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                         ENGINE LEASE NOVATION AGREEMENT
                         -------------------------------

                     This ENGINE  LEASE  NOVATION  AGREEMENT  (this  "Novation")
dated July __, 1997, is by and among (i) FIRST SECURITY
BANK, NATIONAL ASSOCIATION,  not in its individual capacity (except as otherwise
specified),  but  solely  as Owner  Trustee  (the  "New  Lessor")  under a Trust
Agreement dated as of June 15, 1997 between itself and KG Aircraft  Leasing Co.,
Ltd.,  (ii) TACA  INTERNATIONAL  AIRLINES,  S.A., a  corporation  organized  and
existing  under the laws of El Salvador  ("Original  Lessor") and (iii)  WESTERN
PACIFIC AIRLINES,  INC., a corporation  organized and existing under the laws of
Delaware ("Lessee").

                                    RECITALS
                                    --------

     WHEREAS,  Original  Lessor and Lessee are  parties to that  certain  Engine
Lease  Agreement  dated as of May 21, 1996 (as  supplemented  and  amended,  the
"Engine  Lease"),  which was  recorded by the FAA on July 31, 1996 and  assigned
Conveyance No. BB24108; and

     WHEREAS,  pursuant  to the  Engine  Lease,  Original  Lessor  has leased to
Lessee,  as lessee,  one (1) CFM  International,  Inc. engine,  Model CFM56-3B2,
bearing  manufacturer's  serial number 721150 (the "Engine")  together with that
certain PF Industries,  Inc.  model PF71-169  engine stand bearing serial number
0001B; and

     WHEREAS,  on the date that the Engine is sold (the  "Closing  Date") by the
Original Lessor to the New Lessor,  Original Lessor desires to novate certain of
its rights and obligations under the Engine Lease to the New Lessor, and the New
Lessor desires to assume such rights and obligations and in connection with such
novation and simultaneously  therewith,  the New Lessor and the Lessee intend to
enter into an Amended and Restated  Engine  Lease  Agreement  (the  "Amended and
Restated Engine Lease"); and

     Section  1.  DEFINITIONS.  Capitalized  terms used  herein and not  defined
otherwise  herein  shall have the  meanings  specified in the Engine Lease or by
reference therein.

     Section 2. NOVATION OF ENGINE LEASE. Subject to the terms and conditions of
this Novation, the parties hereto agree that from and after the Closing Date:

     (a) The  Original  Lessor  assigns to New Lessor all of  Original  Lessor's
right,  title and  interest,  and all of the  covenants,  undertakings,  duties,
liabilities and obligations of the Original Lessor in and under the Engine Lease
arising on or after the Closing Date.

     (b) The  Original  Lessor  releases  and  discharges  the  Lessee  from the
performance of any and all of its covenants,  undertakings,  obligations, duties
and  liabilities to the Original Lessor under the Engine Lease to the extent the
same arise or accrue on or after the Closing Date.

     (c) The  Lessee  releases  and  discharges  the  Original  Lessor  from the
Original Lessor's covenants,  undertakings,  obligations, duties and liabilities
to Lessee  under the  Engine  Lease to the extent the same arise or accrue on or
after the Closing Date.

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     (d) The New Lessor agrees with the Lessee and the Original Lessor to assume
all of the right,  title and interest,  and all of the covenants,  undertakings,
duties,  liabilities  and  obligations  of the Original  Lessor in and under the
Engine Lease, other than the obligation to Cauff, Lippman & Crane Aviation, Inc.
as provided in Section  3(c)  thereof,  arising on or after the Closing Date and
hereby  undertakes to observe and perform in favor of the Lessee at all times on
or  after  the  Closing  Date,  all  of  the  covenants,  undertakings,  duties,
obligations and liabilities  originally  made,  given or assumed by the Original
Lessor under or pursuant to the Engine Lease, including, without limitation, any
and all obligations in respect of the Security Deposit and the Engine Reserves.

     (e) The Lessee  agrees  with the New Lessor to observe and perform in favor
of and for the  benefit of the New Lessor  all of the  covenants,  undertakings,
duties,  obligations and liabilities  originally  made,  given or assumed by the
Lessee in favor of the  Original  Lessor  under or pursuant to the Engine  Lease
arising on or after the Closing Date.

     (f) The Lessee hereby  expressly  consents to and accepts the assumption by
the New Lessor of the  Original  Lessor's  right,  title,  interest,  covenants,
undertakings, obligations, duties and liabilities under the Engine Lease arising
or accruing on or after the Closing Date.

     (g) The Lessee agrees that it will not assert  against the Original  Lessor
any claim or defense  that it may have  against the New Lessor under the Amended
and Restated  Engine Lease to the extent the same is  attributable to any act or
event occurring on or after the Closing Date.

     (h) The Lessee  agrees  that it will not assert  against the New Lessor any
claim or defense that it may have  against the Original  Lessor under the Engine
Lease to the extent the same is attributable to any act or event occurring prior
to the Closing Date.

     (i) The Lessee,  the New Lessor and the Original Lessor  accordingly  agree
that

                     (i)       from and after the Closing Date,  the Amended and
                               Restated  Engine Lease  constitutes  an agreement
                               between the New Lessor (as lessor) and the Lessee
                               (as lessee) on the terms and conditions set forth
                               therein;

                     (ii)      from and after the  Closing  Date,  the  Original
                               Lessor's  obligation  to lease the  Engine to the
                               Lessee is terminated  and the Lessee  accepts the
                               New  Lessor's  obligation  to lease the Engine to
                               the Lessee and the Lessee will take the Engine on
                               lease  from the New  Lessor,  and the New  Lessor
                               agrees to lease the Engine to the Lessee,  on the
                               terms and conditions set forth in the Amended and
                               Restated Engine Lease; and

                     (iii)     from and after the Closing Date, the Lessee shall
                               make all  payments of Rent and all other  amounts
                               due and payable  under the  Amended and  Restated
                               Engine  Lease  to the New  Lessor,  or as the New
                               Lessor may direct in accordance with the terms of
                               the Amended and Restated Engine Lease,  and shall
                               look  solely to the New Lessor for  reimbursement
                               of the Security  Deposit and the Engine  Reserves
                               in accordance with the terms thereof.

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     Section 3. CLAIMS ARISING PRIOR TO THE CLOSING DATE. (a) Without  prejudice
to the rights of the New Lessor under the Amended and Restated Engine Lease, the
Original  Lessor and the Lessee agree that each of them, and each Indemnitee (as
defined in the Engine  Lease)  shall have,  pursuant to this Section 3, the same
rights and  remedies as they would have had under the Engine  Lease  (including,
without limitation,  Lessee's indemnities under Section 12 of the Engine Lease),
without  regard to any  amendment  thereto  effected by the Amended and Restated
Engine  Lease,  in  respect of any  losses,  liabilities  indemnities  or claims
suffered  or incurred  or brought  against,  or payment due to, the other to the
extent  attributable  to any period ending prior to the Closing Date to the same
extent  as  provided  for  under  the  Engine  Lease as in  effect  prior to the
execution and delivery of the Amended and Restated Engine Lease.

     (b) The Lessee hereby  acknowledges  and agrees that all of the  covenants,
undertakings,  obligations  and liabilities of the Original Lessor under Section
6(b) of the Engine  Lease have been  fully  performed  and that it has no claims
against any Engine Reserves or the Original Lessor in respect thereof.

     Section 4. ENGINE RESERVES;  SECURITY DEPOSIT. (a) On the Closing Date, the
New Lessor has agreed to pay the purchase price to the Original Lessor, and such
purchase price reflects a reduction in respect of the amount of Engine  Reserves
and  Security  Deposit  held on the Closing Date by or on behalf of the Original
Lessor.  From and after the Closing Date,  the Lessee shall look only to the New
Lessor for the  reimbursement of the Security Deposit and any Engine Reserves in
accordance with the provisions of the Amended and Restated Engine Lease. For the
avoidance of doubt, the Lessee confirms,  for the benefit of the Original Lessor
and the New  Lessor,  that the  amounts  being held by the  Original  Lessor for
Engine Reserves are as set forth below:

                     Engine MSN 721150

                               Shop Visit Portion             $[    ]*

                               LLP Portion                    $[    ]*


     The amount of the Security  Deposit  being held in respect of the Engine is
     $[ ]*.

     (b) From and after the Closing Date,  all payments to be made by the Lessee
in  respect  of Engine  Reserves  shall be paid to the New Lessor and not to the
Original  Lessor,  and the Original  Lessor shall not make any claim  thereon or
have any right  therein.  From and after the Closing Date,  the New Lessor shall
have the right to receive all Engine  Reserve  payments  that have accrued since
the  immediately  preceding  date on which Engine  Reserves were due pursuant to
Section  6(b) of the Engine  Lease and the Lessee  shall pay all such amounts to
the New  Lessor on the due date  therefor  in  accordance  with the terms of the
Amended and Restated Engine Lease.

     Section 5.  CONDITIONS  PRECEDENT.  On or prior to the  Closing  Date,  the
Lessee  shall  deliver to the New Lessor and  Original  Lessor(i)  an opinion of
counsel in form and substance  reasonably  satisfactory to the New Lessor to the
effect,  among other  things,  that this  Novation  and the Amended and Restated
Engine Lease have been duly authorized by the Lessee and constitute  enforceable
obligations  of the  Lessee  and  (ii) a  certificate  of  insurance  evidencing
compliance  by the Lessee  with the  provisions  of Section 9 of the Amended and
Restated Engine Lease and Section 6 of this Novation.

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     Section 6.  INSURANCE.  (a) REQUIRED  INSURANCE  From and after the Closing
Date and until the  earlier of April 30,  1999 or the date of the next "D" check
(or its equivalent) on the Boeing 737-3S3 aircraft bearing manufacturer's serial
number 23787 and United States registration no. N375TA (to be changed to N954WP)
(the  "Aircraft"),  Lessee shall maintain public liability  (including,  without
limitation,  aircraft  third-party,  baggage,  cargo,  contractual and passenger
legal liability  including war risks),  property damage liability insurance with
respect to any  aircraft on which the Engine is  installed  and general  airline
third party legal liability insurance  (including products liability  insurance)
with  insurers of  recognized  responsibility  and good repute  specializing  in
aviation  insurance in the leading  international  markets,  in amounts at least
equal to [ ]* Dollars  (U.S.  $[ ]*) per  occurrence  subject  to no  deductible
except  deductibles  as to baggage  and cargo that are  standard  in the airline
industry in respect of carriers operating in the countries in which the operator
of the aircraft on which the Engine is installed operates.

     (b) TERMS OF INSURANCE.Any policies carried in accordance with Section 6(a)
hereof and any policies taken out in  substitution  or replacement  for any such
policies  shall (i) insure the  interests  of and name as  additional  insureds,
Original  Lessor and its respective  officers,  directors,  employees and agents
(the  "Additional  Insureds") and provide that the  Additional  Insureds bear no
liability for the payment of premiums;  (ii) provide that the coverages afforded
by such policies to the Additional  Insureds shall not be invalidated by any act
or omission of any named insured or other person which results in a violation of
the terms,  conditions or  warranties  of the policies,  provided that the named
insured or the person so protected has not caused,  contributed  to or knowingly
condoned  the  said  act  or  omission;  (iii)  provide  that  if  there  is any
cancellation of the insurance,  such  cancellation  shall not be effective as to
any Additional Insured for thirty (30) days (with respect to war risk insurance,
seven (7) days or such lesser period as may be customarily  available) after the
underwriters  of such  insurance  issue written notice of such  cancellation  or
alteration;  (iv)  contain  a  waiver  by the  insurers  of (A)  all  rights  of
subrogation against any and all of the Additional Insureds and (B) and rights of
set-off,   counterclaim  or  any  other  deductions  whether  by  attachment  or
otherwise,  which  they may have  against  any  Additional  Insured;  and (v) be
primary and without right of contribution  from any other  insurance  carried by
any of the  Additional  Insureds,  and shall  expressly  provide that all of the
provisions thereof (except limits of liability) shall operate in the same manner
as if there  were a separate  policy  covering  each  Additional  Insured;  with
substantially  the same  endorsements  (insofar  as the same apply to  liability
coverage) as are currently in effect with respect to the Engine.

     (c)  INSURANCE  CERTIFICATES. On or before the Closing  Date,  and promptly
after each renewal or  replacement  of the  policies of  insurance  covering the
Aircraft,  Lessee shall cause to be  furnished  to Original  Lessor an insurance
certificate  of  independent  aircraft  insurance  brokers  evidencing  that the
insurance  then  carried and  maintained  on any aircraft on which the Engine is
installed complies with the terms hereof. Lessee shall cause such firm to advise
the Additional Insureds in writing promptly of any default in the payment of any
premium,  of any other act or  omission on the part of Lessee of which such firm
has  knowledge  that might  invalidate or render  unenforceable,  in whole or in
part, any insurance provided pursuant to Section 6(a).

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     Section 7.  REPRESENTATIONS.  (a) REPRESENTATIONS OF EACH PARTY. Each party
hereto  represents  and  warrants  (each as to itself only) to each of the other
parties as of the Closing Date as follows:

                     (i)        Such  party has the power,  authority  and legal
                                right to execute and deliver  this  Novation and
                                to  perform  its  obligations  hereunder,   such
                                execution,  delivery and  performance  have been
                                authorized by all necessary  corporate and other
                                action   of  such   party   and  this   Novation
                                constitutes   the  legal,   valid  and   binding
                                agreement   of  such   party,   enforceable   in
                                accordance  with its terms  except as limited by
                                bankruptcy,        insolvency,       moratorium,
                                reorganization,     receivership,     fraudulent
                                conveyance  or other  similar  laws or equitable
                                principles   of   general   application   to  or
                                affecting the  enforcement of creditors'  rights
                                and  remedies  generally  from  time  to time in
                                effect,     regardless     of    whether    such
                                enforceability  is considered in a proceeding at
                                equity or at law.

                     (ii)      All  governmental  and other licenses,  approvals
                               and consents that may be necessary for such party
                               to enter into this  Novation  have been  obtained
                               and are in full force and effect.

                     (iii)     The execution,  delivery and  performance of this
                               Novation  by such  party will not  contravene  or
                               violate   any   provision   of  any  law,   rule,
                               regulation  or order binding on such party or any
                               of its  organizational  documents  and  will  not
                               contravene  the  provisions  of, or  constitute a
                               default under,  any contract or other  instrument
                               binding upon such party.

     (b)  REPRESENTATIONS  OF ORIGINAL  LESSOR.  Original Lessor  represents and
warrants to the Lessee and to the New Lessor as of the Closing Date as follows:

                     (i)       all  payments of Rent due as at the Closing Date
                               have been duly  made to the Original Lessor and
                               received by it, and

                     (ii)      as of the Closing  Date,  Original  Lessor is not
                               aware  of any  claims  that  it has  against  the
                               Lessee  arising  under or  pursuant to the Engine
                               Lease.

     (c)  REPRESENTATIONS  OF LESSEE.  The Lessee represents and warrants to the
Original Lessor and to the New Lessor as of the Closing Date as follows:

                     (i)       each of the representations and warranties of the
                               Lessee set forth in the Amended and Restated
                               Engine Lease are true on and as of the Closing 
                               Date, and

                     (ii)      as of the Closing  Date,  the Lessee is not aware
                               of any claims that it has  against  the  Original
                               Lessor, including, without limitation, any claims
                               for  reimbursement of Engine Reserves pursuant to
                               Section 6(b) of the Engine Lease.

     (d)  REPRESENTATIONS  OF NEW LESSOR. The New Lessor represents and warrants
to the  Lessee  as of the  Closing  Date that  each of the  representations  and
warranties of the New Lessor set forth in the Amended and Restated  Engine Lease
are true on and as of the Closing Date.

                     Section 8.  MISCELLANEOUS.

     (a)  COUNTERPARTS.  This Novation may be executed by the parties  hereto in
separate counterparts each of which, when so executed and delivered, shall be an
original for all purposes,  but all such counterparts shall together  constitute
but one and the same instrument.

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     (b)  SEVERABILITY.  If any  term or  provision  hereof  or the  application
thereof to any circumstance  shall, in any  jurisdiction  and to any extent,  be
invalid or unenforceable, such term or such provision shall be ineffective as to
such jurisdiction to the extent of such invalidity or  unenforceability  without
invalidating  or rendering  unenforceable  any  remaining  terms and  provisions
hereof or the application of such term or provision to circumstances  other than
those as to which it is held invalid or  unenforceable.  To the extent permitted
by  applicable  law, the parties  hereto  hereby waive any provision of law that
renders any term or provision hereof invalid or unenforceable in any respect.

     (c)  FURTHER  ASSURANCES.  Each party will  promptly  and duly  execute and
deliver all such  documents and  assurances  and take such further action as the
other party may from time to time reasonably  request in order to carry out more
effectively the intent and purpose of this Novation and to establish and protect
the  rights  and  remedies  created  or  intended  to be created in favor of the
parties,  including,  without limitation, if requested by Lessor, at the expense
of Lessor,  the  recording or filing of this  Novation or any other  document or
financing  statement with respect to the transactions  contemplated hereby so as
to more  effectively  carry out the intent of such  transactions,  in accordance
with the laws of such jurisdictions as either party from time to time reasonably
requests.

     (d) ENTIRE  AGREEMENT.  This  Novation  embodies the entire  agreement  and
understanding  between the parties  relating to the matters provided for herein,
and supersedes all prior agreements and understandings relating thereto.

     (e) SUCCESSORS  AND ASSIGNS.  This Novation shall be binding upon and inure
to the benefit of the parties hereto and their successors and assigns.

     (f) GOVERNING LAW. THIS NOVATION SHALL IN ALL RESPECTS,  INCLUDING  WITHOUT
LIMITATION, ALL MATTERS OF CONSTRUCTION,  VALIDITY AND PERFORMANCE,  BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

     (g)  EXPENSES.  Each of the parties  hereto  shall bear its own expenses in
connection  with  this  Novation  and  the  transactions   contemplated  hereby,
including,  without  limitation,  its own attorneys' fees,  except that KGAL and
TACA shall each pay one half of any  expenses in  connection  with any  Aviation
Authority or other  filings,  including  the fees and  disbursements  of special
local counsel retained in connection therewith. All expenses incurred by WestPac
for which it is entitled to reimbursement  pursuant to the Engine Lease shall be
for the  account  of TACA  except  any  such  expenses  relating  solely  to the
negotiation,  preparation,  execution  and  delivery of the Amended and Restated
Engine Lease, which shall be for the account of KGAL.


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           IN WITNESS WHEREOF, the parties hereto have each caused this Novation
to be duly executed as of the day and year first above written.


                    FIRST SECURITY BANK, NATIONAL  ASSOCIATION,  (formerly First
                    Security  Bank of Utah,  National  Association),  not in its
                    individual  capacity but solely as Owner  Trustee  under the
                    1997 Trust Agreement


                    By:_____________________________________________      
                      Name:
                      Title:


                    TACA INTERNATIONAL AIRLINES, S.A.


                    By:______________________________________________   
                      Name:
                      Title:


                    WESTERN PACIFIC AIRLINES, INC.


                    By:______________________________________________   
                      Name:
                      Title:

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