<PAGE>

                                                                   Exhibit 10.73

--------------------------------------------------------------------------------
THIS LEASE AGREEMENT HAS BEEN EXECUTED IN SEVERAL COUNTERPARTS. TO THE EXTENT,
IF ANY, THAT THIS LEASE AGREEMENT CONSTITUTES CHATTEL PAPER (AS SUCH TERM IS
DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN ANY APPLICABLE
JURISDICTION), NO SECURITY INTEREST IN THIS LEASE AGREEMENT MAY BE CREATED
THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART OTHER THAN THE ORIGINAL
EXECUTED COUNTERPART CONTAINING THE RECEIPT EXECUTED BY LESSOR OR, IF LESSOR HAS
ASSIGNED ITS RIGHTS TO A THIRD PARTY IN ACCORDANCE WITH THIS LEASE AGREEMENT,
        SUCH THIRD PARTY ON THE SIGNATURE PAGE OF THIS LEASE AGREEMENT.
--------------------------------------------------------------------------------

                               DATED: MAY 21, 1997

                             ACG ACQUISITION XII LLC

                                    (Lessor)

                                     - and -

                              ALOHA AIRLINES, INC.

                                    (Lessee)

                       ----------------------------------
                               LEASE AGREEMENT 809
                                 - relating to -
                             Boeing 737-2Q9 Aircraft
                         Manufacturers Serial No: 21720
                          U.S. Registration Mark N809AL
                       ----------------------------------

                        FELTMAN, KARESH, MAJOR & FARBMAN,
                          Limited Liability Partnership
                               Carnegie Hall Tower
                              152 West 57th Street
                           New York., New York 10019


<PAGE>


                               TABLE OF CONTENTS

<Table>
<Caption>
CLAUSE                                                                                   PAGE

<S>   <C>                                                                                <C>
1.    DEFINITIONS and INTERPRETATION ......................................................1
      1.1 Definitions .....................................................................1
      1.2 Interpretation .................................................................15

2.    REPRESENTATIONS and WARRANTIES .....................................................15
      2.1   Lessee's Representations and Warranties ......................................15
      2.2   Lessee's Further Representations and Warranties ..............................17
      2.3   Repetition ...................................................................18
      2.4   Lessor's Representations and Warranties ......................................18
      2.5   Repetition ...................................................................19

3.    CONDITIONS PRECEDENT ...............................................................19
      3.1   Lessor's Documentary Conditions Precedent ....................................19
      3.2   Lessor's Other Conditions Precedent ..........................................20
      3.3   Lessor's Waiver ..............................................................21
      3.4   Lessee's Conditions Precedent ................................................21
      3.5   Lessee's Waiver ..............................................................22

4.    COMMENCEMENT; OPTIONS ..............................................................22
      4.1   Leasing ......................................................................22
      4.2   Delivery .....................................................................22
      4.3   Acceptance and Risk ..........................................................23
      4.4   Extension Option . ...........................................................23
      4.5   Early Termination Option .....................................................23

5.    PAYMENTS ...........................................................................23
      5.1   Security Deposit; Letter of Credit ...........................................23
      5.2   Rental Periods ...............................................................26
      5.3   Basic Rent ...................................................................26
      5.4   Payments .....................................................................26
      5.5   Gross-up .....................................................................26
      5.6   Taxation .....................................................................27
      5.7   Information ..................................................................28
      5.8   Taxation of Indemnity Payments ...............................................28
      5.9   Default Interest .............................................................29
      5.10  Contest ......................................................................29
      5.11  Absolute .....................................................................30

                                       -i-


<PAGE>


                               TABLE OF CONTENTS
                                   continued

CLAUSE                                                                                   PAGE

<S>   <C>                                                                                <C>
6.    MANUFACTURER'S WARRANTIES ..........................................................31
      6.1 Assignment .....................................................................31
      6.2 Proceeds .......................................................................31
      6.3 Parts ..........................................................................32
      6.4 Agreement ......................................................................32

7.    LESSOR'S COVENANTS and DISCLAIMERS .................................................32
      7.1   Quiet Enjoyment ..............................................................32
      7.2   Registration and Filings .....................................................33
      7.3   Agreed Maintenance Performers ................................................33
      7.4   Exclusion ....................................................................33
      7.5   Lessee's Waiver ..............................................................34
      7.6   Lessee's Confirmation ........................................................34

8.    LESSEE'S COVENANTS .................................................................34
      8.1   Duration .....................................................................34
      8.2   Information ..................................................................34
      8.3   Lawful and Safe Operation ....................................................37
      8.4   Taxes and Other Charges ......................................................38
      8.5   Sub-Leasing ..................................................................38
      8.6   Inspection ...................................................................39
      8.7   Protection of Title ..........................................................39
      8.8   General ......................................................................41
      8.9   Records ......................................................................42
      8.10  Registration and Filings .....................................................42
      8.11  Maintenance and Repair .......................................................42
      8.12  Removal of Engines and Parts .................................................44
      8.13  Installation of Engines and Parts ............................................44
      8.14  Non-Installed Engines and Parts ..............................................46
      8.15  Pooling of Engines and Parts .................................................47
      8.16  Equipment Changes ............................................................48
      8.17  Title to Engines and Parts ...................................................48
      8.18  Third Parties ................................................................49

9.    INSURANCE ..........................................................................49

                                      -ii-


<PAGE>


                               TABLE OF CONTENTS
                                   continued

CLAUSE                                                                                   PAGE
<S>   <C>                                                                                <C>

      9.1   Insurances ....................................................................49
      9.2   Requirements ..................................................................49
      9.3   Insurance Covenants ...........................................................50
      9.4   Failure to Insure .............................................................51
      9.5   Continuing Indemnity ..........................................................52
      9.6   Application of Insurance Proceeds .............................................52

10.   INDEMNITY ...........................................................................53
      10.1 General ........................................................................53
      10.2 Mitigation .....................................................................54
      10.3 Duration .......................................................................55

11.   EVENTS OF LOSS ......................................................................55
      11.1 Total Loss .....................................................................55
      11.2 Requisition ....................................................................57

12.   RETURN OF AIRCRAFT ..................................................................57
      12.1 Redelivery .....................................................................57
      12.2 Final Checks ...................................................................58
      12.3 Final Inspection ...............................................................59
      12.4 Non-Compliance .................................................................59
      12.5 Export Documentation ...........................................................60
      12.6 Acknowledgment .................................................................60
      12.7 Maintenance Program ............................................................60
      12.8 Storage ........................................................................61

13.   DEFAULT .............................................................................61
      13.1 Events .........................................................................61
      13.2 Rights .........................................................................66
      13.3 Export .........................................................................66
      13.4 Default Payments ...............................................................67

14.   ASSIGNMENT and TRANSFER .............................................................68
      14.1 No assignment by Lessee ........................................................68
      14.2 Lessor Assignment ..............................................................68
      14.3 Grants of Security Interests ...................................................70

                                      -iii-


<PAGE>


                               TABLE OF CONTENTS
                                   continued

CLAUSE                                                                                   PAGE

<S>   <C>                                                                                <C>
      14.4 Sale and Leaseback by Lessor ..................................................72
      14.5 Further Acknowledgments .......................................................72
      14.6 Certain Protections for Lessee's Benefit ......................................73

15.   MISCELLANEOUS ......................................................................73
      15.1  Waivers, Remedies Cumulative .................................................73
      15.2  Delegation ...................................................................73
      15.3  Appropriation ................................................................73
      15.4  Currency Indemnity ...........................................................74
      15.5  Payment by the Lessor ........................................................74
      15.6  Severability . ...............................................................74
      15.7  Remedy .......................................................................75
      15.8  Expenses .....................................................................75
      15.9  Time of Essence ..............................................................75
      15.10 Notices ......................................................................75
      15.11 Law and Jurisdiction .........................................................77
      15.12 Sole and Entire Agreement ....................................................78
      15.13 Indemnities ..................................................................78
      15.14 Counterparts .................................................................78
</Table>

SCHEDULES
<Table>
      <S>     <C>                                                                         <C>
      1.      Aircraft Specification                                                       80
      2.      Certificate of Acceptance 809                                                83
      3.      Operating Condition at Redelivery                                            87
      4.      Insurance Requirements                                                       94
      5.      Form of Legal Opinion                                                        99
      6.      Form of Letter of Credit                                                    100
      7.      Form of Semi-Annual Status Report                                           101
</Table>






                                      -iv-


<PAGE>


                                                          RECORDED

                                             Federal Aviation Administration

                                            Date   8-28-97      Time   7:53 am
                                                 --------------      ----------
                                             Conveyance Number   HK010357
                                                              -----------------
                                            By   Barbara Deepler
                                               ---------------------
                                               Conveyances Examiner


THIS LEASE AGREEMENT is made the 21st day of May, 1997

BETWEEN:

(1)    ACG ACQUISITION XII LLC, a Delaware limited liability company, having its
       principal place of business at Three Stamford Landing, 46 Southfield
       Avenue, Stamford, Connecticut 06902, U.S.A. (the "LESSOR"), and

(2)    ALOHA AIRLINES, INC., a Delaware corporation having its principal place
       of business at 371 Aokea Street, Honolulu, Hawaii 96819 (the "LESSEE").

WHEREAS:

(A)    The Aircraft has previously been operated by the Lessee.

(B)    Pursuant to an Aircraft Purchase Agreement, dated as of May 21, 1997,
       between First Security Bank, National Association, not in its individual
       capacity but solely as owner trustee, as seller ("Seller"), and Lessor,
       as buyer (the "Purchase Agreement"), Lessor has purchased the Aircraft
       from Seller, and Lessor has agreed to lease the Aircraft to the Lessee
       with effect from the purchase of the Aircraft upon and subject to the
       covenants, terms and conditions set out in this Agreement.

NOW IT IS HEREBY AGREED as follows:

1.     DEFINITIONS AND INTERPRETATION

1.1    DEFINITIONS

       In this Agreement the following expressions shall, unless the context
       otherwise requires, have the following respective meanings:

       ACTUAL COST                          as it applies to any maintenance
                                            work on the Aircraft means the
                                            actual cost of replacement parts
                                            plus the cost of the associated
                                            labor at Lessee's in-house labor
                                            rates (if the work is performed by
                                            Lessee) or at third party costs
                                            charged to Lessee (if the work is
                                            performed by third parties) and
                                            shall in no event include late
                                            charges, interest or other similar
                                            amounts.

       AFFILIATE                            in relation to any person, any other
                                            person controlled directly or
                                            indirectly by that person, any other
                                            person that controls directly or
                                            indirectly that person or any other
                                            person under common control with
                                            that person.



                                      -1-
<PAGE>


                                            For this purpose "control" of any
                                            entity or person means ownership of
                                            a majority of the voting power of
                                            the entity or person.

       AGREED MAINTENANCE PERFORMER         the Lessee or any other reputable
                                            maintenance organization that is (i)
                                            experienced in maintaining aircraft
                                            and/or engines of the same type as
                                            the Aircraft and the Engines, (ii)
                                            duly certificated by the FAA under
                                            FAR Part 145, and (iii) not objected
                                            to by Lessor pursuant to Clause 7.3.

       AGREED MAINTENANCE PROGRAM           the Lessee's current Maintenance
                                            Program, as the same may be amended
                                            from time to time in accordance with
                                            this Agreement.

       AGREED VALUE                         $6,000,000.

       AIRCRAFT                             the aircraft described in Part 1 of
                                            Schedule 1 (which term includes,
                                            where the context admits, a separate
                                            reference to all Engines, Parts and
                                            Aircraft Documents).

       AIRCRAFT DOCUMENTS                   the documents, data and records
                                            identified in Part 2 of Schedule 1
                                            and all additions, renewals,
                                            revisions and replacements from time
                                            to time made in accordance with this
                                            Agreement.

       AIRFRAME                             the Aircraft, excluding the Engines
                                            and the Aircraft Documents.

       APU                                  (i) the auxiliary power unit listed
                                            in Schedule 1, (ii) any and all
                                            Parts, so long as such Parts are
                                            incorporated in, installed on or
                                            attached to such auxiliary power
                                            unit or so long as title to such
                                            Parts is vested in the Lessor in
                                            accordance with the terms of Clause
                                            8.17(b) after removal from such
                                            auxiliary power unit, and (iii)
                                            insofar as the same belong to
                                            Lessor, all substitutions,
                                            replacements or renewals from time
                                            to time made in or to such auxiliary
                                            power unit or to any of the Parts
                                            referred to in clause (ii) above, as
                                            required or permitted under this
                                            Agreement.


                                      -2-
<PAGE>


       APPRAISAL PROCEDURE                  shall mean, with respect to any
                                            amount to be determined, the amount
                                            mutually agreed by Lessor and Lessee
                                            or, if Lessor and Lessee are unable
                                            to agree upon any such amount to be
                                            determined, the average of the
                                            amounts determined by three
                                            FAA-approved service centers in the
                                            continental United States, one such
                                            service center appointed by Lessor,
                                            one by Lessee and one by their
                                            appointed service centers, except
                                            that if any party fails to appoint a
                                            service center the Manufacturer or
                                            the Engine Manufacturer (whichever
                                            is appropriate) shall be deemed
                                            appointed.

       AVIATION AUTHORITY                   the FAA or (if the State of
                                            Registration ceases to be the United
                                            States of America) the authority
                                            and/or Government Entity and/or
                                            agency which, under the laws of the
                                            State of Registration, from time to
                                            time (a) has control or supervision
                                            of civil aviation; or (b) has
                                            jurisdiction over registration,
                                            airworthiness or operation of the
                                            Aircraft.

       BASIC RENT                           all amounts payable pursuant to
                                            Clause 5.3.

       BUSINESS DAY                         a day (other than a Saturday or
                                            Sunday) on which business of the
                                            nature required by this Agreement is
                                            carried out in Stamford, Connecticut
                                            and Honolulu, Hawaii or, where used
                                            in relation to payments, a day other
                                            than a Saturday or Sunday or a day
                                            on which banks in Chicago, Illinois,
                                            New York, New York or Honolulu,
                                            Hawaii are required or authorized to
                                            be closed.

       CERTIFICATE OF ACCEPTANCE            a certificate in the form of
                                            Schedule 2 to be completed and
                                            executed by the Lessee on Delivery.

       CYCLE                                one take-off and landing of an
                                            airframe.

       DAMAGE NOTIFICATION THRESHOLD        $500,000.

       DEFAULT                              any Event of Default and any event
                                            which with the giving of notice,
                                            lapse of time, determination of
                                            materiality or fulfilment of other
                                            condition or any


                                      -3-
<PAGE>


                                            combination of the foregoing would
                                            constitute an Event of Default.

       DELIVERY                             the deemed delivery of the Aircraft
                                            to the Lessee in accordance with the
                                            terms of this Agreement.

       DELIVERY DATE                        the date on which Delivery takes
                                            place.

       DELIVERY LOCATION                    a location selected by Lessee and
                                            reasonably acceptable to Lessor.

       DOLLARS AND $                        the lawful currency of the United
                                            States of America.

       EARLY TERMINATION OPTION             shall have the meaning assigned
                                            thereto in Section 4.5 hereof.

       ENGINE                               whether or not installed on the
                                            Aircraft:

                                            (a)        each engine of the
                                                       manufacture, model and
                                                       serial number specified
                                                       in Part 1 of Schedule 1
                                                       and having 750 or more
                                                       rated take-off
                                                       horsepower, title to
                                                       which shall belong to the
                                                       Lessor; or

                                            (b)        any engine which replaces
                                                       that engine, title to
                                                       which passes to the
                                                       Lessor in accordance with
                                                       Clause 8.17(a);

                                            and in each case includes all
                                            modules and Parts from time to time
                                            belonging to, installed in or
                                            appurtenant to that engine but
                                            excludes any engine replaced in
                                            accordance with Clause 8.17(a) title
                                            to which has, or should have, passed
                                            to the Lessee in accordance with
                                            Clause 8.17(b) pursuant to this
                                            Agreement.

       ENGINE LOSS                          the circumstances set forth in
                                            the definition of "Total Loss" as
                                            if that definition applied to an
                                            Engine.

       ENGINE LOSS DATE                     the relevant date determined in
                                            accordance with the definition of
                                            "Total Loss Date" as if that
                                            definition applied to an Engine
                                            Loss.


                                      -4-
<PAGE>


         ENGINE MANUFACTURER                the Pratt & Whitney Division of
                                            United Technologies Corporation.

         EVENT OF DEFAULT                   an event specified in Clause 13.1.

         EXPIRY DATE                        the day preceding the fourth
                                            anniversary of the Delivery Date, or
                                            the day this Agreement is terminated
                                            earlier pursuant to Section 4.5, or
                                            if this Agreement is extended
                                            pursuant to Section 4.4 the day
                                            preceding the fifth anniversary of
                                            the Delivery Date, or any other date
                                            on which:

                                            (a)        the Aircraft has been
                                                       redelivered in accordance
                                                       with this Agreement and
                                                       all obligations of Lessee
                                                       have been satisfied; or

                                            (b)        the Lessor receives the
                                                       Agreed Value following a
                                                       Total Loss and all other
                                                       amounts then due and
                                                       owing in accordance with
                                                       this Agreement.

         EXTENSION OPTION                   shall have the meaning assigned
                                            thereto in Section 4.4 hereof.

         FAA                                the United States Federal Aviation
                                            Administration, the Department of
                                            Transportation, the Administrator of
                                            the Federal Aviation Administration
                                            or any person or Government Entity
                                            succeeding to the functions thereof.

         FAR                                the Federal Aviation Regulations for
                                            the time being in force, issued by
                                            the FAA pursuant to the Federal
                                            Aviation Law and published in Title
                                            14 of the Code of Federal
                                            Regulations.

         FEDERAL AVIATION LAW               Title 49 of the United States
                                            Code, as amended, or any
                                            successor statutory provisions
                                            and the regulations promulgated
                                            under such provisions.

         FINANCIAL INDEBTEDNESS             any indebtedness in respect of:

                                            (a)        moneys borrowed;


                                      -5-
<PAGE>


                                            (b)        any liability under any
                                                       debenture, bond, note,
                                                       loan stock, acceptance
                                                       credit, documentary
                                                       credit or other security;

                                            (c)        the acquisition cost of
                                                       any asset to the extent
                                                       payable before or after
                                                       the time of acquisition
                                                       or possession; or

                                            (d)        the capitalized value
                                                       (determined in accordance
                                                       with accounting practices
                                                       generally accepted in the
                                                       State of Incorporation)
                                                       of obligations under
                                                       finance leases; or

                                            (e)        any guarantee, indemnity
                                                       or similar assurance
                                                       against financial loss of
                                                       any person in respect of
                                                       the above.

         FLIGHT HOUR                        each hour or part thereof (rounded
                                            up to one decimal place) elapsing
                                            from the moment the wheels of an
                                            airframe leave the ground on take
                                            off until the moment the wheels of
                                            such airframe next touch the ground.

         GAAP                               generally accepted accounting
                                            principles as in effect from time to
                                            time and, subject to changes in such
                                            principles from time to time,
                                            consistently applied in accordance
                                            with the past practices of a person.

         GOVERNMENT ENTITY                  (a)        any national government,
                                                       political subdivision
                                                       thereof or local
                                                       jurisdiction therein;

                                            (b)        any instrumentality,
                                                       board, commission, court,
                                                       or agency of any thereof,
                                                       however constituted; and

                                            (c)        any association,
                                                       organization, or
                                                       institution of which any
                                                       of the above is a member
                                                       or to whose jurisdiction
                                                       any thereof is subject or
                                                       in whose activities any
                                                       of the above is a
                                                       participant.


                                      -6-
<PAGE>


         HABITUAL BASE                      the State of Hawaii or, subject to
                                            the prior written consent of the
                                            Lessor and Lender, any other state,
                                            province or country in which the
                                            Aircraft is for the time being
                                            habitually based.

         INDEMNITEES                        the Lessor Indemnitees and the
                                            Lender Indemnitees.

         IRS                                the Internal Revenue Service of the
                                            Department of the Treasury of the
                                            United States of America.

         LANDING GEAR                       the landing gear assembly of the
                                            Aircraft excluding the wheels and
                                            brake units.

         LENDER                             SBCC, any other person or persons
                                            that may from time to time refinance
                                            the Aircraft for the Lessor and/or
                                            for whose benefit a security
                                            interest in respect of the Aircraft
                                            and/or this Agreement is granted by
                                            the Lessor, and any successor and
                                            permitted assign of any such person
                                            under the relevant loan
                                            documentation.

         LENDER INDEMNITEES                 for each Lender, such Lender, any of
                                            its successors and assigns and their
                                            respective shareholders, members,
                                            Affiliates, partners, contractors,
                                            directors, managers, officers,
                                            servants, agents and employees.

         LESSEE INSTALLED PART              means passenger seats, overhead bins
                                            and galleys title to which is held
                                            by Lessee subject to a Security
                                            Interest in favor of an unrelated
                                            third party or title to which is
                                            held by an unrelated third party and
                                            such Part is leased or conditionally
                                            sold to Lessee.

         LESSOR INDEMNITEES                 each of the Lessor, any of its
                                            successors and assigns and their
                                            respective shareholders, members,
                                            Affiliates, partners, contractors,
                                            directors, managers, officers,
                                            servants, agents and employees.

         LESSOR LIEN                        (a)        the Mortgage and any
                                                       other security interest
                                                       whatever from time to
                                                       time created by or
                                                       arising through the
                                                       Lessor and/or the Lender
                                                       in connection with the
                                                       financing or refinancing
                                                       of the Aircraft;


                                      -7-
<PAGE>


                                            (b)        any other security
                                                       interest in respect of
                                                       the Aircraft that results
                                                       from acts or omissions
                                                       of, or claims against,
                                                       the Lessor and/or the
                                                       Lender not related to the
                                                       operation of the Aircraft
                                                       or the transactions
                                                       contemplated by or
                                                       permitted under this
                                                       Agreement; and

                                            (c)        liens in respect of the
                                                       Aircraft for Lessor
                                                       Taxes.

         LESSOR TAXES                       (a)        Taxes imposed as a direct
                                                       result of activities of
                                                       the Lessor and/or the
                                                       Lender in the
                                                       jurisdictions imposing
                                                       the liability unrelated
                                                       to the Lessor's and/or
                                                       the Lender's dealings
                                                       with the Lessee pursuant
                                                       to this Agreement or to
                                                       the transactions
                                                       contemplated by this
                                                       Agreement or the
                                                       operation of the Aircraft
                                                       by the Lessee;

                                            (b)        Taxes imposed on the
                                                       net income, profits or
                                                       gains of the Lessor
                                                       and/or the Lender by
                                                       any Federal Government
                                                       Entity in the United
                                                       States of America or
                                                       by any Government
                                                       Entity of the States
                                                       where the Lessor
                                                       and/or the Lender are
                                                       incorporated or have
                                                       their principal place
                                                       of business, or by any
                                                       Government Entity in
                                                       any other jurisdiction
                                                       where the Lessor
                                                       and/or the Lender is
                                                       liable for such Taxes
                                                       but only to the extent
                                                       that such liability
                                                       has or would have
                                                       arisen in the absence
                                                       of the transactions
                                                       contemplated by this
                                                       Agreement;

                                            (c)        Taxes imposed with
                                                       respect to any period
                                                       commencing or event
                                                       occurring before the date
                                                       of this Agreement or
                                                       after the Expiry Date and
                                                       unrelated to the Lessor's
                                                       and/or the Lender's
                                                       dealings with the Lessee
                                                       pursuant to this
                                                       Agreement or to the
                                                       transactions contemplated
                                                       by this Agreement;

                                            (d)        Taxes imposed as a direct
                                                       result of the sale or
                                                       other disposition of the
                                                       Aircraft, unless such


                                      -8-
<PAGE>


                                                       sale or disposition
                                                       occurs as a consequence
                                                       of an Event of Default;

                                            (e)        Taxes imposed by a taxing
                                                       jurisdiction for a
                                                       particular tax period in
                                                       which none of the
                                                       following is true for
                                                       that tax period (i) the
                                                       operation, registration,
                                                       location, presence or use
                                                       of the Aircraft, the
                                                       Airframe, any Engine or
                                                       any Part thereof in such
                                                       jurisdiction, (ii) the
                                                       place of incorporation,
                                                       commercial domicile or
                                                       other presence in such
                                                       jurisdiction of the
                                                       Lessee, any sublessee or
                                                       any user of or person in
                                                       possession of the
                                                       Aircraft, the Airframe,
                                                       any Engine or any Part
                                                       thereof in such
                                                       jurisdiction, or (iii)
                                                       any payments made under
                                                       this Agreement and
                                                       related documents being
                                                       made from such
                                                       jurisdiction;

                                            (f)        Taxes to the extent
                                                       caused by the gross
                                                       negligence or intentional
                                                       or willful misconduct of
                                                       Lessor or Lender;

                                            (g)        Taxes to the extent
                                                       caused by a failure by
                                                       Lessor or Lender to
                                                       furnish in a timely
                                                       manner notice or
                                                       information which it is
                                                       required to furnish to
                                                       Lessee by the terms of
                                                       this Agreement; and

                                            (h)        Taxes based on or
                                                       measured by the value or
                                                       principal amount of
                                                       indebtedness incurred by
                                                       Lessor with respect to or
                                                       secured by a Security
                                                       Interest on the Aircraft,
                                                       the Airframe, any Engine
                                                       or any interest therein.

         LETTER OF CREDIT                   an irrevocable standby letter of
                                            credit, in the form set out in
                                            Schedule 6 or otherwise in form and
                                            substance reasonably satisfactory to
                                            the Lessor and the Lender, to be
                                            issued (at the Lessee's option) in
                                            favor of the Lessor (or, so long as
                                            the Security Interest of the
                                            Mortgage remains in effect, the
                                            Lender) by a reputable bank in the
                                            United States of America reasonably
                                            acceptable to the Lessor and the
                                            Lender for the payment of the
                                            Security Deposit.


                                      -9-
<PAGE>


         MAINTENANCE PROGRAM                an Aviation Authority approved
                                            maintenance program for the Aircraft
                                            encompassing scheduled maintenance,
                                            condition monitored maintenance
                                            and/or on-condition maintenance of
                                            Airframe, Engines and Parts,
                                            including servicing, testing,
                                            preventative maintenance, repairs,
                                            structural inspections, system
                                            checks, overhauls, approved
                                            modifications, service bulletins,
                                            engineering orders, airworthiness
                                            directives, corrosion control,
                                            inspections and treatments.

         MAJOR CHECKS                       any C-Check, multiple C-Check,
                                            D-Check, annual heavy maintenance
                                            visit or any segment of any of these
                                            checks suggested for commercial
                                            aircraft of the same model as the
                                            Aircraft by its manufacturer
                                            (however denominated) as set out in
                                            the Agreed Maintenance Program.

         MANUFACTURER                       The Boeing Company, a Delaware
                                            corporation with a place of business
                                            in Seattle, Washington.

         MINIMUM LIABILITY COVERAGE         $500,000,000 on each occurrence.

         MORTGAGE                           the aircraft security agreement to
                                            be granted by the Lessor as debtor
                                            to the Lender as secured party,
                                            whereby the Lessor will grant to the
                                            Lender a first priority security
                                            interest in the Aircraft and its
                                            right, title and interest in this
                                            Agreement.

         PARENT                             Aloha Airgroup, Inc., a Hawaii
                                            corporation and the sole stockholder
                                            of Lessee.

         PART                               whether or not installed on the
                                            Aircraft:

                                            (a)        any component, furnishing
                                                       or equipment (other than
                                                       a complete Engine)
                                                       furnished with, installed
                                                       on or appurtenant to the
                                                       Airframe and Engines on
                                                       Delivery; and

                                            (b)        any other component,
                                                       furnishing or equipment
                                                       (other than a complete
                                                       Engine) title to which
                                                       has, or should have,
                                                       passed to the Lessor
                                                       pursuant to the Purchase
                                                       Agreement or Clause
                                                       8.17(a),


                                      -10-
<PAGE>


                                            but excludes any such items title to
                                            which has, or should have, passed to
                                            the Lessee pursuant to Clause
                                            8.17(b) and any Lessee Installed
                                            Part.

         PERMITTED LIEN                     (a)        any lien for Taxes not
                                                       assessed or, if assessed,
                                                       not yet due and payable,
                                                       or being contested in
                                                       good faith by appropriate
                                                       proceedings;

                                            (b)        any lien of a repairer,
                                                       mechanic, carrier, hangar
                                                       keeper, unpaid seller or
                                                       other similar lien
                                                       arising in the ordinary
                                                       course of business or by
                                                       operation of law in
                                                       respect of obligations
                                                       which are not overdue in
                                                       accordance with
                                                       applicable law (or, if
                                                       applicable, generally
                                                       accepted accounting
                                                       principles and practices
                                                       in the relevant
                                                       jurisdiction) or are
                                                       being contested in good
                                                       faith by appropriate
                                                       proceedings; and

                                            (c)        any Lessor Lien;

                                            but only if, in the case of (a) and
                                            (b): (i) adequate reserves have been
                                            provided by the Lessee for the
                                            payment of the Taxes or obligations
                                            in accordance with generally
                                            accounting principles and practices
                                            in the relevant jurisdiction; and
                                            (ii) such proceedings, or the
                                            continued existence of the Security
                                            Interest, do not give rise to any
                                            reasonable likelihood of the sale,
                                            forfeiture or other loss of the
                                            Aircraft or any interest therein or
                                            of criminal liability on the Lessor
                                            or any Lender.

         REDELIVERY LOCATION                Honolulu, Hawaii or an airport in
                                            one of the States on the West Coast
                                            of the United States of America, as
                                            agreed by Lessor and Lessee before
                                            the Expiry Date.

         RENT                               collectively, all Basic Rent and all
                                            Supplemental Rent.

         RENTAL PERIOD                      each period ascertained in
                                            accordance with Clause 5.2.


                                      -11-
<PAGE>


         RENT DATE                          the Delivery Date and the
                                            corresponding day of each calendar
                                            month during the Term or, for any
                                            calendar month that does not have a
                                            corresponding day, the last day of
                                            such calendar month.

         SBCC                               Sanwa Business Credit Corporation, a
                                            Delaware corporation, the initial
                                            "Lender" under this Agreement.

         SECURITY DEPOSIT                   the amount of $228,000.

         SECURITY INTEREST                  any mortgage, charge, pledge, lien,
                                            assignment, hypothecation, right of
                                            set-off, or any agreement or
                                            arrangement having the effect of
                                            creating a security interest, other
                                            than a Permitted Lien.

         SELLER ENTITIES                    collectively, 1980 Aircraft
                                            Investors, a California limited
                                            partnership (the "Partnership"),
                                            First Security Bank, National
                                            Association, as owner trustee f/b/o
                                            the Partnership, each limited
                                            partner of the Partnership, Polaris
                                            Investment Management Corporation,
                                            Polaris Aircraft Leasing Corporation
                                            and GE Capital Aviation Services,
                                            Inc.

         STATE OF INCORPORATION             State of Delaware.

         STATE OF REGISTRATION              United States of America.

         SUBSIDIARY                         (a)        in relation to any
                                                       reference to accounts,
                                                       any company wholly or
                                                       partially owned by
                                                       Parent, including the
                                                       Lessee, whose accounts
                                                       are consolidated with the
                                                       accounts of the Parent in
                                                       accordance with GAAP; and

                                            (b)        for any other purpose, an
                                                       entity from time to time:

                                                       (i)  of which another has
                                                            direct or indirect
                                                            control or owns
                                                            directly or
                                                            indirectly more than
                                                            50% of the voting
                                                            share capital; or


                                      -12-
<PAGE>


                                                       (ii)  which is a direct
                                                             or indirect
                                                             subsidiary of
                                                             another under the
                                                             laws of the
                                                             jurisdiction of
                                                             its incorporation.

         SUPPLEMENTAL RENT                  all amounts, liabilities and
                                            obligations (other than Basic Rent)
                                            which Lessee assumes or agrees to
                                            pay under this Agreement to Lessor
                                            or any other person, including
                                            payment of the Security Deposit,
                                            other deposits, indemnities and the
                                            Agreed Value.

         TAXES                              all present and future taxes,
                                            levies, imposts, duties or charges
                                            in the nature of taxes, whatever and
                                            wherever imposed, including customs
                                            duties, value added taxes or similar
                                            taxes and any franchise, transfer,
                                            sales, use, business, occupation,
                                            excise, personal property, stamp or
                                            other tax or duty imposed by any
                                            national or local taxing or fiscal
                                            authority or agency, together with
                                            any withholding, penalties,
                                            additions to tax, fines or interest
                                            thereon or with respect thereto.

         TERM                               the period commencing on the
                                            Delivery Date and ending on the
                                            Expiry Date.

         TOTAL LOSS                         with respect to the Airframe:

                                            (a)        the actual, arranged or
                                                       constructive total loss
                                                       of the Airframe
                                                       (including any damage to
                                                       the Airframe which
                                                       results in an insurance
                                                       settlement on the basis
                                                       of a total loss, or
                                                       requisition for use or
                                                       hire which results in an
                                                       insurance settlement on
                                                       the basis of a total
                                                       loss);

                                            (b)        the Airframe being
                                                       destroyed, damaged beyond
                                                       repair or permanently
                                                       rendered unfit for normal
                                                       use for any reason
                                                       whatsoever;

                                            (c)        the requisition of title,
                                                       or other compulsory
                                                       acquisition, capture,
                                                       seizure, deprivation,
                                                       confiscation or detention
                                                       for any reason of the
                                                       Airframe (whether DE JURE
                                                       or DE FACTO), but
                                                       excluding requisition for
                                                       use or hire not involving
                                                       requisition of title; or


                                      -13-
<PAGE>


                                            (d)        the hi-jacking, theft,
                                                       condemnation,
                                                       confiscation, seizure or
                                                       requisition for use or
                                                       hire of the Airframe
                                                       which deprives any person
                                                       permitted by this
                                                       Agreement to have
                                                       possession and/or use of
                                                       the Airframe of its
                                                       possession and/or use for
                                                       more than 60 consecutive
                                                       days.

         TOTAL LOSS DATE                    (a)        in the case of an actual
                                                       total loss, the actual
                                                       date on which the loss
                                                       occurs or, if such date
                                                       is unknown, the day on
                                                       which the Aircraft was
                                                       last heard of;

                                            (b)        in the case of any of the
                                                       events described in
                                                       sub-paragraph (a) of the
                                                       definition of "Total
                                                       Loss" (other than an
                                                       actual total loss), the
                                                       earlier of (i) 30 days
                                                       after the date on which
                                                       notice claiming such
                                                       total loss is given to
                                                       the relevant insurers,
                                                       and (ii) the date on
                                                       which such loss is
                                                       admitted or compromised
                                                       by the insurers;

                                            (c)        in the case of any of the
                                                       events described in
                                                       sub-paragraph (b) of the
                                                       definition of "Total
                                                       Loss", the date on which
                                                       such destruction, damage
                                                       or rendering unfit
                                                       occurs;

                                            (d)        in the case of any of the
                                                       events described in
                                                       sub-paragraph (c) of the
                                                       definition of "Total
                                                       Loss", the date on which
                                                       the relevant requisition
                                                       of title or other
                                                       compulsory acquisition,
                                                       capture, seizure,
                                                       deprivation, confiscation
                                                       or detention occurs;

                                            (e)        in the case of any of the
                                                       events described in
                                                       sub-paragraph (d) of the
                                                       definition of "Total
                                                       Loss", the expiry of the
                                                       period of 60 days
                                                       referred to in such
                                                       sub-paragraph (d);

                                            and, in each case, the Total Loss
                                            shall be deemed to have occurred at
                                            noon Greenwich Mean Time on such
                                            date.

                                      -14-
<PAGE>


1.2    INTERPRETATION

       (a)    In this Agreement, unless the contrary intention is stated, a
              reference to:

              (i)    each of "THE LESSOR", "THE LESSEE", "THE LENDER" or any
                     other person includes without prejudice to the provisions
                     of this Agreement any successor in title to it and any
                     permitted assignee;

              (ii)   words importing the plural shall include the singular and
                     vice versa;

              (iii)  the term "including", when used in this Agreement, means
                     "including without limitation" and "including but not
                     limited to".

              (iv)   any document shall include that document as amended,
                     novated or supplemented;

              (v)    a law (1) includes any statute, decree, constitution,
                     regulation, order, judgment or directive of any Government
                     Entity; (2) includes any treaty, pact, compact or other
                     agreement to which any Government Entity is a signatory or
                     party; (3) includes any judicial or administrative
                     interpretation or application thereof; and (4) is a
                     reference to that provision as amended, substituted or
                     re-enacted; and

              (vi)   a Clause or a Schedule is a reference to a clause of or a
                     schedule to this Agreement.

       (b)    The headings in this Agreement are to be ignored in construing
              this Agreement.

2.     REPRESENTATIONS AND WARRANTIES

2.1    LESSEE'S REPRESENTATIONS AND WARRANTIES

       The Lessee represents and warrants to the Lessor as follows:

       (a)    STATUS: The Lessee is a corporation duly organized, validly
              existing and in good standing under the laws of the State of
              Incorporation, has the corporate power to own its assets and carry
              on its business as it is being conducted and is (or will at the
              relevant time be) the holder of all necessary air transportation
              licences required in connection therewith and with the use and
              operation of the Aircraft.

       (b)    POWER AND AUTHORITY: The Lessee has the corporate power to enter
              into and perform, and has taken all necessary corporate action to
              authorize the entry into,


                                      -15-
<PAGE>


              performance and delivery of, this Agreement and the transactions
              contemplated by this Agreement.

       (c)    LEGAL VALIDITY: This Agreement constitutes the Lessee's legal,
              valid and binding obligation, enforceable against Lessee in
              accordance with its terms.

       (d)    NON-CONFLICT: The entry into and performance by the Lessee of, and
              the transactions contemplated by, this Agreement do not and will
              not:

              (i)    conflict with any laws binding on the Lessee;

              (ii)   conflict with the constitutional documents of the Lessee;
                     or

              (iii)  conflict with or result in default under any document which
                     is binding upon the Lessee or any of its assets, or result
                     in the creation of any Security Interest over any of its
                     assets.

       (e)    AUTHORIZATION: All authorizations, consents and registrations
              required by, and all notifications to be given by, the Lessee in
              connection with the entry into, performance, validity and
              enforceability of, this Agreement and the transactions
              contemplated by this Agreement have been (or will on or before
              Delivery have been) obtained, effected or given (as appropriate)
              and are (or will on their being obtained or effected be) in full
              force and effect.

       (f)    NO IMMUNITY:

              (i)    The Lessee is subject to civil commercial law with respect
                     to its obligations under this Agreement.

              (ii)   Neither the Lessee nor any of its assets is entitled to any
                     right of immunity and the entry into and performance of
                     this Agreement by the Lessee constitute private and
                     commercial acts.

       (g)    FINANCIAL STATEMENTS: the audited consolidated financial
              statements of the Parent and its Subsidiaries most recently
              delivered to the Lessor:

              (i)    have been prepared in accordance with GAAP; and

              (ii)   fairly present the consolidated financial condition of
                     the Parent and its Subsidiaries as at the date to which
                     they were drawn up and the consolidated results of
                     operations of the Parent and its Subsidiaries for the
                     periods covered by such statements.

                                      -16-
<PAGE>


       (h)    AIR CARRIER STATUS: the Lessee is a "citizen of the United States"
              as defined in Section 40102 of the Federal Aviation Law, an air
              carrier certified by the FAA under Chapter 447 of the Federal
              Aviation Law and a Person "holding an air carrier operating
              certificate issued by the Secretary of Transportation pursuant to
              Chapter 447 of title 49 for aircraft capable of carrying 10 or
              more individuals or 6,000 pounds or more of cargo" as that phrase
              is used in 11 U.S.C. ss.1110, as amended ("Section 1110").

       (i)    SECTION 1110: the Lessor and, by virtue of the assignment for
              collateral purposes of Lessor's right, title and interest in
              the Aircraft and this Agreement, the Lender are entitled to the
              benefits of Section 1110 with respect to any bankruptcy
              proceedings involving Lessee.

2.2    LESSEE'S FURTHER REPRESENTATIONS AND WARRANTIES

       The Lessee further represents and warrants to the Lessor that:

       (a)    NO DEFAULT: No Event of Default has occurred and is continuing or
              might reasonably be expected to result from the entry into or
              performance of this Agreement.

       (b)    REGISTRATION:

              (i)    It is not necessary or advisable under the laws of the
                     State of Incorporation, the State of Registration or the
                     Habitual Base in order to ensure the validity,
                     effectiveness and enforceability of this Agreement or the
                     Mortgage or to establish, perfect or protect the property
                     rights of the Lessor or the Lender in the Aircraft, any
                     Engine or Part that this Agreement or any other instrument
                     relating thereto be filed, registered or recorded or that
                     any other action be taken or, if any such filings,
                     registrations, recordings or other actions are necessary,
                     the same have been effected or will have been effected on
                     or before Delivery.

              (ii)   Under the laws of the State of Incorporation, the State of
                     Registration and the Habitual Base the property rights of
                     the Lessor and the Lender (pursuant to the Mortgage) in the
                     Aircraft have been fully established, perfected and
                     protected and this Agreement will have priority in all
                     respects over the claims of all creditors of the Lessee,
                     with the exception of such claims as are mandatorily
                     preferred by law and not by virtue of any contract.

       (c)    LITIGATION: No litigation, arbitration or administrative
              proceedings are pending or, to the Lessee's knowledge, threatened
              against the Lessee which, if adversely determined, would have a
              material adverse effect upon its financial condition or business
              or its ability to perform its obligations under this Agreement.


                                      -17-
<PAGE>


       (d)    PARI PASSU: The obligations of the Lessee under this Agreement
              rank at least PARI PASSU with all other present and future
              unsecured and unsubordinated obligations (including contingent
              obligations) of the Lessee, with the exception of such obligations
              as are mandatorily preferred by law and not by virtue of any
              contract.

       (e)    TAXES: The Lessee has delivered all necessary returns and payments
              due to the tax authorities in the State of Incorporation, the
              State of Registration, the jurisdiction of the Delivery Location
              and the Habitual Base and is not required by law to deduct or
              withhold any Taxes from any payments under this Agreement.

 2.3    REPETITION

        The representations and warranties in Clause 2.1 and Clause 2.2 will
        survive the execution of this Agreement. The representations and
        warranties contained in Clause 2.1 and Clause 2.2 (other than Clause
        2.2(c) above) will be deemed to be repeated by the Lessee on Delivery
        with reference to the facts and circumstances then existing. The
        representations and warranties contained in Clause 2.1 will be deemed to
        be repeated by the Lessee on each Rent Date as if made with reference to
        the facts and circumstances then existing.

 2.4    LESSOR'S REPRESENTATIONS AND WARRANTIES

        The Lessor represents and warrants to the Lessee that:

       (a)    STATUS: The Lessor is a limited liability company duly formed and
              validly existing under the laws of Delaware and has the power to
              own its assets and carry on its business as it is now being
              conducted.

       (b)    POWER AND AUTHORITY: The Lessor has the power to enter into and
              perform, and has taken all necessary action to authorize the entry
              into, performance and delivery of, this Agreement and the
              transactions contemplated by this Agreement.

       (e)    LEGAL VALIDITY: This Agreement constitutes the Lessor's legal,
              valid and binding obligation, enforceable against Lessor in
              accordance with its terms.

       (d)    NON-CONFLICT: The entry into and performance by the Lessor of, and
              the transactions contemplated by, this Agreement do not and will
              not:

              (i)    conflict with any laws binding on the Lessor;

              (ii)   conflict with the constitutional documents of the Lessor;
                     or


                                      -18-
<PAGE>


              (iii)  conflict with any document which is binding upon the Lessor
                     or any of its assets.

       (e)    AUTHORIZATION: So far as concerns the obligations of the Lessor,
              all authorizations, consents, registrations and notifications
              required under the laws of the States of Delaware and New York in
              connection with the entry into, performance, validity and
              enforceability of, and the transactions contemplated by, this
              Agreement by the Lessor have been (or will on or before Delivery
              have been) obtained or effected (as appropriate) and are (or will
              on their being obtained or effected be) in full force and effect.

       (f)    NO IMMUNITY:

              (i)    The Lessor is subject to civil commercial law with respect
                     to its obligations under this Agreement.

              (ii)   Neither the Lessor nor any of its assets is entitled to any
                     right of immunity and the entry into and performance of
                     this Agreement by the Lessor constitute private and
                     commercial acts.

       (g)    RIGHT TO LEASE: On the Delivery Date, the Lessor shall have the
              right to lease the Aircraft to the Lessee under this Agreement.

2.5    REPETITION

       The representations and warranties in Clause 2.4 will survive the
       execution of this Agreement. The representations and warranties contained
       in Clause 2.4 will be deemed to be repeated by the Lessor on Delivery and
       on each subsequent Rent Date as if made with reference to the facts and
       circumstances then existing.

3.     CONDITIONS PRECEDENT

3.1    LESSOR'S DOCUMENTARY CONDITIONS PRECEDENT

       The Lessor's obligation to lease the Aircraft to the Lessee under this
       Agreement is subject to the receipt of the following by the Lessor from
       the Lessee on or before Delivery in form and substance satisfactory to
       the Lessor, PROVIDED THAT it shall not be a condition precedent to the
       obligations of the Lessor that any document be produced, or action taken,
       which is to be produced or taken by it or any person within its control:

       (a)    CONSTITUTIONAL DOCUMENTS: a copy of the constitutional documents
              of the Lessee;


                                      -19-
<PAGE>


       (b)    RESOLUTIONS: a copy of a resolution of the board of directors of
              the Lessee approving the terms of, and the transactions
              contemplated by, this Agreement, resolving that it enter into this
              Agreement, and authorizing a specified person or persons to
              execute this Agreement and accept delivery of the Aircraft on its
              behalf;

       (c)    OPINIONS: opinions, in the form set out in Schedule 5, in respect
              of the Lessee's obligations under this Agreement issued by
              independent legal counsel acceptable to the Lessor and the Lender;

       (d)    APPROVALS: evidence of the issue of each approval, licence and
              consent which may be required in relation to, or in connection
              with, the performance by Lessee of any of its obligations
              hereunder;

       (e)    LICENCES: copies of the Lessee's air transport license, air
              operator's certificate and all other licenses, certificates and
              permits required by the Lessee in relation to, or in connection
              with, the operation of the Aircraft;

       (f)    CERTIFICATE: a certificate of a duly authorized officer of the
              Lessee:

              (i)    setting out a specimen of each signature referred to in
                     Clause 3.1(b); and

              (ii)   certifying that each copy of a document specified in this
                     Clause 3.1 is correct, complete and in full force and
                     effect;

       (g)    INSURANCES: certificates of insurance, brokers' undertakings and
              other evidence satisfactory to the Lessor that the Lessee is
              taking the required steps to ensure due compliance with the
              provisions of this Agreement as to insurances with effect on and
              after Delivery;

       (h)    REGISTRATION: evidence that the Aircraft has been validly
              registered under the laws of the State of Registration and that
              all filings, registrations, recordings and other actions have been
              or will be taken which are necessary to ensure the validity,
              effectiveness and enforceability of this Agreement and the
              Mortgage and to protect the respective rights of the Lessor and
              the Lender in the Aircraft or any Part; and

       (i)    GENERAL: such other documents as the Lessor may reasonably
              request.

3.2    LESSOR'S OTHER CONDITIONS PRECEDENT

       The obligation of the Lessor to deliver and lease the Aircraft under this
       Agreement is also subject to the following additional conditions
       precedent:


                                      -20-


<PAGE>


       (a)    that the representations and warranties of the Lessee under
              Clauses 2.1 and 2.2 are correct and would be correct if
              repeated on Delivery;

       (b)    that all payments due to the Lessor under this Agreement on or
              before Delivery, including the first payment of Basic Rent and
              the Security Deposit (unless a Letter of Credit has been
              delivered), shall have been received by the Lessor;

       (c)    all conditions precedent to the purchase of the Aircraft and
              the Aircraft Documents by the Lessor under the Purchase
              Agreement shall have been satisfied (or waived by the Lessor),
              the Lessor shall have drawn down under its financing facility
              with the Lender the amount required to pay the "Purchase Price"
              (as defined in the Purchase Agreement) due to the Seller and
              the Seller has conveyed good and marketable title to the
              Aircraft and Aircraft Documents to Lessor pursuant to the
              Purchase Agreement, free and clear of all Security Interests;
              and

       (d)    the Mortgage shall be in full force and effect.

3.3    LESSOR'S WAIVER

       The conditions specified in Clauses 3.1 and 3.2(a) and (b) are for the
       sole benefit of the Lessor and the Lender and may be waived or deferred
       in whole or in part and with or without conditions by the Lessor. If any
       of those conditions are not satisfied on or before Delivery and the
       Lessor (in its absolute discretion) nonetheless agrees to deliver the
       Aircraft to the Lessee, the Lessee will ensure that those conditions
       (other than the representation set forth in Clause 2.2(c) being correct
       on the Delivery Date) are fulfilled within one month after the Delivery
       Date and the Lessor may treat as an Event of Default the failure of the
       Lessee to do so.

3.4    LESSEE'S CONDITIONS PRECEDENT

       The Lessee's obligation to accept the Aircraft on lease from the Lessor
       under this Agreement is subject to the satisfaction by the Lessor of the
       following conditions precedent:

       (a)    RESOLUTIONS: the receipt by the Lessee of a copy of resolutions
              of the board of directors of the Lessor approving the terms of,
              and the transactions contemplated by, this Agreement, resolving
              that it enter into this Agreement, and authorizing a specified
              person or persons to execute this Agreement and deliver the
              Aircraft on its behalf;

       (b)    CERTIFICATE: the receipt by the Lessee of a certificate of a
              duly authorized officer of the Lessor:


                                    -21-

<PAGE>


               (i)    setting out a specimen of each signature referred to in
                      sub-clause (a) above; and

               (ii)   certifying that the copy of the resolutions referred to
                      in sub-clause (a) above is correct, complete and in
                      full force and effect;

        (c)    REPRESENTATIONS AND WARRANTIES: that the representations and
               warranties of the Lessor under Clause 2.4 are correct and
               would be correct if repeated on Delivery; and

        (d)    LENDER'S COVENANT OF QUIET ENJOYMENT: the receipt by the
               Lessee of the Lender's Letter of Quiet Enjoyment, duly signed
               by the Lender.

3.5     LESSEE'S WAIVER

       The conditions specified in Clause 3.4 are for the sole benefit of the
       Lessee and may be waived or deferred in whole or in part and with or
       without conditions by the Lessee. If any of those conditions are not
       satisfied on or before Delivery and the Lessee (in its absolute
       discretion) nonetheless agrees to lease the Aircraft from the Lessor, the
       Lessor will ensure that those conditions are fulfilled within one month
       after the Delivery Date.

4.      COMMENCEMENT; OPTIONS

4.1     LEASING

        (a) The Lessor will lease the Aircraft to the Lessee and the Lessee
            will take the Aircraft on lease in accordance with this Agreement
            for the duration of the Term.

        (b) The Lessor and the Lessee intend that this Agreement constitute a
            "true lease" and a lease for all United States federal income tax
            purposes. The Lessor and the Lessee further intend and agree that
            the Lessor (and, by virtue of the Mortgage, the Lender) shall be
            entitled to the full benefits afforded lessors of aircraft under
            11 U.S.C. Section 1110, as amended.

4.2     DELIVERY

       The Aircraft will be deemed to have been delivered to, and will be
       accepted by, the Lessee at the Delivery Location, or such other location
       as may be agreed, on the Delivery Date immediately following satisfaction
       of the conditions precedent specified in Clauses 3.1, 3.2 and 3.4 (or
       their waiver or deferral by the party entitled to grant such waiver or
       deferral).


                                    -22-


<PAGE>


  4.3    ACCEPTANCE AND RISK

         (a)    Immediately following satisfaction of the conditions
                precedent specified in Clauses 3.1, 3.2 and 3.4 (or their
                waiver or deferral by the party entitled to grant such waiver
                or deferral), the Lessee and the Lessor shall forthwith
                complete Annex 1 to the Certificate of Acceptance (specifying
                the maintenance status of the Airframe, Engines, APU and
                Landing Gear) and the Lessee shall sign and deliver to the
                Lessor the Certificate of Acceptance. Delivery of the signed
                Certificate of Acceptance to the Lessor shall constitute
                deemed delivery of the Aircraft to the Lessee.

         (b)    On and from Delivery, the Aircraft and every Part will be in
                every respect at the sole risk of the Lessee, which will bear
                all risk of loss, theft, damage or destruction to the
                Aircraft from any cause whatsoever.

         (c)    Immediately following Delivery, the Lessor shall file for
                recordation this Lease at the FAA Aircraft Registry together
                with the Mortgage.

  4.4    EXTENSION OPTION.

         Lessor shall have the right, in its sole discretion and with the
         consent of the Lender, to elect to extend the Term of this Agreement
         until the fifth anniversary of the Delivery Date (the "Extension
         Option"). Lessor shall exercise the Extension Option by giving Lessee
         written notice of such exercise at least six months before the fourth
         anniversary of the Delivery Date. During the extended Term, all of the
         terms and provisions of this Agreement shall remain in full force and
         effect, including the amount and payment of Basic Rent.

  4.5    EARLY TERMINATION OPTION.

         Lessor shall have the right, in its sole discretion and with the
         consent of the Lender, to terminate this Agreement on any date on or
         after April 1, 1998, upon giving 60 days prior written notice to Lessee
         (the "Early Termination Option"). Such written notice shall specify the
         date of return for the Aircraft. Lessee shall thereupon take all action
         necessary to redeliver the Aircraft in accordance with this Agreement.

  5.     PAYMENTS

  5.1    SECURITY DEPOSIT; LETTER OF CREDIT

         (a)    SECURITY DEPOSIT: On the date of this Agreement, Lessee shall
                pay the Security Deposit to Lender. The Security Deposit shall
                constitute additional security for performance by Lessee of its
                obligations under this Agreement, and the following provisions
                shall apply:

                                    -23-


<PAGE>


               (i)     If an Event of Default occurs and for as long as it
                       continues, the Lessor (or, if the Security Interest of
                       the Mortgage shall be in effect, the Lender) may (but
                       shall not be obligated to) apply all or any portion of
                       the Security Deposit in or towards satisfaction of any
                       sums due and payable to the Lessor under this
                       Agreement or to compensate the Lessor or, if
                       applicable, the Lender for any sums which it may, in
                       its discretion, advance or expend as a result of any
                       such Event of Default. Notwithstanding any such use or
                       application by the Lessor or the Lender, the Lessee
                       shall remain in default under this Agreement until the
                       full amount owed by the Lessee, including interest
                       accrued thereon pursuant to Clause 5.9, shall have
                       been paid to the Lessor. If the Lessor or, if
                       applicable, the Lender so uses or applies all or any
                       portion of the Security Deposit, the Lessee shall
                       immediately, on demand of the Lessor or Lender,
                       replenish the Security Deposit in an amount equal to
                       the amount so used or applied within five Business
                       Days after Lessor's or Lender's demand therefor.

               (ii)    Lessor or, if applicable, Lender may commingle the
                       Security Deposit with its general funds, and any
                       interest earned on the Security Deposit will be for
                       Lessor's or Lender's account.

               (iii)   The Security  Deposit shall be returned to the Lessee
                       within five Business Days of (1) redelivery  of the
                       Aircraft to the Lessor in the  condition  required by
                       Clause 12 of, and  Schedule 3 to,  this  Agreement,
                       (2)  receipt by the Lessor of the Agreed  Value
                       following  a Total Loss and all other  amounts  due
                       under  Clause 11.1(b), or (3) at such later time as
                       the Lessor is  satisfied  that the Lessee has
                       irrevocably  paid to the Lessor  all  amounts  which
                       are at that time  outstanding  under  this  Agreement;
                       provided  always that the Lessor shall not be obliged
                       to return the  Security  Deposit if, at the relevant
                       time, a Default shall have occurred and be continuing.

               (iv)    To the fullest  extent  permitted by law and by way of
                       continuing  security the Lessee grants a security
                       interest  in the  Security  Deposit and all rights of
                       the Lessee to payment thereof,  the debt represented
                       thereby and all interest thereon and/or any and all
                       interest of the Lessee  therein to the Lessor by way
                       of first  priority  security interest as security for
                       the Lessee's  obligations  and liability under this
                       Agreement (the "Lessee's Liabilities").  Except as
                       expressly permitted under this Agreement, the Lessee
                       will not be entitled  to  repayment  of the  Security
                       Deposit,  and the Lessee agrees that it will enter
                       into any additional  documents and instruments
                       necessary or reasonably  requested  by Lessor or the
                       Lender to  evidence,  create or  perfect  the Lessor's
                       rights to and security interest in the Security
                       Deposit.

        (b)    LETTER OF CREDIT: the Lessee shall be entitled, instead of
               paying the Security Deposit in cash in accordance with
               sub-clause (a) above, to provide the Lessor with the Letter


                                    -24-


<PAGE>


               of Credit. In the event that the Lessee elects to provide the
               Letter of Credit,  the following provisions shall apply:

               (i)    Lessee shall cause the Letter of Credit to be renewed
                      or replaced by the issuing bank not later than 10
                      Business Days before the expiration of such Letter of
                      Credit, and shall cause the Letter of Credit to remain
                      in effect, as renewed, until 90 days after the
                      scheduled Expiry Date.

               (ii)   If an Event of Default occurs and for as long as it
                      continues, the Lessor (or, so long as the Security
                      Interest of the Mortgage shall remain in effect, the
                      Lender) may (but shall not be obliged to) call on the
                      Letter of Credit and use or apply the proceeds in or
                      towards satisfaction of any sums due and payable to the
                      Lessor under this Agreement or to compensate the Lessor
                      or Lender for any sums which it may, in its discretion,
                      advance or expend as a result of any such Event of
                      Default. Notwithstanding any such use or application by
                      the Lessor or the Lender, the Lessee shall remain in
                      default under this Agreement until the full amount owed
                      by the Lessee, including interest accrued thereon
                      pursuant to Clause 5.9, shall have been paid to the
                      Lessor and the Lender. If the Lessor or, if applicable,
                      the Lender so uses or applies all or any portion of the
                      amount available under the Letter of Credit, the Lessee
                      shall immediately, on demand of the Lessor or the
                      Lender, procure the issue of a new Letter of Credit
                      acceptable to the Lessor and the Lender for an amount
                      equal to the amount so used or applied, or shall pay to
                      the Lessor an amount in cash equal to the amount so
                      used or applied to be held pursuant to Clause 5.1(a).

               (iii)  The Letter of Credit shall be returned to the Lessee
                      within five Business Days of.

                      (1)    redelivery of the Aircraft to the Lessor in the
                             condition required by Clause 12 of, and Schedule
                             3 to, this Agreement; or

                      (2)    receipt by the Lessor of the Agreed Value
                             following a Total Loss and all other amounts due
                             under Clause 11.1(b); or

                      in either case, at such later time as the Lessor is
                      satisfied that the Lessee has irrevocably paid to the
                      Lessor all amounts which are at that time outstanding
                      under this Agreement; provided always that the Lessor
                      shall not be obliged to return the Letter of Credit if,
                      at the relevant time, a Default shall have occurred and
                      be continuing.


                                    -25-


<PAGE>


 5.2    RENTAL PERIODS

        The first Rental Period will commence on the Delivery Date and each
        subsequent Rental Period will commence on the date succeeding the last
        day of the previous Rental Period. Each Rental Period will end on the
        date immediately preceding the next succeeding Rent Date except that if
        a Rental Period would otherwise overrun the Expiry Date, it will end on
        the Expiry Date.

 5.3    BASIC RENT

        (a)    TIME OF PAYMENT: the Lessee will pay to the Lessor or its
               order Basic Rent in advance on each Rent Date. Payment must be
               initiated adequately in advance of the Rent Date to ensure
               that the Lessor receives credit for the payment on the Rent
               Date.

        (b)    AMOUNT: The Basic Rent payable in respect of each Rental
               Period will be the amount of $114,000.

 5.4    PAYMENTS

        (a)    All payments of Rent by the Lessee to the Lessor under this
               Agreement will be made for value on the due date, for the full
               amount due, in Dollars and in immediately available funds,
               settled through the New York Clearing House System or such
               other funds as may for the time being be customary for the
               settlement in New York City of payments in Dollars by
               telegraphic transfer to the account of the Lender at Harris
               Trust and Savings Bank, 111 West Monroe Street, Chicago,
               Illinois 60690, Account No. 401-689-5, ABA No. 071-000-288,
               Ref.: "ACG Acquisition XII LLC", Attention: Ida Renaud.

        (b)    If any Rent or other payment would otherwise become due on a
               day which is not a Business Day, it shall be due on the
               immediately succeeding Business Day.

 5.5    GROSS-UP

        (a)    All payments by the Lessee under or in connection with this
               Agreement will be made without offset or counterclaim, free
               and clear of and without deduction or withholding for or on
               account of any Taxes (other than amounts that Lessee is
               compelled by law to deduct or withhold).

        (b)    All Taxes in respect of payments under this Agreement shall be
               for the account of the Lessee.

        (c)    If the Lessee is compelled by law to make payment to the
               Lessor under or in connection with this Agreement subject to
               any Tax and the Lessor does not actually


                                    -26-


<PAGE>


               receive for its own benefit on the due date a net amount equal
               to the full amount provided for under this Agreement, the
               Lessee will pay all necessary additional amounts to ensure
               receipt by the Lessor of the full amount (other than Lessor
               Taxes that Lessee is compelled by law to deduct or withhold)
               so provided for.

5.6     TAXATION

        (a)    The Lessee will on demand pay and indemnify the Lessor and the
               Lender against all Taxes (other than Lessor Taxes) levied or
               imposed against or upon the Lessor, the Lender or the Lessee
               and relating to or attributable to the Lessee, this Agreement
               or the Aircraft directly or indirectly in connection with the
               importation, exportation, registration, ownership, leasing,
               sub-leasing, purchase, financing, refinancing, pledging,
               delivery, possession, use, operation, repair, maintenance,
               overhaul, transportation, landing, storage, presence or
               redelivery of the Aircraft or any part thereof or any rent,
               receipts, insurance proceeds, income or other amounts arising
               therefrom.

        (b)    If the Lessor or the Lender shall, based upon its own
               reasonable interpretation of any relevant laws or regulations,
               realize any Tax savings (by way of refund, deduction, credit
               or otherwise) in respect of any amount with respect to which
               the Lessee shall have made a payment (or increased payment)
               pursuant to Clause 5.5 or 5.8 or shall have indemnified the
               Lessor or the Lender pursuant to sub-clause (a) above, or in
               respect of the occurrence or transaction which gave rise to
               such payment or indemnification, and such Tax savings shall
               not have been taken into account previously in calculating any
               indemnity payment made by the Lessee, then the Lessor or the
               Lender (as the case may be) shall, to the extent. that it can
               do so without prejudice to the retention of the relevant
               savings and subject to the Lessee's obligations to repay such
               amount to the Lessor or the Lender (as applicable) if the
               relevant savings are subsequently disallowed or canceled, pay
               to the Lessee such amount as the Lessor or the Lender (as the
               case may be) shall in its opinion have concluded to be the
               amount of such Tax savings (together with, in the case of a
               refund, any interest received thereon); provided however that
               neither the Lessor nor the Lender shall be obliged to make any
               payment to the Lessee pursuant to this sub clause (b) to the
               extent that the amount of any Tax savings in respect of which
               such payment is to be made would exceed the aggregate amount
               of all prior payments made by the Lessee to, on behalf of or
               as indemnification of the Lessor or the Lender under this
               Agreement for Taxes less the amount of all prior payments made
               pursuant to this sub-clause (b) in respect of such Tax
               savings. The Lessee acknowledges that nothing contained in
               this sub-clause (b) shall interfere with the right of the
               Lessor or the Lender to arrange its tax affairs in whatsoever
               proper manner it thinks fit (or give the Lessee any right to
               investigate, or impose any obligation on the Lessor or the
               Lender to disclose, the same) and, in particular, neither the
               Lessor nor the Lender shall be under any obligation to claim
               any Tax savings in priority to any other


                                    -27-

<PAGE>


               savings available to it; provided, that subject to the
               foregoing Lessor shall use reasonable good faith diligence to
               realize Tax savings as described above.

5.7    INFORMATION

       If the Lessee is required by any applicable law, or by any third
       party, to deliver any report or return in connection with any Taxes,
       the Lessee will duly complete the same and, in particular, will state
       therein that the Lessee is exclusively responsible for the use and
       operation of the Aircraft and for the Taxes (other than Lessor Taxes)
       arising therefrom, and the Lessee will, on request, supply a copy of
       the report or return to the Lessor or the Lender, as the case may be.
       If Lessee requires any information or cooperation from Lessor or
       Lender in order to satisfy its obligations as set forth above, Lessor
       and Lender shall promptly furnish such information or cooperation as
       Lessee may reasonably request upon written request by Lessee. If
       actual notice is given by any taxing authority to Lessor that a report
       or return is required to be filed with respect to any Taxes (other
       than Lessor Taxes), the Lessor shall promptly notify Lessee of such
       required report or return.

5.8    TAXATION OF INDEMNITY PAYMENTS

       (a)    If and to the extent that any sums payable to the Lessor or the
              Lender by the Lessee under this Agreement by way of indemnity
              are insufficient, by reason of any Taxes payable in respect of
              those sums, for the Lessor or the Lender to discharge the
              corresponding liability to the relevant third party (including
              any taxation authority), or to reimburse the Lessor or the
              Lender for the cost incurred by it to a third party (including
              any taxation authority) the Lessee will pay to the Lessor or
              the Lender (as the case may be) such sum as will, after the tax
              liability has been fully satisfied, leave the Lessor or the
              Lender (as the case may be) with the same amount as it would
              have been entitled to receive in the absence of that liability,
              together with interest on the amount of the deficit at the
              Default Rate in respect of the period commencing on the date on
              which the payment of taxation is finally due until payment by
              the Lessee (both before and after judgment).

       (b)    If and to the extent that any sums constituting (directly or
              indirectly) an indemnity to the Lessor or the Lender but paid
              by the Lessee to any person other than the Lessor or the Lender
              are treated as taxable in the hands of the Lessor or the
              Lender, the Lessee will pay to the Lessor or the Lender such
              sum as will, after the tax liability has been fully satisfied,
              indemnify the Lessor or the Lender to the same extent as it
              would have been indemnified in the absence of such liability,
              together with interest on the amount payable by lessee under
              this sub-clause at the Default Rate in respect of the period
              commencing on the date on which the payment of taxation is
              finally due until payment by the Lessee (both before and after
              judgment).


                                    -28-

<PAGE>


  5.9    DEFAULT INTEREST

         If the Lessee fails to pay any amount payable under this Agreement on
         the due date, the Lessee will pay on demand from time to time to the
         Lessor or the Lender (as the case may be) interest (both before and
         after judgment) on the amount, from the due date to the day of payment
         in full by the Lessee to the Lessor or the Lender, at the prime rate
         for the time being charged by Citibank, N.A. plus 3.0% (the "DEFAULT
         RATE"). All such interest will be compounded monthly and calculated on
         the basis of the actual number of days elapsed and on a 360 day year.

  5.10   CONTEST

         If written claim is made against Lessor or Lender for or with respect
         to any Taxes, Lessor shall, and shall cause Lender to, promptly notify
         the Lessee. If reasonably requested by the Lessee in writing within 30
         days after such notification, Lessor shall, upon receipt of indemnity
         satisfactory to Lessor or Lender, as the case may be, and at the
         expense of the Lessee (including all costs, expenses, losses, legal and
         accountants' fees and disbursements, penalties and interest), in good
         faith contest or to the extent permissible by law allow Lessee to
         contest in Lessee's, the Lessor's or the Lender's name, the validity,
         applicability or amount of such Taxes by either (i) resisting payment
         thereof if practicable and permitted by applicable law, or (ii) if
         payment is made, using reasonable efforts to obtain a refund thereof in
         appropriate administrative and judicial proceedings, and in the contest
         of any such claim by Lessor or Lender, Lessor or Lender (as the case
         may be) shall apprise the Lessee of all material developments with
         respect to such contest, shall forward copies of all material
         submissions made in such contest and shall materially comply in good
         faith with any reasonable request concerning the conduct of any such
         contest; provided, however, the Lessor or the Lender (as the case may
         be) will not be obliged to take any such action:

         (a)    which the Lessor or the Lender (as the case may be)
                considers, in its reasonable discretion, may prejudice it; or

         (b)    which the Lessor or the Lender (as the case may be)
                reasonably considers does not have a reasonable prospect of
                success; or

         (c)    for which the Lessee has not made adequate provision to the
                reasonable satisfaction of the Lessor or the Lender (as the
                case may be) in respect of the expense concerned; or

         (d)    if such action gives rise to any material likelihood of the
                Aircraft or any interest therein being sold, forfeited or
                otherwise lost or of criminal liability on the part of the
                Lessor or the Lender.


                                    -29-


<PAGE>


       If Lessor or Lender, in accordance with the foregoing, determines to
       pay such Taxes and seek a refund, Lessee will either pay such Taxes on
       Lessor's or Lender's behalf and pay Lessor or Lender, as the case may
       be, any amount due with respect to such payment or will promptly
       reimburse Lessor or Lender for such Taxes. If Lessor or Lender shall
       obtain a refund of all or any part of such Taxes paid by the Lessee,
       Lessor shall or shall cause Lender to pay the Lessee the amount of
       such refund; provided that such amount shall not be payable before
       such time as the Lessee shall have made all payments or indemnities to
       Lessor or Lender then due with respect to Taxes and so long as no
       Default has occurred and is continuing. If in addition to such refund
       Lessor or Lender shall receive an amount representing interest,
       attorneys fees or any other amount on the amount of such refund, the
       Lessee shall be paid that proportion of such interest, attorneys fees
       or any other amount which is fairly attributable to the Taxes paid by
       the Lessee prior to the receipt of such refund. Lessor and/or Lender
       shall not enter into a settlement or other compromise with respect to,
       or otherwise concede, any claim by a taxing authority on account of
       Taxes being contested by Lessee pursuant to this Clause 5.10 without
       the written consent of Lessee, which consent shall not be unreasonably
       withheld, unless Lessor waives its right and the right of Lender to be
       indemnified by Lessee with respect to such claim (but not with respect
       to any future claims).

5.11 ABSOLUTE

       The Lessee's obligations under this Agreement are absolute and
       unconditional irrespective of any contingency whatever including (but
       not limited to):

       (a)    any right of offset, counterclaim, recoupment, defense or other
              right which either party to this Agreement may have against the
              other;

       (b)    any unavailability of the Aircraft for any reason, including a
              requisition of the Aircraft or any prohibition or interruption
              of, interference with or other restriction against the Lessee's
              use, operation or possession of the Aircraft;

       (c)    any lack or invalidity of title or any other defect in title,
              airworthiness, merchantability, fitness for any purpose,
              condition, design or operation of any kind or nature of the
              Aircraft for any particular use or trade, or for registration
              or documentation under the laws of any relevant jurisdiction,
              or any Total Loss in respect of or any damage to the Aircraft;

       (d)    any insolvency, bankruptcy, reorganization, arrangement,
              readjustment of debt, dissolution, liquidation or similar
              proceedings by or against the Lessor or the Lessee;

       (e)    any invalidity, unenforceability or lack of due authorization
              of, or other defect in, this Agreement; or


                                    -30-

<PAGE>


       (f)    any other cause which, but for this provision, would or might
              otherwise have the effect of terminating or in any way
              affecting any obligation of the Lessee under this Agreement;

       provided always, however, that this Clause 5.11 shall be without
       prejudice to the Lessee's right to claim damages and other relief from
       the courts in the event of any breach by the Lessor of its obligations
       under this Agreement, or in the event that, as a result of any lack or
       invalidity of title to the Aircraft on the part of the Lessor, the
       Lessee is deprived of its possession of the Aircraft.

6.     MANUFACTURER'S WARRANTIES

6.1    ASSIGNMENT

       Notwithstanding this Agreement and subject to the rights of the Lender
       pursuant to the Mortgage, the Lessor will remain entitled to the
       benefit of each warranty, express or implied, and any unexpired
       customer and/or product support given or provided in respect of the
       Aircraft, any Engine or Part by any manufacturer, vendor, maintenance
       performer, subcontractor or supplier. Unless an Event of Default shall
       have occurred and be continuing, the Lessor hereby authorizes the
       Lessee to pursue any claim thereunder in relation to defects affecting
       the Aircraft, any Engine or Part and the Lessee agrees diligently to
       pursue any such claim which arises at its own cost. The Lessee will
       notify the Lessor promptly upon becoming aware of any such claim. The
       Lessor will provide such assistance to the Lessee in making a claim
       under any such warranties or customer and/or product support as the
       Lessee may reasonably request, and, if requested by the Lessee and at
       the Lessee's expense, will pursue a claim in its own name where the
       relevant manufacturer, vendor, maintenance performer, subcontractor or
       supplier has refused to acknowledge the Lessee's right to pursue that
       claim.

6.2    PROCEEDS

       Unless an Event of Default shall have occurred and be continuing, all
       proceeds of any such claim as is referred to in Clause 6.1 and which
       exceed $100,000 will be paid to the Lessor (or, so long as the
       Security Interest of the Mortgage remains in effect, the Lender), but
       if and to the extent that such claim relates:

       (a) to defects affecting the Aircraft which the Lessee has rectified;
           or

       (b) to compensation for loss of use of the Aircraft, an Engine or any
           Part during the Term; or

       (c) to costs incurred by the Lessee in pursuing such claim (whether or
           not proceeds of such claim are payable to the Lessee);

                                    -31-


<PAGE>


           and provided no Default shall have occurred and be continuing, the
           proceeds will be promptly paid to the Lessee by the Lessor or, if
           applicable, the Lender but, in the case of (a), only on receipt of
           evidence reasonably satisfactory to the Lessor and the Lender that
           the Lessee has rectified the relevant defect.

6.3    PARTS

       Except to the extent the Lessor otherwise agrees in a particular case,
       the Lessee will procure that all engines, components, furnishings or
       equipment provided by the manufacturer, vendor, maintenance performer,
       subcontractor or supplier as a replacement for a defective Engine or
       Part pursuant to the terms of any warranty or customer and/or product
       support arrangement comply with Clause 8.13(a), are installed on the
       Aircraft promptly and that title thereto vests in the Lessor in
       accordance with Clause 8.17(a). On installation those items will be
       deemed to be an Engine or Part, as applicable.

6.4    AGREEMENT

       To the extent any warranties or customer and/or product support
       relating to the Aircraft are made available under an agreement between
       any manufacturer, vendor, maintenance performer, subcontractor or
       supplier and the Lessee, this Clause 6 is subject to that agreement.
       However the Lessee will:

       (a)    pay the proceeds of any claim thereunder that exceed $100,000
              to the Lessor (or, so long as the Security Interest of the
              Mortgage remains in effect, the Lender) to be applied pursuant
              to Clause 6.2 and, pending such payment, will hold the claim
              and the proceeds as security for Lessee's obligations under
              this Agreement; and

       (b)    take all such steps as are necessary and requested by the
              Lessor at the end of the Term to ensure the benefit of any of
              those warranties or customer and/or product support which have
              not expired are vested in the Lessor (but subject to the rights
              of the Lender under the Mortgage).

7.     LESSOR'S COVENANTS AND DISCLAIMERS

7.1    QUIET ENJOYMENT

       Provided no Event of Default shall have occurred and be continuing, none
       of the Lessor, its successors and assigns, the Lender or any Person
       claiming by, through or on account of any of such parties will interfere
       with the quiet use, possession and enjoyment of the Aircraft by the
       Lessee.

                                    -32-


<PAGE>


 7.2    REGISTRATION AND FILINGS

        The Lessor shall, at the Lessor's cost:

        (a)    maintain the registration of the Aircraft with the Aviation
               Authority reflecting (so far as permitted by applicable law)
               the respective interests of the Lessor and the Lender and not
               do or suffer to be done anything which might reasonably be
               expected to adversely affect that registration; and

        (b)    do all acts and things (including making any filing or
               registration with the Aviation Authority or any other
               Government Entity) as may be required following any change in
               the ownership or financing of the Aircraft.

7.3     AGREED MAINTENANCE PERFORMERS

       The Lessor or the Lender may object to and may exclude any maintenance
       organization (other than Lessee) being included as an "Agreed Maintenance
       Performer" for a valid business reason. The Lessor shall furnish to
       Lessee in writing from time to time a list of all maintenance
       organizations excluded from the definition of "Agreed Maintenance
       Performer" pursuant to the preceding sentence, which list may be amended
       by Lessor from time to time. The Lessor and the Lessee shall consult in
       good faith regarding any organizations on such list from time to time at
       the request of either party.

7.4     EXCLUSION

       THE AIRCRAFT IS ACCEPTED BY THE LESSEE "AS IS, WHERE IS WITH ALL FAULTS"
       AND LESSEE AGREES AND ACKNOWLEDGES THAT, SAVE AS IS EXPRESSLY STATED IN
       THIS AGREEMENT, NEITHER LESSOR NOR LENDER WILL HAVE ANY LIABILITY IN
       RELATION TO, AND NEITHER LESSOR NOR LENDER HAS OR WILL BE DEEMED TO HAVE
       MADE OR GIVEN, ANY CONDITIONS, WARRANTIES OR REPRESENTATIONS, EXPRESS OR
       IMPLIED, WITH RESPECT TO THE AIRCRAFT, INCLUDING BUT NOT LIMITED TO:

        (a)    THE  DESCRIPTION,  AIRWORTHINESS,  MERCHANTABILITY,  FITNESS
               FOR  ANY USE OR  PURPOSE,  VALUE, CONDITION, OR DESIGN, OF THE
               AIRCRAFT OR ANY PART; OR

        (b)    ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN TORT,
               WHETHER OR NOT ARISING FROM LESSOR'S NEGLIGENCE, ACTUAL OR
               IMPUTED (BUT EXCLUDING ANY SUCH OBLIGATION, LIABILITY, RIGHT,
               CLAIM OR REMEDY IN TORT WHICH ARISES FROM LESSOR'S OR LENDER'S
               GROSS NEGLIGENCE OR WILFUL MISCONDUCT); OR


                                    -33-


<PAGE>


       (c)     ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY FOR LOSS OF OR
               DAMAGE TO THE AIRCRAFT, FOR ANY LIABILITY OF LESSEE TO ANY THIRD
               PARTY, OR FOR ANY OTHER DIRECT, INDIRECT, INCIDENTAL OR
               CONSEQUENTIAL DAMAGES.

7.5    LESSEE'S WAIVER

       LESSEE HEREBY WAIVES, AS BETWEEN ITSELF AND THE LESSOR AND LENDER, ALL
       ITS RIGHTS IN RESPECT OF ANY CONDITION, WARRANTY OR REPRESENTATION,
       EXPRESS OR IMPLIED, ON THE PART OF LESSOR OR LENDER AND ALL CLAIMS
       AGAINST LESSOR AND LENDER HOWSOEVER AND WHENEVER ARISING AT ANY TIME IN
       RESPECT OF OR OUT OF THE OPERATION OR PERFORMANCE OF THE AIRCRAFT OR THIS
       AGREEMENT EXCEPT AS IS OTHERWISE EXPRESSLY STATED IN THIS AGREEMENT.

7.6    LESSEE'S CONFIRMATION

       LESSEE CONFIRMS THAT IT IS FULLY AWARE OF THE PROVISIONS OF CLAUSES 7.4
       AND 7.5 AND ACKNOWLEDGES THAT BASIC RENT AND OTHER AMOUNTS HAVE BEEN
       CALCULATED NOTWITHSTANDING ITS PROVISIONS.

8.     LESSEE'S COVENANTS

8.1    DURATION

       The undertakings in this Clause 8 and in Clause 12 will:

       (a)     except as otherwise stated, be performed at the expense of the
               Lessee; and

       (b)     remain in force until redelivery of the Aircraft to the Lessor
               in accordance with this Agreement and thereafter to the extent
               of any accrued rights of the Lessor in relation to those
               undertakings.

8.2    INFORMATION

       The Lessee shall:

       (a)     furnish to the Lessor and the Lender:

              (i)     within 60 days after the last day of the first three
                      fiscal quarters of each fiscal year of the Parent,
                      unaudited consolidated quarterly financial statements of
                      the Parent prepared for such quarter, including a
                      consolidated balance sheet of the Parent and its
                      Subsidiaries as of the last day of such quarter and


                                    -34-


<PAGE>


                     consolidated statements of income and retained earnings
                     for such fiscal quarter and on a comparative basis
                     figures for the corresponding period of the immediately
                     preceding fiscal year, all in reasonable detail, each
                     such statement to be certified in a certificate of
                     Lessee's chief financial officer or chief accounting
                     officer as fairly presenting the financial position and
                     the results of operations of the Parent as at its date
                     and for such quarter (subject to year-end audit
                     adjustments) and as having been prepared in accordance
                     with GAAP;

              (ii)   as soon as available but not in any event later than 120
                     days after the last day of each fiscal year of the Parent,
                     audited consolidated financial statements of the Parent
                     prepared for such year, including a consolidated balance
                     sheet of the Parent and its Subsidiaries as of the last day
                     of such year, consolidated statements of income and
                     retained earnings of the Parent and its Subsidiaries for
                     such fiscal year, a consolidating balance sheet of the
                     Lessee and its Subsidiaries as of the last day of such year
                     and consolidating statements of income and retained
                     earnings of the Lessee and its Subsidiaries for such fiscal
                     year and in all cases on a comparative basis figures for
                     the immediately preceding fiscal year, all in reasonable
                     detail, each prepared in accordance with GAAP and certified
                     without qualification by Coopers & Lybrand or another of
                     the largest national firms of independent certified public
                     accountants as fairly presenting the financial position and
                     the results of operations of Lessee and its Subsidiaries at
                     the end of and for such fiscal year and as having been
                     prepared in accordance with GAAP;

              (iii)  in lieu of the financial statements referred to in
                     sub-clauses (i) and (ii) above, any Quarterly Reports on
                     Form 10-Q and Annual Report on Form 10-K for the
                     respective periods filed by the Parent pursuant to and
                     in accordance with the Securities Exchange Act of 1934,
                     as amended;

              (iv)   concurrently with the financial  statements  furnished
                     pursuant to Clauses 8.2(a)(i) and (ii) above,  an
                     officer's  certificate  signed by the chief  financial
                     officer or chief accounting  officer of Lessee
                     certifying to the best knowledge after due inquiry of
                     such officer that no Default occurred during the period
                     covered by such financial  statements and no  Default
                     exists  on the date of such  officer's  certificate  or,
                      if a  Default occurred or exists,  stating that fact
                     and specifying the nature and period of existence of
                     such  Default  and the actions  Lessee took or proposes
                     to take with  respect to such Default;

              (v)    at the same time as it is issued to the creditors of the
                     Lessee, a copy of each notice or circular issued to the
                     Lessee's creditors as a group; and

                                    -35-


<PAGE>


               (vi)  on request from time to time such other information
                     regarding the Lessee and its business and affairs as the
                     Lessor or the Lender may reasonably request;

         (b)    on request, inform the Lessor and the Lender as to the
                current serial numbers of the Engines and any engine
                installed on the Airframe;

         (c)    promptly furnish to the Lessor and the Lender all information
                which the Lessor or the Lender from time to time reasonably
                requests regarding the Aircraft, any Engine or any Part and
                its use, location and condition, including the hours
                available on the Aircraft and any Engine until the next
                scheduled check, inspection, overhaul or shop visit, as the
                case may be;

         (d)    on request, furnish to the Lessor and the Lender evidence
                reasonably satisfactory to the Lessor or the Lender that all
                Taxes and charges incurred by the Lessee with respect to the
                Aircraft have been paid and discharged in full;

         (e)    provide to the Lessor and the Lender, within 15 days
                following the end of June and December of each calendar year
                during the Term, or upon reasonable request by Lessor or
                Lender, a monthly report on the Aircraft in the form set out
                in Schedule 7 or such other form as the Lessee may select
                providing substantially the same information;

         (f)    promptly notify the Lessor and the Lender of

                (i)    any Total Loss, any loss of an Engine, any theft of
                       the Airframe or any Engine, any damage to the Aircraft
                       if the potential cost of repair may reasonably be
                       expected to exceed the Damage Notification Threshold,
                       or any modification to the Aircraft if the potential
                       cost may reasonably be expected to exceed the Damage
                       Notification Threshold;

                (ii)   any claim or other occurrence likely to give rise to a
                       claim under the Insurances (but, in the case of hull
                       claims only, in excess of the Damage Notification
                       Threshold) and details of any negotiations with the
                       insurance brokers over any such claim; and

                (iii)  any litigation, arbitration or administrative
                       proceedings that are pending or, to the Lessee's
                       knowledge, threatened against the Lessee which, if
                       adversely determined, would have a material adverse
                       effect upon its financial condition or business or its
                       ability to perform its obligations under this
                       Agreement.


                                      -36-


<PAGE>


  8.3    LAWFUL AND SAFE OPERATION

         The Lessee shall:

         (a)    comply with the law for the time being in force in any
                country or jurisdiction in which the Aircraft is being
                operated which is applicable to the Aircraft or the use and
                operation of the Aircraft;

         (b)    not use the Aircraft in any manner contrary to any
                recommendation of the Aviation Authority or the manufacturers
                of the Aircraft, any Engine or any Part or any rule or
                regulation of the Aviation Authority or for any purpose for
                which the Aircraft is not designed or reasonably suitable;

         (c)    ensure that the crew and engineers employed by it in
                connection with the operation and maintenance of the Aircraft
                have the qualifications and hold the licences required by the
                Aviation Authority and applicable law;

         (d)    use the Aircraft solely in commercial or other operations for
                which the Lessee is duly authorized by the Aviation Authority
                and applicable law;

         (e)    not knowingly use the Aircraft (or use it when the Lessee
                ought reasonably to have known that it was being so used) for
                the carriage of.

                (i)     whole animals, living or dead, except in the cargo
                        compartments according to I.A.T.A. regulations, and
                        except domestic pet animals carried in a suitable
                        container to prevent the escape of any liquid and to
                        ensure the welfare of the animal;

                (ii)    acids, toxic chemicals, other corrosive materials,
                        explosives, nuclear fuels, nuclear wastes or any
                        nuclear assemblies or components, except as permitted
                        for cargo aircraft under the "Restriction of Goods"
                        schedule issued by I.A.T.A. from time to time and
                        provided that all the requirements for packaging or
                        otherwise contained therein are fulfilled;

                (iii)   any other goods, materials or items of cargo which
                        could reasonably be expected to cause damage to the
                        Aircraft and which would not be adequately covered by
                        the Insurances; or

                (iv)    any illegal item or substance;

         (f)    not utilize the Aircraft for purposes of training, qualifying
                or re-confirming the status of cockpit personnel except for
                the benefit of the Lessee's cockpit personnel, and then


                                      -37-


<PAGE>


                only if the use of the Aircraft for such purpose is not
                disproportionate to the use for such purpose of other
                aircraft of the same type operated by the Lessee;

         (g)    not (other than for bona fide safety reasons) cause or permit
                the Aircraft to proceed to, or remain at, any location which
                is for the time being the subject of a prohibition order (or
                any similar order or directive) by:

              (i)    any Government Entity of the State of Registration or
                     the Habitual Base; or

              (ii)   any Government Entity of the country in which such
                     location is situated; or

              (iii)  any Government Entity having jurisdiction over the
                     Lessor, the Lender or the Aircraft;

       (h)    obtain and maintain in full force all certificates, licences,
              permits and authorizations required for the use and operation
              of the Aircraft for the time being, and for the making of
              payments required by, and the compliance by the Lessee with its
              other obligations under, this Agreement.

8.4    TAXES AND OTHER CHARGES

       The Lessee will promptly pay:

       (a)    all licence and registration fees, Taxes (other than Lessor
              Taxes) and other amounts of any nature imposed by any
              Government Entity that are imposed on the Lessee or for which
              the Lessee is responsible under this Agreement with respect to
              the Aircraft, including the purchase, ownership, delivery,
              leasing, possession, use, operation, return, sale or other
              disposition of the Aircraft; and

       (b)    all rent, fees, charges, Taxes (other than Lessor Taxes)
              imposed on the Lessee and other amounts in respect of any
              premises where the Aircraft or any Part thereof is located from
              time to time during the Term;

       except to the extent that such payment is being contested in good faith
       by appropriate proceedings in accordance with Clause 5.10 (but subject
       to the proviso contained in Clause 5.10).

8.5    SUB-LEASING

       (a)    Subject to sub-clause (b) below, the Lessee will not, without the
              prior written consent of the Lessor and the Lender (such consent
              to be in the sole discretion of the Lessor and the Lender),
              sub-lease, "wet lease" or otherwise part with possession of the
              Aircraft, the Engines or any Part except that the Lessee may part
              with possession:


                                      -38-


<PAGE>


              (i)     so long as no Default or Event of Default has occurred
                      and is continuing, with respect to the Aircraft, the
                      Engines or any Part to the relevant manufacturers for
                      testing or similar purposes or to an Agreed Maintenance
                      Performer for service, repair, maintenance or overhaul
                      work or for alterations, modifications or additions to
                      the extent required or permitted by this Agreement; and

              (ii)    with respect to an Engine or Part, as expressly
                      permitted by this Agreement.

       (b)    The Lessor's consent shall not be required in relation to a
              "wet lease" or charter of the Aircraft in which operational
              control of the Aircraft remains with the Lessee at all times,
              provided the Aircraft remains registered with the Aviation
              Authority.

8.6    INSPECTION

       (a)    The Lessor, the Lender and any person designated by the Lessor
              or the Lender may at any time visit, inspect and survey the
              Aircraft, any Engine or any Part and for such purpose may,
              subject to any applicable Aviation Authority regulation, travel
              on the flight deck as observer.

       (b)    The Lessor and the Lender shall bear its own costs and expenses
              in connection with any such visit, inspection or survey unless
              the visit, inspection or survey discloses that the Lessee is in
              breach of its material obligations under this Agreement, in
              which case such costs and expenses shall be paid by the Lessee
              on demand.

       (c)    Neither Lessor nor Lender shall:

              (i)     have any duty to make, or liability arising out of, any
                      such visit, inspection or survey; and

              (ii)    unless a Default has occurred and is continuing,
                      exercise such right other than on reasonable notice and
                      so as not to disrupt unreasonably the maintenance or
                      operation of the Aircraft.

8.7    PROTECTION OF TITLE

       The Lessee shall:

       (a)    not do or knowingly permit to be done or omit or knowingly permit
              to be omitted to be done any act or thing which might reasonably
              be expected to jeopardize the respective rights, title and
              interest of the Lender as mortgagee of the Aircraft and


                                      -39-


<PAGE>


              assignee of this Agreement or the Lessor as owner of the Aircraft
              and lessor under this Agreement or the validity, enforceability or
              priority of the Mortgage;

        (b)   on all occasions when the ownership of the Aircraft, any Engine
              or any Part is relevant, make clear to third parties that title
              is held by the Lessor and is subject to the Mortgage;

       (c)    not at any time:

              (i)    represent or hold out the Lessor or the Lender as carrying
                     goods or passengers on the Aircraft or as being in any way
                     connected or associated with any operation or carriage
                     (whether for hire or reward or gratuitously) which may be
                     undertaken by the Lessee; or

              (ii)   pledge the credit of the Lessor or the Lender;

       (d)    ensure that there is always affixed, and not removed or in any
              way obscured, a fireproof plate (having dimensions of not less
              than 6 in. x 4 in.) in a reasonably prominent position on the
              Aircraft and on each Engine stating:

                     "This Aircraft/Engine is owned by ACG Acquisition XII
                     LLC, is leased to Aloha Airlines, Inc. and is subject to
                     a mortgage and security agreement in favor of Sanwa
                     Business Credit Corporation. It may not be operated by
                     any other person without the prior written consent of
                     ACG Acquisition XII LLC and Sanwa Business Credit
                     Corporation.";

       (e)    not create or permit to exist any Security Interest upon the
              Aircraft, any Engine or any Part;

       (f)    not do or permit to be done anything which may reasonably be
              expected to expose the Aircraft, any Engine or any Part to
              penalty, forfeiture, impounding, detention, appropriation,
              damage or destruction and, without prejudice to the foregoing,
              if any such penalty, forfeiture, impounding, detention,
              appropriation, damage or destruction occurs, give the Lessor
              and the Lender notice and use its best efforts to procure the
              immediate release of the Aircraft, such Engine or such Part, as
              the case may be;

       (g)    not abandon the Aircraft, the Engine or any Part;

       (h)    pay and discharge or cause to be paid and discharged when due
              and payable or make adequate provision by way of security or
              otherwise for all debts, damages, claims and liabilities which
              have given or might reasonably be expected to give rise to a
              Security Interest over or affecting the Aircraft, any Engine or
              any Part; and


                                      -40-



<PAGE>


      (i)  not attempt, or hold itself out as having any power, to sell,
           lease or otherwise dispose of the Aircraft, any Engine or any
           Part other than as expressly permitted by this Agreement.

8.8   GENERAL

      The Lessee will:

      (a)  not make any substantial change in the nature of the business
           in which it is engaged if such change, in the reasonable opinion
           of the Lessor or Lender, might reasonably be expected to have a
           material adverse effect on the Lessee's performance of its
           obligations under this Agreement;

      (b)  preserve its corporate existence, and will not merge or
           consolidate with any person unless the successor person
           resulting from such merger or consolidation (the "SUCCESSOR"):

           (i)   is the Lessee or an Affiliate incorporated in the State of
                 Incorporation or another State of the United States of America;

           (ii)  shall have a net worth immediately after such merger or
                 consolidation of not less than the Lessee's net worth
                 immediately prior thereto;

           (iii) shall be authorized under applicable law to perform the
                 Lessee's obligations under this Agreement to the same
                 extent as the Lessee;

           (iv)  shall deliver to the Lessor an agreement in form and substance
                 reasonably satisfactory to the Lessor containing an assumption
                 by the Successor of the Lessee's representations and warranties
                 under this Agreement, together with the due and punctual
                 performance of all the Lessee's obligations under this
                 Agreement; and

           (v)   shall deliver to the Lessor an opinion of counsel reasonably
                 satisfactory in form and substance to the Lessor to the effect
                 that the agreement referred to in sub-clause (iii) above
                 constitutes the Successor's legal, valid, binding and
                 enforceable obligations; and

           (c)   ensure that no change will occur in the Habitual Base of the
                 Aircraft without the prior written consent of the Lessor and
                 Lender.

                                          -41-


<PAGE>


8.9   RECORDS

      The Lessee shall procure that accurate, complete and current records of
      all flights made by, and all maintenance carried out on, the Aircraft
      (including, in relation to each Engine and Part subsequently installed,
      before the installation) are kept in English, and shall keep the records
      in such manner as the Aviation Authority may from time to time require.
      The records will form part of the Aircraft Documents.

8.10  REGISTRATION AND FILINGS

      The Lessee shall:

      (a)  not do anything that might reasonably be expected to adversely affect
           the registration of the Aircraft with the Aviation Authority
           reflecting (so far as permitted by applicable law) the respective
           interests of the Lessor and the Lender;

      (b)  do all acts and things (including making any filing or registration
           with the Aviation Authority or any other Government Entity) and
           executing and delivering all documents (including any amendment of
           this Agreement) as may be required by the Lessor following any
           modification of the Aircraft, any Engine or any Part or the
           permanent replacement of any Engine or Part in accordance with
           this Agreement, so as to ensure that the respective rights of the
           Lessor and the Lender under this Agreement apply with the same
           effect as before.

8.11  MAINTENANCE AND REPAIR

      The Lessee shall:

      (a)  keep the Aircraft airworthy in all respects and in good repair and
           condition;

      (b)  advise the Lessor and Lender in writing of all material changes to
           the Agreed Maintenance Program;

      (c)  maintain the Aircraft in accordance with the Agreed Maintenance
           Program through Agreed Maintenance Performers and perform (at the
           respective intervals provided in the Agreed Maintenance Program) all
           Major Checks;

      (d)  maintain the Aircraft in accordance with FAR Part 121 and any other
           rules and regulations of the Aviation Authority as are applicable to
           aircraft of the same type as the Aircraft operated by United
           States of America air carriers, subject to the special exemptions
           permitted Lessee regarding compliance with the Airport Noise and
           Capacity Act of 1990, as amended, and the regulations promulgated
           by the FAA thereunder;

                                    -42-


<PAGE>



      (e)  comply with all mandatory inspection and modification requirements,
           airworthiness directives and similar requirements applicable to the
           Aircraft, any Engine or Part having a compliance date during the
           Term and that are required by the Aviation Authority;

      (f)  comply with all alert service bulletins issued by any manufacturer
           of the Aircraft, Engines or Parts, and comply (including scheduling
           complying work and then performing such work on schedule) with all
           other service bulletins issued by any such manufacturer if and to the
           extent that the Lessee brings, or schedules to bring in compliance
           at least one-half of the applicable aircraft it operates (excluding
           for purposes of such calculation aircraft acquired from unrelated
           third parties that already comply with such other service bulletins);

      (g)  comply with all applicable laws and the regulations of the Aviation
           Authority and any other aviation authorities with jurisdiction over
           the Lessee or the Aircraft, any Engine or Part that relate to
           the maintenance, condition, use or operation of the Aircraft or
           require any modification or alteration to the Aircraft, any Engine or
           Part;

      (h)  maintain in good standing a current U.S. Standard Transport Category
           Certificate of Airworthiness for the Aircraft issued by the Aviation
           Authority in accordance with FAR Part 21 except when the Aircraft is
           undergoing maintenance, modification or repair required or permitted
           by this Agreement and shall from time to time provide to the Lessor
           a copy on request;

      (i)  if required by the Aviation Authority, maintain a current
           certification as to maintenance issued by or on behalf of the
           Aviation Authority in respect of the Aircraft and shall from time to
           time provide to the Lessor and the Lender a copy on request;

      (j)  maintain the Engines with respect to overhaul build standards
           and disc replacements at a level which is consistent with the level
           applied by the Lessee in relation to other engines of the same type
           as the Engines in its fleet, provided, however, Lessee may maintain
           the Engines with respect to overhaul build standards and disc
           replacements in such manner as to achieve minimal compliance with
           return conditions;

      (k)  maintain the Engines and the APU in a "on condition"
           program as set forth in the respective manufacturer's maintenance
           planning document; and

      (l)  subject to Clause 11.1(c), procure promptly the replacement of any
           Engine or Part which has become time, cycle or calendar expired,
           lost, stolen, seized, confiscated, destroyed, damaged beyond
           repair, unserviceable or permanently rendered unfit for use, with an
           engine or part complying with the conditions set out in
           Clause 8.13(a).

                                              -43-


<PAGE>


8.12  REMOVAL OF ENGINES AND PARTS

      The Lessee will ensure that no Engine or Part installed on the Aircraft
      is at any time removed from the Aircraft other than:

      (a)  if replaced as expressly permitted by this Agreement; or

      (b)  if the removal is of an obsolete item and is in accordance with the
           Agreed Maintenance Program; or

      (c)  pursuant to, and in accordance with, Clause 8.15; or

      (d)  (i)   during the course of maintaining, servicing, repairing,
                 overhauling or testing that Engine or the Aircraft, as the
                 case may be; or

           (ii)  as part of a normal engine or part rotation program; or

           (iii) for the purpose of making such modifications to the Engine
                 or the Aircraft, as the case may be, as are permitted under
                 this Agreement,

           and then in each case only if it is reinstalled or replaced by an
           engine or part complying with Clause 8.13(a) as soon as
           practicable and in any event no later than, in the case of an
           Engine, 90 days after removal of such Engine and, in the case of a
           Part, 45 days after removal of such Part.

8.13  INSTALLATION OF ENGINES AND PARTS

      (a)  The Lessee will ensure that, except as permitted by this Agreement,
           no engine or part is installed on the Aircraft unless:

           (i)   in the case of an engine, it is an engine of the same model as,
                 or an improved or advanced version of the Engine it replaces
                 (provided, in the case of an improved or advanced version,
                 it can be installed and operated on the Airframe without
                 modification of the Airframe or the engine, whether or not
                 the other installed Engine is also such an improved or advanced
                 version), which has attached to it a current "serviceable
                 tag" issued by the manufacturer or supplier indicating that
                 the engine is new, serviceable or overhauled, and the
                 Lessee shall retain all such tags;

           (ii)  in the case of a part, it is in as good operating condition,
                 is of the same interchangeable modification status as the
                 replaced Part and has attached to it a current "serviceable
                 tag" issued by the manufacturer or supplier indicating

                                    -44-


<PAGE>


                 that the part is new, serviceable or overhauled, and the Lessee
                 shall retain all such tags;

           (iii) in the case of a part, it has become and remains the
                 property of the Lessor free from Security Interests and on
                 installation on the Aircraft will, without further act, be
                 subject to this Agreement and to the security interest
                 created by the Mortgage, in which case title to the removed
                 part shall automatically become vested in Lessee without
                 farther action or warranty on the part of Lessor except
                 that such Part shall be free of Lessor Liens; and

           (iv)  in each case, the Lessee has full details as to its source and
                 maintenance records.

      (b)  If no Default has occurred which is continuing, the Lessee
           will be entitled to install any engine or part on the Aircraft
           notwithstanding Clause 8.13(a) if:

           (i)   there is not available to the Lessee at the time and in the
                 place that engine or part is required to be installed on the
                 Aircraft a replacement engine or part complying with the
                 requirements of Clause 8.13(a);

           (ii)  it would result in an unreasonable disruption of the
                  operation of the Aircraft or the business of the Lessee to
                  ground the Aircraft until an engine or part complying with
                  Clause 8.13(a) becomes available for installation on the
                  Aircraft; and

           (iii) as soon as practicable after installation of any such engine
                 or part on the Aircraft but, in any event, no later than the
                 earlier of (1) 90 days after installation of such an engine
                 or 45 days after installation of such a part, and (2) the
                 Expiry Date, the Lessee removes any such engine or part and
                 replaces it with the Engine or Part previously removed or by an
                 engine or part complying with Clause 8.13(a).

      (c)  If no Default has occurred which is continuing, the Lessee will be
           entitled to install Lessee Installed Parts on the Airframe
           notwithstanding Clause 8.13(a)(iii) so long as:

           (i)   the terms of any lease, conditional sale agreement or
                  security agreement, as the case may be, covering such Lessee
                  Installed Part will not have the effect of prejudicing the
                  title and interest of the Lessor in and to the Aircraft
                  (including its Engines and Parts) or the interest of the
                  Lender in respect thereof under the Mortgage;

           (ii)  the secured party, lessor or conditional vendor, as the case
                 may be, of such Lessee Installed Part has confirmed and
                 acknowledged in writing (which such


                                    -45-


<PAGE>


                 confirmation and acknowledgment may be contained in the
                 lease, conditional sale agreement or security agreement) to
                 the Lessor and the Lender, in form and substance
                 satisfactory to the Lessor, that it will recognize the
                 respective rights, title and interest of the Lessor and the
                 Lender in and to the Aircraft (including its Engines and
                 Parts) and that it will not seek to exercise any rights
                 whatever in relation thereto; and

              (iii)  before the Expiry Date the Lessee removes any such Lessee
                     Installed Part and replaces it with the Part replaced by it
                     or by another part, in either case complying with Clause
                     8.13(a).

      (d)  The Lessor agrees, for the benefit of the Lessee and any mortgagee
           or holder of anyother Security Interest in any engine (other than
           an Engine) or Lessee Installed Part owned by the Lessee, any lessor
           of any engine (other than an Engine leased to the Lessee) or Lessee
           Installed Part and any conditional vendor of any engine (other
           than an Engine purchased by the Lessee subject to a conditional
           sale agreement or any other security agreement) or Lessee
           Installed Part, that no right, title to or interest in any such
           engine or Lessee Installed Part shall be exercised or asserted by
           the Lessor and the Lessor acknowledges and confirms that it will
           not acquire any right, title or interest to or in any such engine
           or Lessee Installed Part as a result of its installation on the
           Airframe.

8.14 NON-INSTALLED ENGINES AND PARTS

      (a)  The Lessee shall ensure that any Engine or Part which is not
           installed on the Airframe (or any other airframe as permitted by
           this Agreement) is, except as expressly permitted by this Agreement,
           properly and safely stored and kept free from Security Interests,
           with insurance thereon complying with the requirements of this
           Agreement.

      (b)  Notwithstanding sub-clause (a), the Lessee shall be permitted, if
           no Default has occurred and is continuing, to install any Engine
           on an airframe and any Part on an airframe or engine:

           (i)   owned and operated by the Lessee free from Security Interests;

           (ii)  leased or hired to the Lessee pursuant to a lease or
                 conditional sale agreement on a long-term basis and on terms
                 whereby the Lessee has full operational control of that
                 aircraft or engine; or

           (iii) acquired or financed by the Lessee and operated by the
                 Lessee on terms that ownership of that aircraft or engine,
                 as the case may be, pursuant to a lease,

                                    -46-


<PAGE>


                 conditional sale agreement or Security Interest is vested in
                 or held by any other person;

           provided that in the case of (ii) and (iii):

           (1)   the terms of any such lease, conditional sale agreement or
                 Security Interest will not have the effect of prejudicing the
                 title and interest of the Lessor in and to that Engine or Part
                 or the interest of the Lender in respect thereof under the
                 Mortgage; and

           (2)   the lessor under such lease, the seller Linder such conditional
                 sale agreement or the secured party of such Security Interest,
                 as the case may be, has confirmed and acknowledged in writing
                 (which such confirmation and acknowledgment may be contained
                 in, the lease, conditional sale agreement or document creating
                 the Security Interest) to the Lessor and the Lender, in form
                 and substance satisfactory to the Lessor, that it will
                 recognize the respective rights, title and interest of the
                 Lessor and the Lender to and in that Engine or Part and that
                 it will not seek to exercise any rights whatever in relation
                 thereto.

8.15  POOLING OF ENGINES AND PARTS

      The Lessee will not enter into nor permit any pooling agreement
      or arrangement in respect of an Engine or Part without the prior written
      consent of the Lessor and the Lender, such consent not to be unreasonably
      withheld in any case where an Engine or Part is leased, let on hire or
      otherwise made available by the Lessee (on terms conferring no more than
      a contractual right IN PERSONAM against the Lessee and not a right
      IN REM against such Engine or Part) pursuant to a normal pooling agreement
      customary in the airline industry and entered into in the ordinary course
      of the Lessee's business to which the Lessee is a party and:

      (a)  the other parties to which are reputable, solvent U.S. commercial
           air carriers (or, if the Aircraft has been subleased to a foreign air
           carrier in accordance with Clause 8.5, reputable, solvent U.S. or
           foreign commercial air carriers) or the manufacturers or suppliers
           of the Engine or Part(or other reputable, solvent organizations
           whose business includes the administration of and participation in
           such pooling agreements or arrangements); and

      (b)  which does not contemplate the transfer of title to the pooled
           Engine or Part; and

      (c)  either provides that the Lessor (or the Lender, as the case may be)
           will be sole loss payee in respect of any loss or damage to the
           Engine or Pan, or provides for Lessor to acquire title to a
           substitute engine or part satisfying the conditions set out in
           Clause 8.13(a) if the engine or Part is destroyed.

                                    -47-


<PAGE>


8.16  EQUIPMENT CHANGES

      (a)  The Lessee will not make any modification or addition to the
           Aircraft (each an "EQUIPMENT CHANGE"), except for an Equipment Change
           that:

           (i)   is required by Lessor or Lender pursuant to Clause 12.3(d),

           (ii)  is expressly permitted by any other provision of this
                 Agreement, or

           (iii) has the prior written approval of the Lessor and the Lender
                 (which approval shall not be unreasonably withheld provided
                 the proposed Equipment Change will not, in the reasonable
                 opinion of the Lessor and the Lender, diminish the value,
                 utility, condition or airworthiness of the Aircraft), except
                 for painting or minor cabin interior modifications not
                 affecting the structure of the Airframe, any or all of which
                 may be made without such prior approval.

      (b)        So long as no Event of Default has occurred and is continuing,
                 the Lessee may remove any Equipment Change if it can be removed
                 from the Aircraft without diminishing or impairing the value,
                 utility, condition or airworthiness of the Aircraft.

8.17 TITLE TO ENGINES AND PARTS

      (a)  Title to all engines and parts installed on the Aircraft, whether
           by way of replacement as the result of an Equipment Change or
           otherwise (except those installed pursuant to Clause 8.13(b) or
           8.13(c) above) will on installation, without further act, vest in
           the Lessor subject to this Agreement free and clear of all
           Security Interests. The Lessee will at its own expense take all
           such steps and execute, and procure the execution of, all such
           instruments that are necessary to ensure that title so passes to
           the Lessor and is subject to the Security Interest created by the
           Mortgage according to all applicable laws. At any time when
           requested by the Lessor, the Lessee will provide evidence to the
           Lessor's reasonable satisfaction (including the provision, if
           required, to the Lessor of one of more legal opinions) that title
           has so passed to the Lessor and is subject to the Security
           Interest created by the Mortgage.

      (b)  Except as referred to in Clause 8.16(b), any Engine or Part at any
           time removed from the Aircraft will remain the property of the Lessor
           until a replacement has been made in accordance with this Agreement
           and until title to that replacement has passed, according to
           applicable laws, to the Lessor subject to this Agreement and the
           Mortgage free of all Security Interests, whereupon title to the
           Engine or Part will, provided no Default has occurred and is
           continuing, pass to the Lessee free of Lessor Liens.

                                    -48-


<PAGE>


8.18  THIRD PARTIES

      The Lessee shall procure that no person having possession of the
      Aircraft during the Term (other than the Lessor or the Lender) will act
      in any manner inconsistent with the Lessee's obligations under this
      Agreement and that all such persons shall comply with those obligations
      as if references to "Lessee" included a separate reference to those
      persons.

9.    INSURANCE

9.1   INSURANCES

      The Lessee will maintain in full force and effect during the Term
      insurances in respect of the Aircraft in form and substance reasonably
      satisfactory to the Lessor (the "INSURANCES") through such brokers and
      with such insurers and having such deductibles and being subject to such
      exclusions as are usual and customary in the worldwide aviation
      insurance marketplace for U.S. air carriers operating similar equipment
      who are similarly situated with Lessee. The Insurances will be effected
      either on a direct basis with insurers of recognized standing who
      normally participate in aviation insurances in the leading international
      insurance markets and led by reputable underwriters approved by the Lessor
      and the Lender, such approval not to be unreasonably withheld. The Lessor
      acknowledges and confirms that the current deductibles and exclusions,
      together with the existing brokers and insurers, in respect of the
      insurances maintained by Lessee on the date of the Purchase Agreement
      are acceptable to it and the Lender.

9.2   REQUIREMENTS

      The Lessor's current requirements as to required Insurances are as
      specified in this Clause and in Part 1 of Schedule 4. Except for the
      amount of the Agreed Value, the Minimum Liability Coverage and the
      deductible under Lessee's hull and war risk insurance policies, the
      Lessor or the Lender may from time to time stipulate such other
      requirements for the Insurances as the Lessor or the Lender reasonably
      considers necessary to ensure that the scope and level of cover is
      maintained in accordance with the then prevailing industry practice in
      relation to aircraft of the same type as the Aircraft and in relation to
      operators of similar standing to the Lessee. In the event that the
      Lessor or the Lender proposes any such stipulation, Lessor or Lender
      shall notify the Lessee accordingly and the Lessor and/or its brokers
      will then consult in good faith with the Lessee and the Lessee's brokers
      (as for the time being approved by the Lessor and the Lender) with
      regard to such proposed stipulation. If, following the consultation, the
      Lessor and the Lender are satisfied that the stipulation should be made,
      the Lessee shall then comply with the stipulated requirements.

                                    -49-


<PAGE>


9.3   INSURANCE COVENANTS

      The Lessee shall:

      (a)  ensure that all legal requirements as to insurance of the Aircraft,
           any Engine or any Part that may from time to time be imposed by the
           laws of the State of Registration or any jurisdiction to, from or
           over  which the Aircraft may be flown, in so far as they affect or
           concern the operation of the Aircraft, are complied with and, in
           particular, those requirements compliance with which is necessary to
           ensure that:

           (i)   the Aircraft does not become subject to detention or
                 forfeiture;

           (ii)  the Insurances remain valid and in fall force and effect;
                 and

           (iii) the interests of the Indemnitees in the Insurances and the
                 Aircraft or any Part are not thereby prejudiced;

      (b)  not use, cause or permit the Aircraft, any Engine or any Part to be
           used for any purpose or in any manner not covered by the Insurances
           or outside any geographical limit imposed by the Insurances;

      (c)  comply with the terms and conditions of each policy of the Insurances
           and not do, consent or agree to any act or omission that:

           (i)   invalidates or may reasonably be expected to invalidate the
                 Insurances;

           (ii)  renders or may reasonably be expected to render void or
                 voidable the whole or any part of any of the Insurances; or

           (iii) brings any particular liability within the scope of an
                 exclusion or exception to the Insurances;

      (d)  not take out without the prior written approval of the Lessor and
           the Lender any insurance in respect of the Aircraft other than those
           of the type required under this Agreement unless relating solely to
           hull total loss, business interruption, engine break-down, profit
           commission and deductible risk;

      (e)  commence renewal procedures at least 30 days prior to the expiration
           of any of the Insurances and provide to the Lessor and the Lender:

           (i)   if requested by the Lessor or the Lender, a written status
                 report of renewal negotiations 14 days prior to each
                 expiration date;

                                    -50-


<PAGE>


           (ii)  telefaxed confirmation of completion of renewal prior to
                 each expiration date;

           (iii) a certificate of insurance and broker's letter of
                 undertaking substantially in the form set out in Parts 2 and
                 3 of Schedule 4, detailing the coverage and confirming the
                 insurers' agreement to the specified insurance requirements
                 of this Agreement within seven days after each renewal date;

      (f)  provide to the Lessor and the Lender copies of those documents
           evidencing the Insurances which the Lessor and the Lender may
           reasonably request;

      (g)  on request, provide to the Lessor and the Lender evidence that the
           Insurance premiums have been paid;

      (h)  not make any modification or alteration to the Insurances material
           and adverse to the interests of any of the Indemnitees;

      (i)  be responsible for any deductible under the Insurances; and

      (j)  provide any other insurance related information, or assistance, in
           respect of the Insurances as the Lessor may reasonably request.

9.4    FAILURE TO INSURE

      If the Lessee fails to maintain the Insurances in compliance with this
      Agreement, each of the Indemnitees will be entitled but not obligated
      (without prejudice to any other rights of the Lessor under this
      Agreement):

      (a)   to pay the premiums due or to effect and maintain insurances
            satisfactory to it or otherwise remedy the Lessee's failure in
            such manner (including to  effect and maintain an "owner's
            interest" policy) as it considers appropriate. Any sums so
            expended by it will become immediately due and payable by the
            Lessee to such Indemnitee on demand (such demand being made as
            soon as reasonably practicable following the incurring of such
            expenditure), together with interest thereon at the Default Rate
            from the date of expenditure by it up to the date of
            reimbursement by the Lessee (before and after any judgment); and

       (b)  at any time while such failure is continuing to require the
            Aircraft to remain at any airport or to proceed to and remain at
            any airport designated by it until the failure is remedied to its
            reasonable satisfaction.

                                    -51-


<PAGE>


9.5    CONTINUING INDEMNITY

       The Lessor or the Lender may require the Lessee to effect and to maintain
       insurance after the Expiry Date with respect to its liability under the
       indemnities in Clause 10 for such period as the Lessor or the Lender may
       reasonably require (but in any event not more than three years) providing
       for each Indemnitee to be named as additional insured. The Lessee's
       obligation under this Clause 9.5 shall not be affected by the Lessee
       ceasing to be lessee of the Aircraft or any of the Indemnitees ceasing to
       have any interest in respect of the Aircraft.

9.6   APPLICATION OF INSURANCE PROCEEDS

      As between the Lessor and the Lessee:

      (a)  All insurance payments, up to the Agreed Value, received as the
           result of a Total Loss occurring during the Term will be paid to
           the Lender, so long as the Security Interest of the Mortgage
           remains in effect, and thereafter to the Lessor.

      (b)  All insurance proceeds in respect of any damage or loss to the
           Aircraft, any Engine or any Part occurring during the Term not
           constituting a Total Loss and involving insurance proceeds in
           excess of the Damage Notification Threshold will be paid to the
           Lender, so long as the Security Interest of the Mortgage remains
           in effect, and thereafter to the Lessor and applied in payment (or
           to reimburse the Lessee) for repairs or replacement property upon
           the Lessor and the Lender being reasonably satisfied that the
           repairs or replacement have been effected in accordance with this
           Agreement. Insurance proceeds in amounts below the Damage
           Notification Threshold may be paid by the insurer directly to the
           Lessee. Any balance remaining may be retained by the Lessee.

      (c)  All insurance proceeds in respect of third party liability will be
           paid to the relevant third party.

      (d)  Notwithstanding  Clauses  9.6(a) and (b), if at the time of the
           payment of any such  insurance proceeds  a  Default  has  occurred
           and is  continuing  all such  proceeds  will be paid to or
           retained by the Lender,  so long as the Security  Interest of the
           Mortgage  remains in effect, and  thereafter  by the  Lessor to be
           applied  toward  payment  of any  amounts  that may be or become
           payable  by the  Lessee in such  order as the  Lessor  and the
           Lender see fit or as the Lessor  and the Lender may elect.  In the
           event that the Lessee  remedies  any such  Default to the
           reasonable  satisfaction  of the Lessor and the Lender,  the
           Lessor shall procure that all such  insurance  proceeds  then held
           by the Lender in excess of the amounts (if any) applied in
           accordance with this sub-clause (d) shall be paid promptly to the
           Lessee.

                                    -52-


<PAGE>


10.   INDEMNITY

10.1  GENERAL

      The Lessee shall defend, indemnify and hold harmless the Indemnitees, on
      an after-tax basis as set forth in Clause 5.5, from and against any and
      all claims, proceedings, losses, liabilities, suits, judgments, costs,
      expenses, penalties or fines (each a "CLAIM") regardless of when the same
      is made or incurred, whether during or after the Term (but not before):

      (a)  that may at any time be suffered or incurred directly or indirectly
           as a result of or connected with possession, delivery,
           performance, management, registration, control, maintenance,
           condition, service, repair, overhaul, leasing, sub-leasing, use,
           operation or return of the Aircraft, any Engine or Part (either in
           the air or on the ground) whether or not the Claim may be
           attributable to any defect in the Aircraft, any Engine or any Part
           or to its design, testing, use or otherwise, and regardless of
           when the same arises or whether it arises out of or is
           attributable to any act or omission, negligent or otherwise, of
           any Indemnitee;

      (b)  that arise out of any act or omission that invalidates or that
           renders voidable any of the Insurances;

      (c)  that may at any time be suffered or incurred as a consequence of any
           design, article or material in the Aircraft, any Engine or any art
           or its operation or use constituting an infringement of patent,
           opyright, trademark, design or other proprietary right or a reach
           of any obligation of confidentiality owed to any person,

      but excluding as to any Lessor Indemnitee or Lender  Indemnitee, as the
      case may be, any Claim to the extent that:

           (1)   with respect to a Lessor Indemnitee, it arises directly as
                 a result of the wilful misconduct or gross negligence of a
                 Lessor Indemnitee;

           (2)   with respect to a Lender Indemnitee, it arises directly as
                 a result of the wilful misconduct or gross negligence of a
                 Lender Indemnitee associated with the same Lender;

           (3)   with respect to a Lessor Indemnitee, it arises directly as
                 a result of a breach by a Lessor Indemnitee of its express
                 obligations under this Agreement or as a result of a
                 representation or warranty given by a Lessor Indemnitee in
                 this Agreement not being true and correct at the date when,
                 or when deemed to have been, given or made;

                                    -53-


<PAGE>


           (4)   with respect to a Lender Indemnitee, it arises directly as
                 a result of a breach by a Lender Indemnitee associated with the
                 same Lender of its express obligations under this Agreement
                 or as a result of a representation or warranty given by a
                 Lender Indemnitee associated with the same Lender in this
                 Agreement not being true and correct at the date when,
                 or when deemed to have been, given or made;

           (5)   it constitutes a Lessor Tax or Lessor Lien;

           (6)   it represents a Tax or loss of tax benefits (the Lessee's
                 liabilities for which, to the extent thereof, are set out in
                 Clauses 5.5, 5.6  and 5.8); provided, however, that this
                 exclusion shall not apply to gross-up or make-whole payments as
                 contemplated in Clause 5.8;

           (7)   it constitutes a cost or expense that is required to be borne
                 by the Lessor in accordance with any other provision of this
                 Agreement;

           (8)   it results from any disposition not caused by Lessee of all
                 or any part of Lessor's rights, title or interest in or to the
                 Aircraft or under this Agreement, unless such disposition
                 occurs as a consequence of an Event of Default;

           (9)   it is attributable to an event occurring after the Term
                 unless the Claim results from or arises out of an act or
                 omission by the Lessee, or any circumstance existing, during
                 the Term; or

           (10)  it is brought after the Term and relates to a claimed
                 patent infringement by the Manufacturer.

10.2 MITIGATION

      (a)  The Lessor agrees that it shall, as soon as reasonably practicable
           after it becomes aware of any circumstances that would, or would
           reasonably be expected to, become the subject of a claim for
           indemnification pursuant to Clause 10.1, notify the Lessee in
           writing accordingly. The Lessor (and any other Indemnitee seeking
           indemnification, as the case may be) and the Lessee shall then
           consult with one another in good faith in order to determine what
           action (if any) may reasonably be taken to avoid or mitigate such
           Claim. The Lessee shall have the right to take all reasonable
           action (on behalf and, if necessary, in the name of the Lessor or
           such other Indemnitee) in order to resist, defend or settle
           (provided such settlement is accompanied by payment) any claims by
           third parties giving rise to such Claim, provided always that the
           Lessee shall not be entitled to take any such action unless
           adequate provision, reasonably satisfactory to the Lessor and such
           other Indemnitee, shall have been made in respect of the third
           party claim and the costs thereof. The

                                    -54-


<PAGE>


           Lessee or, if the Claim is covered by Lessee's Insurances, the
           Lessee's insurers shall be entitled to select any counsel to
           represent it or them, the Lessor and such other Indemnitee in
           connection with any such action, subject in the case of Lessee to
           the approval of the Lessor and such other Indemnitee (such
           approval not to be unreasonably withheld) and any action taken by
           the Lessee shall be on a full indemnity basis in respect of the
           Lessor and such other Indemnitee.

      (b)  Any sums paid by the Lessee to the Lessor or any Indemnitee in
           respect of any Claim pursuant to Clause 10. 1 shall be paid
           subject to the condition that, in the event that the Lessor or such
           Indemnitee is subsequently reimbursed in respect of that Claim by
           any other person, the Lessor or such Indemnitee shall, provided no
           Default shall have occurred and be continuing, promptly pay to the
           Lessee an amount equal to the sum paid to it by the Lessee,
           including any interest on such amount to the extent attributable
           thereto and received by the Lessor or such Indemnitee, less any
           Tax payable by the Lessor or such Indemnitee in respect of such
           reimbursement.

10.3  DURATION

      The indemnities contained in this Agreement will survive and continue in
      fall force after the Expiry Date.

11.    EVENTS OF LOSS

11.1   TOTAL LOSS

      (a)  PRE-DELIVERY: If a Total Loss occurs prior to Delivery, this
           Agreement will immediately terminate and, except as expressly
           stated in this Agreement, neither party will have any further
           obligation or liability under this Agreement except that the
           Lessor will rebate to the Lessee the Security Deposit (if
           theretofore paid pursuant to Clause 5.1) or, as the case may be,
           return the Letter of Credit to the Lessee.

      (b)  POST-DELIVERY: If a Total Loss occurs after Delivery, the Lessee
           will pay the Agreed Value to the Lender no later than 60 days
           after the Total Loss Date (the "SETTLEMENT DATE") unless the
           Aircraft is restored to the Lessor or the Lessee within that
           period (or, in the case of a Total Loss coming within paragraph
           (c) of the definition of Total Loss and involving the loss of the
           Lessor's title to the Aircraft, if both the Aircraft and the
           Lessor's title thereto are restored to the Lessor or, in the case
           of the Aircraft, to the Lessee and the Lender's rights under the
           Mortgage are fully restored). The receipt by the Lender, so long
           as the Security Interest of the Mortgage remains in effect, and
           thereafter by the Lessor of the insurance proceeds in respect of
           the Total Loss on or prior to the Settlement Date shall discharge
           the Lessee from its obligation to pay the Agreed Value to the
           Lessor pursuant to this sub-clause (b), provided such proceeds are
           not less than the Agreed Value. In the event that the insurance
           proceeds

                                    -55-


<PAGE>


              are paid initially to the Lessee and not to the Lender, they may
              be retained by the Lessee if the Lessee shall have paid the Agreed
              Value to the Lender, otherwise the Lessee shall pay the Agreed
              Value to the Lender not later than the next Business Day following
              receipt by the Lessee of such proceeds. In the event that the
              Lessee pays the Agreed Value to the Lessor in accordance with this
              sub-clause (b), the Lessor shall promptly assign to the Lessee its
              rights under the Insurances to receive the insurance proceeds in
              respect of the Total Loss to the extent that such proceeds shall
              not have been paid to the Lessee. Subject to the rights of any
              insurers or other third parties, upon irrevocable payment in full
              to the Lessor of that amount and all other amounts that may be or
              become payable to the Lessor or any other Person under this
              Agreement, the Lessor shall:

           (i)   without recourse or warranty (except as to the absence of
                 Lessor Liens), and without further act, be deemed to have
                 transferred to the Lessee all of the Lessor's rights to any
                 Engines or Parts not installed when the Total Loss occurred,
                 all on an "as-is where is" basis, and shall, at the Lessee's
                 expense, execute and deliver such bills of sale and other
                 documents and instruments as the Lessee may reasonably
                 request to evidence (on the public record or otherwise)
                 the transfer and the vesting of the Lessor's rights in
                 such Engines and Parts in the Lessee, free and clear of
                 all rights of the Lessor and any Lessor Liens; and

           (ii)  pay to Lessee, as a rebate of prepaid Basic Rent, and amount
                 equal to the product of (1) one month's Basic Rent multiplied
                 by (2) a fraction the numerator of which is the number of days
                 remaining in the then current Rental Period and the
                 denominator of which is the number of days in the then
                 current Rental Period.

      (c)  ENGINE LOSS: Upon the occurrence of an Engine Loss (including, for
           the avoidance of doubt, at a time when the Engine is not installed
           on the Airframe) in circumstances in which there has not also
           occurred a Total Loss, the Lessee shall give the Lessor and the
           Lender written notice promptly upon becoming aware of the same and
           shall (unless the Lessor has received the insurance proceeds
           relating to such Engine Loss), within 60 days after the Engine
           Loss Date, convey or cause to be conveyed to the Lessor, as
           replacement for such Engine, title to a replacement engine that is
           in the same or better operating condition, has the same or greater
           value and utility as the lost Engine and that complies with the
           conditions set out in Clause 8.13(a). The Lessee shall, at the
           time of such conveyance, comply in all respects with Clause
           8.17(a) so that the replacement engine becomes an Engine,
           whereupon the leasing of the replaced Engine the subject of the
           Engine Loss shall cease and title to such replaced Engine shall
           (subject to any salvage rights of insurers) vest in the Lessee
           pursuant to Clause 8.17(b), free of Lessor Liens. If the Lessor or
           the Lender subsequently receives any insurance proceeds relating
           to such Engine Loss, the

                                    -56-


<PAGE>


                 Lessor shall promptly remit such proceeds or cause such
                 proceeds to be remitted to the Lessee. No Engine Loss with
                 respect to any Engine that is replaced in accordance with
                 the provisions of this Clause 11.1(c) shall result in any
                 increase or decrease in Basic Rent or the Agreed Value.
11.2  REQUISITION

      DURING ANY requisition for use or hire of the Aircraft, any Engine or
      Part that does not constitute a Total Loss:

      (a)  the Basic Rent and Supplemental Rent payable under this Agreement
           will not be suspended or abated either in whole or in part, and
           the Lessee will not be released from any of its other obligations
           under this Agreement (other than operational obligations with
           which the Lessee is unable to comply solely by virtue of the
           requisition); and

      (b)  so long as no Default has occurred and is continuing, the Lessee
           will be entitled to any compensation payable by the
           requisitioning authority in respect of the Term. The Lessee will,
           as soon as practicable after the end of any such requisition (with
           the Term being extended if and to the extent that the period of
           requisition continues beyond the scheduled Expiry Date), cause the
           Aircraft to be put into the condition required by this Agreement.
           The Lessor will be entitled to all compensation payable by the
           requisitioning authority in respect of any change in the
           structure, state or condition of the Aircraft arising during the
           period of requisition, and the Lessor will apply such compensation
           in reimbursing the Lessee for the cost of complying with its
           obligations under this Agreement in respect of any such change,
           but so that, if any Default has occurred and is continuing, the
           Lessor may apply the compensation in or towards settlement of any
           amounts owing by the Lessee under this Agreement. All such sums
           shall be held by the Lender, so long as the Security Interest of
           the Mortgage remains in effect, and thereafter by the Lessor.

12.   RETURN OF AIRCRAFT

12.1  REDELIVERY

      On the Expiry Date or termination of the leasing of the Aircraft under
      this Agreement, the Lessee shall, unless a Total Loss has occurred, at
      its expense, redeliver the Aircraft and Aircraft Documents to the Lessor
      at the Redelivery Location or such other airport as is mutually
      acceptable to Lessor and Lessee in a condition complying with this Clause
      12 and Schedule 3, free and clear of all Security Interests and Permitted
      Liens (other than the Lessor Liens).

                                    -57-


<PAGE>


12.2 FINAL CHECKS

      Immediately prior to return of the Aircraft, Lessee shall perform the
      following at its sole cost and expense unless otherwise stated:

      (a)  Lessee shall perform (or have performed by an Agreed Maintenance
           Performer) a full and complete zonal, systems and structural check
           ("C" or its equivalent), including the corresponding lower checks
           ("A" and "B" or equivalent) and any other maintenance and
           inspections tasks that are a part thereof, all in accordance with
           the Agreed Maintenance Program. At return, the Airframe will have
           zero Flight Hours since such "C" check, except for the acceptance
           flights and the ferry flight to the Redelivery Location. 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 shall also perform during such check, to the extent
           it is able, any other work reasonably required by Lessor (and not
           otherwise required under this Agreement) so long as such work does
           not prevent Lessee from returning the Aircraft on the Expiry Date,
           and Lessor shall reimburse Lessee for such work at Lessee's
           preferred customer rates.

      (b)  Lessee shall perform (or have performed by an Agreed Maintenance
           Performer) an internal and external corrosion inspection in
           accordance with the manufacturer's corrosion prevention and
           control program ("CPCP") specified for the model type and correct
           any discrepancies in accordance with the recommendations of the
           manufacturer and the manufacturer's structural repair manual
           ("SRM"). In addition, all inspected areas will be properly treated
           with corrosion inhibitor as recommended by manufacturer.

      (c)  If Lessee performed any structural inspections or tasks on a
           sampling basis but did not perform such inspections on the
           Aircraft, such work shall also be performed on the Aircraft.

      (d)  Lessee shall perform a videotape borescope inspection of the low
           pressure and high pressure compressors and the turbine area of the
           Engines. All items beyond the applicable Engine manufacturer's
           maintenance manual limits will be rectified at Lessee's sole cost
           and expense. No Engine will be "on watch," for any reason
           requiring special or out of sequence inspection.

      (e)  In accordance with the applicable maintenance manual, Lessee shall
           perform a maximum power assurance run and condition, acceleration
           and bleed valve scheduling checks on the Engines. Lessee will
           record and evaluate the Engine performance, with Lessor, Lender
           and/or their respective representatives entitled to be present.
           The performance and all operating parameters of each Engine will
           be within the limits specified in the Engine manufacturer's
           maintenance manual.

                                    -58-


<PAGE>


      (f)  Lessee shall have removed and blended all external and interior
           markings.

      (g)  If the Engine historical and technical records and the condition
           trend monitoring data of any Engine or the APU indicate an abnormal
           acceleration in the rate of deterioration in the performance of
           such Engine or APU, Lessee shall correct such conditions causing the
           accelerated rate of deterioration.

12.3 FINAL INSPECTION

      (a)  During the 15 days prior to redelivery of the Aircraft, the Lessee
           will make the Aircraft available to the Lessor and the Lender for
           inspection ("FINAL INSPECTION") in order to verify that the
           condition of the Aircraft complies with this Agreement. The Final
           Inspection will be long enough to permit the Lessor and the Lender
           to inspect, at their own cost, the Aircraft Documents, the
           Aircraft and uninstalled Parts and the Engines. The Lessor and the
           Lender shall attend and conduct the Final Inspection diligently
           and, without limiting their right to conduct the full Final
           Inspection permitted by this Agreement, will cooperate with the
           Lessee in order to complete the Final Inspection as soon as
           reasonably practical.

      (b)  The Lessor and the Lender shall also be entitled, as part of the
           Final Inspection, to require the Lessee to perform an acceptance
           flight of up to three hours at the Lessee's cost (with the
           Lessor's and the Lender's representatives as on-board observers)
           and such further acceptance flights as may be necessary in the
           event that the first or subsequent flights do not confirm that the
           Aircraft complies with the requirements of this Agreement.

      (c)  At the request of Lessor, Lessee shall perform "bridging"
           maintenance procedures for the purpose of standardizing the
           Aircraft to the maintenance program of any subsequent operator of
           the Aircraft; provided, however, that Lessor shall pay to Lessee
           the Actual Cost of all "bridging" procedures that are in excess of
           or not in lieu of the "C" Check to be performed pursuant to Clause
           12.2 and Schedule 3.

      (d)  Upon request by the Lessor or (so long as the Security Interest of
           the Mortgage is in effect) the Lender, the Lessee shall remove any
           Equipment Change and restore the Aircraft to its condition prior to
           that Equipment Change.

12.4 NON-COMPLIANCE

      To the extent that, at the time of Final Inspection, the condition of
      the Aircraft does not comply with this Agreement, the Lessee shall at
      the option of the Lessor and the Lender:

                                    -59-


<PAGE>


      (a)  immediately rectify the non-compliance and, to the extent the
           non-compliance extends beyond the Expiry Date, the Term will be
           automatically extended until the non-compliance has been rectified;
           or

      (b)  redeliver the Aircraft to the Lessor and indemnify the Lessor and
           the Lender, and provide security reasonably acceptable to the Lessor
           and the Lender for that indemnity, against the cost of putting the
           Aircraft into the condition required by this Agreement.

      During any extension of the Term pursuant to sub-clause (a), this
      Agreement will remain in full force and effect and the Lessee shall pay
      a rental on a PER DIEM them basis weekly in advance at a rate equal to
      125% of the Basic Rent in effect immediately before the Expiry Date;
      provided, however, that (i) Lessee shall not operate, or permit others
      to operate, the Aircraft after the Expiry Date except for acceptance
      flights pursuant to Clause 12.2 and a ferry flight to the Redelivery
      Location; and (ii) if the Expiry Date has occurred as a result of the
      exercise by Lessor of its Early Termination Option, during the first 60
      days of any extension of the Term pursuant to sub-clause (a), the
      Lessee shall pay a rental equal to 100% of the Basic Rent in effect
      immediately before the Expiry Date.

12.5 EXPORT DOCUMENTATION

      Upon redelivery and upon request by the Lessor or the Lender, the Lessee
      shall (a) provide to the Lessor all documents necessary to export the
      Aircraft from the State of Registration (including a valid and subsisting
      export licence for the Aircraft), and (b) provide any documents requested
      by the Lessor or the Lender in connection with, and otherwise cooperate
      with, the deregistration of the Aircraft by the Aviation Authority,
      including causing the Aviation Authority to issue an Export Certificate of
      Airworthiness to a country specified by the Lessor or the Lender.

12.6  ACKNOWLEDGEMENT

      Provided the Lessee has complied with its obligations under this
      Agreement, following redelivery of the Aircraft by the Lessee to the
      Lessor at the Redelivery Location, the Lessor will deliver to the Lessee
      an acknowledgment confirming that the Lessor is satisfied that the
      Aircraft is in the condition required by this Agreement and has been
      redelivered to the Lessor in accordance with this Agreement.

12.7  MAINTENANCE PROGRAM

      (a)  During the 60 day period preceding the scheduled Expiry Date and
           upon the Lessor's or the Lender's request, the Lessee will provide
           the Lessor and the Lender or their respective agents reasonable
           access to the Agreed Maintenance Program and the Aircraft
           Documents in order to facilitate the Aircraft's integration into any

                                    -60-


<PAGE>


           subsequent operator's fleet. The Lessor agrees that it will not
           disclose the contents of the Agreed Maintenance Program to any
           person or entity except to the extent necessary to monitor the
           Lessee's compliance with this Agreement and/or to bridge the
           maintenance program for the Aircraft from the Agreed Maintenance
           Program to another program after the Expiry Date.

      (b)  Concurrent with providing the Aircraft Documents for Lessor's and
           Lender's review, Lessee shall provide to Lessor and Lender a
           written summary of all sampling programs involving or affecting
           the Aircraft.

12.8  STORAGE

      If the Lessor or the Lender so requests, and subject to the
      availability of the requisite space, the Lessee shall park and store
      the Aircraft at a secure storage area, which may be at the Redelivery
      Location or at any other suitable facility of the Lessee selected by
      the Lessee, wherever located (the "STORAGE LOCATION"), on behalf of the
      Lessor for a period not exceeding 30 days from the Expiry Date. During
      that period the Aircraft shall be at the Lessee's risk (save as to any
      loss or damage caused by the Lessor's wilful misconduct or gross
      negligence), and the Lessee shall maintain and store the Aircraft in
      accordance with the respective manufacturer's maintenance planning
      document and shall insure the Aircraft in accordance with a "ground
      risk only" policy usual and customary in the worldwide aviation
      insurance marketplace. All storage, maintenance and insurance costs
      shall be borne by the Lessee. If the Lessor or the Lender so requests,
      and subject to the availability of the requisite space, the Lessee
      shall continue to park and store the Aircraft at the Storage Location
      on behalf of the Lessor for a further period not exceeding 60 days.
      During that further period the Aircraft shall be at the Lessor's risk
      (save as to any loss or damage caused by the Lessee's wilful misconduct
      or gross negligence), but the Lessee shall continue to maintain, store
      and insure the Aircraft in accordance with this Clause 12.8 (with
      Lessor obligated to reimburse Lessee for any hull insurance deductibles
      for which Lessee becomes responsible relating to the Aircraft during
      such further 60 days period). All reasonable storage, maintenance and
      insurance costs incurred by the Lessee (excluding any profit element
      accruing to the Lessee) during such further period shall be reimbursed
      by the Lessor promptly upon presentation of supporting invoices and/or
      receipts.

13.   DEFAULT

13.1  EVENTS

      Each of the following events will constitute an Event of Default and a
      repudiation of this Agreement by the Lessee:

      (a)  NON-PAYMENT: the Lessee fails to pay any amount payable by it under
           this Agreement within 3 Business Days of the due date for payment; or

                                      -61-

<PAGE>



      (b)  INSURANCE: the Lessee fails to comply with any provision of clause 9
           or any insurance required to be maintained under this Agreement is
           canceled or terminated; or

      (c)  BREACH: the Lessee fails to comply with any other provision of this
           Agreement and, if such failure is, in the reasonable opinion of
           the Lessor and the Lender, capable of remedy, the failure
           continuer, for 30 days after notice from the Lessor or the Lender
           to the Lessee, PROVIDED HOWEVER, that, if such failure cannot
           reasonably be remedied within such 30 day period and the Lessee is
           diligently undertaking all necessary remedial action, the 30 day
           period shall be extended for a further 15 days; or

      (d)  REPRESENTATION: any representation or warranty made (or deemed to be
           repeated) by the Lessee in this Agreement or hi any document or
           certificate furnished to the Lessor pursuant to or in connection
           with this Agreement is or proves to have been incorrect in any
           material respect when made or deemed to be repeated and the
           Lessee's ability to comply with its obligations under this
           Agreement, and/or the Lessor's or The Lender's rights, title and
           interest to and in the Aircraft and/or under this Agreement, are
           thereby materially and adversely affected; or

      (e)  CROSS DEFAULT:

           (i)   any Financial Indebtedness of the Lessee or any of its
                 Affiliates that exceeds $500,000 is not paid when
                 due and any applicable grace period shall have expired;

           (ii)  the security for any such Financial Indebtedness is
                 enforced; or

           (iii) any lease, conditional sale, installment sale or forward
                 purchase agreement of the Lessee or any of its Affiliates
                 in respect of an aircraft is terminated as a consequence of an
                 event of default or termination event (however described);

           provided always, in any such case, it shall not constitute an
           Event of Default under this Agreement if, in connection with
           Lessee"s one OR two principal working lines of credit/letters of
           credit facilities:

           (1)  the non-payment, acceleration, termination or event in
                question is being contested by the Lessee in good faith and
                on reasonable grounds and any declaration of default,
                Termination of agreement or enforcement of security has been
                stayed by a court of competent jurisdiction; or

                                      -62-


<PAGE>


           (2)  the non-payment, termination or event in question is being
                discussed by the Lessee with the creditors of such facilities
                in good faith and on reasonable grounds and there has been no
                declaration of default, acceleration, termination of
                agreement or enforcement of security;

      (f)  APPROVALS: any consent, authorization, licence, certificate or
           approval of or registration with or declaration to any Government
           Entity in connection with this Agreement, including:

           (i)    any authorization required by the Lessee of, or in connection
                  with, the execution, delivery, validity, enforceability or
                  admissibility in evidence of this Agreement or the
                  performance by the Lessee of its obligations under this
                  Agreement; or

           (ii)   any airline licence, air transport licence, franchise,
                  concession, permit, certificate, right or privilege required
                  by the Lessee for the conduct of its business,

           is modified, withheld, revoked, suspended, canceled, withdrawn,
           terminated or not renewed, or otherwise ceases to be in fall force
           and is not reissued, reinstated or renewed within 30 days,
           PROVIDED HOWEVER that any such modification, withholding,
           revocation, suspension, cancellation, withdrawal, termination or
           non-renewal shall only constitute an Event of Default if it has a
           material adverse effect on the Lessee's ability to perform its
           obligations under this Agreement or the Lessor's or the Lender's
           rights, title and interest to and in the Aircraft or under this
           Agreement; or

      (g)  INSOLVENCY:

           (i)    the Lessee or any of its Affiliates is, or is deemed for the
                  purposes of any relevant law to be, unable to pay its debts
                  as they  fall due or to be insolvent, or admits inability to
                  pay its debts as they fall due; or

           (ii)   the Lessee or any of its  Affiliates suspends making payments
                  on all or any class of its debts or  announces an intention to
                  do so, or a moratorium is declared in respect of any of its
                  indebtedness; or

      (h)  BANKRUPTCY AND SIMILAR PROCEEDINGS

           (i)    Lessee shall consent to the appointment of a receiver,
                  trustee or liquidator for itself or for a substantial part
                  of its property; or

                                      -63-


<PAGE>


            (ii)  Lessee shall admit in writing its inability to pay its debts
                  generally as they become due, or Lessee shall make a general
                  assignment for the benefit of creditors; or

            (iii) Lessee shall file a voluntary petition in bankruptcy or a
                  voluntary petition or answer seeking reorganization in a
                  proceeding under the 11 U. S.C. ss. ss. 101 ET seq
                  or under any other laws dealing with bankruptcy,
                  insolvency, moratorium or creditors' rights generally
                  (any or all of which are hereinafter referred to as
                  "BANKRUPTCY LAWS"), or an answer admitting the material
                  allegations of a petition filed against Lessee in any
                  such proceeding, or Lessee shall by voluntary petition,
                  answer or consent to or seek relief under the provisions
                  of any Bankruptcy Laws; or

            (iv)  any order, judgment or decree is entered by a court of
                  competent jurisdiction appointing a receiver, trustee or
                  liquidator of Lessee or a substantial part of its
                  property, or ordering a substantial part of Lessee's
                  property is to be sequestered, and instituted or done
                  with the consent of Lessee or, if instituted by another
                  person, the order, judgment or decree is not dismissed,
                  remedied or relinquished within 60 days; or

           (v)    a petition against Lessee in a proceeding under any
                  Bankruptcy Laws shall be filed and shall not be withdrawn
                  or dismissed within 60 days thereafter, or if, under the
                  provisions of any Bankruptcy Laws that may apply to Lessee,
                  any court of competent jurisdiction shall assume
                  jurisdiction, custody or control of Lessee or of any
                  substantial part of its property; or

           (vi)   any step (including petition, proposal or convening a
                  meeting) is taken with a view to a composition,
                  assignment or arrangement with any creditors of, or the
                  reorganization, rehabilitation, administration,
                  liquidation, or dissolution of, the Lessee or any of its
                  Affiliates or any other insolvency proceedings involving
                  the Lessee or any of its Affiliates; or

      (i)  OTHER JURISDICTION: there occurs in relation to the Lessee or any of
           its Affiliates any event anywhere which, in the reasonable opinion
           of the Lessor, corresponds with any of those mentioned in Clause
           13.1 (h); or

      (j)  UNLAWFUL: it becomes unlawful for the Lessee to perform any of
           its material obligations under this Agreement or this Agreement
           becomes wholly or partly invalid or unenforceable, provided that
           any such partial invalidity or unenforceability shall only
           constitute an Event of Default if it has a material adverse effect
           on the Lessee's ability to perform its obligations under this
           Agreement or the Lessor's or the Lender's rights, title and
           interest in and to the Aircraft or under this Agreement; or

                                      -64-


<PAGE>


      (k)  SUSPENSION OF BUSINESS: the Lessee or any of its Affiliates suspends
           or ceases to carry on all or a substantial part of its business; or

      (l)  DISPOSAL: the Lessee or any of its Affiliates disposes or threatens
           to dispose of all or a material part of its assets, whether by one
           or a series of transactions, related or not, other than pursuant
           to a merger or consolidation as referred to in, and subject to,
           Clause 8.8(b) or for the purpose of any other reorganization or
           amalgamation the terms of which have received the previous consent
           in writing of the Lessor; or

      (m)  RIGHTS: the existence, validity, enforceability or priority of the
           rights of the Lessor as owner and lessor in respect of the
           Aircraft or the rights of the Lender as mortgagee of the Aircraft
           and assignee of this Agreement are challenged by the Lessee or any
           other person claiming by or through the Lessee; or

      (n)  CHANGE OF OWNERSHIP: any single person or group of persons acquire
           control, directly or indirectly, of the Lessee without the
           previous consent in writing of the Lessor and Lender (which
           consent shall not be withheld unless the Lessor or the Lender is
           of the reasonable opinion that such acquisition of control will
           have a materially adverse effect on the Lessee's ability to
           perform its obligations under this Agreement or the Lessor's or
           the Lender's rights, title and interest in and to the Aircraft or
           under this Agreement), not including (i) persons that are
           currently in control of Lessee, (ii) spouses of such persons,
           (iii) any lineal ancestor or descendant of such persons, (iii) any
           spouse of any person covered by clause (iii), or (v) a partnership
           or trust set up for the benefit of persons identified in clauses
           (i) through (iv); or

      (o)  DELIVERY: the Lessee fails to accept delivery of the Aircraft when
           validly tendered pursuant to this Agreement by the Lessor
           (provided that the Lessor shall have satisfied the conditions
           precedent set out in Clause 3.4); or

      (p)  ADVERSE CHANGE: any event or series of events occurs which, in the
           reasonable opinion of the Lessor or the Lender, could be expected
           to have a material adverse effect on the financial condition or
           operations of the Lessee and its Affiliates or on the ability of
           the Lessee to comply with its obligations under this Agreement; or

      (q)  LETTER OF CREDIT: if the Lessee has elected to deliver the Letter
           of Credit in lieu of the Security Deposit pursuant to Clause
           5.1(b), the Letter of Credit ceases for any reason to be in full
           force and effect or is not renewed or replaced before its
           expiration in accordance with Clause 5.1 (b) and the Lessee does
           not immediately provide the Lessor with cash in an amount equal to
           the Security Deposit.

                                      -65-


<PAGE>


13.2  RIGHTS

      If an Event of Default occurs, and for as long as it shall continue, the
      Lessor may at its option (and without prejudice to any of its other
      rights under this Agreement), at any time thereafter:

      (a)  treat such event as a repudiation by  the Lessee of its obligations
           under this Agreement and by notice to the Lessee with immediate
           effect terminate the leasing of the Aircraft (but without
           prejudice to the continuing obligations of the Lessee under this
           Agreement), whereupon all rights of the Lessee under this
           Agreement shall cease; and/or

      (b)  proceed by appropriate court action or actions to enforce
           performance of this Agreement or to recover damages for the breach
           of this Agreement; and/or

      (c)  either:

           (i)    take possession of the Aircraft, for which purpose the
                  Lessor may enter any premises belonging to, occupied by or
                  under the control of the Lessee (for which purpose the
                  Lessee hereby grants to the Lessor an irrevocable licence
                  to the extent permitted by applicable law) where the
                  Aircraft may be located, or cause the Aircraft to be
                  redelivered to the Lessor at the Redelivery Location (or
                  such other location as the Lessor may require), and the
                  Lessor is hereby irrevocably authorized and empowered, to
                  the extent permitted by applicable law, to direct pilots of
                  the Lessee or other pilots to fly the Aircraft to that
                  airport and will have all the powers and authorizations
                  necessary for taking such action; or

           (ii)   by serving notice, require the Lessee to redeliver the
                  Aircraft to the Lessor at the Redelivery Location (or such
                  other location as the Lessor may require).

13.3  EXPORT

      If an Event of Default occurs, and for as long as it shall continue, the
      Lessor may sell or otherwise deal with the Aircraft as if this Agreement
      had never been made and the Lessee will, at the request of the Lessor,
      take all steps necessary to export the Aircraft from the country where
      the Aircraft is for the time being situated and any other steps necessary
      to enable the Aircraft to be redelivered to the Lessor in accordance with
      this Agreement. The Lessee hereby irrevocably and by way of security for
      its obligations under this Agreement authorizes and empowers the Lessor
      as its attorney to execute and deliver any documentation and to do any
      act or thing required in connection with the foregoing.

                                      -66-


<PAGE>


13.4  DEFAULT PAYMENTS

      If a Default occurs, the Lessee will indemnify the Lessor on demand
      against any loss, damage, expense, cost or liability which the Lessor may
      sustain or incur directly or indirectly as a result, including:

      (a)  any loss of profit (calculated on an after-tax basis) suffered by
           the Lessor because of the Lessor's inability to place the Aircraft
           on lease with another Lessee on terms as favorable to the Lessor
           as this Agreement or because whatever use, if any, to which the
           Lessor is able to put the Aircraft upon its return to the Lessor,
           is not as profitable (calculated on an after-tax basis) to the
           Lessor as this Agreement would have been but for such Default or
           non-delivery;

      (b)  in the event that the Aircraft is sold as a consequence of the
           Lessor's inability to enter into a satisfactory lease within a
           reasonable period, the amount (if any) by which (i) the aggregate
           of (1) the net sale proceeds (calculated by deducting the costs of
           sale together with the cost of preparing the Aircraft for sale and
           the repayment of any outstanding indebtedness in relation to the
           financing of the Aircraft) plus (2) the present value of the
           anticipated after-tax net income to be derived from such net sale
           proceeds up to the scheduled Expiry Date, discounted on a monthly
           basis using 9.5% PER ANNUM as the discount rate, are less than
           (ii) the aggregate of (1) the anticipated net sale proceeds
           (computed on the same basis as the net sale proceeds referred to
           in (i)(1) above), assuming that the Aircraft would have been sold
           as soon as reasonably practicable following the scheduled Expiry
           Date plus (2) the present value of the income that would have been
           derived from the future Basic Rent payable until the scheduled
           Expiry Date, discounted on a monthly basis using 9.5% PER ANNUM as
           the discount rate;

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

      (d)  any loss, premium, penalty or expense that may be incurred in
           repaying funds raised to finance the Aircraft or in unwinding any
           swap, forward interest rate agreement or other financial
           instrument relating in whole or in part to the Lessor's financing
           of the Aircraft; and

      (e)  any loss, cost, expense or liability sustained or incurred by the
           Lessor owing to the Lessee's failure to redeliver the Aircraft on
           the date, at the place and in the condition required by this
           Agreement.

      For the avoidance of doubt, the provisions of Clause 5.8(a) will apply to
      any sums payable by the Lessee pursuant to this Clause 13.4.

                                      -67-


<PAGE>


14.   ASSIGNMENT AND TRANSFER

14.1  NO ASSIGNMENT BY LESSEE

      The Lessee will not assign or create or permit to exist any Security
      Interest over any of its rights under this Agreement.

14.2  LESSOR ASSIGNMENT

      The Lessor may sell, assign or transfer all or any of its rights under
      this Agreement and in the Aircraft (a "Transfer") and the Lessor will,
      other than in the case of an assignment for security purposes, have no
      further obligation under this Agreement following a Transfer but,
      notwithstanding any Transfer, will remain entitled to the benefit of each
      indemnity under this Agreement.

      (a) In connection with any Transfer, the following conditions shall
          apply:

          (i)    Lessor shall give Lessee written notice of such Transfer at
                 least 10 Business Days before the date of such Transfer,
                 specifying the name and address of the proposed purchaser,
                 assignee or transferee (the "Transferee");

           (ii)  the Transferee will be a person reasonably experienced in
                 aircraft leasing (or the Transferee's rights and powers
                 under this Agreement shall be exercised on its behalf
                 pursuant to an appropriate management agreement by a person
                 having such experience);

           (iii) the Transfer will not adversely affect the Lessee's rights
                 and interests in the Aircraft and/or this Agreement, nor
                 subject the Lessee, on the date of such transfer, to any Tax
                 or Claim or any other obligation or liability to which it
                 would not have been subject had such assignment or transfer
                 not taken place.

           (iv)  the Transferee will be a "citizen of the United States"
                 within the meaning of Section 40102(a)(15) of the Federal
                 Aviation Law and have full corporate power and authority to
                 enter into and perform the transactions contemplated by this
                 Agreement on the part of "Lessor";

           (v)   on the Transfer date the Lessor and the Transferee shall enter
                 into an agreement or agreements in which the Transferee
                 confirms that it shall be deemed a party to this Agreement
                 and agrees to be bound by all the terms of, and to undertake
                 all of the obligations of, the Lessor contained in this
                 Agreement;

                                      -68-


<PAGE>


           (vi)  such Transfer shall not violate any applicable law
                 including the Federal Aviation Law, the Federal Aviation
                 Regulations and the Securities Act of 1933, as amended; and

           (vii) the Transferee shall provide to Lessee an opinion of its
                 regular independent counsel as to the matters set forth in
                 sub-clause (iv), as to the legality, validity, binding
                 effect and enforceability of the agreement or agreements
                 between Lessor and Transferee referred to in sub-clause (v)
                 and as to such other matters as were contained in the
                 opinion of Lessor's counsel delivered on the Delivery Date.

      (b)  Upon any Transfer, the Transferee shall be deemed Lessor for all
           purposes of this Agreement, each reference in this Agreement to
           the "Lessor" shall thereafter be deemed for all purposes to refer
           to the Transferee, and the transferor shall be relieved of all
           obligations of the "Lessor" under this Agreement arising after the
           time of such Transfer except to the extent attributable to acts or
           events occurring prior to the time of such Transfer.

      (c)  Upon compliance by Lessor and a Transferee with the terms and
           conditions of Clause 14.2(a), Lessee shall at the time of
           Transfer, at the specific written request of Lessor and with
           Lessor paying all of Lessee's out-of-pocket costs and expenses:

           (i)   execute and deliver to Lessor and to such Transferee an
                 agreement, in form and substance satisfactory to Lessor,
                 Lessee and such Transferee, dated the date of such transfer,
                 consenting to such transfer, agreeing to pay all or such
                 portion of the Basic Rent and other payments under this
                 Agreement to such Transferee or its designee as such
                 Transferee shall direct, and agreeing that such Transferee
                 shall be entitled to rely on all representations and
                 warranties made by Lessee in this Agreement or in any
                 certificate or document furnished by Lessee in connection
                 with this Agreement as though such Transferee was the
                 original "Lessor";

           (ii)  execute and deliver to Lessor or such Transferee, as the case
                 may be, precautionary Uniform Commercial Code financing
                 statements or amendments reflecting the interests of such
                 Transferee in the, Aircraft and this Agreement;

           (iii) deliver to Lessor and to such Transferee a certificate,
                 signed by a duly authorized officer or Lessee, dated the
                 date of such transfer, to the effect that no Event of
                 Default has occurred and is continuing or, if one is then
                 continuing, describing such Event of Default;

                                      -69-


<PAGE>


           (iv)  cause to be delivered to Lessor and such Transferee
                 certificates of insurance and broker's letter of undertaking
                 substantially in the form set out in Parts 2 and 3 of
                 Schedule 4, detailing the coverage and confirming the
                 insurers' agreement to the specified insurance requirements
                 of this Agreement and listing the Lessor and Transferee as
                 additional insureds and the Transferee as sole loss payee
                 (subject to other direction by the Lender);

           (v)   deliver to Lessor and to such Transferee an opinion of
                 Lessee's counsel (which may be Lessee's General Counsel),
                 addressed to Lessor and such Transferee to the effect that
                 the agreement referred to in sub-clause (i) has been duly
                 authorized and executed by Lessee and constitutes the legal,
                 valid and binding obligation of Lessee, enforceable against
                 Lessee in accordance with its terms (subject to customary
                 exceptions), and to the effect that such Transferee may rely
                 on the opinion delivered by such counsel or its predecessor
                 counsel in connection with this Agreement on the Delivery
                 Date with the same force and effect as if such Transferee
                 was an original addressee of such opinion when given;

           (vi)  deliver to Lessor and such Transferee information on the
                 location of the Airframe and Engines at all times requested
                 by Lessor in order to permit the Transfer to take place at a
                 time and on a date so as to eliminate or minimize any Taxes
                 applicable to the Transfer; and

           (vii) such other documents as Lessor or such Transferee may
                 reasonable request, so long as such documents do not
                 adversely affect the rights or obligations of Lessee under
                 this Lease or otherwise adversely effect Lessee.

14.3  GRANTS OF SECURITY INTERESTS

      (a)  The Lessee hereby consents to the Lessor's assignment of and grant
           of a security interest in the Lessor's right, title and interest
           in the Aircraft and this Agreement to SBCC contained in the
           Mortgage, and agrees that SBCC as "Lender" shall be entitled to
           rely on all representations and warranties made by Lessee in this
           Agreement or in any certificate or document furnished by Lessee in
           connection with this Agreement.

      (b)  The Lessor shall be entitled at any time after Delivery to grant a
           security interest in the Aircraft or its right, title and interest
           in this Agreement (each, an "ADDITIONAL MORTGAGE") in favor of any
           person (each, an "ADDITIONAL MORTGAGEE"). Any Additional Mortgage
           may be a successor mortgage to the Security Interest granted to
           the Lender, or may be in addition to the Lender's Security
           Interest and previous Additional Mortgages and with a priority
           senior, equal or subordinate to the Lender's Security Interest and
           previous Additional Mortgages as the Lender and previous
           Additional Mortgagees may permit. In the case of any such grant by
           Lessor of an

                                      -70-


<PAGE>


           Additional Mortgage to an Additional Mortgagee in all or any
           portion of Lessor's rights, title and interest in and to the
           Aircraft and this Agreement, Lessee shall promptly, at the
           specific written request of Lessor and with Lessor paying all of
           Lessee's out-of-pocket costs and expenses:

           (i)   execute and delivery to Lessor and to such Additional
                 Mortgagee an agreement, in form and substance satisfactory
                 to Lessor, such Additional Mortgagee and Lessee, dated the
                 date of the grant of such Additional Mortgage, (i)
                 consenting to such Additional Mortgage and to any assignment
                 of Lessor's rights, title and interest in and to this
                 Agreement to such Additional Mortgagee for security
                 purposes, (ii) if requested by Lessor and consented to by
                 the previous payee, agreeing that Lessee will pay the Basic
                 Rent and other payments under this Agreement to such
                 Additional Mortgagee, and (iii) agreeing that such
                 Additional Mortgagee shall be entitled to rely on all
                 representations and warranties made by Lessee in this
                 Agreement or in any certificate or document furnished by
                 Lessee in connection with this Agreement as though such
                 Additional Mortgagee was originally the "Lessor" or "Lender";

            (ii) execute and deliver to Lessor and such Additional Mortgagee
                 such agreements as the Lessor may reasonably require for the
                 purposes of effecting all necessary amendments to this
                 Agreement (including Clauses 8, 9 and 10 and Schedule 4);

           (iii) execute and deliver to Lessor or such Additional Mortgagee,
                 as the case may be, precautionary Uniform Commercial Code
                 financing statements or amendments reflecting the assignment
                 of Lessor's interests to such Additional Mortgagee;

           (iv)  deliver to Lessor and such Additional Mortgagee a certificate,
                 signed by a duly authorized officer of Lessee, dated the
                 date of the grant of the Additional Mortgage, to the effect
                 that no Event of Default has occurred and is continuing or,
                 if one is then continuing, describing such Event of Default;

           (v)   cause to be delivered to Lessor and such Additional Mortgagee
                 certificates of insurance and broker's letter of undertaking
                 substantially in the form set out in Parts 2 and 3 of
                 Schedule 4, detailing the coverage and confirming the
                 insurers' agreement to the specified insurance requirements
                 of this Agreement, adding such Additional Mortgagee as an
                 additional insured and, if requested by Lessor and consented
                 to by the previous loss payee, listing such Additional
                 Mortgagee as sole loss payee;

                                      -71-


<PAGE>


           (vi)  deliver to Lessor and such  Additional  Mortgagee an opinion of
                 Lessee's  counsel  (which may be Lessee's General Counsel),
                 addressed to Lessor and such Additional  Mortgagee (i) to
                 the effect that the agreements  referred to in sub-clauses
                 (a) and (b) have been duly authorized  and  executed  by
                 Lessee  and  constitute  the  legal,   valid  and  binding
                 obligations  of  Lessee,  enforceable  against  Lessee in
                 accordance  with  their  terms (subject  to  customary
                 exceptions),  and  (ii)  to  the  effect  that  such
                 Additional Mortgagee may rely on the opinion  delivered by
                 such counsel or its  predecessor  counsel in  connection
                 with this  Agreement on the Delivery  Date with the same
                 force and effect as if such  Additional  Mortgagee  was an
                 original  addressee of such opinion when given; and

           (vii) such other documents as Lessor or such Additional Mortgagee
                 may reasonably request so long as such documents do not
                 adversely affect the rights or obligations of Lessee under
                 this Lease or otherwise adversely affect Lessee.

14.4  SALE AND LEASEBACK BY LESSOR

      In addition to the Transfers and grants of security interests permitted
      by Clauses 14.2 and 14.3, Lessor shall be entitled to transfer its right,
      title and interests in and to the Aircraft to any person and lease the
      Aircraft from such person (a "HEAD LESSOR"), and in such event Lessor
      shall retain its rights and obligations as the "Lessor" under this
      Agreement. In the event of such a sale and lease-back by Lessor, (a) the
      Head Lessor shall meet the requirements for a "Transferee" as defined in
      Clause 14.2(a)(ii) above, (b) the Lessor shall be entitled to assign its
      rights in this Agreement to such Head Lessor as security for its
      obligations under the head lease, (c) the Head Lessor shall be entitled
      to grant to one or more purchase money lenders, or to an indenture
      trustee on behalf of such lenders, an Additional Mortgage covering the
      Aircraft and this Agreement, (d) Lessee shall execute and deliver to
      Lessor, such Head Lessor, such Additional Mortgagee and any trustees on
      their behalf, as appropriate, the documents specified in Clauses
      14.2(c)(i) through (vii) and Clauses 14.3(b)(i) through (vii) above, and
      Lessee shall cooperate with Lessor to make such other changes to this
      Lease, such as including such Head Lessor, such Additional Mortgagee and
      the trustees on their behalf as additional insureds and "Indemnitees", as
      Lessor may reasonably request so long as such changes do not adversely
      affect the rights or obligations of Lessee under this Lease or otherwise
      adversely affect Lessee and with Lessor paying all of Lessee's
      out-of-pocket costs and expenses.

14.5  FURTHER ACKNOWLEDGMENTS

      Lessee further acknowledges that any Transferee or Additional Mortgagee
      shall in turn have the rights of, and be subject to the conditions to,
      transfer and grants of security interests set forth above in this Clause
      14.

                                      -72-


<PAGE>


14.6  CERTAIN PROTECTIONS FOR LESSEE'S BENEFIT

      The rights of Lessee under this Agreement shall be superior to the rights
      of any Additional Mortgagee or Head Lessor, and the Lessor shall require
      each Additional Mortgagee and Head Lessor to agree in writing with the
      Lessee that such Additional Mortgagee's and Head Lessor's rights in and to
      the Aircraft shall be subject to the terms of this Agreement, including to
      the Lessee's rights to the quiet use, possession and enjoyment provisions
      contained in this Agreement. Except as expressly set forth in this
      Agreement, no Additional Mortgage or Head Lease shall increase the
      responsibilities, obligations or liabilities of the Lessee or deprive the
      Lessee of any of its rights or privileges under this Agreement. The
      Lessor's obligations to perform the terms and conditions of this Lease
      shall remain in full force and effect notwithstanding the creation of any
      Additional Mortgage or Head Lease. Lessor shall not create any Additional
      Mortgage or enter into any Head Lease that violates the terms of this
      Clause 14.6.

15.   MISCELLANEOUS

15.1  WAIVERS, REMEDIES CUMULATIVE

      The rights of either party under this Agreement:

      (a)  may be exercised as often as necessary;

      (b)  are cumulative and not exclusive of that party's rights under
           any law; and

      (c)  may be waived only in writing and specifically.

      Delay in exercising or non-exercise of any such right is not a waiver of
that right.

15.2  DELEGATION

      The Lessor or the. Lender may delegate to any person or persons all or any
      of the trusts, powers or discretions vested in it by this Agreement and
      any such delegation may be made upon such terms and conditions and subject
      to such regulations (including power to sub-delegate) as the Lessor or the
      Lender, respectively, in its absolute discretion thinks fit.

15.3  APPROPRIATION

      If any sum paid or recovered in respect of the liabilities of the Lessee
      under this Agreement is less than the amount then due, the Lessor may
      apply that sum to amounts due under this Agreement in such proportions and
      order and generally in such manner as the Lessor may determine.

                                      -73-


<PAGE>


15.4  CURRENCY INDEMNITY

      (a)  If the Lessor or the Lender receives an amount in respect of the
           Lessee's liability under this Agreement or if such liability is
           converted into a claim, proof, judgment or order in a currency
           other than the currency (the "CONTRACTUAL CURRENCY") in which the
           amount is expressed to be payable under this Agreement:

           (i)   the Lessee will indemnify the Lessor, as an independent
                 obligation, against any loss arising out of or as a result of
                 such conversion;

           (ii)  if the amount received by the Lessor or the Lender, when
                 converted into the contractual currency (at the market rate at
                 which the Lessor is able on the relevant date to purchase the
                 contractual currency in New York City with that other
                 currency) is less than the amount owed in the contractual
                 currency, the Lessee will, forthwith on demand, pay to the
                 Lessor an amount in the contractual currency equal to the
                 deficit; and

           (iii) the Lessee will pay to the Lessor on demand any exchange
                 costs and Taxes payable in connection with the conversion.

      (b)  The Lessee waives, to the extent permitted by applicable law, any
           right it may have in any jurisdiction to pay any amount under this
           Agreement in a currency other than that in which it is expressed
           to be payable.

15.5  PAYMENT BY THE LESSOR

      The Lessor will not be obliged to pay any amounts to the Lessee under this
      Agreement so long as any sums which are then due from the Lessee under
      this Agreement remain unpaid or a Default has occurred and is continuing,
      and any such amounts which would otherwise be due will fall due only if
      and when the Lessee has paid all such sums and no Default is continuing.

15.6 SEVERABILITY

      If a provision of this Agreement is or becomes illegal, invalid or
      unenforceable in any jurisdiction, that will not affect:

      (a) the legality, validity or enforceability in that jurisdiction of
          any other provision of this Agreement; or

      (b) the legality, validity or enforceability in any other jurisdiction
          of that or any other provision of this Agreement.

                                      -74-


<PAGE>


15.7  REMEDY

      If the Lessee fails to comply with any provision of this Agreement, the
      Lessor or the Lender may, without being in any way obliged to do so or
      responsible for so doing and without prejudice to the ability of the
      Lessor to treat the non-compliance as a Default, effect compliance on
      behalf of the Lessee, whereupon the Lessee shall become liable to pay
      immediately any sums expended by the Lessor or the Lender together with
      all costs and expenses (including reasonable legal costs) necessarily
      incurred in connection therewith.

15.8 EXPENSES

      (a) The Lessor and the Lessee shall each bear their respective expenses
           (including legal, professional and out-of-pocket expenses)
           incurred or payable in connection with the negotiation,
           preparation and execution of this Agreement, and shall share
           equally the fees and expenses of special FAA counsel in connection
           with the transactions contemplated by this Agreement.

      (b)  The Lessee shall pay to the Lessor and the Lender on demand all
           expenses (including legal, professional and out-of-pocket
           expenses) incurred or payable by the Lessor or the Lender in
           connection with the granting of any waiver or consent under this
           Agreement.

      (c)  The Lessee will pay to the Lessor on demand all expenses (including
           legal, survey and other costs) payable or incurred by the Lessor
           in contemplation of, or otherwise in connection with, the
           enforcement of or preservation of any of the Lessor's rights under
           this Agreement, or in respect of the repossession of the Aircraft.

      (d)  The Lessor will pay to the Lessee on demand all expenses (including
           legal costs) payable or incurred by the Lessee in contemplation
           of, or otherwise in connection with, the enforcement of or
           preservation of any of the Lessee's rights under this Agreement.

15.9  TIME OF ESSENCE

      The time stipulated in this Agreement for all payments payable by the
      Lessee to the Lessor and for the performance of the Lessee's other
      obligations under this Agreement will be of the essence of this
      Agreement (subject always to any applicable grace period).

15.10 NOTICES

      (a)  All notices and other communications given under or in connection
           with this Agreement shall be in writing (including telefax) and
           shall be deemed to have been received as follows:

                                      -75-


<PAGE>


           (i)   If sent by telefax, at the time of receipt by the sender of a
                 transmission report indicating that all pages of the telefax
                 transmission were properly transmitted (unless the recipient
                 notifies the sender promptly, or if received after 5:30 p.m.
                 local time, by no later than 10:00 a.m. local time the
                 following Business Day, that the transmission was incomplete
                 or illegible, in which case the telefax shall be deemed to
                 have been received at the time of receipt by the sender of a
                 further clear transmission report on retransmitting the
                 telefax), provided the relevant telefax transmission (or
                 retransmission, as the case may be) was transmitted to the
                 receiver between 9:00 a.m. and 5:30 p.m. local time. If it
                 was transmitted later, then it shall be deemed to have been
                 received at 9:00 a.m. local time on the succeeding Business
                 Day.

           (ii)  In any other case, when delivered to the address specified
                 in clause 15.10(b).

      (b)  All such notices, requests, demands and other communications shall
           be sent:

           (i)   if to the Lessor, to it at:   c/o Aviation Capital Group Corp.
                                               Three Stamford Landing
                                               46 Southfield Avenue
                                               Stamford, CT 06902
                                               Attention: Managing Director
                                               Telefax No.: 203-967-3287

                       with copies to:      Sanwa Business Credit Corporation
                                            One South Wacker Drive
                                            Chicago, Illinois 60606
                                            Attention: Senior Vice President,
                                                         Transportation Finance
                                            Telefax No.: 312-853-1458

                                            Vedder, Price, Kaufman & Kammholz
                                            222 N. LaSalle Street
                                            Chicago, Illinois 60601
                                            Attention: Dean N. Gerber, Esq.
                                            Telefax No.: 312-609-5005

           (ii)  if to the Lessee, to it at:  371 Aokea Street
                                              Honolulu, Hawaii 96819
                                              Attention: Senior Vice President,
                                                         Finance and Planning,
                                                         and Chief Financial
                                                         Officer

                                              Telefax No.: 1-808-833-3100

                                      -76-


<PAGE>


                 or to such other address or telefax number as shall have been
                 notified by one party to the other in the manner set out in
                 this Clause 15.10.

15.11 LAW AND JURISDICTION

      (a)  THIS AGREEMENT SHALL, IN ALL RESPECTS, INCLUDING ALL MATTERS OF
           CONSTRUCTION, VALIDITY AND PERFORMANCE, BE GOVERNED BY AND
           CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
           APPLICABLE TO CONTRACTS ENTERED INTO IN THE STATE OF NEW YORK BY
           RESIDENTS OF SUCH STATE AND TO BE PERFORMED ENTIRELY WITHIN SUCH
           STATE.

      (b)  The Lessor and the Lessee hereby irrevocably agree to submit to the
           non-exclusive jurisdiction of the United States District Court for
           the Southern District of New York and the Supreme Court of the
           State of New York located in the Borough of Manhattan, County of
           New York (the "AGREED COURTS") in the event of any claims or
           disputes arising under this Agreement. Such submission to
           jurisdiction shall not be construed so as to limit the right of
           either party to take proceedings against the other in whatsoever
           jurisdiction shall to it seem fit nor shall the taking of
           proceedings in any one or more jurisdictions preclude the taking
           of proceedings in any other jurisdiction, whether concurrently or
           not. Final judgment against Lessor or Lessee in any such suit
           shall be conclusive and may be enforced in any other jurisdiction
           by suit on the judgment or as otherwise permitted by applicable
           law, a certified or true copy of which shall be conclusive
           evidence of the facts and of the amount of any indebtedness or
           liability of Lessor or Lessee. Each of Lessor and Lessee hereby
           irrevocably waives any objection which it may now or hereafter
           have to the laying of venue in any suit, action or proceeding
           brought in any Agreed Court, and irrevocably waives any claim that
           any such suit, action or proceeding brought in any Agreed Court
           has been brought in an inconvenient forum.

      (c)  THE LESSEE AND THE LESSOR HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL
           PROCEEDING TO WHICH THEY ARE PARTIES INVOLVING, DIRECTLY OR
           INDIRECTLY, ANY MATTER ARISING OUT OF OR RELATING TO THIS
           AGREEMENT.

      (d)  Without prejudice to any other mode of service, each of the Lessor
           and the Lessee consents to the service of process relating to any
           proceedings involving, directly or indirectly, any matter arising
           out of or relating to this Agreement by U.S. Postal Service
           registered mail (prepaid, return receipt requested) of a copy of
           the process to the Lessee's address identified in Clause 15.10(b).

                                               -77-


<PAGE>


15.12 SOLE AND ENTIRE AGREEMENT

      This Agreement is the sole and entire agreement between the Lessor and the
      Lessee in relation to the leasing of the Aircraft, and supersedes all
      previous agreements in relation to that leasing. The terms and conditions
      of this Agreement can only be varied by an instrument in writing executed
      by both parties or by their duly authorized representatives.

15.13 INDEMNITIES

      All rights expressed to be granted to any successors, assigns,
      shareholders, members, Affiliates, partners, contractors, directors,
      managers, officers, servants, agents and employees of the Lessor are given
      to the Lessor as agent for and on behalf of such Lessor Indemnitee, and
      all rights expressed to be granted to any successors, assigns,
      shareholders, Affiliates, partners, contractors, directors, officers,
      servants, agents and employees of the Lender are given to the Lender as
      agent for and on behalf of such Lender Indemnitee.

15.14 COUNTERPARTS

      This Agreement may be executed in counterparts each of which will
constitute one and the same document.

                                  [SIGNATURE PAGE FOLLOWS]

                                      -78-


<PAGE>


IN WITNESS WHEREOF Lessor and Lessee have executed this Lease Agreement 809 on
the date shown at the beginning of this Agreement.




                                                  SIGNED on behalf of
                                                  ACG ACQUISITION XII LLC

                                                  By: /s/ Benjamin Jung
                                                      ------------------------
                                                  Name: Benjamin Jung
                                                  Title: Manager




                                                  SIGNED on behalf of
                                                  ALOHA AIRLINES, INC.


                                                  By:_________________________
                                                  Name:
                                                  Title:


                                                  By:_________________________
                                                  Name:
                                                  Title:


<PAGE>


IN WITNESS WHEREOF Lessor and Lessee have executed this Lease Agreement 809 on
the date shown at the beginning of this Agreement.



                                                  SIGNED on behalf of
                                                  ACG ACQUISITION XII LLC


                                                  By:_________________________
                                                  Name:
                                                  Title:



                                                  SIGNED on behalf of
                                                  ALOHA AIRLINES, INC.


                                                  By: /s/ Brenda F. Cutwright
                                                      --------------------------
                                                  Name: BRENDA F. CUTWRIGHT
                                                  Title: SR. VICE PRESIDENT
                                                         FINANCE & PLANNING
                                                         AND CFO


                                                   By: /s/ James M. King
                                                       -------------------------
                                                   Name: JAMES M. KING
                                                   Title: VICE PRESIDENT
                                                          PLANNING & DEVELOPMENT



<PAGE>


                                   SCHEDULE 1

                                     PART 1

                             AIRCRAFT SPECIFICATION

IDENTIFICATION:

<Table>
         <S>                          <C>
         Aircraft Type                Boeing B737-2Q9
         Registration                 N809AL
         Serial Number                       21720
         Date of Manufacture          January 1979
</Table>

WEIGHT DATA:

<Table>
         <S>                          <C>
         Maximum Taxi Weight           120,000 lbs.
         Maximum Takeoff Weight        119,500 lbs.
         Maximum Landing Weight        105,000 lbs.
         Maximum Zero Fuel Weight       95,000 lbs.
         Fuel Capacity                  34,592 U.S. Gals.
</Table>

AIRFRAME AND INTERIOR EQUIPMENT:

<Table>
         <S>                <C>    <C>           <C>
         Galleys            1      Locations:    G-1 forward
         Lavatories         3      Locations:    1 (deactivated) forward; 2 (1 deactivated) aft
         Air Stairs         1      Locations:    1 forward
         Passenger Seats    116    Types:        Seats manufactured by PTC (formerly known
                                                           as UOP), model nos. 860 and/or 861

         Overhead bins      Carry All bins
         Cargo Door
</Table>

ENGINES:

<Table>
         <S>                <C>            <C>
         Position           No. 1          No. 2
         Type               JT8D-15        JT8D-15
         Serial No.         P688676        P688677
</Table>

APU:

<Table>
         <S>                <C>
         Model:             Garret GTCP 85-129
         Serial No.         P35548
</Table>


                                     -80-


<PAGE>

LANDING GEAR:

<Table>
          <S>           <C>            <C>             <C>
          Position      Nose           Left Main       Right Main
          Type
          Serial No.    R9156-901      1249P663        0736P406
</Table>

MAJOR AVIONICS EQUIPMENT:


<Table>
<Caption>
          Description                 Manufacturer                Part No.
          -----------                 ------------                --------
          <S>                         <C>                          <C>
          Flight Director             Sperry                       FD 109
          Air Data Computer           Honeywell                    HG480B20
          VHF                         Collins                      618M-3
          Selcal                      Motorola                     NA134D2
          CVR                         Fairchild                    A-100A
          DFDR                        AlliedSignal                 980-4100-()
          ADF                         Collins                      51Y-()
          VHF Nav                     Collins                      51RV-4B
          DME                         Bendix/Collins               KDM-7000/860E-4
          LRRA                        Collins                      860F-4
          Marker Beacon               Collins                      61Z-4
          Weather Radar               Sperry                       P-90
          GPWS                        Sundstrand                   Mark VII
          ATC Transponder             Collins                      621A3
          Mode S Transponder          Bendix                       TRA-67
          TCAS                        Bendix                       TPA 81A
</Table>


                                     -81-

<PAGE>


                                    PART 2

                              AIRCRAFT DOCUMENTS

MANUALS

<Table>
<Caption>
Description                     Quantity                 Media
-----------                     --------                 -----
<S>                             <C>                      <C>
Maintenance Manual                  3                    Microfilm
Wiring Diagrams                     1                    Microfilm
Illustrated Parts Catalog           1                    Microfilm
Weight & Balance Manual             1                    Hard Copy
Rigging Document                    1                    Hard Copy
</Table>

TECHNICAL RECORDS

Certificate of Airworthiness
Weight & Balance Report
Maintenance Time Control Report
Major Incident/Accident Statement
Summary of AD Status for the engines, components and the airframe Summary
of Service Bulletin Status for the engine, components and the airframe
Component Listing including life status
Service Tags

Airframe log books
Flight Logs
Readiness Log
Full records for previous "A", "B", "C" and "D" Checks

Engine Shop Visit history including disk sheets

Emergency Equipment Listing including location
Cabin Layout Drawing

RECORDS FOR:

       Last Compass Swing
       Last Altimeters Calibration
       Last ATC Transponder Calibration


                                     -82-

<PAGE>

                                  SCHEDULE 2

                         CERTIFICATE OF ACCEPTANCE 809

       This Certificate of Acceptance 809 is delivered on the date
       set forth in paragraph 1 below by Aloha Airlines, Inc. (the
       "LESSEE") to ACG Acquisition XII LLC (the "LESSOR") pursuant
       to Lease Agreement 809, dated May 21, 1997, between the Lessor
       and the Lessee (the "AGREEMENT"). Capitalized terms used but
       not defined in this Certificate of Acceptance 809 shall have
       the meaning given to such terms in the Agreement.

1.     DETAILS OF ACCEPTANCE

       The Lessee hereby confirms to the Lessor that the Lessee has
       at __:__ _m. H.S.T. on this ______ day of May, 1997, over
       international waters, accepted the following, in accordance
       with the provisions of the Agreement and the Annex:

       (a) Airframe: Boeing 737-2Q9 airframe, Manufacturer's Serial No. 21720
                and FAA Registration No. N809AL;

       (b) Engines: two Pratt & Whitney JT8D-15 Engines, bearing Manufacturer's
                Serial Nos. P688676 and P688677, each having 750 or more
                rated take-off horsepower;

       (c) All Parts installed on, attached to or appurtenant to the Airframe
           and Engines; and

       (d) Aircraft Documents as specified in Schedule 1 - Part 2 of
           the Agreement.

2.     LESSEE'S CONFIRMATION  The Lessee confirms to the Lessor that as at
       the time indicated above, being the time of Delivery:

       (a) the Lessee's representations and warranties contained in
           Clauses 2.1 and 2.2 of the Agreement are hereby repeated and
           are true and accurate as of the date hereof;

       (b) the Aircraft is insured as required by the Agreement; and

       (c) the lessee confirms that there have been affixed to the Aircraft
           and the Engines the fireproof notices required by the Agreement.

3.     LESSOR'S CONFIRMATION  The Lessor confirms to the Lessee that, as at
       the time indicated above, being the time of Delivery, the Lessor's
       representations and warranties contained in Clause 2.4 of the
       Agreement are hereby repeated and are true and accurate as of
       the date hereof.


                                     -83-

<PAGE>

IN WITNESS WHEREOF Lessor and Lessee have executed this Certificate of
Acceptance 809 on the date shown at the beginning of this Certificate.


                               SIGNED on behalf of
                               ACG ACQUISITION XII LLC

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


                               SIGNED on behalf of
                               ALOHA AIRLINES, INC.


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


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


                                     -84-

<PAGE>

                                                                         ANNEX 1

                        MAINTENANCE STATUS AT DELIVERY

                              DATE: MAY __, 1997

AIRFRAME TIME:

       Total Flight Hours
       Total Cycles

AIRFRAME LIMITS:

<Table>
       <S>                          <C>
       Type of Check:               C Check
       Check Interval:
       Time Since Last Check:
</Table>

ENGINE DATA:

<Table>
       <S>                                        <C>                  <C>
       Position                                   No. 1                No. 2
       Type                                       JT8D-15              JT8D-15
       Serial Number                              P688676              P688677

       Total Flight Hours:
       Total Cycles:
       Flight Hours Since Last Shop Visit:
       Cycles Since Last Shop Visit:
       Flight Hours to Next Hard Limit:
       Cycles to Next Hard Limit:
</Table>

APU:


<Table>
       <S>                   <C>
       Type:                 129H
       Serial Number:        P35548

       Total Flight Hours:
       Total Cycles:
       Flight Hours Since Last HSI Inspection:
       Cycles Since Last HSI Inspection:
       Flight Hours Remaining on Turbine and Compressor LLPs:
       Cycles Remaining on Turbine and Compressor LLPs:
</Table>

                                     -85-

<PAGE>

LANDING GEAR LIMITS:

<Table>
       <S>                         <C>         <C>         <C>
       Position:                   Nose        Left        Right
       Overhaul Interval:
       Time Since Overhaul:
       Time to Next Overhaul:
</Table>


                                     -86-

<PAGE>


                                  SCHEDULE 3

                       OPERATING CONDITION AT REDELIVERY

On the Expiry Date the Aircraft, subject to fair wear and tear generally, will
be in the condition set out below.

1.     GENERAL CONDITION

       The Aircraft will:

       (a) be clean by United States airline standards;

       (b) have installed the full complement of engines and other equipment,
           parts and accessories and loose equipment required under the Agreed
           Maintenance Program and usually installed in the other Boeing
           737-200 aircraft operated by Lessee (together with any additions
           and improvements thereto, or replacements thereof, effected
           pursuant to and in accordance with this Agreement) and be in a
           condition suitable for immediate operation in commercial service;

       (c) be airworthy, conform to type design and be in a condition for safe
           operation with all equipment, components and systems operating in
           accordance with their intended use and within limits established by
           the manufacturer and approved by the Aviation Authority, and all
           pilot discrepancies and deferred maintenance items cleared on a
           terminating action basis;

       (d) have a U.S. Standard Transport Category Certificate of
           Airworthiness issued by the FAA in accordance with FAR Part 21
           (or if required by the Lessor, a valid export certificate of
           airworthiness with respect to the Aircraft issued by the Aviation
           Authority) and unconditionally meet all FAA requirements for
           immediate operations under FAR Part 121, subject to the special
           exemptions permitted Lessee regarding compliance with the Airport
           Noise and Capacity Act of 1990, as amended, and the regulations
           promulgated by the FAA thereunder;

       (e) comply with the manufacturer's original specification to the
           extent that it so complied on the date of this Agreement and
           subject to any alterations made pursuant to and in accordance with
           this Agreement after such date;

       (f) have undergone, immediately prior to redelivery, a "C" Check in
           accordance with the Agreed Maintenance Program so that all
           Airframe inspections falling due within the


                                     -87-


<PAGE>

           next following 3,000 Flight Hours of operation in accordance with
           the Agreed Maintenance Program have been accomplished;

       (g) the Airframe shall have at least 75% of the Flight Hours, Cycles
           and calendar time (whichever is applicable and, if more than one
           are applicable, most limiting) remaining until the next block "D"
           check (or equivalent heavy maintenance check) under the Agreed
           Maintenance Program, and if the Flight Hours, Cycles or calendar
           time of the Airframe are less than 75% of the interval between "D"
           checks then the Lessee shall pay to the Lessor an amount equal to
           the product of (i) the number of Flight Hours, Cycles or calendar
           days (whichever is applicable and most limiting) by which the
           Airframe is less than 75% of the interval between "D" checks,
           multiplied by (ii) a fraction (1) the numerator of which is the
           average cost of a "D" check (including routine and non-routine
           items) for an airframe similar to the Airframe determined in
           accordance with the Appraisal Procedure and (2) the denominator of
           which is the number of Flight Hours, Cycles or calendar days
           (whichever is applicable and most limiting) between "D" checks;

       (h) have had accomplished all outstanding airworthiness directives and
           mandatory orders affecting that model of Aircraft issued by the
           FAA that are due during the Term on a terminating action basis;
           airworthiness directives and mandatory orders that do not have a
           terminating action will be accomplished at the highest level of
           inspection or modification permitted;

       (i) no special or unique manufacturer inspection or check requirements
           specific to the Aircraft will exist unless there is no terminating
           action available from any source;

       (j) have installed all applicable vendor's and manufacturer's service
           bulletin kits received free of charge by the Lessee that are
           appropriate for the Aircraft and, to the extent not installed,
           those kits retained by Lessee will be furnished free of charge to
           the Lessor;

       (k) be free of any system-related leaks;

       (l) all fluid reservoirs (including fuel, oil, oxygen, hydraulic and
           water) will be full, and the waste tank serviced in accordance
           with the manufacturer's instructions;

       (m) all fuel tanks will have recently undergone an
           anti-fungus/biological growth contamination laboratory evaluation,
           and any excessive levels of contamination corrected;

       (n) have an FAA-approved aging aircraft program in operation and
           up-to-date; and

       (o) have all signs and decals clean, secure and legible.


                                     -88-

<PAGE>

2.     PARTS

       (a) Each life limited or hard time controlled Part, excluding
           Engine Parts, shall have not less than 50% of the number of
           Flight Hours or Cycles (whichever is the more limiting factor)
           remaining to the next scheduled removal in accordance with the
           Agreed Maintenance Program;

       (b) Each calendar limited Part (including hard time controlled
           Parts with calendar limits) will have 50% of its life or time
           between removals, as the case may be (but not less than 12
           months), remaining to its next scheduled removal in accordance
           with the Agreed Maintenance Program; and

       (c) Each "on-condition" and "condition monitored" Part will be
           serviceable in accordance with the Aviation Authority
           prescribed parameters.

3.     ENGINES

       Each engine installed on the Aircraft shall be an Engine and (if not
       the engine installed at Delivery) shall, to the extent not previously
       provided to the Lessor, be accompanied by all documentation the Lessor
       may require to evidence that title thereto is properly vested in the
       Lessor in accordance with Clause 8.17(a) and will:

       (a) have a minimum of 4,000 Flight Hours and Cycles remaining to the
           next life limited part replacement and a minimum of 2,500 Flight
           Hours or Cycles remaining until the next scheduled hot section
           inspection under the Agreed Maintenance Program; provided,
           however, that in the event the Lessor exercises its Early
           Termination Option and pursuant thereto the Expiry Date occurs
           before the second anniversary of the Delivery Date, one Engine
           (the "Non-Conforming Engine") may have a minimum of 2,000 Flight
           Hours and Cycles remaining to the next life limited part
           replacement and a minimum of 2,000 Flight Hours and Cycles
           remaining to the next scheduled hot section inspection under the
           Agreed Maintenance Program;

       (b) be subject to the following financial adjustment: in the event
           that Lessor exercises its Early Termination Option and pursuant
           thereto the Expiry Date occurs before the second anniversary of
           the Delivery Date, to the extent that the number of Flight Hours
           or Cycles (whichever is more limiting) until the next life limited
           part replacement of any Engine on the Expiry Date is less than
           4,000, Lessee shall pay Lessor an amount (the "Engine Return
           Payment") computed as follows:

                      Engine Return Payment = [A minus B] x C

           where:


                                     -89-

<PAGE>

                      (i)    A = 4,000 minus the number of Flight Hours or
                             Cycles (whichever is more limiting) remaining
                             to the next life limited part replacement on
                             the Non-Conforming Engine;

                      (ii)   B = the number of Flight Hours or Cycles
                             (whichever is more limiting) until the next life
                             limited part replacement on the other Engine
                             (i.e., not the Non-Conforming Engine) minus 4,000;
                             provided however, if the difference is a negative
                             number, B shall be deemed to be zero, and further
                             provided that if the difference between A and B
                             (i.e., A - B) is a negative number, that difference
                             shall be deemed to be zero; and

                      (iii)  C = a fraction in which the numerator is the
                             average cost of the removal and overhaul
                             (including routine and non-routine items) for an
                             engine similar to such Engine determined in
                             accordance with the Appraisal Procedure and the
                             denominator is the number of Flight Hours or
                             Cycles, as the case may be, between scheduled
                             removals under the Agreed Maintenance Program;

       (c) have no defect that reduces the Flight Hours of remaining life
           pursuant to manufacturer's or airworthiness requirements until
           overhaul to less than 3,000; and

       (d) be in a condition that can operate at maximum rated take-off power
           at sea level at a temperature of 28 DEG C.

4.     FUSELAGE, WINDOWS AND DOORS

       (a) the fuselage will not contain any dents, corrosion or abrasions
           that exceed the prescribed parameters under the SRM and shall be
           free of scab patches (except such scab patches as were present on
           the Aircraft on the Delivery Date) and loose, pulled or missing
           rivets;

       (b) the windows will not contain any delamination, blemishes or
           crazing that exceed the prescribed parameters under the
           Manufacturer's maintenance manual and will be properly sealed; and

       (c) the doors will be free moving, correctly rigged and fitted with
           serviceable seals;

5.     WINGS AND EMPENNAGE

       (a) Leading edges will not contain any damage that exceeds the
           prescribed parameters under the SRM;


                                     -90-

<PAGE>

       (b) unpainted cowlings and fairings will be polished; and

       (c) wings will be free of fuel leaks.

6.     INTERIOR

       (a) The interior will be fully serviceable and in the configuration as
           at the date of this Agreement;

       (b) emergency equipment having a calendar life will have a minimum of
           1 year or 100% of its total approved life remaining, whichever is
           less; and

       (c) curtains, carpets, seat covers and seat cushions will be clean and
           free from stains and worn out (threadbare) areas and will conform
           to FAR fire resistance regulations as applicable to an FAR Part
           121 operator.

7.     COCKPIT

       (a) Fairing panels shall be free of stains and cracks, clean, secure
           and repainted as necessary;

       (b) floor coverings will be clean and effectively sealed;

       (c) seat covers will be in good condition, clean and free of stains
           and will conform to FAR fire resistance regulations as applicable
           to an FAR Part 121 operator; and

       (d) seats will be serviceable, in good condition and repainted as
           necessary.

8.     CARGO COMPARTMENTS

       (a) Panels will be in good condition and effectively sealed;

       (b) nets will be in good condition; and

       (c) the compartments will comply with FAR fire resistance and
           containment regulations as applicable to an FAR Part 121 operator.

9.     LANDING GEAR

       (a) The installed main and nose landing gear components and their
           associated actuators and parts will be cleared of all inspections
           for not less than 12 months.


                                     -91-

<PAGE>


       (b) The installed main and nose landing gear will have no more than
           7,500 Flight Hours since the last removal for inspection or
           overhaul under the Agreed Maintenance Program.

       (c) To the extent that the number of Flight Hours of any of the
           Landing Gear since its last removal for inspection or overhaul on
           the Expiry Date is more than the number of Flight Hours of such
           Landing Gear since its last removal for inspection or overhaul on
           the Delivery Date, then Lessee shall pay to Lessor an amount equal
           to the product of (i) the difference between the number of Flight
           Hours for such Landing Gear on the Delivery Date and on the Expiry
           Date, multiplied by (ii) $4.50 in the case of either of the main
           Landing Gear and $2.50 in the case of the nose Landing Gear.

       (d) The tires and brakes will have 50% of the wear, as specified by
           the manufacturer as serviceable limits, remaining until next
           removal.

       (e) The landing gear and wheel wells will be clean, free of leaks and
           repaired as necessary.

10.    APU

       (a) The APU shall be serviceable in accordance with the Approved
           Maintenance Program parameters.

       (b) The APU shall have not more than 1,500 Flight Hours of operation
           since its last hot section inspection.

       (c) To the extent that the Flight Hours since last removal for
           overhaul of the APU on the Expiry Date is more than the Flight
           Hours since last removal for overhaul of the APU on the Delivery
           Date, then Lessee shall pay to Lessor an amount equal to the
           product of (i) the difference between the number of Flight Hours
           for the APU on the Delivery Date and on the Expiry Date,
           multiplied by (ii) a fraction (1) the numerator of which is the
           average cost of a removal and overhaul of an auxiliary power unit
           similar to the APU determined in accordance with the Appraisal
           Procedure and (2) the denominator of which is the number of Flight
           Hours between such scheduled removals under the Agreed Maintenance
           Program.

11.    CORROSION

       (a) The Aircraft will be in compliance with the CPCP and will have
           been inspected and treated with respect to corrosion as required
           by the CPCP; and


                                     -92-

<PAGE>


       (b) Fuel tanks will be free from contamination and corrosion and a
           tank treatment program will be in operation and up-to-date.


                                     -93-

<PAGE>


                                  SCHEDULE 4

                                    PART I

                           (INSURANCE REQUIREMENTS)

1.     The Insurances required to be maintained are as follows:

       (a) HULL "ALL RISKS" of Loss or Damage while flying and on the ground
           with respect to the Aircraft for the Agreed Value and with a
           deductible not exceeding $500,000.

       (b) HULL WAR AND ALLIED PERILS, covering those war risks excluded from
           the Hull "All Risks" Policy to the extent such coverage is
           available from the leading international insurance markets,
           including confiscation and requisition by the State of
           Registration, for the Agreed Value;

       (c) "ALL RISKS" PROPERTY INSURANCE (INCLUDING WAR AND ALLIED RISK
           except when on the ground or in transit other than by air or sea)
           on all Engines and Parts when not installed on the Aircraft (to
           the extent not covered under the Aircraft hull insurances
           described in paragraphs (a) and (b) above), including Engine test
           and running risks, in an amount equal to replacement value in the
           case of the Engines;

       (d) AIRCRAFT THIRD PARTY, BODILY  INJURY/PROPERTY  DAMAGE,  PASSENGER,
           BAGGAGE,  CARGO AND MAIL AND AIRLINE  GENERAL THIRD PARTY
           (INCLUDING  PRODUCTS)  LEGAL LIABILITY for a combined single limit
           (Bodily  Injury/Property  Damage) of an amount not less than the
           Minimum Liability  Coverage for the time being in respect of any
           one  occurrence  (but, in respect of products  liability,  this
           limit may be an  aggregate  limit for any and all losses
           occurring  during the  currency of the policy, and in respect of
           liability arising out of certain offences,  the limit (within the
           said combined  single limit) may be  $25,000,000  in respect of
           any one offence and in the aggregate, and cargo and mail legal
           liability may be subject to a limit of $1,000,000 any one
           occurrence); War and Allied Risks are also to be covered  under
           the Policy to the extent  available  from the leading
           international  insurance markets. The Minimum Liability Coverage
           may be adjusted upwards from  time to time to such an amount as
           the  Lessor  may be  advised  by its  insurance  brokers
           constitutes  the  standard  Minimum  Liability  Coverage
           applicable  to Boeing  737-200  series aircraft  operating in
           North America by an airline  similarly  situated as Lessee. If the
           Lessee disputes any such adjustment,  the matter shall be referred
           to a reputable independent insurance broker in the United  States
           of America  appointed  by the  Lessor,  whose  decision,  acting
           as expert, shall be conclusive and binding on the Lessee.

                                     -94-

<PAGE>

2.     All required hull and spares insurance (specified in (1)(a), (b) and (c)
       above), so far as it relates to the Aircraft, will:

       (a) provide that any loss will be settled with the Lessee (who
           undertakes to consult with the Lessor and the Lender in regard
           thereto), and any claim that becomes payable on the basis of a
           Total Loss shall be paid in Dollars to the Lender so long as the
           Security Interest of the Mortgage remains in effect and thereafter
           to the Lessor as sole loss payee up to the Agreed Value, and loss
           proceeds in excess of the Agreed Value shall be payable to Lessee,
           with any other claim being payable as may be necessary for the
           repair of the damage to which it relates;

       (b) if separate Hull "All Risks" and "War Risks" insurances are
           arranged, include a 50/50 provision in the terms of Lloyd's
           endorsement AVS 103 or its equivalent; and

       (c) confirm that the Insurers are not entitled to replace the Aircraft
           in the event of a Total Loss.

3.     All required liability insurances (specified in (1)(d) above) will:

       (a) include the Lessor, the Lender, their respective successors and
           assigns, their respective shareholders, Affiliates, subsidiaries,
           directors, officers, agents, employees and indemnitees and the
           Seller Entities as additional assureds for their respective rights
           and interests, warranted (each as to itself only) no operational
           interest; but the coverage provided will not include claims
           arising out of their legal liability as manufacturer, repairer or
           servicing agent of the aircraft or any part thereof;

       (b) include a severability of interest clause;

       (c) contain a provision confirming that the policy is primary without
           right of contribution and that the liability of the insurers will
           not be affected by any other insurance of which the Lessor, the
           Lender or the Lessee have the benefit; and

       (d) accept and insure the indemnity provisions of this Agreement to
           the extent of the risks covered by the relevant policy or policies.

4.     All Insurances will:

       (a) be in accordance with normal industry practice of persons
           operating similar aircraft in similar circumstances;

       (b) provide coverage on a worldwide basis subject to those territorial
           exclusions which are usual and customary for U.S. carriers
           similarly situated with Lessee in the case


                                     -95-

<PAGE>

           of War Risks and Allied Perils coverage which are advised to and
           approved by Lessor and Lender, such approval not to be
           unreasonably withheld;

       (c) acknowledge that the insurers are aware that the Aircraft is owned
           by the Lessor and is subject to this Agreement and the Mortgage;

       (d) provide that, in relation to the interests of each of the
           additional assureds, the Insurances will not be invalidated by any
           act or omission of the Insured which results in a breach of any
           terms, conditions or warranty of the policies;

       (e) provide that the Insurers will waive any rights of recourse and/or
           subrogation against each additional assured to the same extent
           that Lessee has waived or has no rights of recovery against such
           additional assured in the Lease;

       (f) provide that the additional assureds will have no obligation or
           responsibility for the payment of any premiums (but reserve the
           right to pay the same should any of them elect to do so) and that
           the Insurers will waive any right of offset or counterclaim
           against the respective additional assureds;

       (g) provide that, except in the case of any provision for cancellation
           or automatic termination specified in the policies or endorsements
           thereof, the Insurance can only be canceled or materially altered
           in a manner adverse to the additional assureds by giving at least
           30 days' written notice to the Lessor and the Lender, except in
           the case of war risks (or radioactive contamination), for which
           seven days' written notice (or such lesser period as is or may be
           customarily available in respect thereof) will be given; and

       (h) include a services of suit clause.


                                     -96-


<PAGE>
                                    PART 2

                        (FORM OF BROKER'S UNDERTAKING)


                                     -97-


<PAGE>


                                    [LOGO]



THIS BROKER'S REPORT CANCELS AND REPLACES BROKER'S REPORT No. AQ-96-11-L(R)
                          DATED DECEMBER 27, 1996

                                                           NO. AQ-96-11-L(R-2)
DATE: May 21,1997

   TO; ACG Acquisition XII LLC ("Owner"/"Lessor")
              c/o Aviation Capital Group Corp.
              Three Stamford Landing
              46 Southfield Avenue
              Stamford, Connecticut 06902
              Ann. Managing Director

              Sanwa Business Credit Corporation ("Leader")
              One South Wicker Drive, 28th Floor
              Chicago, Illinois 60606

       Re:    Broker's Report
              Low Agreement 809 dated as of May 21, 1997 between ACG
              Acquisition XII LLC ("Owner"/"Lessor"), Sanwa Business
              Credit Corporation ("Lender") and Aloha Airlines, Inc.
              ("Lessee") (the "Lose) regarding One (1) B737-2Q9
              Aircraft, Registration Number N809AL, Serial Number
              21720 including two (2) Pratt 7 Whitney JT8D-15
              engines, Serial Numbers 698676 and 689677 (the
              "Engines") (hereinafter the "Aircraft")

To Whom It May Concern:

We hereby certify that as the independent aviation insurance brokers duly
appointed by Lessee, and acting on their behalf that, as of this date, the
insurance described In the attached Certificate of Insurance (No.
AQ-96-11(R-2)) complies with the requirements of the Lease as far as said
requirements relate to Coverages A, B and C described the said Certificate of
Insurance and that said insurance is in full force and affect on the Aircraft
and that all premiums due as of this date (per the accounting procedures
arranged between Lessee and ourselves) have been paid.

We also confirm that, as of this date, all such policies of insurance as
described in said Certificate as am carried by Lessee am in such amounts ad
cover such perils and are placed with insurers of recognized reputation and
responsibility in the worldwide aviation insurance marketplace so that the
protection afforded thereby is not less than that which would customarily be
maintained for aircraft of a similar character by corporations engaged in the
same or similar business, similarly situated with Lessee.

The perils, limits of liability, and insurers relating to the above mentioned
insurance, policies are more fully described in the attached Certificate of
Insurance, No. AQ-96-11(R-2).

<PAGE>


                                    [LOGO]



We undertake to advise you

       1.    promptly of any cancellation or adverse material changes
             notified to us which are proposed to be made in the terms of the
             insurance;

       2.    upon written application form you not later thin thirty (30)
             days prior to the expiration due of said insurance to notify you
             within seven (7) days of the receipt of said application if we
             have not received renewal instructions from Lessee and in the event
             of our receiving instructions to renew, to advise you promptly
             thereof,

       3.    promptly if premiums are not paid to us by the due date as per
             the accounting procedures between Lessee and ourselves;

      4.     promptly if our appointment as Insurance Broker by Lessee is
             terminated or not timely renewed.

The Above is given subject to:

      1.     our continuing appointment for the time being as Insurance
             Brokers to Aloha Airlines, Inc.

      2.     Insurers, Right of cancellation all default in payment of
             premiums

      3.     all hull claims proceeds and all premiums are to be collected
             through ourselves as the Insurance Broker for Aloha Airlines,
             Inc.

This letter shall be governed and construed in all respect in accordance with
the laws of United States of America.

Sincerely


/s/ [ILLEGIBLE]


Paul H. Yelavick
Director


<PAGE>


                                    PART 3

                       [FORM OF INSURANCE CERTIFICATE]


                                    -98-


<PAGE>


                                    [LOGO]



THIS CERTIFICATE OF INSURANCE CANCELS AND REPLACES CERTIFICATE OF INSURANCE NO.
                     AO-96-11(R) DATED DECEMBER 27, 1996

                           CERTIFICATE OF INSURANCE

                                                               No. AQ-96-11(R2)

This is to certify to:     ACG Acquisition XI LLC ("Owner"/"Lessor")
                           c/o Aviation Capital Group Corp.
                           Three Stamford Landing
                           46 Southfield Avenue
                           Stamford, Connecticut 06902
                           Attn: Managing Director

                           Sanwa Business Credit Corporation ("Lender")
                           One South Wacker Drive, 28th Floor
                           Chicago, Illinois 60606

that the insurers/underwriters/companies listed below, each for their own part
AND NOT ONE FOR THE OTHER, are providing the following insurance:

NAMED INSURED:              Aloha Airlines, Inc.
NAMED INSURED'S ADDRESS:    Honolulu International Airport
                            P.O. Box 30028
                            Honolulu, HI 96920

INSURANCE COVERAGES:        A)    AD Risks (Ground and Flight) Aircraft Hull
                                  Insurance (including All Risks Aircraft
                                  Spare Parts Insurance)

                            B)    War Risks Aircraft Hull Insurance
                                  (including War Risks spare Parts insurance)
                                  (Coverage amended to including coverage for
                                  confiscation by government of registry)

                            C)    Comprehensive Airline Liability Insurance
                                  (including, but not limited to; Comprehensive
                                  General Liability, Public Lability,
                                  Passenger Liability, Personal Injury
                                  Liability, Contractual Liability,
                                  Passengers' Checked and Unchecked Baggage
                                  Liability, Premises, Products, and Completed
                                  Operations Liabilities, Ground Hangarkeepers
                                  Liability, Cargo Legal including Mail Legal
                                  Liability) and the AAU equivalent of AV.52C
                                  (War Risks Liability Clause.)


<PAGE>


                                    [LOGO]



POLICY PERIOD:            November 1, 1996 to November 1, 1997 on both dates at
                          12:01 A.M. Local Standard Time at the address of the
                          Named Insured.

GEOGRAPHICAL LIMITS:      Worldwide*

* As respects Coverage B - War Risks Aircraft Hull Insurance, the
Geographical Limits of the policy are: Worldwide but excluding Africa,
Columbia, Peru, Iraq, Afghanistan, Former Republics of U.S.S.R. and Former
Republics of Yugoslavia.

* As respects Coverage C - AV.52C (War Risk Liability Clause), the
Geographical Limits of the policy are: Worldwide excluding Iraq.


<PAGE>


                                    [LOGO]



LIMITS OF LIABILITY:     A)     As respects Aircraft Hulls: Agreed Value as
                                stated below, subject to a deductible of
                                US$500,000.00 each and every loss
                                (Deductibles not applicable in the event of
                                Total Loss/Constructive Total Loss/Arranged
                                Total Loss.)

NOTE: AGGREGATE                 As respects Aircraft Spare Parts:
LIMITS MAY BE                   US$60,000,000.00 any one loss/any one
REDUCED DUE TO                  location, US$25,000,000.00 any one transit,
PAID CLAIMS                     subject to a deductible of US$10,000.00 any
                                one loss but the applicable aircraft hull
                                deductible stated above shall apply in
                                respect of spare engine running or testing
                                losses.

                         B)     As respects Aircraft Hulls: Agreed Value as
                                stated below. As respects Aircraft Spares
                                Parts: US$60,000,000.00 any one loss/any one
                                location, US$25,000,000.00 any one transit.
                                Subject to an annual aggregate of
                                US$150,000,000.00. Subject to all deductibles.

                         C)     Combined Single Limit Bodily Injury
                                (including passengers), Property Damage and
                                Personal Injury (Passengers only):
                                US$300,000,000.00 any one occurrence/offense,
                                in the aggregate annually as respects
                                Products, Completed Operations and Personal
                                Injury Liabilities. However, the following
                                sublimits apply as part of and not in
                                addition to the limit stated above:

                                As respects Personal Injury to third parties
                                other than passengers: US$25,000,000.00 any
                                one occurrence, any one offense, in the
                                aggregate annually. As respects Cargo Legal
                                Liability: US$1,000,000.00 each occurrence.

AIRCRAFT INSURED:               One (1) B737-2Q9 aircraft, Registration
                                Number: N809AL, Manufacturer's Serial Number:
                                21720, Agreed Value: US$7,400,000.00
                                inclusive of two (2) Pratt & Whitney JT8D-15
                                Engines, Manufacturers Serial Numbers 688576
                                and 688677 and any engine which becomes an
                                "Engine" as defined in the Lease (the
                                "Engines") while attached to the Aircraft or
                                removed from the Aircraft, but not replaced
                                (hereinafter, the "Aircraft").


<PAGE>


                                    [LOGO]



                                   SECURITY

                         AS RESPECTS COVERAGES A & C

<TABLE>
<CAPTION>
                                                                  QUOTA SHARE
                                                                 PARTICIPATION
INSURERS                                       POLICY NUMBER     (PART OF 100%)
--------                                       -------------     --------------
<S>                                            <C>               <C>
One or More Member Companies of
Associated Aviation Underwriters                 SP46-6093           30.00%

Certain Underwriters at Lloyds, London
and Various Insurance Company through
Sedgwick Aviation Limited                          V61175            28.00%

La Reunion Aerienne through La Concorde           96/23987           14.00%

Insurance Company of North America               ATA 016105          10.00%

Assurance France Aviation                          96.0969            8.00%

American Home Assurance Company
through AIG Aviation                            HL0532584-02          4.00%

Mutual Marine Office                           MM0-16017AV596         3.50%

Navigators Insurance Company through
Somerset Aviation                                A0070/01/96          2.50%
                                                                 --------------

TOTAL                                                               100.00%

</TABLE>


                          SEVERAL LIABILITY NOTICE

The subscribing insurers' obligations under contracts of insurance to which
they subscribe are several and not joint and are limited solely to the extent
of their individual subscriptions. The subscribing insurers are not
responsible for the subscription of any co-subscribing insurer who for any
reason does not satisfy all or part of its obligations.

LSW 1001 (INSURANCE)


<PAGE>


                                    [LOGO]



                                   SECURITY

                            AS RESPECTS COVERAGE B

<TABLE>
<CAPTION>
                                                                  QUOTA SHARE
                                                                 PARTICIPATION
INSURERS                                       POLICY NUMBER     (PART OF 100%)
--------                                       -------------     --------------
<S>                                            <C>               <C>
Certain Underwriters at Lloyds, London
and Various Insurance Company through
Sedgwick Aviation Limited                          V61176            44.50%

Navigators Insurance Company
through Somerset Aviation                        W0070/01/96         25.00%

La Reunion Aerienne through
La Concorde                                       96/23987           14.00%

Mutual Marine Office                           MM0-16018AW596         8.50%

Assurance France Aviation                          96.0991            8.00%
                                                                 --------------

TOTAL                                                                  100%

</TABLE>


                          SEVERAL LIABILITY NOTICE

The subscribing insurers' obligations under contracts of insurance to which
they subscribe are several and not joint and are limited solely to the extent
of their individual subscriptions. The subscribing insurers are not
responsible for the subscription of any co-subscribing insurer who for any
reason does not satisfy all or part of its obligations.

LSW 1001 (INSURANCE)


<PAGE>


                                    [LOGO]


                              SPECIAL PROVISIONS

Solely as respects coverages A, B and C and solely as respects the Lease
Agreement 809 dated as of May 21, 1997 between ACG Acquisition XII LLC
("Owner"/"Lessor"). Sanwa Business Credit Corporation ("Lender") and Aloha
Airlines, Inc. ("Lessee") (the "Lease) regarding the Aircraft, subject to
policy terms, conditions, limitations, deductibles, warranties and exclusions
the following provisions apply:

I.     SOLELY AS RESPECTS COVERAGES A AND B:

       1.     All losses will be adjusted with Lessee. In the event of a
              Total Loss of the Aircraft, Lender (so long as the Security
              interest of the Mortgage (as defined in the Lease) remains in
              effect, and thereafter the Lessor) is named as Sole Loss Payee
              for all insurance proceeds up to the Agreed Value (as defined
              in the Lease). With respect to damage or loss not constituting
              a Total Loss of the Aircraft, Lender (so long as the Security
              interest of the Mortgage (as defined in the Lease) remains in
              effect, and thereafter the Lessor) is named as Sole Loss Payee
              in respect of all insurance proceeds where such insurance
              proceeds exceed US$500,000.00. Such insurance proceeds which
              are not in excess of US$500,000.00 shall be payable solely to
              Lessee; provided that upon receipt by Insurers and the
              Insurance Broker of written notice from Owner/Lessor that a
              Default or an Event of Default an the part of Lessee has
              occurred and is continuing, all payments up to this Agreed Value
              will be made to Lender (so long as the Security interest of the
              Mortgage (as defined in the Lease) remains in effect, and
              thereafter the Lessor). In all cases, any insurance proceeds in
              excess of the Agreed Value will be payable solely to Lessee.

       2.     Hull All Risks insurers and Hult War Risks and Allied Perils
              insurers agree to a 50/50 claims settlement provision per the
              terms of AVS 103 (or its equivalent).

       3.     Underwriters am not entitled to replace the Aircraft in the
              event of a Total Lost of the Aircraft.

II.    SOLELY AS RESPECT COVERAGE C:

       1.     Lender, Owner/Lessor and their respective successors and
              assigns and their respective shareholders, affiliates,
              susidiaries, directors, officers, employees, members, managers,
              agents and indemnitees, and 1980 Aircraft Investors, a
              California Limited Partnership (Flit "Partnership"). First
              Security Bank, National Association. as owner trustee f/b/o the
              Partnership, each United partner of the Partnership, Polaris
              Investment Management Corporation, Polaris Aircraft Leasing
              Corporation and GE Capital Aviation Services, Inc.
              (collectively, the "Seller Entities") are included as
              Additional Insureds ("the Additional Insureds") as their
              respective interests my appear, warranted no operational
              interest. However, no


<PAGE>


                                    [LOGO]



              party shall be included as an Additional Insured as respects
              its legal liability as; manufacturer, repairer, supplier or
              servicing agent of the Aircraft or any part thereof.

       2.     This insurance is primary without fight of contribution from
              any other insurance may be carried by an Additional Insured.

       3.     Such insurance a is afforded Lessee under the policy applies to
              liability assumed by Lessee under the Lease, specifically
              Article 10-INDEMNITY of the Lease, but only to the went, of
              the coverage otherwise afforded under the policy.

       4.     Each of the Additional Insureds shall have the same protection
              as would have been available had this policy been issued
              individually to each of them except that this fact shall not in
              any event increase the Insurers, total liability beyond the
              limits act forth in the policy.

III.   SOLELY AS RESPECTS COVERAGES A, B AND C:

       1.     Insurers waive their rights to any set-off or counter claim or
              any other deduction, whether by attachment or otherwise, in
              respect of my liability to the Additional Insureds.

       2.     The Additional Insured have no responsibility for premiums,
              commissions, assessments or calls.

       3.     Insurers waive their rights of subrogation against the
              Additional Insureds but only to the mu wont that Lessee, has
              waived its rights of recovery against the Additional Insureds
              in the Lease.

       4.     In respect of the interests of each Additional Insured, the
              Insurance shall not be invalidated by any act or omission by
              Lessee or any other insured. The Additional Insureds, are held
              covered for their respective interests notwithstanding any
              breach or violation of any warranty, condition or declaration
              of the policy by Lessee or any other insured. However, such
              protection as is afforded an Additional Insured under this
              clause will not apply in the event such Additional Insured
              breaches or violates any warranty, condition or declaration of
              the policy, nor does this clause apply in the event of
              exhaustion of policy limits or to losses/claims &rising from
              perils specifically excluded from coverage under the policies.

<PAGE>


                                    [LOGO]



       5.    In the event of cancellation or material change of the policies
              by Insurers, which would adversely affect the interests of the
              Additional Insureds, Insurers agree that such cancellation or
              change shall not be effective as to the Additional Insureds
              until thirty (30) days (seven (7) days or such shorter period
              as may be customary in the cast of War Risks insurance) after
              issurance of notice thereof to Lender and Owner/Lessor.

       6.     Insurers note the existence of the Lease and acknowledge ACG
              Acquisition XII LLC as Owner of the Aircraft and that the
              Aircraft is subject to the Lease and the Mortgage (as defined
              in the Lease).


The undersigned has been authorized by the above insurers to issue this
certificate on their behalf. The undersigned is not an insurer and has no
liability of any sort under the above policies nor as a result of this
certification. This certificate does not alter, extend or amend any policy
terms, conditions, limitations, deductibles, warranties or exclusions.


DATE OF ISSUE                             SEDGWICK AVIATION, NORTH AMERICA



                                          [ILLEGIBLE]
                                          -------------------------------------
MAY 21, 1997                             AUTHORIZED REPRESENTATIVE



<PAGE>


                                 SCHEDULE 5

                            FORM OF LEGAL OPINION


                                      -99-


<PAGE>


                                                                       [LOGO]


  ___________________________,  1997

  ACG Acquisition XII LLC
  c/o Aviation Capital Group Corp.
  Three Stamford Landing
  46 Southfield Avenue
  Stamford, Connecticut 06902

  SANWA BUSINESS CREDIT CORPORATION
  One South Wacker Drive, 28th Floor
  Chicago, Illinois 60606

  Re:   LEASE AGREEMENT 809 dated as of _____________________, 1997 ("Lease
        Agreement") between ACG ACQUISITION XII LLC ("Lessor") and ALOHA
        AIRLINES, INC. ("Lessee") relating to one (1) The Boeing Company
        Model 737-2Q9 Aircraft, bearing manufacturer's serial no. 21720 and
        U.S. registration no. N809AL, together with two (2) Pratt & Whitney
        Model JT8D-15 engines bearing engine manufacturer's serial nos.
        P688676 and P688677 (the "Aircraft").

  Gentlemen:

  We are counsel to Aloha Airlines, Inc. in regard to the above referenced
  transaction.

  You have asked us to render an opinion in connection with the transactions
  governed by the following documents:

         1.     the Lease Agreement; and

         2.     the Acceptance Certificate dated as of ______________, 1997
                executed by Lessee;

  The documents listed above collectively referred to as the "Operative
  Documents." Except as otherwise expressly stated herein, words and
  expressions used herein shall bear the same meanings as defined in the
  Operative Documents.

  In rendering the opinions expressed below, we have examined the (a) the
  Operative Documents, (b) the Certificate of incorporation and By-Laws of
  Lessee, (c) certain certificates executed by officers of Lessee and (d)
  other documents, in our judgment and to our knowledge, necessary or
  appropriate to examine to enable us to give the opinions expressed below.

  Having reviewed the foregoing described documents, and having regard to the
  relevant laws of the State of Hawaii, the United States of America, and the
  general corporate laws of the State of Delaware it is our opinion that:



A LAW CORPORATION - SUITE 850, DAVIES PACIFIC CENTER, 841 BISHOP STREET,
HONOLULU, HAWAII 96813 - (808) 522-5133 - FACSIMILE: (808) 522-5144

<PAGE>

                                                                       [LOGO]

 ACG ACQUISITION XII LLC
 SANWA BUSINESS CREDIT CORPORATION
 ______________, 1997
 Page -2-

        A.     Lessee (i) is qualified to do business in the State of Hawaii
               as a foreign corporation; (ii) to our knowledge and without
               any inquiry except review of a certification as to the
               following provided by Lessee, is qualified to do business in
               all other jurisdictions in which the nature of its business or
               its properties requires it to be qualified, (iii) presently
               maintains its principal place of business and chief executive
               office in Honolulu, Hawaii, (iv) has full power to carry on
               its business as it is now being conducted and to enter into,
               legally bind itself by, and perform its obligations under the
               Operative Documents and (v) to our knowledge and without any
               inquiry except review of a certification as to the following
               provided by Lessee, has complied with all material statutory
               and other requirements relative to its businesses;

        B.     To our knowledge and without any inquiry except review of a
               certification as to the following provided by Lessee, (i) all
               consents, resolutions and authorizations necessary or
               advisable in order for Lessee to enter into the Operative
               Documents and to lease the Aircraft in accordance with the
               terms and conditions of the Operative Documents have been
               obtained, and (ii) no further consents or authorizations are
               necessary for the lease of the aircraft by Lessee pursuant to
               the provisions of the Operative Documents and for the
               performance by Lessee of all of its obligations pursuant to
               the provisions of the Operative Documents;

        C.     The Operative Documents (i) constitute valid and binding
               obligations of Lessee, enforceable against Lessee in
               accordance with their respective terms, (ii) are in full force
               and effect, and (iii) the provisions of the Operative
               Documents with respect to choice of substantive law to govern
               the interpretation and enforcement of such Operative Documents
               and consent to jurisdiction and choice of forum in connection
               with such interpretation and enforcement are legal, valid and
               binding; however, the state and federal courts in the state of
               Hawaii may not apply the procedural law, including without
               limitation, law relating to remedies or provisional remedies,
               of a non-forum state, such as, without limitation, New York;


                                                             A LAW CORPORATION


<PAGE>

                                                                       [LOGO]

   ACG ACQUISITION XII LLC
   SANWA BUSINESS CREDIT CORPORATION
    ______________, 1997
   Page -3-

          D.     The execution and delivery of and the performance of the
                 provisions of the Operative Documents and of the
                 transactions contemplated thereby do not contravene any of
                 the charter documents (including the certificate of
                 incorporation, and by-laws) of Lessee; and to our knowledge
                 and without any inquiry except review of a certification as
                 to the following provided by Lessee, the execution and
                 delivery of and the performance of the provisions of the
                 Operative Documents and of the transactions contemplated
                 thereby and hereby do not contravene in any material respect
                 any applicable law, regulation, decree, order, permit or
                 contractual or other restriction now existing and binding on
                 Lessee or on any of the properties of Lessee;

          E.     To our knowledge and without inquiry except review of a
                 certification as to the following provided by Lessee, (i)
                 there are no outstanding judgments against Lessee and (ii) no
                 action, claim, suit or proceeding pending or threatened
                 (including, but not limited to, tax liens or tax actions)
                 against or affecting Lessee or any of the property of Lessee
                 before any court, board of arbitration or administrative
                 agency which could reasonably be expected to result in any
                 material adverse change in the business or condition
                 (financial or otherwise) of Lessee;

          F.     To our knowledge and without inquiry except review of a
                 certification as to the following provided by Lessee, Lessee
                 is not in default under any agreement to which it is a party
                 or by which it may be bound, nor in default of any kind in
                 respect of any financial commitment or obligation (including
                 obligations under guarantees) which could have a material
                 adverse effect on the ability of Lessee to perform its
                 obligations under the Operative Documents nor is there any
                 fact which by giving of notice or by lapse of time or
                 otherwise might constitute such default by Lessee;

          G.     None of the Operative Documents or any other document
                 executed in connection with the Operative Documents or
                 contemplated thereby nor any filing required or permitted
                 thereunder is subject to any registration tax, any stamp
                 duty or similar tax;

          H.     To our knowledge and without inquiry except for review of a
                 certification as to the following provided by

                                                             A LAW CORPORATION


<PAGE>

                                                                       [LOGO]

  ACG ACQUISITION XII LLC
  SANWA BUSINESS CREDIT CORPORATION
   ______________, 1997
  Page -4-

                Lessee, Lessee has furnished Lessor and Sanwa business credit
                Corporation with consolidated financial statements of Aloha
                Airgroup, Inc., the corporate parent of Lessee, reflecting the
                financial results of Aloha Airgroup, Inc. and its subsidiaries
                (including Lessee) as of December 31, 1996.

          I.    Lessee is (i) a "United States citizen" as that term is used
                and defined in Section 40102(a)(15) of Title 49 of the
                United States Code, and (ii) a duly certified United States
                Air Carrier pursuant to the provisions of 14 C.F.R. 121;

         J.     To our knowledge and without inquiry except for review of a
                certification as to the following provided by Lessee, no
                written information given by Lessee in relation to the
                Operative Documents contains any misstatement of fact or omits
                to state a fact which would be adverse to the interest of
                Lessor or Sanwa Business Credit Corporation or which would be
                necessary to make any statement or representation or warranty
                contained herein or therein not misleading;

         K.     To our knowledge and without inquiry except for review of a
                certification as to the following provided by Lessee, there has
                occurred no event which, with the giving of notice or lapse of
                time or both, would constitute an Event of Default or Default
                under the Operative Documents;

         L.     To our knowledge and without inquiry except for review of a
                certification as to the following provided by Lessee, Lessee
                does not do business under any assumed or trade names;

         M.     Except for the filing of appropriate financing statements
                (UCC-1s) with the Bureau of Conveyances, State of Hawaii and
                the filing of the Lease Agreement with the Federal Aviation
                Administration, no further actions are necessary to record or
                perfect Lessor's interest in the Lease in the United States
                or in the State of Hawaii;

          N.    The Operative Documents do not violate any law relating to
                the charging, contracting for or payment or collection of
                interest or the like; and

                                                             A LAW CORPORATION


<PAGE>


                                                                       [LOGO]


 ACG ACQUISITION XII LLC
 SANWA BUSINESS CREDIT CORPORATION
  ______________, 1997
 Page -5-

        0.     In the event that Lessee files a petition for relief under
               Chapter 11 of the United States Bankruptcy Code, as amended,
               or has such a petition filed against it, Lessor and Sanwa
               Business credit corporation by virtue of the assignment of
               Lessor's interest in the Aircraft and Lease will be entitled
               to the benefits of Section 1110 of Title 11 of the United
               States Code.

 The opinions expressed above are qualified to the extent that:

        1.     We are members of the Bar of the State of Hawaii and do not
               hold ourselves out as being conversant with, and express no
               opinion as to, the laws of any jurisdiction other than those
               of the State of Hawaii, the United States of America, and the
               general corporate laws of the State of Delaware.

        2.     With regard to the opinion set forth in subpart A above, we
               are relying, in part, on the opinions rendered by Shearman &
               Sterling to Lessor and Lender in that certain letter dated
               _____________, 1997 and have made no inquiry into the accuracy
               of the opinions set forth in that letter; provided, however,
               that such reliance is limited to the specific opinions set
               forth in that letter.

        3.     With regard to the opinion set forth in subpart I above, we
               are relying, in part, on the opinions rendered by Squire
               Sanders & Dempsey to Aloha Airlines, Inc, in that certain
               letter dated January 14, 1997 addressed to Aloha Airlines,
               Inc. (a copy of which is appended hereto) and have made no
               inquiry into the accuracy of the opinions set forth in that
               letter; provided, however, that such reliance is limited to
               the specific opinions set forth in that letter.

        4.     The opinions expressed herein are solely for your benefit and
               may not be relied upon in any manner or for any purpose by any
               other person.

        5.     In conducting our examination, we have assumed the genuineness
               of all signatures (other than the signatures of Lessee), the
               correctness of all certificates, the authenticity of all
               documents submitted to us as originals, the conformity to
               original documents of all documents submitted to us as
               certified or photostatic copies and the authenticity of

                                                             A LAW CORPORATION


<PAGE>

                                                                       [LOGO]


 ACG ACQUISITION XII LLC
 SANWA BUSINESS CREDIT CORPORATION
  ______________, 1997
 Page -6-

               the originals of such copies, and the accuracy and
               completeness of all records made available to us by Lessee. In
               making our examination of documents and instruments, we have
               assumed that each party to such documents and instruments
               (other than Lessee and its affiliates) has: (i) the power and
               capacity to enter into and perform all its obligations under
               such documents and instruments, (ii) duly authorized all
               requisite action with respect to such documents and
               instruments, and (iii) duly executed and delivered such
               documents and instruments.

        6.     The opinions expressed above are qualified to the extent that
               (i) enforceability of the operative Documents and transactions
               contemplated thereby may be limited by bankruptcy, insolvency,
               reorganization, moratorium or similar laws of general
               application from time to time affecting the rights of
               creditors, lessors and secured parties generally and providing
               relief for debtors; and (ii) a particular court may refuse to
               grant certain equitable or legal remedies, including without
               limiting the generality of the foregoing, specific performance
               or foreclosure, with respect to the enforcement of any
               provisions of the operative Documents.

        7.     This opinion letter is limited to the matters stated herein
               and no opinion may be implied or inferred beyond the matters
               expressly stated herein.

        8.     The opinions given herein are as of the date hereof and we
               assume no obligation to update or supplement such opinions to
               reflect any facts or circumstances which may hereafter come to
               our attention or any changes in law which may hereafter occur.

 Very truly yours,

 CHAR SAKAMOTO ISHII LUM & CHING

 /s/ Elizabeth Ann Ishii
 -----------------------
 Elizabeth Ann Ishii

 cc:    Ms. Brenda F. Cutwright
        Mr. James M. King
        Mr. Timothy Ng

                                                             A LAW CORPORATION

<PAGE>

<Table>

<S>                                 <C>                                    <C>

                                    SQUIRE, SANDERS & DEMPSEY
                                               LLB
TELEPHONE (202) 626-6600                COUNSELLORS AT LAW                 DIRECT DIAL NUMBER

[ILLEGIBLE]                      1201 PENNSYLVANIA AVENUE, N.W.

TELEPHONE (202) 626-5720                   P.O. BOX 407                    202/626-6651
                                     Washington, D.C. 200440-407

                                          January 14, 1997
</Table>


VIA TELECOPIER 808/836-7472


Mr. Timothy Ing
Director, Development and Analysis
Aloha Airlines, Inc.
371 Aokea Street
Honolulu, Hawaii 96819


Re:  ALOHA AIRLINES, INC. AND ISLANDAIR, INC. REINCORPORATION IN DELAWARE

Dear Mr. Ing:


     Aloha Airlines, Inc. ("Aloha") and its sister corporation, IslandAir,
Inc. ("IslandAir") have requested our opinion on whether the change of the
state of incorporation for both Aloha and IslandAir will require the U.S.
Department of Transportation ("DOT") or the Federal Aviation Administration
("FAA") to reissue or otherwise amend the economic operating authority issued
by the DOT to Aloha and IslandAir or the air carrier certificates issued by
the FAA to Aloha and IslandAir. Except for the communication which has
already been sent to the DOT's Office of General Counsel and the possible
exception of Aloha and IslandAir simply advising their respective Principal
Operations Inspectors in Honolulu by letter that Aloha and IslandAir have
been reincorporated in the State of Delaware, the Offices of the General
Counsel of the DOT and of the Chief Counsel of the FAA have advised the
undersigned that no application or other formal document has to be filed with
either the DOT or the FAA.

     On the basis of our conveying to the DOT's Office of General Counsel the
information received from you that the name, assets, liabilities, directors,
officers, key personnel and shareholders of both Aloha and IslandAir will

<PAGE>

Mr. Timothy Ing
January 14, 1997
Page 2


remain unchanged by reason of this change in their state of incorporation,
DOT's Office of General Counsel has stated that the undersigned need only
send such Office a letter confirming the fact of the continuation of the
status quo with respect to each of the just described elements except for the
state of incorporation. That letter was sent on December 26, 1996.

     In our discussion with the FAA's Office of Chief Counsel, the
undersigned was told that no formal communication to the FAA was required,
but that, out of an abundance of caution, Aloha and IslandAir may wish to
send letters to their respective Principal Operations Inspectors in Honolulu
simply informing these FAA employees of the change in the state of
incorporation. It is the undersigned's understanding that such letters are in
preparation and will shortly be sent.

     Even apart from the advice received from the Offices of General Counsel
and Chief Counsel of the DOT and FAA, respectively, the undersigned had also
concluded and so advised you that no application or other formal process
would be required to preserve the legal validity of the economic operating
authority and air carrier certificates previously issued to Aloha and
IslandAir. The DOT and FAA have traditionally only evidenced interest in
matters such as reincorporation when they are also accompanied by other
substantial changes in the ownership, management, financial condition or name
of the air carrier. On the basis of the information conveyed to us by your
office, we understand that that did not occur in this instance and thus no
application or other formal process is required.

     The undersigned understands that the firm of Char, Sakamato, Ishii and
Lum has requested and intends to rely on this opinion. The undersigned agrees
that this opinion may be shared with and relied on by Char, Sakamato, Ishii
and Lum.

                                       Very truly yours,

                                       /s/ Marshall S. Sinick
                                       ----------------------
                                       Marshall S. Sinick

MSS/nlh


<PAGE>

                                  SCHEDULE 6
                           FORM OF LETTER OF CREDIT



                                    -100-

<PAGE>

                         [GRAPHIC] First Hawaiian Bank
                             International Banking
                                 P.O. Box 3200
                             Honolulu, Hawaii 98847

                                  May 20, 1997


BENEFICIARY:

Sanwa Business Credit Corporation
Attention: Senior Vice President, Transportaion Finance
One South Wacker Drive
Chicago, IL 60606

Gentlemen:

          Effective May 21, 1997, we hereby establish our Irrevocable Standby
Letter of Credit No. S/B 970039 to Sanwa Business Credit Corporation
("Lender") in accordance with the terms of that certain Security Agreement
(21720) dated as of May 1, 1997 between Lender and Lessor, available by your
draft(s) on First Hawaiian Bank, International Banking, Honolulu, Hawaii at
sight for the account of Aloha Airlines, Inc., P.O. Box 30028, Honolulu,
Hawaii 96820, up to an aggregate amount of U.S.$228,000.00 (Two Hundred
Twenty-Eight Thousand United States Dollars) accompanied by:

              1)    A statement purportedly signed by a duly authorized officer
                    of Sanwa Business Credit Corp. certifying:

                    "An "Event of Default" has occurred and is continuing
                    under that certain Lease Agreement 809 dated as of
                    _______, 19__, by and between Aloha Airlines, Inc. and
                    ACG Acquisition XII LLC ("Lessor"), as assigned to Lender
                    in accordance with the terms of that certain Security
                    Agreement (21720) dated as of May 1, 1997 between Lender
                    and Lessor."

              2)    This Letter of Credit.

         Payment of amounts under this Letter of Credit shall be made in full
without any offset or counterclaim whatsoever and free and clear of any
deductions or withholdings. Until all amounts which may be or become payable
to the Lessor or the Lender by the Lessee have been irrevocably paid in full,
we shall not by virtue of this Letter of Credit be subrogated to any of the
Lessor's or the Lender's rights or claim in competition with the Lessor or
the Lender against the Lessee.

         It is a condition of this Letter of Credit that it shall be deemed
automatically extended without amendment for an additional period of one (1)
year from the present or each future expiration date unless at least thirty
(30) days prior to any such expiry date, we shall notify you in writing by
certified mail at the above address, that we elect not to consider this
Letter of Credit renewed for such additional period. Upon receipt of such
notice, you may draw hereunder by means of your draft on us at sight
accompanied by this Letter of Credit and your written certification stating:




<PAGE>


Aloha Airlines, Inc.
S/B 970039
Page 2


              "Sanwa Business Credit Corporation has received a notice of
              non-renewal from First Hawaiian Bank, Honolulu, Hawaii to its
              Letter of Credit No. S/B 970039."

         Partial drawings permitted.

         All drafts must bear the clause "Drawn under Credit No. S/B 970039
of First Hawaiian Bank, Honolulu, Hawaii dated May 20, 1997."

         This Letter of Credit is transferable only by Beneficiary. Notice of
such Transfer, if any, must be mailed immediately to First Hawaiian Bank,
International Banking, P.O. Box 3200, Honolulu, Hawaii 96847.

         All banking charges relating to this Letter of Credit are for the
account of the Aloha Airlines, Inc.

         Alternatively, drawings may be sent via fax to our International
Banking at Fax No. (808) 525-5791, originals to follow by mail. Drawings by
fax or by presentment of original documents must be received by First
Hawaiian Bank, International Banking on or before 3:00 P.M. Hawaii Standard
Time on December 31, 1997, the expiration date or any automatically extended
date.

         Except as otherwise expressly stated, this Credit is subject to the
"Uniform Customs and Practice for Documentary Credits" (1993 Revision)
International Chamber of Commerce Publication No. 500.

         We hereby engage with you that all drafts drawn under and in
compliance with the terms and conditions of this Credit shall be duly honored
if drawn and presented on or before December 31, 1997, the expiration date,
or any automatically extended date, at our International Banking counters in
Honolulu, Hawaii.

                                       Sincerely,

                                       FIRST HAWAIIAN BANK

/s/ [ILLEGIBLE]                        /s/ [ILLEGIBLE]
------------------------------------   ------------------------------------
  Authorized Signature                   Authorized Signature


<PAGE>


                                       SCHEDULE 7

                          FORM OF SEMI-ANNUAL STATUS REPORT

<TABLE>
<CAPTION>

        AIRCRAFT TYPE                  REG. MARK       SERIAL NO.         MONTH ENDING
<S>     <C>                            <C>             <C>                <C>
        Boeing 737-2Q9                  N809AL           21720              ..........

1.      AIRCRAFT UTILIZATION:

(a)     Airframe Total Flight Hours                    .............................

(b)     Airframe Total Cycles                          .............................

(c)     Airframe Flight Hours for Month                .............................

(d)     Airframe Flight Cycles for Month               .............................


2.      POWERPLANT STATUS:                                NO.1                NO.2

(a)     Serial Nos. of Delivered Engines                  ......              ......

(b)     Serial Nos. of Replacement Engines                ......              ......
        (if applicable)

(c)     Serial Nos. of Installed Engines                  ......              ......
        (if different from (a) or (b) above)

(d)     Current Location of Delivered or                  ......              ......
        Replacement Engines (as applicable)
        (if not installed on Airframe)

(e)     Total Time Since New of Delivered                 ......              ......
        or Replacement Engines (as applicable)

(f)     Total Cycles Since New of Delivered               ......              ......
        or Replacement Engines (as applicable)

</TABLE>

                                            -101-


<PAGE>

<TABLE>

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

(g)     Total Flight Hours for the Month for           ......              ......
        each Delivered or Replacement Engine
        (as applicable)

(h)     Total Cycles for the Month for each            ......              ......
        Delivered or Replacement Engine
        (as applicable)

(i)     Serial No. of Delivered APU                        ........

(j)     Serial No. of Replacement APU                      ........
        (if applicable)

(k)     Serial No. of Installed APU                        ........
        (if different from (a) or (b) above)

(l)     Current Location of Delivered or                   ........
        Replacement APU (as applicable)
        (if not installed on Airframe)

(m)     Total Time Since New of Delivered                  ........
        or Replacement APU (as applicable)

(n)     Total Cycles Since New of Delivered                ........
        or Replacement APU (as applicable)

(o)     Total Hours for the Month for                      ........
        Delivered or Replacement APU
        (as applicable)

(p)     Total Cycles for the Month for                     ........
        Delivered or Replacement APU
        (as applicable)

</TABLE>

3.      ROUTINE CHECKS / A.D. AND S.B. COMPLIANCE:

(a)     Routine Checks (A and above) performed during Month:

(b)     Airworthiness Directives complied with during Month:

                                    -102-


<PAGE>


(c)     Service Bulletins complied with during Month:

4.      AIRCRAFT DAMAGE OR ENGINE CHANGES:

        Details of any repairs carried out to the Aircraft beyond SRM limits
        and Engine changes, giving reasons for repair or change:

5.      UPCOMING MAINTENANCE CHECKS

(a)     Maintenance Checks (C segment and above) scheduled or expected to be
        performed on the Airframe during the next 12 months:

(b)     Scheduled shop visits or heavy maintenance visits scheduled or
        expected to be performed on the Engines during the next 12 months:

(c)     Overhauls, or replacements scheduled or expected to be performed on
        the APU or Landing Gear during the next 12 months:



Date: __________, ____                 CERTIFIED FOR AND ON BEHALF OF
                                       ALOHA AIRLINES, INC.


                                       By: _________________________________
                                       Name:
                                       Title:

                                    -103-


<PAGE>


                          CERTIFICATE OF ACCEPTANCE 809

       This Certificate of Acceptance 809 is delivered on the date set forth in
       paragraph 1 below by Aloha Airlines, Inc. (the "LESSEE") to ACG
       Acquisition XII LLC (the "LESSOR") pursuant to Lease Agreement 809, dated
       May 21, 1997, between the Lessor and the Lessee (the "AGREEMENT").
       Capitalized terms used but not defined in this Certificate of Acceptance
       809 shall have the meaning given to such terms in the Agreement.

1.     DETAILS OF ACCEPTANCE

       The Lessee hereby confirms to the Lessor that the Lessee has at 10:27
       a.m. H.S.T. on this 21st day of May, 1997, over international
       waters, accepted the following, in accordance with the provisions of
       the Agreement and the Annex:

       (a)    Airframe: Boeing 737-2Q9  airframe, Manufacturer's Serial
                     No. 21720 and FAA Registration No. N809AL;

       (b)    Engines: two Pratt& Whitney JT8D-15 Engines, bearing
                     Manufacturer's Serial Nos. P688676 and P688677, each
                     having 750 or more rated take-off horsepower;

       (c)    All Parts installed on, attached to or appurtenant to the
                     Airframe and Engines; and

       (d)    Aircraft Documents as specified in Schedule 1 - Part 2 of the
                     Agreement.

2.     LESSEE'S CONFIRMATION The Lessee confirms to the Lessor that as at the
       time indicated above, being the time of Delivery:

       (a)    the Lessee's representations and warranties contained in
              Clauses 2.1 and 2.2 of the Agreement are hereby repeated;

       (b)    the Aircraft is insured as required by the Agreement; and

       (c)    the Lessee confirms that there have been affixed to the
              Aircraft and the Engines the fireproof notices required by the
              Agreement.

3.     LESSOR'S CONFIRMATION The Lessor confirms to the Lessee that, as at
       the time indicated above, being the time of Delivery, the Lessor's
       representations and warranties contained in Clause 2.4 of the
       Agreement are hereby repeated.


<PAGE>


IN WITNESS WHEREOF Lessor and Lessee have executed this Certificate of
Acceptance 809 on the date shown at the beginning of this Agreement.

                                       SIGNED on behalf of
                                       ACG ACQUISITION XII LLC


                                       By:    /s/ Benjamin Jung
                                              --------------------------------
                                       Name:  Benjamin Jung
                                       Title: Manager


                                       SIGNED ON behalf of
                                       ALOHA AIRLINES, INC.


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


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




                                             -2-


<PAGE>


IN WITNESS WHEREOF Lessor and Lessee have executed this Certificate of
Acceptance 809 on the data shown at the beginning of this Certificate.

                                 SIGNED on behalf of
                                 ACG ACQUISITION XII LLC


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


                                 SIGNED on behalf of
                                 ALOHA AIRLINES, INC.


                                 By:     /s/ Brenda F. Cutwright
                                        --------------------------------------
                                 Name:   BRENDA F. CUTWRIGHT
                                 Title:  SR. VICE PRESIDENT FINANCE &
                                                     PLANNING AND CFO


                                 By:     /s/ James M. King
                                        --------------------------------------
                                 Name:   JAMES M. KING
                                 Title:  VICE PRESIDENT PLANNING & DEVELOPMENT

                                     -2-


<PAGE>


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







                          SECURITY AGREEMENT (21720)

                           dated as of May 1, 1997

                                   between

                           ACG ACQUISITION XII LLC,
                                 as Borrower



                                    and



                      SANWA BUSINESS CREDIT CORPORATION,
                                 as Lender







-------------------------------------------------------------------------------
                      VEDDER, PRICE, KAUFMAN & KAMMHOLZ
                                  CHICAGO


<PAGE>


                                       TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                          Page
<S>                                                                                       <C>
1.   Defined Terms .........................................................................1

2.   Grant of Security Interest ............................................................6

3.   Limitations on Lender's Obligations ..................................................10

4.   Representations and Warranties .......................................................10
          (a)     Title; No Other Security Interests ......................................10
          (b)     Perfected First Priority Security Interest ..............................10
          (c)     Contracts
5.   Covenants
          (a)     Further Documentation; Pledge of Instruments and Chattel Paper ..........11
          (b)     Indemnification .........................................................12
          (c)     Notices .................................................................12
          (d)     Pledge of Collateral ....................................................12

6.   Lender's Appointment as Attorney-in-Fact .............................................12
          (a)     Powers ..................................................................12
          (b)     Other Powers ............................................................13
          (c)     No Duty on Lender's Part ................................................14

7.   Performance by Lender of Borrower's Obligations ......................................14

8.   Proceeds .............................................................................14

9,   Remedies .............................................................................14

10.  Limitation on Duties Regarding Preservation of Collateral ............................15

11.  Powers Coupled with an Interest ......................................................16

12.  Severability .........................................................................16

13.  Paragraph Headings ...................................................................16

14.  No Waiver- Cumulative Remedies .......................................................16


                                      i


<PAGE>
<CAPTION>
                                                                                          Page
<S>                                                                                       <C>


15.  Waivers and Amendments; Successors and Assigns; Governing Law ........................16

16.  Submission to Jurisdiction; Waivers ..................................................16

17.  Notices ..............................................................................17
</TABLE>


                                     ii


<PAGE>


                             SECURITY AGREEMENT (21720)

               THIS SECURITY AGREEMENT (21720), dated as of May 1,
1997, is made by ACG ACQUISITION XII LLC, a Delaware limited liability
company (the "Borrower"), in favor of SANWA BUSINESS CREDIT
CORPORATION, a Delaware corporation (the "Lender").

                            W I T N E S S E T H :

               WHEREAS, the Borrower and the Lender are parties to that
certain Loan Agreement (21720), dated as of May 1, 1997 (as amended,
supplemented or otherwise modified from time to time, the "LOAN AGREEMENT").

               WHEREAS, pursuant to the Loan Agreement, the Lender has agreed
to make a loan to the Borrower upon the terms and subject to the conditions
set forth therein, to be evidenced by the Note issued by the Borrower
thereunder, and it is a condition precedent to the obligation of the Lender
to make its loan to the Borrower under the Loan Agreement that the Borrower
shall have executed and delivered this Security Agreement to the Lender.

               NOW, THEREFORE, in consideration of the premises and to induce
the Lender to enter into the Loan Agreement and to make its loan to the
Borrower thereunder, the Borrower hereby agrees with the Lender as follows:

               1.  DEFINED TERMS. For purposes hereof, the following terms
shall have the following meanings:

               "AFFILIATE": with respect to any Person, any other Person who,
      directly or indirectly, controls or is controlled by or is under common
      control with, such Person. For purposes of this definition, "CONTROL"
      (including, with correlative meanings, the terms "CONTROLLED BY" and
      "UNDER COMMON CONTROL WITH"), with respect to any Person, means the
      possession, directly or indirectly, of the power to direct or cause the
      direction of the management and policies of such Person, whether
      through the ownership of voting securities or by contract or otherwise.

               "AIRCRAFT":  the Aircraft specified by make, model, serial
      number and U.S. Registration Number in the Lease.

               "AIRCRAFT DOCUMENTS": all books, manuals, logs, records,
      writings, data, information and other like property (and any and all
      additions, renewals, revisions and replacements) relating to the
      Aircraft, Engines or any Part (including, without limitation, any
      warranties).

               "AIRFRAME": as defined in the Lease.


<PAGE>


                                                  [Security Agreement (21720)]

               "BASIC AGREEMENTS": this Agreement, the Note, the Loan
      Agreement, the Pledge Agreement, the Guarantee, the Purchase Agreement,
      the Lease, the Bill of Sale, the FAA Bill of Sale and the Letter of
      Credit (if any), together with all notices, consents, certificates and
      other documents from time to time issued or entered into by the
      Borrower pursuant to or in connection with any thereof.

               "BILL OF SALE": the full Warranty Bill of Sale (substantially
      in the form attached to the Purchase Agreement as Exhibit A) for the
      Aircraft, dated the Closing Date, executed by the Seller and the Seller
      Beneficiary in favor of Borrower specifically referencing the Airframe
      and each Engine constituting a part of the Aircraft.

               "BUSINESS DAY": a day, other than a Saturday or Sunday or a
      day on which banks in Chicago, Illinois, New York, New York or
      Honolulu, Hawaii are required or authorized to be closed.

               "CITIZEN OF THE UNITED STATE": as defined in Section
      40102(a)(15) of Title 49 of the United States Code.

               "CLOSING DATE". the date on which the Loan is made under the
      Loan Agreement.

               "CODE" means the Uniform Commercial Code as from time to time
      in effect in the State of Illinois.

               "COLLATERAL" shall have the meaning assigned to it in
      Section 2 of this Security Agreement.

               "CONTRACTUAL OBLIGATION": as to any Person, any provision of
      any security issued by such Person or of any agreement, instrument or
      other undertaking to which such Person is a party or by which it or any
      of its property is bound.

               "DEFAULT": any "Default" under the Loan Agreement.

               "DEFAULT RATE": the prime rate for the time being charged by
      Citibank, N.A., plus 3.0 % (compounded monthly and calculated on the
      basis of a 360-day year and the actual number of days elapsed).

               "EARLY TERMINATION OPTION": as defined in the Lease.

               "ENGINE"  or "ENGINES":  as defined in the Lease.

               "ENGINE LOSS": as defined in the Lease.


                                      2


<PAGE>


                                                  [Security Agreement (21720)]

               "ERISA":  the Employee Retirement Income Security Act of 1974,
      as amended from time to time.

               "EVENT OF DEFAULT": ally "Event of Default" under the Loan
      Agreement.

               "EVENT OF LOSS PROCEEDS": the proceeds of any insurance, or
      any compensation, requisition, or similar payment, arising in respect
      of a Total Loss or and Engine Loss.

               "EXCLUDED PAYMENTS" means (i) indemnity payments paid or
      payable to or in respect of the Borrower, its Affiliates, successors
      and permitted assigns and its directors, officers, employees, servants
      and agents pursuant to Section 10 of the Lease, (ii) proceeds of public
      liability insurance in respect of the Aircraft payable as a result of
      insurance claims made, or losses suffered, by the Borrower, which are
      payable directly to or in respect of the Borrower, or its Affiliates,
      successors and permitted assigns and its directors, officers,
      employees, servants and agents, respectively, for its own account,
      (iii) proceeds of insurance maintained with respect to the Aircraft by
      the Borrower or any Affiliate thereof for its or their own account or
      benefit, (iv) any interest that pursuant to the Basic Agreements may
      from time to time accrue in respect of any of the amounts described in
      clauses (i) through (iii) above, (v) the proceeds from the enforcement
      of any right to enforce the payment of any amount described in clauses
      (i) through (iv) above (provided that the rights referred to in this
      clause (v) shall not be deemed to include the exercise of any remedies
      provided for in the Lease other than the right to sue for specific
      performance of any covenant to make such payment or to sue for damages
      in respect of the breach of any such covenant), and (vi) any right to
      exercise any election or option or make any decision or determination,
      or to give or receive any notice, consent, waiver or approval, or to
      take any other action in respect of, but in each case, only to the
      extent relating to, any Excluded Payments (provided that the rights
      referred to in this clause (vi) shall not be deemed to include the
      exercise of any remedies provided for in the Lease other than the right
      to sue for specific performance of any covenant to make such payment or
      to sue for damages in respect of the breach of any such covenant),

               "FAA": the United States Federal Aviation Administration and
      any successor agency or agencies thereto.

               "FAA BILL OF SALE": the Bill of Sale for the Aircraft on AC
      Form 8050-2 or such other form as may be approved by the FAA on the
      Closing Date executed by the Seller in favor of Borrower.

               "FAIR MARKET SALES VALUE": the value which would be obtained
      in an arm's-length sale between an informed and willing buyer (other
      than the Borrower or an Affiliate

                                      3


<PAGE>


                                                  [Security Agreement (21720)]

      thereof) under no compulsion to buy and an informed and willing seller
      unaffiliated with such buyer under no compulsion to sell.

               "GOVERNMENTAL AUTHORITY": any nation or government, any state
      or other political subdivision thereof and any entity exercising
      executive, legislative, judicial, regulatory or administrative
      functions of or pertaining to government.

               "GUARANTOR": Aviation Capital Group Corp., a Delaware
      corporation.

               "GUARANTEE": that certain Guarantee Agreement (21720),
      substantially in the form of Exhibit E to the Loan Agreement, dated as
      of the date hereof, executed by Guarantor in favor of Lender.

               "LEASE": Lease Agreement 809 dated May 21, 1997, between
      Borrower, as lessor, and Lessee, as lessee, with respect to one 1979
      Boeing 737-2Q9 aircraft bearing Manufacturer's Serial Number 21720 and
      U.S. Registration Number N809AL, as amended, modified or supplemented
      from time to time.

               "LEASE EVENT OF DEFAULT": has the same meaning as an "Event of
      Default" as defined in the Lease,

               "LENDER": Sanwa Business Credit Corporation and each other
      Lender party hereto from time to time, and their respective successors
      and assigns.

               "LESSEE": Aloha Airlines, Inc., a Delaware corporation.

               "LESSOR LIEN(S)": as defined in the Lease.

               "LETTER OF CREDIT": as defined in the Lease.

               "LOAN": the loan made by Lender to Borrower pursuant to
      Section 2.1 of the Loan Agreement.

               "MANUFACTURER": The Boeing Company, a Delaware corporation.

               "OBLIGATIONS" means the unpaid principal amount of, and
      interest on (including, without limitation, interest accruing after the
      maturity of the Loan and interest accruing after the filing of any
      petition in bankruptcy, or the commencement of any insolvency,
      reorganization or like Proceeding, relating to the Borrower, whether or
      not a claim for post-filing or post-petition interest is allowed in
      such proceeding) the Loan and any and all other obligations and
      liabilities of the Borrower to the Lender, whether direct or

                                      4


<PAGE>


                                                  [Security Agreement (21720)]

      indirect, absolute or contingent, recourse or non-recourse, due or to
      become due; or now existing or hereafter incurred, which may arise
      under, out of, or in connection with, the Loan Agreement, the Note,
      this Security Agreement or any other Basic Agreement and any other
      document made, delivered or given by the Borrower in connection
      therewith or herewith, whether on account of principal, interest,
      reimbursement obligations, fees, indemnities, costs, expenses
      (including, without limitation, all fees and disbursements of counsel
      to the Lender that are required to be paid by the Borrower pursuant to
      the terms of the Loan Agreement) or otherwise.

               "PART": as defined in the Lease.

               "PERMITTED LIEN(S)": as defined in the Lease.

               "PERSON": an individual, partnership, corporation, business
      trust, joint stock company, trust, unincorporated association, joint
      venture, Governmental Authority or other entity of whatever nature,

               "PLEDGE AGREEMENT": that certain Pledge Agreement and
      Irrevocable Proxy (21720), dated as of the date hereof, between the
      Pledgors and Lender, substantially in the form of Exhibit D to the Loan
      Agreement.

               "PLEDGORS": collectively, Pacific Mutual Life Insurance
      Company, PM Group Life Insurance Company, ACG/MM II LLC and ACG
      Acquisition VI LLC,

               "PROCEEDS" shall have the meaning specified in the Code.

               "PURCHASE AGREEMENT": that certain Aircraft Purchase Agreement
      dated as of May 21, 1997 between Borrower, as buyer, and Seller, as
      seller, as modified, amended or supplemented in accordance with the
      terms of the Basic Agreements.

               "RENTAL": Basic Rent and any payment of interest as a result
      of the late payment of the foregoing required pursuant to the Lease.

               "REQUIRMENT OF LAW": as to any Person, the organizational or
      governing documents of such Person, and any law, treaty, rule or
      regulation or determination of an arbitrator, court, or other
      Governmental Authority, in each case applicable to or binding upon such
      Person or any of its property or to which such Person or any of its
      property is subject.

               "SECURITY AGREEMENT" or "AGREEMENT" means this Security
      Agreement, as amended, supplemented or otherwise modified from time to
      time.

                                      5


<PAGE>


                                                  [Security Agreement (21720)]

               "SECURITY DOCUMENTS": this Security Agreement, the Guarantee
      and the Pledge Agreement.

               "SECURITY INTEREST". any mortgage, charge, pledge,
      hypothecation, assignment, deposit arrangement, right of possession or
      detention, right of set-off (but excluding any right of set-off,
      consolidation, merger or combination of accounts arising in flavor of
      a bank by operation of law), encumbrance, lien (statutory or other), or
      preference, priority or other security agreement or preferential
      arrangement of any kind or nature whatsoever (including, without
      limitation, any conditional sale or other title retention agreement,
      any lease having substantially the same economic effect as any of the
      foregoing, and the filing of any financing statement under the Uniform
      Commercial Code or comparable law of any jurisdiction in respect of any
      of the foregoing).

               "SELLER", First Security Bank, National Association, not in
      its individual capacity but solely as owner trustee.

               "SELLER BENEFICIARY": 1980 Aircraft Investors, a California
      limited partnership.

               "STATE OF REGISTRATION": the United States or any other state
      in which the Aircraft may be registered in accordance with the terms of
      the Lease.

               "SUBSIDIARY": as to any Person, a corporation, partnership or
      other entity of which shares of stock or other ownership interests
      having ordinary voting power (other than stock or such other ownership
      interests having such power only by reason of the happening of a
      contingency) to elect a majority of the board of directors or other
      managers of such corporation, partnership or other entity are at the
      time owned, or the management of which is otherwise controlled,
      directly or indirectly through one Or more intermediaries, or both, by
      such Person.

               "TAXES": all present and future taxes, levies, imposts,
      duties or charges of any nature whatsoever, and wheresoever imposed,
      and any franchise, transfer, sales, use, business, occupation, excise,
      personal property, real property, stamp, withholding or other tax
      imposed by any national or regional taxing or fiscal authority or
      agency, together with tax imposed by any national or regional taxing or
      fiscal authority or agency, together with any penalties, additions to
      tax, fines or interest thereon; and "taxes" and "taxation" shall be
      construed accordingly.

               "TOTAL LOSS": as defined in the Lease.

               "US$" AND "DOLLARS": the lawful currency of the United States
      of America.

                2.  GRANT OF SECURITY INTEREST.


                                      6


<PAGE>


                                                   [Security Agreement (21720)]

               (a)  GRANT OF SECURITY INTEREST. As collateral security for the
      prompt and complete payment and performance when due (whether at the
      stated maturity, by acceleration or otherwise) of the Obligations, the
      Borrower hereby grants to the Lender a security interest in all of the
      following property now owned or at any time hereafter acquired by the
      Borrower or in which the Borrower now has or at any time in the future
      may acquire any right, title or interest (collectively, the
      "COLLATERAL"):

               (1)  The Aircraft (being one 1979 Boeing Model 737-2Q9 aircraft
      bearing Manufacturer's Serial Number 21720 and U.S. Registration Number
      N809AL, together with two Pratt & Whitney Model JT8D-15 Engines bearing
      Manufacturer Serial Numbers P688676 and P688677, respectively, each of
      which Engines is of 750 or more rated takeoff horsepower or the
      equivalent of such horsepower as the same is now and will hereafter be
      constituted, whether now owned by the Borrower or hereafter acquired,
      leased or intended to be leased under the Lease, and in the case of
      such Engines, whether or not any such Engine shall be installed in or
      attached to the Airframe or any other airframe, together with (a) all
      avionics and parts of whatever nature, which are from time to time
      incorporated or installed in or attached to the Aircraft and Engines,
      whether now owned or hereafter acquired, and all substitutions,
      renewals and replacements of and additions, improvements, accessions
      and accumulations to the Airframe and Engines and (b) all logs, manuals
      and data and inspection,, modification and overhaul records maintained
      in respect of the Aircraft, including the Engines, including, without
      limitation, all such logs, manuals, data and records required to be
      maintained by the FAA or by the applicable regulatory agency or body of
      any other jurisdiction in which the Aircraft may then be registered;

               (2)  All of Borrower's right, title and interest in, to and under
      the Lease, including, but not limited to:

                    (a)  any and all Rentals, insurance and condemnation
           proceeds, warranty payments, payments in the nature of maintenance
           or other reserves, payments upon a Total Loss or Engine Loss. and
           other moneys due or to become due (including, without limitation,
           any and all amounts owed by Lessee pursuant to Section 12.4(b) of
           the Lease in connection with the redelivery of the Aircraft), and
           any and all claims, rights, powers, remedies, title and interest
           of the Borrower in and to or under or arising out of the Lease
           (including, without limitation, all claims for damages or other
           sums arising upon the sale or other disposition of or loss of use
           of or requisition of title or use of the Aircraft, Engines, Parts
           and related equipment and Aircraft Documents at any time subject
           to the Lease) and any and all credit support or collateral
           security of whatever type or description (whether in the nature of
           cash, a guarantee, letter of credit, credit insurance, lien on or
           security interest in any property or otherwise) (including,
           without limitation,

                                       7


<PAGE>


                                                    (Security Agreement (21720)]

           the Security Deposit (as defined in the Lease) and the Letter of
           Credit (as defined in the Lease)) which the Borrower now or
           hereafter may hold to further assure or secure the obligations of
           the Lessee under the Lease,

                    (b)  all rights, powers, privileges, remedies and other
           benefits of the Borrower under the Lease and all rights to make
           determinations, exercise options or elections, give or withhold
           consents, waivers and approvals, give notices and exercise
           remedies (including the right to declare or exercise remedies with
           respect to a Default or an Event of Default under the Lease and to
           repossess any property), to appoint any appraiser or to take any
           other action under or in respect of the Lease or accept any
           surrender or redelivery of the Aircraft, Engines or Parts or
           Aircraft Documents, as well as all the rights, powers and remedies
           on the part of the Borrower, whether arising under the Lease or by
           statute or at law or in equity or otherwise: as a result of any
           Default or Event of Default under the Lease, and

                    (c)  all the Borrower's rights and interests in any sublease
           under the Lease;

               (3)  All right, title, interest, claims and demands of the
      Borrower in, to and under

                    (a)  the Purchase Agreement,

                    (b)  the Bill of Sale and the FAA Bill of Sale, and

                    (c) any and all other contracts, agreements and instruments
           relating to the Aircraft and Engines or any rights or interests
           therein to which the Borrower is now or may hereafter be a party,

      together with all rights, powers, privileges, licenses, easements,
      options and other benefits of the Borrower under each contract,
      agreement and instrument referred to in this clause (3), including,
      without limitation, the right to receive and collect all payments to
      the Borrower thereunder now or hereafter payable to or receivable by
      the Borrower pursuant thereto and the right to make all waivers and
      agreements, to give and receive notices and other instruments or
      communications, or to take any other action under or in respect of any
      thereof or to take such action upon the occurance of a default
      thereunder, including the commencement, conduct and consummation of
      legal, administrative or other proceedings, as shall be permitted
      thereby or by law, and to do any and a) I other things which the
      Borrower is or may be entitled to do thereunder and any right to

                                      8


<PAGE>


                                                    [Security Agreement (21720)]

      restitution from the Lessee or any other Person in respect of any
      determination of invalidity of any thereof;

               (4)  All rents, issues, profits, revenues and other income of the
      property subjected or required to be subjected to the Security Interest
      of this Security Agreement including all payments or proceeds payable
      to the Borrower after termination of the Lease with respect to the
      Aircraft as the result of the sale, lease or other disposition thereof,
      and all estate, right, title and interest of every nature whatsoever of
      the Borrower in and to the same;

               (5)  Without limiting the generality of the foregoing, all
      insurance and requisition proceeds with respect to the Aircraft or any
      part thereof, including but not limited to the insurance required under
      Section 9 of the Lease;

               (6)  Without limiting the generality of the foregoing, all monies
      and securities from time to time deposited or required to be deposited
      with the Lender pursuant to any terms of this Security Agreement or the
      Lease or required hereby or by the Lease to be held by the Lender
      hereunder as security for the obligations of the Lessee under the Lease
      or of the Borrower hereunder or under the Loan Agreement; and

               (7)  All Proceeds of the foregoing.

               Notwithstanding the foregoing, in no event shall Collateral
include Excluded Payments. Concurrently with the delivery hereof, the
Borrower is delivering to the Lender the original executed chattel paper
counter-part of the Lease and initial Lease Supplement (to each of which a
chattel paper receipt is attached), the Security Deposit or, if applicable,
the Letter of Credit, and an executed copy of the Purchase Agreement.

               TO HAVE AND TO HOLD all and singular the aforesaid property
unto the Lender, and its successors and assigns, in trust for the equal and
proportionate benefit and security of the holders, from time to time, of one
or more Notes, without any preference, distinction or priority of any one
Note over any other by reason of priority of time of issue, sale,
negotiation, date of maturity thereof or otherwise for any reason whatsoever,
and for the uses and purposes and in all cases and as to all property
specified in paragraphs (1) through (6), inclusive, above, subject to the
terms and provisions set forth in this Security Agreement.

                    (b)  RESERVED RIGHTS. Notwithstanding the provisions of
           clause (a) hereof, whether or not an Event of Default shall have
           occurred and be continuing: the Borrower shall have the right
           (together Aith and not to the exclusion of the Lender) (i) to
           receive from the Lessee copies of all notices, certificates,
           reports, filings, opinions of counsel and other documents and all
           information which any thereof is permitted or required to give or

                                                9


<Page>


                                                    [Security Agreement (21720)]

           furnish to the Borrower pursuant to any Basic Agreement, (ii) to
           exercise inspection rights pursuant to the Lease, (iii) to provide
           or carry insurance in addition to that required to be carried by
           the Lessee pursuant to the Lease and (iv) to consent or to
           withhold consent to any amendment, modification or waiver of the
           provisions of the Lease.

                3.  LIMITATIONS OF LENDER'S OBLIGATIONS. Notwithstanding
anything to the contrary contained herein, the Borrower shall remain liable
under each of the agreements pledged hereby to observe and perform all the
conditions and obligations to be observed and performed by it thereunder, all
in accordance with and pursuant to the terms and provisions of each such
agreement, to die same extent as if this Security Agreement had not been
executed. The Lender shall have no obligation or liability under any such
agreement by reason of or arising out of this Security Agreement or the
receipt by the Lender of any payment relating to such agreement pursuant
hereto, nor shall the Lender be obligated in any manner to perform any of the
obligations of the Borrower under or pursuant to any agreement, to make any
payment, to make any inquiry as to the nature or the sufficiency of any
payment received by it or as to the sufficiency of any performance by any
party under any such agreement, to present or file any claim, to take any
action to enforce any performance or to collect the payment of any amounts
which may have been assigned to it or to which it may be entitled at any time
or times.

                4.  REPRESENTATIONS AND WARRANTIES, The Borrower hereby
represents and warrants that:

                    (a)  Title: No Other Security Interests. Except for the
           Security Interest granted to the Lender pursuant to this Security
           Agreement and the other Security Interests permitted to exist on
           the Collateral pursuant to the Loan Agreement, the Borrower has
           not granted any Security Interest in, or other claims in respect
           of, the Collateral. No security agreement financing statement or
           other public notice with respect to all or any part of the
           Collateral has been placed by the Borrower on file or of record in
           any public office, except such as may have been filed in favor of
           the Lender, pursuant to this Security Agreement.

                    (b)  PERFECTED FIRST PRIORITY SECURITY INTEREST. The
           Borrower will take such action as the Lender reasonably determines
           necessary in order to perfect a first priority (subject, in the
           case of the Aircraft, to Permitted Liens (other than Lessor Liens
           arising by, through or under the Borrower) and any other Security
           Interest created by Seller, Seller Beneficiary, Lessee or arising
           through or under any such Person) Security Interest in the
           Collateral in favor of the Lender.

                    (c)  CONTRACTS. Other than consents obtained and delivered
           to the Lender pursuant to the Loan Agreement, to the Borrower's
           knowledge no consent of any party (other than the Borrower) to any
           agreement pledged hereby is required, or is purported to

                                      10


<PAGE>


                                                    [Security Agreement (21720)]

           be required, in connection with the execution, delivery and
           performance of this Security Agreement. Assuming the due
           authorization, execution and delivery by the other parties
           thereto, each agreement pledged hereby to which the Borrower is a
           party is in full force and effect and constitutes a legal, valid
           and binding obligation of the Borrower, enforceable against the
           Borrower in accordance with its terms, except as enforceability
           may be limited by bankruptcy, insolvency, reorganization,
           moratorium or similar laws affecting the enforcement of creditors'
           rights generally. No consent or authorization of, filing with or
           other act by or in respect of any Governmental Authority
           applicable to it is required in connection with the execution,
           delivery and performance by the Borrower or the validity or
           enforceability against the Borrower of any of such agreements
           other than those which have been duly obtained, made or performed.
           The Borrower is not in default or likely to become in default in
           the performance or observance of any of the terms thereof. The
           Borrower has fully performed all of its obligations owing up to
           this date under each such agreement. No defense, offset,
           counterclaim or claim has been asserted or alleged against the
           Borrower as to any such agreement. The Borrower has delivered to
           the Lender a complete and correct copy of each such agreement,
           including all amendments, supplements and other modifications
           thereto.

                5.  COVENANTS. The Borrower covenants and agrees with the Lender
that, from and after the date of this Security Agreement until the Obligations
are paid in full:

                    (a)    FURTHER DOCUMENTATION, PLEDGE OF INSTRUMENTS AND
           CHATTEL PAPER. At any time and from time to time, upon, the
           written request of the Lender, and at the sole expense of the
           Borrower, the Borrower will promptly and duly execute and deliver
           such further instruments and documents and take such further
           action as the Lender may reasonably request for the purpose of
           obtaining or preserving the full benefits of this Security
           Agreement and of the rights and powers herein granted, including,
           without limitation, the filing of financing or continuation
           statements under the Uniform Commercial Code in effect in the
           applicable jurisdiction with respect to the Security Interests
           created hereby to the extent permitted by applicable law. A
           carbon, photographic or other reproduction of this Security
           Agreement shall be sufficient as a financing statement for filing
           in any jurisdiction, to the extent permitted by applicable law. If
           any amount payable under or in connection with any of the
           Collateral shall be or become evidenced by any Instrument or
           Chattel Paper (as such terms are defined under the Code), such
           Instrument or Chattel Paper shall be immediately delivered to the
           Lender, duly endorsed in a manner satisfactory to the Lender, to
           be held as Collateral pursuant to this Security Agreement. The
           Borrower shall not assign, delegate, pledge, grant a Security
           Interest in or otherwise encumber any of its rights or obligations
           with respect to the Collateral, except for the Security Interest
           granted to Lender pursuant to this Security Agreement, Permitted
           Liens (other than Lessor Liens arising by, through or under the

<PAGE>


                                                   (Security Agreement (21720)]

           Borrower) and any other Security Interest permitted to exist on
           the Collateral pursuant to the Loan Agreement.

                    (b)    INDCMNIFICATION. In any suit, proceeding or action
           brought by the Lender with respect to any of the Collateral for
           any sum owing thereunder, or to enforce any provisions of any
           contract pledged hereby, the Borrower will save, indemnify and
           keep the Lender harmless for, from and against any and all
           expenses (including, without limitation, reasonable attorneys'
           fees), loss or damage suffered by reason of any defense, setoff,
           counterclaim, recoupment or reduction or liability whatsoever of
           the account debtor or obligor thereunder, arising out of a breach
           by the Borrower of any obligation thereunder or arising out of any
           other agreement, indebtedness or liability at any time owing to or
           in favor of such account debtor or obligor or its successors from
           the Borrower other than expenses, loss or damage to the extent
           caused by the gross negligence or willful misconduct of the Lender.

                    (c)    NOTICES. The Borrower will advise the Lender
           promptly, in reasonable detail, at its address set forth in the
           Loan Agreement, of any Security Interest (other than Security
           Interests created hereby or permitted under the Loan Agreement)
           on, or claim asserted against, any of the Collateral known to it.

                    (d)    PLEDGE OF COLLATERAL. The Borrower hereby covenants
           that it shall not, so long as this Security Agreement shall remain
           in effect, assign, pledge, grant a Security Interest in or
           otherwise encumber, any of its right, title or interest with
           respect to the Collateral, to anyone other than the Lender, or
           delegate any of its obligations with respect to the Collateral,
           and that it shall not, without the prior written consent of the
           Lender and subject to Section 2(b) hereof, enter into any
           agreement amending or supplementing the Lease, execute any waiver
           or modification of, or consent under, the terms of, or exercise
           any rights, powers or privileges under, the Lease, settle or
           compromise, any claim arising under the Lease, terminate the Lease
           (including, without limitation, by way of exercise of the Early
           Termination Option) or submit or consent to the submission of any
           dispute, difference or other matter arising tinder or in respect
           of the Lease to arbitration thereunder.

                    6.     LENDER'S APPOINTMENT AS ATTORNEY-IN-FACT.

                    (a)    POWERS. The Borrower hereby irrevocably constitutes
           and appoints the Lender and any officer or agent thereof, with
           full power of substitution, as its true and lawful
           attorney-in-fact with full irrevocable power and authority in the
           place and stead of the Borrower and in the name of the Borrower or
           in its own name, from time to time ill the Lender's discretion,
           for the purpose of carrying out the terms of this Security
           Agreement, to take any and all appropriate action and to execute
           any and all documents

                                      12


<PAGE>


                                                   [Security Agreement (21720)]

           and instruments which may be necessary or desirable to accomplish
           the purposes of this Security Agreement, and, without limiting the
           generality of the foregoing, the Borrower hereby gives the Lender
           the power and right, on behalf of the Borrower, without notice to
           or assent by the Borrower, to do the following:

                           (i) in the case of any Collateral, at any time
                       when any Event of Default shall have occurred and is
                       continuing, in the name of the Borrower or its own name,
                       or otherwise, to take possession of and endorse and
                       collect any checks, drafts, notes, acceptances or other
                       instruments for the payment of moneys due under any part
                       of the Collateral or with respect to any other Collateral
                       and to file any claim or to take any other action or
                       proceeding in any court of law or equity or otherwise
                       deemed appropriate by the Lender for the purpose of
                       collecting any and all such moneys due under any part of
                       the Collateral or with respect to any other Collateral
                       whenever payable;

                           (ii) to pay or discharge taxes and Security
                       Interests levied or placed on or threatened against the
                       Collateral to the extent that the Borrower is obligated
                       under any of the Basic Agreements to pay or discharge
                       such taxes and Security Interests, and such taxes or
                       Security Interests are not timely paid or satisfied by
                       the Borrower; and

                           (iii) subject to Section 2(b) hereof, upon the
                       occurrence and during the continuance of any Event of
                       Default (A) to direct any party liable for any payment
                       under any of the Collateral to make payment of any and
                       all moneys due or to become due thereunder directly to
                       the Lender or as the Lender shall direct; (B) to ask or
                       demand for, collect, receive payment of and receipt for,
                       any and all moneys, claims and other amounts due or to
                       become due at any time in respect of or arising out of
                       any Collateral; (C) to commence and prosecute any suits,
                       actions or proceedings at law or in equity in any court
                       of competent jurisdiction to collect the Collateral or
                       any thereof and to enforce any other right in respect of
                       any Collateral; and (D) to defend any suit, action or
                       proceeding brought against the Borrower with respect to
                       any Collateral; and to do, at the Lender's option and the
                       Borrower's expense, at any time, or from time to time,
                       all acts and things which the Lender deems necessary to
                       protect, preserve or realize upon the Collateral
                       (including, without limitation, to perform, Or cause to
                       be performed, all or any part of the obligations and
                       agreements of the Borrower under the Lease, without
                       releasing the Borrower therefrom) and the Lender's
                       Security Interests thereon and to effect the intent of
                       this Security Agreement, all as fully and effectively as
                       the Borrower might do and subject to the standard of care
                       set forth in paragraph 10 hereof.


                                      13


<PAGE>


                                                   [Security Agreement (21720)]

                         This power of attorney is a power coupled with an
                         interest and shall be irrevocable.

                    (b)    OTHER POWERS. The Borrower also authorizes the
           Lender, at any time and from time to time, to execute, in
           connection with the sale provided for in Section 9 hereof, any
           endorsements, assignments or other instruments of conveyance or
           transfer with respect to the Collateral.

                    (c)    NO DUTY ON LENDER'S PART. The powers conferred on
           the Lender hereunder are solely to protect the Lender's interests
           in the Collateral and shall not impose any duty upon the Lender to
           exercise any such powers. The Lender shall be accountable only for
           amounts that it actually receives as a result of the exercise of
           such powers, and neither it nor any of its officers, directors,
           employees or agents shall be responsible to the Borrower for any
           act or failure to act hereunder, except for its own gross
           negligence or willful misconduct.

                    7.     PERFORMANCE BY LENDER OF BORROWER'S OBLIGATIONS. If
           the Borrower fails to perform or comply with any of its
           agreements contained herein and the Lender, as provided for by
           the terms of this Security Agreement, shall itself perform or
           comply, or otherwise cause performance or compliance, with such
           agreement, the expenses of the Lender incurred in connection with
           such performance or compliance, together with interest thereon at
           the Default Rate, shall be payable by the Borrower to the Lender
           on demand and shall constitute Obligations secured hereby.

                    8.     PROCEEDS. It is agreed that if an Event of Default
           shall occur and be continuing (a) all proceeds received by the
           Borrower consisting of cash, checks and other near-cash items
           shall be held by the Borrower in trust for the Lender, segregated
           from other funds of the Borrower, and shall, forthwith upon
           receipt by the Borrower, be turned over to the Lender in the exact
           form received by the Borrower (duly endorsed by the Borrower to
           the Lender, if required), and (b) any and all such proceeds
           received by the Lender (whether from the Borrower or otherwise)
           may, in the sole discretion of the Lender, be held by the Lender
           as collateral security for, and/or then or at any time thereafter
           may be applied by the Lender against, the Obligations (whether
           matured or unmatured) in accordance with the provisions of the
           Loan Agreement.

                    9.     REMEDIES. If an Event of Default shall occur and be
           continuing, the Lender may exercise, in addition to all other
           rights and remedies granted to it in this Security Agreement and
           in any other instrument or agreement securing, evidencing or
           relating to the Obligations, all rights and remedies of a secured
           party under the Code. Without limiting the generality of the
           foregoing, the Lender, without demand of performance or other
           demand, presentment, protest, advertisement or notice of any kind
           (except any notice required by law

                                      14


<PAGE>


                                                   (Security Agreement (21720)]

           referred, to below) to or upon the Borrower or any other Person
           (all and each of which demands, defenses, advertisements and
           notices Borrower hereby waives), may in such circumstances, and
           subject in all respects to the rights of Lessee (and any
           sublessee) under the Lease, forthwith collect, receive,
           appropriate and realize upon the Collateral, or any part thereof,
           including; without limitation entering upon the premises where all
           or any part of the Collateral is located and taking immediate
           possession of and removing the same (together with any engine or
           any part which is not an Engine or a Part but which is installed
           on an Aircraft subject to the rights of the owner, lessor or
           secured party of such engine or part, provided that such engine or
           part shall be held for the account of any such owner, lessor or
           secured party or, if owned by Borrower, such engine or pan may at
           the option of Lender, be exchanged for an Engine or Part) by
           summary proceedings or otherwise (and/or, at Lender's option,
           storing the same at Lessee's premises (at Borrower's expense)
           until disposal thereof by Lender), all without liability accruing
           to Lender, and/or may forthwith sell, lease, amend, assign, give
           option or options to purchase, or otherwise dispose of and deliver
           the Collateral or any part thereof (or contract to do any of The
           foregoing), in one or more parcels at public or private sale or
           sales, at any exchange, broker's board or office of the Lender or
           elsewhere upon such terms and conditions as it may deem advisable
           and at such prices as it may deem best, for cash or on, credit or
           for future delivery without assumption of any credit risk. The
           Lender shall have the right upon any such public sale or sales,
           and, to the extent permitted by law, upon any such private sale or
           sales, to purchase the whole or any part of the Collateral so
           sold, free of any right or equity of redemption in the Borrower,
           which right or equity is hereby waived. or released. The Borrower
           further agrees, at the Lender's request, to assemble the
           Collateral and make it available to the Lender at places which
           the Lender shall reasonably select, whether at the Borrower's
           premises or elsewhere. If any notice of a proposed sale or other
           disposition of Collateral shall be required by law, such notice
           shall be deemed reasonable and proper if given, and the Lender
           agrees to give such notice to the Borrower in any event, at least
           20 days before such sale or other disposition. The Borrower shall
           remain liable for any deficiency if the proceeds of any sale or
           other disposition of the Collateral are insufficient to pay the
           Obligations and the reasonable fees and disbursements of any
           attorneys employed by the Lender to collect such deficiency.
           Notwithstanding any other provision of this Section 9 to the
           contrary, it is understood and agreed that if the Lender shall
           proceed to foreclose the Security Interest of this Agreement, it
           shall, to the extent that it is then entitled to do so under (and
           always subject to the provisions of) the Lease, and is not then
           stayed or prevented from doing so by operation of law or
           otherwise, proceed (to the extent it has not already done so) to
           exercise one or more of the remedies, as determined by the Lender
           in the Lender's sole discretion, referred to in Section 13 of the
           Lease; and if the Lender is unable to exercise any right or remedy
           under the Lease by reason of any such stay or legal prohibition as
           described above, the Lender shall not proceed to foreclose the
           Security Interest of this Agreement (i) until the earlier of (x)
           90 days from the date of such stay or legal prohibition, if any,
           and (y) actual repossession of the Aircraft from the Lessee (such
           period, as described in (x) or (y), as applicable, the "Stay
           Period") so long as, during the Stay Period, the Borrower is
           making all payments due the Lender under the Loan Agreement, and
           the Aircraft is being maintained and insured in accordance with
           the provisions of

                                      15


<PAGE>


                                                   [Security Agreement (21720)]

           the Lease or (ii) so long as the Lessee is performing all of its
           obligations under the Lease pursuant to an agreement under 11
           U.S.C. ss. 1110 (a)(1)(A) (or any similar successor provision)
           and no Lease Event of Default has occurred and is continuing other
           than Under Clause 13.1(g) or (h) of the Lease.

                    10.    LIMITATION ON DUTIES REGARDING PRESERVATION OF
           COLLATERAL. The Lender's sole duty with respect to the custody,
           safekeeping and physical preservation of the Collateral in its
           possession, under Section 9-207 of the Code or otherwise, shall be
           to deal with it in the same manner as the Lender deals with
           similar property for its own account. Neither the Lender nor any
           of its directors, officers, employees or agents shall be liable
           for failure to demand, collect or realize upon all or any part of
           the Collateral or for any delay in doing so or shall be under any
           obligation to sell or otherwise dispose of any Collateral upon the
           request of the Borrower or otherwise.

                    11.    POWERS COUPLED WITH AN INTEREST. All
           authorizations and agencies herein contained with respect to the
           Collateral are irrevocable and powers coupled with an interest.

                    12.    SEVERABILITY. Any provision of this Security
           Agreement which is prohibited or unenforceable in any jurisdiction
           shall, as to such jurisdiction, be ineffective to the extent of
           such prohibition or unenforceability without invalidating the
           remaining provisions hereof, and any such prohibition or
           unenforceability in any jurisdiction shall not invalidate or
           render unenforceable such provision in any other jurisdiction.

                    13.    PARAGRAPH HEADINGS. The paragraph headings used in
           this Security Agreement are for convenience of reference only and
           are not to affect the construction hereof or be taken into
           consideration in the interpretation hereof.

                    14.    NO WAIVER: CUMULATIVE REMEDIES. The Lender shall not
           by any act (except by a written instrument pursuant to Section 15
           hereof), delay, indulgence, omission or otherwise be deemed to
           have waived any right or remedy hereunder or to have acquiesced in
           any Default or Event of Default or in any breach of any of the
           terms and conditions hereof. No failure to exercise, nor any delay
           in exercising, on the part of the Lender, any right, power or
           privilege hereunder shall operate as a waiver thereof. No single or
           partial exercise of any right, power or privilege hereunder shall
           preclude any other or further exercise thereof or the exercise of
           any other right, power or privilege. A waiver by the Lender of any
           right or remedy hereunder on any one occasion shall not be
           construed as a bar to any right or remedy which the Lender would
           otherwise have on any future occasion. The rights and remedies
           herein provided are cumulative, may be exercised singly or
           concurrently and are not exclusive of any rights or remedies
           provided by law.

                                      16


<PAGE>


                                                   [Security Agreement (21720)]

                    15.    WAIVERS AND AMENDMENTS; SUCCESSORS AND ASSIGNS;
           GOVERNING LAW. None of the terms or provisions of this Security
           Agreement may be waived, amended, supplemented or otherwise
           modified except by a written instrument executed by the Borrower
           and the Lender, PROVIDED that any provision of this Security
           Agreement may be waived by the Lender in a written letter or
           agreement executed by the Lender or by facsimile transmission from
           the Lender. This Security Agreement shall be binding upon the
           successors and permitted assigns of the Borrower and shall inure
           to the benefit of the Lender and its successors and permitted
           assigns.

                    16.    SUBMISSION TO JURISDICTION, WAIVERS. THIS AGREEMENT
           HAS BEEN DELIVERED IN CHICAGO, ILLINOIS AND SHALL BE GOVERNED BY
           AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO
           THE CONFLICTS OF LAW PROVISIONS) OF THE STATE OF ILLINOIS. THE
           BORROWER HEREBY (I) WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY
           ACTION TO ENFORCE OR DEFEND ANY MATTER ARISING FROM OR RELATED TO
           THIS AGREEMENT; (II) IRREVOCABLY SUBMITS TO THE JURISDICTION OF
           ANY STATE OR FEDERAL COURT LOCATED IN COOK COUNTY, ILLINOIS, OVER
           ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY MATTER ARISING
           FROM OR RELATED TO THIS AGREEMENT; (III) IRREVOCABLY WAIVES, TO
           THE FULLEST EXTENT THE BORROWER MAY EFFECTIVELY DO SO, THE DEFENSE
           OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF ANY SUCH ACTION OR
           PROCEEDING; (IV) AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION
           OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER
           JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER
           PROVIDED BY LAW; AND (V) AGREES NOT TO INSTITUTE ANY LEGAL ACTION
           OR PROCEEDING AGAINST LENDER OR ANY OF LENDER'S DIRECTORS,
           OFFICER, EMPLOYEES, AGENTS OR PROPERTY, CONCERNING ANY MATTER
           ARISING OUT OF OR RELATING TO THIS AGREEMENT IN ANY COURT OTHER
           THAN ONE LOCATED IN COOK COUNTY, ILLINOIS. NOTHING IN THIS
           PARAGRAPH SHALL AFFECT OR IMPAIR LENDER'S RIGHT TO SERVE LEGAL
           PROCESS IN ANY MANNER PERMITTED BY LAW OR LENDER'S RIGHT TO BRING
           ANY ACTION OR PROCEEDING AGAINST THE BORROWER OR ITS PROPERTIES IN
           THE COURTS OF ANY OTHER JURISDICTION.

                    17.    NOTICES. All notices, requests and demands to or
           upon the respective parties hereto to be effective shall be in
           writing (including telecopy) and sent by personal delivery,
           reputable overnight courier or telecopy (any such telecopied
           notice to be followed within 24 hours by written notice by
           personal delivery or reputable overnight courier), and unless
           otherwise expressly provided herein, shall be deemed to have been
           duly given or made upon receipt thereof (which, in the case of a
           telecopy, shall be deemed to be the time of receipt by the sender
           of a confirmation report that all pages of the telecopy
           transmission were properly transmitted; provided, however, that if
           the telecopy was transmitted later than 5:30 p.m., the recipient's
           local time, the telecopy shall be deemed to have been received on
           the succeeding Business Day), addressed as follows, or to such
           other address as may be hereafter notified by the respective
           parties hereto and any future holders of the Notes:

                                      17


<PAGE>


                                                   [Security Agreement (21720)]

           The Borrower;         c/o Aviation Capital Group Corp.
                                 Three Stamford Landing
                                 46 Southfield Avenue
                                 Stamford, CT 06902
                                 Ann. Managing Director
                                 Telecopier: (203) 967-3287

                With a copy to:

                                 Aviation Capital Group Corp.
                                 345 California Street
                                 Suite 1230
                                 San Franciso, CA 94104

                                 Telecopier:    (415) 433-0525

           The Lender:           Sanwa Business Credit Corporation
                                 One South Wacker Drive
                                 Chicago, IL 60606
                                 Attn: Senior Vice President, Transportation
                                       Finance
                                 Telecopier: (312) 853-1458

                With a copy to:

                                 Vedder, Price, Kaufman & Kammholz
                                 222 N. LaSalle Street
                                 Chicago, IL 60601
                                 Attn: Dean N. Gerber, Esq.
                                 Fax: (312) 609-5005

                                  *  *  *

                                      18


<PAGE>


                                                   [Security Agreement (21720)]

              IN WITNESS WHEREOF, the Borrower has caused this Security
Agreement to be duty executed and delivered as of the date first above written.

                                       ACG ACQUISITION XII LLC, as Borrower

                                       By: /s/ Richard Baudoin
                                           -----------------------------------
                                       Name: Richard Baudoin
                                            ----------------------------------
                                       Title: Manager
                                             ---------------------------------

                                       SANWA BUSINESS CREDIT CORPORATION,
                                       as Lender

                                       By:____________________________________
                                       Name: _________________________________
                                       Title: ________________________________


<PAGE>


                                                   [Security Agreement (21720)]

              IN WITNESS WHEREOF, the Borrower has caused this Security
Agreement to be duly executed and delivered as of the date first above written.

                                       ACG ACQUISITION XII LLC,
                                       as Borrower

                                       By: ___________________________________
                                       Name: _________________________________
                                       Title: ________________________________

                                       SANWA BUSINESS CREDIT CORPORATION,
                                       as Lender

                                       By: /s/ Thomas W. Hemsoth
                                           -----------------------------------
                                       Name: Thomas W. Hemsoth
                                             ---------------------------------
                                       Title: Vice President
                                              --------------------------------



<PAGE>

                         LEASE AGREEMENT ASSIGNMENT

     This Lease Agreement Assignment (the "Assignment"), dated as of May 1,
2000, is between First Security Bank, National Association, a national
banking association, not individually but as Owner Trustee ("Assignee"), and
ACG Acquisition XII LLC, a Delaware limited liability company ("Assignor").

                                  RECITALS

     WHEREAS, Assignor and Aloha Airlines, Inc., a Delaware corporation
("LESSEE"), are parties to a Lease Agreement 809 (the "LEASE AGREEMENT")
dated May 21, 1997, as supplemented by Certificate of Acceptance 809
(recorded by the Federal Aviation Administration on August 28, 1997, as
Conveyance No. HK010357) and the other agreements relating thereto as more
fully described in Schedule 1 hereto (collectively, the "LEASE DOCUMENTS"),
pursuant to which Assignor leases to Lessee one used Boeing 737-2Q9 aircraft
bearing manufacturer's serial number 21720 and FAA registration number
N809AL, and two Pratt & Whitney Model JT8D-15 engines bearing, respectively,
manufacturer's serial numbers P688676 and P688677 (each of which engines has
750 or more rated takeoff horsepower or the equivalent of such horsepower)
(collectively, the "AIRCRAFT").

     WHEREAS, Assignor has agreed to sell the Aircraft to Assignee (the
"PURCHASE") pursuant to the terms of that certain Purchase and Sale Agreement
dated as of May 1, 2000 (the "PURCHASE AGREEMENT"; capitalized terms used
herein and defined in the Purchase Agreement shall have the same meaning
herein unless otherwise defined herein), subject to the Lease Agreement, and
to assign the Lease Agreement and the Lease Documents, except the Assignor's
Rights (as defined below), to Assignee.

     NOW THEREFORE, in consideration of the foregoing premises, and for other
good and valuable consideration the adequacy and receipt of which are hereby
acknowledged, the parties hereto agree as follows:

     1.  EFFECTIVENESS. This Assignment, and the rights and obligations of
Assignor and Assignee hereunder, shall become effective upon, but only upon,
the occurrence of the Closing (as defined in the Purchase Agreement) of the
Purchase, or upon filing of this assignment with the Federal Aviation
Administration. Assignor and Assignee shall notify Lessee (a) of the
occurrence of this Assignment pursuant to a notice given on the date hereof
substantially in the form of Annex A hereto (the "NOTICE OF ASSIGNMENT"), and
(b) of the occurrence of the Purchase immediately upon delivery of the
Aircraft under the Purchase Agreement pursuant to a notice substantially in
the form of Attachment A to the Notice of Assignment.

     2.  ASSIGNMENT. In consideration of the payment of US$1.00 by Assignee
to Assignor and for other good and valuable consideration, the adequacy and
receipt of which are

<PAGE>

           FILED WITH FAA
        AIRCRAFT REGISTRATION

        00 MAY 1      PM 2:31

            OKLAHOMA CITY
               OKLAHOMA

             [ILLEGIBLE]

<PAGE>

hereby acknowledged, Assignor hereby sells, assigns, delegates, conveys,
transfers and sets over to Assignee all rights and obligations of Assignor
under the Lease Agreement and the Lease Documents, subject to the rights of
Lessee under the Lease Agreement and the Lease Documents and subject to the
reservation by Assignor (on a non-exclusive basis) of the Assignor's Rights
as defined below, which Assignor's Rights Assignor shall continue to benefit
from after the Purchase. "ASSIGNOR'S RIGHTS" means and includes the rights of
the "Lessor" under the Lease Agreement and the Lease Documents: (a) to each
and every defense (whether arising by contract, law or equity) under or with
respect to the Lease Agreement and the Lease Documents; (b) under the
liability insurance provisions of the Lease Agreement, and (c) under all
indemnities made by the Lessee, and all disclaimers made by the Lessor, under
the Lease Agreement, in each case, to the extent such rights vested, or
relate to events occurring, prior to the time of Closing. The retention by
Assignor of the Assignor's Rights shall not prejudice Assignee's right to the
benefit of the Assignor's Rights (including, without limitation, liability
insurance under the Lease Agreement, or the right to enforce any of the
foregoing) in each case to the full extent applicable to the Assignee
(whether or not relating to the period after the assignment of the Lease
Agreement).

     3.  ASSIGNEE ACCEPTANCE AND ASSUMPTION. Assignee hereby accepts and
assumes all of Assignor's rights (other than the Assignor's Rights) and
obligations under the Lease Agreement and the Lease Documents. Assignee shall
be deemed to be a party to the Lease Agreement and the Lease Documents in
place of Assignor and agrees to be bound by all of the terms of, and to
undertake all of the obligations of, "Lessor" under the Lease Agreement and
the Lease Documents.

     4.  ENTIRE AGREEMENT. This Assignment and the Purchase Agreement
constitutes the entire agreement between the parties in relation to the
subject matter hereof and supersedes all previous proposals, agreements and
other written and oral communications in relation hereto.

     5.  GOVERNING LAW. THIS ASSIGNMENT SHALL IN ALL RESPECTS BE GOVERNED BY
AND CONSTITUTED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS.

     6.  COUNTERPARTS. This Assignment may be executed in any number of
counterparts and by either party on one or more of such counterparts, each of
which when so executed shall be deemed to be an original, and such
counterparts together shall constitute one and the same instrument. A
facsimile signature on any counterpart hereto will be deemed an original for
all purposes.

     7.  FURTHER ASSURANCES. Assignor agrees from time to time after the
execution and delivery of this Agreement, it shall upon the request of
Assignee and at Assignee's expense duly execute and deliver such further
documents and instruments and take such further action as Assignee may
reasonably request in order to effectuate fully the intent and purposes of
this Agreement.

<PAGE>

     IN WITNESS WHEREOF, the parties have caused this Assignment to be duly
executed and delivered by their respective duly authorized officers as of the
day and year first above written.


                                  ACG ACQUISITION XII LLC
                                  as Assignor

                                  By:     /s/   [ILLEGIBLE]
                                       -------------------------------------
                                       Name:    [ILLEGIBLE]
                                       Title:   [ILLEGIBLE]


                                  FIRST SECURITY BANK, NATIONAL
                                  ASSOCIATION, AS OWNER TRUSTEE
                                  as Assignee

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


<PAGE>

     IN WITNESS WHEREOF, the parties have caused this Assignment to be duly
executed and delivered by their respective duly authorized officers as of the
day and year first above written.


                                  ACG ACQUISITION XII LLC
                                  as Assignor

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


                                  FIRST SECURITY BANK, NATIONAL
                                  ASSOCIATION, AS OWNER TRUSTEE
                                  as Assignee

                                  By:           /s/ Greg A. Hawley
                                       -------------------------------------
                                       Name:   Greg A. Hawley
                                       Title:  Vice President



<PAGE>

                                                                   SCHEDULE 1

                                 LEASE DOCUMENTS

Letter of Credit dated May 20, 1997

UCC financing statement # 97-067398 filed in Hawaii on May 22, 1997

Insurance Certificate dated May 21, 1997

Insurance Broker's Undertaking dated May 21, 1997

Opinion of Lessee's Counsel dated May 21, 1997

Certificate of Incorporation, By-laws and Good Standing Certificate of Lessee
certified on May 21, 1997

Incumbency Certificate of Lessee dated May 21, 1997

Certified Resolutions of board of directors of Lessee dated May 21, 1997

Officer's Certificate of Lessee dated May 21, 1997

Lease Termination Certificate- Lease A - FAA dated November 14, 1994, signed
by Phoenix Ventures Inc. (Lessor) and Luchtvaartmaatschappij Transavia
Holland B.V. (Lessee)

Lease Termination Certificate- Lease B - FAA dated November 14, 1994, signed
by First Security Bank of Utah (Lessee) and Phoenix Ventures Inc. (Lessor)

Lease Termination Certificate- Lease C - FAA dated May 21, 1997, signed by
First Security Bank of Utah (Lessor) and Aloha Airlines, Inc. (Lessee)

Evidence of FAA Aircraft Registration dated May 21, 1997

Lessee's financial statements

Semi-Annual Status Reports delivered by Lessee to Assignor

Certificate of Acceptance of Lessee

Letter of Assignor to Lessee exercising Lease extension option

<PAGE>

                                                                       Annex A

                                                 to Lease Agreement Assignment

                   NOTICE OF AND CONSENT TO ASSIGNMENT


                            April ____, 2000

Aloha Airlines, Inc.
371 Aokea Street
Honolulu, Hawaii 96819

Attention:  Senior Vice President Finance and Planning

       Re:  NOTICE OF AND CONSENT TO ASSIGNMENT OF LEASE AGREEMENT

Ladies and Gentlemen:

       Reference is hereby made to that certain Lease Agreement dated May 21,
1997 between Aloha Airlines, Inc. ("LESSEE") and ACG Acquisition XII LLC, as
amended, modified and supplemented (the "LEASE AGREEMENT"), pursuant to which
ACG Acquisition XII LLC ("ASSIGNOR") is leasing to you one Boeing 737-2Q9
aircraft bearing manufacturer's serial number 21720 including the two Pratt &
Whitney model JT8D-15 engines bearing manufacturer's serial numbers P688676
and P688677 ( "AIRCRAFT")

       You are hereby notified that Assignor has assigned and delegated all
of its rights (other than Assignor's Rights) and obligations under the Lease
Agreement and related documents to First Security Bank, as Owner Trustee
("ASSIGNEE") pursuant to a Lease Agreement Assignment between Assignor and
Assignee (a copy of which Lease Agreement Assignment is attached hereto (the
"ASSIGNMENT")). Such assignment and delegation shall become effective upon
consummation of the purchase of the Aircraft by Assignee from Assignor.
Assignor and Assignee shall give you notice of consummation of the purchase
of the Aircraft by Assignee (the "PURCHASE NOTICE") in the form attached
hereto as Attachment A.

       Capitalized terms used but not defined herein shall have the
respective meanings ascribed thereto in the Lease Agreement Assignment. Lessee,
Assignee and Assignor hereby agree as follows:

<PAGE>

    Section 1. LEASE PROVISIONS. With effect from the date of the Purchase
Notice:

        (a) PAYMENTS. All rental payments and other payments due from Lessee
under the Lease will be paid to Southern Pacific Bank, Torrance, California,
ABA No. 322 286 476, Account Name: Coast Business credit, Attention Jack
Leaver, reference First Security Bank/Aloha/BCI 809 (Client Loan Name) until
further notice from Lessor.

        (b) NOTICES. All notices and other communications from Lessee to
"Lessor" under the Lease Agreement and the other Lease Documents shall be
delivered to:

            First Security Bank, National
            Association, as Owner Trustee
            Corporate Trust Services
            79 South Main Street
            Salt Lake City, Utah 84111

 Copy to:   BCI 2000, L.L.C.
            236 South Washington Street, Second Floor
            Naperville, Illinois 60540
            Attn: President

        (c) INSURANCE. Lessee shall modify the insurance policies covering
the Aircraft to acknowledge First Security Bank, National Association, as
Owner Trustee, as owner and Lessor of the Aircraft and BCI 2000, L.L.C. as
additional loss payee as its interests may appear.

    Section 2. LESSEE CONSENT. With effect from the date of the Purchase
Notice, Lessee consents to the Assignment and consummation of the
transactions contemplated thereby.

    Section 3. ASSIGNOR RELEASE. With effect from the date of the Purchase
Notice Assignor shall have no further obligations under the Lease Agreement
or the Lease Documents and is hereby released therefrom.

    Section 4. LESSEE'S REPRESENTATIONS AND AGREEMENTS. Lessee hereby
represents, warrants and agrees that:

            (a) Other than as listed in the documents listed in Schedule 1 to
the Assignment, there has been no amendment or modification of the Lease
Agreement and the Lease Documents.

            (b) The Basic Rent and Supplemental Rent (as defined in the
Lease Agreement) have each been paid through April 21, 2000 and no Basic Rent
or Supplemental Rent has been prepaid.

<PAGE>

            (c) Lessee has no claim against Assignor by reason of the
condition of the Aircraft as of the date hereof.

            (d) The Lessee Agreement and the Lease Documents are in full force
and effect.

            (e) No "Event of Default" has occurred and is continuing under
the Lease Agreement.

            (f) Assignor is in full compliance with the provisions of the
Lease Agreement and the Lease Documents and Lessee has no claims for
unperformed obligations or liabilities of Assignor.

            (g) With effect from the date of the Purchase Notice, Lessee will
perform, observe and comply with all of its obligations and undertakings
under the Lease Agreement and the Lease documents in favor of the Assignee
and for the benefit of Assignee as if Assignee were named as "Lessor" therein
instead of the Assignor.

            (h) Lessee acknowledges the retention by Assignor of the
Assignor's Rights as provided in the Lease Assignment and that such retention
shall not prejudice Assignee's rights to the benefits of the relevant
provisions of the Lease AGreement and the Lease Documents to the extent
applicable to Assignee (whether or not relating to the period after the date
of the Purchase Notice).

            (i) The Expiry Date of the Lease is May 20, 2002.

            (j) Assignee shall be entitled to rely on all representations and
warranties of Lessee in the Lease Agreement and in any certificate or
document furnished by Lessee in connection with the Lease Agreement as though
the Assignee were the Assignor.

            (k) Lessee acknowledges that for purposes of Section 2.5 of the
Lease Agreement, the words, "Delaware" in Section 2.4(a) and 2.4(e) shall be
deemed to be the word "Illinois".

            (l) Lessee will, on the date of the Purchase Notice, deliver or
cause to be delivered to Assignee (i) the financing statements referred to in
Section 14.2(c)(ii) of the Lease Agreement, (ii) the certificate referred to
in Section 14.2(c)(iii) of the Lease Agreement, (iii) the certificates of
insurance and broker's letter of undertaking referred to in Section 14(c)(iv)
of the Lease Agreement, (iv) the opinion referred to in Section 14.2 (c)(v)
of the Lease Agreement, (v) documents referred to in Section 14.2 (c)(vii) of
the Lease Agreement.

<PAGE>
            (m) Lease will, on the date of the Purchase Notice, deliver or
cause to be delivered such agreements, certificates, opinions and other
documents as Assignee shall request pursuant to Section 14.3 (b) of the Lease
Agreement.

    Section 6. GOVERNING LAW. THIS AGREEMENT SHALL IN ALL RESPECTS BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
SECTION.

    Section 7. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by any party on one or more of such counterparts, each of
which when so executed shall be deemed to be an original, and such
counterparts together shall constitute one and the same instrument. A
facsimile signature on any counterpart hereto will be deemed an original for
all purposes.

     If you are in agreement with the foregoing, please do indicate by
signing and returning a copy of this letter to the undersigned.

Thank you for your cooperation.

                            Very truly yours,

                            ACG ACQUISITION XII LLC

                            By:  ___________________
                                 Name:
                                 Title:

                             FIRST SECURITY BANK, NATIONAL
                             ASSOCIATION, AS OWNER TRUSTEE

                            By:  ___________________
                                 Name:
                                 Title:

Accepted and Agreed:

ALOHA AIRLINES, INC.


By:  ___________________
     Name:
     Title:

<PAGE>

                                                               Attachment A to
                                                          Notice of Assignment


                            April ____, 2000

Aloha Airlines, Inc.
371 Aokea Street
Honolulu, Hawaii 96819

Attention:  Senior Vice President Finance and Planning

       Re:  NOTICE OF EFFECTIVENESS OF SALE

Ladies and Gentlemen:

       Reference is hereby made to that certain Lease Agreement (the
"AGREEMENT") dated as of April __, 2000 between ACG Acuisition XII LLC and
First Security Bank, National Association, as Owner Trustee, relating to one
Boeing 737-2Q9 aircraft bearing manufacturer's serial number 21720 (and U.S.
registration number N809AL).

       Capitalized terms used but not defined herein shall have the
respective meanings ascribed thereto in the Agreement.

       Pursuant to the Notice to Lessee delivered under the Agreement, you
are hereby notified that the Purchase has occurred and the Agreement is,
consequently, effective.

       This letter may be executed in any number of counterparts and by
either party on one or more of such counterparts.

Very truly yours,

<Table>

<S>                               <C>
ACG ACQUISITION XII LLC           FIRST SECIRITY BANK,
                                  NATIONAL ASSOCIATION,
                                  AS OWNER TRUSTEE

By:  __________________           By:  _________________
     Name:                             Name:
     Title:                            Title:

</Table>


<PAGE>

                                                                     F&J 4/26/00

                 ASSIGNMENT OF LEASE 809 AND LETTER OF CREDIT

     This ASSIGNMENT OF LEASE 809 AND LETTER OF CREDIT, dated as of May 1,
2000 (this "Agreement"), is between FIRST SECURITY BANK, NATIONAL ASSOCIATION
("FSB"), a national banking association, 79 South Main Street, Salt Lake
City, Utah 84111, as owner trustee under the Trust Agreement, dated as of
May 1, 2000, between BCI 2000, L.L.C. (the "Beneficiary") and FSB ("Debtor"),
and COAST BUSINESS CREDIT, a division of Southern Pacific Bank, a California
corporation, 12121 Wilshire Boulevard, Suite 1400, Los Angeles, California
90025 (the "Secured Party").

                             W I T N E S S E T H :

     WHEREAS, Debtor is the Lessor (as transferee of ACG Acquisition XII LLC)
under that certain Aircraft Lease Agreement 809 dated as of May 21, 1997,
between ACG Acquisition XII LLC and Aloha Airlines, Inc., a Delaware
corporation (the "Lessee"), as supplemented by the Notice of Lease Extension
dated as of March 15, 2000 by Lessor as further described on Schedule F
(together with all amendments, modifications, supplements, addenda and
extensions thereto from time to time, the "Lease 809"), covering one Boeing
model 737-2Q9 airframe, manufacturer's serial number 21720, United States
registration number N809AL, together with two (2) Pratt & Whitney model
JT8D-15A aircraft engines, manufacturer's serial numbers 688676 and 688677
(the "Engines" and, collectively, the "Aircraft 809");

     WHEREAS, the Letter of Credit has been furnished by the Lessee as
security for the performance of the obligations of the Lessee under the
Lease 809, and has been amended to name the Secured Party as beneficiary;

     WHEREAS, in connection with financing from the Secured Party, Debtor has
entered into (i) the Loan Agreement 809, dated as of May 1, 2000 (the "Loan
Agreement") among the Debtor, as Borrower, the Beneficiary, as Beneficiary
and Secured Party, as Lender, pursuant to which Secured Party has advanced
some or all of the Loan 809 (as defined therein) to the Debtor and (ii) the
Aircraft Security Agreement 809 dated as of the date hereof between Debtor
and Secured Party (the "Aircraft Security Agreement 809"); and

     WHEREAS, all capitalized terms used herein and not otherwise defined
herein shall have the meanings provided therefor in the Lease 809 of the Loan
Agreement 809, PROVIDED, FURTHER, that any definition of a document used
herein shall refer to such document as it may nor or later be amended or
supplemented;

<PAGE>

           FILED WITH FAA
        AIRCRAFT REGISTRATION

        00 MAY 1      PM 2:32

            OKLAHOMA CITY
               OKLAHOMA


             [ILLEGIBLE]


<PAGE>


     NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned agree as
follows:

     1.  As security for the payment and performance of the Liabilities
(whether as scheduled, upon acceleration or otherwise, including, without
limitation, repayment of the Loans made or to be made by the Secured Party
under the Loan Agreement 809 as they may be outstanding from time to time,
accrued interest thereon, the Prepayment Fee and all other interest, fees and
expenses payable by the Debtor pursuant to the Loan Agreement 809 and the
other Operative Documents) and of all costs of collection and enforcement of
the Liabilities, the Debtor hereby collaterally assigns, transfers, conveys
and sets over to the Secured Party all of its right, title and interests in,
to and under, the Lease 809 and the Letter of Credit and any replacements or
renewals thereof furnished under the terms of Section 29 of the Lease 809
(but none of Debtor's obligations thereunder), including, without limitation,
the right under the Lease 809(i) to collect all Basic Rent, Supplemental
Rent, and other income, proceeds (including, but not limited to insurance
proceeds), awards, revenues and other sums payable by Lessee to Debtor
pursuant to the Lease, and (ii) after the occurrence and during the
continuance of a Lease Event of Default, to enforce all of Debtor's other
rights and remedies under the Lease 809 and the Letter of Credit, but not
limited to the right to apply any of the Lease 809 payments in accordance
with the terms of the Lease 809.

     2.  All notices, demands and other communications made by one party to
the other party in connection with this Agreement shall be in writing and
given to or made upon such party as provided in Section 11.01 of the Loan
Agreement 809.

     3.  This Agreement shall be binding upon and inure to the benefit of the
Debtor and the Secured Party and their respective successors and permitted
assigns. This Agreement may not be assigned by the Debtor, in whole or in
part, without the prior written consent of the Secured Party. The parties
hereto acknowledge and agree that the Secured Party may assign its rights
hereunder to a Transferee (as defined in the Loan Agreement 809) as provided
in Section 11.08 of the Loan Agreement 809.

     4.  This Agreement may be executed in one or more counterparts, each of
which shall constitute an original and all of such counterparts shall
constitute one and the same Agreement.

     5.  This Agreement has been delivered in the State of New York. Each
party hereto agrees that, to the maximum extent permitted by the law of the
State of New York, this Agreement, and the rights and duties of the parties
hereunder, shall be governed by, and construed in accordance with, the laws
of the State of New York (including sections 5-1401 and 5-1402 of the New
York General Obligations Law) in all respects, including in respect of all
matters of construction, validity and performance but without giving effect
to any provision thereof that may require application of the laws of another
jurisdiction.


                                    - 2-

<PAGE>

     6.  ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST DEBTOR ARISING OUT OF OR
RELATING TO THIS AGREEMENT MAY BE BROUGHT IN NEW YORK SUPREME COURT,
MANHATTAN COUNTY OR THE UNITED STATES DISTRICT COURT, SOUTHERN DISTRICT OF
NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, DEBTOR ACCEPTS FOR
ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY,
THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE
OF FORUM NON CONVENIENS AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT
RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT (SUBJECT TO ANY RIGHT OF
APPEAL BY A HIGHER COURT). Debtor hereby agrees that service of all process
upon it may be made by registered or certified mail, return receipt
requested, to the Debtor at its address for notices specified or determined
in accordance with Section 11.01 of the Loan Agreement, such service being
hereby acknowledged by the Debtor to be sufficient for personal jurisdiction
in any action against the Debtor in connection with this Agreement and to be
otherwise effective and binding service in every respect. Debtor hereby
confirms that service of process to it should be sent to Superintendent of
Banking of the State of New York, State of New York Banking Department,
2 Rector Street, 19th Floor, New York, New York 10006 or any successor agent
for service of process located in New York, New York reasonably acceptable to
Secured Party (the "Process Agent") and agrees that service of process upon
such Process Agent shall be deemed to be service of process upon the Debtor,
with respect to any proceeding related to this Agreement. Nothing herein
shall affect the right to serve process in any other manner permitted by law
or shall limit the right of Secured Party to bring proceeding against the
Debtor in the courts of any other jurisdiction, including, but limited to,
where some or all of the Aircraft is located.

     7.  EACH OF DEBTOR AND SECURED PARTY HEREBY KNOWINGLY VOLUNTARILY AND
INTENTIONALLY WAIVES THE RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION BASED HEREON OR ARISING OUT OF OR IN CONNECTION WITH THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE SECURED PARTY ENTERING INTO THE LOAN AGREEMENT AND MAKING
THE LOAN TO DEBTOR TO FINANCE THE AIRCRAFT. The scope of this waiver is
intended to be all-encompassing of any and all disputes that may be filed in
any court and that related to the subject matter of this transaction,
including without limitation contract claims, [ILLEGIBLE] claims, breach of
duty claims and all other common law and statutory claims. Each of Debtor and
Secured Party further warrants and represents that it has reviewed this
waiver with its legal counsel and that it knowingly and voluntarily waives
its jury trial rights following consultation with legal counsel. THIS WAIVER
SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER DOCUMENTS OR AGREEMENTS
RELATING TO THIS AGREEMENT. In the event of litigation, this Agreement may be
filed as written consent to a trial by the court.


                                    - 3 -

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Assignment of Lease 809
to be executed by their duly Authorized Officers as of the day first above
written.


             Debtor:              FIRST SECURITY BANK, NATIONAL ASSOCIATION,
                                  not in its individual capacity solely
                                  as Owner Trustee

                                  By:           /s/ Greg A. Hawley
                                       -------------------------------------
                                       Name:   Greg A. Hawley
                                       Title:  Vice President


             Secured Party:       COAST BUSINESS CREDIT,
                                  a division of Southern Pacific Bank

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





Assignment of Lease and Letter of Credit 809
Boeing Model 737-2Q9 Aircraft
U.S. Registration No. N809AL

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Assignment of Lease 809
to be executed by their duly Authorized Officers as of the day first above
written.


             Debtor:              FIRST SECURITY BANK, NATIONAL ASSOCIATION,
                                  not in its individual capacity solely
                                  as Owner Trustee

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


             Secured Party:       COAST BUSINESS CREDIT,
                                  a division of Southern Pacific Bank

                                  By:           /s/ Joseph N. Sammons
                                       -------------------------------------
                                       Name:   Joseph N. Sammons
                                       Title:  Vice President





Assignment of Lease and Letter of Credit 809
Boeing Model 737-2Q9 Aircraft
U.S. Registration No. N809AL

<PAGE>

                                                                      SCHEDULE I


                             DESCRIPTION OF LEASE

Lease Agreement dated May 21, 1997, between ACG Acquisition XII, LLC as
lessor and Aloha Airlines, Inc. as lessee, as supplemented by Certificate of
Acceptance 809, recorded by the Federal Aviation Administration ("FAA") on
August 28, 1997, as Conveyance No. HK010357, as supplemented by Notice of
Lease Extension N809AL dated March 15, 2000, by ACG Acquisition XII, LLC as
lessor, which was not filed with the FAA, as assigned by the Lease Agreement
Assignment dated as of May 1, 2000, between ACG Acquisition XII, LLC as
assignor and First Security Bank, National Association of Owner Trustee,
assignee, which is being filed with the FAA contemporaneously herewith.










Assignment of Lease
Boeing Model 737-2Q9 Aircraft
U.S. Registration No. N809AL


<PAGE>

                                                            EXECUTION VERSION

                             AGREEMENT 809

     THIS AGREEMENT 809 (this "Agreement" dated the 5th day of November,
2001, is by and among Aloha Airlines, Inc. (the "Lessee"), Wells Fargo Bank
Northwest, National Association (formerly known as First Security Bank,
National Association), as Owner Trustee (the "Lessor") and Coast Business
Credit, a division of Southern Pacific Bank (the "Secured Party"), and
consented to by BCI 2000, L.L.C. (the "Beneficiary") and BCI Aircraft
Leasing, Inc. (the "Guarantor"). Capitalized terms used herein and not
otherwise defined are used as defined in Appendix A to the Loan Agreement (as
defined below).

     WHEREAS, Lessee and Lessor (as assignee of ACG Acquisition XII LLC) are
parties to Lease Agreement 809 dated May 21, 1997 (as extended, amended and
supplemented from time to time, the "Lease'), as collaterally assigned by
Lessor to Secured Party pursuant to the Assignment of Lease 809 and Letter of
Credit dated as of May 1, 2000 between Lessor and Secured Party (the "Lease
Assignment") which Lease Assignment has been consented to by Lessee pursuant
to the Consent and Agreement 809 dated as of May 1, 2000 among Lessee, Lessor
and Secured Party (the "Lessee Consent"), each such document relates to one
Boeing model 737-2Q9 Aircraft bearing manufacturer's serial number 21720 and
United States Registration No. N809AL together with two Pratt & Whitney model
JT8D-15A aircraft engines bearing manufacturer's serial numbers P688676 and
P688677 (collectively, the "Aircraft");

     WHEREAS, Lessor, Beneficiary and Secured Party are parties to Loan
Agreement 809 dated as of May 1, 2000 (the "Loan Agreement"), pursuant to
which Secured Party provided financing for Lessor's purchase of the Aircraft;

     WHEREAS, Guarantor executed and delivered in favor of the Secured Party
a Guaranty dated May 1, 2000 (the "Guaranty") with respect to certain
obligations of the Lessor under the Loan Agreement;

     WHEREAS, an Event of Default (as defined in the Lease) has occurred and
is continuing under Clause 13.1(a) of the Lease by reason of Lessee's failure
to make payment of Basic Rent on September 20, 2001 (a Rent Date) pursuant to
Clause 5.3 of the Lease; and

     WHEREAS, an Event of Default (as defined in the Loan Agreement) has
occurred and is continuing under each of Sections 9.01(a) and 9.01(f) of the
Loan Agreement by reason of, among other things, Lessor's failure to make
payment of principal and interest (including, but not limited to, Interest
Deficiency) on September 20, 2001 (a Payment Date) pursuant to Section 2.04
of the Loan Agreement Guarantor's failure to make payment of Interest
Deficiency on September 20, 2001 (a Payment Date) pursuant to Section 1.1 of
the Guaranty and Lessee's

------------------------
*Indicates that information has been omitted as confidential information,
and is filed separately with the Commission.

                                       1
<PAGE>

failure to make payment of Basic Rent on September 20, 2001 (a Rent Date)
pursuant to Clause 5.3 of the Lease.

     NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:

     1. On or about November 5, 2001, Secured Party shall call and draw on the
irrevocable Standby Letter of Credit No. S/B 970039 issued by First Hawaiian
Bank on May 20, 1997 in favor of the Secured Party (as extended, amended and
supplemented from time to time, the "Letter of Credit") in the amount of
US$* and use or apply the proceeds (net of any cost or expense to be
incurred in connection therewith) in or towards satisfaction of all sums due and
payable to the Secured Party under the Loan Agreement as of September 20, 2001
and October 20, 2001, each a Payment Date under the Loan Agreement and a Rent
Date under the Lease. In the event of any excess amount remaining after the use
or application of the proceeds (net of any cost or expense to be incurred in
connection therewith) of the Letter of Credit pursuant to the preceding
sentence, such excess amount shall be retained by the Secured Party and applied
by the Secured Party, in or towards satisfaction of the outstanding amount of
principal and interest of the Loan under the Loan Agreement, as a mandatory
prepayment thereof, provided that no Prepayment Fee shall be payable in
connection with such mandatory prepayment and the amount of the excess will be
applied to the next payments due upon the Loan in chronological order.

     2. Provided that the Secured Party shall have actually received the
amount of US$* in connection with its drawing under the Letter of
Credit pursuant to clause 1 above, Secured Party and Lessor agree as follows:
notwithstanding the requirement set out in Clause 5.1(b)(ii) of the Lease
which provides that the Lessee shall immediately, on demand of the Lessor or
the Secured Party, procure the issuance of a new Letter of Credit (as defined
in the Lease) acceptable to the Lessor and the Secured Party for an amount
equal to the amount used or applied pursuant to clause 1 above, Secured Party
and Lessor agree that Lessee may, and Lessee shall, within twelve (12) months
from the date that the Secured Party shall have actually received the amount
of US$* in connection with its drawing under the Letter of Credit
pursuant to clause 1 above, procure the issuance of a new clean Letter of
Credit (as defined in the Lease), satisfying the requirements set forth in
the definition of "Letter of Credit" in Clause 1.1 of the Lease, in an amount
drawable thereunder equal to US$*, or shall pay to the Secured Party an
amount in cash equal to US$* to be held pursuant to Clause 5.1(a) of
the Lease (as assigned pursuant to the Lease Assigmnent).

     3. (a) Lessor and Lessee hereby agree that:


                                        2

<PAGE>


               (i) the Lease is hereby amended by replacing the number
"$*" which appears in the definition of "Agreed Value" in Section 1.1 of
the Lease with the number "$*";

               (ii) the amendment to the Lease as set forth in clause 3(a)(i)
above shall not be effective until execution and delivery of this Agreement by
the Secured Party; and

               (iii) except as expressly provide herein, all of the provisions
of the Lease as heretofore amended and supplemented and as further amended and
supplemented by clause 3(a)(i) above are hereby ratified and confirmed and
shall, as so amended and supplemented, remain in full force and effect. From and
after the date hereof, all references in any document or instrument to the Lease
shall mean the Lease as heretofore amended and supplemented by clause 3(a)
above.

          (b) By executing this Agreement, the Secured party hereby
consents to the amendment to the Lease as set forth in clause 3(a)(i) above;
provided that Secured Party does not waive, and should not be deemed to waive,
any of its rights, powers or remedies under the Loan Agreement or any other
Operative Document by virtue of its consent hereunder.


     4. This Agreement shall be effective following execution and delivery of
this Agreement by each of the parties hereto and upon Secured Party's actual
receipt of US$* following the drawing under the Letter of Credit pursuant
to clause 1 above.

     5. Except with respect to any payment defaults cured by application of the
drawings under the Letter of Credit, Secured Party does not waive, and should
not be deemed to waive, any of its rights or remedies with respect to existing
or future Events of Default under the Loan Agreement and the other Operative
Documents by virtue of this Agreement or any negotiations that it may engage in
regarding the Events of Default described herein and Secured Party hereby
expressly reserves the right to pursue its rights and remedies at a time and in
a manner of its choosing with respect to the Events of Default described above
and any other Event of Default that has occurred or may occur in the future.
Pursuant to Section 9.02(c) of the Loan Agreement, Lessor is responsible for all
of Secured Partys reasonable out-of-pocket costs and expenses incurred in
connection with the Events of Default described in this Agreement, including,
without limitation, reasonable fees and expenses of Secured Party's counsel.

     6. Except with respect to any Payment defaults cured by application of the
drawings under the Letter of Credit, Lessor does not waive, and should not be
deemed to waive, any of its rights or remedies with respect to existing or
future Events of Default under the Lease by virtue of this Agreement or any
negotiations that it may engage in regarding the Events of Default described
herein and Lessor hereby expressly reserve the right to pursue its rights and
remedies at a time and in a manner of its choosing with respect to the Events of
Default described above and


                                        3

<PAGE>


any other Event of Default that has occurred or may occur in the future.
Pursuant to Clause 13.4 of the Lease, Lessee is responsible for all of Lessor's
and Secured Party's (as Lessor's assignee pursuant to the Lease Assignment and
Lessee Consent) loss, damage, expense, cost or liability which the Lessor or
Secured Party (as Lessor's assignee pursuant to the Lease Assignment and Lessee
Consent) may sustain or incur directly or indirectly as a result of the
occurrence of a Default (as defined in the Lease).

     7. Lessee and Lessor hereby expressly agree that any default by Lessee in
the performance of its obligations under this Agreement shall constitute an
Event of Default under the Lease.

     8. By countersigning this Agreement, Beneficiary hereby directs the Lessor
under the Trust Agreement to execute and deliver this Agreement.

     9. By countersigning this Agreement, each of Beneficiary and Guarantor
consents to all the terms of this Agreement and agrees to be bound by all such
terms in all respects.

     10. This Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same Agreement.

     11. This Agreement shall be construed and enforced in accordance with, and
the rights of the parties shall be governed by, the laws of the State of New
York.


                            [Signature Pages Follow]


                                        4


<PAGE>


     IN WITNESS WHEREOF, the parties hereto have caused this Agreement 809 to be
executed by their duly Authorized Officers as of the day first above written.


LESSEE:                             ALOHA AIRLINES, INC.

                                    By: /s/ Brenda F. Cutwright
                                        ------------------------------------
                                        Name:  Brenda F. Cutwright
                                        Title: Executive Vice President & CFO

                                    By: /s/ James M. King
                                        ------------------------------------
                                        Name:  James M. King
                                        Title: Senior Vice President Planning
                                               and Business Development


LESSOR:                             WELLS FARGO BANK NORTHWEST,
                                    NATIONAL ASSOCIATION (formerly known as
                                    First Security Bank, National Association),
                                    as Owner Trustee

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


SECURED PARTY:                      COAST BUSINESS CREDIT,
                                    A DIVISION OF SOUTHERN PACIFIC BANK

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

<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement 809 to be
executed by their duly Authorized Officers as of the day first above written.


LESSEE:                             ALOHA AIRLINES, INC.

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

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


LESSOR:                             WELLS FARGO BANK NORTHWEST,
                                    NATIONAL ASSOCIATION (formerly known as
                                    First Security Bank, National Association),
                                    as Owner Trustee

                                    By: /s/ Michael D. Hoggan
                                        ------------------------------------
                                        Name:  Michael D. Hoggan
                                        Title: Assistant Vice President


SECURED PARTY:                      COAST BUSINESS CREDIT,
                                    A DIVISION OF SOUTHERN PACIFIC BANK

                                    By:
                                        ------------------------------------
                                        Name:
                                        Title:
<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement 809 to be
executed by their duly Authorized Officers as of the day first above written.


LESSEE:                             ALOHA AIRLINES, INC.

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

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


LESSOR:                             WELLS FARGO BANK NORTHWEST,
                                    NATIONAL ASSOCIATION (formerly known as
                                    First Security Bank, National Association),
                                    as Owner Trustee

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


SECURED PARTY:                      COAST BUSINESS CREDIT,
                                    A DIVISION OF SOUTHERN PACIFIC BANK

                                    By: /s/ Ernest Oon
                                        ------------------------------------
                                        Name:  Ernest Oon
                                        Title: Vice President

<PAGE>

EACH OF THE UNDERSIGNED BENEFICIARY AND GUARANTOR HEREBY CONSENTS TO ALL THE
TERMS OF THE FOREGOING AGREEMENT AND AGREES TO BE BOUND BY ALL SUCH TERMS IN ALL
RESPECTS.


BCI 2000, L.L.C., as Beneficiary
by BCI Aircraft Leasing, Inc., as Manager

By: /s/ Brian N. Hollnagel
    ------------------------------------
    Name:  Brian N. Hollnagel
    Title: President


BCI AIRCRAFT LEASING, INC., as Guarantor

By: /s/ Brian N. Hollnagel
    ------------------------------------
    Name:  Brian N. Hollnagel
    Title: President