
normal  interchange  or  pooling   agreements  with  responsible   international
scheduled  commercial air carriers customary in the airline industry and entered
into by LESSEE in the ordinary course of its business with respect to its entire
A318 fleet so long as (a) in the case of pooling  of an Engine,  such  Engine is
returned  to LESSEE  within  four (4)  months,  (b) no  transfer of title to the
Engine  occurs,  (c) all other terms of this Lease  continue to be observed with
respect to the  Engines or Parts,  including  but not limited to Articles 8, 10,
12, 14, 15, 16, 17, 18 and 19 and (d) LESSEE  continues to be fully  responsible
to LESSOR for the performance of all of its obligations hereunder.

12.6  Installation  of Engines on other  aircraft.  Any Engine  removed from the
Aircraft may be installed on another  aircraft in LESSEE's  fleet which utilizes
engines of the same type as the Engine only if one of the  situations  described
in this Article 12.6 exists:

12.6.1  LESSEE or LESSOR has title to such other  aircraft free and clear of all
Security Interests (except Permitted Liens).

12.6.2 LESSEE,  LESSOR and all of the Creditors of LESSEE of such aircraft enter
into  an  engines  cooperation   agreement  in  form  and  substance  reasonably
acceptable  to LESSOR in which  each party  agrees to  recognize  one  another's
rights in the engines.  LESSEE will  reimburse  LESSOR and  LESSOR's  Lender for
their reasonable  attorneys' fees and costs in negotiating and finalizing engine
cooperation agreement arrangements with LESSEE and its Creditors.

12.6.3  Such other  aircraft  is subject to a Creditor  Agreement  (but no other
Security  Interests  except  Permitted  Liens)  which by its terms  expressly or
effectively  states that such Creditor and its  successors  and assigns will not
acquire  any right,  title or  interest  in any Engine by reason of such  Engine
being installed on such aircraft. LESSEE hereby agrees that if LESSOR's title to
an Engine is in fact impaired under any such Creditor Agreement, such impairment
will be deemed to be a Total Loss of such Engine and the  provisions  of Article
19.5  will  apply.  To the  extent  another  Creditor  Agreement  contains  such
provisions,  then LESSOR  hereby  agrees for the benefit of the Creditor of such
Creditor  Agreement  that  neither  LESSOR nor its  successors  or assigns  will
acquire or claim any right,  title or interest in any engine in which  LESSEE or
another  Creditor has an interest as a result of such engine being  installed on
the Airframe.

12.7 Engine Thrust Rating. If an Engine is utilized by LESSEE on the Aircraft or
on any other  airframe  (or if the Engine is utilized by any  sublessee  or user
under a pooling  arrangement  in accordance  with this Lease) at a thrust rating
greater  than the thrust  rating set forth in Exhibit A,  LESSEE  will  promptly
notify LESSOR and the Engine Performance  Restoration Reserves amounts set forth
in Article 5.4.1 will be increased in an amount  proportional to the accelerated
rate of deterioration of the Engine resulting from the increased thrust rating.

12.8 Modifications.

12.8.1   *

12.8.2 LESSOR may review LESSEE's proposed designs, plans,  engineering drawings
and  diagrams,  and flight and  maintenance  manual  revisions  for any proposed
Modification.  If requested by LESSOR,  LESSEE will furnish  LESSOR (at LESSEE's
expense) with such documents in final form and any other  documents  required by
Law, as a result of such  Modification.  All  Modifications  incorporated on the
Aircraft will be properly documented in the Aircraft  Documentation and be fully
approved by the Aviation Authority.

12.8.3  Notwithstanding  any other provision of this Lease, no Modification will
be made which has the effect of decreasing  the utility or value of the Aircraft
or invalidating any warranty applicable to the Aircraft.

12.8.4 No Modification  will be made by LESSEE if an Event of Default exists and
is continuing hereunder.

12.8.5 Unless otherwise agreed by LESSOR in writing, all permanent or structural
Modifications   will  forthwith  become  a  part  of  the  Aircraft  and  LESSEE
relinquishes to LESSOR all rights and title thereto.  However, all (i) temporary
and  non-structural  Modifications  and (ii) all Passenger  Service Equipment so
long as such equipment can be removed  without  causing  material  damage to the
Aircraft,  will remain the  property  of LESSEE  and,  at  LESSOR's  request and
LESSEE's  cost,  will be  removed  from  the  Aircraft  prior to  return  of the
Aircraft, with LESSEE restoring the Aircraft to the condition it was in prior to
the  Modification  or installation  of Passenger  Service  Equipment in a manner
cosmetically  acceptable  to  LESSOR.  Notwithstanding  the  foregoing,  no such
removal will be permitted  without LESSOR's  permission during the occurrence of
an Event of Default hereunder and immediately upon the occurrence of an Event of
Default  hereunder,  without the  requirement of any further act or notice,  all
right,  title and interest in such Modifications and Passenger Service Equipment
will immediately vest in LESSOR;  provided however, that in the event of such an
Event of Default,  with respect to any Passenger Service Equipment,  LESSOR will
use  commercially  reasonable  efforts to reach  agreement  with any  vendors or
suppliers  holding title to the Passenger  Service Equipment in order to protect
the mutual interests of LESSOR and such parties.

12.8.6  LESSOR  will  bear no  liability  for the cost of  Modifications  of the
Aircraft whether in the event of grounding or suspensions of  certification,  or
for any other cause.

12.9 Performance of Work by Third Parties.  Whenever maintenance and repair work
on the Aircraft or Engines  will be  regularly  performed by a Person other than
LESSEE, such Person will be an FAA-authorized repair station.

12.10 Reporting Requirements.

12.10.1  Commencing  with a report  furnished ten (10) days after the end of the
calendar month in which Delivery occurs, LESSEE will furnish to LESSOR a Monthly
Report in English in the form attached  hereto as Exhibit K. Each Monthly Report
will be  furnished  within ten (10) days after the end of each  calendar  month,
except  that the  Monthly  Report  pertaining  to the last month (or any portion
thereof) of the Lease Term will be furnished to LESSOR on the Termination Date.

12.10.2 Commencing with the second scheduled "C" check for the Aircraft,  LESSEE
will provide LESSOR with a Technical  Evaluation  Report for the Aircraft in the
form and substance of Exhibit M, as revised.  Such Technical  Evaluation  Report
will be furnished  within three (3) Business Days after the  completion of every
second "C" check performed  during the Lease Term and at other times  reasonably
requested by LESSOR.

12.11 Information Regarding Maintenance Program. LESSEE will provide LESSOR with
a copy of or information  regarding the Maintenance Program for the Aircraft, as
reasonably requested by LESSOR.

12.12 LESSOR Rights to Inspect Aircraft. On reasonable notice, LESSOR and/or its
authorized agents or representatives will have the right to inspect the Aircraft
and Aircraft Documentation. LESSOR agrees that such requests will be coordinated
with  LESSEE  so as to cause  the  minimum  practical  disturbance  to  LESSEE's
operation or its personnel. LESSEE agrees to cooperate with LESSOR in making the
Aircraft  and Aircraft  Documentation  available  to such  authorized  technical
teams.  LESSOR will have no duty to make any such  inspection and will not incur
any liability or obligation  by reason of (and  LESSEE's  indemnity  obligations
pursuant  to  Article  17  will  apply  notwithstanding)  not  making  any  such
inspection or by reason of any reports it receives or any reviews it may make of
the Aircraft records.


<PAGE>




         ARTICLE 13           USE OF RESERVES

13.1 Airframe Reserves.  LESSOR will reimburse LESSEE from the Airframe Reserves
for the  actual  cost of the  structural  inspection  portion  of the  full  and
completed  scheduled  4C/5Y  and  8C/9Y (or then  current  equivalent  check) as
described  in the MPD  and  the  rectification  of any  structural  deficiencies
resulting  from such  inspection,  with  work  performed  for all  other  causes
excluded,  including those causes set forth in Article 13.6.  Subject to Article
16.1 and excluding  exchange fees and handling,  packaging and shipping charges,
reimbursement  will be made up to the  amount in the  Airframe  Reserves  on the
commencement date of the structural check.

13.2 Engine Performance Restoration Reserves.

13.2.1  LESSOR will  reimburse  LESSEE from the Engine  Performance  Restoration
Reserves  for  the  actual  cost  associated  with  performance  restoration  or
permanent  repair of  on-condition  Parts in the Basic Engine  during  completed
Engine shop visits (i.e. heavy maintenance  visits) requiring  off-wing teardown
and/or disassembly, with work performed for all other causes excluded, including
those causes set forth in Article  13.6.  Subject to Article 16.1 and  excluding
exchange fees and handling, packaging and shipping charges, reimbursement for an
Engine  will be made up to the  amount  in the  Engine  Performance  Restoration
Reserves applicable to such Engine at the time of removal of such Engine.

13.2.2  Reimbursement from the Engine Performance  Restoration  Reserves will be
limited  as to each  module of such  Engine  in  accordance  with the  following
percentages of the remaining total amount in the Engine Performance  Restoration
Reserves for such Engine:


                X*%  Fan & Accessory Gearbox
                X*% High Pressure Compressor Module
                X*%  High Pressure Turbine Module
                X*%  Low Pressure Turbine Module



<PAGE>


*Prior to  Delivery,  LESSOR  will  obtain the  recommended  percentage  figures
(totaling 100%) from the Engine  manufacturer that relate to the Pratt & Whitney
6124 engine when such figures become  available.  Upon written notice to LESSEE,
such  recommended  percentage  figures provided by Engine  manufacturer  will be
deemed to be the reimbursement percentages for purposes of this Lease.

13.2.3 LESSEE will not enter into any Engine  maintenance  cost per flight hour,
power-by-the-hour  or similar  agreement with Engine  manufacturer  or any other
Engine  maintenance  facility or  organization  without  LESSOR's  consent which
consent shall not be unreasonably withheld or delayed.

13.3  Engine LLP  Reserves.  LESSOR  will  reimburse  LESSEE from the Engine LLP
Reserves  for an Engine  for the actual  out-of-pocket  materials  cost  without
overhead, mark-up or profit factor associated with on or off-wing replacement of
life-limited  Parts in such  Engine,  with work  performed  for all other causes
excluded,  including those causes set forth in Article 13.6.  Subject to Article
16.1 and excluding  exchange fees and handling,  packaging and shipping charges,
reimbursement for replacement of life-limited Parts in an Engine will be made up
to the amount in the Engine LLP Reserves  applicable  to such Engine at the time
of replacement of such life-limited Part.

13.4 Landing Gear Reserves.  LESSOR will reimburse  LESSEE from the Landing Gear
Reserves  for the actual  cost of an Overhaul  of the  Landing  Gear,  up to the
amount remaining in the Landing Gear Reserves, with work performed for all other
causes excluded, including those causes set forth in Article 13.6.

13.5  Reimbursement.  LESSEE will be entitled to reimbursement from the Reserves
after the work is completed  and the  Airframe,  Engine or Landing Gear has left
the repair agency, by submitting  invoices and proper  documentation  within six
(6) months after completion of the work. For the Airframe,  proper documentation
includes a list of all routine  and  non-routine  work cards with  corresponding
references  to the MPD and an  itemized  labor  and  materials  report.  For the
Engine,  proper  documentation  includes a description of the reason for removal
(if removed),  a shop teardown  report,  a shop findings  report if an Engine is
removed  (or  an  equivalent  report  if an  Engine  is  not  removed),  a  full
description of the workscope and complete disk records for the Engine both prior
to and after the repair. Both the invoice supplied by the Engine repair facility
and that  submitted  by LESSEE to LESSOR  with  respect to an Engine  will state
whether or not credits were provided due to life remaining on any removed Engine
Parts and the amount of any such credits will be itemized. For the Landing Gear,
proper  documentation  includes the total calendar time, hours and cycles on the
Landing  Gear  both  prior to and  after the  Overhaul,  a copy of the  complete
Overhaul  report which includes a life limited  component list and a description
of all work performed on the Landing Gear assembly.


<PAGE>


13.6  Reimbursement  Adjustment.  By way of example,  among the exclusions  from
reimbursement  are those items  resulting from repairs  covered by LESSEE's or a
third  party's  insurance,  (deductibles  being for the  account  of  LESSEE) or
warranties or required as a result of an Airworthiness Directive, manufacturer's
service  bulletin,  faulty  maintenance or  installation,  improper  operations,
misuse,  neglect,  accident,  incident,  ingestion,  or other accidental  cause.
Reimbursement  from the Reserves will not be available for the APU, quick engine
change (QEC) Parts, thrust reversers, or any of their associated components. All
invoices  subject to  reimbursement  from LESSOR will be reduced (by  adjustment
between  LESSEE and LESSOR  retroactively  if necessary)  by the actual  amounts
received  by LESSEE on account of such work from  responsible  third  parties or
other  sources,   such  as  insurance   proceeds,   manufacturer's   warranties,
guarantees, concessions and credits (including, with respect to Engines, credits
due to life remaining on any removed Engine Parts).

13.7 Costs in Excess of Reserves.  LESSEE will be responsible for payment of all
costs in excess of the amounts  reimbursed  hereunder.  If on any  occasion  the
balance in the  Airframe  Reserves,  Engine  Performance  Restoration  Reserves,
Engine LLP Reserves or Landing Gear Reserves for a particular  Engine or Landing
Gear (at the time of the structural  check,  in the case of the Airframe,  or at
the  time  of  removal,  in the  case  of an  Engine  or the  Landing  Gear)  is
insufficient  to satisfy a claim for  reimbursement  in respect of the Airframe,
such Engine or the Landing Gear, as applicable, the shortfall may not be carried
forward or made the subject of any further claim for reimbursement.

13.8 Reimbursement after Termination Date. LESSEE may not submit any invoice for
reimbursement from the Reserves after the Termination Date unless on or prior to
such date LESSEE has notified  LESSOR in writing that such  outstanding  invoice
will be submitted after the Termination Date and the anticipated  amount of such
invoice.  So long as LESSEE has provided such notice to LESSOR,  LESSEE may then
submit  such  outstanding  invoice at any time  within six (6) months  after the
Termination Date. In the event of the Total Loss of the Aircraft,  fifty percent
(50%) of the unreimbursed Reserves held by LESSOR will be retained by LESSOR and
the remaining  portion of the Reserves will be paid to LESSEE in accordance with
Article 19.9.


<PAGE>





         ARTICLE 14           TITLE AND REGISTRATION

14.1 Title to the Aircraft During Lease Term.  Title to the Aircraft will be and
remain  vested in  LESSOR.  LESSOR and  LESSEE  intend  this Lease to be a "true
lease".  LESSEE will have no right,  title or interest in the Aircraft except as
provided in this Lease.

14.2 Registration of Aircraft. LESSOR at its sole cost and expense will register
and maintain  registration of the Aircraft in the name of LESSOR at the register
of aircraft in the State of Registration.  LESSEE will cooperate with LESSOR and
will from time to time take all other steps then required by Law  (including the
Geneva Convention if applicable) or as LESSOR may reasonably  request to protect
and perfect  LESSOR's  interest in the  Aircraft  and this Lease in the State of
Registration or in any other  jurisdictions  in or over which LESSEE may operate
the Aircraft.

14.3 Filing of this Lease. To the extent permitted by Law and in accordance with
the  requirements  of the Law from  time to time,  LESSEE  at its sole  cost and
expense  will  cause  this  Lease to be kept,  filed,  recorded  and  refiled or
rerecorded in the State of  Registration  and in any other offices  necessary to
protect LESSOR's rights hereunder as reasonably requested by LESSOR.

14.4 Evidence of Registration and Filings. As LESSOR may reasonably request from
time to time,  LESSEE  will  furnish  to LESSOR an  opinion  of counsel or other
evidence  reasonably  satisfactory  to LESSOR of the  registrations  and filings
required hereunder.


<PAGE>





         ARTICLE 15           IDENTIFICATION PLATES

                LESSOR will affix and LESSEE  will at all times  maintain on the
Airframe and each Engine the  identification  plates  containing  the  following
legends or any other legend reasonably requested by LESSOR in writing:

15.1           Airframe Identification Plates.
               Location:             One to be affixed to the Aircraft structure
                                     above the  forward  entry door  adjacent to
                                     and  not  less   prominent   than  that  of
                                     Manufacturer's  data plate and another in a
                                     prominent place on the flight deck.

               Size:                 No smaller than 4" x 6".

               Legend:               "THIS AIRCRAFT IS OWNED BY INTERNATIONAL
                                     LEASE FINANCE CORPORATION.

                                     MANUFACTURER'S SERIAL NO:    [TBD]

                                     OWNER'S ADDRESS:

                                     INTERNATIONAL   LEASE  FINANCE  CORPORATION
                                     1999  Avenue of the  Stars,  39th Floor Los
                                     Angeles,  California 90067 United States of
                                     America

                                     Fax:     (310) 788-1990"

15.2            Engine Identification Plates.

               Location:             The legend on the plate must be no less
                                     prominent than the Engine data plate
                                     and must be visible.

               Size:                 No smaller than 2" x 6".

                                     "THIS ENGINE IS OWNED BY INTERNATIONAL
                                     LEASE FINANCE CORPORATION, LOS ANGELES,
                                     CALIFORNIA, USA."

         ARTICLE 16           TAXES

16.1 General  Obligation of LESSEE.  Except as set forth in Article 16.2, LESSEE
agrees to pay promptly when due, and to indemnify and hold harmless  LESSOR on a
full  indemnity  basis from,  all license and  registration  fees and all taxes,
fees, levies, imposts, duties, charges, deductions or withholdings of any nature
(including without limitation any value added, franchise, transfer, sales, gross
receipts, use, business,  excise,  turnover,  personal property,  stamp or other
tax)  together  with any  assessments,  penalties,  fines,  additions  to tax or
interest  thereon,  however or wherever  imposed  (whether  imposed upon LESSEE,
LESSOR,  on all or part of the  Aircraft,  the  Engines  or  otherwise),  by any
Government Entity or taxing authority in the U.S.  (including without limitation
the  City  or  County  of  Los  Angeles),  or  any  foreign  country  or by  any
international taxing authority,  upon or with respect to, based upon or measured
by any of the following (collectively, "Taxes"):

               (a)  the Aircraft, Engines or any Parts;

               (b)  the  use,  operation  or  maintenance  of  the  Aircraft  or
                    carriage of passengers or freight during the Lease Term;

               (c)  this Lease,  the  payments due  hereunder  and the terms and
                    conditions hereof; and

               (d)  the  ownership,   financing,  delivery,  import  or  export,
                    return,  sale,  payment  of  Total  Loss  Proceeds  or other
                    disposition of the Aircraft.

16.2  Exceptions to Indemnity.  The indemnity  provided for in Article 16.1 does
not extend to any of the following Taxes  (hereinafter  referred to as "LESSOR's
Taxes"):

               (a)  Taxes imposed by the U.S. or by any state within the U.S. on
                    the net income, profits or gains, gross receipts, capital or
                    net worth of LESSOR;

               (b)  Taxes  attributable  to the period,  or an event  occurring,
                    prior to Delivery or after  return of the Aircraft to LESSOR
                    in accordance with this Lease;


               (c)  Taxes  attributable  to LESSOR's gross  negligence,  willful
                    misconduct or breach of this Lease;

               (d)  Taxes which LESSEE is contesting in good faith in accordance
                    with Article 16.5;

               (e)  Taxes  imposed by any country other than the U.S. on the net
                    income,  gross receipts,  capital or net worth of LESSOR but
                    only to the  extent  that (i) such Taxes were not in any way
                    connected  with,  due  to or  arising  out  of  this  Lease,
                    LESSEE's business operations or office locations in any such
                    country or LESSEE's  use and  operation  of the Aircraft and
                    (ii)  such  Taxes  would  be  otherwise  payable  by  LESSOR
                    notwithstanding this Lease,  LESSEE's business operations or
                    office  locations  in any such  country or LESSEE's  use and
                    operation of the Aircraft;

               (f)  excess  Taxes  imposed as a result of LESSOR's  voluntary or
                    involuntary  transfer or other  disposition of the Aircraft,
                    Engines  or any Parts or this Lease  (except a  transfer  or
                    sale resulting directly from LESSEE's Default) provided that
                    LESSEE remains  responsible for payment of any Taxes and the
                    specific  amount  of such  Taxes  that it  would  have  been
                    required to indemnify for had such  voluntary or involuntary
                    transfer not occurred;

               (g)  Taxes consisting of any interest,  penalties or additions to
                    tax imposed on LESSOR as a result, in whole or in part, of a
                    failure  of  LESSOR  to file  any Tax  return  properly  and
                    timely,  unless such failure  shall be caused by the failure
                    of LESSEE to fulfill any obligations of LESSEE under Section
                    16.7 with respect to such Tax return; or

               (h)  Taxes  resulting  from,  or that would not have been imposed
                    but for,  any  LESSOR's  Lien  arising as a result of claims
                    against, or acts or omissions of, or otherwise  attributable
                    to, LESSOR or any related party.


<PAGE>


16.3 After-Tax Basis. The amount which LESSEE is required to pay with respect to
any Taxes  indemnified  against  under  Article 16.1 is an amount  sufficient to
restore LESSOR on an after-tax basis to the same position LESSOR would have been
in had such Taxes not been incurred.  If LESSOR determines in good faith that it
has  realized a Tax  benefit (by way of  deduction,  credit or  otherwise)  as a
result of any payment for which  LESSEE is liable  under  Section 5.7 or 16.1 of
this  Lease,  and  such  benefit  was  not  previously  taken  into  account  in
calculating  the amount of such payment on an after-tax basis in accordance with
the  immediately  preceding  sentence of this Article  16.3,  LESSOR will pay to
LESSEE an amount that is  reasonably  sufficient  to ensure that LESSOR is in no
better an after-tax position than it would have been in if the event giving rise
to LESSEE's liability for payment had not occurred.

16.4 Timing of Payment. Any amount payable to LESSOR pursuant to this Article 16
will be paid  within ten (10) days after  receipt of a written  demand  therefor
from LESSOR  accompanied by a written statement  describing in reasonable detail
the  basis for such  indemnity  and the  computation  of the  amount so  payable
provided,  however,  that such  amount  need not be paid by LESSEE  prior to the
earlier of (a) the date any Tax is payable to the appropriate  Government Entity
or taxing  authority or (b) in the case of amounts which are being  contested by
LESSEE in good  faith or by  LESSOR  pursuant  to  Article  16.5,  the date such
contest is finally resolved.

16.5  Contests.  If claim is made against LESSOR for Taxes with respect to which
LESSEE is liable  for a payment  or  indemnity  under this  Lease,  LESSOR  will
promptly give LESSEE  notice in writing of such claim  provided,  however,  that
LESSOR's  failure to give  notice  will not  relieve  LESSEE of its  obligations
hereunder unless such failure  materially  impairs or precludes LESSEE's ability
to contest  the claim.  So long as (a) a contest of such Taxes does not  involve
any  material  risk of the  sale,  forfeiture  or loss  of the  Aircraft  or any
interest therein, (b) if LESSOR so requests,  LESSEE has provided LESSOR with an
opinion of independent tax counsel that a reasonable basis exists for contesting
such  claim and (c)  adequate  reserves  have  been  made for such  Taxes or, if
required,  an adequate  bond has been  posted,  then LESSOR at LESSEE's  written
request will in good faith, with due diligence and at LESSEE's expense,  contest
(or permit  LESSEE to contest  in the name of LESSEE or  LESSOR)  the  validity,
applicability or amount of such Taxes.

16.6 Refunds. Upon receipt by LESSOR of a refund of all or any part of any Taxes
(including  any  deductions  or  withholdings  referred to in Article 5.7) which
LESSEE has paid, LESSOR will promptly pay to LESSEE the net amount of such Taxes
refunded.

16.7  Cooperation  in Filing Tax Returns.  LESSEE and LESSOR will cooperate with
one another in providing information which may be reasonably required to fulfill
each party's tax filing  requirements and any audit information  request arising
from such filing.

16.8 Survival of Obligations.  The indemnity obligations and other agreements of
LESSEE as set forth in this Article 16 will survive the Termination Date.

<PAGE>


         ARTICLE 17           INDEMNITIES

17.1 General  Indemnity.  Except as set forth in Article 17.2 and Article 28.20,
LESSEE agrees to indemnify and hold harmless LESSOR and its officers, directors,
employees,   agents  and   shareholders   (individually   an  "Indemnitee"   and
collectively "Indemnitees") from any and all liabilities,  obligations,  losses,
damages,  penalties,  claims, actions, suits, costs,  disbursements and expenses
(including  legal fees,  costs and related  expenses)  of every kind and nature,
whether  or  not  any  of  the  transactions  contemplated  by  this  Lease  are
consummated  (collectively  "Expenses"),  which are imposed  on,  incurred by or
asserted  against any  Indemnitee and which are in any way relating to, based on
or arising out of any of the following:

               (a)  this Lease or any transactions contemplated hereby;

               (b)  the operation,  possession,  use, non-use, control, leasing,
                    subleasing,   maintenance,   storage,   overhaul,   testing,
                    inspections or acceptance flights at return of the Aircraft,
                    any Engine, or any Part during the Lease Term by LESSEE, any
                    sublessee or any other Person, whether or not the same is in
                    compliance with the terms of this Lease,  including  without
                    limitation  claims  for  death,  personal  injury,  property
                    damage, other loss or harm to any Person and claims relating
                    to any  Laws,  including  without  limitation  environmental
                    control, noise and pollution laws, rules or regulations;

               (c)  the manufacture,  design, acceptance,  rejection,  delivery,
                    return,  sale  after an Event of  Default,  import,  export,
                    condition,  repair,  modification,   servicing,  rebuilding,
                    enforcement  of  warranties  whether in LESSOR's or LESSEE's
                    name,  customer and product support provided by Manufacturer
                    and    other    vendors,    airworthiness,     registration,
                    reregistration,   performance,  sublease,   merchantability,
                    fitness  for  use,   substitution   or  replacement  of  the
                    Aircraft,  Engine,  or any Part  under  this  Lease or other
                    transfer of use or possession of the  Aircraft,  Engine,  or
                    any  Part,   including   under  a  pooling  or   interchange
                    arrangement,  including without  limitation latent and other
                    defects,  whether or not discoverable and patent,  trademark
                    or copyright infringement;

               (d)  any  non-compliance by LESSEE with any term of this Lease or
                    the falsity or inaccuracy of any  representation or warranty
                    of LESSEE set forth herein;

               (e)  the   prevention   or  attempt  to   prevent   the   arrest,
                    confiscation,  seizure,  taking  in  execution,  impounding,
                    forfeiture or detention of the Aircraft,  or in securing the
                    release of the Aircraft; or

               (f)  as a consequence  of any Default in payment by LESSEE of any
                    sum to be paid by LESSEE  when due under  this  Lease or any
                    other Default by LESSEE in the due and punctual  performance
                    of its obligations under this Lease.

The  foregoing  indemnity by LESSEE is intended to include and cover any Expense
to which an Indemnitee may be subject (in contract,  tort,  strict  liability or
under any other theory)  regardless of the negligence,  active or passive or any
other type, of such Indemnitee, so long as such Expense does not fall within any
of the exceptions listed in Article 17.2.

17.2 Exceptions to General  Indemnities.  The indemnity  provided for in Article
17.1 will not extend to Expenses of any Indemnitee to the extent  resulting from
or arising out of any of the following:

               (a)  Expenses  which LESSEE and LESSOR  mutually agree or, absent
                    mutual agreement, are judicially determined to have resulted
                    from the willful misconduct of such Indemnitee;

               (b)  Expenses  which LESSEE and LESSOR  mutually agree or, absent
                    mutual   agreement,   are   judicially   determined   to  be
                    attributable to incidents, accidents or occurrences prior to
                    the Delivery  Date,  but only where both the act or omission
                    which gave rise to the incident,  accident or occurrence and
                    the incident,  accident or occurrence  itself occurred prior
                    to the Delivery Date;

               (c)  Expenses  which LESSEE and LESSOR  mutually agree or, absent
                    mutual   agreement,   are   judicially   determined   to  be
                    attributable  to  acts  or  events  which  occur  after  the
                    Termination Date and return of the Aircraft to LESSOR in the
                    condition required  hereunder,  but in any such case only to
                    the extent not attributable to acts or omissions of LESSEE;

               (d)  Expenses  representing Taxes, it being acknowledged that the
                    terms of Article 16 apply exclusively to LESSEE's  indemnity
                    obligations with respect to Taxes;

               (e)  Expenses  due to the  breach by LESSOR  of its  covenant  of
                    quiet enjoyment pursuant to Article 21.2;


               (f)  Expenses related to LESSOR Taxes or a LESSOR's Lien; or

               (g)  Expenses that LESSOR has expressly  agreed to pay under this
                    Lease.

17.3  After-Tax  Basis.  The amount  which  LESSEE  will be required to pay with
respect to any Expense  indemnified against under Article 17.1 will be an amount
sufficient  to  restore  the  Indemnitee,  on an  after-tax  basis,  to the same
position such Indemnitee would have been in had such Expense not been incurred.

17.4 Timing of Payment.  It is the intent of the  parties  that each  Indemnitee
will have the right to indemnification for Expenses hereunder as soon as a claim
is made and as soon as an  Expense  is  incurred,  whether  or not such claim is
meritorious and whether or not liability is established  (but subject to Article
17.8).  LESSEE will pay an Indemnitee  for Expenses  pursuant to this Article 17
within  ten (10) days  after  receipt  of a written  demand  therefor  from such
Indemnitee  accompanied by a written  statement  describing in reasonable detail
the basis for such indemnity and reasonable proof of such Expenses incurred.

17.5  Subrogation.  Upon the payment in full of any  indemnity  pursuant to this
Article 17 by LESSEE,  LESSEE will be subrogated to any right of the  Indemnitee
in respect of the matter against which such indemnity has been made.

17.6 Notice.  Each  Indemnitee and LESSEE will give prompt written notice one to
the other of any  liability of which such party has  knowledge  for which LESSEE
is, or may be, liable under Article 17.1 provided, however, that failure to give
such  notice  will not  terminate  any of the rights of  Indemnitees  under this
Article 17 except to the extent that LESSEE has been  materially  prejudiced  by
the failure to provide such notice.

17.7  Refunds.  If any  Indemnitee  obtains a recovery of all or any part of any
amount which LESSEE has paid to such  Indemnitee,  such Indemnitee will promptly
pay to LESSEE the net amount recovered by such Indemnitee.

17.8  Defense  of  Claims.  Unless  an  Event of  Default  has  occurred  and is
continuing,  LESSEE and its  insurers  will have the right (in each such case at
LESSEE's sole expense) to investigate  or,  provided that LESSEE or its insurers
have not reserved the right to dispute  liability  with respect to any insurance
policies  pursuant to which  coverage is sought,  defend or compromise any claim
covered by insurance  for which  indemnification  is sought  pursuant to Article
17.1 and each Indemnitee will cooperate with LESSEE or its insurers with respect
thereto. If LESSEE or its insurers are retaining attorneys to handle such claim,
such counsel must be reasonably  satisfactory  to the  Indemnitees.  If not, the
Indemnitees  will have the right to retain  counsel of their  choice at LESSEE's
expense.

17.9  Survival  of  Obligation.  Notwithstanding  anything  in this Lease to the
contrary,  the provisions of this Article 17 will survive the  Termination  Date
and  continue in full force and effect  notwithstanding  any breach by LESSOR or
LESSEE of the terms of this Lease,  the termination of the lease of the Aircraft
to LESSEE under this Lease or the repudiation by LESSOR or LESSEE of this Lease.


<PAGE>



         ARTICLE 18           INSURANCE

18.1  Categories  of  Insurance.   Throughout  the  Lease  Term  and  until  the
Termination  Date LESSEE will,  at its own expense,  effect and maintain in full
force and effect the types of  insurance  and  amounts of  insurance  (including
deductibles)  described in Exhibit C through such brokers and with such insurers
as may be approved by LESSOR, such approval not to be unreasonably  withheld, in
London or New York or such other  insurance  markets as mutually  agreed upon by
the parties.

18.2 Write-back of any Date Recognition Exclusion.  In the event any of LESSEE's
insurances  (either the primary  insurance or the reinsurance)  contain any date
recognition  exclusion  clause or similar  clause  excluding from such insurance
coverage  damage to any property  (including the Aircraft) or death or injury to
any person on account of  accidents,  incidents  or  occurrences  caused by date
recognition or other Year 2000-related problems,  LESSEE at its cost will obtain
for the benefit of itself and LESSOR the  broadest  write-back  available in the
U.S. insurance market with respect to such exclusion.

18.3 Insurance for Indemnities.  The insurance  referred to in Article 18.1 will
in each case  include  and  insure  (to the  extent of the risks  covered by the
policies) the  indemnity  provisions of Article 17 and LESSEE will maintain such
insurance  of the  indemnities  for a  minimum  of two (2) years  following  the
Termination Date.

18.4  Insurance  required by  Manufacturer.  During the Lease Term,  LESSEE will
carry the  insurance  required  by  Manufacturer  in  connection  with  LESSOR's
assignment of Manufacturer's warranties and product support to LESSEE.

18.5  Renewal.  Not less than five (5) Business  Days before the  expiration  or
termination date of any insurance required hereunder, LESSEE will provide LESSOR
with fax confirmation from LESSEE's insurance brokers that renewed  certificates
of  insurance  evidencing  the  renewal or  replacement  of such  insurance  and
complying  with  Exhibit C will be issued on the  termination  date of the prior
certificate.  Within seven (7) days after such renewal,  LESSEE will furnish its
brokers' certificates of insurance to LESSOR.

18.6 Assignment of Rights by LESSOR.  If LESSOR assigns all or any of its rights
under  this  Lease as  permitted  by this  Lease or  otherwise  disposes  of any
interest in the Aircraft to any other Person as permitted by this Lease,  LESSEE
will,  upon request,  procure that such Person  hereunder be added as loss payee
and/or additional  assured in the policies effected hereunder and enjoy the same
rights  and  insurance  enjoyed  by LESSOR  under  such  policies.  LESSOR  will
nevertheless  continue to be covered by LESSEE's third party liability insurance
policies.

18.7 Other  Insurance.  LESSOR may from time to time by notice to LESSEE require
LESSEE at LESSEE's  expense to effect such other insurance or such variations to
the terms of the  existing  insurance  as may then be  customary  in the airline
industry for aircraft of the same type as the Aircraft and at the time  commonly
available in the insurance market.

18.8  Information.  LESSEE will provide LESSOR with any  information  reasonably
requested by LESSOR from time to time  concerning the insurance  maintained with
respect to the Aircraft or in  connection  with any claim being made or proposed
to be made thereunder.

18.9 Currency.  All proceeds of insurance pursuant to this Lease will be payable
in Dollars except as may be otherwise agreed by LESSOR.

18.10  Grounding  of  Aircraft.  If at any  time any of the  insurance  required
pursuant  to this Lease will cease to be in full force and  effect,  LESSEE will
forthwith ground the Aircraft and keep the Aircraft  grounded until such time as
such insurance is in full force and effect again.

18.11  Failure to Insure.  If at any time LESSEE fails to maintain  insurance in
compliance with this Article 18, LESSOR will be entitled but not bound to do any
of the following  (without prejudice to any other rights which it may have under
this Lease by reason of such failure):

               (a)  to pay any premiums  due or to effect or maintain  insurance
                    consistent with the terms of this Lease or otherwise  remedy
                    such failure in such manner as LESSOR considers  appropriate
                    (and LESSEE will upon  demand  reimburse  LESSOR in full for
                    any amount so expended in that connection); or

               (b)  at any time while such failure is continuing, to require the
                    Aircraft  to remain at any  airport or (as the case may be),
                    if allowed by  applicable  Law  proceed to and remain at any
                    airport within the  continental  U.S.  designated by LESSOR,
                    until  such  failure  is  remedied  to  LESSOR's  reasonable
                    satisfaction.

18.12  Reinsurance.  Any  reinsurance  will be maintained  with  reinsurers  and
brokers reasonably  acceptable to LESSOR.  Such reinsurance will contain each of
the  following  terms  and will in all  other  respects  (including  amount)  be
reasonably satisfactory to LESSOR:

               (a)  the same terms as the original insurance;

               (b)  a cut-through and assignment clause reasonably  satisfactory
                    to LESSOR; and

               (c)  payment  will be made  notwithstanding  (i) any  bankruptcy,
                    insolvency,   liquidation  or  dissolution  of  any  of  the
                    original  insurers  and/or (ii) that the  original  insurers
                    have made no payment under the original insurance policies.

18.13 Limit on Hull in favor of LESSEE.  LESSEE may carry hull all risks or hull
war and allied perils on the Aircraft in excess of the Agreed Value (such Agreed
Value being  payable to LESSOR) only to the extent such excess  insurance  which
would be  payable  to LESSEE in the event of a Total  Loss does not  exceed  ten
percent  (10%) of the Agreed  Value and only to the extent that such  additional
insurance will not prejudice the insurances  required  herein or the recovery by
LESSOR thereunder.  LESSEE agrees that it will not create or permit to exist any
liens or encumbrances over the insurances,  or its interest  therein,  except as
constituted by this Lease.


<PAGE>




         ARTICLE 19           LOSS, DAMAGE AND REQUISITION

                Throughout the Lease Term and until the Termination Date, LESSEE
will bear all risk of loss, theft, damage and destruction to the Aircraft.

19.1            Definitions.    In this Article 19 and throughout this Lease:

                "Agreed Value" *


                "Net Total Loss Proceeds" means the Total Loss Proceeds actually
received  by  LESSOR   following  a  Total  Loss,   less  any  legal  and  other
out-of-pocket  expenses,  taxes or duties  incurred by LESSOR in connection with
the collection of such proceeds.

                "Total  Loss"  means any of the  following  in  relation  to the
Aircraft, Airframe or any Engine, and "Total Loss Date" means the date set forth
in parenthesis after each Total Loss:

               (a)  destruction,   damage  beyond   repair  or  being   rendered
                    permanently  unfit for normal  use for any reason  (the date
                    such event  occurs  or, if not known,  the date on which the
                    Aircraft, Airframe or Engine was last heard of);

               (b)  actual or  constructive  total loss (including any damage to
                    the Aircraft which results in an insurance settlement on the
                    basis of a total loss) (the earlier of the date on which the
                    loss  occurs or thirty (30) days after the date of notice to
                    LESSEE's brokers or insurers claiming such total loss);

               (c)  requisition  of  title,  confiscation,   forfeiture  or  any
                    compulsory  acquisition  or other similar event (the date on
                    which the same takes effect);

               (d)  sequestration,  detention,  seizure or any similar event for
                    more than sixty (60) consecutive days or one-hundred  eighty
                    (180)  consecutive  days if the  Aircraft  is located in the
                    U.S.  for such  entire  period  (the  earlier of the date on
                    which  insurers make payment on the basis of a total loss or
                    the date of expiration of such period);

               (e)  requisition  for use for more than one hundred  eighty (180)
                    consecutive  days,  except as set forth in Article 19.8 (the
                    earlier of the date on which the  insurers  make  payment on
                    the basis of a total loss or the date of  expiration of such
                    period); or

               (f)  in the case of an  Engine,  the event  described  in Article
                    12.6.3 (the date on which the same takes effect).

                "Total Loss Proceeds" means the proceeds of any insurance or any
compensation or similar payment arising in respect of a Total Loss.

19.2 Notice of Total Loss.  LESSEE will notify LESSOR in writing  within two (2)
Business Days after a Total Loss Date of the Aircraft, Airframe or any Engine.

19.3 Total Loss of Aircraft or  Airframe.  If the Total Loss of the  Aircraft or
Airframe occurs during the Lease Term, the following will occur:

19.3.1 After the Total Loss Date and until receipt by LESSOR of the Agreed Value
and all other  amounts  then due under this Lease,  LESSEE will  continue to pay
Rent and the parties will perform,  to the extent  possible,  all of their other
obligations under this Lease.

19.3.2 On the date which is the earlier of the following dates:

               (a)  the date on which the Total Loss Proceeds of the Aircraft or
                    the Airframe are paid by LESSEE's insurance  underwriters or
                    brokers and

               (b)  the date which  falls  forty-five  (45) days after the Total
                    Loss Date,

                LESSEE will pay to LESSOR an amount equal to the sum of:

               (a)  the Agreed Value and

               (b)  all other amounts then due under this Lease,


less an amount equal to the Net Total Loss  Proceeds  received by LESSOR by such
date.

19.3.3  LESSOR will apply the Net Total Loss  Proceeds and any amounts  received
from LESSEE pursuant to Article 19.3.2 as follows:

               (a)  first, in discharge of any unpaid Rent and any other amounts
                    accrued and unpaid up to the date of LESSOR's receipt of the
                    Agreed Value;

               (b)  second, in discharge of the Agreed Value; and

               (c)  third, payment of the balance, if any, to LESSEE.

19.3.4 Upon receipt by LESSOR of all monies  payable by LESSEE in Article  19.3,
this Lease will terminate except for LESSEE's  obligations  under Articles 10.5,
16 and 17 which survive the Termination Date.

FOR  AVOIDANCE OF DOUBT,  THE AGREED  VALUE OF THE  AIRCRAFT  WILL BE PAYABLE TO
LESSOR  PURSUANT TO THIS ARTICLE  19.3 WHEN A TOTAL LOSS OF THE AIRFRAME  OCCURS
EVEN IF THERE HAS NOT BEEN A TOTAL LOSS OF AN ENGINE OR ENGINES.

19.4 Surviving  Engine(s).  If a Total Loss of the Airframe occurs and there has
not been a Total Loss of an Engine or  Engines,  then,  provided  no Default has
occurred and is  continuing,  at the request of LESSEE  (subject to agreement of
relevant  insurers)  and on receipt of all  monies  due under  Article  19.3 and
payment by LESSEE of all airport,  navigation and other charges on the Aircraft,
LESSOR  will  transfer  all its  right,  title  and  interest  in the  surviving
Engine(s) to LESSEE,  but without any  responsibility,  condition or warranty on
the part of LESSOR other than as to freedom from any LESSOR's Lien.

19.5 Total Loss of Engine and not Airframe.


19.5.1 Upon a Total Loss of any Engine not  installed on the Airframe or a Total
Loss of an Engine  installed on the  Airframe not  involving a Total Loss of the
Airframe, LESSEE will replace such Engine as soon as reasonably possible by duly
conveying to LESSOR  title to another  engine (a) free and clear of all Security
Interests (except Permitted Liens) of any kind or description,  (b) in airworthy
condition and of the same or improved model,  service  bulletin and modification
status  and  having a value  and  utility  at least  equal to the  Engine  which
sustained  the  Total  Loss,  (c) not older (by  reference  to serial  number or
manufacture  date)  than  the  older  of the two  Engines  (on  the  date of the
replacement)  delivered  by LESSOR to LESSEE with the  Aircraft on the  Delivery
Date,  and (d) in the same or better  operating  condition  as the Engine  which
sustained a Total Loss,  including  time in service,  hours and cycles since new
and hours and cycles available to the next inspection,  Overhaul or scheduled or
anticipated  removal;  provided that with respect to replacement modules in such
other engine,  LESSEE will use best reasonable efforts to ensure that such other
engine will not have been previously operated at a higher thrust rating than the
Engine  which  sustained  the  Total  Loss  and  provided  further  that  in all
circumstances  life-limited  Parts in such replacement  engine will have no less
life remaining  than the  life-limited  Parts in the Engine which  sustained the
Total Loss. Such replacement  engine will be an Engine as defined herein and the
Engine which  sustained  such Total Loss will cease to be an Engine;  whereupon,
subject to  agreement  of relevant  insurers,  LESSOR will  transfer  all of its
right, title and interest in and to the Engine which sustained the Total Loss to
LESSEE,  but without any  responsibility,  condition  or warranty on the part of
LESSOR other than as to title and freedom from any LESSOR's Lien.

19.5.2  LESSEE  agrees  at its own  expense  to take such  action as LESSOR  may
reasonably  request  in order  that  any such  replacement  Engine  becomes  the
property of LESSOR and is leased  hereunder  on the same terms as the  destroyed
Engine.  LESSEE's obligation to pay Rent will continue in full force and effect,
but an amount  equal to the Net Total  Loss  Proceeds  received  by LESSOR  with
respect to such  destroyed  Engine  will,  subject to  LESSOR's  right to deduct
therefrom  any amounts then due and payable by LESSEE under this Lease,  be paid
to LESSEE.

19.6 Other Loss or Damage.


19.6.1  If the  Aircraft  or  any  Part  thereof  suffers  loss  or  damage  not
constituting a Total Loss of the Aircraft or the Airframe or any Engine, all the
obligations of LESSEE under this Lease (including payment of Rent) will continue
in full force.


<PAGE>


19.6.2          *

19.6.3 To the extent  insurance  proceeds  received by LESSEE  directly from its
insurers do not cover the cost of such repair work on the Aircraft or Engine and
LESSOR has received  additional  insurance  proceeds from LESSEE's insurers with
respect to such repair work,  LESSOR will  (subject to LESSOR's  right to deduct
therefrom  any  amounts  then due and  payable  by LESSEE  under  this Lease and
submission  by LESSEE of  reasonable  documentation  in support  of such  excess
repair costs) pay to LESSEE  insurance  proceeds  received by LESSOR as and when
such repair work is performed on the Aircraft.

19.7 Copy of Insurance  Policy.  Promptly after the occurrence of a partial loss
or Total Loss of the  Aircraft or an Engine,  at the request of LESSOR (and then
only in the event  reasonably  required by LESSOR in connection  with  insurance
policies pursuant to which coverage is sought) LESSEE will provide LESSOR with a
copy of the relevant portions of LESSEE's  insurance policy.  LESSEE's insurance
policy will be confidential  between LESSOR and LESSEE and will not be disclosed
by LESSOR to third parties other than LESSOR's  professional advisors and except
as necessary in respect of proceedings relating to such insurance claim.

19.8  Government  Requisition.  If  the  Aircraft,  Airframe  or any  Engine  is
requisitioned  for use by any  Government  Entity,  LESSEE will promptly  notify
LESSOR of such requisition.  All of LESSEE's obligations hereunder will continue
as if such  requisition  had not  occurred.  So long as no Event of Default  has
occurred and is continuing,  all payments received by LESSOR or LESSEE from such
Government  Entity will be paid over to or  retained  by LESSEE.  If an Event of
Default has  occurred  and is  continuing,  all  payments  received by LESSEE or
LESSOR  from  such  Government  Entity  may be used by  LESSOR  to  satisfy  any
obligations owing by LESSEE.

19.9 LESSOR Retention of Reserves; Return of Security Deposit and Prepaid Rent .
For  avoidance of doubt,  the parties agree that (a)  notwithstanding  the Total
Loss of the Airframe  and/or Engines LESSOR will retain an amount equal to fifty
percent (50%) of all Reserves paid by LESSEE and not payable to LESSEE  pursuant
to Article 13.5,  and (b) in the event of the Total Loss of the Airframe  and/or
Engines  upon  receipt by LESSOR of all monies  payable by LESSEE in  accordance
with Article  19.1.3,  and subject to Article 5.1.3,  LESSOR will (i) return the
Security Deposit and any prepaid Rent to LESSEE and (ii) pay to LESSEE an amount
equal to fifty percent (50%) of the Reserves then held by LESSOR.


<PAGE>




         ARTICLE 20          REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSEE


20.1  Representations  and  Warranties.   LESSEE  represents  and  warrants  the
following  to LESSOR  as of the date of  execution  of this  Lease and as of the
Delivery Date:

20.1.1  Corporate  Status.  LESSEE is a corporation duly  incorporated,  validly
existing and in good  standing  under the Laws of the State of Colorado.  It has
the  corporate  power  and  authority  to carry  on its  business  as  presently
conducted and to perform its obligations hereunder.

20.1.2 Governmental Approvals. No authorization,  approval,  consent, license or
order of,  or  registration  with,  or the  giving  of  notice  to the  Aviation
Authority   or  any  other   Government   Entity  is  required   for  the  valid
authorization,  execution,  delivery  and  performance  by LESSEE of this Lease,
except as will have been duly effected as of the Delivery Date.

20.1.3 Binding.  LESSEE's Board of Directors has authorized LESSEE to enter into
this Lease and the other  Operative  Documents  and to perform  its  obligations
hereunder and thereunder. This Lease and the other Operative Documents that have
been  executed  and  delivered  by LESSEE as of the date of this Lease been duly
executed  and  delivered  by  LESSEE  and  represent  the  valid,   binding  and
enforceable  obligations  of LESSEE except as  enforceability  may be limited by
bankruptcy,  insolvency,   reorganization  or  other  similar  Laws  of  general
application   affecting  the  enforcement  of  creditors'  rights  and  by  such
principles of equity as a court having jurisdiction may impose. When executed by
LESSEE  at  Delivery,  the  same  will  apply  to the  Estoppel  and  Acceptance
Certificate and the other Operative Documents.

20.1.4 No Breach.  The execution and delivery of the  Operative  Documents  that
have been  executed and  delivered  by LESSEE as of the date of this Lease,  the
consummation  by LESSEE of the  transactions  contemplated  under the  Operative
Documents and compliance by LESSEE with the terms and provisions  thereof do not
and will not contravene any Law applicable to LESSEE,  or result in any material
breach of or constitute any material  default under or result in the creation of
any Security  Interest upon any property of LESSEE,  pursuant to any  indenture,
mortgage, chattel mortgage, deed of trust, conditional sales contract, bank loan
or credit agreement,  corporate  charter,  by-law or other material agreement or
instrument  to which LESSEE is a party or by which LESSEE or its  properties  or
assets may be bound or affected.  When executed by LESSEE at Delivery,  the same
will apply to the Estoppel and Acceptance  Certificate  and the other  Operative
Documents.

20.1.5  Filings.  Except for any filing or recording  that may be required under
the U.S.  Federal  Aviation  Administration  and  except for the filing of UCC-1
financing  statements  with the Secretary of State of the State of Colorado,  no
filing or recording of any  instrument or document  (including the filing of any
financial statement) is necessary under the Laws of the State of Registration in
order  for this  Lease to  constitute  a valid  and  perfected  lease of  record
relating to the Aircraft.

20.1.6  Licenses.  LESSEE  holds all  licenses,  certificates  and permits  from
applicable  Government  Entities  in the U.S.  necessary  for the conduct of its
business as a Certificated Air Carrier and performance of its obligations  under
this Lease.

20.1.7 No Suits. There are no suits,  arbitrations or other proceedings  pending
or threatened  before any court or  administrative  agency  against or affecting
LESSEE which, if adversely  determined,  would have a material adverse effect on
the  business,  assets or condition  (financial  or  otherwise) of LESSEE or its
ability to perform under this Lease, except as described in the filings provided
to LESSOR pursuant to Article 22.

20.1.8 Tax Returns.  All necessary  returns have been delivered by LESSEE to all
relevant  taxation  authorities in the  jurisdiction  of its  incorporation  and
LESSEE is not in default in the payment of any taxes due and payable.

20.1.9 No Material Adverse Effect.  LESSEE is not in default under any agreement
to which it is a party or by which it may be bound which default if left uncured
would have a material adverse effect on its business, assets or condition.

20.1.10 No Default under this Lease.  At the time of execution of this Lease, no
Default has occurred and is continuing and the financial  statements provided to
LESSOR pursuant to Article 22 fairly present the financial condition of LESSEE.

20.2  Covenants.  LESSEE  covenants  to  LESSOR  that it will  comply  with  the
following throughout the entire Lease Term:

20.2.1 Licensing.  LESSEE will hold all licenses,  certificates and permits from
applicable  Government  Entities  in the U.S.  necessary  for the conduct of its
business as a Certificated Air Carrier and performance of its obligations  under
this Lease.  LESSEE will advise LESSOR  promptly in the event any such licenses,
certificates or permits are cancelled, terminated, revoked or not renewed.

20.2.2 Information about Suits.  LESSEE will promptly give to LESSOR a notice in
writing of any suit, arbitration or proceeding before any court,  administrative
agency or Government  Entity which, if adversely  determined,  would  materially
adversely  affect  LESSEE's  financial  condition,  affairs,  operations  or its
ability to perform under this Lease provided, however, that compliance by LESSEE
with the  requirements  of Article 22 hereof will be deemed  compliance with the
provisions of this Article 20.2.2.

20.2.3  Restrictions on Mergers.  LESSEE will not consolidate with or merge into
any other corporation or other Person, and will not convey,  transfer,  lease or
otherwise  dispose of all or substantially  all of its assets to any corporation
or other Person, unless:

               (i)  such transaction  shall not have any material adverse effect
                    on the rights of LESSOR  under or in respect of the Lease or
                    the Aircraft;

               (ii) the Person  formed by or  surviving  such  consolidation  or
                    merger or the Person which acquires by conveyance, transfer,
                    lease or other  disposition all or substantially all of such
                    property  and  other  assets:  (A)  shall  be a  corporation
                    organized  and  existing  under the laws of the U. S. or any
                    State thereof or the District of Columbia;  (B)  immediately
                    after giving effect to such transaction, shall have acquired
                    or  succeeded to all or  substantially  all of the assets of
                    LESSEE  (if  such  assets  are  being   transferred)  as  an
                    entirety, and shall have a tangible net worth (determined in
                    accordance with GAAP) of not less than LESSEE's tangible net
                    worth (determined in accordance with GAAP) immediately prior
                    to such  transaction;  (C) shall be a "citizen of the United
                    States" of America as defined in Section  40102(a)(15)(c) of
                    Title 49 of the U.S.C. and a Certificated  Air Carrier;  and
                    (D)  shall   executed   and   deliver  to  LESSOR  (1)  such
                    recordations and filings with any Government Entity and such
                    other   documents  as  shall  be  reasonably   necessary  or
                    advisable in  connection  with such  consolidation,  merger,
                    sale, lease, transfer or other disposition (2) an agreement,
                    in form and  substance  reasonably  satisfactory  to LESSOR,
                    assuming all of LESSEE's obligations under the Lease and the
                    other Operative  Documents without amendment thereto and (3)
                    an officer's certificate to the effect that the requirements
                    of this Section have been satisfied; and

               (iii)no Event of Default  shall have  occurred and be  continuing
                    or shall occur as a result thereof.

20.2.4 Restriction on Relinquishment of Possession. LESSEE will not, without the
prior  consent of LESSOR,  deliver,  transfer or  relinquish  possession  of the
Aircraft except in accordance with Articles 11 and 12.

20.2.5 No  Security  Interests.  LESSEE will not create or agree to or permit to
arise any Security  Interest (other than Permitted  Liens) on or with respect to
the Aircraft,  title thereto or any interest therein.  LESSEE will forthwith, at
its own expense,  take all action as may be reasonably necessary to discharge or
remove any such Security Interest if it exists at any time.

20.2.6  Representations to Other Parties.  LESSEE will not represent or hold out
LESSOR as carrying  goods or  passengers  on the Aircraft or as being in any way
connected or associated with any operation of the Aircraft.


<PAGE>




         ARTICLE 21          REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSOR




21.1  Representations  and  Warranties.   LESSOR  represents  and  warrants  the
following  to  LESSEE  as of the date of  execution  of the  Lease and as of the
Delivery Date and ALL OTHER  WARRANTIES,  EXPRESS OR IMPLIED HAVE BEEN WAIVED IN
ACCORDANCE WITH ARTICLE 8:

21.1.1  Corporate  Status.  LESSOR is a corporation duly  incorporated,  validly
existing and in good standing under the Laws of the State of California.  It has
the  corporate  power  and  authority  to carry  on its  business  as  presently
conducted and to perform its obligations hereunder.

21.1.2 Governmental Approvals. No authorization,  approval,  consent, license or
order of, or registration  with, or the giving of notice to any U.S.  Government
Entity  is  required  for  the  valid  authorization,  execution,  delivery  and
performance by LESSOR of this Lease.

21.1.3 Binding. This Lease and the other Operative Documents that have been have
been  executed  and  delivered  by LESSEE as of the date of this Lease have been
duly  authorized,  executed  and  delivered by LESSOR and  represent  the valid,
enforceable and binding  obligations of LESSOR except as  enforceability  may be
limited by  bankruptcy,  insolvency,  reorganization  or other  similar  Laws of
general  application  affecting the enforcement of creditors' rights and by such
principles of equity as a court having jurisdiction may impose. When executed by
LESSOR at Delivery, the same will apply to the other Operative Documents.

21.1.4 No Breach.  The execution and delivery of the  Operative  Documents  that
have been  executed and  delivered  by LESSOR as of the date of this Lease,  the
consummation by LESSOR of the transactions  contemplated  therein and compliance
by LESSOR with the terms and  provisions  thereof do not and will not contravene
any Law applicable to LESSOR,  or result in any material breach of or constitute
any material default under any indenture,  mortgage,  chattel mortgage,  deed of
trust,  conditional  sales contract,  bank loan or credit  agreement,  corporate
charter,  by-law or other material  agreement or instrument to which LESSOR is a
party or by which LESSOR or its  properties  or assets may be bound or affected.
When executed by LESSOR at Delivery,  the same will apply to the other Operative
Documents.

21.1.5 Title to Aircraft.  On the Delivery  Date LESSOR will have good and valid
title to the Aircraft.

21.1.6 Citizen of the United  States.  LESSOR is a "citizen of the United States
of America" (as defined in Section 40102 of Title 49 of U.S.C.).

21.2  Covenant of Quiet  Enjoyment.  So long as no Event of Default has occurred
and is continuing hereunder, LESSOR covenants that neither LESSOR nor any person
lawfully  claiming  through LESSOR will interfere with LESSEE's quiet,  peaceful
use and enjoyment of the Aircraft during the Lease Term.


<PAGE>




         ARTICLE 22           FINANCIAL AND RELATED INFORMATION

         LESSEE agrees to furnish each of the following to LESSOR:

                (a) within  forty-five  (45) days  after the end of each  fiscal
                quarter   of  LESSEE,   three  (3)   copies  of  the   unaudited
                consolidated financial statements (including a balance sheet and
                profit  and  loss  statement)   prepared  for  such  quarter  in
                accordance with generally accepted accounting  principles in the
                U.S.;

                (b) within ninety (90) days after the end of each fiscal year of
                LESSEE, three (3) copies of the audited  consolidated  financial
                statements  (including  a  balance  sheet  and  profit  and loss
                statement)  prepared  as of the  close  of such  fiscal  year in
                accordance with generally accepted accounting  principles in the
                U.S.;

                (c) promptly after distribution, three (3) copies of all reports
                and financial  statements  which LESSEE sends or makes available
                to its stockholders or creditors generally;

                (d)  Technical  Evaluation  Reports  in  conjunction  with every
                second "C" check for the Aircraft and at other times  reasonably
                requested by LESSOR in accordance  with Article  12.10.2 hereof;
                and

                (e) from time to time,  such  other  reasonable  information  as
                LESSOR or LESSOR's Lender may reasonably  request concerning the
                location,  condition,  use and  operation of the Aircraft or the
                financial condition of LESSEE.


<PAGE>





         ARTICLE 23           RETURN OF AIRCRAFT

23.1 Date of Return. LESSEE is obligated to return the Aircraft,  Engines, Parts
and Aircraft Documentation to LESSOR on the Expiration Date, unless a Total Loss
of the  Aircraft  occurred  prior to the  Expiration  Date and  this  Lease  was
terminated  early in  accordance  with  Article  19.3.  If LESSEE is in  Default
hereunder  by failing to return the  Aircraft  on the  Expiration  Date or if an
Event of Default occurs prior to the Expiration Date and LESSOR  repossesses the
Aircraft,  the return requirements set forth in this Article 23 nonetheless must
be met on the date the Aircraft is actually returned to LESSOR or repossessed by
LESSOR.

23.2 Technical  Report.  Six (6) months prior to the Expiration  Date (and in an
updated  form at return of the  Aircraft),  LESSEE  will  provide  LESSOR with a
Technical  Evaluation Report in the form and substance of Exhibit M, as revised,
and, in addition  upon  LESSOR's  request,  will make  copies  available  of (a)
drawings of the interior  configuration  of the Aircraft  both as it then exists
and as it will exist at return, (b) an Airworthiness  Directive status list, (c)
a service  bulletin  incorporation  list,  (d) rotable  tracked,  hard-time  and
life-limited  component listings,  (e) a list of LESSEE-initiated  modifications
and  alterations,  (f) interior  material  burn  certificates,  (g) the Aircraft
Maintenance Program, (h) the complete workscope for the checks,  inspections and
other work to be performed prior to return,  (i) a list of all no-charge service
bulletin  kits with  respect to the  Aircraft  which were ordered by LESSEE from
Manufacturer  or the Engine  manufacturer,  (j) current Engine disk sheets and a
description  of the last shop visit for each Engine and (k) any other data which
is reasonably requested by LESSOR.

23.3 Return Location.  LESSEE at its expense will return the Aircraft,  Engines,
Parts and Aircraft Documentation to LESSOR at Denver, Colorado, or to such other
airport on  LESSEE's  route  system as may be  mutually  agreed to by LESSEE and
LESSOR.

23.4 Full Aircraft  Documentation Review. For the period commencing at least ten
(10) Business Days prior to the proposed  redelivery  date and continuing  until
the date on which the Aircraft is returned to LESSOR in the  condition  required
by this  Lease,  LESSEE  will  provide  for the  review  of  LESSOR  and/or  its
representative all of the Aircraft records and historical documents described in
Exhibit L in one central room at the Aircraft return location.

23.5 Aircraft Inspection.

23.5.1 During the maintenance checks performed immediately prior to the proposed
redelivery  and  at the  actual  return  of  the  Aircraft,  LESSOR  and/or  its
representatives  will have an opportunity  to conduct a full systems  functional
and  operational  inspection  of the  Aircraft  (and other  types of  reasonable
inspections  based upon the Aircraft type, age, use and other known factors with
respect to the  Aircraft) and a full  inspection  of the Aircraft  Documentation
(including records and manuals),  all to LESSOR's reasonable  satisfaction.  Any
deficiencies  from the Aircraft return condition  requirements set forth in this
Article  23 will be  corrected  by  LESSEE at its cost  prior to the  acceptance
flight described in Article 23.5.2.

23.5.2 Immediately prior to the proposed redelivery of the Aircraft, LESSEE will
carry out for LESSOR  and/or  LESSOR's  representatives  an Aircraft  acceptance
flight in accordance with Manufacturer's  standard flight operation check flight
procedures or, if agreed to in writing by LESSOR,  in accordance with an airline
acceptance flight procedure,  either of which will be for two (2) hours, or such
longer duration as is necessary to perform such check flight procedures.  Flight
costs  and  fuel  will  be  furnished  by and  at the  expense  of  LESSEE.  Any
deficiencies  from the Aircraft return condition  requirements set forth in this
Article  23 will be  corrected  by  LESSEE  at its cost  prior to  return of the
Aircraft.

23.5.3 To the extent that the ground  inspection  and  acceptance  flight extend
beyond  the  Expiration  Date,  the  Lease  Term  will be  deemed  to have  been
automatically  extended  and the  obligations  of  LESSEE  hereunder  (including
Article  23.11.3)  will  continue on a  day-to-day  basis until the  Aircraft is
accepted  by  LESSOR  as  being  in  the  condition  required  hereunder,  which
acceptance  shall be evidenced by LESSOR  executing and delivering to LESSEE the
Return Acceptance Receipt in the form of Exhibit J.

23.6 Certificate of Airworthiness Matters.

23.6.1 The Aircraft will possess a current  Certificate of Airworthiness  issued
by the Aviation Authority  (although this Certificate of Airworthiness may later
be  substituted  by the Export  Certificate  of  Airworthiness  or equivalent if
requested by LESSOR pursuant to Article 23.10). In addition, even if LESSEE must
perform  engineering,  maintenance  and repair work on the  Aircraft  beyond the
requirements  of Article 12, the  Aircraft  at return  must be in the  condition
required  in order to meet the  requirements  for  issuance  of a U.S.  Standard
Certificate of Airworthiness  for transport  category aircraft issued by the FAA
in  accordance  with  FAR  Part 21 and,  in  addition,  to  meet  the  operating
requirements of FAR Part 121.

23.6.2 If the Aircraft is registered in a country other than the U.S. at time of
return,  LESSEE  at its cost  will  demonstrate  that  the  Aircraft  meets  the
requirements for issuance of the U.S. Standard  Certificate of Airworthiness for
transport  category aircraft specified in Article 23.6.1 by delivering to LESSOR
at its option either an actual U.S.  Standard  Certificate of Airworthiness  (if
the Aircraft is to be registered  in the U.S.) or a letter  acceptable to LESSOR
signed by an FAA Designated Airworthiness Representative (DAR) or another Person
acceptable  to LESSOR  stating  that the DAR or such  Person has  inspected  the
Aircraft  and  Aircraft  Documentation  (including  records and manuals) and has
found that the Aircraft meets the requirements  for issuance of a U.S.  Standard
Certificate of Airworthiness for transport  category aircraft in accordance with
FAR Part 21 and, in addition, meets the operating requirements of FAR Part 121.

23.6.3 If the Aircraft is to be  registered  in a country other than in the U.S.
after  return  from  LESSEE,  LESSOR  may  in  its  sole  discretion  waive  the
requirements  of Article  23.6.1 and instead  require that LESSEE at its expense
(to the extent  such  expense is no greater  than that which  LESSEE  would have
incurred  pursuant to Article  23.6.1,  with any  additional  expenses being for
LESSOR's  account) put the Aircraft in a condition to meet the  requirements for
issuance of a Certificate of Airworthiness of the Aviation Authority of the next
country  of  register,  provided  that if  solely  as a result  of such work the
Aircraft is returned  after the scheduled  redelivery  date,  LESSEE will not be
liable for  payment of Rent in  respect  of the  period  following  the date the
Aircraft would have been returned  following  completion of the  requirements of
this Article 23, but for the provisions of this Article 23.6.3.

23.7 General Condition of Aircraft at Return.

23.7.1 The Aircraft,  Engines,  and Parts will have been maintained and repaired
in accordance  with the  Maintenance  Program,  the rules and regulations of the
Aviation Authority and this Lease.

23.7.2  Aircraft  Documentation  (including  records and manuals) will have been
maintained in an up-to-date status, in accordance with the rules and regulations
of the Aviation  Authority and the FAA and this Lease and in a form necessary in
order to meet the  requirements  of Article  23.6.1.  The records and historical
documents set forth in Exhibit L will be in English.

23.7.3  The  Aircraft  will be in the same  working  order and  condition  as at
Delivery  (subject to the other  provisions of this Article 23,  reasonable wear
and tear from normal flight operations  excepted),  with all pilot discrepancies
and deferred maintenance items cleared on a terminating action basis.

23.7.4  The  Aircraft  will be  airworthy  (conform  to type  design and be in a
condition  for safe  operation),  with all Aircraft  equipment,  components  and
systems  operating  in  accordance  with their  intended  use and within  limits
approved by Manufacturer, Aviation Authority and FAA.

23.7.5 The Aircraft interior  (including cabin and windows) and exterior will be
clean in accordance  with U.S.  commercial  airline  standards and  cosmetically
acceptable to LESSOR in its reasonable discretion, with all compartments free of
foreign objects, dirt, grease, fluids, stains, grime, cracks, tears and rips and
ready to be placed into immediate commercial airline operations.

23.7.6 No  special  or unique  Manufacturer,  Engine  manufacturer  or  Aviation
Authority inspection or check requirements which are specific to the Aircraft or
Engines (as opposed to all  aircraft or engines of their  types) will exist with
respect to the Airframe, Engines and Aircraft equipment, components and systems.

23.7.7 All repairs, modifications and alterations to the Aircraft will have been
accomplished  in accordance  with either (i)  Manufacturer's  Structural  Repair
Manual (or  DGAC-approved  Repair  Approval  Sheets)  for the  Aircraft  or (ii)
FAA-approved data (such as FAA Form 8110 or equivalent).

23.7.8 The Aircraft will be returned with  LESSOR's  Engines  installed and with
the same equipment as at Delivery, subject only to those replacements, additions
and Modifications permitted under this Lease.

23.7.9 All  Airworthiness  Directives which are issued during the Lease Term and
require compliance (either by means of repetitive inspections,  modifications or
terminating  action) prior to return of the Aircraft to LESSOR or within one (1)
year after the Termination  Date will have been complied with on the Aircraft on
a terminating action basis at LESSEE's cost.  Airworthiness  Directives which do
not have a  terminating  action will be  accomplished  at the  highest  level of
inspection or modification  possible.  If, after using  commercially  reasonable
efforts, LESSEE is unable to acquire the material, parts or components necessary
to  accomplish  such  Airworthiness  Directive,  LESSEE  will pay to LESSOR upon
return of the Aircraft the  estimated  cost of  terminating  such  Airworthiness
Directive.  If the estimated  cost cannot be mutually  agreed upon by LESSEE and
LESSOR,  LESSEE  and  LESSOR  will each  obtain  an  estimate  from a  reputable
FAA-approved  maintenance facility  (unaffiliated with LESSEE or LESSOR) and the
estimated cost will be the average of the two estimates.

23.7.10  The  Aircraft  will  be in  compliance  with  Manufacturer's  Corrosion
Prevention  and  Control  Program  (CPCP)   specified  for  the  model  type  by
Manufacturer.

23.7.11  If  any  waivers,   deviations,   dispensations,   alternate  means  of
compliance,  extensions or carry-overs  with respect to maintenance or operating
requirements,  repairs or  Airworthiness  Directives are granted by the Aviation
Authority or permitted by the Maintenance  Program,  LESSEE at its sole cost and
expense will  nonetheless  perform such  maintenance or operating  requirements,
repairs  or   Airworthiness   Directives   as  if  such   waivers,   deviations,
dispensations,  alternate means of compliance,  or extensions or carry-overs did
not exist, unless such waivers,  deviations,  dispensations,  alternate means of
compliance,  extensions  or  carry-overs  are  applicable  to all  similar  A318
aircraft registered with the FAA.

23.7.12 The Aircraft  will be free from any Security  Interest  except  LESSOR's
Liens and no  circumstance  will have so arisen whereby the Aircraft is or could
become  subject to any Security  Interest or right of detention or sale in favor
of the Aviation Authority, any airport authority, or any other authority.

23.7.13 All no-charge vendor and  Manufacturer's  service bulletin kits received
by  LESSEE  for the  Aircraft  but not  installed  thereon  will be on board the
Aircraft as cargo.  At LESSOR's  request,  any other service  bulletin kit which
LESSEE  paid for will also be  delivered  to LESSOR on board the  Aircraft,  but
LESSOR will reimburse  LESSEE for its actual  out-of-pocket  costs for such kit,
unless  LESSEE  purchased  such kit as part of its  implementation  of a service
bulletin on its fleet of aircraft of the same type as the  Aircraft  but had not
yet installed such kit on the Aircraft, in which case such kit will be furnished
free of charge to LESSOR.

23.7.14  The  Aircraft  will be  free of any  leaks  and  any  damage  resulting
therefrom.  All  repairs  will  have  been  performed  on a  permanent  basis in
accordance with the applicable manufacturer's instructions.


<PAGE>


23.7.15 The Aircraft fluid  reservoirs  (including  oil,  oxygen,  hydraulic and
water) will be serviced to full and the waste tank serviced in  accordance  with
Manufacturer's instructions. Fuel tanks will be at least as full as at Delivery.

23.8  Checks  Prior to Return.  Immediately  prior to return of the  Aircraft to
LESSOR, LESSEE at its expense will do each of the following:

23.8.1 Have performed,  by LESSEE or any other FAA-approved repair station,  the
next due full and  complete  zonal,  systems  and  structural  check ("C" or its
equivalent),  the corresponding lower checks ("A" and "B" or equivalent) and any
other maintenance and inspections tasks, all in accordance with the then-current
MPD,  sufficient  to clear the Aircraft for operation  until the  next-scheduled
full and complete zonal, systems and structural check under the then-current MPD
(which in any event will not be less than fifteen (15) months). LESSEE will also
weigh the Aircraft.  Any  discrepancies  revealed during such inspection will be
corrected in accordance  with  Manufacturer's  maintenance and repair manuals or
FAA-approved  data.  LESSEE  agrees to perform  during such check any other work
reasonably  required by LESSOR (and not otherwise required under this Lease) and
LESSOR will reimburse LESSEE for such work at LESSEE's preferred customer rates.

23.8.2 Perform an internal and external corrosion  inspection where any evidence
of  corrosion  exists and  correct  any  discrepancies  in  accordance  with the
recommendations  of Manufacturer and the Structural  Repair Manual. In addition,
all inspected areas will be properly treated with corrosion  inhibitor if and as
recommended by Manufacturer.


<PAGE>


23.8.3 Remove  LESSEE's  exterior  markings,  including all exterior  paint,  by
stripping (or, at LESSOR's option,  pneumatically  scuff/sanding) the paint from
the fuselage, empennage, wings and Engine cowlings, and clean, reseal, refinish,
prepare  (including  application of alodine or another corrosion  inhibitor) and
prime the surfaces to be painted,  all in  accordance  with  Manufacturer's  and
paint  manufacturer's  recommendations.  LESSEE will then repaint the  fuselage,
empennage,  wings and Engine cowlings in the colors and logo specified by LESSOR
provided,  however,  that if such colors and logo are substantially more complex
than those of LESSEE,  at  LESSOR's  discretion,  LESSOR  will either (i) pay to
LESSEE an amount equal to the  incremental  cost of  repainting  the Aircraft in
such complex  colors and logo over and above the cost of repainting the Aircraft
in  LESSEE's  colors and logo at such time or (ii)  permit  LESSEE to return the
Aircraft  repainted  white and to pay LESSOR an amount equal to the  incremental
cost of painting the colors and logo required by LESSOR's next  operator,  up to
an  amount  equal to the  amount  that  would  have been  required  to paint the
Aircraft in LESSEE's livery. Such painting will be accomplished in such a manner
as to result in a  uniformly  smooth  and  cosmetically  acceptable  aerodynamic
surface.  All external  placards,  signs and markings will be properly attached,
free from damage, clean and legible.

23.8.4 Clean the exterior and interior of the Aircraft.

23.8.5 If  reasonably  required  by LESSOR,  repaint the flight deck and replace
placards of the Aircraft.

23.8.6 In  accordance  with Article  23.7.7,  permanently  repair  damage to the
Aircraft that exceeds Manufacturer's limits and replace any non-flush structural
patch  repairs  installed  on  the  Aircraft  with  flush-type   repairs  unless
Manufacturer does not recommend a flush-type repair.

23.8.7 With LESSOR or its representatives  present,  perform a full and complete
hot and cold  section  videotape  borescope  on each  Engine and its  modules in
accordance with the Engine manufacturer's maintenance manual.

23.8.8 If the Engine  historical and technical  records and/or  condition  trend
monitoring  data of any Engine  (including the APU) indicate an  acceleration in
the rate of deterioration in the performance of an Engine,  LESSEE will correct,
to LESSOR's reasonable satisfaction,  such conditions which are determined to be
causing such accelerated rate of deterioration.

23.8.9 With LESSOR or its  representatives  present,  accomplish a maximum power
assurance run and condition,  acceleration and bleed valve scheduling  checks on
the Engines.  LESSEE will evaluate the Engine  performance and record the Engine
maximum power  assurance test  conditions  and results on the Return  Acceptance
Receipt.


<PAGE>


23.8.10 LESSEE will provide  evidence to LESSOR's  satisfaction  that the Engine
historical and technical  records,  borescope  inspection,  trend monitoring and
other checks specified in Article 23.8.9 do not reveal any condition which would
cause the Engines or any module to be unserviceable,  beyond  serviceable limits
or serviceable with an increased  frequency of inspection or with calendar time,
flight  hour or  flight  cycle  restrictions  under  the  Engine  manufacturer's
maintenance manual. LESSEE will correct any discrepancies in accordance with the
guidelines  set out by the Engine  manufacturer  which may be discovered  during
such inspection.

23.8.11 In the event the Engine  historical  and  technical  records,  borescope
inspection, trend monitoring and other checks specified in Article 23.8.9 result
in a dispute regarding the conformity of an Engine with the requirements of this
Article 23, LESSEE and LESSOR will consult with Engine  manufacturer  and follow
Engine manufacturer's recommendations (including the accomplishment of an Engine
test cell operational  check) with regard to determining if such Engine complies
with  the  requirements  of  this  Article  23  and  the  manner  in  which  any
discrepancies from the requirements of this Article 23 will be rectified.

23.9 Part Lives. At return, the condition of the Aircraft will be as follows:



23.9.1 The Aircraft  will have zero (0) hours  consumed  since the last full and
complete  zonal,   systems  and  structural  check  ("C"  check  or  equivalent)
(excluding hours consumed on the acceptance flight).

23.9.2 Each Engine will meet all of the following:

               (a)  Each Engine will have  operated no more than 4,000 hours and
                    4,000  cycles  since the last full  performance  restoration
                    shop  visit in which  the core  modules  (including  without
                    limitation  the high pressure  compressor  rotor and stator,
                    combustor,   stage  1  nozzle  and  high  pressure   turbine
                    assembly)  were  fully  refurbished  and will  have at least
                    6,000  hours  and  6,000  cycles  remaining  until  its next
                    anticipated  removal  (based upon the Engine  manufacturer's
                    estimated mean time between removals for engines of the same
                    type as the Engines); provided, however, that if at the time
                    of return  Engine  manufacturer's  mature mean time  between
                    removal  rate for engines of the same type as the Engines is
                    greater than 10,000 hours and 10,000 cycles,  then the above
                    referenced  4,000 hour and 4,000 cycle  requirement  will be
                    increased by an amount equal to the  difference  between (i)
                    the  number  of hours and  cycles of such mean time  removal
                    rate and (ii) 10,000 hours and 10,000  cycles (for  example,
                    if at return the  mature  mean time  removal  rate is 14,000
                    hours and 14,000  cycles,  each Engine will have operated no
                    more than 8,000 hours and 8,000  cycles  since its last full
                    performance  restoration  shop  visit and will have at least
                    6,000  hours  and  6,000  cycles  remaining  until  its next
                    anticipated removal).

               (b)  Each Engine will have a remaining  EGT margin  sufficient to
                    permit the operation of such Engine for the hours and cycles
                    set  forth in the  preceding  subparagraph,  based  upon the
                    historical experience of the Engine manufacturer's worldwide
                    fleet;

               (c)  No  life-limited  Part of an Engine  will have more hours or
                    cycles consumed than such Engine's data plate; and

               (d)  Each Part of an Engine which has a hard time limit will have
                    at least  50% of such  Part's  full  allotment  of hours and
                    cycles   remaining  to  operate  until  its  next  scheduled
                    Overhaul. Each Part of an Engine which has a life limit will
                    have at least 50% of such Part's full allotment of hours and
                    cycles remaining to operate until its removal.  However,  if
                    50% of such hard time or life-limited  Part's full allotment
                    of hours and cycles  remaining  is less than 6,000 hours and
                    6,000 cycles,  then such hard time or life-limited Part will
                    be  returned  with at least  6,000  hours and  6,000  cycles
                    remaining.

23.9.3 The APU will not have  operated  more than five  hundred  (500) APU hours
since the last hot section refurbishment.

23.9.4  The  Landing  Gear will have at least  fifty  percent  (50%) of the full
allotment of hours/cycles/calendar  time (whichever is the more limiting factor)
pursuant to the MPD remaining until the next Overhaul or scheduled removal.

23.9.5 Each Part of the  Aircraft  which has a hard time  (hour/cycle)  limit to
Overhaul  pursuant  to the MPD  will  have at  least  50% of  such  Part's  full
allotment  of hours and cycles  remaining  to operate  until its next  scheduled
Overhaul  pursuant  to the MPD.  However,  if 50% of such hard time  Part's full
allotment  of hours and  cycles  remaining  is less than  4,000  hours and 4,000
cycles,  then such hard time Part will be returned with at least 4,000 hours and
4,000 cycles remaining to operate until its next scheduled  Overhaul pursuant to
the MPD.

23.9.6 Each  life-limited  Part of the  Aircraft  will have at least 50% of such
Part's full  allotment of hours and cycles  remaining to operate  until  removal
pursuant to the MPD. However,  if 50% of such life-limited Part's full allotment
of hours and cycles  remaining is less than 6,000 hours and 6,000  cycles,  then
such  life-limited  Part will be  returned  with at least  6,000 hours and 6,000
cycles remaining to operate pursuant to the MPD.

23.9.7 Each Part which has a calendar limit will have  sufficient  calendar time
remaining to operate until the next "C" check pursuant to the  then-current  MPD
after return of the Aircraft to LESSOR (which in any event will be not less than
fifteen (15)  months).  If a Part has a total  approved life pursuant to the MPD
less than such "C" check interval,  then such Part will be returned with 100% of
its total approved life remaining.

23.9.8 No Part of the Aircraft or Engine  (excluding  life-limited  Parts on the
Engine,  which are covered by Article 23.9.2(c)) will have total hours and total
cycles time since new greater than one hundred ten percent (110%) of that of the
Airframe  and,  with  respect  to all Parts as a group,  the Parts  will have an
average total time since new no greater than that of the Airframe.

23.9.9 The  Aircraft  Landing Gear tires and brakes will be new or have zero (0)
hours/cycles out of Overhaul (except for the acceptance flight).

23.10 Export and  Deregistration  of Aircraft.  At LESSOR's request by notice at
least fifteen (15) days prior to the  Expiration  Date,  LESSEE at its cost will
(a) provide an Export  Certificate of  Airworthiness  or its equivalent from the
State of  Registration  for the country  designated  by LESSOR,  (b) assist with
deregistration  of the  Aircraft  from the  register of aircraft in the State of
Registration,  (c)  assist  with  arranging  for  prompt  confirmation  of  such
deregistration  to be sent by the registry in the State of  Registration  to the
next country of registration and (d) perform any other acts reasonably  required
by LESSOR in  connection  with such  deregistration.  If any Aircraft work which
LESSEE is not otherwise required to perform hereunder, including engineering, is
required in order to obtain such Export  Certificate  of  Airworthiness,  LESSEE
will,  to the extent  reasonably  possible,  perform  such work and LESSOR  will
reimburse LESSEE for such work at LESSEE's preferred customer rates.

23.11 LESSEE's Continuing Obligations.  In the event that LESSEE does not return
the Aircraft to LESSOR on the Expiration  Date and in the condition  required by
this  Article 23 for any reason  (whether  or not the reason is within  LESSEE's
control):


<PAGE>


23.11.1 the  obligations  of LESSEE under this Lease will continue in full force
and effect on a day-to-day basis until such return.  This will not be considered
a waiver of LESSEE's Event of Default or any right of LESSOR hereunder.

23.11.2  Until  such  return,  the Agreed  Value will be an amount  equal to the
Agreed  Value on the day the  Aircraft  should  have  been  returned  to  LESSOR
pursuant to this Lease.

23.11.3 LESSEE will fully indemnify  LESSOR on demand for all losses  (including
damages in accordance with Article 25.5(b)), liabilities,  actions, proceedings,
costs and  expenses  thereby  suffered or  incurred by LESSOR and, in  addition,
until  such time as the  Aircraft  is  redelivered  to  LESSOR  and put into the
condition  required by this Article 23,  instead of paying the Rent specified in
Article  5.3,  LESSEE  will pay twice  the  amount of Rent for each day from the
scheduled  Expiration Date until the Termination  Date (the monthly Rent payable
under Article  5.3.1 will be prorated  based on the actual number of days in the
applicable  month).  Payment will be made upon presentation of LESSOR's invoice.
Notwithstanding  the  foregoing,  in the event that the Aircraft is removed from
service by LESSEE and placed in a maintenance  facility for the  performance  of
work required to put the Aircraft into the condition required by this Article 23
and as a result of delays in the  performance  of such work the  Aircraft is not
returned on the Expiration  Date, for a period of up to seven (7) days following
the Expiration Date, LESSEE shall only be responsible for normal Rent. After the
7th day of such period, if LESSEE has not returned the Aircraft to LESSOR in the
condition required by this Lease, LESSEE shall be responsible for twice the Rent
for the period after such 7 day period in accordance with the provisions of this
Article 23.11.3 until the actual Termination Date.

23.11.4  LESSOR may elect,  in its sole and absolute  discretion,  to accept the
return of the Aircraft prior to the Aircraft being put in the condition required
by this Article 23 and  thereafter  have any such  non-conformance  corrected at
such time as LESSOR may deem  appropriate (but within ninety (90) days following
the return of the Aircraft) and at commercial  rates  then-charged by the Person
selected by LESSOR to perform such correction.  Any direct expenses  incurred by
LESSOR for such correction will become  additional Rent payable by LESSEE within
fifteen (15) days following the  submission of a written  statement by LESSOR to
LESSEE,  identifying  the items  corrected and setting forth the expense of such
corrections in reasonable detail.  LESSEE's  obligation to pay such supplemental
Rent will survive the Termination Date.

23.12 Airport and Navigation  Charges.  LESSEE will ensure that at return of the
Aircraft any and all airport,  navigation  and other  charges which give rise or
would if  unpaid  give rise to any lien,  right of  detention,  right of sale or
other  Security  Interest in relation to the  Aircraft,  Engine or any Part have
been paid and discharged in full and will at LESSOR's  request produce  evidence
thereof satisfactory to LESSOR.

23.13 Return Acceptance  Certificate.  Upon return of the Aircraft in accordance
with the terms of this Lease,  LESSEE will promptly  prepare and execute two (2)
Return Acceptance Certificates in the form and substance of Exhibit J and LESSOR
will countersign and return one such Return Acceptance Certificate to LESSEE. In
addition, LESSEE and LESSOR will execute a Lease Termination for filing with the
FAA evidencing termination of this Lease.

23.14 Indemnities and Insurance.  The indemnities and insurance requirements set
forth  in  Articles  17 and 18,  respectively,  will  apply to  Indemnitees  and
LESSOR's  representatives  during return of the  Aircraft,  including the ground
inspection  and  acceptance  flight.  With  respect  to the  acceptance  flight,
LESSOR's representatives will receive the same protections as LESSOR on LESSEE's
Aviation and Airline General Third Party Liability Insurance.

23.15 Civil Reserve Air Fleet.

23.15.1  LESSEE may transfer  possession of the Aircraft to the United States of
America or any  instrumentality  or agency  thereof as part of the Civil Reserve
Air  Fleet  Program   authorized   under  10   U.S.C.ss.9511  et  seq.  (or  any
substantially  similar  program)  ("CRAF  Program") for a period which  includes
(collectively,  the "CRAF Program Requisition  Period") (a) the entire period of
requisition  under the CRAF Program and (b) an  additional  six (6) months after
the expiration of the  requisition  under the CRAF Program.  If the CRAF Program
Requisition  Period extends  beyond the Expiration  Date provided by this Lease,
then the  Lease  will be deemed to  continue  until the end of the CRAF  Program
Requisition  Period at a monthly rental rate equal to the monthly rental rate in
effect at the end of the Lease Term and the Expiration Date will be deemed to be
the end of the CRAF Program Requisition Period. If the Aircraft is requisitioned
under the CRAF Program for a period which  extends  beyond the Lease Term,  then
LESSEE will provide  LESSOR with written  notice of the proposed  redelivery  at
least six (6) months  prior to such  redelivery  date and LESSEE must return the
Aircraft  in the  condition  required by Article 23 on the  redelivery  date set
forth in such written notice.




<PAGE>


23.15.2  LESSEE  will  promptly  notify  LESSOR in  writing  in the event of the
requisition  for  use  of  the  Aircraft  under  CRAF  activation  by  the  U.S.
Government.  All of LESSEE's  obligations  under this Lease will continue to the
same extent as if such requisition had not occurred.

23.15.3 Any provisions of this Lease to the contrary  notwithstanding,  if there
is a  requisition  for use of the Aircraft  pursuant to the CRAF Program  and/or
CRAF activation,  LESSOR agrees that LESSEE's insurances  described in Exhibit C
may - be supplemented or replaced by insurances provided under Title XIII of the
Act,  and/or U.S.  Government  indemnification  (which Title XIII insurances and
indemnification  will be, as to the  Aircraft,  in an  amount  not less than the
Agreed  Value and,  as to all other  insurances,  in amounts not less than those
established  in  Exhibit  C);  provided,   however,   that  LESSEE  will  remain
responsible for full compliance with all the provisions of this Lease, including
Articles  17 -- and 19, to the  extent  Title XIII  and/or  the U.S.  Government
indemnification do not satisfy LESSEE's obligations under -- this Lease.

23.15.4 If there is a requisition  for use of the Aircraft  pursuant to the CRAF
Program  and/or CRAF  activation,  there will be no limitation on the geographic
area in  which  the  Aircraft  may be  operated  so long  as,  taken as a whole,
LESSEE's insurance, the Title XIII insurance and/or the indemnification provided
by the U.S. Government fully cover (without any geographic  exclusions) LESSEE's
Exhibit C insurance requirements.

23.15.5 If an Event of  Default  occurs  under  this Lease and LESSOR  elects to
pursue its remedies under Article  25.3(e) to terminate this Lease and repossess
the  Aircraft,  LESSOR will so notify the U.S.  Government  by sending a written
communication with a copy to LESSEE as follows:

                       Headquarters Air Mobility Command
                       AMC Contracting Office -- XOKA
                       Scott Air Force Base, Illinois  62225-5007

23.15.6 So long as no Event of  Default  has  occurred  and is  continuing,  all
payments  received by LESSOR or LESSEE from such Government Entity in connection
with the requisition of the Aircraft under the CRAF Program (except  payments on
account of a Total Loss of the  Aircraft)  will be paid over to or  retained  by
LESSEE.  If an Event of Default has  occurred  and is  continuing,  all payments
received by LESSEE or LESSOR from such Government  Entity in connection with the
requisition  of the  Aircraft  under the CRAF  Program  may be used by LESSOR to
satisfy any obligations owing by LESSEE.


<PAGE>




         ARTICLE 24           ASSIGNMENT

24.1 No  Assignment  by LESSEE.  EXCEPT AS EXPRESSLY  PERMITTED BY ARTICLE 11 OR
ARTICLE 20.2.3, NO ASSIGNMENT,  NOVATION, TRANSFER, MORTGAGE OR OTHER CHARGE MAY
BE MADE BY LESSEE OF ANY OF ITS RIGHTS WITH RESPECT TO THE  AIRCRAFT,  ENGINE OR
PART OR THIS LEASE.

24.2 Sale or Assignment by LESSOR.

24.2.1 Subject to LESSEE's rights pursuant to this Lease, LESSOR may at any time
and without LESSEE's consent sell,  assign or transfer its rights,  interest and
obligations  hereunder,  under any other Operative Document,  or with respect to
the Aircraft to a Permitted Transferee; provided, however, that no such transfer
shall  materially  increase  LESSEE's  liabilities or  obligations  hereunder or
materially  adversely  affect LESSEE's rights under this Lease.  For a period of
two (2) years after such sale or assignment  and at LESSEE's  cost,  LESSEE will
continue to name LESSOR as an additional  insured under the Aviation and Airline
General Third Party Liability Insurance specified in Exhibit C.

24.2.2 The term  "LESSOR" as used in this Lease means the lessor of the Aircraft
at the time in  question.  In the event of the sale of the Aircraft and transfer
of LESSOR's rights and obligations  under this Lease to a Permitted  Transferee,
such Permitted  Transferee will become "LESSOR" of the Aircraft under this Lease
and  the  transferring  party  (the  prior  "LESSOR")  will be  relieved  of all
liability  to LESSEE under this Lease for  obligations  arising on and after the
date the  Aircraft is sold.  LESSEE will  acknowledge  and accept the  Permitted
Transferee  as the new  "LESSOR"  under this  Lease and will look  solely to the
Permitted Transferee for the performance of all LESSOR obligations and covenants
under this Lease arising on and after the Aircraft sale date.

24.3 LESSOR's Lender.  Subject to LESSEE's rights pursuant to this Lease, LESSOR
may at any time and without LESSEE's  consent grant security  interests over the
Aircraft and assign the benefit of this Lease to a lender ("LESSOR's Lender") as
security for LESSOR's obligations to LESSOR's Lender.

24.4 LESSEE  Cooperation.  On request by LESSOR,  LESSEE  will  execute all such
documents  (such as a consent  to a lease  assignment  agreement)  as LESSOR may
reasonably  require to confirm LESSEE's  obligations under this Lease and obtain
LESSEE's  acknowledgment  that LESSOR is not in breach of the Lease. LESSEE will
provide all other reasonable  assistance and cooperation to LESSOR in connection
with any such sale or assignment or the perfection  and  maintenance of any such
security interest, including, at LESSOR's cost, making all necessary filings and
registrations in the State of Registration and providing all opinions of counsel
with respect to matters  reasonably  requested by LESSOR.  LESSOR will reimburse
LESSEE for its reasonable out-of-pocket costs and expenses (including reasonable
legal fees) in reviewing  documents  required by LESSOR and  cooperating  with a
transfer pursuant to this Article 24.

24.5 Protections.

24.5.1  LESSOR will  obtain for the  benefit of LESSEE a written  acknowledgment
from any Permitted  Transferee  or LESSOR's  Lender that, so long as no Event of
Default has occurred and is  continuing  hereunder,  neither such Person nor any
Person  claiming  by,  through  or under such  Person  will not  interfere  with
LESSEE's quiet, peaceful use and enjoyment of the Aircraft.

24.5.2  Wherever  the term  "LESSOR" is used in this Lease in relation to any of
the provisions  relating to disclaimer,  title and  registration,  indemnity and
insurance contained in Articles 8, 14, 17 and 18, respectively,  or with respect
to Article  20.2.6,  the term  "LESSOR"  will be deemed to include any Permitted
Transferee and its lenders, if applicable.  For avoidance of doubt, in the event
of LESSOR's  sale or financing of the  Aircraft,  the  disclaimer  and indemnity
provisions  contained in Articles 8 and 17 will continue to be applicable  after
the sale or assignment to International  Lease Finance  Corporation,  as well as
being applicable to any Permitted Transferee and its lenders.


<PAGE>




         ARTICLE 25           DEFAULT OF LESSEE

25.1 LESSEE  Notice to LESSOR.  LESSEE  will  promptly  notify  LESSOR if LESSEE
becomes aware of the occurrence of any Default.

25.2 Events of Default.  The occurrence of any of the following will  constitute
an Event of Default and material breach of this Lease by LESSEE:

                *

25.3 LESSOR's  General Rights.  Upon the occurrence and continuance of any Event
of Default, LESSOR may do all or any of the following at its option (in addition
to such other rights and remedies  which LESSOR may have by statute or otherwise
but subject to any requirements of applicable Law):

               (a)  terminate this Lease by giving written notice to LESSEE;

               (b)  require  that  LESSEE  immediately  move the  Aircraft to an
                    airport or other location designated by LESSOR;

               (c)  for LESSEE's  account,  do anything  that may  reasonably be
                    required to cure any  default  and  recover  from LESSEE all
                    reasonable costs, including legal fees and expenses incurred
                    in doing so and Default Interest;

               (d)  proceed as appropriate to enforce  performance of this Lease
                    and to recover any damages for the breach hereof,  including
                    the amounts specified in Article 25.5;

               (e)  terminate this Lease by taking possession of the Aircraft or
                    by serving notice requiring LESSEE to return the Aircraft to
                    LESSOR at the location  specified by LESSOR. If LESSOR takes
                    possession  of the  Aircraft,  it may  enter  upon  LESSEE's
                    premises  where the  Aircraft is located  without  liability
                    except  for  the   willful   misconduct   of  LESSOR.   Upon
                    repossession  of the Aircraft,  LESSOR will then be entitled
                    to sell,  lease or  otherwise  deal with the  Aircraft as if
                    this Lease had never been made.  LESSOR  will be entitled to
                    the full benefit of its bargain with LESSEE; or

               (f)  apply all or any  portion of the  Security  Deposit  and any
                    other security deposits held by LESSOR pursuant to any other
                    agreements between LESSOR and LESSEE to any amounts due.

25.4 Deregistration and Export of Aircraft.  If an Event of Default has occurred
and is  continuing,  LESSOR  may take all  steps  necessary  to  deregister  the
Aircraft in and export the Aircraft from the State of Registration.

25.5  LESSEE  Liability  for  Damages.   Upon  the  occurrence  and  during  the
continuance of an Event of Default,  in addition to all other remedies available
at law or in equity, LESSOR has the right to recover from LESSEE and LESSEE will
pay LESSOR within two (2) Business Days after LESSOR's  written  demand,  all of
the following:

               (a)  all  amounts  which are then due and  unpaid  hereunder  and
                    which  become due prior to the earlier of LESSOR's  recovery
                    of  possession of the Aircraft or LESSEE making an effective
                    tender thereof;

               (b)  subject  to  LESSOR's  obligations  at Law to  mitigate  its
                    damages,  any losses  suffered by LESSOR because of LESSOR's
                    inability to place the Aircraft on lease with another lessee
                    or to otherwise  utilize the Aircraft on financial  terms as
                    favorable to LESSOR as the terms hereof or, if LESSOR elects
                    to dispose of the Aircraft, the funds arising from a sale or
                    other  disposition  of the Aircraft are not as profitable to
                    LESSOR as leasing the Aircraft in accordance  with the terms
                    hereof  would  have been (and  LESSOR  will be  entitled  to
                    accelerate  any and all Rent which  would have been due from
                    the  date  of  LESSOR's  recovery  or  repossession  of  the
                    Aircraft through the Expiration Date);

               (c)  all costs associated with LESSOR's  exercise of its remedies
                    hereunder,  including but not limited to repossession costs,
                    legal fees,  Aircraft storage costs and Aircraft re-lease or
                    sale costs;

               (d)  any amount of principal,  interest,  fees or other sums paid
                    or payable on  account of funds  borrowed  in order to carry
                    any unpaid amount;

               (e)  any loss, premium,  penalty or expense which may be incurred
                    in  repaying  funds  raised to finance  the  Aircraft  or in
                    unwinding any financial  instrument  relating in whole or in
                    part to LESSOR's financing of the Aircraft;

               (f)  direct    expenses    incurred    by   LESSOR   to   correct
                    non-conformance  of the Aircraft  with return  conditions in
                    accordance with Article 23.11.3; and

               (g)  an amount sufficient to fully compensate LESSOR for any loss
                    of or damage to the Aircraft caused by LESSEE's default.

25.6 Waiver of Default. By written notice to LESSEE,  LESSOR may at its election
waive any Default or Event of Default and its consequences and rescind and annul
any prior notice of  termination  of this Lease.  The  respective  rights of the
parties  will then be as they would have been had no Default or Event of Default
occurred and no such notice been given.

25.7 Present Value of Payments. In calculating LESSOR's damages hereunder,  upon
an Event of  Default  all Rent and  other  amounts  which  would  have  been due
hereunder  during the Lease Term if an Event of Default had not occurred will be
calculated on a present value basis using a discounting rate of six percent (6%)
per  annum  discounted  to the  earlier  of the  date on  which  LESSOR  obtains
possession of the Aircraft or LESSEE makes an effective tender thereof.

25.8 Use of  "Termination  Date".  For avoidance of doubt,  it is agreed that if
this Lease  terminates and the Aircraft is repossessed by LESSOR due to an Event
of Default, then, notwithstanding the use of the term "Termination Date" in this
Lease,  the period of the Lease Term and the "Expiration  Date" will be utilized
in calculating the damages to which LESSOR is entitled pursuant to Article 25.5.
For example, it is agreed and understood that LESSOR is entitled to receive from
LESSEE the Rent and the benefit of LESSEE's  insurance  and  maintenance  of the
Aircraft until expiration of the Lease Term.

25.9  LESSEE's  Remedies.  Except  as  otherwise  set  forth  in  the  Operative
Documents,  upon a breach by LESSOR of any of the terms and  conditions  of this
Lease, LESSEE shall have all rights available at law or in equity.

25.10  Waiver of  Consequential  Damages.  LESSEE and LESSOR  each agree that it
shall not be entitled to recover, and hereby disclaims and waives any right that
it may otherwise have to recover, any special, indirect or consequential damages
as a result of any  breach or  alleged  breach by the other  party of any of the
agreements,  representations or warranties  contained in this Lease or the other
Operative Documents;  provided,  however, that nothing herein shall be deemed to
disclaim  or waive any of  LESSOR's  remedies  expressly  set  forth in  Article
25.5(a) through 25.5 (g).


<PAGE>



         ARTICLE 26           NOTICES

26.1 Manner of Sending Notices.  Any notice,  request or information required or
permissible under this Lease will be in writing and in English.  Notices will be
delivered in person or sent by fax, letter (mailed airmail, certified and return
receipt  requested),  or by expedited  delivery  addressed to the parties as set
forth in Article 26.2. In the case of a fax, notice will be deemed received upon
actual receipt (and the date of actual receipt will be deemed to be the date set
forth on the  confirmation  of receipt  produced  by the  sender's  fax  machine
immediately after the fax is sent). In the case of a mailed letter,  notice will
be deemed  received  on the tenth  (10th)  day after  mailing.  In the case of a
notice sent by expedited delivery, notice will be deemed received on the date of
delivery set forth in the records of the Person which accomplished the delivery.
If any notice is sent by more than one of the above listed methods,  notice will
be deemed  received on the earliest  possible date in accordance  with the above
provisions.

26.2            Notice Information.    Notices will be sent:

If                        to LESSOR:  INTERNATIONAL  LEASE  FINANCE  CORPORATION
                          1999  Avenue of the  Stars,  39th  Floor Los  Angeles,
                          California 90067, U.S.A.
                          Attention:       Legal Department
                          Fax:             310-788-1990
                          Telephone:       310-788-1999

If to LESSEE:             FRONTIER AIRLINES, INC.
                          12015 East 46th Avenue
                          Suite 200
                          Denver, CO 80239
                          Attention:       General Counsel
                          Fax:             303- 371-7007
                          Telephone:       303-371-7400

or to such other  places and numbers as either  party  directs in writing to the
other party.


<PAGE>



         ARTICLE 27           GOVERNING LAW AND JURISDICTION

27.1  California  Law. This Lease is being  delivered in the State of California
and will in all  respects be governed by and  construed in  accordance  with the
Laws of the State of California  (notwithstanding the conflict Laws of the State
of California).

27.2 Non-Exclusive Jurisdiction in California. As permitted by Section 410.40 of
the California Code of Civil Procedure, the parties hereby irrevocably submit to
the  non-exclusive  jurisdiction  of the Federal  District Court for the Central
District of California and the State of California  Superior or Municipal  Court
in Los  Angeles,  California.  Nothing  herein will  prevent  either  party from
bringing suit in any other appropriate jurisdiction.

27.3 Service of Process.  The parties  hereby  consent to the service of process
(a) out of any of the courts  referred to above,  (b) in accordance with Section
415.40  of the  California  Code of Civil  Procedure  by  mailing  copies of the
summons  and  complaint  to the  person to be served by air mail,  certified  or
registered  mail to the  address  set forth in Article  26.2,  postage  prepaid,
return  receipt  requested or (c) in accordance  with the Hague  Convention,  if
applicable.

27.4  Prevailing  Party in Dispute.  If any legal action or other  proceeding is
brought in connection  with or arises out of any  provisions in this Lease,  the
prevailing  party will be entitled  to recover  reasonable  attorneys'  fees and
other actual and reasonable  costs incurred in such action or  proceedings.  The
prevailing  party will also,  to the extent  permissible  by Law, be entitled to
receive pre- and post-judgment Default Interest.

27.5 Waiver. LESSEE AND LESSOR HEREBY WAIVE THE RIGHT TO A TRIAL BY JURY. LESSEE
AND LESSOR HEREBY  IRREVOCABLY WAIVE ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF THE VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF
OR  RELATED TO THIS LEASE  BROUGHT IN ANY OF THE COURTS  REFERRED  TO IN ARTICLE
27.2, AND HEREBY FURTHER  IRREVOCABLY WAIVE ANY CLAIM THAT ANY SUCH SUIT, ACTION
OR  PROCEEDING  BROUGHT  IN ANY SUCH COURT HAS BEEN  BROUGHT IN AN  INCONVENIENT
FORUM.


<PAGE>


         ARTICLE 28           MISCELLANEOUS

28.1 Transportation of Personnel. LESSEE will provide transportation to LESSOR's
personnel  on a  positive  space  basis on the  Aircraft  or any other  aircraft
operated by LESSEE for the purposes of conducting  business  between  LESSEE and
LESSOR.

28.2 Press Releases.  The parties will give copies to one another, in advance if
possible,  of all news, articles and other releases provided to the public media
regarding this Lease or the Aircraft.
28.3  Power of  Attorney.  LESSEE  hereby  irrevocably  appoints  LESSOR  as its
attorney  for the  purpose  of  putting  into  effect  the  intent of this Lease
following and during the continuation of an Event of Default,  including without
limitation,  the return,  repossession,  deregistration  and  exportation of the
Aircraft.  To  evidence  this  appointment,  LESSEE  has  executed  the Power of
Attorney in the form of Exhibit G. LESSEE will take all steps required under the
Laws of the State of Registration to provide such power of attorney to LESSOR.

28.4  LESSOR  Performance  for LESSEE.  The  exercise by LESSOR of its remedy of
performing a LESSEE obligation hereunder is not a waiver of and will not relieve
LESSEE from the  performance of such  obligation at any subsequent  time or from
the performance of any of its other obligations hereunder.

28.5 LESSOR's Payment Obligations.  Any obligation of LESSOR under this Lease to
pay or  release  any  amount to LESSEE is  conditioned  upon and will be delayed
until (a) all amounts  then due and payable by LESSEE to LESSOR under this Lease
or under any other agreement  between LESSOR and LESSEE having been paid in full
and (b) no payment or other  material  Default  having  occurred and  continuing
hereunder at the time such payment or release of payment is payable to LESSEE.

28.6 Application of Payments. Any amounts paid or recovered in respect of LESSEE
liabilities  hereunder  may be applied to Rent,  Default  Interest,  fees or any
other  amount  due  hereunder  in such  proportions,  order and manner as LESSOR
determines.


<PAGE>


28.7 Usury Laws.  The parties intend to contract in strict  compliance  with the
usury Laws of the State of California  and, to the extent  applicable,  the U.S.
Notwithstanding anything to the contrary in the Operative Documents, LESSEE will
not be  obligated  to pay Default  Interest  or other  interest in excess of the
maximum non-usurious interest rate, as in effect from time to time, which may by
applicable Law be charged,  contracted for,  reserved,  received or collected by
LESSOR in connection with the Operative Documents.  During any period of time in
which the then-applicable highest lawful rate is lower than the Default Interest
rate,  Default  Interest will accrue and be payable at such highest lawful rate;
however,  if at later times such highest lawful rate is greater than the Default
Interest rate, then LESSEE will pay Default  Interest at the highest lawful rate
until the Default Interest which is paid by LESSEE equals the amount of interest
that would have been payable in  accordance  with the interest rate set forth in
Article 5.6.

28.8  Delegation  by LESSOR.  LESSOR may delegate to any Person(s) all or any of
the  rights,  powers  or  discretion  vested  in it by this  Lease  and any such
delegation  may be made upon such terms and conditions as LESSOR in its absolute
discretion  thinks fit, provided that no such delegation shall relieve LESSOR of
any of its obligations hereunder.

28.9  Confidentiality.  The Operative  Documents and all non-public  information
obtained by either party about the other are confidential and are between LESSOR
and LESSEE only and will not be  disclosed  by a party to third  parties  (other
than (i) to such party's  auditors or professional  advisors,  (ii) to potential
equity  investors or lenders or (iii) as required in connection with any filings
of this Lease in  accordance  with Article 14 or as  otherwise  required by Law)
without the prior written  consent of the other party. If disclosure is required
as a result of applicable Law, LESSEE and LESSOR will cooperate with one another
to obtain  confidential  treatment as to the commercial terms and other material
provisions of this Lease.

28.10 Rights of Parties. The rights of the parties hereunder are cumulative, not
exclusive, may be exercised as often as each party considers appropriate and are
in addition to its rights under general Law. The rights of one party against the
other  party are not  capable of being  waived or  amended  except by an express
waiver  or  amendment  in  writing.  Any  failure  to  exercise  or any delay in
exercising  any of such rights will not operate as a waiver or amendment of that
or any other such right any  defective  or partial  exercise  of any such rights
will not preclude any other or further  exercise of that or any other such right
and no act or course  of  conduct  or  negotiation  on a party's  part or on its
behalf will in any way  preclude  such party from  exercising  any such right or
constitute a suspension or any amendment of any such right.

28.11 Further Assurances.  Each party agrees from time to time to do and perform
such other and  further  acts and  execute  and  deliver  any and all such other
instruments as may be required by Law or reasonably requested by the other party
to  establish,  maintain  or protect the rights and  remedies of the  requesting
party or to carry out and effect the intent and purpose of this Lease.


<PAGE>


28.12 Use of Word  "including".  The term  "including"  is used  herein  without
limitation.

28.13 Headings.  All article and paragraph  headings and captions are purely for
convenience and will not affect the  interpretation of this Lease. Any reference
to a specific  article,  paragraph or section will be interpreted as a reference
to such article, paragraph or section of this Lease.

28.14 Invalidity of any Provision. If any of the provisions of this Lease become
invalid,  illegal or  unenforceable  in any respect under any Law, the validity,
legality and  enforceability of the remaining  provisions will not in any way be
affected or impaired.

28.15 Time is of the Essence.  Time is of the essence in the  performance of all
obligations  of the  parties  under  this  Lease  and,  consequently,  all  time
limitations set forth in the provisions of this Lease will be strictly observed.

28.16 Amendments in Writing. The provisions of this Lease may only be amended or
modified by a writing executed by LESSOR and LESSEE.

28.17  Counterparts.  This  Lease may be  executed  in any  number of  identical
counterparts,  each of which will be deemed to be an original,  and all of which
together  will be deemed to be one and the same  instrument  when each party has
signed and delivered one such counterpart to the other party.

28.18 Delivery of Documents by Fax. Delivery of an executed  counterpart of this
Lease or of any other  documents  in  connection  with this Lease by fax will be
deemed as effective as delivery of an originally executed counterpart. Any party
delivering an executed  counterpart  of this Lease or other document by fax will
also deliver an originally executed counterpart, but the failure of any party to
deliver an originally executed  counterpart of this Lease or such other document
will not  affect  the  validity  or  effectiveness  of this  Lease or such other
document.

28.19 Entire Agreement.  The Operative Documents constitute the entire agreement
between the  parties in  relation  to the  leasing of the  Aircraft by LESSOR to
LESSEE and supersede all previous  proposals,  agreements  and other written and
oral  communications in relation hereto. The parties acknowledge that there have
been no representations, warranties, promises, guarantees or agreements, express
or implied, except as set forth herein.

28.20  Expenses.  Each  party  shall  be  responsible  for its own  expenses  in
connection with the drafting, negotiation,  execution and delivery of this Lease
and the other Operative Documents.


<PAGE>




                                 SIGNATURE PAGE

IN WITNESS  WHEREOF,  LESSEE and LESSOR have caused this Lease to be executed by
their respective officers as of May 25, 2000.



INTERNATIONAL LEASE FINANCE CORPORATION        FRONTIER AIRLINES, INC.


By:                                            By:

Its:                                           Its:


<PAGE>



<TABLE>
<S>     <C>                                              <C>

         EXHIBIT A            AIRCRAFT DESCRIPTION

Aircraft Manufacturer and Model:                          Airbus A318-100

Specification (included within Rent payable under         Airbus A318 Standard Specification Issue A plus the
Article 5.3.1(a)):                                        following:
                                                          1.       Interior Seating Configuration:  114Y-120Y
                                                          2.       Maximum Gross Takeoff Weight: 65 tons (145,505
                                                                   lbs.)
                                                          3.       Engine Manufacturer and Model:  Pratt & Whitney
                                                                   PW 6124

-Manufacturer's Serial Number:                             To be identified in the Estoppel and Acceptance
                                                          Certificate

Registration Mark:                                        N-_____

Engine Serial Numbers:                                    To be identified in the Estoppel and Acceptance
                                                          Certificate


Engine Thrust Rating:                                     23,800 pounds

</TABLE>




<PAGE>




         EXHIBIT B            PARTICIPATION AGREEMENT

This Participation Agreement is made this ______ day of _______________,  ______
(the "Participation Agreement")

BETWEEN

(1)  INTERNATIONAL  LEASE  FINANCE  CORPORATION,  a  corporation  organized  and
     existing  under  the laws of the  State of  California,  United  States  of
     America,  having its principal  corporate offices located at 1999 Avenue of
     the Stars, 39th Floor, Los Angeles, California 90067, U.S.A. ("ILFC"); and

(2)  FRONTIER AIRLINES, INC., a Colorado corporation whose address and principal
     place of business is at 12015 East 46th Avenue, Suite 200, Denver, Colorado
     80239, U.S.A. ("LESSEE")

RECITALS

(A)  Pursuant to the Airbus A318-100  Purchase  Agreement between ILFC and AVSA,
     S.A.R.L.  ("AVSA")  dated as of January 11, 1999,  as further  amended (the
     "Purchase Agreement") and the General Terms Agreement between ILFC and AVSA
     dated as of November 10, 1988 (the  "G.T.A."),  ILFC has agreed to purchase
     from AVSA certain Airbus  A318-100 model  aircraft,  including the aircraft
     bearing as of today  manufacturer's  serial  number [TBD] and scheduled for
     delivery in the month of February 2003 (the "Aircraft");

(B)  Pursuant to the Product  Support  Agreement  (Exhibit E)  applicable to the
     Purchase  Agreement (the "Support  Agreement"),  AVSA has agreed to provide
     certain product support to ILFC;

(C)  Pursuant to the Aircraft Lease  Agreement  between ILFC and LESSEE dated as
     of May 25,  2000  (the  "Lease  Agreement"),  ILFC has  agreed to lease the
     Aircraft to LESSEE;

(D)  ILFC and LESSEE have agreed to enter into this Participation Agreement:

IT IS NOW HEREBY AGREED AS FOLLOWS:


<PAGE>


1.   Authorization  for LESSEE to Participate.  ILFC hereby authorizes LESSEE to
     participate in the following  activities in connection with the delivery of
     the Aircraft:

     (a)  to inspect,  pursuant to Clause 7.1 of the G.T.A.,  the manufacture of
          the Aircraft and the materials and parts thereto; and

     (b)  to attend and observe the acceptance tests of the Aircraft referred to
          in Clause 8.1 of the G.T.A.; and

     (c)  to  receive,  pursuant  to Clause  15 of the  Support  Agreement,  the
          technical publications set forth in Appendix 3 hereto.

2.   Effectivity of Participation Agreement.  This Participation Agreement shall
     be effective from the date hereof until the earlier of:

     (a)  the  occurrence  of an  Event  of  Default  as  defined  in the  Lease
          Agreement; or

     (b)  the "Termination Date" as defined in the Lease Agreement.

3.   Conditions of Participation.  This Participation  Agreement is made subject
     to the following conditions:


     (a)  LESSEE  hereby  agrees to be bound by and to comply with the following
          provisions of the G.T.A.  and Support  Agreement  (copies of which are
          attached  hereto) as if LESSEE had been named  "Buyer" of the Aircraft
          under such agreements:

          (i)  Clauses 7.2 and 8.5 of the G.T.A. to the extent of (aa) injury to
               or death of any  LESSEE  representative,  (bb)  loss or damage to
               property  of any  LESSEE  representatives  and (cc)  liabilities,
               damages,  losses,  costs and expenses of AVSA,  Manufacturer  and
               their associated  subcontractors,  officers, agents and employees
               arising  out of or  caused  by the  willful  misconduct  or gross
               negligence of LESSEE's representatives, and

          (ii) Clauses 16.9 and 18.5 of the Support Agreement.

     (b)  So long as this  Participation  Agreement is in full force and effect,
          LESSEE  and not  ILFC  will be  responsible  for the  liabilities  and
          obligations set forth in section 3(a) above.


     (c)  For avoidance of doubt, even while this Participation  Agreement is in
          full force and effect,  ILFC will remain  responsible  for  compliance
          with Clauses 7.2 and 8.5 of the G.T.A. to the extent of (aa) injury to
          or death of any ILFC  representative,  (bb) loss or damage to property
          of any ILFC  representative  and (cc)  liabilities,  damages,  losses,
          costs  and  expenses  of  AVSA,   Manufacturer  and  their  associated
          subcontractors,  officers,  agents  and  employees  arising  out of or
          caused  by the  willful  misconduct  or  gross  negligence  of  ILFC's
          representatives.

     (d)  Except with respect to events  occurring  prior to  termination of the
          Participation  Agreement,   upon  termination  of  this  Participation
          Agreement,  ILFC shall  once again be bound by Clauses  7.2 and 8.5 of
          the G.T.A.  and Clauses  16.9 and 18.5 of the Support  Agreement  with
          respect to the Aircraft.

     (e)  Other than with  respect to the  obligations  assumed by LESSEE  under
          this Participation  Agreement as set forth in section 3(a) above, ILFC
          shall remain fully bound by all provisions of the Purchase  Agreement,
          G.T.A. and Support Agreement.

     (f)  Nothing  contained  herein  shall  subject  AVSA to any  liability  or
          additional  obligations  whatsoever to which it would not otherwise be
          subject  under the  Purchase  Agreement,  the G.T.A.  and the  Support
          Agreement  or, except to the extent set forth in sections 3(a) and (b)
          above,  modify in any respect  whatsoever its contractual rights under
          the said agreements.

     (g)  LESSEE  shall  not be  appointed  as  ILFC's  agent  and  shall not be
          permitted  to act on behalf or in place of ILFC  without  the  express
          written  authorization  of ILFC and nothing  contained herein shall be
          construed as to give such authorization.

4.   Notification

     (a)  This  Participation  Agreement  shall be  notified  to AVSA by courier
          service  immediately  after the  execution  hereof.  AVSA shall not be
          deemed to have received  notice of any of the provisions  hereof prior
          to receipt of notice as provided in this  section  4(a) in the form of
          Appendix 1 hereto.

     (b)  On termination of this Participation  Agreement as provided in section
          2 hereof,  ILFC shall  immediately  notify AVSA by courier  service of
          such termination.  AVSA shall not be deemed to have received notice of
          such  termination  prior to  receipt  of  notice as  provided  in this
          section 4(b) in the form of Appendix 2 hereto.

     (c)  All  notices  and   requests   required  or   authorized   under  this
          Participation  Agreement  shall be given in writing either by personal
          delivery  to a  responsible  officer  of the party to whom the same is
          given or by  internationally  recognized courier service or by telefax
          directed as set forth below:

                ILFC shall be addressed at:
                1999 Avenue of the Stars,  39th Floor
                Los  Angeles,  California 90067, U.S.A.
                Attn:                     Senior Vice President-Technical
                Fax:                      310-788-1990
                Telephone:                310-788-1999

                LESSEE shall be addressed at:
                12015 East 46th Avenue Suite 200
                Denver, Colorado 80239, U.S.A.
                Attention:                General Counsel
                Fax:                      303-371-7007
                Telephone:                303-371-7400

                AVSA shall be addressed at:
                2 Rond-Point Maurice Bellonte
                31 700 Blagnac, France
                Attention:                 Director Contracts
                Fax:                       (33) 5.61.30.40.11
                Telephone:                 (33) 5.61.30.40.12

or at such  other  address or to such other  person as the party  receiving  the
notice or request may designate from time to time.


<PAGE>


Such  notice or  request  shall be deemed  to be  effective  in the case of (aa)
personal delivery, on the date upon which personally delivered, (bb) delivery by
courier,  on the date of receipt or (cc)  telefax  transmission,  on the date of
confirmation of successful transmission.

5.   Assignment.  Except as permitted  under Article 24 of the Lease  Agreement,
     the rights and obligations under this Participation  Agreement are personal
     to the parties and shall not be  assigned,  transferred,  sold or otherwise
     disposed of by either of the parties hereto.

6.   Applicable Law and  Jurisdiction.  THIS  PARTICIPATION  AGREEMENT  SHALL BE
     GOVERNED BY AND CONSTRUED IN  ACCORDANCE  WITH THE LAWS OF THE STATE OF NEW
     YORK  WITHOUT  REGARD TO  PRINCIPLES  OF  CONFLICTS OF LAW, AND THE PARTIES
     AGREE THAT ANY COMPETENT  FEDERAL COURT LOCATED IN NEW YORK, NEW YORK SHALL
     HAVE JURISDICTION OVER ANY DISPUTE ARISING IN CONNECTION HEREWITH.  Nothing
     in this section will prevent either party from making a claim in a court of
     competent jurisdiction in California or, if AVSA is involved, France.

7.   Confidentiality.  Subject  to any  legal or  governmental  requirements  of
     disclosure,   ILFC  and  LESSEE  shall  keep  confidential  the  terms  and
     conditions of this Participation  Agreement and the clauses from the G.T.A.
     and Support  Agreement  provided to LESSEE provided that such materials may
     be disclosed by ILFC and LESSEE to their professional advisors.

         IN  WITNESS  WHEREOF,   the  parties  have  caused  this  Participation
Agreement to be executed on their behalf by their duly authorized officers.


INTERNATIONAL LEASE                       FRONTIER AIRLINES, INC.
FINANCE CORPORATION

By: _______________________               By: _______________________

Its:                                      Its:


<PAGE>


                                                     APPENDIX 1

[DATE]

BY COURIER

AVSA, S.A.R.L.
2, rond-point Maurice Bellonte
31700 BLAGNAC

         Attention:    Director-Contracts

Re:      ILFC/FRONTIER AIRLINES: PARTICIPATION AGREEMENT

Dear Sirs,

         Pursuant to Section 4(a) of the  Participation  Agreement  between ILFC
and FRONTIER  AIRLINES dated  _______________  ___,  ______,  we advise you that
pursuant to the  Participation  Agreement (a copy of which is attached  hereto),
FRONTIER AIRLINES has been authorized by ILFC to participate with respect to the
Aircraft.  This  authorization  shall be  effective on  acknowledgement  of this
letter by you.


<PAGE>



We confirm for your benefit the provisions of Sections 3(c), 3(d), 3(e) and 3(f)
contained therein.

Yours faithfully,




for and on behalf of
INTERNATIONAL LEASE FINANCE CORPORATION

CC:      FRONTIER AIRLINES


AVSA,  S.A.R.L.  confirms  receipt  of this  notice  and  agrees to the terms of
Section 3 of the Participation Agreement.

         By: ________________
         Its:
         Date:


<PAGE>


                                                     APPENDIX 2

[DATE]

BY COURIER

AVSA, S.A.R.L.
2, rond-point Maurice Bellonte

31700 BLAGNAC

         Attention:    Director-Contracts

Re:      ILFC/FRONTIER AIRLINES: PARTICIPATION AGREEMENT

Dear Sirs,

         Pursuant to Section 4(b) of the  Participation  Agreement  between ILFC
and FRONTIER AIRLINES dated  _______________ ___, ______, we advise you that the
authorization   provided  therein  for  FRONTIER  AIRLINES  is  terminated  with
immediate effect.

Yours faithfully,




for and on behalf of
INTERNATIONAL LEASE FINANCE CORPORATION

CC:      FRONTIER AIRLINES


<PAGE>


                                                     APPENDIX 3

1.       TECHNICAL PUBLICATIONS

         (See attached sheets)




<PAGE>


                                                     APPENDIX 4

[Copies of Clauses 7.2 and 8.5 of the General  Terms  Agreement and Clauses 16.9
and 18.5 of the Support Agreement]


<PAGE>



         EXHIBIT C            CERTIFICATE OF INSURANCE

[Refer to Aircraft Lease  Agreement  dated as of May 25, 2000 between LESSEE and
LESSOR  (the  "Lease").  If  applicable,  insurance  certificates  from both the
insurers and reinsurers will be provided. If there is a LESSOR's Lender, include
references to it where appropriate after references to LESSOR.]

To:      INTERNATIONAL LEASE FINANCE CORPORATION ("LESSOR")
         1999 Avenue of the Stars, 39th Floor
         Los Angeles, California 90067
         United States

Re:       FRONTIER AIRLINES, INC.
          ("LESSEE")

         Airbus A318-100
         Manufacturer's Serial No.:         [TBD]
         Registration Mark:                 N-_____ (the "Aircraft")
                                                           --------

         The  following   security  has  subscribed  to  the  insurance   and/or
reinsurance policies:

         [LIST COMPANIES & PERCENTAGES]

         THIS IS TO CERTIFY THAT, as Insurance  Brokers,  we have effected Fleet
Insurance  in respect of aircraft  owned or operated  by LESSEE  (including  the
Aircraft) as specified below.

                             AIRCRAFT HULL ALL RISKS

COVERING:

         *

DEDUCTIBLES:

         *

GEOGRAPHICAL COVERAGE:

         Worldwide.


               AVIATION AND AIRLINE GENERAL THIRD PARTY LIABILITY

COVERING:

         *

GEOGRAPHICAL LIMITS:

         Worldwide.


                           HULL WAR AND ALLIED PERILS

COVERING:

         *

DEDUCTIBLE:

         *

GEOGRAPHICAL LIMITS:

         Worldwide.


                       AIRCRAFT SPARES ALL RISKS INSURANCE

COVERING:

         *

         and covering:

                With respect to an Engine, an agreed value of US$___________ or,
with LESSOR's written concurrence, replacement cost;

                With respect to Parts, replacement cost.

DEDUCTIBLE:

         *

GEOGRAPHICAL COVERAGE:

         Worldwide.




<PAGE>


                       INSURANCE REQUIRED BY MANUFACTURER

         LESSEE will carry the insurance  required by Manufacturer in connection
with LESSOR's  assignment of  Manufacturer's  warranties and product  support to
LESSEE.

                              CONTRACTUAL INDEMNITY

         LESSEE has insurance  coverage for the indemnities  agreed to by LESSEE
pursuant  to  Article  17 of the Lease to the extent  provided  in the  relevant
policies.

                        PERIOD OF COVERAGE (ALL POLICIES)

         From Delivery Date of Aircraft to [EXPIRATION DATE]

         It is further  certified  that LESSOR has an interest in respect of the
Aircraft under the Lease.  Accordingly,  with respect to losses occurring during
the period from the  Effective  Date until the expiry of the  Insurance or until
the expiry or agreed termination of the Lease or until the obligations under the
Lease are terminated by any action of the Insured or LESSOR and in consideration
of the  Additional  Premium it is confirmed  that the Insurance  afforded by the
Policy is in full force and effect and it is further  agreed that the  following
provisions are specifically endorsed to the Policy.

1.   UNDER  THE HULL (ALL  RISKS AND HULL WAR AND  ALLIED  RISKS)  AND  AIRCRAFT
     SPARES INSURANCES
               *

                (d)  Insurers  have no right to replace the  Aircraft on a Total
Loss (arranged, constructive or otherwise).

                (e) Insurers recognize that LESSEE and LESSOR have agreed that a
         Total  Loss  of the  Airframe  will  constitute  a  Total  Loss  of the
         Aircraft.

                (f) In the event of Total Loss of the Aircraft,  Insurers  agree
         to pay LESSOR all  amounts up to the Agreed  Value  based  solely  upon
         LESSOR's  (not  LESSEE's)   execution  of  the   appropriate   form  of
         release/discharge  document.  LESSOR may sign any  required  release in
         lieu of the  Insured in the event of a Total Loss,  Constructive  Total
         Loss or Arranged Total Loss.

                (g) "Cut-through clause":  Insurers confirm that in the event of
         any claim arising under the hull  insurances,  the  Reinsurers  will in
         lieu of  payment  of the  Insurers,  its  successors  in  interest  and
         assigns,  pay to the person named as sole loss payee under the original
         insurances that portion of any loss due for which the Reinsurers  would
         otherwise be liable to pay the Insurers  (subject to proof of loss), it
         being  understood  and agreed that any such  payment by any  Reinsurers
         will  fully  discharge  and  release  such  Reinsurer  from any and all
         further liability in connection therewith and provide for payment to be
         made  notwithstanding  (i) any bankruptcy,  insolvency,  liquidation or
         dissolution  of the Insurers  and (ii) that the  Insurers  have made no
         payment under the original insurance policies.

                (h) Insurers confirm that under the insurance  policies,  if the
         Insured  installs  an engine  owned by a third  party on the  Aircraft,
         either  (i) the hull  insurance  will  automatically  increase  to such
         higher  amount  as is  necessary  in order  to  satisfy  both  LESSOR's
         requirement  to receive the Agreed  Value in the event of a Total Loss,
         Constructive  Total Loss or Arranged Total Loss and the amount required
         by the third party engine owner, or (ii) separate additional  insurance
         on  such  engine  will  attach  in  order  to  satisfy  separately  the
         requirements of the Insured to such third party engine owner.

         2.     UNDER THE LEGAL LIABILITY INSURANCE

                (a) Subject to the provisions of this Endorsement, the Insurance
         will  operate in all  respects as if a separate  Policy had been issued
         covering  each party insured  hereunder,  but this  provision  will not
         operate to include any claim  arising  howsoever  in respect of loss or
         damage to the Aircraft  insured  under the Hull or Spares  Insurance of
         the  Insured.  Notwithstanding  the  foregoing  the total  liability of
         Insurers in respect of any and all Insureds  will not exceed the limits
         of liability stated in the Policy.

                (b) The Insurance provided hereunder will be primary and without
         right of  contribution  from any other insurance which may be available
         to LESSOR.

         3.     UNDER ALL INSURANCES

                (a) LESSOR,  its  successors  and assigns,  and (with respect to
         Aviation and Airline General Third Party Liability only) its directors,
         officers and employees for their respective  rights and interests,  are
         included as Additional Insureds.

                (b) The cover  afforded  to LESSOR by the  Policy in  accordance
         with this  Endorsement  will not be  invalidated by any act or omission
         (including misrepresentation and non-disclosure) of any other person or
         party which  results in a breach of any term,  condition or warranty of
         the Policy  provided  that  LESSOR has not  caused,  contributed  to or
         knowingly condoned the said act or omission.

                (c) LESSOR will have no responsibility  for premium and insurers
         will waive any right of set-off or  counterclaim  against LESSOR except
         in respect of outstanding premium in respect of the Aircraft,  provided
         that Insurer may only set-off for premiums  against the proceeds of the
         hull  insurance for  outstanding  premiums in connection  with hull all
         risks and hull war and allied perils insurance.

                (d) Upon payment of any loss or claim to or on behalf of LESSOR,
         Insurers will to the extent and in respect of such payment be thereupon
         subrogated  to all legal  and  equitable  rights of LESSOR  indemnified
         hereby (but not against LESSOR). Insurers will not exercise such rights
         without  the  consent  of those  indemnified,  such  consent  not to be
         unreasonably  withheld.  At the expense of Insurers  LESSOR will do all
         things  reasonably  necessary to assist the  Insurers to exercise  said
         rights.

                (e) Except in  respect  of any  provision  for  Cancellation  or
         Automatic  Termination  specified  in the  Policy  or  any  endorsement
         thereof,  cover provided by this  Endorsement  may only be cancelled or
         materially  altered in a manner  adverse to LESSOR by the giving of not
         less than thirty (30) days notice in writing to LESSOR.  Notice will be
         deemed to commence  from the date such notice is given by the Insurers.
         Such notice will NOT,  however,  be given at normal  expiry date of the
         Policy or any endorsement.

         4.     EXCEPT AS SPECIFICALLY VARIED OR PROVIDED BY THE TERMS OF THIS
         CERTIFICATE

                (a)    LESSOR IS COVERED BY THE POLICY  SUBJECT  TO  ALL  TERMS,
         CONDITIONS,     LIMITATIONS,  WARRANTIES,  EXCLUSIONS  AND CANCELLATION
         PROVISIONS THEREOF.

                (b) THE POLICY WILL NOT BE VARIED BY ANY PROVISIONS CONTAINED IN
         THE LEASE WHICH PURPORT TO SERVE AS AN  ENDORSEMENT OR AMENDMENT TO THE
         POLICY.

         SUBJECT (save as  specifically  stated in this  Certificate)  to policy
terms, conditions, limitations and exclusions.

                                                Yours faithfully,
                                                [BROKERS]


<PAGE>




         EXHIBIT D            BROKERS' LETTER OF UNDERTAKING

To:             INTERNATIONAL LEASE FINANCE CORPORATION
                1999 Avenue of the Stars, 39th Floor
                Los Angeles, California 90067
                United States

Date:                                                             Our Ref:

Re:       FRONTIER AIRLINES, INC.
          ("LESSEE")

          Airbus A318-100
          Manufacturer's Serial No.:         [TBD]
          Registration Mark:                 N-_____ (the "Aircraft")
                                                           --------

Dear Sirs:

         We confirm that insurance has been effected for the account of [LESSEE]
(the "Operator")  covering all aircraft owned or operated by them, including the
above-referenced  aircraft (the "Aircraft").  [Also confirm, if applicable,  the
amount of any hull all risks or hull war and allied perils on the Aircraft which
LESSEE is carrying in excess of the Agreed Value (which excess  insurance  would
be payable to LESSEE). Such excess insurance may not exceed ten percent (10%) of
the Agreed Value.]

         Pursuant  to   instructions   received   from  the   Operator   and  in
consideration of your approving the arrangement of the Operator's "Fleet Policy"
(under which the above-referenced  Aircraft is insured) through the intermediary
of ourselves  as Brokers in  connection  with the  insurance  (the  "Insurance")
mentioned  in our  Certificate  of  Insurance  (Reference  No. [ ] dated [ ] and
attached hereto), we undertake as follows:

         1. In  relation  to the Hull and War  Risks  Insurance  to hold to your
order the insurance  Slips or Contracts and any Policies  which may be issued or
any policies  substituted  (with your consent) therefor (but only insofar as the
same  relate to the  Aircraft  only) and the  benefit  of the Hull and War Risks
Insurance  thereunder,  but  subject to our  requirements  to operate  the Fleet
Policy insofar as it relates to any other aircraft insured thereunder.

         2.     To advise you of any of the following:

                (a) If any insurer  cancels or gives notice of  cancellation  of
         any of the  Insurance at least thirty (30) days (or such lesser  period
         as may be available in the case of War and Allied  Perils)  before such
         cancellation is to take effect in respect of the Aircraft.

                (b)  Of  any  act  or  omission  or  of  any  event   (including
         non-payment  of premium) of which we have knowledge or are notified and
         which might invalidate or render  unenforceable in whole or in part any
         of the Insurance, insofar as the same relate to the Aircraft.

                (c) If we do not receive instructions to renew all or any of the
         Insurance at least thirty (30) days prior to their expiration.

                (d) If any of the  Insurance  are not  renewed on the same terms
         (save as to premium and period of cover and as you might otherwise have
         notified  us to be  acceptable  to you)  seven (7) days prior to expiry
         thereof.

         The above undertakings are given subject to our continuing  appointment
for the time being as Insurance Brokers to the Operator.

         We also undertake to advise you if we cease to be Insurance  Brokers to
the Operator.

                                                Yours faithfully,


<PAGE>




         EXHIBIT E            ESTOPPEL AND ACCEPTANCE CERTIFICATE

FRONTIER AIRLINES,  INC. ("LESSEE"),  a corporation  organized under the laws of
Colorado does hereby agree as follows:

         1. LESSEE and INTERNATIONAL LEASE FINANCE CORPORATION,  as LESSOR, have
entered into an Aircraft Lease Agreement  dated as of May 25, 2000  (hereinafter
referred to as the  "Lease").  Words used herein  with  capital  letters and not
otherwise defined will have the meanings set forth in the Lease.

         2.     LESSEE has this ____ day of __________, ____ (Time: __________ )
at ____________________ received from LESSOR possession of:

                (a) One (1)  Airbus  A318-100  aircraft  bearing  Manufacturer's
         serial  number  [TBD] and  United  States  registration  mark  N-_____,
         together  with two (2) PW 6124 engines  bearing  manufacturer's  serial
         numbers ______ and ______ (each of which has 750 or more rated take-off
         horsepower), all in airworthy condition.

                (b)  All  Aircraft   Documentation,   including  the  usual  and
         customary manuals,  logbooks, flight records and historical information
         regarding the Aircraft, Engines, and Parts.

         3.     All  of  the  foregoing has been delivered on the date set forth
above pursuant to the terms and provisions of the Lease.

         4.     The amount of fuel on board at Delivery is ________ (circle one)
pounds/kilos (________ gallons).

         5. The Aircraft, Engines, Parts and Aircraft Documentation as described
in the Lease have been fully examined by LESSEE and,  except as set forth in the
attached  Discrepancies  List,  have been  received  and accepted by LESSEE in a
condition fully  satisfactory to LESSEE and in full conformity with the Lease in
every respect.

         6. The Lease is in full force and  effect,  LESSOR has fully,  duly and
timely  performed all of its obligations of every kind or nature  thereunder and
LESSEE has no claims,  offsets,  deductions,  set-off or defenses of any kind or
nature in connection with the Lease.

         7. LESSEE has obtained all required permits,  authorizations,  licenses
and fees of the State of Registration or any Government Entity thereof necessary
in order for LESSEE to operate  the  Aircraft as  permitted  by the terms of the
Lease.

Dated on the date set forth above

FRONTIER AIRLINES, INC.


By:

Title:



<PAGE>




         EXHIBIT F            OPINION OF COUNSEL

                                 [SEE ATTACHED]




<PAGE>




         EXHIBIT G            FORM OF POWER OF ATTORNEY

FRONTIER AIRLINES,  INC. ("Frontier") hereby irrevocably appoints  INTERNATIONAL
LEASE FINANCE CORPORATION  ("ILFC") of 1999 Avenue of the Stars, 39th Floor, Los
Angeles, California 90067, U.S.A. as Frontier's true and lawful attorney so that
ILFC may take any of the following  actions in the name of and for Frontier with
respect to the Airbus A318-100  aircraft  bearing  manufacturer's  serial number
[TBD] (the "Aircraft")  leased by ILFC to Frontier pursuant to an Aircraft Lease
Agreement dated as of May 25, 2000 (the "Lease"):

         1.  Pursuant to the Lease,  Frontier has  procured  and is  maintaining
insurances for the Aircraft. ILFC has been named sole loss payee on the all risk
hull and war risk  insurances for the Aircraft.  In the event of a total loss or
constructive  total loss of the Aircraft,  ILFC is entitled to receive insurance
proceeds in an amount  equal to:  28,000,000.  ILFC may take all action and sign
all  documents  otherwise  required  to  be  performed  by  Frontier,  including
execution  on behalf of Frontier  of an  appropriate  form of  discharge/release
document, in order for ILFC to collect such insurance proceeds.

         2. In the exercise of the rights of ILFC under the Lease to recover the
Aircraft from Frontier and United States after  termination  of the Lease due to
an Event of Default under the Lease or for  termination  of the Lease due to any
other  reason,  ILFC may take all action  otherwise  required to be performed by
Frontier  before the  authorities  and courts in United States in order to cause
the  Aircraft to be  repossessed  by ILFC,  deregistered  from the U.S.  Federal
Aviation Administration and exported from the United States.

         3. In the exercise of the rights  mentioned in paragraphs 1 and 2, ILFC
may make any declarations or statements and sign any public or private documents
which may be considered necessary or appropriate.

         4. ILFC may delegate the powers conferred  hereby, in whole or in part,
to any  individual(s),  including  but not limited to employees of ILFC or legal
counsel in United States.


<PAGE>


         ILFC is empowered to determine in its sole  discretion when to exercise
the powers  conferred upon ILFC pursuant to this Power of Attorney.  Any person,
agency or company relying upon this Power of Attorney need not and will not make
any  determination  or  require  any court  judgment  as to  whether an Event of
Default has occurred  under the Lease or whether the Lease has been  terminated.
Frontier  hereby  waives  any  claims  against  (a)  any  person  acting  on the
instructions  given by ILFC or its  designee  pursuant to this Power of Attorney
and (b) any person designated by ILFC or an officer of ILFC to give instructions
pursuant to this Power of Attorney.  Frontier  also agrees to indemnify and hold
harmless any person, agency or company which may act in reliance upon this Power
of Attorney and pursuant to instructions given by ILFC or its designee.

         This Power of  Attorney  is  irrevocable  until the  Aircraft  has been
returned  to the  possession  of ILFC,  deregistered  and  exported  from United
States.

     FRONTIER  AIRLINES  has made  and  delivered  this  Power  of  Attorney  on
_________ in ____________.

FRONTIER AIRLINES


By:

Title:


<PAGE>



         EXHIBIT H            ASSIGNMENT OF RIGHTS (AIRFRAME)

This  Assignment  of  Warranty  and  Support  Rights is made this  ______ day of
_______________, ______ (the "Assignment Agreement")

BETWEEN

(1)  INTERNATIONAL  LEASE  FINANCE  CORPORATION,  a  corporation  organized  and
     existing  under  the laws of the  State of  California,  United  States  of
     America,  having its principal  corporate offices located at 1999 Avenue of
     the Stars, 39th Floor, Los Angeles, California 90067, U.S.A. ("ILFC"); and

(2)  FRONTIER AIRLINES,  INC. a Colorado corporation whose address and principal
     place of business is at 12015 East 46th Avenue, Suite 200, Denver, Colorado
     80239, U.S.A. ("LESSEE")

1.   Preamble.  In  connection  with the lease by ILFC to  LESSEE of one  Airbus
     A318-100   aircraft  bearing   manufacturer's   serial  number  [TBD]  (the
     "Aircraft"), reference is made to the following documents:

          (a)  the Airbus  A318-100  Purchase  Agreement  between ILFC and AVSA,
               S.A.R.L.  ("AVSA")  dated as of  January  11,  1999,  as  further
               amended (the  "Purchase  Agreement"),  under which ILFC agreed to
               purchase the Aircraft;

          (b)  the General  Terms  Agreement  between  ILFC and AVSA dated as of
               November 10, 1988 (the "G.T.A.");

          (c)  the Product  Support  Agreement  ("Exhibit E")  applicable to the
               Purchase Agreement (the "Support Agreement");

          (d)  the Aircraft Lease Agreement  between ILFC and LESSEE dated as of
               May __, 2000 (the "Lease Agreement");

          (e)  the  Participation  Agreement between ILFC and LESSEE dated as of
               ____________ ___, ______ (the "Participation Agreement").

2.   Assignment.  Pursuant to the Lease Agreement,  ILFC will lease the Aircraft
     to LESSEE,  including  in such Lease  Agreement a  commitment  to assign to
     LESSEE certain  warranty and other rights related to the Aircraft under the
     Purchase Agreement, the G.T.A. and the Support Agreement.  With effect from
     the actual delivery date of the Aircraft by AVSA to ILFC in respect of (a),
     (b) and (d) below,  and with  effect from the date hereof in respect of (c)
     below,  ILFC  therefore  hereby  assigns to LESSEE and LESSEE  accepts  the
     assignment on the terms and  conditions  specified  herein of the following
     rights  (the  "Rights")  under  the  provisions  indicated  (the  "Assigned
     Provisions") with respect to the Aircraft:

          (a)  the  benefit of the rights  with  respect to the  Aircraft  under
               Clause 12 (Warranties and Service Life Policy) of the G.T.A.;

          (b)  the rights with respect to the  Aircraft  under Clause 13 (Patent
               Indemnity) of the G.T.A.;

          (c)  the  rights  with  respect  to the  Aircraft  under  the  Support
               Agreement;

          (d)  the benefit of the remaining part of support allowances set forth
               in paragraph 1(d) of the Participation Agreement.

3.   Conditions of Assignment.  This Assignment Agreement is made subject to the
     following conditions:


          (a)  LESSEE  hereby  agrees  to be  bound  by and to  comply  with all
               applicable  terms,  conditions and  limitations of Clause 12.5 of
               the G.T.A.  and Clauses  16.9 and 18.5 of the  Support  Agreement
               (copies  of  which  are  attached  hereto)  with  respect  to the
               exercise of any of the Rights and to be bound by the covenants of
               the Buyer in the  Assigned  Provisions  to the same  extent as if
               LESSEE had been named "Buyer" of the Aircraft  under the Purchase
               Agreement.

          (b)  Nothing  contained  herein shall subject AVSA to any liability or
               additional obligations whatsoever to which it would not otherwise
               be subject  under the  Purchase  Agreement,  the  G.T.A.  and the
               Support  Agreement  or, except to the extent set forth in section
               3(c) below,  modify in any  respect  whatsoever  its  contractual
               rights under the said agreements.

          (c)  So long as this Assignment Agreement is in full force and effect,
               LESSEE  and not ILFC  will be  responsible  for  compliance  with
               Clause  12.5 of the  G.T.A.  and  Clauses  16.9  and  18.5 of the
               Support  Agreement,  in each case with  respect to the  Aircraft.
               Upon  termination of this Assignment  Agreement,  ILFC shall once
               again be bound by such  clauses  with  respect  to the rights and
               benefits  described  in  section  2  above  received  by  ILFC in
               connection with the Aircraft.

          (d)  Other  than with  respect  to the  obligations  assumed by LESSEE
               under this  Assignment  Agreement  as set forth in  section  3(a)
               above,  ILFC shall  remain fully bound by all  provisions  of the
               Purchase Agreement, G.T.A. and Support Agreement.

4.   Reassignment.  Upon  termination  of the Lease  Agreement  between ILFC and
     LESSEE,  and provided that LESSEE and ILFC shall have  furnished  AVSA with
     written  notice  thereof,  upon receipt of such notice by AVSA,  the rights
     contained herein shall automatically be reassigned to ILFC.

5.   Assignment  by LESSEE.  Except as permitted  under  Article 24 of the Lease
     Agreement, the rights of ILFC and LESSEE under this Assignment Agreement in
     respect of the Purchase  Agreement,  the G.T.A.  and the Support  Agreement
     shall not be further assigned by the parties hereto.

6.   Notification

          (a)  It shall be a condition  precedent to this  Assignment  Agreement
               that this Assignment  Agreement  shall, at the expense of LESSEE,
               be notified to AVSA within 2 weeks of the date hereof pursuant to
               Article 1690 of the French Civil Code.

          (b)  All  notices  and  requests  required  or  authorized  under this
               Assignment Agreement shall be given in writing either by personal
               delivery to a  responsible  officer of the party to whom the same
               is given or by  internationally  recognized courier service or by
               telefax directed as set forth below:

                ILFC shall be addressed at:

                          1999  Avenue of the  Stars,  39th  Floor
                          Los  Angeles, California 90067, U.S.A.
                          Attention:       Senior Vice President-Technical
                          Fax:             310-788-1990
                          Telephone:       310-788-1999

               LESSEE shall be addressed at:
                      12015 East 46th Avenue Suite 200 Denver,  Colorado  80239,
                      U.S.A.
                      Attention:           General Counsel
                      Fax:                 303-371-7007
                      Telephone:           303-371-7400


             AVSA shall be addressed at:
                          2 Rond-Point Maurice Bellonte
                          31 700 Blagnac, France
                          Attention:       Director Contracts
                          Fax:             (33) 5.61.30.40.11
                          Telephone:       (33) 5.61.30.40.12

or at such  other  address or to such other  person as the party  receiving  the
notice or request may designate from time to time.

                Such notice or request  shall be deemed to be  effective  in the
         case of (aa)  personal  delivery,  on the date  upon  which  personally
         delivered,  (bb)  delivery by  courier,  on the date of receipt or (cc)
         telefax  transmission,  on  the  date  of  confirmation  of  successful
         transmission.

7.   Consent  of AVSA.  It shall be a  condition  precedent  to this  Assignment
     Agreement that AVSA execute the Consent contained in Schedule 1 hereto.


8.   Applicable  Law  and  Jurisdiction.  THIS  ASSIGNMENT  AGREEMENT  SHALL  BE
     GOVERNED BY AND CONSTRUED IN  ACCORDANCE  WITH THE LAWS OF THE STATE OF NEW
     YORK  WITHOUT  REGARD TO  PRINCIPLES  OF  CONFLICTS OF LAW, AND THE PARTIES
     AGREE THAT ANY COMPETENT  FEDERAL COURT LOCATED IN NEW YORK, NEW YORK SHALL
     HAVE JURISDICTION OVER ANY DISPUTE ARISING IN CONNECTION HEREWITH.  Nothing
     in this section will prevent either party from making a claim in a court of
     competent jurisdiction in California or, if AVSA is involved, France.

9.   Confidentiality.  Subject  to any  legal or  governmental  requirements  of
     disclosure,   ILFC  and  LESSEE  shall  keep  confidential  the  terms  and
     conditions of this Assignment Agreement and the clauses from the G.T.A. and
     Support Agreement provided to

LESSEE  provided  that ILFC and  LESSEE may  disclose  such  materials  to their
professional advisors.

         IN WITNESS WHEREOF,  the parties have caused this Assignment  Agreement
to be executed on their behalf by their duly authorized officers.


INTERNATIONAL LEASE FINANCE CORPORATION             FRONTIER AIRLINES, INC.

By:                                                 By:

Its:                                                Its:

<PAGE>


                                                     SCHEDULE 1

[DATE]

Re: ILFC/FRONTIER AIRLINES ("LESSEE"): ASSIGNMENT OF WARRANTY AND SUPPORT RIGHTS


Dear Sirs,

1.   Reference is made to the  Assignment  of Warranty and Support  Rights dated
     ____________   ___,  ______  between  ILFC  and  LESSEE  (the   "Assignment
     Agreement")  concerning the assignment of certain warranty rights under the
     Purchase Agreement and the G.T.A. and certain customer support rights under
     the Support Agreement with respect to the Aircraft.

2.   All terms defined herein bear the meaning ascribed hereto in the Assignment
     Agreement.

3.   AVSA hereby  consents  to the  assignment  and  reassignment  contained  in
     Clauses 2 and 4 respectively  of the Assignment  Agreement on the terms and
     conditions therein, subject to the following conditions:

     (a)  AVSA  shall  have  received  formal  notification  of  the  Assignment
          Agreement;

     (b)  AVSA shall not be subject by reason of the Assignment Agreement to any
          liability or additional  obligations  whatsoever to which it would not
          otherwise be subject under the Purchase Agreement,  the G.T.A. and the
          Support Agreement or modify in any respect  whatsoever its contractual
          rights under the said agreements;

     (c)  So long as the  Assignment  Agreement  is in full  force  and  effect,
          LESSEE and not ILFC will be  responsible  for  compliance  with Clause
          12.5 of the G.T.A. and Clauses 16.9 and 18.5 of the Support Agreement,
          in each case with respect to the  Aircraft.  Upon  termination  of the
          Assignment  Agreement,  ILFC shall once again be bound by such clauses
          with respect to the rights and benefits  described in section 2 of the
          Assignment Agreement received by ILFC in connection with the Aircraft.

     (d)  LESSEE hereby agrees to be bound by and to comply with all  applicable
          terms,  conditions and  limitations  of Clause 12.5 of the G.T.A.  and
          Clauses  16.9 and 18.5 of the Support  Agreement  with  respect to the
          exercise of any of the Rights and to be bound by the  covenants of the
          Buyer in the Assigned  Provisions  to the same extent as if LESSEE had
          been named "Buyer" of the Aircraft under the Purchase Agreement.

     (e)  Other than with respect to the obligations assumed by LESSEE under the
          Assignment  Agreement as set forth in section  3(a) above,  ILFC shall
          remain fully bound by all provisions of the Purchase Agreement, G.T.A.
          and Support Agreement.

4.   This Consent shall be governed by and construed in accordance with the laws
     of the  State  of New  York  and any  dispute  arising  hereunder  shall be
     referred to the federal  court  located in New York,  New York.  Nothing in
     this  clause  will  prevent  any  party  from  making a claim in a court of
     competent jurisdiction in California or France.

For and on behalf of AVSA, S.A.R.L.

By:

Title:

Date:

Signed in acknowledgement for                      Signed in acknowledgement for
and on behalf of                                   and on behalf of
INTERNATIONAL LEASE FINANCE CORPORATION            FRONTIER AIRLINES, INC.

By:                                                By:

Its:                                               Its:

<PAGE>




         EXHIBIT I            ASSIGNMENT OF RIGHTS (ENGINES)

                            ASSIGNMENT OF WARRANTIES

[DATE]

         In consideration of FRONTIER  AIRLINES,  INC.  ("LESSEE")  leasing from
INTERNATIONAL LEASE FINANCE CORPORATION  ("ILFC") one (1) A318-100 aircraft with
two Pratt & Whitney  6124  engines  installed  thereon,  it is hereby  agreed as
follows:

         1. ILFC hereby assigns and transfers to LESSEE all of ILFC's respective
rights and  interest in and to and in and under the Engine  Sales  Warranty  and
Service Policy benefits (the "Engine  Warranties") of the Consolidated  JT8D-200
Series/PW2000 Series/PW4000 Series Propulsion System/Engine Support Proposal for
International  Lease  Finance  Corporation  Dated  May 11,  1988  (the  "Support
Agreement")  between  United  Technologies  Corporation,  Pratt & Whitney  Group
("P&W") and International Lease Finance Corporation  ("ILFC") during the term of
the lease to LESSEE so long as LESSEE is not in default thereunder.

         2. P&W hereby  consents to the assignment and transfer to LESSEE of all
of the rights and  interest of ILFC in, to and under the Engine  Warranties  and
P&W agrees that until it shall have  received  written  notice that LESSEE is in
default under such lease from ILFC, it will allow LESSEE on an exclusive  basis,
to  exercise in its own name all rights and  interest  that ILFC would have been
entitled to  pursuant to the Engine  Warranties,  it being  further  agreed that
LESSEE  accepts  all of the  limitations  and  liabilities  pertaining  to  said
Warranties as stated in the Support Agreement.

         3. Each party  agrees  that at any time from  time-to-time,  on written
request of any other party hereto and at the expense of the party so requesting,
that it will  promptly  and duly  execute  and  deliver  any and all  reasonable
documentation  required to accomplish  the assignment and transfer of the rights
and interest referred to above.

         4. This  Agreement  shall be binding  upon and inure to the  benefit of
each of the parties  hereto and their  respective  successors and assigns to the
extent permitted by the Support Agreement and hereunder.

         5. This Agreement shall be governed by and construed in accordance with
 the laws of the State of California.

         6. This Agreement may be executed in any number of  counterparts,  each
of which when  executed  and  delivered  is an  original  but all of which taken
together  constitute on and the same  instrument  and any party may execute this
Agreement by signing any counterpart.

IN WITNESS  WHEREOF,  the authorized  representative  of the parties hereto have
executed this Agreement as of the day and year first above written.


For and on behalf of
INTERNATIONAL LEASE FINANCE CORPORATION



For and on behalf of FRONTIER AIRLINES, INC.



Its:

For and on behalf of
UNITED TECHNOLOGIES CORPORATION, PRATT & WHITNEY GROUP




L.E. Pawlich
Manager, Business Support



<PAGE>



         EXHIBIT J            RETURN ACCEPTANCE RECEIPT

Date:    _________________ ___, ____

     1.   FRONTIER  AIRLINES,  INC. as LESSEE,  and INTERNATIONAL  LEASE FINANCE
          CORPORATION,  as LESSOR, have entered into an Aircraft Lease Agreement
          dated as of May 25, 2000 (the "Lease"). Words used herein with capital
          letters and not otherwise  defined will have the meanings set forth in
          the Lease.

     2.   LESSOR has this ____ day of  __________,  ____ (Time:  __________)  at
          ____________________ received from LESSEE possession of:

                (a) One (1)  Airbus  A318-100  Aircraft  bearing  Manufacturer's
         serial  number  [TBD],  together  with two (2) PW 6124 Engines  bearing
         manufacturer's serial numbers ______ and ______, and all Parts attached
         thereto and thereon in an airworthy condition and

                (b)  All  Aircraft   Documentation,   including  the  usual  and
         customary manuals,  logbooks, flight records and historical information
         regarding the Aircraft,  Engines,  and Parts, as listed in the Document
         Receipt attached hereto.

     3.   The Airframe,  Engines,  and Parts had the following  hours/cycles  at
          return:

                (a)    Airframe:

                       Total hours: ________        Total Landings: ___________

                       Date last "C" check performed: _________________

                              ______ hours/ ______ cycles since last "C" check

                       Date last "D" check performed: _________________

                              ______ hours/ ______ cycles since last "D" check



<PAGE>
<TABLE>

<S>                           <C>                <C>                 <C>               <C>

                (b)    Engines:

        Position              Serial No.         Total Hours         Total Cycles       Hrs/Cycles since
                                                                                         last shop visit



                                                                           Time Remaining to Next
                                                                         Life Limited Part Removal
      Part Name                                                        Hours                 Cycle
                               MSN

                               MSN

                (c)    APU:    MSN __________

                       Total hours:    __________

                       ______ hours/ ______ cycles since last Overhaul

                       ______ hours/ ______ cycles remaining on APU life-limited Parts

                (d)    Landing Gears:

Position                  Serial No.      Total Hrs/Cycles     Hrs/Cycles since          Date of last
                                                                 last Overhaul              Overhaul

Nose

Right Main

Left Main
</TABLE>

                (e)  Fuel on board at return:  ______ (circle one)  pounds/kilos
                     (______ gallons)

     4.   Other technical  information regarding the Aircraft and its components
          are  correctly set forth on the  Technical  Evaluation  Report (in the
          form of Exhibit M) attached hereto. -

     5.   With  reference to Article 13.8 of the Lease  regarding  reimbursement
          from the Reserves after return of the Aircraft:

               _____        There  are no  claims  for  reimbursement  from the
                             Reserves  which  will be  submitted  after the date
                             hereof.

                    or

               _____        Claims for reimbursement  from the Reserves will be
                             submitted after the date hereof for the following:


                      Type of Work Estimated Invoice Amount


     6.   The above specified  aircraft,  engines and  documentation  are hereby
          accepted by LESSOR subject to correction by LESSEE (or  procurement by
          LESSEE  at  LESSEE's  cost)  as soon  as  reasonably  possible  of the
          discrepancies specified in Attachment 2 hereto.

     7.   Subject to the  following  paragraph,  the leasing of the  Aircraft by
          LESSOR to LESSEE  pursuant to the Lease is hereby  terminated  without
          prejudice  to  LESSEE's   continuing   obligations   under  the  Lease
          including,  without limitation,  paragraph 6 above, paragraph 8 below,
          and Articles 10.5, 16 and 17.

     8.   LESSEE  represents  and warrants that during the term of the Lease all
          maintenance  and repairs to the Airframe and Engines were performed in
          accordance  with  the  requirements  contained  in the  Lease.  LESSEE
          further  confirms that all of its obligations  under the Lease whether
          accruing prior to the date hereof.