================================================================================
                           

                             ENGINE LEASE AGREEMENT

                            dated as of May 21, 1996

                                       and

                              AMENDED AND RESTATED

                               as of July 7, 1997

                                     between

                  FIRST SECURITY BANK, NATIONAL ASSOCIATION,
                        not in its individual capacity
                         (except as otherwise specified)
           but solely as Owner Trustee under the 1997 Trust Agreement

                                   as Lessor,

                                       and

                         WESTERN PACIFIC AIRLINES, INC.

                                    as Lessee


           One Used CFM International, Inc. Model CFM 56-3B2 Engine
                        Manufacturer's Serial No. 721150


      ONLY  THE  ORIGINAL  COUNTERPART  CONTAINS  THE  RECEIPT  THEREFOR
      EXECUTED BY FIRST SECURITY BANK,  NATIONAL  ASSOCIATION,  AS OWNER
      TRUSTEE, AS LESSOR ON THE SIGNATURE PAGE THEREOF
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<PAGE>





TABLE OF CONTENTS


                                                                          Page


Section 1.  Definitions.................................................... 1

Section 2.  Lease; Lease Term; Delivery of Engine.......................... 5
            (a)   Lease; Lease Term........................................ 5
            (b)   Condition of Engine at Delivery.......................... 5

Section 3.  Security Deposit and Other Payments............................ 5
            (a)   Security Deposit......................................... 5
            (b)   Basic Rent............................................... 6
            (c)   [Intentionally left blank.].............................. 6
            (d)   Supplemental Rent........................................ 6
            (e)   Manner of Payment........................................ 6
            (f)   Late Payments............................................ 6
            (g)   No Setoff, Counterclaim, etc............................. 6

Section 4.  Conditions Precedent and Other Requirements.................... 7

      (i)   
            (a)   Execution and Delivery of Documents...................... 7
            (b)   Representations, Warranties, No Default.................. 8
            (c)   Resolutions, etc......................................... 8
            (d)   Security Deposit and Basic Rent.......................... 8
            (e)   Insurance Certificate.................................... 8
            (f)   Filings; Financing Statements. .......................... 8
            (g)   Opinions of Counsel...................................... 8
            (h)   No Event of Loss......................................... 8
            (i)   Acceptance by Process Agent.............................. 8
      (ii)   8
            (a)   Delivery of Assignments of Warranties.................... 8
            (b)   Resolutions, etc......................................... 8
            (c)   Representations, Warranties; No Default.................. 9
            (d)   Acceptance by Process Agent.............................. 9
            (e)   Credit Deposit for Reserves.............................. 9

Section 5.  Disclaimer; Manufacturer and Vendor Warranties................. 9
            (a)   Disclaimer by Lessor..................................... 9
            (b)   Lessor's Representations, Warranties and
                  Covenants............................................... 10
            (c)   Manufacturer and Vendor Warranties...................... 10


                                       
<PAGE>

Section 6.  Maintenance; Replacement and Pooling of Parts; Alterations,
            Modifications and Additions................................... 11
            (a)   Maintenance............................................. 11
            (b)   Engine Reserves......................................... 12
            (c)   Replacement of Parts.................................... 13
            (d)   Pooling of Parts........................................ 14
            (e)   Alterations, Modifications and Additions................ 14

Section 7.  Title and Registration; Liens; Possession..................... 15
            (a)   Title................................................... 15
            (b)   Liens................................................... 15
            (c)   Operation............................................... 15
            (d)   Possession.............................................. 16
            (e)   Identification Plate.................................... 18
            (f)   Reporting Requirements.................................. 18
            (g)   Inspections............................................. 18

Section 8.  Loss, Destruction, Requisition, etc........................... 18
            (a)   Event of Loss........................................... 18
            (b)   Application of Payments from Governmental
                  Authorities............................................. 19
            (c)   Requisition for Use of the Engine....................... 19
            (d)   Quiet Enjoyment......................................... 19

Section 9.  Insurance..................................................... 20
            (a)   Liability............................................... 20
            (b)   Property Damage Insurance............................... 20
            (c)   Terms of Insurance...................................... 20
            (d)   Application of Insurance................................ 22
            (e)   Reports................................................. 22
            (f)   Failure to Insure....................................... 22
            (g)   Additional Insurance.................................... 23
            (h)   Notice of Claims........................................ 23

Section 10.   Return of Engine............................................ 23
            (a)   Redelivery upon Termination............................. 23
            (b)   Condition of Engine..................................... 23
            (c)   Condition of Controlled Components...................... 23
            (d)   Engine Documentation.................................... 24
            (e)   Service Bulletin Kits................................... 24
            (f)   Non U.S. Manufactured Items............................. 24
            (g)   Lessee's Continuing Obligations......................... 24

Section 11. Representations, Warranties and Covenants of Lessee........... 25

Section 12. Indemnification............................................... 27
            (a)   General Indemnity and Expenses.......................... 27
            (b)   General Tax Indemnity................................... 28
            (c)   Calculation of Tax Indemnity Payments................... 30
            (d)   Contest; Reports........................................ 31
            (e)   Payment................................................. 32
            (f)   Survival................................................ 33

                                      
<PAGE>

Section 13. Assignment; Lease Subject and Subordinate..................... 33
            (a)   Sublease by Lessee...................................... 33
            (b)   Assignments by Lessor................................... 33

Section 14. Events of Default; Remedies................................... 33
            (a)   Events of Default....................................... 33
            (b)   Remedies................................................ 35

Section 15. Notices....................................................... 37

Section 16. Governing Law and Jurisdiction................................ 38
            (a)   Governing Law........................................... 38
            (b)   Jurisdiction; Service of Process........................ 38
            (c)   Waiver of Immunity...................................... 38

Section 17. Miscellaneous................................................. 38
            (a)   Entire Agreement........................................ 38
            (b)   English Language........................................ 39
            (c)   Lessor's Right to Perform for Lessee.................... 39
            (d)   Application of Payments During Existence of
                  Default................................................. 39
            (e)   Expenses................................................ 39
            (f)   Further Assurances...................................... 39
            (g)   Judgment Currency....................................... 39
            (h)   Invalidity of Any Provision............................. 40
            (i)   Changes in Law.......................................... 40
            (j)   Headings................................................ 40
            (k)   Consent................................................. 40
            (l)   Third Party Beneficiaries............................... 40
            (m)   Counterparts............................................ 40


EXHIBIT A   ENGINE DESCRIPTION
EXHIBIT B   FORM OF ACCEPTANCE CERTIFICATE
EXHIBIT C   FORM OF RETURN ACCEPTANCE RECEIPT
EXHIBIT D   FORM OF MONTHLY REPORT
EXHIBIT E   MAINTENANCE RESERVES ADJUSTMENT FORMULA


<PAGE>









      This LEASE  AGREEMENT,  dated as of May 21, 1996, and AMENDED AND RESTATED
as of July 7,  1997,  between  FIRST  SECURITY  BANK,  NATIONAL  ASSOCIATION,  a
national  banking  association with its principal place of business in Salt Lake
City, Utah, not in its individual  capacity but solely as trustee under the 1997
Trust  Agreement,  except  as  otherwise  expressly  provided  herein,  and  its
successors  and  assigns  (in such  capacity,  "Lessor";  and in its  individual
capacity,  "FSB"), and WESTERN PACIFIC AIRLINES,  INC., a corporation  organized
and existing under the laws of Delaware with its principal  place of business in
Colorado Springs, Colorado ("Lessee").

                                    RECITALS

      WHEREAS, TACA, as lessor, and Lessee, as lessee, have executed this Engine
Lease  Agreement  dated as of May 21, 1996 (as  supplemented  and  amended,  the
"Lease") for the lease of the Engine from TACA, which was recorded by the FAA on
July 31, 1996 and assigned Conveyance No. BB24108; and

      WHEREAS,  the  rights  and  obligations  of TACA under the Lease have been
novated to Lessor pursuant to the Engine Lease Novation dated July __, 1997 (the
"Closing Date"),  which was filed with the FAA on the date thereof,  but not yet
recorded; and

      WHEREAS,  Lessor has assumed the rights and  obligations of TACA under the
Lease,  and  Lessor  and Lessee  desire to amend and  restate  the Lease as this
Amended and Restated Lease Agreement with effect from and after the Closing Date
as set forth herein; and

      WHEREAS,  Lessee  desires  to lease the Engine  from  Lessor and Lessor is
willing to lease the Engine to Lessee upon and subject to the terms,  conditions
and covenants herein set forth;

      In  consideration  of and  subject  to the  mutual  covenants,  terms  and
conditions contained in this Lease, Lessor and Lessee agree as follows:




<PAGE>


      Section  1.   DEFINITIONS.  Unless  the  context  otherwise  requires  the
following terms shall have the following meanings for all purposes of this Lease
and shall be equally  applicable  both to the  singular  and plural forms of the
terms  defined.  Any  agreement  defined  below shall  include  each  amendment,
modification  and  supplement  thereto and waiver thereof in effect from time to
time.

      "ACCEPTANCE CERTIFICATE" shall mean the Acceptance Certificate,  dated the
Commencement Date, in the form of Exhibit B hereto.

      "ADDITIONAL INSURANCE" shall have the meaning ascribed to it in Section
9(g) hereof.

      "ADDITIONAL INSUREDS" shall have the meaning ascribed to it in Section
9(c) hereof.

      "APPROVED REPAIR FACILITY" shall have the meaning ascribed to it in
Section 6(a)(ii).

      "BASIC RENT" shall have the meaning ascribed to it in Section 3(b)
hereof.

      "COMMENCEMENT  DATE"  shall  mean June 11,  1996,  the date upon which the
Engine was tendered to Lessee in conformity  with this Lease and the  Acceptance
Certificate was executed and delivered.

      "CYCLE"  shall  mean any  flight of any  airframe  to which the  Engine is
attached,  consisting of one take-off and one landing regardless of time elapsed
between take-off and landing and distance flown.

                                       1
<PAGE>

      "DEBT" shall mean, with respect to any Person, (a) all obligations of such
Person for borrowed  money or with respect to deposits and advances of any kind,
whether  evidenced by bonds,  debentures,  notes or other  instruments,  (b) all
obligations of such Person upon which interest charges are customarily paid, (c)
all obligations of such Person under  conditional  sale or other title retention
agreements relating to property purchased by such Person, (d) all obligations of
such  Person  issued or assumed as the  deferred  purchase  price of property or
services,  (e) any lease obligation that, in accordance with generally  accepted
accounting  principles  has been or should be  capitalized  on the books of such
Person,  and (f) all guarantees of such Person of the debts or  obligations  for
borrowed  money of any  other  Person,  whether  direct or  indirect,  absolute,
contingent or otherwise.

      "DEFAULT"  shall  mean any event  that,  with the  passage  of time or the
giving of notice or both, would become an Event of Default.

      "DOLLARS" and "US$" shall mean lawful currency of the United States of
America.

      "ENGINE"  shall  mean the CFM  International  Inc.  Model CFM  56-3B2  jet
aircraft engine bearing manufacturer's serial number 721150, whether or not from
time to time installed on an airframe,  and (ii) any Replacement Engine that may
from time to time be substituted as  contemplated by Section 8(a) for the Engine
leased hereunder;  together in each case with any and all Parts  incorporated or
installed in or attached thereto or any and all Parts removed  therefrom so long
as title thereto  shall remain vested in Lessor in accordance  with the terms of
Section  6(c) after  removal from such  Engine.  Except as  otherwise  set forth
herein,  at such time as a  Replacement  Engine  shall be so  substituted,  such
replaced Engine shall cease to be an Engine hereunder.  The term "Engine" means,
as of any  date  the  Engine  then  leased  hereunder.  The  Engine  has and any
Replacement  Engine  hereunder  will  have  not  less  than  750  rated  takeoff
horsepower.

      "ENGINE LEASE  NOVATION"  shall mean the Engine Lease  Novation  Agreement
dated the Closing Date by and among TACA, Lessor and Lessee.

      "ENGINE LOSS VALUE" shall mean [    ]* United States Dollars(US$[     ]*).

      "ENGINE RESERVES" shall have the meaning ascribed to it in Section 6(b)
hereof.

      "ENGINE STAND" shall mean that certain PF Industries, Inc. model PF71-169
engine stand bearing serial number 0001B.

      "EVENT OF DEFAULT" shall have the meaning ascribed to it in Section
14(a) hereof.

                                       2
<PAGE>

      "EVENT OF LOSS" with respect to the Engine shall mean any of the following
events,  whether or not the same shall constitute and Event of Loss with respect
to any airframe to which the Engine is, at any time attached, and whether or not
the Engine is attached to an airframe: (i) loss of the Engine or the use thereof
due to theft, disappearance,  destruction,  damage beyond repair or rendition of
such property  permanently unfit for normal use for any reason whatsoever;  (ii)
any damage to the Engine that results in the receipt of insurance  proceeds with
respect  to the  Engine on the basis of a total  loss;  (iii) the  condemnation,
confiscation  or seizure  of, or  requisition  of title to,  such  Engine by any
authority, or a requisition for use of such property by any authority other than
a  Government  Entity of the United  States of America;  (iv) as a result of any
rule,  regulation,  order or other action by the FAA, or other governmental body
having jurisdiction  thereof, or any other occurrence,  the use of the Engine in
the normal course of air  transportation  of persons shall have been  prohibited
for a period of three consecutive months unless Lessee,  prior to the expiration
of such  three-month  period,  shall  have  undertaken  and shall be  diligently
carrying  forward all steps that are necessary or desirable to permit the normal
use of the  Engine  by  Lessee  or, in any  event,  if such use shall  have been
prohibited  for a period of six  consecutive  months;  (v) the inability for any
reason of Lessor to obtain  possession  of the Engine  within 30 days after this
Lease shall have been declared to be in default pursuant to Section 14, free and
clear of all liens (other than Lessor's Liens);  and (vi) as described in clause
(iv) of Section 7(d).

      "FAA" shall mean the United States Federal Aviation Administration and any
successor agency thereto.

      "FEDERAL  AVIATION ACT" shall mean the United States Federal  Aviation Act
of 1958 as amended, and the regulations promulgated thereunder.

      "FLIGHT  HOUR"  shall  mean each hour or part  thereof  elapsing  from the
moment the wheels of the  airframe on which the Engine is then  installed  leave
the ground on  takeoff  until the  wheels of such  airframe  touch the ground on
landing following such flight. For purposes of all calculations under this Lease
measured in Flight Hours,  such hours,  including  fractions  thereof,  shall be
measured to two decimal places.

      "GOVERNMENT  ENTITY" means (i) any national,  state or local government of
the United  States of America or any other  country where an airframe upon which
the Engine is  attached  may be flown and  operated  by Lessee,  (ii) any board,
commission,  department, division,  instrumentality,  court, agency or political
subdivision of any entity described in (i) above, however constituted, and (iii)
any  association,  organization or institution of which any entity  described in
(i) or (ii) above is a member or to whose jurisdiction any thereof is subject.

      "INDEMNITEE" shall have the meaning ascribed to it in Section 12a  hereof.

      "KGAL"  shall  mean  KG  Aircraft  Leasing  Co.,  Limited,  a  corporation
organized and existing under the laws of Ireland.

      "LEASE," "this Lease Agreement," "this Lease," "this Agreement," "herein,"
"hereunder,"  "hereby," or other like words shall mean this Lease as  originally
executed or as  modified,  amended or  supplemented  pursuant to the  applicable
provisions hereof.

      "LEASE TERM" shall have the meaning ascribed to it in Section 2(a) hereof.

      "LESSOR  LIEN"  shall  mean any Lien  arising  as a result  of (i)  claims
against Lessor not related to the transactions  contemplated by this Lease, (ii)
Taxes imposed against Lessor that are not indemnified against by Lessee pursuant
to Section  12(b),  (iii) claims  against  Lessor arising out of the transfer by
Lessor of all or any part of its interest in the Engine, other than by reason of
the occurrence of an Event of Loss or following an Event of Default.

      "LIEN" shall mean any mortgage, pledge, lien, charge, encumbrance,  lease,
exercise of rights, security interest or claim of any nature whatsoever.

      "MAINTENANCE PROGRAM" shall have the meaning ascribed to it in Section
6(a) hereof.

      "MANUFACTURER" shall mean CFM International, Inc., a Delaware
corporation.

                                       3
<PAGE>

      "PARTS" shall mean any and all appliances, parts, attachments, accessions,
appurtenances, accessories and other equipment of whatever nature attached to or
incorporated in the Engine.

      "PAYMENT  DATE"  shall  mean the  fifteenth  (15) day of each  consecutive
calendar  month  commencing  with the calendar month  immediately  following the
Commencement  Date and each  consecutive  calendar month  thereafter  during the
Lease Term;  provided however that Lessee, on or prior to the Commencement Date,
shall pay Basic Rent in respect of the Engine  corresponding  to the first month
of the Lease Term.

      "PERMITTED LIEN" shall have the meaning ascribed to it in Section 7(b)
hereof.

      "PERSON"  shall  mean  an  individual,  corporation,   partnership,  joint
venture, trust,  unincorporated organization or any other juridical entity, or a
Government Entity.

      "POST-DEFAULT  RATE"  shall mean a rate per annum  equal to three  percent
(3%) above the rate publicly announced from time to time by Citibank,  N.A., New
York,  New York (or any  successor  institution)  as its "prime rate" (or, if no
such rate exists, any comparable reference rate established by such institution)
on the basis of the actual number of days elapsed over a 360-day year.

      "PROCESS AGENT" shall have the meaning ascribed to it in Section 16(b)
hereof.

      "RENT" shall mean Basic Rent and Supplemental Rent.

      "REPLACEMENT  ENGINE" shall mean a CFM International,  Inc. CFM 56-3B2 jet
aircraft  engine (or engine of the same  manufacturer of the same or an improved
model) approved by Lessor,  that has a value,  utility and thrust at least equal
to those of the Engine, together with all Parts relating to such engine.

      "SECURITY DEPOSIT"  shall have the meaning ascribed to it in Section
3(a) hereof.

      "SUPPLEMENTAL  RENT" shall mean all amounts,  sums, monies,  indebtedness,
liabilities and obligations (other than Basic Rent) that Lessee assumes,  agrees
or otherwise  becomes  liable to pay to Lessor or others  hereunder or under any
other  document or  agreement  entered  into by Lessee and Lessor in  connection
herewith or with the  transactions  contemplated  hereby and thereby  including,
without  limitation,  payments  of Engine  Reserves,  Engine  Loss Value and any
interest payable with respect to payments pursuant to Section 3(f).

      "TACA"  shall  mean  TACA  International  Airlines,  S.A.,  a  corporation
organized and existing under the laws of El Salvador.

      "TAX"  or  "TAXES"  shall  mean  any  and  all  fees  (including,  without
limitation,   license  and  registration   fees),   taxes  (including,   without
limitation,  gross receipts,  income, sales, rental, use, turnover, value added,
property  (tangible or  intangible),  excise and stamp taxes,  levies,  imposts,
duties, charges, assessments or withholdings of any nature whatsoever,  together
with any and all  penalties,  fines,  additions to tax and  interest  thereon or
computed by reference thereto.

      "TAXING AUTHORITY" shall have the meaning ascribed to it in Section
12(b) hereof.

                                       4
<PAGE>

      "1997 TRUST AGREEMENT" shall mean the Trust Agreement dated as of June 15,
1997 between FSB and KGAL,  as  originally  executed or as modified,  amended or
supplemented pursuant to the applicable provisions thereof.


      Section 2.  LEASE; LEASE TERM; DELIVERY OF ENGINE

      a) LEASE; LEASE TERM.  Lessor  hereby  Leases to Lessee the Engine and the
Engine Stand,  for a period (the "Lease Term")  commencing from the Commencement
Date and ending,  unless earlier  terminated  pursuant to the provisions of this
Lease, on such date as shall fall 120 consecutive  calendar months following the
Commencement Date (the "Expiration Date").

       (b)  CONDITION  OF ENGINE AT  DELIVERY. Lessee  acknowledges  that on the
Commencement Date, the Engine was delivered to Lessee in Dallas,  Texas, and was
in conformity  with the  description  thereof set forth in Exhibit A hereto.  On
June 11, 1996,  Lessee delivered to Lessor an Acceptance  Certificate,  which is
conclusive  proof as between  Lessor and Lessee  that  Lessee has  examined  the
Engine, that the Engine and the Engine  Documentation are satisfactory to Lessee
and that  Lessee  has  accepted  the  Engine  for lease  hereunder  without  any
reservations whatsoever (except as noted therein).


      Section 3.  SECURITY DEPOSIT AND OTHER PAYMENTS

     (a) SECURITY DEPOSIT.  Lessor acknowledges  receipt from or for the account
of Lessee of a security deposit (the "Security  Deposit") in the total amount of
[ ]* Dollars (US$[ ]*) (the "Security  Deposit  Amount").  The Security  Deposit
shall be held by Lessor  during  the  Lease  Term as  security  for the full and
punctual performance by Lessee of all of its obligations  hereunder.  During the
Lease Term,  the Security  Deposit may be commingled by Lessor with other funds.
Interest,  if any,  earned on the Security  Deposit  shall be for Lessor's  sole
account.  Lessor may, but shall not be obligated to, apply the Security Deposit,
in whole or in part for the  payment of any Basic Rent  owing  hereunder  or any
other  amount  owing  from  time to time by Lessee  hereunder,  or  utilize  the
Security  Deposit in whole or in part to  perform  any of  Lessee's  obligations
hereunder or  otherwise  remedy any Event of Default,  without  prejudice to any
other remedy of Lessor. Lessee shall not attempt to subject the Security Deposit
to any Lien or to assign any  interest  therein to any Person and, to the extent
of its interest  therein,  Lessee hereby grants to Lessor a Lien on the Security
Deposit and assigns and transfers to Lessor any and all of Lessee's right, title
and  interest  therein,  as  security  as provided  above,  and Lessor  shall be
entitled  to the  remedy of  offset  against  and  application  of the  Security
Deposit,  without any prior notice to or demand  against  Lessee  (except to the
extent otherwise required by applicable law), all of which are hereby waived. If
Lessor  uses  or  applies  all  or a  portion  of  the  Security  Deposit,  such
application shall not be deemed a cure of any Event of Default, until and unless
Lessee  shall have  replenished  the amount  applied  hereunder  within the time
period  provided  herein.  Lessee  shall  replenish  any  portion  or all of the
Security Deposit applied by Lessor to satisfy, in whole or in part, any Event of
Default by  depositing  with  Lessor in  immediately  available  funds an amount
sufficient to restore the Security Deposit to the Security Deposit Amount within
three (3) Business Days after Lessor's demand therefor. Within fifteen (15) days
after  redelivery of the Engine to Lessor by Lessee,  and provided the Engine is
delivered in full conformity with the return  conditions set forth in Section 10
hereof, and that Lessee has paid, in full, all amounts owing by Lessee hereunder
and performed all of its obligations hereunder, Lessor will return to Lessee the
Security Deposit,  without interest,  less any amounts applied by Lessor and not
replenished by Lessee.

                                       5
<PAGE>

       (b) BASIC  RENT.  Lessee  agrees to pay Lessor  rent with  respect to the
Engine,  monthly, in advance on each Payment Date, in the amount of [ ]* Dollars
(US$[ ]*) per month ("Basic Rent").

       (c)  [Intentionally left blank.]

      (d) SUPPLEMENTAL RENT. Lessee agrees promptly to pay to Lessor any and all
Supplemental  Rent, as the same shall become due and owing,  and in the event of
any failure on the part of Lessee to pay any  Supplemental  Rent,  Lessor  shall
have the same  rights,  powers  and  remedies  provided  for herein or by law or
equity or otherwise as in the case of nonpayment of Basic Rent.

       (e) MANNER OF PAYMENT.  All  payments  of Rent shall be paid  directly to
Lessor to:

                  The Bank of Tokyo-Mitsubishi, Ltd., New York
                  Chips UID: 076 886 ABA No. 026 009632

                  A/C The Bank of Tokyo-Mitsubishi, Ltd.,
                    London Branch
                  12-15 Finsbury Circus
                  London EC2M 7BT
                  England

                  Tel:  44 171 577 1087
                  Fax:  44 171 577 1128

                  F/O KG Aircraft Leasing Co., Ltd.
                  Number 245662 Current Account

or such other bank accounts as Lessor shall specify by written notice to Lessee.
All payments of Rent shall be made in immediately  available funds in Dollars by
2:00 p.m. New York City time, on the date when due; provided,  however,  that in
the event that any  payment  should be due on a day that is not a  Business  Day
then such payment  shall be made on the Business  Day next  succeeding  such day
without any penalty for late payment.

      (f) LATE PAYMENTS.  As to any (i) amount due under this Lease that is not
paid when due as herein  provided,  or (ii) advance made by Lessor of any amount
required  to be paid by  Lessee as herein  provided  and not so paid by  Lessee,
Lessee shall pay to Lessor at the time of payment thereof, as Supplemental Rent,
interest thereon at the Post-Default  Rate, from either the due date thereof (as
to amounts  referred  to in clause (i)) or the date of the advance by Lessor (as
to amounts  referred  to in clause  (ii)),  as the case may be, to the date such
late payment is paid in full.

                                       6
<PAGE>

       (g)  NO  SETOFF,  COUNTERCLAIM,  ETC.  Notwithstanding  anything  to  the
contrary herein and except as otherwise set forth in this Section 3(g), Lessee's
obligations  and  liabilities  to pay all  amounts  payable  hereunder  shall be
absolute  and  unconditional  and shall  not be  affected  by any  circumstance,
including, without limitation, (i) any setoff, counterclaim, recoupment, defense
or other right that Lessee may have  against  Lessor or any other Person for any
reason  whatsoever,  (ii) any defect in the title  caused  directly by an act or
omission of Lessee,  airworthiness,  condition, design, operation or fitness for
use of or any damage to or loss or destruction of, the Engine, any Engine or any
Part  thereof  or of any  airframe  upon  which  the  same is  installed  or any
interruption  or  cessation in the use or  possession  thereof by Lessee for any
reason whatsoever, (iii) any insolvency,  bankruptcy,  reorganization or similar
proceedings by or against Lessee,  (iv) the  disaffirmance  or rejection of this
Lease by Lessor or any trustee in bankruptcy  (or similar  party)  provided that
there shall have been no change  materially  adverse to the Lessee in any of the
terms or  conditions  of this Lease in  connection  with  applicable  bankruptcy
proceedings, (v) claims against the Manufacturer or manufacturer of any airframe
upon  which  the  Engine  is   installed,   (vi)   enforceability   or  lack  of
enforceability of any of the terms or conditions of this Lease,  (vii) breach by
Lessor of any  warranty,  express or  implied,  with regard to the Engine or any
Part thereof, including, without limitation,  merchantability or fitness for any
purpose or use relating to or otherwise  made or alleged to be made by Lessor to
Lessee or any of its agents,  representatives  or  employees  with regard to the
Engine or any Part thereof,  (viii) any right,  claim,  demand,  bill, action or
suit  whatsoever  by or  against  or on  the  part  of  Lessee  against  Lessor,
including, without limitation,  whether arising out of legal action or otherwise
(x) at law or in equity,  (y)  whether  affirmative,  negative or  defensive  in
nature for or on  account of the  legality,  enforceability,  validity  or other
infirmity  as to (A) any of the  terms  or  conditions  of this  Lease,  (B) any
express or implied  warranty as to the Engine or any Part thereof or (C) arising
out of or as a result of any  contract,  agreement,  assignment  or  transaction
between Lessor and Lessee whether direct or indirect,  written or oral, (ix) any
interruption  or  cessation  in  the  use or  possession  of  the  Engine  by or
availability of the Engine to Lessee for any reason  whatsoever  whether arising
out of relating to an act or omission of Lessee; or (x) any other circumstances,
happening or event  whatsoever,  whether or not similar to any of the  foregoing
which but for this provision might have the effect of terminating this Lease, it
being the  intention  of the Lessor and Lessee  that all Rent and other  amounts
payable by Lessee hereunder shall be payable in all events unless the obligation
to pay the same shall be terminated  pursuant to the express  provisions of this
Lease.  Lessee hereby waives,  to the fullest extent permitted by applicable law
any and all  rights  it may now  have  or  that  at any  time  hereafter  may be
conferred  upon it, by statute  or  otherwise,  to  terminate,  cancel,  quit or
surrender  this  Lease  except in  accordance  with the  express  terms  hereof.
Notwithstanding  anything contained in this Section 3(g), in the event that as a
result of a breach by Lessor or anyone  claiming by,  through or under Lessor of
its covenant of quiet enjoyment  (including any defect in title not caused by an
act or omission of Lessee), Lessee shall be deprived of possession or use of the
Engine under and in accordance with this Lease,  Lessee shall not be required to
pay  Basic  Rent  and  Maintenance   Reserves  in  respect  of  such  period  of
non-possession  of or inability to use the Engine.  Each payment of Rent made by
Lessee  shall be final as to Lessor  and  Lessee,  and  Lessee  will not seek to
recover  all or any  part  of any  such  payment  of  Rent  from  Lessor  or its
successors or assigns for any reason whatsoever.

      Nothing in this Section 3(g) or elsewhere in this Lease shall be construed
to limit  Lessee's  right to seek a recovery of any payment of Rent or any other
amount which is not due and payable  hereunder,  or to limit Lessee's rights and
remedies  to  pursue,  in a court  of law or  otherwise,  any  claim it may have
against  Lessor on account of any failure of Lessor to perform  its  obligations
hereunder or in connection herewith.


                                       7
<PAGE>

      Section 4.  CONDITIONS PRECEDENT AND OTHER REQUIREMENTS.

      (i) The  obligation  of Lessor to lease the  Engine to Lessee on the terms
and conditions  herein set forth was subject to the  satisfaction,  on or before
the Commencement  Date, of each of the following  conditions  (which the parties
hereto agree were satisfied or waived on or before the Commencement Date):

      (a) EXECUTION  AND DELIVERY OF DOCUMENTS.  Lessee shall have duly executed
and delivered to Lessor (i) this Lease, and (ii) the Acceptance Certificate.

      (b)   REPRESENTATIONS,   WARRANTIES,   NO   DEFAULT.   (i)   All   of  the
representations  and warranties of Lessee  contained in this Lease shall be true
and correct on and as of the  Commencement  Date as though made on such date or,
if they relate solely to an earlier date, as of such date and (ii) no Default or
Event of Default  shall have  occurred  and be  continuing  or would result from
Lessee's  execution,  delivery and  performance of this Lease,  and Lessor shall
have received an Officer's Certificate in form and substance satisfactory to it,
to the effect of each of the foregoing.

       (c) RESOLUTIONS, ETC.  Lessor shall have received,  in form and substance
satisfactory to it, a certificate of the Secretary or an Assistant  Secretary of
Lessee  with  respect to the  resolutions  of the Board of  Directors  of Lessee
authorizing the execution,  delivery and performance by Lessee of this Lease and
all other  documents  and  certificates  contemplated  hereby to be  executed on
behalf of Lessee,  and the authority and signatures of the persons authorized to
execute and deliver such documents on behalf of Lessee.

      (d) SECURITY  DEPOSIT AND BASIC RENT. On or before the  Commencement  Date
Lessor  shall have  received  immediately  available  funds in the amount of the
balance of the Security Deposit Amount and the first Basic Rent payment.

      (e) INSURANCE CERTIFICATE.  Lessor shall have received, on or prior to the
Commencement  Date,  in form and substance  satisfactory  to it, an insurer's or
broker's  certificate  as to the due  compliance  by Lessee  with the  insurance
provisions of Section 9.

      (f) FILINGS;  FINANCING  STATEMENTS.  Lessor shall have received  evidence
satisfactory  to it that this Lease  shall have been duly filed for  recordation
with the FAA  pursuant to the Federal  Aviation  Act.  If  requested  by Lessor,
Lessee  shall have  executed  (as  debtor) and  delivered  to Lessor one or more
precautionary  Uniform  Commercial Code financing  statements for filing in such
places in the United  States  as, in the  Lessor's  opinion,  are  necessary  or
desirable.

      (g) OPINIONS OF COUNSEL.  Lessor shall have  received  favorable  opinions
addressed to Lessor from Winthrop,  Stimson,  Putnam & Roberts and Sparks,  Dix,
P.C., counsel for Lessee, dated as of the Commencement Date.

      (h) NO EVENT OF LOSS. No Event of Loss shall have occurred with respect to
the Engine.

      (i) ACCEPTANCE BY PROCESS AGENT. CT Corporation System shall have accepted
its appointment as Process Agent on behalf of Lessee by one or more  instruments
in writing delivered to Lessor.

      (ii) The  obligation  of Lessee to Lease the Engine from  Lessor  pursuant
hereto was subject to the satisfaction,  on or before the Commencement  Date, of
each of the following  conditions (which the parties hereto agree were satisfied
or waived on or before the Commencement Date):

                                       8
<PAGE>

      (a) DELIVERY OF ASSIGNMENTS OF WARRANTIES. Lessee shall have received from
Lessor an Assignment of Warranties in form and substance  reasonably  acceptable
to Lessee, duly accepted by the Manufacturer.

       (b) RESOLUTIONS, ETC.  Lessee shall have received,  in form and substance
reasonably  satisfactory  to it, a certificate  of the Secretary or an Assistant
Secretary of Lessor with respect to the resolutions of the Board of Directors of
Lessor  authorizing  the execution,  delivery and  performance by Lessor of this
Lease  and all  other  documents  and  certificates  contemplated  hereby  to be
executed on behalf of Lessor,  and the authority  and  signatures of the persons
authorized to execute and deliver such documents on behalf of Lessor.

     (c) REPRESENTATIONS, WARRANTIES; NO DEFAULT. (i) All of the representations
and  warranties  of Lessor  contained in this Lease shall be true and correct on
and as of the  Commencement  Date as though made on such date or, if they relate
solely  to an  earlier  date,  as of such date and (ii) no  default  or event of
default under any credit agreement,  mortgage,  lease or other agreement binding
on Lessor or any of its assets shall have  occurred and be  continuing  or would
result from Lessor's  execution,  delivery and  performance  of this Lease,  and
Lessee  shall have  received  an  Officer's  Certificate  in form and  substance
satisfactory  to it, to the effect of each of the  foregoing,  and (iii)  Lessor
shall have received and  furnished to Lessee the consent of ING Aviation  Lease,
B.V. ("ING") and First Security Bank of Utah, National  Association  ("FSBU") to
the release of the Engine,  Engine records and related Engine  Reserves from the
Sublease  Agreement  dated as of March 18,  1996  between  TACA and Lessee  (the
"Sublease")  and from the related  Assignment of Sublease  between TACA and FSBU
and the Assignment of Security  Document  between FSBU and ING, both dated as of
even date therewith, as the case may be.

       (d) ACCEPTANCE BY PROCESS  AGENT.  Greenberg,  Traurig et.al.  shall have
accepted its appointment as Process Agent on behalf of Lessor.

       (e) CREDIT DEPOSIT FOR RESERVES.  Lessor shall, on the Commencement Date,
credit  Lessee  with the full  amount of Engine  Reserves  actually  received by
Lessor under the Sublease prior to the Commencement Date,  including all amounts
received in respect of the Shop Visit Portion and the LLP Portion of said Engine
Reserves  which  amounts  shall be  credited  as  appropriate  to the Shop Visit
Portion and the LLP Portion of Engine Reserves  payable pursuant to Section 6(b)
hereof.  The amount so credited shall constitute Engine Reserves available to be
reimbursed to Lessee as provided in Section 6(b)(ii) below.


       Section 5. DISCLAIMER; MANUFACTURER AND VENDOR WARRANTIES

      a)  DISCLAIMER  BY LESSOR. TO THE  EXECUTION  OF THIS  LEASE,  LESSEE  HAS
SELECTED THE TYPE OF ENGINE AND PARTS. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN
SECTION 5(b) BELOW,  NEITHER  LESSOR NOR ANY SUCCESSOR IN INTEREST TO LESSOR HAS
MADE NOR SHALL BE DEEMED TO HAVE MADE AND ACCORDINGLY MAKES NO WARRANTY, EXPRESS
OR IMPLIED,  AS TO ANY MATTER WHATSOEVER,  INCLUDING THE CONDITION OF THE ENGINE
AND PARTS, ITS MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE, AND LESSOR
EXPRESSLY  DISCLAIMS THE SAME AND AS RESPECTS  LESSOR,  LESSEE LEASES THE ENGINE
AND PARTS "AS IS" AND "WHERE  IS".  EXCEPT AS  OTHERWISE  EXPRESSLY  PROVIDED IN
SECTION 5(b) BELOW,  LESSOR  HEREBY  EXPRESSLY  DISCLAIMS  ANY  WARRANTY  EITHER
EXPRESS OR IMPLIED  (WHETHER  STATUTORY OR OTHERWISE)  RELATING TO THE CAPACITY,
AGE,  QUALITY,  DESCRIPTION,   STATE,  CONDITION,  DESIGN,  CONSTRUCTION,   USE,
OPERATION,  OR PERFORMANCE OF THE ENGINE OR THE SUITABILITY OF THE ENGINE OR ITS
FITNESS FOR ANY PARTICULAR PURPOSE OR AS TO ITS AIRWORTHINESS. LESSOR SHALL HAVE
NO LIABILITY TO LESSEE FOR ANY CLAIM, LOSS OR DAMAGE WHATSOEVER  INCLUDING,  BUT
NOT LIMITED TO,  INCIDENTAL OR  CONSEQUENTIAL  DAMAGES,  CAUSED OR ALLEGED TO BE
CAUSED  DIRECTLY  OR  INDIRECTLY  BY THE ENGINE OR PARTS,  OR BY ANY  INADEQUACY
THEREOF  OR  DEFICIENCY  OR DEFECT  THEREIN  OR BY ANY  INCIDENT  WHATSOEVER  IN


                                       9
<PAGE>

CONNECTION THEREWITH ARISING IN STRICT LIABILITY, NEGLIGENCE OR OTHERWISE, OR IN
ANY ACTION  RELATED TO OR ARISING  OUT OF THIS LEASE OR ANY OTHER  DOCUMENT  AND
WHETHER  INVOLVING  PERSONAL  INJURY,  PROPERTY  DAMAGE OR OTHERWISE.  EXCEPT AS
EXPRESSLY PROVIDED IN SECTION 5(b) BELOW, LESSEE HEREBY WAIVES AS BETWEEN ITSELF
AND LESSOR AND ANY PERSON CLAIMING BY, THROUGH OR UNDER LESSOR,  ALL ITS RIGHTS,
EXPRESS OR IMPLIED  (WHETHER  STATUTORY OR OTHERWISE),  AGAINST LESSOR IN AND TO
THE  ENGINE  RELATING  TO  THE  CAPACITY,  AGE,  QUALITY,  DESCRIPTION,   STATE,
CONDITION, DESIGN, CONSTRUCTION, USE, OPERATION OR PERFORMANCE OF THE ENGINE AND
THE  LEASING  THEREOF  BY  LESSOR  TO  LESSEE,  OR  TO  THE  MERCHANTABILITY  OR
SUITABILITY OF THE ENGINE OR ITS FITNESS FOR ANY PARTICULAR PURPOSE OR AS TO ITS
AIRWORTHINESS.  In  particular  and without  prejudice to the  generality of the
foregoing,  Lessor shall not be under any  liability  whatsoever  and  howsoever
arising, whether in contract or tort or both, in respect of any loss, liability,
damage  or delay of or to or in  connection  with the  Engine  or any  Person or
property  whatsoever,  whether or not the Engine is attached to an airframe  and
irrespective  of whether  such loss,  damage or delay  shall  arise (x) from the
unairworthiness  of the  Engine,  or (y) from any action or  omission  of Lessor
(other than any action or omission that constitutes  willful misconduct or gross
negligence of Lessor).

       (b) LESSOR'S REPRESENTATIONS,  WARRANTIES AND COVENANTS.  Notwithstanding
and as the sole  exception to Section 5(a), (i) FSB represents and warrants that
it is a national  banking  association  duly organized,  validly existing and in
good  standing  under  the  laws of the  United  States  and  has all  requisite
corporate  power,  authority  and legal  right to enter into and to perform  its
obligations under the 1997 Trust Agreement,  (ii) Lessor represents and warrants
that (A)  unless a Default or an Event of Default  shall  have  occurred  and be
continuing  neither Lessor nor anyone claiming by, under or through Lessor shall
take any actions  inconsistent  with Lessee's right of quiet enjoyment;  (B) FSB
holds all material licenses,  certificates and permits necessary for the conduct
of its business as now conducted; (C) the execution, delivery and performance of
this Lease has been duly authorized by all necessary corporate action of Lessor,
and does not and will not (1) result in the  violation of the  provisions of the
charter  documents  or bylaws of  Lessor  as in effect on the date  hereof,  (2)
require stockholder approval or approval or consent of any trustee or holders of
any  indebtedness of Lessor,  except such approvals which have been obtained and
are in full force and effect,  (3) contravene any law, rule or regulation or any
order of any  Government  Entity  binding on Lessor,  nor (4)  conflict  with or
result in a breach of any terms or provisions of or constitute a default  under,
or result in or require the creation or imposition of any Lien upon any material
property or assets of Lessor under,  any indenture,  mortgage or other agreement
or  instrument  as in effect on the date hereof to which Lessor is a party or by
which  it or any of its  property  is  bound,  or any  applicable  law,  rule or
regulation,  judgment,  order or decree of any Government Entity or court having
jurisdiction  over  Lessor  or  any  of  its  properties;  and  (D)  this  Lease
constitutes  the legal,  valid and  binding  obligation  of Lessor,  enforceable
against  Lessor  in  accordance  with its  terms  except  as may be  limited  by
applicable bankruptcy, insolvency,  reorganization,  moratorium or other similar
laws  affecting  creditors'  rights  generally  and, to the extent that  certain
remedies  require  or may  require  enforcement  by a court of  equity,  by such
principles of equity (regardless of whether such enforceability is considered in
a proceeding at law or in equity) as a court having jurisdiction may impose.

                                       10
<PAGE>

     (c) MANUFACTURER AND VENDOR WARRANTIES. Lessor hereby assigns to Lessee for
the  duration  of the  Lease  Term (so long as no Event of  Default  shall  have
occurred and be  continuing)  all  assignable  warranties,  if any, given by the
Manufacturer  and other  vendors  with  respect to the  Engine and shall  obtain
Manufacturer's  consent to such assignment.  Lessee will diligently and promptly
pursue  any valid  claims it may have  under such  warranties  and will  provide
notice of the same to  Lessor.  To the  extent  that any  warranty  given by the
Manufacturer  or  others  with  respect  to the  Engine  are not  assignable  or
otherwise made available to Lessee,  Lessor agrees, at its option, either (i) to
authorize  Lessee to take such  action to enforce  such  warranty in the name of
Lessor  as  Lessee  sees fit or (ii) to exert  reasonable  efforts  at  Lessee's
request and expense  (and  subject to Lessee  making  adequate  provision to the
satisfaction  of Lessor  with  respect  to such  expense)  to  enforce  any such
warranties  for the benefit of Lessee.  Effective on the return of the Engine or
the termination of this Lease,  whichever is earlier,  Lessee hereby assigns any
remaining warranties, and any claims thereunder, to Lessor or its designee. Upon
the exercise by Lessor of any remedies in respect of an Event of Default, and at
the latest,  upon  expiration of the Lease Term,  the benefit of all  warranties
referred  to  herein  shall  immediately  revert  and be  deemed  to  have  been
reassigned by Lessee to Lessor.


      Section 6.  MAINTENANCE; REPLACEMENT AND POOLING OF PARTS; ALTERATIONS,
                  MODIFICATIONS AND ADDITIONS.

      a)    MAINTENANCE

            (i) So long as Lessor has not  committed a breach of its covenant of
      quiet enjoyment which shall have the effect of depriving Lessee of the use
      or  possession of the Engine during the Lease Term and until the Engine is
      returned to Lessor,  Lessee shall, at its sole cost and expense,  service,
      inspect,  test,  maintain,  overhaul  and repair the Engine and all of the
      Parts  in  accordance   with  the  Lessee's  FAA  approved   airworthiness
      maintenance  and inspection  program,  a copy of which has been or will be
      delivered to Lessor on or prior to the Commencement Date (the "Maintenance
      Program") and in conformity with the rules and regulations of the FAA, (A)
      so as to keep the Engine in as good  condition  (operating  and otherwise)
      and repair as when delivered to Lessee  hereunder,  ordinary wear and tear
      excepted and  otherwise so as not to  adversely  effect the  airworthiness
      thereof,  and (B) in the same  manner  and  with the same  care as used by
      Lessee  with  respect to similar  engines  owned or operated by Lessee (it
      being  the  intention  of  the  parties   hereto  that  Lessee  shall  not
      discriminate  against the Engine in respect of any  maintenance  matters).
      Lessee shall be authorized  to amend its  Maintenance  Program;  provided,
      however,  that not withstanding  such amendment,  the Maintenance  Program
      shall,  at all times  during  the  Term,  be in full  conformity  with the
      requirements set forth above and, further provided, that Lessee shall have
      obtained  Lessor's  prior  written  consent to any  material  amendment or
      change  in  or  to  the  Maintenance  Program.  All  service,  inspection,
      maintenance,  modification,  repair and  overhaul  shall be  performed  or
      caused to be performed by Lessee in  accordance  with all  applicable  FAA
      requirements and under the Maintenance  Program, and shall be accomplished
      in  accordance  with  all  applicable  service,  inspection,  maintenance,
      modification,  repair and overhaul manuals and bulletins  published by the
      Manufacturer.  Without  limiting the  generality  of the  foregoing or the
      obligations of Lessee  hereunder,  Lessee agrees that such maintenance and
      repairs will include but will not be limited to each of the following:

                  (A)     to perform in accordance with the Maintenance
            Program all routine and non-routine maintenance work;

                  (B) to  comply on a  terminating  basis  with all  outstanding
            mandatory  orders,  and  airworthiness  directives issued by the FAA
            during the Lease Term  affecting  the Engine that have an  effective
            date for compliance  prior to, or sooner than one hundred (180) days
            after, the return date of the Engine;

                                       11
<PAGE>

                  (C)  to  incorporate  in  the  Engine  all  mandatory  service
            bulletins of the  Manufacturer  and other vendors  issued during the
            Lease Term which Lessee  schedules to  incorporate  during the Lease
            Term on engines in its Boeing 737 fleet; and

                  (D) to  maintain,  in the  English  language  (1)  the  Engine
            Documentation  and (2) any other records,  logs or other  documents,
            information  or  materials  relating  to  the  service,  inspection,
            testing,  maintenance,  modification,  overhaul  and  repair  of the
            Engine,  any Engine and any Part which are required by the FAA or by
            applicable  law, all of which shall at all times be kept current and
            up-to-date,  shall  conform with the laws of any  Government  Entity
            having  jurisdiction  and with normal  practices of  commercial  air
            carriers,  shall  disclose  the  location of the Engine and shall be
            made available for review by Lessor on reasonable notice.

            (ii)  Lessee  shall  have  designated   persons  in  its  employment
      authorized by the FAA to perform service, inspection, modifications repair
      and  alterations  of the Engine,  or shall have the same  performed on its
      behalf by an FAA approved  repair and overhaul  station in conformity with
      FAR 145  ("Approved  Repair  Facility").  In the event  Lessee has a third
      party  accomplish,  on a continuous  basis, some or all of the maintenance
      requirements under the Maintenance  Program such maintenance by said third
      party must be  accomplished  in  accordance  with the  provisions  of this
      Section 6(a). Lessor shall be entitled and Lessee shall ensure that Lessor
      is permitted to visit the  facilities of any such third party  maintenance
      performer to inspect the  maintenance  work performed and the  maintenance
      record of the Engine.

            (iii)  Any  repair  to  the  Engine  that  is  not  covered  by  the
      Manufacturer's  repair  manual  instructions  shall be subject to Lessor's
      prior written approval and shall be made under an FAA approved program.

       (b)  ENGINE RESERVES

            (i) Lessee shall pay Lessor,  as a Supplemental  Rent for the use of
      the Engine during the Lease Term,  within  fifteen (15) days following the
      last  day  of  each  calendar  month  during  the  Lease  Term  and on the
      redelivery  date,  with  respect  to the  Engine,  the  sum  (the  "Engine
      Reserves")  of (x) the  amount  determined  by  multiplying  the number of
      Flight Hours of operation of such Engine during the immediately  preceding
      month by [ ]*  Dollars  (US$[ ]*) which  amount  shall be  applied  toward
      restoration  shop  visits (the "Shop  Visit  Portion")  and (y) the amount
      determined by multiplying  the number of Cycles of operation of the Engine
      during  the  immediately  preceding  month by [ ] Dollars  (US$[ ]*) which
      amount shall be applied  toward the cost of  life-limited  parts (the "LLP
      Portion").  It is the  intent of the  parties  hereto  that the  Engine be
      operated during the Lease Term at an average Flight  Hour/Cycle ratio (the
      "Ratio") of one and seven-tenths  Flight Hours to one Cycle 1.7:1.  During
      any calendar year during the Lease Term, the total Engine Flight Hours for
      the Engine  recorded in respect of the  previous  twelve  months  shall be
      compared with the Cycles flown for the Engine and the Ratio computed.  The
      rate  payable by way of  maintenance  reserve in respect of each  complete
      Flight Hour (pro rata for part  thereof)  for the Engine  applicable  with
      respect to the Shop Visit  Portion of the Engine  Reserves due from Lessee
      after such annual  Ratio  computation  and prior to the next annual  Ratio
      computation  shall be as provided in Exhibit E hereof for such Ratio.  Any
      excess Engine  Reserves  remaining at the  expiration of the Lease Term or
      earlier termination of this Lease shall be retained by Lessor.

                                       12
<PAGE>

            (ii) Lessee shall be entitled to  reimbursement  from the Shop Visit
      Portion of the Engine Reserves for Lessee's actual costs (without mark-up)
      incurred with respect to restoration shop visits of the Engine,  excluding
      any costs  associated with  replacement of life limited parts and the cost
      of any repairs or maintenance  required due to accidents,  abuse,  misuse,
      mishandling,  faulty  maintenance,  foreign object  damage,  elective part
      replacement or any insured event. Such reimbursement  shall be made within
      ten (10) Business Days after presentation to Lessor of appropriate written
      evidence of such  expenses  (which shall include a copy of an invoice from
      an FAA-approved  maintenance  facility indicating that the maintenance has
      been completed and identifying those engine maintenance tasks accomplished
      and the labor  and  material  breakdown  thereof,  and a receipt  from the
      maintenance  facility for payment of the invoice,  or at least such amount
      thereof as shall  exceed the portion of the Engine  Reserves  available to
      Lessee  hereunder);  provided,  that (A) the amount  reimbursed  to Lessee
      shall not exceed the amount of the Engine Reserves paid by Lessee (and not
      previously  disbursed)  allocable to the Shop Visit  Portion of the Engine
      Reserves,  and (B) in no event shall  Lessee be entitled to  reimbursement
      for any  expenses  related to removal  or  installation  of the Engine for
      maintenance  or any other  shipping  or  transportation  expenses.  To the
      extent that any amount reimbursable hereunder has not been paid by Lessee,
      such amount  shall be paid  directly  to the  maintenance  facility  which
      performed the services for which reimbursement is sought.

            (iii) Lessee shall be entitled to reimbursement from the LLP Portion
      of the Engine Reserves (i) for the full  replacement  cost of life limited
      parts  having a remaining  life of up to and  including  one  thousand two
      hundred fifty (1250) Cycles. Upon reimbursement of such replacement costs,
      Lessee  shall  deliver the  removed  life  limited  parts to Lessor at the
      overhaul facility and cause title thereto to vest in Lessor free and clear
      of all Liens  other than  Lessor  Liens,  and (ii) of such  portion of the
      replacement  cost of life limited parts having a remaining  life in excess
      of one thousand  two hundred  fifty (1250)  Cycles as  corresponds  to the
      utilized (non-remaining) portion of the life of such life limited parts as
      compared to the total life thereof when new, as expressed in Cycles.  With
      respect to such life limited  parts  having a remaining  life in excess of
      one thousand two hundred fifty (1250)  Cycles,  title to such life limited
      parts shall be deemed to vest in Lessee upon  installation  of replacement
      parts on an  Engine.  Such  reimbursement  shall be made  within  ten (10)
      Business Days after presentation to Lessor of appropriate written evidence
      of  such  costs  (which  shall  include  a  copy  of an  invoice  from  an
      FAA-approved  supplier  of such  life  limited  parts,  identifying  those
      purchased  and receipt of payment  therefor  or at least  payment for such
      portion as shall exceed the LLP Portion of the Engine  Reserves  available
      to Lessee  hereunder and of the Approved Repair  Facility  indicating that
      such life limited parts have been installed on an Engine;  provided,  that
      (A) the  amount  reimbursed  to Lessee  shall not exceed the amount of the
      Maintenance  Reserves  paid  by  Lessee  (and  not  previously  disbursed)
      allocable  to the LLP Portion of the Engine  Reserves  and (B) in no event
      shall  Lessee be entitled to  reimbursement  for any  expenses  related to
      removal,  shipping  or  transportation  expenses.  To the extent  that any
      amount  reimbursable  hereunder  has not been paid by Lessee,  such amount
      shall be paid  directly to the  supplier of the life  limited  part(s) for
      which reimbursement is sought.

       (c)  REPLACEMENT  OF PARTS.  Lessee,  at its own cost and  expense,  will
promptly  replace  all  Parts  that may  from  time to time be  incorporated  or
installed  in or  attached  to the Engine and that may from time to time  become
worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or
permanently  rendered  unfit for use for any  reason  whatsoever.  In  addition,
Lessee  may,  at its own cost and  expense,  remove  in the  ordinary  course of
maintenance,  service,  repair,  overhaul or testing,  any Parts, whether or not
worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or
permanently  rendered unfit for use;  provided that Lessee will, at its own cost


                                       13
<PAGE>

and expense,  replace such Parts as promptly as possible.  All replacement Parts
shall be free  and  clear of all  Liens  (except  Permitted  Liens  and  pooling
arrangements  permitted  by  Section  6(d))  and  shall be in as good  operating
condition  as, and shall have a value and  utility at least  equal to, the Parts
replaced (assuming such replaced Parts were in the condition and repair required
to be  maintained by the terms  hereof).  All Parts at any time removed from the
Engine shall remain subject to this Lease,  no matter where located,  until such
time as such Parts  shall be replaced  by Parts that have been  incorporated  or
installed  in or  attached  to the  Engine  and that meet the  requirements  for
replaced Parts specified  above.  Immediately upon any replacement Part becoming
incorporated  or  installed  in or  attached  to the  Engine as above  provided,
without  further act,  (i) title to the  replaced  Part shall there upon vest in
Lessee,  free and clear of Lessor's  Liens and all rights of Lessor and shall no
longer be deemed a Part  hereunder  provided,  however,  that in the case of any
Part that is replaced by a  replacement  Part subject to a pooling  arrangement,
title to such  replaced  Part shall not vest in Lessee until Lessee has complied
with Section 6(d), (ii) title to such  replacement Part shall vest in Lessor and
such replacement Part shall thereupon become subject to this Lease (subject only
to a pooling arrangement to the extent permitted by Section 6(d)) and (iii) such
replacement  Part shall be deemed part of the Engine for all purposes  hereof to
the same extent as the Parts originally incorporated or installed in or attached
to the Engine.

      Notwithstanding  the  provisions  of this Section  6(c),  provided that no
Event of Default has occurred and is continuing,  Lessee may install any part on
the Engine by way of  temporary  replacement  if: (i) there is not  available to
Lessee at the time and in the place that a part is required to be  installed  on
the Engine,  a Replacement Part complying with the requirements of Section 6(c);
(ii) it would  result in an  unreasonable  disruption  of the  operation  of the
Engine and/or the business of Lessee to ground the Engine until a Part complying
with Section 6(c) becomes available for installation on the Engine; and (iii) as
soon as  practicable  after  installation  of the same on the Engine but, in any
event, no later than the date of the next restoration shop visit (except as such
time may be extended pursuant to Section 8(a)), Lessee removes any such part and
replaces it with a part complying with Section 6(c).

     (d)  POOLING OF PARTS.  Any part  removed  from the Engine as  provided  in
Section  6(c)  may be  subjected  by  Lessee  to a  normal  pooling  arrangement
customary  in the  airline  industry  entered  into in the  ordinary  course  of
Lessee's business with financially and  operationally  responsible air carriers;
provided,  that the Part  replacing such removed Part shall be  incorporated  or
installed  in or  attached  to the Engine in  accordance  with  Section  6(c) as
promptly as possible  after the removal of such removed Part.  In addition,  any
replacement Part when  incorporated or installed in or attached to the Engine in
accordance  with Section 6(c) may be owned by a  financially  and  operationally
responsible air carrier subject to such a normal pooling  arrangement;  provided
that  Lessee,  at its expense as promptly  thereafter  as  possible,  either (i)
causes such  replacement Part to become subject to this Lease in accordance with
Section 6(c) by Lessee  acquiring  title  thereto for the benefit of Lessor free
and  clear  of all  Liens  other  than  Permitted  Liens or (ii)  replaces  such
replacement  Part by incorporating or installing in or attaching to the Engine a
further  replacement Part owned by Lessee free and clear of all Liens other than
Permitted Liens and by causing such further  replacement  Part to become subject
hereto in accordance with Section 6(c).

     (e) ALTERATIONS,  MODIFICATIONS AND ADDITIONS.  EXCEPT FOR SUCH ALTERATIONS
AND MODIFICATIONS TO THE ENGINE AS MAY BE REQUIRED FROM TIME TO TIME TO MEET THE
STANDARDS OF THE FAA OR OTHER  GOVERNMENTAL  ENTITY HAVING  JURISDICTION  AND AS
REQUIRED TO CONFORM TO MANUFACTURERS' MANDATORY SERVICE BULLETINS,  LESSEE SHALL
MAKE NO ALTERATIONS,  MODIFICATIONS OR ADDITIONS TO THE ENGINE WITHOUT THE PRIOR
WRITTEN  CONSENT  OF  LESSOR.  Lessee,  at  its  own  expense,  will  make  such
alterations and modifications to the Engine as may be required from time to time
to  meet  the  standards  of  the  FAA  or  other  Governmental   Entity  having


                                       14
<PAGE>

jurisdiction  and as required  to conform to  Manufacturers'  mandatory  service
bulletins,  and shall  notify  Lessor of the nature and schedule for making such
changes and, upon  submission  of the Monthly  Report for the month during which
completion  of the same shall  have  occurred,  of  completion  thereof.  Unless
expressly required by the FAA or Manufacturer's  mandatory service bulletins, no
alteration,  modification or addition shall diminish the value or utility of the
Engine,  or impair the  condition  or  airworthiness  thereof,  below the value,
utility,   condition  and  airworthiness   thereof  immediately  prior  to  such
alteration,  modification or addition (assuming the Engine was then of the value
or utility and in the condition and  airworthiness  required to be maintained by
the terms of this Lease).  All parts incorporated or installed in or attached or
added to the Engine as the result of such  alteration,  modification or addition
shall,  without further act, become subject to this Lease.  Notwithstanding  the
foregoing  sentence  of this  Section  6(e),  so long as no  Default or Event of
Default  shall  have  occurred  and be  continuing,  Lessee may remove any Part;
provided  that (i) such Part is in  addition  to, and not in  replacement  of or
substitution  for, any Part originally  incorporated or installed in or attached
to the  Engine  at the  time  of  delivery  thereof  hereunder  or any  Part  in
replacement  of,  or  substitution  for any such  Part,  (ii)  such  Part is not
required to be  incorporated  or installed in or attached or added to the Engine
pursuant  to the terms of this  Section  6(e) and (iii) such Part can be removed
from the Engine without diminishing or impairing the value,  utility,  condition
or  airworthiness  required to be maintained by the terms of this Lease that the
Engine  would  have had at such time had such  removal  not  occurred.  Upon the
removal by Lessee of any Part as above  provided,  title thereto shall,  without
further act,  vest in Lessee and such Part shall no longer be deemed part of the
Engine from which it was removed. Any Part removed by Lessee in any manner other
than as above  provided  prior to the return of the  Engine to Lessor  hereunder
shall remain the property of Lessor.


      Section 7.  TITLE AND REGISTRATION; LIENS; POSSESSION.

      (a)  TITLE.  Lessee  acknowledges  and agrees  that as between  Lessor and
Lessee  title  to the  Engine  shall  at all  times  be and  remain  solely  and
exclusively  vested in Lessor, and Lessee shall have no right, title or interest
in the  Engine  except the right to use the Engine as  provided  herein.  Lessee
shall from time to time do or cause to be done all acts and things then required
by law or by  practice,  custom or  understanding  or as Lessor  may  reasonably
request to protect,  preserve and perfect Lessor's rights, title and interest in
the  Engine and this  Agreement  in such other  jurisdictions  where  Lessee may
operate the Engine or to the laws of which Lessee or the Engine is or may become
subject.

      (b) LIENS. Lessee will not directly or indirectly create, incur, assume or
suffer to exist any Lien on or with respect to the Engine,  title thereto or any
Part or interest  therein or in this Lease except (i) the  respective  rights of
Lessor and Lessee as herein provided, (ii) the rights of others under agreements
or arrangements to the extent expressly  permitted by the terms of Section 6(d),
(iii) Lessor Liens,  (iv) Liens for Taxes either not yet due or being  contested
in good  faith  (and,  in  respect  of such  contest,  for the  payment of which
adequate  reserves have been  provided) by  appropriate  proceedings  diligently
pursued  so long as such  proceedings  do not  involve  any  danger of the sale,
forfeiture  or loss  of the  Engine  or any  Part or  interest  therein  and (v)
materialmen's,  mechanics',  workmen's,  repairmen's,  employees'  or other like
Liens  arising in the  ordinary  course of  business  for amounts the payment of
which is either not yet delinquent or is being  contested in good faith (and, in
respect of such  contest,  for the payment of which  adequate  reserves or other
adequate  provisions  for  payment by way of  security  or  otherwise  have been
provided)  by  appropriate  proceedings  diligently  pursued  so  long  as  such
proceedings  do not  involve any danger of the sale,  forfeiture  or loss of the
Engine or any Part or interest therein (each of the Liens referred to in clauses
(i) to (v) being herein referred to as "Permitted  Liens").  Lessee will, at its
own  expense,  take such action as may be necessary  duly to discharge  any such
Lien not  excepted  above if the same  shall  arise at any time.  Lessee  hereby
further  agrees that no  mechanics'  or similar Lien for any labor,  services or
materials  supplied  directly by Lessee shall attach to or otherwise  affect the
Engine or any Part and Lessee hereby  irrevocably  waives disclaims and releases
any such Lien.

                                       15
<PAGE>

      (c)  OPERATION.  Lessee shall not operate or locate the Engine,  or suffer
the Engine to be operated or located,  (i) in violation of any  applicable  law,
(ii) in any area excluded  from coverage by any insurance  required by the terms
of Section 9, except in the case of a requisition by a Government  Entity of the
United States where Lessee obtains indemnity in lieu of such insurance from such
Government  Entity  against the risks and in the  amounts  required by Section 9
covering such areas or (iii) in any  recognized or threatened  area of hostility
without   Lessor's   written  consent  and  unless  fully  covered  to  Lessor's
satisfaction by war risk,  confiscation and hijacking  insurance,  or unless the
Engine is operated or used under contract with a Government Entity of the United
States under which contract such Government  Entity assumes direct  liability to
Lessor for any damage, loss,  destruction or failure to return possession of the
Engine at the end of the term of such  contract  and for  injury to  Persons  or
damage to property of others.  Except as otherwise provided herein, Lessee shall
not install or permit the Engine to be  installed  on any  airframe not owned or
leased by Lessee or on any airframe  owned or leased by Lessee unless and for so
long as no Lien will attach to the Engine by virtue or  otherwise as a result of
such installation,  without Lessor's prior written consent.  Provided no Default
or Event of Default  shall  occur and be  continuing,  Lessor  shall not take or
cause or permit to be taken any action inconsistent with Lessee's right of quiet
enjoyment of, or otherwise in any way interfere with or interrupt the continuing
use, operation and possession of the Engine by Lessee.

       (d) POSSESSION. Except as otherwise provided in this Section 7(d), Lessee
shall have no right to sublease the Engine to any Person without having obtained
the prior written consent of Lessor,  which shall not be unreasonably  withheld.
In  addition,  Lessee  will not in any manner  without  Lessor's  prior  written
consent  deliver,  transfer or relinquish  possession  of the Engine;  provided,
that,  so long as no Default or Event of Default is  continuing,  and so long as
the action to be taken shall not deprive  Lessor of its  interest in the Engine,
Lessee may, from time to time, take any of the following actions:

            (i) deliver  possession of the Engine to the  Manufacturer or to any
      organization for testing, service, repair, maintenance or overhaul work or
      for  alterations  or  modifications  in or  additions to the Engine to the
      extent required or permitted by the terms of Section 6(e).

            (ii) install the Engine on any  airframe  owned or leased by Lessee;
      provided  that, no Lien shall attach to any such Engine by virtue of or in
      connection with such  installation,  and the owner,  lessor,  or any party
      having a security  interest in any such airframe grants  reciprocal rights
      to Lessor;  and further  provided that,  Lessee shall maintain any and all
      insurance  required  to be  maintained  upon or in  respect  of the Engine
      hereunder at all times during the Lease Term and until  redelivery  of the
      same in the condition required in Section 10 hereof.

            (iii) transfer  possession of the Engine to any Government Entity of
      the  United  States  pursuant  to a  sublease,  a copy of  which  shall be
      promptly  furnished to Lessor,  provided that such sublease  shall (A) not
      extend  beyond  the end of the  Lease  Term  and  (B)  Lessee  shall  have
      delivered  to  Lessor  signed  copies of a notice  of  assignment  of such
      sublease in favor of Lessor under the Assignment of Claims Act of 1940, as
      amended (31 U.S.C.  Section 3727, 41 U.S.C. Section 15) or any superseding
      or successor  provisions  thereto,  and in compliance  with the applicable
      provisions of 32 C.F.R.  Section 7-103 and 41 C.F.R.  Section  1-30.7,  or
      superseding or successor laws and regulations,  and Lessor may at any time
      when a  Default  or Event  of  Default  shall  have  occurred  and then be
      continuing,  file such  sublease  and an original and three copies of such
      notice of assignment with the proper  contracting and disbursing  officers
      and otherwise comply with all applicable  provisions of 32 C.F.R.  Section
      7-103.8 or any superseding or successor provisions thereto; or

                                       16
<PAGE>

            (iv) with Lessor's prior written consent, which consent shall not be
      unreasonably  withheld,  Sublease the Engine,  for a term  (including  all
      extensions  and  renewals)  which  shall not extend  beyond the end of the
      Lease Term,  to any United States air carrier  certificated  under Section
      41101 of the Federal  Aviation  or any  foreign  air carrier  certificated
      under  Section  41302 of the Federal  Aviation Act. If Lessee is unable to
      obtain  possession  of the  Aircraft  within  thirty  (30) days after such
      sublease shall have been declared to be in default,  free and clear of all
      Liens other than Lessor Liens,  or the Engine shall be deemed to have been
      subject  to an Event of Loss,  the same shall be deemed to  constitute  an
      Event of Loss hereunder.

            Lessee  shall give at least ten (10) days' prior  written  notice to
      the Lessor of any proposed sublease under clause (iv) of this Section 7(d)
      and shall provide  Lessor with a copy of the proposed  Sublease  Agreement
      and other  proposed  documents  to be  executed  in  connection  with such
      sublease.  Such notice shall specify the sublessee,  term of such sublease
      and the domicile of the sublessee. Such notice shall also confirm that the
      proposed  sublease  (a) requires the return of the Engine to Lessee in the
      United  States  promptly (but in no case more than five (5) days after the
      expiration  of the term of the  sublease  and in no event  later  than the
      expiration of the Lease Term, (B) in the case of a proposed sublease to an
      air  carrier  other than a U.S.  certificated  air  carrier,  contains  an
      express  waiver by such sublease of the defense of sovereign  immunity (x)
      in any suit,  act in or  proceeding  arising  out of or  relating  to such
      sublease  and  (y)  of  such   sublessee's   property  from  execution  or
      attachment,  and (C)  provides  that is  shall  terminate  immediately  if
      insurance  shall not be maintained  at all times in  accordance  with this
      Lease.

      Any sublease  permitted  under this  Section 7(d) shall (a) include  terms
substantially   similar  to  those  contained  in  Section  12  and  appropriate
provisions:

                  (1)  requiring  maintenance,  insurance  and  operation of the
            Engine to be in  accordance  with the  relevant  provisions  of this
            Sublease,

                  (2)  requiring the sublessee to keep the Engine free and clear
            of Liens other than Permitted Liens, and

                  (3)  prohibiting   further   transfer  of  the  Engine  to  or
            possession  thereof  by  any  third  Person  (except  for  temporary
            possession  thereof  to  an  authorized  maintenance  performer  for
            purposes of performing maintenance, testing or repairs);

(b) expressly prohibit any further sublease of the Engine by such sublessee; and
(c) be made  expressly  subject and  subordinate  to all the terms of this Lease
including,  without  limitation,  the covenants  contained in this Section 7 and
Lessor's  rights  to  repossession  pursuant  to  Section  14 and to avoid  such
sublease upon a default thereunder or an Event of Default hereunder.

      In  connection  with any  sublease  to an air  carrier  other  than a U.S.
certificated  air carrier  pursuant to clause (iv) of this Section 7(d),  Lessee
shall  obtain,  as a condition to the delivery to the proposed  sublessee of the
Engine,  an opinion from  reputable  counsel in the country of such  sublessee's
domicile  (or, if Lessee  determined  during the term of the  sublease  that the
Engine will be based or  primarily  used in a country  other than the country of
such  sublessee's  domicile,  an  additional  opinion or opinions  of  reputable
counsel in such other  country)  to the effect  that  Lessor's  interest  in the
Engine will be recognized,  the proposed sublease is valid,  binding and (except


                                       17
<PAGE>

as limited by applicable bankruptcy, insolvency,  reorganization,  moratorium or
similar laws  affecting  creditors' or lessors'  rights  generally)  enforceable
against   such   sublessee,   under  the  laws  of  such  country  or  countries
(notwithstanding  any claim or  defense  by  sublessee  or any  other  Person of
sovereign  immunity),  copies of such  opinion or opinions  (x) to be  forwarded
promptly to Lessor,  (y) may, if different opinions are required  hereunder,  be
made by a single counsel  qualified to render  opinions in each such country and
(z) to be in form and substance reasonably satisfactory to Lessee and Lessor.

      No transfer or  relinquishment of possession of the Engine permitted under
this  Section  7(d)  shall in any way  discharge  or  diminish  any of  Lessee's
obligations  hereunder,  or  constitute  a waiver of any of Lessor's  rights and
remedies hereunder. Notwithstanding any transfer or relinquishment of possession
permitted  under  this  Section  7(d),  Lessee  shall  remain  primarily  liable
hereunder  for the  performance  of all of the  terms of this  Lease to the same
extent as if any such transfer or relinquishment of possession had not occurred.

      (e)  IDENTIFICATION  PLATE.  Lessee  shall  maintain  on  the  Engine  the
identification plate installed thereon by Lessor.  Lessee shall promptly replace
any such nameplate that becomes  illegible,  lost,  damaged or destroyed for any
reason.

       (f) REPORTING  REQUIREMENTS.  Commencing with a report furnished  fifteen
(15) days after the end of the calendar month of the Commencement  Date,  Lessee
will furnish to Lessor a Monthly  Report in the form attached  hereto as Exhibit
D.

      (g) INSPECTIONS.  During the Lease Term,  Lessee shall furnish Lessor such
information concerning the location,  condition, use and operation of the Engine
as Lessor may  reasonably  request.  Lessee shall give Lessor  reasonable  prior
notice of the anticipated date of any shop visits,  in order to enable Lessor to
inspect  the Engine  (should it choose to do so) at the time and place such shop
visits  occur.  Lessor shall be entitled to have its  technical  representatives
present  during  any shop  visits.  On  reasonable  notice,  Lessor  and/or  its
authorized agents or representatives  shall have the right to inspect the Engine
and Engine  documentation  (whether in connection with shop visits or otherwise)
and/or make copies of the Engine documentation;  provided, that such inspections
do not  unreasonably  disrupt  Lessee's use and operation of the Engine.  Lessor
shall have no duty to make any such inspection and shall not incur any liability
or obligation by reason of making or not making any such inspection or by reason
of any reports it receives or any reviews it may make of the Engine records.


      Section 8.  LOSS, DESTRUCTION, REQUISITION, ETC.

      (a) EVENT OF LOSS. Except as otherwise set forth herein,  during the Lease
Term, Lessee shall bear the entire risk of loss of or damage to the Engine. Upon
the occurrence of an Event of Loss with respect to the Engine, Lessee shall give
Lessor prompt written notice thereof and shall,  as soon as practical but in any
event within one hundred twenty (120) days after the occurrence of such Event of
Loss, at Lessee's option either (A) convey or cause to be conveyed to Lessor, as
replacement for the Engine,  title to a Replacement Engine free and clear of all
Liens,  other than Permitted Liens, and having a value,  utility,  mod status at
least equal to, and of the same or improved model,  service bulletin status, and
maintenance  status  (i.e.  total  time,   hours/cycles   remaining  until  next
inspection,  overhaul or scheduled  removal)  and in at least as good  operating
condition  as the  Engine,  assuming  the Engine was of the value,  utility  and
remaining  life and in the  condition  and repair  required by the terms  hereof
immediately  prior to the  occurrence of such Event of Loss.  Prior to or at the
time of any such  conveyance,  Lessee,  at its own  expense,  will  promptly (i)
furnish  Lessor  with a bill of sale,  in form  and  substance  satisfactory  to
Lessor, with respect to such Replacement Engine; (ii) cause a supplement hereto,


                                       18
<PAGE>

in form  and  substance  reasonably  satisfactory  to  Lessor,  subjecting  such
Replacement  Engine to this Lease,  to be duly executed by Lessee,  and recorded
pursuant to the Federal  Aviation Act; (iii) furnish Lessor,  with such evidence
of  title to such  Replacement  Engine  and of  compliance  with  the  insurance
provisions  of Section 9 with respect to such  Replacement  Engine as Lessor may
reasonably  request;  (iv) furnish Lessor with an opinion of Lessee's counsel to
the effect  that title to such  Replacement  Engine  has been duly  conveyed  to
Lessor free and clear of all Liens,  encumbrances  and rights of others  (except
Permitted  Liens)  and is duly  leased  hereunder;  (v)  furnish  Lessor  with a
certificate signed by a duly authorized financial officer or executive of Lessee
certifying that Lessee's  representations and warranties set forth in Section 11
are true and  accurate  on and as of said date as though  made on and as of said
date and that upon  consummation  of such  replacement,  no  Default or Event of
Default  will exist  hereunder;  (vi)  furnish  Lessor with such  documents  and
evidence  with  respect to Lessee as Lessor may  reasonably  request in order to
establish the  consummation  of the  transactions  contemplated  by this Section
8(a),  the taking of all  corporate  proceedings  in  connection  therewith  and
compliance  with the  conditions set forth in this Section 8(a), in each case in
form  and  substance  satisfactory  to  Lessor;  (vii)  furnish  Lessor  with  a
certificate of a duly  authorized  officer of Lessee to the effect that no Event
of Default  has  occurred  and is  continuing;  and (viii)  furnish  Lessor with
Uniform Commercial Code financing  statements  covering such Replacement Engine,
or (B) pay to Lessor in  immediately  available  funds the  Engine  Loss  Value,
whereupon  this Lease shall  terminate,  Lessee shall be relieved of all further
obligations  hereunder  except  such as are  expressly  stated  to  survive  the
termination of this Lease and Lessor shall return the Security Deposit to Lessee
as provided in Section 3. Upon full  compliance by Lessee with the terms of this
subparagraph  (a),  the  Engine  shall no longer be subject to the terms of this
Lease and Lessor will cause  Lessor to  transfer to Lessee  title to the Engine,
without recourse or warranty (except that the Engine is free and clear of Lessor
Liens).

      (b) APPLICATION OF PAYMENTS FROM  GOVERNMENTAL  AUTHORITIES.  Any payments
(other than  insurance  proceeds  the  application  of which is provided  for in
Section 9) received at any time by Lessor or Lessee from any  Government  Entity
or  other  Person  with  respect  to  an  Event  of  Loss   resulting  from  the
condemnation,  confiscation,  theft or seizure of, or requisition of title to or
use of, the Engine,  other than a requisition for use by a Government  Entity of
the United States not constituting an Event of Loss, will be applied as follows:
such payments shall be held by the Lessor until (A) replacement of the Engine by
Lessee by a  Replacement  Engine at which  time said  payments  shall be paid to
Lessee;  (B) if Lessee shall have elected not to provide a Replacement Engine as
provided in Section 8(a) said payments shall be applied in reduction of Lessee's
obligation  to pay the Engine Loss Value,  if not already paid by Lessee;  or if
already paid by Lessee,  shall be paid to Lessee and applied to reimburse Lessee
for its payment of such Engine Loss Value; and, (C) the balance, if any, of such
payment remaining thereafter to Lessee.

      (c) REQUISITION FOR USE OF THE ENGINE.  In the event of the requisition of
the Engine for use by a Government  Entity of the United  States during the Term
under  circumstances  not  constituting  an Event of Loss,  Lessee  shall notify
Lessor  of  such  requisition  and all of  Lessee's  obligations  including  the
obligation to pay Rent, shall continue to the same extent as if such requisition
had not  occurred.  Provided  that no  Event  of  Default  has  occurred  and is
continuing,  all  payments  received  by Lessor or Lessee  from such  Government
Entity for the use of the Engine shall be paid over to, or retained by,  Lessee.
All amounts  received by Lessor  during the  continuance  of an Event of Default
shall be held by Lessor as security for and may be applied to the obligations of
Lessee  under this Lease and, at such time as there shall not be  continuing  an
Event of Default, such amounts not previously applied shall be paid to Lessee.

      (d) QUIET ENJOYMENT.  Notwithstanding the provisions of this Section 8, if
(i) Lessee has been deprived of both use and  possession  of the Engine  thereof
solely as a result of the breach by Lessor of its  covenant  of quiet  enjoyment


                                       19
<PAGE>

set forth herein and (ii) Lessee shall have provided  Lessor  written  notice to
the effect that Lessee has been  deprived  of such use and  possession  and that
Lessee  intends to cancel  its  insurance  with  respect to the Engine on a date
specified in such notice  (which date shall not be earlier than thirty (30) days
after the date of Lessor's  receipt of such  notice),  then,  from and after the
date so specified,  but only during the period that Lessee shall  continue to be
deprived of both use and possession of the Engine (the "Suspension Period"), (A)
Lessor shall bear the entire risk of loss or damage  thereof (other than loss or
damage caused by an act or omission of Lessee during the Suspension Period), and
(B) Lessee shall be relieved of its  obligation  to maintain  insurance,  as set
forth in Section 9 hereof,  with  respect  thereto.  In the event of an Event of
Loss of the Engine during any such period,  the Lease shall  terminate and, upon
such  termination  (i) the Engine  shall be deemed to have been  redelivered  to
Lessor in the condition required as of the date on which such deprivation of use
or  possession  first  occurred,  (ii)  Lessee  shall be relieved of all further
obligations  hereunder  except  such as are  expressly  stated  to  survive  the
termination of this Lease and (iii) Lessor shall return the Security  Deposit to
Lessee as provided in Section 3.


     Section 9. INSURANCE.  Except as otherwise set forth in Section 8(d) hereof
in respect of any Suspension Period, Lessee, at its sole cost and expense, shall
maintain  or cause to be  maintained  throughout  the  Lease  Term and until the
return of the Engine to Lessor in such condition as is required under Section 10
hereof with  insurers  of  recognized  responsibility  and good repute and under
policies reasonably  satisfactory to Lessor all such insurance as is required to
be procured  and  maintained  pursuant to this Section 9. Such  insurance  shall
include:

      (a)  LIABILITY.  Lessee,  at its sole cost and expense,  shall maintain or
cause to be maintained throughout the Term and until the return of the Engine to
Lessor  in such  condition  as is  required  under  Section  10  hereof,  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  (including  products
liability insurance) with insurers of recognized  responsibility and good repute
specializing in aviation insurance in the leading international markets, in form
and in amounts  satisfactory to Lessor at least equal to the greater of (a) [ ]*
Dollars (US$[ ]*) 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 Lessee operates and (b) the amount
of such insurance carried by Lessee applicable to other aircraft of similar type
in Lessee's fleet.

      (b) PROPERTY DAMAGE INSURANCE.  Lessee, at its own expense, shall maintain
or cause to be maintained throughout the Lease Term all-risk (including, without
limitation,   fire,  transit  and  extended  coverage)  insurance  and  war-risk
insurance (to the extent available),  with respect to the Engine, whether or not
installed  on an airframe in an amount not less than the Engine Loss Value;  and
such  other  insurance  with  respect  to the  Engine as is carried by Lessee in
respect of other engines of similar make and model in its fleet.

      Notwithstanding anything in the foregoing or in the Lease to the contrary,
no property damage policies shall have a deductible in excess of $[ ]*.

                                       20
<PAGE>

       (c)  TERMS OF INSURANCE

            (i) Any  policies  carried in  accordance  with  Section 9(a) hereof
      covering  the  Engine  and  any  policies  taken  out in  substitution  or
      replacement for any such policies shall:

                  (A) insure the interests of each Indemnitee  (the  "Additional
            Insureds")  and provide that none of the  Additional  Insureds  bear
            liability for the payment of premiums;

                  (B) provide that if there is any material  adverse  alteration
            or  cancellation  (whether  by Lessee or any  other  Person  and for
            whatever  reason) of the insurance,  such alteration or cancellation
            shall not be effective as to any Additional  Insured for thirty (30)
            days  (with  respect  to war risk  insurance  seven  (7) days or the
            maximum short or longer period available in the market) after notice
            is given by the underwriters of the insurance;

                  (C) provide that in respect of the interest of Lessor and each
            other Additional Insured in such policies,  such insurance shall not
            be  invalidated  by any  action or  inaction  of Lessee or any other
            Person  and  shall  insure  Lessor's  and the  Additional  Insureds'
            interests,  regardless  of any breach or  violation by Lessee or any
            other Person of any warranties, declarations or conditions contained
            in such policies;

                  (D)  contain a waiver  by the  insurers  of (x) all  rights of
            subrogation  against  any  Additional  Insured and (y) any rights of
            set-off,  counterclaim or any other deduction, whether by attachment
            or otherwise, which they may have against any Additional Insured;

                  (E) shall be primary and without  right of  contribution  from
            any of the Additional Insureds; and

            (ii) Any policies  carried in accordance  with Section 9(b) covering
      the Engine and any policies taken out in  substitution  or replacement for
      any such policies shall:

                  (A) insure the interests of, and name as additional  insureds,
            each  Additional  Insured and provide that the  Additional  Insureds
            shall bear no liability for the payment of premiums;

                  (B) be made payable in the United  States to the extent of the
            Engine Loss Value to KGAL as sole "loss payee" (except that proceeds
            with  respect  to loss or damage of less than $[ ]* shall be payable
            to Lessee subject to the last sentence of Section 9(d));

                  (C) provide that if there is any material  adverse  alteration
            or  cancellation  (whether  by Lessee or any  other  Person  and for
            whatever  reason) of the insurance,  such alteration or cancellation
            shall not be effective as to the Additional Insureds for thirty (30)
            days  (with  respect  to war risk  insurance  seven  (7) days or the
            maximum  shorter  or  longer  period  customarily  available  in the
            market) after notice is given by the underwriters of the insurance;

                  (D) provide that in respect of the interest of Lessor and each
            other Additional Insured in such policies,  such insurance shall not
            be  invalidated  by any  action or  inaction  of Lessee or any other
            Person  and  shall  insure  Lessor's  and the  Additional  Insureds'
            interests,  regardless  of any breach or  violation by Lessee or any
            other Person of any warranties, declarations or conditions contained
            in such policies; and

                                       21
<PAGE>

            (iii) All amounts payable under policies  carried in accordance with
      this  Section  9 shall be paid in  immediately  available  Dollars  in the
      United  States.  In the case of a lease or contract with the United States
      or any  Government  Entity  thereof  in  respect  of the  Engine,  a valid
      agreement  duly  assigned to Lessor to indemnify  Lessee  against the same
      risks that Lessee is  required  under  Section 9 to insure  against by the
      United States or such Government Entity in an amount at least equal to the
      Engine Loss Value shall be considered  adequate  insurance with respect to
      the  Engine to the  extent of the  risks and in the  amounts  that are the
      subject of any such agreement to indemnify.

            (iv) All  insurance  maintained  pursuant to this Section 9 shall be
      (A) maintained with recognized  aircraft and aviation insurance  companies
      in the United States or international markets that normally participate in
      aviation   insurance  or  (B)  supported  by  99%  reinsurance  issued  by
      recognized  aircraft and aviation insurance companies in the international
      markets  that  normally  participate  in  aviation  insurance.   Any  such
      reinsurance  shall be with  insurers,  in form and in  amounts  reasonably
      satisfactory to Lessor and shall be subject to "cut through"  endorsements
      or other endorsements or agreements  satisfactory in form and substance to
      Lessor which shall  provide that all payments  under such  reinsurance  in
      respect of losses  shall be paid (x) in the case of  insurance  maintained
      pursuant to Section 9(a) hereof, to the applicable  Additional  Insured or
      (y) in the case of insurance  maintained  pursuant to Section 9(b) hereof,
      to KGAL as sole "loss payee"  (except as provided in Section  9(c)(ii)(B))
      and not to any such primary insurance company.

      (d) APPLICATION OF INSURANCE. All insurance or indemnity payments received
as the result of an Event of Loss with  respect to the Engine will be applied as
follows: such payments shall be held by the insurer until (A) replacement of the
Engine by Lessee by a Replacement  Engine at which time said  payments  shall be
paid to Lessee;  (B) if Lessee shall have  elected not to provide a  Replacement
Engine as provided in Section 8(a) said  payments  shall be paid to Lessor to be
applied in reduction of Lessee's obligation to pay the Engine Loss Value, if not
already paid by Lessee,  or if already  paid by Lessee,  shall be paid to Lessee
and applied to reimburse  Lessee for its payment of such Engine Loss Value;  and
(C) the balance of such payment,  if any, to Lessee. The insurance payments with
respect to any property  damage or loss not  constituting  an Event of Loss with
respect  to the Engine  will be paid to Lessor and  applied by Lessor in payment
(or to reimburse Lessee) for repairs to or replacement of property in accordance
with the terms of Section 6(c) against evidence satisfactory to Lessor that such
repairs  and  replacement  have  been  made,  or to Lessee  if such  repairs  or
replacement have already been paid for by Lessee,  to reimburse Lessee therefor,
and any balance  remaining  after  compliance  with such Section with respect to
such loss shall be paid to Lessee.

Any amount  referred to in this Section 9(d) that is payable to Lessee shall not
be paid to Lessee if at the time of such  payment an Event of Default or Default
shall have occurred and be  continuing,  but shall be held by Lessor as security
for and may be applied to the  obligations  of Lessee  under this Lease and,  at
such time as there shall not be continuing any such Default or Event of Default,
such amount not previously so applied shall be paid to Lessee.

 

                                       22
<PAGE>

    (e) REPORTS.  On or before the Commencement  Date, Lessee will arrange for
appropriate  certification  of the  insurance  required  hereunder to be made by
Lessee's  independent  aviation  insurance  broker  and  furnish  or cause to be
furnished  to Lessor a report  signed by such firm  stating  the opinion of such
firm that the insurance then carried and maintained on the Engine  complies with
the terms  hereof.  Lessee will cause such firm to advise  Lessor and each other
Additional  Insured 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 on the Engine and of each claim made by Lessee in respect of
the Engine.  Prior to the expiration or on or prior to the  termination  date of
any insurance required  hereunder,  Lessee will provide Lessor with telex or fax
confirmation from Lessee's  independent  aviation  insurance broker that renewed
certificates  of  insurance  evidencing  the  renewal  or  replacement  of  such
insurance and complying  with the provisions of this Lease will be issued on the
termination  date of the prior  certificate.  Within  seven (7) days  after such
renewal, Lessee will furnish brokers' certificates of insurance to Lessor.

       (f) FAILURE TO INSURE. In the event that Lessee shall fail to maintain or
cause to be maintained insurance as herein provided,  Lessor may, at its option,
but without  liability to Lessee for failure to do so,  provide  such  insurance
and, in such event, Lessee shall, upon written demand,  reimburse Lessor for the
cost thereof as Supplemental Rent. At any time while such failure is continuing,
Lessor may  require the Engine to remain at any  airport  until such  failure is
remedied to Lessor's satisfaction.

      (g) ADDITIONAL  INSURANCE.  Nothing  contained in this Lease shall prevent
Lessor or Lessee,  each at its own expense and for its exclusive  benefit,  from
carrying  insurance  covering the Engine in addition to the  insurance  required
under this Section 9 (any such additional  insurance,  "Additional  Insurance");
provided that such Additional  Insurance shall be excess and noncontributory and
shall not  adversely  affect  coverages  under such  insurance  policies  as are
required hereunder.  The insurance payments for any property damage loss covered
by  Additional  Insurance  shall be paid  directly  to the party  carrying  such
Additional Insurance.

      (h) NOTICE OF CLAIMS.  Lessee  shall give Lessor  notice in writing of any
claim or request for payment of an amount in excess of $[ ]* under any  physical
damage insurance policy required to be maintained hereunder promptly (but in any
event within five (5) days) of the filing of such claim or request for payment.


      Section 10.  RETURN OF ENGINE.  The  provisions  of this  Section 10 shall
apply to any  return of the  Engine to Lessor  upon  termination  of this  Lease
(including, without limitation, such return resulting from an Event of Default);
provided, that if this Lease is terminated pursuant to Section 14 and the Engine
is  repossessed  by Lessor,  any action  that is  required to be taken by Lessee
pursuant  to this  Section 10 prior to the  return of the Engine  shall be taken
immediately after the return of such Engine.

      (a) REDELIVERY UPON TERMINATION.  On the date of termination of this Lease
(except as otherwise provided pursuant to Section 8(d)) hereof,  Lessee shall at
its sole  cost and  expense,  return  the  Engine  to  Lessor,  at the  Lessee's
facilities  in  Colorado  Springs,  Colorado  [or at those  of its FAA  approved
maintenance  provider performing the pre-redelivery "C" check] (provided that if
this Lease  shall be  terminated  as a result of a default  by Lessee  under the
Lease the Engine  shall be returned to a point in the United  States  reasonably
requested by Lessor). At the time of return of the Engine to Lessor,  Lessor and
Lessee  shall  execute  a Return  Acceptance  Receipt  in the form of  Exhibit C
hereto.

      (b)  CONDITION  OF ENGINE.  (i) The Engine at the time of return to Lessor
shall have been maintained on an "on-condition" program.

                                       23
<PAGE>

            (ii) Each  Engine  shall have no more cycles or hours since the last
      shop  visit for full  performance  restoration,  as  described  in the CFM
      International,  Inc.  workscope  definitions,  than such  Engine  had when
      delivered.

            (iii) Lessee shall  perform a full and complete  video  borescope on
      each Engine and its modules in accordance  with the Engine  manufacturer's
      maintenance  manual,  with  Lessor or its  representatives  entitled to be
      present.  Lessee will provide evidence to Lessor's  satisfaction that such
      inspection  does not reveal any condition  which would cause the Engine or
      any module to be unserviceable,  beyond serviceable limits, or serviceable
      with  limitations  under the  Engine  manufacturer's  maintenance  manual.
      Lessee will correct any discrepancies (which may be discovered during such
      inspection)  in  accordance  with  the  guidelines  set out by the  Engine
      manufacturer.

            (iv)  The  Engine  shall  have an  exhaust  gas  temperature  margin
      remaining  of 15 degrees or higher and shall,  at a minimum,  meet all the
      requirements  of the maximum  power  assurance run criteria for CFM 56-3B2
      engines.

       (c)  CONDITION  OF  CONTROLLED  COMPONENTS.  Each  life-limited  part  or
component and hour and/or cycle controlled  components of the Engine at the time
of redelivery of the Engine to Lessor shall have  remaining at least 3,000 hours
and/or 3,000 cycles, whichever is more limiting,  between scheduled removals for
overhaul, testing, or disassembly. All components controlled on a calendar basis
shall have remaining at least 12 months before scheduled  removal for testing or
overhaul. Such hour/cycle or calendar controlled components are defined as those
components  controlled under the Maintenance Program.  However, if the component
or part has a check  interval  limit that is less than the above  stated  hours,
cycles or  calendar  time limit  requirement,  the check  interval  limit  shall
prevail.

      (d) ENGINE  DOCUMENTATION.  Lessee  shall return to Lessor at the time the
Engine is returned to Lessor, all of the Engine records  documents,  manuals and
data  provided  to  Lessee by Lessor  prior to, on or after the  Delivery  Date,
updated and  maintained by Lessee  through the date of return of the Engine.  In
addition, Lessee shall also provide Lessor at the time the Engine is returned to
Lessor with all records, documents,  manuals authorizations,  drawings and data,
in each  case in the  English  language,  that  were  developed  or caused to be
developed  by Lessee  and/or  required by the  appropriate  governmental  agency
having jurisdiction  updated and maintained by Lessee for the Engine through the
date of return of the Engine. Any such Engine Documentation not already owned by
Lessor, when delivered to Lessor pursuant to this Section 10(l), shall thereupon
become the  property of Lessor.  In the event Lessor  requires  copies of any of
such Engine  Documentation prior to the return of the Engine to Lessor to enable
Lessor to plan or  accomplish  modifications,  recertification,  sale,  lease or
other  disposition  of or  utilization  of the Engine upon such  return,  Lessee
shall, immediately upon receipt of each such Lessor request, provide to Lessor a
reasonable number of copies of such Engine Documentation  requested by Lessor at
Lessor's sole cost and expense.

      (e) SERVICE BULLETIN KITS. All vendor and manufacturer  provided mandatory
service  bulletin  kits  ordered  and  received by Lessee for the Engine but not
installed  therein shall be returned  with the Engine.  Title to such kits shall
pass to Lessor concurrently with the delivery of the Engine to Lessor.

       (f) NON-U.S.  MANUFACTURED  ITEMS.  Lessee shall provide to Lessor at the
time of the return of the Engine a complete list,  describing by Part number and
name, of all non-United States manufactured equipment,  components and parts, if
any,  installed on the Engine by Lessee  during the Lease Term.  Such list shall
include quantity,  the acquisition price and the manufacturer's name and country
in respect of each such item.

                                       24
<PAGE>

      (g)  LESSEE'S  CONTINUING  OBLIGATIONS.  In the event that Lessee does not
return the Engine to Lessor upon termination of this Lease  (including,  without
limitation, any termination resulting from an Event of Default by Lessee) and in
the condition  required  herein for any reason,  the obligations of Lessee under
this Lease shall continue;  provided,  however,  that such failure to return the
Engine to Lessor in such condition shall not be the result of a breach by Lessor
of its  covenant of quiet  enjoyment  which has  resulted in Lessee  having been
deprived  of use  and  possession  of  the  Engine  immediately  prior  to  such
termination,  in which case the Engine  shall be returned in its then  condition
provided  that,  immediately  prior to such breach by Lessor of its  covenant of
quiet  enjoyment  such Engine  shall have been in such  condition as to meet the
requirements  of  Section 8 hereof but for such  breach.  Such  continuation  of
Lessee's  obligations  shall not be  considered  a renewal  of the terms of this
Lease or of Lessee's rights to use the Engine, an extension of the Lease Term or
a waiver of any  Default or Event of  Default or any right of Lessor  hereunder.
Until  such time as the  Engine is  redelivered  to Lessor as  required  herein,
Lessee  agrees,  during the first  thirty (30) days  following  the  termination
hereof,  to pay Basic Rent with interest at the Post-Default Rate and thereafter
to pay twice the  amount of Basic Rent for each day from such  thirtieth  (30th)
day after the termination hereof until redelivery of the Engine in the condition
required  hereunder  (the monthly Basic Rent payable being prorated based on the
actual number of days in the applicable month).


      Section 11. REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSEE.
Lessee represents and warrants to, and covenants with Lessor as follows:

      (a) Lessee (i) has been duly  incorporated  and is validly  existing  as a
corporation in good standing  under the laws of the State of Delaware,  (ii) has
full corporate  power and authority and legal right to own its properties and to
carry on its  business as  presently  conducted  and to perform its  obligations
under this Lease, (iii) is the holder of an air carrier  certificate duly issued
pursuant to the Federal  Aviation Act and such  certificate is in full force and
effect, and (iv) holds all material licenses,  certificates and permits from all
Government Entities of the United States and other  jurisdictions  necessary for
the  conduct of its  business  as now  conducted  and for the  operation  of the
Engine.

      (b) The  execution,  delivery and  performance of this Lease has been duly
authorized by all necessary  corporate  action of Lessee,  and does not and will
not (i) result in the violation of the  provisions  of the charter  documents or
bylaws  of Lessee as in effect  on the date  hereof,  (ii)  require  stockholder
approval or approval or consent of any trustee or holders of any indebtedness of
Lessee, except such approvals which have been obtained and are in full force and
effect,  (iii)  contravene  any  law,  rule or  regulation  or any  order of any
Government  Entity  binding on  Lessee,  and (iv)  conflict  with or result in a
breach of any terms or provisions of or constitute a default under, or result in
or require the creation or imposition of any Lien upon any material  property or
assets of Lessee under, any material  indenture,  mortgage or other agreement or
instrument  as in  effect on the date  hereof  to which  Lessee is a party or by
which  it or any of its  property  is  bound,  or any  applicable  law,  rule or
regulation,  judgment,  order or decree of any Government Entity or court having
jurisdiction over Lessee or any of its properties.

      (c)  No  authorization,   approval,  consent,  license  or  order  of,  or
registration with, or the giving of notice to, or the taking of any other action
in respect of, any  Government  Entity is required for the valid  authorization,
execution,  delivery and performance by Lessee of this Lease or the consummation
of any of the transactions contemplated hereby.

      (d)  Except  for (i) the  filing and  recording  pursuant  to the  Federal
Aviation  Act of  this  Lease,  (ii)  the  filing  of  duly  executed  financing
statements naming Lessee as debtor and Lessor as secured party (and continuation
statements  with respect to such  financing  statements)  with the  Secretary of
State of the State of Colorado and (iii) the retention by Lessor of the original
counterpart  of the Lease to the  extent,  if any,  that the  Lease  constitutes
chattel  paper (as such term is defined  in the  Uniform  Commercial  Code as in
effect in any applicable jurisdiction),  no further action, including any filing


                                       25
<PAGE>

or recording  of any  document  (including  any  financing  statement in respect
thereof  under  Article  9 of the  Uniform  Commercial  Code  of any  applicable
jurisdiction),  is necessary in order to establish and perfect Lessor's title to
the Engine against Lessee and any third parties in any applicable  jurisdictions
in the United States.

      (e) This Lease  constitutes  the legal,  valid and binding  obligation  of
Lessee, enforceable against Lessee in accordance with its terms except as may be
limited by  applicable  bankruptcy,  insolvency,  reorganization,  moratorium or
other similar laws affecting creditors' rights generally and, to the extent that
certain  remedies  require or may require  enforcement by a court of equity,  by
such  principles  of  equity  (regardless  of  whether  such  enforceability  is
considered in a proceeding  at law or in equity) as a court having  jurisdiction
may impose.

      (f) There are no suits or proceedings  pending or, to Lessee's  knowledge,
threatened  in any court or before any  Government  Entity  against or affecting
Lessee that would,  if adversely  determined,  (i) prevent or  adversely  affect
Lessee's ability to perform its obligations  under this Lease or (ii) materially
adversely  affect  the  financial  condition  or  operations  of Lessee  and its
consolidated subsidiaries, taken as a whole.

      (g) The chief  executive  office (as such term is used in Article 9 of the
Uniform  Commercial  Code) of Lessee and the office  where  Lessee will keep its
corporate records concerning the Engine is located in El Paso County,  Colorado.
Lessee will  notify  Lessor  thirty  (30) days in advance of moving  either such
office to another location.

      (h)  There is no Tax,  levy,  impost,  deduction,  charge  or  withholding
imposed  by the State of  Colorado  or any Taxing  Authority  thereof or therein
either (i) on or by virtue of the execution or delivery of this Lease or (ii) on
any payment made or to be made by Lessee under this Lease.

      (i) The obligations of Lessee under this Lease rank at least pari passu in
right of  payment  with all other  unsecured  obligations  of  Lessee,  with the
exception of such obligations as are mandatorily preferred by law.

      (j) Lessee  will give  notice to Lessor  promptly  upon  obtaining  actual
knowledge of any Default or Event of Default; and

      (k) Lessee  acknowledges  that it is the  intention  of Lessor that Lessor
shall be entitled to the  benefits of Title 11 U.S.C.  S-1110 and any similar or
analogous  provisions of any successor  statute ("Section 1110") with respect to
the Engine and this Lease,  and Lessee shall not oppose any motion,  petition or
application  filed by Lessor with any bankruptcy court having  jurisdiction over
Lessee  whereby  Lessor seeks recovery of possession of the Engine under Section
1110 unless Lessee shall have complied with the  requirements of Section 1110 to
be fulfilled in order to entitle  Lessee to continue use and  possession  of the
Engine hereunder.

      (l) Without having  obtained the prior written  consent of Lessor,  Lessee
will not consolidate  with or merge into, or sell or lease in one transaction or
a series of  transactions  all or  substantially  all of its assets to,  another
corporation  or other entity unless such other  corporation or entity is engaged
in the airline  business,  the net worth of the corporation  resulting from such
merger or  consolidation  or  corporation  or other entity to which such sale or
lease is made  would be at least  equal to the net  worth of  Lessee at the date
hereof,  such  corporation or other entity  assumes all of Lessee's  obligations
under this Lease in a manner and by documents  and  agreements  satisfactory  to
Lessor in its sole  discretion,  such  corporation  or other entity  immediately
subsequent  to such  merger,  consolidation,  lease  or  sale is not in  default
hereunder  and  Lessor  receives  an  opinion  satisfactory  to it,  of  counsel
satisfactory to it, as to such assumption and documentation.

                                       26
<PAGE>

      (m) Lessee  shall,  within  fifteen (15) days of the end of each and every
calendar month during the Term, deliver to Lessor a monthly report, in such form
and containing such information as set forth in Exhibit D hereof.

      (n) Lessee shall,  at the end of each calendar  quarter,  have a long term
debt to  equity  ratio of not more than 4:1 as  determined  in  accordance  with
generally accepted  accounting  principles  consistently  applied.  For purposes
hereof, debt shall exclude all off balance sheet financing and operating leases.

      (o) Lessee  shall,  at the end of each calendar  quarter,  have a ratio of
current  assets to current  liabilities  of not less than 1:1 as  determined  in
accordance with generally accepted accounting principles consistently applied.


      Section 12. INDEMNIFICATION.

       (a) GENERAL INDEMNITY AND EXPENSES.  Lessee hereby assumes liability for,
and hereby agrees to, indemnify,  protect,  save and keep harmless Lessor,  KGAL
and their respective affiliates,  agents, officers, directors and employees (the
"Indemnitees"),  and any reference  herein to the  Indemnitee  shall include its
affiliates,  agents, officers,  directors,  employees,  successors and permitted
assigns)  from and  against,  and on  written  demand  to pay,  or to  reimburse
Indemnitee  for the  payment  of, as the case may be,  any and all  liabilities,
obligations,  losses, damages, penalties, claims (including, without limitation,
claims arising out of negligence or involving strict liability in tort),  suits,
actions,  costs, expenses and disbursements,  including without limitation legal
fees and expenses,  of  whatsoever  kind and nature  imposed on,  incurred by or
asserted against  Indemnitees  relating to or arising out of (A) this Lease, any
payments made pursuant  hereto or the exercise of rights or remedies  hereunder,
(B) the  preparation,  negotiation,  execution  and delivery of any  amendments,
modifications  or  waivers  required  by this Lease or  requested  by Lessee (or
resulting  from any requests of Lessee)  hereunder,  (C) the Engine and any Part
thereof, whether or not arising out of the airworthiness, delivery, nondelivery,
lease, presence, storage, modification,  substitution,  replacement, alteration,
maintenance,  inspection,  failure  to  inspect,  repair,  release,  possession,
repossession after an Event of Default,  use,  operation,  condition,  condition
upon return, return, exportation,  importation, transfer or other application or
disposition thereof (including,  in each case and without limitation,  latent or
other defects, whether or not discoverable),  any claim for patent, trademark or
copyright  infringement  arising as a result of or in  connection  with Lessee's
patents,  trademarks,  copyrights,  servicemarks  or logos or those of  Lessee's
advertisers,  sponsors,  and others  whose  designs  and/or  logos appear on the
Engine or any airframe upon which the Engine is installed at any time, any claim
based on strict  or  absolute  liability,  statutory  liability  or tort and any
liability  for any  injury to or death of any person or loss of or damage to any
property including, without limitation, any such arising out of any test flight,
demonstration  flight or ferry  flight of any  aircraft  on which the  Engine is
installed  or performed by Lessee or any entity to which Lessee may have further
subleased  the  Engine  pursuant  to  Section 7 hereof  and (D) any  breach  of,
noncompliance  with or  misrepresentation  made or deemed  made in,  under or in
connection  with  this  Lease  or any  agreement  to  which  Lessee  is a  party
concerning  the  Engine  or any  warranty,  certificate  or  agreement  made  or
delivered in, under or in connection  therewith made or deemed to have been made
by Lessee or anyone claiming by, through or under Lessee;  provided, that Lessee
shall  not be  required  to  indemnify  any  Indemnitee  hereunder  (w)  for any
liability  attributable to acts or events which occur prior to the  Commencement
Date or after  the  Lease  Term or the  return  of the  Engine  to Lessor in the


                                       27
<PAGE>

condition  required  hereunder  whichever  shall occur later,  (x) for liability
resulting solely and directly from acts of gross negligence or misconduct of the
Indemnitee (other than gross negligence or willful misconduct  attributed to the
Indemnitee  solely by reason of its interest in the Engine or any Part), (y) for
any Taxes that  Lessee  has not  agreed to  indemnify  against  pursuant  to the
provisions of Section 12(b) or (z) for any liability  imposed on the  Indemnitee
arising as a result of a disposition of all or any part of Indemnitee's interest
in the Engine,  other than by reason of the  occurrence of a Default or an Event
of Default and further provided that no indemnification  hereunder shall be paid
by Lessee to Indemnitee in respect of any claim arising during any period during
which  Lessee is deprived of use and  possession  of the Engine as a result of a
breach by Lessor of its covenant of quiet enjoyment.

      If any Indemnitee shall have knowledge of any claim or liability  required
to be indemnified  against under this Section 12(a),  the Indemnitee  shall give
prompt written notice thereof to Lessee, but the failure of the Indemnitee so to
notify  Lessee  shall  not  relieve  Lessee  from  any  liability  that it would
otherwise  have to the Indemnitee  hereunder  except to the extent that Lessee's
rights  respecting any defense thereto are  irrevocably and materially  impaired
directly and solely as a result of such failure.

      Lessee  shall be  obligated to the  Indemnitee  under this  Section  12(a)
irrespective of whether the Indemnitee shall also be indemnified with respect to
the same  matter  under any other  agreement,  and the  Indemnitee  may  proceed
directly  against Lessee under this Section 12(a) without first resorting to any
such other rights of indemnification.

      Any payment or indemnity  pursuant to this Section 12(a) shall include the
amount,  if any,  necessary to hold the  Indemnitee  harmless on a net after-tax
basis from all Taxes  required to be paid by such recipient with respect to such
payment or indemnity under laws,  rules or regulations of any Government  Entity
or Taxing  Authority.  If the  Indemnitee is entitled to a permanent tax benefit
(whether  by way of  deduction,  credit or  otherwise)  not taken  into  account
pursuant to the preceding sentence as a result of the matter indemnified against
under this Section  12(a),  the Indemnitee  shall promptly pay to Lessee,  after
such permanent tax benefit is realized but not before Lessee shall have made all
payments  theretofore  due to the  Indemnitee  under  this  Lease  and any other
agreement  in respect of the Engine an amount  that,  after  subtraction  of any
further  tax  savings to which the  Indemnitee  is  entitled  as a result of the
payment thereof, is equal to the amount of such permanent tax benefit; provided,
however,  that the  Indemnitee  shall not be  obligated  to make any  payment to
Lessee  pursuant to this sentence so long as a Default or Event of Default shall
have occurred and be continuing  or any Rent or  Supplemental  Rent then due and
owing shall not have been paid.

      Upon the  indefeasible  payment in full of any  indemnities  due and owing
under  this  Section  12(a),  Lessee  shall be  subrogated  to any  right of the
Indemnitee in respect of the matter against which such indemnity has been given.

      (b)   GENERAL TAX INDEMNITY

            (i) Lessee  agrees that each  payment of Rent or any amount  payable
hereunder shall be free of all withholdings of any nature whatsoever, and in the
event that any withholding is required, Lessee shall pay an additional amount of
Rent such that after the deduction of all amounts  required to be withheld,  the
net amount of Rent that is actually received by Lessor, will equal the amount of
Rent or any such amount payable  hereunder or such other amount, as the case may
be, that would be due absent such withholding,

                                       28
<PAGE>

            (ii) Lessee  hereby  agrees to indemnify  and hold harmless from and
against,  and on written  demand,  to pay or reimburse  each  Indemnitee for the
payment  of, as the case may be,  any and all  Taxes  imposed  upon or  asserted
against the Indemnitee or the Engine,  or any Part thereof or interest  therein,
or this Lease, or the rentals  received under this Lease, by any federal,  state
or local  government  or other  taxing  authority in the United  States,  in any
territory or  possession  thereof or by any foreign  government or any political
subdivision or taxing authority thereof or therein (the foregoing being referred
to herein  individually  as a "Taxing  Authority"  and  collectively  as "Taxing
Authorities") upon or with respect to (a) the acceptance,  rejection,  delivery,
transport, insuring,  registration,  deregistration,  reregistration,  assembly,
possession,  repossession,  operation,  use, presence,  condition,  maintenance,
repair, return, abandonment,  preparation,  installation,  storage,  redelivery,
subleasing,  modification,  rebuilding,  or importation of, or the imposition of
any Lien (other  than a Lessor  Lien) (or the  incurrence  of any  liability  to
refund  or pay over any  amount  as a result  of any Lien  (other  than a Lessor
Lien)) on the Engine or any Part  thereof or interest  therein,  (b) payments of
Basic Rent or  Supplemental  Rent,  (c) the Engine,  or any Part  thereof or any
interest therein or the  applicability of this Lease to the Engine,  or any Part
thereof or any interest therein,  (d) any or all of the documents and agreements
relating to the Engine  contemplated hereby and amendments or supplements hereto
and thereto,  or the execution,  delivery,  filing or recording thereof,  or (e)
otherwise with respect to or in connection with the transactions  effected under
this Lease and the documents and agreements  contemplated  hereby  including the
exercise of remedies hereunder.

            (iii) The  provisions  of Section  12(b)(i) and (ii) shall not apply
to, and Lessee shall have no liability to Lessor or any other person  thereunder
with  respect  to  Taxes  to the  extent  excluded  under  any of the  following
provisions or any combination thereof:

                  (A)  Taxes  imposed  by  any  country,   taxing  authority  or
            governmental  subdivision  thereof or  therein or any  international
            authority  except to the extent  that such Taxes would not have been
            due  (whether or not from the same person on whom they are  actually
            imposed) but for the  transactions  contemplated  by this Agreement,
            provided  that the presence or  activities  of any person other than
            Lessor in any jurisdiction shall not be imputed for purposes of this
            subparagraph (A);

                  (B)  Taxes  (I)  imposed  as a result  of a sale,  assignment,
            transfer or other disposition  (whether voluntary or involuntary) (a
            "Transfer")  (x) by Lessor or any other person (other than Lessee or
            any  affiliate or transferee of or successor to Lessee) of any legal
            or  beneficial  interest  in the Engine or in or arising  under this
            Agreement or (y) of any direct or indirect interest in Lessor or any
            such other person having any such legal or beneficial  interest (any
            event described in (x) or (y) being a "Lessor  Transfer") or (II) to
            the  extent  such  Taxes  exceed the amount of Taxes that would have
            been imposed and indemnified  against by Lessee had there not been a
            Lessor  Transfer,  provided  that the  exclusion  set  forth in this
            subparagraph (B) shall not apply to a Transfer (other than a sale of
            the Engine or any interest  therein)  resulting from the exercise of
            any remedies  provided for in this  Agreement in connection  with an
            Event of Default or an Event of Loss;

                  (C)  Taxes  incurred  in  respect  of  any  period  after  the
            occurrence of any of the following events: (I) the sale or return of
            the Engine or any part thereof or interest therein to the extent the
            Taxes relate solely to such part or interest) in accordance with the
            terms of this Agreement;  (II) the termination of this Agreement and
            the return of the Engine or (III) the sale or other  transfer of the
            Engine and the return of the Engine (or any part thereof or interest
            therein  to the  extent  the  Taxes  relate  solely  to such part or
            interest)  following  a  Total  Loss  with  respect  to the  Engine,


                                       29
<PAGE>

            provided that the exclusion set forth in this subparagraph (C) shall
            not apply to Taxes to the extent such Taxes relate to periods  prior
            to,  or  events   occurring   or   matters   arising   prior  to  or
            simultaneously with, such event;

                  (D) Taxes to the extent imposed as a result of (I) the willful
            misconduct or gross negligence of Lessor,  (II) the breach by Lessor
            of any of its representations,  warranties or covenants contained in
            this Agreement or (III) Lessor's Liens;

                  (E) Taxes either not yet due or being  contested in accordance
            with the provisions of Section 12(d);

                  (F) Taxes on, based on, measured by or with respect to the net
            or gross  income,  or net or gross  receipts,  including any capital
            gains Taxes, minimum Taxes, Taxes on or measured by any items of tax
            preference  and  withholding  Taxes,  including  Taxes imposed under
            Subtitle A of the  Internal  Revenue  Code of 1986,  as amended (the
            "Code")  or  Section  3406 of the Code or any  successor  provisions
            required to be  withheld  from any  payment  under this  Agreement),
            capital, net worth,  franchise,  or conduct of business of Lessor or
            any other  person  (other  than Taxes in the  nature of sales,  use,
            rental,  property,  or  value-added  Taxes)  imposed by any federal,
            state or local government or taxing authority in the United States;

                  (G) Taxes on, based on, measured by or with respect to the net
            or gross  income or net or gross  receipts  (including  any  capital
            gains Taxes, minimum Taxes, Taxes on or measured by any items of tax
            preference and withholding Taxes), capital, net worth, franchise, or
            conduct of business of Lessor or any other person  (other than Taxes
            in the nature of sales, use, rental, property, or value-added Taxes)
            imposed by any foreign government, foreign government subdivision or
            other foreign taxing  authority or by any territory or possession of
            the United States, or by any international authority,  provided that
            the exclusion set forth in this  subparagraph  (G) shall not exclude
            such Taxes if and to the  extent  that such Taxes (i) would not have
            been imposed but for the operation, presence or registration in such
            jurisdiction  of the Engine or any part thereof,  or (ii) would have
            been  imposed  solely  as a  result  of (x)  the  presence  in  such
            jurisdiction of a permanent establishment or fixed place of business
            of Lessee,  or any user or person in possession of the Engine or any
            part thereof, (y) the residence,  nationality or place of management
            and  control  of Lessee or any user or person in  possession  of the
            Engine or any part thereof,  (z) the payment from such  jurisdiction
            by Lessee or any user or person in  possession  of the Engine or any
            part  thereof  of any  amount  due  under  the  Lease,  or (iii) any
            combination of clauses (i) and (ii);

                  (H) Taxes that would not have been imposed but for any failure
            of Lessor to (x) file proper and timely reports or returns or to pay
            any  Taxes  when  due,  or  (y)  comply   with  any   certification,
            information,  documentation, reporting or other similar requirements
            concerning the nationality,  residence,  identity or connection with
            the jurisdiction imposing such Taxes, if such compliance is required
            to obtain or establish relief or exemption from or reduction in such
            Taxes and Lessor was eligible to comply with such requirement.

                  (I) Taxes imposed under Section 887 of the Code.

                                       30
<PAGE>

       (c)  CALCULATION OF TAX INDEMNITY PAYMENTS

            (i) Any payment  that Lessee shall be required to make to or for the
account  of  the  Indemnitee  with  respect  to  any  Tax  that  is  subject  to
indemnification  under Section 12(b) shall include the amount  necessary to hold
the  Indemnitee  harmless  on a net  after-tax  basis from the net amount of all
Taxes  required  to be paid by the  Indemnitee  as the  result  of such  payment
pursuant to the laws of any Taxing Authority.

            (ii) If Lessor  shall  realize a Tax  benefit as a result of or with
respect to any Taxes paid or indemnified against by Lessee under this Section 12
(whether by way of deduction, credit or otherwise),  Lessor shall pay to Lessee,
promptly  after  realization of such Tax benefit,  an amount that,  prior to the
application of any withholding tax to that payment but after  subtraction of any
further Tax savings Lessor realizes as a benefit,  provided that if any such Tax
benefit is subsequently disallowed,  lost or reduced, Lessee shall, upon written
notice from Lessor,  promptly  repay the amounts paid to the Lessee with respect
to such Tax benefit,  provided  further that Lessor shall not be obligated under
this  Section  12(c)(ii)  to pay Lessee any amounts with respect to Tax benefits
realized  as a result of any Taxes not paid or  indemnified  against  by Lessee.
Notwithstanding anything to the contrary in this Section 12, if, at the time any
payments would otherwise be due to Lessee pursuant to this Section 12(c)(ii), an
Event of Default  shall have occurred and be  continuing,  Lessor shall hold the
amount of such payment as security for the  obligations  of the Lessee to Lessor
under the Lease and at such time as there shall not be continuing any such Event
of Default, shall pay such amount to Lessee. Lessor shall use reasonable efforts
in good faith in filing its Tax returns and in dealing  with taxing  authorities
to seek and to claim any such Tax benefit or savings  and to minimize  the Taxes
payable or indemnifiable by Lessee hereunder.

            (iii) At Lessee's  request,  the computation by Lessor of any amount
payable  by  Lessee  pursuant  to  this  Section  12  shall  be  verified  by an
independent  accounting firm of national reputation selected by Lessor. The fees
of such accountants  shall be paid by Lessee unless such  accountants  determine
that the amount payable to Lessee is at least 25% more, or the amount payable by
Lessee is at least 25% less, than the amount  computed by Lessor,  in which case
such fees shall be payable by Lessor.

      (d)   CONTEST; REPORTS

            (i) If a claim is made in writing  against Lessor  (whether on audit
or otherwise) for any Taxes that Lessee is required to pay or indemnify  against
pursuant to Section  12(b),  Lessor  shall  notify  Lessee in writing  within 30
Business Days of the receipt of such claim, provided that a failure to so notify
will not diminish or relieve  Lessee of any  obligations  under  Section  12(b),
except to the extent Lessee is entitled to contest or to cause Lessor to contest
such  Taxes  and  Lessee's  or  Lessor's  successful  defense  of such  claim is
materially  prejudiced or precluded thereby.  If the amount of the claim exceeds
$[ ]* and if requested by Lessee in  accordance  with this Section  12(d) and in
writing within 30 Business Days after receipt by Lessee of the notice  described
in the  preceding  sentence,  Lessor shall in good faith and with due  diligence
contest (including pursuing all administrative and judicial appeals) in the name
of Lessor or, if permitted by law and requested by Lessee in the name of Lessee,
the   validity,   applicability   or  amount  of  such   Taxes  in   appropriate
administrative or judicial proceedings to be determined by Lessor, provided that
(1) prior to taking  such  action,  Lessee  shall have  agreed to pay Lessor all
out-of-pocket  costs and  expenses  that  Lessor  may incur in  connection  with
contesting such claim, including,  without limitation,  all reasonable legal and
accountant's fees and  disbursements  and costs of  administrative  and judicial
proceedings,   and  the  amount  of  any  interest  or  penalties  that  may  be
attributable  to and  payable  as a result of  contesting  such  claim  (or,  at


                                       31
<PAGE>

Lessor's  request,  Lessee  shall  advance to Lessor funds with which to pay the
foregoing amounts, and Lessor's obligation to contest any Tax shall be suspended
during any period Lessee does not advance  sufficient  funds to pay such amounts
as they accrue or become payable), (2) if such contest is to be initiated by the
payment of, and the  claiming of a refund for such Taxes (and any  interest  and
penalties that also must be paid),  Lessee shall have advanced Lessor sufficient
funds (on an interest-free  basis) to make such payment, (3) no Event of Default
has occurred and is continuing,  (4) the action to be taken will not result in a
material  risk of sale,  forfeiture  or loss of  Lessor's  title  to the  Engine
(unless Lessee provides a bond or other security  satisfactory  to Lessor),  and
(5) at Lessor's  request,  Lessee shall  provide to Lessor a written  opinion in
form  and  substance   satisfactory  to  Lessor  of  independent  legal  counsel
satisfactory  to Lessor  that  there is a  reasonable  basis  for such  contest.
Notwithstanding  that the conditions set forth in clauses (1), (2), (3), (4) and
(5) above may have been satisfied,  Lessor,  after consulting in good faith with
Lessee,  may elect not to pursue  any  contest  or  proceeding  pursuant  to the
preceding sentence or elect to discontinue (by settlement or otherwise) any such
contest or proceeding  commenced  pursuant to the preceding  sentence,  but such
election  shall  constitute  a waiver  by  Lessor  of any  right to  payment  or
indemnification  pursuant to Section 12(b) with respect to the  adjustment  that
was the subject of such proposed contest or proceeding (and any other adjustment
the contest of which is precluded by such failure to contest) and, if Lessee has
theretofore paid or provided Lessor with funds to pay any amount with respect to
such  adjustment,  Lessor shall promptly repay such amount to Lessee.  If Lessor
shall  obtain a refund in  whatever  form of all or any part of any  Taxes  that
Lessee shall have paid or reimbursed to Lessor hereunder, Lessor shall, provided
that no Event of Default shall have occurred and be continuing, pay to Lessee an
amount that is equal to the sum of the amount of such refund or credit, plus any
interest  received on such refund  fairly  attributable  to any Taxes paid by or
with funds  provided by Lessee prior to receipt of such  refund,  reduced by any
Taxes  incurred by Lessor by reason of the receipt or accrual of such refund and
interest and net of any expenses  described in clause (1) of the second sentence
of this Section 12(d) that have not been previously reimbursed, and increased by
any Tax  benefit  realized  by Lessor as a result of any  payment by Lessor made
pursuant  to this  sentence,  provided  further  that,  if,  at the time of such
payment an Event of Default shall have occurred and be continuing,  Lessor shall
hold the amount of such  payment as security  for the  obligations  of Lessee to
Lessor under the Lease,  and at such time as there shall not be  continuing  any
such Event of Default, shall pay such amount to the Lessee. Lessor hereby agrees
that it will inform  Lessee of the time and place of, and Lessor will not object
to Lessee's  presence  at, any  proceeding  conducted  pursuant to this  Section
12(d),  provided that Lessee's  presence also must be allowed by applicable  law
and provided further that the conditions set forth in clauses (1), (2), (3), (4)
and (5) above shall have been, and shall continue to be, satisfied.

            (ii)  Lessee  shall  provide  Lessor  with such  information  in the
possession  of Lessee or  otherwise  reasonably  available  to it as Lessor  may
reasonably  require to enable Lessor to fulfill its tax filing obligations under
this Section 12 and any audit information request arising in connection with the
Taxes  subject  to this  Section  12.  Lessor  shall  provide  Lessee  with such
information in the possession of Lessor or otherwise  reasonably available to it
as Lessee may reasonably  request to fulfill its tax filing  requirements  under
this Section 12 and any audit information request arising in connection with the
Taxes subject to this Section 12. If any report or return is required to be made
with respect to any obligation of Lessee under this Section 12, Lessee will make
such report or return, provided that Lessee shall have no obligation to file any
such return or report if (A) Lessor,  after Lessee's  written request  therefor,
shall have  failed to furnish  Lessee  with such  information  as is  peculiarly
within the control of, or  reasonably  available to Lessor and is necessary  for
the  filing of such  report or  return,  or (B) such  return or report  would or
should have been filed by Lessor even if it had not entered into the Lease.

            (iii)  Lessor  shall  furnish from time to time to Lessee or to such
other  person  as  Lessee  may  designate,  such  returns,  statements  or other
documentation  ("Tax Forms") (including,  without limitation,  if then required,
information  as to the  ultimate  beneficial  owners  of  Lessor  and the  stock
interests in Lessee held actually and constructively by Lessor, if not otherwise
known to  Lessee)  in such  form and with such  substance  as are  necessary  or


                                       32
<PAGE>

appropriate  to enable Lessor or Lessee,  to claim an available  reduction of or
exemption  from Taxes which Lessee may be required to pay or  indemnify  against
hereunder,  provided that Lessee shall have provided Lessor with any information
within the Lessee's control or reasonably  available to Lessee that is necessary
to prepare such return,  statement  or other  documentation.  Any such Tax Forms
shall be provided  promptly after receipt of a written request therefor from the
Lessee.

      (e) PAYMENT.  Unless  otherwise  requested by the appropriate  Indemnitee,
Lessee  shall pay when due any Tax for which it is liable  pursuant  to  Section
12(b) directly to the  appropriate  Taxing  Authority,  or, upon written demand,
shall reimburse the appropriate  Indemnitee for the payment of any such Tax made
by the  Indemnitee.  Within 30 days after the date of each  payment by Lessee of
any  Tax  referred  to in the  preceding  sentence,  Lessee  shall  furnish  the
Indemnitee evidence of payment of such Tax acceptable to the Indemnitee.  Lessee
shall  also  cause to be  furnished,  promptly  upon  request,  such data as the
Indemnitee may reasonably require from Lessee to enable the Indemnitee to comply
with the  requirements of any Taxing Authority in respect of any Tax referred to
in Section 12(b).

      (f) SURVIVAL.  The obligations  contained in this Section 12 shall survive
the  termination  of this Lease,  to the extent they have accrued,  or relate to
events that have occurred,  on or before the date of such termination;  provided
that obligations  arising as a result of the occurrence of a Default or an Event
of Default shall in any event,  without  limiting the  foregoing,  survive until
payment in full and performance of all obligations owing to the Indemnitee under
the  foregoing  agreements  and all  other  agreements  referred  to  herein  or
contemplated   hereby.  The  obligations  of  Lessee  in  respect  of  all  such
indemnities,  obligations,  adjustments  and payments are expressly made for the
benefit of, and shall be enforceable by, the Indemnitee  entitled thereto at the
option of the Indemnitee without declaring this Lease to be in default or taking
any other action hereunder.


      Section 13. ASSIGNMENT; LEASE SUBJECT AND SUBORDINATE.

      (a) SUBLEASE BY LESSEE.  EXCEPT AS OTHERWISE  EXPRESSLY  PROVIDED  HEREIN,
LESSEE SHALL NOT,  WITHOUT HAVING FIRST OBTAINED THE WRITTEN  CONSENT OF LESSOR,
WHICH CONSENT SHALL NOT BE UNREASONABLY  WITHHELD,  ASSIGN OR OTHERWISE TRANSFER
IN ANY MANNER ANY OF ITS RIGHTS OR  INTERESTS  WITH  RESPECT TO THIS LEASE,  THE
ENGINE, OR ANY PART THEREOF.

       (b) ASSIGNMENTS BY LESSOR.  Subject to Lessee's rights hereunder,  Lessor
may at any time and without Lessee's consent sell, assign or transfer its rights
and  interests  hereunder  or with respect to the Engine to a third party and/or
grant a Lien over the  Engine  and the  benefit  of this  Lease to any Person as
security for Lessor's obligations to such Person (each such transferee, assignee
or other Person, an "Assignee").  On request by Lessor,  Lessee will execute all
such documents as Lessor may reasonably require to confirm Lessee's  obligations
under this Lease.  No sale,  assignment  or  transfer  of  Lessor's  interest or
creation of any Lien by Lessor shall adversely  affect Lessee's rights hereunder
or increase Lessee's duties, expenses or the liabilities of Lessee in respect of
any Tax or under any of its  indemnification  obligations  or otherwise.  Lessee
will provide all other  reasonable  assistance and cooperation to Lessor and any
Assignee in connection  with any such sale or assignment or the  perfection  and
maintenance of any Lien granted in connection therewith,  including, at Lessor's
cost, making all necessary filings and registrations. Wherever the term "Lessor"
is  used  in  this  Lease  in  relation  to any of the  provisions  relating  to
disclaimer, title and registration, indemnity and insurance, such terms shall be
construed to include each Assignee, as applicable.

                                       33
<PAGE>


      Section 14. EVENTS OF DEFAULT; REMEDIES.

       (a) EVENTS OF DEFAULT.  The  occurrence  of any of the  following  events
shall  constitute  an  "Event  of  Default"  (whether  any such  event  shall be
voluntary  or  involuntary  or come about or be effected by  operation of law or
pursuant to or in compliance with any judgment,  decree or order of any court or
any order, rule or regulation of any  administrative  or governmental  body) and
each such Event of Default  shall be deemed to exist and  continue so long as it
shall not have been remedied:

            (i) Lessee  shall fail to make any  payment  of Basic  Rent,  Engine
      Reserves, Engine Loss Value or Supplemental Rent hereunder within five (5)
      Business Days after the same shall have become due and payable;

            (ii) Lessee  shall fail to carry and  maintain  insurance on or with
      respect  to the  Engine in  accordance  with the  provisions  of Section 9
      hereof or Lessee shall fail to provide an insurer's certificate evidencing
      the renewal or replacement of such policy, upon the renewal or replacement
      thereof, in accordance with the terms hereof;

            (iii)  any  document  required  to be filed or  recorded  by  Lessee
      pursuant  hereto is not duly filed and  recorded  by Lessee as required to
      perfect and  continue  the  perfection  of the  interests of Lessor in the
      Engine or the filings and  recordings  provided for herein are not made by
      the time  required;  or Lessee  shall fail to perform or observe any other
      covenant,  term,  condition or agreement to be performed or observed by it
      hereunder  or under any  instrument,  document or  agreement  furnished by
      Lessee to Lessor,  in connection with the transactions  referred to herein
      or contemplated  hereby, and such failure shall continue  unremedied for a
      period of thirty  (30) days  after  written  notice  thereof  to Lessee or
      thirty (30) days after Lessee,  assuming exercise of reasonable diligence,
      should have known of such  failure;  provided,  however,  such  failure to
      observe  any  covenant,  term,  condition  or  agreement  does  not pose a
      material danger to the respective  rights and interests of Lessor,  Lessor
      in the Engine and the same is of such a nature that it can be cured;  and,
      further  provided that Lessee shall have  commenced  and shall  diligently
      pursue such cure,  Lessee shall have an additional  thirty (30) day period
      within which to cure the same;

            (iv) any  representation or warranty made by Lessee herein or in any
      document,  or certificate furnished by Lessee in connection herewith shall
      at any time prove to have been false or incorrect in any material  respect
      at the time made;

            (v) Lessee shall (A) voluntarily commence any proceeding or file any
      petition  seeking  relief  under any  applicable  bankruptcy,  insolvency,
      liquidation or similar law now or hereafter in effect,  (B) consent to the
      institution of, or fail to contravene in a timely and appropriate  manner,
      any such  proceeding or the filing of any such petition,  (C) apply for or
      consent to the appointment of a receiver,  trustee, custodian sequestrator
      or similar  official for itself or for a substantial  part of its property
      or assets,  (D) file an answer  admitting  the material  allegations  of a
      petition  filed  against  it in any such  proceeding,  (E) make a  general
      assignment  for the  benefit of  creditors,  (F) become  unable,  admit in
      writing its  inability  or fail  generally to pay its debts as they become
      due or (G) take  corporate  action for the purpose of effecting any of the
      foregoing;

            (vi) an involuntary proceeding shall be commenced or for involuntary
      petition shall be filed in a court of competent  jurisdiction  seeking (A)
      relief in respect of Lessee,  or of a substantial  part of the property or
      assets of Lessee under any applicable bankruptcy, insolvency, receivership
      or similar law, (B) the  appointment  of a receiver,  trustee,  custodian,
      sequestrator or similar  official for Lessee or for a substantial  part of


                                       34
<PAGE>

      the property of Lessee or (C) the winding-up or liquidation of Lessee; and
      such  proceeding  or  petition  shall  continue  undismissed,  unstayed or
      unbonded  for sixty (60) days or an order or decree  approving or ordering
      any of the foregoing shall continue unstayed and in effect for thirty (30)
      days;

            (vii) Lessee or any subsidiary  thereof,  the debt of which has been
      guaranteed by Lessee  thereof  shall fail to pay, in  accordance  with its
      terms and when due and payable,  the  principal of or interest on any Debt
      the  principal  amount of which exceeds $[ ]* and the maturity of any such
      Debt, in accordance  with the  provisions of any such Debt or any contract
      evidencing,  providing for the creation of or  concerning  such Debt shall
      have been  accelerated  or any event shall have occurred and be continuing
      that would permit any holder or holders of such Debt, any trustee or agent
      acting on behalf of such  holder or  holders  or any other  Persons  so to
      accelerate such maturity;

            (viii)  final  judgment  for the payment of money in excess of $[ ]*
      not fully  covered by insurance (or the  equivalent  in another  currency)
      shall be rendered  against  Lessee and the same shall remain  undischarged
      for a period of thirty (30) days during which  execution of such  judgment
      shall not be  effectively  stayed or  bonded in a manner  satisfactory  to
      Lessor;

            (ix) Lessee shall fail to remain a "certificated air carrier" within
      the meaning of the Federal Aviation Act;

            (x) Lessee shall voluntarily suspend all or substantially all of its
      commercial airline operations,  or the franchises,  concessions,  permits,
      rights  or  privileges  acquired  for  the  conduct  of the  business  and
      operations of Lessee shall be revoked canceled or otherwise  terminated or
      the free and continued use and exercise thereof curtailed or prevented;

            (xi) except as otherwise permitted pursuant to Section 11(l) hereof,
      Lessee  shall  merge with or into or  consolidate  with or into or convey,
      transfer,  lease or otherwise dispose of (whether in one transaction or in
      a series of transactions)  all or substantially all of its assets (whether
      now owned or hereafter  acquired) to any Person or fifty-one percent (51%)
      or more of the  capital  stock of  Lessee  shall be  acquired  in a single
      transaction  or series of  transactions,  directly  or  indirectly  by any
      Person  and/or  its   affiliates  not  a  shareholder  of  Lessee  on  the
      Commencement Date;

            (xii)  possession  of the  Engine  shall be  transferred  to another
      Person,  other than in accordance  with the express  provisions of Section
      7(d); and/or

      (b) REMEDIES.  Upon the occurrence of any Event of Default and at any time
thereafter so long as the same shall be  continuing,  Lessor may, at its option,
declare  this  Lease to be in  default  by  notice  to  Lessee;  and at any time
thereafter,  so long as Lessee shall not have remedied all outstanding Events of
Default  before  Lessor shall have  commenced to exercise its rights or remedies
hereunder,  Lessor may exercise one or more of the following rights and remedies
with  respect to all or any part of the Engine as Lessor in its sole  discretion
shall elect,  to the extent  permitted  by, and subject to  compliance  with any
mandatory requirements of, applicable law then in effect:

            (i) cause Lessee,  upon the written demand of Lessor and at Lessee's
      expense,  to return promptly,  and Lessee shall return promptly (and in no
      event  later  than two days after  such  demand),  all or such part of the
      Engine as Lessor  may  demand,  to Lessor or its order in the  manner  and
      condition required by, and otherwise in accordance with all the provisions
      of,  Section 10 as if the Engine  were  being  returned  at the end of the
      Term, or Lessor,  at its option,  may enter upon the premises where all or
      any part of the Engine located and take immediate possession of and remove
      the same;

                                       35
<PAGE>

            (ii)  hold,  use,  operate,  keep idle or lease to others all or any
      part of the Engine, with or without taking possession thereof as Lessor in
      its sole discretion may determine,  free and clear of any rights of Lessee
      and without  any duty to account to Lessee with  respect to such action or
      inaction or for any proceeds  with respect  thereto,  except that Lessee's
      obligation  to pay Basic Rent for any  periods in respect of the Engine or
      part thereof  accruing after Lessee shall have been deprived of possession
      of such  Engine  or part  thereof  pursuant  to this  Section  14 shall be
      reduced by the net proceeds,  if any,  received by Lessor from leasing the
      Engine or part  thereof  to any  Person  other  than  Lessee  for the same
      periods or any portions thereof;

            (iii)  Lessor may  exercise  any other  right or remedy  that may be
      available  to it under  applicable  law or  proceed by  appropriate  court
      action to enforce the terms hereof or to recover damages for the breach or
      to rescind this Lease;

            (iv) Lessor may terminate this Lease; and/or

            (v) whether or not Lessor shall have exercised,  or shall thereafter
      at any time exercise,  any of its rights under clauses (i), (ii), (iii) or
      (iv) above,  Lessor, by written notice to Lessee specifying a payment date
      not earlier than five (5) Business Days after the date of such notice, may
      terminate this Lease and demand that Lessee pay to Lessor and Lessee shall
      pay to Lessor, on the payment date specified in such notice, as liquidated
      damages  for loss of a bargain  and not as a penalty,  the sum of: (A) any
      unpaid Basic Rent due under this  Agreement for periods ending on or prior
      to the payment date  specified in such notice and any unpaid  Supplemental
      Rent due on or prior to such  payment  date,  plus (B), an amount equal to
      the  aggregate  unpaid  Basic  Rent which  would  otherwise  have  accrued
      hereunder  over the  remainder  of the  Lease  Term  but for the  Event of
      Default,  discounted to present value as of the date specified for payment
      in such  notice,  less  (C),  if  applicable,  for any  period  until  the
      expiration  of the Lease  Term that  Lessor has not been able to Lease the
      Engine but has been able,  in the normal  course of its  operations to use
      the  Engine,  the Basic Rent  payable by Lessee to Lessor for the lease of
      the Engine during any such period of use discounted to present value as of
      the date  specified for payment in such notice.  The amounts  specified in
      such notice shall bear interest at the Post-Default  Rate from the payment
      date  specified  in such  notice  until  payment is made.  In  calculating
      Lessor's damages hereunder upon an Event of Default,  all Basic Rent which
      would have become due during the  remainder  of the Lease Term if an Event
      of Default had not occurred  will be  calculated  on a present value basis
      using a  discounting  rate equal to the rate of interest on United  States
      Treasury Bills having a maturity which will most closely  approximate  the
      period  equal to the  remainder  of the Lease Term,  as quoted in the Wall
      Street Journal on the date of Lessor's notice.

      In addition,  Lessee shall be liable,  except as otherwise provided above,
for any and all  unpaid  Basic  Rent and  Supplemental  Rent then due  hereunder
before or during or after the exercise of any of the foregoing  remedies and for
all legal fees and other costs and expenses  incurred by Lessor by reason of the
occurrence  of any Event of Default or the  exercise of Lessor's  remedies  with
respect  thereto,  including all costs and expenses  incurred in connection with
the return of all the Engine in accordance with Section 10 or this Section 14 or
in storing or maintaining  the Engine or any part thereof or placing the same in
the condition required by Section 10.

                                       36
<PAGE>

      Except as otherwise expressly provided above, no remedy referred to herein
is intended to be exclusive, but each shall be cumulative and in addition to any
other remedy  referred to herein or  otherwise  available to Lessor at law or in
equity,  and the  exercise or beginning of exercise by Lessor of any one or more
of such remedies shall not preclude the simultaneous or later exercise by Lessor
of any or all such other remedies;  provided,  that Lessor may recover only once
from each element of damages sustained and, provided further, that the preceding
proviso  shall not be deemed to require proof of damages  actually  sustained in
the case of liquidated damages provided for herein. No express or implied waiver
by  Lessor  of any  Default  or Event  of  Default  shall  in any way be,  or be
construed  to be, a waiver  of any  future  or  subsequent  Default  or Event of
Default.  To the extent permitted by law, Lessee hereby waives any rights now or
hereafter  conferred  by statute or  otherwise  (A) that may confer any right to
prior notice or judicial  hearing in connection with Lessor's taking  possession
or  disposing of the Engine  including,  without  limitation,  any and all prior
notice and hearing  for any  prejudgment  remedy or remedies  and any such right
that Lessee might otherwise have under applicable law, (B) except as provided in
this Section 14, that impose any  requirements as to the time, place or terms of
lease other disposition or other requirements with respect to the enforcement of
Lessor's  rights  and  remedies   hereunder,   (C)  all  rights  of  redemption,
appraisement,  valuation,  stay,  extension  or  moratorium  now or hereafter in
effect under applicable law that may have the effect of delaying the enforcement
of this Lease or the absolute lease or other  disposition of the Engine,  or (D)
except as otherwise  provided herein,  that may otherwise limit or modify any of
Lessor's  rights  or  remedies  hereunder.  The  failure  or delay of  Lessor in
exercising  any right or remedy  granted it hereunder upon any occurrence of any
of the  contingencies set forth herein shall not constitute a waiver of any such
right or remedy upon the continuation or recurrence of any such contingencies or
similar  contingencies  and any  single or  partial  exercise  hereunder  of any
particular  right or remedy of Lessor shall not exhaust the same or constitute a
waiver of any other right provided herein.

      Notwithstanding  anything  contained in this  Section 14 to the  contrary,
Lessor shall use reasonable efforts to mitigate damages.


     Section 15. NOTICES.  All notices required or permitted  hereunder shall be
in writing and shall be delivered in person or sent by telecopier, international
courier  service or letter  (mailed  certified  and return  receipt  requested),
addressed to the parties as follows:

if to Lessor:             First Security Bank, National Association
                          79 South Main Street
                          Salt Lake City, Utah  84111
                          Attention: Corporate Trust Department
                          Telecopier: 801-246-5053

with copies to:           KG Aircraft Leasing Co., Limited
                          3 Adelaide Court, Adelaide Road
                          Dublin 2, Ireland
                          Attention: Managing Director
                          Telecopier: 353-1-475-7378

                          Winthrop, Stimson, Putnam & Roberts
                          One Battery Park Plaza
                          New York, New York  10004
                          Attention: C. Payson Coleman, Esq.
                          Telecopier: 212-858-1500




                                       37
<PAGE>



if to Lessee:             Western Pacific Airlines, Inc.
                          2864 S. Circle Drive, Suite 1100
                          Colorado Springs, Colorado 80906
                          Attention: Robert Peiser, President & CEO
                          Telecopier: (719) 527-7480

with a copy to:           Smith, Gambrell & Russell
                          1230 Peachtree Street NE, Suite 3100
                          Atlanta, Georgia  30309-3592
                          Attention: Howard Turner, Esq.
                          Telecopier: 404-815-3509


or at such other  address as Lessee or Lessor shall from time to time  designate
in writing to the other. In the case of a notice  delivered in person or sent by
telecopier or international courier,  notice will be deemed received upon actual
receipt.  In the case of a mailed letter,  notice will be deemed received on the
tenth (10th)  Business Day after  deposit in the mail,  with proper  postage for
registered  or  certified  first-class  mail  prepaid.  All notices  required or
permitted  under the Lease  shall be given in the manner set forth in Section 18
of the Lease.


      Section 16. GOVERNING LAW AND JURISDICTION.

     (a)  GOVERNING  LAW.  This Lease shall in all  respects be governed by, and
construed  in  accordance  with,  the  internal  laws of the  State of New York,
inclusive of all matters of construction, validity and performance.

     (b) JURISDICTION;  SERVICE OF PROCESS. Lessee and Lessor hereby irrevocably
submit to the jurisdiction of any New York State or federal court sitting in New
York City in any action or proceeding  arising out of or relating to this Lease,
and hereby  irrevocably  agree  that all  claims in  respect  of such  action or
proceeding  may be heard and  determined in such New York State court or, to the
extent  permitted  by law,  in such  federal  court.  Lessee and  Lessor  hereby
irrevocably waive, to the fullest extent they may effectively do so, the defense
of an inconvenient forum to the maintenance of such action or proceeding. Lessee
hereby irrevocably  appoints CT Corporation  System,  with an office on the date
hereof at 1633 Broadway, New York, New York 10019, and Lessor hereby irrevocably
appoints  CT  Corporation  System,  with an  office  on the date  hereof at 1633
Broadway,  New York, New York 10019 (the "Process  Agent"),  as their respective
agents to receive on their  behalf  and in  respect of their  proper  service of
copies of the summons and  complaint and any other process that may be served in
any such action or proceeding. Such service may be made by mailing or delivering
a copy of such process to Lessee or Lessor, as the case may be, in care of their
respective Process Agents at such Process Agent's above address,  and Lessee and
Lessor hereby  irrevocably  authorize and direct their respective Process Agents
to accept such service on their  behalf.  As an  alternative  method of service,
Lessee and Lessor also irrevocably consent to the service of any and all process
in any such action or proceeding by the mailing of copies of such process to the
address  specified in Section 15. Lessee and Lessor agree that a final  judgment
in any such  action or  proceeding  shall be  conclusive  and may be enforced in
other  jurisdictions  by suit on the judgment or in any other manner provided by
law.  Nothing  in this  Section  16(b)  shall  affect  the  right of any  Person
(including  Lessor) to serve legal process in any other manner  permitted by law
or affect the right of any other party to bring any action or proceeding against
Lessee  or  Lessor,  or  their  respective  properties  in the  courts  of other
jurisdictions.  Lessee AND Lessor  HEREBY  WAIVE  TRIAL BY JURY IN ANY  JUDICIAL
PROCEEDING  TO WHICH THEY ARE PARTIES  INVOLVING,  DIRECTLY OR  INDIRECTLY,  ANY
MATTER ARISING OUT OF OR RELATING TO THIS LEASE.

                                       38
<PAGE>

      (c)  WAIVER OF  IMMUNITY.  To the  extent  that  Lessor  or Lessee  has or
hereafter  may  acquire  any  sovereign  immunity,   Lessor  and  Lessee  hereby
irrevocably waive such immunity in respect of their respective obligations under
this Lease and all other documents and agreements relating to the Engine and the
transactions referred to or contemplated herein.


      Section 17.  MISCELLANEOUS.

       (a) ENTIRE AGREEMENT. This Lease constitutes the entire agreement between
the parties  concerning the subject  matter hereof,  and supersedes all previous
proposals, agreements,  understandings,  negotiations and other written and oral
communications  in relation  hereto.  NO TERM OR  PROVISION OF THIS LEASE MAY BE
CHANGED,  WAIVED,  DISCHARGED OR  TERMINATED,  EXCEPT (i) WITH THE PRIOR WRITTEN
CONSENT  OF  LESSOR  AND  (ii) BY AN  INSTRUMENT  IN  WRITING  SIGNED  BY A DULY
AUTHORIZED  REPRESENTATIVE  OF THE PARTY  AGAINST WHICH THE  ENFORCEMENT  OF THE
CHANGE,  WAIVER,  DISCHARGE OR  TERMINATION  IS SOUGHT.  Nothing herein shall be
construed as  conveying to Lessee any right,  title or interest in the Engine or
any Part except as Lessee under this Lease.

       (b) ENGLISH LANGUAGE. All notices, communications,  reports, opinions and
other documents given under this Lease shall be in the English language.

      (c)  LESSOR'S  RIGHT TO PERFORM  FOR LESSEE.  If Lessee  fails to make any
payment of Rent or  Supplemental  Rent  required to be made by it  hereunder  or
fails to perform or comply with any of its agreements  contained herein,  Lessor
may itself make such payment or perform or comply with such  agreement,  and the
amount of such  payment  and the amount of any  expenses  of Lessor  incurred in
connection  with such  payment or the  performance  of or  compliance  with such
agreement,  as the case may be,  shall be deemed  Supplemental  Rent  payable by
Lessee upon demand;  provided,  however,  that no such payment,  performance  or
compliance  by Lessor shall (i) be deemed to have  satisfied  the  obligation of
Lessee to make such payment or to perform or comply with such agreement,  as the
case may be, unless and until Lessee shall have paid all such  Supplemental Rent
payable  pursuant to this  section by reason of such failure or (ii) be deemed a
waiver of Lessor's rights and remedies against Lessee hereunder.

      (d)  APPLICATION  OF PAYMENTS  DURING  EXISTENCE  OF  DEFAULT.  Any amount
referred to herein that is payable to Lessee shall not be paid to Lessee,  or if
it has been previously paid directly to Lessee, shall not be retained by Lessee,
if at the time of such payment a Default or Event of Default shall have occurred
and be  continuing,  but shall be paid to and held by Lessor as security for and
may be applied to the  obligations  of Lessee under this Lease and, at such time
as Lessor shall receive  evidence in form and substance  satisfactory to it that
there is not continuing  any such Default or Event of Default,  all such amounts
in excess of amounts so paid on obligations of Lessee shall be paid to Lessee.

      (e) EXPENSES.  Lessee agrees to reimburse  Lessor,  for its  out-of-pocket
costs and expenses,  including  attorney's fees, incurred in connection with any
amendments,  modifications  or waivers  required by this Lease or  requested  by
Lessee (or resulting from any requests of Lessee) hereunder.



                                       39
<PAGE>

      (f) FURTHER ASSURANCES.  Lessee will promptly and duly execute and deliver
to Lessor such further  documents and assurances and take such further action as
Lessor may from time to time  reasonably  request  in order to more  effectively
carry out the intent and purpose of this Lease and to establish  and protect the
rights  and  remedies  created  or  intended  to be  created  in favor of Lessor
hereunder, including, without limitation, if requested by Lessor, at the expense
of Lessee,  the execution and delivery of supplements or amendments  hereto,  in
recordable  form,  subjecting  to this  Lease  any  Replacement  Engine  and the
recording or filing of  counterparts  hereof,  and all such other  documents and
instruments,  in accordance  with the laws of such  jurisdictions  as Lessor may
from time to time deem advisable.

       (g) JUDGMENT  CURRENCY.  The obligations of Lessee in respect of any sum
due  from it to  Lessor  hereunder  shall,  notwithstanding  any  judgment  in a
currency other than Dollars, be discharged only to the extent that Lessor may in
accordance with normal banking procedures purchase, or cause to be purchased for
its account  Dollars with such other  currency;  if the Dollars so purchased are
less than the sum originally due in Dollars,  Lessee agrees to indemnify  Lessor
against such loss, and if the Dollars so purchased exceed the sum originally due
to Lessor in Dollars, Lessor agrees to remit to Lessee such excess.

      (h)  INVALIDITY  OF ANY  PROVISION.  Any  provision  of this Lease that is
prohibited or unenforceable in any jurisdiction  shall, as to such jurisdiction,
be ineffective to the extent of such  prohibition  or  unenforceability  without
invalidating  the  remaining  provisions  hereof,  and any such  prohibition  or
unenforceability   in  any   jurisdiction   shall  not   invalidate   or  render
unenforceable  such provision in any other  jurisdiction.  To the fullest extent
permitted by  applicable  law,  Lessee  hereby  waives any provision of law that
renders any provision hereof prohibited or unenforceable in any respect.

      (i) CHANGES IN LAW. If there shall be any change (or such change  shall be
enacted  or made by  notice  or  otherwise  and  shall be  scheduled  to  become
thereafter  effective)  in the laws or treaties of the United  States that has a
material adverse effect on the validity, legality,  perfection or enforceability
of  Lessor's  rights or  interest  in the Engine or this Lease or the  validity,
legality,  perfection or enforceability of this Lease, Lessor may terminate this
Agreement,  whereupon  Lessee shall promptly  return the Engine to Lessor or its
designee in the condition required hereunder.

       (j) HEADINGS.  All section and paragraph headings and captions are purely
for convenience of reference only and shall not modify, define, expand, limit or
otherwise affect any of the terms or provisions hereof and all references herein
to numbered sections, unless otherwise indicated, are to sections of this Lease.

      (k)  CONSENT.  Whenever  in this Lease,  the consent  (whether or not, in
writing)  of either  Lessor or Lessee is  required,  such  consent  shall not be
unreasonably withheld or delayed.

      (l) THIRD PARTY  BENEFICIARIES.  Lessee recognizes that this Lease confers
certain  rights  and  interests  on the  Indemnitees.  Notwithstanding  that the
Indemnitees  are not parties to this Lease,  the  Indemnitees are intended third
party  beneficiaries of such rights and interests and Lessor hereby acknowledges
that the Indemnitees may enforce such rights and interests directly,  as if they
were parties to this Lease.

      (m)  COUNTERPARTS.  This Lease may be executed in any number of  identical
counterparts,  all of  which  together  will be  deemed  to be one and the  same
instrument.  Delivery of an executed counterpart of this Lease by facsimile will
be deemed effective as delivery of an originally executed counterpart. Any party
delivering an executed  counterpart of this Lease by facsimile will also deliver
an originally executed counterpart; provided the failure of any party to deliver
an originally executed counterpart of this Lease will not affect the validity or
effectiveness of this Lease.


                                       40
<PAGE>


                         





      IN WITNESS  WHEREOF,  Lessor and Lessee have each caused this  Amended and
Restated  Engine  Lease to be duly  executed  as of the day and year first above
written.


                             FIRST SECURITY BANK, NATIONAL ASSOCIATION,
                             not in its individual capacity, except as otherwise
                             expressly provided, but solely as Owner Trustee
                             under the 1997 Trust Agreement, as Lessor


                              By:
                                  Name:
                                  Title:


                              WESTERN PACIFIC AIRLINES, INC.,
                                as Lessee



<PAGE>



RECEIPT  OF  THE  ORIGINAL   COUNTERPART  OF  THE  FOREGOING   LEASE  IS  HEREBY
ACKNOWLEDGED ON THIS ____ DAY OF ________, 1997.


                           FIRST SECURITY  BANK,  NATIONAL  ASSOCIATION,
                           not in its  individual  capacity, except as otherwise
                           expressly provided,  but solely as Owner Trustee
                           under the 1997 Trust Agreement, as Lessor


                            By:
                               Name:
                               Title:








<PAGE>





                                    EXHIBIT A

                               ENGINE DESCRIPTION


            One General Electric Model CFM56-3B2 Airframe Engine
            bearing Manufacturer's Serial No. 721150 with one PF
            Industries, Inc. Model PF71-169 Engine Stand bearing
            serial number 001B.


ENGINE:

                                                               Time to Next
    Total                                                     Replacement of
   Engine             Total            Time Since              Lowest Life
   Cycles              Time             Overhaul              Limited Part
--------------      -----------      ----------------      --------------------




ENGINE STAND:





-------------------
*as of March __, 1996


<PAGE>









                                    EXHIBIT B

                             ACCEPTANCE CERTIFICATE


      WESTERN PACIFIC AIRLINES, INC., a corporation organized and existing under
the laws of the  State of  Delaware  with its  principal  place of  business  in
Colorado  Springs,  Colorado  ("Lessee")  does  hereby  represent,  acknowledge,
warrant and agree as follows:



      (a) Lessee and TACA INTERNATIONAL  AIRLINES,  S.A. ("Lessor") have entered
into a Lease Agreement dated as of May 21, 1996 (hereinafter  referred to as the
"Lease").  Capitalized words used herein and not otherwise defined will have the
meanings set forth in the Lease.

      (b) Lessee has this __ day of June,  1996 (Time:  ____  ____________),  at
Dallas, Texas, received from Lessor possession of:

            (i)   One (1) General Electric Model CFM56-3B2 Engine bearing
      Manufacturer's Serial No. 721150 (the "Engine");

            (ii)  The  manuals,   logbooks,   flight   records  and   historical
      information  regarding  the  Engine  listed in  Attachment  1 hereto  (the
      "Engine Documentation"); and

            (iii)  One (1) PF  Industries,  Inc.  model  PF71-169  engine  stand
      bearing serial number 0001B.

      (c) Except as noted on  Attachment 2 hereto,  Lessee  hereby  confirms and
agrees that the above described Engine and Engine  Documentation  have been duly
accepted by Lessee pursuant to the terms and provisions of the Lease.

      (d) As of the date hereof, the Engine had the following hours/cycles:

                                                              Time to Next
         Total                                                Replacement of
         Engine           Total           Time Since          Lowest Life
         Cycles           Time            Overhaul            Limited Part
       ------------      ---------      ---------------      ------------------

         721150




<PAGE>


      IN WITNESS  WHEREOF,  Lessee has caused this Acceptance  Certificate to be
executed by its duly authorized  representative as of the day and year set forth
above.

                              WESTERN PACIFIC AIRLINES, INC.



                              By:
                                  Name:
                                  Title:



ATTACHMENTS:      1.    List of Engine Documentation
                  2.    List of Discrepancies


<PAGE>


                                  ATTACHMENT 1
                            TO ACCEPTANCE CERTIFICATE

                              ENGINE DOCUMENTATION



Engine Log Book (current and file copies)

Engine Data Submittal

Engine previous maintenance visit record including the last inspection
performed

Airworthiness Directive Compliance Summary

ADs requiring continuous surveillance

Service Bulletin terminated accomplishment status

Service Bulletin requiring continuous surveillance summary and maintenance
control action

FAA Form 337 for repair/overhaul certification of last shop visit

Engine time summary sheet including life limited items



Receipt of the foregoing documents, except as noted, is hereby acknowledged.


<PAGE>


                                  ATTACHMENT 2
                            TO ACCEPTANCE CERTIFICATE


                                  DISCREPANCIES



<PAGE>









                                    EXHIBIT C

                        FORM OF RETURN ACCEPTANCE RECEIPT


<PAGE>




      WESTERN  PACIFIC  AIRLINES,  INC.  ("Lessee")  and  FIRST  SECURITY  BANK,
NATIONAL  ASSOCIATION,  not in its  individual  capacity  (except  as  otherwise
specified)  but solely as trustee  ("Lessor")  have entered into an Engine Lease
Agreement  dated as of May 21, 1996 and Amended and  Restated as of July 7, 1997
(as  supplemented  and  amended,  hereinafter  referred to as the  "Agreement").
Capitalized  words used herein and not otherwise  defined will have the meanings
set forth in the Agreement.

      (a)   Lessor   has   this   ___   day   of   _____________,    _____,   at
______________________, received from Lessee possession of:

            (i)   One (1) General Electric Model CFM56-3B2 jet aircraft
      engine, Manufacturer's Serial No. 721150 (the "Engine");

            (ii) The manuals,  records and historical  information regarding the
      Engine   and  Parts   listed  in   Attachment   1  hereto   (the   "Engine
      Documentation") and

            (iii)  One (1) PF  Industries,  Inc.  model  PF71-169  engine  stand
      bearing serial number 0001B.

      (b) Except as noted on Attachment 2 hereto, the above specified Engine and
Engine  Documentation  are hereby  accepted by Lessor  pursuant to the terms and
provisions of the Lease.

      (c) As of the date hereof, the Engine had the following hours/cycles:

                                                           Time to Next
     Total              Total           Time Since         Replacement of Lowest
 Engine Cycles          Time            Overhaul           Life Limited Part
----------------     -------------    ---------------    ----------------------

    721150


<PAGE>


      IN WITNESS  WHEREOF,  Lessee and Lessor has caused this Return  Acceptance
Receipt to be executed by their duly  authorized  representatives  as of the day
and year set forth above.

                              FIRST SECURITY BANK, NATIONAL ASSOCIATION,
                                not in its individual capacity, but solely as
                                trustee



                              By:
                                  Name:
                                  Title:


                              WESTERN PACIFIC AIRLINES, INC.



                              By:
                                  Name:
                                  Title:


ATTACHMENTS:      1.    List of Engine Documentation
                  2.    List of Discrepancies


<PAGE>


                                  ATTACHMENT 1
                          TO RETURN ACCEPTANCE RECEIPT

                              ENGINE DOCUMENTATION



Engine Log Book (current and file copies)

Engine Data Submittal

Engine previous maintenance visit record including the last inspection
performed

Airworthiness Directive Compliance Summary

ADs requiring continuous surveillance

Service Bulletin terminated accomplishment status

Service Bulletin requiring continuous surveillance summary and maintenance
control action

FAA Form 337 for repair/overhaul certification of last shop visit

Engine time summary sheet including life limited items



Receipt of the foregoing documents, except as noted, is hereby acknowledged.


<PAGE>


                                  ATTACHMENT 2
                          TO RETURN ACCEPTANCE RECEIPT


                                  DISCREPANCIES



<PAGE>









                                    EXHIBIT D

                             FORM OF MONTHLY REPORT


                 MONTHLY ENGINE UTILIZATION AND STATUS REPORT


To:   FIRST SECURITY BANK,
      NATIONAL ASSOCIATION
      as Owner Trustee ("Lessor")
      79 South Main Street
      Salt Lake City, Utah  94111
      Attention:  Corporate Trust Department

with a copy to:

      KG Aircraft Leasing Co., Ltd.
      3 Adelaide Court, Adelaide Road
      Dublin 2, Ireland
      Attention:  Managing Director

From: WESTERN PACIFIC AIRLINES, INC. ("Lessee")
      2864 S. Circle Drive, Suite 1100
      Colorado Springs, Colorado  80806


      Re:   ENGINE TYPE:      GENERAL ELECTRIC CFM56-3B2
            REGISTRATION:
            SERIAL NUMBER:    721150
            MONTH OF               19


===============================================================================
Engine TOTAL TIME SINCE NEW                       HRS:
===============================================================================
Engine TOTAL CYCLES SINCE NEW                     CYCLES:
===============================================================================
HOURS DURING MONTH                                HRS:
===============================================================================
BLOCK HOURS DURING MONTH                          HRS:
===============================================================================
CYCLES/LANDING DURING MONTH                       CYCLES:
===============================================================================
TIME REMAINING TO NEXT OVERHAUL
===============================================================================



<PAGE>


NOTE: IF LESSOR OWNED ENGINE IS REMOVED FROM AN AIRFRAME AND/OR INSTALLED ON
      AN AIRFRAME IT MUST BE REPORTED MONTHLY ON THIS FORM.

SERVICE BULLETINS, AIRWORTHINESS DIRECTIVES, ENGINEERING MODIFICATIONS OR
CHANGES SCHEDULED OR COMPLETED (INDICATE DATE SCHEDULED FOR COMPLETION OR
DATE OF COMPLETION, AS APPLICABLE):










WARRANTY CLAIMS MADE OR SETTLED SINCE LAST REPORT  (INDICATE NATURE OF CLAIM AND
SETTLEMENT, AS APPLICABLE:











      The  undersigned,  a duly elected officer of Lessee,  hereby  certifies to
Lessor that all airport landing fees and other charges related to or incurred in
connection  with any  airframe  on which the Engine is  installed  and all other
aircraft in Lessee's fleet, have been paid and are current.

                                          WESTERN PACIFIC AIRLINES, INC.



                                          By:
                                          Its:


<PAGE>









                                    EXHIBIT E

                    MAINTENANCE RESERVES ADJUSTMENT FORMULA


    Flight Hour/
    Cycle Ratio           Rates
    -----------           -----

  [ ]*     -   [ ]*      $[  ]*
  [ ]*     -   [ ]*       [  ]*
  [ ]*     -   [ ]*       [  ]*
  [ ]*     -   [ ]*       [  ]*
  [ ]*     -   [ ]*       [  ]*
  [ ]*     -   [ ]*       [  ]*
  [ ]*     -   [ ]*       [  ]*
  [ ]*     -   [ ]*       [  ]*
  [ ]*     -   [ ]*       [  ]*
  [ ]*     -   [ ]*       [  ]*
  [ ]*     -   [ ]*       [  ]*
  [ ]*     -   [ ]*       [  ]*
  [ ]*     -   [ ]*       [  ]*
  [ ]*     -   [ ]*       [  ]*
  [ ]*     -   [ ]*       [  ]*
  [ ]*     -   [ ]*       [  ]*



<PAGE>



EXHIBIT A   ENGINE DESCRIPTION   
EXHIBIT B   FORM OF ACCEPTANCE CERTIFICATE
EXHIBIT C   FORM OF RETURN ACCEPTANCE RECEIPT
EXHIBIT D   FORM OF MONTHLY REPORT



<PAGE>