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                                 LEASE AGREEMENT

                           dated as of March 18, 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 Boeing Model B737-3S3 Aircraft,
          current United States Registration Mark N375TA (to be changed to
                                   N954WP) and
                      Manufacturer's Serial No. 23787 with
              two CFM International, Inc. Model CFM 56-3B2 Engines,
          Manufacturer's Serial Nos. 720890 and 721734, Respectively


      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

1.    Definitions.......................................................... 1

2.    Lease; Lease Term; Delivery of Aircraft.............................. 6
      (a)   Lease; Lease Term.............................................. 6
      (b)   [Intentionally left blank.].................................... 6
      (c)   Condition of Aircraft at Delivery.............................. 6

3.    Security Deposit and Other Payments.................................. 6
      (a)   Security Deposit............................................... 6
      (b)   Basic Rent..................................................... 7
      (c)   [Intentionally left blank.].................................... 7
      (d)   Supplemental Rent.............................................. 7
      (e)   Manner of Payment.............................................. 7
      (f)   Late Payments.................................................. 8
      (g)   No Setoff, Counterclaim, etc................................... 8

4.    Conditions Precedent and Other Requirements.  ....................... 9
      (a)   Execution and Delivery of Documents............................ 9
      (b)   Representations, Warranties, No Default........................ 9
      (c)   Resolutions, etc............................................... 9
      (d)   Security Deposit and Basic Rent................................ 9
      (e)   Side Letter................................................... 10
      (f)   Insurance Certificate......................................... 10
      (g)   Filings; Financing Statements................................. 10
      (h)   Opinions of Counsel........................................... 10
      (i)   No Event of Loss.............................................. 10
      (j)   Acceptance by Process Agent................................... 10
      (k)   Net Worth..................................................... 10
      (l)   Other Documents............................................... 10
            (a)   Delivery of Assignments of Warranties................... 10
            (b)   Resolutions, etc........................................ 10
            (c)   Consents to Sublease.................................... 11
            (d)   Extension of Lease...................................... 11
            (e)   Certificate of No Default............................... 11
            (f)   Delivery of Lease Supplement............................ 11
            (g)   Certificate of Airworthiness............................ 11
            (h)   Acceptance by Process Agent............................. 11
            (i)   Broker.................................................. 11
<PAGE>

5.    Disclaimer; Manufacturer and Vendor Warranties...................... 11
      (a)   Disclaimer by Lessor.......................................... 11
      (b)   Lessor's Representations, Warranties and Covenants............ 12
      (c)   Manufacturer and Vendor Warranties............................ 12

6.    Maintenance; Alterations, Modifications and Additions............... 13
      (a)   Maintenance................................................... 13
      (b)   Maintenance Reserves.......................................... 15
      (c)   Replacement of Parts.......................................... 17
      (d)   Pooling of Parts.............................................. 18
      (e)   Alterations, Modifications and Additions...................... 18

7.    Title and Registration; Liens; Possession........................... 19
      (a)   Title and Registration........................................ 19
      (b)   Liens......................................................... 20
      (c)   Operation, Quiet Enjoyment.................................... 20
      (d)   Possession.................................................... 20
      (e)   Identification Plates......................................... 22
      (f)   Reporting Requirements........................................ 22
      (g)   Inspections................................................... 22

8.    Loss, Destruction, Requisition, etc................................. 22
      (a)   Event of Loss with Respect to the Aircraft.................... 22
      (b)   Event of Loss with Respect to an Engine....................... 22
      (c)   Application of Payments from Governmental Authorities......... 23
      (d)   Requisition for Use of the Aircraft........................... 24
      (e)   Quiet Enjoyment............................................... 24

9.    Insurance........................................................... 25
      (a)   Liability..................................................... 25
      (b)   Other Insurance............................................... 25
      (c)   Terms of Insurance............................................ 26
      (d)   Application of Insurance...................................... 28
      (e)   Reports....................................................... 28
      (f)   Failure to Insure............................................. 29
      (g)   Additional Insurance.......................................... 29
      (h)   Notice of Claims.............................................. 29
      (i)   Stipulated Loss Value......................................... 29

10.   Return of Aircraft.................................................. 29
      (a)   Redelivery upon Termination................................... 29
      (b)   Condition of Aircraft3/4General............................... 30
      (c)   Condition of Airframe......................................... 31
      (d)   Condition of Controlled Components............................ 32
      (e)   Condition of Engines.......................................... 32
      (f)   Ground Inspection by Lessor................................... 33
      (g)   Operational Ground Check...................................... 33
      (h)   Demonstration Flight.......................................... 33
      (i)   Ferry Flight.................................................. 33
      (j)   Deferred Discrepancy Correction............................... 33

<PAGE>

      (k)   Flight Cost................................................... 34
      (l)   Aircraft Documentation........................................ 34
      (m)   Service Bulletin Kits......................................... 34
      (n)   Non U.S. Manufactured Items................................... 34
      (o)   Lessee's Continuing Obligations............................... 34
      11.   Representations, Warranties and Covenants of Lessee........... 35

12.   Indemnification..................................................... 37
      (a)   General Indemnity and Expenses................................ 37
      (b)   General Tax Indemnity......................................... 39
      (c)   Calculation of Tax Indemnity Payments......................... 42
      (d)   Contest; Reports.............................................. 42
      (e)   Payment....................................................... 44
      (f)   Survival...................................................... 44

13.   Assignment; Lease Subject and Subordinate........................... 44
      (a)   No Impermissible Sublease by Lessee........................... 44
      (b)   [Intentionally left blank.]................................... 44
      (c)   Lease Subject and Subordinate................................. 45
      (d)   Assignments by Lessor......................................... 45

14.   Events of Default; Remedies......................................... 45
      (a)   Events of Default............................................. 45
      (b)   Remedies...................................................... 47

15.   Notices............................................................. 49

16.   Governing Law and Jurisdiction...................................... 50
      (a)   Governing Law................................................. 50
      (b)   Jurisdiction; Service of Process.............................. 50
      (c)   Waiver of Immunity............................................ 50

17.   Miscellaneous....................................................... 51
      (a)   Entire Agreement.............................................. 51
      (b)   English Language.............................................. 51
      (c)   Lessor's Right to Perform for Lessee.......................... 51
      (d)   Application of Payments During Existence of Default........... 51
      (e)   Expenses...................................................... 51
      (f)   Further Assurances............................................ 51
      (g)   Judgment Currency............................................. 52
      (h)   Invalidity of any Provision................................... 52
      (i)   Changes in Law................................................ 52
      (j)   Headings...................................................... 52
      (k)   Consent....................................................... 52
      (l)   Third Party Beneficiaries..................................... 52
      (m)   Counterparts.................................................. 52
      (n)   True Lease.................................................... 52



<PAGE>

SCHEDULE I  -  STIPULATED LOSS VALUE

EXHIBIT A   -  AIRCRAFT DESCRIPTION

EXHIBIT B   -  FORM OF ACCEPTANCE CERTIFICATE

EXHIBIT C   -  FORM OF RETURN ACCEPTANCE CERTIFICATE

EXHIBIT D   -  FORM OF CERTIFICATES OF SUBLESSEE

EXHIBIT E   -  FORM OF OPINION OF SUBLESSEE'S COUNSEL

EXHIBIT F   -  FORM OF MONTHLY REPORT

EXHIBIT G   -  MAINTENANCE RESERVES ADJUSTMENT FORMULA

<PAGE>





      This LEASE AGREEMENT, dated as of March 18, 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 sublessor, and Lessee, as sublessee,  have executed this
Aircraft  Sublease  Agreement  dated as of March 18, 1996 (as  supplemented  and
amended,  the  "SUBLEASE")  for the  sublease of the Aircraft  from TACA,  which
together  with  Sublease  Supplement  No. 1 thereto  dated  March  29,  1996 was
recorded by the FAA on May 30, 1996 and assigned Conveyance No. HH011973; and

      WHEREAS,  the Sublease was amended pursuant to Amendment No. 1 to Sublease
Agreement  dated June 11,  1996,  and  recorded  by the FAA on July 31,  1996 as
Conveyance  No.  BB24106,  and  supplemented  by  Supplement  No. 2 to  Sublease
Agreement dated as of June 11, 1996, and recorded by the FAA on May 31, 1996 and
assigned Conveyance No. BB24107; and

      WHEREAS,  the Sublease was further amended  pursuant to Amendment No. 2 to
Sublease  Agreement  dated March 22, 1997,  which was filed with the FAA on June
10, 1997, but not yet recorded; and

      WHEREAS,  the  Head  Lease  has  been  terminated,   and  the  rights  and
obligations  of TACA under the Sublease have been novated to Lessor  pursuant to
the Aircraft 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
Sublease, and Lessor and Lessee desire to amend and restate the Sublease 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 Aircraft  from Lessor and Lessor is
willing  to lease  the  Aircraft  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>



            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.

            "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.

            "AIRCRAFT"  shall  mean  (i) the  Airframe,  together  with  two (2)
Engines  initially  installed on such Airframe at the  Commencement  Date or any
Replacement Engine  substituted for any such Engine,  whether or not any of said
initial  Engines  or  Replacement  Engines  may from  time to time no  longer be
installed  on such  Airframe or may be installed  upon another  airframe and the
Parts; and (ii) the Aircraft Documentation.  As the context requires, "Aircraft"
shall also mean the Airframe,  any Engine (including a Replacement  Engine), any
Part, the Aircraft Documentation, or any part thereof individually.

            "AIRCRAFT  DOCUMENTATION"  shall  mean all (i) log  books,  aircraft
records, manuals and other data or documents provided to Lessee on or before the
Commencement  Date,  as  evidenced by any  Schedule  attached to the  Acceptance
Certificate as a receipt therefor;  and, (ii) any other documents,  drawings, or
data which are required to be maintained  during the Lease Term pursuant  hereto
or by the FAA or the Maintenance Program.

            "AIRCRAFT  LEASE  NOVATION" shall mean the Aircraft Lease Novation
Agreement  dated the Closing  Date by and among  Former Head  Lessor,  Lessor,
TACA and Lessee.

            "AIRFRAME"  shall mean that certain  Boeing model  737-3S3  airframe
bearing manufacturer's serial number 23787 and United States registration no.
N375TA (to be changed to N954WP).

            "AIRFRAME  RESERVE  AMOUNT" shall have the meaning  ascribed to it
in SECTION 6(B).

            "AGENT"  shall  mean ING  Aviation  Lease,  B.V.,  as agent  for the
Lenders, its successors and assigns.

            "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 March 29, 1996,  the date upon which
the  Aircraft  was  tendered to Lessee in  conformity  with the Sublease and the
Lease Supplement was executed and delivered.

            "CREDIT  AGREEMENT"  shall  mean the  Credit  Agreement  dated as of
November 4, 1993 between First Security Bank of Utah, National  Association,  as
owner trustee, as borrower, Amerilease Capital Corporation, as owner participant
and  guarantor  and the Agent,  as may be amended or  supplemented  from time to
time.
<PAGE>

            "CYCLE"  shall mean any flight of the Aircraft or, in the case of an
engine not attached to an aircraft, any airframe to which an Engine is attached,
consisting of one take-off and one landing  regardless  of time elapsed  between
take-off and landing and distance flown.

            "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 (i) each of the two CFM International Inc. Model
CFM 56-3B2 jet aircraft engines bearing manufacturer's serial numbers 720890 and
721734,  respectively,  whether  or not  from  time  to time  installed  on such
Airframe or installed on any other  airframe,  and (ii) any  Replacement  Engine
that may from time to time be substituted as contemplated by SECTION 8(B) for an
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 any 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 "Engines" means, as of any date of  determination,  all Engines then leased
hereunder.  Each Engine has and any Replacement  Engine  hereunder will have not
less than 750 rated takeoff horsepower.

            "ENGINE  LOSS VALUE"  shall mean,  in respect of each  engine,  [ ]*
United States Dollars (US$ [ ]*).

            "ENGINE  RESERVE  AMOUNT"  shall have the meaning  ascribed to it in
SECTION 6(B) hereof.

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

            "EVENT OF LOSS" with  respect to the  Aircraft,  the Airframe or any
Engine  (hereinbelow  referred to as "property") shall mean any of the following
events  with  respect to such  property:  (i) loss of such  property  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 such  property  that  results in the  receipt of
insurance  proceeds  with respect to such property on the basis of a total loss;
(D) the  condemnation,  confiscation  or seizure of, or requisition of title to,
such property 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 such  property 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 such  property  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 such Aircraft 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). An Event of
Loss with respect to the Aircraft  shall be deemed to have  occurred if an Event
of Loss occurs with respect to the Airframe.

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

            "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 (or other  airframe on which an Engine is then
installed) leave the ground on takeoff until the wheels of the Airframe (or such
other 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.

            "FORMER  HEAD  LESSOR"  shall  mean  First  Security  Bank of  Utah,
National Association, not in its individual capacity but solely as owner trustee
under that certain Trust Agreement dated as of November 4, 1993, between FSB and
the owner participant named therein.

            "GOVERNMENT   ENTITY"  means  (i)  any  national,   state  or  local
government  of the  United  States of  America  or any other  country  where the
Aircraft  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 or in
whose activities any thereof is a participant.

            "HEAD LEASE" shall mean that certain  Aircraft Lease Agreement dated
as of November 4, 1993,  between  Former  Head  Lessor and TACA,  as  originally
executed or as  modified,  amended or  supplemented  pursuant to the  applicable
provisions thereof.

            "INDEMNITEE"  shall have the  meaning  ascribed  to it in SECTION
12(A) 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  SUPPLEMENT"  shall mean the Sublease  Supplement dated March
29, 1996, in form and substance satisfactory to Lessor.

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

            "LENDERS" shall mean ING Aviation Lease,  B.V. and each Person who
shall  become  a  Lender  in  accordance  with the  provisions  of the  Credit
Agreement.

            "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) or (iii) claims  against  Lessor arising out of the transfer by
it of all or any part of its interest in the  Aircraft,  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.

            "MAINTENANCE  RESERVES"  shall have the meaning  ascribed to it in
SECTION 6(B) hereof.


<PAGE>

            "MANUFACTURER"   shall  mean  The  Boeing  Company,   a  corporation
organized and existing under the laws of Delaware.

            "MORTGAGE" shall mean the Mortgage and Security Agreement,  dated as
of  November  4, 1993,  between  Former  Head  Lessor and Agent  relating to the
Aircraft,  as the same may be amended,  supplemented  or  modified  from time to
time.

            "PARTS"  shall  mean  any  and  all  appliances,   parts,  avionics,
attachments,  accessions, instruments,  appurtenances,  accessories, furnishings
and other equipment of whatever nature (other than complete Engines or engines).

            "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 Aircraft 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 Engines,  together  with all Parts  relating to such
engine.

            "SECURITY  ASSIGNMENTS" shall mean an instrument or instruments,  in
form and substance  satisfactory  to Former Head Lessor and Lender,  pursuant to
which TACA assigns to Former Head Lessor (and Former Head Lessor further assigns
to Agent) all of TACA's right and interest in and to this Lease.

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

            "STIPULATED  LOSS VALUE" shall mean in respect of the Aircraft as of
any particular date, such amount as is set forth on Schedule 1 hereto.

            "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

<PAGE>

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 Maintenance Reserves, Stipulated Loss
Value and any  interest  payable  with  respect to payments  pursuant to SECTION
3(D).

            "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.

            "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.


            2.     LEASE; LEASE TERM; DELIVERY OF AIRCRAFT.

                  (a) LEASE;  LEASE TERM. Lessor hereby leases to Lessee,  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)    [Intentionally left blank.]

                  (c)  CONDITION  OF AIRCRAFT AT DELIVERY.  Lessee  acknowledges
that on the  Commencement  Date, the Aircraft (i) was in an airworthy  condition
and   had  all   systems   functioning   in   accordance   with   manufacturer's
recommendations,  (ii) had a current  and  valid  Certificate  of  Airworthiness
issued  by the FAA,  (iii)  was  painted  white,  (iv) was  fresh  from its last
scheduled  "C"  check,  other  than  hours  flown in  respect  of test and ferry
flights,  (v) was in a 136Y (136 seat,  single class cabin)  configuration,  and
(vi) was in accord with the  description  thereof set forth in EXHIBIT A hereto.
Lessee  acknowledges that it inspected and technically  accepted the Aircraft on
March 6, 1996,  and that Lessee  accepted the  Aircraft  under the terms of this
Lease when duly  tendered by Lessor in  accordance  herewith.  Upon such tender,
Lessee executed a Lease Supplement,  which is conclusive proof as between Lessor
and Lessee that Lessee has  examined  the  Aircraft,  that the  Aircraft and the
Aircraft  Documentation  are satisfactory to Lessee and that Lessee has accepted
the Aircraft for all purposes hereof without any reservations whatsoever (except
as noted therein).


            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.

<PAGE>

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 in 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 Aircraft to Lessor by Lessee,  and provided the Aircraft
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.

                  (b) BASIC RENT.  Lessee agrees to pay Lessor rent with respect
to the aircraft, monthly, in advance on each Payment Date, in the amount of [ ]*
Dollars (US $[ ]*) per month ("BASIC RENT"). All payments of Basic Rent shall be
made in immediately  available  funds,  in Dollars by 2:00 p.m. New York 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 next succeeding Business Day without any penalty for late payment.

                  (c)    [Intentionally left blank.]

                  (d) SUPPLEMENTAL  RENT.  Lessee also 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 all rights,  powers and remedies provided for herein or
by law or equity or otherwise in the case of nonpayment of Basic Rent.

                  (e) MANNER OF PAYMENT.  All Basic Rent and  Supplemental  Rent
required to be made to Lessor hereunder shall be paid 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
<PAGE>

or such other bank accounts as Lessor shall specify by written notice to Lessee.
All payments of Supplemental  Rent shall be made in immediately  available funds
in Dollars by 2:00 p.m. New York 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.

                  (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 Aircraft,  the Airframe,
any Engine or any Part of any thereof or any  interruption  or  cessation in the
use or possession of any 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 manufacturers  of the Aircraft,  the Airframe,  any
Engine, Part or component thereof, (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 Aircraft,  the Airframe,  any
Engine any Part of any 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  Aircraft,  the  Airframe,  any Engine or any Part of any 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
Aircraft, the Airframe, any Engine or any Part of any 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  Aircraft  by or
availability of the Aircraft 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.

<PAGE>

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  which  defect in title shall have caused the Aircraft
to be deregistered  under the Federal Aviation Act), Lessee shall be deprived of
possession  or use of the  Aircraft  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  Aircraft.
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.

            4.     CONDITIONS PRECEDENT AND OTHER REQUIREMENTS.

                  (i) The  obligation  of Lessor to lease the Aircraft 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):

                  (b)  EXECUTION  AND DELIVERY OF  DOCUMENTS.  Lessee shall have
duly  executed  and  delivered  to Lessor  (i) this  Lease,  (ii) an  Acceptance
Certificate in the form of EXHIBIT B hereto  covering the Aircraft and effective
as of the Commencement  Date, (iii) the Lease Supplement,  and (iv) a consent or
consents to the  Security  Assignments  in form and  substance  satisfactory  to
Former Head Lessor and Agent.

                  (c)  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.

                  (d) RESOLUTIONS,  ETC. Lessor shall have received, in form and
substance satisfactory to it: (i) 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;  and (ii)
such  other  documents  and  evidence  with  respect  to Lessee  as  Lessor  may
reasonably  request in order to establish the  consummation of the  transactions
contemplated  by  this  Lease,  the  taking  of all  proceedings  in  connection
therewith and compliance with the conditions set forth in this SECTION 4.
<PAGE>

                  (e)  SECURITY  DEPOSIT  AND  BASIC  RENT.  On  or  before  the
Commencement Date (i) Lessor shall have received immediately  available funds in
the amount of the balance of the  Security  Deposit  Amount and (ii) Agent shall
have received the first Basic Rent payment.
                  (f) SIDE LETTER.  On or before the Commencement  Date,  Lessor
shall have  received  all amounts due to it under that certain side letter dated
as of even date herewith.

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

                  (h) FILINGS; FINANCING STATEMENTS.  Lessor shall have received
evidence  satisfactory to it that this Lease and the Security  Assignments shall
each 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.

                  (i)  OPINIONS  OF  COUNSEL.   Lessor  shall  have  received  a
favorable  opinion or  opinions  addressed  to TACA and Former  Head Lessor from
Winthrop,  Stimson,  Putnam & Roberts and Sparks, Dix, counsel for Lessee, dated
as of the Commencement Date.

                  (j) NO EVENT OF LOSS.  No Event of Loss  shall  have  occurred
with respect to the Aircraft or any Engine.

                  (k) 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.

                  (l) NET WORTH. On and as of the Commencement Date Lessee shall
have a net worth of not less than U.S. $[ ]*, as determined  in accordance  with
generally accepted accounting principles.

                  (m) OTHER  DOCUMENTS.  Lessor shall have  received  such other
documents and matters incident to foregoing as TACA, Former Head Lessor or Agent
may reasonably  request and such other agreements as TACA, Former Head Lessor or
Agent may reasonably request, as each deems necessary or desirable to consummate
the transactions contemplated hereby.

                  (ii) The  obligation  of  Lessee to lease  the  Aircraft  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):

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

             (b)  RESOLUTIONS,  ETC.  Lessee  shall have  received,  in form and
substance  reasonably  satisfactory to it: (i) a certificate of the Secretary or
an  Assistant  Secretary  of Lessor,  in the form  attached as part of EXHIBIT D
hereto,  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;  and (ii) such other
documents and evidence with respect to Lessor as Lessee may  reasonably  request
in order to establish the consummation of the transactions  contemplated by this
Lease, the taking of all proceedings in connection therewith and compliance with
the conditions set forth in this SECTION 4.
<PAGE>

             (c)  CONSENTS TO SUBLEASE.  Lessee shall have  received the written
consents of Former Head Lessor and Agent to this Sublease.

             (d)  EXTENSION OF LEASE.  Lessee shall have received a copy of that
certain  Amendment  to Lease dated March 29, 1996  pursuant to which the term of
the  Head  Lease  shall  have  been  extended  such  that it  shall  be at least
coterminous herewith.

             (e)  CERTIFICATE  OF NO  DEFAULT.  Lessee  shall  have  received  a
certificate of a duly authorized officer of Lessor to the effect that no Default
or Event of Default,  as defined  therein,  has occurred and is continuing under
the Head Lease or the Mortgage.

             (f) DELIVERY OF LEASE  SUPPLEMENT.  Lessor shall have  delivered to
Lessee the Lease Supplement.

             (g) CERTIFICATE OF AIRWORTHINESS.  The Certificate of Airworthiness
for the Aircraft shall not have been withdrawn.

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

             (i) BROKER. Lessee shall have received a letter from Cauff, Lippman
& Crane Aviation,  Inc., addressed to and in form and substance  satisfactory to
it, to the effect that Cauff,  Lippman & Crane Aviation will not seek to recover
any amounts in respect of the Aircraft, Engines or Parts from Lessee.

            5.     DISCLAIMER; MANUFACTURER AND VENDOR WARRANTIES.

                  (a)  DISCLAIMER  BY  LESSOR.  PRIOR TO THE  EXECUTION  OF THIS
LEASE,  LESSEE HAS SELECTED THE TYPE OF AIRCRAFT,  AIRFRAME,  ENGINES AND PARTS.
EXCEPT AS OTHERWISE  EXPRESSLY  PROVIDED IN SECTION 5(B) BELOW,  NEITHER LESSOR,
NOR ANY  SUCCESSOR  IN  INTEREST  TO EITHER 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  AIRCRAFT,  AIRFRAME,  ENGINES AND
PARTS, THEIR  MERCHANTABILITY OR THEIR FITNESS FOR ANY PARTICULAR  PURPOSE,  AND
LESSOR EXPRESSLY  DISCLAIMS THE SAME AND AS RESPECTS  LESSOR,  LESSEE LEASES THE
AIRCRAFT,  AIRFRAME,  ENGINES  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 AIRCRAFT

<PAGE>

OR THE SUITABILITY OF THE AIRCRAFT 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  AIRCRAFT OR  AIRFRAME,  ANY OF THE ENGINES OR PARTS,  OR BY ANY  INADEQUACY
THEREOF  OR  DEFICIENCY  OR DEFECT  THEREIN  OR BY ANY  INCIDENT  WHATSOEVER  IN
CONNECTION THEREWITH ARISING IN STRICT LIABILITY,  NEGLIGENCE,  GROSS 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,  LESSOR AND ANY PERSON  CLAIMING BY, THROUGH OR UNDER
LESSOR,  ALL ITS RIGHTS,  EXPRESS OR IMPLIED  (WHETHER  STATUTORY OR OTHERWISE),
AGAINST  LESSOR OR ANY OTHER SUCH PERSON IN AND TO THE AIRCRAFT  RELATING TO THE
CAPACITY, AGE, QUALITY,  DESCRIPTION,  STATE, CONDITION,  DESIGN,  CONSTRUCTION,
USE,  OPERATION OR PERFORMANCE OF THE AIRCRAFT AND THE LEASING THEREOF BY LESSOR
TO LESSEE,  OR TO THE  MERCHANTABILITY  OR  SUITABILITY  OF THE  AIRCRAFT OR ITS
FITNESS FOR ANY PARTICULAR PURPOSE OR AS TO ITS AIRWORTHINESS. In particular and
without  prejudice to the  generality of the  foregoing,  neither Lessor nor any
such other Person shall 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 any of the  Aircraft  or any Person or
property whatsoever, whether on board the Aircraft or elsewhere, irrespective of
whether such loss, damage or delay shall arise (x) from the  unairworthiness  of
the  Aircraft,  or (y) from any action or  omission  of Lessor or any other such
Person (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,  and (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.

                  (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 Aircraft and Engines
and  shall  obtain  Manufacturer's  consent  to  such  assignment.  Lessee  will
diligently  and  promptly  pursue  any  valid  claims  it may  have  under  such

<PAGE>

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 Aircraft or
Engines is 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 Aircraft 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  exercise  by Lessor  or any Party  claiming  by,
through or under 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.
      6.     MAINTENANCE; 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  Aircraft,  during  the  Lease  Term and  until the
      Aircraft  is  returned  to  Lessor,  Lessee  shall,  at its sole  cost and
      expense,  service,  inspect,  test,  maintain,  overhaul  and  repair  the
      Aircraft, the Engines and all of the Parts in accordance with 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  Aircraft  in as  good
      condition  (operating  and  otherwise),  appearance  and  repair  as  when
      delivered  to  Lessee  hereunder,  ordinary  wear  and tear  excepted  and
      otherwise to enable the airworthiness  certification of the Aircraft to be
      maintained in good standing at all times under  applicable  law, and to be
      and  remain  registered  in the  United  States  pursuant  to the  Federal
      Aviation Act, and (B) in the same manner and with the same care as used by
      Lessee with respect to similar  aircraft and engines  owned or operated by
      Lessee (it being the intention of the parties hereto that Lessee shall not
      discriminate against the Aircraft in respect of any maintenance  matters).
      Lessee shall be authorized  to amend its  Maintenance  Program;  provided,
      however,  that  notwithstanding  such amendment,  the Maintenance  Program
      shall,  at all times during the Lease 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 or the  manufacturers  of the Engines or engines,  equipment,
      accessories  or Parts  installed  on the  Aircraft.  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,  airworthiness  directives and
                  instructions  issued by the FAA  affecting  the Aircraft  that
                  have an effective date for compliance prior to, or sooner than
                  one hundred  eighty  (180) days after,  the return date of the
                  Aircraft;
<PAGE>

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

                        (D) to incorporate in the  maintenance  schedule for the
                  Aircraft  a  corrosion   control  program  as  recommended  by
                  Manufacturer  and the FAA and to carry out such work as may be
                  required to comply therewith,  including periodic  inspections
                  of fuel tanks,  periodic inspection and clean-up under galleys
                  and  lavatories,  the  cleaning  and  treating of all mild and
                  moderate  corrosion  and  the  correcting  of all  severe  and
                  exfoliated corrosion in accordance with the recommendations of
                  the Manufacturer; and

                        (E)  to  maintain,  in  the  English  language  (1)  the
                  Aircraft  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  Aircraft,  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 any Engine or Part
                  not installed on the Airframe 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 Aircraft,  and to return the Aircraft to Lessee's
      revenue service after such performance has been  accomplished by Lessee 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").
      For purposes hereof,  Lessor  acknowledges  that Lessee's  maintenance and
      repairs in  connection  with "C" checks and "D" checks (or the  equivalent
      thereof) are being performed by Tramco,  Inc. of Seattle,  Washington.  In
      the event Lessee has a third party accomplish, on a continuous basis, some
      or all of the  maintenance  requirements  under  the  Maintenance  Program
      (excluding  "A,"  preflight and transit  checks) 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  reasonably  visit the  facilities of any such third party
      maintenance performer to inspect the maintenance work performed on and the
      maintenance records of the Aircraft including any Engine or Part.

            (iii) Lessor may request that Lessee  accomplish  changes desired by
      Lessor  to  the  Aircraft  during  Lessee's  layup  of  the  Aircraft  for
      maintenance  under the Maintenance  Program in those  circumstances  where
      such  changes are not  required  under this  SECTION  6(A) or initiated by
      Lessee under SECTION 6(C). No such request shall be unreasonably denied by
      Lessee  provided  that no such changes  shall  require  Lessee to keep the
      Aircraft  out of service  for any  longer  period  than the  period  which
      Lessee's  maintenance  of the  Aircraft  was  scheduled  to require.  With
      respect to such requested changes,  Lessor, at its expense,  shall provide
      retrofit kits of parts and  installation  instructions  to Lessee.  Lessor
      shall,  within thirty (30) days (or such earlier period as may be required
      by any Authorized Repair Facility  performing the requested  change(s)) of

<PAGE>

      receipt of an invoice  detailing  the same,  pay all costs  thereof  which
      costs shall have been agreed upon prior to  performance  of the  requested
      changes.

            (iv) Lessee  shall give Lessor not less than thirty (30) days' prior
      written  notice of the  anticipated  date,  location and  Approved  Repair
      Facility in respect of any "C"check or "D" check (or its equivalent) to be
      performed on the Aircraft.

            (v) Repairs will be accomplished  as follows:  (A) any repair to the
      Aircraft shall be accomplished pursuant to the appropriate  manufacturer's
      repair  manual  instructions  under an FAA approved  program;  and (B) any
      material  repair to the  Aircraft  that is not covered by the  appropriate
      manufacturer's  repair  manual  instructions  shall be subject to Lessor's
      prior written approval and shall be made under an FAA approved program.

            (vi)  Notwithstanding  anything to the contrary contained herein and
      provided that the same shall not violate the terms of or conflict with any
      lease,  sublease,  credit or security  agreement to which such engine,  an
      aircraft  engine  that is not an  Engine,  but  that is  installed  on the
      Airframe, shall be maintained in accordance with this SECTION 6(A).

                  (b)    MAINTENANCE RESERVES.

                  (i) Lessee shall pay Lessor,  as Supplemental Rent for the use
            of the  Aircraft  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,  the  following  sums  ("MAINTENANCE
            RESERVES"):  (A) with respect to each  Engine,  the sum (the "ENGINE
            RESERVE  AMOUNT") of (x) the amount  determined by  multiplying  the
            number  of Flight  Hours of  operation  of such  Engine  during  the
            immediately  preceding month (irrespective of whether such Engine is
            installed  on the  Airframe or any other  airframe)  by [ ]* Dollars
            (US$[ ]*) which  amount  shall be applied  toward  restoration  shop
            visits (the "SHOP VISIT  PORTION") and (y) the amount  determined by
            multiplying  the number of Cycles of operation of such Engine during
            the immediately preceding month (irrespective of whether such Engine
            is installed on the Airframe or any other  airframe) by [ ]* Dollars
            (US$[  ]*)  which  amount  shall  be  applied  toward  the  cost  of
            life-limited parts (the "LLP Portion"),  and (B) with respect to the
            Airframe,  the amount (the "AIRFRAME RESERVE AMOUNT")  determined by
            multiplying  the number of Flight Hours of operation of the Airframe
            during such month by [ ]* Dollars (US$[ ]*). It is the intent of the
            parties hereto that the Aircraft and Engines be operated  during the
            Lease Term at an average Flight  Hour/Cycle ratio (the "Ratio") of [
            ]* Flight  Hours to one Cycle ([ ]*:1).  During  any  calendar  year
            during the Lease Term, the total Engine Flight Hours for each Engine
            recorded in respect of the previous  twelve months shall be compared
            with the Cycles  flown for such 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 such Engine
            applicable  with  respect  to the Shop  Visit  Portion of the Engine
            Reserve  Amount due from Lessee after such annual Ratio  computation
            and prior to the next annual Ratio  computation shall be as provided
            in EXHIBIT G hereof for such Ratio. Any excess Maintenance  Reserves
            remaining at the expiration of the Lease Term or earlier termination
            of this Lease shall be retained by Lessor.

                  (ii) Lessee shall be entitled to  reimbursement  from the Shop
            Visit  Portion of the Engine  Reserve  Amount held for an Engine for
            Lessee's  actual costs  (without  mark-up)  incurred with respect to

<PAGE>

            heavy  maintenance of such Engine requiring a shop visit,  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  Maintenance
            Reserves  available  to Lessee  hereunder);  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 Shop Visit Portion of the Engine Reserve Amount for
            the Engine  requiring a shop visit, and (B) in no event shall Lessee
            be entitled to reimbursement  for any expenses related to removal or
            installation  of any 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  Reserve  Amount (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 Reserve Amount  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
            Reserve Amount for the Engine  requiring a shop visit, 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.

                  (iv)  Lessee  shall  be  entitled  to  reimbursement  from the
            Airframe  Reserve Amount for the costs  incurred  pursuant to a full
            structural and systems "D" check (or its equivalent) to occur during
            the Lease  Term.  Such  reimbursement  shall be made within ten (10)
            Business Days after  presentation  to Lessor of appropriate  written

<PAGE>

            evidence of such expenses  (which shall include a copy of an invoice
            from an FAA-approved  maintenance  facility  indicating that the "D"
            check (or its equivalent)  has been completed and identifying  those
            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  Maintenance  Reserves  available  to Lessee from the
            Airframe Reserve Amount  hereunder);  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  Airframe  Reserve  Amount,  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  maintenance  facility which performed
            the "D" check for which reimbursement is sought.

                  (v) In  respect of any  maintenance  work to be  performed  or
            replacement of life limited parts for which  reimbursement  from the
            applicable  portion of the  Maintenance  Reserves will be requested,
            Lessee,  prior to the performance of such maintenance or replacement
            of life limited parts,  shall deliver to Lessor a detailed workscope
            to be  performed  with an  estimate  of all costs to be  incurred in
            connection with such maintenance  and/or replacement of life limited
            parts, including,  without limitation,  the estimated cost of labor,
            materials and parts for which  reimbursement is available under this
            SECTION 6(B).

                  (vi) Provided that no breach by Lessor of Lessor's covenant of
            quiet  enjoyment  depriving  Lessee of its use or  possession of the
            Aircraft  has  occurred  and is  continuing,  nothing  herein  shall
            modify,  limit or otherwise  affect Lessee's  obligation to maintain
            and repair the Aircraft in  accordance  with the terms of this Lease
            and, except as specifically provided herein, any and all maintenance
            and repairs on or to the Aircraft shall be at Lessee's sole cost and
            expense.

                  (c) REPLACEMENT OF PARTS.  Lessee, at its own cost and expense
(except as otherwise expressly provided herein), will promptly replace all Parts
that may from time to time be  incorporated  or  installed in or attached to the
Aircraft  or any 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,  except as otherwise provided
in SECTION 6(E). 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,  except as otherwise provided in SECTION 6(E), will, at its own cost and
expense, replace such Parts as promptly as possible. All replacement Parts shall
(i) be free and clear of all  Liens  (except  Permitted  Liens,  as  hereinafter
defined,  and except for pooling arrangements to the extent permitted by SECTION
6(D)),  (ii) be in  airworthy  and  good  operating  condition  and of at  least
equivalent model and  modification  status and 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)  and  (iii)  if
applicable,  have a current "serviceable tag" of the manufacturer or maintenance
facility  providing  such items to Lessee,  indicating  that such Parts are new,
serviceable  or  overhauled.  All Parts at any time removed from the Aircraft or
any 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  Aircraft or such Engine and that meet the
requirements  for  replacement  Parts  specified  above.  Immediately  upon  any
replacement  Part  becoming  incorporated  or  installed  in or  attached to the
Aircraft or any Engine as above provided,  without further act, (i) title to the

<PAGE>

replaced Part shall  thereupon 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 the  provisions  of
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  Aircraft  or such Engine for all
purposes  hereof  to the same  extent as the Parts  originally  incorporated  or
installed in or attached to the Aircraft or such Engine.

                  (i)  there is not  available  to Lessee at the time and in the
            place  that an engine or part is  required  to be  installed  on the
            Aircraft,  a  Replacement  Engine  or,  as the  case  may  be,  Part
            complying  with the  requirements  of  SECTION  6(C);  (ii) it would
            result  in an  unreasonable  disruption  of  the  operation  of  the
            Aircraft  and/or the business of Lessee to ground the Aircraft until
            an Engine or Part, as the case may be,  complying  with SECTION 6(C)
            becomes  available for  installation  on the Aircraft;  and (iii) as
            soon as practicable  after  installation of the same on the Aircraft
            but,  in any  event,  no  later  than  the  date of the  next  major
            maintenance  check (except as such time may be extended  pursuant to
            SECTION  8(B)),  Lessee removes any such engine or part and replaces
            it with an  Engine  or  Part,  as the case  may be,  complying  with
            SECTION 6(C).

                  (d) POOLING OF PARTS.  Any Part (other than  Engines)  removed
from the  Aircraft 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 no Default or Event of Default  shall have
occurred and be continuing  and further  provided that the Part  replacing  such
removed Part shall be  incorporated  or installed in or attached to the Aircraft
in  accordance  with  SECTION 6(C) after the removal of such  removed  Part.  In
addition,  any replacement Part when incorporated or installed in or attached to
the Aircraft 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,  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  Aircraft  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 AIRCRAFT AND THE ENGINES 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  AIRCRAFT  OR ANY ENGINE  WITHOUT  THE PRIOR  WRITTEN  CONSENT OF LESSOR.
Lessee, at its own expense,  will make such alterations and modifications to the
Aircraft  and the  Engines  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,  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 Aircraft or

<PAGE>

such 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 Aircraft or such Engine was
then of the value or utility and in the condition and airworthiness  required to
be maintained  by the terms of this Lease),  it being  understood  that any such
alteration,  modification or addition that adversely affects  interchangeability
of Parts shall be deemed to diminish the value of the  Aircraft.  Promptly  upon
request therefor, Lessee shall provide to Lessor copies of all drawings and data
with respect to any proposed  alteration,  modification or addition not mandated
by the FAA.  Lessor may impose as a condition  to its consent to all or any part
of such proposed alteration,  modification or addition that, prior to the return
of the  Aircraft to Lessor in  accordance  with  SECTION  10,  such  alteration,
modification or addition be removed and the Aircraft  returned,  all at Lessee's
expense,  to the condition it was in prior to such  alteration,  modification or
addition,  and  otherwise as required by SECTION 10. All parts  incorporated  or
installed  in or attached or added to the  Aircraft or such 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 Aircraft or any 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 Aircraft or such Engine
pursuant  to the terms of this  SECTION  6(E) and (iii) such Part can be removed
from the Aircraft or such Engine  without  diminishing  or impairing  the value,
utility,  condition or  airworthiness  required to be maintained by the terms of
this Lease that the Aircraft or such 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  Aircraft or such 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 Aircraft or such Engine to Lessor  hereunder  shall remain the
property of Lessor.

            Notwithstanding  anything  herein to the  contrary,  Lessee shall be
permitted  to install and remove,  at its sole cost and  expense,  new  galleys,
seats,  video and  entertainment  systems and  telephones,  provided that Lessee
shall store any galleys and video, entertainment and telephone systems currently
installed on the Aircraft and removed  therefrom by Lessee, in a safe manner and
at its sole cost and expense and,  provided,  except as otherwise agreed between
Lessee and Lessor, that any such equipment installed upon the Aircraft by Lessee
is removed by Lessee at its sole cost and  expense and Lessee  shall  return the
Aircraft with the Lessor's equipment reinstalled thereon or, if lost or damaged,
with the equivalent  thereof,  satisfactory to Lessor, and further provided that
Lessee  shall  repair at its sole cost and expense  and to  Lessor's  reasonable
satisfaction,  any damage to the Aircraft  caused by or in connection  with such
installation and removal.


            7.     TITLE AND REGISTRATION; LIENS; POSSESSION.

                  (a) TITLE AND  REGISTRATION.  Lessee  acknowledges  and agrees
that as between Lessee and Lessor, title shall at all times be and remain vested
solely and  exclusively  in Lessor,  and  Lessee  shall have no right,  title or
interest  in the  Aircraft  except  the right to use the  Aircraft  as  provided
herein. The Aircraft has been duly registered, and shall at all times during the
Lease Term remain duly  registered,  in the name of Lessor under the laws of the
United States, except as otherwise required by the Federal Aviation Act. Lessee,
at its sole cost and expense, shall from time to time do or cause to be done any
and all acts and things then required by law (including the Geneva Convention on
the  International  Recognition  of Rights in  Aircraft,  if  applicable)  or by
practice,  custom  or  understanding  or as Lessor  may  reasonably  request  to
protect, preserve and perfect Lessor's, rights and interests in the Aircraft and
this Lease in the United States or in any other  jurisdiction into or over which
Lessee may operate the Aircraft or to which Lessee is subject.  Without limiting
the  generality  of the  foregoing,  if at any time any filing or  recording  is

<PAGE>

necessary  or  advisable  to perfect,  protect  and/or  preserve  the rights and
interests of Lessor in the Aircraft (including Engines and Parts) or this Lease,
Lessee  shall,  at its  own  cost  and  expense,  cause  this  Lease,  financing
statements  with  respect  hereto,  and  any  and all  additional  documents  or
instruments which shall be executed pursuant to the terms hereof or thereof,  so
far as permitted  by  applicable  law, to be kept,  filed and recorded and to be
reexecuted,  refiled  and  rerecorded  at all times in the  appropriate  offices
pursuant or in relation to the  applicable  laws and  regulations  of the United
States,  and shall furnish to Lessor an opinion of counsel and/or other evidence
satisfactory to Lessor of such  registrations,  recordation and filings required
hereunder.

                  (b) LIENS.  Lessee  will not  directly or  indirectly  create,
incur,  assume or suffer to exist any Lien on or with respect to the Airframe or
any  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 material  danger of the sale,  forfeiture or loss of the Airframe or
any  Engine  or 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  Airframe  or any  Engine or Part or  interest
therein  (each of the Liens  referred  to in  clauses  (i) to (v)  being  herein
referred to as  "PERMITTED  Liens").  Lessee will notify,  as soon as reasonably
practicable,  Lessor and shall promptly, at its sole cost and expense, take such
action as may be necessary 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  Aircraft,  any Engine or any Part and
Lessee hereby irrevocably waives disclaims and releases any such Lien.

                  (c) OPERATION,  QUIET  ENJOYMENT.  Lessee shall not operate or
locate the  Aircraft,  or suffer the Aircraft to be operated or located,  (i) in
violation of any applicable law or the Aircraft's  certificate of airworthiness,
(ii) other than on regularly scheduled or charter commercial  passenger or cargo
flights between any points in the Americas except (inclusive of any landings) in
Cuba except if otherwise  required to ferry the  Aircraft to an Approved  Repair
Facility,  (iii) in any area excluded from coverage by any insurance required by
the  terms  of  SECTION  9, or  (iv) 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. Lessee shall not
use the Aircraft for testing or for  training of flight  crewmembers  other than
Lessee's own crewmembers.  Except as otherwise provided herein, Lessee shall pay
all costs  incurred in the operation of the Aircraft  during the Lease Term, for
profit or otherwise, including the costs of flight crews, cabin personnel, fuel,
oil, lubricants,  maintenance,  insurance, storage, landing and navigation fees,
airport charges, passenger service and any and all other expenses of any kind or
nature,  directly  or  indirectly,  in  connection  with or  related to the use,
movement and operation of the Aircraft.  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 Aircraft, the Airframe or any Engine by Lessee.

                  (d) POSSESSION.  EXCEPT AS OTHERWISE  PROVIDED IN THIS SECTION
7(D),  LESSEE  SHALL HAVE NO RIGHT  WHATSOEVER  TO SUBLEASE  THE AIRCRAFT OR ANY
ENGINE TO ANY  PERSON  WITHOUT  HAVING  OBTAINED  THE PRIOR  WRITTEN  CONSENT OF

<PAGE>

LESSOR.  Lessor agrees that it will not  unreasonably  withhold its consent to a
proposed  sublease by Lessee. In addition and  notwithstanding  anything in this
Lease to the  contrary,  Lessee will not in any manner  without  Lessor's  prior
written consent deliver,  transfer or relinquish possession of the Aircraft, the
Airframe  or any  Engine or  install  any  Engine,  or permit  any  Engine to be
installed, on any airframe other than the Airframe;  provided,  that, so long as
no Default or Event of Default  shall have  occurred and be  continuing,  and so
long as the action to be taken shall not deprive  Lessor of its  interest in the
Aircraft, Lessee may, from time to time, take any of the following actions:

                  (i) deliver  possession  of the  Airframe or any Engine to the
            manufacturer  thereof or to any organization  for testing,  service,
            repair,  maintenance  or overhaul work on the Airframe or any Engine
            or any Part of any thereof or for alterations or modifications in or
            additions to such  Airframe or any Engine to the extent  required or
            permitted by the terms of SECTION 6(E); or

                  (ii) to the extent permitted by this SECTION 7(D), subject any
            appliances,  parts or other  equipment  owned by Lessor and  removed
            from the Airframe or any Engine to any pooling arrangement  referred
            to in SECTION 6(D) of the Lease; or

                  (iii)  install the Engines 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 Engines  hereunder at all times
            during  the  Lease  Term  and  until  redelivery  of the same in the
            condition required in SECTION 10 hereof, or

                  (iv) transfer  possession of the Airframe or any 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  7-103.8  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.

            Any "wet lease" or other  similar  arrangement  under  which  Lessee
maintains  operational  control of, and  continues  to  maintain  and insure the
Aircraft,  for a term not exceeding twelve (12) months (including all extensions
and renewals),  shall not constitute a sublease,  transfer or  relinquishment of
possession  for  purposes of this  SECTION  7(D).  Lessee  shall  notify  Lessor
concurrently with entering into any "wet lease" with a term,  including renewals
of more than six (6) months.

            No  sublease,  transfer  or  relinquishment  of  possession  of  the
Airframe  or any  Engine  permitted  under  this  SECTION  7(D) shall in any way
discharge or diminish any of Lessee's  obligations  hereunder,  or  constitute a

<PAGE>

waiver of any of Lessor's  rights and remedies  hereunder.  Notwithstanding  any
sublease,  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  PLATES. Lessee shall at all times maintain
in a prominent  position in the cockpit of the  Airframe  and on each Engine the
identification  plates  installed  thereon or  attached  thereto.  Lessee  shall
promptly replace any such  identification  plate 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 F, which  report will  include  (i) the  hours/cycles  operated  for the
Airframe and each of the Engines (and their location by airframe). On at least a
quarterly  basis  Lessee's  report  will also  contain  a list of those  service
bulletins, ADs and engineering modifications  incorporated on the Aircraft. Each
Monthly Report will be furnished  within fifteen (15) days after the end of each
calendar month,  except that the Monthly Report pertaining to the last month (or
any portion  thereof) of the Lease Term will be  furnished to Lessor on the last
day of the Lease Term.

                  (g)  INSPECTIONS.  During the Lease Term Lessee shall  furnish
Lessor such information concerning the location, condition, use and operation of
the  Aircraft  as Lessor  may  reasonably  request.  Lessee  shall  give  Lessor
reasonable prior notice of the anticipated date of any major maintenance checks,
in order to enable Lessor to inspect the Aircraft (should it choose to do so) at
the time and place such major checks occur. Lessor shall be entitled to have its
technical  representatives  present  during  any major  maintenance  checks.  On
reasonable notice,  Lessor and/or its authorized agents or representatives shall
have the right to inspect the Aircraft and  Aircraft  documentation  (whether in
connection with scheduled  major  maintenance  checks or otherwise)  and/or make
copies of the Aircraft  documentation;  provided,  that such  inspections do not
unreasonably  disrupt  Lessee's  commercial   operations  or  operation  of  the
Aircraft.  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 Aircraft records.


            8. LOSS, DESTRUCTION, REQUISITION, ETC. During the Lease Term except
as otherwise  expressly  provided  herein,  Lessee shall bear the entire risk of
loss of or damage to the Aircraft. Accordingly:

                  (a)  EVENT OF LOSS  WITH  RESPECT  TO THE  AIRCRAFT.  Upon the
occurrence  of an Event of Loss  with  respect  to the  Aircraft,  Lessee  shall
forthwith (and, in any event,  within seven (7) days after such occurrence) give
Lessor  written  notice of such Event of Loss. On or before the earlier to occur
of (x) the actual receipt by Lessee of any insurance proceeds in respect of such
Event of Loss and (y) the one  hundred  twentieth  (120th) day after the date of
such Event of Loss,  but in no case  later than the last day of the Lease  Term,
Lessee shall pay to Lessor in immediately  available  funds the Stipulated  Loss
Value,  whereupon (l) the obligation of Lessee to pay Basic Rent with respect to
the  Aircraft  for any  period  commencing  after  the date of  payment  of such
Stipulated Loss Value shall terminate;  provided that Lessee shall remain liable
for all  payments  of Basic  Rent due on or before  the date of such  payment of
Stipulated  Loss  Value,  (2) the Lease  Term  shall end and (3)  Lessor,  after
compliance  by Lessee  with all of its other  obligations  hereunder,  including
without  limitation  payment of Supplemental Rent then due, will cause Lessor to
transfer to Lessee, without recourse or warranty, title to the Aircraft free and
clear of Lessor Liens.

                  (b)  EVENT  OF  LOSS  WITH  RESPECT  TO AN  ENGINE.  Upon  the
occurrence of an Event of Loss with respect to an Engine only, Lessee shall give

<PAGE>

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,  convey or cause to be conveyed to Lessor,  as replacement  for the Engine
with respect to which such Event of Loss occurred, 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 with respect to which such Event of
Loss occurred, assuming such 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,  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(B),  the  taking  of all
corporate proceedings in connection therewith and compliance with the conditions
set forth in this SECTION 8(B), in each case in form and substance  satisfactory
to such party;  (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. Upon full compliance by Lessee with
the terms of this  subparagraph  (b),  such Engine shall no longer be subject to
the terms of this Lease and Lessor will  transfer to Lessee  title to the Engine
with respect to which the Event of Loss occurred,  without  recourse or warranty
(except  that the  Engine  is free and clear of Lessor  Liens)  and shall  cause
Lessor to execute and deliver to Lessee an instrument  releasing the Engine from
the Lease. For all purposes hereof, each such Replacement Engine shall be deemed
part of the property  leased  hereunder,  shall be deemed an "Engine" as defined
herein  and shall be deemed  part of the  Aircraft  as was the  Engine  replaced
thereby.  No Event of Loss  covered by this  SECTION  8(B)  shall  result in any
reduction  in Basic  Rent.  Notwithstanding  the  foregoing,  if,  as of the one
hundred  twentieth  (120th) day following  the  occurrence of the Event of Loss,
Lessee shall not have furnished a Replacement  Engine as required  hereunder and
conforming to the  requirements  set forth above,  at Lessor's option (i) Lessor
shall extend the time period within which Lessee may perform its  obligations to
furnish a Replacement  Engine hereunder,  or, (ii) Lessee shall forthwith pay to
Lessor,  an amount  equal to the  Engine  Loss  Value and upon  receipt  of such
payment Lessor shall,  as soon as practicable  but in any event prior to the end
of Lease Term, lease to Lessee  hereunder,  a Replacement  Engine complying with
the conditions of this SECTION 8(B).  Notwithstanding  the provisions of SECTION
6(C) hereof any engine installed by Lessee on the Aircraft following an Event of
Loss to an Engine may remain thereon until  replaced by a Replacement  Engine as
hereinafter provided.

                  (c) 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 by 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,
<PAGE>

 the  Aircraft  or any  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:

                  (i) if such payments are received with respect to the Airframe
            or the Airframe and one or more Engines or engines  installed on the
            Airframe,  such payments  shall be paid to or retained by Lessor and
            applied in reduction of Lessee's  obligation  to pay the  Stipulated
            Loss Value,  if not already  paid by Lessee,  or, if already paid by
            Lessee,  shall be paid to or  retained  by  Lessee  and  applied  to
            reimburse  Lessee for its payment of such Stipulated Loss Value, and
            the balance,  if any, of such payment remaining  thereafter shall be
            distributed to Lessee; and

                  (ii) if such  payments are received with respect to an Engine,
            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 Lessor shall have elected
            to provide a  Replacement  Engine as provided  in SECTION  8(B) 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.

                  (d) REQUISITION  FOR USE OF THE AIRCRAFT.  In the event of the
requisition for use of the Aircraft by a Government  Entity of the United States
and one or  more  related  Engines  or  engines  during  the  Lease  Term  under
circumstances  not  constituting an Event of Loss,  Lessee shall promptly notify
Lessor of such  requisition.  All of Lessee's  obligations under this Lease with
respect to such Aircraft  including,  but not limited to Lessee's  obligation to
pay Rent,  shall  continue  to the same  extent as if such  requisition  had not
occurred.  In the event of a breach of  Lessee's  obligations  pursuant  to this
SECTION  8(D),  all payments  received by Lessor or Lessee from such  Government
Entity for the use of such  Aircraft  and Engines or engines  shall be paid over
to, or  retained  by,  Lessor to the extent of Lessee's  obligations  under this
Lease.

                  (e) QUIET  ENJOYMENT.  Notwithstanding  the provisions of this
SECTION 8, if (i) Lessee has been  deprived  of both use and  possession  of the
Aircraft  or any  Engine or Part  thereof  solely  as a result of the  breach by
Lessor of its covenant of quiet enjoyment 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  Aircraft or any such Engine or Part 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 Aircraft or such Engine or Part (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 Aircraft during any such period, the Lease shall terminate and, upon
such  termination  (i) the Aircraft 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
Lessor as provided  in SECTION 3. In the event of an Event of Loss with  respect
to an Engine not involving an Event of Loss with respect to the Airframe  during
any  such  period,  Lessor  shall  at its  sole  cost  and  expense,  as soon as
practicable  but in any event  within  120 days  after the date of such Event of
Loss,  provide a Replacement  Engine  complying with all terms of this Lease and
meeting all conditions  otherwise imposed hereunder on Lessee in the event of an

<PAGE>

Event of Loss with respect to an Engine.  Immediately upon Lessee being restored
use and  possession  of the Aircraft or any Engine or Part with respect to which
the risk of loss shall have passed from Lessee to Lessor in accordance with this
SECTION 8(E),  the entire risk of loss thereof shall again be borne by Lessee in
accordance with the terms of this Lease.

            9.  INSURANCE.  Except as otherwise set forth in SECTION 8(E) 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 Aircraft 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.   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 the  Aircraft  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  satisfactory to Lessor and in amounts 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)  OTHER  INSURANCE.   (i)  all-risk   (including,   without
limitation,  ground and flight)  aircraft  hull  insurance  with  respect to the
Aircraft in an amount  which shall not at any time while the Aircraft is subject
to this Lease be less than Stipulated Loss Value;

                  (i) hull war-risk insurance with respect to the Aircraft in an
            amount which shall not be less than the Stipulated Loss Value of the
            Aircraft;  provided,  further,  however,  that such insurance  shall
            include but not be limited to, coverage  against (1) war,  invasion,
            acts of foreign  enemies,  hostilities  (whether  war be declared or
            not), civil war, rebellion, revolution,  insurrection,  martial law,
            military or usurped power or attempts at  usurpation  of power,  (2)
            strikes, riots, civil commotions or labor disturbances,  (3) any act
            of one or more persons,  whether or not agents of a sovereign power,
            for  political or terrorist  purposes and whether the loss or damage
            resulting therefrom is accidental or intentional,  (4) any malicious
            act or act of sabotage, (5) confiscation,  nationalization, seizure,
            restraint,  detention,  appropriation,  requisition  of title or use
            (other than requisition for use by a Government Entity of the United
            States)  by or under the  order of any  government  (whether  civil,
            military  or de facto)  or any  public  or local  authority  and (6)
            hijacking or any unlawful seizure or wrongful exercise of control of
            the  Aircraft  or crew in  flight  (including  any  attempt  at such
            seizure  or  control)  made by any  person or  persons  on board the
            Aircraft acting without the consent of Lessee;

                  (ii) all-risk  (including,  without limitation,  fire, transit
            and extended coverage) insurance, and war-risk insurance of the type
            specified in SECTION 9(B)(II) to the extent available,  with respect
            to each Engine when not  installed  on the Airframe in an amount not
            less than the Engine Loss Value of such Engine;

                  (iii) such  other  insurance  as Lessee  carries in respect of
            other similar aircraft in its fleet.
<PAGE>

      Notwithstanding  anything in the foregoing to the  contrary,  no insurance
shall have a deductible in excess of $[ ]*.

                  (c) TERMS OF INSURANCE.

                  (i) Without  limiting any of Lessee's  obligations  hereunder,
            any policies  carried in accordance  with SECTION 9(A) of this Lease
            covering the  Aircraft or the Engines 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  Indemnitee  (the  "ADDITIONAL  INSUREDS") and
                  provide that the Additional Insureds bear no liability for the
                  payment of premiums;

                        (B) provide that if the insurers  cancel such  insurance
                  for any reason  whatever,  or the same is allowed to lapse for
                  nonpayment  of  premium,   or  if  there  is  any  alteration,
                  termination,  or cancellation  (whether by Lessee or any other
                  Person  and  for  whatever  reason)  of  the  insurance,  such
                  cancellation,  lapse, alteration,  termination 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  available in the
                  market for any  portion  of the  required  war risk  coverage)
                  after receipt by such Additional  Insureds of notice from such
                  insurers thereof;

                        (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) shall  contain a waiver by the  insurers  of (i) all
                  rights of  subrogation  against any and all of the  Additional
                  Insureds and (ii) any rights of set-off,  counterclaim  or any
                  other  deductions  whether by attachment  or otherwise,  which
                  they may have against any Additional Insured;

                        (E) shall be primary and without  right of  contribution
                  from any  other  insurance  carried  by any of the  Additional
                  Insureds,   and  shall  expressly  provide  that  all  of  the
                  provisions  provide that all of the provisions thereof (except
                  limits of  liability)  shall  operate in the same manner as if
                  there were a separate policy covering each Additional Insured;
                  and

                        (F) shall,  with respect to hull risk, hull war risk and
                  allied perils insurance, include a 50%-50% provision.

                  (ii) Any policies  carried in accordance  with SECTION 9(B) of
            this Lease  covering  the  Aircraft or the Engines and any  policies
            taken  out in  substitution  or  replacement  for any such  policies
            shall:
<PAGE>

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

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

                        (C) provide that if the insurers  cancel such  insurance
                  for any reason  whatever,  or the same is allowed to lapse for
                  nonpayment  of  premium,   or  if  there  is  any  alteration,
                  termination  or  cancellation  (whether by Lessee or any other
                  Person  and  for  whatever  reason)  of  the  insurance,  such
                  cancellation,  lapse, alteration,  termination 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  available in the
                  market for any  portion  of the  required  war risk  coverage)
                  after receipt by such Additional  Insureds of notice from such
                  insurers thereof;

                        (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;

                        (E) shall contain a waiver by the insurers of all rights
                  of subrogation against any and all of the Additional Insureds;
                  and

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

                  (iii) All amounts payable under policies carried in accordance
            with this SECTION 9 shall be paid in immediately  available,  freely
            transferable 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 Aircraft,  a valid  agreement duly assigned to Lessor
            to indemnify  Lessee  against the same risks that Lessee is required
            under  SECTION 9(B) to insure  against by the United  States or such
            Government Entity in an amount at least equal to the Stipulated Loss
            Value shall be  considered  adequate  insurance  with respect to the
            Aircraft 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
            international aviation insurance. Any such reinsurance shall be with

<PAGE>

            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 the  occurrence  of an Event of Loss with
respect to the Airframe or an Engine will be applied as follows:

                  (i)  if  such  payments  are  received  with  respect  to  the
            Airframe,  the Engines or engines installed  thereon,  such payments
            shall be applied in the following  order of priority:  (A) to Lessor
            in the  amount  required  to be paid by Lessee  pursuant  to SECTION
            8(A),  which  amount  shall be  applied  in  reduction  of  Lessee's
            obligation  to pay such amount if not already  paid by Lessee or, to
            the extent such amount has been paid by Lessee to Lessor,  to Lessee
            to  reimburse  Lessee for its payment  thereof and (B) to Lessee the
            balance, if any, of such payment; and

                  (ii) if such  payments are received with respect to an Engine,
            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 Lessor shall have elected
            to provide a  Replacement  Engine as provided  in SECTION  8(B) 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 loss not
constituting any Event of Loss with respect to the Airframe or an 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, 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 the  preceding  sentence  or in  paragraph  (i) or  (ii) of 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.  Notwithstanding  the  provisions  of this
paragraph, payments in respect of partial losses of less than [ ]* Dollars (US$[
]*) shall be paid  directly to Lessee to be applied by Lessee toward the cost of
repair or replacement of such property in conformity herewith.

                  (e) REPORTS.  On or before the Commencement  Date, Lessee will
furnish  or cause  to be  furnished  to  Lessor  a  report  signed  by a firm of
independent  aircraft insurance  brokers,  appointed by Lessee and acceptable to
Lessor,  stating the opinion of such firm that the  insurance  then  carried and
maintained on the Aircraft  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 Aircraft and of

<PAGE>

each claim made by Lessee in respect  of the  Aircraft.  Lessee  will also cause
such firm to advise Lessor and each other Additional Insured in writing at least
thirty (30) days prior to the expiration or termination of any insurance carried
and maintained on the Aircraft pursuant to this SECTION 9.

                  (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 Aircraft to remain at any airport or (as
the case may be) proceed to and remain at any airport  within the United  States
as   designated   by  Lessor,   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  Aircraft  in addition to the
insurance  required  under  this  SECTION  9  (any  such  additional  insurance,
"ADDITIONAL INSURANCE"); provided, however, that such Additional Insurance shall
be excess and  non-contributory  to the  insurance  required to be procured  and
maintained by Lessee hereunder.  The insurance  payments for any property damage
loss  covered  by  Additional  Insurance  shall be paid  directly  to the  party
carrying such Additional Insurance.  Lessee may carry hull all risks or hull war
and allied perils on the Aircraft in excess of the Stipulated Loss Value only to
the extent such excess  insurance which would be payable to Lessee  following an
Event of Loss does not prejudice the insurances  required herein or the recovery
by Lessor  thereunder.  Lessee agrees that it will not create or permit to exist
any Liens (other than Lessor Liens) over the insurances required  hereunder,  or
its interest therein, except as constituted by this Lease.

                  (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.

                  (i)  STIPULATED  LOSS VALUE.  At any time  following the first
anniversary  of the  Commencement  Date,  Lessee may  propose a revision  to the
Stipulated Loss Value Schedule set forth as Schedule I hereof, and, upon receipt
of any such proposal,  Lessor and Lessee shall negotiate in good faith a revised
Schedule I of this Lease.


      10. RETURN OF AIRCRAFT.  The  provisions of this SECTION 10 shall apply to
any return of the Aircraft 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  Aircraft  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  Aircraft  shall be taken
immediately after the return of such Aircraft.

                  (a) REDELIVERY UPON TERMINATION. On the date of termination of
this Lease, except as otherwise provided pursuant to SECTION 8(E) hereof, Lessee
shall at its sole cost and  expense,  return  the  Aircraft  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  Aircraft  shall be  returned  to a point in the  United  States
reasonably  requested  by  Lessor).  At the time of  return of the  Aircraft  to
Lessor,  Lessor  and  Lessee  shall  execute  a  Return  Acceptance  Receipt  in
substantially the form of EXHIBIT C hereto.
<PAGE>

                  (b)  CONDITION OF AIRCRAFT  3/4  GENERAL.  The Aircraft at the
time of its  return to  Lessor  shall  have  been  maintained  and  repaired  in
accordance with the  Maintenance  Program as if such Aircraft were to be kept in
further  service by  Lessee,  shall be free and clear of all Liens  (other  than
Lessor Liens) and shall meet the following requirements:

                  (i) The Aircraft shall be in good operating condition with all
            of the Aircraft  equipment,  components  and systems  functioning in
            accordance   with   Manufacturer's   limitations,   irrespective  of
            deviations or variations authorized by the Minimum Equipment List or
            Configuration   Deviation   List  prepared  and  authorized  by  the
            Manufacturer or authorized by the FAA.

                  (ii)  The  interior  of  the  Aircraft  shall  be in  as  good
            condition as upon delivery (normal wear and tear excepted).

                  (iii) The brakes  and tires  shall  have a  remaining  life at
            least equal to the remaining life of the brakes and tires  installed
            upon the Aircraft as of March 6, 1996.

                  (iv) The Aircraft shall be clean by  international  commercial
            airline standards.

                  (v) The  Aircraft  shall have,  and be in  compliance  with, a
            current valid standard  certificate of  airworthiness  issued by the
            FAA and shall  meet the  requirements  of FAR Part 121 as applied to
            Lessee's then current operations  without any corrections,  repairs,
            modifications,  alterations  or overhauls  having to be performed to
            meet such standards and rules.

                  (vi) The  Aircraft  shall have had  accomplished  thereon,  at
            Lessee's sole cost and expense,  on a terminating  action basis, and
            be in compliance with all outstanding  airworthiness  directives and
            mandatory service bulletins issued by the FAA affecting the Aircraft
            that have an effective date for compliance  prior to, or sooner than
            one hundred eighty (180) days after the return date of the Aircraft.
            In the event Lessee has obtained a waiver or deviation  from the FAA
            from having to comply with any such FAA airworthiness directives and
            mandatory  service  bulletins  Lessee  shall,  irrespective  of such
            waiver  or  deviation,   comply  with  all  such  mandatory  orders,
            airworthiness,   directives,   service  bulletins  and  instructions
            covered by such waiver or deviation  prior to return of the Aircraft
            to Lessor.

                  (vii)  All  outstanding   pilot   discrepancies  and  deferred
            maintenance  items shall have been cleared on a  terminating  action
            basis.

                  (viii) The Aircraft  shall have had  accomplished  thereon the
            cleaning  and  treating  of all  mild  and  moderate  corrosion  and
            correcting of all severe or exfoliated  corrosion in accordance with
            the provisions of the Manufacturer's  Maintenance Planning Document,
            Corrosion   Prevention   Manual  or  737  Structural  Repair  Manual
            criteria,  in each  case,  without  discrimination  as  between  the
            Aircraft and Lessee's other Boeing 737-300 aircraft.

                  (ix) Except as otherwise permitted in SECTION 6(E) hereto, the
            Aircraft shall be in the same  configuration  and condition with all

<PAGE>

            equipment  installed  therein  as that in  which  the  Aircraft  was
            delivered  to Lessee by Lessor  under  this  Lease,  excepting  only
            ordinary  wear and  tear,  replacements  and  substitute  parts  and
            equipment as may have been properly made by Lessee  pursuant to this
            Lease.

                  (x) The  Aircraft  will be free  of  fuel,  oil and  hydraulic
            leaks.  Any  temporary  fuel leak repairs will have been replaced by
            permanent repairs.

                  (xi) The Aircraft fluid reservoirs  (including oil, hydraulic,
            water and waste tanks) will be serviced to full in  accordance  with
            Manufacturer's  instructions,  and each fuel tank  shall  contain at
            least  the  quantity  of  fuel as was  contained  therein  when  the
            Aircraft was delivered to Lessee on the  Commencement  Date;  or, in
            the  case of any  deficiency,  Lessee  shall  pay  Lessor  for  such
            deficiency at Lessor's then current cost of fuel.

                  (xii) No special or unique  Manufacturer,  Engine manufacturer
            or FAA  inspection or check  requirements  which are specific to the
            Aircraft or Engines and have which arisen  during the Lease Term (as
            opposed to all  aircraft or engines of their  types) will exist with
            respect to the Airframe, Engines and Aircraft equipment,  components
            and systems.

                  (xiii) All repairs,  modifications and alterations made to the
            Aircraft  or the  addition  or  removal  of  equipment,  systems  or
            components will have been made in accordance with  FAA-approved data
            and properly documented in accordance with the rules and regulations
            of the FAA.

                  (xiv) No Part or component of the Airframe shall be older than
            the Airframe.

            (c) Condition of Airframe. The Airframe at the time of its return to
Lessor shall have a currently effective U.S. certificate of airworthiness, shall
meet the requirements of FAR 121 as applied to Lessee's then current operations,
shall meet the requirements and shall have such hours and cycles remaining under
the Maintenance Program as set forth below:

                  (i) The Airframe  shall have  accomplished  the next  complete
            structural  and systems "C" check  sufficient  to clear the Aircraft
            for 3,000  hours,  3,000  cycles or, at least  twelve (12) months of
            operations determined with reference to the Maintenance Program.

                  (ii) The  installed  main  landing  gear and nose landing gear
            shall  each  have at least  8,000  hours or 4,000  cycles  remaining
            before overhaul.

                  (iii) Perform an internal and external corrosion inspection as
            required pursuant to the pre-return "C" check as per the Maintenance
            Program and CPCP and correct any  discrepancies  in accordance  with
            the  recommendations  of  Manufacturer  and  the  Structural  Repair
            Manual.

                  (iv) Remove Lessee's exterior markings, including all exterior
            paint and decals,  by scuff/sanding  the paint from the Airframe and
            repaint the Airframe white.

                  (v)  Permanently  repair  in  accordance  with  Manufacturer's
            Structural  Repair  Manual  damage  to  the  Aircraft  that  exceeds
            Manufacturer's  limits and replace any  non-flush  structural  patch
            repairs  installed  on the  Airframe  by  Lessee,  unless  otherwise
            recommended   by   Manufacturer,   if  required  by   Manufacturer's
            maintenance and repair guidelines with flush-type repairs.
<PAGE>

                  (d) CONDITION OF CONTROLLED COMPONENTS. Each life-limited part
or  component  and  aircraft  hour and/or  cycle  controlled  components  of the
Aircraft and of each Engine at the time of  redelivery of the Aircraft 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.

                  (e)  CONDITION  OF  ENGINES.  (i) Each  Engine  at the time of
return to Lessor  whether  or not  installed  on the  Airframe  shall  have been
maintained on an "on-condition" program.

                  (i) Each  Engine  shall have no more cycles or hours since the
            last shop visit for full  performance  restoration,  as described in
            the Aviall Caledonian  Workscope  definitions,  than such Engine had
            when delivered.

                  (ii) 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  in  accordance  with  the
            guidelines  set  out  by  the  Engine   manufacturer  which  may  be
            discovered during such inspection.

                  (iii) Each 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.

                  (iv) The Aircraft shall be capable of certificated, full rated
            performance  without  limitations  throughout  the entire  operating
            envelope as defined in the  Manufacturer's  flight manual applicable
            to the Aircraft which performance compliance will be demonstrated at
            the time of the  demonstration  flight  referred to in SECTION 10(H)
            and/or by on-wing static  inspection and testing of the  powerplants
            (engines,   nacelles  and   accessories)   in  accordance  with  the
            maintenance manual applicable to such Engine, at Lessor's option.

                  (v)  The  auxiliary  power  unit  or  units  installed  in the
            Aircraft at the time of return to Lessor shall have no more than 500
            Flight  Hours since the last  overhaul  as per the Garret  Workscope
            definition,  shall be in good  operating  condition and shall have a
            borescope   inspection  and   "on-condition"   check   performed  in
            accordance with the Maintenance Program. Satisfactory evidence shall
            be provided to Lessor reflecting the correction of any discrepancies
            found during such inspection or such check, as the case may be.
<PAGE>

                  (f) GROUND INSPECTION BY LESSOR.  The Aircraft  (including the
Aircraft  documentation and other related documents to be returned  therewith as
provided  in  SECTION  10(L))  shall be made  available  to  Lessor  for  ground
inspection  by  Lessor  at  Lessee's  facilities  or those  of its FAA  approved
maintenance  provider during the pre-redelivery "C" check. Such inspection shall
commence  not less than  seven  working  days prior to the date of return of the
Aircraft to Lessor.  Lessee shall remove the Aircraft from scheduled service and
open the areas of the  Aircraft as required to perform the  necessary  checks as
contemplated  by this Lease and shall allow Lessor to accomplish  its inspection
in order to determine that the Aircraft  (including the Aircraft  documentation)
and other related documents are in the condition set forth in SECTION 10. During
such  pre-redelivery  "C"  check,  Lessor's  personnel  shall  have the right to
reasonably  request that adjacent  additional panels or areas be opened in order
to allow further  inspection by Lessor personnel.  Lessee shall promptly correct
any  discrepancies  from the condition  required by the provisions of SECTION 10
that are  observed  during such  inspection  and are  communicated  by Lessor to
Lessee.

                  (g) OPERATIONAL GROUND CHECK. Promptly after completion of any
corrections  required  under SECTION  10(F),  Lessee shall conduct an operations
ground check  (including  an engine  power  assurance  run and a flight  control
operational and rigging check) in accordance with the Manufacturer's maintenance
manual  criteria  for the purpose of  demonstrating  that each of the  following
systems meet applicable  manufacturer's criteria: (i) full fuel tank leak check;
(ii) altimeter calibration; (iii) ATC transponder system operational check; (iv)
audible ignition check (both systems);  (v) pilot and static systems check; (vi)
hydraulic system internal leak check; and (vii) brake wear check. Promptly after
the operational  ground check,  Lessee shall repair any discrepancies  resulting
therefrom.

                  (h)  DEMONSTRATION  FLIGHT.  Promptly after  completion of any
corrections required under SECTIONS 10(F) and 10(G), the Aircraft shall be flown
by  Lessee,   using   qualified   flight  test   personnel  and  the  applicable
Manufacturer's  test flight document,  for  approximately one and one-half hours
for the purpose of  demonstrating  to Lessor the  satisfactory  operation of the
Aircraft and its equipment.  During such test flight, command, care, custody and
control of the Aircraft  shall at all times remain with Lessee.  Representatives
of Lessor  may  participate  in such  flight as  observers.  A  qualified  pilot
designated  by Lessor  shall occupy the cockpit  observer's  seat as an observer
during such demonstration  flight. Upon completion of such demonstration flight,
the  representatives  of Lessee and Lessor  participating in such  demonstration
shall agree in writing upon any  discrepancies  in the  Aircraft  required to be
corrected  by Lessee in order to comply with the  provisions  of this SECTION 10
and  Lessee  shall  promptly  correct  any  such  discrepancies.  Subsequent  to
corrections of such  discrepancies,  Lessor shall inspect and technically accept
the Aircraft for redelivery  subject to the  requirements  of this SECTION 10(H)
and SECTIONS  10(I) and (J) below.  If any of the  discrepancies  referred to in
SECTIONS 10(F) and 10(G) or this SECTION 10(H) continue to persist,  Lessor may,
at its  option,  agree to  accept  redelivery  of the  Aircraft  and  apply  the
procedure set forth in SECTION 10(J) for such discrepancies.

                  (i) FERRY FLIGHT. Upon completion of the demonstration  flight
and after  Lessee has  corrected  discrepancies  as  required to comply with the
provisions  of this SECTION 10, or Lessor has agreed to apply the  procedure set
forth  in  SECTION  10(J),  the  Aircraft  shall be  ferried  by  Lessee  to the
redelivery  point  set forth in  SECTION  10(A)  hereof.  Lessee  shall,  at the
Lessor's  request,  ferry the Aircraft  from the  redelivery  point set forth in
SECTION  10(A)  hereof to any other  location  within the 48  contiguous  United
States of America, as may be designated by the Lessor, at the Lessor's expense.

                  (j) DEFERRED DISCREPANCY  CORRECTION.  Any discrepancies found
during the ground inspection, operational ground check, demonstration flight and
ferry  flight  provided  for  in  SECTIONS  10(F),   10(G),   10(H)  and  10(i),
respectively,  that were not corrected by Lessee prior to return of the Aircraft
to  Lessor  may be  corrected  by  Lessor or its  designee  after  return of the
Aircraft and Lessee shall reimburse  Lessor for the expenses  incurred by Lessor
or its designee for accomplishing such discrepancy corrections. Lessee shall pay
Lessor  for  such  expenses  incurred  within  thirty  (30)  days of the date of
Lessor's invoice therefor.
<PAGE>

                  (k) FLIGHT COST.  All flights  pursuant to SECTIONS  10(H) and
10(I) shall be made at Lessee's expense and Lessee shall pay or reimburse Lessor
for any costs associated with such flights including,  but not limited to, costs
for  fuel,  oil,  airport  fees,   insurance,   takeoff/landing   fees,   airway
communication fees and ground handling fees.

                  (l) AIRCRAFT  DOCUMENTATION.  Lessee shall return to Lessor at
the time the  Aircraft  is  returned  to  Lessor,  all of the  Aircraft  records
documents,  manuals and data  provided to Lessee by Lessor prior to, on or after
the  Commencement  Date,  updated and  maintained by Lessee  through the date of
return of the  Aircraft.  In addition,  Lessee shall also provide  Lessor at the
time the  Aircraft 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 Aircraft  through the date of return of such  Aircraft.  Any such
Aircraft  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 Aircraft  documentation prior
to the return of the Aircraft to Lessor to enable  Lessor to plan or  accomplish
modifications,   recertification,   sale,  lease  or  other  disposition  of  or
utilization  of the  Aircraft  upon such return,  Lessee  shall,  promptly  upon
receipt of each such Lessor  request,  provide to Lessor a reasonable  number of
copies of such Aircraft documentation  requested by Lessor at Lessor's sole cost
and expense.

                  (m)  SERVICE   BULLETIN  KITS.  All  vendor  and  Manufacturer
supplied  mandatory  service  bulletin kits delivered to Lessee for the Aircraft
but not installed  therein  shall be returned with the Aircraft,  as part of the
Aircraft  at the time of the  return  of the  Aircraft,  and  shall be loaded by
Lessee on board the  Aircraft as cargo.  Title to such kits shall pass to Lessor
concurrently with the delivery of the Aircraft to Lessor.

                  (n)  NON-U.S.  MANUFACTURED  ITEMS.  Lessee  shall  provide to
Lessor at the time of the return of the Aircraft a complete list,  describing by
Part  number  and  name,  of  all  non-United  States  manufactured   equipment,
components  and parts,  if any,  installed on such Aircraft 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.

                  (o) LESSEE'S CONTINUING OBLIGATIONS.  In the event that Lessee
does  not  return  the  Aircraft  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 Aircraft 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 Aircraft
immediately  prior to such  termination,  in which  case the  Aircraft  shall be
returned in its then condition  provided that,  immediately prior to such breach
by Lessor of its covenant of quiet  enjoyment  such Aircraft  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 Aircraft, an
extension  of the Lease  Term or a waiver of any  Default or Event of Default or
an
<PAGE>

 right of Lessor hereunder. Until such time as the Aircraft 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 Aircraft in the  condition  required  hereunder  (the monthly  Basic Rent
payable  being  prorated  based on the actual  number of days in the  applicable
month).

            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 Aircraft.

                  (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,  or (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,  except (i)
approvals,  authorizations,  consents, licenses,  certificates and orders of the
FAA and any other regulatory  authority having  jurisdiction with respect to the
ownership,  use and operation of the Aircraft and the transactions  contemplated
hereby,  all of which  have been (or on the  Delivery  Date will have been) duly
obtained  and are (or will on the  Delivery  Date be) in full force and  effect,
(ii) the filing of this Lease or other  necessary  documentation  with the civil
aviation  authority of each country  (other than the United States) in which the
Aircraft may be operated or located  which  filings  have been made,  or will be
made as to each such country prior to such Aircraft being operated or located in
such country and (iii) any normal periodic and other reporting  requirements and
renewals  and  extensions  of any of the  foregoing,  in each case to the extent
required to be given or obtained only after the Delivery Date.

                  (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,  if  applicable,  the  appropriate  filing
authority in El Paso County  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 or recording of any document  (including  any financing  statement in

<PAGE>

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  Aircraft  as  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 Aircraft 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)    [Intentionally left blank.]

                  (i) Neither  Lessee nor any of its  property  has any immunity
from  jurisdiction  of any court  located in the United States or from any legal
process in the United  States  (whether  through  service or notice,  attachment
prior to judgment, attachment in aid of execution, execution or otherwise).

                  (j)  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.

                  (k) 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.

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

                  (m)  Lessee  acknowledges  that in the  event  Lessee  files a
petition or otherwise  seeks relief under the Bankruptcy  Code or an involuntary
petition is filed  against  Lessee,  it is the  intention  of Lessor that Lessor
shall be entitled to the benefits of Title 11 U.S.C. ss. 1110 and any similar or
analogous  provisions of any successor  statute ("Section 1110") with respect to
the  Aircraft  and this  Lease,  and Lessee  agrees that it 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
Aircraft  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 Aircraft hereunder.

                  (n)  Without  having  obtained  the prior  written  consent of
Lessor,  Lessee will not  consolidate  with or merge into, 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
subsidiary  thereof  is engaged in the  airline  business,  the net worth of the

<PAGE>

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 if Lessor  receives  an  opinion  of  counsel
satisfactory to it as to such assumption and documentation.

                  (o) Lessee agrees to furnish to Lessor as soon as practicable,
but in no event  later  than (i) sixty  (60)  days  after the end of each of the
first  three  quarterly  fiscal  periods  in  each  fiscal  year  of  Lessee,  a
consolidated  balance sheet of Lessee and its subsidiaries  prepared by it as of
the close of such period,  together with the related consolidated  statements of
income and of surplus and  statements of changes in financial  position for such
period  (this  requirement  may be  satisfied by delivery to Lessor of a copy of
Lessee's  Form 10-Q),  (ii) one hundred and twenty (120) days after the close of
each  fiscal  year of Lessee,  a  consolidated  balance  sheet of Lessee and its
subsidiaries  as of the close of such  fiscal  year,  together  with the related
consolidated  statements  of income and of surplus and  statements of changes in
financial  position for such fiscal year,  as  certified by  independent  public
accountants,  including their accompanying opinion letter related thereto, (iii)
with each such  financial  statement,  a certificate  of Lessee signed by a duly
authorized  financial  officer  of  Lessee,  to the  effect  that the signer has
reviewed  the  relevant  terms of this Lease and has made,  or caused to be made
under his  supervision,  a review of the  transactions  and  condition of Lessee
during the accounting  period covered by the financial  statements and that such
review has not disclosed the existence during such accounting  period,  nor does
the signer have  knowledge of the existence as at the date of such  certificate,
of any condition or event that constitutes a Default or Event of Default, or, if
any such condition or event existed or exists,  specifying the nature and period
of existence  thereof and what action  Lessee has taken or is taking or proposes
to take with respect thereto and (iv) from time to time, such other  information
as Lessor may reasonably request; provided that such other information is either
in the public  domain or is  provided  to lessors  of  aircraft  to Lessee or to
creditors of Lessee.

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

                  (q) 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.

                  (r) 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.

            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,
employees,  successors  and  permitted  assigns (each of the foregoing and their
respective Affiliates,  agents, officers, directors,  employees,  successors and
assigns  being  hereinafter  referred to as an  "INDEMNITEE"  and any  reference
herein  to an  Indemnitee  shall  include  its  respective  Affiliates,  agents,

<PAGE>

officers,  directors,  employees,  successors  and  permitted  assigns) from and
against,  and on written demand to pay, or to reimburse each  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  any  Indemnitee  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 Aircraft, each Engine
and any Part thereof, whether or not arising out of the airworthiness, delivery,
nondelivery,   sublease,   presence,   storage,   modification,    substitution,
replacement,  alteration,  maintenance,  inspection, failure to inspect, repair,
release,  possession,  repossession  after  an Event  of  Default,  registration
(unless,  in respect of Lessor,  any act or omission  of Lessor  shall cause the
deregistration of the Aircraft under the Federal Aviation Act), 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 Aircraft, 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  performed by Lessee or any entity to which Lessee may have further
subleased  the  Aircraft  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  Aircraft 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 proper  return of the  Aircraft to Lessor in
the condition required hereunder  whichever shall occur later, (x) for liability
resulting  solely and directly  from acts of gross  negligence  or misconduct of
such Indemnitee (other than gross negligence or willful misconduct attributed to
such  Indemnitee  solely by of its interest in the  Aircraft,  any Engine or any
Part),  it being  agreed  that  gross  negligence  or willful  misconduct  of an
Indemnitee shall not affect the rights to be indemnified  hereunder of any other
Indemnitee (other than the rights of any Indemnitee that is an Affiliate, agent,
officer,  director,  employee or  successor  of any such  Indemnitee  that is so
grossly negligent or guilty of such  misconduct),  (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 any  Indemnitee  arising as a result of a
disposition  of all or any part of such  Indemnitee's  interest in the Aircraft,
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
Indemnitees  in respect of any claim  arising  during  any period  during  which
Lessee is deprived of use and possession of the Aircraft as a result of a breach
by Lessor of its  covenant of quiet  enjoyment  provided  that such claim is not
caused by any act or omission of Lessee.

            If any  Indemnitee  shall have  knowledge  of any claim or liability
required to be  indemnified  against under this SECTION 12(A),  such  Indemnitee
shall give  prompt  written  notice  thereof to Lessee,  but the failure of such
Indemnitee so to notify Lessee shall not relieve  Lessee from any liability that
it would otherwise have to such 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.
<PAGE>

            Lessee  shall be  obligated  to each  Indemnitee  under this SECTION
12(A)  irrespective  of whether any Indemnitee  shall also be  indemnified  with
respect to the same matter under any other  agreement,  and each  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 each 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 any  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), such 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 such Indemnitee under this Lease
and any other  agreement  in  respect of the  Aircraft,  an amount  that,  after
subtraction of any further tax savings to which such Indemnitee is entitled as a
result of the  payment  thereof,  is equal to the amount of such  permanent  tax
benefit; provided,  however, that such 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 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,

                  (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 any Indemnitee or the Aircraft, the
            Airframe,  any 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,   manufacture,
            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 Aircraft,  the Airframe, any
            Engine or any Part  thereof or  interest  therein,  (b)  payments of
            Basic Rent or Supplemental Rent, (c) the Aircraft, the Airframe, any

<PAGE>

            Engine,  or  any  Part  thereof  or  any  interest  therein  or  the
            applicability  of this  Lease to the  Aircraft,  the  Airframe,  any
            Engine, or any Part thereof or any interest therein,  (d) any or all
            of  the   documents  and   agreements   relating  to  the  Aircraft,
            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 Aircraft 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  Aircraft 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 Aircraft 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
                  Aircraft or (III) the sale or other  transfer of the  Aircraft
                  and the  return  of the  Aircraft  (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
                  Aircraft,  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;
<PAGE>

                        (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 Aircraft 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
                  Aircraft 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 Aircraft or any part thereof,  (z)
                  the payment  from such  jurisdiction  by Lessee or any user or
                  person in  possession  of the  Aircraft or any part thereof of
                  any amount due hereunder,  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.

Notwithstanding  any provision in this SECTION 12 to the contrary,  Lessee shall
in no event be obligated to pay any amount pursuant to this SECTION 12 in excess
of the Taxes  Lessee  would be required by this  SECTION 12 to pay if (i) Lessor
were  the  lessor  of the  Aircraft  and (ii) no  person  other  than the  owner
participant as of the date hereof pursuant to the 1997 Trust Agreement,  Lessor,
Lessee or any sublessee or other user or person in possession of the Aircraft or
any part thereof had any interest in the Aircraft or part thereof.
<PAGE>

                  (c)    CALCULATION OF TAX INDEMNITY PAYMENTS.

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

<PAGE>

            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 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 Aircraft
            (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

<PAGE>

            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  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 such  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  appropriate  Indemnitee  evidence of payment of such Tax acceptable to such
Indemnitee. Lessee shall also cause to be furnished, promptly upon request, such
data as any  Indemnitee  may  reasonably  require  from  Lessee to  enable  such
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  each
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, each Indemnitee entitled thereto at the
option of such  Indemnitee  without  declaring  this  Lease to be in  default or
taking any other action hereunder.

            13.    ASSIGNMENT; LEASE SUBJECT AND SUBORDINATE.

                  (a) NO IMPERMISSIBLE  SUBLEASE BY LESSEE.  EXCEPT AS OTHERWISE
EXPRESSLY PROVIDED HEREIN,  LESSEE SHALL NOT ASSIGN OR OTHERWISE TRANSFER IN ANY
MANNER ANY OF ITS RIGHTS OR INTERESTS WITH RESPECT TO THIS LEASE,  THE AIRCRAFT,
ANY ENGINE OR ANY PART THEREOF.

                  (b)    [Intentionally left blank.]
<PAGE>

                  (c) LEASE SUBJECT AND  SUBORDINATE.  Lessee  acknowledges  and
agrees  that  this  Lease,  and  Lessee's  rights  hereunder,  are  subject  and
subordinate  in all respects to any Lien that Lessor may grant over the Aircraft
and the benefit of this Lease as provided in SECTION 13(D),  including,  without
limitation,  any  rights  to  repossession  of  the  Aircraft  upon  a  default.
Notwithstanding anything to the contrary herein, upon the occurrence of an event
of default  entitling  any Assignee (as defined  below) to demand  return of the
Aircraft by Lessor  under the Lease,  Lessee  shall,  if  requested  to do so by
Lessor  or  Assignee,  as the case may be,  return  the  Aircraft  to  Lessor or
Assignee, as the case may be.

                  (d)   ASSIGNMENTS  BY  LESSOR.   Subject  to  Lessee's  rights
hereunder and at Lessor's  cost and expense,  Lessor may at any time and without
Lessee's consent sell,  assign or transfer its rights and interest  hereunder or
with  respect to the  Aircraft  to a third  party  and/or  grant a Lien over the
Aircraft  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 (such
as a lease  assignment  agreement) 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 sole cost and expense,  making all necessary
filings and  registrations  including  filings or  registrations  of  mortgages,
financing  statements  and  re-registration  of  the  Aircraft.  Upon  any  such
assignment  or  transfer,  Lessor  shall cause any Assignee to deliver to Lessee
evidence of its corporate  authority to enter into any such sale,  assignment or
transfer and such Assignee  shall grant to Lessee the same  covenant(s) of quiet
enjoyment as are set forth  herein.  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.

            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,
            Maintenance  Reserves,  Stipulated 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 Aircraft 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 interest of Lessor in
            the Aircraft 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

<PAGE>

            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 rights and interests of Lessor in the Aircraft 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 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;
<PAGE>

                  (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(N)
            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 Aircraft,  the Airframe or any Engine
            shall be  transferred  to another  Person,  other than in accordance
            with the express provisions of SECTION 7(D); and/or

                  (xiii) the Aircraft shall cease to be (or cease to be eligible
            to be)  registered  in the  United  States as a result of any act or
            omission of Lessee .

                  (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 Aircraft, Airframe or any 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  Aircraft,  the  Airframe  or any  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 such  Aircraft,  Airframe or Engine
            were being returned at the end of the Lease Term, or Lessor,  at its
            option,  may enter  upon the  premises  where all or any part of the
            Aircraft,  Airframe  or any  Engine is  located  and take  immediate
            possession of and remove the same;

                  (ii) hold, use,  operate,  keep idle or lease to others all or
            any part of the Aircraft,  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 pursuant
            to the Lease for any  periods  in respect  of the  Aircraft  or part
            thereof accruing after Lessee shall have been deprived of possession
            of such  Aircraft or part thereof  pursuant to this SECTION 14 shall
            be reduced by the net  proceeds,  if any,  received  by Lessor  from
            leasing the Aircraft or part thereof to any Person other than Lessee
            for the same periods or any portions thereof;
<PAGE>

                  (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  Rents 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 sublease  the Aircraft but has been
            able,  in the normal  course of its  operations to use the Aircraft,
            the Basic  Rent  payable  by  Lessee to Lessor  for the lease of the
            Aircraft  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 or any part of the Aircraft in accordance with
SECTION 10 or this SECTION 14 or in storing or  maintaining  the Aircraft or any
part thereof or placing the same in the condition and airworthiness  required by
SECTION 10.

            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

<PAGE>

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 Aircraft 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 Aircraft, 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.


            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

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
<PAGE>

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.

            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 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.

                  (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 Aircraft and
the transactions referred to or contemplated herein.

<PAGE>

            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 LEASE 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  Aircraft,  the  Airframe or any Engine or 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.

                  (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.


<PAGE>


                  (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 Aircraft or this Lease or
the validity,  legality,  perfection or enforceability of this Lease, Lessor may
terminate this Agreement, whereupon Lessee shall promptly return the Aircraft 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.

                  (n) TRUE  LEASE.  This  Lease  shall be treated as a lease for
Federal income tax purposes.


                          [CONTINUED ON SIGNATURE PAGE]


<PAGE>


      IN WITNESS  WHEREOF,  Lessor and Lessee have each caused this  Amended and
Restated 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


                              By:
                                  Name:
                                  Title:


<PAGE>



      IN WITNESS  WHEREOF,  Lessor and Lessee have each caused this  Amended and
Restated 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


                              By:
                                  Name:
                                  Title:



RECEIPT  OF  THIS  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>


                                                                      SCHEDULE 1
                                                                 LEASE AGREEMENT




                              STIPULATED LOSS VALUE


      The  Stipulated  Loss Value as of any date shall be equal to the amount of
U.S. Dollars set forth in the table below and set forth opposite such date.


                              Stipulated Loss Value


                                                                      Stipulated
                                                                      Loss Value
LEASE PERIOD DATES                                          (IN U.S. DOLLARS)

March 18, 1996 - March 17, 1997                                    $[    ]*

March 18, 1997 - March 17, 1998                                     [    ]*

March 18, 1998 - March 17, 1999                                     [    ]*

March 18, 1999 - March 17, 2000                                     [    ]*

March 18, 2000 - End of Lease Term                                  [    ]*


<PAGE>






                                    EXHIBIT A


                              AIRCRAFT DESCRIPTION


One Boeing Model B737-3S3  Aircraft,  United States  Registration  Mark N375TA
and  Manufacturer's  Serial No. 23787 with two CFM  International,  Inc. Model
CFM  56-3B2   Engines,   Manufacturer's   Serial   Nos.   721734  and  720890,
respectively in a 136-seat, single class configuration.


AIRFRAME*:

      Aircraft Total Time (Hours)   ______
      Aircraft Total Landings (Cycles)    ______
      Time since last "C" Check           ______
      Time since last "D" Check           ______


ENGINES*:



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


721734

720890



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


<PAGE>


                                    EXHIBIT B

                         FORM OF ACCEPTANCE CERTIFICATE

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

      (a) Sublessee and TACA  INTERNATIONAL  AIRLINES,  S.A.  ("Sublessor") have
entered  into an  Sublease  of  Lease  Agreement  dated  as of  March  __,  1996
(hereinafter  referred to as the "Sublease").  Capitalized words used herein and
not otherwise defined will have the meanings set forth in the Sublease.

      (b) Sublessee has this __ day of March, 1996 (Time: ____ ____________), at
El Salvador International Airport, received from Sublessor possession of:

                  (i) One (1) Boeing  737-3S3  Aircraft  bearing  Manufacturer's
            serial number 23787 and two (2) CFM  International,  Inc.  Model CFM
            56-3B2  Engines,  Manufacturer's  Serial Nos. 721734 and 720890 (the
            "Aircraft"); and

                  (ii) The  manuals,  logbooks,  flight  records and  historical
            information  regarding  the  Aircraft,  Engines and Parts  listed in
            Attachment 1 hereto (the "Aircraft Documentation").

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

      (d) As of the date  hereof,  the  Aircraft  and Engines had the  following
hours/cycles:

AIRFRAME:         Aircraft Total Time (Hours)   ______
                  Aircraft Total Landings (Cycles)    ______
                  Time since last "C" Check           ______
                  Time since last "D" Check           ______


<PAGE>


ENGINES:


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


721734

720890

      (e)   Quantity   of  fuel   on   board   the   Aircraft   at   delivery:
------------------.




<PAGE>


      IN WITNESS WHEREOF, Sublessee 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 Aircraft Documentation
                  2.    List of Discrepancies


<PAGE>


                                  ATTACHMENT 1
                            TO ACCEPTANCE CERTIFICATE


                             AIRCRAFT DOCUMENTATION

                                     MANUALS

      NAME

FAA Approved Airplane Flight Manual

Manufacturer's Operations Manual - Volume No.

Quick Reference Handbook

Maintenance Manuals

Wiring Diagram Manuals

Structural Repair Manual

Illustrated Parts Catalog

Vendor Illustrated Parts Catalog

Overhaul Manuals

Vendor Overhaul Manuals

Drawings (Major Assembly and Installation)

Weight and Balance Control and Loading Manual)

Weight and Balance Manual Supplement

Actual Weight and Balance Compliance

Rigging Document


<PAGE>


                   AIRCRAFT RECORDS AND HISTORICAL DOCUMENTS

Aircraft log book (current file copies)

Aircraft Readiness Log (revised to time of return)

Maintenance Time Control Report  (components,  maintenance visit,  special items
next due Airframe hours and cycles)

Aircraft  previous  maintenance  visit  record  including  the  last  inspection
performed.

Airworthiness Directive Compliance Summary

Serviceable Tags for all rotable components installed (Airframe & Engines)

Ads requiring continuous surveillance

Service bulletin terminated accomplishment status

Service bulletin  requiring  continuous  surveillance  summary and maintenance
control action

Airframe and component history records

FAA Form 337 for Airframe, repair/overhaul certification of last major visit

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

Engine Readiness Log for each Engine (components installed)

Summary of Service Bulletin's accomplished for each Engine

Summary of AD's accomplished for each Engine

SB and AD status requiring  continuous  surveillance with  maintenance,  control
action for each engine

Engine time summary sheet including life limited items (for each Engine)

Engine log books for each Engine (current and file copies)

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


      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 a Lease Agreement
dated as of March  18,  1996 and  Amended  and  Restated  as of July 7, 1997 (as
supplemented and amended,  referred to as the "Lease").  Capitalized  words used
herein and not otherwise defined will have the meanings set forth in the Lease.

      (a)  Lessor  has  this  __  day  of   ____________,   _____  (Time:   ____
____________), at ____________, received from Lessee possession of:

                  (i) One (1) Boeing  737-3S3  Aircraft  bearing  Manufacturer's
            serial number 23787 and two (2) CFM  International,  Inc.  Model CFM
            56-3B2  Engines,  Manufacturer's  Serial Nos. 721734 and 720890 (the
            "Aircraft"); and

                  (ii) The  manuals,  logbooks,  flight  records and  historical
            information  regarding  the  Aircraft,  Engines and Parts  listed in
            Attachment 1 hereto (the "Aircraft Documentation").

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

      (c) As of the date  hereof,  the  Aircraft  and Engines had the  following
hours/cycles:

AIRFRAME:         Aircraft Total Time (Hours)         ______
                  Aircraft Total Landings (Cycles)    ______
                  Time since last "C" Check           ______
                  Time since last "D" Check           ______

ENGINES:



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


721734

720890



      (d)         Quantity  of fuel  on  board  the  Aircraft  at  redelivery:
------------------.





<PAGE>


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

                              WESTERN PACIFIC AIRLINES, INC.



                              By:
                                  Name:
                                  Title:

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



                              By:
                                  Name:
                                  Title:


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


<PAGE>


                                  ATTACHMENT 1
                          TO RETURN ACCEPTANCE RECEIPT


                             AIRCRAFT DOCUMENTATION

(NOTE:      At  time  of  Aircraft  return  list  all of the  records,  manuals,
            documents and data (by title/description,  identification number and
            quantity)  which were  provided to Lessee by Lessor with delivery of
            the Aircraft under the Lease. Also list all additional  records/data
            developed for and returned with this Aircraft by Lessee.)
                                     MANUALS


      NAME

FAA Approved Airplane Flight Manual

Manufacturer's Operations Manual - Volume No.

Quick Reference Handbook

Maintenance Manuals

Wiring Diagram Manuals

Structural Repair Manual

Illustrated Parts Catalog

Vendor Illustrated Parts Catalog

Overhaul Manuals

Vendor Overhaul Manuals

Drawings (Major Assembly and Installation)

Weight and Balance Control and Loading Manual)

Weight and Balance Manual Supplement

Actual Weight and Balance Compliance

Rigging Document


<PAGE>


                   AIRCRAFT RECORDS AND HISTORICAL DOCUMENTS

Aircraft log book (current file copies)

Aircraft Readiness Log (revised to time of return)

Maintenance Time Control Report  (components,  maintenance visit,  special items
next due Airframe hours and cycles)

Aircraft  previous  maintenance  visit  record  including  the  last  inspection
performed.

Airworthiness Directive Compliance Summary

Serviceable Tags for all rotable components installed (Airframe & Engines)

Ads requiring continuous surveillance

Service bulletin terminated accomplishment status

Service bulletin  requiring  continuous  surveillance  summary and maintenance
control action

Airframe and component history records

FAA Form 337 for Airframe, repair/overhaul certification of last major visit

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

Engine Readiness Log for each Engine (components installed)

Summary of Service Bulletin's accomplished for each Engine

Summary of AD's accomplished for each Engine

SB and AD status requiring  continuous  surveillance with  maintenance,  control
action for each engine

Engine time summary sheet including life limited items (for each Engine)

Engine log books for each Engine (current and file copies)

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


<PAGE>


                                  ATTACHMENT 2
                          TO RETURN ACCEPTANCE RECEIPT


                                  DISCREPANCIES



<PAGE>


                                    EXHIBIT D


                        FORM OF CERTIFICATES OF SUBLESSEE



                              OFFICER'S CERTIFICATE


      Reference  is hereby made to the Sublease of Lease  Agreement  dated as of
March __, 1996,  between TACA  International  Airlines,  S.A.,  as Sublessor and
WESTERN PACIFIC AIRLINES,  INC. (the "Sublease").  Capitalized terms used herein
shall, except as otherwise defined herein, have the respective meanings assigned
thereto or  incorporated  by  reference to any other  document in the  Sublease.
Pursuant to Section 4(a) of the Sublease,  in connection with the Sublease,  the
undersigned hereby certifies as follows:

      1. The undersigned is the duly appointed,  qualified and acting  President
of  WESTERN  PACIFIC  AIRLINES,  INC.  (the  "Sublessee"),  a  corporation  duly
organized and existing under the laws of [Delaware], with its principal place of
business in Colorado Springs, Colorado;

      2. All of the  representations  and  warranties  made by  Sublessee in the
Sublease are true and accurate as of the date hereof,  except to the extent that
such  representations  and warranties relate solely to an earlier date (in which
case, the  undersigned  reaffirms that such  representations  and warranties are
true and accurate as of such earlier date); and

      3. No Default or Event of Default has occurred and is continuing,  or will
result from Sublessee's execution, delivery and performance of the Sublease.

      IN WITNESS WHEREOF, the undersigned has signed this Officer's  Certificate
this ____ day ______________, 1996.




                                          Name:
                                          Title:


<PAGE>


                             SECRETARY'S CERTIFICATE


      Reference  is hereby made to the Sublease of Lease  Agreement  dated as of
March __, 1996,  between TACA  International  Airlines,  S.A.,  as Sublessor and
WESTERN PACIFIC  AIRLINES,  INC., as Sublessee,  (the  "Sublease").  Capitalized
terms used herein, have the respective meanings assigned thereto or incorporated
by reference to any other  documents in the  Sublease.  In  connection  with the
Sublease and pursuant to Section 4(b) of the Sublease,  the  undersigned  hereby
certifies as follows:

      1.  The   undersigned  is  the  duly   appointed,   qualified  and  acting
[Secretary][Assistant  Secretary] of Sublessee,  a  corporation  duly  organized
under the laws of  Delaware,  with its  principal  place of business in Colorado
Springs, Colorado.

      2.  Attached  as Annex A is a true and  complete  copy of the  Articles of
Incorporation and the By-laws of Sublessee, as in effect on the date hereof.

      3. There is no pending or contemplated proceeding for the amendment of the
Articles of Incorporation or By-laws of Sublessee.

      4. Attached as Annex B is a true and complete copy of  resolutions  of the
Board of  Directors of  Sublessee,  as duly adopted by the Board of Directors in
accordance  with the Articles of  Incorporation  and By-laws of Sublessee,  duly
authorizing  the  execution,  delivery  and  performance  by  Sublessee  of this
Sublease  and all other  agreements,  documents  and  certificates  contemplated
hereby or thereby to be executed on behalf of  Sublessee,  and such  resolutions
have not been amended, rescinded,  modified or revoked and are in full force and
effect on the date hereof.

      5. Set forth below are is the genuine signature of the Executive President
of  Sublessee,  who is the person  duly  authorized  to execute  and deliver the
Sublease and such other documents and instruments required to be delivered under
the Sublease, and who continues to hold his office as of the date hereof:


         Name                        Title                     Signature
------------------------     -----------------------     ----------------------






<PAGE>


      IN  WITNESS   WHEREOF,   the  undersigned  has  signed  this   Secretary's
Certificate this ____ day of ___________________, 1996.




                                          Name:
                                          Title:


      The undersigned,  being one of the officers referred to in the foregoing
Secretary's  Certificate,  does hereby certify as of the date of the foregoing
Certificate      that     is     the      [Secretary/Assistant      Secretary]
of WESTERN  PACIFIC  AIRLINES,  INC.  and the  signature  above is his genuine
signature.




                                          Name:
                                          Title:


<PAGE>


                                    EXHIBIT E


                     FORM OF OPINION OF SUBLESSEE'S COUNSEL


To Each Person Listed
on Schedule A Hereto


Gentlemen:

      We have acted as counsel for WESTERN PACIFIC AIRLINES, INC., a corporation
organized  and existing  under the laws of  _____________  ("WPA") in connection
with the preparation,  execution and delivery of the Sublease of Lease Agreement
dated  as of  March  __,  1996  (the  "Sublease"),  between  TACA  International
Airlines,  S.A., as Sublessor,  and WPA, as Sublessee,  relating to the lease of
the Aircraft. Capitalized terms used herein and not otherwise defined shall have
the meanings defined in the Sublease.

      In that connection we have examined the following:  (i) the Sublease; (ii)
the Lease; (iii) the Security Subleases;  (iv) the Mortgage; (v) the Articles of
Incorporation and bylaws of WPA and all amendments thereto (the "Charter");  and
(vi)  such  other  documents,  agreements  and  instruments  as we  have  deemed
necessary  as a basis  for the  opinions  hereinafter  expressed.  We have  also
examined  originals  or  copies,   certified  or  otherwise  identified  to  our
satisfaction,  of such other records and such other instruments and certificates
of public officials and of officers and representatives of WPA as we have deemed
necessary or appropriate as a basis for the opinions hereinafter expressed.

      In  arriving  at  the  opinions  expressed  below,  we  have  assumed  the
genuineness of all signatures and the due authorization,  execution and delivery
by the parties  thereto (other than WPA) of each of the documents  listed above.
In  addition,  we  have  made  such  investigations  of  law as we  have  deemed
appropriate for the purpose of giving the opinions expressed below.

      On the basis of the foregoing, the further assumptions set forth below and
our  consideration of such other matters of fact and questions of law as we have
deemed relevant in the  circumstances,  and subject to the limitations set forth
below, we are of the opinion that:

      (a) WPA is a  corporation  duly  organized,  validly  existing and in good
standing under the laws of ___________ and has the corporate power and authority
to carry on its  business as presently  conducted  and to enter into and perform
its  obligations  under  the  Sublease,   the  Lease  and  all  other  documents
contemplated  thereby to which it is or will  become a party  (collectively  the
"Documents"), and holds all material licenses, certificates and permits from all
Government Entities of ______________  necessary for the conduct of its business
as now conducted.

      (b) The  execution,  delivery and  performance by WPA of the Documents (a)
have been duly authorized by all necessary  corporate action on the part of WPA,
(b) do not  require  any  stockholder  approval,  or  approval or consent of any
trustee  or  holders  of any  indebtedness  or  obligations  of WPA,  (c) do not
contravene any law, rule or regulation of any Government  Entity binding on WPA,
(d) do not  contravene  any order  binding  on WPA,  (e) do not  contravene  any
provision of the Charter of WPA, and (f) do not contravene the provisions of, or
constitute  a default  under,  or result  in the  creation  of any lien upon any
property  or  assets of WPA under any  indenture,  mortgage,  contract  or other
agreement to which WPA is a party or by which it or its  properties may be bound
or affected or any applicable law, rule or regulation, judgment, order or decree
of any  Government  Entity or court having  jurisdiction  over WPA or any of its
properties or assets. Each of the Documents has been duly executed and delivered
by WPA.

      (c) No authorization or approval  (including exchange control approval) or
other action by, and no notice to or filing  with,  any  Governmental  Entity is
required  for  the  due  execution,  delivery  and  performance  by  WPA  of the
Documents, but the failure so to record or file the Sublease will not affect the
enforceability of WPA's  obligations  under the Documents.  The Documents are in
proper form for filing and recording.

      (d) The  Documents  are the legal,  valid and binding  obligations  of WPA
enforceable against WPA in accordance with their respective terms.

      (e) The obligations of WPA under the Documents rank at least PARI PASSU in
all respects with all other unsecured  obligations of WPA and are not subject to
any law, rule or regulation of _____________ or any Governmental  Entity thereof
with regard to any preference for payment of obligations or any  rescheduling of
the payment of any debt or other obligations.

      (f) The Lease,  as assigned to WPA  pursuant  to the  Sublease,  creates a
valid leasehold interest in the Aircraft.

      (g)  There is no  pending  or,  to the  best of our  knowledge  after  due
inquiry,   threatened  action  or  proceeding   affecting  WPA  or  any  of  its
subsidiaries  before  any court,  governmental  agency or  arbitrator,  or which
affects or  purports to restrain  the making or  performance  of, or affects the
legality,  validity  or  enforceability  of the  Documents  or the  transactions
contemplated thereby.

      (h) Neither WPA nor any of its property has any immunity from jurisdiction
of any court or from any legal  process  (whether  through  service  or  notice,
attachment  prior to  judgment,  attachment  in aid of  execution,  execution or
otherwise).

      (i)  There is and  will be no Tax,  levy,  impost,  deduction,  charge  or
withholding imposed by any Taxing Authority of any relevant jurisdiction therein
or  thereof  either  (i) on or by virtue of the  execution  or  delivery  of the
Documents or any other  document to be  furnished  thereunder  or in  connection
therewith or (ii) on any payment  made, or to be made, by WPA pursuant to any of
the Documents.

      (j) It is not  necessary  to take any action in Colorado or under the laws
of Ecuador to perfect the interest of the Lessor in the Aircraft or the security
interests in favor of the Lender  which the  Mortgage or the Security  Subleases
purport  to  create in the  Aircraft,  the  Lease or any  other  portion  of the
Security  (as defined in the  Mortgage).  No person,  by  performing  any act in
Colorado including,  without limitation, the execution or recording of a bill of
sale or any security  interest,  can acquire any interest  prior in right to the
Lessor or the  interests in favor of the Lender  which the Mortgage  purports to
create in the Aircraft or any other portion of the Security.

      (k) It is not necessary  under the laws of Colorado (i) in order to enable
the  Sublessor to enforce its rights under the  Sublease,  the Lessor to enforce
its  rights  under  the Lease or the  Lender to  enforce  its  rights  under the
Mortgage, or (ii) by reason of the execution, delivery and performance of any of
the Documents that the Sublessor, the Lessor, the Lender or any Lender should be
licensed, qualified or otherwise entitled to carry on business in Colorado.

      (l) Neither  Sublessor,  Lessor nor Lender will be deemed to be a resident
domiciled  or carrying  on business or subject to taxation or other  unfavorable
consequences in Colorado by reason only of the execution,  delivery, performance
and/or enforcement of the Sublease or the Security Subleases.

      (m)  Neither  WPA  nor  any of its  subsidiaries  is,  to the  best of our
knowledge  after due  inquiry,  in breach of or default  under any  agreement to
which it is a party or which is binding on it or any of its assets.

      (n) The choice of New York law set forth (a) in the  Sublease,  the Lease,
the Security Subleases and the Mortgage,  in each case to govern such respective
document and to control the  construction  thereof,  is in each case,  under the
laws of Colorado, a valid, effective and enforceable choice of law.

      (o) A judgment  obtained  against  WPA in a court in the State of New York
pursuant  to  service  of  process  in  accordance  with the  Sublease  would be
enforceable  in Colorado  against WPA's assets  located  therein,  and execution
against WPA's assets in Ecuador to satisfy such a judgment  could be obtained in
Ecuador.

      (p) WPA has legally, validly, effectively and irrevocably submitted to the
jurisdiction  of any United  States or state courts in New York City,  New York,
and has legally,  validly,  effectively and irrevocably appointed CT Corporation
System as its authorized agent for the purposes described in the Sublease.


                                          Very truly yours,


<PAGE>


                                    EXHIBIT F

                             FORM OF MONTHLY REPORT

MONTHLY AIRCRAFT UTILIZATION AND STATUS REPORT


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


      with a copy to:

      KG AIRCRAFT LEASING CO., LIMITED
      3 Adelaide Court, Adelaide Road
      Dublin 2, Ireland



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


      Re:   AIRCRAFT TYPE:    Boeing 737-3S3
            REGISTRATION:
            SERIAL NUMBER:    23787
            MONTH OF               19



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

AIRCRAFT TOTAL TIME SINCE NEW                     HRS:
===============================================================================

AIRCRAFT TOTAL CYCLES SINCE NEW                   CYCLES:
===============================================================================

AIRFRAME FLIGHT HOURS DURING MONTH                HRS:
===============================================================================

AIRFRAME BLOCK HOURS DURING MONTH                 HRS:
===============================================================================

AIRFRAME CYCLES/LANDING DURING MONTH              CYCLES:
===============================================================================

TIME REMAINING TO D OR HEAVY MAINTENANCE CHECK
===============================================================================


Date of next scheduled "C" check:  __________


<PAGE>




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

ENGINE SERIAL NUMBER                         ENGINE SERIAL NUMBER
ORIGINAL POSITION                            ORIGINAL POSITION

---------------------------------------------===================================

ACTUAL LOCATION:                             ACTUAL LOCATION:
---------------------------------------------===================================

==================================------------------------------------------====

                                  HOURS:                                HOURS:
==================================-----------------------------------===========

TOTAL TIME SINCE NEW                  TOTAL TIME SINCE NEW
==================================-----------------------------------===========

TOTAL CYCLES SINCE NEW                TOTAL CYCLES SINCE NEW
==================================-----------------------------------===========

FLIGHT HOURS FLOWN DURING MONTH       HOURS FLOWN DURING MONTH
==================================-----------------------------------===========

CYCLES DURING MONTH                   CYCLES DURING MONTH
--------------------------------------==========================================

TIME REMAINING TO HSI                 TIME REMAINING TO HSI
--------------------------------------==========================================

TIME REMAINING TO EHM                 TIME REMAINING TO EHM
================================================================================

NOTE: IF LESSOR OWNED  ENGINE IS REMOVED OR  INSTALLED ON ANOTHER  AIRCRAFT 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 (i) the information set forth in the above Monthly Aircraft Utilization and
Status Report is true and correct,  and (ii) all airport  landing fees and other
charges  related to or incurred in connection with the operation of the Aircraft
and all other aircraft in Lessee's fleet, have been paid and are current.

                                          WESTERN PACIFIC AIRLINES, INC.



                                          By:
                                          Its:



<PAGE>











                                     










                                    EXHIBIT G

                     MAINTENANCE RESERVES ADJUSTMENT FORMULA



    Flight Hour/
    CYCLE RATIO           RATES


  [ ]*     -   [ ]*       $[ ]*

  [ ]*     -   [ ]*        [ ]*

  [ ]*     -   [ ]*        [ ]*

  [ ]*     -   [ ]*        [ ]*

  [ ]*     -   [ ]*        [ ]*

  [ ]*     -   [ ]*        [ ]*

  [ ]*     -   [ ]*        [ ]*

  [ ]*     -   [ ]*        [ ]*

  [ ]*     -   [ ]*        [ ]*

  [ ]*     -   [ ]*        [ ]*

  [ ]*     -   [ ]*        [ ]*

  [ ]*     -   [ ]*        [ ]*

  [ ]*     -   [ ]*        [ ]*

  [ ]*     -   [ ]*        [ ]*

  [ ]*     -   [ ]*        [ ]*

  [ ]*     -   [ ]*        [ ]*


<PAGE>



SCHEDULE I  -  STIPULATED LOSS VALUE

EXHIBIT A   -  AIRCRAFT DESCRIPTION

EXHIBIT B   -  FORM OF ACCEPTANCE CERTIFICATE

EXHIBIT C   -  FORM OF RETURN ACCEPTANCE CERTIFICATE

EXHIBIT D   -  FORM OF CERTIFICATES OF SUBLESSEE

EXHIBIT E   -  FORM OF OPINION OF SUBLESSEE'S COUNSEL

EXHIBIT F   -  FORM OF MONTHLY REPORT

EXHIBIT G   -  MAINTENANCE RESERVES ADJUSTMENT FORMULA