<PAGE>

                                                                   EXHIBIT 10.17

                             ALASKA AIR GROUP, INC.

                              NONQUALIFIED DEFERRED

                                COMPENSATION PLAN

                            EFFECTIVE JANUARY 1, 1998


<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                               Page
<S>                                                                                            <C>
PREAMBLE.....................................................................................    1

SECTION 1 DEFINITIONS........................................................................    2

         1.1 Account.........................................................................    2
         1.2 Administrative Committee........................................................    2
         1.3 Affiliated Companies............................................................    2
         1.4 Beneficiary.....................................................................    2
         1.5 Board...........................................................................    3
         1.6 Change of Control...............................................................    3
         1.7 Code............................................................................    4
         1.8 Company.........................................................................    4
         1.9 Deferral Election Form..........................................................    4
         1.10 Deferral Period................................................................    4
         1.11 Contribution...................................................................    4
         1.12 Effective Date.................................................................    5
         1.13 Elected Officer................................................................    5
         1.14 Eligible Employee..............................................................    5
         1.15 Employer.......................................................................    5
         1.16 Enrollment Period..............................................................    5
         l.17 ERISA..........................................................................    5
         1.18 Involuntary Termination........................................................    5
         1.19 MIP............................................................................    6
         1.20 Participant....................................................................    6
         1.21 Plan...........................................................................    6
         1.22 Plan Year......................................................................    6
         1.23 Qualified Plan.................................................................    6
         1.24 Valuation Date.................................................................    6
         1.25 Additional Definitions in Plan ................................................    6

SECTION 2 ELIGIBILITY AND PARTICIPATION......................................................    7

         2.1 Enrollment......................................................................    7
         2.2 Termination of Participation....................................................    7
         2.3 Inactive Participation..........................................................    7

SECTION 3 PLAN CONTRIBUTIONS.................................................................    8

         3.1 Participant Deferrals...........................................................    8
         3.2 Cancellation of Election........................................................    8
         3.3 Deferral Period Election........................................................    8
         3.4 Employer Contributions..........................................................    8

SECTION 4 ACCOUNTS...........................................................................    9

         4.1 Account(s)......................................................................    9
         4.2 Earnings........................................................................    9

SECTION 5 PAYMENT OF BENEFITS................................................................   10
</TABLE>

ALASKA AIR GROUP, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 1998

<PAGE>

 Table of Contents, Continued

<TABLE>
<CAPTION>
                                                                                               Page
                                                                                               ----
<S>                                                                                            <C>
         5.1 Benefit Commencement and Payment Form...........................................   10
         5.2 Benefit Amount..................................................................   10
         5.3 Payment Form....................................................................   10
         5.4 Payment-Form Election...........................................................   10
         5.5 Hardship Distributions..........................................................   11

SECTION 6 CHANGE OF CONTROL BENEFITS.........................................................   12

         6.1 Change of Control Benefit.......................................................   12
         6.2 Form of Payment.................................................................   12
         6.3 Plan Termination................................................................   12

SECTION 7 DEATH BENEFITS.....................................................................   13

         7.1 Death After Benefit Payments Begin..............................................   13
         7.2 Death Before Benefit Payments Begin.............................................   13

SECTION 8 VESTING............................................................................   14

         8.1 Vesting.........................................................................   14

SECTION 9 POWERS AND DUTIES OF THE COMMITTEE.................................................   15

         9.1 Appointment of Administrative Committee.........................................   15
         9.2 Powers and Duties...............................................................   15
         9.3 Administrative Committee Procedures.............................................   16
         9.4 Appointment of Agents...........................................................   16
         9.5 Administrative Committee Expenses...............................................   16
         9.6 Administrative Expenses.........................................................   16
         9.7 Determinations..................................................................   16
         9.8 Claim and Review Procedure......................................................   17
         9.9 Exemption From Liability/Indemnification........................................   19

SECTION 10 AMENDMENT AND TERMINATION.........................................................   20

         10.1 Amendment or Termination.......................................................   20

SECTION 11 MISCELLANEOUS PROVISIONS..........................................................   22

         11.1 Appendices.....................................................................   22
         11.2 ERISA Status...................................................................   22
         11.3 Unfunded Nature of the Obligation..............................................   22
         11.4 Facility of Payment............................................................   22
         11.5 Governing Law..................................................................   22
         11.6 Limitation on Assignment.......................................................   22
         11.7 No Additional Rights...........................................................   23
         11.8 Notice.........................................................................   23
         11.9 Severability...................................................................   23
         11.10 Tax Consequences and Withholding..............................................   23

SIGNATURE PAGE...............................................................................   24

APPENDIX I...................................................................................   25
</TABLE>

ALASKA AIR GROUP, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 1998

<PAGE>

                                    PREAMBLE

         The purpose of this Alaska Air Group, Inc. Nonqualified Deferred
Compensation Plan is to attract and retain capable individuals to serve as
executive employees of Alaska Air Group, Inc. (the "Company") and of certain
affiliated companies by providing a select group of executive employees the
opportunity to defer receipt of compensation, to which the executives otherwise
would be entitled currently.

         The Plan is intended to qualify for exemption from Parts 2, 3 and 4 of
Subtitle B of Title I of the Employee Retirement Income Security Acts of 1974,
as amended ("ERISA"), as a plan which is unfunded and which is maintained
primarily for the purpose of providing deferred compensation for a select group
of management or highly compensated employees under Section 201(2), 301(a)(3)
and 401(a)(1) of ERISA.

         The Plan set forth in the following pages is adopted by the Company,
effective January 1, 1998.

ALASKA AIR GROUP, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 1998

                                        1

<PAGE>

                                    SECTION 1

                                  DEFINITIONS

Whenever capitalized in this Plan, the following capitalized terms shall have
the meanings set forth below except where otherwise provided. As used in the
Plan, the masculine, feminine, and neuter genders shall each be deemed to
include the other or others.

1.1      Account

         "Account" means one or more book reserve records maintained by the
         Company for the purpose of determining a Participant's benefits under
         the Plan.

1.2      Administrative Committee

         "Administrative Committee" means a committee appointed by the Chairman
         of the Board to administer the Plan pursuant to Section 9.

1.3      Affiliated Companies

         "Affiliated Companies" or "Affiliate" means:

         (a)      the Company;

         (b)      any other corporation which is a member of a controlled group
                  of corporations which includes the Company (as defined in Code
                  Section 414(b));

         (c)      any other trade or business under common control with the
                  Company (as defined in Code Section 4l4(c)); or

         (d)      any other member of an affiliated service group which includes
                  the Company (as defined in Code Section 4l4(m)).

1.4      Beneficiary

         "Beneficiary" means the person or persons entitled to receive a
         Participant's benefits payable under the Plan. The Beneficiary is the
         person or persons named in the Participant's latest written designation
         filed with the Administrative Committee, provided that the consent of
         the Participant's spouse (if any) is required for the election of a
         nonspouse Beneficiary and for any subsequent changes of the
         Participant's Beneficiary designation. Spousal consent must be in
         writing, name the designated Beneficiary and be notarized.

         If no designation has been filed with the Administrative Committee, or
         if the person or persons designated do not survive the Participant, the
         Beneficiary shall be the following persons in the following order of
         priority: (1) the surviving spouse (regardless of length of marriage),
         and (2) the estate of the Participant.

ALASKA AIR GROUP, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 1998

                                        2

<PAGE>

         If the Beneficiary dies after the death of the Participant, but before
         full distribution has been made to that Beneficiary, the balance, if
         any, shall be distributed to the estate of that deceased Beneficiary.

1.5      Board

         "Board" means the Board of Directors of the Company, or a committee
         composed of fewer than all of the members of the Board of Directors of
         the Company that is authorized to act on behalf of the Board.

1.6      Change of Control

         "Change of Control" means the occurrence of any of the following:

         (a)      the Board approves (or, if approval of the Board is not
                  required as a matter of law, the shareholders of the Company
                  approve):

                  (i)      any consolidation or merger of the Company in which
                           the Company is not the continuing or surviving
                           corporation or pursuant to which shares of common
                           stock of the Company would be converted into cash,
                           securities or other property, other than a merger of
                           the Company in which the holders of common stock of
                           the Company immediately prior to the merger have the
                           same proportionate ownership of common stock of the
                           surviving corporation immediately after the merger;

                  (ii)     any sale, lease, exchange or other transfer (in one
                           transaction or a series of related transactions) of
                           all, or substantially all, the assets of the
                           Participant's Employer; or

                  (iii)    the adoption of any plan or proposal for the
                           liquidation or dissolution of the Participant's
                           Employer;

         (b)      at any time during a period of twenty-four (24) months, fewer
                  than a majority of the members of the Board are Incumbent
                  Directors. "Incumbent Directors" means:

                  (i)      individuals who constituted the Board at the
                           beginning of such period; and

                  (ii)     individuals who were nominated or elected by all of,
                           or a committee composed entirely of, the individuals
                           described in (i); and

                  (iii)    individuals who were nominated or elected by
                           individuals described in (ii).

                  (iv)     any person (as such term is used in Section 13(d) of
                           the Securities Exchange Act of 1934, as amended (the
                           "Exchange Act")) shall, as a

ALASKA AIR GROUP, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 1998

                                        3

<PAGE>

                           result of a tender or exchange offer, open market
                           purchases, privately-negotiated purchases or
                           otherwise, become the beneficial owner (within the
                           meaning of Rule 13d-3 under the Exchange Act),
                           directly or indirectly, of the then-outstanding
                           securities of the Company ordinarily (and apart from
                           rights accruing under special circumstances) having
                           the right to vote in the election of members of the
                           Board ("Voting Securities" to be calculated as
                           provided in paragraph (d) of Rule 13d-3 in the case
                           of rights to acquire common stock of the Company)
                           representing 20% or more of the combined voting power
                           of the then-outstanding Voting Securities.

         Unless the Board shall determine otherwise, a Change of Control shall
         not be deemed to have occurred by reason of any corporate
         reorganization, merger, consolidation, transfer of assets, liquidating
         distribution or other transaction entered into solely by and between
         the Company and an Employer, or any Affiliates thereof, provided such
         transaction has been approved by at least two-thirds (K) of the
         Incumbent Directors (as defined above) then in office and voting.

1.7      Code

         "Code" means the Internal Revenue Code of 1986, as amended and
         regulations promulgated under the Code.

1.8      Company

         "Company" means Alaska Air Group, Inc., a corporation organized and
         existing under the laws of the State of Delaware, and its successors in
         interest.

1.9      Deferral Election Form

         "Deferral Election Form" means an agreement between a Participant and
         the Company whereby the Participant elects to reduce his or her MIP for
         a future Plan Year and the Company promises to pay benefits under the
         Plan in the future. The form and content of the Deferral Election Form
         shall be prescribed by the Administrative Committee.

1.10     Deferral Period

         "Deferral Period" means the number of years selected by a Participant
         pursuant to Section 3 during which payment of his or her Contribution
         for a Plan Year is postponed.

1.11     Contribution

         "Contribution" means an Employer contribution for a Plan Year made on
         behalf of a Participant pursuant to Section 3.

ALASKA AIR GROUP, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 1998

                                        4

<PAGE>

1.12     Effective Date

         "Effective Date" means January 1, 1998.

1.13     Elected Officer

         "Elected Officer" means an officer of an Employer that is elected by
         the Board, pursuant to the bylaws of the Employer.

1.14     Eligible Employee

         " Eligible Employee" means any person who is:

         (a)      employed by an Employer as a common law employee for federal
                  employment tax purposes;

         (b)      eligible for the MIP; and

         (c)      named by the Board to participate in the Plan.

1.15     Employer

         "Employer" means the Company and any Affiliate that adopts this Plan in
         writing with the consent of the Board, and agrees to be bound by the
         terms and conditions of the Plan and any amendments or modifications
         thereto, and which is listed in Appendix I. In the event an Employer
         ceases participation in the Plan, the date participation ceases shall
         be indicated in the Appendix.

1.16     Enrollment Period

         "Enrollment Period" means an election period that is established by the
         Administrative Committee for submission of a Deferral Election Form
         pursuant to Section 3.1

1.17     ERISA

         "ERISA" means the Employee Retirement Income Security Act of 1974, as
         amended from time to time, and regulations promulgated thereto.

1.18     Involuntary Termination

         "Involuntary Termination" and its derivatives as the context requires
         (such as "Involuntarily Terminated") means no longer employed by an
         Employer or Affiliated Company as a common law employee for federal
         employment tax purposes due to discharge, lay off, or similar Employer
         action.

ALASKA AIR GROUP, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 1998

                                        5

<PAGE>

1.19     MIP

         "MIP" means the Alaska Air Group, Inc. Management Incentive Program,
         under which incentive compensation may be awarded annually.

1.20     Participant

         "Participant" means each Eligible Employee who participates in this
         Plan pursuant to the provisions of Section 2.

1.21     Plan

         "Plan" means the Alaska Air Group, Inc. Nonqualified Deferred
         Compensation Plan, as set forth herein and amended from time to time.

1.22     Plan Year

         "Plan Year" means the calendar year beginning on the Effective Date and
         each subsequent calendar year.

1.23     Qualified Plan

         "Qualified Plan" means any defined contribution retirement plan that is
         qualified or is intended to be qualified under Code Section 401(k) and
         that is maintained by an Affiliated Company.

1.24     Valuation Date

         "Valuation Date" means the first day of each month or any other date
         the Committee designates from time to time.

1.25     Additional Definitions in Plan

         The following terms are defined in the following Sections of the Plan:

<TABLE>
<S>                                                                               <C>
Change of Control Benefit.......................................................  6.1
Review panel....................................................................  9.8(c)
Interest Rate...................................................................  4.2(b)
</TABLE>

ALASKA AIR GROUP, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 1998

                                       6

<PAGE>

                                    SECTION 2

                          ELIGIBILITY AND PARTICIPATION

2.1      Enrollment

         Each Eligible Employee shall become a Participant on the later of:

         (a)      the Effective Date, or

         (b)      the first day of the Plan Year to which the Eligible
                  Employee's first Deferral Election Form relates.

2.2      Termination of Participation

         A Participant's participation in the Plan will terminate when the
         Participant's benefits under this Plan have been paid in full.

2.3      Inactive Participation

         A Participant shall cease to be a Participant upon written notification
         by the Board. In that event, the former Participant shall be considered
         an inactive Participant. An inactive Participant shall continue
         participation with respect to amounts credited to his or her Account,
         but no additional Contributions shall be credited to his or her Account
         pursuant to Section 3 after the date the Participant becomes inactive.
         The Accounts of inactive Participants shall continue to be adjusted for
         earnings and payments pursuant to Section 4.

ALASKA AIR GROUP, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 1998

                                        7

<PAGE>

                                    SECTION 3

                               PLAN CONTRIBUTIONS

3.1      Participant Deferrals

         Except as provided in Section 3.2, a Participant may elect to defer
         receipt of a MIP payment for a future Plan Year by completing a
         Deferral Election Form that specifies a percentage of the future MIP
         payment (in 1% increments) which the Participant elects to defer, and
         authorizes the Employer to make a corresponding payroll deduction from
         the Participant's MIP.

         A Deferral Election Form must be submitted to the Administrative
         Committee during the Enrollment Period immediately preceding the first
         day of the Plan Year during which the MIP would be payable if awarded.
         Once the Deferral Election Form is submitted, a Participant cannot
         change or revoke the amount of MIP deferral elected on the Deferral
         Election Form. If a Participant fails to complete and submit a Deferral
         Election Form before the end of an Enrollment Period, the Participant
         is deemed to have elected not to defer any MIP for the following Plan
         Year.

3.2      Cancellation of Election

         If a Participant receives a hardship distribution under a Qualified
         Plan any Deferral Election Form that applies to a MIP payable during
         the twelve-month period following the date of the hardship distribution
         is deemed canceled. The Participant may resume MIP deferrals by
         submitting another Deferral Election Form during any Enrollment Period
         after the twelve-month period expires.

3.3      Deferral Period Election

         On each Deferral Election Form, a Participant must elect a Deferral
         Period. The Deferral Period is measured from the first day of the Plan
         Year to which the Deferral Election Form relates. The Deferral Period
         elected must be stated in whole Plan Years, and in no event will a
         Deferral Period be shorter than two (2) Plan Years. Once the Deferral
         Election Form is submitted, a Participant cannot change the Deferral
         Period elected on the Deferral Election Form.

3.4      Employer Contributions

         No Employer Contributions are authorized under the Plan.

ALASKA AIR GROUP, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 1998

                                        8

<PAGE>

                                    SECTION 4

                                    ACCOUNTS

4.1      Account(s)

         Each Plan Year, the Administrative Committee shall establish on the
         Company's books and records an Account for that Plan Year in the name
         of each Participant whose MIP for that Plan Year is deferred, in whole
         or in part. The Administrative Committee shall credit the Participant's
         Account as of the date the MIP was paid with the Participant's
         Contribution for that Plan Year. The Administrative Committee will
         credit earnings to each Account pursuant to Section 4.2. If installment
         payments are made to the Participant in accordance with Section 5.3(b),
         the Administrative Committee will debit the Account as of the first day
         of the month in which the payment is made by the amount of any
         installment payment made pursuant to Section 5.3(b).

4.2      Earnings

         (a)      Earnings Credit

                  The Administrative Committee shall credit each Account with
                  earnings as of each Valuation Date. The earnings credit for
                  each Valuation Date is determined by applying the Interest
                  Rate to the Account balance determined as of the Valuation
                  Date for which earnings are being credited, reduced by any
                  installment payment under Section 5.3(b) for that month.

         (b)      Interest Rate

                  The Interest Rate for each Plan Year is the mean between the
                  high and the low during the first eleven months of the
                  preceding Plan Year of yields of Ba2-rated industrial bonds as
                  determined in the discretion of the Administrative Committee,
                  rounded to the nearest one quarter of one percent (0.25%). The
                  Administrative Committee will notify Participants annually of
                  the established Interest Rate for the Plan Year.

ALASKA AIR GROUP, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 1998

                                        9


<PAGE>

                                    SECTION 5

                               PAYMENT OF BENEFITS

5.1      Benefit Commencement and Payment Form

         (a)      General Rule

                  Benefit payments to a Participant shall begin as soon as
                  administratively feasible after the first day of the April
                  immediately following the last day of the Deferral Period.

         (b)      Involuntary Termination

                  Notwithstanding any other Plan provision to the contrary, in
                  the event of Involuntary Termination, benefit payments shall
                  begin as soon as administratively feasible after the
                  Participant is Involuntarily Terminated, regardless of the
                  Deferral Period elected.

5.2      Benefit Amount

         (a)      General Rule

                  The amount of benefits shall be the balance of the
                  Participant's Account or Accounts to which the expired
                  Deferral Period relates, determined as of the Valuation Date
                  immediately preceding the date benefits commence.

         (b)      Involuntary Termination

                  In the event of Involuntary Termination, the amount of
                  benefits shall be the balance of all the Participant's
                  Accounts determined as of the Valuation Date immediately
                  preceding the date benefits commence.

5.3      Payment Form

         (a)      Except as provided in Section 5.4, all benefits shall be paid
                  in annual installments over ten (10) years. The amount of each
                  installment shall equal the balance of the Account or Accounts
                  as of the immediately preceding Valuation Date divided by the
                  number of remaining installments (including the installment
                  being determined). All installment payments will be made as of
                  April 1 of each year.

5.4      Payment-Form Election

         Subject to approval of the Administrative Committee, a Participant may
         elect a single sum payment of his or her benefits provided that the
         election is made at least one (1) year before the April 1 as of which
         payments are to begin. Once benefit payments commence, the payment form
         cannot be changed by the

ALASKA AIR GROUP, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 1998

                                       10

<PAGE>

         Participant or Beneficiary. All payment-form elections shall be made in
         the form and manner prescribed by the Administrative Committee and
         shall be subject to approval of the Administrative Committee.

5.5      Hardship Distributions

         A Participant may apply to the Administrative Committee for a hardship
         distribution before the date benefits would otherwise commence. A
         hardship distribution is subject to Administrative Committee approval,
         and is available only for an unanticipated emergency caused by an event
         beyond the Participant's control that results in a severe financial
         hardship. Examples of expenses that will not be considered severe
         financial hardships include the purchase of a residence and educational
         expenses. The amount of a hardship distribution may not exceed the
         amount needed to meet the emergency and may not exceed the value of the
         Participant's vested Accounts. A hardship distribution will be paid
         from the Employer's general assets, and the Participant's Account will
         be reduced as of the distribution date by the amount of the
         distribution.

ALASKA AIR GROUP, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 1998

                                       11

<PAGE>

                                    SECTION 6

                           CHANGE OF CONTROL BENEFITS

6.1      Change of Control Benefit

         Notwithstanding any other provision of the Plan, in the event of a
         Change of Control, each Participant (or his or her Beneficiary), except
         a participant Terminated For Cause before the date of the Change of
         Control, shall receive a Change of Control Benefit in accordance with
         this Section, in lieu of all other benefits payable under this Plan. A
         Participant's Change of Control Benefit shall be the aggregate balance
         of all the Participant's Accounts determined as of the Valuation Date
         immediately preceding the date benefits commence.

6.2      Form of Payment

         All Change of Control Benefits shall be paid in the form of a single
         sum payment within sixty (60) days after a Change of Control.

6.3      Plan Termination

         After payment of all Change of Control Benefits, this Plan shall
         terminate automatically, and no Participant or Beneficiary will have
         any further rights under the Plan.

ALASKA AIR GROUP, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 1998

                                       12

<PAGE>

                                    SECTION 7

                                 DEATH BENEFITS

7.1      Death After Benefit Payments Begin

         If a Participant dies after benefit payments have begun in a form other
         than a single sum, but before receiving all payments to which the
         Participant is entitled under the Plan, the aggregate balance of all
         the Participant's Accounts as of the Valuation Date coinciding with or
         immediately preceding the date of death shall be paid to the
         Participant's Beneficiary in a single sum as soon as administratively
         feasible after the date of death.

7.2      Death Before Benefit Payments Begin

         If a Participant dies before benefit payments begin, the aggregate
         balance of all the Participant's Accounts as of the Valuation Date
         coinciding with or immediately preceding the date of death shall be
         paid to the Participant's Beneficiary in a single sum as soon as
         administratively feasible, after the date of death.

ALASKA AIR GROUP, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 1998

                                       13

<PAGE>

                                    SECTION 8

                                     VESTING

8.1      Vesting:

         At all times, each Participant shall have a vested, nonforfeitable
         right to the Participant's benefits under this Plan.

ALASKA AIR GROUP, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 1998

                                       14

<PAGE>

                                    SECTION 9

                       POWERS AND DUTIES OF THE COMMITTEE

9.1      Appointment of Administrative Committee

         The Plan shall be administered by the Administrative Committee which
         shall be appointed by the Chairman of the Board. The Administrative
         Committee shall be composed of at least three (3) members, all of whom
         are Elected Officers. No bond or other security shall be required of
         any Administrative Committee member in such capacity.

         The Chairman of the Board shall be the Chairman of the Administrative
         Committee. Administrative Committee members may participate in the Plan
         if they are otherwise eligible to do so.

9.2      Powers and Duties

         The Administrative Committee shall have the power and the duty to take
         all action and to make all decisions necessary or proper to carry out
         the Plan, including the discretionary authority to interpret the
         provisions of the Plan and the facts and circumstances of claims for
         benefits. The Administrative Committee shall have the absolute
         discretion to decide all issues of fact or law. Any decision by the
         Administrative Committee that is not shown to be an abuse of discretion
         must be upheld by a court of law. Without limiting the foregoing, the
         Administrative Committee shall have the following administrative powers
         and duties:

         (a)      to require any Participant or Beneficiary to furnish
                  information as they may request for the purpose of the proper
                  administration of the Plan as a condition to receiving any
                  benefit under the Plan;

         (b)      to make and enforce rules and regulations and prescribe the
                  use of forms as they shall deem necessary for the efficient
                  administration of the Plan;

         (c)      to interpret the Plan and to resolve ambiguities,
                  inconsistencies and omissions in a nondiscriminatory manner;

         (d)      to determine tax withholding;

         (e)      to compute the amount of benefits which shall be payable to
                  any person in accordance with the provisions of the Plan; and

         (f)      to delegate any of their administrative powers or duties
                  hereunder to any of their agents or employees.

ALASKA AIR GROUP, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 1998

                                       15

<PAGE>

9.3      Administrative Committee Procedures

         A majority of the Administrative Committee members in office may
         fulfill any act which the Plan authorizes or requires of the
         Administrative Committee, provided that no Administrative Committee
         member who participates in the Plan shall vote on any matter that
         pertains to the member or to the member's rights and/or benefits under
         the Plan unless such matter pertains to all Participants or all
         Participant's rights and/or benefits under the Plan. Each member of the
         Administrative Committee shall be excused from voting on any action
         pertaining solely to the member or members of the Administrative
         Committee or their rights and/or benefits under the Plan, and the
         action shall be taken by a majority of the remaining members of the
         Administrative Committee, or if the remaining members do not constitute
         a quorum, by the Compensation Administrative Committee of the Board.

         The action of such majority of the Administrative Committee expressed
         from time to time by a vote at a meeting, or in writing without a
         meeting, shall constitute the action of the Administrative Committee
         and shall have the same effect for all purposes as if assented to by
         all Administrative Committee members. The majority of Administrative
         Committee members may delegate in writing to any of them the authority
         to give certified notice in writing of any action taken by the
         Administrative Committee.

9.4      Appointment of Agents

         The Administrative Committee may appoint such actuaries, accountants,
         counsel, specialists, and other persons or organizations as they shall
         deem necessary for administration of the Plan and they shall be
         entitled to prudently rely upon any tables, valuations, certificates,
         opinions, or reports which shall be furnished to them by such persons
         or organizations.

9.5      Administrative Committee Expenses

         The Administrative Committee shall serve without compensation for
         services as such, but any reasonable expenses incurred by them in the
         performance of their duties as Administrative Committee members shall
         be paid by the Company.

9.6      Administrative Expenses

         All expenses incurred by the Administrative Committee in connection
         with the administration of the Plan, including but not limited to the
         compensation of any actuary, accountant, counsel, specialist, or other
         persons or organizations who shall be employed by the Administrative
         Committee in connection with the administration thereof, shall be paid
         by the Company.

9.7      Determinations

         All determinations hereunder made by the Board or the Administrative
         Committee shall be made in the sole and absolute discretion of the
         Board, the Compensation

ALASKA AIR GROUP, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 1998

                                       16

<PAGE>

         Administrative Committee of the Board or of the Administrative
         Committee, as the case may be.

         In the event that any disputed matter shall arise hereunder, including,
         without in any manner limiting the generality of the foregoing, any
         matter relating to the eligibility of any person to participate under
         the Plan, the participation of any person under the Plan, the amounts
         payable to any person under the Plan, and the applicability and the
         interpretation of the provisions of the Plan, the decision of the
         Administrative Committee, Board, or Compensation Administrative
         Committee of the Board upon such matter shall be binding and conclusive
         upon all persons, including, without in any manner limiting the
         generality of the foregoing, the Company, the Board, all persons at any
         time in the employ of the Company, the Participants and their
         Beneficiaries, and upon the respective successors, assigns, executors,
         administrators, heirs, next of kin, and distributees of all the
         foregoing.

9.8      Claim and Review Procedure

         (a)      Application for Benefits

                  Any application for benefits under the Plan shall be submitted
                  to the Company at its principal office. Such application shall
                  be in writing on the prescribed form and shall be signed by
                  the applicant.

         (b)      Denial of Applications

                  In the event that any application for benefits is denied in
                  whole or in part, the Company shall notify the applicant in
                  writing of the right to a review of the denial. Such written
                  notice shall set forth, in a manner calculated to be
                  understood by the applicant, specific reasons for the denial,
                  specific references to the Plan provisions on which the denial
                  was based, a description of any information or material
                  necessary to perfect the application, an explanation of why
                  such material is necessary, and an explanation of the Plan's
                  review procedure. Such written notice shall be given to the
                  applicant within 90 days after the Company receives the
                  application unless special circumstances require an extension
                  of time for processing the application. In no event shall such
                  an extension exceed a period of ninety (90) days after the end
                  of the initial 90-day period. If such an extension is
                  required, written notice thereof shall be furnished to the
                  applicant before the end of the initial 90-day period. Such
                  notice shall indicate the special circumstances requiring an
                  extension of time and the date by which the Company expects to
                  render a decision. If written notice is not given to the
                  applicant within the period prescribed by this Subsection (b),
                  the application shall be deemed to have been denied for
                  purposes of Subsection (d) upon the expiration of such period.

         (c)      Review Panel

                  The Company from time to time shall appoint a Review Panel.
                  The "Review Panel" shall consist of three or more individuals
                  who may (but need not) be

ALASKA AIR GROUP, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 1998

                                       17

<PAGE>

                  Employees of the Company and shall be the named fiduciary with
                  the authority to act on any Employee benefit appeal. Members
                  of the Administrative Committee may be appointed to the Review
                  Panel. The Review Panel has discretionary authority to decide
                  all issues of fact or law. Any decision by the Review Panel
                  that is not established to be an abuse of discretion must be
                  upheld by a court of law.

         (d)      Requests for Review

                  Any person whose application for benefits is denied in whole
                  or in part (or such person's duly authorized representative)
                  may appeal from the denial by submitting to the Review Panel a
                  request for a review of such application within six (6) months
                  after receiving written notice of the denial. The Review Panel
                  shall give the applicant or such representative an opportunity
                  to review pertinent documents in preparing such request for
                  review and to submit issues and comments in writing. The
                  request for review shall be in writing and shall be addressed
                  to the Company's principal office. The request for review
                  shall set forth all of the grounds on which it is based, all
                  facts in support of the request, and any other matters which
                  the applicant deems pertinent. The Review Panel may require
                  the applicant to submit such additional facts, documents or
                  other material as it may deem necessary or appropriate in
                  making its review.

         (e)      Decisions on Review

                  The Review Panel shall act upon each request for review within
                  sixty (60) days after receipt thereof, unless special
                  circumstances require an extension of time for processing, but
                  in no event shall the decision on review be rendered more than
                  one hundred twenty (120) days after the Review Panel receives
                  the request for review. If such an extension is required,
                  written notice thereof shall be furnished to the applicant
                  before the end of the initial sixty (60)-day period. The
                  Review Panel shall give prompt, written notice of its decision
                  to the applicant and to the Company. In the event that the
                  Review Panel confirms the denial of the application for
                  benefits in whole or in part, such notice shall set forth, in
                  a manner calculated to be understood by the applicant, the
                  specific reasons for such denial and specific references to
                  the Plan provisions on which the decision is based. To the
                  extent that the Review Panel overrules the denial of the
                  application for benefits, such benefits shall be paid to the
                  applicant.

         (f)      Rules and Procedures

                  The Review Panel shall adopt such rules and procedures,
                  consistent with ERISA and the Plan, as it deems necessary or
                  appropriate in carrying out its responsibilities under this
                  Section 9.8.

ALASKA AIR GROUP, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 1998

                                       18

<PAGE>

         (g)      Exhaustion of Administrative Remedies

                  No legal or equitable action for benefits under the Plan shall
                  be brought unless and until the claimant (1) has submitted a
                  written application for benefits in accordance with Subsection
                  (a); (2) has been notified that the application is denied; (3)
                  has filed a written request for a review of the application in
                  accordance with Subsection (d); and (4) has been notified in
                  writing that the Review Panel has affirmed the denial of the
                  application; provided, however, that an action may be brought
                  after the Company or the Review Panel has failed to act on the
                  claim within the time prescribed in Subsection (b) and
                  Subsection (e), respectively.

9.9      Exemption From Liability/Indemnification

         The members of the Administrative Committee, collectively and
         individually, shall be free from all liability, joint or several, for
         their acts, omissions, and conduct, and for the acts, omissions, and
         conduct of their duly-appointed agents, in the administration of the
         Plan, except for those acts or omissions and conduct resulting from
         willful misconduct or lack of good faith.

         The Company shall indemnify each member of the Administrative
         Committee, and any other employee, officer, or director of the Company
         against any claims, loss, damage, expense, or liability, by insurance
         or otherwise (other than amounts paid in settlement not approved by the
         Company), reasonably incurred by the individual in connection with any
         action or failure to act by reason of membership on the Administrative
         Committee or performance of an authorized duty or responsibility for or
         on behalf of the Company pursuant to the Plan, unless the same is
         judicially determined to be the result of the individual's gross
         negligence or willful misconduct. Such indemnification by the Company
         shall be made only to the extent such expense or liability is not
         payable to or on behalf of such person under any liability insurance
         coverage. The foregoing right to indemnification shall be in addition
         to any other rights to which any such person may be entitled as a
         matter of law.

ALASKA AIR GROUP, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 1998

                                       19

<PAGE>

                                   SECTION 10

                            AMENDMENT AND TERMINATION

10.1     Amendment or Termination

         (a)      Right to Amend or Terminate

                  Except as otherwise provided in this Section, the Company
                  reserves the right at any time and from time to time to amend
                  any or all provisions of the Plan or terminate the Plan, in
                  whole or in part, for any reason and without consent of any
                  person, and without liability to any person for such amendment
                  or termination. Notwithstanding the preceding sentence, no
                  amendment of the Plan shall:

                  (i)      adversely affect the benefits or rights of a
                           Participant or Beneficiary under the Plan (other than
                           election or availability of a form of benefit payment
                           under Section 4) earned and vested as of the
                           effective date of the amendment without the written
                           consent of each affected Participant and Beneficiary
                           unless such change is required by law or regulations
                           or is necessary to avoid unfavorable tax
                           consequences; or

                  (ii)     adversely affect the features of the Plan in effect
                           as of the effective date of the amendment without the
                           written consent of each affected Participant and
                           Beneficiary unless such change is required by law or
                           regulations or is necessary to avoid unfavorable tax
                           consequences; or

                  (iii)    be adopted or become effective after a Change of
                           Control without the written consent of all
                           Participants and Beneficiaries.

         (b)      Plan Termination

                  Nothing in this Plan shall be construed to require
                  continuation of this Plan with respect to existing or future
                  Participants or Beneficiaries. Notwithstanding Section
                  10.1(a)(i), the Company may amend the Plan to cease all future
                  Contributions and shall pay benefits according to the then
                  existing or amended distribution provisions. Notwithstanding
                  Section 10.1(a)(i), the Company may terminate the Plan and in
                  that event, shall distribute all benefits as soon as
                  administratively feasible in the form of single sum payments
                  determined as though the benefits were Change of Control
                  Benefits under Section 6.

ALASKA AIR GROUP, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 1998

                                       20

<PAGE>

         (c)      Procedures

                  Any amendment or termination of the Plan shall be adopted by
                  the Board, made in writing, and executed on behalf of the
                  Company by an authorized officer of the Company.

ALASKA AIR GROUP, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 1998

                                       21

<PAGE>

                                   SECTION 11

                            MISCELLANEOUS PROVISIONS

11.1     Appendices

         Any Appendix to this Plan, as amended from time to time, is
         incorporated into the Plan and made a part of the terms and conditions
         of this Plan.

11.2     ERISA Status

         This Plan shall constitute a plan which is unfunded and which is
         maintained primarily for the purpose of providing deferred compensation
         benefits for a select group of management or highly compensated
         employees within the meaning of Sections 201(2), 301(a)(3), and
         401(a)(1) of ERISA.

11.3     Unfunded Nature of the Obligation

         The obligation to pay benefits under the Plan shall at all times be an
         unfunded, unsecured obligation of the Employer. The Employer is not
         obligated to purchase any annuity contracts to provide benefits under
         the Plan, to establish a trust for the purpose of receiving
         contributions and paying benefits under the Plan, or to otherwise set
         aside funds for the purpose of providing Plan benefits.

11.4     Facility of Payment

         In the event any benefit under this Plan shall be payable to a person
         who is under legal disability or is in any way incapacitated so as to
         be unable to manage his or her financial affairs, the Administrative
         Committee may direct payment of such benefit to a duly appointed
         guardian, committee or other legal representative of such person, or in
         the absence of a guardian or legal representative, to a custodian for
         such person under a Uniform Gifts to Minors Act or to any relative of
         such person by blood or marriage, for such person's benefit. Any
         payment made in good faith pursuant to this provision shall fully
         discharge the Company and the Plan of any liability to the extent of
         such payment.

11.5     Governing Law

         The Plan shall be construed in accordance with ERISA and the laws of
         the State of Washington, to the extent not preempted by ERISA.

11.6     Limitation on Assignment

         Benefits under this Plan may not be assigned, sold, transferred, or
         encumbered, and any attempt to do so shall be void. A Participant's or
         Beneficiary's interest in benefits under the Plan shall not be subject
         to debts or liabilities of any kind and shall not be subject to
         attachment, garnishment or other legal process.

ALASKA AIR GROUP, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 1998

                                       22

<PAGE>

11.7     No Additional Rights

         No person shall have any rights under the Plan, except as, and only to
         the extent, expressly provided for in the Plan. Neither the
         establishment or amendment of the Plan or the creation of any fund or
         account, or the payment of benefits, nor any action of an Employer or
         the Administrative Committee shall be held or construed to confer upon
         any person any right to be continued as an employee, or, upon
         dismissal, any right or interest in any account or fund other than as
         herein provided. The Company and the other Employers expressly reserve
         the right to discharge any employee at any time with or without cause.

11.8     Notice

         All notices, statements, reports and other communications from the
         Company or Administrative Committee to any employee or other person
         required or permitted under the Plan shall be deemed to have been duly
         given when delivered to, or when mailed by first-class mail, postage
         prepaid and addressed to, such employee, or other person at his or her
         address last appearing on the Company's records.

11.9     Severability

         If any provision of this Plan is held unenforceable or invalid for any
         reason, such determination shall not affect the remaining provisions of
         this Plan which shall be construed as if the unenforceable or invalid
         provisions had never been included.

11.10    Tax Consequences and Withholding

         The Company does not represent or guarantee that any particular federal
         or state income, payroll, Social Security, or other tax consequences
         will result from participation in the Plan. A Participant should
         consult with professional tax advisors to determine the tax
         consequences of his or her participation in the Plan.

         All payments of federal or state income, Social Security, payroll, or
         other tax required with respect to contributions or benefits under the
         Plan shall be satisfied by withholding the required amount from the
         Participant's salary or Plan benefit payment, or if the Participant's
         salary or benefit payment is insufficient to satisfy any required tax
         payments, the Participant shall satisfy the payments in a manner
         approved by the Administrative Committee.

         Determinations by the Administrative Committee with respect to tax
         withholding shall be binding on the Participant and Beneficiaries.

ALASKA AIR GROUP, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 1998

                                       23

<PAGE>

         IN WITNESS WHEREOF, the Company has caused this Plan to be signed by
its duly authorized officer this 19th day of December, 1997.

                                       ALASKA AIR GROUP, INC.

Witness:

/s/ Keith Loveless                     By: /s/ John F. Kelly
--------------------                       -------------------------
Keith Loveless                             John F. Kelly
Corporate Secretary                        Chairman, President, and
                                           Chief Executive Officer

ALASKA AIR GROUP, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 1998

                                       24

<PAGE>

                                   APPENDIX I

"Employer" as defined in Section 1.19 shall also include the following employers
during the following period of time.

<TABLE>
<CAPTION>
           Employer                      Beginning Date             Ending Date
           --------                      --------------             -----------
<S>                                      <C>                        <C>
1.   Alaska Airlines, Inc.               January 1, 1998

2.   Horizon Air Industries, Inc.        January 1, 1998
</TABLE>

ACKNOWLEDGED AND ACCEPTED
ALASKA AIR GROUP, INC.

By: /s/ John F. Kelly
   ------------------------------------------------
   John F. Kelly
   Chairman, President, and Chief Executive Officer

Date: December 19, 1997

ALASKA AIR GROUP, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 1998

                                       25

<PAGE>

CONTRACT REVIEW AND APPROVAL FORM*                         ALASKA AIRLINES, INC.

SUBJECT Alaska Air Group, Inc. Nonqualified Deferred Compensation Plan

<TABLE>
<CAPTION>

E.J. NUMBER     E.J. AMOUNT     E.J. APPROVED?         CONTRACT #
-----------     -----------     --------------         ----------
<S>             <C>             <C>                    <C>
</TABLE>

SPONSOR COMMENTS/DEADLINES______________________________________________________
________________________________________________________________________________

REVIEW OF THIS CONTRACT IS NOT REQUIRED BECAUSE OF THE REASON(S) CHECKED BELOW:

[ ]      ON ALASKA AIRLINES PRINTED FORM CONTRACT WHICH HAS NOT BEEN AMENDED
         AND IS NOT PURCHASING SERVICES

[ ]      CALLS FOR EXPENDITURE OF LESS THAN $50,000 AND CONTAINS NO HOLD
         HARMLESS OR INDEMNITY PROVISION

[ ]      IS A LEASE OF LESS THAN 90 DAYS PREPARED AND REVIEWED BY PROPERTIES &
         FACILITIES

<TABLE>
<CAPTION>
                                                                                OTHER DEPARTMENTS
                                                                                -----------------
    REVIEW                      SPONSOR             LEGAL       FINANCE         Emp Svcs
    ------                      -------             -----       -------         --------
<S>                           <C>                 <C>           <C>             <C>          <C>
NAME OF REVIEWER              K. Lovless          K. Loveless                   D. Hamel
INITIALS                      KL                  KL
DATE                          12/19/97            12/19/97
WORKING COPY REQUIRED?**
</TABLE>

                                    APPROVAL

<TABLE>
<CAPTION>
                            NAME             (INITIAL)            DATE
<S>                  <C>                  <C>              <C>
EXECUTING OFFICER    ___________________  _______________  _____________________
SECOND OFFICER
CONCURRENCE          ___________________  _______________  _____________________
 (IF OVER $250,000)
</TABLE>

      DEPARTMENT               REVIEW COMMENTS - USE REVERSE IF NECESSARY
_____________________  _________________________________________________________
                       _________________________________________________________
                       _________________________________________________________
                       _________________________________________________________
_____________________  _________________________________________________________
                       _________________________________________________________
                       _________________________________________________________
                       _________________________________________________________

*  SEE SYSTEM REGULATIONS SECTION 1.450 FOP CONTRACT APPROVAL PROCEDURES AND
   SEND THE ORIGINAL SIGNED CONTRACT TO CORPORATE RECORDS ALONG WITH THIS FORM.

** INDICATE WHETHER YOUR DEPARTMENT REQUIRES A WORKING COPY OF THE  EXECUTED
   CONTRACT. IF SUCH A COPY IS REQUIRED. THE SPONSOR IS RESPONSIBLE FOR
   FORWARDING IT TO THE REQUESTING DEPARTMENT UPON EXECUTION.

L-3 (Rev. 5/87)
<PAGE>

                                 FIRST AMENDMENT
                                     TO THE
                             ALASKA AIR GROUP, INC.
                    NONQUALIFIED DEFERRED COMPENSATION PLAN

         The Alaska Air Group, Inc. Nonqualified Deferred Compensation Plan
effective January 1, 1998 (the "Plan"), is amended as follows, effective January
1, 2003 unless otherwise provided below:

I.       The Preamble is amended by inserting the words "or management" in the
         first paragraph as follows;

         The purpose of this Alaska Air Group, Inc. Nonqualified Deferred
         Compensation Plan is to attract and retain capable individuals to serve
         as executive employees of Alaska Air Group, Inc. (the "Company") and of
         certain affiliated companies by providing a select group of executive
         or management employees the opportunity to defer receipt of
         compensation, to which the executives otherwise would be entitled
         currently.

II.      The last paragraph of Section 1.6 Change of Control is amended by
         replacing "(K)" with "(2/3)."

III.     Section 1.19 MIP is deleted in its entirety and replaced with the
         following:

         Before January 1, 2003, "MIP" means the Alaska Air Group, Inc.
         Management Incentive Program, under which incentive compensation may be
         awarded annually. On and after January 1, 2003, "MIP" means the Alaska
         Air Group, Inc. Performance Based Pay Plan.

IV.      The following new Section 1.21 PBP is inserted immediately after
         Section 1.20 Participant and the subsequent Sections are
         correspondingly renumbered Sections 1.22 through 1.26:

         1.21     PBP

         "PBP" means the Alaska Air Group, Inc. Performance Based Pay Plan.

V.       Effective January 1, 2002, Section 3.2 Cancellation of Election is
         amended to replace "twelve-month" with "six-month" in both the first
         and second sentences.

                                       1

<PAGE>

VI.      Effective January 1, 2002, Section 9.8 Claim and Review Procedure is
         deleted in its entirety and replaced with the following:

         9.8      Claim and Review Procedure

                  (a)      Application for Benefits

                           Any person or the person's authorized representative
                           (the "Claimant") may apply for, claim, or request
                           information about, Plan benefits by submitting a
                           signed, written application to the Administrative
                           Committee.

                  (b)      Denial of Application

                           If the Administrative Committee denies an application
                           in whole or in part, the Administrative Committee
                           shall notify the Claimant in writing or
                           electronically of the denial and the Claimant's right
                           to request a review of the denial. The notice of
                           denial shall set forth, in a manner calculated to be
                           understood by the Claimant:

                           (i)      specific reasons for the denial,

                           (ii)     specific references to the applicable Plan
                                    provisions on which the denial was based,

                           (iii)    a description of any information or material
                                    necessary to perfect the application and an
                                    explanation of why such material is
                                    necessary,

                           (iv)     an explanation of the Plan's review
                                    procedure and the time limits for review,
                                    and

                           (v)      a statement of the Claimant's right to bring
                                    a civil action under ERISA following an
                                    adverse determination on review.

                           The denial notice will be given to the Claimant
                           within ninety (90) days after the Administrative
                           Committee receives the application unless special
                           circumstances require an extension of time for
                           processing the application. In no event will an
                           extension exceed a period of ninety (90) days after
                           the end of the initial 90-day period. If an extension
                           is required, written notice of the extension shall be
                           furnished to the Claimant before the end of the
                           initial 90-day period. The extension notice will
                           indicate the special circumstances requiring an
                           extension of time and the date

                                        2

<PAGE>

                           by which the Administrative Committee expects to
                           render a decision. If a written denial notice is not
                           given to the Claimant within the period prescribed by
                           this Section 9.8(b), the application is deemed to
                           have been denied for purposes of Section 9.8(d).

                  (c)      Review Panel

                           From time to time, the Company shall appoint a Review
                           Panel. The "Review Panel" will consist of three (3)
                           or more individuals who may be (but need not be)
                           Employees of the Company and shall be the named
                           fiduciary with authority to act on any appeal of a
                           denied application. Members of the Administrative
                           Committee may be appointed to the Review Panel. The
                           Review Panel has discretionary authority to decide
                           all issues of fact or law. Any decision by the Review
                           Panel that is not established to be an abuse of
                           discretion must be upheld.

                  (d)      Request for Review

                           A Claimant whose application is denied, in whole or
                           in part, may appeal the denial by submitting to the
                           Review Panel a written request for a review of the
                           denial. The request for review must be submitted to
                           the Review Panel within sixty (60) days after the
                           Claimant receives written notice of the denial. Upon
                           request and free of charge, the Claimant shall be
                           permitted reasonable access to, and copies of,
                           relevant information and documents. The Review Panel
                           shall give the Claimant an opportunity to submit
                           written information, documents, records and comments
                           in support of the appeal. In making its decision, the
                           Review Panel will take the Claimant's submissions
                           into account, regardless of whether this information
                           was available in considering the initial request.

                  (e)      Decision on Review

                           The Review Panel will deliver to the Claimant an
                           electronic or written decision within a reasonable
                           time, but no later than sixty (60) days after receipt
                           of the Claimant's request for review. In special
                           circumstances, the period may be extended up to an
                           additional sixty (60) days. If an extension is
                           required, written notice of the extension will be
                           furnished to the Claimant before the end of the
                           initial 60-day period. The extension notice will
                           indicate the special circumstances requiring an
                           extension of time and the date by which the Review
                           Panel expects to render a

                                        3

<PAGE>

                           decision. If a written decision is not given to the
                           Claimant within the period prescribed by this Section
                           9.8(e), the decision is deemed to be adverse. If the
                           decision is adverse, in whole or in part, the
                           decision shall set forth in a manner calculated to be
                           understood by the Claimant:

                           (i)      specific reasons for the adverse decision
                                    with specific references to the applicable
                                    Plan provisions on which the decision was
                                    based,

                           (ii)     a statement that, upon request and free of
                                    charge, the Claimant is entitled reasonable
                                    access to, and copies of, relevant
                                    information and documents,

                           (iii)    a description of any voluntary appeals
                                    procedures and a statement of the Claimant's
                                    right to obtain information about these
                                    procedures, and

                           (iv)     a statement of the Claimant's right to bring
                                    a civil action under ERISA.

                  (f)      Rules and Procedures

                           The Administrative Committee and the Review Panel
                           shall establish additional administrative procedures
                           in accordance with this Section 9.8 and ERISA as they
                           deem necessary or appropriate, including safeguards
                           to insure and verify that decisions under this
                           Section 9,8 are made in accordance with the Plan
                           document and are applied consistently to
                           similarly-situated Participants and Beneficiaries.
                           Additional administrative procedures may include, but
                           are not limited to, protocols, guidelines, periodic
                           review and audits.

                  (g)      Exhaustion of Administrative Remedies

                           No legal or equitable action for benefits under the
                           Plan shall be brought unless and until the Claimant
                           has satisfied the procedures in this Section 9.8.

                                        4

<PAGE>

         IN WITNESS WHEREOF, the Company has caused this First Amendment to be
signed by its duly authorized officer this 8th day of September, 2003.

                                                         ALASKA AIR GROUP, INC.

Witness:

/s/ Keith Loveless                                       /s/ William S. Ayer
----------------------------------                       -----------------------
Keith Loveless                                           William S. Ayer
Vice President of Legal &                                Chairman and CEO
Corporate Affairs, General Counsel

                                        5