exv10w1



 






Exhibit 10.1




	 
	 





                                                                 Aviation Services International, LLC                                   




FULL SERVICE AIRCRAFT SERVICES AGREEMENT




between




KITTY HAWK AIRCARGO, INC.




and




AVIATION SERVICES INTERNATIONAL, LLC









PROPRIETARY INFORMATION NOTICE




The information contained in this document is Aviation Services International, LLC (“ASI”)
Proprietary Information and is disclosed in confidence. It is the property of ASI and shall not be
used, disclosed to others or reproduced without the express written consent of ASI. If consent is
given for reproduction in whole or in part, this notice and the notice set forth on each page of
this document shall appear in any such reproduction. U.S. export control laws may also control the
information contained in this document. Unauthorized export or re-export is prohibited.







Confidential treatment has been requested by Kitty Hawk, Inc.
for certain portions of this document. Confidential portions have been filed separately with the
Securities and Exchange Commission. Omitted portions are indicated in this agreement with “*****”.



 









 





FULL SERVICE AIRCRAFT SERVICES AGREEMENT





THIS FULL SERVICE AIRCRAFT SERVICES AGREEMENT (sometimes, this “Agreement”
and, sometimes, these “General Terms”) is made as of March 7, 2005
(“Effective Date”), by and between Kitty Hawk Aircargo Inc., a Delaware
corporation, having its principal place of business at 1515 West
20th Street, Dallas/Fort Worth International Airport, Texas
75261, U.S.A. (“Customer”) and Aviation Services International, LLC, a
Delaware limited liability company, having its principal place of business
at Ben Gurion International Airport, Israel (“Supplier”), either or both of
which may be referred to as a “Party” or the “Parties”, respectively.



RECITALS





WHEREAS, Supplier maintains and operates a comprehensive program for the
servicing, repair, maintenance, and functional testing of airframes,
aircraft components, aircraft engines, engine modules, assemblies,
subassemblies, controls and accessories, auxiliary power units and parts for
each thereof (the “T3 Program”);




WHEREAS, Supplier and Customer desire to enter into this Agreement to
provide the general terms that will be applicable to the repair and overhaul
by Supplier of aircraft components, aircraft engines, landing gear and
auxiliary power units that Customer elects to have repaired and/or
overhauled under this Agreement;




WHEREAS, Customer is in the process of leasing from GE Capital Aviation
Services, Inc. (“GECAS”) seven (7) B737-300 passenger aircraft, but only
after each shall have undergone conversion from passenger configuration to
special freighter configuration so as to become a 737-300 SF Aircraft;




WHEREAS, in furtherance of the foregoing, Customer now requires repair or
servicing of the landing gears (“Landing Gears”) of its fleet of seven (7)
737-300 SF aircraft (each, a “737-300 SF Aircraft” and, together, the
“737-300 SF Aircraft”);




WHEREAS, in furtherance of the foregoing, Customer now also requires the
repair, overhaul or servicing of the CFM 56-3B1/3B2 engines (each a “3B1
Engine” or a “3B2 Engine,” respectively, and, together, the “3B1 Engines” or
the “3B2 Engines,” respectively) on its fleet of 737-300 SF Aircraft;




WHEREAS, in furtherance of the foregoing, Customer now also requires repair,
overhaul or servicing of the components on its fleet of seven (7) 737-300 SF
Aircraft, excluding the components described on Annex 6 to Schedule No. 3
hereto (the “Components”).



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NOW, THEREFORE, and in consideration of the mutual promises and covenants
herein contained and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties agree as
follows:



INTRODUCTION





	(1)  	Customer’s Fleet of Aircraft






	 	(A)  	   This Agreement shall cover only the seven (7) 737-300 SF Aircraft of
Customer’s fleet of Aircraft, as and when they are converted to special
freighter configuration.
	 
	 	(B)  	   Customer may add to, or delete from, its current fleet, any Aircraft
referred to in paragraph (A) above or any other type of aircraft, except that
the addition to, or deletion from, Customer’s fleet of 737-300 SF Aircraft,
insofar as such actions impact on any T3 Program hereunder shall be
handled in accordance with the provisions of the applicable Schedule to these
General Terms to be annexed hereto, it being understood and agreed that, with
respect to (i) the T3 Program Aircraft Services, any such addition
to, or deletion from, Customer’s current fleet of covered Aircraft, shall be
handled in accordance with the provisions of Schedule No. 1 to these General
Terms, which is annexed hereto; (ii) the T3 Program Engine
Services, any such addition to, or deletion from, Customer’s current fleet of
covered Aircraft shall be handled in accordance with the provisions of
Schedule No. 2 to these General Terms, which is annexed hereto; and (iii) the
T3 Program Component Services, any such addition to, or deletion
from, Customer’s current fleet of covered Aircraft shall be handled in
accordance with the provisions of Schedule No. 3 to these General Terms, which
is annexed hereto.






	(2)  	Customer’s Other Airframes






Customer may add to this Agreement by signing, together with Supplier, a
Schedule, to be numbered consecutively with all previous Schedules attached
hereto, and annexed hereto, thereby becoming a part of this Agreement, the
airframes of any or all of its aircraft, other than its seven (7) 737-300 SF
Aircraft.




	(3)  	Customer’s Other Engines






Customer may add to this Agreement by signing, together with Supplier, a
Schedule, to be numbered consecutively with all previous Schedules attached
hereto, and annexed hereto, thereby becoming a part of this Agreement, one or
more of its aircraft engines, other than the 3B1 Engines and the 3B2 Engines.



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		(4)  	Customer’s Other APUs






Customer may add to this Agreement by signing, together with Supplier, a
Schedule, to be numbered consecutively with all previous Schedules attached
hereto, and annexed hereto, thereby becoming a part of this Agreement, one
or more of its auxiliary power units, other than the APUs.

(5) Subcontractors




Supplier intends to subcontract all of the work it is required to perform under
all of the Schedules annexed to these General Terms by subcontracting (i) all
T3 Program Aircraft Services and related Services to Empire Aero
Center, Inc. of Rome, N,Y., an indirect wholly-owned subsidiary of Israel
Aircraft Industries Ltd., and (ii) all T3 Program Engine Services and
T3 Program Components Services and all related Services to Israel
Aircraft Industries Ltd. (“IAI”).




	 	(6)  	Schedules to these General Terms






Each of the signed and numbered Schedules to these General Terms shall provide
the particular terms and conditions pursuant to which Supplier shall agree to
provide Services on items of Equipment, which terms and conditions may include
the deletion or alteration of some of these General Terms. Each of such signed
and numbered Schedules shall be incorporated into, and made an integral part of,
this Agreement. In the event of a conflict between the provisions of these
General Terms and the provisions of a signed and numbered Schedule, the terms of
such Schedule shall control.




	 	(7)  	Definitions






Capitalized terms used in these General Terms and not specifically defined in
these General Terms shall have the meanings given to them in Appendix A to this
Agreement.




ARTICLE
I     T3 PROGRAM




	 	(1)  	SCOPE OF WORK






	 	(A)  	Commencing on the Effective Date of the first Schedule, and
provided Customer is not in default of the provisions of Articles X and
XIII with respect to, and as modified, if modified, by, any Schedule,
Supplier shall provide maintenance Services in accordance with the
provisions of the Schedules hereto. Schedule No. 2, dated March 7, 2005,
relating to the repair, overhaul or servicing of the 3B1 Engines and 3B2
Engines on its 737-300 SF Aircraft is annexed hereto. Schedule No. 3,
dated March 7,, 2005, relating to the repair, overhaul and servicing of the
Landing Gears and Components, is also annexed hereto.




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	 	(B)  	Shop Visits. The Services described in the Schedules shall
be performed in accordance with applicable Aviation Authority requirements,
the Customer maintenance program, manufacturers’ guidelines and standard
Supplier practices for like Equipment. Customer’s Equipment requiring
maintenance which (1) cannot be performed on-wing, (2) are removed on or
after the Effective Date of the first Schedule, and (3) meet any of the
following criteria shall be eligible for maintenance on a T3
Rate basis under the T3 Program, if a shop visit (“Shop Visit”)
is necessary:






	 	(1)  	To correct a known defect or performance
deterioration which means an item of Equipment is no longer
Serviceable and cannot be corrected on-wing after Customer has
applied all published on-wing support procedures.
	 
	 	(2)  	To comply with a Supplier written recommendation
requiring Shop Visits of Equipment at scheduled intervals.
	 
	 	(3)  	To replace a life limited item of Equipment for life
expiration (unless such item is installed on an Aircraft at the last
shop visit prior to the Effective Date of the first Schedule and did
not conform to the minimum build requirement in the applicable
Repair Specification).






	 	(C)  	Workscope and Repair Specification. Upon input of an item
of Equipment for repair, Supplier shall prepare a Workscope and a Repair
Specification which specify inspections, upgrades, improvements, and
repairs required to return such Equipment to a Serviceable Condition. Such
Workscope may include reliability and performance enhancements and Approved
Aviation Authority approved repairs. Supplier shall repair Customer’s
Equipment in accordance with a Repair Specification and Approved Aviation
Authority regulations. Supplier may amend a Repair Specification during
the term hereof to improve reliability, enhance Equipment operating
characteristics, incorporate designated engineering representative approved
repairs or repairs not contained in OEM manuals, subject to Customer’s
written concurrence, which concurrence shall not be unreasonably withheld,
conditioned or delayed. Any changes or amendments requested by Customer or
made by any regulatory agency to a Repair Specification shall be mutually
agreed upon by the parties hereto and may be subject to an adjustment in
the pricing described in the applicable Schedule. In the event Customer
requests a change in a specific Workscope, Supplier shall perform such
additional work and invoice that work as Supplemental Work.
	 
	 	(D)  	With respect to each Schedule annexed hereto, Supplier shall assign
a Program Manager who will be the point of contact for Customer with
respect to all of the Services specified in such Schedule and who shall
support this Agreement as set forth in clauses (a) through (h) below.




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	 	(a)  	Define the work to be accomplished for each Shop
Visit, consistent with the applicable Repair Specification.
	 
	 	(b)  	Monitor dates, flight hours and cycles to determine
when Services are required on life limited items of Equipment.
	 
	 	(c)  	Assist Customer with Supplemental Work requirements
to be performed.
	 
	 	(d)  	Maintain the necessary liaison between Supplier and
Customer.
	 
	 	(e)  	Provide Customer’s authorized personnel with
reasonable access to Customer’s Equipment and related maintenance
records, when any such Equipment is in Supplier’s possession.
	 
	 	(f)  	Schedule preventive or corrective maintenance action.
	 
	 	(g)  	In respect of Schedule No. 2 hereto applicable to
Customer’s 3B1 Engines and 3B2 Engines, develop with Customer, on a
monthly basis, a removal schedule (“RS”) for Customer’s 3B1 and 3B2
Engines forecast for Delivery to Supplier for Repair under Schedule
No. 2. An RS shall identify by serial number the 3B1 and 3B2
Engines to be Delivered during the following six (6) month period
and the anticipated reason for removal of each.
	 
	 	(h)  	Ensure that all routine correspondence from Supplier
to Customer relative to the administration of this Agreement, except
for formal notices issued under Article XVI of this Agreement, shall
be directed to the attention of the appropriate person at the
Customer Facilities as designated by Customer.






	 	(E)  	BER Proceedings
	 
	 	   	Supplier shall advise Customer if its estimate of the cost to repair or
overhaul an item of Equipment is such that such item of Equipment is in a
BER condition. If Customer nevertheless desires that a BER item of
Equipment be repaired or overhauled, Customer shall pay for all Services
to so repair such item of Equipment on a Supplemental Work basis. With
respect to each Schedule, the parties agree to provide a statement to the
effect that they are adopting these BER Proceedings or a description of
the BER Proceedings that are to be otherwise applicable to such Schedule.




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	 	(2)  	T3 PROGRAM SERVICES






The T3 Program Services applicable to items of Equipment shall be

described in each Schedule that is signed by both parties, given a number and
attached hereto. The T3



 Program Services applicable to (i) the 3B1 and 3B2 Engines are described in
Schedule No. 2 hereto; and (ii) the Landing Gear and Components are described in
Schedule No. 3 attached hereto.



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	 	(3)  	CUSTOMER’S RESPONSIBILITY UNDER THE T3 PROGRAM






	 	(A)  	During the term of this Agreement, Customer shall:






	 	(1)  	Provide to Supplier’s authorized personnel reasonable access to
Customer’s Equipment when such Equipment is in Customer’s possession, and to
all operating and maintenance records related to Equipment which are
maintained by Customer.






	 	(2)  	Advise Supplier that an item or items of Equipment
needs to be picked up for service at least three (3) days prior to
its scheduled pick-up.






	 	(3)  	Designate in writing one (1) or more of its employees to represent
Customer during the term of this Agreement.
	 
	 	(4)  	Prepare each item of Equipment to be repaired or overhauled under a
Schedule for shipment by properly packing such item of Equipment, together
with a repair report and all appropriate documentation, and notifying Supplier
that such item of Equipment is ready for pick-up.
	 
	 	(5)  	Maintain Equipment in accordance with Manufacturers’ recommendations.






	 	(6)  	Execute, simultaneously with the signing of a
Schedule, a Warranty Assignment Letter, in the form attached hereto
as Appendix C, stating that the benefits of all OEM or third party
warranties, guarantees or maintenance related product discounts
related to the T3 Program applicable to Customer’s
Equipment, covered by and during the term of such Schedule, are
assigned to Supplier. Notwithstanding the foregoing, Supplier will
accept a purchase agreement for the time and material repair of any
such Equipment from any such third party or Customer. A list of
such Equipment under pre-existing warranties shall be provided to
Supplier by Customer upon the execution of such Schedule.
	 
	 	(7)  	No later than the time of Delivery of an item of
Equipment for a Shop Visit, provide to Supplier all information and
records necessary for Supplier to: (1) establish the nature and
extent of the Services required to be performed on such item of
Equipment; and (2) to perform such Services. Such information and
records include, but are not limited to:






	 	(a)  	The cause of Equipment removal or reason for a Shop Visit;
	 
	 	(b)  	Applicable Equipment log books detailing work performed at the most recent Shop Visit, any
reported defects or incidents during operation since such
most recent last Shop Visit, with a




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	 	   	description of action taken, and significant operational
characteristics experienced during last flight prior to
Shop Visit;
	 
	 	(c)  	SB and AD status/requirements;
	 
	 	(d)  	Total Equipment operating time since
new (“TSN”) for each item of Equipment that is a hard time or
life limited item;
	 
	 	(e)  	Record of change of parts during
operating period prior to such Shop Visit (including, without
limitation, all life limited items of Equipment removed and
replaced by Customer), and the reason(s) for change;
	 
	 	(f)  	Back to birth history certificate
indicating history from zero TSN/CSN on all LLPs;
	 
	 	(g)  	Customer inventory of Equipment “as
shipped”;
	 
	 	(h)  	Historical log and reliability data (for parts and
accessories);






Customer’s failure to furnish necessary information and records
shall result in a delay in induction of the affected Equipment for
Service, and may necessitate premature LLP replacement, at
Customer’s expense. However, prior to replacing such an LLP,
Supplier shall first advise Customer that certain records are
missing and allow Customer five (5) working days to acknowledge
and forward such records to Supplier.



ARTICLE II
    SUPPLEMENTAL WORK





	(1)  	SUPPLEMENTAL WORK SERVICES
	 
	   	Supplemental Work shall include, but not be limited to:






	 	(A)  	If Customer selects Supplier to perform the work to meet the return
conditions of any lease of Customer from a third party, then, unless
specifically specified otherwise in a Schedule, Customer shall pay Supplier
for any Service required to meet such lease return conditions on a
Supplemental Work basis. It being understood that Supplier assumes
financial responsibility for Engine, Component and Landing Gear lease
Return Conditions for the Aircraft leases between GECAS and Customer.
	 
	 	(B)  	Should Supplier technical representatives be required to perform
services at a Customer location other than the Customer Facilities,
Customer shall make all




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	 	   	arrangements and shall bear the cost of travel and lodging arising from
such performance. Supplier A&P mechanics provided for performance of
Services at all locations other than a designated Repair Station shall be
on a Supplemental Work basis.






	(2)  	SUPPLEMENTAL WORK PRICING.
	 
	   	Supplemental Work shall be charged at the prices set forth in each Schedule.





ARTICLE III
    DELIVERY, REDELIVERY AND GOVERNMENTAL AUTHORIZATION





	 	(A)  	Delivery. Supplier shall pick up at Customer’s facilities
at Fort Wayne, Indiana, Outstations designated by Customer or at
Dallas/Fort Worth International Airport, Texas (the “Customer Fort Wayne
Facilities” and the “Customer Dallas Facilities,” respectively, and
together, the “Customer Facilities” and collectively the “Customer
Premises” and “Customer Facilities”), as noticed by Customer, all Equipment
to be Serviced. Such Equipment, to the extent it is only a part of an
Aircraft, shall be shipped as defined in each Schedule. However, Supplier
shall have the option to perform Repairs with a field team at other
locations.
	 
	 	(B)  	Redelivery. After completion of Services, Supplier shall
Redeliver the applicable Equipment to Customer at one of the Customer
Facilities, as designated in writing by Customer not less than twenty-one
(21) days prior to such Redelivery.
	 
	 	(C)  	Governmental Authorization.



Supplier shall be the importer and/or exporter of record and shall be
responsible for timely obtaining any import license, export license,
exchange permit, or other required governmental authorization relating to
the Equipment. At Supplier’s request and expense, Customer shall assist
Supplier in its application for any required U.S. export licenses.
Supplier shall not be liable if any authorization is not renewed or is
delayed, denied, revoked, or restricted, and Customer shall not thereby
be relieved of its obligation to pay for Services performed by Supplier.
All items of Equipment Redelivered hereunder shall at all times be
subject to the U.S. Export Administration Regulations and/or
International Traffic in Arms Regulations of the U.S.A. and any
amendments thereto. Customer agrees not to dispose of U.S. origin items
provided by Supplier other than in and to the country of ultimate
destination specified in Customer’s purchase order and/or approved
government license or authorization, except as such laws and regulations
may permit.




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     ARTICLE
IV      MECHANIC’S LIEN/SECURITY INTEREST




Omitted Intentionally.



     ARTICLE
V      NO ASSIGNMENT



The attempted assignment of all or any portion of this Agreement or a Schedule
or any purchase order or any right or obligation hereunder or thereunder, by
either party, without the prior written consent of the other party, shall be
null and void; except that Customer’s consent shall not be required for the
substitution of an affiliated company of, or subcontractor from, Supplier in
place of Supplier as the contracting party and/or the recipient of payments
pertaining to all or any portion of this Agreement or any purchase order in
connection with this Agreement. In the event of any such substitution, Customer
shall be so advised in writing.




     ARTICLE
VI      EXCLUSIVE AGREEMENT



This Agreement, insofar as it, pursuant to a Schedule hereto, relates to the
maintenance, repair or overhaul of Customer’s Equipment, shall be exclusive, and
Customer shall not enter into any other arrangement with a third party for such
services with respect to Customer’s Equipment during the term of this Agreement.
Accordingly, as of the signing of a Schedule hereto, such Schedule shall be
exclusive, and Customer shall not enter into any other arrangement with a third
party for the services described therein with respect to Customer’s Equipment
covered thereby during the term of such Schedule.






     ARTICLE
VII      TERM AND TERMINATION




	(A)  	If Customer desires to extend the term of any Schedule to this
Agreement beyond the initial term noted therein, Customer shall give
Supplier written notice of its desire to extend at least one hundred eighty
(180) days prior to the expiration date of such initial term. Within
thirty (30) days of receipt of such notice, Supplier shall, at its option,
submit a proposal to Customer which shall specify the extended term and any
amendment to pricing and other terms and conditions. Customer and Supplier
shall endeavour to renew such Schedule a minimum of ninety (90) days prior
to the expiration date of such initial term. Any further extension shall
be subject to the same process.
	 
	(B)  	Failure to Pay/Insolvency. Supplier may, at its option,
immediately cancel all or any portion of this Agreement and/or any
Schedule, if Customer: (a) fails to make any of the required payments when
due, unless cured within ten (10) calendar days of its payment due date;
(b) generally makes an agreement with creditors due to its inability to
make timely payments of its debts; (c) enters




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	   	into bankruptcy or liquidation whether compulsory or voluntary that is
not discharged within sixty (60) calendar days; (d) becomes insolvent
(i.e. liabilities greater than assets) ; or (e) becomes subject to the
appointment of a receiver or custodian of the whole or a material part of
its assets. If any such cancellation shall occur, Customer shall not be
relieved of its payment obligation for Services rendered hereunder and/or
any Schedule.
	 
	(C)  	Material Provisions. Without limiting the above provisions
and excluding any other remedies provided elsewhere in this Agreement or
any Schedule, either party may cancel this Agreement and all Schedules upon
ninety (90) calendar days written notice to the other for failure to comply
with any material provision of this Agreement or any Schedule, unless the
failure shall have been cured or the party in breach shall have
substantially effected all acts required to cure the failure prior to the
expiration of such ninety (90) calendar days.
	 
	(D)  	Work in Process. Upon the expiration or cancellation of
this Agreement or any Schedule, Supplier shall complete all work in process
in a diligent manner under the terms of this Agreement and such Schedules
provided that Customer has deposited sufficient monies with Supplier to pay
the estimated charges for all such work, in accordance with the prices set
forth in such Schedule.
	 
	(E)  	Redelivery of Customer Equipment. In the event this
Agreement and all Schedules are terminated, Supplier shall, upon receipt of
Customer’s written request, and provided Customer is then not in default of
any provision of this Agreement and all Schedules (and the Appendices),
promptly deliver all Customer’s Equipment, parts and related documentation
to Customer.





     ARTICLE
VIII      PARTS REPLACEMENT PROCEDURES




	(A)  	Missing or Damaged Parts. Supplier shall notify Customer of
any (A) parts, components or line replaceable units missing (i.e.,
incomplete inventory of specific items of Equipment) from Equipment when
received at a Repair Station and (B) parts found to have been damaged
during transportation of an item of Equipment to Supplier. Supplier shall
replace such missing or damaged items at Customer’s expense unless Customer
notifies Supplier in writing within two (2) business days of receiving
Supplier’s notice that Customer wishes to furnish such missing or damaged
items within a period of time specified by Supplier.
	 
	(B)  	Parts Replacement. Supplier shall determine which parts
are required to accomplish the Services and shall provide all parts and
materials required to accomplish such Services.
	 
	(C)  	Rotable Parts. Supplier may issue compatible parts from
Supplier’s Rotable Parts inventory to replace Customer’s parts requiring
repair. Customer agrees




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	   	to accept compatible Rotable Parts that are updated to the then-current
Service Bulletin baseline used by the majority of Supplier’s Customers.
Repairable parts removed from an Aircraft and replaced by Supplier’s
Rotable Parts inventory will be repaired by Supplier or a third party, at
Supplier ‘s option.
	 
	(D)  	Life Limited Parts. LLPs received by Supplier without the
necessary records, as required by the above, shall be replaced by Supplier
at Customer’s expense.
	 
	(E)  	Title to Parts. Supplier furnished parts and material
incorporated into Customer’s items of Equipment shall be deemed to have
been sold to Customer and title to such Supplier furnished parts and
material shall pass to Customer upon incorporation into any such item of
Equipment. Risk of loss or damage to such parts and material shall pass to
Customer upon Redelivery of the applicable item(s) of Equipment. Title to
any parts removed from an item of Equipment, which are replaced by other
parts, shall pass to Supplier upon incorporation into a Customer item of
Equipment of the replacement part.
	 
	(F)  	Scrapped Parts. Supplier shall, at its sole expense and
without any further adjustment to Customer, dispose of all Scrapped Parts.





     ARTICLE
IX      REPAIR STATIONS AND SUBCONTRACTED SERVICES




	(A)  	Supplier Repair Stations. Supplier may have any of the
Services within the scope of this Agreement performed at any facility of
Supplier or any Supplier affiliated repair station or a repair station
(only if it is a FAA/EASA approved repair station) of any of its
subcontractors. In such event, Customer’s obligations hereunder,
including, without limitation, transportation expense, shall be no greater
than if such Services were performed at the designated Repair Station for
the item of Equipment to be repaired or maintained. .
	 
	(B)  	Subcontracted Services. Supplier, in its absolute
discretion, may subcontract any portion of the Services to be performed on
Customer’s Equipment to suitably qualified FAA or EASA 145 certified and
competent subcontractors, but only if each such subcontractor is on
Customer’s approved vendor list. Any other proposed subcontractor from
Supplier shall require Customer’s consent, which consent shall not be
unreasonably withheld, conditioned or delayed. Any subcontracted Services
shall be performed in accordance with the requirements of the Workscope and
the applicable Approved Aviation Authority directives. Subcontracting of
any Services hereunder shall not relieve Supplier of its performance
obligations set forth in this Agreement.




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     ARTICLE
X      INVOICES AND PAYMENT




	(A)  	Services Not charged at a T3 Rate






	 	(1)  	Services Payments. With respect to all
Services that are not charged at a T3 Rate, except as
otherwise provided in a Schedule, Customer shall pay within thirty
(30) calendar days after receipt of an invoice therefor.
	 
	 	(2)  	Supplemental Work Payments. Supplier shall
issue an invoice for Services performed on a Supplemental Work basis
as soon as practicable following Redelivery of an item of Equipment.
Such invoice shall reflect the total charges owed by Customer to
complete the Supplemental Work.
	 
	 	(3)  	Payment Terms. Except as otherwise provided
in a Schedule, Customer shall pay each such invoice within thirty
(30) calendar days of receipt. If any payment date falls on a day
that is not a business day, the payment that is otherwise due shall
instead be due the next business day.






	(B)  	Services Charged at a T3 Rate






	 	(1)  	T3 Payments. Except as otherwise
provided in a Schedule, Customer shall remit to Supplier, no later
than the fifth (5) day of each month, a schedule of the actual AFHs
and cycles for each Aircraft for the preceding month (as provided in
paragraph (2) below). Supplier shall then submit an invoice to
Customer for the performance of T3 Program services for
such preceding month. Customer shall pay such invoice within ten
(10) days of receipt of such invoice. In the event Customer fails to
pay the full amount of a monthly T3 Rate payment on or
before the such tenth ,day, then all Services performed on Equipment
from such tenth day to, and including, the day Customer shall have
paid in full all outstanding T3 Rate payments (herein,
the “Short Fall Period” and “Customer’s Make-Whole Payment,”
respectively), shall be performed by Supplier, and paid for by
Customer, on a Supplemental Work basis (i.e., time and materials);
provided, further, that, at such time that Customer intends to make
Customer’s Make-Whole Payment, Customer may credit against such
Payment (and such Payment shall be deemed to have been made to the
extent of such credit) the aggregate of the payments it made during
the Shortfall Period in respect of Services performed during the
Shortfall Period; and provided, further, that, in the event the
Short Fall Period continues for another twenty-one (21) days,
Supplier, in its sole and absolute discretion, may suspend the
performance of the Services under the applicable Schedule and
declare Customer to be in default of such Schedule, all other
Schedules that have been signed by the Parties and the General Terms




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	 	   	Agreement. Supplier shall then have the right to enforce all of
its legal and equitable rights in respect of such declared
default.
	 
	 	   	During the first and last years of this Agreement as Aircraft are
delivered or redelivered as the case may be, Customer shall pay
Supplier for Components the rate applicable to the 961-1,400
annual AFH’s Payment Per Flight Hour and for Engines, the
applicable rate in Schedule 2 of this Agreement. However, since
during the first and last years of this Agreement, not all
Aircraft will be in service for an entire calendar year, the
Reconciliation shall be done by taking the actual AFH’s per
Aircraft since entry into service and annualizing the average
Aircraft fleet AFH’s as if the Aircraft had been in service for
the entire calendar year.
	 
	 	   	When Aircraft are delivered to Customer from Lessor during the
first year of this Agreement, there will be a lag (one month)
between the time of delivery and when each of the Aircraft is
placed into revenue service. During this lag time, Customer shall
pay Supplier in accordance with the preceding paragraph, however,
the lag time shall not be included in determining the
Reconciliation.
	 
	 	(2)  	Actual Flight Hours per Aircraft. For each
Aircraft covered by a Schedule whose payment for services pursuant
to this Agreement is determined by Flight Hours, Customer, no later
than the fifth business day of each calendar month, including in
respect of the last calendar month during the term of such Schedule,
shall report to Supplier via facsimile (or other form of electronic
communication) the actual flight hours flown by such Aircraft during
the preceding calendar month (“AFH”). Customer shall pay Supplier,
in accordance with this Agreement, the actual AFH’s flown for the
preceding month multiplied by (i) for Components, the rate
applicable to 961-1,400 annual AFH’s Payment Per Flight Hour, and
(ii) for Engines, the rate applicable to flight hours/cycles 1.5/1
in Schedule 2 of this Agreement. If the flight hours/cycle (flown
per year) does not match the table rates in Schedule 2 para. 5.12,
deviations and pricing will be calculated on a linear basis.
	 
	 	(3)  	Reconciliation. No later than the fifteenth
business day after the end of each calendar year of performance
under each Schedule, Supplier shall compare:




14









 












	 	i)  	the actual total AFH reported during such previous
calendar year for all Aircraft with 960, the guaranteed
minimum Flight Hours per Aircraft per year on a fleet average
basis (the “Guaranteed AFH”). If the Guaranteed AFH times
the number of aircraft operated during the preceding calendar
year exceeds the total Flight Hours invoiced during such
period, Supplier shall invoice Customer and Customer shall
pay Supplier an amount equal to the difference between the
Guaranteed AFH times the number of aircraft operated during
the preceding calendar year times the applicable escalated
Flight Hour Rate in effect for such period and the total
amount invoiced during such period. Payment shall be made
within thirty (30) days after receipt of an invoice
therefore. If the Guaranteed AFH times the number of aircraft
operated during the preceding calendar year is less than the
total AFH invoiced during such period, Supplier (In regards
to Components Services only) shall credit Customer with an
amount equal to the difference between the product of the
total actual Flight Hours flown by the Customer’s fleet
during such period times the applicable escalated Flight Hour
Rate in effect for such period and the total amount invoiced
during such period. Such credit shall be made against the
following month’s charges.
	 
	 	ii)  	The actual average Flight Hours per cycle reported
during such calendar year for all Aircraft with the Flight
Hours per cycle listed in Schedule 2 Para. 5.12.1 of this
agreement. If the actual average Flight Hours per cycle
reported during such calendar year for all Aircraft differs
from the Flight Hours per cycle listed in Schedule 2 Para.
5.12.1 of this agreement, Supplier (In regards to Engine
Services only) shall debit or credit Customer accordingly
taking in consideration the conditions stipulated in Schedule
2 Para. 4 of this agreement






	(C)  	Payments by GECAS. Upon the first Shop Visit of an item of
Equipment under a Schedule, GECAS shall pay to Supplier (by wire transfer of
immediately available funds to the bank account specified in Paragraph G
below) a sum equal to the product of the applicable Flight Hour Rate times the
number of Flight Hours of the Equipment, from (and including) such item of
Equipment’s last Shop Visit before the first day of the Term of such Schedule
to (and including) the day preceding the first day of the Term of such
Schedule.
	 
	(D)  	Late Payment. In the event Customer fails to make payment
within the specified time, then Supplier may charge a late payment fee at
an annual rate equal to the then-current one (1) year London Inter Bank
Offered Rate (“LIBOR”) for U.S. Dollar deposits, as published in the
Wall Street Journal, plus five percent (5%), compounded daily on
any unpaid balance commencing on the next calendar day after the payment
due date until such time as the




15









 






	   	payment plus the late payment fee are received by Supplier. Payments and
advance payments made pursuant to this Article X or any Schedule by
Customer shall be applied to the oldest outstanding amounts owing to
Supplier in order of succession. Supplier’s obligation to provide any
item of Equipment hereunder or under any Schedule shall be suspended
during any period Customer fails to make payment within the specified
time.
	 
	(E)  	Customer shall not at any time withhold or deduct from any payment
any sum by reason of any dispute as to the contents of any invoice
delivered by or on behalf of Supplier or any default, breach or
non-performance by Supplier of its obligations under this Agreement.
	 
	(F)  	In the event that Customer fails to make any payment on the due date
thereof, then Supplier shall be entitled, without prejudice to any other
rights or remedies available to it at any time in law or equity, suspend,
withhold or reduce any or all further T3 Program Services until
all and any outstanding sums plus interest thereon pursuant to paragraph (C)
above have been paid in full. In the case of any such suspension by
Supplier, Supplier shall (in addition to and without prejudice to any other
remedy or relief available to it) be entitled to be paid any sum owing to it
prior to such suspension.
	 
	(G)  	Payment Instruction. All payments under this Agreement
shall be made in Dollars, immediately available for use, without any right
of set-off or deduction, via wire transfer by Customer to the bank account
and address designated below:





	 	 	 
	

	 	Bank Leumi U.S.A.
	

	 	564 Fifth Avenue
	

	 	New York, N.Y. 10036
	

	 	ABA# 026002794
	

	 	Swift Address: LUMIUS3N
	

	 	For: Aviation Services International LLC
	

	 	Account Number: 22005390-18






     ARTICLE
XI     LIMITATION OF LIABILITY




	(A)  	Total Liability. The total liability of Supplier for any
and all claims, whether in contract, warranty, tort (including negligence,
but excluding willful misconduct or gross negligence), product liability,
patent infringement, or otherwise for any damages arising out of, connected
with, or resulting from the performance or non-performance of any Service
or Services provided under any Schedule or from the manufacture, sale,
Redelivery, resale, repair, overhaul, replacement or use of any item of
Equipment or any item or part thereof, shall not exceed the price allocable
to the Service or Services which gives rise to the claim.




16









 






	(B)  	Damages. In no event, whether as a result of breach of
contract, warranty, tort (including negligence), product liability, patent
infringement, or otherwise, shall Supplier be liable for any special,
consequential, incidental, resultant, indirect, punitive or exemplary
damages (including, without limitation, loss of use, loss of profit or
loss of revenue in connection with any item of Equipment).
	 
	(C)  	Definition. For the purpose of this Article XI, the term
“Supplier “ is deemed to include Supplier and its affiliated companies, the
subcontractors and suppliers of any Services furnished hereunder, and the
directors, officers, employees, servants, and representatives of each.





     ARTICLE
XII      INDEMNIFICATION




	(A)  	Customer and its insurers hereby waive all rights of recourse
against, and Customer agrees to indemnify, defend and hold harmless,
Supplier, including its contractors, subcontractors, employees, agents and
anyone acting on their behalf (hereinafter in this Article XII referred to,
collectively, as the “Indemnitees” and, individually, as an
“Indemnitee”) from and against any and all liabilities, claims,
damages, losses, and judgments (whether in contract, tort, negligence of
any kind, including strict liability, or otherwise), which may be suffered
by, accrued against, be charged to, or recoverable from the Indemnitees or
any Indemnitee by reason of loss of, or damage to, or loss of use of, any
property of Customer and/or any third party, and/or by reason of any bodily
injury and/or death to passengers, crew, and/or third parties arising out
of or in any way connected with the Services and Supplemental Work, if any,
and/or the operation and/or maintenance of any item of Equipment, unless
such loss, damage, bodily injury or death is due to the gross negligence or
willful misconduct of Supplier.
	 
	(B)  	Supplier and its insurers agree to waive all rights of recourse
against Customer, its contractors, subcontractors, employees and agents by
reason of any such loss, damage, injury or death and Supplier shall be
solely responsible for, loss or damage to its own equipment and/or to death
and injury of its employees unless such loss, damage, bodily injury or
death is due to the gross negligence or willful misconduct of Customer.
	 
	(C)  	Definition. For the purpose of this Article XII, the terms
“Indemnitees” and “Customer” are deemed to include, respectively, Supplier,
Customer and each of their affiliated companies, the subcontractors and
suppliers of any Services furnished hereunder, and their respective
directors, officers, employees, and representatives.




17









 











     ARTICLE
XIII      INSURANCE




	(A)  	Without derogating from Customer’s obligations under Article XII
above (“Indemnification”) and in furtherance thereof, Customer shall, at
Customer’s expense, with respect to each, or an agreed-upon group of,
Schedules, procure and maintain in effect, as provided in Section (B)
below, a satisfactory policy or policies of insurance, with insurers
reasonably satisfactory to Supplier, providing coverage as follows:






	 	(1)  	Hull all risks (including risks of war/confiscation/hijacking) coverage (with acceptable deductibles
and standard limitations and not subject to AVN 29) for the item(s)
of Equipment covered by such Schedule(s), with an agreed insured
value for each such item of Equipment. The applicable policy shall,
to the extent applicable, insure such item(s) of Equipment while an
Aircraft is on the ground, taxiing or in the air. Supplier (and
each identified subcontractor) shall be listed on such policy as an
additional named insured and loss payee, as its interests may
appear.
	 
	 	(2)  	Third party aircraft legal liability, bodily injury
and property coverage (with standard limitations and not subject to
AVN 53), including liability towards the air crew, technical staff,
and Aircraft passengers, with a combined single limit of not less
than U.S. $500,000,000. Supplier (and each identified
subcontractor) shall appear on the policy as an additional named
insured, together with Customer in connection with the possession,
use, operation or maintenance of such item(s) of Equipment.






	(B)  	The policies referred to in Article XIII (A) above shall,
inter alia, expressly provide:






	 	(1)  	That the interests of Supplier thereunder shall not
be affected by any breach by Customer of any of the provisions of
such policies, by means of a breach of warranty clause.
	 
	 	(2)  	For severability of interests, by means of a cross liability clause.
	 
	 	(3)  	That the coverage thereunder shall be primary and any
similar coverage which Supplier might carry shall be excess coverage
and non-contributory thereto.
	 
	 	(4)  	For the waiver by the insurers of all of their rights
of subrogation against Supplier.
	 
	 	(5)  	That Supplier shall be given thirty (30) days prior
written notice by the insurers (except with respect to war and
allied perils, for which the




18









 






	 	   	prior notice shall be seven (7) days) in the event that either the
insurers or Customer desire to cancel or change such policies of
insurance in a manner which materially restricts the coverage
thereof.
	 
	 	(6)  	Customer covenants that the insurance coverage
provided herein shall remain in force with respect to each item of
Equipment for so long as Customer owns and/or operates such item of
Equipment.
	 
	 	(7)  	Customer shall deliver to Supplier no later than
twenty (20) days from the date the applicable Schedule(s) is (are)
signed, a certificate of the insurers or other evidence satisfactory
to Supplier that the insurance coverage provided for in Article XIII
(A) above is in effect.





     ARTICLE
XIV      EXCUSABLE DELAY




	(A)  	Excusable Delays. Supplier shall be excused from, and
shall not be liable for, any delays in its performance or failure to
perform under any Schedule, and shall not be deemed to be in default under
such Schedule for any delay in or failure of performance hereunder or
thereunder due to causes beyond its reasonable control. Such causes shall
be conclusively deemed to include, but not be limited to, acts of God, acts
(or failures to act) of Customer, acts (or failures to act) of civil or
military authority, government priorities, fires, strikes, labor disputes,
work stoppages, floods and other natural catastrophe(s), epidemics, war
(declared or undeclared), riot, delays in transportation or inability to
obtain on a timely basis necessary labor, materials, or components, which
have been timely ordered. In the event of any such delay, the time of
performance shall be extended for a period equal to the time lost by reason
of the delay.
	 
	(B)  	Continuing Obligations. Article XIV (A) shall not,
however, relieve Supplier from using its best commercial efforts to avoid
or remove any such cause of delay and continue performance with reasonable
dispatch when such cause is removed. During the period of an excusable
delay, Supplier shall have the right to invoice Customer for Services
performed, and Customer shall pay all such invoices net thirty (30)
calendar days.
	 
	(C)  	Extended Delay — Termination. If delay resulting from any
of the foregoing causes extends for more than six (6) months and the
parties have not agreed upon a revised basis for continuing the Services
under the affected Schedule(s), including any adjustment of prices, then
either party, upon thirty (30) calendar days written notice to the other,
may terminate the performance of Services with respect to the item(s) of
Equipment for which Services were delayed, whereupon Customer shall pay
Supplier’s termination charges upon receipt of Supplier’s invoice(s)
therefor.






19









 






	   	 	 	 
	 	ARTICLE
XV     WARRANTY








	 	(A)  	Workmanship Warranty —  The Parties agree that with respect
to Equipment repaired and Redelivered, if Customer alleges a defect in
workmanship within the period(s) provided in a Schedule (the “Warranty
Period(s)”), and Customer provides written notice to Supplier of such
defect within ten (10) days of its discovery, Supplier shall pay direct
costs for accessory, equipment or part repairs resulting therefrom (this
“Warranty”). The foregoing shall constitute the sole remedy of
Customer and the sole liability of Supplier for repair of defective
workmanship, relative to items of Equipment covered by this Article XV.
THE FOREGOING WARRANTY IS EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES,
WHETHER WRITTEN, ORAL, EXPRESSED, IMPLIED OR STATUTORY (INCLUDING, WITHOUT
LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE OR ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING
OR USAGE OF TRADE).
	 
	 	(B)  	Supplier undertakes, with respect to each defect demonstrated to
Supplier’s reasonable satisfaction to be a defect covered by this Warranty,
either to repair such item of Equipment in which a defect appears, or, at
Supplier’s option, to replace such accessory, item of Equipment or part
with a similar item free from defects. All such repairs and replacements
shall be performed by Supplier at Supplier’s expense, at a Repair Station
and Customer shall Deliver to Supplier, at Customer’s Premises, the
applicable item(s) of Equipment. Supplier shall be responsible for the
cost (including, but not limited, to shipping and insurance expenses) of
furnishing the applicable item of Equipment to Supplier and of removal
thereof from such Repair Station following the completion by Supplier of
the Warranty services. In addition, Customer shall be responsible for the
cost of removing a defective item of Equipment from an Engine or Aircraft
and for the reinstallation of the repaired/replacement item of Equipment on
such Engine or Aircraft.
	 
	 	(C)  	This Warranty shall not apply to an item of Equipment that was not
manufactured to Supplier’s detailed design, except that any defect in
Supplier workmanship incorporated in the installation of such item that
invalidates any applicable warranties from the manufacturers/suppliers
thereof shall constitute a defect in workmanship for the purpose of this
Warranty. Supplier shall transfer to Customer any applicable warranties
provided by the manufacturers/suppliers for accessories, equipment or parts
incorporated by Supplier into items of Equipment during the provision of
Services.
	 
	 	(D)  	Warranty Limitations. This Warranty is not assignable
without the prior written consent of Supplier and is applicable only if,
following Redelivery, the applicable item(s) of Equipment (A) has been
transported, stored, installed, operated, handled, maintained, and repaired
in accordance with all applicable




20









 







	 	   	ADs and the then current recommendations of the applicable OEM as stated
in its manuals, SBs, or other written instructions, (B) has not been
altered, modified or repaired by anyone other than Supplier, and (C) has
not been subjected to foreign object damage, accident, misuse, abuse or
neglect. Supplier’s liability in connection with the Service of an item
of Equipment is expressly limited to workmanship, and any warranty for
parts and material will be the warranty, if any, of the manufacturer of
such parts and material.
	 
	 	(E)  	Sole Remedy. The liability of Supplier connected with or
resulting from this Warranty shall not in any case exceed the cost of
correcting a defect or providing a replacement for a defective item of
Equipment, whichever is lower, as provided in Paragraph (B) above, and,
upon the expiration of the applicable Warranty Period(s), all such
liability shall terminate. The foregoing shall constitute the sole remedy
of Customer and the sole liability of Supplier with respect to warranty.






     ARTICLE
XVI      NOTICES




	 	(A)  	Acknowledgment. All notices required or permitted under
this Agreement or any Schedule shall be in writing and shall be delivered
personally, via first class mail, return receipt requested, by facsimile,
by courier service, or express mail, addressed as follows or such other
address as either party may designate in writing to the other party from
time to time:





	 	 	 
	Aviation Services

	 	Kitty Hawk Aircrago, Inc.
	International, LLC

	 	1515 West 20th Street
	Ben Gurion International

	 	P.O.Box 612787
	Airport,

	 	Dallas/Fort Worth International
	70100 Israel

	 	Airport
	

	 	Texas 75261
	Attn:
   Tommy Guttman

	 	U.S.A.
	Phone: 972-3-935-8778

	 	Attn:   Robbie Barron
	Fax:     972-3-935-4577

	 	Phone: 972-456-2427
	

	 	Fax:     972-456-2350
	 
	 	 
	

	 	  With a copy to:
	 
	 	 
	

	 	  Steven Markhoff
	 
	 	 
	

	 	  Phone: 972-456-2328
	

	 	  Fax:     972-456-2309






Notices may not be sent by e-mail.



21









 






	 	(B)  	Effect of Notices. Notices shall be effective and shall be
deemed to have been given when received by the recipient (A) if sent by
courier, express mail, or delivered personally, upon delivery; (B) if sent
by facsimile, upon receipt; and (C) in the case of a letter sent prepaid

first class mail, on the fifth (5th) day after posting (or on
actual receipt, if earlier).






     ARTICLE
XVII      TAXES AND OTHER CHARGES




	 	(A)  	Taxes, Duties or Charges. In addition to the prices for
the Services, Customer shall pay to Supplier, upon demand, any taxes
(including, without limitation, sales, use, ad valorem, excise, turnover or
value added taxes), duties, fees, charges, imposts, tariffs, or assessments
of any nature (but excluding income taxes of Supplier) (“Taxes”), assessed
or levied in connection with Supplier’s performance under this Agreement
and all Schedules.
	 
	 	(B)  	Right To Protest/Refund. If claim is made against Supplier
for any such Taxes, Supplier shall immediately notify Customer and, if
requested by Customer, Supplier shall not pay except under protest, and if
payment shall have been made, Supplier shall use all reasonable efforts to
obtain a refund thereof. If all or any part of any Taxes are refunded,
Supplier shall repay to Customer such part thereof as Customer shall have
paid. Customer shall pay to Supplier, upon demand, all expenses (including
penalties, interest and attorneys’ fees) incurred by Supplier in protesting
payment and in endeavoring to obtain any such refund.
	 
	 	(C)  	Withholding. All payments by Customer to Supplier under
this Agreement shall be free of all withholdings of any nature whatsoever
except to the extent otherwise required by law, and, if any such
withholding is so required, Customer shall pay an additional amount such
that, after the deduction of all amounts required to be withheld, the net
amount received by Supplier shall equal the amount that Supplier would have
received had such withholding not been required.






     ARTICLE XVIII      DISPUTE RESOLUTION, ARBITRATION




	 	(A)  	Resolution by Senior Management. If a dispute arises
relating to this Agreement or a Schedule and related damages, if any (a
“Dispute”), either party shall give written notice to the other party
requesting that senior management attempt to resolve such Dispute. Within
fifteen (15) days after receipt of such notice, the receiving party shall
submit a written response. The notice and the response shall include a
statement of the applicable party’s position and a summary of reasons
supporting that position. The parties shall cause senior management to
meet within forty-five (45) calendar days after delivery of such notice, at
a mutually acceptable time and place, and thereafter




22









 






	 	   	as often as they reasonably deem necessary, and to use commercially
reasonable efforts to resolve such Dispute.
	 
	 	(B)  	Arbitration. If the parties’ senior management do not
resolve a Dispute by means of the process described above within one
hundred twenty (120) calendar days after delivery of the disputing party’s
notice, then either party may request that such Dispute be settled and
finally determined by binding arbitration, in front of an arbitrator
selected by the American Arbitration Association (“AAA”) in New York, New
York, or any other location the parties may agree upon.
	 
	 	(C)  	Arbitration Procedure. A single arbitrator chosen by the
AAA shall conduct the arbitration. The arbitrator may hold pre-hearing
conferences or adopt other procedures. This Agreement shall be interpreted
and applied in accordance with the substantive laws of the State of New
York, without giving effect to its conflict of law provisions, rules or
procedures (except to the extent that the validity, perfection, or creation
of any lien or security interest hereunder and the exercise of rights or
remedies with respect of such lien or security interest for a particular
item of Equipment are governed by the laws of a jurisdiction other than New
York). The arbitration shall be conducted in, and all submissions to the
arbitrator shall be written in, the English language. Reasonable
examination of opposing witnesses in oral hearing shall be permitted. Each
party shall bear its own cost of presenting or defending its position in an
arbitration. The award of the arbitrator shall be final, binding and
non-appealable and judgment may be entered thereon in any court having
jurisdiction thereof.
	 
	 	(D)  	Exclusivity, Confidentiality. Each of the parties intends
that the dispute resolution process set forth in this Article XVIII shall
be the parties’ exclusive remedy for any Dispute. All statements made in
connection with the dispute resolution process set forth in this Article
XVIII shall not be disclosed to any third party except as required by law
or subpoena.
	 
	 	(E)  	Exception. Either party may at any time, without
inconsistency with this Article XVIII, seek from a court of competent
jurisdiction any equitable, interim, or provisional relief to avoid
irreparable harm or injury.






     ARTICLE XIX      NONDISCLOSURE OF PROPRIETARY DATA




	 	(A)  	Unless otherwise specifically agreed upon in a written proprietary
information agreement, any knowledge or information which Customer has
disclosed or may hereafter disclose to Supplier incident to the Service of
Equipment shall not be deemed to be confidential or proprietary information
and, accordingly, shall be acquired free from any restriction on use or
disclosure.




23









 






	 	(B)  	Non-Disclosure. The existence of this Agreement and its
general purpose or any Schedule may be stated to others by either of the
parties without approval from the other, except that, the terms of this
Agreement or any Schedule and any knowledge or information which Supplier
may disclose to Customer with respect to pricing, design, manufacture,
sale, use, repair, overhaul or Service of Equipment, shall be deemed to be
proprietary information, and shall be held in confidence by Customer. Such
information shall not be reproduced, used or disclosed to others by
Customer without Supplier’s prior written consent, except to the extent
required by government agencies and courts for official purposes.
Disclosure to any such government agency or court shall be made only (i)
upon thirty (30) calendar days advance written notice to Supplier of such
disclosure, so as to provide Supplier the ability to obtain an appropriate
protective order, and (ii) with a suitable restrictive legend limiting
further disclosure.
	 
	 	(C)  	Exceptions. The preceding Article XIX (B) shall not apply
to information which (i) is or becomes part of the general public knowledge
or literature otherwise than as a result of breach of Customer’s
obligations hereunder, or (ii) was, as shown by written records, known to
Customer prior to receipt from Supplier, or (iii) is disclosed without
restriction to Customer by a third party having the right to do so.
	 
	 	(D)  	Nothing contained in this Agreement shall convey to either party
the right to use the trademarks or other intellectual property of the
other, or convey or grant to Customer any license under any patent owned or
controlled by Supplier.






     ARTICLE
XX      SAVINGS CLAUSE




If any portion of this Agreement or any Schedule shall be determined to be a
violation of or contrary to any controlling law, rule or regulation or a
judgment issued by a court of competent jurisdiction, then such portion shall be
unenforceable and deleted from this Agreement or such Schedule, as applicable.
However, the balance of this Agreement or such Schedule shall remain in full
force and effect.




     ARTICLE
XXI      BENEFICIARIES




Except as herein or in any Schedule expressly provided to the contrary, the
provisions of this Agreement and all Schedules are for the benefit of the
parties hereto and not for the benefit of any third party.



24









 






     ARTICLE XXII      CONTROLLING LANGUAGE




The English language shall be used in the interpretation and performance of this
Agreement and all Schedules. All correspondence and documentation arising out
of or connected with this Agreement and/or any Schedule and any related purchase
order(s), including, but not limited to, Equipment logs, shall be in the English
language.




     ARTICLE XXIIII      NON-WAIVER OF RIGHTS AND REMEDIES




Any failure or delay in the exercise of rights or remedies hereunder shall not
operate to waive or impair such rights or remedies. Any waiver given shall not
be construed to require future or further waivers.




     ARTICLE XXIV      TITLES/SUBTITLES




The titles and subtitles given to the sections of this Agreement or any Schedule
are, and will be, for convenience only and shall not in any manner be deemed to
limit or restrict the context of the article or section to which they relate.
The words “herein”, “hereof”, “hereunder”, “herewith”, and similar terms are not
to be deemed restrictive and refer to the entire Agreement, including all
Appendices, or Schedules, as applicable.




     ARTICLE XXV      CURRENCY JUDGMENT




This is an international transaction in which the specification of Dollars is of
the essence. Except as may otherwise be provided in a Schedule, no payments
required to be made under this Agreement shall be discharged by payments in any
currency other than Dollars, whether pursuant to a judgment, arbitration award,
or otherwise.




     ARTICLE XXVI      NO AGENCY FEES




Customer represents and warrants that no officer, employee, representative, or
agent of Customer has been or will be paid a fee or otherwise has received or
will receive any personal compensation or consideration by or from Supplier in
connection with the obtaining, arranging or negotiation of this Agreement or
other documents entered into or executed in connection herewith.




     ARTICLE XXVII      E-COMMERCE




Customer and Supplier agree that all requirements of this Agreement and all
Schedules may be fulfilled through the use of E-commerce, E-billing, web
billing, electronic or digital signatures, e-mail messages, world wide web sites
or websites, electronic contracts or amendments, and electronic data exchange
(collectively, “E-commerce”). This provision is specifically intended to enable
each party to use E-commerce technology to increase efficiency in fulfilling its
responsibilities under this



25









 






Agreement and all Schedules. Except for notices provided pursuant Article XVI
above, Customer and Supplier agree that use of E-commerce in whatever manner
shall be recognized as performance for the specific contract requirement and
shall not be dismissed, ignored or used to prevent or hinder performance in any
way. However, the parties agree that using E-commerce shall not subject either
party to jurisdiction in any location which, but for the use of E-commerce, no
jurisdiction would exist.




     ARTICLE XXVIII      ON-SITE REPRESENTATIVES




Subject to the following conditions, Supplier agrees to permit Designated
Representatives, from time to time during the term of any Schedule, to enter
onto its premises at a Repair Station for the purpose of observing the Services.
Supplier shall furnish such Designated Representatives the use of a work space,
including the use of a local telephone line and parking accommodations. Costs
incurred by such Designated Representatives, including, without limitation, long
distance telephone charges, fax, or computer charges, shall be the
responsibility of Customer, and if charged to Supplier in the first instance,
shall be billed to Customer for reimbursement.




     ARTICLE XXIX      NO AGENCY




Nothing in this Agreement shall be interpreted or construed to create a
partnership, agency, or joint venture between Supplier and Customer.




     ARTICLE XXX      ENTIRE AGREEMENT




This Agreement, together with all Appendices and Schedules, contains and
constitutes the entire understanding and agreement between the parties hereto
respecting the subject matter hereof, and supersedes and cancels all previous
negotiations, agreements, commitments, and writings in connection herewith or,
in the case of each Schedule, such Schedule. This Agreement and any Schedule
may not be released, discharged, abandoned, supplemented, changed, or modified
in any manner, orally or otherwise, except by a writing of concurrent or
subsequent date signed and delivered by a duly authorized officer or
representative of each of the parties hereto making specific reference to this
Agreement or such Schedule, as applicable, and the provisions hereof or thereof,
being released, discharged, abandoned, supplemented, changed, or modified.




     ARTICLE XXXI      COUNTERPARTS




This Agreement and each Schedule may be executed in one or more counterparts,
all of which counterparts shall be treated as the same binding agreement, which
shall be effective as of the date set forth on the first page hereof, in the
case of these General Terms, and as of the date specified in a Schedule, in the
case of such Schedule, upon execution and delivery by each party hereto to the
other party of one or more such counterparts.



26









 





ARTICLE XXXII      GOVERNING LAW AND JURISDICTION





	 	(A)  	Governing Law
	 
	 	   	This Agreement shall be governed by, and shall be construed in accordance
with, the laws of the State of New York.
	 
	 	(B)  	Jurisdiction






	 	(1)  	The Parties hereto agree that the United States
Federal courts in New York shall have jurisdiction to settle any
disputes which may arise in connection with the legal relationships
established by this Agreement (including, without limitation, claims
for set-off or counterclaim) or otherwise arising in connection with
this Agreement.
	 
	 	(2)  	Each of the Parties hereto waives any objection to
the jurisdiction of the U.S. Federal Courts in New York on the
grounds of venue or forum non conveniens or any similar grounds.






IN WITNESS
WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized officer or representatives who represent to each other
and both parties that each is employed in the capacity indicated below and
has the unequivocal authority to execute and deliver this Agreement, which
shall be effective as of the date first above written.



	 	 	 	 	 
	AVIATION SERVICES

	 	 	KITTY HAWK
	INTERNATIONAL, LLC

	 	 	AIRCRAGO, INC.
	            (Supplier)

	 	 	 	            (Customer)
	 
	 	 	 	 
	By:

	 	 	By:	 /s/ Steven Markhoff
	 
	 	 	 	 
	Printed Name:

	 	 	Printed Name:
	

	 	 	Steven Markhoff
	Title:

	 	 	Title:
	

	 	 	Vice President Strategic Planning,
	

	 	 	General Counsel and Secretary
	Date:

	 	 	Date: March 7, 2005






27









 






For the purposes of Article X (C) only.




GE CAPITAL AVIATION SERVICES, INC.




	 	 	 	 	 
	By:
	 	 	 	 
	

	 	

	 	 






	 	 	 	 	 
	Print Name:
	 	 	 	 
	

	 	

	 	 






	 	 	 	 	 
	Title:
	 	 	 	 
	

	 	

	 	 
	 
	 	 	 	 
	Date:
	 	 	 	 
	

	 	

	 	 







28









 







APPENDIX A



GLOSSARY





Definitions. Capitalized terms used in the recitals and elsewhere
in this Agreement but not otherwise defined in this Agreement shall have the
following meanings:



“Agreement” shall mean this Full Service Aircraft Services Agreement and all
Schedules, as it may be amended or supplemented from time to time.




“Aircraft” shall mean, each bare Aircraft assembly, identified by serial number in
Annex A to a Schedule including those basic Aircraft controls and accessories
listed in such Schedule and those parts as described in the Aircraft
manufacturer’s specification manuals. Annex A to a Schedule, may be amended in
writing by both parties to reflect any Aircraft added to or deleted from this
Agreement.




“Airworthiness Directive” or “AD” shall mean a document issued by the Approved
Aviation Authority having jurisdiction over the Aircraft prescribing
inspections and the conditions and limitations, if any, under which the
Aircraft may continue to operate.




“Approved Aviation Authority” shall mean, as applicable, the Federal Aviation
Administration of the United States (“FAA”), or, at the request of Customer
(and agreed in writing by Supplier), the European Aviation safety Agency
(“EASA”) or such other equivalent foreign aviation authority having
jurisdiction over the performance of Services provided hereunder.




“Beyond Economic Repair” (“BER”) shall mean an Equipment shop visit for which the
cost to restore an item of Equipment to the requirements of its Repair
Specification, when calculated on a Supplemental Work basis as set forth in
this Agreement, exceeds seventy percent (70%) of the replacement cost for a
comparable replacement item of Equipment.




“CLP” shall mean a manufacturer’s current catalog, or manufacturer’s current
list, price pertaining to a new part or new item of Equipment. The term
“current” as used in this definition means as of the time of the applicable
Service.




“Customer Facilities/Premises” shall mean the facilities of customer at (i) Fort
Wayne, Indiana U.S.A. (the “Fort Wayne Hub”) and (ii) Dallas/Fort Worth
International Airport, Texas, 75261, U.S.A (the “Dallas Maintenance Base”) and
such Customer out-stations that Customer shall specify in a letter to Supplier
pursuant to the provisions of Schedule No. 3.




“Delivered Duty Paid” (“DDP”) to a Repair Station pursuant to the International
Chamber of Commerce “Incoterms” (2000 Edition), whereby Customer shall fulfill
the obligations




29









 








of seller and Supplier of buyer. “Deliver” shall mean the act by which Customer
accomplishes Delivery.




“Delivery” shall mean, in respect of any item of Equipment, the occurrence of the
arrival thereof at a Repair Facility, together with all applicable records and
required data.




“Dollars” shall mean the legal tender of the United States of America.




“Equipment” shall mean each and all of Customer’s Landing Gear, Engines, Covered
Components, Other Components or APUs, Engine LRUs, APU LRUs, or any part or
accessory thereof, Delivered by Customer to Supplier for Service under any
Schedule.




“Foreign Object Damage” or “FOD” shall mean damage to any portion of an item of
Equipment caused by impact or ingestion of an outside object which is beyond
the operator’s control such as birds, stones, hail, or natural tarmac debris.




“GECAS” shall mean GE Capital Aviation Services, Inc., and its affiliates and
assigns, a Delaware corporation, and lessor of the Aircraft to Customer.




“Life Limited Part” or “LLP” shall mean a part with an approved limitation on
use in cumulative hours or cycles, established by an OEM or the Approved
Aviation Authority.




“Line Replaceable Unit” or “LRU” shall mean one or more major accessories of the
external portion of an Engine or APU which can be changed on wing.




“Original Equipment Manufacturer” or “OEM” shall mean the original manufacturer of
any item of Equipment.




“Redelivery” shall mean the occurrence of the return of an item of Equipment for
Customer’s acceptance Ex Works, Supplier’s Repair Station, pursuant to the
International Chamber of Commerce “Incoterms” (2000 Edition), whereby Customer
shall fulfill the obligations of buyer and Supplier of seller. “Redeliver”
shall mean the act by which Supplier accomplishes Redelivery.




“Removal Schedule (“RS”)” shall mean the schedule for Engine removal from an
Aircraft for maintenance as jointly developed by Supplier and Customer.




“Repair Station” shall mean one or more of the repair facilities owned by Supplier
or its affiliates or any direct or indirect subcontractor from Supplier, now or
in the future, which are certified by the Approved Aviation Authority to
perform the applicable Service hereunder. A list of repair facilities owned by
Supplier or its affiliates, as of the Effective Date of these General Terms, is
set forth in Appendix B hereto.




“Repair Specification” shall mean a Customer repair specification, which shall
identify the minimum baseline to which a Customer item of Equipment shall be
inspected, repaired, modified, reassembled and tested hereunder and under any
applicable Schedule. Each Repair Specification shall meet or exceed the
recommendations of the




30









 








applicable OEM’s operational specifications and applicable Equipment maintenance or
overhaul manuals, and Customer’s maintenance plan as agreed to by Customer and
Supplier and approved by the Approved Aviation Authority.




“Repairable” shall mean capable of being made Serviceable.




“Return Conditions” shall mean the lease return conditions for the Aircraft as
between Customer and GECAS and provided to Supplier and attached to Schedule 2
as Annex 1A.




“Rotable Part” shall mean a new or used Serviceable part drawn from a common pool of
parts used to support multiple customers, which replaces a like part requiring
repair for which the actual repair time impedes the specified Turn Time.




“Scrapped Parts” shall mean those parts determined by Supplier to be unserviceable
and beyond economic repair for reliability, performance or economic reasons.




“Service” or “Services” shall mean, with respect to any item of Equipment, all or
any part of those services requested by Customer which Supplier agrees to
perform under a Schedule, as more particularly described in the Workscope and
Repair Specification for such item of Equipment, including, without limitation,
the furnishing of parts and materials, labor, facilities, tooling, painting,
plating, and testing devices required in the performance of repair and
maintenance in connection with such item of Equipment. “Serviced” shall be
construed accordingly.




“Service Bulletin” or “SB” shall mean the document issued by an OEM to notify
Customer of modifications, substitution of parts, special inspections, special
checks, amendment of existing life limits or establishment of first time life
limits.




“Serviceable” shall mean an item of Equipment that meets all OEM and Approved
Aviation Authority specified standards for airworthiness, and has no known
defects which would render it unfit for service in accordance with its
Workscope and Repair Specification.




“Serviceable Condition” shall mean, with respect to an item of Equipment, a
repaired, calibrated, or inspected item in an airworthy condition which can be
used for the same purpose as a newly manufactured item.




“Straight Time” shall mean the first eight (8) hours charged Monday through Friday
(Sunday through Thursday, in the case of IAI) (except local holidays observed
by a Repair Station), provided that a minimum of eight (8) hours break has
occurred since the last time charged.




“Supplemental Work” shall mean any Service provided under a Schedule which is not
specifically covered under the T3 Program. All Supplemental Work
shall be at Customer’s expense, in accordance with the pricing set forth in the
applicable Schedule.




31









 








“Shop Visit(s)” shall mean a Repair Station visit (scheduled or unscheduled)
during which off-wing repair and maintenance is performed on Equipment.




“T3 Program” shall mean the program consisting of the repair,
maintenance, and management of the Equipment provided to Customer by Supplier,
pursuant to the terms hereof, provided such Equipment is covered by a Schedule.




“T3 Rate” shall mean the price(s) per flight hour provided in a Schedule
as the consideration for the provision of the Services contained in such
Schedule.




“Turn Time” shall mean the number of calendar days between Delivery and
Redelivery of Equipment, exclusive of public holidays observed by the
applicable Repair Station.




“Workscope” shall mean the document written and approved by Supplier’s Engineering
staff describing the prescribed repair or approach to repair of identified
Equipment to meet the requirements of the Repair Specification for such
Equipment.




[Balance of this page intentionally left blank.]




32









 








APPENDIX B

REPAIR STATIONS




	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 	Repair Station	 	 	Location	 	 	Certification Authority 	 	 	Certification Number	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 	Aircraft, Engine and
	 	 	Ben Gurion	 	 	FAA	 	 	MK1Y325K	 
	 	Components Services –
	 	 	International	 	 	EASA	 	 	CAA.00417	 
	 	Israel Aircraft
	 	 	Airport, Israel	 	 	CAA Israel	 	 	CAA 01	 
	 	Industries Ltd.
	 	 	 	 	 	CAA UK	 	 	DIA/6376/61	 
	 	 
	 	 	 	 	 	IDGCA	 	 	1107/94/-AI(2)/2-95	 
	 	 
	 	 	 	 	 	CAAC	 	 	F.2401	 
	 	 
	 	 	 	 	 	RSA	 	 	PT3	 
	 	 
	 	 	 	 	 	DNA	 	 	1-B-130	 
	 	 
	 	 	 	 	 	DDA	 	 	055	 
	 	 
	 	 	 	 	 	RCAA	 	 	B1-12/1991	 
	 	 
	 	 	 	 	 	ECAA	 	 	AS/02/94	 
	 	 
	 	 	 	 	 	KDCA	 	 	K/A1/288	 
	 	 
	 	 	 	 	 	UDCA	 	 	UG/CAA/028	 
	 	 
	 	 	 	 	 	ZDCA	 	 	Z/IAO/056	 
	 	 
	 	 	 	 	 	NDCA	 	 	FCAA/SS/AD60/7-94	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 	Aircraft Services –
Empire Auto Center Inc.
	 	 	Rome, New York	 	 	FAA	 	 	VN4R602M	 
	 	 	 	 	 	 	 	 	 	 	 	 





33









 






APPENDIX C

Form of

WARRANTY ASSIGNMENT LETTER

(Customer Letterhead)





(Date)




(Name and Address of Original Equipment Manufacturer)




Attn:




Re: Assignment of Third Party Warranty




Dear (Sir/Madam):




(Kitty Hawk Aircrago, Inc.) (“KHI”) and the (Original Equipment
Manufacturer) entered into Agreement Number                     , dated                     , 200___
(the “Equipment Purchase Agreement”), wherein KHI agreed to purchase a
specified number of items of Equipment (Original Equipment Manufacture)
agreed to provide certain warranties and guarantees with regard to such
items of Equipment to (KHI).




KHI and Aviation Services International, LLC (“ASI”) have now entered into a
separate Full Service Aircraft Services Agreement, dated                      2004, as
supplemented by Schedule No.                     , (as so supplemented, the “Maintenance
Agreement”) for the maintenance, repair and overhaul of the aforementioned
items of Equipment. The Maintenance Agreement specifies that KHI shall,
during the term of the Maintenance Agreement, assign to ASI the benefit of
all (Original Equipment Manufacturer) warranties and guarantees applicable
to the items of Equipment covered by the Maintenance Agreement.




This Letter is intended to serve as official notification to (Original
Equipment Manufacturer) of KHI’s intent to so assign the applicable
warranties and guarantees under the Equipment Purchase Agreement to ASI.




(Original Equipment Manufacturer), please indicate your concurrence with
such assignment by signing in the space provided below and returning a copy
of this letter to the undersigned.




(Signature Block)



34









 





EXHIBIT 1




[Form of Schedule]




35









 








Schedule No.:




SCHEDULE

to




Full Service Aircraft Services Agreement,

dated March 7, 2005, between

Aviation Services International, LLC

and

Kitty Hawk Aircargo, Inc.





This Schedule is issued pursuant to the Full Service Aircraft Services
Agreement, dated March 7, 2005 (the “General Terms Agreement”), between
Kitty Hawk Aircrago, Inc.. and Aviation Services International, LLC (any
term used herein and not defined herein shall have the meaning given to it
in the General Terms Agreement).




	 	(1)  	T3 Program Services included under this Schedule
	 
	 	(2)  	Additional Provisions






[Include modifications and deletions, if any, from the General Terms Agreement for
the purposes of this Schedule only.]



(3)   Part of General Terms Agreement




This Schedule, when countersigned by the parties hereto, dated and numbered, shall
be incorporated into, and form an integral part of, the General Terms Agreement.
By their execution and delivery of this Schedule, the parties hereby reaffirm all
of the terms and conditions of the General Terms Agreement, except, as to this
Schedule only, to the extent modified or deleted under Section 2 above.



36









 





All annexes to this Schedule are hereby incorporated herein and made a part hereof
as if such annexes were set forth in this Schedule at length.



	 	 	 	 	 	 	 
	

	 	 	 	 	 	AVIATION SERVICES INTERNATIONAL, LLC

(Supplier)
	

	 	 	 	By:	 	 
	

	 	 	 	Print Name:	 	 
	

	 	 	 	Title:	 	 
	

	 	 	 	 	 	KITTY HAWK AIRCARGO, INC.

(Customer)
	

	 	 	 	By:	 	 
	

	 	 	 	Print Name:	 	 
	

	 	 	 	Title:	 	 
	Dated:
	 	 	 	 	 	 
	

	 	March 7, 2005	 	 	 	 







37









 






Schedule No.: 2




SCHEDULE

to

Full Service Aircraft Services Agreement,

dated March 7, 2005, between

Aviation Services International, LLC

and

Kitty Hawk Aircargo, Inc.




This Schedule is issued pursuant to the Master Aircraft Service Agreement, dated March 7, 2005 (the
“General Terms Agreement”), between Aviation Services International, LLC. (“Supplier”) and Kitty
Hawk Aircargo, Inc. (“Customer”) (any term used herein and not defined herein shall have the
meaning given to it in the General Terms Agreement).





	(1)  	Coverage
	 
	   	This Schedule applies to the T3 Program Engine Services on Customers
seven (7) 737-300 SF Aircraft, a list of which, including a list of the Engines
subject to this Schedule, is set out in Annex 1.
	 
	(2)  	Definitions
	 
	   	Unless the context otherwise requires, for the purposes of this Schedule, the
following terms shall have the following meanings:
	 
	   	“Abuse” means, any Engine operations which do not comply with the Manufacturer’s
operating instructions and limitations. Engines should also be operated within
CFMI’s recommended operating procedures for performance retention and to avoid
premature engine removal; e.g., de-rated thrust take-off using only the level
required for the prevailing conditions, implementation of a water wash program,
application of warm-up and cool-down periods. Lack of implementation of these ‘best
operating’ procedures and resultant excessive EGTM deterioration will constitute
‘abuse’ within the framework of this Schedule.
	 
	   	“Bench Stock” means those expendable or consumable items routinely replaced during
the inspection, repair or maintenance of Equipment, whether or not such items have
been damaged, and other items that are customarily replaced at each inspection or
maintenance period.
	 
	   	“Cycle” means one (1) take off and subsequent landing to a full stop of an Aircraft,
including touch and go to a full stop.
	 
	   	“CSLSV” means the number of Cycles an Engine has completed since its last Shop
visit.




 









 






	   	“CSN” means the number of Cycles an Engine has completed since manufacture.
	 
	   	“Delivery” shall mean, in respect of any item of Equipment, the pickup of such item
of Equipment by Supplier or a representative of Supplier at the applicable Supplier
Facility.
	 
	   	“Deliver” shall mean the act by which Customer accomplishes Delivery.
	 
	   	“Dollars” shall mean the lawful currency of the United States of America.
	 
	   	“Designated Repair Station” shall mean the facilities of Israel Aircraft Industries,
Ltd, Bedek Aviation Group, Engines Division, Ben Gurion International Airport,
Israel.
	 
	   	“Engine” shall mean, a CFM56-3 B1 or 3B2 bare (i.e., without QEC) Engine, plus its
essential controls and accessories as described in the engine manufacturer’s
specification manuals, and the parts incorporated therein.
	 
	   	“Engine LRU” shall mean those line replaceable units in respect of a bare Engine.
	 
	   	“Engine Refurbishment” shall mean all scheduled and un-scheduled off-wing Engine
repair accomplished for each module/Engine in accordance with minimum workscope,
performance workscope, or full workscope levels, as defined in the Workscope
Planning Guide.
	 
	   	“Equipment” shall mean an individual or collective reference, as appropriate, to
Customer’s Engines, Engine modules, Engine assemblies and sub-assemblies, Engine
mounted controls and accessories, and the parts incorporated therein.
	 
	   	“Exchange Part” shall mean any Part or component provided from Supplier’s (or its
subcontractor’s) inventory, whenever possible, to replace any un-Serviceable Part or
component in order to expedite Repair/Overhaul of an Engine. An Exchange Part shall
be of the same configuration/build standard as the replaced Part or component.
	 
	   	“Flight Hour” shall mean each hour or part thereof elapsing from the moment at which
the wheels of an Aircraft leave the ground on the take-off of such Aircraft
until the wheels of such Aircraft touch the ground on the landing of such
Aircraft following such take off and recorded in such Aircraft’s log book.
	 
	   	“Foreign Object Damage” or “FOD” shall mean, any damage to an Engine caused by
impact or ingestion of a foreign object, which does not allow the further
airworthy operation of such Engine and this requires its removal from an
Aircraft according to the CFMI Engine Shop Manual.




2









 






	   	“Full Core Performance Restoration” shall mean the Services performed during an MCAP
Shop Visit of an Engine, in which, at a minimum, the major modules, which shall
include, without limitation, the compressor, combustor and high-pressure turbine of
an Engine are exposed and subsequently refurbished, consistent with such Engine’s
Performance Workscope.
	 
	   	“GECAS” shall mean GE Commercial Aviation Services LLC, and its affiliates and
successors, lessor of the Aircraft to Customer.
	 
	   	“Hot Section Restoration” shall mean Engine Refurbishment at its Performance
Workscope Level as per the CFM 56-3 Workscope Planning Guide, dated June, 2000, and
as amended, to be performed to the high pressure turbine of an Engine sub-module, as
required.
	 
	   	“IOD” shall mean damage to an Engine caused by impact or ingestion of an
internal object, which does not allow the further airworthy operation of such
Engine and this requires its removal from an Aircraft according to the CFMI
Engine Shop Manual.
	 
	   	“Man-hour” shall mean the allocation of one (1) man to any specified task, including
the supervision/inspection of that task, for an elapsed time of one (1) hour or
pro-rata part thereof.
	 
	   	“Manufacturer” shall mean the original equipment manufacturer of a Part or a
component on an Engine.
	 
	   	“Part” shall mean one piece, or two or more pieces joined together, which are not
normally subject to disassembly without destruction of designed use.
	 
	   	“Preliminary Workscope” shall mean the document submitted to Supplier by Customer
which (A) identifies the Equipment by type and serial number, (B) describes the
Services requested to be performed on such Equipment, and (C) includes detailed
information on the Equipment removal cause, current LLP status and current LLP
rebuild specification, Airworthiness Directive status, and any other technical data
required to process such Equipment.
	 
	   	“QEC” shall mean a kit consisting of air ducts, major components, fuel and air
hoses, electrical wiring and Engine mounts necessary for adapting an Engine to the
appropriate Aircraft.
	 
	   	“Redelivery” shall mean the occurrence of the return of an item of Equipment by
Supplier or a representative of Supplier to the designated (by Customer) Facility.
“Redeliver” shall mean the act by which Supplier accomplishes Redelivery.
	 
	   	“Repair” shall mean the restoration of an Engine or any of its Parts and/or
components to a Serviceable Condition.




3









 






	   	“Return Conditions” shall mean the engine lease return conditions for the Aircraft
specified in the aircraft leases between GECAS and Customer, a copy of which is
annexed hereto as Annex 1A.
	 
	   	“Sage Data” shall mean Engine condition monitoring data collected from Engine
operation.
	 
	   	“Turn Time” or “Turn Around Time” or “TAT” shall mean the number of calendar days
between Delivery and Redelivery of Customer’s Equipment, exclusive of public
holidays observed by the Designated Repair Station.
	 
	   	“T3 Program Engine Services” shall mean all those services described in
this Schedule as such.
	 
	   	“TSLSV” shall mean the time, expressed in hours of operation, and Engine has
completed since its last shop visit.
	 
	   	“TSN” shall mean the time, expressed in hours of operation, an Engine has completed
since manufacturer.
	 
	   	“Workscope” shall mean a document written and approved by Supplier’s engineering
staff describing the prescribed repair or approach to repair of identified Equipment
to meet the requirements of a Repair Specification for such Equipment. A Workscope
shall be developed by Supplier, based upon the Preliminary Workscope and the actual
condition of the Equipment, and shall be submitted by Supplier to Customer for
Customer’s approval, such approval not to be unreasonably withheld, conditioned or
delayed. A Workscope shall, at such time of Customer’s approval, supersede the
Preliminary Workscope and shall be utilized by Supplier in the performance of the
Services on the referenced Equipment.
	 
	   	“Workscope Planning Guide” shall mean CFMI’s Workscope Planning Guide in its latest
revision as of the Commencement Date and as updated from time to time.
	 
	(3)  	Interpretation






	 	3.1  	Any expression in the singular shall, where the context
requires, include the plural and vice versa.
	 
	 	3.2  	In this Schedule all references to “Sections”, “Sub-sections”,
“Paragraphs”, “Sub-paragraphs”, “Appendices” “Annexes” and “Exhibits”
are to Sections, sub-sections, paragraphs, sub-paragraphs, appendices,
annexes and exhibits to this Schedule, unless expressly stated
otherwise.
	 
	 	3.3  	Section headings are inserted for convenience of reference only
and shall be ignored in the construction of this Schedule.




4









 






	 	3.4  	Any technical expressions used in this Schedule and not defined
herein shall, unless the context otherwise requires, have the meanings
specified in the latest edition from time to time of the World Airlines
Technical Operations Glossary (WATOG) published by the International
Airline Transport Association. Where a definition does not appear in
WATOG, then reference shall be made to the World Airlines Suppliers
Guide (WASG), provided that WATOG shall take precedence in the case of
any conflict of definitions.






	(4)  	Objective
	 
	   	This Schedule details the scope of the T3 Program Engine Services to be supplied
by Supplier to the fourteen (14) Engines on Customer’s 737-300 SF Aircraft.
	 
	   	Supplier shall perform the T3 Program Engine Services at the Site or at another
FAA approved base maintenance facility approved in writing between the Parties from time to
time. For the avoidance of doubt, the performance of T3 Program Engine Services
at any such other FAA approved maintenance facilities shall not diminish Supplier’s
obligations to Customer in respect thereof, as provided in this Schedule.
	 
	   	Note: The provision of the T3 Program Engine Services on the terms, and
subject to the conditions, contained in this Schedule is based on the assumption
that the Engines will be operated (i) in the case of the 3B1 Engines, at 20,000
pounds of thrust; and (ii) in the case of the 3B2 Engines, at 22,000 pounds of
thrust with a de-rate average of 10% or if operated as 3B1s, shall comply with (i)
above, provided that all 3B2 Engines operating at such thrust which have a turbine
control timer installed, must have it operational. (It is understood that 3B1 cannot
be de-rated below 18,500 pounds of thrust).
	 
	5.  	T3 Program Engine Services
	 
	5.1  	Entry conditions for Customer’s 3B1 and 3B2 Engines:






	 	•  	Minimum build-up requirement for each Engine entering the T3 Program
shall be 3,000 remaining cycles at 20,000 and 22,000 pounds of thrust for the 3B1 and
3B2 Engines, respectively. Adjustment in price may be made if an Engine enters the
Program with less than the minimum build-up requirement from its last shop visit.
	 
	 	•  	Each Engine must undergo a video borescope prior to entry into the T3
Program and pass with no restrictions or impediments in accordance with Manufacturer
recommendations (no “on-wing watch on” items), to be performed by Supplier at its
cost.
	 
	 	•  	Each Engine must have sufficient EGT margin (“EGTM”) for the remaining Cycles upon
entry into the T3 Program, as follows:




5









 











	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	Remaining Cycles	 	 	Minimum EGT margin	 
	 	 	 	 	per Engine	 	 	on-wing at	 
	 	Engine Type	 	 	nameplate	 	 	sea-level	 
	 	3B1 operated at 20K lbs.
thrust

	 	 	 	3000	 	 	 	25 deg. C.	 
	 	3B2 operated at 20K lbs.
thrust

	 	 	 	3000	 	 	 	25 deg. C.	 
	 	3B2 operated at 22K lbs.
thrust

	 	 	 	3000	 	 	 	13 deg. C.	 
	 






	 	   	In respect of each Engine entering the T3 Program, for each additional
1,000 Cycles remaining, such Engine should have a sufficient EGTM to remain on-wing
in accordance with standard rates of deterioration as published by CFMI.
	 
	 	   	The EGTM for each Engine’s entry into the T3 Program shall be measured
by either (1) SAGE Data on take-off or (2) Maximum Power Assurance (MPA) on-wing in
accordance with the Manufacturer’s manual. If an Engine does not comply with the
above entry conditions, then an adjustment in price may be made.
	 
	 	•  	Customer shall provide all relevant Engine documentation for each Engine prior to
entry into the T3 Program, including records of all LLPs, TSLSV/CSLSV,
TSN/CSN, SAGE Data, last shop visit records, list of SBs/ADs incorporated, and
configuration data issued by CFMI, to the extent Customer has these in its possession
or which are readily obtainable by Customer without unreasonable effort.
	 
	 	•  	Engines which have not undergone a shop visit prior to the Commencement Date of
this Agreement or which have had their last shop visit performed by IAI or by a
comparable shop facility approved by, and which is acceptable to IAI (such approval
and acceptance not to be unreasonably withheld by Supplier), shall be admitted to the
T3 Program, subject to final evaluation by Supplier prior to receipt of an
Engine. Notwithstanding the foregoing, if the most recent shop visit shall have been
performed and monitored under the supervision of GECAS, this provision shall not
apply.
	 
	 	•  	Engines that have undergone repairs at a third party and which are accepted into
the T3 Program are subject to the right of Supplier to conduct a detailed
evaluation. Such evaluation may include TSLSV/CSLSV, nature and extent of maintenance
services performed at most recent shop visit, Engine hardware configuration and number
of repairs performed, reputation of previous shop, inspection of Engine, Engine
borescope, and full review of all technical records and data concerning the Engine.






	5.2  	Supplier shall provide comprehensive off-wing maintenance coverage for Customer’s 3B1
and 3B2 Engines pursuant to this Schedule for both scheduled and unscheduled engine
removals, in accordance with FAA regulations, applicable Manufacturer specifications,
the Manufacturer’s Engine Service Manual and IAI’s engineering procedures and
recommendations, FAA-authorized repairs (no FAA PMA Parts). Workscope Planning Guide
(latest revision), in effect on the Signature Date, or future versions that will
appear from time to time, as detailed below (together, the “Work Standard”). At all
times, Supplier shall provide the latest version. Should the latest version impose
considerable financial burdens on Supplier, both Parties will meet to find an
equitable solution to such financial burden. For the avoidance of




6









 






	   	doubt, Supplier
shall not use FAA-PMA parts or perform FAA-DER repairs unless authorized in advance
by Customer.
	 
	5.2A   	 Supplier shall assume all responsibility including financial responsibility for the
Return Conditions for the Engines that Customer is required to meet in accordance with
the aircraft leases. This shall include, but not be limited to: scheduling shop
visits to meet minimum time and cycles remaining since overhaul and minimum LLP life
at re-delivery to lessor, responsibility for meeting minimum EGTM upon return to
lessor and responsibility for correcting boroscope findings not occasioned by FOD or
negligent operation by Customer, all in accordance with the lease Return Conditions
for the Engines.
	 
	5.3  	Shop Visits






	 	5.3.1  	Each Engine will undergo Core Performance Restoration Shop
Visits and/or Hot Section Restorations as required and recommended by
IAI engineering and in consultation with Customer (the Workscope for
Full Core Performance Restoration is attached hereto as Annex 2).
	 
	 	5.3.2  	Shop Visits to correct known defects or performance
deterioration beyond service limits, which cannot be corrected on wing.
	 
	 	5.3.3  	Shop Visits for scheduled maintenance as recommended by IAI or
due to LLP replacement and agreed to by Customer.
	 
	 	5.3.4  	Shop Visits that cannot be accomplished on-wing, after all
reasonable troubleshooting actions have been carried out by Customer or
Supplier.
	 
	 	5.3.5  	During Shop Visits Customer will give consideration to the
following return conditions and will build the engines as appropriate
with sufficient LLP life and EGT margin remaining as expected to meet
these terms.
	 
	 	   	IAI will consult with GECAS on all workscopes.
	 
	 	5.3.6  	Return conditions at end of Term shall be not less than 3,000
remaining Cycles and not less than 3000 Engine Flight Hours on-wing to
the next Engine Refurbishment and are subject to max MPA runs and
sufficient EGTM to remain on-wing for the remaining Cycles as per table
in Sub-paragraph 5.1 above.






	5.4  	The T3 Program Engine Services shall include:






	 	•  	Off-wing comprehensive Engine maintenance for both scheduled and unscheduled Engine
maintenance, including material, labor, LLPs, bare Engine component repair, shop test,
as necessary, to return an Engine to a Serviceable Condition, which shall include the
following:




7









 












	 	1.  	Incoming Inspection,
	 
	 	2.  	Disassembly (as required).
	 
	 	3.  	Cleaning.
	 
	 	4.  	Non-Destructive Testing (N.D.T.).
	 
	 	5.  	Inspection and repair or replacement of
Removed Engine Parts, Subassemblies, Modules.
	 
	 	6.  	Re-Assembly of Modules.
	 
	 	7.  	Balancing of rotating Modules and High Speed Grinder.
	 
	 	8.  	Re-Assembly of Engine.
	 
	 	9.  	Test cell run of Engine.
	 
	 	10.  	Post-test inspection.
	 
	 	11.  	Preservation for twelve months.
	 
	 	12.  	Preparation of Engine for airfreight
shipment on Customer furnished equipment, consisting of
Engine stand with cradle, together with preparation of
empty stand for the Engine to be removed, except that
Supplier shall provide, as needed (i) an extra cradle
for transportation and (ii) one (1) sling kit. Such
Engine will be Redelivered with full QEC (without nose
cowl), unless such Engine was Delivered without a full
QEC, in which case, it shall be Redelivered without a
full QEC.






	 	   	with guaranteed Customer fleet-wide average EGTM levels (after Shop Visits), such average
to be determined after six (6) Engines have undergone Shop Visits for a Full Core
Performance Restoration Workscope in accordance with the Workscope Planning Guide, as
follows:






	 	•  	3B1: 65 degrees C at hot-day takeoff at sea level.
	 
	 	•  	3B2: 35 degrees C at hot-day takeoff at sea level.






	 	•  	LLP replacement Shop Visits. All LLPs to be installed by Supplier shall
have full back to birth traceability, reasonably acceptable to Supplier prior to
installation, in addition, Supplier is expressly forbidden to replace any Customer
owned LLPs which have lower life remaining or value regardless of having minimum built
life requirements. All LLPs removed from an Engine




8









 






	 	   	shall become Supplier property
and may be installed on other Engines in the T3 Program.
	 
	 	•  	Perform line station repairs to avoid Shop Visits, at Supplier’s option only (such
option to be exercised with due care) and in consultation with Customer.
	 
	 	•  	Engine testing, including fuel and oil.
	 
	 	•  	Program Management, including Engine Condition Monitoring (ECM) and SAGE
Engineering Support, including Cycles and Flight Hours control based upon information
received on a monthly basis from Customer.
	 
	 	•  	Repair incidental minor damage, FOD/IOD, up to $20,000 per Shop Visit discovered
during a Shop Visit. For reasons of clarity, the term FOD/IOD will not include LLPs
and normal wear, tear and erosion.
	 
	 	•  	Incorporation of Category 1-3 SBs, higher category SBs at Supplier option only and
to extend time on-wing (e.g., reliability improving modifications), all Alert SBs and
ADs (known at time of proposal) which occur at a Shop Visit up to a maximum of $20,000
per Engine per Shop Visit (not including optional coverage; i.e., categories 4-9 per
CFMI recommendations and new ADs).
	 
	 	•  	Roundtrip transportation to/from the applicable Customer Facility.






	5.5  	Spare Engine Program






	 	•  	Spare Engines Availability for scheduled Shop Visits: Not less than
twenty-four (24) hours prior to removal of an Engine for a scheduled Shop Visit,
Supplier will provide a spare Engine (a “Spare Engine”) with the same configuration as
the removed Engine for Customer’s use during such scheduled Shop Visit, subject to the
Parties mutually agreed to schedule of planned Engine removals during the term.
	 
	 	•  	For unscheduled removals of an Engine, Supplier will use its best efforts
to provide a Spare Engine to Customer within forty-eight (48) hours of notification by
Customer. If Supplier cannot procure such Spare Engine, Customer shall procure such
Spare Engine on the best commercial terms available to it at that time. 
	 
	 	•  	Article 5.12.2 of this Schedule shall apply to payment for supply of spare
engines for both scheduled and unscheduled engine removals. 
	 
	 	•  	While Customer has custody of a Spare Engine, Customer shall (i) operate such Spare
Engine in accordance with the operating parameters and, in all events, within the
Flight Hours to Cycles ratio, that it was operating the
Engine being replaced by such Spare Engine, (ii) bear full risk of damage to, or
loss of, such Spare Engine and extend the coverage of the insurance policies it is
maintaining pursuant to Article XIII of the General Terms Agreement to cover such
Spare Engine; and (iii) generally deal with such




9









 






	 	   	Spare Engine with the same
standard of care with which it deals with its own engines.
	 
	 	•  	Upon the Redelivery of the Engine that had been replaced and, in all events, no
more than forty-eight (48) hours thereafter, Customer shall return the Spare Engine to
Supplier at the Site.
	 
	 	•  	In the event Customer fails to return a Spare Engine in accordance with the
provisions of the redelivery provisions the immediately preceding sub-paragraph, then,
commencing with the first day after such Redelivery by Supplier, and until Customer
actually redelivers such Spare Engine to Supplier at the Site, Customer shall pay to
Supplier the sum of US$ 1,500 per day (pro rata for partial days).






	5.6  	Supplemental Work






	 	•  	Supplemental work shall consist of all other services not specifically included in
the T3 Program Engine Services, and agreed through a cost estimate approved
by Customer before a service is performed.
	 
	 	•  	SB and AD Coverage for Optional SBs (categories 4-9 per CFMI recommendations and
excluding modifications for the sole benefit of Supplier) and new ADs to be charged
case-by-case on Supplemental Work basis, excluding future ADs and SBs with the same
intent as an earlier version, where only the incremental cost will be on a
Supplemental Work basis.
	 
	 	•  	QEC repair and/or replacement (which is covered under Schedule No. 3).
	 
	 	•  	Services performed at the request of Customer.
	 
	 	•  	Services exclusively required as a result of:






	 	•  	an accident; and/or
	 
	 	•  	a Shop Visit required as a result of FOD (other than
incidental FOD, as to Engines only, up to $20,000,
discovered during a Shop Visit).
	 
	 	•  	A Shop Visit required due to a Manufacturer design
defect or manufactured part, excluding normal wear, tear
and erosion. Supplier will assist Customer in applying for
/administering each Manufacturer’s warranties.
	 
	 	•  	Customer requested SBs that are not initiated by Supplier.
	 
	 	•  	An Act of God.




10









 






	 	•  	Improper or negligent installation, operation or maintenance of Customer’s
Equipment not in conformance with Manufacturer manuals.




	 	•  	Experimental tests applied to equipment.
	 
	 	•  	Use of Parts, components or modules non-compliant with or not authorized by the
FAA.
	 
	 	•  	Engine non-conformance with the required Manufacturer’s configuration.
	 
	 	•  	Engine accessories test, repair and overhaul, the fixed labor charges for which
are set out in Annex 3.
	 
	 	•  	Cost of the repair above 65% of its replacement cost of an Engine damaged
Beyond Economic Repair (“BER”). For the purposes of this Agreement, an Engine
shall be considered to be BER when the cost of restoration or repair of such
Engine exceeds sixty-five percent (65%) of the replacement cost for a comparable
replacement engine, unless market conditions are such that a replacement engine is
less expensive than the cost of a repair. In such case, Customer may opt to buy a
replacement engine.






	5.7  	Program Management
	 
	   	Supplier shall appoint a Program Manager, who in addition to the duties described in
Article 3(1)(D) of the General Terms Agreement, shall provide:






	 	w  	A Supplier developed Repair Specification to be shared with Customer and consistent
with OEM specifications.
	 
	 	w  	Consistent implementation of a Repair Specification throughout the term of this
Schedule.
	 
	 	w  	Interpretation, analysis, support and recommendations regarding Sage Data.
	 
	 	w  	Customer focal point for scheduling Shop Visits.
	 
	 	w  	Engine Record-keeping and documentation.
	 
	 	w  	An option to Customer to place a designated repair representative at Supplier’s
Designated Repair Station to monitor repair processes under this Schedule, at its own
cost and expense. Supplier shall provide such representative with office facilities,
including access to telephone, fax and internet, with copy services nearby.






	5.8  	Supplier Repair Procedures. The following procedures shall govern the performance of Services on Equipment.






	 	5.8.1  	Preliminary Workscope. Upon completion of a strip
down and parts inspection, Supplier shall submit to Customer an initial
findings report for review and a list of major parts requiring
replacement or rework, a Preliminary Workscope and cost estimate
approval form for Customer’s authorization of such work.




11









 






	 	5.8.2  	Records Furnished by Customer. Customer shall, at
least seven (7) days prior to the time of Delivery of Equipment (or
with the Equipment, in the case of an unscheduled Shop Visit) for a
Shop Visit, provide Supplier all information and records necessary for
Supplier to establish the nature and extent of the Services required to
be performed on the Equipment and to perform such Services. Such
information and records shall include, but are not limited to:






	 	A.  	The cause of Equipment removal (reason
for such Shop Visit);
	 
	 	B.  	Applicable Engine log books detailing
work performed at the most recent Shop Visit, any
reported defects or incidents during operation since
such most recent Shop Visit, with a description of the
action taken, and significant operational
characteristics experienced during the last flight
prior to such Shop Visit;
	 
	 	C.  	SB and AD status/requirements;
	 
	 	D.  	TSN for each Engine;
	 
	 	E.  	TSLSV for each Engine, module, component and accessory;
	 
	 	F.  	CSN for each Engine;
	 
	 	G.  	CSLSV for each Engine, module, component and accessory;
	 
	 	H.  	Record of change of Parts during
operating period prior to such Shop Visit and reason
for removal;
	 
	 	I.  	TSN, CSN, TSLSV, CSLSV time since
overhaul (“TSO”) and cycles since overhaul (“CSO”) on
all LLPs;
	 
	 	J.  	Back to birth history certificate indicating history from zero
TSN/CSN on all LLPs;
	 
	 	K.  	Customer inventory of Equipment “as
shipped”, including (when applicable) a description of
the external Engine configuration;
	 
	 	L.  	Engine oil used (for Engines);
	 
	 	M.  	Historical log (for parts and
accessories);
	 
	 	N.  	Module log cards (if applicable);
	 
	 	O.  	CFMI EDS Report of Last Shop Visit, if
available (whether or not such shop visit was under
this Schedule); and
	 
	 	P.  	Engine on-wing performance trend data
generated utilizing trend monitoring programs such as
ADEPT or SAGE (if available).




12









 












	 	   	Customer’s failure to furnish necessary information and records
shall result in a delay in induction of the Equipment for repair,
delay in Turn Time, and may necessitate premature LLP replacement.
	 
	 	5.8.3  	Receiving Inspection. Following Delivery of an item
of Equipment for a Shop Visit, Supplier shall accomplish a standard
receiving inspection and shall provide a copy of the results of such
receiving inspection to Customer. Customer shall be notified of any
components, parts and line replaceable units found to be missing or
damaged in transit, as more fully described in the Master Agreement.
	 
	 	5.8.4  	Disassembly, Inspection, Workscope. Upon receipt of
Equipment, Supplier shall disassemble, clean, and inspect the
Equipment. Upon completion of its inspection, Supplier shall recommend
a Workscope to meet the requirements of the applicable Repair
Specification.
	 
	 	5.8.5  	Work in Progress Reports. Supplier shall provide
Customer with a weekly work in progress report, describing the progress
of the Repair work from initial receipt until Redelivery.
	 
	 	5.8.6.  	Repair and Reassembly. Supplier shall Repair and reassemble
each item of Equipment in accordance with the requirements of its
Workscope. Supplier may, in its discretion, incorporate Designated
Engineering Representative (“DER”) repairs for Equipment.
Supplier shall determine the Parts required to repair Equipment, and
may, to the extent Customer does not furnish such Parts, elect to use
new Parts, overhauled Parts, FAA PMA Parts and/or Parts in Serviceable
condition from Supplier’s Rotable Parts Inventory to replace Customer’s
repairable Parts (such Parts covered under Schedule 3). For the
avoidance of doubt, Supplier shall not use FAA-PMA parts or perform
FAA-DER repairs unless authorized in advance by Customer.
	 
	 	5.8.7  	Test. Supplier shall test an item of Equipment in
accordance with its Workscope.
	 
	 	5.8.8  	Records Review — Certification. Supplier shall
accomplish a review of Equipment records to ascertain that Equipment
has been repaired in accordance with its Workscope. Serviceable
Equipment shall be tagged with the appropriate Serviceable tag
recognized by the FAA.
	 
	 	5.8.9  	Preparation for Redelivery. Supplier shall prepare
and package Equipment in Customer supplied shipping stands or
containers for Redelivery in accordance with Supplier’s standard
commercial practice, unless otherwise agreed between the




13









 






	 	   	parties.
For Engines, Supplier shall preserve the fuel and lubrication
systems prior to Redelivery in accordance with the applicable
Manufacturer manual requirements. Supplier shall comply with the
reasonable written instructions of Customer as to markings to be
placed on invoices, bills of lading, packing lists, correspondence
and shipping containers.
	 
	 	5.8.10  	Redelivery. Equipment shall be Redelivered in accordance
with CFM56 Transportation Reference Guide, March 1, 1999, and as
amended.
	 
	 	5.8.11  	Supplier Documentation.
	 
	 	   	At Redelivery of an item of Equipment, Supplier shall provide
Customer with a records package in connection with Services
performed on such item of Equipment, and shall retain a copy of such
records. Such records shall include:






	 	A.  	Major Repair/Alteration Certification
FAA No. 337, including AD compliance;
	 
	 	B.  	FAA Form 8130—3 for accessories and
Engines;
	 
	 	C.  	Cycle limited parts log (full
traceability for LLPs);
	 
	 	D.  	Serviceable tag for Serviceable Equipment;
	 
	 	E.  	Shop Preliminary Finding Report;
	 
	 	F.  	Scrapped Parts List;
	 
	 	G.  	Major Parts and Accessory Change
Records;
	 
	 	H.  	List of SBs/ADs incorporated and
status;
	 
	 	I.  	Test cell report; and
	 
	 	J.  	Original records and related
documentation furnished by Customer.






	 	   	Supplier shall provide the following records to Customer within
fifteen (15) calendar days after Redelivery of an item of Equipment
and shall retain a copy of such records:






	 	A.  	Shop Visit final report;
	 
	 	B.  	Off/On log; and
	 
	 	C.  	Service Bulletin status report.






	5.9  	Miscellaneous Customer Responsibilities.






	 	5.9.1  	Designated Representative. Customer shall designate in
writing one (1) or more of its full time employees as a representative
to Supplier (each a “Designated Representative”) during the
term of this Schedule. Such Designated Representative shall act as the
liaison between Supplier and Customer and shall have the authority to
represent Customer in all matters relating to the
Services requested hereunder, including, without limitation,




14









 






	 	   	approving or authorizing Changes to Workscopes, making final
decisions as to the correction or other disposition of non-routine
items, and authorizing the performance of repairs on an overtime
basis and Supplemental Work.
	 
	 	5.9.2  	Timely Authorization. Customer’s Designated
Representative shall provide approvals and authorizations in connection
with the Services provided under this Schedule in a timely manner, but
in no event greater than two (2) business days following receipt of a
request from Supplier for an approval or authorization.
	 
	 	5.9.3  	Shipping Stands and Shipping Containers. Customer
shall provide all necessary and appropriate shipping stands (except (i)
in the case of a Spare Engine, which is provided with an engine stand,
and (ii) that Customer may request that Supplier provide an engine
stand, in which event, if so supplied by Supplier, Customer shall pay
the round trip transportation costs (inclusive of insurance costs) for
such engine stand), shipping containers, mounting adapters, inlet plugs
and covers, as may be required by Supplier in order to package
Equipment for transport.
	 
	 	5.9.4  	Delivery of Engines. Engines shall be delivered with
full QEC to enable a full test to be completed.
	 
	 	5.9.5  	Supply of LLPs. GECAS shall supply all LLPs to the
Designated Repair Facility at least seven (7) days before the
applicable Engine is Delivered, which LLPs shall have a remaining life,
at the time of such supply by GECAS, such that, assuming normal use of
the applicable Engine that Customer is required to return such Engine
to GECAS, the LLPs on such Engine will able to meet the Return
Condition.
	 
	 	5.9.6  	Regulations and Revisions. Customer shall identify any
special FAA or other regulatory agency rules, directives or
regulations, including any revisions thereto, affecting a Repair
Specification, or any Services to be provided hereunder.
	 
	 	5.9.7  	Forecast. At no expense to Supplier, Customer shall
make available to Supplier, a forecast of operational and maintenance
program schedules, fleet operational status, Engine/aircraft flying
hours and cycles, scheduled Engine or Engine module removals, and such
other relevant information as to enable both parties to manage
resources to accomplish the forecasted workload. Such forecast shall
be made available by Customer to Supplier quarterly (no later than
fifteen (15) days prior to the end of the previous quarter) on a
rolling annual basis, unless
otherwise agreed in writing. The parties shall mutually agree as to
the format and content of such forecast.




15









 






	 	5.9.8  	Input Notice. Customer shall advise Supplier of its
intention to Deliver Equipment prior to dispatch of such Equipment and
shall make every reasonable effort to provide incoming transportation
information in writing to Supplier at least seven (7) calendar days
prior to Delivery of Customer’s Equipment to the Designated Repair
Station. Customer shall not Deliver to Supplier piece parts or
components separate from the Equipment without the written consent of
Supplier. Supplier shall not be obligated to induct more than one
Engine of each type per calendar day.






	5.10  	Turn Around Time






	 	5.10.1  	Turn-Time. Turn-Time will be (i) sixty-five (65) days for
Full Core Performance Restoration only; and (ii) seventy (70) days for
Full Core Performance Restoration and LPT or fair and booster
disassembly to piece parts, from readiness for pick-up of an Engine at
the applicable Customer Facility, to Redelivery back to such Customer
Facility.
	 
	 	5.10.2  	Interruption of Service. If Services on an item of Equipment
are interrupted due to (A) circumstances described as an Excusable
Delay in the General Terms Agreement, (B) Customer’s failure to timely
provide Supplier with information, records, approvals, authorizations
or parts to enable Supplier to proceed with the timely processing of
such item of Equipment, or (C) such item of Equipment having been
delivered to Supplier with either transit-caused damage or missing
parts, and Customer or Supplier cannot immediately supply replacement
parts for such missing or damaged parts, then the estimated Turn Time
for such item of Equipment shall be extended by the period of such
delay.
	 
	 	5.10.3  	In the event the Turn Time for an Engine (a “Delayed Engine”) is
greater than as provided in 5.10.1 above, adjusted under 5.10.2 above,
then Supplier shall pay to Customer, the actual direct costs of
Customer for actual daily leasing fees including all transportation and
insurance costs for a Spare Engine leased by Customer from a third
party or Supplier’s affiliate, Israel Aircraft Industries Ltd. in
accordance with this Agreement to replace the Delayed Engine until
Redelivery of such Delayed Engine shall have occurred. . Supplier
acknowledges that, given the business sector in which Customer
operates, Turn Time is an essential element of this Schedule.






	5.11  	Subcontracted Services






	 	   	Supplier has subcontracted to IAI the performance of the Services on
Customer’s Engines. IAI may further subcontract




16









 






	 	   	any portion of the
Services to be performed on Customer’s Equipment. Any such further
subcontracted Services shall be performed in accordance with the
requirements of the applicable Workscope and the applicable FAA
directives and may only be further subcontracted to a subcontractor
with a valid FAA repair license which is approved by IAI in
accordance with FAA requirements; and all such subcontracted
Services shall include the provision of an 8130 tag. Subcontracting
of any Services hereunder shall not relieve Supplier of its
performance obligations set forth in this Schedule.






	5.12  	Pricing






	 	5.12.1  	In respect of the T3 Program Engine Services set out in
Sub-paragraph 5.4 above, Customer shall pay to Supplier the applicable
Flight Hour Rate per Engine per month set out in the following table:





	 	 	 	 	 	 	 	 	 
	Thrust (1)	 	Flight Hours/Cycle	 	 	Flight Hour Rate	 
	20,000 lbs.
	 	 	1.5/1	 	 	$	*****	 
	20,000 lbs
	 	 	2/1	 	 	$	*****	 
	22,000 lbs.
	 	 	1.5/1	 	 	$	*****	 
	22,000 lbs.
	 	 	2/1	 	 	$	*****	 












	(1)	 	For both Engine types.
	 
	(2)	 	For 3B2s operated as if they were 3B1s with
derates to 20,000 and further derated as required in
this Agreement for 3B1s, Supplier will prorate the
Flight Hour Rate to the 20,000 pound Thrust rates
above.






	 	5.12.2  	For Spare Engines in respect of both scheduled and unscheduled Shop
Visits, Customer (y) shall continue to pay in respect of the Spare
Engine, the Flight Hour Rates, and the Flight Cycle Rates and the
Flight Cycle Rates for LLPs at the rate that it was paying to GECAS in
respect of the Engine that is undergoing the Shop Visit; and (z) shall
pay a daily rate for the use of such Spare Engine (the “Spare Engine
Daily Rate”) that is comparable with then market daily rate conditions.
	 
	 	   	If Supplier cannot procure a Spare Engine for a scheduled or
unscheduled Shop Visit, Customer shall do so and Customer (y) shall
pay directly to the leasing company/lessor in respect of the Spare
Engine, the Flight Hour Rates, and the Flight Cycle Rates for LLPs
due under the lease with the leasing company/lessor ; and (z) shall
pay directly to the leasing company/lessor the Spare Engine Daily
Rate due under the
lease with the leasing company/lessor. Supplier shall reimburse
Customer for the difference between the actual cycle




Confidential treatment has been requested by Kitty Hawk, Inc.
for certain portions of this document. Confidential portions have been filed separately with the
Securities and Exchange Commission. Omitted portions are indicated in this agreement with “*****”.




17









 






	 	   	and hour usage
costs of the Spare Engine paid by Customer, and the cost of the
cycle and hour usage costs that Customer was paying in respect of
the Engine undergoing the Shop Visit.






	 	5.12.3  	In respect of the Supplemental Work set out in Sub-paragraph 5.6
above, Customer shall pay to Supplier the following charges:






	 	(a)  	Supplier’s labor rate for all
Supplemental Work by Supplier’s subcontractor, IAI,
shall be $***** per Man Hour.
	 
	 	(b)  	In respect of materials:






	 	(i)  	new Parts
(excluding LLPs) shall be charged at
the applicable Manufacturer’s Catalogue
List Price (“CLP”), plus an 8% handling
charge (“H/C”) not to exceed (“NTC”) $
3,000 per item and $ 4,000 per line
item.
	 
	 	(ii)  	overhauled
condition (“OHC”) Parts shall be
charged at 70% of CLP, plus an 8% H/C
NTE $ 2,500 per item and $ 3,000 per
line item.
	 
	 	(iii)  	new LLPs shall
be charged at the applicable
Manufacturer’s then current CLP, plus
an 8% H/C NTE $ 5,000 per LLP.
	 
	 	(iv)  	LLPs in OHC
shall be charged pro rata (the
applicable Manufacturer’s then current
CLP, prorated for remaining cycles),
plus an 8% HC NTE $ 4,000 per LLP.
	 
	 	(v)  	Exchange Parts
provided shall be charged for cost of
repair, plus a 4% (of applicable
Manufacturer’s then current CLP) H/C
NTE $ 2,500 per item and $ 3,500 per
line item.
	 
	 	(vi)  	sub-contracting
services for ESM (Engine Shop Manual)
repairs




Confidential treatment has been requested by Kitty Hawk, Inc.
for certain portions of this document. Confidential portions have been filed separately with the
Securities and Exchange Commission. Omitted portions are indicated in this agreement with “*****”.


18









 






	 	   	shall be charged at invoice
cost, plus an 8% H/C NTE $ 2,500.






	 	5.12.4  	Assumptions






	 	(a)  	The prices contained in Sub-paragraph 5.12 are based on the
assumptions that:






	 	(i)  	a guaranteed
annual minimum of 960 Flight Hours per
Engine.
	 
	 	(ii)  	a Flight Hour
to Cycle ratio of 1.5/1 or 2/1.
	 
	 	(iii)  	Engines will
be operated at (i) in the case of 3B1
Engines, 20,000 lbs. of thrust and (ii)
in the case of 3B2 Engines, 22,000 lbs.
of thrust or operated as if they were
3B1 Engines; and in respect of all
Engines operated at 20,000 lbs. of
thrust, Customer will not change
operation to a higher thrust category.
	 
	 	(iv)  	Line
maintenance (labor and materials) will
be performed by Customer.
	 
	 	(v)  	Customer’s
“Major Operating Region” is the United
States.
	 
	 	(vi)  	Engines will be
operated in accordance with CMFI
recommendations for improved time
on-wing, including (i) water wash
program and (ii) cool down and warm up
procedures.
	 
	 	(vii)  	Customer is
the user of all of the Engines, which
it is leasing from GECAS.
	 
	 	(viii)  	The Term of this Schedule continues
for a full ten (10) years or the actual
lease term of the aircraft, whichever
is longer.






	 	(b)  	Supplier reserves the right to revise
all charges payable under this Schedule in the event
any of




19









 






	 	   	the foregoing assumptions change during the
Term.






	5.13  	Terms of Payment






	 	(a)  	In respect of the first Shop Visit under this Schedule of each
Engine, GECAS, and not Customer, shall pay to Supplier, at the time of
Delivery of such Engine to Supplier, an amount, in respect of such
Engine, equal to (y) the Flight Hour charges as of the date of Delivery
to Supplier for such first scheduled Shop Visit, multiplied by
(z) the actual Flight Hours of such Engine from its most recent
Full Core Performance Restoration (or, if it shall not then have
undergone a Full Core Performance Restoration, from its manufacture) up
to the Commencement Date of this Schedule.
	 
	 	(b)  	Payments of the Flight Hour Charges in respect of all Shop
Visits after the Commencement Date, shall be made in accordance with
the provisions of Article X(B) of the General Terms Agreement. The
Guaranteed AFH provided in Article X(B)(3) of the General Terms
Agreement shall be a fleet average of 960 Engine Flight Hours per
Aircraft.
	 
	 	(c)  	Escalation 
	 
	 	   	All prices in this Schedule (i) are stated in 2004 US Dollars; and
(ii) shall be adjusted annually on January 1, commencing with
January 1, 2005, based on a change in the basket of elements
calculated:






	 	§  	as to 70% of each such price (allocable to
materials): annual price change of CFM56 Spare Parts
Catalogue, capped at 3.5% per year.
	 
	 	§  	as to 30% of each such price (allocable to labor):
annual change in Labor Index (NAICS 336412) from the US
Department of Labor, Bureau of Labor Statistics, of the
average for the months of July, August and September of
the previous year; capped at 3.5% per year.






	6.  	Parts Replacement Policy
	 
	   	In addition to, and as a supplement to, the provisions of Article 7 of the General
Terms Agreement, Customer shall permit purchase of PMA parts by Supplier in
non-rotating or gas-path areas following review by Customer’s program manager and
Supplier engineering. Customer shall permit DER repairs subject to review by
Customer program manager and Supplier
engineering. Customer understands that, if it changes its policy regarding purchase
of PMA parts or performing DER repairs, the Flight Hour Charges,




20









 






	   	Additional Flight
Hour Charges and Flight Cycle Charges may be adjusted accordingly. For the
avoidance of doubt, Supplier shall not use FAA-PMA parts or perform FAA-DER repairs
unless authorized in advance by Customer.
	 
	7.  	Guarantees and Warranties:
	 
	   	Customer shall assign to Supplier all Manufacturer warranties that are assignable
for the period of this Schedule.
	 
	7.1  	Warranty






	 	(1)  	The warranty provisions of the General Terms Agreement shall be applicable
hereto, except that they shall only be applicable in respect of the last Redelivery of
an Engine prior to expiration of the Term.
	 
	 	(2)  	For the purposes of this Schedule, the Warranty Periods shall be:





	 	 	 	 	 	 	 
	(a)

	 	in respect of all Parts of
Engines (other than
accessories)
	 	-
	 	Eighteen (18) months or
two thousand five
hundred (2,500) Flight
Hours, in each case,
after the applicable
Engine’s last Shop
Visit, whichever occurs
first.
	 
	(b)

	 	In respect of accessories
	 	-
	 	Six (6) months or 1,500
Flight Hours, in each
case, after the
applicable Engine’s last
Shop Visit, whichever
occurs first.







	8.  	Term of Schedule
	 
	   	This Schedule shall commence upon acceptance of the first Aircraft by Customer from
GECAS (the “Commencement Date”) and, unless sooner terminated pursuant to this
Schedule or the Master Agreement, shall remain in effect for an initial period of
ten (10) years or the actual term of the Aircraft leases with GECAS, whichever is
longer. (the “Term”).
	 
	9.  	Additional Provisions






	 	(A)  	The provisions of Article 1(E)[“BER Procedures"] of the General
Terms Agreement are modified by the provisions of Sub-paragraph 5.6 of
this Schedule






	10.  	Part of General Terms Agreement
	 
	   	This Schedule, when countersigned by the parties hereto, dated and numbered, shall
be incorporated into, and form an integral part of, the General Terms Agreement. By
their execution and delivery of this Schedule, the parties
hereby reaffirm all of the terms and conditions of the General Terms




21









 






	   	Agreement,
except, as to this Schedule only, to the extent modified or deleted under Section 9
above.
	 
	   	All annexes to this Schedule are hereby incorporated herein and made a part hereof
as if such annexes were set forth in this Schedule at length.





	 	 	 	 	 	 	 
	 	 	AVIATION SERVICES INTERNATIONAL, INC.	 	 
	 	 	(Supplier)
	 	 
	

	 	By:	 	 	 	 
	

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	

	 	Print Name:	 	 	 	 
	

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	

	 	Title:	 	 	 	 
	

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	KITTY HAWK AIRCARGO, INC.	 	 
	 	 	(Customer)
	 	 
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	

	 	Print Name:	 	 	 	 
	

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	

	 	Title:	 	 	 	 
	

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	For the purposes of Section 5.9.5 and 5.12.2 only.
	 	 	GE CAPITAL AVIATION SERVICES, INC.
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	

	 	Print Name:	 	 	 	 
	

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	

	 	Title:	 	 	 	 
	

	 	 	 	 	 	 






22









 






ANNEX 1




[List of Engines and Aircraft

Subject to this Schedule]




23









 








	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	Aircraft Serial number	 	 	Engine Serial Number and Type	 
	 	1

	 	 	 	24022	 	 	 	CFM56-3B2 ESN 723103

CFM56-3B2 ESN 723347	 
	 	2

	 	 	 	23708	 	 	 	CFM56-3B2 ESN 722115

CFM56-3B2 ESN 722298	 
	 	3

	 	 	 	24462	 	 	 	CFM56-3B2 ESN 722374

CFM56-3B2 ESN 722408	 
	 	4

	 	 	 	24020	 	 	 	CFM56-3B1 ESN 858641

CFM56-3B1 ESN858928	 
	 	5

	 	 	 	23538	 	 	 	CFM56-3B1 ESN 722364

CFM56-3B1 ESN 720664	 
	 	6

	 	 	 	24902	 	 	 	CFM56-3B2 ESN 724778

CFM56-3B2 ESN 724802	 
	 	7

	 	 	 	24916	 	 	 	CFM56-3B2 ESN 727111

CFM56-3B2 ESN 726128	 
	 











	*	 	please insert correct engine type (3C1, 3B2, 3B1)






24









 






ANNEX 2




[Description of Services For Full Core Performance Restoration]




25









 









	1.  	Fan and Booster Major Modules
	 
	   	Disassemble into Sub-Modules (or piece parts if required), Inspect (repair any
damage found) and Reassemble the following Sub-Modules:






	 	•  	Fan and Booster Module
	 
	 	•  	No.1 and No. 2 Bearing Support Module
	 
	 	•  	IGB and No. 3 Bearing Support Modules
	 
	 	•  	Fan Frame Module.






	2.  	Accessory Drive Modules






	 	   	Disassemble (for cause) from Engine, Inspect and Reassemble the
following Modules: AGB Module, TGB Module.






	3.  	Core Modules – Performance Workscope






	 	   	Disassemble to piece parts, Inspect (repair any damage found),
Reassemble and Rework dimensions to meet required clearances of the
following modules:






	 	•  	HPC Rotor Module.
	 
	 	•  	HPC Forward/Rear Stator Module.
	 
	 	•  	Combustion Casing Module.
	 
	 	•  	HPT Nozzle Module.
	 
	 	•  	HPT Rotor Module.
	 
	 	•  	HPT Shroud and Stage 1 LPT Nozzle Module.






	4.  	Low Pressure Turbine Modules






	 	   	Disassemble into Sub-Modules (or into piece parts if required),
inspect (repair any damage found) and reassemble the following
Sub-Modules:






	 	•  	LPT Shaft Module
	 
	 	•  	LPT Rotor and Stator.
	 
	 	•  	Turbine Frame Module.
	 
	 	•  	No. 4 and 5 Bearing Inspection






	5.  	Engine Mounts (Front, AFT)






	 	   	Inspect and repair as necessary.






	6.  	Turbine Exhaust Sleeve & Plug






	 	   	Inspect and repair as necessary.






	7.  	QEC parts 






	 	   	Visual Inspection.






	8.  	Engine Accessories






	 	   	Inspect and Repair / Overhaul as required.




26









 












	   	General Notes






	 	   	Supplier is authorized to use FAA/DER Repairs (substantiated by FAA 8110-3).
	 
	 	   	A replacement Part must be a Manufacturer approved Part and must not have been
installed on an aircraft registered on a military aircraft register. In all cases
the replacement Part must be in good operating condition, must not have been
involved in any accident or incident, have as much useful life available until the
next expected maintenance procedure, be of the same or a more advanced make and
model and of the same interchangeable modification status as the Part it is
replacing or is otherwise of an equivalent value and utility as the Part it is
replacing.
	 
	 	   	At Customer’s option, LLPs may be supplied by Customer (at its own cost and expense)
in accordance with minimum build-up requirements under this Schedule. Otherwise,
Customer shall pay the Flight Cycle Rate for LLP usage under this Schedule.
	 
	 	   	Supplier will agree with Customer regarding WorkScope for Engines based on the
recommendations contained in the Workscope Planning Guide.





Permanent Replacement.





	 	   	If an Engine suffers an Event of Loss, then Customer shall permanently replace
such Engine under and in accordance with the Leases, whereupon such replacement
Engine shall be covered by this Schedule and such replaced Engine shall be removed
from the coverage of this Schedule, any remaining funds accumulated under this
Schedule or the Leases for Engine maintenance services with respect to the replaced
Engine shall be carried over to, and then be applicable to, the replacement Engine,
which shall be operated by Customer under the Leases.




27









 











Annex 3




[Schedule of Fixed Labor Prices for

Accessory Supplemental Work]




28









 








Only for Supplemental Work




CFM56-3 ACCESSORY REPAIR FIXED CHARGES (USD) FOR LABOR ONLY




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	A.T.A	 	 	 	 	 	COMPLETE	 	 	REPAIR &	 	 	BENCH	 
	 	ITEM/DESCRIPTION	 	 	NO.	 	 	TYPICAL P/N	 	 	OVERHAUL	 	 	TEST	 	 	TEST	 
	 	Main Engine Control

	 	 	73-21-13
	 	 	8063-214	 	 	*****	 	 	*****	 	 	*****	 
	 	Main Fuel Pump

	 	 	73-11-11
	 	 	708600-2	 	 	*****	 	 	*****	 	 	*****	 
	 	Lube Unit

	 	 	79-21-12
	 	 	335-261-004-0	 	 	*****	 	 	*****	 	 	*****	 
	 	Fuel Nozzle (including ultrasonic
cleaning per nozzle each)

	 	 	73-11-42
	 	 	6840023M /E	 	 	*****	 	 	N/A	 	 	*****	 
	 	Fuel Manifold (each)

	 	 	72-41-04
	 	 	9375M90G X	 	 	*****	 	 	*****	 	 	*****	 
	 	Variable Stator Valve Actuator (each)

	 	 	75-32-11
	 	 	1211175-7 /010	 	 	*****	 	 	*****	 	 	*****	 
	 	VSV & VBV Feedback cable (each)

	 	 	75-32-21
	 	 	9339M12P0X	 	 	*****	 	 	N/A	 	 	*****	 
	 	T5. SENSOR

	 	 	77-31-17
	 	 	301-779-602-0	 	 	—	 	 	—	 	 	*****	 
	 	T12 Sensor

	 	 	73-21-42
	 	 	301-771-601	 	 	—	 	 	—	 	 	*****	 
	 	T2 Sensor (FIT)

	 	 	73-21-71
	 	 	8901-278	 	 	*****	 	 	*****	 	 	*****	 
	 	CIT Sensor

	 	 	73-21-22
	 	 	8901-274	 	 	*****	 	 	*****	 	 	*****	 
	 	Oil/Fuel Heat Exchanger

	 	 	79-21-22
	 	 	301-776-401	 	 	*****	 	 	—	 	 	*****	 
	 	VBV Stop Mechanism

	 	 	75-31-21
	 	 	301-772-601	 	 	*****	 	 	*****	 	 	*****	 
	 	Master Ball Screw Actuator

	 	 	75-31-51
	 	 	121666-7	 	 	*****	 	 	*****	 	 	*****	 
	 	Ball Screw Actuator (each)

	 	 	75-31-61
	 	 	121664-3 /5	 	 	*****	 	 	*****	 	 	*****	 
	 	Oil Scavenge Filter

	 	 	79-21-31
	 	 	335-260-701-0	 	 	*****	 	 	—	 	 	*****	 
	 	HPT Clearance Control Valve

	 	 	75-21-11
	 	 	7061M31G0X	 	 	*****	 	 	*****	 	 	*****	 
	 	Ignition Exciter Box (each)

	 	 	74-11-12
	 	 	9238M66P07	 	 	—	 	 	—	 	 	*****	 
	 	Ignition Lead (each)

	 	 	74-21-12
	 	 	9339M26P X	 	 	—	 	 	—	 	 	*****	 
	 	Ignitor Plug (each)

	 	 	74-21-37
	 	 	1374M13P0X	 	 	—	 	 	—	 	 	*****	 
	 	Thermocouple Probe+ Harness (each)

	 	 	77-21-24
	 	 	SET	 	 	—	 	 	—	 	 	*****	 
	 	Inlet Gear Box no.3 bering.

	 	 	72-61-00
	 	 	9995M18G06	 	 	*****	 	 	*****	 	 	*****	 
	 	Accessory Gear Box

	 	 	72-63-00
	 	 	335-300-110-0	 	 	*****	 	 	*****	 	 	*****	 
	 	Transfer Gear Box

	 	 	72-62-00
	 	 	335-300-010-0	 	 	*****	 	 	*****	 	 	*****	 
	 	N1 Speed Sensor

	 	 	77-11-13
	 	 	320-094-001-0	 	 	*****	 	 	*****	 	 	*****	 
	 	Core Speed Sensor ( N2 )

	 	 	77-11-21
	 	 	R-9974M83P01

S-9974M82P03	 	 	—	 	 	*****	 	 	*****	 
	 	Oil Tank

	 	 	79-11-13
	 	 	335-261-203-0	 	 	*****	 	 	*****	 	 	*****	 
	 	Servo Fuel Heater

	 	 	73-11-22
	 	 	45731-1251-1	 	 	*****	 	 	*****	 	 	*****	 
	 	Sensor Vibration bearing No.1/4 (each)

	 	 	77-31-15
	 	 	301-776-902-0	 	 	—	 	 	—	 	 	*****	 
	 	P.M.C

	 	 	73-21-3x
	 	 	7157M66P03	 	 	—	 	 	—	 	 	*****	 
	 	FLEXIBLE SHAFT

	 	 	75-31-31
	 	 	121762-X	 	 	—	 	 	—	 	 	*****	 
	 	VBV GEAR MOTOR at subcontractor

	 	 	75-31-12
	 	 	706400-X	 	 	*****	 	 	—	 	 	*****	 
	 	HPTCC Timer Solenoid

	 	 	75-21-23
	 	 	301-787-401-0	 	 	*****	 	 	*****	 	 	*****	 
	 





Notes:





	1.  	Material Replacement (charged at catalog price plus H/C) not included in above fixed
prices.
	 
	2.  	Major Repair of component housings not included in above fixed prices.
	 
	3.  	Updated to November 2004, adjusted annually each subsequent November.




Confidential treatment has been requested by Kitty Hawk, Inc.
for certain portions of this document. Confidential portions have been filed separately with the
Securities and Exchange Commission. Omitted portions are indicated in this agreement with “*****”.


29









 











ANNEX 1A




Return Conditions




30









 








	 	 	 	 	 	 
	 	Redelivery Location:

	 	 	Kitty Hawk Maintenance Base, Fort
Wayne, Indiana or such other location as
shall be mutually agreed by Lessor and
Lessee	 
	 	Engine Thrust Setting:

	 	 	20,000 pounds	 
	 	Minimum APU Limit:

	 	 	1,500 Flight Hours remaining to next overhaul	 
	 	Minimum Component Calendar
Life:

	 	 	12 months	 
	 	Minimum Component Cycles:

	 	 	2,500 Cycles	 
	 	Minimum Component Flight
Hours:

	 	 	3,000 Flight Hours	 
	 	Minimum Engine Cycles:

	 	 	3,000 Cycles	 
	 	Minimum Engine LLP Cycles:

	 	 	3,000 Cycles	 
	 	Minimum Engine Flight
Hours:

	 	 	3,000 Flight Hours	 
	 	Minimum Landing Gear
Calendar Time:

	 	 	15 months	 
	 	Minimum Landing Gear Cycles:

	 	 	3,000 Cycles	 
	 	Minimum Landing Gear Flight
Hours:

	 	 	3,000 Flight Hours	 
	 	Redelivery Check:

	 	 	Ex the next sequential “C” Check, or
higher check if applicable, in block format
so that all airframe inspections falling due
within the next following 4,000 Flight Hours
of operation in accordance with the
Manufacturer’s Maintenance Planning Document
have been accomplished	 
	 	Required EGT Margin:

	 	 	13°C, 25°C or 35C°	 
	 	AD Compliance Period:

	 	 	90 days	 
	 	Additional Return Condition
Requirements:

	 	 	Yes, as set forth on Schedule G	 
	 





31









 






DELIVERY CONDITION REQUIREMENTS




The Delivery Condition described below is solely a description of such condition precedent and
shall not be construed as a representation, warranty or agreement of any kind whatsoever, express
or implied, by Lessor with respect to the Aircraft or its condition, all of which have been
disclaimed by Lessor and waived by Lessee as set forth in the Lease, including in the Common Terms
Agreement.




For purposes of Schedule 4, Part 2 of the CTA:




	 	 	 	 	 	 
	 	Minimum APU Limit:

	 	 	At least 1,500 hours of expected life remaining	 
	 	Minimum Component Calendar
Life:

	 	 	12 months	 
	 	Minimum Component Cycles:

	 	 	2,500 Cycles	 
	 	Minimum Component Flight Hours:

	 	 	3,000 Flight Hours	 
	 	Minimum Engine Cycles:

	 	 	3,000 Cycles	 
	 	Minimum Engine LLP Cycles:

	 	 	3,000 Cycles	 
	 	Minimum Engine Flight Hours:

	 	 	3,000 Flight Hours	 
	 	Minimum Landing Gear Calendar
Time:

	 	 	15 months	 
	 	Minimum Landing Gear Cycles:

	 	 	3,000 Cycles	 
	 	Minimum Landing Gear Flight
Hours:

	 	 	3,000 Flight Hours	 
	 





32









 






Schedulre “G”

Procedures And Operating Condition At Redelivery




On the Return Occasion the Aircraft, subject to ordinary wear and tear of a kind and to an extent
consistent with similar aircraft engaged in commercial airline operations, will be redelivered to
Lessor by Lessee in accordance with the procedures and in any event in the condition set out below.
For the avoidance of doubt, any damage assessment and/or rectification criteria used in assessing
the redelivery condition shall be as prescribed in the Manufacturer’s maintenance manual and/or the
Manufacturer’s structural repair manual (“SRM”), as appropriate. Any damage outside the scope of
the SRM shall require FAA 8110-3 certification or the equivalent certification by the civil
aviation authority by the State of Design.





	1.1  	FINAL INSPECTION





Immediately prior to the Return Occasion, Lessee will make the Aircraft available to Lessor
and Owner for inspection (“Final Inspection”) in order to verify that the condition of the Aircraft
complies with the Lease. The Final Inspection will include, and be long enough to permit Lessor to:





	 	(a)  	inspect the Aircraft Documents and Records;
	 
	 	(b)  	inspect the Aircraft (including an examination of all
compartments and bays, with Lessee to open or remove panels as
reasonably required by Lessor or Owner during the Redelivery Check),
uninstalled Parts and the APU (including a complete video borescope
inspection of the APU);
	 
	 	(c)  	inspect the Engines, including (i) a complete video borescope
inspection of (A) the low pressure and high pressure compressors and
(B) turbine area (including combusters) and (ii) engine condition runs
(including full take-off power engine run-up performed in accordance
with the performance test in the Manufacturer’s maintenance manual, and
the Engines shall not exceed corrected limits for all parameters using
temperature corrected charts, and power assurance runs); and
	 
	 	(d)  	observe a two (2) hour demonstration flight at Lessee’s cost
(with Lessor’s and Owner’s representatives as on-board observers (to
the extent permitted by FARs)).





Furthermore, Lessee acknowledges that a purchaser or the next operator of the Aircraft may
need to inspect the Aircraft, the Engines and the Aircraft Documents and Records prior to
redelivery and Lessee hereby agrees to cooperate reasonably at all times during the Term
with Lessor, Owner and/or such purchaser or such next operator in order to coordinate, assist and
grant access for the above inspections and/or meetings as necessary; provided that no such
inspection shall unreasonably interfere with or materially interrupt Lessee’s normal use, operation
or maintenance of the Aircraft.





Lessor or Owner, as the case may be, is responsible for and will indemnify Lessee against
all Losses arising from the death or injury to any observer or any employee of Lessor or
Owner, as the case may be, in connection with the inspection of the Aircraft under this
Section 1.1.



33









 






	1.2  	GENERAL CONDITION





The Aircraft will:





	 	(a)  	be clean by major cargo airline standards immediately
prior to redelivery and will be in the same configuration as at
Delivery subject to any post-Delivery modifications, repairs or
maintenance to the Aircraft which are permitted or required by the
Lease;
	 
	 	(b)  	have installed the full complement of equipment, parts,
accessories, furnishings and loose equipment as when originally
delivered to Lessee (and, in addition, shall include any post-Delivery
modifications, repairs or maintenance which were paid for or otherwise
provided by or on behalf of Lessor or which are required or permitted
by the Lease or mutually agreed). The Aircraft (including the
Aircraft Documents and Records) shall be in a condition suitable for
immediate operations under FAR Part 121, without waiver, unless,
subject to Lessor’s consent, the benefit of such waiver is applicable
to the next operator of the Aircraft, or restriction (other than those
applicable generally to aircraft of similar make and model); and if any
of the engines or parts tendered for redelivery with the Aircraft is
not one of the Engines or Parts referred to in the Certificate of
Acceptance or a Replacement Engine installed pursuant to Section 8.11
(a) following an Engine Event of Loss in respect of an Engine, Lessor
shall have no obligation to accept such engine or part unless Lessee
furnishes to Lessor all the documents and evidence in respect of such
engine or part in accordance with Section 8.11 (b), as if such engine
were a Replacement Engine or such part were a replacement Part, and
otherwise complies with such Section 8.11(b) with respect thereto;
	 
	 	(c)  	have in existence a valid and effective certificate of
airworthiness (and if required by Lessor, a valid and effective export
certificate of airworthiness) issued by the Air Authority. In the case
of an export certificate of airworthiness, such certificate shall not
be issued any earlier than ten (10) days prior to the Return Occasion;
	 
	 	(d)  	comply with the manufacturer’s original specifications as at
the Delivery Date, except as modified during the Term in accordance
with the Manufacturer’s service bulletins or letters, Airworthiness
Directives, Air Authority approved data (all of which should have
supporting State of Design approval) or otherwise as permitted by the
Lease;
	 
	 	(e)  	have undergone, immediately prior to redelivery, the
Redelivery Check so that all Airframe and structural inspections,
including but not limited to corrosion prevention and control program
inspections falling due within the “C” Check interval as defined in the
Lessee’s Maintenance Program or the Manufacturer’s Maintenance
Planning Document (if, and




34









 












	 	   	to the extent that, the Lessee’s Maintenance
Program does not comply with the requirements of the Manufacturer’s
Maintenance Planning Document), have been accomplished in accordance
with the Lessee’s Maintenance Program on the Return Occasion;
	 
	 	(f)  	have had accomplished all outstanding Airworthiness Directives
affecting that model of Aircraft requiring compliance during the Term
or within the
AD Compliance Period; for this purpose, compliance shall be by
terminating action if:






	 	(i)  	Lessee has complied by terminating action for
other aircraft of the same model and series then
operated by Lessee; or
	 
	 	(ii)  	the latest date permitted by such
Airworthiness Directive for required compliance by
terminating action falls within the AD Compliance
Period.






	 	   	In no event shall there be any time extensions, waivers,
deviations or alternative means of compliance with any Airworthiness
Directives or other regulations that are non-transferable by Lessee.
	 
	 	(g)  	have installed all applicable vendor’s and manufacturer’s
service bulletin kits received free of charge by Lessee that relate to
the Aircraft and, to the extent not installed, those kits will be
furnished free of charge to Lessor;
	 
	 	(h)  	be in such external livery (freshly painted) as may be
requested by Lessor, such painting to include the fuselage, empennage,
wings, engine cowlings and pylons, stripped (or sanded if only two or
less coats of paint) and painted in accordance with standard industry
practice, including any required re-balancing of flight controls and
required re-weighing or recalculation of the Aircraft or the Aircraft
weight;
	 
	 	(i)  	have all signs and decals clean, secure and legible;
	 
	 	(j)  	meet the requirements of FAR Part 36, Appendix C, Stage 3
noise compliance as in effect at the Delivery Date, without waiver or
restriction;
	 
	 	(k)  	have no open, deferred, continued, carry over, or placarded
maintenance items or watch items and all log book discrepancies shall
be cleared;
	 
	 	(l)  	have had all repairs and damage requiring repetitive
inspections or future upgrading repaired to a permanent repair standard
such that future repetitive inspections or upgrading shall not be
required; and
	 
	 	(m)  	have all its systems serviceable and fully operational for
their intended functions in accordance with the Manufacturer’s
maintenance manual specifications.




35









 












	1.3  	COMPONENTS






	 	(a)  	If the Aircraft Lease Agreement specifies Minimum Component
Flight Hours and/or Minimum Component Cycles, each Flight Hour and
Cycle controlled Hard Time Component (other than the APU, but including
the components installed on the APU) shall have not less than the
Minimum Component Flight Hours and the Minimum Component Cycles of life
remaining to the next scheduled removal, in accordance with the
Lessee’s Maintenance Program or the Manufacturer’s Maintenance Planning
Document (to the extent that Lessee’s Maintenance Program does not
comply with the Manufacturer’s Maintenance Planning Document) and shall
be supported by documentation indicating date of installation and by
appropriate certification documentation indicating TSO and CSO in the
form of JAA Form 1 or FAA Form 8130-3 as applicable; for this purpose
“Hard Time Component” means any component which has a limited on-wing
life in accordance with the Lessee’s Maintenance Program and which can
have life fully restored through appropriate maintenance;
	 
	 	(b)  	If the Aircraft Lease Agreement specifies a Minimum component
Calendar Life, each Calendar Limited Component including safety
equipment will have not less than its Minimum Component Calendar Life
remaining to the next scheduled removal in accordance with the Lessee’s
Maintenance
Program or the Manufacturer’s Maintenance Planning Document (to the
extent that Lessee’s Maintenance Program does not comply with the
Manufacturer’s Maintenance Planning Document) and shall be supported
by documentation indicating date of installation and by appropriate
certification documentation indicating date of manufacture (where
applicable) and date of overhaul in the form of JAA Form 1 or FAA
Form 8130-3 as applicable; for this purpose “Calendar Limited
Component” means any component which has a limited on-wing life in
accordance with the Lessee’s Maintenance Program and which has a
life limit specified as calendar time since manufacture or which can
have life fully restored through appropriate maintenance;
	 
	 	(c)  	Each “on-condition” and “condition-monitored” component will
be serviceable and those components installed on the Aircraft within
the last twenty-four (24) months shall be supported by documentation
indicating date of installation and by appropriate certification
documentation such as JAA Form 1 or FAA Form 8130-3;
	 
	 	(d)  	[Intentionally omitted.]
	 
	 	(e)  	If the Aircraft Lease Agreement specifies Minimum Component
Flight Hours and/or Minimum Component Cycles, each Airframe
Life-Limited Component will have not less than the Minimum




36









 












	 	   	Component
Flight Hours and the Minimum Component Cycles remaining to next
expected removal and will be supported by certification documentation
necessary to demonstrate total cycles accumulated since new; for this
purpose “Airframe-Life Limited Component” means a component with an
ultimate life which cannot be restored through appropriate maintenance.






	1.4  	ENGINES






	 	(a)  	Each Engine (or a Replacement Engine as and to the extent
permitted by Section 1.2(b)) will be installed on the Aircraft and
comply with the following:
	 
	 	   	If the Aircraft Lease Agreement specifies Minimum Engine Flight
Hours and/or Minimum Engine Cycles and/or Minimum Engine LLP Cycles,
each Engine will have not less than the Minimum Engine Flight Hours
and Minimum Engine Cycles expected life remaining to the next
expected removal and the life limited Parts shall have not less than
the Minimum Engine LLP Cycles release life remaining. The expected
life remaining will be determined by the inspection and checks
accomplished by Lessor in accordance with the Lease which shall
include the following:






	 	(i)  	full borescope inspection;
	 
	 	(ii)  	analysis of trend data;
	 
	 	(iii)  	sea level outside air temperature limit
assessment if recommended by the Manufacturer as an
appropriate means to determine engine condition (e.g.,
CFM 56 test CESM 15);
	 
	 	(iv)  	maximum power assurance ground runs;
	 
	 	(v)  	technical log analysis for a minimum of the
previous three (3) months’ of operation;
	 
	 	(vi)  	previous shop visit assessment (if
applicable); and
	 
	 	(vii)  	reference to the manufacturer’s maintenance
manual;






	 	(b)  	Following the demonstration flight provided for by Section
1.1(d) of this Schedule 6 each Engine shall have just accomplished at
the Redelivery Location a complete video borescope inspection of all
Engine gas path
modules, which inspection shall be performed at Lessor’s expense,
and a power assurance run performed at Lessee’s expense in
accordance with the Lessee’s Maintenance Program or Manufacturer’s
maintenance manual and any defects discovered in such inspections
which exceed the Engine manufacturer’s in-service limits shall be
corrected at Lessee’s expense. Lessee shall cause such borescope
inspections to be performed and to be 




37









 






	 	   	recorded on videotape by an
agency selected by Lessor and shall provide Lessor with a copy of
such videotape on the Return Occasion. No Engine shall be on
“watch” for any reason requiring any special or out of sequence
inspection. Each such Engine shall comply with the operations
specification of Lessee without waiver or exceptions. All items
beyond the Engine manufacturer’s in-service limits shall be
repaired;






	 	(c)  	If the Aircraft Lease Agreement specifies Minimum Engine LLP
Cycles, each Engine Life-Limited Part will have not less than the
Minimum Engine LLP Cycles remaining in accordance with the
manufacturer’s then current limitations for the part number in
question, and will be supported by certification documentation
necessary to demonstrate Back-to-Birth Traceability; for this purpose
“Life Limited Part” means a component with an ultimate life which
cannot be restored through appropriate maintenance approved by the
State of Design of the manufacturer and “Back-to-Birth Traceability”
means certified documentation necessary to identify precisely where,
when and with which aircraft operator the expired life and previous
maintenance in relation to the Life Limited Part occurred since such
Engine Life-Limited Part was new;
	 
	 	(d)  	Each Engine will have no less than the Minimum Engine Cycles
and the Minimum Engine Flight Hours before any defect, condition or
restriction requires any inspection, testing, repair or replacement in
accordance with the Engine manufacturer’s maintenance manual limits;
	 
	 	(e)  	Each Engine will be in a condition to operate at a maximum
rated take-off power at sea level under corner point or flat rate
conditions and with the Required EGT Margin; and
	 
	 	(f)  	Each Engine shall be rated at the Engine Thrust Setting and
all redelivery conditions of this Section 1.4 are based on such Engine
Thrust Setting.






	1.5  	FUSELAGE, WINDOWS AND DOORS






	 	(a)  	The fuselage will be free of dents and abrasions which exceed the limits
specified in the Manufacturer’s maintenance manual or the SRM;
	 
	 	(b)  	Cockpit windows will be free of delamination which exceeds the limits
specified in the Manufacturer’s maintenance manual or SRM;
	 
	 	(c)  	Cabin windows will be substantially free of blemishes and crazing and will
be properly sealed;
	 
	 	(d)  	Doors will be free moving, correctly rigged and be fitted with serviceable
seals; and
	 
	 	(e)  	To the extent that Lessee was provided with a dent, repair and scratch
survey of the Aircraft exterior at Delivery (with specific locations) then




38









 






	 	   	Lessee shall provide an updated survey to Lessor on the Return Occasion.






	1.6  	WINGS AND EMPENNAGE






	 	(a)  	Leading edges will be free from damage in excess of the limits
specified in the Manufacturer’s maintenance manual or SRM; and
	 
	 	(b)  	Unpainted surfaces of the wings and empennage will be
polished.






	1.7  	INTERIOR AND COCKPIT






	 	(a)  	Lessor may carry out the inspections contemplated by Schedule
12. Lessee shall ensure that any replacements, repairs or repainting
which are required in accordance with Schedule 12 are effected at
Lessee’s cost. For the purposes of this Section 1.7 only, references
in Schedule 12 to “Maintenance Manual” shall be deemed to refer to
Lessee’s Maintenance Program manual.
	 
	 	(b)  	Carpets and seat covers will be in good condition, clean and
free of stains and meet FAR fire resistance regulations.






	1.8  	LANDING GEAR; WHEELS AND BRAKES






	 	(a)  	The Landing Gear and wheel wells will be clean, free of leaks
and repaired as necessary;
	 
	 	(b)  	Each installed Landing Gear shall have no more Cycles
accumulated than the Airframe and, if the Aircraft Lease Agreement
specifies Minimum Landing Gear Flight hours and/or Minimum Landing Gear
Cycles and/or Minimum Landing Gear Calendar Time, in any event shall
have not less than the Minimum Landing Gear Flight Hours and the
Minimum Landing Gear Cycles and the Minimum Landing Gear Calendar Time
to the next scheduled overhaul or removal, as the case may be, in
accordance with Lessee’s Maintenance Program which shall not be less
restrictive than the Manufacturer’s Maintenance Planning Document; and
	 
	 	(c)  	The wheels and brakes will have not less than half of their
useful life remaining.






	1.9  	RETURN OF AUXILIARY POWER UNIT (APU)
	 
	   	The APU shall have just completed a borescope inspection and shall meet all air
outputs and temperature limitations under load in accordance with the Lessee’s
Maintenance Program and the Manufacturer’s maintenance manual, and any defects
discovered in such inspection, which exceed the APU manufacturer’s in-service
limits, shall be corrected at Lessee’s expense. If the Aircraft Lease Agreement
specifies a Minimum APU Limit, the APU shall have not more than the Minimum APU
Limit.




39









 












	1.10  	CORROSION






	 	(a)  	The Aircraft shall be in compliance with the
Manufacturer’s corrosion prevention and control program (CPCP)
requirements as implemented in Lessee’s Maintenance Program. All CPCP
inspections which would normally be accomplished while access is
provided during structural inspection in accordance with the Lessee’s
Maintenance Program during the Term shall have been accomplished;
	 
	 	(b)  	The entire fuselage will be substantially free from corrosion
and will be adequately treated in accordance with Lessee’s corrosion
prevention program (which shall include the requirements of the
Manufacturer’s Maintenance Planning Document); and
	 
	 	(c)  	Fuel tanks will be free from contamination and corrosion and a
tank treatment program will be in operation.






	1.11  	FUEL
	 
	   	At redelivery, Lessor will pay to Lessee or Lessee will pay to Lessor (as the case
may require) a cash adjustment in respect of the difference in fuel on board at
Delivery versus redelivery, at the then prevailing cost of fuel at the Redelivery
Location.






	1.12  	MAINTENANCE PROGRAM






	 	(a)  	Prior to the Return Occasion and upon Lessor’s or Owner’s
request, Lessee will provide Lessor or Owner or its agent reasonable
access to the Lessee’s Maintenance Program and the Aircraft Documents
and Records in order to facilitate the Aircraft’s integration into any
subsequent operator’s fleet; and
	 
	 	(b)  	Upon redelivery of the Aircraft, Lessee will, if requested by
Lessor or Owner to do so, provide a certified true current and
complete copy of the Lessee’s Maintenance Program to Lessor or Owner.
Lessor and any Person to whom Lessor grants access to Lessee’s
Maintenance Program shall agree that it will not disclose the contents
of the Lessee’s Maintenance Program to any other Person except to the
extent necessary to monitor Lessee’s compliance with the Lease and/or
to bridge the maintenance program for the Aircraft from the Lessee’s
Maintenance Program to another program after the Return Occasion.






	1.13  	AIRCRAFT DOCUMENTS AND RECORDS





At redelivery Lessee will return the following Aircraft Documents and Records to Lessor;
provided, however, that to the extent that an item on this list was not provided to Lessee
at Delivery and is not otherwise a mandatory requirement under the provisions of the Lease, then
Lessee will not be obligated to return such document at redelivery:




	 	 	 
	A.

	 	Certificates






40









 






	 	 	 
	A001

	 	Certificate of Airworthiness
	 
	 	 
	A002

	 	Current Aircraft Registration
	 
	 	 
	A003

	 	C of A for Export (if applicable)
	 
	 	 
	A004

	 	Noise Limitation Certificate (AFM page)
	 
	 	 
	A005

	 	Radio Station License
	 
	 	 
	A007

	 	Aircraft deregistration confirmation
	 
	 	 
	A008

	 	Burn Certificates – Cabin Interiors – as follows:






Certification of compliance with the applicable fire blocking requirements as outlined in FAR/JAR
Part 25 including:




	 	 	 
	-

	 	Seat cushions*
	 
	 	 
	-

	 	Back rest cushions*
	 
	 	 
	-

	 	Dress covers*
	 
	 	 
	-

	 	Carpets
	 
	 	 
	-

	 	Curtains
	 
	 	 
	-

	 	Interior Surfaces (if refurbished)









* Including “in combination” burn certification




	 	 	 
	B.

	 	Aircraft Maintenance Status Summaries
	 
	 	 
	B001

	 	Certified current Time in Service (Hours & Cycles) and maintenance status
	 
	 	 
	B002

	 	Certified status of Airworthiness Directives including method of compliance
	 
	 	 
	B003

	 	Certified status of Service Bulletin Status
	 
	 	 
	B004

	 	Certified status of SSI
	 
	 	 
	B005

	 	Certified status of CPCP (if applicable)
	 
	 	 
	B006

	 	Certified inventory of Hard Time Components (Fitted listing)
	 
	 	 
	B007

	 	Certified inventory of OC/CM Components (Fitted listing)
	 
	 	 
	B008

	 	Certified status of all non-SB and Major Modifications/STC’s including acceptable State of
Manufacture Certification
	 
	 	 
	B009

	 	Certified status of Check/Inspection History & Current Status of Checks
	 
	 	 
	B010

	 	List of Deferred Maintenance Items






41









 






	 	 	 
	B011

	 	List of Out of Phase Checks, Special Requirements, Time Limited Repairs (if any).
	 
	 	 
	B012

	 	Aircraft Accident & Incident Report.
	 
	 	 
	B013

	 	Structural repairs and damage (including Dent & Buckle Chart).
	 
	 	 
	C.

	 	Aircraft Maintenance Records
	 
	 	 
	C001

	 	Technical Logs (Minimum of 2 years)
	 
	 	 
	C002

	 	A Checks
	 
	 	 
	Last complete cycle of A Checks (or equivalent)
	 
	 	 
	C003

	 	C Checks
	 
	 	 
	Last Complete cycle of C Checks (or equivalent)
	 
	 	 
	C004

	 	All Major Checks
	 
	 	 
	C005

	 	CPCP Tasks (if applicable)
	 
	 	 
	C006

	 	Periodic Tasks
	 
	 	 
	C007

	 	Dirty Finger Print Certification – AD’s
	 
	 	 
	C008

	 	Dirty Finger Print Certification – SB’s
	 
	 	 
	C009

	 	Dirty Finger Print Certification – All other modification
	 
	 	 
	C010

	 	Last Weight Report including Schedule
	 
	 	 
	C011

	 	Compass Swing Report
	 
	 	 
	C012

	 	Last Test Flight Report
	 
	 	 
	C013

	 	Certified ETOPS compliance report (if applicable)
	 
	 	 
	C014

	 	Dirty Finger Print certification — All Structural repairs/structural damage
	 
	 	 
	C015

	 	Details of State of Manufacture certification basis – A non-SRM Structural repairs
	 
	 	 
	C016

	 	Aircraft Log Book(s) if applicable
	 
	 	 
	D.

	 	Configuration Status
	 
	 	 
	D001

	 	Approved and certified LOPA
	 
	 	 
	D002

	 	Galley Drawings/Component OHM
	 
	 	 
	D003

	 	Emergency Equipment Drawing/Listing
	 
	 	 
	D004

	 	Loose Equipment Inventory






42









 






	 	 	 
	D005

	 	Inventory Listing of Avionic installed Units.
	 
	 	 
	E.

	 	Aircraft Historical Records
	 
	 	 
	E001

	 	C of A (Export) from State of Manufacture
	 
	 	 
	E002

	 	Manufacturer’s AD Report
	 
	 	 
	E003

	 	Manufacturer’s Inspection Report, Initial Equipment list
	 
	 	 
	E004

	 	Manufacturer’s repair/alteration report
	 
	 	 
	E005

	 	Manufacturer’s SB Report
	 
	 	 
	E006

	 	Service Difficulty Reports (if any)
	 
	 	 
	E007

	 	Aircraft Historical Log
	 
	 	 
	E008

	 	Last Flight Data Recorder Read-Out & Corrections
	 
	 	 
	E009

	 	Weighing report
	 
	 	 
	F.

	 	Engine Records
	 
	 	 
	F001

	 	Certified Statement of Status of Each Engine
	 
	 	 
	F002

	 	AD Compliance Report and Compliance Documents
	 
	 	 
	F003

	 	Manufacturer’s Modifications & SB Status
	 
	 	 
	F004

	 	In-house Modifications (if applicable)
	 
	 	 
	F005

	 	Certified LLP Listing
	 
	 	 
	F006

	 	Certified listing of installed units
	 
	 	 
	F007

	 	Manufacturer Delivery Document
	 
	 	 
	F008

	 	Complete copies of all historical engine/module Shop Visit Reports
	 
	 	 
	F009

	 	State of Manufacture LLP Traceability
	 
	 	 
	F010

	 	Conditioning Monitoring Report
	 
	 	 
	F011

	 	Engine Log Book/Master Records of Installation/Removals
	 
	 	 
	F012

	 	Last Borescope Report, including video if available
	 
	 	 
	F013

	 	Test Cell Run Report
	 
	 	 
	F014

	 	Last On-Wing Ground Run
	 
	 	 
	F015

	 	Certified Statement that Engines are not involved in an Accident






43









 






	 	 	 
	F016

	 	Approved Release to Service Certification for installed rotables
	 
	 	 
	F017

	 	Approved ETOPS compliance report (if applicable)
	 
	 	 
	G.

	 	APU
	 
	 	 
	G001

	 	Certified Statement on Status of APU (if applicable)
	 
	 	 
	G002

	 	Certified SB Compliance Report/AD Status Report
	 
	 	 
	G003

	 	Approved Release to Service Certification for installed units
	 
	 	 
	G004

	 	APU Log Book/Master Record of Installation/Removals
	 
	 	 
	G005

	 	Complete copies of all APU Shop Visit Reports & Reason for Removal
	 
	 	 
	G006

	 	Statement of APU Hours to Aircraft Flying Hours
	 
	 	 
	G007

	 	LLP Status and Full Traceability to birth
	 
	 	 
	G008

	 	APU Borescope Report
	 
	 	 
	G009

	 	Last On-Wing/Health Check Data sheets (if applicable)
	 
	 	 
	G010

	 	Last Test Cell Run
	 
	 	 
	G011

	 	Approved ETOPS compliance report
	 
	 	 
	H.

	 	Component Records
	 
	 	 
	H001

	 	Approved Release to Service Certification for Hard Time Components
	 
	 	 
	H002

	 	Approved Release to Service Certification for OC/CM Components (to the extent that this is
required by the Air Authority including retention period)
	 
	 	 
	I.

	 	Landing Gears
	 
	 	 
	I001

	 	Approved Release to Service Certification for major assemblies on each Gear
	 
	 	 
	I002

	 	Approved LLP Listings for each Gear (evidencing total accumulated cycles)
	 
	 	 
	I003

	 	Last Shop Visit Report (OH)
	 
	 	 
	J.

	 	Manuals






All Manufacturer’s Manuals delivered with the Aircraft under the Lease updated to the latest
revision standard (applicable as at the Return Occasion) or provided with comprehensive approved
supplements as may be reasonably requested by Lessor




Microfilm or CD:




	 	 	 
	J006

	 	WDM






44









 






	 	 	 
	J007

	 	IPC
	 
	 	 
	J008

	 	Maintenance Manual
	 
	 	 
	J009

	 	Schematics
	 
	 	 
	J010

	 	Hook Up Listing
	 
	 	 
	K.

	 	Miscellaneous
	 
	 	 
	K006

	 	Maintenance Program Specifications (Operator’s)
	 
	 	 
	K007

	 	Reference Material for Interpretation of Status Summaries, or cross-reference for Part Numbers







45









 






Schedule No.: 3




SCHEDULE

to




Full Service Aircraft Services Agreement,

dated March 7, 2005 between

Aviation Services International, LLC

and Kitty Hawk Aircargo, Inc.



This Schedule is issued pursuant to the Full Service Aircraft Services Agreement, dated March
7, 2005 (the “General Terms Agreement”), between Aviation Services International LLC
(“Supplier”) and Kitty Hawk, Aircargo Inc. (“Customer”) (any capitalized term used herein and
not defined herein shall have the meaning given to it in the General Terms Agreement).





	(1)  	Coverage
	 
	   	This Schedule applies to the Components (as that term is described in paragraph 2 hereof) on
Customer’s 737-300 SF Aircraft, a list of which Aircraft is set out in Annex 1.
	 
	(2)  	Definitions; Interpretation






	 	2.1  	Definitions
	 
	 	   	Unless the context otherwise requires, for the purposes of this
Schedule, the following terms shall have the following meanings:






“Advance Exchange” shall mean the provision of an Exchange Component as replacement
for an Unserviceable Component on payment of an exchange fee.




“Airframe Components” shall mean any Repairable or Rotable Component fitted to an
Aircraft.




“AOG” means an Aircraft on ground situation where such Aircraft is unable to
continue or be returned to revenue service until the appropriate action is taken and
indicates the highest priority designation to process a requirement for . Airframe
Components.




“APU” shall mean- an auxiliary power unit.




“APU LRUs” shall mean those line replaceable units in respect of an
auxiliary power unit.



 









 






“Charges” shall mean the charges for the T3 Program Component Services
set forth in Paragraph 7 hereof.




“Commencement Date” shall mean the date provided in Paragraph 9.




“Component” shall mean any (i) Airframe Component, (ii) QECs and (iii) APU LRUs
which are fitted to an Aircraft and which shall be serviced by Supplier subject to
the provisions and exclusions of this Schedule (other than the categories of
Excluded Components listed on Annex 6).




“Component Findings Report” shall mean a report which sets out brief details of the
Repair and Overhaul services carried out on a particular Component.




“Component Maintenance Manual” and “CMM” shall mean the component maintenance manual
issued by the Manufacturer of a Component (as amended from time to time).




“Configuration” shall mean the configuration of an individual Component to
prescribed modification status.




“Consignment Stock” shall mean the stock of Components as set out in Annex 2 to this
Schedule that is supplied and replenished by Supplier. The Consignment Stock shall
be located at the Customer Fort Wayne Hub, the Customer Dallas Maintenance Base and
the Customer out-station bases (collectively “Customer Premises” or “Customer
Locations”), and, in all events, shall be managed and insured by Customer.




“Critical” shall mean a situation where an Aircraft will be prevented from meeting a
scheduled flight departure time within 24 (twenty four) hours of advising of a
critical requirement due to a fault in a Component.




“Customer Representative” shall mean the person nominated by Customer and authorized
to make binding decisions and/or commitments on its behalf in respect of this
Schedule.




“Engine LRUs” shall mean those line replaceable units in respect of an engine.




“Exchange Component” shall mean a Component, APU or Landing Gear provided to
Customer by Supplier by way of Advance Exchange in return for Customer’s
Unserviceable Component in accordance with the provisions of this Schedule.




“Excluded Component” shall mean those Components included in the categories listed
on Annex 6 which are excluded from the T3 Program Component Services.




“FAA” shall mean the United States Federal Aviation Administration.



2









 






“Flight Cycle” shall mean one take-off and landing of an Aircraft including touch
and go.




“Flight Hour” shall mean each hour or part thereof elapsing from the moment at which
the wheels of an Aircraft leave the ground on the take off of such Aircraft until
the wheels of such Aircraft touch the ground on the landing of such Aircraft
following such take off and recorded in such Aircraft’s log book.




“Flight Hour Charges” shall mean the charges per Flight Hour for maintenance of
Components, which are set forth in Section 7.1 hereof.




“Freight Forwarder Premises” shall mean the premises of Supplier’s Freight Forwarder
at [ ]




“GECAS” shall mean GE Capital Aviation Services, Inc., and its affiliates and successors,
lessor of the Aircraft to Customer.




“Go Items” means those Components covered by this Schedule other than No Go Items.




“Go If Items” shall mean those Components listed on Annex 3 to this Schedule under
the heading “Go If Items”.




“Landings” shall mean one Flight Cycle.




“Landing Gear” shall mean the part of an Aircraft structure that supports an
Aircraft when it is not flying.




“Lifed Component” shall mean a Component requiring Overhaul after a certain number
of hours or cycles or calendar months as defined as such in Customer’s Maintenance
Programme or by the Component Manufacturer.




“Loan Component” shall mean any Component to be loaned by Supplier to Customer.




“Logistics Desk” shall mean the contact point for Customer at Supplier, in
connection with the provision of 24 hour, 365 day, AOG, critical and other
operational support to Customer. Notwithstanding the foregoing, the Logistics Desk
will not be provided on the Jewish Day of Atonement holiday.




“Man-hour” shall mean the allocation of one (1) man to any specified task, including
the supervision/inspection of that task, for an elapsed time of one (1) hour or
pro-rata part thereof.




“Manufacturer” shall mean the original equipment manufacturer of a Component.




“Materials” shall mean individually or collectively any of the following:



3









 






	 	(a)  	“Consumables” – generally bulk type materials such as
lubricants, cements, compounds, paints, chemicals, dyes, splices and
patches called out in Maintenance and Repair procedures for Component
items.
	 
	 	(b)  	“Expendable” – a part for which no authorized repair procedure
exists or for which the cost of repair would be uneconomical.
	 
	 	(c)  	“Repairable” – a part which is continually reworked to a fully
serviceable condition using authorized repair procedures in the appropriate
manufacturer’s repair manual until such rework becomes uneconomical.
	 
	 	(d)  	“Rotable” – a serially numbered Component having a life expectancy,
through repetitive repair and/or overhaul and under normal operating
conditions, approximating to the life of the Aircraft and flight equipment to
which it is related.






“MPD” shall mean the Manufacturer’s Maintenance Planning Document produced by the
Manufacturer detailing the maintenance, servicing actions and intervals recommended
to maintain the Aircraft.




“No Go Items” shall mean those Components listed on Annex 3 to this Schedule.




“Overhaul” or “Overhauled” shall mean the restoration of any Component so that it
may achieve its defined full overhaul life as set out in the relevant CMM.




“Pool Stock” shall mean the Components held or managed by Supplier directly or
through its subcontractors.




“Quick Engine Change” or “QEC” shall mean those line replaceable units pertaining to
a quick engine change.




“Repair” or “Repaired” shall mean the minimum work necessary to certify a Component
to airworthy status as set out in the relevant CMM.




“Return Conditions” Shall mean the engine lease return conditions for the Aircraft specified
in the aircraft leases between GECAS and Customer and attached to Schedule 2 as Annex 1A.




“Serviceable” or “Serviceability” shall mean the status of a Component that will be
either:




	 	(i)  	new; or
	 
	 	(ii)  	Repaired; or
	 
	 	(iii)  	Overhauled




4









 












At Supplier’s discretion and which has been certified for return to service.




“Signature Date” shall mean the last date as of which both Parties shall have signed
the General Terms Agreement and this Schedule.




“Sub-contract” shall mean a Sub-contract entered into by Supplier in respect of the
whole or any part or parts of the T3 Program Component Services.




“Sub-contractor” shall mean any party who is the provider of any part or parts of
the Services pursuant to a Sub-contract.




“Supplier Account Manager” shall mean the nominated Supplier representative who
shall co-ordinate the day-to-day management of this Schedule.




"Supplier’s Freight Forwarder’ shall meanthe freight forwarding agents of Supplier,
whose address and contact numbers are as follows:




"T3 Program Component Services” shall mean the provision of the Airframe
Components, Engine LRUs, APUs, APU LRUs and Landing Gear listed on Annex 1 by
Supplier to Customer in accordance with the provisions and specific exclusions set
forth in this Schedule. For the sake of clarity, the Excluded Components are not
included in the T3 Program Component Services.




“Unserviceable Component, APU, Landing Gear” shall mean a Component or Landing Gear
that has become un-Serviceable and/or requires Repair and/or Overhaul while
installed in or attached to an Aircraft.




	 	2.2  	Interpretation






	 	(a)  	Any expression in the singular shall,
where the context requires, include the plural and vice
versa.
	 
	 	(b)  	In this Schedule all references to
“Sections”, “Sub-sections”, “Paragraphs”,
“Sub-paragraphs”, “Annexes” and “Exhibits” are to
sections, sub-sections, paragraphs, sub-paragraphs,
appendices, annexes and exhibits to this Schedule,
unless expressly stated otherwise.
	 
	 	(c)  	Paragraph headings are inserted for
convenience of reference only and shall be ignored in
the construction of this Schedule.
	 
	 	(d)  	Any technical expressions used in this
Schedule and not defined herein shall, unless the
context otherwise requires, have the meanings specified




5









 






	 	   	in the latest edition from time to time of the World
Airlines Technical Operations Glossary (WATOG)
published by the International Airline Transport
Association. Where a definition does not appear in
WATOG, then reference shall be made to the World
Airlines Suppliers Guide (WASG), provided that WATOG
shall take precedence in the case of any conflict of
definitions.






	(3)  	Objective
	 
	   	This Schedule details the scope of the T3 Program Component Services to
be supplied by Supplier.
	 
	   	The T3 Program Component Services shall consist of the following:






	 	(a)  	Provision and support of Components within the Consignment Stock as
set out in Annex 2;
	 
	 	(b)  	Provision of the Pool Stock (on an Advance Exchange basis); and
	 
	 	(c)  	Off-wing maintenance of Unserviceable Components.






	(4)  	Services
	 
	4.1  	T3 Program Component Services included under this Schedule:






	 	(a)  	Provision and support of the Consignment Stock
	 
	 	   	The Consignment Stock shall be located at the Customer Fort Wayne
Hub, Dallas Maintenance Base and out-station bases [7-10; to be
specified in a letter from Customer prior to effective date of this
Schedule]. Supplier shall provide and support the Consignment Stock
as follows. The contents of the Consignment Stock as of the date of
this Agreement are set forth in Annex 2. Changes to Annex 2 may be
made in the sole discretion of Supplier.






	 	(1)  	Supplier shall:






	 	(i)  	use all
reasonable efforts to prepare for
supply of the Components comprising the
Consignment Stock as follows:
	 
	 	   	Consignment Stock Component and LRU
replacement will be carried out by
Supplier within




6









 






	 	   	eight (8) days from the date a
Component is readied by Customer for
pick up by Supplier at the
applicable Customer Premises.
	 
	 	(ii)  	carry out regular
audits on the Consignment Stock.
	 
	 	(iii)  	guarantee that
No Go Items will be available when
needed by the Customer 97% of the time
and that Go Items and Go If Items will
be available when needed by the
Customer 95% of the time.
	 
	 	(iv)  	provide
replacement Components from the Pool
Stock or other sources as applicable.






	 	(2)  	Customer shall:






	 	(i)  	provide (at
each of the Customer Facilities where
Consignment Stocks shall be located) a
segregated enclosed, roofed and
heated/air conditioned secure place,
segregated from its own components, for
storage of the Consignment Stock. The
Consignment Stock shall be clearly
marked as Supplier property;
	 
	 	(ii)  	be responsible
for control and management of the
Consignment Stock and shall bear all
risks of loss and/or damage to the
Consignment Stock. For the avoidance
of doubt, title to all Components
comprising the Consignment Stock shall
remain with Supplier and/or the owner
of the Components until receipt by
Supplier of an acceptable Unserviceable
Component;
	 
	 	(iii)  	maintain,
during the Term property insurance,
covering the Consignment Stock for its
full




7









 






	 	   	replacement value and liability
insurance, each with insurance
companies reasonably accepted to
Supplier (the “Consignment Stock
Insurance Coverage”). The
Consignment Stock Insurance Coverage
shall be subject to the terms and
conditions of Article XIII of the
General Terms Agreement.






	 	(3)  	At any time after the second
anniversary of the Commencement Date of this Schedule,
and upon not less than sixty (60) days prior written
notice, Customer may purchase the then remaining
Consignment Stock for a price equal to that paid by
Supplier therefor. Such sale shall take place thirty
(30) days after Supplier shall have received such
notice. At the closing of such sale, Customer shall
wire transfer the purchase price, in immediately
available funds, to the account specified in Article
X(F) of the General Terms Agreement. Supplier, upon
receipt of such wire, shall convey such remaining
Consignment Stock to Customer by a bill of sale, which
shall provide, among other things, that such conveyance
is free of all liens, claims and emcumbrances by, or
through, Supplier. Such price shall be reduced by 6%
in respect of each year (pro rata for partial years)
commencing with the second anniversary of the
Commencement Date. For inventory added to the
Consignment Stock after Commencement Date of this
schedule, the additional Consignment Stock shall be
available to purchase by Customer two (2) years after
adding additional Consignment Stock upon the same terms
and conditions as the original Consignment Stock.
	 
	 	(4)  	To the extent Customer shall not have
purchased all of the Consignment Stock pursuant to
paragraph (3) above, upon the end of the Term, whether
through termination or expiration, Customer shall
collect all of the remaining Consignment Stock (the
“Remaining Consignment Stock”) to its Fort Wayne Hub,
maintain the Remaining Consignment Stock in a secure,
protected and segregated area, and make the Remaining
Consignment Stock available to




8









 






	 	   	Supplier (or its designated representative) to enter
the premises of the Fort Wayne Hub, take possession
of the Remaining Consignment Stock and remove the
Remaining Consignment Stock therefrom.






	 	(b)  	Provision of Components within the Pool Stock






	 	(1)  	Supplier shall:






	 	(i)  	use all
reasonable efforts to provide Customer
with access, on an Advance Exchange
basis, to the Pool Stock; and
	 
	 	(ii)  	arrange for
transportation of Components from the
Pool Stock to the applicable Customer
Premises. For the avoidance of doubt,
the cost of transportation (inclusive
of insurance) of components from the
Pool Stock to a location other than
either of the Customer Premises shall
be chargeable as Supplemental Work in
accordance with Paragraph 7.2 below.






	 	(2)  	Customer shall:






	 	(i)  	notify
Supplier in writing of a
requirement via fax or E-mail in
accordance with the procedure set
forth in Annex 4 to this Schedule;
	 
	 	(ii)  	ensure that
each Unserviceable Component is
available to be dispatched to Supplier
from the applicable Customer Premises
in accordance with Paragraph 5.3(a)
below and that Supplier is notified
thereof within 3 (three) days of
receipt by Customer of an Exchange
Component therefor.






	 	(c)  	Off-wing maintenance of Unserviceable Components, APUs and
Landing Gears




9









 












	 	(1)  	Supplier shall manage the inspection,
Repair and Overhaul of all Unserviceable Components,
APUs and Landing Gears which are removed from an
Aircraft, tagged and dated on or after the Commencement
Date and which shall include the following services:






	 	(i)  	receiving inspection;
	 
	 	(ii)  	disassembly;
	 
	 	(iii)  	cleaning process;
	 
	 	(iv)  	parts inspection/crack detection (NDT);
	 
	 	(v)  	parts replacement;(vi) re-assembly;
	 
	 	(vii)  	bench test;
	 
	 	(viii)  	finishing stages;
	 
	 	(ix)  	packaging and shipping.






	 	(2)  	Supplier shall, upon receipt of an
Unserviceable Component, APU or Landing Gear Repair or
Overhaul at its discretion such Component, APU or
Landing Gear but only to the extent necessary to return
such Unserviceable Component to Serviceable Condition.
	 
	 	(3)  	All Components, APUs or
Landing Gears shall be repaired by suitably approved
vendors and released with FAA certification.
	 
	 	(4)  	For the avoidance of doubt, (i)
Customer shall insure that all ADs and SBs outstanding
prior to the Commencement Date shall have been fully
complied with and closed as of the Commencement Date;
and (ii) the Charges set out in Paragraph 7 for
T3 Program Component Services shall not
include the incorporation of any ADs/SBs, which shall
be chargeable separately to Customer in accordance with
Clause (d) below.
	 
	 	   	Supplier shall provide Customer, upon 90 days prior
notice, a Landing Gear set in Assembly/Installation
configuration on an advance exchange basis. Customer
shall deliver the Landing Gear within ten (10) days
of receiving the advance exchange Landing Gear.
Customer’s Landing Gear must be supported with full
life details, and where applicable, “Back to Birth
Records”.




10









 






	 	   	Supplier reserves the right to refuse acceptance of
any units missing vital relevant information or to
scrap-on-site any Life Limited Components missing the
correct traceability and documentation. (For the sake
of clarity, each Landing Gear shall be overhauled
only once during the term of the agreement).






	 	(d)  	Supplemental Work
	 
	 	   	Supplemental Work shall mean:






	 	(1)  	Repairs or any other maintenance services, which are required
to be performed on a Component, APU or Landing Gear as a result of damage due
to FOD, misuse, abuse, mishandling and accident.
	 
	 	(2)  	All material charges in connection
with the performance of regular Service Bulletins
(“SBs”), if requested by Customer, and/or
Airworthiness Directives of the FAA (“ADs”) and
mandatory SBs which come into force on and after
the Commencement Date; all associated labor costs
shall be borne by Supplier.
	 
	 	   	Service Bulletins performed at Supplier’s option
to extend life or improve reliability shall not
be considered Supplemental Work.
	 
	 	(3)  	All costs above 70% on a Customer owned and originated BER item
of Equipment.
	 
	 	(4)  	Requests of Customer that are not
included in the T3 Program Component
Services.
	 
	 	(5)  	Changes requested by Customer to the
Consignment Stock and/or the No Go Items (unless
mutually agreed to by both of the Parties).
	 
	 	(6)  	The support of Excluded Components at
Customer’s request and subject to availability; the
supply by Supplier of such Excluded Components to be
either (1) on an Advance Exchange basis or (2) on a
loan basis.
	 
	 	(7)  	All work associated with Paragraphs
5.3(b) and (c) hereof.




11









 






	 	(8)  	All costs associated with (i) the
Repair of Unserviceable Components with major damage
(such as, but not limited to, physical and/or internal
damage following mishandling, abuse, accident, FOD or
military use); and (ii) an Unserviceable Component that
contains non-standard OEM parts or which has been
subject to maintenance, installation, storage,
operation or use, that is improper or not in accordance
with the applicable CMM or other appropriate
instructions.






For the avoidance of doubt, in cases where Supplier agrees to
perform Supplemental Work, Supplier shall have no liability for any
failure to meet the time and service level obligations set forth in
Paragraph 4.3 caused thereby.




	 	(e)  	All Charges for the above T3 Program Component
Services shall be as stipulated in Paragraph 7 of this Schedule.






	4.2  	Logistics and Administration
	 
	   	Supplier shall, in respect of the T3 Program Component Services defined
in Paragraph 4.1 above, provide:






	 	(a)  	Customer account management through Supplier’s Program Manager
as referred to in Sub-paragraph 4.4(a) below;
	 
	 	(b)  	a twenty-four (24) hours per day, 365 days per year (excluding
the Jewish Yom Kippur holiday) , Logistics Desk, which shall
handle and arrange for the dispatch of Components to Customer for
operational requirements;
	 
	 	(c)  	the administration of all warranty claims in respect of the
Components;
	 
	 	(d)  	warehousing, processing of Customer requests for the supply of
Components, receipt of Unserviceable Components, management of Repair
and Overhaul processes thereof, updates on delivery dates, dispatch and
shipping information, including transport, data, information, documents
and records via computer systems;
	 
	 	(e)  	in respect of Lifed Components, other than Life Limited Parts,
JAR certification and/or dual (FAA/JAA) release certification;
	 
	 	(f)  	in respect of Life Limited Parts, back-to-birth traceability
documents; and




12









 






	 	(g)  	a program liaison manager at Customer’s Premises for the first
three (3) months following the Commencement Date (or as otherwise
mutually agreed by Supplier and Customer).






	4.3  	Performance
	 
	   	Subject to Customer performing its obligations as set out in Paragraph 5, Supplier
agrees to provide the T3 Program Component Services set out in Paragraph
4.1 above in accordance with the following procedures and time scales:






	 	(a)  	where there is an AOG requirement:






	 	(i)  	Customer shall send a request to
Supplier’s Logistics Desk for the required
Component, APU or in accordance with the
procedures set out in Annex 4. Each request shall be
acknowledged by Supplier within one (1) hour from
receipt thereof;
	 
	 	(ii)  	Supplier shall advise Customer in
writing or via an electronic format if such
Component, APU or is available from the Pool
Stock. If not available from the Pool Stock the
requested Component, APU or will be procured
from other sources and made available to Customer
within the same timeframe as if the Component,
APU or were in the Pool Stock. The requested
Component, APU or shall be ready for
dispatch to Customer within three (3) hours of receipt
by Supplier of Customer’s request in (i) above and
delivered to the applicable Customer Premises (i) if
Customer’s request is received by Supplier on or before
1500 hours on any one day, within 8-12 hours and (ii)
if Customer’s request is received by Supplier after
1500 hours on any one day, within 18 hours, in each
case of such receipt by Supplier of such Customer
request;






	 	(b)  	where there is a Critical requirement: (EST)






	 	(i)  	Customer shall send a request to
Supplier’s Logistics Desk for the required
Component, APU or in accordance
with the procedures set out in Annex 4. Each request
shall be acknowledged by Supplier within one (1) hour
from receipt thereof;
	 
	 	(ii)  	Supplier shall advise Customer in
writing or via an electronic format if such
Component, APU or




13









 






	 	   	is available from the Pool Stock. If not available
from the Pool Stock the requested Component,
APU or will be procured from other sources and
made available to the Customer within the same
timeframe as if the Component, APU or were
in the Pool Stock. The requested Component,
APU or shall be ready for dispatch to Customer
within five (5) hours of receipt by Supplier of
Customer’s request in (i) above and delivered to the
applicable Customer Premises. (i) if Customer’s
request is received by Supplier on or before 1500
hours on any one day, within 36 (thirty-six) hours
and (ii) if Customer’s request is received by
Supplier after 1500 hours on any one day, within 48
hours, in each case of such receipt by Supplier of
such Customer request;






	 	(c)  	where there is a routine requirement:






	 	(i)  	Customer shall send a request to
Supplier’s Logistics Desk for the required
Component, or APU, in accordance with the
procedures set out in Annex 4. Each request shall be
acknowledged by Supplier within one (1) hour from
receipt thereof;
	 
	 	(ii)  	Supplier shall advise Customer in
writing or via an electronic format if such Component
or, APU, is available from the Pool Stock.
The requested Component, APU, shall be ready
for dispatch to Customer within eight (8) hours of
receipt by Supplier of Customer’s request in (i) above
and delivered to the Customer Premises within 72 hours
of such receipt by Supplier of such Customer request.
	 
	 	(iii)  	Landing Gear will be available for
scheduled removals forty-eight (48) hours prior to a
scheduled removal and shall be returned to Supplier
within seventy-two (72) hours after installation of the
repaired Landing Gear or Thrust Reverser, as
applicable. For unscheduled removals of Landing Gears
and Thrust Reversers, Supplier shall use its best
efforts to provide temporary replacement as soon as
practicable after being notified of an unscheduled
removal.






	 	(d)  	Supplier shall be responsible for arranging transportation and
transit insurance:




14









 












	 	(i)  	of all Customer requested Components
or, APUs, (other than the
Components listed on Annex 6which shall be charged as
Supplemental Work) to Customer at the applicable
Customer Premises;
	 
	 	(ii)  	for the collection of Unserviceable
Components or, APUs, from Customer
at the applicable Customer Premises;
	 
	 	(iii)  	of both Serviceable and Unserviceable
Components or, APUs, to and from a
Repair Facility and the Pool Stock location.






All costs incurred in respect of (b)(i), (ii), (iii) above and/or
any other transport/transit insurance costs shall be included within
the Charges set out in Paragraph 7 below.




	 	(e)  	Supplier shall provide for adequate and accurate record
keeping. Upon Redelivery of any Component, APU or      ,
Landing Gear , Supplier shall provide Customer with the following:






	 	(i)  	major repair/alteration certifications,
as applicable;
	 
	 	(ii)  	a life limited parts log;

	 
	 	(iii)  	a serviceability tag;
	 
	 	(iv)  	Customer’s original records, properly
updated, and all other related documentation, if any,
for the work that shall have been performed;
	 
	 	(v)  	an incoming inspection report;
	 
	 	(vi)  	an off/on log;
	 
	 	(vii)  	an SB status report;
	 
	 	(viii)  	an AD status report;
	 
	 	(ix)  	a test cell data summary sheet (if
applicable); and
	 
	 	(x)  	a shop finding report within ten (10)
days after equipment is redelivered.






Supplier shall continue to retain all such records and documentation
for a period of at least two (2) years beyond the expiration by its
terms, or termination, of the General Terms Agreement.




	 	(f)  	Supplier shall retain the Components Findings Report of all
Unserviceable Components, APUs, Landing Gears
sent for Repair and Overhaul and ensure that they are made available to
Customer upon reasonable notice of a request from Customer to do so.




15









 






	 	(g)  	Supplier shall provide Customer with engineering support as
follows:






	 	(i)  	Work scopeing of all Component, APU, or
Landing Gear maintenance in coordination with Customer.
	 
	 	(ii)  	Establishing a continuously monitored
reliability program for the Components, APUs or,
Landing Gears and providing monthly reports thereof.
	 
	 	(iii)  	Preparing, together with Customer,
maintenance programs for the Components, APUs or,
Landing Gears, recording all maintenance and providing
monthly reports thereof.






	 	(h)  	Monitoring of such maintenance programs.






	4.4  	Customer/Company Liaison






	 	(a)  	Customer and Supplier shall work together through their
respective representatives; namely, the Program Manager and the
Customer Representative, to administer the day to day accomplishment of
the T3 Program Component Services; and
	 
	 	(b)  	Supplier’s Program Manager shall visit the Customer Premises as
and when reasonably required by Customer and shall be the focus of day
to day communication between Supplier and Customer.






	4.5  	Computer Links
	 
	   	Supplier shall provide Customer with online internet service for Component/LRU/APU/
Landing Gear information available twenty-four (24) hours per day. Such service
shall be updated on a daily basis. It will provide: (i) password protected access;
(ii) complete interacting status reports sorted by part number or repair order;
(iii) on-line tracking of part numbers; (iv) redelivery reports; and (v) finding
reports.






	5.  	Customer Obligations
	 
	   	All documentation, data and/or other such information required by Supplier from
Customer shall be provided by Customer to Supplier in the English language.






	5.1  	Literature and Publications
	 
	   	Customer shall provide the following, without charge, prior to the commencement of
T3 Program Component Services:




16









 












	 	(a)  	information with regard to Component, APU or, Landing Gear
usage and removal rates as Customer can reasonably provide for up to
five (5) years prior to the Commencement Date;
	 
	 	(b)  	customised Illustrated Parts Catalogues covering the Components;
	 
	 	(c)  	list of Lifed Components for each Aircraft, detailing part
numbers, descriptions and scheduled removal periods and the next
scheduled removal date for Components together with any updates which
may become available for a minimum six months in advance;
	 
	 	(d)  	letter of authority in the form shown in Annex 5 authorizing the
airframe manufacturer and Equipment vendors to provide technical information
relating to Components fitted on Customer’s Aircraft; and






	5.2  	Data
	 
	   	Customer shall provide the following on a regular basis, without charge, during the Term:






	 	(a)  	the Flight Hours and Landings flown by each Aircraft and recorded
in the applicable Aircraft log book on a monthly basis, to be provided no
later than the 5th day of each next calendar month during the
Term (and of the calendar month following the expiration of the Term, in
respect of the Flight Hours and Landings for the last month of the Term);
	 
	 	(b)  	routine amendments to Illustrated Parts Catalogues;
	 
	 	(c)  	all other technical data requested in order for Supplier to
perform the T3 Program Component Services.
	 
	 	(d)  	all removals from, and all placements into, the Consignment
Stock (by part number) and serial number, on a Consignment Stock
Reporting Form in the form annexed hereto as Annex 7.






	5.3  	Performance






	 	(a)  	Customer, using Supplier’s Freight Forwarder, shall return to
Supplier (at the Freight Forwarder Premises) the applicable
Unserviceable Component or, Landing Gear within three (3) days of
receipt of an Exchange Component from Supplier. Customer shall insure
that the packing of all Unserviceable Components shall be in accordance
with OEM instructions for transportation purposes.
	 
	 	   	Each Unserviceable Component shall be accompanied by the following
documentation:




17









 












	 	(i)  	an unserviceable tag containing
information, such as the description of the Component
(part number and serial number) the reason(s) for
removal (e.g., pilots quawk or failure indication);
	 
	 	(ii)  	full records and traceability documents
to the last Overhaul, Aircraft tail number, date of
removal, in respect of each Component;
	 
	 	(iii)  	full back-to-birth records and
traceability documents in respect of each LLP;
	 
	 	(iv)  	a copy of the pilot’s report (PIREP);
and
	 
	 	(iv)  	where applicable, a copy of the
on-Aircraft built in test equipment (BITE) read out.






In addition, Customer shall inform Supplier, if any of the
Unserviceable Components are “incident related” or have been subject
to unusual stress or extreme heat during utilization thereof by
Customer.




	 	(b)  	Customer shall ensure that any Unserviceable Component
delivered to Supplier shall be repairable and must be the same or an
exchangeable part number and same modification status as the applicable
Exchange Component. The original data plate must be attached to an
Unserviceable Component. Where the original data plate is not attached
to an Unserviceable Component, then such Unserviceable Component shall
be sent to its OEM for a full Overhaul. In the event an Unserviceable
Component does not meet with the conditions in this Sub-paragraph
5.3(b), then Supplier shall be entitled to convert such Advance
Exchange transaction to an outright purchase and Customer shall be
charged as Supplemental Work in accordance with Paragraph 7.2(b).
	 
	 	(c)  	In the event an Unserviceable Component is not made available
for collection by Supplier at the Customer Premises within the time
period specified in Paragraph 5.3(a) above, Supplier shall be entitled
to charge to Customer (as Supplemental Work) a sum equivalent to two
percent (2%) of the CLP of the Exchange Component for each day or part
thereof until such time such Unserviceable Component is returned to
Supplier. If an acceptable Unserviceable Component and documents are
not returned to Supplier within thirty (30) days from receipt by
Customer of an Exchange Component, then Supplier shall, in addition, be
entitled to convert the Advance Exchange transaction to an outright
purchase and Customer shall be






18










 







charged as Supplemental Work in accordance with Paragraph 7.2(b).




	 	(d)  	If Customer fails to meet any of its obligations as stated in
this Paragraph 5, any costs incurred by Supplier, including, without
limitation, transportation and insurance costs, the costs of the loan
and/or exchange of Components required to support other customers, or
any penalties incurred whatsoever, shall be rechargeable to Customer as
Supplemental Work.
	 
	 	   	The impact of any such failure by Customer on the ability of
Supplier to comply with its subsequent obligations shall be
considered an event of Excusable Delay on the part of Supplier and
shall not be considered a failure on the part of Supplier to meet
its service levels in Paragraph 4.3 above.
	 
	 	(e)  	Beginning one (1) year after entry into revenue service of
Customer’s first Aircraft that shall have been converted to special
freighter configuration pursuant to this General Terms Agreement,
Customer agrees, in the event that the percentage of AOG requests exceeds
seven and one-half percent (7.5%) of all Components requested by Customer
in any one calendar month, to pay an additional charge of $ 10 per AFH
per Aircraft in respect of such month
	 
	 	(f)  	Customer shall pass all warranties (in respect of the
Components) to Supplier and/or any Sub-Contractor (as Supplier may from
time to time require) at the same time as a Component is returned to
Supplier.
	 
	 	(g)  	Customer shall be responsible for all costs of insurance, costs
of storage of Consignment Stock and associated charges incurred in the
performance of this Schedule.






	(6)  	Title to Components and Risk of Loss or Physical Damage






	6.1  	Title and risk of loss or damage to any Component in the Consignment Stock or
supplied by Supplier and/or its Sub-Contractor from the Pool Stock (unless specified
as a Loan Component) pursuant to the T3 Program Component Services
contemplated under this Schedule and any Sub-contract, shall pass from Supplier to
Customer at the time of receipt by Customer of such Component. Title to (but not risk
of loss or damage) an Unserviceable Component shall simultaneously pass from Customer
or the owner of such Component to Supplier or as it directs. Risk in an Unserviceable
Component shall pass on receipt thereof by Supplier; provided, that, where Customer
has not delivered an Unserviceable Component to Supplier within the time periods set
out in Paragraph 5.3(a) above or is unable to pass or procure the passage of good
title to or warranty for (if applicable) such Unserviceable Component or fails to
comply with the provisions of Paragraphs 5.3(a) and (b) above with respect to delivery
of relevant documents and the condition of such




19









 






	   	Unserviceable Component, title to the
Component supplied by Supplier shall
not pass to Customer until such time as Customer has made full payment or provided
the warranty (if applicable) or an acceptable Unserviceable Component or documents
to Supplier for the supplied Component. For the avoidance of doubt and
notwithstanding the above, Customer shall bear all risks of loss or damage to the
Component supplied by Supplier upon receipt thereof.
	 
	6.2  	Except as provided in Paragraph 4.1 above, Customer shall not, without Supplier’s prior
written consent, sell, assign, lease, transfer possession of or in any way dispose of any
Component nor permit any lien or encumbrance to be imposed upon any Component or any part
thereof.
	 
	(7)  	Charges
	 
	7.1  	In respect of the T3 Program Component Services set out in Paragraph
4.1(c) above, and provision of access to the Pool Stock, Customer shall pay to
Supplier (i)





	 	 	 	 	 
	No. of Flight Hours	 	Payment per	 
	per Month Per Aircraft	 	Flight Hour	 
	Minimum of 960
	 	$	*****	 
	From 961 to 1,400
	 	$	*****	 
	From 1,401 to 1,700
	 	$	*****	 
	More than 1,700
	 	$	*****	 







The appropriate rate per AFH from the table above in respect of Components and
provision of access to the Pool Stock; and (ii) $***** per month per Aircraft in
respect of Landing Gears (the “Monthly Charge”).




	7.2  	In respect of the Supplemental Work set out in Paragraph 4.1(d) above, Customer shall
pay the following charges:






	 	(a)  	Supplier’s rate for all Supplemental Work performed by
Supplier’s sub-contractor, IAI, shall be $*****/Man Hour.
	 
	 	(b)  	The cost of purchased or acquired materials and subcontracted
work shall be based upon invoice cost, plus transport (and insurance)
and a 12% handling charge.
	 
	 	(c)  	With respect to the repair of Excluded Components, (i) invoice
cost for each such Component, plus a 12% handling charge, and (ii)
charges for transportation, insurance and logistics, plus a 12%
handling charge




Confidential treatment has been requested by Kitty Hawk, Inc.
for certain portions of this document. Confidential portions have been filed separately with the
Securities and Exchange Commission. Omitted portions are indicated in this agreement with “*****”.


20









 






	 	(d)  	The Charges do not include Services on Components to meet any
lease return conditions except for the Landing Gear. Supplier warrants
that it will be fully responsible and assume all liability, including
financial liability, for the Lease Return Conditions of the Landing
Gear.(Please supply Landing Gears returns condition or is it the same
as noted in Redelivery Condition+SchG form, item 1.3)






	7.3  	In respect of the Consignment Stock, Customer shall pay to Supplier a monthly
availability charge of *****% of an agreed value per part number (agreed upon by
Supplier) of the Consignment Stock.






	7.4  	Assumptions






	 	(a)  	The prices contained in Paragraph 7, are based on the
assumptions that (i) a guaranteed annual minimum of 960 Flight
Hours per Aircraft on an Aircraft fleet basis; and (ii) in
respect of the APUs only, an hours to cycle ratio of 1.5:1 or
2:1 on an Aircraft fleet basis.
	 
	 	(b)  	The prices contained in this Paragraph 7 are also based
on the assumption that: (y) Components and APUs are in normal
run out condition; and (z) coverage is of all Components in
Customer’s B737-300 SF fleet, other than the Excluded
Components.
	 
	 	(c)  	Supplier reserves the right to revise all Charges payable under
this Schedule in the event any of the foregoing assumptions change
during the Term; provided that, in the event of any such change,
Supplier will advise Customer in advance and they shall, in good faith,
negotiate such price changes which shall be within a reasonable range
of the prices provided in this Schedule.






	7.5  	Escalation
	 
	   	All charges are (i) net, free of all customs charges, taxes, withholdings,
deductions, impositions and/or charges of whatever kind, other than Supplier’s U.S.
income taxes and IAI’s Israeli income taxes, and (ii) expressed in 2004 Dollars,
which shall be escalated annually, commencing January 2005, at the rate of two and
one-half percent (2.5%) per annum.






	7.6  	Terms of Payment






	 	(1)  	Payments of the Flight Hour Charges and the charges for the
Pool Stock shall be made in accordance with the provisions of Article
X(B) of the General Terms Agreement.
	 
	 	(2)  	Payments for Supplemental Work and the monthly availability charge for the
Consignment Stock shall be made in accordance with the provisions of Article




Confidential treatment has been requested by Kitty Hawk, Inc.
for certain portions of this document. Confidential portions have been filed separately with the
Securities and Exchange Commission. Omitted portions are indicated in this agreement with “*****”.


21









 






	 	   	X(A) of the General Terms Agreement. Payments of the Monthly Change shall be made in
accordance with Article X(A) of the General Terms Agreement, except that such
payments shall be made on the later of (i) the fifteenth day of each month for the
previous month or (ii) receipt of an invoice of such Monthly Charge.






	7.7  	Beyond Economic Repair (BER)






	 	(a)  	In the event that a Component is found to be BER, Customer
shall be liable for payment of 30% of the replacement cost for
comparable replacement Component (the “Replacement Costs”), plus
the cost of the repair vendor evaluation fee. Notwithstanding the
foregoing, Customer shall not be liable in respect of the BER
condition of a Component supplied by Supplier, except where such
BER condition is caused, in whole or in part, by Customer’s act or
failure to act.
	 
	 	(b)  	Should the cost of repair of a BER Component exceed 70% of the
Replacement Cost, Customer shall be notified, and in parallel Supplier
will search the market for a replacement Component. Should such a
Component be available on the market at less than 70% of its
Replacement Cost, Supplier shall purchase such Component at no
additional cost to Customer.






	7.8  	No Fault Found (“NFF”)






	 	(a)  	In order to limit no fault found Shop Visits, Customer shall
maintain any removed Components in quarantine for 48 hours, except for
No Go Items, which shall be quarantines for 24 hours (in either case,
the “Quarantine Period”) prior to pick-up by Supplier. If, during the
Quarantine Period:






	 	(i)  	the replacement Component from the
Pool Stock for such quarantined Component does not
clear fault on fitment, then the fault shall be
deemed not to have been caused by the quarantined
Component, and such quarantined Component shall
be re-fitted to the Aircraft and continue to be
used by Customer. Customer shall arrange to have
such replacement Component made available for
collection by Supplier’s Freight Forwarder,
together with all documentation originally
supplied by Supplier with such replacement
Component; and




22









 






	 	(ii)  	conversely, if the replacement
Component does clear fault on fitment, then the
fault shall be deemed to have been caused by the
quarantined Component and it shall be made
available by Customer for pick-up by Supplier’s
Freight Forwarder.






	 	(b)  	For each NFF occurrence, which is more than 10% (20%, in the
first six (6) months of the Term) of all Components returned by
Customer as Unserviceable Components (“Customer Returns”) Supplier
shall charge a restocking fee of $ 350.00 in respect of each Component
returned to the Consignment Stock.
	 
	 	(c)  	If NFF occurrences in respect of Components are more than 10%
(20%, in the first six (6) month of the Term) of “Customer Returns”
during any twelve (12) month period of the Term commencing with the
first full calendar month after the Signature Date, Customer shall pay
to Supplier $ 350.00 for each NFF occurrence in excess of such 10% of
Customer Returns.






	8.  	Warranty






	 	(1)  	The warranty provisions of the General Terms Agreement shall be
applicable hereto; except that they shall only be applicable with
respect to the T3 Program Component Services in respect of
the last Redelivery of a Component prior to expiration of the Term.
	 
	 	(2)  	For the purposes of this Schedule, the Warranty Periods shall
be:






	 	(i)  	for repair  —  Eight (8) months after Redelivery or
1,000 AFH, whichever occurs first.
(ii) for overhaul  —  Twelve (12) months after Redelivery or
1,200 AFH, whichever occurs first.
	 
	 	(ii)  	for overhaul  —  Twelve (12) months after Redelivery or
1,200 AFH, whichever occurs first.




23









 












	 	(3)  	Supplier Failures






	 	(i)  	In the event of failure of Supplier to
meet the AOG commitments in Paragraph 4.3(a) or the
Critical commitments in Paragraph 4(b), then, Customer
may, at its option to insure continuous Aircraft
operation, purchase, borrow or lease a replacement
Component or LRU and Supplier will reimburse Customer
for all costs incurred in connection therewith.
	 
	 	(ii)  	In the event of failure of Supplier to
meet the service level guarantees of Section
4.1(a)(1)(iii) over a one-year period (a “Measurement
Period”), then (y) if the service level reached during
such Measurement Period is more than 10% below the
guaranteed percentages, then Customer shall have the
right, but shall not be obligated, to terminate all or
any portion of this Schedule without any obligations
beyond those that have accrued up to such termination;
and (z) if the service level reached during a
Measurement Period is 10% or less below the guaranteed
percentages, then for each percentage below the
guaranteed percentages, Supplier shall invest one-half
of a percent (0.5%) of the total Flight Hour payments
made by the Customer during that year in the purchase
or leasing of additional Components for the Consignment
Stock.






	9.  	Term; Termination






	 	(A)  	This Schedule shall have a term commencing on delivery of the
first Aircraft to Customer (on or about March 14, 2005)_, 2005 (the
“Commencement Date”) and expiring ten (10) years thereafter or the
actual lease term of the Aircraft, whichever is longer. (the “Term”).
For the purposes of the Flight Hour Payments and the payments in
respect of the Pool Stock, and the Monthly Charge, as applicable,






	 	(1)  	the period commencing on the Commencement
Date and ending on the last day of the calendar month in
which the Commencement Date falls (the “Stub Period”),
shall be a separate “month” for calculating such Payments
and the Monthly charge or the Minimum AFH per month per
Aircraft for the Stub Period shall be a pro rata portion
(i.e., the number of actual days in the Stub Period,
counting




24









 






	 	   	both the Commencement Date and such last day of the
month) of the applicable Minimum monthly AFH; as
applicable and
	 
	 	(2)  	the full Minimum AFH per month shall apply
to the first full calendar month during the Term and to
each full calendar month thereafter occurring during the
Term.






	 	(B)  	In the event of a termination of either (i) this Schedule under
the provisions of Article VII of the General Terms Agreement or (ii)
the expiration by its terms of this Schedule, then, with respect to the
Consignment Stock:






	 	(1)  	On expiration or termination of this
Schedule, Customer shall, at Supplier’s request,
repackage in accordance with the Manufacturers’
shipping instructions and dispatch, at (i) Customer’s
expense, in the case of a termination which is due to
its default or (ii) Supplier’s expense, in the case of
expiration by its terms of this Schedule or termination
which is due to Supplier’s default, all Components
comprising the Consignment Stock complete with all
approved documentation and other necessary paperwork in
accordance with Supplier’s reasonable instructions.
	 
	 	(2)  	In the event Customer fails to
repackage and dispatch the Consignment Stock in
accordance with (1) above, Supplier shall be entitled
to, and Customer shall enable Supplier to, have
immediate access to the Customer Facilities for the
purposes of re-possessing the Consignment Stock.
	 
	 	(3)  	Customer shall undertake that all
Components comprising the Consignment Stock that are
returned to Supplier shall be in the same or
substantially the same condition and quality as at the
time of their original delivery to the Customer
Premises. In the event of any material disparity in
such condition or quality of such Components which can
reasonably be attributed to Customer’s negligence or
willful misconduct, Supplier shall carry out such
remedial action as it considers necessary and invoice
Customer for the costs reasonably incurred by Supplier
in carrying out such remedial action.




25









 






	 	(4)  	Until Supplier shall have received a
return of all of the Consignment Stock remaining upon
such termination or expiration, and carried out, to its
reasonable satisfaction, any remedial actions under
paragraph (3) above, Customer shall maintain the
Consignment Stock Insurance in full force and effect.
And shall continue to pay the monthly availability
charge for the Consignment Stock.






	10.  	Condition Precedent 






	 	(a)  	It shall be a condition precedent to the obligation of Supplier to
perform this Schedule that (i) on or before the Signature Date, Customer shall
have provided to Supplier a detailed list of all Components currently fitted on
each Aircraft; (ii) Customer pay to Supplier a down payment in the amount of
$*****, such amount to be credited pro rata against the last two (2) monthly
payments under the Agreement and this Schedule, and; provided further that if
upon the second anniversary of this Schedule, Customer has not had any payment
defaults under the Agreement and is not then currently in default of any
payments under the Agreement, the entire down payment shall be refunded to
customer.






	11.  	Additional Provisions






	 	(A)  	The provisions of Article I (E) [“BER Procedures"] of the General Terms
Agreement shall not be applicable to this Schedule. They are replaced in their
entirety by the provisions of Paragraph 7.7 of this Schedule.
	 
	 	(B)  	The provisions of Article II (5) [“LRU and Component No Fault
Found Removals"] of the General Terms Agreement shall not be applicable
to this Schedule. They are replaced in their entirety by the
provisions of Paragraph 7.8 of this Schedule.
	 
	 	(C)  	The provisions of Article I (3) [“Customer’s
Responsibility under the T3 Program"] of the General
Terms Agreement shall not be applicable to this Schedule. They
are replaced in their entirety by the provisions of Paragraphs
4.1(a)(2), (b)(2) and (c)(4) of this Schedule.
	 
	 	(D)  	The provisions of Article I.1(D) of the General Terms
Agreement shall not be applicable to this Schedule. They are
replaced in their entirety by the provisions of Paragraphs
4.2(a) and 4.4 of this Schedule.






	12.  	Part of General Terms Agreement




Confidential treatment has been requested by Kitty Hawk, Inc.
for certain portions of this document. Confidential portions have been filed separately with the
Securities and Exchange Commission. Omitted portions are indicated in this agreement with “*****”.


26









 












This Schedule, when countersigned by the parties hereto, dated and numbered, shall
be incorporated into, and form an integral part of, the General Terms Agreement. By
their execution and delivery of this Schedule, the parties hereby reaffirm all of
the terms and conditions of the General Terms Agreement, except, as to this Schedule
only, to the extent modified or deleted under Paragraph 11 above.




All annexes to this Schedule are hereby incorporated herein and made a part hereof
as if such annexes were set forth in this Schedule at length.



	 	 	 	 	 
	Date: March 7, 2005	 	AVIATION SERVICES INTERNATIONAL, LLC
	

	 	(Supplier)	 	 
	 
	 	 	 	 
	

	 	By:	 	 






	 	 	 	 	 
	 

	 	Print Name:	 	 
	 	 	 	 	 
	

	 	Title:	 	 
	 	 	 	 	 





	 	 	 	 	 
	 	 	KITTY HAWK AIRCARGO, INC.
	

	 	(Customer)	 	 
	 
	 	 	 	 
	

	 	By:	 	 
	 	 	 	 	 
	

	 	Print Name:
	 	Steven Markhoff
	 
	 	 	 	 
	 

	 	Title:
	 	Vice President Strategic Planning, General Counsel
	

	 	 	 	and Secretary







27










 






	 	 	 
	Annexes	 	 
	Annex 1

	 	List of Aircraft
	Annex 2

	 	List of Consignment Stock
	Annex 3

	 	List of No Go Items
	Annex 4

	 	Procedure for Ordering Components
	Annex 5

	 	Form of Letter to Vendors
	Annex 6

	 	Excluded Components






28









 






ANNEX 1




[List of the Aircraft Subject to Schedule No. 3]





 









 








	 	 	 	 	 	 	 	 	 	 	 
	Aircraft

Type

	 	Aircraft

Registration
	 	MSN
No.
	 	Engine Type
	 	APU

TYPE
	 	Comments






Customer shall be entitled, subject to the provisions of this Schedule, to add additional or
subtract Aircraft to the above list by giving Supplier not less than 60 (sixty) days’ written
notice of its intention to do so. If Customer decreases the number of Aircraft in the list
above, Supplier shall have the right to review this Schedule and all Charges and prices in
their entirety.




 









 








ANNEX 2




[List of the Consignment Stock]




 









 








ANNEX 3




[List of the No Go Items]




 









 








ANNEX 4




[Procedure for Ordering Components]





 









 








PROCEDURE FOR ORDERING COMPONENT





	1.0  	Contact Details





Customer shall send both Critical/Routine and AOG demands to the Supplier’s Logistics Desk at the following number or Email:-




Fax: + 00-972-3-_____________




Email




Component demands should be filled out on a Component Request Form (attached below) and then e-mailed or faxed to Supplier at the address or number above.





	2.0  	AOG Demands





In the case of an AOG, wherever possible, Customer should telephone the number for confirmation of receipt after e-mailing or faxing the Component Request Form.




Customer will receive confirmation of its request within one hour of its receipt by Supplier’s Logistics Desk. This confirmation will be the Component Request Form either faxed or e-mailed back to Customer’s contact numbers and address below with the transaction details, including (reference no.) tracking numbers, written in the “Comments” field.




Fax:  00

Tel:   00




E-Mail:





	3.0  	Tracking





When Customer is aware of the serial number of an Unserviceable Component being removed, it will endorse this confirmation with the serial number and either fax or e-mail it back to Supplier so that Supplier may match the Unserviceable Component coming in from Customer with the Exchange Component that is being dispatched to/or collected by Customer.





	4.0  	Authority





Unless otherwise expressly agreed in writing, the contact numbers in Paragraphs 1.0 and 2.0 above shall be the prime means of communication between the Parties hereto. Subject to any written agreement to the contrary, Supplier shall not accept any demands faxed/e-mailed to numbers and address other than that stated above.





2









 






COMPONENT REQUEST









	COMPLETE & FAX OR E-MAIL TO:-
	 	 	 	 
	FAX: + 00-972
	 	 	 	 
	E-MAIL:
	 	 	 	 
	 
	TELEPHONE CONTACT FOR SUPPLIER: —  + 00 972
	 	 	 	 






	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	Date:

	 	 	Time:
	 	 	A/C Regn:	 	 
	 	 	 	 	 	 	 
	If AOG also phone: -	 	 	 	 	 
	+ 00 , M.E.L Limitation:	 	 	 	 	 
	 	 	 	 	 	 	 
	Part Number:	 	 	 
	 	 	 	 	 	 	 
	Description:	 	 	 
	 	 	 	 	 	 	 
	IPC Reference:	 	 	 
	 	 	 	 	 	 	 
	Tech Log Defect &	 	 	 
	Comments:	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 
	 	 	 	 
	Delivery Address:	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 	 	 	 
	Customer Contact (incl.


	 	 	TEL:
	 	 	FAX:	 	 
	Dialing Code):
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	S	 
	 	 	 	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 	 	 
	WE ACKNOWLEDGE RECEIPT OF THIS DEMAND.
	 	 	 	 	 	 	 
	Signature:

	 	 	Date:
	 	 	AWB No.:	 	 














 











Comments:









4









 








ANNEX 5




[Form of Letter from Customer to Vendors]





 









 








[Customer Letterhead]



(Date)


(Name and Address

of Original Equipment Manufacturer)


Attn:


Re: Certain Components on B737-300/400 and B737-200 Aircraft


Dear (Sir/Madam):


Kitty Hawk Aircargo, Inc. (“KHA”) is the operator of the Boeing 737 Aircraft described in Exhibit
1. You (“OEM”) have supplied certain components (the “Components”), which are described in Exhibit
2, to such Aircraft.





KHA and Aviation Services International, LLC (“ASI”) have now entered into a separate
Agreement, as supplemented by Schedule No. 3 (as so supplemented, the “Maintenance Agreement”)
for the maintenance, repair and overhaul of components on such Aircraft.




Please indicate your agreement to (i) the assignment by us (Customer) of all of the warranties
and guaranties to which we, (Customer) are entitled, with respect to the Components; and (ii)
provide to ASI all the technical information needed for its performance of the Maintenance
Agreement, and requested from you in writing, in each instance, until you receive further
written instructions from ASI.


Please indicate your concurrence with such assignment, and your agreement to provide such technical
information, by signing in the space provided below and returning a copy of this letter to the
undersigned.




Very truly yours,




KITTY HAWK AIRCARGO, INC.




By:                                                             

Print Name:                                               

Title:                                                          



ACCEPTED AND AGREED TO:



[OEM]



By:                                                             

Print Name:                                               

Title:                                                          



 









 





Annex 6




Excluded Components




 









 








Annex 6




The following components are excluded from the T3 Program Component Services:




	 	 	 
	Chapter 11

	 	All Placards and markings
	 
	 	 
	Chapter 24

	 	Main Battery
	 
	 	 
	Chapter 25

	 	All equipment and furnishings, IFE. (excluding Escape
Slides)
	 
	 	 
	Chapter 27

	 	On wing Flight Control Surfaces
	 
	 	 
	Chapter 28

	 	Fuel tanks (excluding Tank accessories)
	 
	 	 
	Chapter 29

	 	Hydraulic Fuses
	 
	 	 
	Chapter 32

	 	Nose and main doors and Wheels, Brakes & Tires
	 
	 	 
	Chapter 33

	 	All filaments, florescent tubes and batteries (excluding
control equipment)
	 
	 	 
	Chapter 35

	 	All oxygen equipment (excluding regulators, pilot’s masks,
portable breathing equipment and indicating equipment)
	 
	 	 
	Chapter 38

	 	Sinks, basins, and toilet units (excluding Pumps)
	 
	 	 
	Chapter 52

	 	All doors and stairs (excluding actuators, motors and
dampers)
	 
	 	 
	Chapter 53

	 	Radome
	 
	 	 
	Chapter 54

	 	All nacelles and pylons
	 
	 	 
	Chapter 55

	 	Stabilizers
	 
	 	 
	Chapter 56

	 	Windshield, Windows
	 
	 	 
	Chapter 57

	 	Wings
	 
	 	 
	Chapter 70-80

	 	Engines (excluding LRU’s such as ignition exciter, CSD, AC
generator, CSD, oil temperature switch, hydraulic pump
starter valves, starter and fuel flow transmitters).
	 
	 	 
	Chapter xxx

	 	Cargo Loading Systems
	

	 	Nose Cowls





For the sake of clarity those Components noted as excluded within parentheses on this Annex 6
are included in the T3 Program Component Services.




 









 








ANNEX 7




Aviation Services International LLC

c/o Israel Aircraft Industries Ltd.

Ben Gurion International airport

70100 Israel




Consignment Stock Reporting Form




	 	 	 
	Date of Activity:
	 
	 
	 	 
	Type of Activity (into or out of Consignment)
	 
	 	 
	Part Number

	 	                                        
	 
	 	 
	Serial Number

	 	                                        
	 
	 	 
	Signature:

	 	                                        
	 
	 	 
	Print Name

	 	                                        
	 
	 	 
	Title:

	 	                                        
	 
	 	 
	Date: